|
|
|
|
|
| Percentage rated investment grade | 96 | % | | 95 | % |
The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at December 31, 2023, based on their fair values. Securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.
| | | | | | | | | | | |
| Securities
With
Unrealized
Gains | | Securities
With
Unrealized
Losses |
| Maturity | | | |
| One year or less | 3 | % | | 6 | % |
| After one year through five years | 22 | % | | 27 | % |
| After five years through ten years | 21 | % | | 6 | % |
| After ten years | 4 | % | | 2 | % |
| 50 | % | | 41 | % |
Collateralized loan obligations and other asset-backed securities (average life of approximately 3 years) | 37 | % | | 41 | % |
Mortgage-backed securities (average life of approximately 6.5 years) | 13 | % | | 18 | % |
| 100 | % | | 100 | % |
The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount:
| | | | | | | | | | | | | | | | | |
| Aggregate
Fair
Value | | Aggregate
Unrealized
Gain (Loss) | | Fair
Value as
% of Cost |
| Fixed Maturities at December 31, 2023 | | | | | |
| Securities with unrealized gains: | | | | | |
Exceeding $500,000 (43 securities) | $ | 567 | | | $ | 35 | | | 107 | % |
$500,000 or less (661 securities) | 3,131 | | | 72 | | | 102 | % |
| $ | 3,698 | | | $ | 107 | | | 103 | % |
| Securities with unrealized losses: | | | | | |
Exceeding $500,000 (239 securities) | $ | 2,755 | | | $ | (343) | | | 89 | % |
$500,000 or less (1,194 securities) | 3,672 | | | (127) | | | 97 | % |
| $ | 6,427 | | | $ | (470) | | | 93 | % |
The following table (dollars in millions) summarizes the unrealized losses for all securities with unrealized losses by issuer quality and the length of time those securities have been in an unrealized loss position:
| | | | | | | | | | | | | | | | | |
| Aggregate
Fair
Value | | Aggregate
Unrealized
Loss | | Fair
Value as
% of Cost |
| Securities with Unrealized Losses at December 31, 2023 | | | | | |
| Investment grade fixed maturities with losses for: | | | | | |
Less than one year (80 securities) | $ | 390 | | | $ | (4) | | | 99 | % |
One year or longer (1,132 securities) | 5,695 | | | (437) | | | 93 | % |
| $ | 6,085 | | | $ | (441) | | | 93 | % |
| Non-investment grade fixed maturities with losses for: | | | | | |
Less than one year (39 securities) | $ | 38 | | | $ | (3) | | | 93 | % |
One year or longer (182 securities) | 304 | | | (26) | | | 92 | % |
| $ | 342 | | | $ | (29) | | | 92 | % |
To evaluate fixed maturities for expected credit losses (impairment), management considers the following:
a)whether the unrealized loss is credit-driven or a result of changes in market interest rates,
b)the extent to which fair value is less than cost basis,
c)cash flow projections received from independent sources,
d)historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases,
e)near-term prospects for improvement in the issuer and/or its industry,
f)third-party research and communications with industry specialists,
g)financial models and forecasts,
h)the continuity of interest payments, maintenance of investment grade ratings and hybrid nature of certain investments,
i)discussions with issuer management, and
j)ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value.
Based on its analysis of the factors listed above, management believes AFG will recover its cost basis (net of any allowance) in the fixed maturity securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at December 31, 2023. Although AFG has the ability to continue holding its fixed maturity investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers’ creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG’s ability or intent change regarding a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, increases in the allowance for credit losses could be material to results of operations in future periods. Significant declines in the fair value of AFG’s investment portfolio could have a significant adverse effect on AFG’s liquidity. For information on AFG’s realized gains (losses) on securities, see “Results of Operations — Realized Gains (Losses) on Securities.”
Uncertainties
As more fully explained in the following paragraphs, management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations.
Property and Casualty Insurance Reserves Estimating the liability for unpaid losses and loss adjustment expenses (“LAE”) is inherently judgmental and is influenced by factors that are subject to significant variation. Determining the liability is a complex process incorporating input from many areas of the Company including actuarial, underwriting, pricing, claims and operations management.
The estimates of liabilities for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon: (i) the accumulation of case estimates for losses reported prior to the close of the accounting periods on direct business written (“case reserves”); (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of claims incurred but not reported (including possible development on known claims); (iv) estimates (based on experience) of expense for investigating and adjusting claims; and (v) the current state of law and coverage litigation.
The process used to determine the total reserve for liabilities involves estimating the ultimate incurred losses and LAE, adjusted for amounts already paid on the claims. The IBNR reserve is derived by estimating the ultimate unpaid reserve
liability and subtracting case reserves for loss and LAE. See Note O — “Insurance — Property and Casualty Insurance Reserves” to the financial statements for a discussion of the factors considered and actuarial methods used in determining management’s best estimate of the ultimate liability for unpaid losses and LAE.
The following table shows (in millions) the breakdown of AFG’s property and casualty insurance reserves between case reserves, IBNR reserves and LAE reserves (estimated amounts required to adjust, record and settle claims, other than the claim payments themselves) at December 31, 2023 and gross written premiums for the year ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Loss Reserves | | |
| | Case | | IBNR | | LAE | | Total
Reserves | | Gross Written Premiums |
| Statutory Line of Business | | | | | | | | | |
| Other liability — occurrence | $ | 1,008 | | | $ | 3,043 | | | $ | 754 | | | $ | 4,805 | | | $ | 1,704 | |
| Workers’ compensation | 960 | | | 1,170 | | | 361 | | | 2,491 | | | 1,373 | |
| Other liability — claims made | 303 | | | 625 | | | 432 | | | 1,360 | | | 783 | |
| Commercial auto/truck liability/medical | 441 | | | 519 | | | 140 | | | 1,100 | | | 675 | |
| Special property (fire, allied lines, inland marine, earthquake) | 743 | | | 222 | | | 31 | | | 996 | | | 2,477 | |
| Products liability — occurrence | 106 | | | 261 | | | 172 | | | 539 | | | 224 | |
| Commercial multi-peril | 186 | | | 158 | | | 89 | | | 433 | | | 461 | |
| Other lines | 292 | | | 486 | | | 128 | | | 906 | | | 1,627 | |
| Total Statutory | 4,039 | | | 6,484 | | | 2,107 | | | 12,630 | | | 9,324 | |
| Adjustments for GAAP: | | | | | | | | | |
| Foreign operations | 230 | | | 175 | | | 44 | | | 449 | | | 346 | |
| Deferred gains on retroactive reinsurance | — | | | 13 | | | — | | | 13 | | | — | |
| Loss reserve discounting | (5) | | | — | | | — | | | (5) | | | — | |
| Other | — | | | — | | | — | | | — | | | (14) | |
| Total Adjustments for GAAP | 225 | | | 188 | | | 44 | | | 457 | | | 332 | |
| Total GAAP Reserves and Premiums | $ | 4,264 | | | $ | 6,672 | | | $ | 2,151 | | | $ | 13,087 | | | $ | 9,656 | |
While current factors and reasonably likely changes in variable factors are considered in estimating the liability for unpaid losses and LAE, there is no method or system that can eliminate the risk of actual ultimate results differing from such estimates.
Following is a discussion of certain critical variables affecting the estimation of loss reserves of the more significant long-tail lines of business (asbestos and environmental liabilities are separately discussed below). Many other variables may also impact ultimate claim costs.
An important assumption underlying reserve estimates is that the cost trends implicitly built into development patterns will continue into the future. However, future results could vary due to an unexpected change in the underlying cost trends. This unexpected change could arise from a variety of sources including a general increase in economic inflation, social inflation, new medical technologies, or other factors such as those listed below in connection with AFG’s largest lines of business. It is not possible to isolate and measure the potential impact of just one of these variables, and future cost trends could be partially impacted by several such variables. However, it is reasonable to address the sensitivity of the reserves to potential impact from changes in these variables by measuring the effect of a possible overall 1% change in future cost trends that may be caused by one or more variables. Utilizing the effect of a 1% change in overall cost trends enables changes greater than 1% to be estimated by extrapolation. Each additional 1% change in the cost trend would increase the effect on net earnings by an amount slightly (about 5%) greater than the effect of the previous 1%. For example, if a 1% change in cost trends in a line of business would change net earnings by $20 million, a 2% change would change net earnings by approximately $41 million.
The estimated cumulative adverse impact that a 1% change in cost trends in AFG’s more significant long-tail lines of property and casualty business (exceeding 5% of total reserves) would have on net earnings is shown below (in millions).
| | | | | |
| Line of business | Effect of 1%
Change in
Cost Trends |
| Other liability — occurrence | $ | 70 | |
| Workers’ compensation | 66 | |
| Other liability — claims made | 25 | |
| Commercial auto/truck liability/medical | 17 | |
The judgments and uncertainties surrounding management’s reserve estimation process and the potential for reasonably possible variability in management’s most recent reserve estimates may also be viewed by looking at how recent historical estimates of reserves have developed. The following table shows (dollars in millions) what the impact on AFG’s net earnings would be on the more significant lines of business if the December 31, 2023, reserves (net of reinsurance) were to develop at the same rate as the average development of the most recent five years.
| | | | | | | | | | | | | | | | | |
| 5-yr. Average
Development (a)(b) | | Net Reserves (b) December 31, 2023 | | Effect on Net
Earnings (a)(b) |
| Other liability — occurrence | 4.7 | % | | $ | 2,149 | | | $ | 102 | |
| Workers’ compensation | (5.9 | %) | | 2,127 | | | (126) | |
| Other liability — claims made | (3.1 | %) | | 958 | | | (30) | |
| Commercial auto/truck liability/medical | 1.0 | % | | 795 | | | 8 | |
(a)Adverse (favorable), net of tax effect.
(b)Excludes asbestos and environmental liabilities.
The following discussion describes key assumptions and important variables that affect the estimate of the reserve for loss and LAE of the more significant lines of business and explains what caused them to change from assumptions used in the preceding period.
Other Liability — Occurrence
This long-tail line of business consists of coverages protecting the insured against legal liability resulting from negligence, carelessness, or a failure to act causing property damage or personal injury to others. Some of the important variables affecting estimation of loss reserves for other liability — occurrence include:
•Litigious climate
•Unpredictability of judicial decisions regarding coverage issues
•Magnitude of jury awards
•Outside counsel costs
•Timing of claims reporting
AFG recorded adverse prior year reserve development of $96 million in 2023, $109 million in 2022 and $39 million in 2021 related to its other liability — occurrence coverage due primarily to continued claim severity increases in excess and umbrella liability coverages.
While management applies the actuarial methods discussed in Note O — “Insurance — Property and Casualty Insurance Reserves” to the financial statements, more judgment is involved in arriving at the final reserve to be held. For recent accident years, more weight is given to the Bornhuetter-Ferguson method.
Workers’ Compensation
This long-tail line of business provides coverage to employees who may be injured in the course of employment. Some of the important variables affecting estimation of loss reserves for workers’ compensation include:
•Legislative actions and regulatory and legal interpretations
•Future medical cost inflation
•Economic conditions
•Frequency of reopening claims previously closed
•Advances in medical equipment and processes
•Pace and intensity of employee rehabilitation
•Changes in the use of pharmaceutical drugs
•Changes in mortality trends for permanently injured workers
Approximately 26% and 25% of AFG’s workers’ compensation reserves at December 31, 2023 relate to policies written in Florida and California, respectively.
AFG recorded favorable prior year reserve development of $116 million in 2023, $189 million in 2022 and $169 million in 2021, related to its workers’ compensation coverage due to lower than anticipated medical severity.
Other Liability — Claims Made
This long-tail line of business consists mostly of directors’ and officers’ liability (“D&O”). Some of the important variables affecting estimation of loss reserves for other liability — claims made include:
•Litigious climate
•Economic conditions
•Variability of stock prices
•Magnitude of jury awards
The general state of the economy and the variability of the stock price of the insured can affect the frequency and severity of shareholder class action suits and other situations that trigger coverage under D&O policies. For example, from 2008 to 2010, economic conditions led to higher frequency of claims, particularly in the D&O policies for small account and not-for-profit organizations. After peaking in 2010, claim frequency decreased and stabilized to near pre-2008 levels until dropping sharply during the pandemic-related shutdowns. Post-pandemic, frequency has increased slightly but has not rebounded to pre-pandemic levels.
AFG recorded favorable prior year reserve development of $33 million in 2023, $24 million in 2022 and $2 million in 2021 on its D&O business as claim frequency and severity were less than expected across several prior accident years.
Commercial Auto/Truck Liability/Medical
This line of business is a mix of coverage protecting the insured against legal liability for property damage or personal injury to others arising from the operation of commercial motor vehicles. The property damage liability exposure is usually short-tail with relatively prompt reporting and settlement of claims. The bodily injury and medical payments exposures are longer-tailed; although the claim reporting is relatively prompt, the final settlement can take longer to achieve. Some of the important variables affecting estimation of loss reserves for commercial auto/truck liability/medical are similar to other liability — occurrence and include:
•Magnitude of jury awards
•Unpredictability of judicial decisions regarding coverage issues
•Litigious climate and trends
•Change in frequency of severe accidents
•Health care costs and utilization of medical services by injured parties
AFG recorded adverse prior year reserve development of $29 million in 2023, $32 million in 2022 and $7 million in 2021 for this line of business due to higher than anticipated severity.
Recoverables from Reinsurers and Availability of Reinsurance AFG is subject to credit risk with respect to its reinsurers, as reinsurance contracts do not relieve AFG of its liability to policyholders. To mitigate this risk, substantially all reinsurance is ceded to companies rated “A” or better by S&P or is secured by “funds withheld” or other collateral.
The availability and cost of reinsurance are subject to prevailing market conditions, which are beyond AFG’s control and which may affect AFG’s level of business and profitability. Although the cost of certain reinsurance programs may increase, management believes that AFG will be able to maintain adequate reinsurance coverage at acceptable rates without a material adverse effect on AFG’s results of operations. AFG’s gross and net combined ratios are shown in the table below.
See Item 1 — Business — “Property and Casualty Insurance Segment — Reinsurance” for more information on AFG’s reinsurance programs. For additional information on the effect of reinsurance on AFG’s historical results of operations see Note O — “Insurance — Reinsurance” to the financial statements.
The following table illustrates the effect that purchasing property and casualty reinsurance has had on AFG’s combined ratio over the last three years.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Before reinsurance (gross) | 92.8 | % | | 90.9 | % | | 87.4 | % |
| Effect of reinsurance | (2.4 | %) | | (3.6 | %) | | (0.9 | %) |
| Actual (net of reinsurance) | 90.4 | % | | 87.3 | % | | 86.5 | % |
Asbestos and Environmental-related (“A&E”) Insurance Reserves Asbestos and environmental reserves of the property and casualty group consisted of the following (in millions):
| | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
| Asbestos | $ | 202 | | | $ | 220 | |
| Environmental | 168 | | | 165 | |
| A&E reserves, net of reinsurance recoverable | 370 | | | 385 | |
| Reinsurance recoverable, net of allowance | 128 | | | 140 | |
| Gross A&E reserves | $ | 498 | | | $ | 525 | |
Asbestos reserves include claims asserting alleged injuries and damages from exposure to asbestos. Environmental reserves include claims relating to polluted sites.
Asbestos claims against manufacturers, distributors or installers of asbestos products were presented under the products liability section of their policies, which typically had aggregate limits that capped an insurer’s liability. In addition, asbestos claims are being presented as “non-products” claims, such as those by installers of asbestos products and by property owners or operators who allegedly had asbestos on their property, under the premises or operations section of their policies. Unlike products exposures, these non-products exposures typically had no aggregate limits, creating greater exposure for insurers. Further, in an effort to seek additional insurance coverage, some insureds with installation activities who have substantially eroded their products coverage are presenting new asbestos claims as non-products operations claims or attempting to reclassify previously settled products claims as non-products claims to restore a portion of previously exhausted products aggregate limits.
Approximately 47% of AFG’s net asbestos reserves relate to policies written directly by AFG subsidiaries. Claims from these policies generally are product-oriented claims with only a limited amount of non-products exposures and are dominated by small to mid-sized commercial entities that are mostly regional policyholders with few national target defendants. The remainder is assumed reinsurance business that includes exposures from 1954 to 1983. The asbestos and environmental assumed claims are ceded by various insurance companies under reinsurance treaties. A majority of the individual assumed claims have exposures of less than $100,000 to AFG. Asbestos losses assumed include some of the industry known manufacturers, distributors and installers. Pollution losses include industry known insured names and sites.
Establishing reserves for A&E claims relating to policies and participations in reinsurance treaties and former operations is subject to uncertainties that are significantly greater than those presented by other types of claims. For this group of claims, traditional actuarial techniques that rely on historical loss development trends cannot be used and a range of reasonably possible losses cannot be estimated. Case reserves and expense reserves are established by the claims department as specific policies are identified. In addition to the case reserves established for known claims, management establishes additional reserves for claims not yet known or reported and for possible development on known claims. These additional reserves are management’s best estimate based on periodic comprehensive studies and internal reviews adjusted for payments and identifiable changes, supplemented by management’s review of industry information about such claims, with due consideration to individual claim situations.
Management believes that estimating the ultimate liability for asbestos claims presents a unique and difficult challenge to the insurance industry due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage. Environmental claims likewise present challenges in prediction, due to uncertainty regarding the interpretation of insurance policies, complexities regarding multi-party involvements at sites, evolving cleanup standards and protracted time periods required to assess the level of cleanup required at contaminated sites.
The following factors could impact AFG’s A&E reserves and payments:
•There is interest at the state level to attempt to legislatively address asbestos liabilities and the manner in which asbestos claims are resolved. These developments are fluid and could result in piecemeal state-by-state solutions.
•The manner by which bankruptcy courts are addressing asbestos liabilities is in flux.
•AFG’s insureds may make claims alleging significant non-products exposures.
While management believes that AFG’s reserves for A&E claims are a reasonable estimate of ultimate liability for such claims, actual results may vary materially from the amounts currently recorded due to the difficulty in predicting the number of future claims, the impact of bankruptcy filings and unresolved issues such as whether coverage exists, whether
policies are subject to aggregate limits on coverage, how claims are to be allocated among triggered policies and implicated years and whether claimants who exhibit no signs of illness will be successful in pursuing their claims. A 1% variation in loss cost trends, caused by any of the factors previously described, would change net earnings by approximately $30 million.
AFG tracks its A&E claims by policyholder. The following table shows, by type of claim, the number of policyholders that did not receive any payments in the calendar year separate from policyholders that did receive a payment. Policyholder counts represent policies written by AFG subsidiaries and do not include assumed reinsurance.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Number of policyholders with no indemnity payments: | | | | | |
| Asbestos | 107 | | | 103 | | | 100 | |
| Environmental | 137 | | | 129 | | | 131 | |
| 244 | | | 232 | | | 231 | |
| Number of policyholders with indemnity payments: | | | | | |
| Asbestos | 47 | | | 45 | | | 45 | |
| Environmental | 23 | | | 25 | | | 20 | |
| 70 | | | 70 | | | 65 | |
| Total | 314 | | | 302 | | | 296 | |
Amounts paid (net of reinsurance recoveries) for asbestos and environmental claims, including LAE, were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Asbestos | $ | 13 | | | $ | 12 | | | $ | 8 | |
| Environmental | 2 | | | 11 | | | 6 | |
| Total | $ | 15 | | | $ | 23 | | | $ | 14 | |
The survival ratio is a measure often used by industry analysts to compare A&E reserves’ strength among companies. This ratio is typically calculated by dividing reserves for A&E exposures by the three-year average of paid losses, and therefore measures the number of years that it would take to pay off current reserves based on recent average payments. Because this ratio can be significantly impacted by a number of factors such as loss payout variability, caution should be exercised in attempting to determine reserve adequacy based simply on the survival ratio. At December 31, 2023, the property and casualty insurance segment’s three-year survival ratios compare favorably with industry survival ratios published by A.M. Best (as of December 31, 2022, and adjusted for several large portfolio transfers) as detailed in the following table:
| | | | | | | | | | | | | | | | | |
| Property and Casualty Insurance Reserves Three-Year Survival Ratio (Times Paid Losses) |
| Asbestos | | Environmental | | Total A&E |
| AFG (12/31/2023) | 18.7 | | | 24.9 | | | 21.1 | |
Industry (12/31/2022) | 8.4 | | | 5.6 | | | 7.5 | |
During the third quarter of 2023, AFG completed an in-depth internal review of its asbestos and environmental exposures relating to the run-off operations of its property and casualty insurance segment. In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has historically conducted periodic comprehensive external studies of its asbestos and environmental reserves with the aid of specialty actuarial, engineering and consulting firms and outside counsel, with an in-depth internal review during all other years.
During the 2023 internal review, no new trends were identified and recent claims activity was generally consistent with AFG’s expectations resulting from its in-depth internal reviews in 2022 and 2021 and most recent external study in 2020. As a result, the 2023 review resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves.
Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of the property and casualty segment’s asbestos reserve increases in recent years. AFG is seeing modestly increasing estimates for indemnity and defense compared to prior studies on certain specific open claims. AFG has updated its view of legal defense costs on open environmental claims as well as a number of claims and sites where the estimated investigation and remediation costs have increased.
Contingencies related to Subsidiaries’ Former Operations The A&E reviews and external study discussed above also encompassed reserves for various environmental and occupational injury and disease claims and other contingencies arising out of the railroad operations disposed of by American Premier’s predecessor and certain manufacturing operations disposed of by American Premier and its subsidiaries and by Great American Financial Resources, Inc. AFG recorded a $15 million pretax non-core special charge to increase liabilities for those operations as a result of the 2023 internal review. Liabilities for claims and contingencies arising from these former railroad and manufacturing operations totaled $101 million at December 31, 2023. For a discussion of the uncertainties in determining the ultimate liability, see Note N — “Contingencies” to the financial statements.
MANAGED INVESTMENT ENTITIES
Accounting standards require AFG to consolidate its investments in collateralized loan obligation (“CLO”) entities that it manages and owns an interest in (in the form of debt). See Note A — “Accounting Policies — Managed Investment Entities” and Note H — “Managed Investment Entities” to the financial statements. The effect of consolidating these entities is shown in the tables below (in millions). The “Before CLO Consolidation” columns include AFG’s investment and earnings in the CLOs on an unconsolidated basis.
CONDENSED CONSOLIDATING BALANCE SHEET
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Before CLO
Consolidation | | Managed
Investment
Entities | | Consol.
