AMERICAN FINANCIAL GROUP INC - Quarter Report: 2024 March (Form 10-Q)

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AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(Dollars in Millions)

Shareholders’ Equity

Common Shares

Common Stock and Capital Surplus

Retained Earnings

Accumulated Other Comp. Income (Loss)

Total

Balance at December 31, 2023

()

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 March 31, 2024

()

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 March 31, 2023

()

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AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(In Millions)

)) )


	Three months ended March 31,
	2024			2023
Operating Activities:
Net earnings	$			$
Adjustments:
Depreciation and amortization
Realized (gains) losses on investing activities	()
Net purchases of trading securities				()
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	()
Other investments	()			()
Real estate, property and equipment	()			()
Proceeds from:
Maturities and redemptions of fixed maturities
Repayments of mortgage loans
Sales of fixed maturities
Sales of equity securities
Sales of other investments
Sales of real estate, property and equipment
Managed investment entities:
Purchases of investments	()			()
Proceeds from sales and redemptions of investments
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	()			()
Issuances of managed investment entities’ liabilities
Retirements of managed investment entities’ liabilities	()			()


		()

		()

			$

(*)% and % of the carrying value relates to underlying investments in multi-family properties as of March 31, 2024 and December 31, 2023, respectively.

The earnings (losses) from these investments are generally reported on a quarter lag due to the timing required to obtain the necessary information from the funds. AFG regularly reviews and discusses fund performance with the fund managers to corroborate the reasonableness of the underlying reported asset values and to assess whether any events have occurred within the lag period that may materially affect the valuation of these investments.

With respect to partnerships and similar investments, AFG had unfunded commitments of $ million and $ million as of March 31, 2024 and December 31, 2023, respectively.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

$ %$()$ %

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, 2023Fixed 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 March 31, 2024, 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 March 31, 2024.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

$ $ Provision for expected credit losses on securities with no previous allowance

Additions to previously recognized expected credit losses

Reductions due to sales or redemptions ()()Balance at March 31, 2024$ $ $ Balance at December 31, 2022$ $ $ ) $

(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.

%() % % % %$ %

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 2024. 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.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

$ Less reinsurance recoverables, net of allowance Net liability at beginning of year Provision for losses and LAE occurring in the current period

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 at end of period$ $

The net decrease in the provision for claims of prior years during the first three months of 2024 reflects (i) lower than anticipated losses in the crop business and lower than expected 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 and severity in the executive liability business (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the fidelity business 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 severity in the excess liability businesses and higher than expected claim frequency and severity in the social service business (within the Specialty casualty sub-segment), (ii) higher than anticipated claim severity in the innovative markets business (within the Specialty financial sub-segment) and (iii) net adverse development associated with AFG’s internal reinsurance program (within Other specialty).

The net decrease in the provision for claims of prior years during the first three months of 2023 reflects (i) lower than anticipated losses in the crop business, lower than expected claim frequency and severity in the trucking business and lower than anticipated claim frequency 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, excess and surplus and environmental businesses (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the surety and trade credit businesses (within the Specialty financial sub-segment). This favorable development was partially offset by (i) higher than anticipated claim severity in the public sector and excess liability businesses (within the Specialty casualty sub-segment) and (ii) net adverse development associated with AFG’s internal reinsurance program (within Other specialty).

Recoverables from Reinsurers and Premiums Receivable

$ $ $ %13.8 %

The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and ratings agencies to evaluate AFG’s financial strength and liquidity and to provide insight into how AFG finances its operations. The ratio is calculated by dividing the principal amount of AFG’s long-term debt by its total capital, which includes long-term debt and shareholders’ equity (excluding accumulated other comprehensive income (loss), net of tax). In addition, maintaining a ratio of debt, excluding subordinated debt and debt secured by real estate (if any), to total capital of 35% or lower is a financial covenant in AFG’s bank credit facility.

Condensed Consolidated Cash Flows

AFG’s principal sources of cash include insurance premiums, income from its investment portfolio and proceeds from the maturities, redemptions and sales of investments. Insurance premiums in excess of acquisition expenses and operating costs are invested until they are needed to meet policyholder obligations or made available to the parent company through dividends to cover debt obligations and corporate expenses, and to provide returns to shareholders through share repurchases and dividends. Cash flows from operating, investing and financing activities as detailed in AFG’s Consolidated Statement of Cash Flows are shown below (in millions):


	Three months ended March 31,
	2024		2023
Net cash provided by operating activities	$	107	$	403
Net cash provided by (used in) investing activities	(155)		73
Net cash used in financing activities	(90)		(491)
Net change in cash and cash equivalents	$	(138)	$	(15)

Net Cash Provided by Operating Activities AFG’s property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses. AFG’s net cash provided by operating activities is impacted by the level and timing of property and casualty premiums, claim and expense payments and recoveries from reinsurers. Cash flows provided by operating activities also include the activity of AFG’s managed investment entities (collateralized loan obligations (“CLO”)) other than those activities included in investing or financing activities. The changes in the assets and liabilities of the managed investment entities included in operating activities reduced cash flows from operating activities by $124 million during the first three months of 2024 and increased cash flows from operating activities by $139 million in the first three months of 2023, accounting for a $263 million decrease in cash flows from operating activities in the 2024 period compared to the 2023 period. As discussed in Note A — “Accounting Policies — Managed Investment Entities” to the financial statements, AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities and such assets and liabilities are shown separately in AFG’s Balance Sheet. Excluding the impact of the managed investment entities, net cash provided by operating activities was $231 million and $264 million in the first three months of 2024 and 2023, respectively.

