American Financial Group Inc: Form 10-K for the period ended Dec 31, 2023

Introduction

American Financial Group, Inc. (“AFG” or the “Company”) is an insurance holding company. Through the operations of Great American Insurance Group, AFG is engaged in property and casualty insurance, focusing on specialized commercial products for businesses. AFG’s in-house team of investment professionals oversees the Company’s investment portfolio. The members of the Great American Insurance Group have been in business for over 150 years. Management believes that approximately 55% of the 2023 gross written premiums in AFG’s Specialty property and casualty group are produced by “top 10” ranked businesses.

AFG’s address is 301 East Fourth Street, Cincinnati, Ohio 45202; its phone number is (513) 579-2121. SEC filings, news releases, AFG’s Code of Ethics applicable to directors, officers and employees, AFG’s Corporate Social Responsibility Report and other information may be accessed free of charge through AFG’s Internet site at: www.AFGinc.com (http://www.AFGinc.com). (Information on AFG’s Internet site is not part of this Form 10-K.) See Note D — “Segments of Operations” to the financial statements for information on AFG’s assets, revenues and earnings before income taxes by segment.

Building Long-Term Value for AFG Shareholders

AFG allows each of its businesses the autonomy to make decisions related to underwriting, claims and policy servicing. This entrepreneurial business model promotes agility, innovative product design, unique applications of pricing segmentation, as well as developing distribution strategies and building relationships in the markets served. Management believes that AFG’s ability to grow book value per share at a double-digit annual rate over time is evidence that the Company’s culture, business model and employee incentive plans create a compelling structure to build long-term value for AFG’s shareholders.

As highlighted in the illustration below, over the past 25 plus years, AFG has sharpened its focus on the businesses that management knows best. This has been accomplished through organic growth, carefully selected acquisitions, start-ups and dispositions. On July 3, 2023, AFG completed the acquisition of Crop Risk Services (“CRS”) from American International Group (“AIG”). CRS is a primary crop insurance general agent based in Decatur, Illinois, with crop year 2022 gross written premiums of approximately $1.2 billion and was the seventh largest provider of multi-peril crop insurance in the United States based on 2022 premiums. As a result of the acquisition, AFG will remain the fifth ranked writer of U.S. crop insurance and the largest U.S. owned participant in the United States multi-peril crop insurance program. In May 2021, AFG completed the sale of its Annuity business to Massachusetts Mutual Life Insurance Company for $3.57 billion in cash.

Timeline of Selected Start-ups, Acquisitions and Dispositions

Property and Casualty Insurance Segment

General

AFG’s property and casualty insurance operations provide a wide range of commercial coverages through approximately 35 insurance businesses (at December 31, 2023) that make up the Great American Insurance Group. AFG’s property and casualty insurance operations ultimately report to a single senior executive and operate under a business model that allows local decision-making for underwriting, claims and policy servicing in each of the niche operations. Each business is managed by experienced professionals in particular lines or customer groups and operates autonomously but with certain central controls and accountability. The decentralized approach allows each unit the autonomy necessary to respond to local and specialty market conditions while capitalizing on the efficiencies of centralized investment and administrative support functions. AFG’s property and casualty insurance operations are conducted through the subsidiaries listed in the following table, which includes independent financial strength ratings and 2023 gross written premiums (in millions) for each major subsidiary. These ratings are generally based on concerns for policyholders and agents and are not directed toward the protection of investors. AFG believes that maintaining a rating in the “A” category by A.M. Best is important to compete successfully in most lines of business.

The primary objectives of AFG’s property and casualty insurance operations are to achieve solid underwriting profitability and provide excellent service to its policyholders and agents. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses, loss adjustment expenses (“LAE”), underwriting expenses and policyholder dividends to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect investment income, other income, other expenses or federal income taxes.

While many costs included in underwriting are readily determined (commissions, administrative expenses and many of the losses on claims reported), the process of determining overall underwriting results is highly dependent upon the use of estimates in the case of losses incurred or expected but not yet reported or developed. Management uses actuarial procedures and projections to determine “point estimates” of ultimate losses. While the process is imprecise and develops amounts which are subject to change over time, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Financial information is reported in accordance with U.S. generally accepted accounting principles (“GAAP”) for shareholder and other investor-related purposes and reported on a statutory basis for U.S. insurance regulatory purposes. Unless indicated otherwise, the financial information presented in this Form 10-K for AFG’s property and casualty insurance operations is presented based on GAAP. Statutory information is only prepared for AFG’s U.S.-based subsidiaries, which represented approximately 98% of AFG’s direct written premiums in 2023, and is provided for industry comparisons or where comparable GAAP information is not readily available.

Major differences for statutory accounting include charging policy acquisition costs to expense as incurred rather than spreading the costs over the periods covered by the policies; reporting investment grade bonds and redeemable preferred stocks at amortized cost rather than fair value; netting of reinsurance recoverables and prepaid reinsurance premiums against the corresponding liabilities rather than reporting such items separately; and charging to surplus certain GAAP assets, such as furniture and fixtures and agents’ balances over 90 days old.

AFG’s statutory combined ratio averaged 90.9% for the period 2014 to 2023 as compared to 98.4% for the property and casualty commercial lines industry over the same period. AFG believes that its specialty niche focus, product line diversification and underwriting discipline have contributed to the Company’s ability to consistently outperform the industry’s underwriting results. Management’s philosophy is to refrain from writing business that is not expected to produce an underwriting profit even if it is necessary to limit premium growth to do so.

(*)The sources of the commercial lines industry ratios are ©2024 Conning, Inc., as published in Conning’s Property-Casualty Forecast & Analysis by Line of Insurance 2023Q4 edition and ©2023 A.M. Best Company’s Review & Preview Reports for preceding years.

Property and Casualty Results

Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. See Note D — “Segments of Operations” to the financial statements for the reconciliation of AFG’s earnings before income taxes by significant business segment to the statement of earnings.

The following table shows the performance of AFG’s property and casualty insurance operations (dollars in millions):

(*)The sources of the industry ratios are ©2024 Conning, Inc., as published in Conning’s Property-Casualty Forecast & Analysis by Line of Insurance 2023Q4 edition and ©2023 A.M. Best Company’s Review & Preview Reports for preceding years.

As with other property and casualty insurers, AFG’s operating results can be adversely affected by unpredictable catastrophe losses. Certain natural disasters (hurricanes, severe storms, earthquakes, tornadoes, floods, etc.) and other incidents of major loss (explosions, civil disorder, terrorist events, fires, etc.) are classified as catastrophes by industry associations. Losses from these incidents are usually tracked separately from other business of insurers because of their sizable effects on overall operations. Total net losses to AFG’s insurance operations from current accident year catastrophes were $162 million in 2023, $88 million in 2022 and $86 million in 2021 and are included in the table above.

AFG generally seeks to reduce its exposure to catastrophes through individual risk selection, including minimizing coastal and known fault-line exposures, and through the purchase of reinsurance. AFG’s net exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 500 years (a “500-year event”) is expected to be approximately 2% of AFG’s Shareholders’ Equity.

Property and Casualty Insurance Products

AFG is focused on growth opportunities in what it believes to be more profitable specialty businesses where AFG personnel are experts in particular lines of business or customer groups. AFG believes it is an innovator in risk sharing and alternative risk transfer programs for policyholders and agents. For example, AFG provides: risk sharing alternatives in the passenger transportation, moving and storage and trucking industries, agency and group risk sharing programs, unique coverage options for workers’ compensation accounts that include higher retentions and specialty loss prevention and innovative commission structures for distribution partners who produce profitable business. These programs and offerings help align the interests of customers and distribution partners with AFG’s interests.

The following are examples of AFG’s specialty businesses grouped by sub-segment:

Management believes specialization is the key element to the underwriting success of these business units. These specialty businesses are opportunistic and premium volume will vary based on prevailing market conditions. AFG continually evaluates expansion in existing markets and opportunities in new specialty markets that meet its profitability objectives. Likewise, AFG will withdraw from markets that do not meet its profit objectives or business strategy.

2023 SPECIALTY PROPERTY AND CASUALTY BY SUB-SEGMENT

(*)Excludes underwriting profits and losses recorded outside of AFG’s Specialty property and casualty group.

Premium Distribution

The following table shows the net written premiums by sub-segment for AFG’s property and casualty insurance operations for 2023, 2022 and 2021 (in millions):

(*)Premiums assumed by AFG’s internal reinsurance program from the operations that make up AFG’s Specialty property and casualty insurance sub-segments.

The geographic distribution of statutory direct written premiums by AFG’s U.S.-based insurers for 2023, 2022 and 2021 is shown below. Approximately 2% of AFG’s direct written premiums in 2023 were derived from non U.S.-based insurers.

2023 STATUTORY DIRECT WRITTEN PREMIUMS

Reinsurance

Consistent with standard practice of most insurance companies, AFG reinsures a portion of its property and casualty business with other insurance companies and assumes a relatively small amount of business from other insurers. AFG uses reinsurance for two primary purposes: (i) to provide higher limits of coverage than it would otherwise be willing to provide (i.e. large line capacity) and (ii) to protect its business by reducing the impact of catastrophes. The availability and cost of reinsurance are subject to prevailing market conditions, which may affect the volume and profitability of business that is written. AFG is subject to credit risk with respect to its reinsurers, as the ceding of risk to reinsurers does not relieve AFG of its liability to its insureds until claims are fully settled.

Reinsurance is provided on either a facultative or treaty basis. Facultative reinsurance is generally provided on a risk-by-risk basis. Individual risks are ceded and assumed based on an offer and acceptance of risk by each party to the transaction. AFG purchases facultative reinsurance, both pro rata and excess of loss, depending on the risk and available reinsurance markets. Treaty reinsurance provides for risks meeting prescribed criteria to be automatically ceded and assumed according to contract provisions.

Catastrophe Reinsurance AFG has taken steps to limit its exposure to wind and earthquake losses through individual risk selection, including minimizing coastal and known fault-line exposures, and purchasing catastrophe reinsurance. In addition, AFG purchases catastrophe reinsurance for its workers’ compensation businesses. Although the cost of catastrophe reinsurance varies depending on exposure and the level of worldwide loss activity, AFG continues to obtain reinsurance coverage in adequate amounts at acceptable rates.

In January 2024, AFG’s property and casualty insurance subsidiaries renewed their catastrophe reinsurance coverages. For AFG’s U.S.-based operations, the Company placed $55 million of coverage in excess of a $70 million per event primary retention in the traditional reinsurance markets.

In addition to traditional reinsurance, AFG has catastrophe coverage through a catastrophe bond structure with Riverfront Re Ltd., which provides coverage of up to 94% of $323 million for catastrophe losses in excess of $127 million through December 31, 2024.

The commercial marketplace requires large policy limits ($25 million or more) in several of AFG’s lines of business, including certain property, environmental, aviation, executive and professional liability, umbrella and excess liability, and fidelity and surety coverages. Since these limits exceed management’s desired exposure to an individual risk, AFG generally enters into reinsurance agreements to reduce its net exposure under such policies to an acceptable level. Reinsurance continues to be available for this large line capacity exposure with satisfactory pricing and terms.

In addition to the catastrophe and large line capacity reinsurance programs discussed above, AFG purchases reinsurance on a product-by-product basis. AFG regularly reviews the financial strength of its current and potential reinsurers. These reviews include consideration of credit ratings, available capital, claims paying history and expertise. This process periodically results in the transfer of risks to more financially secure reinsurers. Substantially all reinsurance is ceded to companies with investment grade S&P ratings or is secured by “funds withheld” or other collateral. Under “funds withheld” arrangements, AFG retains ceded premiums to fund ceded losses as they become due from the reinsurer. Recoverables from the following companies were individually between 5% and 13% of AFG’s total property and casualty reinsurance recoverable (including prepaid reinsurance premiums and net of payables to reinsurers) at December 31, 2023: Everest Reinsurance Company, Hannover Rueck SE, Munich Reinsurance America, Inc., Swiss Reinsurance America Corporation and Transatlantic Reinsurance Company. No other reinsurers exceeded 5% of AFG’s property and casualty reinsurance recoverable.

The following table presents (by type of coverage) the amount of each loss above the specified retention covered by treaty reinsurance programs in AFG’s U.S.-based property and casualty insurance operations (in millions) as of January 1, 2024:

(a) Includes the participation of AFG’s internal reinsurance program.

(b) Maximum loss per event for claims up to reinsurance coverage limit.

(c) Although AFG’s maximum potential loss per event is generally $70 million, there are certain unlikely scenarios where AFG’s exposure could be as high as $73 million.

In addition to the coverage shown above, AFG reinsures its multi-peril crop insurance (“MPCI”) business through the Federal Crop Insurance Corporation (“FCIC”) based on the Standard Reinsurance Agreement (“SRA”). AFG can elect the desired retention of risk on a state-by-state, county, crop or plan basis according to the SRA. The SRA also includes an additional fixed percentage quota share cede. AFG typically reinsures 10% to 20% of MPCI gross written premiums with the FCIC. AFG also purchases quota share reinsurance on its crop business in the private market. This quota share provides for a ceding commission to AFG and a profit-sharing provision. During both 2023 and 2022, AFG reinsured 50% of its crop premiums not reinsured by the FCIC in the private market and purchased stop loss protection coverage for the remaining portion of the business. In 2024, AFG expects to continue to reinsure 50% of the premiums not reinsured by the FCIC in the private market.

The balance sheet caption “Recoverables from reinsurers” included approximately $189 million on paid losses and LAE and $4.29 billion on unpaid losses and LAE at December 31, 2023. These amounts are net of allowances of approximately $10 million for expected credit losses on reinsurance recoverables. The collectability of a reinsurance balance is based upon the financial condition of a reinsurer as well as individual claim considerations.

Reinsurance premiums ceded and assumed are presented in the following table (in millions):

Loss and Loss Adjustment Expense Reserves

The consolidated financial statements include the estimated liability for unpaid losses and LAE of AFG’s insurance subsidiaries. This liability represents estimates of the ultimate net cost of all unpaid losses and LAE and is determined by using case-basis evaluations, actuarial projections and management’s judgment. These estimates are subject to the effects of changes in claim amounts and frequency and are periodically reviewed and adjusted as additional information becomes known. In accordance with industry practices, such adjustments are reflected in current year operations. Generally, reserves for reinsurance assumed and involuntary pools and associations are reflected in AFG’s results at the amounts reported by those entities. See Note O — “Insurance — Property and Casualty Insurance Reserves” to the financial statements for information on the development of AFG’s liability for unpaid losses and loss adjustment expenses by accident year as well as a progression of the liability on a GAAP basis over the past three years.

A reconciliation of the liability for losses and LAE reported in the annual statements filed with the state insurance departments in accordance with statutory accounting principles (“SAP”) to the liability reported in the accompanying consolidated financial statements in accordance with GAAP at December 31, 2023 follows (in millions):

Asbestos and Environmental-related (“A&E”) Insurance Reserves AFG’s property and casualty group, like many others in the industry, has A&E claims arising in most cases from general liability policies written more than thirty-five years ago. The establishment of reserves for such A&E claims presents unique and difficult challenges and is subject to uncertainties significantly greater than those presented by other types of claims. For a discussion of these uncertainties, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves” and Note N — “Contingencies” to the financial statements.

The following table (in millions) is a progression of the property and casualty group’s A&E reserves.

In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has historically conducted periodic comprehensive external studies of its asbestos and environmental reserves relating to the run-off operations of its property and casualty insurance segment and its exposures related to former railroad and manufacturing operations and sites with the aid of specialty actuarial, engineering and consulting firms and outside counsel, with an in-depth internal review during all other years.

An in-depth internal review of AFG’s A&E reserves was completed in the third quarter of 2023 by AFG’s internal A&E claims specialists in consultation with specialty outside counsel. The 2023 internal review identified no new trends and recent claims activity was generally consistent with AFG’s expectations resulting from AFG’s in-depth internal reviews in 2022 and 2021 and most recent external study in 2020. As a result, the 2023 review resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves. Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of the property and casualty segment’s asbestos reserve increases in recent years.

Marketing

The property and casualty insurance group directs its sales efforts primarily through independent insurance agents and brokers, although small portions are written through employee agents. Independent agents and brokers generally receive a commission on the sale of each policy. Some agents and brokers are eligible for a bonus commission based on the overall profitability of policies or volume of business placed with AFG by the broker or agent in a particular year. The property and casualty insurance group writes insurance through several thousand agents and brokers.

Competition

AFG’s property and casualty insurance businesses compete with other individual insurers, state funds and insurance groups of varying sizes, some of which are mutual insurance companies possessing competitive advantages in that all their profits inure to their policyholders. See Item 1A — Risk Factors. AFG also competes with self-insurance plans, captive programs and risk retention groups. Due to the specialty nature of these coverages, competition is based primarily on service to policyholders and agents, specific characteristics of products offered and reputation for claims handling. Financial strength ratings, price, commissions and profit-sharing terms are also important factors. Management believes that sophisticated data analysis for refinement of risk profiles, extensive specialized knowledge and loss prevention service have helped AFG compete successfully.

Human Capital Resources

Culture

AFG’s principal cultural goal is for all employees to feel included, respected, safe and empowered to perform at their best. The Company helps employees succeed by cultivating specialized knowledge and offering professional education and leadership development in a service-oriented culture. AFG respects human rights, appreciates diversity and inclusion and values the unique perspective each employee brings to the workplace.

AFG believes that when employees feel actively engaged with the Company’s mission and strategy, they deliver higher levels of service to its customers and create better results for its business. AFG strives to attract diverse and exceptional people who can grow within AFG by fostering a workplace culture that inspires and rewards people and by developing a workforce that can help the Company meet its current and future goals.

Employees and Engagement

As of December 31, 2023, the Company had approximately 8,500 employees, of which approximately 7,700 were employed at Great American Insurance Group, and approximately 49% of AFG’s workforce were women.

AFG believes that its strong culture and values, along with the resources, competitive compensation and benefits, training and development and other opportunities afforded its employees, contribute meaningfully to what the Company views as positive retention and recruitment trends over the long-term. The Company’s voluntary turnover rate in 2023 was approximately 7.4%. The Company believes that its overall average employee tenure, which is nearly 10.5 years, and average tenure of over 18 years for the Company’s approximately 175 most senior leaders, evidences the Company’s relative success in growing careers.

To help inform management on employees’ views and perspectives on key matters, on a triennial basis, AFG has conducted, and now plans to conduct on a biennial basis, an employee engagement survey (“Employee Survey”). The Employee Survey enables each participant to provide anonymous feedback in response to questions on a broad scope of issues, including culture, engagement, development, diversity, empowerment and other issues that AFG believes are important measures of long-term employee satisfaction. With the benefit of this direct feedback, management can assess employees’ perspectives on salient issues, thereby informing management’s decisions on which practices should remain unchanged and which should be considered for potential enhancement or revision. AFG’s most recent Employee Survey was conducted in 2022. Employee participation was high, with 92% of the Company’s employees completing the survey. Management was encouraged by this strong engagement and by what management viewed as positive overall results, which on the whole reaffirmed management’s belief that employees appreciate the Company’s culture and the opportunities available to them and understand their link to AFG’s strategy and business. By way of example, some of the Employee Survey results included the following:

• 94% of employees agreed that “the people in my work group are committed to delivering high-quality products and services”;
• 95% of employees agreed that “I understand how my job contributes to the organization’s strategy and goals”; and
• 92% of employees agreed that “I would recommend the organization as a good place to work”.

The results of the Employee Survey are reviewed and discussed by AFG management. Those results serve as an important source of information for management in shaping decisions that impact the Company’s employees.

Investing in Employees

Training and Development AFG offers training programs designed to encourage people to build careers in insurance and develop professional skills that positively impact employees’ careers as well as AFG’s customers and business. These include tuition reimbursement programs, monetary incentives and extensive personal and professional learning opportunities. Professional development is one of many reasons why AFG believes average employee tenure exceeds industry averages.

