American Financial Group Inc: Form 10-Q for the period ended Jun 30, 2024

INDEX TO MD&A

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Some of the forward-looking statements can be identified by the use of words such as “anticipates”, “believes”, “expects”, “projects”, “estimates”, “intends”, “plans”, “seeks”, “could”, “may”, “should”, “will” or the negative version of those words or other comparable terminology. Such forward-looking statements include statements relating to: expectations concerning market and other conditions and their effect on future premiums, revenues, earnings, investment activities and the amount and timing of share repurchases and special dividends; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.

Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to the following and the risks and uncertainties AFG describes in the “Risk Factors” section of its most recent Annual Report on Form 10-K, as updated by its other reports filed with the Securities and Exchange Commission.

• changes in financial, political and economic conditions, including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions in the U.S. and/or abroad;
• performance of securities markets;
• new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio;
• the availability of capital;
• changes in insurance law or regulation, including changes in statutory accounting rules, including modifications to capital requirements;
• changes in the legal environment affecting AFG or its customers;
• tax law and accounting changes;
• levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from pandemics, civil unrest and other major losses;
• disruption caused by cyber-attacks or other technology breaches or failures by AFG or its business partners and service providers, which could negatively impact AFG’s business and/or expose AFG to litigation;
• development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims;
• availability of reinsurance and ability of reinsurers to pay their obligations;
• competitive pressures;
• the ability to obtain adequate rates and policy terms;
• changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries;
• the impact of the conditions in the international financial markets and the global economy relating to AFG’s international operations; and
• effects on AFG’s reputation, including as a result of environmental, social and governance matters.

The forward-looking statements herein are made only as of the date of this report. The Company assumes no obligation to publicly update any forward-looking statements.

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 2.

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 reported net earnings of $209 million ($2.49 per share, diluted) for the second quarter of 2024 compared to $200 million ($2.34 per share, diluted) for the second quarter of 2023 reflecting higher underwriting profit.

AFG reported net earnings of $451 million ($5.38 per share, diluted) for the first six months of 2024 compared to $412 million ($4.83 per share, diluted) for the first six months of 2023. The year-over-year increase was due primarily to higher underwriting profit and the impact of higher yields on fixed maturity investments coupled with net realized gains on securities in the first six months of 2024 compared to net realized losses on securities in the first six months of 2023. These items were partially offset by lower returns on AFG’s alternative investment portfolio.

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 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 generally favorable property and casualty insurance market. In addition, management anticipates 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 into 2025.

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.

For a discussion of these policies, see Management’s Discussion and Analysis — “Critical Accounting Policies” in AFG’s 2023 Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

Ratios

AFG’s debt to total capital ratio on a consolidated basis is shown below (dollars in millions):

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. 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 accumulated other comprehensive income (loss), net of tax). 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.

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. 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 reduced cash flows from operating activities by $239 million during the first six months of 2024 and increased cash flows from operating activities by $70 million in the first six months of 2023, accounting for a $309 million decrease in cash flows from operating activities in the 2024 period compared to the 2023 period. 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 $258 million and $448 million in the first six months of 2024 and 2023, 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. 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 $57 million source of cash in the first six months of 2024 compared to $153 million in the first six months of 2023, accounting for a $96 million decrease in net cash provided by (used in) investing activities in the first six months of 2024 compared to the same 2023 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements. Excluding the activity of the managed investment entities, investing activities were a $63 million use of cash in the first six months of 2024 compared to a $215 million source of cash in the first six months of 2023.

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 and dividend payments. Net cash used in financing activities was $117 million for the first six months of 2024 compared to $770 million in the first six months of 2023, a decrease of $653 million. AFG paid cash dividends totaling $327 million in the first six months of 2024 compared to $446 million in the first six months of 2023, a decrease in cash used by financing activities of $119 million. There were no debt retirements in the first six months of 2024 compared to $21 million in debt retirements during the first six months of 2023. During the first six months of 2024, AFG did not repurchase any of its Common Stock compared to repurchases of $67 million in the comparable 2023 period. 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. Issuances of managed investment entity liabilities exceeded retirements by $200 million in the first six months of 2024 compared to retirements exceeding issuances by $244 million in the first six months of 2023, accounting for a $444 million decrease in net cash used in financing activities in the 2024 period compared to the 2023 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements.

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 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.