Net Cash Provided by (Used in) Investing Activities AFG’s investing activities consist primarily of the investment of funds provided by its property and casualty businesses. Investing activities also include the purchase and

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

disposal of managed investment entity investments, which are presented separately in AFG’s Balance Sheet. Net investment activity in the managed investment entities was a $73 million use of cash in the first three months of 2024 compared to $94 million in the first three months of 2023, accounting for a $21 million decrease in net cash provided by (used in) investing activities in the first three months of 2024 compared to the same 2023 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements. Excluding the activity of the managed investment entities, investing activities were an $82 million use of cash in the first three months of 2024 compared to a $167 million source of cash in the first three months of 2023.

Net Cash Used in Financing Activities AFG’s financing activities consist primarily of issuances and retirements of long-term debt, issuances and repurchases of common stock and dividend payments. Net cash used in financing activities was $90 million for the first three months of 2024 compared to $491 million in the first three months of 2023, a decrease of $401 million. AFG paid cash dividends totaling $268 million in the first three months of 2024 compared to $393 million in the first three months of 2023, a decrease in cash used by financing activities of $125 million. There were no debt retirements in the first three months of 2024 compared to $16 million in debt retirements during the first three months of 2023. During the first three months of 2024, AFG did not repurchase any of its Common Stock compared to repurchases of $24 million in the comparable 2023 period. Financing activities also include issuances and retirements of managed investment entity liabilities, which are nonrecourse to AFG and presented separately in AFG’s Balance Sheet. Issuances of managed investment entity liabilities exceeded retirements by $172 million in the first three months of 2024 compared to retirements exceeding issuances by $62 million in the first three months of 2023, accounting for a $234 million decrease in net cash used in financing activities in the 2024 period compared to the 2023 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements.

Parent and Subsidiary Liquidity

Parent Holding Company Liquidity Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and investments or to generate cash through borrowings, sales of other assets or similar transactions.

AFG's operations continue to generate significant excess capital for future returns of capital to shareholders in the form of regular and special cash dividends and through opportunistic share repurchases or to be deployed into its property and casualty businesses as management identifies the potential for profitable organic growth, and opportunities to expand through acquisitions of established businesses or start-ups that meet target return thresholds.

AFG paid a special cash dividend totaling $209 million ($2.50 per share) on February 28, 2024.

AFG may, at any time and from time to time, seek to retire or purchase its outstanding debt through cash purchases or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, AFG’s liquidity requirements, contractual restrictions and other factors.

During 2023, AFG repurchased 1,872,544 shares of its Common Stock for $213 million, paid special cash dividends totaling $466 million ($4.00 per share in February and $1.50 per share in November) and repurchased $23 million principal amount of its senior notes for $21 million cash.

At March 31, 2024, AFG (parent) held approximately $370 million in cash and investments. Management believes that AFG’s cash balances are held at stable banking institutions, although the amounts of many of these deposits are in excess of federally insured balances. AFG can borrow up to $450 million under its revolving credit facility, which expires in June 2028. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.75% (based on AFG’s credit rating, currently 1.25%) over a SOFR-based floating rate. There were no borrowings under AFG’s credit facilities, or under any other parent company short-term borrowing arrangements, during 2023 or the first three months of 2024.

Under a tax allocation agreement with AFG, all 80% (or more) owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary’s contribution to amounts due under AFG’s consolidated tax return.

Subsidiary Liquidity The liquidity requirements of AFG’s insurance subsidiaries relate primarily to the policyholder claims and underwriting expenses and payments of dividends and taxes to AFG. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements. Funds received in

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

excess of cash requirements are generally invested in marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short duration investments.

AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and underwriting expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Even in the current uncertain economic environment, management believes that the capital levels in AFG’s insurance subsidiaries are adequate to maintain its business and rating agency ratings. Nonetheless, changes in statutory accounting rules, significant declines in the fair value of the insurance subsidiaries’ investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital.

Investments

AFG’s investment portfolio at March 31, 2024, contained $10.37 billion in fixed maturity securities classified as available for sale and carried at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) and $57 million in fixed maturities classified as trading with holding gains and losses included in net investment income. In addition, AFG’s investment portfolio includes $539 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $501 million in equity securities carried at fair value with holding gains and losses included in net investment income.

Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services, non-binding broker quotes and other market information. Fair values of equity securities are generally based on published closing prices. For AFG’s fixed maturity portfolio, approximately 89% was priced using pricing services at March 31, 2024 and 4% was priced using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.

The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers’ prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs.

Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the services to value specific securities.

In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values 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 had at March 31, 2024 (dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.


Fair value of fixed maturity portfolio	$	10,428
Percentage impact on fair value of 100 bps increase in interest rates	(3.0		%)
Pretax impact on fair value of fixed maturity portfolio	$	(313)

Approximately 94% of the fixed maturities held by AFG at March 31, 2024, were rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies, 3% were rated “non-investment grade” and 3% were not rated. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high-quality investment portfolio should generate a stable and predictable investment return.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Municipal bonds represented approximately 8% of AFG’s fixed maturity portfolio at March 31, 2024. AFG’s municipal bond portfolio is high quality, with over 99% of the securities rated investment grade at that date. The portfolio is well diversified across the states of issuance and individual issuers. At March 31, 2024, approximately 98% of the municipal bond portfolio was held in revenue bonds, with the remaining 2% held in general obligation bonds.