Entries | | | | Consolidated
As Reported |
| December 31, 2023 | | | | | | | | | |
| Assets: | | | | | | | | | |
| Cash and investments | $ | 15,438 | | | $ | — | | | $ | (175) | | | (*) | | $ | 15,263 | |
| Assets of managed investment entities | — | | | 4,484 | | | — | | | | | 4,484 | |
| Other assets | 10,042 | | | — | | | (2) | | | (*) | | 10,040 | |
| Total assets | $ | 25,480 | | | $ | 4,484 | | | $ | (177) | | | | | $ | 29,787 | |
| Liabilities: | | | | | | | | | |
Unpaid losses and loss adjustment expenses and unearned premiums | $ | 16,538 | | | $ | — | | | $ | — | | | | | $ | 16,538 | |
| Liabilities of managed investment entities | — | | | 4,446 | | | (139) | | | (*) | | 4,307 | |
| Long-term debt and other liabilities | 4,684 | | | — | | | — | | | | | 4,684 | |
| Total liabilities | 21,222 | | | 4,446 | | | (139) | | | | | 25,529 | |
| | | | | | | | | |
| Shareholders’ equity: | | | | | | | | | |
| Common Stock and Capital surplus | 1,456 | | | 38 | | | (38) | | | | | 1,456 | |
| Retained earnings | 3,121 | | | — | | | — | | | | | 3,121 | |
| Accumulated other comprehensive income (loss), net of tax | (319) | | | — | | | — | | | | | (319) | |
| Total shareholders’ equity | 4,258 | | | 38 | | | (38) | | | | | 4,258 | |
| | | |
| | | |
| Total liabilities and shareholders’ equity | $ | 25,480 | | | $ | 4,484 | | | $ | (177) | | | | | $ | 29,787 | |
| | | | | | | | | |
| December 31, 2022 | | | | | | | | | |
| Assets: | | | | | | | | | |
| Cash and investments | $ | 14,627 | | | $ | — | | | $ | (115) | | | (*) | | $ | 14,512 | |
| Assets of managed investment entities | — | | | 5,447 | | | — | | | | | 5,447 | |
| Other assets | 8,872 | | | — | | | — | | | (*) | | 8,872 | |
| Total assets | $ | 23,499 | | | $ | 5,447 | | | $ | (115) | | | | | $ | 28,831 | |
| Liabilities: | | | | | | | | | |
Unpaid losses and loss adjustment expenses and unearned premiums | $ | 15,220 | | | $ | — | | | $ | — | | | | | $ | 15,220 | |
| Liabilities of managed investment entities | — | | | 5,444 | | | (112) | | | (*) | | 5,332 | |
| Long-term debt and other liabilities | 4,227 | | | — | | | — | | | | | 4,227 | |
| Total liabilities | 19,447 | | | 5,444 | | | (112) | | | | | 24,779 | |
| | | | | | | | | |
| Shareholders’ equity: | | | | | | | | | |
| Common Stock and Capital surplus | 1,453 | | | 3 | | | (3) | | | | | 1,453 | |
| Retained earnings | 3,142 | | | — | | | — | | | | | 3,142 | |
| Accumulated other comprehensive income (loss), net of tax | (543) | | | — | | | — | | | | | (543) | |
| Total shareholders’ equity | 4,052 | | | 3 | | | (3) | | | | | 4,052 | |
| | | |
| | | |
| Total liabilities and shareholders’ equity | $ | 23,499 | | | $ | 5,447 | | | $ | (115) | | | | | $ | 28,831 | |
(*)Elimination of the fair value of AFG’s investment in CLOs and related accrued interest.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Before CLO
Consolidation (a) | | Managed
Investment
Entities | | Consol.
Entries | | | | Consolidated
As Reported |
| Three months ended December 31, 2023 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Property and casualty insurance net earned premiums | $ | 1,732 | | | $ | — | | | $ | — | | | | | $ | 1,732 | |
| Net investment income | 168 | | | — | | | (9) | | | (b) | | 159 | |
| Realized gains (losses) on securities | 31 | | | — | | | — | | | | | 31 | |
| Income of managed investment entities: | | | | | | | | | |
| Investment income | — | | | 100 | | | — | | | | | 100 | |
| Gain (loss) on change in fair value of assets/liabilities | — | | | 17 | | | (2) | | | (b) | | 15 | |
| Other income | 50 | | | — | | | (4) | | | (c) | | 46 | |
| Total revenues | 1,981 | | | 117 | | | (15) | | | | | 2,083 | |
| Costs and Expenses: | | | | | | | | | |
| Insurance benefits and expenses | 1,549 | | | — | | | — | | | | | 1,549 | |
| Expenses of managed investment entities | — | | | 117 | | | (15) | | | (b)(c) | | 102 | |
| Interest charges on borrowed money and other expenses | 97 | | | — | | | — | | | | | 97 | |
| Total costs and expenses | 1,646 | | | 117 | | | (15) | | | | | 1,748 | |
| Earnings before income taxes | 335 | | | — | | | — | | | | | 335 | |
| Provision for income taxes | 72 | | | — | | | — | | | | | 72 | |
| Net earnings | $ | 263 | | | $ | — | | | $ | — | | | | | $ | 263 | |
| | | | | | | | | |
| Three months ended December 31, 2022 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Property and casualty insurance net earned premiums | $ | 1,623 | | | $ | — | | | $ | — | | | | | $ | 1,623 | |
| Net investment income | 168 | | | — | | | — | | | (b) | | 168 | |
| Realized gains (losses) on securities | 27 | | | — | | | — | | | | | 27 | |
| Income of managed investment entities: | | | | | | | | | |
| Investment income | — | | | 93 | | | — | | | | | 93 | |
| Gain (loss) on change in fair value of assets/liabilities | — | | | (1) | | | (5) | | | (b) | | (6) | |
| Other income | 29 | | | — | | | (5) | | | (c) | | 24 | |
| Total revenues | 1,847 | | | 92 | | | (10) | | | | | 1,929 | |
| Costs and Expenses: | | | | | | | | | |
| Insurance benefits and expenses | 1,413 | | | — | | | — | | | | | 1,413 | |
| Expenses of managed investment entities | — | | | 92 | | | (10) | | | (b)(c) | | 82 | |
| Interest charges on borrowed money and other expenses | 88 | | | — | | | — | | | | | 88 | |
| Total costs and expenses | 1,501 | | | 92 | | | (10) | | | | | 1,583 | |
| Earnings before income taxes | 346 | | | — | | | — | | | | | 346 | |
| Provision for income taxes | 70 | | | — | | | — | | | | | 70 | |
| Net earnings | $ | 276 | | | $ | — | | | $ | — | | | | | $ | 276 | |
(a)Includes income of $9 million in the fourth quarter of 2023 and less than $1 million in the fourth quarter of 2022, representing the change in fair value of AFG’s CLO investments and $4 million and $5 million of income in the fourth quarter of 2023 and 2022, respectively, in CLO management fees earned.
(b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $11 million and $5 million in the fourth quarter of 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs.
(c)Elimination of management fees earned by AFG.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Before
CLO
Consol. (a) | | Managed
Investment
Entities | | Consol.
Entries | | | | Consolidated
As Reported |
| Year ended December 31, 2023 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Property and casualty insurance net earned premiums | $ | 6,531 | | | $ | — | | | $ | — | | | | | $ | 6,531 | |
| Net investment income | 769 | | | — | | | (27) | | | (b) | | 742 | |
| Realized gains (losses) on: | | | | | | | | | |
Securities | (36) | | | — | | | — | | | | | (36) | |
| Subsidiaries | (4) | | | — | | | — | | | | | (4) | |
| Income of managed investment entities: | | | | | | | | | |
| Investment income | — | | | 421 | | | — | | | | | 421 | |
| Gain (loss) on change in fair value of assets/liabilities | — | | | 29 | | | (2) | | | (b) | | 27 | |
| Other income | 162 | | | — | | | (16) | | | (c) | | 146 | |
| Total revenues | 7,422 | | | 450 | | | (45) | | | | | 7,827 | |
| Costs and Expenses: | | | | | | | | | |
| Insurance benefits and expenses | 5,968 | | | — | | | — | | | | | 5,968 | |
| Expenses of managed investment entities | — | | | 450 | | | (45) | | | (b)(c) | | 405 | |
| Interest charges on borrowed money and other expenses | 381 | | | — | | | — | | | | | 381 | |
| Total costs and expenses | 6,349 | | | 450 | | | (45) | | | | | 6,754 | |
Earnings before income taxes | 1,073 | | | — | | | — | | | | | 1,073 | |
| Provision for income taxes | 221 | | | — | | | — | | | | | 221 | |
Net earnings | $ | 852 | | | $ | — | | | $ | — | | | | | $ | 852 | |
| | | | | | | | | |
| Year ended December 31, 2022 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Property and casualty insurance net earned premiums | $ | 6,085 | | | $ | — | | | $ | — | | | | | $ | 6,085 | |
| Net investment income | 707 | | | — | | | 10 | | | (b) | | 717 | |
Realized gains (losses) on securities | (116) | | | — | | | — | | | | | (116) | |
| Income of managed investment entities: | | | | | | | | | |
| Investment income | — | | | 268 | | | — | | | | | 268 | |
| Gain (loss) on change in fair value of assets/liabilities | — | | | (2) | | | (29) | | | (b) | | (31) | |
| Other income | 134 | | | — | | | (17) | | | (c) | | 117 | |
| Total revenues | 6,810 | | | 266 | | | (36) | | | | | 7,040 | |
| Costs and Expenses: | | | | | | | | | |
| Insurance benefits and expenses | 5,347 | | | — | | | — | | | | | 5,347 | |
| Expenses of managed investment entities | — | | | 265 | | | (35) | | | (b)(c) | | 230 | |
| Interest charges on borrowed money and other expenses | 340 | | | — | | | — | | | | | 340 | |
| Total costs and expenses | 5,687 | | | 265 | | | (35) | | | | | 5,917 | |
Earnings before income taxes | 1,123 | | | 1 | | | (1) | | | | | 1,123 | |
| Provision for income taxes | 225 | | | — | | | — | | | | | 225 | |
Net earnings | $ | 898 | | | $ | 1 | | | $ | (1) | | | | | $ | 898 | |
(a)Includes income of $27 million in 2023 and a loss of $10 million in 2022, representing the change in fair value of AFG’s CLO investments and $16 million and $17 million of income in 2023 and 2022, respectively, in CLO management fees earned.
(b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $29 million and $18 million in 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs.
(c)Elimination of management fees earned by AFG.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Before
CLO
Consol. (a) | | Managed
Investment
Entities | | Consol.
Entries | | | | Consolidated
As Reported |
| Year ended December 31, 2021 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Property and casualty insurance net earned premiums | $ | 5,404 | | | $ | — | | | $ | — | | | | | $ | 5,404 | |
| Net investment income | 750 | | | — | | | (20) | | | (b) | | 730 | |
| Realized gains (losses) on: | | | | | | | | | |
| Securities | 110 | | | — | | | — | | | | | 110 | |
| Subsidiaries | 4 | | | — | | | — | | | | | 4 | |
| Income of managed investment entities: | | | | | | | | | |
| Investment income | — | | | 181 | | | — | | | | | 181 | |
| Gain (loss) on change in fair value of assets/liabilities | — | | | 3 | | | 7 | | | (b) | | 10 | |
| Other income | 129 | | | — | | | (16) | | | (c) | | 113 | |
| Total revenues | 6,397 | | | 184 | | | (29) | | | | | 6,552 | |
| Costs and Expenses: | | | | | | | | | |
| Insurance benefits and expenses | 4,704 | | | — | | | — | | | | | 4,704 | |
| Expenses of managed investment entities | — | | | 183 | | | (28) | | | (b)(c) | | 155 | |
| Interest charges on borrowed money and other expenses | 358 | | | — | | | — | | | | | 358 | |
| Total costs and expenses | 5,062 | | | 183 | | | (28) | | | | | 5,217 | |
| Earnings from continuing operations before income taxes | 1,335 | | | 1 | | | (1) | | | | | 1,335 | |
| Provision for income taxes | 254 | | | — | | | — | | | | | 254 | |
Net earnings from continuing operations | 1,081 | | | 1 | | | (1) | | | | | 1,081 | |
| Net earnings from discontinued operations | 914 | | | — | | | — | | | | | 914 | |
Net earnings | $ | 1,995 | | | $ | 1 | | | $ | (1) | | | | | $ | 1,995 | |
(a)Includes income of $20 million representing the change in fair value of AFG’s CLO investments and $16 million of income in CLO management fees earned.
(b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $12 million in distributions recorded as interest expense by the CLOs.
(c)Elimination of management fees earned by AFG.
RESULTS OF OPERATIONS
General
AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. In addition to discontinued operations, core net operating earnings excludes realized gains (losses) on securities because such gains and losses are influenced significantly by financial markets, interest rates and the timing of sales. In addition, special charges related to coverage that AFG no longer writes, such as asbestos and environmental exposures, are excluded from core earnings.
In May 2021, AFG sold its Annuity business to MassMutual. Through the effective date of the sale, the results of its annuity segment and run-off life and long-term care operations are reported as discontinued operations.
AFG recorded $914 million in non-core net earnings from the discontinued annuity operations in 2021, which includes a $656 million after-tax gain on the sale. See “Discontinued Annuity Operations” below for details of the impact of the discontinued annuity operations on AFG’s net earnings for 2021.
In December 2020, AFG sold GAI Holding Bermuda and its subsidiaries, the legal entities that owned AFG’s Lloyd’s Managing Agency, Neon Underwriting Ltd., thereby exiting the Lloyd’s of London Insurance market. In 2021, AFG recognized a non-core after-tax gain of $3 million related to contingent consideration received from the sale of Neon.
The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings to core net operating earnings, a non-GAAP financial measure. AFG believes core net operating earnings is a useful tool for investors and analysts in analyzing ongoing operating trends and for management to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | Year ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 | | 2021 |
Components of net earnings: | | | | | | | | | |
| Core operating earnings before income taxes | $ | 304 | | | $ | 318 | | | $ | 1,127 | | | $ | 1,248 | | | $ | 1,232 | |
| Pretax non-core items: | | | | | | | | | |
| Realized gains (losses) on securities | 31 | | | 27 | | | (36) | | | (116) | | | 110 | |
Realized gain (loss) on subsidiaries | — | | | — | | | (4) | | | — | | | 4 | |
| Special A&E charges | — | | | — | | | (15) | | | — | | | — | |
| Gain (loss) on retirement of debt | — | | | 1 | | | 1 | | | (9) | | | — | |
| Other | — | | | — | | | — | | | — | | | (11) | |
Earnings from continuing operations before income taxes | 335 | | | 346 | | | 1,073 | | | 1,123 | | | 1,335 | |
| Provision for income taxes: | | | | | | | | | |
| Core operating earnings | 66 | | | 63 | | | 232 | | | 255 | | | 239 | |
| Non-core items: | | | | | | | | | |
| Realized gains (losses) on securities | 6 | | | 6 | | | (8) | | | (24) | | | 23 | |
Realized gain (loss) on subsidiaries | — | | | — | | | — | | | — | | | 1 | |
| Special A&E charges | — | | | — | | | (3) | | | — | | | — | |
| Gain (loss) on retirement of debt | — | | | 1 | | | — | | | (2) | | | — | |
| Other | — | | | — | | | — | | | (4) | | | (9) | |
| Total provision for income taxes | 72 | | | 70 | | | 221 | | | 225 | | | 254 | |
Net earnings from continuing operations | 263 | | | 276 | | | 852 | | | 898 | | | 1,081 | |
| Net earnings from discontinued operations | — | | | — | | | — | | | — | | | 914 | |
Net earnings | $ | 263 | | | $ | 276 | | | $ | 852 | | | $ | 898 | | | $ | 1,995 | |
| | | | | | | | | |
| Net earnings: | | | | | | | | | |
| Core net operating earnings | $ | 238 | | | $ | 255 | | | $ | 895 | | | $ | 993 | | | $ | 993 | |
| Realized gains (losses) on securities | 25 | | | 21 | | | (28) | | | (92) | | | 87 | |
Realized gain (loss) on subsidiaries | — | | | — | | | (4) | | | — | | | 3 | |
| Special A&E charges | — | | | — | | | (12) | | | — | | | — | |
| Gain (loss) on retirement of debt | — | | | — | | | 1 | | | (7) | | | — | |
| Other | — | | | — | | | — | | | 4 | | | (2) | |
| Net earnings from continuing operations | 263 | | | 276 | | | 852 | | | 898 | | | 1,081 | |
| Discontinued annuity operations | — | | | — | | | — | | | — | | | 914 | |
Net earnings | $ | 263 | | | $ | 276 | | | $ | 852 | | | $ | 898 | | | $ | 1,995 | |
| | | | | | | | | |
| Diluted per share amounts: | | | | | | | | | |
| Core net operating earnings | $ | 2.84 | | | $ | 2.99 | | | $ | 10.56 | | | $ | 11.63 | | | $ | 11.59 | |
| Realized gains (losses) on securities | 0.29 | | | 0.25 | | | (0.33) | | | (1.06) | | | 1.01 | |
Realized gain (loss) on subsidiaries | — | | | — | | | (0.04) | | | — | | | 0.04 | |
| Special A&E charges | — | | | — | | | (0.15) | | | — | | | — | |
| Gain (loss) on retirement of debt | — | | | — | | | 0.01 | | | (0.09) | | | — | |
| Other | — | | | — | | | — | | | 0.05 | | | (0.02) | |
| Diluted per share amounts, continuing operations | 3.13 | | | 3.24 | | | 10.05 | | | 10.53 | | | 12.62 | |
| Discontinued annuity operations | — | | | — | | | — | | | — | | | 10.68 | |
Net earnings | $ | 3.13 | | | $ | 3.24 | | | $ | 10.05 | | | $ | 10.53 | | | $ | 23.30 | |
Net earnings were $263 million in the fourth quarter of 2023 compared to $276 million in the fourth quarter of 2022 reflecting lower core net operating earnings partially offset by higher net realized gains on securities in the fourth quarter of 2023 compared to the fourth quarter of 2022. Core net operating earnings for the fourth quarter of 2023 decreased $17 million compared to the fourth quarter of 2022 due primarily to lower returns on AFG’s alternative investment portfolio in the fourth quarter of 2023 compared to the fourth quarter of 2022 and lower underwriting profit, partially offset by higher investment income outside of alternative investments. Net realized gains on securities of $25 million and $21 million in the fourth quarter of 2023 and 2022, respectively, resulted primarily from the change in fair value of equity securities that were still held at the balance sheet date.
Net earnings were $852 million for the full-year of 2023 compared to $898 million in 2022 reflecting lower core net operating earnings and a special A&E charge recorded in the third quarter of 2023, partially offset by lower net realized losses on securities in 2023 compared to 2022. Core net operating earnings for 2023 decreased $98 million compared to 2022 reflecting lower returns on AFG’s alternative investment portfolio when compared to the strong performance of this portfolio in 2022 and lower underwriting profit, partially offset by higher investment income outside of alternative investments. Net realized losses on securities of $28 million in 2023 and $92 million in 2022 include $2 million and $75 million, respectively, of after-tax losses from the change in fair value of equity securities that were still held at the balance sheet date.
Net earnings were $898 million for the full-year of 2022 compared to $2.00 billion in 2021 reflecting net earnings from the discontinued annuity operations in 2021 and net realized losses on securities in 2022 compared to net realized gains on securities in 2021. The discontinued annuity operations includes an after-tax gain on the sale of the annuity subsidiaries of $656 million in 2021. Core net operating earnings were comparable in 2022 and 2021 as higher underwriting profit and higher investment income outside of alternative investments were offset by lower returns on AFG’s alternative investment portfolio compared to the very strong performance of this portfolio in 2021. Realized gains (losses) on securities in 2022 and 2021 resulted primarily from the change in fair value of equity securities that were still held at the balance sheet date.
RESULTS OF OPERATIONS — THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
Segmented Statement of Earnings
Subsequent to the sale of its annuity operations, AFG reports its operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”).
AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the three months ended December 31, 2023 and 2022 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other | | | | | | |
| P&C | | Consol. MIEs | | Holding Co., other and unallocated | | Total | | Non-core reclass | | GAAP Total |
| Three months ended December 31, 2023 | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | |
Property and casualty insurance net earned premiums | $ | 1,732 | | | $ | — | | | $ | — | | | $ | 1,732 | | | $ | — | | | $ | 1,732 | |
| Net investment income | 161 | | | (9) | | | 7 | | | 159 | | | — | | | 159 | |
| Realized gains (losses) on securities | — | | | — | | | — | | | — | | | 31 | | | 31 | |
| Income of MIEs: | | | | | | | | | | | |
| Investment income | — | | | 100 | | | — | | | 100 | | | — | | | 100 | |
Gain (loss) on change in fair value of assets/liabilities | — | | | 15 | | | — | | | 15 | | | — | | | 15 | |
| Other income | 3 | | | (4) | | | 47 | | | 46 | | | — | | | 46 | |
| Total revenues | 1,896 | | | 102 | | | 54 | | | 2,052 | | | 31 | | | 2,083 | |
| | | | | | | | | | | |
| Costs and Expenses: | | | | | | | | | | | |
| Property and casualty insurance: | | | | | | | | | | | |
| Losses and loss adjustment expenses | 1,053 | | | — | | | 16 | | | 1,069 | | | — | | | 1,069 | |
Commissions and other underwriting expenses | 468 | | | — | | | 12 | | | 480 | | | — | | | 480 | |
| Interest charges on borrowed money | — | | | — | | | 19 | | | 19 | | | — | | | 19 | |
| Expenses of MIEs | — | | | 102 | | | — | | | 102 | | | — | | | 102 | |
| Other expenses | 18 | | | — | | | 60 | | | 78 | | | — | | | 78 | |
| Total costs and expenses | 1,539 | | | 102 | | | 107 | | | 1,748 | | | — | | | 1,748 | |
| Earnings before income taxes | 357 | | | — | | | (53) | | | 304 | | | 31 | | | 335 | |
| Provision for income taxes | 74 | | | — | | | (8) | | | 66 | | | 6 | | | 72 | |
Core Net Operating Earnings | 283 | | | — | | | (45) | | | 238 | | | | | |
| Non-core earnings (loss) (*): | | | | | | | | | | | |
| Realized gains (losses) on securities, net of tax | — | | | — | | | 25 | | | 25 | | | (25) | | | — | |
| Net Earnings | $ | 283 | | | $ | — | | | $ | (20) | | | $ | 263 | | | $ | — | | | $ | 263 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other | | | | | | |
| P&C | | Consol. MIEs | | Holding Co., other and unallocated | | Total | | Non-core reclass | | GAAP Total |
| Three months ended December 31, 2022 | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | |
Property and casualty insurance net earned premiums | $ | 1,623 | | | $ | — | | | $ | — | | | $ | 1,623 | | | $ | — | | | $ | 1,623 | |
| Net investment income | 159 | | | — | | | 9 | | | 168 | | | — | | | 168 | |
| Realized gains (losses) on securities | — | | | — | | | — | | | — | | | 27 | | | 27 | |
| Income of MIEs: | | | | | | | | | | | |
| Investment income | — | | | 93 | | | — | | | 93 | | | — | | | 93 | |
Gain (loss) on change in fair value of assets/liabilities | — | | | (6) | | | — | | | (6) | | | — | | | (6) | |
| Other income | — | | | (5) | | | 29 | | | 24 | | | — | | | 24 | |
| Total revenues | 1,782 | | | 82 | | | 38 | | | 1,902 | | | 27 | | | 1,929 | |
| | | | | | | | | | | |
| Costs and Expenses: | | | | | | | | | | | |
| Property and casualty insurance: | | | | | | | | | | | |
| Losses and loss adjustment expenses | 986 | | | — | | | — | | | 986 | | | — | | | 986 | |
Commissions and other underwriting expenses | 419 | | | — | | | 8 | | | 427 | | | — | | | 427 | |
| Interest charges on borrowed money | — | | | — | | | 20 | | | 20 | | | — | | | 20 | |
| Expenses of MIEs | — | | | 82 | | | — | | | 82 | | | — | | | 82 | |
| Other expenses | 14 | | | — | | | 55 | | | 69 | | | (1) | | | 68 | |
| Total costs and expenses | 1,419 | | | 82 | | | 83 | | | 1,584 | | | (1) | | | 1,583 | |
| Earnings before income taxes | 363 | | | — | | | (45) | | | 318 | | | 28 | | | 346 | |
| Provision for income taxes | 73 | | | — | | | (10) | | | 63 | | | 7 | | | 70 | |
Core Net Operating Earnings | 290 | | | — | | | (35) | | | 255 | | | | | |
| Non-core earnings (loss) (*): | | | | | | | | | | | |
| Realized gains (losses) on securities, net of tax | — | | | — | | | 21 | | | 21 | | | (21) | | | — | |
| Net Earnings | $ | 290 | | | $ | — | | | $ | (14) | | | $ | 276 | | | $ | — | | | $ | 276 | |
(*)See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax impacts of these reconciling items.