AFG paid a special cash dividend totaling $209 million ($2.50 per share) 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 1,872,544 shares of its Common Stock for $213 million, paid special cash dividends totaling $466 million ($4.00 per share in February and $1.50 per share in November) and repurchased $23 million principal amount of its senior notes for $21 million cash.

At June 30, 2024, AFG (parent) held approximately $438 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. AFG can borrow up to $450 million under its 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 the first six months of 2024.

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.

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.

Investments

AFG’s investment portfolio at June 30, 2024, contained $10.20 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 $65 million in fixed maturities classified as trading with holding gains and losses included in net investment income. In addition, AFG’s investment portfolio includes $526 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $551 million in equity securities carried at fair value with holding gains and losses included in net investment income.

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 June 30, 2024 and 4% 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 June 30, 2024 (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 June 30, 2024, 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.

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 $540 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 June 30, 2024, is shown in the following table (dollars in millions). Approximately $226 million of available for sale fixed maturity securities had no unrealized gains or losses at June 30, 2024.

The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at June 30, 2024, 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.

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

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:

When a decline in the value of a specific investment is considered to be other-than-temporary, an allowance for credit losses (impairment) is charged to earnings (accounted for as a realized loss). The determination of whether unrealized losses are other-than-temporary requires judgment based on subjective as well as objective factors as detailed in AFG’s 2023 Form 10-K under Management’s Discussion and Analysis — “Investments.”

Based on its analysis, 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 June 30, 2024. 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

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. See Management’s Discussion and Analysis — “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves” in AFG’s 2023 Form 10–K.

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 G — “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 second quarter of 2024 and $5 million in the second quarter of 2023, representing the change in fair value of AFG’s CLO investments and $3 million and $4 million in the second quarter of 2024 and 2023, respectively, in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $9 million and $7 million in the second quarter of 2024 and 2023, respectively, in distributions recorded as interest expense by the CLOs.

(c) Elimination of management fees earned by AFG.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

(a) Includes income of $23 million in the first six months of 2024 and $6 million in the first six months of 2023, representing the change in fair value of AFG’s CLO investments and $6 million and $8 million of income in the first six months of 2024 and 2023, respectively, in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $18 million and $11 million in the first six months of 2024 and 2023, respectively, 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. 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.

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.

(*)Adjustment to net income tax expense related to the sale of a subsidiary in a prior year.

Net earnings were $209 million in the second quarter of 2024 compared to $200 million in the second quarter of 2023 reflecting higher core net operating earnings. Core net operating earnings for the second quarter of 2024 increased $13 million compared to the second quarter of 2023 reflecting higher underwriting profit. Net realized gains (losses) on securities in the second quarter of 2024 and 2023 include after-tax losses of $2 million and after-tax gains of $1 million, respectively, resulting from the change in fair value of equity securities that were still held at the balance sheet date.

Net earnings were $451 million in the first six months of 2024 compared to $412 million in the first six months of 2023 reflecting net realized gains on securities in the first six months of 2024 compared to net realized losses on securities in the first six months of 2023, partially offset by lower core net operating earnings. Core net operating earnings for the first six months of 2024 decreased $3 million compared to the first six months of 2023. Higher underwriting profit and higher investment income outside of alternative investments was more than offset by lower returns on AFG’s alternative investment portfolio. Net realized gains (losses) on securities in the first six months of 2024 and 2023 include after-tax gains of $14 million and after-tax losses of $17 million, respectively, resulting from the change in fair value of equity securities that were still held at the balance sheet date.

RESULTS OF OPERATIONS — THREE MONTHS ENDED JUNE 30, 2024 AND 2023

Segmented Statement of Earnings

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 June 30, 2024 and 2023 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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Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

(*)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 $319 million in pretax earnings in the second quarter of 2024 compared to $299 million in the second quarter of 2023, an increase of $20 million (7%). The increase in 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 (partnerships and similar investments and AFG-managed CLOs) and higher other expenses in the second quarter of 2024 compared to the second quarter of 2023.

The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the three months ended June 30, 2024 and 2023 (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.