AFG has less than $100 million of direct exposure to office commercial real estate through property ownership, mortgages or equity method investments. AFG’s fixed maturity portfolio includes securities (the majority of which are AAA-rated) with a carrying value of approximately $600 million that have minimal exposure to office commercial real estate.

Summarized information for the unrealized gains and losses recorded in AFG’s Balance Sheet at March 31, 2024, is shown in the following table (dollars in millions). Approximately $259 million of available for sale fixed maturity securities had no unrealized gains or losses at March 31, 2024.


	Securities With Unrealized Gains			Securities With Unrealized Losses
Available for Sale Fixed Maturities
Fair value of securities	$	3,769		$	6,343
Amortized cost of securities, net of allowance for expected credit losses	$	3,673		$	6,791
Gross unrealized gain (loss)	$	96		$	(448)
Fair value as % of amortized cost	103		%	93		%
Number of security positions	697			1,451
Number individually exceeding $2 million gain or loss	1			43
Concentration of gains (losses) by type or industry (exceeding 5% of unrealized):
Mortgage-backed securities	$	25		$	(156)
Collateralized loan obligations	13			(22)
Other asset-backed securities	13			(102)
Banking	9			(23)
States and municipalities	6			(45)
Asset managers	4			(28)
Percentage rated investment grade	96		%	95		%

The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at March 31, 2024, 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	1	%	5	%
After one year through five years	20	%	24	%
After five years through ten years	18	%	9	%
After ten years	3	%	8	%
	42	%	46	%
Collateralized loan obligations and other asset-backed securities (average life of approximately 3 years)	45	%	35	%
Mortgage-backed securities (average life of approximately 6.5 years)	13	%	19	%
	100	%	100	%

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

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 March 31, 2024
Securities with unrealized gains:
Exceeding $500,000 (41 securities)	$	712	$	32	105	%
$500,000 or less (656 securities)	3,057		64		102	%
	$	3,769	$	96	103	%
Securities with unrealized losses:
Exceeding $500,000 (227 securities)	$	2,589	$	(324)	89	%
$500,000 or less (1,224 securities)	3,754		(124)		97	%
	$	6,343	$	(448)	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 March 31, 2024
Investment grade fixed maturities with losses for:
Less than one year (201 securities)	$	889	$	(7)	99	%
One year or longer (1,048 securities)	5,122		(418)		92	%
	$	6,011	$	(425)	93	%
Non-investment grade fixed maturities with losses for:
Less than one year (26 securities)	$	47	$	(2)	96	%
One year or longer (176 securities)	285		(21)		93	%
	$	332	$	(23)	94	%

When a decline in the value of a specific investment is considered to be other-than-temporary, an allowance for credit losses (impairment) is charged to earnings (accounted for as a realized loss). The determination of whether unrealized losses are other-than-temporary requires judgment based on subjective as well as objective factors as detailed in AFG’s 2023 Form 10-K under Management’s Discussion and Analysis — “Investments.”

Based on its analysis, 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 March 31, 2024. 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

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. See Management’s Discussion and Analysis — “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves” in AFG’s 2023 Form 10–K.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

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 G — “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
March 31, 2024
Assets:
Cash and investments	$	15,453	$	—	$	(199)	(*)	$	15,254
Assets of managed investment entities	—		4,669		—			4,669
Other assets	10,080		—		(2)		(*)	10,078
Total assets	$	25,533	$	4,669	$	(201)		$	30,001
Liabilities:
Unpaid losses and loss adjustment expenses and unearned premiums	$	16,700	$	—	$	—		$	16,700
Liabilities of managed investment entities	—		4,639		(171)		(*)	4,468
Long-term debt and other liabilities	4,593		—		—			4,593
Total liabilities	21,293		4,639		(171)			25,761

Shareholders’ equity:
Common Stock and Capital surplus	1,466		30		(30)			1,466
Retained earnings	3,089		—		—			3,089
Accumulated other comprehensive income (loss), net of tax	(315)		—		—			(315)
Total shareholders’ equity	4,240		30		(30)			4,240
Total liabilities and shareholders’ equity	$	25,533	$	4,669	$	(201)		$	30,001

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

(*)Elimination of the fair value of AFG’s investment in CLOs and related accrued interest.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS


	Before CLO Consol. (a)		Managed Investment Entities		Consol. Entries			Consolidated As Reported
Three months ended March 31, 2024
Revenues:
Property and casualty insurance net earned premiums	$	1,546	$	—	$	—		$	1,546
Net investment income	212		—		(14)		(b)	198

Realized gains (losses) on securities	14		—		—			14
Income of managed investment entities:
Investment income	—		99		—			99
Gain (loss) on change in fair value of assets/liabilities	—		6		4		(b)	10
Other income	42		—		(3)		(c)	39
Total revenues	1,814		105		(13)			1,906
Costs and Expenses:
Insurance benefits and expenses	1,415		—		—			1,415
Expenses of managed investment entities	—		104		(12)		(b)(c)	92
Interest charges on borrowed money and other expenses	95		—		—			95
Total costs and expenses	1,510		104		(12)			1,602
Earnings before income taxes	304		1		(1)			304
Provision for income taxes	62		—		—			62
Net earnings	$	242	$	1	$	(1)		$	242