Compensation and Benefits AFG provides a competitive benefits package that includes an extensive wellness program and paid time away from work for employees to maintain a healthy work-life balance. AFG offers onsite fitness centers at many of its locations, financial incentives for taking care of one’s health and health management programs to increase employees’ engagement with their healthcare providers. AFG also provides six weeks of paid parental leave for employees to care for and bond with their newborn or newly adopted child.

Being a responsible employer and contributing to communities’ economic sustainability includes providing employees the opportunity to have the ability and access to achieve their financial goals. AFG maintains competitive and equitable pay by conducting regular market comparisons. AFG offers an employee stock purchase program, a retirement savings plan with employer matching contributions and company-wide profit sharing programs. In addition, employees have access to professional investment and retirement planning advisors to help prepare for their financial future.

Safety and Security AFG prioritizes workplace safety and is dedicated to minimizing employees’ risk of accident or injury. AFG’s obligations and procedures are outlined in our Workplace Safety and Security Policy along with our Safety and Accident Reporting Policy. AFG is firmly committed to and maintains a policy of providing a work environment free from harassment of any kind, including sexual harassment. This includes intentional and unintentional harassment based on any legally protected classification under applicable federal, state, or local law.

Succession Planning As AFG’s success is driven principally by the efforts of its employees, many of whom are specialized experts in their field or area of practice, the Company views succession planning as critical to continuing its track record of strong financial performance. The Company maintains a consistent and methodical approach to succession planning, aimed at identifying successors to senior leaders and identifying and developing future leaders. Succession planning with regard to senior positions is also reviewed with AFG’s Board of Directors.

Diversity, Equity and Inclusion The Company values diversity and recognizes the strategic and business benefits derived when people with different cultures, backgrounds and experiences work together to achieve results. In AFG’s most recent Employee Survey, 86% of employees agreed that everyone is treated fairly regardless of their personal background or characteristics. AFG has dedicated employees responsible for our diversity, equity and inclusion efforts who report directly to our Chief Administrative Officer and Chief Human Resources Officer, who in turn reports directly to the Co-CEOs. Our Diversity and Equal Employment Opportunity Policy reinforces our commitment to attracting, developing and retaining a diverse workforce.

We have also established strategic relationships with affinity groups, such as the National African-American Insurance Association (“NAAIA”). The Company’s collaboration with NAAIA provides the opportunity for employee memberships, attendance at its annual conference, networking events and a wide range of leadership and education workshops and seminars. The Company is also a supporter of the Association of Professional Insurance Women, an organization focused on career advancement for women insurance professionals.

Board and Committee Oversight Our Board of Directors or its Committees discuss with our Co-CEOs and other senior management members, including directly with the Chief Administrative Officer and Chief Human Resources Officer, a range of human capital management issues, including succession planning and development, compensation, benefits, labor trends, including recruitment and retention, engagement, diversity, equity and inclusion and employee feedback.

Corporate Social Responsibility Report

Please refer to the Company’s Corporate Social Responsibility Report located on AFG’s website for more information regarding human capital programs and initiatives. None of the information provided on the website is incorporated into, or deemed to be a part of, this Annual Report on Form 10-K or in any other report or document we file with the SEC.

Investment Portfolio

AFG’s in-house team of investment professionals have followed a consistent strategy over many years and changing economic conditions. Management believes that AFG’s investment expertise has been the driver of strong investment results and effective portfolio risk management over many years.

The following chart shows the allocation of AFG’s $15.26 billion investment portfolio at December 31, 2023:

Investment Portfolio

For additional information on AFG’s investments, see Note F — “Investments” to the financial statements and Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Investments.” AFG’s earned yield (net investment income divided by average invested assets) on fixed maturities held by continuing operations was 4.7% for 2023, 3.5% for 2022 and 3.0% for 2021.

The table below compares the total return, which includes changes in fair value, on AFG’s fixed maturities held by continuing operations to a comparable public index. While there is no directly comparable index to AFG’s portfolio, shown below is a widely used benchmark in the financial services industry.

15

The following table shows AFG’s available for sale fixed maturity investments by Standard & Poor’s Corporation or comparable rating as of December 31, 2023 (dollars in millions).

(*)Amortized cost, net of allowance for expected credit losses.

At December 31, 2023, 97% (based on statutory carrying value of $10.54 billion) of AFG’s fixed maturity investments held by its insurance companies had a National Association of Insurance Commissioners (“NAIC”) designation of 1 or 2 (the highest of the six designations) based not only on the probability of loss but also on the severity of loss.

Regulation

AFG’s insurance company subsidiaries are subject to U.S. and international regulation in the jurisdictions where they do business. In general, the insurance laws of the various jurisdictions establish regulatory agencies with broad administrative powers governing, among other things, premium rates, solvency standards, licensing of insurers, agents and brokers, trade practices, forms of policies, maintenance of specified reserves and capital for the protection of policyholders, deposits of securities for the benefit of policyholders, investment activities and relationships between insurance subsidiaries and their parents and affiliates. Various transactions between insurance subsidiaries and their parents and affiliates must receive prior approval of the applicable insurance regulatory authorities and be disclosed.

U.S. Regulation

Holding Company Statutes AFG is subject to state statutes governing insurance holding company systems. Typically, those statutes require that AFG periodically file information with the appropriate state insurance commissioner, including information concerning capital structure, ownership, financial condition, dividend payments and other certain transactions with affiliates, and general business operations.

Risk Based Capital Requirements The NAIC and state insurance departments use a risk-based capital (“RBC”) formula that is designed to measure the adequacy of an insurer’s statutory surplus in relation to the risks inherent in its business. The RBC formula develops risk adjusted target levels of adjusted statutory capital by applying certain factors to various asset, premium and reserve items. The insurance company’s state of domicile imposes RBC requirements.

Statutory Accounting Principles Each U.S. insurance subsidiary is required to file detailed quarterly and annual reports, including financial statements, in accordance with prescribed statutory accounting rules, with regulatory officials in the jurisdictions in which they conduct business. The quarterly and annual financial reports filed with the state insurance departments utilize statutory accounting principles (“SAP”) that are different from U.S. GAAP. In developing SAP, insurance regulators were primarily concerned with monitoring the solvency of insurance companies to assure an insurer’s ability to pay all its current and future obligations to policyholders.

Cybersecurity Regulations Numerous states have enacted new insurance laws that require certain regulated entities to implement and maintain comprehensive information security programs to safeguard the personal information of insureds. For example, the New York State Department of Financial Services (“NYDFS”) cybersecurity regulation requires banks, insurance companies and other financial services institutions regulated by the NYDFS to establish and maintain a cybersecurity program “designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry.” The NAIC adopted an Insurance Data Security Model Law which, when adopted by the states, requires licensed insurance entities to comply with detailed information security requirements. To date, the Insurance Data Security

Model Law has been adopted by a number of states, including Ohio, where several of AFG’s insurance subsidiaries are domiciled.

Certain states are developing or have developed regulations related to privacy and data security. For example, the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act, broadly regulates the collection, processing and disclosure of California residents’ personal information, imposes limits on the “sale” and “sharing” of personal information and grants California residents certain rights to, among other things, access and delete data about them in certain circumstances.

Own Risk and Solvency Assessment AFG must submit an Own Risk and Solvency Assessment Summary Report (“ORSA”) at least annually to its lead state insurance regulator. The ORSA, which is a component of an insurer’s enterprise risk management framework, is a confidential internal assessment of the material and relevant risks associated with an insurer’s current business plan and the sufficiency of capital resources to support those risks.

Dividends The laws of the domiciliary states of AFG’s U.S. insurance subsidiaries govern the amount of dividends that may be paid to its shareholders in any twelve-month period, generally based on net earnings or statutory surplus. Under applicable restrictions, the maximum amount of dividends available to AFG in 2024 from its insurance subsidiaries without seeking prior regulatory approval is approximately $944 million.

Investment Regulation Investments must comply with applicable laws and regulations that prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments in federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate and certain other investments, subject to specified limits and certain other qualifications.

Federal Regulation

Although the federal government and its regulatory agencies generally do not directly regulate the business of insurance, federal legislation and administrative rules adopted apply to AFG’s business. For instance, privacy laws, such as the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act, affect AFG’s day-to-day operations. AFG is also subject to other federal laws, such as the Terrorism Risk Insurance Act (“TRIA”), the Nonadmitted and Reinsurance Reform Act (“NRRA”), the U.S. Foreign Corrupt Practices Act (“FCPA”), and the rules and regulations of the Office of Foreign Assets Control (“OFAC”).

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), contains insurance industry-specific provisions, including establishment of the Federal Insurance Office (“FIO”) and streamlining the regulation and taxation of surplus lines insurance and reinsurance among the states. The FIO, part of the U.S. Department of the Treasury, has limited authority and no direct regulatory authority over the business of insurance. The FIO’s principal mandates include monitoring the insurance industry, monitoring the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products, collecting insurance industry information and data and representing the U.S. with international insurance regulators.

International Regulation

AFG operates in limited foreign jurisdictions where its operations are subject to regulation and supervision of the various jurisdictions. These regulations, which vary depending on the jurisdiction, include, among others, solvency and market conduct regulations, including Solvency II; anti-corruption and anti-terrorist financing guidelines, laws and regulations; various privacy, insurance, tax, tariff, trade and sanctions laws and regulations, including the EU and UK General Data Protection Regulation (“GDPR”); and corporate, employment, intellectual property and investment laws and regulations. AFG has foreign insurance company subsidiaries domiciled in the United Kingdom, Ireland, Mexico, Bermuda, and the Cayman Islands and branch operations in Canada and Singapore, all of which are subject to regulation by the insurance regulator of such jurisdiction.

In addition to the other information set forth in this report, particularly information under “Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the following are the material factors affecting AFG’s business. Any one of these factors could cause AFG’s actual results to vary materially from recent results or from anticipated future results. Additional risks and uncertainties not currently known to AFG or that AFG currently deems to be immaterial also may materially adversely affect AFG’s business, financial condition or results of operations.

RISKS RELATING TO AFG’S INSURANCE OPERATIONS, DISTRIBUTION AND PRODUCTS

AFG’s results of operations could be adversely impacted by catastrophes, both natural and man-made, pandemics, severe weather conditions or climate change.

Catastrophes can be caused by unpredictable natural events such as hurricanes, windstorms, severe storms, tornadoes, floods, hailstorms, earthquakes, explosions and fire, and by other events, such as terrorist attacks and civil unrest, as well as pandemics and other similar outbreaks in many parts of the world. These events may have a material adverse effect on AFG’s workforce and business operations as well as the workforce and operations of AFG’s customers and independent agents.

The extent of gross losses for AFG’s insurance operations from a catastrophe event is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. In addition, certain catastrophes could result in both property and non-property claims from the same event. AFG purchases catastrophe reinsurance as protection against catastrophe losses. Reinsurance is subject to the adequacy and counterparty reinsurance risks described below under “The inability to obtain reinsurance or to collect on ceded reinsurance could adversely affect AFG’s results of operations.” A severe catastrophe or a series of catastrophes could result in losses exceeding AFG’s reinsurance protection and may have a material adverse impact on its results of operations or financial condition.

Changing weather patterns and climate change have added to the unpredictability, frequency and severity of weather-related catastrophes and other losses, such as wildfires or flooding, incurred by the industry in recent years. These changing weather patterns, whether as a result of global climate change caused by human activities or otherwise, make it more difficult for AFG to predict and model catastrophic events, reducing AFG’s ability to accurately price its exposure to such events and mitigate its risks. In addition, claims for catastrophic events, or an unusual frequency of smaller losses in a particular period, such as from lower severity convective storms, could expose AFG to large losses, cause substantial volatility in its results of operations and could have a material adverse effect on its ability to write new business if AFG is not able to adequately assess and reserve for the increased frequency and severity of catastrophes resulting from these environmental factors. In addition, any increase in the frequency or severity of catastrophic events may result in losses exceeding AFG’s reinsurance protection or may result in substantial volatility in or materially impact AFG’s results of operations or financial condition.

Volatility in crop prices, as a result of weather conditions or other events, could adversely impact AFG’s results of operations.

Weather conditions, including too much moisture (flooding or excessive rain), not enough moisture (droughts), and the level of crop prices in the commodities market heavily impact AFG’s crop insurance business. These factors are inherently unpredictable and could result in significant volatility in the results of the crop insurance business from one year to the next. AFG’s crop results could also be negatively impacted by pests and plant disease. A large decline in the commodity prices of one or more of the major crops that AFG insures could have a material adverse effect on AFG’s results of operations or financial condition.

AFG’s results of operations and revenues may fluctuate as a result of many factors, including cyclical changes in the insurance industry.

The results of operations of companies in the property and casualty insurance industry historically have been subject to fluctuations and uncertainties from many factors including competitive pressures, rising loss costs and changes in the level of reinsurance pricing and capacity, among others. Such factors often cause cyclical changes in the insurance industry with effects that are not uniform among product lines. The demand for property and casualty insurance, both admitted and excess and surplus lines, can vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases, causing AFG’s revenues to fluctuate. As a result, AFG’s premium levels, renewal rates, expense ratio and other items could be materially adversely impacted. These factors could produce results that would have a negative impact on AFG’s results of operations and financial condition.

AFG’s success will depend on its ability to maintain and enhance effective operating procedures and manage risks on an enterprise-wide basis.

Operational risk and losses can result from, among other things, fraud, errors, failure to document transactions properly, failure to obtain proper internal authorization, failure to comply with regulatory requirements, information technology failures or external events. AFG continues to enhance its operating procedures and internal controls to effectively support its business and its regulatory and reporting requirements. The NAIC and state legislatures have increased their focus on risks within an insurer’s holding company system that may pose enterprise risk to insurers. AFG must submit an Own Risk and Solvency Assessment Summary Report (“ORSA”) at least annually to its lead state insurance regulator. The ORSA is a confidential internal assessment of the material and relevant risks associated with an insurer’s current business plan and the sufficiency of capital resources to support those risks.

AFG operates within an enterprise risk management (“ERM”) framework designed to assess and monitor risks. However, assurance that AFG can effectively identify, review and monitor all risks or that all its employees will operate within the ERM framework cannot be guaranteed. Assurances that AFG’s ERM framework will result in the Company accurately identifying all risks and accurately limiting its exposures based on its assessments also cannot be guaranteed. Any ineffectiveness in AFG’s control or procedures or failure to manage these risks may have an adverse effect on AFG’s results of operations and financial condition.

AFG could face unanticipated losses from war, terrorism, political unrest and geopolitical uncertainty which could have a material adverse effect on AFG’s financial condition and results of operations.

AFG has substantial exposure to unexpected losses resulting from war, acts of terrorism, political unrest and geopolitical instability in many regions of the world. Private sector catastrophe reinsurance is limited and generally unavailable for terrorism losses caused by attacks with nuclear, biological, chemical or radiological weapons. On December 20, 2019, the President of the United States signed the Terrorism Risk Insurance Program Reauthorization Act of 2019 (“TRIP"), extending the program through December 31, 2027. Although TRIP provides benefits in the event of certain acts of terrorism, those benefits are subject to a deductible and to other limitations. AFG cannot predict or eliminate its exposure to events of war, terrorism, political unrest or geopolitical uncertainty, and to the extent that losses from such events occur, AFG’s financial condition and results of operations could be materially adversely affected.

AFG’s international operations expose it to investment, political and economic risks, including foreign currency and credit risk.

AFG’s international operations expose AFG to additional risks including restrictions such as price controls, capital controls, currency exchange limits, ownership limits and other restrictive or anti-competitive governmental actions or requirements, which could have an adverse effect on AFG’s business and reputation. AFG’s business activities outside the United States may also be subject to political and economic risks, including foreign currency and credit risk.

AFG’s business activities outside the United States subject AFG to additional domestic and foreign laws and regulations, including the Foreign Corrupt Practices Act, the UK Bribery Act and similar laws in other countries that prohibit the making of improper payments to foreign officials. Although AFG has policies and controls in place that are designed to ensure compliance with these laws, if those controls are ineffective and an employee or intermediary fails to comply with applicable laws and regulations, AFG could suffer civil and criminal penalties and AFG’s business and reputation could be adversely affected. Some countries have laws and regulations that lack clarity and, even with local expertise and effective controls, it can be difficult to determine the exact requirements of, and potential liability for non-compliance under, the local laws. Failure to comply with local laws in a particular market may result in substantial liability and could have a significant and negative effect not only on AFG’s business in that market but also on AFG’s reputation generally.

RISKS RELATING TO THE INSURANCE INDUSTRY

Intense competition could adversely affect AFG’s results of operations.

The property and casualty insurance segment operates in a highly competitive industry that is affected by many factors that can cause significant fluctuations in its results of operations. The lines of business in this segment compete with other individual insurers, state funds and insurance groups of varying sizes, some of which are mutual insurance companies possessing competitive advantages in that all their profits inure to their policyholders. The property and casualty insurance segment also competes with self-insurance plans, captive programs and risk retention groups. In addition, certain foreign insurers may be taxed at lower rates, which may result in a competitive advantage over AFG.

In recent years, various types of investors have increasingly sought to participate in the property and casualty insurance industry. Well-capitalized new entrants to the property and casualty insurance industry, or existing competitors that receive substantial infusions of capital or access to third-party capital, provide increasing competition, which may adversely impact

AFG’s business and profitability. Further, technology companies or other third parties have created, and may in the future create, technology-enabled business models, processes, platforms or alternate distribution channels that may adversely impact AFG’s competitive position in some parts of its business.

AFG may utilize artificial intelligence and machine learning (“AI”) in its business or incorporate AI into its products and services. The AI used by AFG may not operate properly or as expected, which could cause AFG to write policies it may not have otherwise written, misprice policies, assume greater risks, or overpay customer claims, among other potential negative impacts on its business and operations. AFG’s existing competitors, new entrants, technology companies or other third parties may leverage AI to the benefit of their business or operations or may incorporate AI into their products and services more quickly or successfully than AFG, which could make AFG less competitive and negatively impact its results of operations. In addition, if the content, analyses, output or recommendations produced by or with the assistance of AI are unintentionally, or are alleged to be, deficient, inaccurate or misleading, AFG’s business, financial condition and results of operation may be adversely impacted.

Competition is based on many factors, including service to policyholders and agents, product design, reputation for claims handling, price, commissions, ratings and financial strength. The property and casualty market has experienced periods characterized by increased competition, resulting in less restrictive underwriting standards and relatively low premium rates, followed by periods of relatively lower levels of competition, more selective underwriting standards and relatively high premium rates. During periods in which price competition is high or industry underwriting standards have loosened or degraded, AFG may lose business to competitors offering competitive insurance products at lower prices or more favorable terms. Some of AFG’s competitors have more capital and greater resources than AFG and may offer a broader range of products, lower prices or better terms than AFG offers. If competition limits AFG’s ability to write new or renewal business at adequate rates, its results of operations will be adversely affected.

AFG’s revenues could be adversely affected if it is not able to attract and retain independent agents.

AFG’s reliance on the independent agency market makes it vulnerable to a reduction in the amount of business written by agents. Many of AFG’s competitors also rely significantly on the independent agency market. Some of AFG’s competitors offer a wider variety of products or higher commissions. AFG also faces credit risk with respect to its independent agents, as they may not pay all the premiums owed to AFG and it may be difficult or impossible to recover such amounts. A reduction in the number of independent agencies marketing AFG’s products, the failure of agencies to successfully market AFG’s products, changes in the strategy or operations of agencies (including agency consolidation), the inability of AFG to collect amounts owed by agencies or the choice of agencies to reduce their writings of AFG products could adversely affect AFG’s revenues and profitability.

RISKS RELATING TO ESTIMATES, ASSUMPTIONS AND VALUATIONS

AFG’s property and casualty reserves may be inadequate, which could have a material adverse effect on AFG’s results of operations.