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 $2.41 billion for the second quarter of 2024 compared to $2.37 billion for the second quarter of 2023, an increase of $37 million (2%). 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 30% of gross written premiums for both the second quarter of 2024 and the second quarter of 2023. 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 $1.69 billion for the second quarter of 2024 compared to $1.67 billion for the second quarter of 2023, an increase of $25 million (1%). 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 $1.59 billion for the second quarter of 2024 compared to $1.51 billion for the second quarter of 2023, an increase of $78 million (5%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

Gross written premiums for the second quarter of 2024 increased $37 million (2%) compared to the second quarter of 2023, reflecting new business opportunities, increased exposures and a good renewal rate environment, partially offset by the impact of later reporting of crop acreage. Tempered growth in the quarter also reflects AFG’s proactive and intentional approach to managing exposure in several of the social inflation exposed businesses. Overall average renewal rates increased approximately 6% in the second quarter of 2024. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates increased approximately 8%.

Property and transportation Gross written premiums increased $25 million (2%) in the second quarter of 2024 compared to the second quarter of 2023. Year-over-year premium growth was primarily attributed to new business opportunities, a favorable rate environment and increased exposures in the commercial auto businesses. Later reporting of crop acreage, which impacts the timing of crop premiums, more than offset the additional crop premium associated with the CRS acquisition. Excluding crop, gross and net written premiums in this group grew by 7% and 5%, respectively. Average renewal rates increased approximately 8% for this group in the second quarter of 2024. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the second quarter of 2024 and the second quarter of 2023.

Specialty casualty Gross written premiums increased $11 million (1%) in the second quarter of 2024 compared to the second quarter of 2023. Year-over-year premium growth resulted primarily from new business opportunities, higher rates and strong policy retention. This growth was partially offset by non-renewal of some large accounts and other underwriting actions taken in several of the targeted markets businesses. Average renewal rates increased approximately 5% for this group in the second quarter of 2024. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 7%. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in the second quarter of 2024 compared to the second quarter of 2023 reflecting lower cessions in the social services business, partially offset by higher cessions in the excess liability business.

Specialty financial Gross written premiums were flat in the second quarter of 2024 compared to the second quarter of 2023. Growth in the financial institutions business was partially offset by a decision to pause writing of new intellectual property related coverage in the innovative markets business. Average renewal rates increased approximately 6% for this group in the second quarter of 2024. Reinsurance premiums ceded as a percentage of gross written premiums decreased 2 percentage points in the second quarter of 2024 compared to the second quarter of 2023. The impact of lower gross written premiums in the innovative markets business, which cedes a larger percentage of premiums than some of the other businesses in the Specialty financial sub-segment was partially offset by the impact of higher cessions in the financial institutions business due to a change in the mix of 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 decreased $7 million in the second quarter of 2024 compared to the second quarter of 2023 reflecting a decrease 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:

The Specialty property and casualty insurance operations generated an underwriting profit of $151 million in the second quarter of 2024 compared to $123 million in the second quarter of 2023, an increase of $28 million (23%). Higher underwriting profits in each of the Specialty property and casualty insurance sub-segments were partially offset by higher losses in the business assumed by AFG’s internal reinsurance program. Overall catastrophe losses were $36 million (2.3 points on the combined ratio) in the second quarter of 2024 compared to catastrophe losses $53 million (3.5 points), including $2 million in net reinstatement premiums in the second quarter of 2023.

Property and transportation Underwriting profit for this group was $39 million for the second quarter of 2024 compared to $32 million for the second quarter of 2023, an increase of $7 million (22%). Higher year-over-year underwriting profits in the property and inland marine and crop insurance businesses were partially offset by lower underwriting profitability in the transportation businesses. Catastrophe losses were $13 million (2.4 points on the combined ratio) in the second quarter of 2024 compared to $15 million (2.9 points) in the second quarter of 2023.

Specialty casualty Underwriting profit for this group was $108 million for the second quarter of 2024 compared to $95 million for the second quarter of 2023, an increase of $13 million (14%). Higher year-over-year underwriting profitability in the targeted markets and workers’ compensation businesses and improved results in several other Specialty casualty businesses were partially offset by lower levels of favorable prior year reserve development in the executive liability business and adverse development in the excess liability business. Catastrophe losses were $5 million (0.7 points on the combined ratio) in the second quarter of 2024 compared to catastrophe losses of $8 million (1.0 points), including $2 million in net reinstatement premiums in the second quarter of 2023.

Specialty financial Underwriting profit for this group was $25 million for the second quarter of 2024 compared to $10 million in the second quarter of 2023, an increase of $15 million (150%). This increase reflects higher underwriting profitability in the financial institutions business. Catastrophe losses were $17 million (7.3 points on the combined ratio) compared to $19 million (9.6 points) in the second quarter of 2023.

