American Financial ((AFG)) has held its Q2 earnings call. Read on for the main highlights of the call.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
The recent earnings call for American Financial Group (AFG) painted a mixed picture for investors. While the company showcased strong underwriting margins and a notable increase in net investment income, these positives were offset by lower core net operating earnings and challenges within alternative investments. Shareholder returns were commendable, yet the increased combined ratio in certain segments highlighted ongoing challenges.
Strong Underwriting Margins
The Specialty Property & Casualty insurance businesses of AFG maintained robust underwriting margins, achieving a combined ratio of 93.1% in the second quarter of 2025. This performance underscores the company’s ability to manage risks effectively and maintain profitability in its core insurance operations.
Increase in Net Investment Income
AFG reported a 10% year-over-year increase in net investment income, excluding alternative investments. This growth was driven by higher interest rates and an increase in the balances of invested assets, reflecting a positive trend in the company’s investment strategy.
Shareholder Returns
During the second quarter of 2025, AFG returned over $100 million to shareholders through regular dividends and share repurchases. This move demonstrates the company’s commitment to providing value to its shareholders and confidence in its financial stability.
Specialty Financial Group Performance
The Specialty Financial group reported a combined ratio of 86.1%, which is an improvement of 3.6 points compared to the same period in 2024. This reflects higher year-over-year underwriting profitability, indicating strong performance in this segment.
Growth in Premiums
AFG experienced robust growth in its Specialty Property & Casualty businesses, with gross written premiums increasing by 10% and net written premiums by 7% compared to the second quarter of 2024. This growth highlights the company’s successful expansion and market penetration.
Decrease in Core Net Operating Earnings
AFG’s core net operating earnings fell to $2.14 per share, down from $2.56 per share in the prior year-end period. This decrease was attributed to a reduction in underwriting profit and lower returns on alternative investments, presenting a challenge for the company.
Challenges in Alternative Investments
The annualized return on alternative investments in the P&C portfolio was approximately 1.2% for the second quarter of 2025, a significant drop from 5.1% in the prior year quarter. This decline impacted the overall P&C net investment income, highlighting a key area of concern.
Increased Combined Ratio in Specialty Casualty Group
The Specialty Casualty Group reported a combined ratio of 93.9%, which is 4.8 points higher than the 89.1% reported in the comparable period in 2024. This increase suggests rising costs or loss experience within this segment.
Adverse Development in Social Inflation Exposed Businesses
AFG faced adverse development in parts of its social inflation exposed businesses, particularly in excess and surplus and nonprofit social services. This contributed to a $10 million adverse development in the Casualty Group, indicating ongoing challenges in managing these exposures.
Forward-Looking Guidance
Looking ahead, AFG reported an annualized core operating return on equity of 15.5% and emphasized its focus on capital deployment opportunities and maintaining a strong financial position. The company aims for a 6% growth in book value per share, excluding AOCI plus dividends, for the first half of 2025. Despite challenges in multifamily investments, AFG remains optimistic about achieving long-term returns of 10% or better.
In summary, American Financial Group’s earnings call revealed a balanced mix of strengths and challenges. While the company continues to deliver strong underwriting margins and shareholder returns, it faces hurdles in core net operating earnings and alternative investments. Investors will be keenly watching how AFG navigates these challenges while capitalizing on growth opportunities in the coming quarters.