Liabilities for unpaid losses and loss adjustment expenses (“LAE”) do not represent an exact calculation of liability but instead represent management estimates of what the ultimate settlement and administration of claims will cost, supported by actuarial expertise and projection techniques, at a given accounting date. The process of estimating unpaid losses and LAE reserves involves a high degree of judgment and is subject to numerous internal and external factors. Variability is introduced by changes in claims handling procedures, the impact of general and wage inflation on loss cost trends, increasing litigation and erosion of causation and coverage defenses for insurance claims, legislative actions, evolving mass tort issues and varying judgments and viewpoints of the individuals involved in the estimation process, among others. The impact of many of these items on ultimate costs for unpaid losses and LAE is difficult to estimate. Unpaid losses and LAE reserve estimation difficulties also differ significantly by product line due to differences in claim complexity, the volume of claims, the potential severity of individual claims, the determination of an occurrence date for a claim and lags in the time between damage, loss or injury and when a claim is actually reported to the insurer. In addition, the historic development of AFG’s liability for unpaid losses and LAE may not necessarily reflect future trends in the development of these amounts. To the extent that reserves are inadequate and are strengthened, AFG’s profitability would be adversely affected because the amount of any such increase would be treated as a charge to earnings in the period in which the deficiency is recognized.

AFG uses analytical models to assist in its underwriting, reserving and reinsurance purchasing decision-making, and actual results may differ materially from the model outputs and related analyses.

AFG uses various modeling techniques and data analytics to analyze and estimate exposures, loss trends and other risks associated with its assets and liabilities. AFG uses the modeled outputs and related analyses to assist in decision-making in areas such as underwriting, claims, reserving, reinsurance and catastrophe risk. The modeled outputs and related analyses are subject to various assumptions, uncertainties, model errors and the inherent limitations of any statistical analysis, including the use of historical internal and industry data. In addition, the modeled outputs and related analyses may from time to time contain inaccuracies, perhaps in material respects, including as a result of inaccurate inputs or applications thereof. Consequently, actual results may differ materially from AFG’s modeled results. AFG may also utilize AI to assist with modeled outputs and related analyses, the results of which may be unintentionally deficient, inaccurate or misleading. If, based upon these models or other factors, AFG underestimates the frequency and/or severity of loss events or overestimates the risks it is exposed to, new business growth and retention of AFG’s existing business may be adversely affected which could have an adverse effect on AFG’s results of operations and financial condition.

Exposure to mass tort claims could materially adversely affect AFG’s results of operations and financial condition.

AFG has current exposures and may in the future have additional exposures arising from its insurance operations and former railroad and manufacturing operations, including those relating to asbestos and environmental matters (“A&E”), as well as other potentially harmful products or substances, such as per- and polyfluoroalkyl substances (“PFAS”), talc and opioids, or cumulative trauma (e.g. concussion/abuse). Establishing A&E liabilities is subject to uncertainties that are significantly greater than those presented by other types of liabilities. Uncertainties include the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays, the risks inherent in complex litigation and difficulty in properly allocating liability for the asbestos or environmental damage. As a result, A&E liabilities are subject to revision as new information becomes available and as claims are made and develop. Claimants continue to assert new and novel theories of recovery and expand the right to sue, judicial interpretations continue to evolve, and from time to time, there is proposed state and federal legislation regarding mass tort claim liability, which would also affect AFG’s exposure. In addition, third party funding of litigation has continued to grow, which may increase the number of claims and result in higher jury awards. If AFG has not established adequate reserves to cover future claims, AFG’s results of operations and financial condition could be materially adversely affected.

RISKS RELATING TO ECONOMIC, POLITICAL AND GLOBAL MARKET CONDITIONS

AFG’s investment portfolio is subject to market risk, including changes in interest rates, which could have a material adverse effect on AFG’s results of operations and financial condition.

Investment returns are an important part of AFG’s profitability. AFG’s investments are subject to market-wide risks and fluctuations, including in the fixed maturity and equity securities markets, which could impair its profitability, financial condition and cash flows.

AFG’s investment portfolio is highly concentrated in fixed maturity investments that are sensitive to changes in interest rates. Changes in interest rates may materially adversely affect the performance of some of its investments, including by materially reducing the fair value of and net investment income from fixed maturities and increasing unrealized losses in AFG’s investment portfolio. AFG’s fixed maturity portfolio is also subject to credit risk as certain investments may default or become impaired due to deterioration in the financial condition of issuers of those investments. In addition to the risks applicable to the entire fixed maturity investment portfolio, changes in interest rates can expose AFG to prepayment risks on its mortgage-backed securities. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities are paid down more quickly, which may require AFG to reinvest the proceeds at lower interest rates.

General economic, financial market and political conditions and conditions in the markets in which AFG operates may materially adversely affect its investment portfolio, results of operations, financial condition and stock price.

General economic, financial market and political conditions and conditions in the markets in which AFG operates could have a material adverse effect on its results of operations and financial condition. Limited availability of credit, deteriorations of the domestic or global equity, debt, mortgage and real estate markets; declines in consumer confidence and consumer spending; increases in prices or in the rate of inflation; periods of high unemployment; persistently low or rapidly increasing interest rates; disruptive geopolitical events and other events outside of AFG’s control, such as a major epidemic or another pandemic (including a renewed surge of COVID-19 or any variants of the virus), could contribute to increased volatility and diminished expectations for the economy and the financial markets, including the value of AFG’s investment portfolio and the market for its stock.

AFG’s alternative investments may be illiquid and volatile in terms of value and returns, which could negatively affect AFG’s investment income and liquidity.

AFG has invested, and intends to continue to invest in, alternative investments, such as limited partnerships and subordinate tranches of collateralized loan obligations for which changes in value are reported in net earnings. These and other similar investments may have different, more significant risk characteristics than investments in fixed maturity securities, may be more volatile and may be illiquid due to restrictions on sales, transfers and redemption terms, all of which could negatively affect AFG’s investment income and overall portfolio liquidity.

AFG has also invested, and intends to continue to invest in, limited partnerships and other entities that AFG does not control. AFG does not have management or operational control over the investees which may limit AFG’s ability to take actions that could protect or increase the value of the investment. In addition, these investments may be illiquid due to contractual provisions, and AFG may be unable to obtain liquidity through distributions from these investments in a timely manner or on favorable terms.

Alternative or “other” investments may not meet regulatory admissibility requirements or may result in increased regulatory capital charges to the insurance subsidiaries that hold these investments, which could limit those subsidiaries’ ability to pay dividends and negatively impact AFG’s liquidity.

AFG’s access to capital may be limited or may not be available on favorable terms.

AFG’s future capital requirements depend on many factors, including rating agency and regulatory requirements, the performance of the investment portfolio, the ability to write new business successfully and the ability to establish premium rates and loss reserves at levels sufficient to cover losses. Financial markets in the U.S. and elsewhere can experience extreme volatility, which exerts downward pressure on stock prices and limits access to the equity and debt markets for certain issuers, including AFG. While AFG can borrow up to $450 million under its revolving credit facility (“2023 Credit Facility”), AFG’s access to funds through the 2023 Credit Facility is dependent on the ability of its banks to meet their funding commitments. There were no borrowings outstanding under the 2023 Credit Facility (or its prior bank credit line) or any other parent company short-term borrowing arrangements during 2023. If AFG cannot obtain adequate capital or sources of credit on favorable terms, or at all, its business, operating results and financial condition could be adversely affected.

RISKS RELATED TO TECHNOLOGY, DATA SECURITY AND PRIVACY

AFG may experience difficulties with technology or data security, which could have an adverse effect on its business or reputation.

AFG uses computer systems and services, which may include or utilize AI applications, to store, retrieve, evaluate and utilize company and customer data and information. Systems failures or outages could compromise AFG’s ability to perform business functions in a timely manner, which could harm its ability to conduct business and hurt its relationships with business partners and customers. In the event of a disaster such as a natural catastrophe, an industrial accident, a blackout, a malicious software attack, a terrorist attack or war, AFG’s systems may be inaccessible to employees, customers or business partners for an extended period of time. Even if AFG’s employees are able to report to work, they may be unable to perform their duties for an extended period of time if AFG’s data or systems are disabled or destroyed.

Businesses in the United States and in other countries have increasingly become the targets of “cyberattacks,” “ransomware,” “phishing,” “hacking” or similar illegal or unauthorized intrusions into computer systems and networks. Such events are often highly publicized, can result in significant disruptions to information technology systems and the theft of significant amounts of information as well as funds from online financial accounts, and can cause negative publicity and extensive damage to the reputation of the targeted business, in addition to leading to significant expenses associated with investigation, remediation and customer protection measures. Like others in the insurance industry, AFG experiences cyber-attacks and other attempts to gain unauthorized access to its systems on a regular basis and anticipates continuing to be subject to such attempts. AFG’s administrative and technical controls as well as other preventative actions used to reduce the risk of cyber incidents and protect AFG’s information may be insufficient to detect or prevent future unauthorized access, other physical and electronic break-ins, cyber-attacks or other security breaches to AFG’s computer systems or those of third parties with whom AFG does business.

AFG has outsourced certain technology and business process functions to third parties over which it has no control and may continue to do so in the future. Outsourcing of certain technology and business process functions to third parties may expose AFG to increased risk related to data security or service disruptions. If AFG does not effectively develop, implement and monitor these relationships, third-party providers do not perform as anticipated, technological or other problems are incurred with a transition, or outsourcing relationships relevant to AFG’s business process functions are terminated, AFG may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business.

The increased risks identified above could expose AFG to data loss, disruption of service, monetary and reputational damages, competitive disadvantage and significant increases in compliance costs and costs to improve the security and resiliency of AFG’s computer systems. The compromise of personal, confidential or proprietary information could also subject AFG to legal liability or regulatory action under evolving cyber-security, data protection and privacy laws and regulations enacted by the U.S. federal and state governments, Canada, the European Union (the “EU”) or other jurisdictions or by various regulatory organizations or exchanges. As a result, AFG’s ability to conduct business and its results of operations might be materially and adversely affected.

Any failure to appropriately collect, administer and protect consumer information could adversely affect AFG’s reputation, subject AFG to fines, claims and penalties, and have a material adverse effect on AFG’s business, financial condition and results of operations.

AFG and certain of its third-party vendors collect and store sensitive data in the ordinary course of AFG’s business, including personal identification information of its employees and that of its customers, vendors, investors and other third parties and may include health information. Laws and regulations in this area are evolving at an international, national and state level and are generally becoming more rigorous, including through the adoption of more stringent subject matter-specific laws, such as the California Consumer Privacy Act of 2018 (as amended by the California Privacy Rights Act of 2020), the New York Department of Financial Services’ Cybersecurity Regulation and Ohio’s insurance data security law, which regulate the collection and use of data and security and data breach obligations. The use of AI by AFG or its business partners may also result in potential breaches of existing or future laws or regulations related to privacy or data security. If any disruption or security breach results in a loss or damage to AFG’s data, or inappropriate disclosure of AFG’s confidential information or that of others, it could damage AFG’s reputation, affect its relationships with customers and clients, lead to claims against AFG, result in regulatory action and harm AFG’s business. In addition, AFG may be required to incur significant costs to mitigate the damage caused by any security breach or to protect against future damage.

RISKS RELATED TO FINANCIAL STRENGTH, CREDIT AND COUNTERPARTIES

A downgrade or potential downgrade in AFG’s financial strength and/or credit ratings by one or more rating agencies could adversely affect its business, financial condition, results of operations and/or cash flows.

Financial strength ratings are an important factor in establishing the competitive position of insurance companies and may have an effect on an insurance company’s sales. A downgrade out of the “A” category in AFG’s insurers’ claims-paying and financial strength ratings could significantly reduce AFG’s business volumes in certain lines of business, adversely impact AFG’s ability to access the capital markets and increase AFG’s borrowing costs.

In addition to the financial strength ratings of AFG’s principal insurance company subsidiaries, various rating agencies also publish credit ratings for AFG. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner, are part of AFG’s overall financial profile and affect AFG’s ability to access and the associated cost of certain types of capital. A downgrade in AFG’s credit ratings could have a material adverse effect on AFG’s financial condition and results of operations and cash flows in a number of ways, including adversely limiting access to capital markets, potentially increasing the cost of debt or increasing borrowing costs under AFG’s current revolving credit facility.

The inability to obtain reinsurance or to collect on ceded reinsurance could adversely affect AFG’s results of operations.

AFG purchases reinsurance to limit the amount of risk it retains. Market conditions determine the availability and cost of the reinsurance protection AFG purchases, which affects the level of AFG’s business and profitability, as well as the level and types of risk AFG retains. If AFG is unable to obtain sufficient reinsurance at a cost AFG deems acceptable, AFG may opt to reduce the volume of its underwriting. AFG is also subject to credit risk with respect to its reinsurers, as AFG will remain liable to its insureds regardless of whether a reinsurer is able to meet its obligations under agreements covering the reinsurance ceded. As of December 31, 2023, AFG has $4.48 billion of recoverables from reinsurers on its balance sheet. The collectability of recoverables from reinsurers is subject to uncertainty arising from a number of factors, including a reinsurers’ financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract and changes in market conditions.

REGULATORY AND LEGAL RISKS

AFG may suffer losses from litigation, including from effects of emerging claim and coverage issues which could materially and adversely affect AFG’s financial condition and business operations.

AFG is involved in routine legal proceedings incidental to its insurance operations and litigation related to asbestos and environmental claims from its historical operations. Litigation by nature is unpredictable, and the outcome of any case is uncertain and could result in liabilities that vary from the amounts AFG has currently recorded. Pervasive or significant changes in the judicial environment relating to matters such as trends in the size of jury awards, developments in the law relating to the liability of insurers or tort defendants, and rulings concerning the availability or amount of certain types of damages could cause AFG’s ultimate liabilities to change from current expectations. In addition, as industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect AFG’s business, including by extending coverage beyond underwriting intent or by increasing the number, size or types of claims as a result of, among other things, plaintiffs targeting property and casualty insurers in purported class action litigation relating to claims-handling and other practices; increased claims due to third party funding of litigation; and social inflation and legal system abuse influencing trends like more frequent claims, judgments that are unfavorable for insurers and an increase in “nuclear verdicts” leading to higher jury awards. Changes in federal or state tort litigation laws or other applicable law could have a similar effect. It is not possible to predict changes in the judicial and legislative environment, including in connection with asbestos and environmental claims. In addition, potential exposure to losses related to PFAS, whether through AFG’s insurance operations or its former railroad and manufacturing operations, are inherently difficult to forecast or estimate, as many factors could influence potential liability for any such losses. These factors may include developments in PFAS-related litigation, including the establishment or expansion of theories of causation and liability; new or enhanced rules, regulations and enforcement actions by the U.S. federal government and its agencies, including the Environmental Protection Agency, as well as state governments and agencies; and medical or research findings pertaining to actual or potential harm or illness to human health resulting from PFAS. AFG’s business, financial condition, results of operations and liquidity could also be adversely affected if judicial or legislative developments cause AFG’s ultimate liabilities to increase from current expectations.

AFG is subject to comprehensive regulation, and its ability to earn profits may be restricted by these regulations.

AFG is subject to comprehensive regulation by government agencies in the states and countries where its insurance company subsidiaries are domiciled and where these subsidiaries issue policies and handle claims. Most insurance regulations are designed to protect the interests of AFG’s policyholders and third-party claimants as opposed to its investors.

While the federal government’s role in regulating insurance companies is currently limited, the Dodd-Frank Act established a Federal Insurance Office (“FIO”) within the U.S. Department of Treasury to collect data on the insurance industry, recommend changes to the state system of insurance regulation and preempt certain state insurance laws. The potential impact on AFG remains unclear, but the implementation of any federal insurance regulations that constrain AFG’s business opportunities or reduce investment flexibility could change the competitive landscape of the financial services sector or the insurance industry, make it more expensive for AFG to conduct its business and otherwise have a material adverse effect on AFG’s financial condition and results of operations.

Environmental, Social, and Governance standards (“ESG”) and sustainability have become major topics that encompass a wide range of issues, including climate change and other environmental risks. For example, California recently adopted two new climate-related bills, which require companies doing business in California that meet certain revenue thresholds to publicly disclose certain greenhouse gas emissions data and climate-related financial risk reports, and compliance with such requirements will require significant effort and resources. AFG is subject to complex and changing laws, regulation and public policy debates relating to climate change which are difficult to predict and quantify and may have an adverse impact on its business. Changes in regulations relating to climate change may result in an increase in the cost of doing business or a decrease in premiums in certain lines of business.

As a participant in the federal crop insurance program, AFG could also be impacted by regulatory and legislative changes affecting that program. For example, the reinsurance levels that the federal government provides to authorized carriers could be reduced by future legislation. AFG will continue to monitor new and changing federal regulations and the potential impact, if any, on its insurance company subsidiaries.

Both state and federal regulators in the U.S., as well as regulators in foreign jurisdictions, including the EU (whether under its regulatory framework proposed in April 2021 or otherwise), continue to evaluate and assess potential laws and regulations to limit and restrict companies’ use of AI, and enact new and expanding bases of liability for businesses utilizing AI. Such laws and regulations may limit or prevent AFG’s development and use of AI applications, or may eliminate or restrict the confidentiality of our proprietary technology, which could adversely affect AFG’s business, operations and financial results, including by reducing the utility of AFG’s products, increasing AFG’s costs and exposing AFG to litigation or other liabilities.

Existing insurance-related laws and regulations may become more restrictive in the future or new restrictive laws may be enacted; it is not possible to predict the potential effects of these laws and regulations. The costs of compliance or the failure to comply with existing or future regulations could impose significant burdens on AFG.

As a holding company, AFG is dependent on the operations of its insurance company subsidiaries to meet its obligations and pay future dividends.

AFG is a holding company and a legal entity separate and distinct from its insurance company subsidiaries. As a holding company without significant operations of its own, AFG’s principal sources of funds are dividends and other distributions from its insurance company subsidiaries. State insurance laws differ from state to state but may, absent advance regulatory approval, restrict the maximum amount of dividends that may be paid by an insurer to its shareholders in any twelve-month period. AFG’s rights to participate in any distribution of assets of its insurance company subsidiaries are subject to prior claims of policyholders and creditors (except to the extent that its rights, if any, as a creditor are recognized). Consequently, AFG’s ability to pay its debts, expenses and dividends to its shareholders may be limited.

Statutory capital requirements set by the NAIC and the various state insurance regulatory bodies establish regulations that provide minimum capitalization requirements based on risk-based capital (“RBC”) ratios for insurance companies. Statutory surplus and RBC ratios may change in a given year based on a number of factors, including statutory earnings/losses, reserve changes, excess capital held to support growth, equity market and interest rate changes, the value of investment securities and changes to the RBC formulas. Increases in the amount of capital or reserves that AFG’s larger insurance subsidiaries are required to hold could reduce the amount of future dividends such subsidiaries are able to distribute to the holding company or require capital contributions. Any reduction in the RBC ratios of AFG’s insurance subsidiaries could also adversely affect their financial strength ratings as determined by rating agencies.

AFG could be adversely impacted by changes to the U.S. Federal income tax laws.

Changes in domestic or foreign tax laws or interpretations of such laws could increase AFG’s corporate taxes and reduce earnings. For example, on August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. These provisions became effective January 1, 2023. Any AMT incurred, under this provision, would be treated as a timing difference and generate a deferred tax asset that would be carried forward to offset regular tax liability in the future. Any excise tax incurred on corporate stock repurchases will generally be recognized as part of the cost basis of the stock acquired and not reported as part of income tax expense. As additional guidance is provided, AFG will continue to evaluate the impact that the new law will have on AFG’s financial results. Any changes in federal income tax laws, including changes to the IRA or the Tax Cuts and Jobs Act of 2017, could adversely affect the federal income taxation of AFG’s ongoing operations and have a material adverse impact on its financial condition and results of operations.

New accounting rules or changes to existing accounting standards could adversely impact AFG’s reported results of operations.

As a U.S.-based SEC registrant, AFG prepares its financial statements in accordance with GAAP, as promulgated by the Financial Accounting Standards Board, subject to the accounting-related rules and interpretations of the SEC. New accounting rules or changes in accounting standards, particularly those that specifically apply to insurance company operations, may impact AFG’s reported financial results and could cause increased volatility in reported earnings, resulting in other adverse impacts on AFG’s ratings and cost of capital, and decrease the understandability of AFG’s financial results as well as the comparability of AFG’s reported results with other insurers.