Three months ended March 31, 2023
Revenues:
Property and casualty insurance net earned premiums	$	1,437	$	—	$	—		$	1,437
Net investment income	218		—		(1)		(b)	217
Realized gains (losses) on securities	(46)		—		—			(46)
Income of managed investment entities:
Investment income	—		104		—			104
Gain (loss) on change in fair value of assets/liabilities	—		(1)		(3)		(b)	(4)
Other income	36		—		(4)		(c)	32
Total revenues	1,645		103		(8)			1,740
Costs and Expenses:
Insurance benefits and expenses	1,293		—		—			1,293
Expenses of managed investment entities	—		103		(8)		(b)(c)	95
Interest charges on borrowed money and other expenses	88		—		—			88
Total costs and expenses	1,381		103		(8)			1,476
Earnings before income taxes	264		—		—			264
Provision for income taxes	52		—		—			52
Net earnings	$	212	$	—	$	—		$	212

(a)Includes income of $14 million in the first three months of 2024 and $1 million in the first three months of 2023, representing the change in fair value of AFG’s CLO investments and $3 million and $4 million in the first three months of 2024 and 2023, respectively, in CLO management fees earned.

(b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $9 million and $4 million in the first three months of 2024 and 2023, respectively, in distributions recorded as interest expense by the CLOs.

(c)Elimination of management fees earned by AFG.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

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. 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.

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.


2024			2023
Components of net earnings:
Core operating earnings before income taxes	$	290		$	308
Pretax non-core items:
Realized gains (losses) on securities	14			(46)
Gain on retirement of debt	—			2
Earnings before income taxes	304			264
Provision for income taxes:
Core operating earnings	59			61
Non-core items:
Realized gains (losses) on securities	3			(9)
Gain on retirement of debt	—			—
Total provision for income taxes	62			52
Net earnings	$	242		$	212

Net earnings:
Core net operating earnings	$	231		$	247
Realized gains (losses) on securities	11			(37)
Gain on retirement of debt	—			2
Net earnings	$	242		$	212

Diluted per share amounts:
Core net operating earnings	$	2.76		$	2.89
Realized gains (losses) on securities	0.13			(0.42)
Gain on retirement of debt	—			0.02
Net earnings	$	2.89		$	2.49

Net earnings were $242 million in the first three months of 2024 compared to $212 million in the first three months of 2023 reflecting net realized gains on securities in the first three months of 2024 compared to net realized losses on securities in the first three months of 2023, partially offset by lower core net operating earnings. Core net operating earnings for the first three months of 2024 decreased $16 million compared to the first three months of 2023 reflecting lower returns on AFG’s alternative investment portfolio, partially offset by the impact of higher investment income outside of alternative investments. Net realized gains (losses) on securities in the first three months of 2024 and 2023 include after-tax gains of $15 million and after-tax losses of $18 million, respectively, resulting from the change in fair value of equity securities that were still held at the balance sheet date.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

RESULTS OF OPERATIONS — THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Segmented Statement of Earnings

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 March 31, 2024 and 2023 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 March 31, 2024
Revenues:
Property and casualty insurance net earned premiums	$	1,546		$	—		$	—		$	1,546	$	—	$	1,546
Net investment income	205			(14)			7			198		—		198


	Three months ended March 31,
	2024			2023			Change
Combined Ratios:
Specialty lines
Loss and LAE ratio	58.6		%	57.0		%	1.6		%
Underwriting expense ratio	31.5		%	32.2		%	(0.7		%)
Combined ratio	90.1		%	89.2		%	0.9		%

Aggregate — including exited lines
Loss and LAE ratio	58.6		%	57.1		%	1.5		%
Underwriting expense ratio	31.5		%	32.2		%	(0.7		%)
Combined ratio	90.1		%	89.3		%	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.

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 $2.34 billion for the first three months of 2024 compared to $2.16 billion for the first three months of 2023, an increase of $181 million (8%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):


	Three months ended March 31,
	2024				2023
	GWP		%		GWP		%		% Change
Property and transportation	$	959	41	%	$	872	41	%	10	%
Specialty casualty	1,097		47	%	1,061		49	%	3	%
Specialty financial	280		12	%	222		10	%	26	%

	$	2,336	100	%	$	2,155	100	%	8	%

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Reinsurance Premiums Ceded

Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 30% of gross written premiums for both the first three months of 2024 and the first three months of 2023. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):


	Three months ended March 31,
	2024				2023				Change in
	Ceded		% of GWP		Ceded		% of GWP		% of GWP
Property and transportation	$	(368)	38	%	$	(320)	37	%	1	%
Specialty casualty	(346)		32	%	(339)		32	%	—	%
Specialty financial	(46)		16	%	(38)		17	%	(1	%)
Other specialty	58				61
	$	(702)	30	%	$	(636)	30	%	—	%

Net Written Premiums

Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $1.63 billion for the first three months of 2024 compared to $1.52 billion for the first three months of 2023, an increase of $115 million (8%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):


	Three months ended March 31,
	2024				2023
	NWP		%		NWP		%		% Change
Property and transportation	$	591	36	%	$	552	36	%	7	%
Specialty casualty	751		46	%	722		48	%	4	%
Specialty financial	234		14	%	184		12	%	27	%
Other specialty	58		4	%	61		4	%	(5	%)
	$	1,634	100	%	$	1,519	100	%	8	%

