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AFG boosts underwriting profit by 62.5% as specialty NWP climbs 16.2%

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American Financial Group’s (AFG) specialty P&C underwriting profit jumped by 62.5% in the third quarter to $169mn, driven by higher year-over-year underwriting profit in the carrier’s specialty casualty group.

Companywide operating earnings per share rose to $2.71 in the quarter, from $1.38 in Q3 last year. The carrier reported net investment income growth of 38.5% to $169mn.

The company posted net premiums written of $1.73bn, 16.2% higher than the prior-year quarter, driven by the improving economy, new business opportunities and a strong renewal rate environment.

AFG’s specialty P&C division lowered its combined ratio by more than three points to 89% from 92.1% last year. The better combined ratio came from lower cat losses (2.0 points versus 2.7 points last year) and an increase in favorable prior-year development. AFG had 5.4 points in favorable prior reserve development, versus 3.7 points in the comparable period.

Pre-tax cat losses, net of reinsurance and inclusive of reinstatement premiums, were $31mn, primarily stemming from claims tied to Hurricane Ida, down from $57mn last year.

The company said it recorded $3mn in new Covid-19 losses attributable to the 2021 accident year, which was offset by $3mn in favorable development for Covid-19 claims in the 2020 accident year. AFG said on Tuesday that about 63% of its $96mn of estimated cumulative loss tied to the pandemic is in the form of IBNR reserves.

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The P&C specialty loss ratio fell by one point to 62.4% quarter-to-quarter, and the carrier’s expense ratio recorded a two-point decrease to 26.6%.

The property and transportation group reported a Q3 2021 underwriting profit of $45mn, compared with $47mn last year. Gross and net written premiums for the third quarter of 2021 were 26% and 22% higher, respectively, than the comparable 2020 period. Catastrophes in the unit were lower, at $14mn versus $18mn last year.

The specialty casualty group booked a third-quarter underwriting profit of $110mn, compared to $53mn in the third quarter of 2020, driven by higher profitability in workers’ comps, excess and surplus lines, excess liability and general liability businesses.

The specialty financial group posted an underwriting profit of $26mn at quarter end, compared to $13mn in the prior-year period, due to higher year-over-year underwriting profit in surety and financial institutions businesses.

S Craig Lindner and Carl H Lindner III, AFG’s co-CEOs, said: “We are extremely pleased with AFG’s performance during the third quarter. Our specialty P&C businesses reported outstanding underwriting margins, and results in our portfolio of alternative investments continued to exceed our expectations. Annualized core return on equity was nearly 18%.

“We believe that our disciplined – yet opportunistic – operating philosophy, a lower net catastrophe exposure than our peers, a continued economic recovery and a strong P&C rate environment all contributed to these outstanding results.”

“Based on the strong results reported in the first nine months of the year, we now expect AFG’s core net operating earnings in 2021 to be in the range of $10.10 to $10.70, an increase from our previous range of $8.40 to $9.20 per share,” the executives said.

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