American Financial Group, Inc.

day, and thank you for standing by. Welcome to the American Financial Group 2025 Second Quarter Results Conference Call. At this time, all participants 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Diane Weidner, Vice President of Investor Relations.

Please go ahead.

Good morning, and welcome to American Financial Group's second quarter 2025 earnings results conference call. We released our 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 our 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 to core net operating earnings is included in our earnings release. And finally, if you're 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'm pleased to turn the call over to Carl Lindner III to discuss our results.

Good morning. I'll begin by sharing a few highlights of AFG's 2025 second quarter results, after which Craig and I will walk through more details. We'll then open it up for Q&A where Craig and Brian and I will be happy to respond to your questions. We're pleased to report an annualized core operating return on equity of 15.5%, despite quarterly returns from alternative investments that tempered overall results. Underwriting margins in our specialty property and casualty insurance businesses were strong, and higher interest rates increased net investment income, excluding alternatives, by 10% year over year. In addition, we returned over $100 million to our shareholders during the second quarter of of 2025 through a combination of regular dividends and share repurchases. Our compelling mix of specialty insurance businesses, entrepreneurial culture, disciplined operating philosophy, and an astute team of in-house investment professionals continue to serve us well in environments such as these and position us for long-term success. Craig and I thank God, our talented management team, and our great employees for helping us to achieve these results. I now turn the discussion over to Craig to walk us through some of these details.

Thanks, Carl. Please turn to slides three and four for second quarter highlights. AFG reported core net operating earnings of $2.14 per share compared to $2.56 per share in the prior year period. Our 2025 results reflect a year-over-year decrease in underwriting profit and lower returns on alternative investments. I'll begin with an overview of AFG's investment performance and share a few comments about AFG's financial position, capital, and liquidity. The details surrounding our $16 billion portfolio were presented on slides five and six. Excluding the impact of alternative investments, net investment income at our property and casualty insurance operations for the three months ended June 30, 2025, increased 10% year-over-year as a result of higher interest rates and higher balances of invested assets. As you'll see on slide six, approximately two-thirds of our portfolio is invested in fixed maturities. In the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 5.75%, which compare favorably to the 5.2% yield earned on fixed maturities and our PNC portfolio during the second quarter of 2025. The duration of our PNC fixed maturity portfolio including cash and cash equivalents was 2.8 years in June 30, 2025. The annualized return on alternative investments and our PNC portfolio was approximately 1.2% for the 2025 second quarter compared to 5.1% for the prior year quarter. As a result, overall PNC net investment income was approximately 5% lower than the comparable 2024 period. The impact on rental rates and occupancy from a surge in new apartment supply in certain otherwise strong markets reduced the fair value of some multifamily investments. This tempered the performance of our alternative investment portfolio in the second quarter of 2025 by nearly $30 million. Although substantial supply persists, new construction starts have plummeted. We expect current inventory to be absorbed over the next 12 months. Notably, multifamily starts are down approximately 20% year over year, and down nearly 50% from their 2022 peaks. The combination of tightening supply and a significantly reduced development pipeline is forecast to drive higher rental and occupancy rates over the next several years and should result in stronger returns on our multifamily investments. Longer term, we continue to remain optimistic regarding the prospects of attractive returns from our overall alternative investment portfolio with an expectation of annual returns averaging 10% or better. Please turn to slide seven, where you'll find a summary of AFG's financial position at June 30, 2025. During the quarter, we returned over $100 million to our shareholders, including $39 million in share repurchases and our 80 cent per share regular quarterly dividend. We expect our operations to continue to generate significant excess capital throughout the remainder of 2025, which provides ample opportunity for acquisitions, special dividends, or share repurchases. We evaluate the best alternatives for capital deployment on a regular basis. We continue to view total value creation as measured by growth in book value plus dividends as an important measure of performance over the long term. For the six months into June 30, 2025, AFG's growth in book value per share, excluding AOCI plus dividends, was 6%. Our strong operating results, coupled with effective capital management and our entrepreneurial opportunistic culture and disciplined operating philosophy enable us to continue to create value for our shareholders. I now turn the call over to Carl to discuss the results of our P&C operations.