Net Earned Premiums

Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $1.55 billion for the first three months of 2024 compared to $1.44 billion for the first three months of 2023, an increase of $109 million (8%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):


	Three months ended March 31,
	2024				2023
	NEP		%		NEP		%		% Change
Property and transportation	$	513	33	%	$	475	33	%	8	%
Specialty casualty	730		47	%	704		49	%	4	%
Specialty financial	243		16	%	196		14	%	24	%
Other specialty	60		4	%	62		4	%	(3	%)
	$	1,546	100	%	$	1,437	100	%	8	%

Gross written premiums for the first three months of 2024 increased $181 million (8%) compared to the first three months of 2023, reflecting growth in each of the Specialty property and casualty sub-segments as a result of additional crop premiums from the Crop Risk Services (“CRS”) acquisition, new business opportunities, increased exposures and a good renewal rate environment. Overall average renewal rates increased 6% in the first three months of 2024. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates increased 8%.

Property and transportation Gross written premiums increased $87 million (10%) in the first three months of 2024 compared to the first three months of 2023. Additional crop premium associated with the CRS acquisition as well as new business opportunities, a favorable rate environment and strong account retentions in the commercial auto and ocean marine businesses were the primary drivers of the increase in premiums. Average renewal rates increased approximately 9% for this group in the first three months of 2024. Reinsurance premiums ceded as a percentage of gross written premiums increased 1 percentage point in the first three months of 2024 compared to the first three months of 2023 reflecting the impact of higher premiums in the crop business and growth in alternative risk transfer products in the

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

transportation businesses, 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 $36 million (3%) in the first three months of 2024 compared to the first three months of 2023. The higher year-over-year premiums resulted primarily from growth in the excess and surplus and excess liability businesses as a result of rate increases and new business opportunities. Higher rates, strong account retention and new business opportunities in several of the targeted markets businesses contributed to the year-over-year growth to a lesser extent. Average renewal rates increased approximately 5% for this group in the first three months of 2024. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 8%. Reinsurance premiums ceded as a percentage of gross written premiums were similar in the first three months of 2024 and the first three months of 2023 and reflect growth in businesses with higher retentions, offset by higher cessions in the public sector and environmental businesses.

Specialty financial Gross written premiums increased $58 million (26%) in the first three months of 2024 compared to the first three months of 2023 due primarily to growth in the financial institutions business. Average renewal rates increased approximately 7% for this group in the first three months of 2024. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in the first three months of 2024 compared to the first three months of 2023 reflecting growth in businesses with higher retentions.

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 decreased $3 million in the first three months of 2024 compared to the first three months of 2023 reflecting a decrease in premiums retained, primarily from businesses in the Specialty casualty sub-segment.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Combined Ratio

The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment:


	Three months ended March 31,						Three months ended March 31,
	2024		2023		Change		2024		2023
Property and transportation
Loss and LAE ratio	59.2	%	60.9	%	(1.7	%)
Underwriting expense ratio	29.8	%	30.1	%	(0.3	%)
Combined ratio	89.0	%	91.0	%	(2.0	%)
Underwriting profit							$	56	$	43

Specialty casualty
Loss and LAE ratio	62.5	%	59.2	%	3.3	%
Underwriting expense ratio	27.3	%	28.3	%	(1.0	%)
Combined ratio	89.8	%	87.5	%	2.3	%
Underwriting profit							$	74	$	88

Specialty financial
Loss and LAE ratio	40.2	%	36.0	%	4.2	%
Underwriting expense ratio	46.1	%	50.5	%	(4.4	%)
Combined ratio	86.3	%	86.5	%	(0.2	%)
Underwriting profit							$	33	$	26

Total Specialty
Loss and LAE ratio	58.6	%	57.0	%	1.6	%
Underwriting expense ratio	31.5	%	32.2	%	(0.7	%)
Combined ratio	90.1	%	89.2	%	0.9	%
Underwriting profit							$	154	$	155

Aggregate — including exited lines
Loss and LAE ratio	58.6	%	57.1	%	1.5	%
Underwriting expense ratio	31.5	%	32.2	%	(0.7	%)
Combined ratio	90.1	%	89.3	%	0.8	%
Underwriting profit							$	153	$	154

The Specialty property and casualty insurance operations generated an underwriting profit of $154 million in the first three months of 2024 compared to $155 million in the first three months of 2023, a decrease of $1 million (1%). Higher underwriting profits in the Property and transportation and Specialty financial sub-segments were offset by lower underwriting profit in the Specialty casualty sub-segment and higher losses in the business assumed by AFG’s internal reinsurance program. Overall catastrophe losses were $35 million (2.3 points on the combined ratio), including $1 million in net reinstatement premiums in the first three months of 2024 compared to catastrophe losses $31 million (2.2 points) in the first three months of 2023.

Property and transportation Underwriting profit for this group was $56 million for the first three months of 2024 compared to $43 million for the first three months of 2023, an increase of $13 million (30%). The improved profitability was due primarily to higher year-over-year underwriting profit in the property and inland marine business. Catastrophe losses were $8 million (1.7 points on the combined ratio) in the first three months of 2024 compared to $19 million (4.0 points) in the first three months of 2023.