Property and Casualty Insurance Segment — Results of Operations
Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses and loss adjustment expenses, and commissions and other underwriting expenses to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect net investment income, other income, other expenses or federal income taxes.
AFG’s property and casualty insurance operations contributed $357 million in pretax earnings in the fourth quarter of 2023 compared to $363 million in the fourth quarter of 2022, a decrease of $6 million (2%). Lower underwriting profits in the Specialty casualty and Property and transportation sub-segments and lower investment income from alternative investments were partially offset by higher underwriting profit in the Specialty financial sub-segment and higher net investment income outside of alternative investments.
The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the three months ended December 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| 2023 | | 2022 | | % Change |
| Gross written premiums | $ | 1,992 | | | $ | 1,845 | | | 8 | % |
| Reinsurance premiums ceded | (547) | | | (507) | | | 8 | % |
| Net written premiums | 1,445 | | | 1,338 | | | 8 | % |
| Change in unearned premiums | 287 | | | 285 | | | 1 | % |
| Net earned premiums | 1,732 | | | 1,623 | | | 7 | % |
| Loss and loss adjustment expenses | 1,053 | | | 986 | | | 7 | % |
| Commissions and other underwriting expenses | 468 | | | 419 | | | 12 | % |
| Underwriting gain | 211 | | | 218 | | | (3 | %) |
| | | | | |
| Net investment income | 161 | | | 159 | | | 1 | % |
| Other income and expenses, net | (15) | | | (14) | | | 7 | % |
| Earnings before income taxes | $ | 357 | | | $ | 363 | | | (2 | %) |
| | | | | |
| Three months ended December 31, | | |
| Combined Ratios: | 2023 | | 2022 | | Change |
| Specialty lines | | | | | |
| Loss and LAE ratio | 60.7 | % | | 60.8 | % | | (0.1 | %) |
| Underwriting expense ratio | 27.0 | % | | 25.8 | % | | 1.2 | % |
| Combined ratio | 87.7 | % | | 86.6 | % | | 1.1 | % |
| | | | | |
| Aggregate — including exited lines | | | | | |
| Loss and LAE ratio | 60.8 | % | | 60.7 | % | | 0.1 | % |
| Underwriting expense ratio | 27.0 | % | | 25.8 | % | | 1.2 | % |
| Combined ratio | 87.8 | % | | 86.5 | % | | 1.3 | % |
Starting in 1986, AFG’s statutory combined ratio has been better than the U.S. industry average for 36 of the 38 years. Management believes that AFG’s insurance operations have performed better than the industry as a result of its specialty niche focus, product line diversification, stringent underwriting discipline and alignment of compensation incentives.
AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.
To understand the overall profitability of particular lines, the timing of claims payments and the related impact of investment income must be considered. Certain “short-tail” lines of business (primarily property coverages) generally have quick loss payouts, which reduce the time funds are held, thereby limiting investment income earned thereon. In contrast, “long-tail” lines of business (primarily liability coverages and workers’ compensation) generally have payouts that are either structured over many years or take many years to settle, thereby significantly increasing investment income earned on related premiums received.
Gross Written Premiums
Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $1.99 billion for the fourth quarter of 2023 compared to $1.85 billion for the fourth quarter of 2022, an increase of $147 million (8%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| 2023 | | 2022 | | |
| GWP | | % | | GWP | | % | | % Change |
| Property and transportation | $ | 623 | | | 31 | % | | $ | 601 | | | 32 | % | | 4 | % |
| Specialty casualty | 1,069 | | | 54 | % | | 1,007 | | | 55 | % | | 6 | % |
| Specialty financial | 300 | | | 15 | % | | 237 | | | 13 | % | | 27 | % |
| $ | 1,992 | | | 100 | % | | $ | 1,845 | | | 100 | % | | 8 | % |
Reinsurance Premiums Ceded
Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 27% of gross written premiums for both the fourth quarter of 2023 and the fourth quarter of 2022. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| 2023 | | 2022 | | Change in % of GWP |
| Ceded | | % of GWP | | Ceded | | % of GWP | |
| Property and transportation | $ | (197) | | | 32 | % | | $ | (178) | | | 30 | % | | 2 | % |
| Specialty casualty | (369) | | | 35 | % | | (352) | | | 35 | % | | — | % |
| Specialty financial | (50) | | | 17 | % | | (38) | | | 16 | % | | 1 | % |
| Other specialty | 69 | | | | | 61 | | | | | |
| $ | (547) | | | 27 | % | | $ | (507) | | | 27 | % | | — | % |
Net Written Premiums
Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $1.45 billion for the fourth quarter of 2023 compared to $1.34 billion for the fourth quarter of 2022, an increase of $107 million (8%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| 2023 | | 2022 | | |
| NWP | | % | | NWP | | % | | % Change |
| Property and transportation | $ | 426 | | | 30 | % | | $ | 423 | | | 32 | % | | 1 | % |
| Specialty casualty | 700 | | | 48 | % | | 655 | | | 49 | % | | 7 | % |
| Specialty financial | 250 | | | 17 | % | | 199 | | | 15 | % | | 26 | % |
| Other specialty | 69 | | | 5 | % | | 61 | | | 4 | % | | 13 | % |
| $ | 1,445 | | | 100 | % | | $ | 1,338 | | | 100 | % | | 8 | % |
Net Earned Premiums
Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $1.73 billion for the fourth quarter of 2023 compared to $1.62 billion for the fourth quarter of 2022, an increase of $109 million (7%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| 2023 | | 2022 | | |
| NEP | | % | | NEP | | % | | % Change |
| Property and transportation | $ | 682 | | | 39 | % | | $ | 682 | | | 42 | % | | — | % |
| Specialty casualty | 737 | | | 43 | % | | 686 | | | 42 | % | | 7 | % |
| Specialty financial | 244 | | | 14 | % | | 193 | | | 12 | % | | 26 | % |
| Other specialty | 69 | | | 4 | % | | 62 | | | 4 | % | | 11 | % |
| $ | 1,732 | | | 100 | % | | $ | 1,623 | | | 100 | % | | 7 | % |
Gross written premiums for the fourth quarter of 2023 increased $147 million (8%) compared to the fourth quarter of 2022 reflecting a combination of new business opportunities, increased exposures and a good renewal rate environment. Overall average renewal rates increased approximately 6% in the fourth quarter of 2023. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates increased approximately 7%.
Property and transportation Gross written premiums increased $22 million (4%) in the fourth quarter of 2023 compared to the fourth quarter of 2022. This increase was due primarily to slightly higher crop premium related to the CRS acquisition, which was partially offset by the timing of renewals in several of the transportation businesses. Average renewal rates increased 7% for this group in the fourth quarter of 2023. Reinsurance premiums ceded as a percentage of gross written premiums increased 2 percentage points for the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting growth in alternative risk transfer products in the transportation businesses and higher premiums in the crop operations, both of which cede a higher percentage of premiums than some of the other businesses in the Property and transportation sub-segment.
Specialty casualty Gross written premiums increased $62 million (6%) in the fourth quarter of 2023 compared to the fourth quarter of 2022. New business opportunities and increased exposures in the excess and surplus operations and
increased exposures from payroll growth in the workers’ compensation businesses led to higher year-over-year premiums, with nearly all of the businesses in this group reporting growth in the quarter. This growth was partially offset by lower premiums in the executive liability business. Average renewal rates for this group increased approximately 4% in the fourth quarter of 2023. Excluding rate decreases in the workers’ compensation business, renewal rates for this group increased approximately 7%. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the fourth quarters of 2023 and 2022.
Specialty financial Gross written premiums increased $63 million (27%) in the fourth quarter of 2023 compared to the fourth quarter of 2022 due primarily to growth in the financial institutions business. Average renewal rates for this group increased approximately 9% in the fourth quarter of 2023. Reinsurance premiums ceded as a percentage of gross written premiums increased 1 percentage point in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the favorable impact of lower than previously estimated reinstatement premiums related to Hurricane Ian recorded in the fourth quarter of 2022.
Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased $8 million (13%) in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment.
Combined Ratio
Performance measures such as the combined ratio are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. The combined ratio is the sum of the loss and loss adjustment expenses (“LAE”) and underwriting expense ratios. These ratios are calculated by dividing each of the respective expenses by net earned premiums. The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | | | Three months ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 |
| Property and transportation | | | | | | | | | |
| Loss and LAE ratio | 69.0 | % | | 71.8 | % | | (2.8 | %) | | | | |
| Underwriting expense ratio | 21.3 | % | | 18.2 | % | | 3.1 | % | | | | |
| Combined ratio | 90.3 | % | | 90.0 | % | | 0.3 | % | | | | |
| Underwriting profit | | | | | | | $ | 67 | | | $ | 68 | |
| | | | | | | | | |
| Specialty casualty | | | | | | | | | |
| Loss and LAE ratio | 59.6 | % | | 55.4 | % | | 4.2 | % | | | | |
| Underwriting expense ratio | 25.0 | % | | 25.9 | % | | (0.9 | %) | | | | |
| Combined ratio | 84.6 | % | | 81.3 | % | | 3.3 | % | | | | |
| Underwriting profit | | | | | | | $ | 114 | | | $ | 128 | |
| | | | | | | | | |
| Specialty financial | | | | | | | | | |
| Loss and LAE ratio | 34.8 | % | | 33.8 | % | | 1.0 | % | | | | |
| Underwriting expense ratio | 46.5 | % | | 49.3 | % | | (2.8 | %) | | | | |
| Combined ratio | 81.3 | % | | 83.1 | % | | (1.8 | %) | | | | |
| Underwriting profit | | | | | | | $ | 45 | | | $ | 33 | |
| | | | | | | | | |
| Total Specialty | | | | | | | | | |
| Loss and LAE ratio | 60.7 | % | | 60.8 | % | | (0.1 | %) | | | | |
| Underwriting expense ratio | 27.0 | % | | 25.8 | % | | 1.2 | % | | | | |
| Combined ratio | 87.7 | % | | 86.6 | % | | 1.1 | % | | | | |
| Underwriting profit | | | | | | | $ | 212 | | | $ | 217 | |
| | | | | | | | | |
| Aggregate — including exited lines | | | | | | | | | |
| Loss and LAE ratio | 60.8 | % | | 60.7 | % | | 0.1 | % | | | | |
| Underwriting expense ratio | 27.0 | % | | 25.8 | % | | 1.2 | % | | | | |
| Combined ratio | 87.8 | % | | 86.5 | % | | 1.3 | % | | | | |
| Underwriting profit | | | | | | | $ | 211 | | | $ | 218 | |
The Specialty property and casualty insurance operations generated an underwriting profit of $212 million in the fourth quarter of 2023 compared to $217 million in the fourth quarter of 2022, a decrease of $5 million (2%). Higher underwriting profit in the Specialty financial sub-segment was more than offset by lower underwriting profits in the Specialty casualty and Property and transportation sub-segments. Overall catastrophe losses were $25 million (1.4 points on the combined ratio), including $1 million in net reinstatement premiums in the fourth quarter of 2023 compared to catastrophe losses of $11 million (0.9 points), including a $13 million favorable impact in the fourth quarter of 2022 from lower than previously estimated reinstatement premiums related to Hurricane Ian.
Property and transportation Underwriting profit for this group was $67 million for the fourth quarter of 2023 compared to $68 million in the fourth quarter of 2022, a decrease of $1 million (1%). Below average underwriting profitability in the crop insurance operations was largely offset by higher year-over-year underwriting profits in the property and inland marine and the non-crop agricultural businesses. Catastrophe losses for this group were $5 million (0.6 points on the combined ratio), including $2 million in net reinstatement premiums in the fourth quarter of 2023 compared to catastrophe losses of $7 million (1.0 points), including a $1 million favorable impact from lower than previously estimated net reinstatement premiums in the fourth quarter of 2022.
Specialty casualty Underwriting profit for this group was $114 million for the fourth quarter of 2023 compared to $128 million in the fourth quarter of 2022, a decrease of $14 million (11%). Higher year-over-year underwriting profits in the workers’ compensation and executive liability businesses were more than offset by lower underwriting profit in the excess and surplus business. Catastrophe losses were $8 million (1.1 points on the combined ratio), including a $1 million favorable impact from lower than previously estimated net reinstatement premiums in the fourth quarter of 2023 compared to catastrophe losses of $7 million (1.1 points), including a $1 million favorable impact from net reinstatement premiums in the fourth quarter of 2022.
Specialty financial Underwriting profit for this group was $45 million for the fourth quarter of 2023 compared to $33 million in the fourth quarter of 2022, an increase of $12 million (36%). This increase reflects higher year-over-year underwriting profit in the financial institutions business. Catastrophe losses were $4 million (2.0 points on the combined ratio) in the fourth quarter of 2023 compared to a favorable impact of $3 million (1.9 points), including a $10 million favorable impact from the change in estimated reinstatement premiums related to Hurricane Ian in the fourth quarter of 2022.
Other specialty This group reported an underwriting loss of $14 million for the fourth quarter of 2023 compared to $12 million in the fourth quarter of 2022, an increase of $2 million (17%), reflecting higher losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments in the fourth quarter of 2023 compared to the fourth quarter of 2022. This group reported catastrophe losses of $8 million in the fourth quarter of 2023 compared to less than $1 million in the fourth quarter of 2022.
Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include adverse prior year reserve development of $1 million in the fourth quarter of 2023 and net favorable prior year reserve development of $1 million in the fourth quarter of 2022 related to business outside of the Specialty group that AFG no longer writes.
Losses and Loss Adjustment Expenses
AFG’s overall loss and LAE ratio was 60.8% for the fourth quarter of 2023 compared to 60.7% for the fourth quarter of 2022, an increase of 0.1 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| Amount | | Ratio | | Change in Ratio |
| 2023 | | 2022 | | 2023 | | 2022 | |
| Property and transportation | | | | | | | | | |
Current year, excluding catastrophe losses | $ | 479 | | | $ | 494 | | | 70.2 | % | | 72.6 | % | | (2.4 | %) |
| Prior accident years development | (12) | | | (13) | | | (1.8 | %) | | (1.8 | %) | | — | % |
| Current year catastrophe losses including the impact of net reinstatement premiums | 3 | | | 8 | | | 0.6 | % | | 1.0 | % | | (0.4 | %) |
| Property and transportation losses and LAE and ratio | $ | 470 | | | $ | 489 | | | 69.0 | % | | 71.8 | % | | (2.8 | %) |
| | | | | | | | | |
| Specialty casualty | | | | | | | | | |
Current year, excluding catastrophe losses | $ | 466 | | | $ | 423 | | | 63.5 | % | | 61.6 | % | | 1.9 | % |
| Prior accident years development | (37) | | | (50) | | | (5.0 | %) | | (7.3 | %) | | 2.3 | % |
| Current year catastrophe losses including the impact of net reinstatement premiums | 9 | | | 8 | | | 1.1 | % | | 1.1 | % | | — | % |
| Specialty casualty losses and LAE and ratio | $ | 438 | | | $ | 381 | | | 59.6 | % | | 55.4 | % | | 4.2 | % |
| | | | | | | | | |
| Specialty financial | | | | | | | | | |
Current year, excluding catastrophe losses | $ | 89 | | | $ | 67 | | | 36.2 | % | | 36.0 | % | | 0.2 | % |
| Prior accident years development | (8) | | | (8) | | | (3.4 | %) | | (4.1 | %) | | 0.7 | % |
| Current year catastrophe losses including the impact of net reinstatement premiums | 4 | | | 7 | | | 2.0 | % | | 1.9 | % | | 0.1 | % |
| Specialty financial losses and LAE and ratio | $ | 85 | | | $ | 66 | | | 34.8 | % | | 33.8 | % | | 1.0 | % |
| | | | | | | | | |
| Total Specialty | | | | | | | | | |
Current year, excluding catastrophe losses | $ | 1,085 | | | $ | 1,021 | | | 62.6 | % | | 63.5 | % | | (0.9 | %) |
| Prior accident years development | (57) | | | (58) | | | (3.3 | %) | | (3.6 | %) | | 0.3 | % |
| Current year catastrophe losses including the impact of net reinstatement premiums | 24 | | | 24 | | | 1.4 | % | | 0.9 | % | | 0.5 | % |
| Total Specialty losses and LAE and ratio | $ | 1,052 | | | $ | 987 | | | 60.7 | % | | 60.8 | % | | (0.1 | %) |
| | | | | | | | | |
| Aggregate — including exited lines | | | | | | | | | |
Current year, excluding catastrophe losses | $ | 1,085 | | | $ | 1,021 | | | 62.6 | % | | 63.5 | % | | (0.9 | %) |
| Prior accident years development | (56) | | | (59) | | | (3.2 | %) | | (3.6 | %) | | 0.4 | % |
| Current year catastrophe losses including the impact of net reinstatement premiums | 24 | | | 24 | | | 1.4 | % | | 0.8 | % | | 0.6 | % |
| Aggregate losses and LAE and ratio | $ | 1,053 | | | $ | 986 | | | 60.8 | % | | 60.7 | % | | 0.1 | % |
Current accident year losses and LAE, excluding catastrophe losses
The current accident year loss and LAE ratio, excluding catastrophe losses for AFG’s Specialty property and casualty insurance operations was 62.6% for the fourth quarter of 2023 compared to 63.5% in the fourth quarter of 2022, a decrease of 0.9 percentage points.
Property and transportation The 2.4 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, is due primarily to the impact of lower claim severity in the property and inland marine and certain transportation businesses, partially offset by lower profitability in the crop business.
Specialty casualty The 1.9 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects anticipated medical cost inflation and the impact of pressure on rates in the workers’ compensation businesses and higher claim severity in certain liability coverages, partially offset by lower claim frequency in the executive liability business.
Specialty financial The 0.2 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects an increase in claim severity in the innovative markets business, partially offset by lower claim frequency and growth in the financial institutions business, which has a lower loss and LAE ratio than some of the other businesses in the Specialty financial sub-segment.
Net prior year reserve development
AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $57 million in the fourth quarter of 2023 compared to $58 million in the fourth quarter of 2022, a decrease of $1 million (2%).
Property and transportation Net favorable reserve development of $12 million in the fourth quarter of 2023 reflects lower than anticipated losses in the crop business and lower than expected claim frequency in the ocean marine and property and inland marine businesses. Net favorable reserve development of $13 million in the fourth quarter of 2022 reflects lower than expected claim severity in the ocean marine, aviation and property and inland marine businesses and lower than anticipated claim frequency in the trucking business.
Specialty casualty Net favorable reserve development of $37 million in the fourth quarter of 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses, partially offset by higher than anticipated claim severity in the excess and surplus business and higher than expected claim frequency and severity in the excess liability and general liability businesses. Net favorable reserve development of $50 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency and severity in the workers’ compensation and excess and surplus businesses and lower than expected claim frequency in the executive liability business.
Specialty financial Net favorable reserve development of $8 million in the fourth quarter of 2023 reflects lower than anticipated claim frequency and severity in the fidelity business and lower than expected claim frequency in the financial institutions and trade credit businesses. Net favorable reserve development of $8 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency in the trade credit and financial institutions businesses.
Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of less than $1 million in the fourth quarter of 2023 and $13 million in the fourth quarter of 2022. The fourth quarter of 2022 reflects net adverse reserve development associated with AFG’s internal reinsurance program (primarily from social inflation exposed casualty businesses) and, to a lesser extent, both periods reflect the amortization of the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of a business in 1998.
Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $1 million in the fourth quarter of 2023 and net favorable reserve development of $1 million in the fourth quarter of 2022 related to business outside of the Specialty group that AFG no longer writes.
Catastrophe losses
AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. Based on data available at December 31, 2023, AFG’s exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 100, 250 or 500 years as a percentage of AFG’s Shareholders’ Equity is shown below:
| | | | | | | | | | | | | | |
| Industry Model | | Approximate impact of modeled loss on AFG’s Shareholders’ Equity | |
| 100-year event | | 2% | |
| 250-year event | | 2% | |
| 500-year event | | 2% | |
Catastrophe losses of $24 million (before net reinstatement premiums) in the fourth quarter of 2023 resulted primarily from storms in multiple regions of the United States. Catastrophe losses of $24 million (before net reinstatement premiums) in the fourth quarter of 2022 resulted primarily from Winter Storm Elliott.
Commissions and Other Underwriting Expenses
AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $468 million in the fourth quarter of 2023 compared to $419 million for the fourth quarter of 2022, an increase of $49 million (12%). AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 27.0% for the fourth quarter of 2023 compared to 25.8% for the fourth quarter of 2022, an increase of 1.2 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| 2023 | | 2022 | | Change in % of NEP |
| U/W Exp | | % of NEP | | U/W Exp | | % of NEP | |
| Property and transportation | $ | 145 | | | 21.3 | % | | $ | 125 | | | 18.2 | % | | 3.1 | % |
| Specialty casualty | 185 | | | 25.0 | % | | 177 | | | 25.9 | % | | (0.9 | %) |
| Specialty financial | 114 | | | 46.5 | % | | 94 | | | 49.3 | % | | (2.8 | %) |
| Other specialty | 24 | | | 36.1 | % | | 23 | | | 34.8 | % | | 1.3 | % |
| $ | 468 | | | 27.0 | % | | $ | 419 | | | 25.8 | % | | 1.2 | % |
Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums increased 3.1 percentage points in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the impact of lower profit-based ceding commissions related to below average profitability in the crop operations, the impact on the ratio of lower earned premiums in the crop operations (which has a lower commissions and other underwriting expense ratio than some of the other businesses in the Property and transportation sub-segment) and higher expenses related to certain technology initiatives.
Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.9 percentage points in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the impact on the ratio of growth in earned premiums in the workers’ compensation businesses, partially offset by higher expenses related to certain technology initiatives.
Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 2.8 percentage points in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the impact on the ratio of growth in earned premiums in the financial institutions, surety and innovative markets businesses and lower contingent commissions paid to agents in the innovative markets business, partially offset by the impact of an increase in net earned premiums in the fourth quarter of 2022 due to lower than previously estimated reinstatement premiums related to Hurricane Ian and higher expenses related to certain technology initiatives.
Property and Casualty Net Investment Income
Net investment income in AFG’s property and casualty insurance operations was $161 million in the fourth quarter of 2023 compared to $159 million in the fourth quarter of 2022, an increase of $2 million (1%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | | | % |
| 2023 | | 2022 | | Change | | Change |
| Net investment income: | | | | | | | |
| Net investment income, excluding alternative investments | $ | 156 | | | $ | 131 | | | $ | 25 | | | 19 | % |
| Alternative investments | 5 | | | 28 | | | (23) | | | (82 | %) |
| Total net investment income | $ | 161 | | | $ | 159 | | | $ | 2 | | | 1 | % |
| | | | | | | |
| Average invested assets (at amortized cost) | $ | 15,227 | | | $ | 14,304 | | | $ | 923 | | | 6 | % |
| | | | | | | |
| Yield (net investment income as a % of average invested assets) | 4.23 | % | | 4.45 | % | | (0.22 | %) | | |
| | | | | | | |
| Tax equivalent yield (*) | 4.31 | % | | 4.53 | % | | (0.22 | %) | | |
(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.
