American Financial Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the American Financial Group 2020 Third Quarter Results Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's 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. I would now like to hand the conference over to your speaker today, Diane Widener, Vice President of Investor Relations. Thank you. Please go ahead, ma'am.

Thank you. Good morning, and welcome to American Financial Group's third quarter 2020 earnings results conference call. We released our 2020 third 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 Brian Hertzman, AFG's 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 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. And finally, 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 statements. Now I am pleased to turn the call over to Carl Lindner III to discuss our results.

Good morning. Before we begin our remarks, Craig and I would like to take a moment to honor the passing of AFG Board Member Ken Ambrack, who passed suddenly in September. Ken served on AFG's Board of Directors for 15 years. He was a tremendous resource to me and Craig for many years. and will be remembered as a trusted advisor and friend. While we released our 2020 third quarter results yesterday afternoon, if you'd please turn to slide three of the webcast slides for an overview, you can see that AFG reported core net operating earnings of $2.45 per share in the third quarter of 2020, compared to $2.25 per share in the third quarter of 2019. Third quarter 2020 annualized core operating return on equity was in excess of 17%. Turning to slide four, you'll see that the third quarter 2020 net earnings per share of $1.86 included after-tax non-core items aggregating to a $0.59 per share loss. Last quarter, we provided full-year 2020 core net operating earnings per share guidance excluding earnings or losses from alternative investments due to the uncertainty of the implications of COVID-19 and the resulting volatility in the financial markets. Based on results to the first nine months of the year, AFG now expects its 2020 core net operating earnings per share, excluding alternative investments, to be in the range of $7 to $7.50, an increase of 25 cents a share from the midpoint of our previous guidance. Craig and I will each discuss our guidance for each segment of our business in more detail later in the call. We're very pleased with the performance of our core operating businesses during the third quarter amid the challenges presented 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 our exceptional employees. We thank God, our talented management team, and our employees for helping to achieve these results. Now I'd like to turn our focus to our property and casualty operations. If you would, please turn to slides five and six of the webcast, which include an overview of third quarter results. Our specialty property and casualty group performed exceptionally well during the quarter. especially taking in mind with higher frequency of catastrophe losses across the industry and continued uncertainty from the COVID-19 pandemic. As you'll see on slide five, gross and net written premiums were down 5% and 8%, respectively, when compared to the third quarter of 2019, primarily as a result of the runoff of NEON. Excluding the impact of the NEON runoff, gross and net written premiums decreased 1% and 3% respectable year over year. Core operating earnings in the AFG's P&C operations were $205 million in the third quarter of 2020 compared to $194 million in the prior year period, an increase of 11 million or 6%. Higher year-over-year property and casualty underwriting profit and higher earnings from alternative investments were partially offset by lower other property and casualty net investment income, primarily the result of lower interest rates on cash balances and floating rate investments. Specialty property and casualty insurance operations generated an underwriting profit of $104 million in the 2020 third quarter compared to $88 million in the third quarter. of last year. Higher year-over-year underwriting profits in our specialty casualty and property and transportation groups were partially offset by lower underwriting profits in our specialty financial group. The third quarter 2020 combined ratio of 92.1% was 1.9 points lower than the 94% reported in the comparable prior year period. It includes 2.7 points in catastrophe losses. By comparison, catastrophe losses in the third quarter of last year added 1.6 points. Third quarter 2020 results included 3.7 points of favorable prior year reserve development compared to 3.1 points in the comparable 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. AFG didn't record any additional reserve charges for COVID-19 in the third quarter. Given the uncertainties surrounding the ultimate number or scope of claims relating to the pandemic, approximately 82% of AFG's COVID-19 related reserves from the 95 million in charges recorded in the first half of 2020 are held as incurred but not reported. These reserves represent the company's current best estimate of losses from the pandemic and related economic disruption. Our claims professionals and those who support them are working tirelessly to review claims with the care and attention each deserves. Turning to pricing, we continue to see strong renewal rate momentum and have achieved broad-based pricing increases in the quarter, with especially exceptionally strong renewal pricing in our longer-tail liability businesses. Our average renewal rate increases year-to-date are the highest we've achieved in over 15 years. And in quarter, average renewal pricing across our entire property and casualty group was up approximately 13% for the quarter. And if you exclude our workers' comp business, renewal pricing was up approximately 16% in the third quarter. Both measures reflect an improvement from rates achieved in the first half of 2020. We believe the current market conditions reflect a continuation of the meaningful renewal pricing increases achieved prior to the pandemic, which have been in response to the low interest rate environment, trends in social inflation, elevated loss experience following heavy industry CAT experience in 2017 and 18, now 19, and higher expected reinsurance pricing, among other factors. We expect current market conditions to continue into 2021. Now I'd like to turn to slide six to review a few highlights from each of our specialty property and casualty business groups. Property and transportation group reported an underrunning profit of $47 million in the third quarter of 2020, compared to $38 million in the comparable 2019 period. Higher underwriting profitability in our non-crop agricultural and ocean marine businesses and improved results in our aviation business and Singapore branch were partially offset by lower year-over-year underwriting profits in our transportation and property and inland marine businesses. Catastrophe losses for this group were $18 million in the third quarter of 2020, compared to $8 million in the comparable prior year period. Third quarter 2020 gross and net rent premiums