American Financial Group, Inc. (AFG) saw its core net operating earnings decline to $95 million in the second-quarter of 2020 as the ongoing COVID-19 pandemic’s impact on financial markets adversely affected returns on alternative investments.
The company’s core net operating earnings fell by more than 50% year-on-year from the $192 million reported in Q2 2019.
The firm attributes this decline to negative adjustments to its $2.2 billion of alternative investments that are marked to market through core operating earnings. The pandemic led to significant financial market volatility and caused widespread economic damage, which had an adverse impact on alternative investments.
Excluding this impact, and AFG’s core net operating earnings decreased by $12 million year-over-year.
In addition to the pandemic impacting the firm’s alternative investments, AFG notes that P&C core earnings for Q2 2020 also included $85 million in losses related to COVID-19.
Pre-tax core operating earnings in this segment reached $116 million in Q2 2020 compared with $175 million in Q2 2019, driven by lower P&C net investment income as a result of the above-mentioned impact on alternative investments from the coronavirus.
Net earnings also dipped in Q2 for AFG, from $210 million in 2019 to $177 million this year, which included net favourable after-tax non-core items aggregating $82 million. Furthermore, these items included $161 million in non-core after-tax net realized gains on securities, partially offset by after-tax annuity non-core losses of $47 million, and $32 million for costs associated with the runoff of Neon.
S. Craig Lindner and Carl H. Lindner III, AFG’s Co-Chief Executive Officers (CEOs), said: “Our thoughts and prayers remain with those affected by the COVID-19 pandemic. We are thankful to those serving and caring for others, including healthcare professionals, first responders, military and other essential workers. The safety of our employees remains our top priority. We are proud of the resiliency, flexibility and commitment they have demonstrated as they continue to provide the secure, trusted service and support on which our agents and policyholders rely.
“We are very pleased with the performance of our core operating businesses and the results in our investment operations in the second quarter. Our liquidity and excess capital afford us the flexibility to effectively address and respond to the uncertainties introduced by COVID-19, and we believe our results demonstrate the value of our disciplined operating philosophy and portfolio of diversified specialty insurance businesses.
“AFG had approximately $850 million of excess capital at June 30, 2020. This number included parent company cash of approximately $500 million. We expect to continue to have significant excess capital and liquidity throughout 2020 and beyond. Specifically, our insurance subsidiaries are projected to have capital in excess of the levels expected by ratings agencies in order to maintain their current ratings, we have no near-term debt maturities and we maintain a $500 million undrawn credit facility.”
