American Financial Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the American Financial Group 2020 First Quarter Results Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the 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. It is now my pleasure to introduce Assistant Vice President, Investor Relations, Diane Widener.

Good morning, and welcome to American Financial Group's first quarter 2020 earnings results conference call. We hope you and your loved ones are healthy and safe in these extraordinary times. We released our 2020 first quarter results yesterday afternoon. Our press release, investor supplement, and webcast presentation are posted on AFG's website under the investor relations section. These materials will be referenced during portions of today's call. I'm joined this morning by Carl Lindner III and Craig Lindner, co-CEOs of American Financial Group, and Jeff Consolino, AFG CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide two of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain 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 CoreNet 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. And if you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy, and as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statement. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results. Well, good morning. Good morning.

The past two months have been an exceptionally challenging time for all of us. COVID-19 pandemic has had profound implications across the globe, requiring us to adjust to new ways of working and interacting with each other. Our thoughts and prayers remain with all those affected by the virus and the individuals caring for them. We're especially grateful for the guidance of health officials and government leaders at the local, state, and federal levels. Their actions have been instrumental in protecting health and promoting safety in these unprecedented times. We're also very thankful to those serving and caring for others, including health care professionals, first responders, military, and food service personnel and other essential workers. Our foremost priority during this time is to protect the well-being of our employees while continuing to provide the secure, trusted service and support on which our agents and policyholders rely. We've invested a significant amount of time developing, testing, and implementing our business continuity plans, which have proven effective in enabling us to successfully navigate these challenges and stay focused on our priorities. We entered the year in the strongest financial position in our company's history, and our liquidity and excess capital afford us the flexibility to effectively address and respond to the uncertainties presented by COVID-19. We'll explore some of these uncertainties and considerations in more detail on today's call. So I'd like to start with a few summary comments about the implications of COVID-19 on our business overall. The macro impacts of COVID-19 will affect our insureds and impact our results. It'll take some time to fully understand the implications of this pandemic to our business. Many of our policyholders are struggling to adapt to the economic headwinds that are impacting their operations. As the economy contracts, the exposure bases that affect our property and casualty businesses will change. For many, there will be lower employee counts, decreased payrolls, fewer miles driven, and reduced sales as overall economic activity declines. COVID-19's impact will be felt beyond the first quarter results we're sharing today. Later in the presentation, you'll see that we factored these considerations into our 2020 premium guidance. In some of our lines, like commercial auto, these economic factors will translate into lower claims frequency, while for others, there could be an increase in claims frequency as a result of COVID-19. How claims ultimately play out will take time to fully discern. There's a lot, there's been much written about business interruption insurance. As these claims are presented, we're investigating each claim. Like most others in the industry, our policies require direct physical damage to covered property for business interruption coverage to apply. In addition, the vast majority of our property policies also contain virus exclusions. We note that there are efforts to impose retroactive business interruption insurance through government decrees or legislation. Efforts to impose retroactive business interruption coverage are ill considered, unconstitutional, and would be destabilizing to the insurance industry. Imposing business interruption coverage after the fact is not what any insurer bargained for when underwriting or pricing these risks or issuing these policies. With respect to workers' compensation, the impact is evolving. States are grappling with whether they're going to impose certain compensability presumptions with respect to COVID-19. How these considerations play out can impact our exposure. In some instances, these presumptions being proposed are overly broad and would undermine a fact-based assessment of how a workplace injury might have occurred. Other states are considering presumptions that are more narrowly crafted. The virus remains active, and as Americans begin to return to work, the full impact of how this virus will resolve itself remains an unknown. While we're seeing some workers' compensation COVID-19 claims being presented, Because many employees have been furloughed or are working from home, the impact of these claims is offset due to reduced numbers of workplace injuries in some sectors. The impact of COVID-19 is likely to be state-specific and probably industry-specific. Less than one-half of 1% of our workers' compensation gross written premium relates to coverage for first responders. And approximately 6.5% relates to coverage for healthcare workers, first responders, and nursing homes combined. Importantly, we expect as a company to continue to have significant excess capital and liquidity throughout 2020 and beyond. Specifically, our insurance subsidiaries are projected to have capital out or in excess of the levels expected by rating agencies in order to maintain their high current ratings. And we have no debt maturities before 2026. We're financially strong and well positioned to respond to the challenges presented by COVID-19. Jeff will review this more during his remarks. Now I'd like to turn to an overview of our first quarter results on slide four of our webcast. AFG reported core operating earnings of $1.88 per share in the first quarter