American Financial Group, Inc. (NYSE:AFG) is a diversified specialty insurance holding company that has delivered consistent value to its shareholders over the years. With a strong focus on specialty property and casualty insurance, AFG has built a diversified portfolio of businesses that have demonstrated resilience and profitability through various market cycles.

Financials

In the fiscal year 2023, AFG reported impressive financial results, with an annual net income of $852 million, annual revenue of $7.73 billion, annual operating cash flow of $1.97 billion, and annual free cash flow of $1.90 billion. These figures highlight the company's ability to generate consistent earnings and cash flow, which is a testament to its disciplined underwriting and prudent risk management practices.

During the first quarter of 2024, AFG continued to deliver strong performance, reporting core net operating earnings of $2.76 per share. This represents a slight decrease compared to the first quarter of 2023, which the company attributed to lower returns on its alternative investment portfolio. However, excluding the impact of alternative investments, AFG's net investment income in its property and casualty insurance operations increased by 16% year-over-year, reflecting the benefits of higher interest rates and larger invested asset balances.

Investment Portfolio

AFG's investment portfolio, valued at $15.3 billion as of March 31, 2024, is well-diversified and strategically managed to take advantage of market opportunities. Approximately 68% of the portfolio is invested in fixed maturities, with a duration of 2.9 years, allowing the company to reinvest at higher yields as interest rates have risen. The company's alternative investments, which represent around 12% of the portfolio, generated an annualized return of 9% in the first quarter of 2024, down from 14.2% in the prior-year period, as the company continues to navigate headwinds in its multifamily housing investments.

Business Overview

From a business perspective, AFG's property and casualty insurance segment delivered a strong performance in the first quarter of 2024, with a combined ratio of 90.1%, compared to 89.2% in the same period last year. The company's Specialty Property and Transportation, Specialty Casualty, and Specialty Financial sub-segments all contributed to this solid underwriting result, with the Specialty Financial group reporting an impressive 86.3% combined ratio.

Gross written premiums for AFG's property and casualty insurance segment increased by 8% in the first quarter of 2024 compared to the same period in 2023, driven by growth across all three of its Specialty sub-segments. The Property and Transportation group saw a 10% increase in gross written premiums, primarily due to additional crop premiums from the company's acquisition of Crop Risk Services (CRS) in 2023, as well as new business opportunities and strong account retentions in the commercial auto and ocean marine businesses. The Specialty Casualty group reported a 3% increase in gross written premiums, with the excess and surplus and excess liability businesses driving much of the growth. The Specialty Financial group experienced a 26% increase in gross written premiums, led by strong performance in the financial institutions business.

AFG's management team remains focused on maintaining a disciplined underwriting approach and capitalizing on favorable market conditions to drive profitable growth. The company's recent acquisition of CRS, a leading crop insurance general agent, is expected to further diversify its specialty insurance portfolio and provide additional opportunities for growth in the agricultural sector.

Outlook

Looking ahead, AFG's management team is optimistic about the company's prospects for the remainder of 2024 and beyond. The company expects its operations to continue generating significant excess capital, which provides ample opportunity for additional special dividends or share repurchases over the next year. Additionally, the company's strong financial position, with a debt-to-capital ratio of 24.7% as of March 31, 2024, and ample liquidity at both the parent and subsidiary levels, positions it well to navigate any potential market challenges.

Conclusion

American Financial Group, Inc. is a well-diversified specialty insurance company that has consistently delivered value to its shareholders. With a focus on disciplined underwriting, prudent risk management, and strategic capital allocation, AFG is well-positioned to continue its track record of strong financial performance and shareholder returns.