The increase in the property and casualty insurance segment’s net investment income for the fourth quarter of 2023 compared to the fourth quarter of 2022 reflects the impact of higher yields on fixed maturity investments and higher balances of invested assets, partially offset by lower returns on AFG’s alternative investment portfolio (partnerships and
similar investments and AFG-managed CLOs). The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.23% for the fourth quarter of 2023 compared to 4.45% for the fourth quarter of 2022, a decrease of 0.22 percentage points reflecting lower returns on alternative investments, partially offset by higher yields on fixed maturity investments. The annualized return earned on alternative investments was 0.8% in the fourth quarter of 2023 compared to 5.3% in the prior year period.
Property and Casualty Other Income and Expenses, Net
Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $15 million for the fourth quarter of 2023 compared to $14 million for the fourth quarter of 2022, an increase of $1 million (7%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):
| | | | | | | | | | | |
| Three months ended December 31, |
| 2023 | | 2022 |
| Other income: | | | |
| Income related to the sale of real estate | $ | — | | | $ | — | |
| Other | 3 | | | — | |
| Total other income | 3 | | | — | |
| Other expenses: | | | |
| Amortization of intangibles | 4 | | | 4 | |
| Interest expense on funds withheld | 12 | | | 8 | |
| Other | 2 | | | 2 | |
| Total other expenses | 18 | | | 14 | |
| Other income and expenses, net | $ | (15) | | | $ | (14) | |
|
|
| | | | | | | | | |
| Year ended December 31, | | Change |
| Combined Ratios: | 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| Specialty lines | | | | | | | | | |
| Loss and LAE ratio | 61.5 | % | | 59.6 | % | | 58.4 | % | | 1.9 | % | | 1.2 | % |
| Underwriting expense ratio | 28.8 | % | | 27.6 | % | | 28.0 | % | | 1.2 | % | | (0.4 | %) |
| Combined ratio | 90.3 | % | | 87.2 | % | | 86.4 | % | | 3.1 | % | | 0.8 | % |
| | | | | | | | | |
| Aggregate — including exited lines | | | | | | | | | |
| Loss and LAE ratio | 61.6 | % | | 59.7 | % | | 58.5 | % | | 1.9 | % | | 1.2 | % |
| Underwriting expense ratio | 28.8 | % | | 27.6 | % | | 28.0 | % | | 1.2 | % | | (0.4 | %) |
| Combined ratio | 90.4 | % | | 87.3 | % | | 86.5 | % | | 3.1 | % | | 0.8 | % |
AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.
Gross Written Premiums
Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $9.66 billion in 2023 compared to $9.06 billion in 2022, an increase of $599 million (7%). GWP increased $1.11 billion (14%) in 2022 compared to 2021. Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
| 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| GWP | | % | | GWP | | % | | GWP | | % | | | | |
| Property and transportation | $ | 4,146 | | | 43 | % | | $ | 4,060 | | | 45 | % | | $ | 3,263 | | | 41 | % | | 2 | % | | 24 | % |
| Specialty casualty | 4,368 | | | 45 | % | | 4,115 | | | 45 | % | | 3,890 | | | 49 | % | | 6 | % | | 6 | % |
| Specialty financial | 1,142 | | | 12 | % | | 882 | | | 10 | % | | 793 | | | 10 | % | | 29 | % | | 11 | % |
| $ | 9,656 | | | 100 | % | | $ | 9,057 | | | 100 | % | | $ | 7,946 | | | 100 | % | | 7 | % | | 14 | % |
Reinsurance Premiums Ceded
Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 31% of gross written premiums for both the year ended December 31, 2023 and the year ended December 31, 2022 and 30% for the year ended December 31, 2021, an increase of 1 percentage point for 2023 and 2022 compared to 2021. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Change in % of GWP |
| 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| Ceded | | % of GWP | | Ceded | | % of GWP | | Ceded | | % of GWP | | | | |
| Property and transportation | $ | (1,595) | | | 38 | % | | $ | (1,545) | | | 38 | % | | $ | (1,106) | | | 34 | % | | — | % | | 4 | % |
| Specialty casualty | (1,424) | | | 33 | % | | (1,387) | | | 34 | % | | (1,350) | | | 35 | % | | (1 | %) | | (1 | %) |
| Specialty financial | (207) | | | 18 | % | | (171) | | | 19 | % | | (135) | | | 17 | % | | (1 | %) | | 2 | % |
| Other specialty | 262 | | | | | 252 | | | | | 218 | | | | | | | |
| $ | (2,964) | | | 31 | % | | $ | (2,851) | | | 31 | % | | $ | (2,373) | | | 30 | % | | — | % | | 1 | % |
Net Written Premiums
Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $6.69 billion in 2023 compared to $6.21 billion in 2022, an increase of $486 million (8%). NWP increased $633 million (11%) in 2022 compared to 2021. Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
| 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| NWP | | % | | NWP | | % | | NWP | | % | | | | |
| Property and transportation | $ | 2,551 | | | 38 | % | | $ | 2,515 | | | 41 | % | | $ | 2,157 | | | 39 | % | | 1 | % | | 17 | % |
| Specialty casualty | 2,944 | | | 44 | % | | 2,728 | | | 44 | % | | 2,540 | | | 45 | % | | 8 | % | | 7 | % |
| Specialty financial | 935 | | | 14 | % | | 711 | | | 11 | % | | 658 | | | 12 | % | | 32 | % | | 8 | % |
| Other specialty | 262 | | | 4 | % | | 252 | | | 4 | % | | 218 | | | 4 | % | | 4 | % | | 16 | % |
| $ | 6,692 | | | 100 | % | | $ | 6,206 | | | 100 | % | | $ | 5,573 | | | 100 | % | | 8 | % | | 11 | % |
Net Earned Premiums
Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $6.53 billion in 2023 compared to $6.09 billion in 2022, an increase of $446 million (7%). NEP increased $681 million (13%) in 2022 compared to 2021. Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
| 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| NEP | | % | | NEP | | % | | NEP | | % | | | | |
| Property and transportation | $ | 2,519 | | | 39 | % | | $ | 2,487 | | | 41 | % | | $ | 2,144 | | | 40 | % | | 1 | % | | 16 | % |
| Specialty casualty | 2,886 | | | 44 | % | | 2,659 | | | 44 | % | | 2,408 | | | 44 | % | | 9 | % | | 10 | % |
| Specialty financial | 867 | | | 13 | % | | 698 | | | 11 | % | | 642 | | | 12 | % | | 24 | % | | 9 | % |
| Other specialty | 259 | | | 4 | % | | 241 | | | 4 | % | | 210 | | | 4 | % | | 7 | % | | 15 | % |
| $ | 6,531 | | | 100 | % | | $ | 6,085 | | | 100 | % | | $ | 5,404 | | | 100 | % | | 7 | % | | 13 | % |
The $599 million (7%) increase in gross written premiums in 2023 compared to 2022 reflects growth in each of the Specialty property and casualty sub-segments as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment. Overall average renewal rates increased approximately 5% in 2023. Excluding the workers’ compensation businesses, renewal pricing increased approximately 6%.
The $1.11 billion (14%) increase in gross written premiums in 2022 compared to 2021 reflects growth in the crop insurance business. Excluding crop, gross and net written premiums increased 8% and 9%, respectively, in 2022 compared to 2021 reflecting increased exposures, new business opportunities and renewal rate increases. Overall average renewal rates increased approximately 5% in 2022. Excluding the workers’ compensation businesses, renewal pricing increased approximately 6%.
Property and transportation Gross written premiums increased $86 million (2%) in 2023 compared to 2022 reflecting the impact of increased rates, retentions and exposures in the transportation and ocean marine businesses and slightly higher crop premium related to the CRS acquisition in the fourth quarter of 2023. These items were partially offset by the impact of 2023 spring commodity futures pricing and related volatility on premiums in the crop business. Average renewal rates increased approximately 6% for this group in 2023. Reinsurance premiums ceded as a percentage of gross
written premiums were comparable in 2023 and 2022 reflecting growth in alternative risk transfer products in the transportation businesses, offset by the impact of lower premiums in the crop business. Both of these businesses cede a larger percentage of premiums than some of the other businesses in the Property and transportation sub-segment.
Gross written premiums increased $797 million (24%) in 2022 compared to 2021 reflecting the impact of higher commodity futures prices on the crop insurance business. Excluding crop, gross and net written premiums grew 11% and 10%, respectively, reflecting new business opportunities, increased exposures and rate increases. Average renewal rates increased approximately 6% for this group in 2022. Reinsurance premiums ceded as a percentage of gross written premiums increased 4 percentage points in 2022 compared to 2021 reflecting growth in crop insurance products with higher cessions and higher cessions in the ocean marine business.
Specialty casualty Gross written premiums increased $253 million (6%) in 2023 compared to 2022 due primarily to increased exposures from payroll growth and new business in the workers’ compensation businesses, new business opportunities, strong policy retention and rate increases in several of the targeted markets businesses and increased exposures and higher renewal rates in the excess and surplus and excess liability businesses. This growth was partially offset by lower premiums in the mergers and acquisitions liability and executive liability businesses. Average renewal rates increased approximately 4% for this group in 2023. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 6% in 2023. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2023 compared to 2022 reflecting higher premiums in the workers’ compensation businesses (which cede a lower percentage of premiums than some of the other businesses in the Specialty casualty sub-segment) and lower cessions in the environmental and mergers and acquisitions liability businesses and at ABA Insurance Services.
Gross written premiums increased $225 million (6%) in 2022 compared to 2021 due primarily to increased exposures in the excess and surplus businesses, rate increases and new business opportunities in the targeted markets businesses and increased exposures resulting from payroll growth and new business in the workers’ compensation businesses. This premium growth was partially offset by lower year-over-year premiums in the mergers and acquisitions liability business. Average renewal rates increased approximately 5% for this group in 2022. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 7% in 2022. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2022 compared to 2021 reflecting lower cessions in the excess and surplus and excess liability businesses and lower gross written premiums in the mergers and acquisitions liability business, which cedes a larger percentage of premiums than the other businesses in the Specialty casualty sub-segment.
Specialty financial Gross written premiums increased $260 million (29%) in 2023 compared to 2022 due primarily to growth in the financial institutions business. Average renewal rates increased approximately 5% for this group in 2023. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2023 compared to 2022 reflecting the impact of reinstatement premiums paid to reinsurers in 2022 related to Hurricane Ian.
Gross written premiums increased $89 million (11%) in 2022 compared to 2021 due primarily to higher premiums in the financial institutions business related to lender-placed mortgage protection insurance, rate increases and new business opportunities in the fidelity business and new business opportunities in the innovative markets and commercial equipment leasing businesses. Average renewal rates for this group increased approximately 5% in 2022. Reinsurance premiums ceded as a percentage of gross written premiums increased 2 percentage points in 2022 compared to 2021 reflecting the impact of reinstatement premiums related to Hurricane Ian and higher cessions in the innovative markets business.
Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased $10 million (4%) in 2023 compared to 2022, and $34 million (16%) in 2022 compared to 2021 reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment.
Combined Ratio
The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment for 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Change | | Year ended December 31, |
| 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 | | 2023 | | 2022 | | 2021 |
| Property and transportation | | | | | | | | | | | | | | | |
| Loss and LAE ratio | 69.2 | % | | 69.8 | % | | 65.1 | % | | (0.6 | %) | | 4.7 | % | | | | | | |
| Underwriting expense ratio | 23.6 | % | | 21.9 | % | | 22.0 | % | | 1.7 | % | | (0.1 | %) | | | | | | |
| Combined ratio | 92.8 | % | | 91.7 | % | | 87.1 | % | | 1.1 | % | | 4.6 | % | | | | | | |
| Underwriting profit | | | | | | | | | | | $ | 184 | | | $ | 208 | | | $ | 279 | |
| | | | | | | | | | | | | | | |
| Specialty casualty | | | | | | | | | | | | | | | |
| Loss and LAE ratio | 60.3 | % | | 54.7 | % | | 58.1 | % | | 5.6 | % | | (3.4 | %) | | | | | | |
| Underwriting expense ratio | 26.7 | % | | 26.5 | % | | 26.2 | % | | 0.2 | % | | 0.3 | % | | | | | | |
| Combined ratio | 87.0 | % | | 81.2 | % | | 84.3 | % | | 5.8 | % | | (3.1 | %) | | | | | | |
| Underwriting profit | | | | | | | | | | | $ | 375 | | | $ | 500 | | | $ | 377 | |
| | | | | | | | | | | | | | | |
| Specialty financial | | | | | | | | | | | | | | | |
| Loss and LAE ratio | 37.8 | % | | 34.1 | % | | 33.2 | % | | 3.7 | % | | 0.9 | % | | | | | | |
| Underwriting expense ratio | 49.5 | % | | 49.6 | % | | 51.9 | % | | (0.1 | %) | | (2.3 | %) | | | | | | |
| Combined ratio | 87.3 | % | | 83.7 | % | | 85.1 | % | | 3.6 | % | | (1.4 | %) | | | | | | |
| Underwriting profit | | | | | | | | | | | $ | 110 | | | $ | 114 | | | $ | 96 | |
| | | | | | | | | | | | | | | |
| Total Specialty | | | | | | | | | | | | | | | |
| Loss and LAE ratio | 61.5 | % | | 59.6 | % | | 58.4 | % | | 1.9 | % | | 1.2 | % | | | | | | |
| Underwriting expense ratio | 28.8 | % | | 27.6 | % | | 28.0 | % | | 1.2 | % | | (0.4 | %) | | | | | | |
| Combined ratio | 90.3 | % | | 87.2 | % | | 86.4 | % | | 3.1 | % | | 0.8 | % | | | | | | |
| Underwriting profit | | | | | | | | | | | $ | 633 | | | $ | 780 | | | $ | 737 | |
| | | | | | | | | | | | | | | |
| Aggregate — including exited lines | | | | | | | | | | | | | | |
| Loss and LAE ratio | 61.6 | % | | 59.7 | % | | 58.5 | % | | 1.9 | % | | 1.2 | % | | | | | | |
| Underwriting expense ratio | 28.8 | % | | 27.6 | % | | 28.0 | % | | 1.2 | % | | (0.4 | %) | | | | | | |
| Combined ratio | 90.4 | % | | 87.3 | % | | 86.5 | % | | 3.1 | % | | 0.8 | % | | | | | | |
| Underwriting profit | | | | | | | | | | | $ | 631 | | | $ | 776 | | | $ | 733 | |
The Specialty property and casualty insurance operations generated an underwriting profit of $633 million in 2023 compared to $780 million in 2022, a decrease of $147 million (19%). This decrease reflects lower underwriting profit in each of the Specialty property and casualty insurance sub-segments. Overall catastrophe losses were $165 million (2.5 points on the combined ratio), including $3 million in net reinstatement premiums, for 2023 compared to catastrophe losses of $93 million (1.5 points), including $5 million in net reinstatement premiums, for 2022.
The Specialty property and casualty insurance operations generated an underwriting profit of $780 million in 2022 compared to $737 million in 2021, an increase of $43 million (6%), reflecting higher underwriting profits in the Specialty casualty and Specialty financial sub-segments, partially offset by lower underwriting profit in the Property and transportation sub-segment. Underwriting results for the Specialty property and casualty insurance operations include $16 million in COVID-19 related losses (0.3 points on the combined ratio) in 2021. Overall catastrophe losses were $93 million (1.5 points on the combined ratio), including $5 million in net reinstatement premiums, for 2022 compared to catastrophe losses of $98 million (1.7 points), including $12 million in net reinstatement premiums, for 2021.
Property and transportation Underwriting profit for this group was $184 million in 2023 compared to $208 million in 2022, a decrease of $24 million (12%). Below average underwriting profitability in the crop insurance operations was partially offset by higher year-over-year underwriting profit in the property and inland marine business. Catastrophe losses were $53 million (2.0 points on the combined ratio), including $2 million in net reinstatement premiums, in 2023 compared to catastrophe losses of $45 million (1.9 points), including $3 million in net reinstatement premiums, in 2022.
Underwriting profit for this group was $208 million in 2022 compared to $279 million in 2021, a decrease of $71 million (25%), reflecting lower year-over-year profitability in the crop operations compared to the very strong results in 2021 and
lower underwriting profit in the transportation businesses, primarily the result of lower favorable prior year reserve development. Catastrophe losses were $45 million (1.9 points on the combined ratio), including $3 million in net reinstatement premiums, in 2022 compared to catastrophe losses of $58 million (2.7 points), including $9 million in net reinstatement premiums, in 2021.
Specialty casualty Underwriting profit for this group was $375 million in 2023 compared to $500 million in 2022, a decrease of $125 million (25%). The lower year-over-year underwriting profit was due primarily to lower favorable prior year reserve development in the workers’ compensation businesses and adverse reserve development in the public sector and excess and surplus businesses, partially offset by higher favorable prior year reserve development in the executive liability business. Catastrophe losses were $36 million (1.2 points on the combined ratio), including $1 million in net reinstatement premiums, in 2023 compared to catastrophe losses of $11 million (0.5 points) in 2022.
Underwriting profit for this group was $500 million in 2022 compared to $377 million in 2021, an increase of $123 million (33%). This increase reflects higher year-over-year underwriting profits in the workers’ compensation, excess and surplus, executive liability and mergers and acquisitions liability businesses. COVID-19 related losses were $9 million (0.4 points on the combined ratio) in 2021. Catastrophe losses were $11 million (0.5 points on the combined ratio) in 2022 compared to catastrophe losses of $10 million (0.4 points), including $1 million in net reinstatement premiums, in 2021.
Specialty financial Underwriting profit for this group was $110 million in 2023 compared to $114 million in 2022, a decrease of $4 million (4%). This decrease reflects higher year-over-year catastrophe losses in the financial institutions business and lower underwriting profit in the surety business. Catastrophe losses were $49 million (5.7 points on the combined ratio) in 2023 compared to catastrophe losses of $36 million (4.9 points), including $3 million in net reinstatement premiums, in 2022.
Underwriting profit for this group was $114 million in 2022 compared to $96 million in 2021, an increase of $18 million (19%) due primarily to higher year-over-year underwriting profits in the trade credit and financial institutions businesses. COVID-19 related losses were $7 million (1.1 points on the combined ratio) in 2021. Catastrophe losses were $36 million (4.9 points on the combined ratio), including $3 million in net reinstatement premiums, in 2022 compared to catastrophe losses of $28 million (4.1 points), including $2 million in net reinstatement premiums, in 2021.
Other specialty This group reported an underwriting loss of $36 million in 2023 compared to $42 million in 2022, a decrease of $6 million (14%), reflecting lower losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments. The underwriting loss in 2022 relates primarily to losses from social inflation exposed operations in the Specialty casualty sub-segment. Catastrophe losses were $27 million in 2023 compared to $1 million in 2022.
This group reported an underwriting loss of $42 million in 2022 compared to $15 million in 2021, an increase of $27 million (180%). This increase reflects higher losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments (primarily losses from social inflation exposed operations in the Specialty casualty sub-segment) in 2022 compared to 2021.
Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include adverse prior year reserve development of $2 million in 2023 and $4 million in both 2022 and 2021, related to business outside of the Specialty group that AFG no longer writes.
Losses and Loss Adjustment Expenses
AFG’s overall loss and LAE ratio was 61.6%, 59.7% and 58.5% in 2023, 2022 and 2021, respectively. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | | | |
| Amount | | Ratio | | Change in Ratio |
| 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| Property and transportation | | | | | | | | | | | | | | | |
| Current year, excluding COVID-19 related and catastrophe losses | $ | 1,774 | | | $ | 1,785 | | | $ | 1,448 | | | 70.5 | % | | 71.6 | % | | 67.2 | % | | (1.1 | %) | | 4.4 | % |
| Prior accident years development | (84) | | | (92) | | | (103) | | | (3.3 | %) | | (3.7 | %) | | (4.8 | %) | | 0.4 | % | | 1.1 | % |
| Current year COVID-19 related losses | — | | | — | | | — | | | — | % | | — | % | | — | % | | — | % | | — | % |
| Current year catastrophe losses including the impact of net reinstatement premiums | 51 | | | 42 | | | 49 | | | 2.0 | % | | 1.9 | % | | 2.7 | % | | 0.1 | % | | (0.8 | %) |
Property and transportation losses and LAE and ratio | $ | 1,741 | | | $ | 1,735 | | | $ | 1,394 | | | 69.2 | % | | 69.8 | % | | 65.1 | % | | (0.6 | %) | | 4.7 | % |
| | | | | | | | | | | | | | | |
| Specialty casualty | | | | | | | | | | | | | | | |
| Current year, excluding COVID-19 related and catastrophe losses | $ | 1,814 | | | $ | 1,632 | | | $ | 1,521 | | | 62.9 | % | | 61.4 | % | | 63.1 | % | | 1.5 | % | | (1.7 | %) |
| Prior accident years development | (110) | | | (190) | | | (140) | | | (3.8 | %) | | (7.2 | %) | | (5.8 | %) | | 3.4 | % | | (1.4 | %) |
| Current year COVID-19 related losses | — | | | — | | | 9 | | | — | % | | — | % | | 0.4 | % | | — | % | | (0.4 | %) |
| Current year catastrophe losses including the impact of net reinstatement premiums | 35 | | | 11 | | | 9 | | | 1.2 | % | | 0.5 | % | | 0.4 | % | | 0.7 | % | | 0.1 | % |
Specialty casualty losses and LAE and ratio | $ | 1,739 | | | $ | 1,453 | | | $ | 1,399 | | | 60.3 | % | | 54.7 | % | | 58.1 | % | | 5.6 | % | | (3.4 | %) |
| | | | | | | | | | | | | | | |
| Specialty financial | | | | | | | | | | | | | | | |
| Current year, excluding COVID-19 related and catastrophe losses | $ | 311 | | | $ | 252 | | | $ | 231 | | | 35.8 | % | | 36.0 | % | | 36.0 | % | | (0.2 | %) | | — | % |
| Prior accident years development | (32) | | | (47) | | | (51) | | | (3.7 | %) | | (6.8 | %) | | (8.0 | %) | | 3.1 | % | | 1.2 | % |
| Current year COVID-19 related losses | — | | | — | | | 7 | | | — | % | | — | % | | 1.1 | % | | — | % | | (1.1 | %) |
| Current year catastrophe losses including the impact of net reinstatement premiums | 49 | | | 33 | | | 26 | | | 5.7 | % | | 4.9 | % | | 4.1 | % | | 0.8 | % | | 0.8 | % |
Specialty financial losses and LAE and ratio | $ | 328 | | | $ | 238 | | | $ | 213 | | | 37.8 | % | | 34.1 | % | | 33.2 | % | | 3.7 | % | | 0.9 | % |
| | | | | | | | | | | | | | | |
| Total Specialty | | | | | | | | | | | | | | | |
| Current year, excluding COVID-19 related and catastrophe losses | $ | 4,079 | | | $ | 3,826 | | | $ | 3,334 | | | 62.4 | % | | 62.8 | % | | 61.6 | % | | (0.4 | %) | | 1.2 | % |
| Prior accident years development | (226) | | | (289) | | | (283) | | | (3.4 | %) | | (4.7 | %) | | (5.2 | %) | | 1.3 | % | | 0.5 | % |
| Current year COVID-19 related losses | — | | | — | | | 16 | | | — | % | | — | % | | 0.3 | % | | — | % | | (0.3 | %) |
| Current year catastrophe losses including the impact of net reinstatement premiums | 162 | | | 88 | | | 86 | | | 2.5 | % | | 1.5 | % | | 1.7 | % | | 1.0 | % | | (0.2 | %) |
| Total Specialty losses and LAE and ratio | $ | 4,015 | | | $ | 3,625 | | | $ | 3,153 | | | 61.5 | % | | 59.6 | % | | 58.4 | % | | 1.9 | % | | 1.2 | % |
| | | | | | | | | | | | | | | |
| Aggregate — including exited lines | | | | | | | | | | | | | | | |
| Current year, excluding COVID-19 related and catastrophe losses | $ | 4,079 | | | $ | 3,826 | | | $ | 3,334 | | | 62.4 | % | | 62.8 | % | | 61.6 | % | | (0.4 | %) | | 1.2 | % |
| Prior accident years development | (224) | | | (285) | | | (279) | | | (3.4 | %) | | (4.7 | %) | | (5.2 | %) | | 1.3 | % | | 0.5 | % |
| Current year COVID-19 related losses | — | | | — | | | 16 | | | — | % | | — | % | | 0.3 | % | | — | % | | (0.3 | %) |
| Current year catastrophe losses including the impact of net reinstatement premiums | 162 | | | 88 | | | 86 | | | 2.6 | % | | 1.6 | % | | 1.8 | % | | 1.0 | % | | (0.2 | %) |
| Aggregate losses and LAE and ratio | $ | 4,017 | | | $ | 3,629 | | | $ | 3,157 | | | 61.6 | % | | 59.7 | % | | 58.5 | % | | 1.9 | % | | 1.2 | % |
Current accident year losses and LAE, excluding COVID-19 related and catastrophe losses
The current accident year loss and LAE ratio, excluding COVID-19 related and catastrophe losses for AFG’s Specialty property and casualty insurance operations was 62.4% in 2023, 62.8% in 2022 and 61.6% in 2021.
