American Financial Group, Inc. (AFG) has reported a net loss of $301 million for the first-quarter of 2020, driven by the adverse impacts of after-tax non-core items aggregating $472 million.
The company’s Q1 2020 net loss compares with net earnings of $329 million in the prior year first-quarter, and reflects widespread financial market volatility and declining equity markets as a result of COVID-19-induced economic uncertainty.
In Q1, AFG’s net earnings included $435 million in non-core after-tax net realised and unrealised losses on securities, after-tax annuity non-core losses of $30 million, and $7 million for costs associated with the run-off of Neon, the firm’s Lloyd’s of London insurer.
In contrast, net earnings in Q1 2019 included $145 million in after-tax net realised gains on securities.
At $171 million, core net operating earnings in Q1 2020 fell from the $184 million posted a year earlier, generating an annualised return on equity of 13.2%. AFG attributes the year-on-year decline to negative adjustments to its $2.2 billion of investments that are marked to market through core operating earnings.
Excluding the impacts of the COVID-19 pandemic on marked to market investments, and AFG’s core net operating earnings actually increased by $21 million year-on-year.
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers (CEOs), commented: “The COVID-19 pandemic has had profound implications across the globe, requiring us to adjust to new ways of working, learning and interacting with each other. We are especially grateful for the guidance of health officials and government leaders at the local, state and federal levels, which has been instrumental in protecting health and promoting safety in these unprecedented times.
“We are also very thankful to those serving and caring for others, including healthcare professionals, first responders, military and food service personnel and other essential workers. Our foremost priority is to protect the well-being of our employees as we continue to provide the secure, trusted service and support on which our agents and policyholders rely.
“We entered the year in the strongest financial position in our Company’s history, and our liquidity and excess capital afford us the flexibility to effectively address and respond to the uncertainties introduced by COVID-19. Our thoughts and prayers remain with all of those affected by the virus and the individuals caring for them.
“We are very pleased with the performance of our core operating businesses during the first quarter of 2020 amid these challenges. We believe our results demonstrate the strength of our portfolio of diversified specialty insurance businesses and the contributions of the exceptional employees who are part of the AFG family.”
A look at the company’s performance in the quarter by segment, reveals that AFG’s Specialty P&C Group performed well in the first-quarter of the year, with all sub-sectors recording underwriting profitability.
Pre-tax core operating earnings in the Specialty P&C Insurance business reached $181 million, which is down slightly on the $185 million recorded in Q1 2019. The decline in earnings, says AFG, relates to reduced P&C investment income as a result of the impact of marked to market investments.
AFG’s Specialty P&C operations recorded an underwriting profit of $89 million and a combined ratio of 92.2% in Q1 2020, against underwriting income of $88 million and a combined ratio of 92.5% in Q1 2019.
“Our Specialty P&C Group performed exceptionally well during the first quarter, with excellent underwriting margins, healthy year-over-year growth in net written premiums and very strong renewal pricing that is exceeding our objectives.
“Based on our current expectations of the impact of COVID-19, we now expect P&C pretax core operating earnings, excluding the impact of MTM investments, in the range of $630 million to $690 million, and we expect an overall 2020 calendar year combined ratio in the range of 92% to 94%. We now expect net written premiums to be down 8% to 14% when compared to the $5.3 billion reported in 2019, primarily due to the run-off of Neon. Excluding the impact of Neon, we expect net written premiums be 1% to 7% lower than the premiums reported in 2019,” said Carl Lindner.
In its Annuity segment, AFG has reported pre-tax earnings of $67 million, which includes the impacts of marked to market investments, compared with earnings of $90 million a year earlier. Additionally, the segment’s statutory premiums declined by 13% year-on-year to $1.21 billion.
“While COVID-19 had a limited impact on premiums during the first quarter, the pandemic is expected to have a much bigger impact on sales in the second quarter, and possibly beyond. Subject to much uncertainty, our current best estimate is that 2020 Annuity sales will be between $3.3 billion and $4.0 billion, and result in growth in average investments and reserves of 5% to 7% in 2020.
“Furthermore, we believe that the Annuity Segment’s 5% increase in comparable core operating earnings before MTM investments demonstrates the strong fundamentals of our business. Although the Annuity Segment’s return on its $1.3 billion of MTM investments was slightly negative in the first quarter of 2020, the cumulative return on these investments over the past five calendar years was nearly 10%,” added Craig Lindner.