Thank you, Craig. Please turn to slides eight and nine of the webcast, which include an overview of our second quarter results. Overall underwriting profitability was strong in our specialty P&C businesses in the second quarter of 2025, and we remain confident about the strength of our reserves. A continued favorable pricing environment, increased exposures, and new business opportunities enabled us to grow our specialty property and casualty businesses and we continue to expect premium growth for the full year in 2025. Looking at a few details, you'll see on slide eight that our specialty property and casualty insurance businesses generated a 93.1 combined ratio in the second quarter of 2025, 2.6 points higher than the 90.5 reported in the second quarter of last year. Results for the 2025 second quarter include 2.3 points related to catastrophe losses consistent with results in the 2024 second quarter. Second quarter 2025 results benefited from 7 tenths of a point of favorable prior year reserve development compared to 2.3 points in the second quarter of 2024. Second quarter 2025 gross and net written premiums were up 10% and 7% respectively when compared to the second quarter of 2024. Earlier reporting of crop acreage by insureds impacted the timing of the recording of crop premiums and contributed to the year-over-year increase, particularly when compared to later reporting of acreage the previous year. So if you exclude the crop business, our gross and net written premiums grew 6% and 5% respectively. Average renewal pricing across our property and casualty group, excluding our workers' comp businesses, was up. approximately 7% in the second quarter, consistent with pricing increases achieved in the first quarter. Including workers' compensation, renewal rates were up approximately 6% overall, about a point higher than in the previous quarter. We reported overall renewal rate increases for 36 consecutive quarters, and we believe we're achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed our targeted returns. Now, I'd like to turn to slide 9 to review a few highlights from each of our specialty property and casualty business groups. Details are included in our earnings release, so I'll focus on summary results here. The businesses in the property and transportation group achieved a 95.2 calendar year combined ratio overall in the second quarter of 2025. two and a half points higher than the 92.7 reported in the comparable 2024 period. The second quarter 2025 combined ratio benefited from 2.2 points of favorable prior year reserve development compared to 6.3 points in the 2024 second quarter, particularly reflecting especially strong results for our crop business in the prior year period. Second quarter 2025 gross and net written premiums in this group were up 15% and 10% higher, respectively, than the comparable prior year. As mentioned before, earlier reporting of crop acreage compared to 2024, which impacts the timing of crop premiums, contributed to higher second quarter premiums in this group. Again, when you exclude the crop business, gross and net written premiums in this group grew by 6% and 5%, respectively. Increased exposures, new business opportunities, and a favorable rate environment contributed to our growth in our transportation businesses. Overall renewal rates in this group increased approximately 8% in the second quarter of 2025, a point higher than the pricing achieved in this group for the first quarter of 2025. We continue to remain focused on rate adequacy, particularly in our commercial auto liability-minded business, where rates were up approximately 15 percent in the second quarter. In terms of our crop business, commodity futures pricing remains in acceptable ranges relative to spring discovery prices. And based on the most recent crop progress reports, overall corn and soybean conditions are slightly better than last year at this time. We believe that there's been adequate moisture to date in those areas so that the excessive heat in recent weeks shouldn't be problematic. However, moisture levels through August and early September remain important. Now, the businesses in our specialty casualty group achieved a solid 93.9 calendar year combined ratio overall in the second quarter. 4.8 points higher than the very strong 89.1 reported in the comparable period in 2024. Second quarter 2025 gross and net written premiums increased 4 and 2% respectively when compared to the same prior year period. Higher year over year premiums in our mergers and acquisitions business and growth across a variety of other businesses in the group resulting from new business opportunities, higher rates and strong policy retention were partially offset by lower premiums due to a challenging market in our directors' and officers' liability business. In addition, we continued to non-renew certain housing and daycare accounts in our social services businesses. Excluding our workers' comp businesses, renewal rates for this group were up 8% in the second quarter. Pricing in this group, including workers' comp, was up about 6%. I'm pleased that we achieved renewal rate increases in the mid-teens in our most social inflation-exposed businesses, including our social services and excess liability businesses. The specialty financial group continued to achieve excellent underwriting margins and reported a combined ratio of 86.1 for the second quarter of 2025, 3.6 points better than 89.7 reported in the comparable period in 2024. These results reflect higher year-over-year underwriting profitability in our financial institutions and surety businesses. Second quarter 2025 gross and net rate premiums in this group were up 15%, 12% respectively when compared to the prior year period due primarily to growth in our financial institutions business. Renewal pricing in this group was flat in the second quarter. Craig and I are proud of our history of long-term value creation. We have years of experience navigating economic and insurance cycles. Our insurance professionals continue to exercise their specialty property and casualty knowledge and expertise to successfully compete in a dynamic marketplace. Aaron House's investment team has been both strategic and opportunistic in the management of our $16 billion investment portfolio. One of our greatest strengths is finding opportunities in times of uncertainty. We feel we're well positioned to continue to build long-term value for our shareholders for the remainder of 2025 and beyond. We'll now open the lines for the Q&A portion of today's call. Craig and Brian and I would be happy to respond to your questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Please stand by while we compile the Q&A roster.