GENERAL RISK FACTORS

Certain shareholders exercise substantial control over AFG’s affairs, which may impede a change of control transaction.

Carl H. Lindner III and S. Craig Lindner are each Co-Chief Executive Officers and Directors of AFG. Together, Carl H. Lindner III and S. Craig Lindner beneficially own 11.9% of AFG’s outstanding Common Stock as of February 1, 2024. Other members of the Lindner family own, directly or through trusts, a significant number of additional shares of AFG Common Stock. As a result, the Lindner family has the ability to exercise significant influence over AFG’s management and over matters requiring shareholder approval. Such influence could prevent an acquisition of AFG at a price and upon terms that other shareholders may find attractive.

AFG’s business and operations may be negatively impacted by its and its business partners’ failure to recruit and retain key employees

The expertise and experience of AFG’s employees is a critical component of the company’s success. The continuation of such success depends, in large part, on AFG’s ability to attract and retain key individuals. There can be intense competition for qualified candidates in the activities that AFG conducts and in the markets that it serves, both within the insurance industry and from businesses outside the industry. This is particularly acute in certain specialized positions and areas of expertise, such as underwriting, data and analytics and AI-related and technology fields. Competition for employees may increase AFG’s expenses and may result in the company not being able to hire key employees or retain them. If AFG is unable to hire qualified candidates or retain its key personnel, AFG may be unable to execute its business strategies and may suffer material adverse consequences to its business, operations and financial condition.

The price of AFG Common Stock may fluctuate significantly, which may make it difficult for holders to resell common stock when they want or at a price they find attractive.

The price of AFG Common Stock, which is listed on the NYSE, constantly changes. AFG’s Common Stock price could materially fluctuate or decrease in response to a number of events or factors discussed in this section in addition to other events or factors including: quarterly variations in AFG’s operating results; operating and stock price performance of comparable companies; and negative publicity relating to AFG or its competitors. In addition, broad market and industry fluctuations may materially and adversely affect the trading price or volume of AFG Common Stock, regardless of AFG’s actual operating performance.

Risk Management and Strategy

AFG recognizes the importance of assessing, identifying and managing material risks associated with cybersecurity threats as defined by the Securities and Exchange Commission. Like all businesses, AFG is a target for “cyberattacks,” “ransomware,” “phishing,” “hacking” and similar illegal or unauthorized intrusions into computer systems and networks. Such events can result in significant disruptions to information technology systems, the theft of information and financial assets and reputational harm. AFG could also incur significant expenses associated with investigating and remediating any such event.

As discussed below, AFG’s enterprise risk management (“ERM”) process considers cybersecurity threat risks alongside other company risks as part of the overall risk assessment process.

AFG has adopted the National Institute of Standards and Technology (“NIST”) framework which provides a comprehensive method for developing a flexible, repeatable, performance-based and cost-effective approach to identifying and managing cybersecurity risks. The Company uses the framework to assess and improve its security posture.

AFG utilizes a variety of techniques to provide for the availability of critical data and systems, maintain regulatory compliance, manage its material risks from cybersecurity threats and to protect against, detect, and respond to cybersecurity incidents including, but not limited to, the following:

• Conducts regular phishing testing of all employees and all members of the Board of Directors;
• Utilizes full-desk encryption on all Company laptops and desktops;
• Maintains a defense in depth security control strategy that is tested against high risk threats such as ransomware and other trending attack vectors;
• Performs annual security awareness training and other routinely scheduled educational programming for employees;
• Validates compliance with internal data security controls through the use of security monitoring utilities and internal and external audits;
• Performs self-assessments measured against industry-leading cybersecurity frameworks for standards, guidelines and best practices, including the NIST cybersecurity framework;
• Regularly scans external websites and internal applications;
• Engages an external third-party to conduct an annual penetration test consisting of advanced adversarial attacks against company systems and from which findings are investigated, ranked by risk level and tracked through appropriate mediation levels;
• Utilizes user protections including stringent password requirements, two-factor authentication, and timed logoffs;
• Conducts regular network and endpoint monitoring;
• Performs regular tabletop exercises, utilizing a third-party data security firm as a facilitator, to simulate a response to a cybersecurity incident where the Company uses the findings to improve its processes and technologies; and
• Purchases information security risk insurance from a third-party insurer that provides protection against the potential losses arising from a cybersecurity incident.

AFG continues to integrate assessing cybersecurity threat risks associated with its use of third-party service providers, generally at the initial engagement or renewal of the relationship. When conducting these assessments, AFG’s Enterprise Information Security Group (“EISG”) considers the risk profile of the vendor or supplier assesses security controls with the third parties and engages in contractual review to ensure appropriate security controls are in place.

AFG describes whether and how risks from identified cybersecurity threats are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition in its risk factor disclosures at Item 1A of this Annual Report on Form 10-K, which disclosures are incorporated by reference in this Item 1C.

Like others in the insurance industry, AFG experiences cyber-attacks and other attempts to gain unauthorized access to its systems on a regular basis and anticipates continuing to be subject to such attempts. Over the last three years, AFG has not experienced any material adverse events and has not paid any penalties or settlements related to an information security breach.

Governance

AFG’s Audit Committee is responsible for the oversight of risks from cybersecurity threats. At least annually, the full Board of Directors receives and at least quarterly, the Audit Committee receives an overview from the Chief Information Security Officer (“CISO”) or another senior member of the EISG of the Company’s cybersecurity threat risk management and strategy processes covering topics such as data security posture, results from third-party assessments, progress towards predetermined risk-mitigation-related goals, incident response planning and material cybersecurity threat risks or incidents and developments, as well as the steps management has taken to respond to such risks. In such sessions, materials including a cybersecurity scorecard and other information indicating current and emerging material cybersecurity threat risks and describing the Company’s ability to mitigate those risks are provided. Members of the Board also regularly receive educational materials and engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to AFG’s cybersecurity risk management and strategy programs.

AFG has designed its ERM program to reinforce the way the Company operates its business and reflects its culture, organizational structure and risks. The AFG Enterprise Risk Committee (“ERC”), consisting of AFG’s Chief Administrative Officer and Chief Human Resources Officer, AFG’s Chief Financial Officer, AFG’s General Counsel and Great American Insurance Company’s President, oversees the ERM process including risk identification, risk impact and mitigation strategies. Each member of the ERC directly reports to AFG’s Co-CEOs. On a day-to-day basis, the Company’s ERM process is overseen by an AFG Enterprise Risk Officer, who regularly meets with senior leaders, including the CISO, representing key areas throughout the organization. Cybersecurity risk has been identified as a significant risk monitored under the ERM program. In addition, Ms. Murray, one of AFG’s independent Directors, completed the National Association of Corporate Directors’ Cyber-Risk Oversight Program and received the CERT Certificate in Cybersecurity Oversight issued by the Software Engineering Institute at Carnegie Mellon University.

AFG has also adopted a Security Incident Response Plan (“SIRP”) that is designed to provide a management framework across Company functions for a coordinated assessment and response to potential security incidents. The AFG CISO leads and facilitates the SIRP team, which also includes AFG’s Chief Administrative Officer and Chief Human Resources Officer, AFG’s Chief Financial Officer, AFG’s Chief Information Officer, AFG’s General Counsel and Great American Insurance Group’s President and its General Counsel.

The SIRP provides for the interaction and coordination of executive, strategic and tactical teams, depending on the severity level of the incident, aimed at facilitating coordination across multiple units and departments of the Company. The incident response plan is reviewed, updated and tested at least annually. The SIRP covers the major phases of incident response process, including preparation; detection and analysis; containment and investigation; where required, notification to federal or state regulators; eradication and recovery; and incident closure and post-incident analysis.

AFG’s cybersecurity program is directed by its EISG leadership team that is headed by the AFG CISO and three divisional vice presidents that report to the CISO. This leadership group has collectively over 70 years of cybersecurity work experience, over 90 years of Information Technology (“IT”) experience and over 20 years of IT audit experience. This experience involved various roles related to managing information security; developing cybersecurity strategy; implementing and monitoring effective cybersecurity controls and penetration testing. These individuals hold many industry-standard certifications including but not limited to Certified Information Systems Security Professional, Information Systems Security Management Professional, G2700 certification, GIAC Security Leadership Certification, Certified in Risk and Information Systems Control®, Certified Information Security Manager, ITL certification and others. The CISO also holds a master’s degree in information security. All members of this leadership team are active in their local cybersecurity communities and national conferences. They speak at local universities, local conferences, national conferences, and have conducted training sessions at international conferences like Black Hat, an internationally recognized cybersecurity event series providing the most technical and relevant information security research. Their work has also been used in various best practice case studies by industry leading consulting and research firms.

AFG and its insurance subsidiaries lease the majority of their office and storage facilities in numerous cities throughout the United States and internationally, including the Company’s headquarters in Cincinnati, Ohio. Subsidiaries of AFG own several other buildings in downtown Cincinnati. AFG and its affiliates occupy approximately half of the aggregate 640,000 square feet of commercial and office space in these buildings.

Property and casualty subsidiaries own and occupy approximately 90% of the 281,000 square feet of rentable office space on 17.5 acres of land in Richfield, Ohio and 100% of the 135,000 square feet of rentable office space on 1.3 acres of land in Lakeland, Florida.

AFG and its subsidiaries are involved in litigation from time to time, generally arising in the ordinary course of business. This litigation may include, but is not limited to, general commercial disputes, lawsuits brought by policyholders, employment matters, reinsurance collection matters and actions challenging certain business practices of insurance subsidiaries. Except for the following, management believes that none of the litigation meets the threshold for disclosure under this Item.

AFG’s insurance company subsidiaries and its 100%-owned subsidiary, American Premier Underwriters, Inc. (including its subsidiaries, “American Premier”), are parties to litigation and receive claims alleging injuries and damages from asbestos, environmental and other substances and workplace hazards and have established loss accruals for such potential liabilities. None of such litigation or claims is individually material to AFG; however, the ultimate loss for these claims may vary materially from amounts currently recorded as the conditions surrounding resolution of these claims continue to change.

American Premier is a party or named as a potentially responsible party in a number of proceedings and claims by regulatory agencies and private parties under various environmental protection laws, including the Comprehensive Environmental Response, Compensation and Liability Act, seeking to impose responsibility on American Premier for hazardous waste or discharge remediation costs at certain railroad sites formerly owned by its predecessor, Penn Central Transportation Company (“PCTC”), and at certain other sites where hazardous waste or discharge allegedly generated by PCTC’s railroad operations and American Premier’s former manufacturing operations is present. It is difficult to estimate American Premier’s liability for remediation costs at these sites for a number of reasons, including the number and financial resources of other potentially responsible parties involved at a given site, the varying availability of evidence by which to allocate responsibility among such parties, the wide range of costs for possible remediation alternatives, changing technology and the period of time over which these matters develop. Nevertheless, American Premier believes that its accruals for potential environmental liabilities are adequate to cover the probable amount of such liabilities, based on American Premier’s estimates of remediation costs and related expenses and its estimates of the portions of such costs that will be borne by other parties. Such estimates are based on information currently available to American Premier and are subject to future change as additional information becomes available.

INDEX TO MD&A

OBJECTIVE

The objective of Management’s Discussion and Analysis is to provide a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of AFG’s financial condition, changes in financial condition and results of operations. The tables and narrative that follow are presented in a manner that is consistent with the information that AFG’s management uses to make operational decisions and allocate capital resources. They are provided to demonstrate the nature of the transactions and events that could impact AFG’s financial results. This discussion should be read in conjunction with the financial statements beginning on page F-1.

OVERVIEW

Financial Condition

AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Therefore, certain analyses are most meaningfully presented on a parent only basis while others are best done on a total enterprise basis. In addition, because its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.

Results of Operations

Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses. AFG’s former annuity operations are reported as discontinued operations.

AFG reported net earnings of $263 million ($3.13 per share, diluted) for the fourth quarter of 2023 compared to $276 million ($3.24 per share, diluted) in the fourth quarter of 2022. The year-over-year decrease was due primarily to lower returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs).

Full year 2023 net earnings were $852 million ($10.05 per share, diluted) compared to $898 million ($10.53 per share, diluted) in 2022. The year-over-year decrease was due primarily to lower returns on AFG’s alternative investment portfolio when compared to the strong performance of this portfolio in the prior year period and lower property and casualty underwriting profit. These items were partially offset by the impact of higher yields on fixed maturity investments, higher balances of invested assets and lower net realized losses on securities.

Sale of the Annuity Business

In May 2021, AFG sold its annuity business, including Great American Life Insurance Company and its two insurance subsidiaries, Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company to Massachusetts Mutual Life Insurance Company (“MassMutual”). Total proceeds from the sale were $3.57 billion and AFG realized an after-tax gain on the sale of $656 million.

Outlook

AFG’s financial condition, results of operations and cash flows are impacted by the economic, legal and regulatory environment. Economic inflation, social inflation, supply chain disruption, labor shortages, banking system instability and other economic conditions may impact premium levels, loss cost trends and investment returns. Management believes that AFG’s strong financial position and current liquidity and capital at its subsidiaries will give AFG the flexibility to continue to effectively address and respond to the ongoing uncertainties presented by the macro-economic environment and the conflicts in Ukraine and Israel. AFG’s insurance subsidiaries continue to have capital at or in excess of the levels required by ratings agencies in order to maintain their current ratings, and the parent company does not have any near-term debt maturities.

Management expects continued premium growth and strong underwriting results in the ongoing favorable property and casualty insurance market. In addition, the deployment of cash during the elevated interest rate environment (since early 2022) will continue to have a positive impact on investment income on fixed maturity investments in 2024.

CRITICAL ACCOUNTING POLICIES

Significant accounting policies are summarized in Note A — “Accounting Policies” to the financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions change and, thus, impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements is most significant are as follows:

• the valuation of investments, including the determination of impairment allowances,
• the establishment of insurance reserves, especially asbestos and environmental-related reserves,
• the recoverability of reinsurance, and
• the establishment of asbestos and environmental liabilities of former railroad and manufacturing operations.

See “Liquidity and Capital Resources — Uncertainties” for a discussion of insurance reserves, recoverables from reinsurers and contingencies related to American Premier’s former operations and “Liquidity and Capital Resources — Investments” for a discussion of the allowance for credit losses (impairments) on investments.

LIQUIDITY AND CAPITAL RESOURCES

Ratios

AFG’s debt to total capital ratio on a consolidated basis is shown below (dollars in millions). Management intends to maintain the ratio of debt to capital at or below 30% and intends to maintain the capital of its significant insurance subsidiaries at or above levels currently indicated by rating agencies as appropriate for the current ratings.

The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and ratings agencies to evaluate AFG’s financial strength and liquidity and to provide insight into how AFG finances its operations. In addition, maintaining a ratio of debt, excluding subordinated debt and debt secured by real estate (if any), to total capital of 35% or lower is a financial covenant in AFG’s bank credit facility. The ratio is calculated by dividing the principal amount of AFG’s long-term debt by its total capital, which includes long-term debt and shareholders’ equity (excluding unrealized gains (losses) related to fixed maturity investments).

The NAIC’s model law for risk-based capital (“RBC”) applies to property and casualty companies. RBC formulas determine the amount of capital that an insurance company needs so that it has an acceptable expectation of not becoming financially impaired. At December 31, 2023, the capital ratios of all AFG insurance companies exceeded the RBC requirements.

Condensed Consolidated Cash Flows

AFG’s principal sources of cash include insurance premiums, income from its investment portfolio and proceeds from the maturities, redemptions and sales of investments. Insurance premiums in excess of acquisition expenses and operating costs are invested until they are needed to meet policyholder obligations or made available to the parent company through dividends to cover debt obligations and corporate expenses, and to provide returns to shareholders through share repurchases and dividends. Cash flows from operating, investing and financing activities as detailed in AFG’s Consolidated Statement of Cash Flows are shown below (in millions):

Net Cash Provided by Operating Activities AFG’s property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses. AFG’s net cash provided by operating activities is impacted by the level and timing of property and casualty premiums, claim and expense payments and recoveries from reinsurers. AFG’s discontinued annuity operations, which were sold in May 2021, typically produced positive net operating cash flows as investment income exceeded acquisition costs and operating expenses. Interest credited on annuity policyholder funds is a non-cash increase in AFG’s annuity benefits accumulated liability and annuity premiums, benefits and withdrawals are considered financing activities due to the deposit-type nature of annuities. Cash flows provided by operating activities also include the activity of AFG’s managed investment entities (collateralized loan obligations (“CLO”)) other than those activities included in investing or financing activities. The changes in the assets and liabilities of the managed investment entities included in operating activities increased cash flows from operating activities by $305 million in 2023 and reduced cash flows from operating activities by $183 million in 2022 and $144 million in 2021, resulting in a $488 million increase in cash flows from operating activities in 2023 compared to 2022 and a $39 million decrease in cash flows from operating activities in 2022 compared to 2021. As discussed in Note A — “Accounting Policies — Managed Investment Entities” to the financial statements, AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities and such assets and liabilities are shown separately in AFG’s Balance Sheet. Excluding the impact of the managed investment entities, net cash provided by operating activities was $1.67 billion, $1.34 billion and $1.86 billion in 2023, 2022 and 2021, respectively.

Net Cash Provided by (Used in) Investing Activities AFG’s investing activities consist primarily of the investment of funds provided by its property and casualty businesses and, prior to the May 2021 sale, its discontinued annuity operations. Investing activities also include the purchase and disposal of managed investment entity investments, which are presented separately in AFG’s Balance Sheet. Net investment activity in the managed investment entities was a $762 million source of cash in 2023 compared to a $180 million use of cash in 2022, resulting in a $942 million increase in net cash provided by investing activities in 2023 compared to 2022. See Note A — “Accounting Policies — Managed Investment Entities” and Note H — “Managed Investment Entities” to the financial statements. Investing activities for 2023 include the July 2023 acquisition of Crop Risk Services (“CRS”) for $234 million in cash. Excluding the acquisition of CRS and the activity of the managed investment entities, investing activities were a $114 million use of cash in 2023 compared to $871 million in 2022, reflecting the opportunistic investment of cash on hand in the property and casualty operations during the rising interest rate environment in 2022.

Net cash used in investing activities was $1.05 billion in 2022 compared to $436 million in 2021, an increase of $615 million. Cash proceeds from the sale of the annuity operations in excess of cash and cash equivalents held in the annuity subsidiaries that were sold was a $1.51 billion source of cash provided by investing activities in 2021. Investing activities for 2021 also include the December 2021 acquisition of Verikai for $120 million in cash. Net investment activity in the managed investment entities was a $180 million use of cash in 2022 compared to $43 million in 2021, resulting in a $137 million increase in net cash used in investing activities in 2022 compared to 2021. Excluding the impact of the May 2021 sale of the annuity business ($1.51 billion source of cash), the acquisition of Verikai and the activity of the managed investment entities, net cash used in investing activities was $871 million in 2022 compared to $1.78 billion in 2021, a decrease of $912 million as the opportunistic investment of cash on hand in the property and casualty operations during the rising interest rate environment in 2022 was more than offset by the absence of investing activities from the disposed annuity operations.

Net Cash Used In Financing Activities AFG’s financing activities consist primarily of issuances and retirements of long-term debt, issuances and repurchases of common stock, dividend payments and, prior to the sale of the annuity business, transactions with annuity policyholders. Net cash used in financing activities was $2.03 billion in 2023 compared to $1.36 billion in 2022, an increase of $670 million. AFG paid cash dividends totaling $684 million in 2023 compared to $1.21 billion in 2022, resulting in a $529 million decrease in net cash used in financing activities in 2023 compared to 2022. Debt retirements were a $21 million use of cash in 2023 compared to $477 million in 2022, a decrease of $456 million. In 2023, AFG repurchased $213 million of its Common Stock compared to $11 million in 2022, resulting in a $202 million increase in net cash used in financing activities in 2023 compared to 2022. Financing activities also include issuances and retirements of managed investment entity liabilities, which are nonrecourse to AFG and presented separately in AFG’s Balance Sheet. Retirements of managed investment entity liabilities exceeded issuances by $1.13 billion in 2023 compared to issuances exceeding retirements by $324 million in 2022, resulting in a $1.45 billion increase in net cash used in financing activities in 2023 compared to 2022. See Note A — “Accounting Policies — Managed Investment Entities” and Note H — “Managed Investment Entities” to the financial statements.