Specialty casualty Underwriting profit for this group was $74 million for the first three months of 2024 compared to $88 million for the first three months of 2023, a decrease of $14 million (16%). Higher year-over-year underwriting profits in the workers’ compensation businesses were more than offset by lower underwriting profits in the excess and surplus and excess liability businesses and loss activity within a few accounts in the social service business. Catastrophe losses

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

were $16 million (2.2 points on the combined ratio), including $1 million in net reinstatement premiums in the first three months of 2024 compared to catastrophe losses of $3 million (0.4 points) in the first three months of 2023.

Specialty financial Underwriting profit for this group was $33 million for the first three months of 2024 compared to $26 million in the first three months of 2023, an increase of $7 million (27%). This increase reflects higher underwriting profits in the financial institutions and fidelity businesses, partially offset by lower profitability in the innovative markets business. Catastrophe losses were $8 million (3.1 points on the combined ratio) compared to $4 million (2.2 points) in the first three months of 2023.

Other specialty This group reported an underwriting loss of $9 million in the first three months of 2024 compared to $2 million in the first three months of 2023, an increase of $7 million (350%), 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 first three months of 2024 compared to the first three months of 2023. Catastrophe losses were $3 million in the first three months of 2024 compared to $5 million in the first three months of 2023.

Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment includes adverse prior year reserve development of $1 million in both the first three months of 2024 and the first three months of 2023 related to business outside of the Specialty group that AFG no longer writes.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Losses and Loss Adjustment Expenses

AFG’s overall loss and LAE ratio was 58.6% for the first three months of 2024 compared to 57.1% for the first three months of 2023, an increase of 1.5 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 March 31,
	Amount				Ratio				Change in
	2024		2023		2024		2023		Ratio
Property and transportation
Current year, excluding catastrophe losses	$	339	$	307	65.8	%	64.7	%	1.1	%
Prior accident years development	(43)		(37)		(8.3	%)	(7.8	%)	(0.5	%)
Current year catastrophe losses including the impact of net reinstatement premiums	8		19		1.7	%	4.0	%	(2.3	%)
Property and transportation losses and LAE and ratio	$	304	$	289	59.2	%	60.9	%	(1.7	%)

Specialty casualty
Current year, excluding catastrophe losses	$	459	$	441	62.6	%	62.6	%	—	%
Prior accident years development	(17)		(27)		(2.3	%)	(3.8	%)	1.5	%
Current year catastrophe losses including the impact of net reinstatement premiums	15		3		2.2	%	0.4	%	1.8	%
Specialty casualty losses and LAE and ratio	$	457	$	417	62.5	%	59.2	%	3.3	%

Specialty financial
Current year, excluding catastrophe losses	$	84	$	70	34.8	%	35.2	%	(0.4	%)
Prior accident years development	6		(3)		2.3	%	(1.4	%)	3.7	%
Current year catastrophe losses including the impact of net reinstatement premiums	8		4		3.1	%	2.2	%	0.9	%
Specialty financial losses and LAE and ratio	$	98	$	71	40.2	%	36.0	%	4.2	%

Total Specialty
Current year, excluding catastrophe losses	$	923	$	852	59.6	%	59.3	%	0.3	%
Prior accident years development	(51)		(64)		(3.3	%)	(4.5	%)	1.2	%
Current year catastrophe losses including the impact of net reinstatement premiums	34		31		2.3	%	2.2	%	0.1	%
Total Specialty losses and LAE and ratio	$	906	$	819	58.6	%	57.0	%	1.6	%

Aggregate — including exited lines
Current year, excluding catastrophe losses	$	923	$	852	59.6	%	59.3	%	0.3	%
Prior accident years development	(50)		(63)		(3.2	%)	(4.4	%)	1.2	%
Current year catastrophe losses including the impact of net reinstatement premiums	34		31		2.2	%	2.2	%	—	%
Aggregate losses and LAE and ratio	$	907	$	820	58.6	%	57.1	%	1.5	%

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 59.6% for the first three months of 2024 compared to 59.3% for the first three months of 2023, an increase of 0.3 percentage points.

Property and transportation The 1.1 percentage point increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in the crop business, which has a higher loss and LAE ratio than some of the other businesses in the Property and transportation sub-segment.

Specialty casualty The loss and LAE ratio for the current year, excluding catastrophe losses in the first three months of 2024 is comparable to the 2023 period, reflecting lower claim frequency in the executive liability business offset by higher claim severity in certain excess and surplus businesses and liability coverages.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Specialty financial The 0.4 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects 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 $51 million in the first three months of 2024 compared to $64 million in the first three months of 2023, a decrease of $13 million (20%).

Property and transportation Net favorable reserve development of $43 million in the first three months of 2024 reflects lower than anticipated losses in the crop business and lower than expected claim severity in the property and inland marine business. Net favorable reserve development of $37 million in the first three months of 2023 reflects lower than anticipated losses in the crop business, lower than expected claim frequency and severity in the trucking business and lower than anticipated claim frequency in the property and inland marine business.

Specialty casualty Net favorable reserve development of $17 million in the first three months of 2024 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency and severity in the executive liability business, partially offset by higher than anticipated claim severity in the excess liability businesses and higher than expected claim frequency and severity in the social service business. Net favorable reserve development of $27 million in the first three months of 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability, excess and surplus and environmental businesses, partially offset by higher than anticipated claim severity in the public sector and excess liability businesses.