of 2020, compared to $2.02 per share in the first quarter of 2019. Annualized first quarter core return on equity was 13.2%. These first quarter 2020 results are at the upper end of the guidance provided in our pre-release issued on April 15th. The year-over-year decrease in core operating earnings was the result of negative adjustments to the company's $2.2 billion of investments that are mark-to-market through core operating earnings. The COVID-19 pandemic has had widespread financial and economic impacts, including a significant decrease in both equity and credit markets, which adversely affected returns on AFG's mark-to-market investments. Excluding the impact of mark-to-mark investments, AFG's first quarter 2020 core net operating earnings increased $21 million, or 23 cents per share, year over year. Turning to slide five, you'll see that the first quarter 2020 net loss per share of $3.34 included $5.22 per share in losses attributable to after-tax non-core items, which Jeff will speak to later in the call. Last month, we provided full-year 2020 core net operating earnings guidance per share, earnings per share guidance, excluding earnings or losses from investments mark-to-market through core operating earnings, given the uncertainty of the implications of COVID-19 and the resulting volatility in the financial markets. AHE continues to expect its 2020 core net operating earnings per share to excluding mark-to-market investments to be in the range of $6.45 to $7.25. Craig and I will discuss our guidance for each segment of our business in more detail later in the call. We are pleased with the performance of our core operating businesses during the first quarter of 2020 amid the challenges introduced by the COVID-19 pandemic. We believe our underlying results demonstrate the strength of our portfolio of diversified specialty insurance businesses and the contributions of the exceptional employees who are part of the AFG family. We thank God, our talented management team, and our great employees for our continuing ability to provide our essential business functions in these difficult times. Now, I'd like to turn our focus to our property and casualty operations. Please turn to slide six and seven of the webcast, which include an overview of first quarter results. Our specialty property and casualty group performed exceptionally well during the quarter, with excellent underwriting margins, healthy year-over-year growth in net written premiums, and very strong renewal pricing that's exceeding our objectives. As you'll see on slide six, gross written premiums were down 1%, net written premiums were up 2%, in the 2020 first quarter compared to the prior year quarter, primarily as a result of the runoff of NEON. Excluding the impact of the NEON runoff, gross and net written premiums increased 11 percent and 7 percent, respectively, year over year. Core operating earnings in the AFG's property insurance operations were $181 million in the first quarter of 2020 compared to $185 million in the prior year period, a decrease of 2%. Absent the impact of mark-to-mark investments, first quarter 2020 pre-tax core operating earnings in the AFG's P&C insurance segment increased $1 million when compared to the prior year period. The specialty property and casualty insurance operations generated an underwriting profit of $89 million in the 2020 first quarter compared to $88 million in the first quarter of 2019. Higher underwriting profitability in our specialty casualty and specialty financial groups was partially offset by lower underwriting profit in our property and transportation group. The first quarter 2020 combined ratio of 92.2% improved three-tenths of a point from the prior year period. First quarter 2020 results include 4.2 points of favorable prior year reserve development compared to four points in the prior year period. Catastrophe losses were 0.8 points of the combined ratio in the first quarter of 2020. By comparison, catastrophe losses added 1.1 points in the prior year period. We continue to carefully monitor claims and loss trends related to the COVID-19 pandemic. Numerous legislative and regulatory actions, as well as the specifics of each claim, contribute to a highly fluid, evolving situation. Our first quarter 2020 results include approximately $10 million in claims reserves and IBNR designated for estimated COVID-19 related losses. We expect to see more claims and gain greater clarity during the second quarter. We have insignificant exposures to event cancellation, travel and accident, or travel and accident and health, as well as other first-party coverages. It's too early currently to know the impact on some of our lines of business, such as D&O, surety, and trade credit. Turning to pricing, We continue to see strong renewal rate momentum. Average renewal pricing across our entire property and casualty group was up approximately 7 percent for the quarter. And if you exclude workers' compensation or workers' comp business, renewal pricing was up approximately 11 percent in the first quarter. 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. Now, I'd like to turn to slide seven 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 $27 million in the first quarter of 2020, compared to $39 million in the comparable prior year period. Lower crop earnings were the driver of the lower underwriting profit in the quarter. First quarter 2020 gross and net rent and premiums in this group were 13 percent and 12 percent higher, respectively, than the comparable prior year period. New business opportunities in our transportation, property and inland marine and ocean marine businesses, as well as new premiums, from the addition of the Atlas paratransit business were partially offset by declines in passenger transportation premiums caused by the COVID-19 pandemic. Overall, renewal rates in this group increased 6% on average in the first quarter. I'm pleased with the rate strengthening in our commercial auto liability and aviation businesses and in our Singapore branch. Specialty Casualty Group reported an underwriting profit of $52 million in the 2020 first quarter, compared to $36 million in the comparable 2019 period. Higher profitability in our executive liability and workers' compensation businesses, as well as 2019 NEON underwriting losses impacting prior year core operating results, contributed to the higher year-over-year underwriting profitability. Higher year-over-year adverse development in our E&S lines and public sector businesses partially offset these results. Underwriting profitability in our workers' comp