American Financial Group, Inc. (AFG) has reported net earnings of $211 million for the fourth-quarter of 2019 against a net loss of $29 million for the same period in 2018. The growth in earnings has occurred despite the firm’s Q4 result including a $58 million hit from its previously announced plans to exit the specialist Lloyd’s of London insurance and reinsurance marketplace.
Core net operating earnings reached $203 million for AFG in the fourth-quarter, and included $51 million of realised gains on securities and annuity non-core earnings of $19 million, somewhat offset by $58 million of related costs to AFG’s decision to place Neon into run-off, and $4 million of losses on early retirement of debt.
This compares with core net operating earnings of $159 million in Q4 2018, which was entirely offset by $188 million of realised losses on securities, resulting in a Q4 2018 net loss of $29 million for the firm.
At the start of this year, AFG announced that it was to exit the Lloyd’s marketplace as a result of a lack of sustainable and appropriate returns. The placing of Neon into run-off will enable the firm to reallocate capital to its other insurance businesses and opportunities that have the potential to earn targeted returns on investment, says AFG.
Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers (CEOs), commented: “We are very pleased with AFG’s continued strong core operating earnings, which generated an impressive core operating return on equity of 15% in 2019. We believe these results demonstrate the strength of our portfolio of diversified specialty insurance businesses, and the value of our in-house investment management team, American Money Management.
“AFG had approximately $1.1 billion of excess capital (including parent company cash of approximately $165 million) at December 31, 2019. Our excess capital will be deployed into AFG’s core businesses as we identify potential for healthy, profitable organic growth, and opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds.
“In addition, returning capital to shareholders in the form of regular and special cash dividends and opportunistic share repurchases is also an important and effective component of our capital management strategy. Over the past year, we increased our quarterly dividend by 12.5% and paid special dividends of $3.30 per share.
“We expect AFG’s core net operating earnings in 2020 to be between $8.75 and $9.25 per share. Our core earnings per share guidance excludes non-core items such as realized gains and losses, annuity non-core earnings and losses, and other significant items that are not able to be estimated with reasonable precision, or that may not be indicative of ongoing operations.”
