American Financial Group Announces Record Net Earnings for the 2006 4th Quarter & Full Year.CINCINNATI Cincinnati (sĭnsənăt`ē, –năt`ə), city (1990 pop. 364,040), seat of Hamilton co., extreme SW Ohio, on the Ohio River opposite Newport and Covington, Ky.; inc. as a city 1819. -- 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) today reported record net earnings of $135.5 million ($1.11 per share) for the 2006 fourth quarter compared to $88.5 million ($.75 per share) for the 2005 fourth quarter. Net earnings for the 2006 full year were $453.4 million ($3.75 per share) compared to $206.6 million ($1.75 per share) for 2005. Record core net 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 of $104.0 million ($.85 per share) for the fourth quarter and $379.9 million ($3.14 per share) for the full year of 2006 were up 19% and 29% from the comparable 2005 periods. The increase in the 2006 fourth quarter and full year is primarily due to improved 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. results within the specialty property and casualty insurance ("P&C") operations and higher investment income. AFG's net earnings, determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. 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 significant 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-d 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, jointly stated: "AFG achieved record net earnings in 2006, with core net operating earnings up 29% over our record 2005 results. Our persistent focus on financial and pricing discipline and profitable growth, coupled with our investment expertise, have contributed to the consistent improvement in our operating performance over the past several years. We also generated additional income and book value growth through opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik) 1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances. 2. real estate sales, including the previously announced fourth quarter sale of certain New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of assets for an after-tax gain of $29 million." "The increase in the cash dividend and our three-for-two stock split, effective in December of 2006, reflect our confidence in the company's long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. financial outlook. AFG ended the year in the strongest financial condition in its history. Book value per share (excluding unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. on fixed maturities) was 19% above year-end 2005. We continue to expect our core earnings in 2007 to be between $3.23 and $3.43 per share. These expected results exclude the potential for significant catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). and crop losses, 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 real estate gains." Business Segment Results The P&C specialty insurance operations generated record 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. for the 2006 fourth quarter and full year, 54% and 55% higher than the respective 2005 periods. The 2006 fourth quarter and full year combined ratios improved 4.3 points and 3.7 points, respectively. These outstanding results reflect profitable premium growth, rate adequacy in most of our businesses, lower catastrophe losses, and the positive impact of favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. reserve development. The 2006 full year results include $22.2 million (0.9 points) of catastrophe losses compared to $59.7 million (2.5 points) in 2005, principally from hurricanes Katrina, Rita and Wilma. Favorable reserve development in 2006 totaled $61 million (2.4 points) compared to less than $1 million in 2005. Gross written premiums for the 2006 fourth quarter were up 2% compared to the 2005 fourth quarter as premium growth in the Property and Transportation and Specialty Financial groups was largely offset by declines in the California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). 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. and Specialty Casualty groups. However, net written premiums were 9% higher, reflecting the effect of increased premium retention in certain of the Specialty Casualty businesses. For the overall specialty operations, rates remained relatively stable during 2006. Gross and net written premiums for 2006 were 8% and 9% higher, respectively, than in 2005. Further details of the P&C Specialty operations may be found in the accompanying schedules. The Property and Transportation group continued to report outstanding overall underwriting profits with a combined ratio of 74.4% for the 2006 fourth quarter. The increase in the combined ratio compared to the 2005 fourth quarter was primarily due to lower underwriting results within our trucking operations and higher losses from a run-off homebuilders' operation. The 2006 full year results include record underwriting profits in the crop insurance operation resulting from higher favorable reserve development and additional profits from the acquisition of Farmers Crop Insurance Alliance. This group's 2006 combined ratio was 82.3%, slightly better than its 2005 results, reflecting excellent profitability and continuing favorable prior year reserve development in nearly all of the business lines and lower catastrophe losses. The 2006 underwriting results include 3.7 points of favorable reserve development and 2.0 points of catastrophe