in this group were 5 and 4 percent lower, respectively, than the comparable 2019 period. The decrease was largely the result of lower year-over-year crop premiums, resulting from delayed premium reporting in 2019 due to the late planting of corn and soybean crops. Excluding the impact of crop insurance, third quarter 2020 gross written premiums increased 1% and net written premiums decreased 2% when compared to the last year's third quarter. Lower premiums in our transportation business due primarily to the return of premiums and reduced exposures as a result of COVID-19 were tempered by growth and new business opportunities in our property and inland marine and ocean marine businesses. As far as crop, the month of October serves as the discovery period for the majority of our corn and all of our soybean businesses. Corn and soybean harvest pricing is averaging about 3% and 15% higher, respectively, than the spring discovery pricing. Potentially record-setting national yields for both corn and soybeans were adversely impacted by the Iowa derecho and dry conditions across much of the Midwest that accelerated crop maturity and the pace of harvest. But despite these conditions, both crops will exceed their respective trend yields. Knowing what we know at this point, we expect to have a normal to slightly below normal crop year. Overall renewal rates in this group, increased 6% on average for the third quarter of 2020 with continued strong renewal rate momentum. Now moving on to the specialty casualty group, we reported an underwriting profit of $53 million in the 2020 third quarter compared to $23 million in the comparable 2019 period. Higher year-over-year underwriting profits in our excess and surplus and excess liability businesses and the impact of underwriting losses at Neon in the third quarter of last year were partially offset by higher adverse development in our general liability business and lower underwriting profits in our targeted markets and workers' comp businesses. Now, underwriting profitability in our workers' comp business overall continues to be very strong. I'm very pleased with improved market conditions in our excess and surplus lines and excess liability businesses, which have achieved significant renewal rate increases and have acted on new business opportunities as the market has hardened. Gross and net rent premiums in specialty and casualty group decreased 5 and 14 percent, respectively, for the third quarter of 2020 when compared to the same period last year, primarily due to the runoff in NEON. Excluding the impact of NEON, gross written premiums increased 6% and net written premiums decreased by 1% in the third quarter of 2020 compared to the same period in 2019. The COVID-19 pandemic has resulted in reduced exposures in our workers' comp businesses, which when coupled with renewal rate decreases, also were significant contributors to the lower year-over-year premiums. Gross and net written premiums in this group grew by 13 and 5 percent, respectively, when you exclude both NEON and workers' comp. Significant renewal rate increases coupled with new business opportunities in our excess and surplus, excess liability, and executive liability businesses contributed to this growth. Renewal pricing for this group was up 17 percent in the third quarter. And if you exclude our workers' comp business, Renewal rates in this group were up 25 percent, an improvement from the rates achieved in the first half of 2020. Specialty Financial Group recorded an underwriting profit of $13 million in the third quarter of 2020, compared to $26 million in the third quarter of 2019. Higher catastrophe losses in our financial institutions business were the primary driver of the decrease. Third quarter 2020, gross and net rent premiums were 11 and 8 percent lower, respectively, when compared to the same 2019 period. Lower premiums resulted primarily from the impact of various state regulations regarding moratorium on policy cancellations and the placement of forced coverage in our financial institutions business. Heightened risk selection, also that's reduced new business in our trade credit business. and COVID-related economic impacts on our surety businesses. These decreases were partially offset by year-over-year growth in our federal owning crime business. Renewal pricing in this group was up 7 percent for the quarter and is an improvement from the renewal rate increases achieved in the first half of this year. Now, if you would please turn to slide seven for a summary view of our 2020 outlook for the specialty property and casualty operations. In light of the challenges and uncertainties presented by COVID-19 pandemic, we've conducted a detailed review of our expectations and other key financial and operating items for each of our specialty P&C businesses. Based on the results of the first nine months of the year and our current expectations of the impact of COVID-19, we now expect property and casualty, pre-tax core operating earnings, excluding the impact of alternative investments, in the range of $650 million to $690 million, a meaningful increase from the $615 to $675 million indicated in our previous guidance. And we continue to expect a 2020 combined ratio for the specialty property and casualty group overall between 92 and 94 percent. Our revised premium guidance overall and within each of our specialty subsegments reflects an improved outlook from our previous guidance. Excluding the impact of the NEON runoff, we expect net written premiums to be 1% lower to 3% higher than our prior year results. And when we exclude NEON and workers' comp, we expect net written premiums to be 1% to 5% higher than what we reported in 2019. You'll see on the slide also that we adjusted our combined operating ratio and premium guidance within each of our specialty property and casualty subsegments to reflect our most current view of the impact of the COVID-19 pandemic. We now estimate a combined ratio in the range of 90% to 93% of our property and transportation group, narrowed a bit from our previous range. We now expect net written premiums for this group to be 1% lower to 3% higher than last year, an improvement from the previous estimates. And our specialty casualty group is now expected to produce a combined ratio in the range of 90% to 93% in improvement from our previous estimate. We now expect net written premiums for this group to be 5% to 9% higher than last year's results when excluding NEON and workers' comp. We continue to expect the specialty financial group to produce a combined ratio between 91% and 95%. and we've improved our premium expectations for this group to be 2% to 6% lower than 2019 results. 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. Now, with regard to pricing, we now expect overall property and casualty renewal rates in 2020 to be up 10% to 12%. And excluding workers' comp, we expect renewal rate increases to be in the range of 13% to 15%, as indicated by the significant momentum we're seeing through the end of September. Now I'm going to turn the discussion over to Craig to review the results in our annuity segment and AFG's investment performance.