Other specialty This group reported an underwriting loss of $21 million in the second quarter of 2024 compared to $14 million in the second quarter of 2023, an increase of $7 million (50%), 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 second quarter of 2024 compared to the second quarter of 2023. Catastrophe losses were $1 million in the second quarter of 2024 compared to $11 million in the second quarter of 2023.

Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment includes adverse prior year reserve development of $1 million in the second quarter of 2024 compared to favorable prior year development of $1 million in the second quarter of 2023 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 59.1% for the second quarter of 2024 compared to 60.0% for the second quarter of 2023, a decrease of 0.9 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 59.1% for the second quarter of 2024 compared to 60.7% for the second quarter of 2023, a decrease of 1.6 percentage points.

Property and transportation The 2.1 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in the crop business, which has a higher loss and LAE ratio than some of the other businesses in the Property and transportation sub-segment, and higher reported losses in the commercial auto businesses.

Specialty casualty The 0.8 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects improved results in the targeted markets businesses.

Specialty financial The 2.3 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects 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 $36 million in the second quarter of 2024 compared to $61 million in the second quarter of 2023, a decrease of $25 million (41%).

Property and transportation Net favorable reserve development of $33 million in the second quarter of 2024 reflects lower than anticipated losses in the crop business and lower than expected claim severity in the property and inland marine business. Net favorable reserve development of $21 million in the second quarter of 2023 reflects lower than expected claim frequency and severity in the trucking business, lower than anticipated losses in the crop business and lower than anticipated claim frequency in the ocean marine business.

Specialty casualty Net favorable reserve development of $25 million in the second quarter of 2024 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability business, partially offset by higher than anticipated claim severity in the excess liability business. Net favorable reserve development of $24 million in the second quarter of 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.

Specialty financial Net reserve development of less than $1 million in the second quarter of 2024 reflects lower than anticipated claim frequency in the trade credit and fidelity businesses and lower than expected claim frequency and severity in the financial institutions business, offset by higher than anticipated claim severity in certain other businesses. Net favorable reserve development of $11 million in the second quarter of 2023 reflects lower than anticipated claim frequency in the trade credit and financial institutions businesses and lower than expected claim frequency and severity in the fidelity business.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of $22 million in the second quarter of 2024 and net favorable reserve development of $5 million in the second quarter of 2023 associated with AFG’s internal reinsurance program and the amortization of the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of a business in 1998. The net adverse reserve development in 2024 is primarily related to social inflation exposed business assumed from the Specialty casualty sub-segment.

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 second quarter of 2024 and net favorable reserve development of $1 million in the second quarter of 2023 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:

AFG maintains comprehensive property catastrophe reinsurance coverage for its property and casualty insurance operations, including a $70 million per occurrence net retention, for losses up to $153 million in the vast majority of circumstances. In certain unlikely events, AFG’s ultimate loss under this coverage could be as high as $73 million for a single occurrence. AFG further maintains supplemental fully collateralized reinsurance coverage up to 94% of $324 million for catastrophe losses in excess of $153 million of traditional catastrophe reinsurance through a catastrophe bond.

Catastrophe losses of $36 million in the second quarter of 2024 and $51 million in the second quarter of 2023 resulted primarily from storms in multiple regions of the United States.

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $498 million in the second quarter of 2024 compared to $478 million for the second quarter of 2023, an increase of $20 million (4%). AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 31.4% for the second quarter of 2024 compared to 31.7% for the second quarter of 2023, a decrease of 0.3 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 decreased 0.5 percentage points in the second quarter of 2024 compared to the second quarter of 2023 reflecting the impact of higher earned premiums on the ratio, including in the crop business that has a lower commissions and other underwriting expense ratio compared to some of the other businesses in the Property and transportation sub-segment and lower average commission rates in the trucking business.

Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums were comparable in the second quarter of 2024 and the second quarter of 2023.

Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 6.5 percentage points in the second quarter of 2024 compared to the second quarter of 2023 due primarily to the impact of higher earned premiums in the financial institutions business on the ratio and lower average commission rates in certain businesses.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $189 million in the second quarter of 2024 compared to $191 million in the second quarter of 2023, a decrease 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 decrease in the property and casualty insurance segment’s net investment income for the second quarter of 2024 compared to the second quarter of 2023 reflects lower returns on AFG’s alternative investments portfolio (partnerships and similar investments and AFG-managed CLOs), substantially offset by the impact of higher balances of invested assets and higher returns on fixed maturity investments. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.93% for the second quarter of 2024 compared to 5.27% for the second quarter of 2023, a decrease of 0.34 percentage points reflecting lower returns on alternative investments. The annualized return earned on alternative investments was 5.1% in the second quarter of 2024 compared to 9.6% in the comparable 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 $20 million for the second quarter of 2024 compared to $16 million for the second quarter of 2023, an increase of $4 million (25%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

The higher amortization of intangibles in the second quarter of 2024 compared to the second quarter of 2023 reflects the acquisition of CRS in July 2023. The $3 million (30%) increase in interest expense on funds withheld for the second quarter of 2024 compared to the second quarter of 2023 reflects the impact of higher interest rates paid on funds withheld.

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 $46 million in the second quarter of 2024 compared to $42 million in the second quarter of 2023, an increase of $4 million (10%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $46 million in the second quarter of 2024 compared to $41 million in the second quarter of 2023, an increase of $5 million (12%).

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 June 30, 2024 and 2023 (dollars in millions):

(*)Excludes a pretax non-core loss on retirement of debt of $1 million in the second quarter of 2023.

Holding Company and Other — Net Investment Income

AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $8 million in the second quarter of 2024 compared to $12 million in the second quarter of 2023, a decrease of $4 million (33%) reflecting the impact of lower average investment balances.

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 second quarter of 2024, AFG collected $24 million in fees for these services compared to $22 million in the second quarter of 2023. Management views this fee income, net of the $16 million in the second quarter of 2024 and $15 million in the second quarter of 2023 in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. 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 commissions and other underwriting expenses in AFG’s segmented results.

Holding Company and Other — Other Income

Other income in the table above includes $3 million in the second quarter of 2024 and $4 million in the second quarter of 2023 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 in the second quarter of 2024 and less than $1 million in the second quarter of 2023.

Holding Company and Other — Other Expenses

Excluding the non-core loss on retirement of debt in the second quarter of 2023 discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $39 million in the second quarter of 2024 compared to $38 million in the second quarter of 2023, an increase of $1 million (3%).

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 both the second quarter of 2024 and the second quarter of 2023.

Holding Company and Other — Loss on Retirement of Debt

During the second quarter of 2023, AFG 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.

Realized Gains (Losses) on Securities

AFG’s realized gains (losses) on securities were net losses of $2 million in both the second quarter of 2024 and the second quarter of 2023. Realized gains (losses) on securities consisted of the following (in millions):

The $1 million net realized loss from the change in the fair value of equity securities in the second quarter of 2024 includes losses of $4 million on investments in media companies, partially offset by gains of $3 million on investments in healthcare companies. The $3 million net realized gain from the change in the fair value of equity securities in the second quarter of 2023 includes gains of $3 million on investments in capital goods companies, $2 million on investments in banks and financing companies, $2 million on investments in healthcare companies and $2 million on investments in real estate investment trusts, partially offset by losses of $5 million on investments in media companies and $3 million on investments in retail companies.

Consolidated Income Taxes

AFG’s consolidated provision for income taxes was $62 million for the second quarter of 2024 compared to $55 million for the second quarter of 2023, an increase of $7 million (13%). See Note K — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.

RESULTS OF OPERATIONS — SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Segmented Statement of Earnings

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 six months ended June 30, 2024 and 2023 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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Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

(*)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

AFG’s property and casualty insurance operations contributed $659 million in pretax earnings in the first six months of 2024 compared to $649 million in the first six months of 2023, an increase of $10 million (2%). The increase in 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 (partnerships and similar investments and AFG-managed CLOs), lower other income and higher other expenses, in the first six months of 2024 compared to the first six months of 2023.