Net cash used in financing activities was $1.36 billion in 2022 compared to $1.96 billion in 2021, a decrease in net cash used in financing activities of $596 million. Debt retirements were a $477 million use of cash in 2022 compared to no debt retirements in 2021. In 2022, AFG repurchased $11 million of its Common Stock compared to $319 million in 2021, resulting in a $308 million decrease in net cash used in financing activities in 2022 compared to 2021. AFG paid cash dividends totaling $1.21 billion in 2022 compared to $2.37 billion in 2021, resulting in a net $1.16 billion decrease in net cash used in financing activities in 2022 compared to 2021. Net annuity receipts exceeded annuity surrenders, benefits, withdrawals and transfers by $477 million in 2021 through the May 31, 2021 effective date of the sale, resulting in a $477 million decrease in net cash used in financing activities in 2022 compared to 2021. Issuances of managed investment entity liabilities exceeded retirements by $324 million in 2022 compared to $193 million in 2021, resulting in a $131 million increase in net cash provided by financing activities in 2022 compared to 2021.

Parent and Subsidiary Liquidity

Parent Holding Company Liquidity Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and investments or to generate cash through borrowings, sales of other assets, or similar transactions.

AFG’s capital and liquidity was significantly enhanced as a result of the 2021 sale of its annuity business to MassMutual for proceeds of $3.57 billion. By the end of the second quarter of 2022, AFG had deployed the proceeds from this sale primarily through special cash dividends, share repurchases, debt retirements and the purchase of Verikai. AFG’s ongoing operations continue to generate significant excess capital for future returns of capital to shareholders in the form of regular and special cash dividends and through opportunistic share repurchases or to be deployed into its property and casualty businesses as management identifies the potential for profitable organic growth, and opportunities to expand through acquisitions of established businesses or start-ups that meet target return thresholds.

During 2023, AFG repurchased 1,872,544 shares of its Common Stock for $213 million and paid special cash dividends totaling $466 million ($4.00 per share in February and $1.50 per share in November). In addition, on February 6, 2024, AFG declared a special cash dividend of $2.50 per share (aggregate of approximately $210 million) payable on February 28, 2024.

AFG may, at any time and from time to time, seek to retire or purchase its outstanding debt through cash purchases or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, AFG’s liquidity requirements, contractual restrictions and other factors. During 2023, AFG repurchased $23 million principal amount of its senior notes for $21 million cash.

During 2022, AFG repurchased 89,368 shares of its Common Stock for $11 million and paid special cash dividends totaling $1.02 billion ($2.00 per share in March, $8.00 per share in May and $2.00 per share in November). In 2022, AFG repurchased $472 million principal amount of its senior notes for $477 million cash.

During 2021, AFG repurchased 2,777,684 shares of its Common Stock for $319 million and paid special cash dividends totaling $2.21 billion ($14.00 per share in June, $2.00 per share in August, $4.00 per share in October, $4.00 per share in November and $2.00 per share in December).

In December 2021, AFG acquired Verikai, Inc., a machine learning and artificial intelligence company that utilizes a predictive risk tool to assess insurance risk, for $120 million using cash on hand at the parent.

All debentures and notes issued by AFG are rated investment grade by two nationally recognized rating agencies. AFG maintains a shelf registration statement under which it can offer additional equity or debt securities. The shelf registration provides AFG with flexibility to access the capital markets from time to time as market and other conditions permit.

At December 31, 2023, AFG (parent) held approximately $485 million in cash and investments. Management believes that AFG’s cash balances are held at stable banking institutions, although the amounts of many of these deposits are in excess of federally insured balances. In June 2023, AFG replaced its existing credit facility with a new five-year, $450 million revolving credit facility, which expires in June 2028. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.75% (based on AFG’s credit rating, currently 1.25%) over a SOFR-based floating rate. There were no borrowings under AFG’s credit facilities, or under any other parent company short-term borrowing arrangements, during 2023 or 2022.

Under a tax allocation agreement with AFG, all 80% (or more) owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary’s contribution to amounts due under AFG’s consolidated tax return.

Subsidiary Liquidity The liquidity requirements of AFG’s insurance subsidiaries relate primarily to the policyholder claims and underwriting expenses and payments of dividends and taxes to AFG. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements. Funds received in excess of cash requirements are generally invested in marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short duration investments.

For statutory accounting purposes, equity securities of non-affiliates are generally carried at fair value. At December 31, 2023, AFG’s insurance companies owned publicly traded equity securities with a fair value of $1.02 billion. Decreases in market prices could adversely affect the insurance group’s capital, potentially impacting the amount of dividends available or necessitating a capital contribution. Conversely, increases in market prices could have a favorable impact on the group’s dividend-paying capability.

Property and casualty reserves for unpaid losses and loss adjustment expenses were $13.09 billion at December 31, 2023 and include case reserves and claims incurred but not reported (“IBNR”). The ultimate amount to be paid to settle reserves is an estimate, subject to significant uncertainty. Actual payments to settle claims cannot be determined until a settlement is reached with the claimant. Final claim settlements may vary significantly from estimated amounts. See “Uncertainties — Property and Casualty Insurance Reserves” below. The timing of future payments for the next twelve months and beyond could vary materially from historical payment patterns due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements.

AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and underwriting expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Even in the current uncertain economic environment, management believes that the capital levels in AFG’s insurance subsidiaries are adequate to maintain its business and rating agency ratings. Nonetheless, changes in statutory accounting rules, significant declines in the fair value of the insurance subsidiaries’ investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital.

Condensed Parent Only Cash Flows

AFG’s parent holding company only condensed cash flows from operating, investing and financing activities are shown below (in millions):

35

Parent Net Cash Provided by Operating Activities Parent holding company cash flows from operating activities consist primarily of dividends and tax payments received from AFG’s insurance subsidiaries, reduced by tax payments to the IRS and holding company interest and other expenses. Parent holding company net cash provided by operating activities was $719 million in 2023 compared to $327 million in 2022 and $833 million in 2021. The $392 million increase in net cash provided by operating activities in 2023 as compared to 2022 and the $506 million decrease in net cash provided by operating activities in 2022 as compared to 2021 were due primarily to higher cash dividends received from subsidiaries in 2023 and 2021.

Parent Net Cash Provided by Investing Activities Parent holding company investing activities consist of capital contributions to and returns of capital from subsidiaries and parent company investment activity. Parent holding company net cash provided by investing activities was $225 million in 2023, $992 million in 2022 and $2.17 billion in 2021. The $225 million in net cash provided by investing activities in 2023 is lower than the $992 million in net cash provided by investing activities in 2022 due to the increase in capital contributions to subsidiaries to fund the purchase of CRS in July 2023 and lower balances of invested assets. The $992 million in net cash provided by investing activities in 2022 is substantially lower than the $2.17 billion in net cash provided by investing activities in 2021 due to proceeds of $3.57 billion related to the May 2021 sale of the annuity business partially offset by net purchases of fixed maturity investments of $1.19 billion in 2021 and the $120 million purchase of Verikai in December 2021.

Parent Net Cash Used in Financing Activities Parent company financing activities consist primarily of the issuance and retirement of long-term debt, repurchases of AFG Common Stock, dividends to shareholders, and, to a lesser extent, proceeds from employee stock option exercises. Significant long-term debt and common stock transactions are discussed above under “Parent Holding Company Liquidity.” Parent holding company net cash used in financing activities was $901 million in 2023 compared to $1.68 billion in 2022 and $2.63 billion in 2021. The $782 million decrease in net cash used in financing activities in 2023 as compared to 2022 reflects lower dividends paid to shareholders (due primarily to special dividends of $5.50 per share in 2023 compared to special dividends of $12.00 per share in 2022) and lower net retirements of long-term debt in 2023 compared to 2022. The $943 million decrease in net cash used in financing activities in 2022 as compared to 2021 reflects lower dividends paid to shareholders (due primarily to special dividends of $12.00 per share in 2022 compared to special dividends of $26.00 per share in 2021), partially offset by the impact of net retirements of long-term debt in 2022.

Off-Balance Sheet Arrangements

See Note P — “Additional Information — Financial Instruments — Unfunded Commitments” to the financial statements.

Investments

AFG attempts to optimize investment income while building the value of its portfolio, placing emphasis upon total long-term performance.

AFG’s investment portfolio at December 31, 2023, contained $10.38 billion in fixed maturity securities classified as available for sale and carried at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) and $57 million in fixed maturities classified as trading with holding gains and losses included in net investment income. In addition, AFG’s investment portfolio includes $571 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $447 million in equity securities carried at fair value with holding gains and losses included in net investment income.

Unrealized gains and losses on AFG’s fixed maturity securities are included in shareholders’ equity after adjustments for deferred income taxes.

Fixed income investment funds are generally invested in securities with intermediate-term maturities with an objective of optimizing total return while allowing flexibility to react to changes in market conditions. At December 31, 2023, the average life of AFG’s fixed maturities was about 4.3 years.

Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services, non-binding broker quotes and other market information. Fair values of equity securities are generally based on published closing prices. For AFG’s fixed maturity portfolio, approximately 89% was priced using pricing services at December 31, 2023 and 5% was priced using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.

The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers’ prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs.

Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the services to value specific securities.

In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have had at December 31, 2023 (dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.

Approximately 94% of the fixed maturities held by AFG at December 31, 2023, were rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies, 3% were rated “non-investment grade” and 3% were not rated. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high-quality investment portfolio should generate a stable and predictable investment return.

Municipal bonds represented approximately 9% of AFG’s fixed maturity portfolio at December 31, 2023. AFG’s municipal bond portfolio is high quality, with over 99% of the securities rated investment grade at that date. The portfolio is well diversified across the states of issuance and individual issuers. At December 31, 2023, approximately 94% of the municipal bond portfolio was held in revenue bonds, with the remaining 6% held in general obligation bonds.

AFG has less than $100 million of direct exposure to office commercial real estate through property ownership, mortgages or equity method investments. AFG’s fixed maturity portfolio includes securities (the majority of which are AAA-rated) with a carrying value of approximately $600 million that have minimal exposure to office commercial real estate.

Summarized information for the unrealized gains and losses recorded in AFG’s Balance Sheet at December 31, 2023, is shown in the following table (dollars in millions). Approximately $252 million of available for sale fixed maturity securities had no unrealized gains or losses at December 31, 2023.

The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at December 31, 2023, based on their fair values. Securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount:

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The following table (dollars in millions) summarizes the unrealized losses for all securities with unrealized losses by issuer quality and the length of time those securities have been in an unrealized loss position:

To evaluate fixed maturities for expected credit losses (impairment), management considers the following:

a) whether the unrealized loss is credit-driven or a result of changes in market interest rates,

b) the extent to which fair value is less than cost basis,

c) cash flow projections received from independent sources,

d) historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases,

e) near-term prospects for improvement in the issuer and/or its industry,

f) third-party research and communications with industry specialists,

g) financial models and forecasts,

h) the continuity of interest payments, maintenance of investment grade ratings and hybrid nature of certain investments,

i) discussions with issuer management, and

j) ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value.

Based on its analysis of the factors listed above, management believes AFG will recover its cost basis (net of any allowance) in the fixed maturity securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at December 31, 2023. Although AFG has the ability to continue holding its fixed maturity investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers’ creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG’s ability or intent change regarding a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, increases in the allowance for credit losses could be material to results of operations in future periods. Significant declines in the fair value of AFG’s investment portfolio could have a significant adverse effect on AFG’s liquidity. For information on AFG’s realized gains (losses) on securities, see “Results of Operations — Realized Gains (Losses) on Securities.”

Uncertainties

As more fully explained in the following paragraphs, management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations.

Property and Casualty Insurance Reserves Estimating the liability for unpaid losses and loss adjustment expenses (“LAE”) is inherently judgmental and is influenced by factors that are subject to significant variation. Determining the liability is a complex process incorporating input from many areas of the Company including actuarial, underwriting, pricing, claims and operations management.

The estimates of liabilities for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon: (i) the accumulation of case estimates for losses reported prior to the close of the accounting periods on direct business written (“case reserves”); (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of claims incurred but not reported (including possible development on known claims); (iv) estimates (based on experience) of expense for investigating and adjusting claims; and (v) the current state of law and coverage litigation.

The process used to determine the total reserve for liabilities involves estimating the ultimate incurred losses and LAE, adjusted for amounts already paid on the claims. The IBNR reserve is derived by estimating the ultimate unpaid reserve liability and subtracting case reserves for loss and LAE. See Note O — “Insurance — Property and Casualty Insurance Reserves” to the financial statements for a discussion of the factors considered and actuarial methods used in determining management’s best estimate of the ultimate liability for unpaid losses and LAE.

The following table shows (in millions) the breakdown of AFG’s property and casualty insurance reserves between case reserves, IBNR reserves and LAE reserves (estimated amounts required to adjust, record and settle claims, other than the claim payments themselves) at December 31, 2023 and gross written premiums for the year ended December 31, 2023.

While current factors and reasonably likely changes in variable factors are considered in estimating the liability for unpaid losses and LAE, there is no method or system that can eliminate the risk of actual ultimate results differing from such estimates.

Following is a discussion of certain critical variables affecting the estimation of loss reserves of the more significant long-tail lines of business (asbestos and environmental liabilities are separately discussed below). Many other variables may also impact ultimate claim costs.

An important assumption underlying reserve estimates is that the cost trends implicitly built into development patterns will continue into the future. However, future results could vary due to an unexpected change in the underlying cost trends. This unexpected change could arise from a variety of sources including a general increase in economic inflation, social inflation, new medical technologies, or other factors such as those listed below in connection with AFG’s largest lines of business. It is not possible to isolate and measure the potential impact of just one of these variables, and future cost trends could be partially impacted by several such variables. However, it is reasonable to address the sensitivity of the reserves to potential impact from changes in these variables by measuring the effect of a possible overall 1% change in future cost trends that may be caused by one or more variables. Utilizing the effect of a 1% change in overall cost trends enables changes greater than 1% to be estimated by extrapolation. Each additional 1% change in the cost trend would increase the effect on net earnings by an amount slightly (about 5%) greater than the effect of the previous 1%. For example, if a 1% change in cost trends in a line of business would change net earnings by $20 million, a 2% change would change net earnings by approximately $41 million.

The estimated cumulative adverse impact that a 1% change in cost trends in AFG’s more significant long-tail lines of property and casualty business (exceeding 5% of total reserves) would have on net earnings is shown below (in millions).

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The judgments and uncertainties surrounding management’s reserve estimation process and the potential for reasonably possible variability in management’s most recent reserve estimates may also be viewed by looking at how recent historical estimates of reserves have developed. The following table shows (dollars in millions) what the impact on AFG’s net earnings would be on the more significant lines of business if the December 31, 2023, reserves (net of reinsurance) were to develop at the same rate as the average development of the most recent five years.

(a) Adverse (favorable), net of tax effect.

(b) Excludes asbestos and environmental liabilities.

The following discussion describes key assumptions and important variables that affect the estimate of the reserve for loss and LAE of the more significant lines of business and explains what caused them to change from assumptions used in the preceding period.

Other Liability — Occurrence

This long-tail line of business consists of coverages protecting the insured against legal liability resulting from negligence, carelessness, or a failure to act causing property damage or personal injury to others. Some of the important variables affecting estimation of loss reserves for other liability — occurrence include:

• Litigious climate
• Unpredictability of judicial decisions regarding coverage issues
• Magnitude of jury awards
• Outside counsel costs
• Timing of claims reporting

AFG recorded adverse prior year reserve development of $96 million in 2023, $109 million in 2022 and $39 million in 2021 related to its other liability — occurrence coverage due primarily to continued claim severity increases in excess and umbrella liability coverages.

While management applies the actuarial methods discussed in Note O — “Insurance — Property and Casualty Insurance Reserves” to the financial statements, more judgment is involved in arriving at the final reserve to be held. For recent accident years, more weight is given to the Bornhuetter-Ferguson method.

Workers’ Compensation

This long-tail line of business provides coverage to employees who may be injured in the course of employment. Some of the important variables affecting estimation of loss reserves for workers’ compensation include:

• Legislative actions and regulatory and legal interpretations
• Future medical cost inflation
• Economic conditions
• Frequency of reopening claims previously closed
• Advances in medical equipment and processes
• Pace and intensity of employee rehabilitation
• Changes in the use of pharmaceutical drugs
• Changes in mortality trends for permanently injured workers

Approximately 26% and 25% of AFG’s workers’ compensation reserves at December 31, 2023 relate to policies written in Florida and California, respectively.

AFG recorded favorable prior year reserve development of $116 million in 2023, $189 million in 2022 and $169 million in 2021, related to its workers’ compensation coverage due to lower than anticipated medical severity.

Other Liability — Claims Made

This long-tail line of business consists mostly of directors’ and officers’ liability (“D&O”). Some of the important variables affecting estimation of loss reserves for other liability — claims made include:

• Litigious climate
• Economic conditions
• Variability of stock prices
• Magnitude of jury awards

The general state of the economy and the variability of the stock price of the insured can affect the frequency and severity of shareholder class action suits and other situations that trigger coverage under D&O policies. For example, from 2008 to 2010, economic conditions led to higher frequency of claims, particularly in the D&O policies for small account and not-for-profit organizations. After peaking in 2010, claim frequency decreased and stabilized to near pre-2008 levels until dropping sharply during the pandemic-related shutdowns. Post-pandemic, frequency has increased slightly but has not rebounded to pre-pandemic levels.

AFG recorded favorable prior year reserve development of $33 million in 2023, $24 million in 2022 and $2 million in 2021 on its D&O business as claim frequency and severity were less than expected across several prior accident years.

Commercial Auto/Truck Liability/Medical

This line of business is a mix of coverage protecting the insured against legal liability for property damage or personal injury to others arising from the operation of commercial motor vehicles. The property damage liability exposure is usually short-tail with relatively prompt reporting and settlement of claims. The bodily injury and medical payments exposures are longer-tailed; although the claim reporting is relatively prompt, the final settlement can take longer to achieve. Some of the important variables affecting estimation of loss reserves for commercial auto/truck liability/medical are similar to other liability — occurrence and include:

• Magnitude of jury awards
• Unpredictability of judicial decisions regarding coverage issues
• Litigious climate and trends
• Change in frequency of severe accidents
• Health care costs and utilization of medical services by injured parties

AFG recorded adverse prior year reserve development of $29 million in 2023, $32 million in 2022 and $7 million in 2021 for this line of business due to higher than anticipated severity.

Recoverables from Reinsurers and Availability of Reinsurance AFG is subject to credit risk with respect to its reinsurers, as reinsurance contracts do not relieve AFG of its liability to policyholders. To mitigate this risk, substantially all reinsurance is ceded to companies rated “A” or better by S&P or is secured by “funds withheld” or other collateral.

The availability and cost of reinsurance are subject to prevailing market conditions, which are beyond AFG’s control and which may affect AFG’s level of business and profitability. Although the cost of certain reinsurance programs may increase, management believes that AFG will be able to maintain adequate reinsurance coverage at acceptable rates without a material adverse effect on AFG’s results of operations. AFG’s gross and net combined ratios are shown in the table below.

See Item 1 — Business — “Property and Casualty Insurance Segment — Reinsurance” for more information on AFG’s reinsurance programs. For additional information on the effect of reinsurance on AFG’s historical results of operations see Note O — “Insurance — Reinsurance” to the financial statements.

The following table illustrates the effect that purchasing property and casualty reinsurance has had on AFG’s combined ratio over the last three years.