business continues to be very strong. These businesses reported higher year-over-year underwriting profit, primarily as a result of higher favorable prior year reserve development. Gross and net written premiums for the first quarter. of 2020 decreased 7% and 6%, respectively, compared to the same period in 2019, primarily due to the runoff of NEON. If you exclude the impact of NEON, gross and net written premiums for the first quarter of 2020 were up 13% and 4%, respectively, when compared to the same period in 2019. Higher sessions in our E&S business and excess liability businesses impacted net written premiums. With the exception of workers' comp, the majority of our businesses in this group achieved strong renewal pricing and reported premium growth during the first quarter. Growth in our excess and surplus lines and excess liability businesses, primarily the result of rate increases, new business opportunities, and higher retentions on renewal business, was the primary driver of the higher premiums. Lower premiums in our workers' comp business partially offset this group. Renewal pricing for this group was up 8 percent during the first quarter. Excluding our workers' comp businesses, renewal rates in this group were very strong and up nearly 17.5 percent. Renewal rates in our specialty casualty group overall and renewal rates adjusted to exclude the impact of workers' comp are the highest that we've seen in more than five years. Specialty Financial Group reported an underwriting profit of $17 million in the first quarter of 2020 compared to $13 million in the first quarter of 2019. Higher year-over-year underwriting profitability in our financial institutions business was partially offset by lower underwriting profitability in our fidelity and crime operations. Nearly all businesses in this group continued to achieve excellent underwriting margins. First quarter 2020 gross written premiums were down 1%, net written premiums were up 3%, respectively, when compared to the prior year period. In renewal pricing, this group was approximately up 5% for the quarter. We're very excited that the Surety and Fidelity Association published their 2019 industry rankings last week, placing Great American as the third largest rider of crime insurance in America. Congratulations to our Fidelity and Crime team for attaining this market leadership. Now, if you would, please turn to slide eight for a summary view of our 2020 outlook for the specialty property and casualty operations. In light of the challenges and uncertainties presented by the COVID-19 pandemic, we've conducted a detailed review of our expectations and other key financial and operating items for each of our properties. specialty property and casualty businesses. Based on the current expectations of the impact of COVID-19 and our results through the first three months of 2020, we now expect property and casualty pre-tax core operating earnings, excluding the impact of investments mark to market through core operating earnings, in the range of $630 million to $690 million. And we continue to expect an overall 2020 combined ratio for the specialty property and casualty group overall between 92% and 94%. We do expect COVID-19 to have an adverse impact on property and casualty premiums, as the exposure basis that affect our property and casualty businesses will change as overall economic activity declines. Net written premiums are now expected to be 14 to 8 percent lower than the $5.3 billion reported in 2019, primarily due to the runoff of NEON. Excluding the impact of NEON, we expect net written premiums to be a range that is 7 to 1 percent lower than results reported in 2019. And then if you exclude NEON and workers' comp, our guidance is in the range of down 4 percent to up 2 percent. Looking at each segment, we continue to estimate a combined ratio in the range of 92 to 96 percent in our property and transportation group. Net written premiums for 2020 are now estimated to be 5 percent lower to 1 percent higher than 2019. And this guidance reflects the impact of return of premium in many of our transportation businesses as insured units were taken out of service in response to state and local stay-at-home orders and the closing of businesses. We continue to expect our specialty casualty group to produce a combined ratio in the range of 90% to 94% in 2020. Our guidance assumes continued strong renewal pricing in our E&S excess liability and several of our longer-tail liability businesses. Neon accounted for $401 million in net written premiums in 2019. As a result of this business being placed in the runoff, we expect net written premiums in the specialty casualty group to be down 23% to 17% in 2020. Excluding the impact of Neon, the Neon runoff, we expect premiums in this group to be 8% to 2% lower than our prior year results. And when you exclude NEON and workers' comp, we expect premiums to be in a range of down 3 percent to up 3 percent. Our guidance for this group includes the expectation that net written premiums in our workers' compensation businesses will be down in 2020 as a result of midterm premium and other adjustments resulting from lower payrolls in our workers' comp businesses and the impact of lower rates as well as return of premium provisions for other businesses that were forced to shut down during the pandemic. Specialty financial group combined ratios now expected to be in the range of 87 to 91 percent, up slightly from our initial range of 86 to 90 percent. We now expect net written premiums to be 12 to 6 percent lower than 2019 premiums. Our guidance for this group includes the expected impact of various state regulations regarding moratoria on policy cancellations and placement of forced coverage in our financial institutions business. Given the uncertainties of the implications of COVID-19 and the resulting volatility in the financial markets, we're not providing guidance for P&C net investment income. Our previous guidance assumed an annualized return of 10% on investments marked to market through core earnings, approximating the return earned in 2019. Based on the results through the end of April, we expect overall property and casualty renewal pricing in 2020 to be up 5 to 8 percent, an improvement from the range of 3 to 5 percent estimated previously. In excluding workers' comp, we expect renewal rate increases to be in the range of 8 to 11 percent, an increase from the range of 5 to 7 percent estimated previously. I now turn the discussion over to Craig to review the results in our annuity segment and AFG's investment performance. Thank you.