American Financial Group, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the American Financial Group 2020 Fourth Quarter Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Diane Widener, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to American Financial Group's fourth quarter 2020 earnings results conference call. We released our 2020 fourth quarter and four-year 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 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 And as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statement. Now, I am pleased to turn the call over to Carl Lindner III to discuss our results. Good morning.

We released our 2020 fourth quarter and four-year results yesterday afternoon. And Craig and I are delighted to report a very strong finish to the year. AFG's core net operating earnings were $8.44 per share for the full year of 2020, compared to $8.62 per share in 2019. Fourth quarter 2020 core operating return on equity was in excess of 14%, as indicated on slide three. Well, capital management is one of our highest priorities. And returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future. Craig and I are pleased that we returned $649 million to shareholders during the year. In addition to $313 million in share repurchases, we paid $336 million in dividends during the year. representing $163 million in regular common stock dividends and $173 million special dividend. And our quarterly dividend was increased by 11.1% to an annual rate of $2 per share beginning in October of 2020. We're also proud of our track record of value creation for shareholders. Growth and adjusted book value per share plus dividends was 13% in 2020. AFG's 10-year total shareholder return, representing growth in share price plus dividends, was approximately 287%, exceeding the total return performance of the S&P 500, the S&P Property and Casualty Index, and the S&P Life and Health Index over the same time period. Now, turning to slide four, for a view of the 2020 fourth quarter, AFG reported record core net operating earnings of $3.09 per share compared to $2.22 per share in the fourth quarter of 2019. Fourth quarter results included $0.84 per share in earnings from alternative investments that are mark-to-market through core earnings compared to $0.32 per share in the fourth quarter of 2019. We're very pleased with the rebound in the performance of these assets, which were adversely impacted by the downturn in financial markets in the first half of 2020 as a result of the pandemic. Annualized core operating return on equity in the fourth quarter was an exceptionally strong 20.3 percent. Now, turning to slide five, you'll see that the fourth quarter net earnings per share of $7.93 included after-tax non-core items aggregating to $4.84 per share. A significant component of these non-core items included realized gains on securities of $5.36 per share, the majority of which pertain to the transfer of investments in AFG's annuity block reinsurance transaction that was entered into in October, and the mark-to-market of equity securities that AFG continued to own at December 31, 2020. We're extremely proud of AFG's fourth quarter and four-year 2020 results, especially in a year fraught with the challenges including a global pandemic, the related economic disruption, and a heightened level of national disasters. None of us would have imagined the challenges 2020 would bring, but we're extremely proud of these results and the resiliency, dedication, and the creativity of our employees over the many months. Greg and I thank God, our talent and management team, and our employees for helping us to achieve these results and position our business for continued success. Last week's announcement about the sale of our annuity business brings significant changes to the way AFG will report its results in 2021. Looking forward, we have established initial 2021 Core Net Operating Earnings Guidance-per-Share to be in the range of $6.25 to $7.25. There are several important assumptions underlying this guidance, including the expectation that earnings from our annuity business will be classified as discontinued and reported as non-core effective January 1, 2021. In addition, our guidance assumes no earnings on the cash proceeds from the sale and an expectation that the AFG parent will have $43 per share in cash and real estate-related investments following the close of the sale. Craig will talk more about the details, including pro forma financial results and expectations during his remarks, and I'll review detailed guidance for each of our property and casualty businesses later in the call. Now I'd like to turn our focus to our property and casualty operations. If you'd please turn to slides 7 and 8 of the webcast, which include an overview of our fourth quarter results. As you'll see on slide 7, core operating earnings and AFG's property and casualty insurance operations were $274 million in the fourth quarter of 2020, a new quarterly record for AFG, and a 38% increase from the prior year period. Significantly 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. The specialty property and casualty insurance operations generated an underwriting profit of $179 million in the 2024 quarter, compared to $89 million and last year's fourth quarter. Higher underwriting profitability in our property and transportation and specialty casualty groups were partially offset by lower year-over-year underwriting profit in our specialty financial group. Fourth quarter 2020 combined ratio of 86.2% improved 7.3 points from the 93.5% reported in the comparable prior year period. Results for the 2020 fourth quarter included 1.5 points in catastrophe losses and 2.4 points of favorable prior year reserve development. 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 fourth quarter. Given the uncertainty surrounding the ultimate number or scope of claims relating to the pandemic, approximately 72% 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 at year-end December 31st, 2020. 