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Asbestos and Environmental-related (“A&E”) Insurance Reserves Asbestos and environmental reserves of the property and casualty group consisted of the following (in millions):

Asbestos reserves include claims asserting alleged injuries and damages from exposure to asbestos. Environmental reserves include claims relating to polluted sites.

Asbestos claims against manufacturers, distributors or installers of asbestos products were presented under the products liability section of their policies, which typically had aggregate limits that capped an insurer’s liability. In addition, asbestos claims are being presented as “non-products” claims, such as those by installers of asbestos products and by property owners or operators who allegedly had asbestos on their property, under the premises or operations section of their policies. Unlike products exposures, these non-products exposures typically had no aggregate limits, creating greater exposure for insurers. Further, in an effort to seek additional insurance coverage, some insureds with installation activities who have substantially eroded their products coverage are presenting new asbestos claims as non-products operations claims or attempting to reclassify previously settled products claims as non-products claims to restore a portion of previously exhausted products aggregate limits.

Approximately 47% of AFG’s net asbestos reserves relate to policies written directly by AFG subsidiaries. Claims from these policies generally are product-oriented claims with only a limited amount of non-products exposures and are dominated by small to mid-sized commercial entities that are mostly regional policyholders with few national target defendants. The remainder is assumed reinsurance business that includes exposures from 1954 to 1983. The asbestos and environmental assumed claims are ceded by various insurance companies under reinsurance treaties. A majority of the individual assumed claims have exposures of less than $100,000 to AFG. Asbestos losses assumed include some of the industry known manufacturers, distributors and installers. Pollution losses include industry known insured names and sites.

Establishing reserves for A&E claims relating to policies and participations in reinsurance treaties and former operations is subject to uncertainties that are significantly greater than those presented by other types of claims. For this group of claims, traditional actuarial techniques that rely on historical loss development trends cannot be used and a range of reasonably possible losses cannot be estimated. Case reserves and expense reserves are established by the claims department as specific policies are identified. In addition to the case reserves established for known claims, management establishes additional reserves for claims not yet known or reported and for possible development on known claims. These additional reserves are management’s best estimate based on periodic comprehensive studies and internal reviews adjusted for payments and identifiable changes, supplemented by management’s review of industry information about such claims, with due consideration to individual claim situations.

Management believes that estimating the ultimate liability for asbestos claims presents a unique and difficult challenge to the insurance industry due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage. Environmental claims likewise present challenges in prediction, due to uncertainty regarding the interpretation of insurance policies, complexities regarding multi-party involvements at sites, evolving cleanup standards and protracted time periods required to assess the level of cleanup required at contaminated sites.

The following factors could impact AFG’s A&E reserves and payments:

• There is interest at the state level to attempt to legislatively address asbestos liabilities and the manner in which asbestos claims are resolved. These developments are fluid and could result in piecemeal state-by-state solutions.
• The manner by which bankruptcy courts are addressing asbestos liabilities is in flux.
• AFG’s insureds may make claims alleging significant non-products exposures.

While management believes that AFG’s reserves for A&E claims are a reasonable estimate of ultimate liability for such claims, actual results may vary materially from the amounts currently recorded due to the difficulty in predicting the number of future claims, the impact of bankruptcy filings and unresolved issues such as whether coverage exists, whether policies are subject to aggregate limits on coverage, how claims are to be allocated among triggered policies and implicated years and whether claimants who exhibit no signs of illness will be successful in pursuing their claims. A 1% variation in loss cost trends, caused by any of the factors previously described, would change net earnings by approximately $30 million.

AFG tracks its A&E claims by policyholder. The following table shows, by type of claim, the number of policyholders that did not receive any payments in the calendar year separate from policyholders that did receive a payment. Policyholder counts represent policies written by AFG subsidiaries and do not include assumed reinsurance.

Amounts paid (net of reinsurance recoveries) for asbestos and environmental claims, including LAE, were as follows (in millions):

The survival ratio is a measure often used by industry analysts to compare A&E reserves’ strength among companies. This ratio is typically calculated by dividing reserves for A&E exposures by the three-year average of paid losses, and therefore measures the number of years that it would take to pay off current reserves based on recent average payments. Because this ratio can be significantly impacted by a number of factors such as loss payout variability, caution should be exercised in attempting to determine reserve adequacy based simply on the survival ratio. At December 31, 2023, the property and casualty insurance segment’s three-year survival ratios compare favorably with industry survival ratios published by A.M. Best (as of December 31, 2022, and adjusted for several large portfolio transfers) as detailed in the following table:

During the third quarter of 2023, AFG completed an in-depth internal review of its asbestos and environmental exposures relating to the run-off operations of its property and casualty insurance segment. In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has historically conducted periodic comprehensive external studies of its asbestos and environmental reserves with the aid of specialty actuarial, engineering and consulting firms and outside counsel, with an in-depth internal review during all other years.

During the 2023 internal review, no new trends were identified and recent claims activity was generally consistent with AFG’s expectations resulting from its in-depth internal reviews in 2022 and 2021 and most recent external study in 2020. As a result, the 2023 review resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves.

Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of the property and casualty segment’s asbestos reserve increases in recent years. AFG is seeing modestly increasing estimates for indemnity and defense compared to prior studies on certain specific open claims. AFG has updated its view of legal defense costs on open environmental claims as well as a number of claims and sites where the estimated investigation and remediation costs have increased.

Contingencies related to Subsidiaries’ Former Operations The A&E reviews and external study discussed above also encompassed reserves for various environmental and occupational injury and disease claims and other contingencies arising out of the railroad operations disposed of by American Premier’s predecessor and certain manufacturing operations disposed of by American Premier and its subsidiaries and by Great American Financial Resources, Inc. AFG recorded a $15 million pretax non-core special charge to increase liabilities for those operations as a result of the 2023 internal review. Liabilities for claims and contingencies arising from these former railroad and manufacturing operations totaled $101 million at December 31, 2023. For a discussion of the uncertainties in determining the ultimate liability, see Note N — “Contingencies” to the financial statements.

MANAGED INVESTMENT ENTITIES

Accounting standards require AFG to consolidate its investments in collateralized loan obligation (“CLO”) entities that it manages and owns an interest in (in the form of debt). See Note A — “Accounting Policies — Managed Investment Entities” and Note H — “Managed Investment Entities” to the financial statements. The effect of consolidating these entities is shown in the tables below (in millions). The “Before CLO Consolidation” columns include AFG’s investment and earnings in the CLOs on an unconsolidated basis.

CONDENSED CONSOLIDATING BALANCE SHEET

(*)Elimination of the fair value of AFG’s investment in CLOs and related accrued interest.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

(a) Includes income of $9 million in the fourth quarter of 2023 and less than $1 million in the fourth quarter of 2022, representing the change in fair value of AFG’s CLO investments and $4 million and $5 million of income in the fourth quarter of 2023 and 2022, respectively, in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $11 million and $5 million in the fourth quarter of 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs.

(c) Elimination of management fees earned by AFG.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED

(a) Includes income of $27 million in 2023 and a loss of $10 million in 2022, representing the change in fair value of AFG’s CLO investments and $16 million and $17 million of income in 2023 and 2022, respectively, in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $29 million and $18 million in 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs.

(c) Elimination of management fees earned by AFG.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED

(a) Includes income of $20 million representing the change in fair value of AFG’s CLO investments and $16 million of income in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $12 million in distributions recorded as interest expense by the CLOs.

(c) Elimination of management fees earned by AFG.

RESULTS OF OPERATIONS

General

AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. In addition to discontinued operations, core net operating earnings excludes realized gains (losses) on securities because such gains and losses are influenced significantly by financial markets, interest rates and the timing of sales. In addition, special charges related to coverage that AFG no longer writes, such as asbestos and environmental exposures, are excluded from core earnings.

In May 2021, AFG sold its Annuity business to MassMutual. Through the effective date of the sale, the results of its annuity segment and run-off life and long-term care operations are reported as discontinued operations.

AFG recorded $914 million in non-core net earnings from the discontinued annuity operations in 2021, which includes a $656 million after-tax gain on the sale. See “Discontinued Annuity Operations” below for details of the impact of the discontinued annuity operations on AFG’s net earnings for 2021.

In December 2020, AFG sold GAI Holding Bermuda and its subsidiaries, the legal entities that owned AFG’s Lloyd’s Managing Agency, Neon Underwriting Ltd., thereby exiting the Lloyd’s of London Insurance market. In 2021, AFG recognized a non-core after-tax gain of $3 million related to contingent consideration received from the sale of Neon.

The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings to core net operating earnings, a non-GAAP financial measure. AFG believes core net operating earnings is a useful tool for investors and analysts in analyzing ongoing operating trends and for management to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business.

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Net earnings were $263 million in the fourth quarter of 2023 compared to $276 million in the fourth quarter of 2022 reflecting lower core net operating earnings partially offset by higher net realized gains on securities in the fourth quarter of 2023 compared to the fourth quarter of 2022. Core net operating earnings for the fourth quarter of 2023 decreased $17 million compared to the fourth quarter of 2022 due primarily to lower returns on AFG’s alternative investment portfolio in the fourth quarter of 2023 compared to the fourth quarter of 2022 and lower underwriting profit, partially offset by higher investment income outside of alternative investments. Net realized gains on securities of $25 million and $21 million in the fourth quarter of 2023 and 2022, respectively, resulted primarily from the change in fair value of equity securities that were still held at the balance sheet date.

Net earnings were $852 million for the full-year of 2023 compared to $898 million in 2022 reflecting lower core net operating earnings and a special A&E charge recorded in the third quarter of 2023, partially offset by lower net realized losses on securities in 2023 compared to 2022. Core net operating earnings for 2023 decreased $98 million compared to 2022 reflecting lower returns on AFG’s alternative investment portfolio when compared to the strong performance of this portfolio in 2022 and lower underwriting profit, partially offset by higher investment income outside of alternative investments. Net realized losses on securities of $28 million in 2023 and $92 million in 2022 include $2 million and $75 million, respectively, of after-tax losses from the change in fair value of equity securities that were still held at the balance sheet date.

Net earnings were $898 million for the full-year of 2022 compared to $2.00 billion in 2021 reflecting net earnings from the discontinued annuity operations in 2021 and net realized losses on securities in 2022 compared to net realized gains on securities in 2021. The discontinued annuity operations includes an after-tax gain on the sale of the annuity subsidiaries of $656 million in 2021. Core net operating earnings were comparable in 2022 and 2021 as higher underwriting profit and higher investment income outside of alternative investments were offset by lower returns on AFG’s alternative investment portfolio compared to the very strong performance of this portfolio in 2021. Realized gains (losses) on securities in 2022 and 2021 resulted primarily from the change in fair value of equity securities that were still held at the balance sheet date.

RESULTS OF OPERATIONS — THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022

Segmented Statement of Earnings

Subsequent to the sale of its annuity operations, AFG reports its operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”).

AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the three months ended December 31, 2023 and 2022 identify such items by segment and reconcile 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 (in millions):

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(*)See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax impacts of these reconciling items.

Property and Casualty Insurance Segment — Results of Operations

Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses and loss adjustment expenses, and commissions and other underwriting expenses to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect net investment income, other income, other expenses or federal income taxes.

AFG’s property and casualty insurance operations contributed $357 million in pretax earnings in the fourth quarter of 2023 compared to $363 million in the fourth quarter of 2022, a decrease of $6 million (2%). Lower underwriting profits in the Specialty casualty and Property and transportation sub-segments and lower investment income from alternative investments were partially offset by higher underwriting profit in the Specialty financial sub-segment and higher net investment income outside of alternative investments.

The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the three months ended December 31, 2023 and 2022 (dollars in millions):

Starting in 1986, AFG’s statutory combined ratio has been better than the U.S. industry average for 36 of the 38 years. Management believes that AFG’s insurance operations have performed better than the industry as a result of its specialty niche focus, product line diversification, stringent underwriting discipline and alignment of compensation incentives.

AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.

To understand the overall profitability of particular lines, the timing of claims payments and the related impact of investment income must be considered. Certain “short-tail” lines of business (primarily property coverages) generally have quick loss payouts, which reduce the time funds are held, thereby limiting investment income earned thereon. In contrast, “long-tail” lines of business (primarily liability coverages and workers’ compensation) generally have payouts that are either structured over many years or take many years to settle, thereby significantly increasing investment income earned on related premiums received.

Gross Written Premiums

Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $1.99 billion for the fourth quarter of 2023 compared to $1.85 billion for the fourth quarter of 2022, an increase of $147 million (8%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):

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Reinsurance Premiums Ceded

Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 27% of gross written premiums for both the fourth quarter of 2023 and the fourth quarter of 2022. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):

Net Written Premiums

Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $1.45 billion for the fourth quarter of 2023 compared to $1.34 billion for the fourth quarter of 2022, an increase of $107 million (8%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):

Net Earned Premiums

Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $1.73 billion for the fourth quarter of 2023 compared to $1.62 billion for the fourth quarter of 2022, an increase of $109 million (7%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

Gross written premiums for the fourth quarter of 2023 increased $147 million (8%) compared to the fourth quarter of 2022 reflecting a combination of new business opportunities, increased exposures and a good renewal rate environment. Overall average renewal rates increased approximately 6% in the fourth quarter of 2023. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates increased approximately 7%.

Property and transportation Gross written premiums increased $22 million (4%) in the fourth quarter of 2023 compared to the fourth quarter of 2022. This increase was due primarily to slightly higher crop premium related to the CRS acquisition, which was partially offset by the timing of renewals in several of the transportation businesses. Average renewal rates increased 7% for this group in the fourth quarter of 2023. Reinsurance premiums ceded as a percentage of gross written premiums increased 2 percentage points for the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting growth in alternative risk transfer products in the transportation businesses and higher premiums in the crop operations, both of which cede a higher percentage of premiums than some of the other businesses in the Property and transportation sub-segment.

Specialty casualty Gross written premiums increased $62 million (6%) in the fourth quarter of 2023 compared to the fourth quarter of 2022. New business opportunities and increased exposures in the excess and surplus operations and increased exposures from payroll growth in the workers’ compensation businesses led to higher year-over-year premiums, with nearly all of the businesses in this group reporting growth in the quarter. This growth was partially offset by lower premiums in the executive liability business. Average renewal rates for this group increased approximately 4% in the fourth quarter of 2023. Excluding rate decreases in the workers’ compensation business, renewal rates for this group increased approximately 7%. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the fourth quarters of 2023 and 2022.

Specialty financial Gross written premiums increased $63 million (27%) in the fourth quarter of 2023 compared to the fourth quarter of 2022 due primarily to growth in the financial institutions business. Average renewal rates for this group increased approximately 9% in the fourth quarter of 2023. Reinsurance premiums ceded as a percentage of gross written premiums increased 1 percentage point in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the favorable impact of lower than previously estimated reinstatement premiums related to Hurricane Ian recorded in the fourth quarter of 2022.

Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased $8 million (13%) in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment.

Combined Ratio

Performance measures such as the combined ratio are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. The combined ratio is the sum of the loss and loss adjustment expenses (“LAE”) and underwriting expense ratios. These ratios are calculated by dividing each of the respective expenses by net earned premiums. The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment:

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The Specialty property and casualty insurance operations generated an underwriting profit of $212 million in the fourth quarter of 2023 compared to $217 million in the fourth quarter of 2022, a decrease of $5 million (2%). Higher underwriting profit in the Specialty financial sub-segment was more than offset by lower underwriting profits in the Specialty casualty and Property and transportation sub-segments. Overall catastrophe losses were $25 million (1.4 points on the combined ratio), including $1 million in net reinstatement premiums in the fourth quarter of 2023 compared to catastrophe losses of $11 million (0.9 points), including a $13 million favorable impact in the fourth quarter of 2022 from lower than previously estimated reinstatement premiums related to Hurricane Ian.

Property and transportation Underwriting profit for this group was $67 million for the fourth quarter of 2023 compared to $68 million in the fourth quarter of 2022, a decrease of $1 million (1%). Below average underwriting profitability in the crop insurance operations was largely offset by higher year-over-year underwriting profits in the property and inland marine and the non-crop agricultural businesses. Catastrophe losses for this group were $5 million (0.6 points on the combined ratio), including $2 million in net reinstatement premiums in the fourth quarter of 2023 compared to catastrophe losses of $7 million (1.0 points), including a $1 million favorable impact from lower than previously estimated net reinstatement premiums in the fourth quarter of 2022.

Specialty casualty Underwriting profit for this group was $114 million for the fourth quarter of 2023 compared to $128 million in the fourth quarter of 2022, a decrease of $14 million (11%). Higher year-over-year underwriting profits in the workers’ compensation and executive liability businesses were more than offset by lower underwriting profit in the excess and surplus business. Catastrophe losses were $8 million (1.1 points on the combined ratio), including a $1 million favorable impact from lower than previously estimated net reinstatement premiums in the fourth quarter of 2023 compared to catastrophe losses of $7 million (1.1 points), including a $1 million favorable impact from net reinstatement premiums in the fourth quarter of 2022.

Specialty financial Underwriting profit for this group was $45 million for the fourth quarter of 2023 compared to $33 million in the fourth quarter of 2022, an increase of $12 million (36%). This increase reflects higher year-over-year underwriting profit in the financial institutions business. Catastrophe losses were $4 million (2.0 points on the combined ratio) in the fourth quarter of 2023 compared to a favorable impact of $3 million (1.9 points), including a $10 million favorable impact from the change in estimated reinstatement premiums related to Hurricane Ian in the fourth quarter of 2022.

Other specialty This group reported an underwriting loss of $14 million for the fourth quarter of 2023 compared to $12 million in the fourth quarter of 2022, an increase of $2 million (17%), reflecting higher losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments in the fourth quarter of 2023 compared to the fourth quarter of 2022. This group reported catastrophe losses of $8 million in the fourth quarter of 2023 compared to less than $1 million in the fourth quarter of 2022.

Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include adverse prior year reserve development of $1 million in the fourth quarter of 2023 and net favorable prior year reserve development of $1 million in the fourth quarter of 2022 related to business outside of the Specialty group that AFG no longer writes.

Losses and Loss Adjustment Expenses

AFG’s overall loss and LAE ratio was 60.8% for the fourth quarter of 2023 compared to 60.7% for the fourth quarter of 2022, an increase of 0.1 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):

Current accident year losses and LAE, excluding catastrophe losses

The current accident year loss and LAE ratio, excluding catastrophe losses for AFG’s Specialty property and casualty insurance operations was 62.6% for the fourth quarter of 2023 compared to 63.5% in the fourth quarter of 2022, a decrease of 0.9 percentage points.

Property and transportation The 2.4 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, is due primarily to the impact of lower claim severity in the property and inland marine and certain transportation businesses, partially offset by lower profitability in the crop business.

Specialty casualty The 1.9 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects anticipated medical cost inflation and the impact of pressure on rates in the workers’ compensation businesses and higher claim severity in certain liability coverages, partially offset by lower claim frequency in the executive liability business.

Specialty financial The 0.2 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects an increase in claim severity in the innovative markets business, partially offset by lower claim frequency and growth in the financial institutions business, which has a lower loss and LAE ratio than some of the other businesses in the Specialty financial sub-segment.

Net prior year reserve development

AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $57 million in the fourth quarter of 2023 compared to $58 million in the fourth quarter of 2022, a decrease of $1 million (2%).

Property and transportation Net favorable reserve development of $12 million in the fourth quarter of 2023 reflects lower than anticipated losses in the crop business and lower than expected claim frequency in the ocean marine and property and inland marine businesses. Net favorable reserve development of $13 million in the fourth quarter of 2022 reflects lower than expected claim severity in the ocean marine, aviation and property and inland marine businesses and lower than anticipated claim frequency in the trucking business.

Specialty casualty Net favorable reserve development of $37 million in the fourth quarter of 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses, partially offset by higher than anticipated claim severity in the excess and surplus business and higher than expected claim frequency and severity in the excess liability and general liability businesses. Net favorable reserve development of $50 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency and severity in the workers’ compensation and excess and surplus businesses and lower than expected claim frequency in the executive liability business.

