American Financial Group, Inc.

Good day, ladies and gentlemen, and welcome to the American Financial Group second quarter 2019 results conference call. At this time, all participants are in a listen-only mode. Later, we'll connect to question and answer session, and instructions will follow at that time. If anyone should require operator assistance during the call, please press star then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce yours for today's conference, Ms. Diane Widener. You may begin.

Good morning, and welcome to American Financial Group's second quarter 2019 earnings results conference call. I'm joined this morning by Carl Lindner III and Craig Lindner, co-CEOs of American Financial Group, and Jeff Consolino, AFG's CFO. Our press release, investor supplement, and webcast presentation are posted on AFG's website. These materials will be referenced during portions of today's call. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide two of our webcast. Certain statements made during this call may be considered forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance. Investors should consider the risks and uncertainties that could cause actual results and or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release. If you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy. Thus, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now, I am pleased to turn the call over to Carl Lindner III to discuss our results.

Carl Lindner III Good morning. We released our 2019 second quarter results yesterday afternoon. If you'd please turn to slide three of the webcast slides for an overview. AFG reported core operating earnings of $2.12 per share, reflecting strong operating profitability and investment results in both our specialty property and casualty and annuity segments. Second quarter 2019 annualized core operating return on equity was 15%. Net earnings per share were $2.31 and included $0.48 per share in after-tax net realized gains on securities, and a negative impact of 29 cents per share for annuity non-core items, including the impact of fair value accounting for fixed index annuities and other items related to changes in the stock market and interest rates. Craig and I thank God, our talented management team, and our great employees for helping to achieve these results. Based on results through the first six months of the year, We narrowed AFG's coordinate operating earnings guidance for 2019 to a range of $8.40 to $8.88 per share from our previous range of $8.35 to $8.85 per share. We are maintaining a midpoint of $8.60 per share, however. Craig and I will discuss our guidance for each segment of our business in more detail later in the call. Now I'd like to turn our focus to our property and casualty operations. Please turn to slides four and five of the webcast, which include an overview of second quarter results. As you'll see on slide four, gross written premiums were flat and net written premiums were up 1% when compared to the second quarter of 2018, primarily the result of lower crop insurance premiums. Delayed planting of spring crops resulted in late acreage reporting and reduced overall second quarter specialty property and casualty premiums. It is expected, though, that these delayed premiums will be included in our third quarter 2019 results. Excluding crop, second quarter 2019 gross and net written premiums grew by 6 percent and 4 percent, respectively. when compared to the 2018 second quarter. Core operating earnings in the AFG's P&C insurance operations were $175 million in the second quarter of 2019, slightly below the $180 million reported in the prior year period. The specialty property and casualty insurance operations generated an underwriting profit of $60 million in the in the 2019 second quarter compared to $73 million in the second quarter of 2018. Higher underwriting profit in our specialty casualty group was more than offset by lower underwriting profit in our property and transportation and specialty financial groups. The second quarter 2019 combined ratio of 95 increased 1.3 points from the prior year period and included 3.4 points of favorable prior year reserve development and nine-tenths of a point in catastrophe losses. Average renewal pricing across our entire property and casualty group was up about 3% for the quarter. Excluding our workers' comp business, renewal pricing was up approximately 5%. Both of these measures reflect a continued improvement from renewal rate increases achieved in the first quarter of this year, and overall specialty property and casualty renewal rates are the highest we've achieved in over five years, meeting or exceeding expectations in each of our specialty property and casualty subsegments. I'll discuss in more detail as we review the results of each. Lost cost trends remain stable, and we're keeping our eye on inflation and interest rates, though. Now I'd like to turn to slide five to review a few highlights from each of our specialty property and casualty groups. Property and transportation group reported an under-running profit of $4 million in the second quarter of 2019, compared to $23 million in the comparable prior year period. These results include lower favorable prior year prior period reserve development in our agricultural and our transportation businesses, and a larger year-over-year underwriting loss in our Singapore branch. Catastrophe losses in this group were $8 million in the second quarter and $10 million in the comparable 2018 period. Second quarter 2019 gross written premiums in this group were down 6 percent and net written premiums were flat. when compared to the prior year period due primarily to delayed acreage reporting from insureds as a result of excess moisture and late planting of corn and soybean crops. It's expected again that these delayed premiums will be included in the third quarter 2019 results. Excluding crop insurance, 2019 gross and net written premium growth in this group was strong. and was up 12 percent and 10 percent, respectively, when compared to the 2018 second quarter. The growth is primarily attributable to new business opportunities in our transportation businesses. Overall renewal rates in this group increased 5 percent on average in the 2019 second quarter, an improvement over renewal rates increases achieved in the first quarter of 2019. I continue to be pleased with the broad-based rate strengthening in this group, which includes our commercial auto liability business, as well as corrective rate actions in our Singapore branch and aviation businesses. AFG's updated earnings guidance reflects our current expectations of a below average crop year, which I'll discuss in more detail. The 2019 growing season will go on record as one of the most challenging planting seasons on record due to spring flooding and excess moisture across the Midwest. As a result, we're processing a