American Financial Group Forecasts 2025 Premium Growth with Strong Underwriting and Capital Returns

Key Highlights from American Financial Group's Q2 2025 Earnings Call

American Financial Group (AFG) provided insights into its financial performance and strategic direction during its Q2 2025 earnings call. The company’s leadership emphasized strong underwriting margins, disciplined capital deployment, and a continued focus on premium growth. Despite challenges in alternative investments, the management expressed confidence in long-term returns and shareholder value creation.

Management Perspective

Co-CEO Carl Henry Lindner opened the call by highlighting an annualized core operating return on equity of 15.5% for the quarter. He noted that while quarterly returns from alternative investments were lower, the company maintained strong underwriting margins in its Specialty Property & Casualty segment. Additionally, net investment income, excluding alternatives, increased by 10% year-over-year. Lindner also mentioned that the company returned over $100 million to shareholders through dividends and share repurchases.

Co-CEO Stephen Craig Lindner reported core net operating earnings of $2.14 per share, down from $2.56 per share in the previous year. He attributed the decline to a decrease in underwriting profit and lower returns on alternative investments. The investment portfolio was largely composed of fixed maturities yielding approximately 5.75%, with alternative investments delivering a 1.2% return compared to 5.1% in the prior year. This was partly due to the impact of increased apartment supply on rental rates and occupancy in certain markets.

CFO Brian Scott Hertzman noted that overall P&C net investment income was about 5% lower than the same period in 2024. However, he highlighted that the reduction in multifamily investment valuations by nearly $30 million would likely be absorbed over the next 12 months.

Outlook and Strategic Focus

Carl Henry Lindner projected continued premium growth for the full year in 2025, citing favorable pricing conditions, increased exposures, and new business opportunities. He reiterated the company’s expectation of sustained premium growth throughout the year.

Management expressed optimism regarding long-term returns from alternative investments, anticipating annual returns of 10% or better. The company plans to continue generating significant excess capital, which could be used for acquisitions, special dividends, or share repurchases.

Financial Performance

AFG reported core net operating earnings of $2.14 per share, down from $2.56 per share in the prior year. The Specialty Property & Casualty Insurance businesses recorded a 93.1% combined ratio, up 2.6 points from the previous year. Gross and net written premiums increased by 10% and 7%, respectively, with crop business influencing timing. Excluding crop, growth was 6% and 5%.

Average renewal pricing, excluding workers’ comp, rose by about 7% in Q2, matching Q1 results. Including workers’ comp, renewal rates increased by 6%, about 1 point higher than the previous quarter.

The Property & Transportation Group had a 95.2% combined ratio, up from 92.7% in the prior year. The Specialty Casualty segment posted a 93.9% combined ratio, up from 89.1%. The Specialty Financial group achieved an 86.1% combined ratio, 3.6 points better than the previous year.

Shareholders received over $100 million in returns through $39 million in share repurchases and a $0.80 per share regular dividend. Book value per share growth, excluding AOCI plus dividends, was 6% for the first half of 2025.

Q&A Session

During the Q&A session, analysts probed various segments, including lender-placed business, social inflation lines, Inland Marine, Ocean Marine, trade credit, and M&A activity. Co-CEO Carl Henry Lindner explained that lender-placed business benefits from a weak economy and market disruptions, with pricing up about 1% over six months.

On social inflation lines, Lindner detailed actions taken in nonprofit and social services, noting that nonrenewals in housing are complete and daycare nonrenewals will finish by year-end. He also mentioned a 15% price increase in commercial auto and ongoing efforts to reduce umbrella capacity.

Analysts also asked about crop profitability and workers’ comp. Lindner noted that it is too early to assess the crop year but highlighted positive indicators. On workers’ comp, he reported excellent results, with California achieving about a 5% price increase in the second quarter.

Sentiment and Risk Analysis

Analysts maintained a neutral to slightly positive tone, focusing on segment profitability, premium growth, and risk management. Management remained confident, using phrases like “we feel we’re well positioned” and “we continue to expect premium growth.” CFO Hertzman provided thorough explanations on premium timing and reserve development.

Compared to the previous quarter, management showed more optimism on premium growth and pricing, while analysts focused on pricing trends and risk exposures. Key metrics showed improvements in combined ratios for Specialty Financial and higher premium growth rates in most segments, despite a decline in core net operating earnings per share.

Risks and Concerns

Management identified lower returns on alternative investments and the impact of multifamily real estate supply as key risks. These factors contributed to a near $30 million decrease in portfolio value. Ongoing exposure to social inflation in certain casualty businesses led to nonrenewals, reduced umbrella capacity, and reserve strengthening.

Crop business profitability remains weather-dependent, with management emphasizing the need for adequate moisture through August and September. Analysts raised concerns about shifts in claim patterns, adverse development in excess liability, and the impact of tariffs on marine and trade credit segments.

Final Takeaway

AFG’s Q2 2025 results reflect strong underwriting margins and disciplined capital deployment, even as alternative investment returns moderated. Management maintains a positive outlook for continued premium growth and expects to leverage excess capital for value-enhancing opportunities. Ongoing attention to pricing discipline and risk management supports confidence in delivering shareholder value for the remainder of 2025.