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 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. 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 and the ability to borrow up to $450 million under its revolving credit facility.

AFG’s insurance subsidiaries also maintain sufficient liquidity and capital to meet commitments. The subsidiaries typically generate positive net operating cash flows as premiums and investment income exceed claims payments and expenses. However, changes in statutory accounting rules, rating agency measures, or significant investment portfolio declines could create a need for additional capital.

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.

AFG had $122 million in net unrealized losses on its available-for-sale fixed maturity securities at March 31, 2025. Management believes the company will recover its cost basis in these securities and has the ability and intent to hold them until they recover in value. However, a change in intent or ability could result in future impairment charges.

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 driven by lower underwriting profit and lower investment income from alternative investments, partially offset by higher investment income outside of alternatives.

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 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 due to 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 property and casualty segment increased to 61.1% in the first quarter of 2025 from 58.6% in the prior year period. This reflected higher current accident year losses, partially offset by lower net prior year reserve development.

Commissions and other underwriting expenses increased to 33.0% of net earned premiums in the first quarter of 2025, up from 31.5% in the prior year, due to the impact of lower earned premiums, a change in business mix, and higher costs for certain initiatives.

Net investment income for the property and casualty segment decreased 17% to $170 million, primarily due to lower returns on the alternative investments portfolio, partially offset by higher balances of invested assets and higher yields on fixed maturity investments.

Holding Company, Other and Unallocated

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 same period of 2024. This increase was primarily due to lower net investment income and other income, partially offset by lower expenses.

Realized gains on securities decreased to $3 million in the first quarter of 2025 from $14 million in the prior year period. The consolidated provision for income taxes decreased to $43 million from $62 million, reflecting the lower pretax earnings.

Outlook and Risks

Management believes AFG’s strong financial position and current liquidity and capital at its subsidiaries will provide the flexibility to address anticipated and unanticipated challenges. The company’s insurance subsidiaries maintain capital at or in excess of levels required by ratings agencies to maintain their current ratings.

However, AFG’s financial condition, results of operations and cash flows are impacted by various economic, legal and regulatory factors. These include changes in interest rates, inflation, credit quality, legislation, tax laws, catastrophe losses, and technology and cybersecurity risks. Significant declines in the fair value of AFG’s investment portfolio could also have a material adverse effect on the company’s liquidity.

Management believes the areas posing the greatest risk of material loss are the adequacy of insurance reserves and contingencies arising from the company’s former railroad and manufacturing operations. AFG continues to monitor these exposures closely.

Overall, AFG’s diversified property and casualty insurance operations, strong balance sheet, and prudent risk management position the company to navigate the current economic and market environment. However, the company remains vigilant to emerging risks that could impact its financial performance going forward.