American Financial Group, Inc. Announces Net Earnings for 2008.CINCINNATI -- American Financial Group, Inc. (NYSE NYSE See: New York Stock Exchange : AFG AFG Afghanistan (international vehicle registration) AFG American Financial Group AFG Assistance to Firefighters Grant AFG Arbeitsförderungsgesetz (German: Labor Advancement Law) AFG Accreditation for Growth )(NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : AFG): * Record core operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before per share of $4.08 (17% ROE) * Increased 2009 core earnings guidance to $3.70 - $4.00 per share * After-tax charges for impairments of investments of $2.31 per share American Financial Group, Inc. (NYSE: AFG)(NASDAQ: AFG) today reported net earnings of $38.6 million ($.32 per share) and $195.8 million ($1.67 per share) for the 2008 fourth quarter and full year, respectively. Results for 2008 reflect higher realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. on investments, including other than temporary impairments. Net earnings for the 2007 fourth quarter and full year were $89.9 million ($.76 per share) and $383.2 million ($3.10 per share), respectively. Core net operating earnings were $121.7 million ($1.04 per share) for the 2008 fourth quarter compared to record results of $143.6 million ($1.21 per share) in the 2007 fourth quarter. These results reflect higher investment income and improved results in the annuity and supplemental operations, which were more than offset by lower underwriting profits Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. within the specialty property and casualty insurance ("P&C") operations. Core net operating earnings were $476.8 million ($4.08 per share) for 2008 compared to $486.4 million ($3.94 per share) for 2007. Core net operating earnings for 2008 and 2007 generated returns on equity of 17% and 16%, respectively. AFG's net earnings, determined in accordance with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "), include certain items that may not be indicative of its ongoing core operations. The following table identifies such items and reconciles 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. [TABLE OMITTED] Footnotes a and b are contained in the accompanying Notes to Financial Schedules at the end of this release. Craig Lindner and Carl Lindner III, AFG's Co-Chief Executive Officers, commented: "The strength of our core operating earnings is a reflection of our consistent focus on pricing discipline and increased investment income. In addition, we have emphasized prudent capital management during this time of economic uncertainty. Our capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. and financial leverage are consistent with our current rating levels. During these difficult times in the financial markets, we are committed to maintaining capital that supports our operations. "We have increased our core earnings guidance for 2009 to be between $3.70 and $4.00 per share. This guidance excludes the potential for significant catastrophe and crop losses, unforeseen major adjustments to asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. and environmental reserves, and large gains or losses from asset sales or impairments. In addition, as previously announced, we increased our 2009 common stock dividend by 4%, reflecting our confidence in the company's long-term financial outlook." Business Segment Results The P&C specialty insurance operations generated strong underwriting profits for the 2008 fourth quarter and full year of $96.1 million and $363.6 million, respectively, with combined ratios of approximately 87% for both periods. The 2008 fourth quarter and full year combined ratios increased from 2007 as a result of lower crop underwriting profits and higher losses from the run-off automobile residual value Residual value Usually refers to the value of a lessor's property at the time the lease expires. residual value The price at which a fixed asset is expected to be sold at the end of its useful life. insurance ("RVI RVI Radio Vlaanderen Internationaal (public broadcaster of the Flemish Community in Belgium) RVI Remote Visual Inspection RVI Renault Vehicules Industriels RVI Residual Value Insurance RVI Reverse Interrupt ") business. Gross and net written premiums were up 3% and 5%, respectively, in the 2008 fourth quarter compared to the same quarter a year earlier. Full year 2008 gross and net written premiums were 7% and 6% higher, respectively, than in 2007. Significantly higher premiums in our crop operations and additional premiums from our Marketform operations (acquired in early 2008) more than offset declines in certain other specialty operations resulting from a soft market and depressed economic conditions. Further details of the P&C Specialty operations may be found in the accompanying schedules. The Property and Transportation group reported an underwriting profit of $92.1 million with an excellent 75% combined ratio for the 2008 fourth quarter. The 2008 full year underwriting profit was $155.7 million, producing a combined ratio of 88%. Our crop operations' insureds experienced one of the best years in corn and soybean soybean, soya bean, or soy pea, leguminous plant (Glycine max, G. soja, or Soja max) of the family Leguminosae (pulse family), native to tropical and warm temperate regions of Asia, where it has been yields in our company's history. However, declines in commodity prices for corn and soybeans during the fourth quarter generated higher claims, impacting underwriting