The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the six months ended June 30, 2024 and 2023 (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 $4.74 billion for the first six months of 2024 compared to $4.52 billion for the first six months of 2023, an increase of $218 million (5%). 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 30% of gross written premiums in both the first six months of 2024 and the first six months of 2023. 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 $3.33 billion for the first six months of 2024 compared to $3.19 billion for the first six months of 2023, an increase of $140 million (4%). 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 $3.13 billion for the first six months of 2024 compared to $2.94 billion for the first six months of 2023, an increase of $187 million (6%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

Gross written premiums for the first six months of 2024 increased $218 million (5%) compared to the first six months of 2023. Year-over-year gross written premium growth was reported within each of the Specialty property and casualty sub-segments as a result of additional crop premiums from the CRS acquisition, new business opportunities, increased exposures and a good renewal rate environment, partially offset by the impact of later reporting of crop acreage. Overall average renewal rates increased approximately 6% in the first six months of 2024. Excluding the workers’ compensation businesses, renewal pricing increased approximately 8%.

Property and transportation Gross written premiums increased $112 million (6%) in the first six months of 2024 compared to the first six months of 2023. Year-over-year premium growth resulted from additional crop premium associated with the CRS acquisition as well as new business opportunities, a favorable rate environment and increased exposures in the commercial auto businesses. Later reporting of crop acreage, which impacts the timing of crop premiums, partially offset this growth. Excluding crop, gross and net written premiums in this group grew by 6% and 4%, respectively. Average renewal rates increased approximately 8% for this group in the first six months of 2024. Reinsurance premiums ceded as a percentage of gross written premiums increased 1 percentage point in the first six months of 2024 compared to the first six months of 2023 reflecting the impact of higher premiums in the crop business and growth in alternative risk transfer products in the transportation businesses, 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 $47 million (2%) in the first six months of 2024 compared to the first six months of 2023. The higher year-over-year premiums resulted primarily from growth in the excess and surplus and excess liability businesses as a result of rate increases, new business opportunities and strong policy retention. This growth was partially offset by non-renewal of some large accounts and other underwriting actions taken in several of the targeted markets businesses. Average renewal rates increased approximately 5% for this group in the first six months of 2024. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 8%. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in the first six months of 2024 compared to the first six months of 2023 reflecting lower cessions in the social services business, partially offset by the impact of higher premiums in the excess and surplus and excess liability businesses, which cede a larger percentage of premiums than some of the other businesses in the Specialty casualty sub-segment.

Specialty financial Gross written premiums increased $59 million (11%) in the first six months of 2024 compared to the first six months of 2023. Growth in the financial institutions business was partially offset by a decision to pause writing of new intellectual property related coverage in the innovative markets business. Average renewal rates increased approximately 7% for this group in the first six months of 2024. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in the first six months of 2024 compared to the first six months of 2023 reflecting lower gross written premiums in the innovative markets business, which cedes a larger percentage of premiums than some of the other businesses in the Specialty financial sub-segment.

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 decreased $10 million (8%) in the first six months of 2024 compared to the first six months of 2023, reflecting a decrease 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 and underwriting profit for AFG’s property and casualty insurance segment:

The Specialty property and casualty insurance operations generated an underwriting profit of $305 million for the first six months of 2024 compared to $278 million for the first six months of 2023, an increase of $27 million (10%). Higher underwriting profits in the Property and transportation and Specialty financial sub-segments were partially offset by lower underwriting profit in the Specialty casualty sub-segment and higher losses in the business assumed by AFG’s internal reinsurance program. Overall catastrophe losses were $71 million (2.3 points on the combined ratio), including $1 million in net reinstatement premiums in the first six months of 2024 compared to catastrophe losses of $84 million (2.7 points), including $2 million in net reinstatement premiums in the first six months of 2023.

Property and transportation Underwriting profit for this group was $95 million for the first six months of 2024 compared to $75 million for the first six months of 2023, an increase of $20 million (27%). Higher year-over-year underwriting profits in the property and inland marine and crop insurance businesses were partially offset by lower underwriting profitability in the transportation businesses. Catastrophe losses were $21 million (2.1 points on the combined ratio) in the first six months of 2024 compared to $34 million (3.3 points) in the first six months of 2023.

Specialty casualty Underwriting profit for this group was $182 million for the first six months of 2024 compared to $183 million for the first six months of 2023, a decrease of $1 million (1%). Higher year-over-year underwriting profits in the workers’ compensation businesses were more than offset by lower levels of favorable prior year reserve development in the executive liability business and adverse development in the excess liability business. Catastrophe losses were $21 million (1.5 points on the combined ratio), including $1 million in net reinstatement premiums in the first six months of 2024 compared to catastrophe losses of $11 million (0.7 points), including $2 million in net reinstatement premiums in the first six months of 2023.