Property and transportation The 1.1 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2023 compared to 2022 is due primarily to the impact of elevated large loss activity in the property and inland marine business in 2022 and improved results in certain transportation businesses, partially offset by lower profit in the crop business.
The 4.4 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 is due primarily to lower profitability in the crop insurance business compared to the very strong results recorded in 2021. Excluding crop, the loss and LAE ratio for the current year, excluding catastrophe losses was comparable in 2022 and 2021.
Specialty casualty The 1.5 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2023 compared to 2022 reflects anticipated medical cost inflation and the impact of pressure on rates in the workers’ compensation businesses and higher claim severity in certain liability coverages.
The 1.7 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 reflects favorable trends in workers’ compensation and the impact of higher rates in the executive liability, excess and surplus and excess liability businesses.
Specialty financial The 0.2 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2023 compared to 2022 reflects lower claim frequency and growth in the financial institutions business, which has a lower loss and LAE ratio than some of the other businesses in the Specialty financial sub-segment, partially offset by higher claim severity in the innovative markets business.
The loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 is unchanged compared to the 2021 period.
Net prior year reserve development
AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $226 million in 2023 compared to $289 million in 2022 and $283 million in 2021, a decrease of $63 million (22%) and an increase of $6 million (2%), respectively.
Property and transportation Net favorable reserve development of $84 million in 2023 reflects lower than anticipated losses in the crop business, lower than expected claim frequency and severity across the transportation businesses and lower than anticipated claim frequency in the property and inland marine and ocean marine businesses and in the Singapore operations.
Net favorable reserve development of $92 million in 2022 reflects lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business.
Net favorable reserve development of $103 million in 2021 reflects lower than anticipated claim frequency and severity in the transportation businesses, lower than expected losses in the crop business, lower than expected claim severity in the ocean marine business and lower than expected claim frequency in the aviation business.
Specialty casualty Net favorable reserve development of $110 million in 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability and environmental businesses and favorable reserve development related to COVID-19 losses across several businesses, partially offset by higher than anticipated claim severity in the public sector business and higher than expected claim frequency and severity in the excess liability and general liability businesses.
Net favorable reserve development of $190 million in 2022 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability and excess and surplus businesses, partially offset by higher than anticipated claim severity in the general liability, umbrella and excess liability, and certain targeted markets businesses.
Net favorable reserve development of $140 million in 2021 reflects lower than anticipated claim severity in the workers’ compensation businesses, partially offset by higher than anticipated claim severity in the general liability and targeted markets businesses.
Specialty financial Net favorable reserve development of $32 million in 2023 reflects lower than anticipated claim frequency in the trade credit, financial institutions and surety businesses and lower than expected claim frequency and severity in the fidelity business.
Net favorable reserve development of $47 million in 2022 reflects lower than anticipated claim frequency in the surety, trade credit and financial institutions businesses.
Net favorable reserve development of $51 million in 2021 reflects lower than anticipated claim frequency in the surety and trade credit businesses and lower than expected claim frequency and severity in the financial institutions business.
Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of less than $1 million, $40 million and $11 million in 2023, 2022, and 2021, respectively. The net adverse reserve development reflects $4 million, $44 million and $16 million in 2023, 2022 and 2021, respectively, of net adverse development associated with AFG’s internal reinsurance program. The net adverse reserve development in 2022 and 2021 relates primarily to social inflation exposed business assumed from the Specialty casualty sub-segment. This adverse reserve development is partially offset by the amortization of the deferred gains on the retroactive reinsurance transactions entered into in connection with the sale of businesses in 1998 and 2001.
Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $2 million in 2023 and $4 million in both 2022 and 2021 related to business outside the Specialty group that AFG no longer writes.
Covid-19 related losses
AFG’s Specialty property and casualty insurance operations released prior accident year COVID-19 reserves of $20 million in 2023 based on improved loss experience across several businesses. In 2022, AFG’s Specialty property and casualty insurance operations released $19 million of prior accident year COVID-19 reserves based on improved loss experience in the trade credit and workers’ compensation businesses. In 2021, AFG’s Specialty property and casualty insurance operations recorded $16 million in reserve charges related to COVID-19 primarily related to the workers’ compensation and trade credit businesses, and recorded favorable development of approximately $19 million of accident year 2020 reserves primarily based on loss experience in the trade credit and executive liability businesses. Given the uncertainties surrounding the ultimate number and scope of claims relating to the pandemic, approximately 28% of the $55 million in cumulative COVID-19 related losses are held as incurred but not reported reserves at December 31, 2023.
Catastrophe losses
AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. AFG recorded net catastrophe losses of $162 million in 2023 (before $3 million in net reinstatement premiums) primarily from February and March storms across much of the United States in the first quarter and storms in multiple regions of the United States in the second, third and fourth quarters.
Catastrophe losses of $88 million in 2022 (before $5 million in net reinstatement premiums) resulted primarily from winter storms in multiple regions of the United States in the first quarter, storms in multiple regions of the United States in the second quarter, Hurricane Ian in the third quarter and Winter Storm Elliott in the fourth quarter.
Catastrophe losses of $86 million in 2021 (before $12 million in net reinstatement premiums) resulted primarily from winter storms in Texas in the first quarter; storms in multiple regions of the United States in the second, third and fourth quarters; Hurricane Ida in the third quarter and Kentucky tornadoes and Colorado fires in the fourth quarter.
Commissions and Other Underwriting Expenses
AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $1.88 billion in 2023 compared to $1.68 billion in 2022, an increase of $203 million (12%). AFG’s underwriting expense ratio was 28.8% in 2023 compared to 27.6% in 2022, an increase of 1.2 percentage points.
AFG’s property and casualty U/W Exp were $1.68 billion in 2022 compared to $1.51 billion in 2021, an increase of $166 million (11%). AFG’s underwriting expense ratio was 27.6% in 2022 compared to 28.0% in 2021, a decrease of 0.4 percentage points.
Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Change in % of NEP |
| 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| U/W Exp | | % of NEP | | U/W Exp | | % of NEP | | U/W Exp | | % of NEP | | | | |
| Property and transportation | $ | 594 | | | 23.6 | % | | $ | 544 | | | 21.9 | % | | $ | 471 | | | 22.0 | % | | 1.7 | % | | (0.1 | %) |
| Specialty casualty | 772 | | | 26.7 | % | | 706 | | | 26.5 | % | | 632 | | | 26.2 | % | | 0.2 | % | | 0.3 | % |
| Specialty financial | 429 | | | 49.5 | % | | 346 | | | 49.6 | % | | 333 | | | 51.9 | % | | (0.1 | %) | | (2.3 | %) |
| Other specialty | 88 | | | 33.9 | % | | 84 | | | 34.7 | % | | 78 | | | 37.2 | % | | (0.8 | %) | | (2.5 | %) |
| $ | 1,883 | | | 28.8 | % | | $ | 1,680 | | | 27.6 | % | | $ | 1,514 | | | 28.0 | % | | 1.2 | % | | (0.4 | %) |
Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums increased 1.7 percentage points in 2023 compared to 2022 reflecting the impact of lower profit-based ceding commissions related to below average profitability in the crop operations, the impact on the ratio of lower earned premiums in the crop operations (which has a lower commissions and other underwriting expense ratio compared to some of the other businesses in the Property and transportation sub-segment) and higher expenses related to certain technology initiatives.
Commissions and other underwriting expenses as a percentage of net earned premiums were comparable in 2022 and 2021.
Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.2 percentage points in 2023 compared to 2022 reflecting higher expenses related to certain technology initiatives, partially offset by the impact on the ratio of growth in earned premiums in the workers’ compensation businesses.
Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.3 percentage points in 2022 compared to 2021 reflecting higher underwriting expenses in the workers’ compensation businesses.
Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.1 percentage points in 2023 compared to 2022 reflecting the impact on the ratio of growth in earned premiums in the financial institutions and innovative markets businesses, partially offset by higher expenses related to certain technology initiatives and the impact of lower profit-based commissions to agents and lower reinstatement premiums recorded in 2022 as a result of losses from Hurricane Ian.
Commissions and other underwriting expenses as a percentage of net earned premiums decreased 2.3 percentage points in 2022 compared to 2021 reflecting lower profit-based commissions to agents in 2022 compared to 2021, and lower underwriting expenses in the international operations.
Property and Casualty Net Investment Income
Net investment income in AFG’s property and casualty insurance operations was $729 million in 2023 compared to $683 million in 2022, an increase of $46 million (7%). Net investment income in AFG’s property and casualty insurance operations was $683 million in 2022 compared to $663 million in 2021, an increase of $20 million (3%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | 2023 - 2022 | | 2022 - 2021 |
| 2023 | | 2022 | | 2021 | | Change | | % Change | | Change | | % Change |
| Net investment income: | | | | | | | | | | | | | |
| Net investment income, excluding alternative investments | $ | 566 | | | $ | 418 | | | $ | 323 | | | $ | 148 | | | 35 | % | | $ | 95 | | | 29 | % |
| Alternative investments | 163 | | | 265 | | | 340 | | | (102) | | | (38 | %) | | (75) | | | (22 | %) |
| Total net investment income | $ | 729 | | | $ | 683 | | | $ | 663 | | | $ | 46 | | | 7 | % | | $ | 20 | | | 3 | % |
| | | | | | | | | | | | | |
| Average invested assets (at amortized cost) | $ | 14,753 | | | $ | 14,048 | | | $ | 12,944 | | | $ | 705 | | | 5 | % | | $ | 1,104 | | | 9 | % |
| | | | | | | | | | | | | |
| Yield (net investment income as a % of average invested assets) | 4.94 | % | | 4.86 | % | | 5.12 | % | | 0.08 | % | | | | (0.26 | %) | | |
| | | | | | | | | | | | | |
| Tax equivalent yield (*) | 5.01 | % | | 4.96 | % | | 5.25 | % | | 0.05 | % | | | | (0.29 | %) | | |
(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.
The increase in the property and casualty insurance segment’s net investment income in 2023 compared to 2022 reflects the impact of higher yields on fixed maturity investments and higher balances of invested assets, partially offset by lower returns on AFG’s alternative investments portfolio (partnerships and similar investments and AFG-managed CLOs) as compared to the very strong performance of this portfolio in the prior year period. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.94% in 2023 compared to 4.86% in 2022, an increase of 0.08 percentage points reflecting higher yields on fixed maturity investments, partially offset by lower returns on alternative investments. The annualized return earned on alternative investments was 7.0% in 2023 compared to 13.2% in 2022.
The increase in net investment income in 2022 compared to 2021 reflects higher average investments and higher yields on fixed maturities, partially offset by lower returns on AFG’s alternative investments as compared to the very strong performance of alternative investments in the prior year. The property and casualty insurance segment’s overall yield on investments was 4.86% in 2022 compared to 5.12% in 2021, a decrease of 0.26 percentage points as higher yields on fixed maturity investments were more than offset by lower returns on alternative investments. The annualized return earned on alternative investments was 13.2% in 2022 compared to 25.3% in 2021.
Property and Casualty Other Income and Expenses, Net
Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $56 million in 2023, $40 million in 2022 and $6 million in 2021, an increase of $16 million (40%) in 2023 compared to 2022 and an increase of $34 million (567%) in 2022 compared to 2021. The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Other income: | | | | | |
| Income related to the sale of real estate | $ | — | | | $ | 1 | | | $ | 10 | |
| Other | 16 | | | 11 | | | 17 | |
| Total other income | 16 | | | 12 | | | 27 | |
| Other expenses: | | | | | |
| Amortization of intangibles | 15 | | | 11 | | | 6 | |
| Interest expense on funds withheld | 41 | | | 29 | | | 25 | |
| Acquisition expenses related to CRS | 3 | | | — | | | — | |
| Other (*) | 13 | | | 12 | | | 2 | |
| Total other expenses | 72 | | | 52 | | | 33 | |
| Other income and expenses, net | $ | (56) | | | $ | (40) | | | $ | (6) | |
(*)Includes $9 million of expenses in both 2023 and 2022 related to certain technology initiatives.
The higher amortization of intangibles in 2023 compared to 2022 and 2022 compared to 2021 reflects the acquisition of CRS in July 2023 and the acquisition of Verikai in December 2021, respectively. The $12 million (41%) increase in interest expense on funds withheld in 2023 compared to 2022 reflects the impact of higher interest rates.
Holding Company, Other and Unallocated — Results of Operations
AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $191 million in 2023 compared to $180 million in 2022, an increase of $11 million (6%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $177 million in 2023 compared to $171 million in 2022, an increase of $6 million (4%).
AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $180 million in 2022 compared to $219 million in 2021, a decrease of $39 million (18%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $171 million in 2022 compared to $208 million in 2021, a decrease of $37 million (18%).
The following table details AFG’s GAAP and core loss from continuing operations before income taxes from operations outside of its property and casualty insurance segment in 2023, 2022 and 2021 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
| 2023 | | 2022 | | 2021 | | 2023 - 2022 | | 2022 - 2021 |
| Revenues: | | | | | | | | | |
| Net investment income | $ | 40 | | | $ | 24 | | | $ | 36 | | | 67 | % | | (33 | %) |
| Other income — P&C fees | 125 | | | 89 | | | 80 | | | 40 | % | | 11 | % |
| Other income | 21 | | | 33 | | | 22 | | | (36 | %) | | 50 | % |
| Total revenues | 186 | | | 146 | | | 138 | | | 27 | % | | 6 | % |
| | | | | | | | | |
| Costs and Expenses: | | | | | | | | | |
| Property and casualty insurance — loss adjustment and underwriting expenses | 68 | | | 38 | | | 33 | | | 79 | % | | 15 | % |
| Other expense — expenses associated with P&C fees | 57 | | | 51 | | | 47 | | | 12 | % | | 9 | % |
| Other expenses (*) | 162 | | | 143 | | | 172 | | | 13 | % | | (17 | %) |
| Costs and expenses, excluding interest charges on borrowed money | 287 | | | 232 | | | 252 | | | 24 | % | | (8 | %) |
| Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money | (101) | | | (86) | | | (114) | | | 17 | % | | (25 | %) |
| Interest charges on borrowed money | 76 | | | 85 | | | 94 | | | (11 | %) | | (10 | %) |
| Core loss from continuing operations before income taxes, excluding realized gains and losses | (177) | | | (171) | | | (208) | | | 4 | % | | (18 | %) |
Pretax non-core special A&E charge | (15) | | | — | | | — | | | — | % | | — | % |
Pretax non-core gain (loss) on retirement of debt | 1 | | | (9) | | | — | | | (111 | %) | | — | % |
| Pretax non-core loss on pension settlement | — | | | — | | | (11) | | | — | % | | (100 | %) |
| GAAP loss from continuing operations before income taxes, excluding realized gains and losses | $ | (191) | | | $ | (180) | | | $ | (219) | | | 6 | % | | (18 | %) |
(*)Excludes a pretax non-core special A&E charge of $15 million and a pretax non-core gain on retirement of debt of $1 million in 2023, a pretax non-core loss on retirement of debt of $9 million in 2022 and a pretax non-core loss of $11 million related to the settlement of pension liabilities of a small former manufacturing operation in 2021.
Holding Company and Other — Net Investment Income
AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $40 million, $24 million and $36 million in 2023, 2022 and 2021, respectively. The $16 million (67%) increase in 2023 compared to 2022 and the $12 million (33%) decrease in 2022 compared to 2021 reflect the impact of a small portfolio of securities held at the holding company that were carried at fair value through net investment income. These securities, all of which were sold in 2022, declined in value by $7 million in 2022 and increased in value by $14 million in 2021. Excluding the change in fair value of these equity securities, net investment income outside of AFG’s property and casualty insurance segment increased $9 million in 2023 compared to 2022 reflecting the impact of higher interest rates on cash and fixed maturity investments, partially offset by lower average investment balances and increased $9 million in 2022 compared to 2021 reflecting an increase in average investments, income from directly owned real estate investments acquired from the annuity subsidiaries in conjunction with the sale of the annuity business in May 2021 and the impact of higher interest rates.
Holding Company and Other — P&C Fees and Related Expenses
Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In 2023, AFG collected $91 million in fees for these services compared to $82 million in 2022 and $73 million in 2021. Management views this fee income, net of the $57 million in 2023, $51 million in 2022 and $47 million in 2021, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. In addition, AFG’s property and casualty insurance businesses earned $34 million in fees as compensation for providing services during the second half of 2023 related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date and $7 million in fees from AFG’s disposed annuity operations in both 2022 and 2021 as compensation for certain services provided under a transition services agreement. The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of loss adjustment and other underwriting expenses in AFG’s segmented results.
Holding Company and Other — Other Income
Other income in the table above includes $16 million in 2023, $17 million in 2022 and $16 million in 2021, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidated MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $5 million in 2023, $16 million in 2022 and $6 million in 2021. The decrease in 2023 compared to 2022 and the increase in 2022 compared to 2021 is due primarily to income from the sale of real estate in 2022.
Holding Company and Other — Other Expenses
Excluding the non-core special A&E charge and the non-core gain (loss) on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $162 million in 2023 compared to $143 million in 2022, an increase of $19 million (13%) reflecting the favorable impact of poor stock market performance in 2022 on expenses related to deferred compensation obligations to employees that are tied to stock market performance. To mitigate the impact of fair value changes related to the equity components of these obligations, AFG entered into a total return swap in the second half of 2022.
Excluding the non-core loss on retirement of debt and the non-core loss on pension settlement discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $143 million in 2022 compared to $172 million in 2021, a decrease of $29 million (17%). This decrease reflects lower holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance, partially offset by higher charges (included in AFG’s core operating earnings) to increase the liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations.
Holding Company and Other — Interest Charges on Borrowed Money
AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $76 million in 2023, $85 million in 2022 and $94 million in 2021. The $9 million (11%) decrease in interest expense in 2023 compared to 2022 and the $9 million (10%) decrease in interest expense in 2022 compared to 2021 is due primarily to the retirement of AFG’s $425 million principal amount of 3.50% Senior Notes during the first six months of 2022.
Holding Company and Other — Special A&E Charge
As a result of the in-depth internal reviews of A&E exposures discussed under “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves,” AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded a pretax non-core special charge of $15 million in 2023 and minor charges in 2022 and 2021 (included in AFG’s core operating earnings) to increase liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations. The 2023 charge reflects changes in the scope and costs of investigation and an increase in estimated remediation costs at a limited number of sites. AFG has also increased its reserve for asbestos and toxic substance exposures arising out of these operations. Total charges recorded to increase liabilities for A&E exposures of AFG’s former railroad and manufacturing operations (included in other expenses) were $22 million in 2023, $17 million in 2022 and $9 million in 2021.
Holding Company and Other — Gain (Loss) on Retirement of Debt
During the first six months of 2023, AFG repurchased $23 million principal amount of its senior notes, which resulted in a $2 million pretax non-core gain and recorded a $1 million pretax non-core loss related to the write-off of debt issue costs associated with its previous revolving credit facility, which was replaced in June 2023. During 2022, AFG retired $472 million principal amount of its senior notes, which resulted in a $9 million pretax non-core loss.
Holding Company and Other — Loss on Pension Settlement
In the second quarter of 2021, AFG settled pension liabilities related to a small former manufacturing operation resulting in a pretax non-core loss of $11 million.
Realized Gains (Losses) on Securities
AFG’s realized gains (losses) on securities were net losses of $36 million in 2023 compared to $116 million in 2022, a decrease of $80 million (69%). AFG’s consolidated realized gains (losses) on securities were net losses of $116 million in 2022 compared to net gains of $110 million in 2021, a change of $226 million (205%). Realized gains (losses) on securities consisted of the following (in millions):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Realized gains (losses) before impairment allowances: | | | | | |
| Disposals | $ | (33) | | | $ | (15) | | | $ | 5 | |
| Change in the fair value of equity securities | 10 | | | (96) | | | 110 | |
| Change in the fair value of derivatives | (2) | | | (12) | | | (6) | |
| Other | — | | | 10 | | | — | |
| (25) | | | (113) | | | 109 | |
| | | | | |
| Change in allowance for impairments on securities | (11) | | | (3) | | | 1 | |
| Realized gains (losses) on securities | $ | (36) | | | $ | (116) | | | $ | 110 | |
The $33 million net realized loss from disposals in 2023 includes losses of $15 million from the sale of investments in banks and $5 million from the sale of municipal bonds.
The $10 million net realized gain from the change in the fair value of equity securities in 2023 includes gains of $8 million on investments in retail companies, $7 million on investments in banks and financing companies, $5 million on investments in capital goods companies and $4 million on investments in natural gas companies, partially offset by losses of $8 million on investments in media companies and $6 million on investments in energy companies.
The $96 million net realized loss from the change in the fair value of equity securities in 2022 includes losses of $51 million on investments in banks and financing companies, $21 million on investments in media companies, $14 million on investments in healthcare companies, $7 million on investments in technology companies and $3 million on investments in retail companies, partially offset by gains of $17 million on investments in energy and natural gas companies.
The $110 million net realized gain from the change in the fair value of equity securities in 2021 includes gains of $29 million on investments in energy and natural gas companies, $18 million on investments in banks and financing companies, $17 million on investments in media companies, $14 million on investments in healthcare companies and $9 million on investments in capital goods companies.
Realized Gain (Loss) on Subsidiaries
In the third quarter of 2023, AFG recorded a realized loss on subsidiary of $4 million, consisting of a $26 million goodwill impairment charge, partially offset by a $22 million reduction in the fair value of a contingent consideration liability, both related to AFG’s investment in Verikai. See Note E — “Fair Value Measurements” and Note I — “Goodwill and Other Intangibles” to the financial statements.