profits. The crop division's 2008 underwriting profits were very strong but were about 40 percent lower than its 2007 record results. Our other property and transportation businesses reported strong underwriting profits, but lower than in 2007, due primarily to higher catastrophe losses and soft market conditions. The increases in gross and net written premiums for the 2008 periods were driven by higher 2008 spring commodity pricing affecting our crop operations, partly offset by lower premiums in the property and inland marine operations resulting from a competitive marketplace. The Specialty Casualty group reported an underwriting profit of $56.2 million, with a combined ratio of 72% for the 2008 fourth quarter. These 2008 results include higher levels of favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. reserve development, primarily from our general liability business and executive liability operations. The group's 2008 full year underwriting profit of $199.3 million was 5% lower than 2007. Improved results in the executive liability operations were more than offset by declines in underwriting profits due to lower premiums in our excess and surplus lines and general liability operations. Net written premiums increased 7% and 3% for the fourth quarter and full year. Additional premiums from our January 2008 acquisition of Marketform more than offset premium declines caused by stronger competition in the excess and surplus lines and softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. in the homebuilders market, which affects our general liability coverages. The Specialty Financial group reported underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. losses of $65.3 million and $45.5 million, for the 2008 fourth quarter and full year, respectively, compared to underwriting profits in the 2007 periods. The losses resulted from sharp declines in used car sales prices in the run-off automobile RVI business under a policyholder Policyholder An individual who owns an insurance policy. contract which had not experienced losses prior to 2008. We expect that the majority of remaining vehicles under insured contracts will come off lease by the end of the third quarter of 2009. We have reserved for losses based on current facts and circumstances, assuming some further deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. . Underwriting profits in our other specialty financial businesses improved compared to 2007. Excluding the effect of RVI, the group's 2008 combined ratio was 87%, a two-point improvement over 2007. Net written premiums for the fourth quarter and full year 2008 were relatively flat, compared to the respective 2007 periods, while gross written premiums for both periods increased slightly. The California Workers' Compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. business produced excellent profitability throughout 2008, reflecting the improved claims environment resulting from the California workers' compensation reform legislation. The 2008 fourth quarter combined ratio of 78% was one point higher than the same period a year earlier. The combined ratio for the full year 2008 was virtually unchanged. Due to the long-tail nature of this business, we remain conservative in recognizing the benefits from the reform legislation on more recent claims until a higher percentage of claims are paid and the ultimate impact of reforms can be estimated with more precision. Gross and net written premiums decreased 16% and 25% for the quarter, respectively. Although we have seen rate decreases in our traditional workers' compensation business (about 14% in 2008), they began to moderate in the 4th quarter and were only 2% in January of this year. Our Republic Indemnity subsidiary filed for a 5% rate increase effective January 1, 2009, consistent with the increase approved by California Insurance Commissioner California Insurance Commissioner is an elected executive office position in California who is in charge of the California Department of Insurance. The current Insurance Commissioner is Steve Poizner. Poizner several months ago. The decreases in gross and net written premiums for the full year 2008 were driven by rate reductions in our traditional workers' compensation business, but were offset somewhat by increased sales of our recently targeted excess workers' compensation products. Carl Lindner III stated, "Our P&C operations achieved solid underwriting profits during 2008 in spite of softening market conditions and higher catastrophe losses. Better than expected results in many of our specialty operations helped to offset lower underwriting profit in our crop operations and the unexpected RVI losses. We continued to experience significant favorable reserve development in many of our businesses during 2008, which demonstrates our commitment to adequate pricing and underwriting discipline and our ability to manage risks appropriately. During 2008, favorable development was $250.5 million, or 8.7 points, compared to $152.8 million, or 5.7 points, in 2007. "Our overall premium levels remained steady as additional premiums from our crop operations and premiums contributed by Marketform offset the impact of the softer casualty markets and the rate declines in the California workers' compensation business. I'm pleased that we have been able to maintain adequate rates in this competitive environment. Apart from the rate decreases in the California workers' compensation business, average renewal rate levels in our other specialty operations were down about 