Specialty financial Underwriting profit for this group was $58 million for the first six months of 2024 compared to $36 million for the first six months of 2023, an increase of $22 million (61%). This increase reflects higher underwriting profits in the financial institutions and fidelity businesses, partially offset by lower profitability in the innovative markets business. Catastrophe losses were $25 million (5.2 points on the combined ratio) in the first six months of 2024 compared to $23 million (5.8 points) in the first six months of 2023.

Other specialty This group reported an underwriting loss of $30 million in the first six months of 2024 compared to $16 million in the first six months of 2023, an increase of $14 million (88%), 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 first six months of 2024 compared to the first six months of 2023. Catastrophe losses were $4 million in the first six months of 2024 compared to $16 million in the first six months of 2023.

Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment includes adverse prior year reserve development of $2 million in the first six months of 2024 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 58.9% for the first six months of 2024 compared to 58.5% for the first six months of 2023, an increase of 0.4 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 59.3% for the first six months of 2024 compared to 60.1% for the first six months of 2023, a decrease of 0.8 percentage points.

Property and transportation The 1.5 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in the crop business, which has a higher loss and LAE ratio than some of the other businesses in the Property and transportation sub-segment, and higher reported losses in the commercial auto businesses.

Specialty casualty The 0.4 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects improved results in the targeted markets businesses.

Specialty financial The 1.4 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects 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 $87 million in the first six months of 2024 compared to $125 million in the first six months of 2023, a decrease of $38 million (30%).

Property and transportation Net favorable reserve development of $76 million in the first six months of 2024 reflects lower than anticipated losses in the crop business and lower than expected claim severity in the property and inland marine business. Net favorable reserve development of $58 million in the first six months of 2023 reflects lower than anticipated losses in the crop business, lower than expected claim frequency and severity in the trucking business and lower than anticipated claim frequency in the property and inland marine business.

Specialty casualty Net favorable reserve development of $42 million in the first six months of 2024 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability business, partially offset by higher than anticipated claim severity in the excess liability business and higher than expected claim frequency and severity in the social services business. Net favorable reserve development of $51 million in the first six months of 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 and excess liability businesses.

Specialty financial Net adverse reserve development of $6 million in the first six months of 2024 reflects higher than anticipated claim severity in the innovative markets and surety businesses, partially offset by lower than anticipated claim frequency in the fidelity and trade credit businesses and lower than expected claim frequency and severity in the financial institutions business. Net favorable reserve development of $14 million in the first six months of 2023 reflects lower than anticipated claim frequency in the trade credit and financial institutions businesses and lower than expected claim frequency and severity in the surety business.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of $25 million in the first six months of 2024 and net favorable reserve development of $2 million in the first six months of 2023 associated with AFG’s internal reinsurance program and the amortization of the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of a business in 1998. The net adverse reserve development in 2024 is primarily related to social inflation exposed business assumed from the Specialty casualty sub-segment.

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 the first six months of 2024 related to business outside the Specialty group that AFG no longer writes.

Catastrophe losses

Catastrophe losses of $70 million in the first six months of 2024 (before $1 million in net reinstatement premiums) and $82 million in the first six months of 2023 (before $2 million in net reinstatement premiums) resulted primarily from storms in multiple regions of the United States.

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $984 million in the first six months of 2024 compared to $941 million for the first six months of 2023, an increase of $43 million (5%). AFG’s underwriting expense ratio was 31.4% for the first six months of 2024 compared to 32.0% for the first six months of 2023, a decrease of 0.6 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 decreased 0.4 percentage points in the first six months of 2024 compared to the first six months of 2023 reflecting the impact of higher earned premiums on the ratio, including in the crop business that has a lower commissions and other underwriting expense ratio compared to some of the other businesses in the Property and transportation sub-segment and lower average commission rates in the trucking business.

Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.5 percentage points in the first six months of 2024 compared to the first six months of 2023 reflecting the impact of higher earned premiums on the ratio.

Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 5.4 percentage points in the first six months of 2024 compared to the first six months of 2023 due primarily to the impact of higher earned premiums in the financial institutions business on the ratio and lower average commission rates in certain businesses.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $394 million in the first six months of 2024 compared to $398 million in the first six months of 2023, a decrease of $4 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 decrease in the property and casualty insurance segment’s net investment income for the first six months of 2024 compared to the first six months of 2023 reflects lower returns on AFG’s alternative investments portfolio (partnerships and similar investments and AFG-managed CLOs), substantially offset by the impact of higher balances of invested assets and higher returns on fixed maturity investments. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 5.14% for the first six months of

2024 compared to 5.51% for the first six months of 2023, a decrease of 0.37 percentage points reflecting lower returns on alternative investments. The annualized return earned on alternative investments (partnerships and similar investments and AFG-managed CLOs) was 7.0% in the first six months of 2024 compared to 11.8% 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 $38 million for the first six months of 2024 compared to $27 million for the first six months of 2023, an increase of $11 million (41%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

The decrease in other income in the first six months of 2024 compared to the first six months of 2023 is due primarily to the impact of death benefits received on a company-owned life insurance policy in the first quarter of 2023. The higher amortization of intangibles in the first six months of 2024 compared to the first six months of 2023 reflects the acquisition of CRS in July 2023. The $5 million (25%) increase in interest expense on funds withheld in the first six months of 2024 compared to the first six months of 2023 reflects the impact of higher interest rates paid on funds withheld.

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 $96 million in the first six months of 2024 compared to $82 million in the first six months of 2023, an increase of $14 million (17%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $96 million in the first six months of 2024 compared to $83 million in the first six months of 2023, an increase of $13 million (16%).

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 six months ended June 30, 2024 and 2023 (dollars in millions):

(*)Excludes a pretax non-core gain on retirement of debt of $1 million in the first six months of 2023.

Holding Company and Other — Net Investment Income

AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $15 million in the first six months of 2024 compared to $23 million in the first six months of 2023, a decrease of $8 million (35%) reflecting the impact of lower average investment balances.

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 first six months of 2024, AFG collected $49 million in fees for these services compared to $46 million in the first six months of 2023. Management views this fee income, net of the $30 million in the first six months of 2024 and $29 million in the first six months of 2023 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 $11 million in fees as compensation for providing services related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date during the first six months of 2024. 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 commissions and other underwriting expenses in AFG’s segmented results.

Holding Company and Other — Other Income

Other income in the table above includes $6 million and $8 million in the first six months of 2024 and the first six months of 2023, respectively, 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 $2 million in the first six months of 2024 compared to $3 million in the first six months of 2023, a decrease of $1 million (33%).

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 $81 million in the first six months of 2024 compared to $79 million the first six months of 2023, an increase of $2 million (3%). Other expenses for the 2024 period includes a $4 million charge to increase liabilities related to 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 $38 million in both the first six months of 2024 and the first six months of 2023.

Holding Company and Other — Gain 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.

Realized Gains (Losses) on Securities

AFG’s realized gains (losses) on securities were net gains of $12 million in the first six months of 2024 compared to net losses of $48 million in the first six months of 2023, a change of $60 million (125%). Realized gains (losses) on securities consisted of the following (in millions):

The $25 million net realized loss from disposals in the first six months of 2023 includes losses of $15 million from the sale of investments in banks and $4 million from the sale of municipal bonds.

The $19 million net realized gain from the change in the fair value of equity securities in the first six months of 2024 includes gains of $13 million on investments in banks and financing companies, $5 million on investments in natural gas companies and $4 million on investments in healthcare companies, partially offset by losses of $4 million on investments in media companies. The $15 million net realized loss from the change in the fair value of equity securities in the first six months of 2023 includes losses of $8 million on investments in healthcare companies, $7 million on investments in energy companies and $6 million on investments in banks and financing companies, partially offset by gains of $3 million on investments in capital goods companies and $2 million on investments in real estate investment trusts.

Consolidated Income Taxes

AFG’s consolidated provision for income taxes was $124 million for the first six months of 2024 compared to $107 million for the first six months of 2023, an increase of $17 million (16%). See Note K — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.

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 is to be applied on a retrospective basis. As of June 30, 2024, 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 June 30, 2024, 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.

As of June 30, 2024, there were no material changes to the information provided in Item 7A — Quantitative and Qualitative Disclosures about Market Risk of AFG’s 2023 Form 10-K.

Consistent with the discussion in Item 2 — 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 June 30, 2024 (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.

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 second fiscal quarter of 2024 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

In the ordinary course of business, AFG and its subsidiaries routinely enhance their information systems by either upgrading current systems or implementing new systems. There have been no changes in AFG’s business processes and procedures during the second fiscal quarter of 2024 that have materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

PART II

OTHER INFORMATION