American Financial Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the American Financial Group 2019 Third Quarter Results Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Diane Widener. Thank you, and please go ahead, ma'am.

Good morning, and welcome to American Financial Group's third 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 in 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.

Good morning. We released our 2019 third 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 $2.25 per share, reflecting strong operating profitability and investment results in both our specialty property and casualty and annuity operations. Third quarter 2019 annualized core operating return on equity was 15.3%. Net earnings per share were $1.62 and included 15 cents per share in after-tax net realized losses on securities, a negative impact of 23 cents per share for annuity non-core items, including the impact of fair value accounting for fixed indexed annuities, other items related to changes in the stock market and interest rates, and unlocking. Net earnings also included 25 cents per share to strengthen our A&E reserves. Craig and I thank God, our talented management team, and our great employees for helping to achieve these results. We have narrowed the range for our expected 2019 core net operating earnings per share to $8.50 to $8.70 from the range of $8.40 to $8.80 announced previously, while keeping the midpoint at the same $8.60 per share. Craig and I will discuss our guidance for each segment of our business in more detail later in the call. Now let's turn our focus to our property and casualty operations. Please turn to slides four and five of the webcast, which include an overview of third quarter results. As you'll see on slide four, gross and net written premiums in our specialty property and casualty insurance operations grew by 12 and 11 percent, respectively, year over year. As we previously reported, delayed planting of spring crops resulted in late acreage reporting in our crop operations, which increased our overall third quarter premiums. But when you exclude crop premiums, gross and net written premiums each increased a healthy 9% when compared to the 2018 third quarter. Core operating earnings in AFG's property and cash and the insurance operations were $194 million in the third quarter of 2019 compared to $158 million in the prior year period, an increase of $36 million, or 23%. The specialty property and cash and the insurance operations generated an underwriting profit of $88 million in the third quarter compared to $55 million in the third quarter of 2018. Higher year-over-year underwriting profits in our property and transportation and specialty financial groups were partially offset by lower underwriting profit in our specialty casualty group. The third quarter 2019 combined ratio of 94% was 1.7 points lower than the 95.7% reported in the comparable prior year period and included 1.6 points in catastrophe losses and 3.1 points of favorable prior year reserve development. Average pricing across our entire property and casualty group was up in excess of 3% for the quarter. When you exclude our workers' comp business, renewal pricing was up about 6% in the third quarter, reflecting a continued improvement from the renewal rate increases achieved during the first half of 2019. In fact, Renewal pricing in our specialty property and casualty group overall is the highest we've achieved in over five years, meeting or exceeding our expectations in each of our specialty property and casualty subsegments. I'll discuss in more detail as we review the results of each. Although loss cost trends across our specialty property and casualty businesses remain stable overall, we do continue to closely monitor loss activity and the impact of social inflation. along with general loss costs, inflation, and interest rates. Now I'd like to turn to slide five to review a few highlights from each of our specialty property and casualty business groups. The property and transportation group reported an underwriting profit of $38 million in the third quarter of 2019 compared to break-even underwriting results in the comparable prior year period. Although nearly all businesses in this group reported higher year-over-year underwriting profits, the increase was driven primarily by higher underwriting profit in our transportation and property and inland marine businesses. And these increases were partially offset by the absence of underwriting profit in our crop business in the third quarter of 2019. Catastrophe losses in this group were $8 million in the third quarter of this year and $13 million in the comparable 2018 period. Third quarter 2019 gross and net written premiums were 17% and 18% higher, respectively, than the comparable 2018 period. The increase was largely the result of higher year-over-year premiums in our transportation businesses and the timing of recording of crop premiums. Now, if you exclude crop, gross and net written premiums were very strong, increasing 13 and 14 percent, respectively, year over year. Overall, renewal rates in this group increased 4 percent on average in the 2019 third quarter. And I continue to be pleased with the broad-based rate strengthening in this group, with nearly all businesses reporting increases in the quarter and corrective rate actions in our Singapore and aviation businesses. Excessive rainfall early in the planting season in the Midwest and the Upper Plains states have made for a challenging 2019 crop year. As I discussed last quarter, we incurred a record number of prevented planting claims due to spring flooding and excess moisture and termed our expectations for the crop year as below average. As a result of delayed plantings, corn and soybean yields are expected to finish below their long-term averages And a recent freeze event throughout much of the Midwest will have a meaningful negative effect on yields. Commodity pricing has held up well, and it appears that the harvest discovery pricing is within 2 to 3 percent percentage points of the spring pricing. But based on the impact of prevented planting claims and our updated expectations for the quality of crops at harvest, we do not expect to record any crop