3% in 2008, and we were pleased to see rate decreases moderate slightly in the last quarter of the year and in January 2009. "Looking into 2009, we expect to produce strong underwriting profits, and forecast an overall combined ratio in the 88% to 91% range. Because of our strong underwriting culture, we will continue to focus on maintaining adequate rates; our objective is to achieve a flat to slight increase in the Specialty Group's overall average renewal rates in 2009. We expect our specialty P&C net written premiums to be down a mid-teen percentage from 2008 levels. This is primarily the result of expected increased reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. cessions under our crop quota share For This article is about quota shares (shares of the quota). For other usages of quota, see, see . A quota share is a specified number or percentage of the allotment as a whole (quota), that is prescribed to each individual entity (see Non-tariff barriers to trade). agreement and lower spring commodity prices. Absent these changes, which do not affect overall volume of business, our expectation is that the reduction will be in the two to five percent range." Annuity and Supplemental Insurance Core Results The Annuity and Supplemental Insurance Group generated core operating earnings before income taxes of $37.5 million for the 2008 fourth quarter, more than 75% higher than the same period a year earlier. The 2008 full year results were $158.0 million, 25% higher than 2007 (excluding $11.5 million of minority interest recorded in 2007). These results reflect (i) higher earnings in our fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. operations, primarily the result of wider spreads, (ii) higher earnings in our supplemental insurance operations due primarily to favorable results in our long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. business, and (iii) improved results in our run-off life operations. These favorable results in 2008 were partially offset by lower earnings in our variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. operations. Fourth quarter 2007 life results included a $9.4 million write-off of deferred acquisition costs ("DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter ") related to changes in mortality assumptions. Variable annuity operations in 2008 include DAC write-offs of $6.5 million and $10.0 million in the fourth quarter and full year, respectively, due primarily to the poor performance of the stock market. Statutory premiums of $459 million for the fourth quarter of 2008 were slightly lower than the fourth quarter of 2007. Annuity sales through our new bank distribution channel were more than offset by lower sales of indexed annuities in the single premium market. For the full year 2008, statutory premiums of $2.1 billion were 5% higher than the comparable 2007 period. The increase from sales through the bank distribution channel were partially offset by a decrease in sales of indexed annuities. AFG's annuity liabilities remain very stable. Due to the two-tier nature and other surrender protection features in certain of its annuity products, AFG continues to experience very strong persistency in its annuity businesses. AFG expects that 2009 pre-tax operating earnings in its annuity and supplemental insurance segment will be 15% - 20% higher than in 2008. Investments Included in AFG's 2008 fourth quarter results were $92 million in after-tax charges for other- than-temporary impairments on investments. More than three-fourths of these impairments were attributable to fixed maturity securities. Increasing uncertainty in the global financial markets has caused credit spreads (the difference in rates between U.S. government bonds and other fixed maturities) to widen wid·en tr. & intr.v. wid·ened, wid·en·ing, wid·ens To make or become wide or wider. wid  en·er n. significantly during the fourth
quarter of 2008. These wider spreads were the primary cause of
AFG's increase in net after-tax unrealized losses Unrealized LossA loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on fixed maturity investments from $426 million at September 30, 2008, to $720 million at December 31, 2008. Our portfolio continues to be high quality, with 94% of our fixed maturity portfolio rated investment grade. As we examine our investment portfolio, we continue to believe that there are strong fundamentals in place across our investments and our long-term investment horizon will enable us to realize the underlying values of those investments. We have the ability and intent to hold these securities until they mature or recover in value. More information about the components of our investment portfolio may be found in our Financial and Investment Supplements, which are posted on our website. About American Financial Group, Inc. American Financial Group is an insurance holding company, based in Cincinnati, Ohio “Cincinnati” redirects here. For other uses, see Cincinnati (disambiguation). Cincinnati is a city in the U.S. state of Ohio and the county seat of Hamilton County. with assets in excess of $25 billion. Through the operations of Great American Insurance Group, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of traditional fixed, indexed and variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. and a variety of supplemental insurance products. Great American Insurance Group's roots go back to 1872 with the founding of its flagship company, Great American Insurance Company. Forward Looking Statements This press release