In 2021, AFG recognized a pretax gain on sale of subsidiary of $4 million related to contingent consideration received on the sale of Neon.
Consolidated Income Taxes on Continuing Operations
AFG’s consolidated provision for income taxes on continuing operations was $221 million in 2023 compared to $225 million in 2022, a decrease of $4 million (2%). AFG’s consolidated provision for income taxes on continuing operations was $225 million in 2022 compared to $254 million in 2021, a decrease of $29 million (11%). See Note M — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.
Real Estate Entities Acquired from the Annuity Operations
The results of AFG’s disposed annuity businesses are reported as discontinued operations. Prior to the completion of the sale, AFG’s property and casualty insurance operations acquired certain real estate-related partnerships and AFG parent acquired certain directly owned real estate from those operations. GAAP pretax earnings from continuing operations includes the earnings from these entities through the May 31, 2021 effective date of the sale and certain other expenses that were retained from the annuity operations. The retained real estate entities contributed $51 million in GAAP pretax earnings through the May 31, 2021 effective date of the sale.
Discontinued Annuity Operations
AFG’s discontinued annuity operations, which were sold on May 31, 2021, contributed $324 million in GAAP pretax earnings (excluding the gain on the sale of the annuity operations) in 2021.
The following table details AFG’s earnings before and after income taxes and the gain on the sale from its discontinued annuity operations for the year ended December 31, 2021 (dollars in millions):
| | | | | |
| Year ended December 31, |
| 2021 (*) |
| Pretax annuity earnings historically reported as core operating earnings: | |
| Pretax annuity earnings before items below | $ | 106 | |
| Earnings on partnerships and similar investments | 139 | |
| Total pretax annuity earnings historically reported as core operating earnings | 245 | |
| |
| Pretax amounts previously reported outside of annuity core earnings: | |
Impact of reinsurance, derivatives related to fixed indexed annuities (“FIAs”) and other impacts of changes in the stock market and interest rates on FIAs over or under option costs | (33) | |
| Realized gains on securities | 112 | |
| Total pretax amounts previously reported outside of annuity core earnings | 79 | |
| GAAP pretax earnings from discontinued annuity operations, excluding the gain on the sale of the discontinued annuity operations | 324 | |
| Provision for income taxes | 66 | |
| GAAP net earnings from discontinued annuity operations, excluding the sale of the discontinued annuity operations | 258 | |
| Gain on sale of discontinued annuity operations, net of tax | 656 | |
| GAAP net earnings from discontinued annuity operations | $ | 914 | |
(*)Results through the May 31, 2021 effective date of the sale.
ACCOUNTING STANDARDS TO BE ADOPTED
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07 (“ASU 2023-07”), Improvements to Reportable Segment Disclosures. ASU 2023-07 will require enhanced disclosures about significant segment expenses and a description of the composition of other segment expenses by business segment. ASU 2023-07 also requires disclosure of the title and position of the chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied on a retrospective basis. As of December 31, 2023, AFG has not adopted ASU 2023-07. Management is evaluating the impact of the standard to the segment reporting disclosures. Since ASU 2023-07 only requires additional disclosure, the adoption of this guidance will not have an impact on AFG’s results of operations or financial condition.
In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures. ASU 2023-09 is intended to improve income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation presented in both dollar and percentage terms; (ii) the disaggregation of income taxes paid (net of refunds received), income (loss) before income taxes and income taxes by jurisdiction (federal, state and foreign taxes); and (iii) further disaggregation of income taxes paid by any individual jurisdiction equal to or exceeding five percent of total income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied prospectively with the option of retrospective application. As of December 31, 2023, AFG has not adopted ASU 2023-09. Management is evaluating the impact of the standard to the income tax disclosures. Since ASU 2023-09 only requires additional disclosure, the adoption of this guidance will not have an impact on AFG’s results of operations or financial condition.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. AFG’s exposures to market risk relate primarily to its investment portfolio, which is exposed to interest rate risk and, to a lesser extent, equity price risk. To a much lesser extent, AFG’s long-term debt is also exposed to interest rate risk.
Fixed Maturity Interest Rate Risk In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. AFG’s fixed maturity portfolio is comprised of primarily fixed-rate investments with intermediate-term maturities. This practice is designed to allow flexibility in reacting to fluctuations of interest rates. The portfolios of AFG’s insurance operations are managed with an attempt to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet policyholder obligations.
Consistent with the discussion in Item 7 — Management’s Discussion and Analysis — “Investments,” the following table demonstrates the sensitivity of the fair value of AFG’s fixed maturity portfolio to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have at December 31 (based on the duration of the portfolio, dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Fair value of fixed maturity portfolio | $ | 10,434 | | | $ | 10,127 | |
| Percentage impact on fair value of 100 bps increase in interest rates | (3.0 | %) | | (3.0 | %) |
| Pretax impact on fair value of fixed maturity portfolio | $ | (313) | | | $ | (304) | |
Equity Price Risk AFG’s equity securities are reported at fair value with holding gains and losses recognized in net earnings. At December 31, 2023 and 2022, the fair value of AFG’s equity securities totaled $1.02 billion and $1.01 billion, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value. Market prices of equity securities, in general, are subject to fluctuations, which could cause future values to differ significantly from the current reported values. General economic swings influence the performance of the underlying industries and companies within those industries. Industry and company-specific risks also have the potential to substantially affect the value of AFG’s portfolio.
AFG utilizes a total return swap to offset changes in liabilities related to the equity price risk of certain deferred compensation arrangements. Gains or losses from changes in fair value of the total return swap are generally offset by changes in the carrying value of the related liabilities, both of which are included in other expenses.
Long-Term Debt The following table shows scheduled principal payments on fixed-rate long-term debt of AFG and its subsidiaries and related weighted average interest rates for each of the subsequent five years and for all years thereafter (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | | December 31, 2022 | |
| | Scheduled Principal Payments | | Rate | | | Scheduled Principal Payments | | Rate | |
| 2024 | $ | — | | | — | % | | 2023 | $ | — | | | — | % | |
| 2025 | — | | | — | % | | 2024 | — | | | — | % | |
| 2026 | — | | | — | % | | 2025 | — | | | — | % | |
| 2027 | — | | | — | % | | 2026 | — | | | — | % | |
| 2028 | — | | | — | % | | 2027 | — | | | — | % | |
| Thereafter | 1,498 | | | 4.9 | % | | Thereafter | 1,521 | | | 4.9 | % | |
| Total | $ | 1,498 | | | 4.9 | % | | Total | $ | 1,521 | | | 4.9 | % | |
| | | | | | | | | | |
| Fair Value | $ | 1,345 | | | | | Fair Value | $ | 1,302 | | | | |
Item 8. Financial Statements and Supplementary Data
| | | | | |
| Page |
Report of Independent Registered Public Accounting Firm (PCAOB ID: ) | |
Consolidated Balance Sheet as of December 31, 2023 and 2022 | |
Consolidated Statement of Earnings for the years ended December 31, 2023, 2022 and 2021 | |
Consolidated Statement of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 | |
Consolidated Statement of Changes in Equity for the years ended December 31, 2023, 2022 and 2021 | |
Consolidated Statement of Cash Flows for the years ended December 31, 2023, 2022 and 2021 | |
| Notes to Consolidated Financial Statements | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
AFG’s management, with participation of its Co-Chief Executive Officers and its Chief Financial Officer, has evaluated AFG’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report. Based on that evaluation, AFG’s Co-CEOs and CFO concluded that the controls and procedures are effective. There have been no changes in AFG’s internal control over financial reporting during the fourth fiscal quarter of 2023 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
AFG’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including AFG’s Co-Chief Executive Officers and Chief Financial Officer, AFG conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2023, based on the criteria set forth in “Internal Control — Integrated Framework” issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.
In conducting AFG’s evaluation of the effectiveness of its internal control over financial reporting, AFG has not included Crop Risk Services (“CRS”), which was acquired in 2023. CRS constituted less than 1% of total assets and total net assets as of December 31, 2023 and less than 1% of total revenues and net earnings for the year then ended. CRS’ operations will be included in AFG’s assessment as of December 31, 2024. Refer to Note C — “Acquisitions and Sale of Businesses” to the consolidated financial statements for further discussion of this acquisition.
There are inherent limitations to the effectiveness of any system of internal controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective internal controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on AFG’s evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2023. The attestation report of AFG’s independent registered public accounting firm on AFG’s internal control over financial reporting as of December 31, 2023, is set forth on page 84.
Item 9B. Other Information
During the three months ended December 31, 2023, none of the Company’s directors or officers , or modified a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of American Financial Group, Inc. and subsidiaries
Opinion on Internal Control Over Financial Reporting
We have audited American Financial Group, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, American Financial Group, Inc. and subsidiaries (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) and our report dated February 23, 2024 expressed an unqualified opinion thereon.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Crop Risk Services, which is included in the 2023 consolidated financial statements of the Company and constituted less than 1% of total and net assets as of December 31, 2023 and less than 1% of revenues and net income for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Crop Risk Services.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | | | | | | | |
| /s/ Ernst & Young LLP | | |
| Cincinnati, Ohio | | |
| February 23, 2024 | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of American Financial Group, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of American Financial Group, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| | | | | | | | |
| | Valuation of investments in fixed maturity securities |
| Description of the Matter | | As of December 31, 2023, the fair value of the Company’s fixed maturity securities totaled $10.43 billion, a portion of which are valued based on internally developed prices, using significant inputs not based on, or corroborated by, observable market information, or which are valued based on non-binding broker quotes. The fair values of these securities are determined by management applying the methodologies outlined in Note E to the consolidated financial statements. The credit spread applied by management for internally developed fixed maturity investment values and the lack of visibility into assumptions used in non-binding broker quotes are significant unobservable inputs, which create greater subjectivity when determining the fair values. Credit spread inputs are developed based on management’s review of trade activity for comparable securities and credit spreads over the treasury yield of securities with a similar duration.
Auditing the fair value of the fixed maturity securities that use unobservable inputs was complex and highly judgmental due to the judgment used by the Company in determining unobservable inputs and assumptions to estimate the securities’ fair value. Significant unobservable inputs and assumptions include credit spreads over the treasury yield and non-binding broker quotes. |
| | | | | | | | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s valuation process for the fixed maturity securities priced using unobservable inputs. This included, among others, testing controls over investment pricing and the development and review of significant inputs and assumptions used in determining the fair values.
To test the Company’s investment fair values, our audit procedures included, among others, comparing the fair values for a sample of securities to pricing service values or internally developed cash flow models. With the assistance of our valuation specialists, we evaluated the valuation methodologies used by the Company and compared the Company’s fair value estimate to an independently calculated range of fair value estimates for a sample of securities. We evaluated information that corroborated or contradicted the Company’s fair value estimates, including observable spreads and transaction data for similar securities. |
| | | | | | | | |
| | Unpaid losses and loss adjustment expenses |
| Description of the Matter | | As of December 31, 2023, the Company’s unpaid losses and loss adjustment expenses reserve liabilities net of reinsurance recoverables, net of allowance, (“reserves”) totaled $8.80 billion as disclosed in Note O to the consolidated financial statements. This liability represents management’s best estimate of the ultimate net cost of all unpaid losses and loss adjustment expenses and is determined by using case-basis evaluations, actuarial projections, and management’s judgment. Estimating the reserves is inherently judgmental and is influenced by factors that are subject to significant variation, particularly for lines of business that develop or are paid over a long period of time or that contain exposures with high potential severities, such as workers’ compensation, other liability, and asbestos and environmental. Auditing management’s best estimate of reserves was complex because it required the involvement of our actuarial specialists due to the highly judgmental nature of the assumptions used in the evaluation process. The significant judgment was primarily due to the sensitivity of management’s best estimate to the selection and weighting of actuarial methods, loss development factors, expected loss ratios, and estimated inflation. These assumptions have a significant effect on the valuation of reserves. |
| | | | | | | | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the process for estimating reserves. This included, among others, the review and approval processes that management has in place for the methods and assumptions used in estimating the reserves.
With the assistance of actuarial specialists, our audit procedures included, among others, an evaluation of the Company’s selection and weighting of actuarial methods used, including consideration of methods used in prior periods and those used in the industry for the specific types of insurance. To evaluate the significant assumptions used by management, we compared the significant assumptions, including loss development factors, expected loss ratios, and inflation, to factors historically used and current industry benchmarks. We also performed a review of the development of prior years’ reserve estimates. With the assistance of actuarial specialists, we established an independent range of reasonable reserve estimates, which we compared to management’s best estimate. |
| | | | | | | | |
| | |
| | |
/s/ | | |
| We have served as the Company’s auditor since 1961. | | |
| | |
| February 23, 2024 | | |
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| Assets: | | | |
| Cash and cash equivalents | $ | | | | $ | | |
| Investments: | | | |
Fixed maturities, available for sale at fair value (amortized cost — $ and $; allowance for expected credit losses of $ and $) | | | | | |
| Fixed maturities, trading at fair value | | | | | |
| Equity securities, at fair value | | | | | |
| Investments accounted for using the equity method | | | | | |
| Mortgage loans | | | | | |
| Real estate and other investments | | | | | |
| Total cash and investments | | | | | |
| | | |
| Recoverables from reinsurers | | | | | |
| Prepaid reinsurance premiums | | | | | |
| Agents’ balances and premiums receivable | | | | | |
| Deferred policy acquisition costs | | | | | |
| Assets of managed investment entities | | | | | |
| Other receivables | | | | | |
| Other assets | | | | | |
| Goodwill | | | | | |
| Total assets | $ | | | | $ | | |
| | | |
| Liabilities and Equity: | | | |
| Unpaid losses and loss adjustment expenses | $ | | | | $ | | |
| Unearned premiums | | | | | |
| Payable to reinsurers | | | | | |
| Liabilities of managed investment entities | | | | | |
| Long-term debt | | | | | |
| Other liabilities | | | | | |
| Total liabilities | | | | | |
| | | |
| Shareholders’ equity: | | | |
Common Stock, par value — shares authorized — and shares outstanding | | | | | |
| Capital surplus | | | | | |
| Retained earnings | | | | | |
| Accumulated other comprehensive income (loss), net of tax | () | | | () | |
| Total shareholders’ equity | | | | | |
| Total liabilities and shareholders’ equity | $ | | | | $ | | |
See notes to consolidated financial statements.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(In Millions, Except Per Share Data)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Revenues: | | | | | |
| Property and casualty insurance net earned premiums | $ | | | | $ | | | | $ | | |
| Net investment income | | | | | | | | |
| Realized gains (losses) on: | | | | | |
| Securities | () | | | () | | | | |
| Subsidiaries | () | | | | | | | |
| Income of managed investment entities: | | | | | |
| Investment income | | | | | | | | |
Gain (loss) on change in fair value of assets/liabilities | | | | () | | | | |
| Other income | | | | | | | | |
| Total revenues | | | | | | | | |
| | | | | |
| Costs and Expenses: | | | | | |
| Property and casualty insurance: | | | | | |
| Losses and loss adjustment expenses | | | | | | | | |
| Commissions and other underwriting expenses | | | | | | | | |
| Interest charges on borrowed money | | | | | | | | |
| Expenses of managed investment entities | | | | | | | | |
| Other expenses | | | | | | | | |
| Total costs and expenses | | | | | | | | |
Earnings from continuing operations before income taxes | | | | | | | | |
Provision for income taxes | | | | | | | | |
Net earnings from continuing operations | | | | | | | | |
| Net earnings from discontinued operations | | | | | | | | |
Net Earnings | $ | | | | $ | | | | $ | | |
| | | | | |
Earnings per Basic Common Share from: | | | | | |
| Continuing operations | $ | | | | $ | | | | $ | | |
| Discontinued operations | | | | | | | | |
Total basic earnings | $ | | | | $ | | | | $ | | |
Earnings per Diluted Common Share: | | | | | |
| Continuing operations | $ | | | | $ | | | | $ | | |
| Discontinued operations | | | | | | | | |
Total diluted earnings | $ | | | | $ | | | | $ | | |
| Average number of Common Shares: | | | | | |
| Basic | | | | | | | | |
| Diluted | | | | | | | | |
See notes to consolidated financial statements.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Millions)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
Net earnings | $ | | | | $ | | | | $ | | |
| | | | | |
Other comprehensive income (loss), net of tax: | | | | | |
| Net unrealized gains (losses) on securities: | | | | | |
| Unrealized holding gains (losses) on securities arising during the period | | | | () | | | () | |
| Reclassification adjustment for realized (gains) losses included in net earnings | | | | | | | () | |
| Reclassification adjustment for unrealized gains of subsidiaries sold | | | | | | | () | |
| Total net unrealized gains (losses) on securities | | | | () | | | () | |
| Net unrealized gains (losses) on cash flow hedges: | | | | | |
| Unrealized holding gains (losses) on cash flow hedges arising during the period | () | | | () | | | () | |
| Reclassification adjustment for investment income included in net earnings | | | | | | | () | |
| Reclassification adjustment for unrealized gains on cash flow hedges of subsidiaries sold | | | | | | | () | |
| Total net unrealized gains (losses) on cash flow hedges | | | | () | | | () | |
| Foreign currency translation adjustments | | | | () | | | () | |
| Pension and other postretirement plans adjustments (“OPRP”): | | | | | |
| Unrealized holding gains (losses) on pension and OPRP arising during the period | () | | | | | | () | |
| Reclassification adjustment for pension settlement loss included in net earnings | | | | | | | | |
| Total pension and OPRP adjustments | () | | | | | | | |
Other comprehensive income (loss), net of tax | | | | () | | | () | |
| | | | | |
Comprehensive income | $ | | | | $ | | | | $ | | |
See notes to consolidated financial statements.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Dollars in Millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Shareholders’ Equity |
Common Shares | | | Common Stock and Capital Surplus | | Retained Earnings | | Accumulated Other Comp. Income (Loss) | | Total |
| Balance at December 31, 2020 | | | | | $ | | | | $ | | | | $ | | | | $ | | |
Net earnings | — | | | | — | | | | | | — | | | | |
Other comprehensive loss | — | | | | — | | | — | | | () | | | () | |
Dividends ($ per share) | — | | | | — | | | () | | | — | | | () | |
| Shares issued: | | | | | | | | | | |
| Exercise of stock options | | | | | | | | — | | | — | | | | |
| Restricted stock awards | | | | | | | | — | | | — | | | | |
| Other benefit plans | | | | | | | | — | | | — | | | | |
| Dividend reinvestment plan | | | | | | | | — | | | — | | | | |
| Stock-based compensation expense | — | | | | | | | — | | | — | | | | |
| Shares acquired and retired | () | | | | () | | | () | | | — | | | () | |
| Shares exchanged — benefit plans | () | | | | () | | | () | | | — | | | () | |
| Forfeitures of restricted stock | () | | | | — | | | — | | | — | | | — | |
| | | | | | | | |
| Balance at December 31, 2021 | | | | | $ | | | | $ | | | | $ | | | | $ | | |
Net earnings | — | | | | — | | | | | | — | | | | |
Other comprehensive loss | — | | | | — | | | — | | | () | | | () | |
Dividends ($ per share) | — | | | | — | | | () | | | — | | | () | |
| Shares issued: | | | | | | | | | | |
| Exercise of stock options | | | | | | | | — | | | — | | | | |
| Restricted stock awards | | | | | | | | — | | | — | | | | |
| Other benefit plans | | | | | | | | — | | | — | | | | |
| Dividend reinvestment plan | | | | | | | | — | | | — | | | | |
| Stock-based compensation expense | — | | | | | | | — | | | — | | | | |
| Shares acquired and retired | () | | | | () | | | () | | | — | | | () | |
| Shares exchanged — benefit plans | () | | | | () | | | () | | | — | | | () | |
| Forfeitures of restricted stock | () | | | | — | | | — | | | — | | | — | |
| | | | | | | | |
| Balance at December 31, 2022 | | | | | $ | | | | $ | | | | $ | () | | | $ | | |
Net earnings | — | | | | — | | | | | | — | | | | |
Other comprehensive income | — | | | | — | | | — | | | | | | | |
Dividends ($ per share) | — | | | | — | | | () | | | — | | | () | |
| Shares issued: | | | | | | | | | | |
| Exercise of stock options | | | | | | | | — | | | — | | | | |
| Restricted stock awards | | | | | | | | — | | | — | | | | |
| Other benefit plans | | | | | | | | — | | | — | | | | |
| Dividend reinvestment plan | | | | | | | | — | | | — | | | | |
| Stock-based compensation expense | — | | | | | | | — | | | — | | | | |
| Shares acquired and retired | () | | | | () | | | () | | | — | | | () | |
| Shares exchanged — benefit plans | () | | | | () | | | () | | | — | | | () | |
| Forfeitures of restricted stock | () | | | | — | | | — | | | — | | | — | |
| | | | | | | | |
| Balance at December 31, 2023 | | | | | $ | | | | $ | | | | $ | () | | | $ | | |
See notes to consolidated financial statements.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Operating Activities: | | | | | |
Net earnings | $ | | | | $ | | | | $ | | |
| Adjustments: | | | | | |
| Depreciation and amortization | | | | | | | | |
| Annuity benefits | | | | | | | | |
Realized gains (losses) on investing activities | | | | | | | () | |
| Net (purchases) sales of trading securities | () | | | () | | | () | |
| Deferred annuity and life policy acquisition costs | | | | | | | () | |
| Change in: | | | | | |
| Reinsurance and other receivables | () | | | () | | | () | |
| Other assets | () | | | () | | | | |
| Insurance claims and reserves | | | | | | | | |
| Payable to reinsurers | | | | | | | | |
| Other liabilities | | | | () | | | () | |
| Managed investment entities’ assets/liabilities | | | | () | | | () | |
| Other operating activities, net | () | | | () | | | () | |
Net cash provided by operating activities | | | | | | | | |
| | | | | |
| Investing Activities: | | | | | |
| Purchases of: | | | | | |
| Fixed maturities | () | | | () | | | () | |
| Equity securities | () | | | () | | | () | |
| Mortgage loans | | | | () | | | () | |
| Equity index options and other investments | () | | | () | | | () | |
| Real estate, property and equipment | () | | | () | | | () | |
| Businesses | () | | | () | | | () | |
| Proceeds from: | | | | | |
| Maturities and redemptions of fixed maturities | | | | | | | | |
| Repayments of mortgage loans | | | | | | | | |
| Sales of fixed maturities | | | | | | | | |
| Sales of equity securities | | | | | | | | |
| Sales and settlements of equity index options and other investments | | | | | | | | |
| Sales of real estate, property and equipment | | | | | | | | |
| Sales of businesses | | | | | | | | |
| Cash and cash equivalents of businesses acquired and sold | | | | | | | () | |
| Managed investment entities: | | | | | |
| Purchases of investments | () | | | () | | | () | |
| Proceeds from sales and redemptions of investments | | | | | | | | |
| Other investing activities, net | () | | | () | | | | |
Net cash provided by (used in) investing activities | | | | () | | | () | |
| | | | | |
| Financing Activities: | | | | | |
|
| Reductions of long-term debt | () | | | () | | | | |
| Issuances of Common Stock | | | | | | | | |
| Repurchases of Common Stock | () | | | () | | | () | |
| Cash dividends paid on Common Stock | () | | | () | | | () | |
| Annuity receipts | | | | | | | | |
| Ceded annuity receipts | | | | | | | () | |
| Annuity surrenders, benefits and withdrawals | | | | | | | () | |
| Ceded annuity surrenders, benefits and withdrawals | | | | | | | | |
| Net transfers from variable annuity assets | | | | | | | | |
| Issuances of managed investment entities’ liabilities | | | | | | | | |
| Retirements of managed investment entities’ liabilities | () | | | () | | | () | |
|
|
| Reclassify AOCI | () | |
| Net investment in annuity businesses sold, excluding AOCI | $ | | |
Details of the results of operations for the discontinued annuity operations were (in millions):
| | | | | |
| Year Ended December 31, 2021 (*) |
| Net investment income | $ | | |
| Realized gains on securities | | |
| Other income | | |
| Total revenues | | |
| Annuity benefits | | |
| Annuity and supplemental insurance acquisition expenses | | |
| Other expenses | | |
| Total costs and expenses | | |
| Earnings before income taxes from discontinued operations | | |
| Provision for income taxes on discontinued operations | | |
| Net earnings from discontinued operations, net of tax | | |
| Gain on sale of discontinued operations, net of tax | | |
| Net earnings from discontinued operations | $ | | |
(*)Results through the May 31, 2021 effective date of the sale.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | Sale related expenses | () | |
| Total net proceeds | | |
| |
| Net investment in annuity businesses sold, excluding AOCI | | |
| Reclassify net deferred tax asset | () | |
| Pretax gain on sale | | |
| Income tax expense: | |
| Reclassify net deferred tax asset | | |
| Tax liabilities triggered by the sale | | |
| Other | () | |
| Total income tax expense | | |
| Net gain on sale | $ | | |
Summarized cash flows for the discontinued annuity operations were (in millions):
| | | | | |
| Year Ended
December 31, 2021 (*) |
| Net cash provided by operating activities | $ | | |
| Net cash used in investing activities | () | |
Net cash provided by financing activities | | |
(*)Through the May 31, 2021 effective date of the sale.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
C.
billion and was the seventh largest provider of multi-peril crop insurance in the United States based on 2022 premiums. At closing, AFG paid AIG $ million (based on $ million in net tangible assets) using cash on hand.
