Overview of American Financial Group, Inc.

American Financial Group, Inc. (AFG) is a holding company with almost all of its operations conducted through subsidiaries. The company is primarily engaged in property and casualty insurance, focusing on specialized commercial products for businesses.

AFG reported net earnings of $154 million ($1.84 per share, diluted) for the first three months of 2025, down from $242 million ($2.89 per share, diluted) in the same period of 2024. The decrease was due to lower underwriting profit and lower net investment income from AFG’s alternative investment portfolio, partially offset by higher investment income from fixed maturity investments.

Management expects premium growth in many of AFG’s business units and continued strong underwriting results in the ongoing favorable property and casualty insurance market. The elevated interest rate environment is also expected to have a positive impact on investment income in 2025. However, economic inflation, social inflation, supply chain disruption and other conditions may impact premium levels, loss cost trends and investment returns.

Financial Condition and Liquidity

AFG maintains a strong financial position, with a debt to total capital ratio of 24.7% at March 31, 2025, including subordinated debt. The company has ample liquidity, with $323 million in cash and investments held at the parent company level. AFG’s insurance subsidiaries also have sufficient capital and liquidity to meet their obligations.

The company’s principal sources of cash include insurance premiums, investment income, and proceeds from investment maturities, redemptions and sales. Cash flows from operating activities were $342 million in the first three months of 2025, up from $107 million in the same period of 2024, primarily due to the activity of AFG’s managed investment entities. Investing activities provided $23 million of cash in the first three months of 2025, compared to a use of $155 million in the prior year period, also reflecting the activity of the managed investment entities. Financing activities used $495 million of cash in the first three months of 2025, up from $90 million in the prior year, mainly due to increased retirements of managed investment entity liabilities.

Investments

AFG’s investment portfolio totaled $15.99 billion at March 31, 2025, consisting primarily of $10.57 billion in fixed maturity securities classified as available-for-sale and $531 million in equity securities. The portfolio also includes $2.33 billion in investments accounted for using the equity method, such as limited partnerships.

The fair value of the fixed maturity portfolio is inversely correlated to changes in interest rates. An immediate 100 basis point increase in interest rates would have reduced the fair value of the fixed maturity portfolio by 3.0%, or $319 million. Approximately 95% of the fixed maturities were rated investment grade at March 31, 2025.

AFG recorded $122 million in gross unrealized gains and $301 million in gross unrealized losses on its available-for-sale fixed maturity securities at March 31, 2025. Management believes the company will recover its cost basis in the securities with unrealized losses and has the ability and intent to hold them until they recover in value.

Property and Casualty Insurance Segment

AFG’s property and casualty insurance segment contributed $246 million in pretax earnings in the first three months of 2025, down from $340 million in the same period of 2024. The decrease was due to lower underwriting profit and lower investment income from alternative investments, partially offset by higher investment income outside of alternative investments.

Gross written premiums for the property and casualty segment decreased 2% year-over-year to $2.29 billion, as strategic decisions to optimize long-term results, including non-renewal of certain underperforming accounts, tempered growth. Overall average renewal rates increased approximately 5% in the first three months of 2025.

The Specialty property and casualty insurance operations generated an underwriting profit of $94 million in the first three months of 2025, down from $154 million in the prior year period. The decrease was driven by lower underwriting profit in the Property and Transportation and Specialty Casualty sub-segments, partially offset by higher profit in Specialty Financial. Overall catastrophe losses were $72 million (4.5 points on the combined ratio) in the first three months of 2025, up from $35 million (2.3 points) in the prior year period.

The current accident year loss and LAE ratio, excluding catastrophe losses, for the Specialty property and casualty operations improved 1.8 percentage points to 57.8% in the first three months of 2025. Net prior year reserve development was $20 million favorable in the first three months of 2025, compared to $51 million favorable in the prior year period.

Net investment income for the property and casualty segment decreased 17% to $170 million in the first three months of 2025, reflecting lower returns on alternative investments, partially offset by higher balances of invested assets and higher yields on fixed maturity investments.

Holding Company, Other and Unallocated Segment

The net pretax loss outside of the property and casualty insurance segment (excluding realized gains and losses) was $52 million in the first three months of 2025, compared to $50 million in the prior year period. This segment includes holding company costs and income and expenses related to AFG’s managed investment entities.

Net investment income for this segment decreased 29% to $5 million in the first three months of 2025. Fees and related expenses for property and casualty insurance services provided to unaffiliated insurers and customers totaled $9 million in net income in the first three months of 2025, down from $22 million in the prior year period.

Realized Gains and Losses on Securities

AFG recorded net realized gains on securities of $3 million in the first three months of 2025, down from $14 million in the same period of 2024. The decrease was primarily due to lower gains from changes in the fair value of equity securities.

Outlook and Risks

Management believes AFG’s strong financial position, current liquidity and capital at its subsidiaries will provide the flexibility to address anticipated and unanticipated challenges. The company’s insurance subsidiaries maintain capital levels adequate to maintain their business and rating agency ratings.

However, risks and uncertainties that could materially impact AFG’s financial condition and results of operations include changes in economic and financial conditions, performance of securities markets, new legislation, declines in credit quality or ratings, availability of capital, changes in insurance laws and regulations, levels of natural catastrophes and severe weather, and development of insurance loss reserves, among others.

Conclusion

American Financial Group, Inc. reported lower net earnings in the first three months of 2025 compared to the prior year period, driven by decreased underwriting profit and investment income from alternative investments in its property and casualty insurance segment. However, the company maintains a strong financial position and ample liquidity to navigate the current operating environment. Management expects continued premium growth and favorable underwriting results, though economic and other risks could impact future performance. Overall, AFG appears well-positioned to execute on its strategic priorities and deliver value to shareholders.