Overview

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 on 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.

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 commitments.

AFG’s principal sources of cash include insurance premiums, investment income, and proceeds from investment maturities and sales. The company’s operating activities typically generate positive net cash flows, as premiums and investment income exceed claims payments and expenses.

In the first three months of 2025, AFG’s net cash provided by operating activities was $342 million, up from $107 million in the same period of 2024, primarily due to changes in the assets and liabilities of AFG’s managed investment entities. Investing activities were a $23 million source of cash, compared to a $155 million use of cash in the prior year period, also reflecting the activity of the managed investment entities. Financing activities used $495 million in cash, up from $90 million in the first three months of 2024, 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 the end of the first quarter. 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.

Uncertainties

The areas posing the greatest risk of material loss for AFG are the adequacy of its insurance reserves and contingencies arising from its former railroad and manufacturing operations, particularly related to asbestos and environmental claims.

Segment Results

AFG reports its operations in two segments: Property and Casualty Insurance, and Other (which includes holding company costs and the managed investment entities).

Property and Casualty Insurance Segment The 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 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 quarter 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.

The overall loss and loss adjustment expense (LAE) ratio for the Specialty operations was 61.0% in the first quarter of 2025, up from 58.6% a year earlier, reflecting higher catastrophe losses. Net prior year reserve development was $20 million favorable in the first three months of 2025, compared to $51 million favorable in the same period of 2024.

The underwriting expense ratio for the Specialty operations increased to 33.0% in the first quarter of 2025 from 31.5% a year earlier, primarily due to the impact of lower earned premiums and higher costs associated with certain initiatives.

Net investment income for the Property and Casualty Insurance 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.

Other Segment The Other segment, which includes holding company costs and the managed investment entities, reported a pretax loss of $52 million in the first quarter of 2025, compared to a $50 million loss in the same period of 2024.

Net investment income for the holding company and other operations decreased 29% to $5 million, and fees and related expenses for property and casualty insurance services provided to third parties decreased 31% to $9 million.

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

Management believes AFG’s strong financial position, current liquidity, and capital levels at its subsidiaries will provide the flexibility to effectively address and respond to anticipated and unanticipated challenges. The company expects premium growth in many of its 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 economic conditions may impact premium levels, loss cost trends, and investment returns. Management remains focused on optimizing long-term results through disciplined underwriting and proactive risk management.