AFG expensed the $ million in acquisition costs incurred. | | |
Tangible assets acquired: | |
Cash and cash equivalents | $ | | |
Agents’ balances and premiums receivable | | |
Other assets | | |
Total tangible assets acquired | $ | | |
| |
Liabilities acquired: | |
Other liabilities | $ | | |
Total liabilities acquired | | |
Net tangible assets acquired, at fair value | | |
Excess purchase price over net tangible assets acquired | $ | | |
| |
| Allocation of excess purchase price: | |
Intangible assets acquired (*) | $ | | |
Deferred tax asset (*) | | |
Goodwill | | |
| $ | | |
In the purchase price allocation, $ million of the purchase price was recognized as finite lived intangible assets primarily related to existing agency relationships, which will be amortized over an average estimated life of approximately years. The acquisition resulted in the recognition of $ million in GAAP basis goodwill based on the excess of the purchase price over the fair value of the net assets acquired. The acquisition resulted in $ million of tax basis goodwill, which is deductible for tax purposes.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
AFG expensed the approximately $ million in acquisition costs incurred.
| Fair value of contingent consideration | | |
Total purchase price | | |
| |
Tangible assets acquired | | |
Liabilities acquired | | |
Net tangible assets acquired, at fair value | | |
Excess purchase price over net tangible assets acquired | $ | | |
| |
| Allocation of excess purchase price: | |
Intangible assets acquired (*) | $ | | |
Deferred tax on intangible assets acquired (*) | () | |
Goodwill | | |
| $ | | |
(*)Included in Other assets in AFG’s Balance Sheet.
In the purchase price allocation, $ million of the purchase price was recognized as finite lived intangible assets related to acquired technology and customer relationships, which will be amortized over an average estimated life of approximately years. The acquisition resulted in the recognition of $ million in goodwill based on the excess of the purchase price over the fair value of the net assets acquired. The goodwill represents the fair value of acquired intangible assets that do not qualify for separate recognition, including the value of Verikai’s future technology and opportunities and assembled workforce.
In the third quarter of 2022, AFG acquired an insurance agency business for $ million, including $ million in cash. Virtually all of the purchase price was recorded as an amortizing intangible asset representing the fair value of the agency’s customer base at acquisition.
Annuity Operations See Note B — “Discontinued Operations” for information on the sale of AFG’s annuity operations.
Neon In December 2019, AFG initiated actions to exit the Lloyd’s of London insurance market, which included placing Neon Underwriting Ltd. and its other Lloyd’s subsidiaries in run-off. Neon and its predecessor, Marketform, failed to achieve AFG’s profitability objectives since AFG’s purchase of Marketform in 2008.
On December 31, 2020, AFG completed the sale of GAI Holding Bermuda and its subsidiaries, comprising the legal entities that own Neon, to RiverStone Holdings Limited for proceeds of $ million. The sale completed AFG’s exit from the Lloyd’s of London insurance market.
In the second quarter of 2021, AFG received an additional $ million of cash proceeds and recognized a pretax gain of $ million related to contingent consideration received on the sale of Neon.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
D.
segments: Property and casualty insurance and Other, which includes holding company assets and costs, and operations attributable to the noncontrolling interests of the managed investment entities.
Sales of property and casualty insurance outside of the United States represented % of AFG’s revenues in 2023 and % in both 2022 and 2021.
| | $ | | | | Other | | | | | |
| Total assets | $ | | | | $ | | |
(*)Not allocable to sub-segments.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Revenues | | | | | |
| Property and casualty insurance: | | | | | |
| Premiums earned: | | | | | |
| Specialty | | | | | |
| Property and transportation | $ | | | | $ | | | | $ | | |
| Specialty casualty | | | | | | | | |
| Specialty financial | | | | | | | | |
| Other specialty | | | | | | | | |
|
|
| December 31, 2023 | | | | | | | | | | | |
| Fixed maturities: | | | | | | | | | | | |
U.S. Government and government agencies | $ | | | | $ | | | | | % | | $ | () | | | $ | | | | | % |
States, municipalities and political subdivisions | () | | | | | | | % | | () | | | | | | | % |
| Foreign government | | | | | | | | % | | () | | | | | | | % |
| Residential MBS | () | | | | | | | % | | () | | | | | | | % |
| Commercial MBS | | | | | | | | % | | () | | | | | | | % |
| Collateralized loan obligations | | | | | | | | % | | () | | | | | | | % |
| Other asset-backed securities | () | | | | | | | % | | () | | | | | | | % |
| Corporate and other | () | | | | | | | % | | () | | | | | | | % |
| Total fixed maturities | $ | () | | | $ | | | | | % | | $ | () | | | $ | | | | | % |
| | | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | | |
| Fixed maturities: | | | | | | | | | | | |
U.S. Government and government agencies | $ | () | | | $ | | | | | % | | $ | () | | | $ | | | | | % |
States, municipalities and political subdivisions | () | | | | | | | % | | () | | | | | | | % |
| Foreign government | () | | | | | | | % | | () | | | | | | | % |
| Residential MBS | () | | | | | | | % | | () | | | | | | | % |
| Commercial MBS | () | | | | | | | % | | () | | | | | | | % |
| Collateralized loan obligations | () | | | | | | | % | | () | | | | | | | % |
| Other asset-backed securities | () | | | | | | | % | | () | | | | | | | % |
| Corporate and other | () | | | | | | | % | | () | | | | | | | % |
| Total fixed maturities | $ | () | | | $ | | | | | % | | $ | () | | | $ | | | | | % |
At December 31, 2023, the gross unrealized losses on fixed maturities of $ million relate to approximately securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately % of the gross unrealized loss and % of the fair value of securities with unrealized losses.
To evaluate fixed maturities for expected credit losses (impairment), management considers whether the unrealized loss is credit-driven or a result of changes in market interest rates, the extent to which fair value is less than cost basis, historical operating, balance sheet and cash flow data from the issuer, third party research and communications with industry specialists and discussions with issuer management.
AFG analyzes its MBS for expected credit losses (impairment) each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan to collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data.
Management believes AFG will recover its cost basis (net of any allowance) in the securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at December 31, 2023.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | |
| Provision for expected credit losses on securities with no previous allowance | | | | | | | | |
| Reductions to previously recognized expected credit losses | () | | | | | | () | |
| Reductions due to sales or redemptions | | | | () | | | () | |
| Balance at December 31, 2021 | | | | | | | | |
|
| Provision for expected credit losses on securities with no previous allowance | | | | | | | | |
| Reductions to previously recognized expected credit losses | () | | | | | | () | |
| Reductions due to sales or redemptions | | | | () | | | () | |
| Balance at December 31, 2022 | | | | | | | | |
|
| Provision for expected credit losses on securities with no previous allowance | | | | | | | | |
Additions (reductions) to previously recognized expected credit losses | | | | () | | | | |
| Reductions due to sales or redemptions | () | | | () | | | () | |
| Balance at December 31, 2023 | $ | | | | $ | | | | $ | | |
(*)Includes mortgage-backed securities, collateralized loan obligations and other asset-backed securities.
In 2023, 2022 and 2021, AFG did not purchase any securities with expected credit losses.
| | $ | | | | | % | | After one year through five years | | | | | | | | % |
| After five years through ten years | | | | | | | | % |
| After ten years | | | | | | | | % |
| | | | | | | | % |
Collateralized loan obligations and other ABS (average life of approximately years) | | | | | | | | % |
MBS (average life of approximately years) | | | | | | | | % |
| Total | $ | | | | $ | | | | | % |
(*)Amortized cost, net of allowance for expected credit losses.
Certain risks are inherent in fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.
There were no investments in individual issuers that exceeded 10% of shareholders’ equity at December 31, 2023 or 2022.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | Change in fair value (a) | () | | | | | | | |
| Equity securities: | | | | | |
Dividends | | | | | | | | |
Change in fair value (b) | | | | () | | | | |
Equity in earnings of partnerships and similar investments | | | | | | | | |
| Other | | | | | | | | |
| Gross investment income | | | | | | | | |
| Investment expenses | () | | | () | | | () | |
Net investment income | $ | | | | $ | | | | $ | | |
(a)The change in the fair value of fixed maturities classified as trading and derivatives embedded in convertible fixed maturities related to limited partnerships and similar investments.
(b)Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses on limited partnerships and similar investments that do not qualify for equity method accounting and related equity investments in net investment income.
) | | $ | () | | | $ | () | | | $ | | | | $ | () | | | $ | () | | | $ | () | | | $ | () | | | Equity securities | | | | | | | | | | | | | () | | | | | | () | | | | |
| Mortgage loans and other investments | | | | () | | | () | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Total pretax | () | | | () | | | () | | | | | | () | | | () | | | () | | | () | |
| Tax effects | | | | | | | | | | () | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net of tax | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 |
| | | | | Realized gains (losses) | | |
| | | | | | | | | Before Impairments | | Impairment Allowance | | Total | | Change in Unrealized |
| Fixed maturities | | | | | | | | | $ | () | | | $ | | | | $ | | | | $ | () | |
| Equity securities | | | | | | | | | | | | | | | | | | | |
| Mortgage loans and other investments | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Total pretax | | | | | | | | | | | | | | | | | | () | |
| Tax effects | | | | | | | | | () | | | | | | () | | | | |
| | | | | | | | | |
| Net of tax | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | () | |
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | () | | | $ | | | | Included in net investment income | | | | | | | | |
| $ | | | | $ | () | | | $ | | |
| | $ | | | | $ | | | | Gross losses | () | | | () | | | () | |
G.
| | $ | | | | $ | | | | $ | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | |
Fixed maturities with embedded derivatives | Fixed maturities | | | | | | | | | | | | |
Total return swap | Other assets/Other liabilities | | | | | | | | | | | | |
| | | $ | | | | $ | | | | $ | | | | $ | | |
AFG’s interest rate swaps are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities included in AFG’s portfolio of fixed maturity securities. The purpose of each of these swaps is to effectively convert a portion of AFG’s floating-rate fixed maturity securities to fixed rates by offsetting the variability in cash flows attributable to changes in the applicable Secured Overnight Financing Rate (“SOFR”).
Under the terms of the swaps, AFG receives fixed-rate interest payments in exchange for variable interest payments based on SOFR (previously based on LIBOR). The notional amounts of the interest rate swaps generally decline over each swap’s respective life (the swaps expire between July 2024 and July 2028) in anticipation of the expected decline in AFG’s portfolio of fixed maturity securities with floating interest rates based on SOFR. The total outstanding notional amount of AFG’s interest rate swaps was $ billion at December 31, 2023 compared to $ billion at December 31, 2022, reflecting the issuance of new swaps with a total notional amount of $ million in 2023, partially offset by scheduled amortization. In 2023 and 2022 a loss of $ million and income of less than $ million (net), respectively, were reclassified from AOCI to net earnings. Based on forward interest rate curves at December 31, 2023, management estimates that it will reclassify approximately $ million of pre-tax net losses on interest rate swaps in AOCI to net investment income over the next twelve months. The actual amount will vary based on changes in SOFR. A collateral receivable supporting these swaps of $ million and $ million at December 31, 2023 and December 31, 2022, respectively, is included in other assets in AFG’s Balance Sheet.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | | Fixed maturities with embedded derivatives | | Realized gains (losses) on securities | | () | | | () | | | () | | | | | | | | | | |
| Fixed maturities with embedded derivatives | | Net investment income | | () | | | | | | | | | | | | | | | | |
Total return swap | | Other expenses | | | | | () | | | | | | | | | | | | | |
| Total earnings (losses) of continuing operations | | | | $ | | | | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | | |
| | | | | | | | | | | | | | |
| Derivative instruments of discontinued operations (*): | | | | | | | | | | | | | | |
| Interest rate swaps | | Net earnings from discontinued operations | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| MBS with embedded derivatives | | Net earnings from discontinued operations | | | | | | | | () | | | | | | | | | | |
| Fixed-indexed and variable-indexed annuities (embedded derivative) | | Net earnings from discontinued operations | | | | | | | | () | | | | | | | | | | |
| Equity index call options | | Net earnings from discontinued operations | | | | | | | | | | | | | | | | | | |
| Equity index put options | | Net earnings from discontinued operations | | | | | | | | | | | | | | | | | | |
| Reinsurance contract (embedded derivative) | | Net earnings from discontinued operations | | | | | | | | | | | | | | | | | | |
| Total earnings (losses) of discontinued operations | | | | | | | | | | | | | | | | | | | | |
Earnings (losses) | | | | $ | | | | $ | () | | | $ | | | | $ | () | | | $ | | | | $ | | |
(*)Earnings (losses) for 2021 are through the May 31, 2021 effective date of the sale of the annuity business.
H.
% to % of the most subordinate debt tranche of active collateralized loan obligation entities (“CLOs”), which are considered variable interest entities. AFG also owns portions of the senior debt tranches of certain of these CLOs. Upon formation between 2012 and 2023, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay expenses (including management fees to AFG) and interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
In 2023, AFG formed new CLO, which issued $ million face amount of liabilities (including $ million face amount purchased by AFG). In 2022, AFG formed new CLOs, which issued $ million face amount of liabilities (including $ million face amount purchased by AFG). In 2021, AFG formed new CLO, which issued $ million face amount of liabilities (including $ million face amount purchased by AFG’s continuing operations). In 2023, CLOs were substantially liquidated in accordance with the CLO indentures.
| | $ | | | | $ | | | | Purchases | | | | | | | | |
| Sales | | | | | | | | |
| Distributions | () | | | () | | | () | |
| Change in fair value | | | | () | | | | |
| Change in accrued interest | | | | () | | | | |
| Balance at end of period (*) | $ | | | | $ | | | | $ | | |
(*)Excludes $ million and $ million invested in temporary warehousing entities at December 31, 2023 and December 31, 2022, respectively, that were established to provide AFG the ability to form new CLOs.
The revenues and expenses of the CLOs are separately identified in AFG’s Statement of Earnings, after the elimination of management fees and earnings attributable to AFG as measured by the change in the fair value of AFG’s investments in the CLOs.
| | $ | () | | | $ | | | | Liabilities | () | | | | | | () | |
| Management fees paid to AFG | | | | | | | | |
CLO earnings (losses) attributable to AFG: | | | | | |
| From continuing operations | $ | | | | $ | () | | | $ | | |
| From discontinued annuity operations | | | | | | | | |
| Total | $ | | | | $ | () | | | $ | | |
(*)Included in revenues in AFG’s Statement of Earnings.
The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $ million and $ million at December 31, 2023 and 2022, respectively. The aggregate unpaid principal balance of the CLOs’ debt exceeded its carrying value by $ million and $ million at those dates. The CLO assets include loans with an aggregate fair value of $ million at December 31, 2023 and $ million at December 31, 2022, for which the CLOs are not accruing interest because the loans are in default (aggregate unpaid principal balance of $ million at December 31, 2023 and $ million at December 31, 2022).
In addition to the CLOs that it manages, AFG had investments in CLOs that are managed by third parties (therefore not consolidated), which are included in available for sale fixed maturity securities and had a fair value of $ billion at December 31, 2023 and $ billion at December 31, 2022.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
I.
| Purchase of Verikai | | |
| Balance at December 31, 2021 and 2022 | | |
Purchase of CRS | | |
Goodwill impairment charge related to investment in Verikai | () | |
Balance at December 31, 2023 | $ | | |
AFG recorded a goodwill impairment charge of $ million in 2023 related to its investment in Verikai (included in the property and casualty insurance segment). The impairment indicator was slower than anticipated growth in the business supported by the Verikai technology relative to what was projected at acquisition. Management utilized the discounted cash flow method of the income approach to calculate the impairment charge. This charge and the impact of reducing the fair value of the contingent consideration related to the Verikai acquisition (see Note E — “Fair Value Measurements”) are included in realized loss on subsidiaries in AFG’s Statement of Earnings.
Included in other assets in AFG’s Balance Sheet is $ million at December 31, 2023 and $ million at December 31, 2022 of amortizable intangible assets related to acquisitions. These amounts are net of accumulated amortization of $ million and $ million, respectively. Amortization of intangibles was $ million in 2023, $ million in 2022 and $ million in 2021. The increase in amortizable intangible assets is a result of AFG’s acquisition of CRS in July 2023 and relates primarily to existing agency relationships (see Note C — “Acquisitions and Sale of Businesses”). Future amortization of intangibles (weighted average amortization period of years is estimated to be $ million per year in 2024, $ million in 2025 and 2026, $ million in 2027, $ million in 2028 and $ million thereafter.
J.
% Senior Notes due June 2047$ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | | % Senior Notes due April 2030 | | | | () | | | | | | | | | () | | | | |
| Other | | | | | | | | | | | | | | | | | |
| | | | () | | | | | | | | | () | | | | |
| | | | | | | | | | | |
| Direct Subordinated Obligations of AFG: | | | | | | | | | | | |
% Subordinated Debentures due September 2060 | | | | () | | | | | | | | | () | | | | |
% Subordinated Debentures due December 2059 | | | | () | | | | | | | | | () | | | | |
% Subordinated Debentures due June 2060 | | | | () | | | | | | | | | () | | | | |
% Subordinated Debentures due March 2059 | | | | () | | | | | | | | | () | | | | |
| | | | () | | | | | | | | | () | | | | |
| $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | | |
At December 31, 2023, scheduled principal payments on debt for the subsequent five years and thereafter are as follows: 2024 — ; 2025 — ; 2026 — ; 2027 — ; 2028 — and thereafter — $ billion.
During 2023, AFG repurchased $ million principal amount of its % Senior Notes due in June 2047 for $ million and $ million principal amount of its % Senior Notes due in April 2030 for $ million in open market transactions.
During 2022, AFG repurchased $ million principal amount of its % Senior Notes due in August 2026 for $ million, $ million principal amount of its % Senior Notes due in June 2047 for $ million and $ million principal amount of
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
In June 2023, AFG replaced its existing credit facility with a new , $ million revolving credit facility which expires in June 2028. Amounts borrowed under this agreement bear interest at rates ranging from % to % (based on AFG’s credit rating, currently %) over a SOFR-based floating rate. amounts were borrowed under this facility at December 31, 2023 or under AFG’s previous credit facility at December 31, 2022.
Cash interest payments on long-term debt were $ million in 2023, $ million in 2022 and $ million in 2021.
K.
| | $ | | | | Lease liability | | | | | |
The increase in the lease liability and right-of-use asset in 2023 is due primarily to the renewal of AFG’s largest office lease in the second quarter of 2023, which extended the term for an additional years.
| | $ | | | | $ | | | |
|
|
|
|
|
|
|
|
|
|
|
))
|
|
|
|
|
|
|
))
|
|
|
|
|
|
|
|
|
|
|
)
|
|
| | |
(*)The reclassification adjustments affected the following lines in AFG’s Statement of Earnings:
| | | | | | | | | | | | | | |
| OCI component | | Affected line in the statement of earnings | |
| Pretax - Net unrealized gains (losses) on securities | | Realized gains (losses) on securities | |
| Pretax - Net unrealized gains (losses) on cash flow hedges | | Net investment income | |
| Pretax - Net unrealized gains (losses) on pension and other postretirement plans | | Other expenses | |
| Tax | | Provision for income taxes | |
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
M.
% to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Amount | | % of EBT | | Amount | | % of EBT | | Amount | | % of EBT |
| Earnings from continuing operations before income taxes (“EBT”) | $ | | | | | | $ | | | | | | $ | | | | |
| | | | | | | | | | | |
| Income taxes at statutory rate | $ | | | | | % | | $ | | | | | % | | $ | | | | | % |
| Effect of: | | | | | | | | | | | |
| Employee stock ownership plan dividend paid deduction | () | | | ( | %) | | () | | | ( | %) | | () | | | ( | %) |
| Tax exempt interest | () | | | ( | %) | | () | | | ( | %) | | () | | | ( | %) |
| Adjustment to prior year taxes | () | | | | % | | () | | | | % | | () | | | | % |
| Stock-based compensation | () | | | | % | | () | | | | % | | () | | | ( | %) |
| Change in valuation allowance | () | | | | % | | () | | | ( | %) | | () | | | | % |
| Dividend received deduction | () | | | | % | | () | | | | % | | () | | | | % |
| Nondeductible expenses | | | | | % | | | | | | % | | | | | | % |
| Foreign operations | | | | | % | | | | | | % | | | | | | % |
| Other | | | | | % | | | | | | % | | | | | | % |
| Provision for income taxes as shown in the statement of earnings | $ | | | | | % | | $ | | | | | % | | $ | | | | | % |
On January 1, 2023, the two major tax provisions in the Inflation Reduction Act ("IRA”) became effective. The IRA created a new corporate alternative minimum tax (“CAMT”) based on the earnings that a company reports in its financial statements and imposes a 1% excise tax on corporate stock repurchases. Any CAMT incurred would be available to offset taxes payable under the standard calculation in future periods. Accordingly, the CAMT is a timing difference and would result in the recording of an offsetting deferred tax asset with no impact on overall income tax expense. Based on current guidance, while AFG meets the financial statement income thresholds to be subject to CAMT, management does not believe AFG will incur a CAMT liability for 2023. The excise tax on stock repurchases in excess of any issuances is recorded as part of the cost of the repurchases directly in shareholders’ equity.
Since almost all of AFG’s earnings are taxable based on U.S. tax rates, the Global Intangible Low-taxed Income (“GILTI”) provision is not expected to be material to AFG’s results of operations and will be recorded in the period that any tax arises.