Specialty financial Net favorable reserve development of $8 million in the fourth quarter of 2023 reflects lower than anticipated claim frequency and severity in the fidelity business and lower than expected claim frequency in the financial institutions and trade credit businesses. Net favorable reserve development of $8 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency in the trade credit and financial institutions businesses.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of less than $1 million in the fourth quarter of 2023 and $13 million in the fourth quarter of 2022. The fourth quarter of 2022 reflects net adverse reserve development associated with AFG’s internal reinsurance program (primarily from social inflation exposed casualty businesses) and, to a lesser extent, both periods reflect the amortization of the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of a business in 1998.

Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $1 million in the fourth quarter of 2023 and net favorable reserve development of $1 million in the fourth quarter of 2022 related to business outside of the Specialty group that AFG no longer writes.

Catastrophe losses

AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. Based on data available at December 31, 2023, AFG’s exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 100, 250 or 500 years as a percentage of AFG’s Shareholders’ Equity is shown below:

Catastrophe losses of $24 million (before net reinstatement premiums) in the fourth quarter of 2023 resulted primarily from storms in multiple regions of the United States. Catastrophe losses of $24 million (before net reinstatement premiums) in the fourth quarter of 2022 resulted primarily from Winter Storm Elliott.

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $468 million in the fourth quarter of 2023 compared to $419 million for the fourth quarter of 2022, an increase of $49 million (12%). AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 27.0% for the fourth quarter of 2023 compared to 25.8% for the fourth quarter of 2022, an increase of 1.2 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):

Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums increased 3.1 percentage points in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the impact of lower profit-based ceding commissions related to below average profitability in the crop operations, the impact on the ratio of lower earned premiums in the crop operations (which has a lower commissions and other underwriting expense ratio than some of the other businesses in the Property and transportation sub-segment) and higher expenses related to certain technology initiatives.

Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.9 percentage points in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the impact on the ratio of growth in earned premiums in the workers’ compensation businesses, partially offset by higher expenses related to certain technology initiatives.

Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 2.8 percentage points in the fourth quarter of 2023 compared to the fourth quarter of 2022 reflecting the impact on the ratio of growth in earned premiums in the financial institutions, surety and innovative markets businesses and lower contingent commissions paid to agents in the innovative markets business, partially offset by the impact of an increase in net earned premiums in the fourth quarter of 2022 due to lower than previously estimated reinstatement premiums related to Hurricane Ian and higher expenses related to certain technology initiatives.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $161 million in the fourth quarter of 2023 compared to $159 million in the fourth quarter of 2022, an increase of $2 million (1%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):

(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.

The increase in the property and casualty insurance segment’s net investment income for the fourth quarter of 2023 compared to the fourth quarter of 2022 reflects the impact of higher yields on fixed maturity investments and higher balances of invested assets, partially offset by lower returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs). The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.23% for the fourth quarter of 2023 compared to 4.45% for the fourth quarter of 2022, a decrease of 0.22 percentage points reflecting lower returns on alternative investments, partially offset by higher yields on fixed maturity investments. The annualized return earned on alternative investments was 0.8% in the fourth quarter of 2023 compared to 5.3% in the prior year period.

Property and Casualty Other Income and Expenses, Net

Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $15 million for the fourth quarter of 2023 compared to $14 million for the fourth quarter of 2022, an increase of $1 million (7%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

The $4 million (50%) increase in interest expense on funds withheld in 2023 compared to 2022 reflects the impact of higher interest rates.

Holding Company, Other and Unallocated — Results of Operations

AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $53 million in the fourth quarter of 2023 compared to $44 million in the fourth quarter of 2022, an increase of $9 million (20%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $53 million for the fourth quarter of 2023 compared to $45 million for the fourth quarter of 2022, an increase of $8 million (18%).

The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance segment for the three months ended December 31, 2023 and 2022 (dollars in millions):

(*)Excludes a pretax non-core gain on retirement of debt of $1 million in the fourth quarter of 2022.

Holding Company and Other — Net Investment Income

AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $7 million in the fourth quarter of 2023 compared to $9 million in the fourth quarter of 2022, a decrease of $2 million (22%), reflecting the impact of lower average investment balances, partially offset by the impact of higher interest rates on cash and fixed maturity investments.

Holding Company and Other — P&C Fees and Related Expenses

Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In the fourth quarter of 2023, AFG collected $23 million in fees for these services compared to $22 million in the fourth quarter of 2022. Management views this fee income, net of the $14 million in both the fourth quarter of 2023 and the fourth quarter of 2022 in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. In addition, AFG’s property and casualty insurance businesses earned $19 million in fees as compensation for providing services during the fourth quarter of 2023 related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date and collected less than $1 million in fees from AFG’s disposed annuity operations during the fourth quarter of 2022 as compensation for certain services provided under a transition services agreement. The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of loss adjustment and other underwriting expenses in AFG’s segmented results.

Holding Company and Other — Other Income

Other income in the table above includes $4 million in the fourth quarter of 2023 and $5 million in the fourth quarter of 2022, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $1 million and $2 million in the fourth quarter of 2023 and the fourth quarter of 2022, respectively.

Holding Company and Other — Other Expenses

Excluding the non-core gain on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $46 million in the fourth quarter of 2023 compared to $41 million in the fourth quarter of 2022, an increase of $5 million (12%). This increase is due primarily to the impact of higher holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance and higher aircraft related expenses in the fourth quarter of 2023 compared to the fourth quarter of 2022.

Holding Company and Other — Interest Charges on Borrowed Money

AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $19 million in the fourth quarter of 2023 compared to $20 million in the fourth quarter of 2022, a decrease of $1 million (5%).

Holding Company and Other — Gain on Retirement of Debt

During the fourth quarter of 2022, AFG retired $38 million principal amount of its senior notes, which resulted in a $1 million pretax gain.

Realized Gains (Losses) on Securities

AFG’s realized gains (losses) on securities were net gains of $31 million in the fourth quarter of 2023 compared to $27 million in the fourth quarter of 2022, an increase of $4 million (15%). Realized gains (losses) on securities consisted of the following (in millions):

The $33 million net realized gain from the change in the fair value of equity securities in the fourth quarter of 2023 includes gains of $15 million on investments in banks and financing companies, $6 million on investments in retail companies, $5 million on investments in healthcare companies and $5 million on investments in media companies. The $26 million net realized gain from the change in the fair value of equity securities in the fourth quarter of 2022 includes gains of $7 million on investments in banks and financing companies, $7 million on investments in energy and natural gas companies and $7 million on investments in retail companies, partially offset by losses of $7 million on investments in media companies.

Consolidated Income Taxes

AFG’s consolidated provision for income taxes was $72 million for the fourth quarter of 2023 compared to $70 million in the fourth quarter of 2022, an increase of $2 million (3%). The following is a reconciliation of income taxes at the statutory rate to the provision for income taxes as shown in the segmented statement of earnings (dollars in millions):

See Note M — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.

RESULTS OF OPERATIONS — YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Segmented Statement of Earnings

Subsequent to the sale of its annuity operations, AFG reports its continuing operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”).

AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the years ended December 31, 2023, 2022 and 2021 identify such items by segment and reconcile 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 (in millions):

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(*)See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax and noncontrolling interest impacts of these reconciling items.

Property and Casualty Insurance Segment — Results of Operations

AFG’s property and casualty insurance operations contributed $1.30 billion in GAAP pretax earnings in 2023 compared to $1.42 billion in 2022, a decrease of $119 million (8%). Property and casualty core pretax earnings were $1.30 billion in 2023 compared to $1.42 billion in 2022, a decrease of $115 million (8%). The decrease in GAAP and core pretax earnings reflects lower underwriting profit and lower investment income from AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs), partially offset by higher investment income outside of alternative investments in 2023 compared to 2022.

AFG’s property and casualty insurance operations contributed $1.42 billion in GAAP pretax earnings in 2022 compared to $1.39 billion in 2021, an increase of $25 million (2%). Property and casualty core pretax earnings were $1.42 billion in 2022 compared to $1.39 billion in 2021, an increase of $29 million (2%). The increase in GAAP and core pretax earnings reflects higher underwriting profit and higher investment income outside of alternative investments, partially offset by lower investment income from AFG’s alternative investment portfolio and higher other net expenses in 2022 compared to 2021.

The following table details AFG’s GAAP and core earnings before income taxes from its property and casualty insurance operations for the years ended December 31, 2023, 2022 and 2021 (dollars in millions):

AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.

Gross Written Premiums

Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $9.66 billion in 2023 compared to $9.06 billion in 2022, an increase of $599 million (7%). GWP increased $1.11 billion (14%) in 2022 compared to 2021. Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):

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Reinsurance Premiums Ceded

Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 31% of gross written premiums for both the year ended December 31, 2023 and the year ended December 31, 2022 and 30% for the year ended December 31, 2021, an increase of 1 percentage point for 2023 and 2022 compared to 2021. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):

Net Written Premiums

Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $6.69 billion in 2023 compared to $6.21 billion in 2022, an increase of $486 million (8%). NWP increased $633 million (11%) in 2022 compared to 2021. Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):

Net Earned Premiums

Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $6.53 billion in 2023 compared to $6.09 billion in 2022, an increase of $446 million (7%). NEP increased $681 million (13%) in 2022 compared to 2021. Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

The $599 million (7%) increase in gross written premiums in 2023 compared to 2022 reflects growth in each of the Specialty property and casualty sub-segments as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment. Overall average renewal rates increased approximately 5% in 2023. Excluding the workers’ compensation businesses, renewal pricing increased approximately 6%.

The $1.11 billion (14%) increase in gross written premiums in 2022 compared to 2021 reflects growth in the crop insurance business. Excluding crop, gross and net written premiums increased 8% and 9%, respectively, in 2022 compared to 2021 reflecting increased exposures, new business opportunities and renewal rate increases. Overall average renewal rates increased approximately 5% in 2022. Excluding the workers’ compensation businesses, renewal pricing increased approximately 6%.

Property and transportation Gross written premiums increased $86 million (2%) in 2023 compared to 2022 reflecting the impact of increased rates, retentions and exposures in the transportation and ocean marine businesses and slightly higher crop premium related to the CRS acquisition in the fourth quarter of 2023. These items were partially offset by the impact of 2023 spring commodity futures pricing and related volatility on premiums in the crop business. Average renewal rates increased approximately 6% for this group in 2023. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in 2023 and 2022 reflecting growth in alternative risk transfer products in the transportation businesses, offset by the impact of lower premiums in the crop business. Both of these businesses cede a larger percentage of premiums than some of the other businesses in the Property and transportation sub-segment.

Gross written premiums increased $797 million (24%) in 2022 compared to 2021 reflecting the impact of higher commodity futures prices on the crop insurance business. Excluding crop, gross and net written premiums grew 11% and 10%, respectively, reflecting new business opportunities, increased exposures and rate increases. Average renewal rates increased approximately 6% for this group in 2022. Reinsurance premiums ceded as a percentage of gross written premiums increased 4 percentage points in 2022 compared to 2021 reflecting growth in crop insurance products with higher cessions and higher cessions in the ocean marine business.

Specialty casualty Gross written premiums increased $253 million (6%) in 2023 compared to 2022 due primarily to increased exposures from payroll growth and new business in the workers’ compensation businesses, new business opportunities, strong policy retention and rate increases in several of the targeted markets businesses and increased exposures and higher renewal rates in the excess and surplus and excess liability businesses. This growth was partially offset by lower premiums in the mergers and acquisitions liability and executive liability businesses. Average renewal rates increased approximately 4% for this group in 2023. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 6% in 2023. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2023 compared to 2022 reflecting higher premiums in the workers’ compensation businesses (which cede a lower percentage of premiums than some of the other businesses in the Specialty casualty sub-segment) and lower cessions in the environmental and mergers and acquisitions liability businesses and at ABA Insurance Services.

Gross written premiums increased $225 million (6%) in 2022 compared to 2021 due primarily to increased exposures in the excess and surplus businesses, rate increases and new business opportunities in the targeted markets businesses and increased exposures resulting from payroll growth and new business in the workers’ compensation businesses. This premium growth was partially offset by lower year-over-year premiums in the mergers and acquisitions liability business. Average renewal rates increased approximately 5% for this group in 2022. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 7% in 2022. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2022 compared to 2021 reflecting lower cessions in the excess and surplus and excess liability businesses and lower gross written premiums in the mergers and acquisitions liability business, which cedes a larger percentage of premiums than the other businesses in the Specialty casualty sub-segment.

Specialty financial Gross written premiums increased $260 million (29%) in 2023 compared to 2022 due primarily to growth in the financial institutions business. Average renewal rates increased approximately 5% for this group in 2023. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2023 compared to 2022 reflecting the impact of reinstatement premiums paid to reinsurers in 2022 related to Hurricane Ian.

Gross written premiums increased $89 million (11%) in 2022 compared to 2021 due primarily to higher premiums in the financial institutions business related to lender-placed mortgage protection insurance, rate increases and new business opportunities in the fidelity business and new business opportunities in the innovative markets and commercial equipment leasing businesses. Average renewal rates for this group increased approximately 5% in 2022. Reinsurance premiums ceded as a percentage of gross written premiums increased 2 percentage points in 2022 compared to 2021 reflecting the impact of reinstatement premiums related to Hurricane Ian and higher cessions in the innovative markets business.

Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased $10 million (4%) in 2023 compared to 2022, and $34 million (16%) in 2022 compared to 2021 reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment.

Combined Ratio

The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment for 2023, 2022 and 2021:

The Specialty property and casualty insurance operations generated an underwriting profit of $633 million in 2023 compared to $780 million in 2022, a decrease of $147 million (19%). This decrease reflects lower underwriting profit in each of the Specialty property and casualty insurance sub-segments. Overall catastrophe losses were $165 million (2.5 points on the combined ratio), including $3 million in net reinstatement premiums, for 2023 compared to catastrophe losses of $93 million (1.5 points), including $5 million in net reinstatement premiums, for 2022.

The Specialty property and casualty insurance operations generated an underwriting profit of $780 million in 2022 compared to $737 million in 2021, an increase of $43 million (6%), reflecting higher underwriting profits in the Specialty casualty and Specialty financial sub-segments, partially offset by lower underwriting profit in the Property and transportation sub-segment. Underwriting results for the Specialty property and casualty insurance operations include $16 million in COVID-19 related losses (0.3 points on the combined ratio) in 2021. Overall catastrophe losses were $93 million (1.5 points on the combined ratio), including $5 million in net reinstatement premiums, for 2022 compared to catastrophe losses of $98 million (1.7 points), including $12 million in net reinstatement premiums, for 2021.

Property and transportation Underwriting profit for this group was $184 million in 2023 compared to $208 million in 2022, a decrease of $24 million (12%). Below average underwriting profitability in the crop insurance operations was partially offset by higher year-over-year underwriting profit in the property and inland marine business. Catastrophe losses were $53 million (2.0 points on the combined ratio), including $2 million in net reinstatement premiums, in 2023 compared to catastrophe losses of $45 million (1.9 points), including $3 million in net reinstatement premiums, in 2022.

Underwriting profit for this group was $208 million in 2022 compared to $279 million in 2021, a decrease of $71 million (25%), reflecting lower year-over-year profitability in the crop operations compared to the very strong results in 2021 and lower underwriting profit in the transportation businesses, primarily the result of lower favorable prior year reserve development. Catastrophe losses were $45 million (1.9 points on the combined ratio), including $3 million in net reinstatement premiums, in 2022 compared to catastrophe losses of $58 million (2.7 points), including $9 million in net reinstatement premiums, in 2021.

Specialty casualty Underwriting profit for this group was $375 million in 2023 compared to $500 million in 2022, a decrease of $125 million (25%). The lower year-over-year underwriting profit was due primarily to lower favorable prior year reserve development in the workers’ compensation businesses and adverse reserve development in the public sector and excess and surplus businesses, partially offset by higher favorable prior year reserve development in the executive liability business. Catastrophe losses were $36 million (1.2 points on the combined ratio), including $1 million in net reinstatement premiums, in 2023 compared to catastrophe losses of $11 million (0.5 points) in 2022.

Underwriting profit for this group was $500 million in 2022 compared to $377 million in 2021, an increase of $123 million (33%). This increase reflects higher year-over-year underwriting profits in the workers’ compensation, excess and surplus, executive liability and mergers and acquisitions liability businesses. COVID-19 related losses were $9 million (0.4 points on the combined ratio) in 2021. Catastrophe losses were $11 million (0.5 points on the combined ratio) in 2022 compared to catastrophe losses of $10 million (0.4 points), including $1 million in net reinstatement premiums, in 2021.

Specialty financial Underwriting profit for this group was $110 million in 2023 compared to $114 million in 2022, a decrease of $4 million (4%). This decrease reflects higher year-over-year catastrophe losses in the financial institutions business and lower underwriting profit in the surety business. Catastrophe losses were $49 million (5.7 points on the combined ratio) in 2023 compared to catastrophe losses of $36 million (4.9 points), including $3 million in net reinstatement premiums, in 2022.

Underwriting profit for this group was $114 million in 2022 compared to $96 million in 2021, an increase of $18 million (19%) due primarily to higher year-over-year underwriting profits in the trade credit and financial institutions businesses. COVID-19 related losses were $7 million (1.1 points on the combined ratio) in 2021. Catastrophe losses were $36 million (4.9 points on the combined ratio), including $3 million in net reinstatement premiums, in 2022 compared to catastrophe losses of $28 million (4.1 points), including $2 million in net reinstatement premiums, in 2021.

Other specialty This group reported an underwriting loss of $36 million in 2023 compared to $42 million in 2022, a decrease of $6 million (14%), reflecting lower losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments. The underwriting loss in 2022 relates primarily to losses from social inflation exposed operations in the Specialty casualty sub-segment. Catastrophe losses were $27 million in 2023 compared to $1 million in 2022.

This group reported an underwriting loss of $42 million in 2022 compared to $15 million in 2021, an increase of $27 million (180%). This increase reflects higher losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments (primarily losses from social inflation exposed operations in the Specialty casualty sub-segment) in 2022 compared to 2021.

Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include adverse prior year reserve development of $2 million in 2023 and $4 million in both 2022 and 2021, related to business outside of the Specialty group that AFG no longer writes.

Losses and Loss Adjustment Expenses

AFG’s overall loss and LAE ratio was 61.6%, 59.7% and 58.5% in 2023, 2022 and 2021, respectively. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):

Current accident year losses and LAE, excluding COVID-19 related and catastrophe losses

The current accident year loss and LAE ratio, excluding COVID-19 related and catastrophe losses for AFG’s Specialty property and casualty insurance operations was 62.4% in 2023, 62.8% in 2022 and 61.6% in 2021.

Property and transportation The 1.1 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2023 compared to 2022 is due primarily to the impact of elevated large loss activity in the property and inland marine business in 2022 and improved results in certain transportation businesses, partially offset by lower profit in the crop business.

The 4.4 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 is due primarily to lower profitability in the crop insurance business compared to the very strong results recorded in 2021. Excluding crop, the loss and LAE ratio for the current year, excluding catastrophe losses was comparable in 2022 and 2021.

Specialty casualty The 1.5 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2023 compared to 2022 reflects anticipated medical cost inflation and the impact of pressure on rates in the workers’ compensation businesses and higher claim severity in certain liability coverages.

The 1.7 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 reflects favorable trends in workers’ compensation and the impact of higher rates in the executive liability, excess and surplus and excess liability businesses.

Specialty financial The 0.2 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2023 compared to 2022 reflects lower claim frequency and growth in the financial institutions business, which has a lower loss and LAE ratio than some of the other businesses in the Specialty financial sub-segment, partially offset by higher claim severity in the innovative markets business.

The loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 is unchanged compared to the 2021 period.

Net prior year reserve development

AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $226 million in 2023 compared to $289 million in 2022 and $283 million in 2021, a decrease of $63 million (22%) and an increase of $6 million (2%), respectively.