losses compared to 1.6 points of favorable development and 5.4 points of catastrophe losses in 2005. The 2006 fourth quarter gross and net written premiums of the Property and Transportation group increased 12% and 14%, respectively, above the same 2005 periods driven primarily by new insurance programs in our 53% owned subsidiary, National Interstate in·ter·state adj. Involving, existing between, or connecting two or more states. n. One of a system of highways extending between the major cities of the 48 contiguous United States. Noun 1. Corporation, and new business volume in our property and inland marine operations. For the 2006 full year, gross and net written premiums increased 22% and 14% over the preceding year, reflecting growth in the inland marine and transportation operations as well as additional crop premiums resulting from the Farmers acquisition at the end of the 2005 third quarter. The growth in net written premiums for the year was less than the gross written premium growth due to the effect of crop 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. programs. The Specialty Casualty group reported a combined ratio of 84.0 % for the 2006 fourth quarter, about the same as in the 2005 fourth quarter. The group's underwriting profit for the period was 14% higher than the same quarter a year earlier, reflecting the effect of higher earned premium Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. . The group's 2006 full year combined ratio improved 6.4 points. The 2006 results included $10 million (1.2 points) of favorable reserve development whereas 2005 results included $30 million (4.0 points) of unfavorable reserve development. Gross written premiums for the 2006 fourth quarter were 4% below the same 2005 period resulting primarily from volume reductions in our excess and surplus lines business, reflecting stronger competition in those commercial casualty markets. For the year, such premiums were up 2% over the 2005 period as growth in the general liability and executive liability operations more than offset the premium decreases within several of the casualty lines. Net written premiums for the 2006 fourth quarter and year were 10% and 13% higher than the respective 2005 periods, reflecting higher premium retention within several of the group's businesses. The Specialty Financial group reported lower underwriting losses for the 2006 fourth quarter and year compared to the respective 2005 periods. The losses continued to be attributable to the 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. business ("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 ") which is in run-off, and were driven primarily by lower than expected proceeds from the sale (at auction) of certain luxury cars and sport utility vehicles This page lists sports utility vehicles currently in production (as of April 2007), as well as past models. The list includes crossover SUVs, Mini SUVs, Compact SUVs and other similar vehicles. . The 2006 fourth quarter combined ratio improved 41.8 points from the 2005 fourth quarter as the 2005 period included a $45 million charge associated with one RVI customer. Excluding the effect of the RVI business, this group's combined ratio for 2006 was 88.7%, an improvement of 3.9 points compared to 2005. The group's other operations continued to generate solid underwriting profits. Gross written premiums for the three and twelve month periods of 2006 increased 11% and 9%, respectively, above the 2005 periods, resulting primarily from growth in the financial institutions, lender services, and surety An individual who undertakes an obligation to pay a sum of money or to perform some duty or promise for another in the event that person fails to act. surety n. and fidelity businesses. The considerably higher net written premium growth rate in the 2006 fourth quarter reflected a decrease in premiums ceded under reinsurance agreements within the lender services businesses. The California Workers' Compensation business sustained excellent profitability throughout 2006, reflecting the ongoing effects of the California workers' compensation reforms that have resulted in an improving claims environment while also providing reduced workers' compensation costs for employers through lower premium levels. The 2006 fourth quarter and full year combined ratios were 15.7 points and 4.1 points higher than the same periods a year earlier, reflecting the results of rate reductions which have been responsive to the improved claims environment. These reductions averaged about 28% for the 2006 fourth quarter and 32% for the full year. This business continued to benefit from favorable prior year reserve development of $20 million (6.9 points) in 2006 compared to $24 million (7.0 points) in 2005. Due to the long-tail nature of this business, we have been conservative in recognizing the benefits from the reform legislation until a higher percentage of claims are paid and the ultimate impact of reforms can be determined. Gross written premiums for the 2006 fourth quarter and full year declined 21% compared to each of the 2005 periods, resulting from the effect of significantly lower rates, partly offset by new volume growth. Carl Lindner III stated, "Our specialty P&C operations achieved record underwriting results in 2006. We were pleased with the growth in our premium levels even in the softer commercial insurance market, resulting primarily