The Organisation for Economic Co-operation and Development, an intergovernmental organization with 38 member countries, has proposed a global minimum corporate tax rate of 15% (“Pillar Two”). Due to AFG’s limited international operations and the tax rate AFG is subject to in those jurisdictions, management does not believe Pillar Two will have a material impact on AFG’s results of operations.
AFG’s 2013 — 2018 and 2020 — 2023 tax years remain subject to examination by the IRS.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | State | | | | | | | | |
| Foreign | () | | | | | | | |
| Deferred taxes: | | | | | |
| Federal | | | | | | | | |
| Provision for income taxes | $ | | | | $ | | | | $ | | |
| | | Operating Loss – United Kingdom | indefinite | | | | (*) |
(*)£ million
Deferred income tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes.
| | $ | | | | Foreign underwriting losses | | | | | |
|
| Insurance claims and reserves | | | | | |
| Employee benefits | | | | | |
| Other, net | | | | | |
Total deferred tax assets before valuation allowance | | | | | |
| Valuation allowance against deferred tax assets | () | | | () | |
| Total deferred tax assets | | | | | |
| Deferred tax liabilities: | | | |
| Investment securities | () | | | () | |
| Deferred policy acquisition costs | () | | | () | |
| Insurance claims and reserves transition liability | () | | | () | |
| Real estate, property and equipment | () | | | () | |
| Total deferred tax liabilities | () | | | () | |
| Net deferred tax asset | $ | | | | $ | | |
AFG’s net deferred tax asset at December 31, 2023 and 2022 is included in other assets in AFG’s Balance Sheet. The decrease in AFG’s net deferred tax asset at December 31, 2023 compared to December 31, 2022 reflects lower net unrealized losses on fixed maturities at December 31, 2023 compared to December 31, 2022 and the increase in fair value of equity securities still owned.
The likelihood of realizing deferred tax assets is reviewed periodically. Any adjustments required to the valuation allowance are made in the period during which developments requiring an adjustment become known.
At both December 31, 2023 and December 31, 2022, there are unrecognized tax benefits and related interest and penalties of less than $ million that, if recognized, would impact the effective tax rate. AFG’s provision for income taxes in 2023, 2022 and 2021 included interest expense of less than $ million related to unrecognized tax benefits. There were liabilities of less than $ million for interest related to unrecognized tax benefits at both December 31, 2023 and
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Cash payments for income taxes, net of refunds, were $ million, $ million and $ million for 2023, 2022 and 2021, respectively.
N.
million for the former railroad and manufacturing operations. The 2022 and 2021 reviews resulted in smaller adjustments to AFG’s A&E reserves.
The property and casualty group’s liability for A&E reserves was $ million at December 31, 2023; related recoverables from reinsurers (net of allowances for doubtful accounts) at that date were $ million.
At December 31, 2023, American Premier and its subsidiaries had liabilities for environmental and personal injury claims and other contingencies aggregating $ million. The environmental claims consist of a number of proceedings and claims seeking to impose responsibility for hazardous waste remediation costs related to certain sites formerly owned or operated by the railroad and manufacturing operations. Remediation costs are difficult to estimate for a number of reasons, including the number and financial resources of other potentially responsible parties, the range of costs for remediation alternatives, changing technology and the time period over which these matters develop. The personal injury claims and other contingencies include pending and expected claims, primarily by former employees of PCTC, for injury or disease allegedly caused by exposure to excessive noise, asbestos or other substances in the workplace and other labor disputes.
At December 31, 2023, GAFRI had a liability of $ million for environmental costs and certain other matters associated with the sales of its former manufacturing operations.
While management believes AFG has recorded adequate reserves for the items discussed above, the outcome is uncertain and could result in liabilities that may vary from amounts AFG has currently recorded. Such amounts could have a material effect on AFG’s future results of operations and financial condition.
In addition, AFG and its subsidiaries are involved in litigation from time to time, generally arising in the ordinary course of business. This litigation may include, but is not limited to, general commercial disputes, lawsuits brought by policyholders, employment matters, reinsurance collection matters and actions challenging certain business practices of insurance subsidiaries. None of these matters are expected to have a material adverse impact on AFG’s results of operations or financial condition.
O.
billion at December 31, 2023, were on deposit as required by regulatory authorities.
Property and Casualty Insurance Reserves Estimating the liability for unpaid losses and loss adjustment expenses (“LAE”) is inherently judgmental and is influenced by factors that are subject to significant variation. Determining the liability is a complex process incorporating input from many areas of the Company including actuarial, underwriting, pricing, claims and operations management.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
% at December 31, 2023 and % at December 31, 2022, which represents an approximation of long-term investment yields. Because of the limited amount of claims involved, the net impact of discounting did not materially impact AFG’s total liability for unpaid losses and loss adjustment expenses (net reductions from discounting of $ million at both December 31, 2023 and 2022, respectively).
| | $ | | | | $ | | | | Less reinsurance recoverables, net of allowance | | | | | | | | |
| Net liability at beginning of period | | | | | | | | |
| Provision for losses and LAE occurring in the current year | | | | | | | | |
|
|
Net decrease in the provision for claims of prior years | () | | | () | | | () | |
| Total losses and LAE incurred | | | | | | | | |
| Payments for losses and LAE of: | | | | | |
| Current year | () | | | () | | | () | |
| Prior years | () | | | () | | | () | |
| Total payments | () | | | () | | | () | |
| Foreign currency translation and other | | | | | | | | |
| Net liability at end of period | | | | | | | | |
| Add back reinsurance recoverables, net of allowance | | | | | | | | |
| Gross unpaid losses and LAE included in the balance sheet | $ | | | | $ | | | | $ | | |
The net decrease in the provision for claims of prior years in 2023 reflects (i) lower than anticipated losses in the crop business, lower than expected claim frequency and severity across the transportation businesses and lower than anticipated claim frequency in the property and inland marine and ocean marine businesses and in the Singapore operations (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability and environmental businesses and favorable reserve development related to COVID-19 losses across several businesses (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the trade credit, financial institutions and surety businesses and lower than expected claim frequency and severity in the fidelity business (within the Specialty financial sub-segment). This favorable development was partially offset by higher than anticipated claim severity in the public sector business and higher than expected claim frequency and severity in the excess liability and general liability businesses (within the Specialty casualty sub-segment).
The net decrease in the provision for claims of prior years in 2022 reflects (i) lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability and excess and surplus businesses (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the surety, trade credit and financial institutions businesses (within the Specialty financial sub-segment). This favorable development was partially offset by (i) higher than anticipated claim severity in the general liability, umbrella and excess liability, and certain targeted markets businesses (within the Specialty casualty sub-segment) and (ii) net adverse development associated with AFG’s internal reinsurance program, primarily related to social inflation exposed business assumed from the Specialty casualty sub-segment (within Other specialty).
The net decrease in the provision for claims of prior years in 2021 reflects (i) lower than anticipated claim frequency and severity in the transportation businesses, lower than expected losses in the crop business, lower than expected claim severity in the ocean marine business and lower than expected claim frequency in the aviation business (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the surety and trade credit businesses and lower than expected claim frequency and severity in the financial institutions business (within the Specialty financial sub-segment). This favorable development was partially offset by (i) higher than anticipated claim
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | Specialty casualty | | |
| Specialty financial | | |
| Other specialty | | |
| Total Specialty (excluding foreign reserves) | | |
| |
| Other reserves | |
| Foreign operations | | |
| A&E reserves | | |
| Unallocated LAE | | |
| Other | | |
| Total other reserves | | |
| Total reserves, net of reinsurance | | |
| |
| Add back reinsurance recoverables, net of allowance | | |
| Gross unpaid losses and LAE included in the balance sheet | $ | | |
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance | | | | |
| Accident Year | | For the Years Ended (2014–2022 is Supplementary Information and Unaudited) | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | % (a) | | |
| 2014 | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | Unpaid losses and LAE — years 2014 through 2023 | | | | | | | |
| | | | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) | | | | | | | |
| | | | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
(Supplementary Information and Unaudited) | | | | |
| | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 | | Year 6 | | Year 7 | | Year 8 | | Year 9 | | Year 10 | | | | |
| Annual | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
| Cumulative | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
(a)Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2023).
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance | | | | |
| Accident Year | | For the Years Ended (2014–2022 is Supplementary Information and Unaudited) | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | % (a) | | |
| 2014 | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | Unpaid losses and LAE — years 2014 through 2023 | | | | | | | |
| | | | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) | | | | | | | |
| | | | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
(Supplementary Information and Unaudited) | | | | |
| | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 | | Year 6 | | Year 7 | | Year 8 | | Year 9 | | Year 10 | | | | |
| Annual | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
| Cumulative | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
(a)Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2023).
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance | | | | |
| Accident Year | | For the Years Ended (2014–2022 is Supplementary Information and Unaudited) | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | % (a) | | |
| 2014 | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | Unpaid losses and LAE — years 2014 through 2023 | | | | | | | |
| | | | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) | | | | | | | |
| | | | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
(Supplementary Information and Unaudited) | | | | |
| | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 | | Year 6 | | Year 7 | | Year 8 | | Year 9 | | Year 10 | | | | |
| Annual | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | ( | %) | | | % | | | % | | | | |
| Cumulative | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
(a)Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2023).
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance | | | | |
| Accident Year | | For the Years Ended (2014–2022 is Supplementary Information and Unaudited) | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | % (b) | | |
| 2014 | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | Unpaid losses and LAE — years 2014 through 2023 | | | | | | | |
| | | | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) | | | | | | | |
| | | | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
(Supplementary Information and Unaudited) | | | | |
| | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 | | Year 6 | | Year 7 | | Year 8 | | Year 9 | | Year 10 | | | | |
| Annual | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
| Cumulative | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
(a)The amounts shown in Other specialty represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Accordingly, the liability for incurred claims and allocated LAE represents additional reserves held on claims counted in the tables provided for the other sub-segments (above).
(b)Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2023).
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance | | | | |
| Accident Year | | For the Years Ended (2014–2022 is Supplementary Information and Unaudited) | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | % (a) | | |
| 2014 | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2022 | | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| 2023 | | | | | | | | | | | | | | | | | | | | | | | | % | | |
| | | | | | | | | | | | | | | | | | Total | | $ | | | | | | |
| | | | | | | | Unpaid losses and LAE — years 2014 through 2023 | | | | | | | |
| | | | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) | | | | | | | |
| | | | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) | | $ | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
(Supplementary Information and Unaudited) | | | | |
| | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 | | Year 6 | | Year 7 | | Year 8 | | Year 9 | | Year 10 | | | | |
| Annual | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
| Cumulative | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | | |
(a)Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2023).
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Statutory Information AFG’s U.S.-based insurance subsidiaries are required to file financial statements with state insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis).
| | $ | | | | $ | | | | $ | | | | $ | | |
The National Association of Insurance Commissioners’ (“NAIC”) model law for risk-based capital (“RBC”) applies to property and casualty insurance companies. RBC formulas determine the amount of capital that an insurance company needs so that it has an acceptable expectation of not becoming financially impaired. Companies below specific trigger points or ratios are subject to regulatory action. At December 31, 2023 and 2022, the capital ratios of all AFG insurance companies substantially exceeded the RBC requirements. AFG’s insurance companies did not use any prescribed or permitted statutory accounting practices that differed from the NAIC statutory accounting practices at December 31, 2023 or 2022.
Payments of dividends by AFG’s insurance companies are subject to various state laws that limit the amount of dividends that can be paid. Under applicable restrictions, the maximum amount of dividends available to AFG in 2024 from its insurance subsidiaries without seeking regulatory approval is $ million. Additional amounts of dividends require regulatory approval.
Holding Company Dividends AFG declared and paid common stock dividends to shareholders totaling $ million, $ billion and $ billion in 2023, 2022 and 2021, respectively. Currently, there are no regulatory restrictions on AFG’s retained earnings or net earnings that materially impact its ability to pay dividends. Based on shareholders’ equity at December 31, 2023, AFG could pay dividends of approximately $ billion without violating its most restrictive debt covenant. However, the payment of future dividends will be at the discretion of AFG’s Board of Directors and will be dependent on many factors including AFG’s financial condition and results of operations, the capital requirements of its insurance subsidiaries, and rating agency commitments.
Reinsurance In the normal course of business, AFG cedes reinsurance to other companies to diversify risk and limit maximum loss arising from large claims. However, AFG remains liable to its insureds regardless of whether a reinsurer is able to meet its obligations.
| | $ | | | | $ | | | | Reinsurance assumed | | | | | | | | |
| Reinsurance ceded | () | | | () | | | () | |
| Net written premiums | $ | | | | $ | | | | $ | | |
| | | | | |
| Direct premiums earned | $ | | | | $ | | | | $ | | |
| Reinsurance assumed | | | | | | | | |
| Reinsurance ceded | () | | | () | | | () | |
| Net earned premiums | $ | | | | $ | | | | $ | | |
| | | | | |
| Reinsurance recoveries | $ | | | | $ | | | | $ | | |
AFG maintains supplemental fully collateralized reinsurance coverage up to % of $ million for catastrophe losses in excess of $ million of traditional catastrophe reinsurance through a catastrophe bond. AFG’s cost for this coverage is approximately $ million per year. Recoveries from the catastrophe bond apply before calculating losses recoverable from this catastrophe excess of loss reinsurance.
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | Increase in allowance from acquisition of CRS | | | | — | | | — | | | | | | — | | | — | |
| Provision for expected credit losses | | | | | | | | | | | | | | | | () | |
| Write-offs charged against the allowance | | | | | | | | | | | | | | | | | |
| Balance at December 31 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
P.
million.
Benefit Plans AFG expensed approximately $ million in 2023, $ million in 2022 and $ million in 2021 for its retirement and employee savings plans.
PART III
The information required by the following Items will be included in AFG’s definitive Proxy Statement for the 2024 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year and is incorporated herein by reference.
| | | | | |
| ITEM 10 | Directors, Executive Officers of the Registrant and Corporate Governance |
| ITEM 11 | Executive Compensation |
| ITEM 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
| ITEM 13 | Certain Relationships and Related Transactions, and Director Independence |
| ITEM 14 | Principal Accountant Fees and Services |
PART IV
Item 15. Exhibits and Financial Statement Schedules
| | | | | | | | | | | | | | | | | | | | |
| (a) | Documents filed as part of this Report: |
| 1. | Financial Statements are included in Part II, Item 8. |
| | |
| 2. | Financial Statement Schedules: |
| | | Schedules filed herewith for 2023, 2022, and 2021: | |
| | | | Page |
| | | II — Condensed Financial Information of Registrant | |
| | | III — Supplementary Insurance Information | |
| | | | |
| | | All other schedules for which provisions are made in the applicable regulation of the Securities and Exchange Commission have been omitted as they are not applicable, not required, or the information required thereby is set forth in the Financial Statements or the notes thereto. | |
| | |
| 3. | Exhibits — See Exhibit Index on the next page. |
| | |
INDEX TO EXHIBITS
AMERICAN FINANCIAL GROUP, INC.
| | | | | | | | | | | | | | | | | | | | |
| Number | | Exhibit Description | | |
| | Stock Purchase Agreement, dated as of January 27, 2021, by and among Massachusetts Mutual Life Insurance Company, Great American Financial Resources, Inc. and American Financial Group, Inc., filed as Exhibit 2.1 to the Form 8-K filed on January 28, 2021. | | (*) |
| | Amended and Restated Articles of Incorporation, filed as Exhibit 3.A to AFG’s Form 10-K for 2019. | | (*) |
| | Amended and Restated Code of Regulations, filed as Exhibit 3.1 to the Form 8-K filed on April 1, 2020. | | (*) |
| 4 | | Instruments defining the rights of security holders. | Registrant has no outstanding debt issues exceeding 10% of the assets of Registrant and consolidated subsidiaries. |
| | Material Contracts: | | | | |
| | Amended and Restated Non-Employee Directors Compensation Plan, filed as Exhibit 10 to the Form S-8 Registration Statement (File No. 333-184913) filed by AFG on November 13, 2012. | | (*) |
| | Deferred Compensation Plan Amended and Restated as of January 1, 2022 filed as Exhibit 10 to the Form S-8 Registration Statement (File No. 333-268292) filed by AFG on November 10, 2022. | | (*) |
| | Annual Senior Executive Bonus Plan, filed as Exhibit 10(d) to AFG’s 10-K for 2017. | | (*) |
| | Amended and Restated Nonqualified Auxiliary RASP, filed as Exhibit 10(f) to AFG’s Form 10-K for 2008. | | (*) |
| | 2015 Stock Incentive Plan filed as Exhibit 10(g) to AFG’s Form 10-K for 2015. | | (*) |
| | Senior Executive Long Term Incentive Compensation Plan, filed as Appendix A to AFG’s Proxy Statement filed on April 1, 2016. | | (*) |
| | Amended and Restated Credit Agreement entered into among American Financial Group, Inc., the Bank of America, N.A., as Administrative Agent, and several lenders, filed as Exhibit 10.1 to AFG’s Form 8-K filed on June 27, 2023. | | (*) |
| | Subsidiaries of the Registrant. | | |
| | Consent of independent registered public accounting firm. | | |
| | Certification of Co-Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. | | |
| | Certification of Co-Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. | | |
| | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. | | |
| | Certification of Co-Chief Executive Officers and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | |
| | American Financial Group, Inc. Executive Officer Clawback Policy | | |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | |
| | | | | | |
| | | | | | |
| (*) Incorporated herein by reference. | | | | |
| | $ | | | | Investment in securities | | | | | |
| Investment in subsidiaries (*) | | | | | |
| Real estate and other investments | | | | | |
| Other assets | | | | | |
| Total assets | $ | | | | $ | | |
| | | |
| Liabilities and Equity: | | | |
| Long-term debt | $ | | | | $ | | |
| Other liabilities | | | | | |
| Shareholders’ equity | | | | | |
| Total liabilities and equity | $ | | | | $ | | |
Condensed Statement of Earnings
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Revenues: | | | | | |
| Dividends from subsidiaries | $ | | | | $ | | | | $ | | |
| Equity in undistributed earnings of subsidiaries | | | | | | | | |
| Investment and other income | | | | | | | | |
| Total revenues | | | | | | | | |
| | | | | |
| Costs and Expenses: | | | | | |
| Interest charges on intercompany borrowings | | | | | | | | |
| Interest charges on other borrowings | | | | | | | | |
| Other expenses | | | | | | | | |
| Total costs and expenses | | | | | | | | |
| | | | | |
| Earnings before income taxes | | | | | | | | |
| Provision for income taxes | | | | | | | | |
Net Earnings | $ | | | | $ | | | | $ | | |
Condensed Statement of Comprehensive Income
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
Net earnings | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss), net of tax | | | | () | | | () | |
Total comprehensive income, net of tax | $ | | | | $ | | | | $ | | |
________________________
(*)Investment in subsidiaries includes intercompany receivables and payables.
AMERICAN FINANCIAL GROUP, INC. — PARENT ONLY
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT — CONTINUED
(In Millions)
| | $ | | | | $ | | | | Adjustments: | | | | | |
| Equity in net earnings of subsidiaries | () | | | () | | | () | |
| Dividends from subsidiaries | | | | | | | | |
| Other operating activities, net | () | | | () | | | | |
| Net cash provided by operating activities | | | | | | | | |
| | | | | |
| Investing Activities: | | | | | |
| Capital contributions to subsidiaries | () | | | () | | | () | |
| Returns of capital from subsidiaries | | | | | | | | |
| Purchases of: | | | | | |
| Investments, property and equipment | () | | | () | | | () | |
| Businesses | | | | | | | () | |
| Proceeds from: | | | | | |
| Maturities and redemptions of investments | | | | | | | | |
| Sales of investments, property and equipment | | | | | | | | |
| Sales of businesses | | | | | | | | |
|
Net cash provided by investing activities | | | | | | | | |
| | | | | |
| Financing Activities: | | | | | |
|
| Reductions of long-term debt | () | | | () | | | | |
| Issuances of Common Stock | | | | | | | | |
| Repurchases of Common Stock | () | | | () | | | () | |
| Cash dividends paid on Common Stock | () | | | () | | | () | |
|
| Net cash used in financing activities | () | | | () | | | () | |
| | | | | |
| Net Change in Cash and Cash Equivalents | | | | () | | | | |
| Cash and cash equivalents at beginning of year | | | | | | | | |
| Cash and cash equivalents at end of year | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Other | | — | | | — | | | — | | | — | | | | | | | | | — | | | | | | — | |
| Total | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | |
| 2022 | | | | | | | | | | | | | | | | | | |
Property and casualty insurance | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Other | | — | | | — | | | — | | | — | | | | | | — | | | — | | | | | | — | |
| Total | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | | | | | | | |
Property and casualty insurance | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Other | | — | | | — | | | — | | | — | | | | | | — | | | — | | | | | | — | |
| Total | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | | |
| American Financial Group, Inc. |
| | |
| | | |
| | | |
| February 23, 2024 | By: | | /s/ Brian S. Hertzman |
| | | Brian S. Hertzman |
| | | Senior Vice President and Chief Financial Officer |
__________________________________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | | | | | | | | | | | |
| Signature | | Capacity | | Date |
| | | | |
| /s/ Carl H. Lindner III | | Co-Chief Executive Officer and Director | | February 23, 2024 |
| Carl H. Lindner III | | (Principal Executive Officer) | | |
| | | | |
| /s/ S. Craig Lindner | | Co-Chief Executive Officer and Director | | February 23, 2024 |
| S. Craig Lindner | | (Principal Executive Officer) | | |
| | | | |
| /s/ Brian S. Hertzman | | Senior Vice President and Chief Financial Officer | | February 23, 2024 |
| Brian S. Hertzman | | (Principal Financial and Accounting Officer) | | |
| | | | |
| /s/ John B. Berding | | President and Director | | February 23, 2024 |
| John B. Berding | | | | |
| | | | |
| /s/ James E. Evans | | Director | | February 23, 2024 |
| James E. Evans | | | | |
| | | | |
| /s/ Terry S. Jacobs | | Director* | | February 23, 2024 |
| Terry S. Jacobs | | | | |
| | | | |
| /s/ Gregory G. Joseph | | Lead Independent Director* | | February 23, 2024 |
| Gregory G. Joseph | | | | |
| | | | |
| /s/ Mary Beth Martin | | Director | | February 23, 2024 |
| Mary Beth Martin | | | | |
| | | | |
| /s/ Amy Y. Murray | | Director* | | February 23, 2024 |
| Amy Y. Murray | | | | |
| | | | |
| /s/ Evans N. Nwankwo | | Director | | February 23, 2024 |
| Evans N. Nwankwo | | | | |
| | | | |
| /s/ William W. Verity | | Director | | February 23, 2024 |
| William W. Verity | | | | |
| | | | |
| /s/ John I. Von Lehman | | Director* | | February 23, 2024 |
| John I. Von Lehman | | | | |
| | | | |
| | | | |
| * Member of the Audit Committee | | | |
Similar companies
See also BERKSHIRE HATHAWAY INC -
Annual report 2022 (10-K 2022-12-31)
Annual report 2025 (10-Q 2025-06-30)
See also Chubb Ltd -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also PROGRESSIVE CORP/OH/ -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also AMERICAN INTERNATIONAL GROUP, INC. -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also TRAVELERS COMPANIES, INC. -
Annual report 2022 (10-K 2022-12-31)
Annual report 2025 (10-Q 2025-06-30)
Open main menu