American Financial Group Inc (AFG) Q1 2025 Earnings Call Highlights: Navigating Challenges with …
Q: Can you explain the changes in the expense ratio and how they relate to the 92.5% combined ratio guidance? A: Brian Hertzman, CFO, explained that the changes are due to a mix of business, with significant growth in the financial institutions business, which has a different expense ratio. Additionally, there are expenses related to software and IT initiatives aimed at future growth, which are currently impacting the expense ratio. These were anticipated in the business plan.
Q: How did the catastrophe losses this quarter compare to expectations, particularly regarding the California wildfires? A: Brian Hertzman noted that the catastrophe losses from the California wildfires were at the low end of the expected range, with around $10 million from other smaller catastrophes. Overall, the losses were slightly better than anticipated.
Q: Considering the current economic cycle, does it make sense for AFG to continue its growth strategy, given the recent premium growth levels? A: Carl Lindner, Co-CEO, stated that while they aim to grow in most businesses, competitive pressures and strategic decisions, such as non-renewing underperforming accounts, have impacted growth. They focus on long-term profitability rather than short-term growth, especially in challenging market conditions.
Q: Should the EPS guidance for 2025 be adjusted to account for the $1.20 gain from the Charleston Harbor sale? A: Brian Hertzman indicated that while the Charleston Harbor transaction was not included in the original $10.50 EPS guidance, the uncertainty in alternative investment returns makes it difficult to predict the final EPS. The gain from the sale will be incremental, but other factors could impact overall results.
Q: Is the premium growth for the year expected to be lower than the original 5% guidance? A: Brian Hertzman confirmed that due to the first quarter’s performance, the premium growth is likely to be lower than 5%, but they still expect positive growth for the year.
Q: Will the review of accounts for profitability in the Property and Transportation segment continue to pressure written premiums? A: Carl Lindner mentioned that while they aim to grow, the process of reviewing accounts, especially in the trucking side, can lead to variability in premiums. They focus on improving margins and are willing to non-renew or reprice accounts to achieve better profitability.
Q: Has there been a deeper dive into addressing potential adverse development in the Specialty Casualty segment? A: Brian Hertzman explained that they continuously react to changes in loss trends. While there is favorable development in workers’ comp, there is some adverse development in social inflation-exposed businesses. They are cautious in their directors and officers’ liability business due to industry trends.
Q: How does the new segmentation impact the representation of specialty casualty results? A: Carl Lindner noted that the reclassification of specialty casualty results into the Other segments provides a cleaner representation and better reflects the performance of the underlying businesses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