from targeted growth within the Property and Transportation group and higher premium retention in certain businesses. The multi-peril crop business of Farmers Crop Insurance Alliance, acquired in 2005, was successfully merged into our existing crop operations and was a significant contributor to our premium growth and underwriting profitability in 2006. These results continued to be dampened somewhat by losses from the RVI business in run-off, but to a lesser degree than in 2005. We saw significant favorable reserve development in many of our businesses during 2006 which clearly demonstrates our strong commitment to pricing and underwriting discipline and our ability to manage risks appropriately. Apart from the rate decreases in the California workers' compensation business, average rate levels in the other specialty operations remained stable during 2006 and we are pleased with the pricing adequacy across our businesses. For a number of years, we have been positioning ourselves as a company with lower catastrophe exposures in order to reduce earnings volatility related to unusual catastrophic events of nature. This reinforced our decision in the early part of 2006 to exit our earthquake-exposed excess property business." "Looking into 2007, we expect net written premium growth in the range of 4% to 7% and a continuation of the strong underwriting profits experienced in 2006. We expect a slight decline in the Specialty Group's overall average rates in 2007 but still adequate to meet our earnings expectations." The Annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. and Supplemental Insurance Group, managed by Great American Financial Resources, Inc. ("GAFRI GAFRI Great American Financial Resources, Inc. "), reported, in their separate earnings release today, core net operating earnings of $18.0 million for the 2006 fourth quarter compared to $14.7 million for the 2005 fourth quarter. The increase is due primarily to recent acquisitions, including the purchase of Ceres Group, Inc. in August 2006. GAFRI's reported core net operating earnings for 2006 were $76.7 million compared to $62.0 million for 2005. This increase reflects (i) improvements in the 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, (ii) higher earnings in a runoff Runoff The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape. Notes: If the "tape is late" then it can take a long time to print off all the closing prices. life operation resulting from an improvement in mortality experience and lower expenses, (iii) earnings from the recently acquired Ceres Group, Inc. and (iv) earnings on the proceeds received in connection with the sale of a Puerto Rican Puer·to Ri·co Abbr. PR or P.R. A self-governing island commonwealth of the United States in the Caribbean Sea east of Hispaniola. subsidiary ("GA-PR"). These items were partially offset by a decrease in earnings in the supplemental insurance operations, which resulted from the effects of lower first year premiums, higher policy lapses and higher loss experience at its subsidiary, United Teacher Associates. GAFRI's 2005 core net operating results exclude the net operating earnings of GA-PR, which is accounted for as discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: by GAFRI. AFG's core net operating earnings include its share of GA-PR's results through the date of sale (January 2006). Statutory premiums of approximately $566 million in the fourth quarter of 2006 were nearly double the premiums in the fourth quarter of 2005. This increase primarily reflects substantially higher fixed indexed annuity premiums. GAFRI re-entered this market in the second quarter of 2005. Statutory premiums reached a record level of $1.7 billion in 2006 and were 51% higher than in 2005. Premiums in the 2005 period included approximately $100 million of traditional fixed annuity premiums received in January 2005 from policyholders of an unaffiliated company in rehabilitation rehabilitation: see physical therapy. who chose to transfer their funds to GAFRI. Excluding the $100 million, GAFRI's premiums in 2006 were 65% higher than in 2005, also due primarily to the higher fixed indexed annuity sales as well as increased sales of traditional annuities in the 403(b) segment. Craig Lindner commented, "We are pleased with the 2006 results and believe they demonstrate the strength of our core businesses. Moving forward we expect these businesses will continue to produce strong results. In addition, we are committed to expanding our core businesses by introducing new products and attracting additional distribution while seeking to make strategic acquisitions. We believe the start-up Start-up The earliest stage of a new business venture. expenses of these product and distribution initiatives will result in significant premiums in future years. The Ceres companies continue to perform consistent with the assumptions on which the acquisition was based. We expect our supplemental health operations will begin to take advantage of the synergies resulting from the combination." A reconciliation of this group's "core net operating earnings", a non-GAAP measure, to net income as well as further details may also be found in the earnings release issued today by Great American Financial Resources, Inc. (NYSE:GFR GFR - Grim File Reaper ). AFG owns 81% of GFR common stock and a proportional proportional values expressed as a proportion of the total number of values in a series. proportional dwarf the patient is a miniature without disproportionate reductions or enlargements of body parts. share of its earnings is included in AFG's results. About American Financial Group, Inc. Through the operations of the Great American Insurance Group, AFG is engaged primarily in property and casualty insurance, focusing on specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. 