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. Now turning to pricing. We continue to see strong renewal rate momentum and have achieved broad-based pricing increases in the quarter, with exceptionally strong renewal pricing in our longer-tailed liability businesses outside of workers' comp. Our average renewal rate increases are the highest we've achieved in over 15 years. Average renewal pricing across our entire property and casualty group was up approximately 13 percent for the quarter. And if you exclude our workers' comp business, Renewal pricing was up approximately 17 percent in the quarter. We believe the current market conditions reflect a continuation of meaningful renewal pricing increases, which have been in response to the low interest rate environment, trends in social inflation, elevated loss, industry loss experience following heavy industry cap experience, higher reinsurance pricing, you know, among other factors. We expect the market to remain firm throughout 2021, allowing us to achieve attractive renewal rate increases in excess of loss costs. Now, gross and net written premiums for the fourth quarter were down 2% and 7%, respectively, when compared to the fourth quarter of 2019, primarily the result of the runoff of NEON. If you exclude the impact of the NEON runoff, gross and net written premiums increased 6 percent and 2 percent, respectively, year over year. I'd like to turn to slide eight to review a few highlights from each of our specialty property and casualty groups. Property and transportation group reported an underwriting gain of $74 million in the fourth quarter compared to an underwriting loss of $2 million in the comparable prior year period. Improved year-over-year results in our crop operations following 2019 losses from prevented planting, along with significantly improved accident year results in our aviation business and higher profitability in our transportation businesses were the primary drivers of the improved results. Fourth quarter 2020 gross written premiums in this group were up 3%. Net written premiums were down 2% when compared to the 2019 fourth quarter. Growth in new business opportunities in our property and inland marine and ocean marine businesses and higher gross written premiums in our crop operations were partially offset by lower premiums in our transportation business. Primarily from reduced exposures as a result of COVID-19, and premium reductions in two large national counts. Higher sessions of certain crop insurance products contributed to the year-over-year decrease in net written premiums in the 2020 fourth quarter. Overall renewal rates in this group increased 5 percent on average for the fourth quarter of 2020 with continued strong renewal rate momentum. Now, the specialty casualty group reported an underwriting profit of $91 million in the fourth quarter compared to $69 million in the comparable 19 period. Higher year-over-year underwriting profit in our excess and surplus and excess liability businesses and improved year-over-year results in our general liability business were partially offset by lower favorable prior year reserve development in our workers' comp businesses. Though underwriting profitability in our workers' comp business overall continues to be excellent. This group reported an impressive 84% combined ratio for the fourth quarter and 90% for the full year. Improved market conditions in our excess and surplus lines and excess liability businesses have enabled us to achieve significant rate increases and act on new business opportunities as the market has hardened. Gross and net written premiums in this group decreased 7 percent and 16 percent, respectively, for the fourth quarter of 2020 when compared to the prior year period, primarily due to the runoff in NEON. When you exclude the impact in NEON, gross and net written premiums increased 9 percent and 3 percent, respectively, in the fourth quarter of 2020 when compared to the same period in 2019. Significant renewal rate increases and new business opportunities in our excess and surplus, excess liability, and DNO businesses contributed to the growth. The COVID-19 pandemic has resulted in reduced exposures in our workers' comp businesses, which, when coupled with renewal rate decreases in our workers' comp concession businesses, contributed to lower year-over-year premiums, partially offsetting the growth in the other businesses within this group. Renewal pricing for this group was up 19 percent in the fourth quarter. Excluding workers' comp, renewal rates in this group were up approximately 29 percent, much higher than the renewal rate increases achieved in the first three quarters of 2020. The Specialty Financial Group reported an underwriting profit of $20 million in the fourth quarter of 2020, compared to $32 million in the fourth quarter of last year. Lower underwriting profit in our surety and trade credit businesses, along with higher year-over-year catastrophe losses in our financial institutions business, were the primary drivers of the decrease. Nearly all businesses in this group continue to achieve excellent underwriting margins. Gross and net written premiums increased by 2% and 4%, respectively. in the 2020 fourth quarter when compared to the same 2019 period due primarily to the growth in our lender services business, which was partially offset by COVID-related economic impacts in our surety business and tighter underwriting that reduced new business in our trade credit business. Renewal pricing in this group increased each quarter in 2020 and was up approximately 9% during the fourth quarter, and 8% on average for the full year. This is the highest overall annual renewal rate increase we've achieved in this group since 2002. These results were driven primarily by improved pricing in our lender-placed mortgage property business and market tightening in our trade credit insurance operations. Now, if you'd please turn to slide 9 for a summary view of our 2021 outlook for the specialty property and casualty operations. We expect a 2021 combined ratio for the specialty property and casualty group overall between 89 and 91 percent. Net written premiums are expected to be 5 to 9 percent higher than the $5 billion reported in 2020. Now, looking at each segment, we estimate a combined ratio in the range of 88 to 92 percent in our property and transportation group. Our guidance assumes a normal level of crop earnings for the year. Net written premiums for this group are estimated to be 9% to 13% higher in 2021. We expect our specialty casualty group to produce a combined ratio in the range of 87% to 91% in 2021. Our guidance assumes strong renewal pricing in our E&S excess liability and several of our other longer-tail liability businesses. We expect net written premiums for this group to be 3% to 7% higher than 2020 results and 5% to 9% higher, excluding workers' compensation. The specialty financial group combined ratio is expected to be in the range of 88% to 92%. We expect net written premiums to be in 2021 to be 4 to 8 percent higher than 2020 results. With regard to pricing, we expect overall property and cash-ready renewal rates in this year, in 21, to be up 6 to 8 percent. Excluding workers' comp, we expect renewal rate increases to be in the range of 8 to 10 percent, as indicated by the continued pricing momentum we saw through the end of 2020. We expect property and casualty investment income to be down 1% to up 3% when compared to results reported in 2020, primarily as a result of continued low interest rate environment. Now I'll turn the discussion over to Craig to review the fourth quarter and four-year results in our annuity segment, the impending sale of the annuity business and AFG's investment performance. Thank you.