American Financial Group (AFG) announced their third quarter 2023 earnings results during a recent conference call. Despite elevated catastrophe losses, the company reported strong underwriting results and significantly higher investment income due to higher interest rates. AFG’s core operating return on equity for the third quarter was 18.3%. The company attributes their success to their entrepreneurial culture, disciplined operating philosophy, and effective capital management. AFG’s CFO, Brian Hertzman, discussed the company’s investment performance, financial position, and capital and liquidity. AFG’s investment portfolio of $14.8 billion saw higher investment income thanks to the higher interest rate environment, with net investment income in their property and casualty insurance operations increasing by 33% year-over-year. The portfolio has a focus on high-quality fixed maturities with 93% of the portfolio rated investment grade. AFG also declared a special cash dividend of $1.50 per share in addition to their regular quarterly cash dividend. They expect their operations to continue generating excess capital, providing opportunities for additional share repurchases or special dividends.
In terms of AFG’s property and casualty operations, the company reported a 3% increase in operating earnings compared to the third quarter of 2022. Underwriting margins remained strong and the Specialty Property and Casualty businesses generated desired returns. However, underwriting profit in the Specialty Casualty Group decreased, offsetting higher profits in the Property and Transportation and Specialty Financial groups. The combined ratio for the third quarter was 92.2%, 1.1 points higher than the previous year, mainly due to three points in catastrophe losses. Despite this, AFG remains optimistic about the growth potential of their Specialty Property and Casualty businesses through increasing exposures, new opportunities, and a favorable pricing environment.
Overall, AFG’s third quarter results demonstrate their ability to navigate challenging market conditions and generate positive financial performance. Their strong underwriting results and higher investment income, supported by their disciplined approach and effective capital management, have allowed them to continue creating long-term value for their shareholders.