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. 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 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 economic conditions including interest rates, performance of securities markets, the availability of capital, regulatory actions and changes in the legal environment affecting AFG or its customers, tax law 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, and changes in debt and claims paying ratings. Conference Call The company will hold a conference call to discuss the 2006 fourth quarter and full year results at 2:00 p.m. (ET) today. Toll-free telephone access will be available by dialing 1-800-901-5231 (international dial in 617-786-2961). 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 at around 4:00 p.m. (ET) today until 11:59 p.m. on February 19, 2007. To listen to the replay, dial 1-888-286-8010 (international dial in 617-801-6888) and provide the confirmation code 54541519. The conference call will also be broadcast over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . 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 S. Craig Lindner, Co-Chief Executive Officer, and Keith A. Jensen, Senior Vice President and chief financial officer, will make a company presentation at the Merrill Lynch Insurance Investors Conference being held at the Millennium Broadway Hotel, 145 West 44th Street, 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 Tuesday, February 13, 2007 at 2:00 p.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/insurance07/22109157.cfm A replay of the broadcast will be available for 14 days at the same website approximately 24 hours after the presentation. This earnings release and additional Financial 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]
Supplemental Notes:
1. Property & Transportation includes primarily physical damage and
liability coverage for buses, trucks and recreational vehicles,
inland and ocean marine, agricultural-related products and other
property coverages.
2. Specialty Casualty includes primarily excess and surplus, general
liability, executive and professional liability and customized
programs for small to mid-sized businesses.
3. Specialty Financial includes risk management insurance programs
for lending and leasing institutions, surety and fidelity products
and trade credit insurance.
4. California Workers' Compensation consists of a subsidiary that
writes workers' compensation insurance primarily in the state of
California.
5. Other includes an internal reinsurance facility and discontinued
lines.
Footnotes are contained in the accompanying Notes to Financial Schedules.
AMERICAN FINANCIAL GROUP, INC.
Notes To Financial Schedules
GAAP to Non GAAP Reconciliation:
a) Includes 2005 4th quarter and full year after-tax losses from
three hurricanes of $8.2 million ($.07 per share) and
$34.2 million ($.29 per share), respectively.
b) Reflects after-tax gains from the 2006 4th quarter sale of certain
New York assets; the 2006 2nd quarter sale of Chatham Bars Inn in
Cape Cod and the 2005 4th quarter sale of a Texas hotel, both of
which have been reported as discontinued operations; the 2005 4th
quarter sales of Ohio and Pennsylvania coal properties and a 2005
3rd quarter sale of Illinois coal property.
c) Reflects after-tax charges associated with the annuity operations
and an increase in mortality in the run-off life operations.
d) Includes a $15.3 million ($.13 per share) after-tax gain on the
sale of the company's investment in the Cincinnati Reds.
Summary Of Earnings:
e) Includes a $23.6 million pre-tax gain on the sale of the company's
investment in the Cincinnati Reds.
f) Includes the 2006 4th quarter pre-tax gain of $44.6 million from
the sale of certain New York assets and 2005 pre-tax gains of
$57.0 million ($30.9 million and $26.1 million in the 3rd and 4th
quarters, respectively) from the sale of coal properties.
g) For the 2006 three and twelve month periods, includes $2.6 million
and $10.0 million, respectively, for the expensing of employee
stock options which began in 2006.
h) Includes a 2005 pre-tax charge of $179 million for the P&C A&E and
mass tort loss reserve strengthening and 2005 pre-tax losses from
hurricanes of $52.6 million.
i) Includes pre-tax write-offs aggregating $29.4 million (before
minority interest) associated with the fixed annuity operations
as well as an increase in mortality in the run-off life
operations.
j) Includes an after-tax gain of $25.8 million from the sale of
Chatham Bars Inn in Cape Cod in the 2006 2nd quarter and
$8.8 million from the 2005 4th quarter sale of a Texas hotel.
P&C Specialty Group Underwriting Results:
k) For the 2005 fourth quarter and full year, includes 48.4 points
and 12.4 points, respectively, for the effect of a charge related
to the residual value business. Excluding the residual value
business, the Specialty Financial group's combined ratio was 88.7%
for 2006 and 92.6% for 2005.
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