Specialty financial Net adverse reserve development of $6 million in the first three months of 2024 reflects higher than anticipated claim severity in the innovative markets business, partially offset by lower than anticipated claim frequency in the fidelity business and lower than expected claim frequency and severity in the financial institutions business. Net favorable reserve development of $3 million in the first three months of 2023 reflects lower than anticipated claim frequency in the surety and trade credit businesses.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of $3 million in both the first three months of 2024 and in the first three months of 2023 associated with AFG’s internal reinsurance program, partially offset by 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 both the first three months of 2024 and the first three months of 2023 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:

Approximate impact of modeled loss

Industry Model

on AFG’s Shareholders’ Equity

100-year event

250-year event

500-year event

AFG maintains comprehensive property catastrophe reinsurance coverage for its property and casualty insurance operations, including a $70 million per occurrence net retention, for losses up to $125 million in the vast majority of circumstances. In certain unlikely events, AFG’s ultimate loss under this coverage could be as high as $73 million for a single occurrence. AFG further maintains supplemental fully collateralized reinsurance coverage up to 94% of $323 million for catastrophe losses in excess of $127 million of traditional catastrophe reinsurance through a catastrophe bond.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Catastrophe losses of $34 million in the first three months of 2024 (before $1 million in net reinstatement premiums) resulted from winter and convective storms in multiple regions of the United States. Catastrophe losses of $31 million in the first three months of 2023 resulted primarily from February and March storms across much of the United States.

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $486 million in the first three months of 2024 compared to $463 million for the first three months of 2023, an increase of $23 million (5%). AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 31.5% for the first three months of 2024 compared to 32.2% for the first three months of 2023, a decrease of 0.7 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 March 31,
	2024				2023				Change in
	U/W Exp		% of NEP		U/W Exp		% of NEP		% of NEP
Property and transportation	$	153	29.8	%	$	143	30.1	%	(0.3	%)
Specialty casualty	199		27.3	%	199		28.3	%	(1.0	%)
Specialty financial	112		46.1	%	99		50.5	%	(4.4	%)
Other specialty	22		37.7	%	22		34.5	%	3.2	%


	$	486	31.5	%	$	463	32.2	%	(0.7	%)

Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.3 percentage points in the first three months of 2024 compared to the first three months of 2023 reflecting the impact of higher earned premiums on the ratio, including in the crop business that has a lower commissions and other underwriting expense ratio compared to some of the other businesses in the Property and transportation sub-segment.

Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums decreased 1.0 percentage points in the first three months of 2024 compared to the first three months of 2023 reflecting the impact of higher earned premiums on the ratio.

Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 4.4 percentage points in the first three months of 2024 compared to the first three months of 2023 due primarily to the impact of higher earned premiums on the ratio and lower average commission rates in the financial institutions business resulting from a change in the mix of business.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $205 million in the first three months of 2024 compared to $207 million in the first three months of 2023, a decrease 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 March 31,
	2024			2023			Change			% Change
Net investment income:
Net investment income, excluding alternative investments	$	149		$	129		$	20		16	%
Alternative investments	56			78			(22)			(28	%)
Total net investment income	$	205		$	207		$	(2)		(1	%)

Average invested assets (at amortized cost)	$	15,331		$	14,350		$	981		7	%

Yield (net investment income as a % of average invested assets)	5.35		%	5.77		%	(0.42		%)

Tax equivalent yield (*)	5.42		%	5.83		%	(0.41		%)

(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The decrease in the property and casualty insurance segment’s net investment income for the first three months of 2024 compared to the first three months of 2023 reflects lower returns on AFG’s alternative investments portfolio (partnerships and similar investments and AFG-managed CLOs), partially offset by the impact of higher balances of invested assets and higher returns on fixed maturity investments. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 5.35% for the first three months of 2024 compared to 5.77% for the first three months of 2023, a decrease of 0.42 percentage points reflecting lower returns on alternative investments. The annualized return earned on alternative investments was 9.0% in the first three months of 2024 compared to 14.2% in the comparable 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 $18 million for the first three months of 2024 compared to $11 million for the first three months of 2023, an increase of $7 million (64%). 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 March 31,
	2024		2023
Other income	$	2	$	5
Other expenses:
Amortization of intangibles	5		3
Interest expense on funds withheld	12		10
Other	3		3
Total other expenses	20		16
Other income and expenses, net	$	(18)	$	(11)

The decrease in other income in the first three months of 2024 compared to the first three months of 2023 is due primarily to the impact of death benefits received on a company-owned life insurance policy in the first three months of 2023. The higher amortization of intangibles in the first three months of 2024 compared to the first three months of 2023 reflects the acquisition of CRS in July 2023.

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 $50 million in the first three months of 2024 compared to $40 million in the first three months of 2023, an increase of $10 million (25%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $50 million in the first three months of 2024 compared to $42 million in the first three months of 2023, an increase of $8 million (19%).

