American Financial Sheds Annuities, Enjoys Big Boost In P&C

By Steven A. Morelli

American Financial is expecting a better year as the company sells Great American to MassMutual and exits the annuity business.

The American Financial Group plans to complete the sale of the Great American Life Insurance Co. in the second quarter. The deal allows American Financial to focus on its property/casualty business, which remains strong despite the increase weather-related catastrophes. Meanwhile, analysts say the sale will give MassMutual more access to banks, independent and independent agents.

The sale, higher investment income and lower costs led American Financial to revise its earnings projection to $7 to $8 per share, up from the previous estimate of $6.25 to $7.25 a share.

That projection excludes $3.5 billion in cash the company is getting from the sale. About $2 billion will be available in excess capital, Carl H. Lindner III, American Financial co-CEO, said during a conference call discussing first quarter results.

“As for use of proceeds, we continue to evaluate opportunities for deploying excess capital and review options that provide the best opportunity to create long term value for our shareholders,” Lindner said. “Alternatives include the potential for share repurchases, and special dividends and opportunities to grow our business through healthy profitable organic growth and expansion of our specialty property and casualty niche businesses through acquisitions, and startups that meet our targeted return thresholds.”’

The company’s total revenue of $1.5 billion was an increase of 43% year over year in the first quarter. Net operating earnings of $2.38 per share represented a 75% increase from the prior year period.

That was thanks to an investment income of 80.8% year over year, which was offset slightly by lower property and casualty insurance investment income because of low interest rates.

Cost and expenses dropped 5.3% year over year to $1.2 billion because of a decrease in P/C insurance losses and expenses.

The company’s P/C business did well across the board with few exceptions, despite some headwinds in the first quarter.

“We are extremely proud of AFG’s first quarter 2021 results, especially in the wake of elevated industry catastrophe levels resulting from severe winter storms, a continued low interest rate environment and the impact of the pandemic,” according to the company’s results statement. “We are hopeful that the vaccine rollout will help to facilitate a full re-opening of our economy in the near future, and are acting on growth opportunities across our Specialty P&C portfolio of businesses.”

The pretax core operating earnings in the P/C segment were a record $288 million in the first quarter, compared to $181 million in the prior year period, an increase of 59%. Significantly higher earnings from alternative investments and substantially higher year-over-year P/C underwriting profit were partially offset by lower other P/C net investment income, primarily the result of lower interest rates.

The Specialty P/C insurance operations generated an underwriting profit of $134 million in the 2021 first quarter, compared to $89 million in the first quarter of 2020. Although each of the Specialty P/C groups had a higher year-over-year underwriting profit, the increase was primarily due to higher underwriting profitability in the Property and Transportation Group.

Lindner said commercial auto did particularly well, which he said tracks with the rising number of vaccinations.

“We had a very, very strong premium month in March in our commercial auto business,” Lindner said. “And that caused us along with the improving economy to be very optimistic about our growth and our commercial auto business.”

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].