record number of prevented planting claims. It's still too early to know how the crop year will play out. In addition to the ultimate impact of prevented planting, other key considerations that will influence our crop insurance results include conditions throughout the remainder of the growing season and commodity prices. This week's USDA reports indicate that the percentage of corn and soybean crops in good or excellent condition is estimated to be 13 to 14 points lower than last year at this time, though keep in mind 2018 yields were exceptionally strong. Corn futures are currently trading up about 3% from the spring discovery price, and soybeans are down 9%. Trade concerns with China are probably already being factored into the commodity pricing, and the commodity prices today seem to be performing just fine. On a more positive note are winter wheat. And our rainfall index business should perform better than average this year due to higher levels of precipitation countrywide. We will have a more complete picture with regard to our crop insurance business when we report our third quarter results. The Atlas financial holdings transaction is progressing nicely. National Interstate will begin to issue policies in the third quarter. And we expect this business to add $20 million in gross written premium in the second half of 2019. We expect gross written premiums produced by our wheels-based businesses consisting of National Interstate, Vanliner, and Great American Trucking. And with the addition of the Atlas Paratransit business, this business will reach a billion dollars this year. Now, the specialty casualty group reported an underwriting profit of $47 million in the 2019 second quarter compared to $29 million in the comparable 18 period. Higher profitability in our workers' compensation and public sector businesses was partially offset by lower year-over-year profitability in our excess and surplus lines businesses. Underwriting profitability in our workers' comp business continues to be very strong. Catastrophe losses for this group were $1 million in both the second quarters of 2019 and 2018. Gross and net written premiums for the second quarter of 2019 both increased 4 percent when compared to the second quarter of 2018. The addition of premiums from ABA Insurance Services, which we acquired in the fourth quarter of 2018, as well as growth in our excess and surplus lines, Executive liability and social services businesses were the primary drivers of the higher premiums. Lower premiums in our workers' comp businesses and within NEON, primarily due to foreign currency translation, partially offset this growth. Renewal pricing for this group was up 3% during the second quarter. Excluding rate decreases in our workers' comp businesses, renewal rates in this group were up approximately 7%, Both measures, again, are improvement from renewal rate increases achieved in the first quarter of this year and the highest we've seen in five years. I'm pleased to see double-digit rate increases for NEON and strong pricing momentum in our excess liability, umbrella, surplus lines, public D&O, and social services businesses. I would like to take the opportunity today to welcome Jim Slate, to Great American Insurance Group. Jim will lead our newly formed accident and health division, which becomes our 35th specialty property and casualty business, and a new addition to the specialty casualty group. Jim and his team will build upon Great American's existing array of accident and health insurance coverages, focusing on customized coverages for organizations and educational institutions. The specialty financial group reported an underwriting profit of $21 million in the second quarter of 2019, compared to $22 million in the second quarter of 2018. Higher underwriting profitability in our equipment, leasing, and surety businesses was more than offset by lower underwriting profitability in our financial institutions business. Catastrophe losses for this group were $3 million in both the second quarters of 2019 and 2018. Second quarter 2019 gross written premiums were down 2 and 6 percent, respectively, when compared to the same 2018 period, primarily as a result of lower premiums in our financial institutions business. Renewal pricing in this group was up approximately 1 percent for the quarter. Now, if you'd turn to slide six for a summary view of our 2019 outlook for the specialty property and casualty operations, Although we continue to expect an overall combined ratio between 92 and 94 percent, we've adjusted our estimates for the combined ratios within each of our specialty property and casualty groups. We've also adjusted our estimate for overall growth in net rent premiums to be in the range of 2 to 5 percent now, an increase from the range of flat to up 3 percent estimated previously. Looking at each segment, We now estimate a combined ratio in the range of 93 to 97 percent in our property and transportation group, a point higher than the range of 92 to 96 percent previously estimated. As I noted earlier, while it's too early to project our crop results for this year, this adjustment takes into account a record number of preventing planting claims and our expectations for a below average crop year. We now expect growth in the net written premiums in this group to be between 4 and 8 percent, an increase from the previous range of 3 to 7 percent. Our specialty casualty group is now expected to produce a combined ratio in the range of 90 to 94 percent, a slight improvement from our previous estimate of 91 to 95 percent. And we now expect growth in net written premiums for this group to be between 2 and 6 percent, an improvement from the previous range of down 2 percent to up 2 percent, reflecting growth opportunities and strong pricing momentum in the majority of businesses in this group. And we now expect the specialty financial group combined ratio to be in the range of 87 percent to 91 percent, a slight improvement from our initial estimate of 88 to 92 percent. And based on the results of the first half of 2019, net written premiums are now expected to be down 4% to flat year-over-year, a decrease from the previous expectations of growth in the range of 3% to 7%. Our guidance with regard to net investment income has changed, with results in 2019 expected to be up 2% to 6%, an improvement from our previous estimate of flat to up 4% year-over-year. Given the broad-based improvements noted in renewal pricing across many of our specialty property and casualty businesses, we now expect overall renewal pricing, P&C renewal pricing, to be up 2 to 4 percent this year, an improvement from the previous range of 1 to 3 percent. In excluding workers' comp, we expect renewal rate increases to be in the range of 5 to 6 percent. And I'll now turn the discussion over to Craig, to review the results in our annuity segment and AFG's investment performance.