Property and transportation Net favorable reserve development of $84 million in 2023 reflects lower than anticipated losses in the crop business, lower than expected claim frequency and severity across the transportation businesses and lower than anticipated claim frequency in the property and inland marine and ocean marine businesses and in the Singapore operations.

Net favorable reserve development of $92 million in 2022 reflects lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business.

Net favorable reserve development of $103 million in 2021 reflects lower than anticipated claim frequency and severity in the transportation businesses, lower than expected losses in the crop business, lower than expected claim severity in the ocean marine business and lower than expected claim frequency in the aviation business.

Specialty casualty Net favorable reserve development of $110 million in 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability and environmental businesses and favorable reserve development related to COVID-19 losses across several businesses, partially offset by higher than anticipated claim severity in the public sector business and higher than expected claim frequency and severity in the excess liability and general liability businesses.

Net favorable reserve development of $190 million in 2022 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability and excess and surplus businesses, partially offset by higher than anticipated claim severity in the general liability, umbrella and excess liability, and certain targeted markets businesses.

Net favorable reserve development of $140 million in 2021 reflects lower than anticipated claim severity in the workers’ compensation businesses, partially offset by higher than anticipated claim severity in the general liability and targeted markets businesses.

Specialty financial Net favorable reserve development of $32 million in 2023 reflects lower than anticipated claim frequency in the trade credit, financial institutions and surety businesses and lower than expected claim frequency and severity in the fidelity business.

Net favorable reserve development of $47 million in 2022 reflects lower than anticipated claim frequency in the surety, trade credit and financial institutions businesses.

Net favorable reserve development of $51 million in 2021 reflects lower than anticipated claim frequency in the surety and trade credit businesses and lower than expected claim frequency and severity in the financial institutions business.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of less than $1 million, $40 million and $11 million in 2023, 2022, and 2021, respectively. The net adverse reserve development reflects $4 million, $44 million and $16 million in 2023, 2022 and 2021, respectively, of net adverse development associated with AFG’s internal reinsurance program. The net adverse reserve development in 2022 and 2021 relates primarily to social inflation exposed business assumed from the Specialty casualty sub-segment. This adverse reserve development is partially offset by the amortization of the deferred gains on the retroactive reinsurance transactions entered into in connection with the sale of businesses in 1998 and 2001.

Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $2 million in 2023 and $4 million in both 2022 and 2021 related to business outside the Specialty group that AFG no longer writes.

Covid-19 related losses

AFG’s Specialty property and casualty insurance operations released prior accident year COVID-19 reserves of $20 million in 2023 based on improved loss experience across several businesses. In 2022, AFG’s Specialty property and casualty insurance operations released $19 million of prior accident year COVID-19 reserves based on improved loss experience in the trade credit and workers’ compensation businesses. In 2021, AFG’s Specialty property and casualty insurance operations recorded $16 million in reserve charges related to COVID-19 primarily related to the workers’ compensation and trade credit businesses, and recorded favorable development of approximately $19 million of accident year 2020 reserves primarily based on loss experience in the trade credit and executive liability businesses. Given the uncertainties surrounding the ultimate number and scope of claims relating to the pandemic, approximately 28% of the $55 million in cumulative COVID-19 related losses are held as incurred but not reported reserves at December 31, 2023.

Catastrophe losses

AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. AFG recorded net catastrophe losses of $162 million in 2023 (before $3 million in net reinstatement premiums) primarily from February and March storms across much of the United States in the first quarter and storms in multiple regions of the United States in the second, third and fourth quarters.

Catastrophe losses of $88 million in 2022 (before $5 million in net reinstatement premiums) resulted primarily from winter storms in multiple regions of the United States in the first quarter, storms in multiple regions of the United States in the second quarter, Hurricane Ian in the third quarter and Winter Storm Elliott in the fourth quarter.

Catastrophe losses of $86 million in 2021 (before $12 million in net reinstatement premiums) resulted primarily from winter storms in Texas in the first quarter; storms in multiple regions of the United States in the second, third and fourth quarters; Hurricane Ida in the third quarter and Kentucky tornadoes and Colorado fires in the fourth quarter.

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $1.88 billion in 2023 compared to $1.68 billion in 2022, an increase of $203 million (12%). AFG’s underwriting expense ratio was 28.8% in 2023 compared to 27.6% in 2022, an increase of 1.2 percentage points.

AFG’s property and casualty U/W Exp were $1.68 billion in 2022 compared to $1.51 billion in 2021, an increase of $166 million (11%). AFG’s underwriting expense ratio was 27.6% in 2022 compared to 28.0% in 2021, a decrease of 0.4 percentage points.

Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):

Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums increased 1.7 percentage points in 2023 compared to 2022 reflecting the impact of lower profit-based ceding commissions related to below average profitability in the crop operations, the impact on the ratio of lower earned premiums in the crop operations (which has a lower commissions and other underwriting expense ratio compared to some of the other businesses in the Property and transportation sub-segment) and higher expenses related to certain technology initiatives.

Commissions and other underwriting expenses as a percentage of net earned premiums were comparable in 2022 and 2021.

Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.2 percentage points in 2023 compared to 2022 reflecting higher expenses related to certain technology initiatives, partially offset by the impact on the ratio of growth in earned premiums in the workers’ compensation businesses.

Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.3 percentage points in 2022 compared to 2021 reflecting higher underwriting expenses in the workers’ compensation businesses.

Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.1 percentage points in 2023 compared to 2022 reflecting the impact on the ratio of growth in earned premiums in the financial institutions and innovative markets businesses, partially offset by higher expenses related to certain technology initiatives and the impact of lower profit-based commissions to agents and lower reinstatement premiums recorded in 2022 as a result of losses from Hurricane Ian.

Commissions and other underwriting expenses as a percentage of net earned premiums decreased 2.3 percentage points in 2022 compared to 2021 reflecting lower profit-based commissions to agents in 2022 compared to 2021, and lower underwriting expenses in the international operations.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $729 million in 2023 compared to $683 million in 2022, an increase of $46 million (7%). Net investment income in AFG’s property and casualty insurance operations was $683 million in 2022 compared to $663 million in 2021, an increase of $20 million (3%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):

(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.

The increase in the property and casualty insurance segment’s net investment income in 2023 compared to 2022 reflects the impact of higher yields on fixed maturity investments and higher balances of invested assets, partially offset by lower returns on AFG’s alternative investments portfolio (partnerships and similar investments and AFG-managed CLOs) as compared to the very strong performance of this portfolio in the prior year period. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.94% in 2023 compared to 4.86% in 2022, an increase of 0.08 percentage points reflecting higher yields on fixed maturity investments, partially offset by lower returns on alternative investments. The annualized return earned on alternative investments was 7.0% in 2023 compared to 13.2% in 2022.

The increase in net investment income in 2022 compared to 2021 reflects higher average investments and higher yields on fixed maturities, partially offset by lower returns on AFG’s alternative investments as compared to the very strong performance of alternative investments in the prior year. The property and casualty insurance segment’s overall yield on investments was 4.86% in 2022 compared to 5.12% in 2021, a decrease of 0.26 percentage points as higher yields on fixed maturity investments were more than offset by lower returns on alternative investments. The annualized return earned on alternative investments was 13.2% in 2022 compared to 25.3% in 2021.

Property and Casualty Other Income and Expenses, Net

Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $56 million in 2023, $40 million in 2022 and $6 million in 2021, an increase of $16 million (40%) in 2023 compared to 2022 and an increase of $34 million (567%) in 2022 compared to 2021. The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

(*)Includes $9 million of expenses in both 2023 and 2022 related to certain technology initiatives.

The higher amortization of intangibles in 2023 compared to 2022 and 2022 compared to 2021 reflects the acquisition of CRS in July 2023 and the acquisition of Verikai in December 2021, respectively. The $12 million (41%) increase in interest expense on funds withheld in 2023 compared to 2022 reflects the impact of higher interest rates.

Holding Company, Other and Unallocated — Results of Operations

AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $191 million in 2023 compared to $180 million in 2022, an increase of $11 million (6%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $177 million in 2023 compared to $171 million in 2022, an increase of $6 million (4%).

AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $180 million in 2022 compared to $219 million in 2021, a decrease of $39 million (18%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $171 million in 2022 compared to $208 million in 2021, a decrease of $37 million (18%).

The following table details AFG’s GAAP and core loss from continuing operations before income taxes from operations outside of its property and casualty insurance segment in 2023, 2022 and 2021 (dollars in millions):

(*)Excludes a pretax non-core special A&E charge of $15 million and a pretax non-core gain on retirement of debt of $1 million in 2023, a pretax non-core loss on retirement of debt of $9 million in 2022 and a pretax non-core loss of $11 million related to the settlement of pension liabilities of a small former manufacturing operation in 2021.

Holding Company and Other — Net Investment Income

AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $40 million, $24 million and $36 million in 2023, 2022 and 2021, respectively. The $16 million (67%) increase in 2023 compared to 2022 and the $12 million (33%) decrease in 2022 compared to 2021 reflect the impact of a small portfolio of securities held at the holding company that were carried at fair value through net investment income. These securities, all of which were sold in 2022, declined in value by $7 million in 2022 and increased in value by $14 million in 2021. Excluding the change in fair value of these equity securities, net investment income outside of AFG’s property and casualty insurance segment increased $9 million in 2023 compared to 2022 reflecting the impact of higher interest rates on cash and fixed maturity investments, partially offset by lower average investment balances and increased $9 million in 2022 compared to 2021 reflecting an increase in average investments, income from directly owned real estate investments acquired from the annuity subsidiaries in conjunction with the sale of the annuity business in May 2021 and the impact of higher interest rates.

Holding Company and Other — P&C Fees and Related Expenses

Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In 2023, AFG collected $91 million in fees for these services compared to $82 million in 2022 and $73 million in 2021. Management views this fee income, net of the $57 million in 2023, $51 million in 2022 and $47 million in 2021, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. In addition, AFG’s property and casualty insurance businesses earned $34 million in fees as compensation for providing services during the second half of 2023 related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date and $7 million in fees from AFG’s disposed annuity operations in both 2022 and 2021 as compensation for certain services provided under a transition services agreement. The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of loss adjustment and other underwriting expenses in AFG’s segmented results.

Holding Company and Other — Other Income

Other income in the table above includes $16 million in 2023, $17 million in 2022 and $16 million in 2021, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidated MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $5 million in 2023, $16 million in 2022 and $6 million in 2021. The decrease in 2023 compared to 2022 and the increase in 2022 compared to 2021 is due primarily to income from the sale of real estate in 2022.

Holding Company and Other — Other Expenses

Excluding the non-core special A&E charge and the non-core gain (loss) on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $162 million in 2023 compared to $143 million in 2022, an increase of $19 million (13%) reflecting the favorable impact of poor stock market performance in 2022 on expenses related to deferred compensation obligations to employees that are tied to stock market performance. To mitigate the impact of fair value changes related to the equity components of these obligations, AFG entered into a total return swap in the second half of 2022.

Excluding the non-core loss on retirement of debt and the non-core loss on pension settlement discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $143 million in 2022 compared to $172 million in 2021, a decrease of $29 million (17%). This decrease reflects lower holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance, partially offset by higher charges (included in AFG’s core operating earnings) to increase the liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations.

Holding Company and Other — Interest Charges on Borrowed Money

AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $76 million in 2023, $85 million in 2022 and $94 million in 2021. The $9 million (11%) decrease in interest expense in 2023 compared to 2022 and the $9 million (10%) decrease in interest expense in 2022 compared to 2021 is due primarily to the retirement of AFG’s $425 million principal amount of 3.50% Senior Notes during the first six months of 2022.

Holding Company and Other — Special A&E Charge

As a result of the in-depth internal reviews of A&E exposures discussed under “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves,” AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded a pretax non-core special charge of $15 million in 2023 and minor charges in 2022 and 2021 (included in AFG’s core operating earnings) to increase liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations. The 2023 charge reflects changes in the scope and costs of investigation and an increase in estimated remediation costs at a limited number of sites. AFG has also increased its reserve for asbestos and toxic substance exposures arising out of these operations. Total charges recorded to increase liabilities for A&E exposures of AFG’s former railroad and manufacturing operations (included in other expenses) were $22 million in 2023, $17 million in 2022 and $9 million in 2021.

Holding Company and Other — Gain (Loss) on Retirement of Debt

During the first six months of 2023, AFG repurchased $23 million principal amount of its senior notes, which resulted in a $2 million pretax non-core gain and recorded a $1 million pretax non-core loss related to the write-off of debt issue costs associated with its previous revolving credit facility, which was replaced in June 2023. During 2022, AFG retired $472 million principal amount of its senior notes, which resulted in a $9 million pretax non-core loss.

Holding Company and Other — Loss on Pension Settlement

In the second quarter of 2021, AFG settled pension liabilities related to a small former manufacturing operation resulting in a pretax non-core loss of $11 million.

Realized Gains (Losses) on Securities

AFG’s realized gains (losses) on securities were net losses of $36 million in 2023 compared to $116 million in 2022, a decrease of $80 million (69%). AFG’s consolidated realized gains (losses) on securities were net losses of $116 million in 2022 compared to net gains of $110 million in 2021, a change of $226 million (205%). Realized gains (losses) on securities consisted of the following (in millions):

The $33 million net realized loss from disposals in 2023 includes losses of $15 million from the sale of investments in banks and $5 million from the sale of municipal bonds.

The $10 million net realized gain from the change in the fair value of equity securities in 2023 includes gains of $8 million on investments in retail companies, $7 million on investments in banks and financing companies, $5 million on investments in capital goods companies and $4 million on investments in natural gas companies, partially offset by losses of $8 million on investments in media companies and $6 million on investments in energy companies.

The $96 million net realized loss from the change in the fair value of equity securities in 2022 includes losses of $51 million on investments in banks and financing companies, $21 million on investments in media companies, $14 million on investments in healthcare companies, $7 million on investments in technology companies and $3 million on investments in retail companies, partially offset by gains of $17 million on investments in energy and natural gas companies.

The $110 million net realized gain from the change in the fair value of equity securities in 2021 includes gains of $29 million on investments in energy and natural gas companies, $18 million on investments in banks and financing companies, $17 million on investments in media companies, $14 million on investments in healthcare companies and $9 million on investments in capital goods companies.

Realized Gain (Loss) on Subsidiaries

In the third quarter of 2023, AFG recorded a realized loss on subsidiary of $4 million, consisting of a $26 million goodwill impairment charge, partially offset by a $22 million reduction in the fair value of a contingent consideration liability, both related to AFG’s investment in Verikai. See Note E — “Fair Value Measurements” and Note I — “Goodwill and Other Intangibles” to the financial statements.

In 2021, AFG recognized a pretax gain on sale of subsidiary of $4 million related to contingent consideration received on the sale of Neon.

Consolidated Income Taxes on Continuing Operations

AFG’s consolidated provision for income taxes on continuing operations was $221 million in 2023 compared to $225 million in 2022, a decrease of $4 million (2%). AFG’s consolidated provision for income taxes on continuing operations was $225 million in 2022 compared to $254 million in 2021, a decrease of $29 million (11%). See Note M — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.

Real Estate Entities Acquired from the Annuity Operations

The results of AFG’s disposed annuity businesses are reported as discontinued operations. Prior to the completion of the sale, AFG’s property and casualty insurance operations acquired certain real estate-related partnerships and AFG parent acquired certain directly owned real estate from those operations. GAAP pretax earnings from continuing operations includes the earnings from these entities through the May 31, 2021 effective date of the sale and certain other expenses that were retained from the annuity operations. The retained real estate entities contributed $51 million in GAAP pretax earnings through the May 31, 2021 effective date of the sale.

Discontinued Annuity Operations

AFG’s discontinued annuity operations, which were sold on May 31, 2021, contributed $324 million in GAAP pretax earnings (excluding the gain on the sale of the annuity operations) in 2021.

The following table details AFG’s earnings before and after income taxes and the gain on the sale from its discontinued annuity operations for the year ended December 31, 2021 (dollars in millions):

(*)Results through the May 31, 2021 effective date of the sale.

ACCOUNTING STANDARDS TO BE ADOPTED

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07 (“ASU 2023-07”), Improvements to Reportable Segment Disclosures. ASU 2023-07 will require enhanced disclosures about significant segment expenses and a description of the composition of other segment expenses by business segment. ASU 2023-07 also requires disclosure of the title and position of the chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied on a retrospective basis. As of December 31, 2023, AFG has not adopted ASU 2023-07. Management is evaluating the impact of the standard to the segment reporting disclosures. Since ASU 2023-07 only requires additional disclosure, the adoption of this guidance will not have an impact on AFG’s results of operations or financial condition.

In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures. ASU 2023-09 is intended to improve income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation presented in both dollar and percentage terms; (ii) the disaggregation of income taxes paid (net of refunds received), income (loss) before income taxes and income taxes by jurisdiction (federal, state and foreign taxes); and (iii) further disaggregation of income taxes paid by any individual jurisdiction equal to or exceeding five percent of total income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied prospectively with the option of retrospective application. As of December 31, 2023, AFG has not adopted ASU 2023-09. Management is evaluating the impact of the standard to the income tax disclosures. Since ASU 2023-09 only requires additional disclosure, the adoption of this guidance will not have an impact on AFG’s results of operations or financial condition.

Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. AFG’s exposures to market risk relate primarily to its investment portfolio, which is exposed to interest rate risk and, to a lesser extent, equity price risk. To a much lesser extent, AFG’s long-term debt is also exposed to interest rate risk.

Fixed Maturity Interest Rate Risk In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. AFG’s fixed maturity portfolio is comprised of primarily fixed-rate investments with intermediate-term maturities. This practice is designed to allow flexibility in reacting to fluctuations of interest rates. The portfolios of AFG’s insurance operations are managed with an attempt to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet policyholder obligations.

Consistent with the discussion in Item 7 — Management’s Discussion and Analysis — “Investments,” the following table demonstrates the sensitivity of the fair value of AFG’s fixed maturity portfolio to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have at December 31 (based on the duration of the portfolio, dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.

Equity Price Risk AFG’s equity securities are reported at fair value with holding gains and losses recognized in net earnings. At December 31, 2023 and 2022, the fair value of AFG’s equity securities totaled $1.02 billion and $1.01 billion, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value. Market prices of equity securities, in general, are subject to fluctuations, which could cause future values to differ significantly from the current reported values. General economic swings influence the performance of the underlying industries and companies within those industries. Industry and company-specific risks also have the potential to substantially affect the value of AFG’s portfolio.

AFG utilizes a total return swap to offset changes in liabilities related to the equity price risk of certain deferred compensation arrangements. Gains or losses from changes in fair value of the total return swap are generally offset by changes in the carrying value of the related liabilities, both of which are included in other expenses.

Long-Term Debt The following table shows scheduled principal payments on fixed-rate long-term debt of AFG and its subsidiaries and related weighted average interest rates for each of the subsequent five years and for all years thereafter (dollars in millions):

82

AFG’s management, with participation of its Co-Chief Executive Officers and its Chief Financial Officer, has evaluated AFG’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report. Based on that evaluation, AFG’s Co-CEOs and CFO concluded that the controls and procedures are effective. There have been no changes in AFG’s internal control over financial reporting during the fourth fiscal quarter of 2023 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

AFG’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including AFG’s Co-Chief Executive Officers and Chief Financial Officer, AFG conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2023, based on the criteria set forth in “Internal Control — Integrated Framework” issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.

In conducting AFG’s evaluation of the effectiveness of its internal control over financial reporting, AFG has not included Crop Risk Services (“CRS”), which was acquired in 2023. CRS constituted less than 1% of total assets and total net assets as of December 31, 2023 and less than 1% of total revenues and net earnings for the year then ended. CRS’ operations will be included in AFG’s assessment as of December 31, 2024. Refer to Note C — “Acquisitions and Sale of Businesses” to the consolidated financial statements for further discussion of this acquisition.

There are inherent limitations to the effectiveness of any system of internal controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective internal controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based on AFG’s evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2023. The attestation report of AFG’s independent registered public accounting firm on AFG’s internal control over financial reporting as of December 31, 2023, is set forth on page 84.