contains certain statements that may be deemed to be "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this press release not dealing with historical results are forward-looking and are based on estimates, assumptions and projections. Examples of such forward-looking statements include statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc : the Company's expectations concerning market and other conditions and their effect on future premiums, revenues, earnings and investment activities; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort A mass tort is a civil action involving numerous plaintiffs against one or a few corporate defendants in state or federal court. As the name implies a mass tort includes many plaintiffs and law firms have used the mass media to reach possible plaintiffs. claims; rate changes and improved loss experience. Actual results or financial condition could differ materially from those expected by AFG depending on certain factors including but not limited to: the unpredictability of possible future litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. if certain settlements do not become effective, changes in financial, political and economic conditions including changes in interest rates and any extended economic recessions or expansions, performance of securities markets, our ability to estimate accurately the likelihood, magnitude and timing of any losses in connection with investments in the non-agency residential mortgage market, new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in our investment portfolio, including mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. , the availability of capital, regulatory actions and changes in the legal environment affecting AFG or its customers, tax law and accounting changes, levels of natural catastrophes, terrorist activities, including any nuclear, biological, chemical or radiological radiological pertaining to radiology. radiological diagnosis see radiological diagnosis. mobile radiological apparatus x-ray machines that can be moved but are not portable because of their weight. events, incidents of war and other major losses, development of insurance loss reserves and other reserves, particularly with respect to amounts associated with asbestos and environmental claims, availability of reinsurance and ability of reinsurers to pay their obligations, trends in persistency, mortality and morbidity morbidity /mor·bid·i·ty/ (mor-bid´it-e) 1. a diseased condition or state. 2. the incidence or prevalence of a disease or of all diseases in a population. mor·bid·i·ty n. , competitive pressures, including the ability to obtain adequate rates, changes in AFG's credit ratings or the financial strength ratings assigned by major ratings agencies to our operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , and other factors identified in our filings with the Securities and Exchange Commission. Conference Call The company will hold a conference call to discuss the 2008 fourth quarter and full year results at 11:30 a.m. (ET) tomorrow, February 10, 2009. Toll-free telephone access will be available by dialing 1-888-892-6137 (international dial in 706-758-4386). The conference ID for the live call is 79920279. Please dial in five to ten minutes prior to the scheduled start time of the call. A replay of the call will also be available two hours from the conclusion of the call, at approximately 2:30 p.m. (ET) on February 10, 2009 until 11:59 p.m. on February 17, 2009. To listen to the replay, dial 1-800-642-1687 (international dial in 706-645-9291) and provide the Conference ID 79920279. The conference call will also be broadcast over the Internet. To listen to the call via the Internet, go to AFG's website, www.AFGinc.com, and follow the instructions at the Webcast link within the Investor Relations Investor relations The process by which the corporation communicates with its investors. section. Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. Insurance Investors Conference Carl H. Lindner III and S. Craig Lindner, Co-Chief Executive Officers, and Keith A. Jensen, Senior Vice President and chief financial officer, will make a company presentation at the Merrill Lynch Insurance Investor Conference being held at Merrill Lynch's 250 Vesey Street headquarters in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , on Wednesday, February 25, 2009 at 10:35 a.m. (ET). Their presentation will be broadcast live over the Internet via the Webcast link below within the Investor Relations section of AFG's website, www.AFGinc.com. http://www.veracast.com/webcasts/ml/insurance09/32100012.cfm A replay of the broadcast will be available for 14 days at the same website approximately 24 hours after the presentation. (Financial summaries follow) This earnings release and additional Financial and Investment Supplements are available in the Investor Relations section of AFG's web site: www.AFGinc.com. [TABLE OMITTED] [TABLE OMITTED] Footnotes are contained in the accompanying Notes to Financial Schedules. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] *Reflects impact of a reinsurance treaty Reinsurance Treaty (June 18, 1887) Secret agreement between Germany and Russia. Arranged by Otto von Bismarck after the collapse of the Three Emperors' League, it provided that each party would remain neutral if either became involved in a war with a third nation, and that entered into during the third quarter of 2008. [TABLE OMITTED] [TABLE OMITTED] |
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