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance segment for the three months ended March 31, 2024 and 2023 (dollars in millions):


	Three months ended March 31,
	2024		2023		% Change
Revenues:
Net investment income	$	7	$	11	(36	%)
Other income — P&C fees	36		24		50	%
Other income	4		7		(43	%)
Total revenues	47		42		12	%

Costs and Expenses:
Property and casualty insurance — loss adjustment and underwriting expenses	22		10		120	%
Other expense — expenses associated with P&C fees	14		14		—	%
Other expenses (*)	42		41		2	%
Costs and expenses, excluding interest charges on borrowed money	78		65		20	%
Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money	(31)		(23)		35	%
Interest charges on borrowed money	19		19		—	%
Core loss before income taxes, excluding realized gains and losses	(50)		(42)		19	%

Pretax non-core gain on retirement of debt	—		2		(100	%)
GAAP loss before income taxes, excluding realized gains and losses	$	(50)	$	(40)	25	%

(*)Excludes a pretax non-core gain on retirement of debt of $2 million in the first three months of 2023.

Holding Company and Other — Net Investment Income

AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $7 million in the first three months of 2024 compared to $11 million in the first three months of 2023, a decrease of $4 million (36%) reflecting the impact of lower average investment balances.

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 the first three months of 2024, AFG collected $25 million in fees for these services compared to $24 million in the first three months of 2023. Management views this fee income, net of the $14 million in both the first three months of 2024 and the first three months of 2023 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 $11 million in fees as compensation for providing services related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date during the first three months of 2024. 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 commissions and other underwriting expenses in AFG’s segmented results.

Holding Company and Other — Other Income

Other income in the table above includes $3 million in the first three months of 2024 and $4 million in the first three months of 2023 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 Consolidate 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 $1 million in the first three months of 2024 and $3 million the first three months of 2023, a decrease of $2 million (67%).

Holding Company and Other — Other Expenses

Excluding the non-core gain on retirement of debt in the first three months of 2023 discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $42 million in the first three months of 2024 compared to $41 million in the first three months of 2023, an increase of $1 million (2%). Other expenses for the 2024 quarter includes a $4 million charge to increase liabilities related to AFG’s former railroad and manufacturing operations.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

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 $19 million in both the first three months of 2024 and the first three months of 2023.

Holding Company and Other — Gain on Retirement of Debt

During the first quarter of 2023, AFG repurchased $18 million principal amount of its senior notes, which resulted in a $2 million pretax non-core gain.

Realized Gains (Losses) on Securities

AFG’s realized gains (losses) on securities were net gains of $14 million in the first three months of 2024 compared to net losses of $46 million in the first three months of 2023, a change of $60 million (130%). Realized gains (losses) on securities consisted of the following (in millions):


	Three months ended March 31,
	2024		2023
Realized gains (losses) before impairment allowances:
Disposals	$	(3)	$	(24)
Change in the fair value of equity securities	20		(18)
Change in the fair value of derivatives	(1)		1
	16		(41)

Change in allowance for impairments on securities	(2)		(5)
Realized gains (losses) on securities	$	14	$	(46)

The $24 million net realized loss from disposals in the first three months of 2023 includes losses of $14 million from the sale of investments in banks and $4 million from the sale of municipal bonds.

The $20 million net realized gain from the change in the fair value of equity securities in the first three months of 2024 includes gains of $11 million on investments in banks and financing companies and $4 million on investments in natural gas companies. The $18 million net realized loss from the change in the fair value of equity securities in the first three months of 2023 includes losses of $10 million on investments in healthcare companies, $6 million on investments in banks and $6 million on investments in energy companies, partially offset by gains of $4 million on investments in retail companies and $2 million on investments in media companies.

Consolidated Income Taxes

AFG’s consolidated provision for income taxes was $62 million for the first three months of 2024 compared to $52 million for the first three months of 2023, an increase of $10 million (19%). See Note K — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.

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 March 31, 2024, 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

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

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 March 31, 2024, 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 3. Quantitative and Qualitative Disclosure about Market Risk

As of March 31, 2024, there were no material changes to the information provided in Item 7A — Quantitative and Qualitative Disclosures about Market Risk of AFG’s 2023 Form 10-K.

Consistent with the discussion in Item 2 — 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 March 31, 2024 (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.


Fair value of fixed maturity portfolio	$	10,428
Percentage impact on fair value of 100 bps increase in interest rates	(3.0		%)
Pretax impact on fair value of fixed maturity portfolio	$	(313)

ITEM 4. 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 first fiscal quarter of 2024 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

In the ordinary course of business, AFG and its subsidiaries routinely enhance their information systems by either upgrading current systems or implementing new systems. There have been no changes in AFG’s business processes and procedures during the first fiscal quarter of 2024 that have materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

PART II

OTHER INFORMATION

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities AFG did not repurchase any shares of its Common Stock during the first three months of 2024. As of March 31, 2024, there are 5,729,010 remaining shares that may be repurchased until December 31, 2025 under the Plans authorized by AFG’s Board of Directors in October 2020 and May 2021.

AFG acquired 2,155 shares of its Common Stock (at an average of $120.73 per share) in January 2024, 45,585 shares (at $126.63 per share) in February 2024 and 130 shares (at $132.23 per share) in March 2024 in connection with its stock incentive plans.

ITEM 5. Other Information

During the three months ended March 31, 2024, 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.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

ITEM 6. Exhibits


Number						Exhibit Description
31(a)						Certification of Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(b)						Certification of Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(c)						Certification of Chief Financial Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
32						Certification of Co-Chief Executive Officers and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
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).

Signature

Pursuant to the requirements 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.

May 3, 2024	By:	/s/ Brian S. Hertzman
		Brian S. Hertzman
		Senior Vice President and Chief Financial Officer

AMERICAN FINANCIAL GROUP INC - Quarter Report: 2024 March (Form 10-Q)

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