profits in the fourth quarter of 2019. We're now prepared to call 2019 a poor crop year. I continue to be very pleased with the results in our transportation businesses, which achieved double-digit year-over-year growth in the third quarter. In addition to rate increases and exposure growth, we're seeing new business opportunities in several of our specialty transportation lines. Rate increases in our commercial auto liability book were about 9 percent in the third quarter. This is our eighth year of rate increase in this line of business. We've been talking about this for a long time, dating back to when we first saw an uptick in commercial auto loss severity in 2012. We were able to address issues through underwriting and rate actions and got this business back on track after years of concerted effort. And we continue to obtain appropriate rate increases. But we do believe our starting point is different than the industry overall. Specialty Casualty Group reported an underwriting profit of $23 million in the 2019 third quarter compared to $49 million in the comparable 18 period. Higher profitability in our workers' compensation and social services business was more than offset by higher underwriting losses in NEON and adverse prior year reserve development in our excess and surplus businesses. Underwriting profitability in our workers' comp business continues to be excellent Catastrophe losses for this group were $10 million in the third quarter of 2019 compared to $12 million in the comparable prior year period. I am pleased with the healthy growth achieved in this group for the third quarter. Gross and net written premiums increased 8% and 7% respectively when compared to the same prior year period. There are two primary factors driving the growth. First, the addition of premiums from ABA Insurance Services, which was acquired in the fourth quarter of 2018. And second, strong growth in our excess and surplus lines and excess liability businesses. The growth in our E&S and excess liability businesses is primarily the result of new business opportunities, rate increases, and higher retentions on renewal business. Lower premiums in NEON, primarily due to foreign currency translation, as well as lower premiums in our workers' comp businesses resulting from rate decreases partially offset the growth in the other businesses in this group. The excluding workers' comp year-over-year growth in third quarter gross and net written premiums was healthy in this segment at 12% and 13% respectively. I'm very pleased with these results. Renewal pricing for the specialty casualty group was up 4% during the third quarter. Excluding rate decreases in our workers' comp businesses, renewal rates in this group were up a very strong 9 percent. Both measures are an improvement from renewal rate increases achieved in the second quarter of 2019 and are the highest we've seen in five years. I'm really pleased with the broad-based pricing momentum across the businesses in this group during the quarter, including double-digit increases in our excess liability and umbrella businesses. Specialty Financial Group reported an underwriting profit of $26 million in the third quarter of 2019 compared to $9 million in the third quarter of 2018. Higher underwriting profit in our financial institutions business was the primary driver of the increase. Catastrophe losses for this group were $3 and $13 million in the third quarters of 2019 and 2018, respectively. The businesses in this group continue to produce excellent underwriting margins. Third quarter 2019 gross and net written premiums increased by 6% and 9% respectively when compared to the same 2018 period, primarily as a result of higher premiums in our fidelity and crime and equipment leasing businesses. Renewable pricing for this group was flat during the third quarter. Now please turn to slide six for a summary view of our 2019 outlook for the specialty property and casualty operations. Based on results of the first nine months of the year, we now expect a 2019 combined ratio for the specialty property and casualty group overall between 93 and 94 percent. We narrowed the range from our prior estimate of 92 to 94 percent. We've also adjusted our estimate for overall growth in net written premiums to be in the range of 4 to 7 percent. an increase from the range of 2 to 5 percent estimated previously. Looking at each segment, we now estimate a combined ratio in the range of 93 to 96 percent in our property and transportation group, narrowed a bit from our previous range of 93 to 97. As noted earlier, our revised earnings guidance includes the expectation that based on a poor 2019 crop year, we won't record any crop profits in the fourth quarter. The first half of 2019 included 2018 crop year earnings that were recorded as claims were settled following a strong 2018 crop year. Given our expectations for poor crop results this year, we don't expect to record any 2019 crop year earnings in the early part of 2020. Growth in net written premiums is now expected to be between 5% and 8%. an increase from the previous range of 4% and 8%. Our specialty casualty group is now expected to produce a combined ratio in the range of 92% to 95%, up from the range of 90% to 94% estimated previously. And we now expect growth in net written premiums for this group to be between 4% and 7%, an improvement from the previous range of 2% and 6%. 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 86 to 89 percent, an improvement from our initial estimate of 87 to 91 percent. Additionally, we've raised our projection for growth in net written premiums to be in the range of flat to up 3 percent, a change from the previous estimate of down 4 percent to flat year over year. Our guidance with regard to property and casualty net investment income has changed, with results in 2019 expected to be up 4% to 7%, an improvement from the previous estimate of 2% to 6%. And we expect overall property and casualty renewal pricing in 2019 to be up approximately 3%. Excluding workers' comp, we expect renewal rate increases to be in the range of 5% to 6%. Thank you, and I'll now turn the discussion over to Craig to review the results in our annuity segment and AFG's investment performance.