Our first question comes from Michael Zurimski at BMO Capital Markets.

Hey, thanks. Good morning. My first question is on the lender place business within specialty financial. I think that might be driving some of the continued healthy growth this quarter again. Maybe just zooming out, is there a way you could help us frame how to think about how that market grows in terms of does it follow mortgage delinquencies or hard market versus soft market dynamics? And then also just more color on kind of how it appears you all have also gained maybe market share too, if you agree, within that business. Thanks.

Thank you. The lender-placed property business is a business that has a smaller number of competitors, I believe. It's a business today, you know, last year was about $700 million in gross written premiums. uh, so a significant business for us. Um, I think the, uh, this business creates greater opportunities when, when you have a weak economy actually. And, uh, you know, when people fall behind, you know, on their, on their payments and that, and, and don't, and don't pay their insurance, that's the primary, uh, you know, at the, you know, from a cycle standpoint, um, you know, that's primarily the case. It's a business that is made up of large account, large client relationships with financial institutions that are significant. So if there's disruption in the market, like there has been the last year or two, where some competitors faltered and gave us opportunities, that also added to the momentum that we've had and growing this business over the past couple years. I think one other thing, up until this year, we, as others in the property side, took some pretty significant rate on price. I think one other thing that's been a wind behind our backs on this business has been the movement in our book of business of going from unpaid mortgage, you know, ensuring on the value of unpaid mortgage balance to move to a replacement cost value, which, you know, a good part of the industry is moving towards. So I think as more and more of our clients and large accounts move to that, that definitely is helpful, you know, when you're getting more proper values for the business in that. Is anything else I tried to frame the business?

I think, Carl, would LenderPlace also be excellent margins in the segment? Is that also what's driving the pricing power to de-sell?

Yeah, I think this business is very profitable for us. Again, made up of large accounts, I think. Pricing is, in this business, through six months, prices are up about a percent. The loss ratio trends are very low single digit in this business. And I think, again, the last thing I mentioned as far as a move from unpaid mortgage balance as a basis for premiums to move to replacement cost values, I think that helps offset you know, the difference between the price increase and the loss ratio trend, if that makes sense.

Yeah, that's helpful. My follow-up is pivoting to what I believe is some of the more social inflationary lines of business. You continue to kind of reference some non-renewals in... in certain lines. I'm assuming, you know, there's always obviously non-renewals going on, but you're calling it out because I think it's, if I'm understanding correctly, it's still at a kind of higher than quote unquote normal level or what you'd, what the AFG would, would expect. You know, I guess just, you know, I know the goalpost is always moving a bit on lost cost inflation, but just kind of maybe broad brush, or if you want to talk about commercial auto versus some of these other housing and daycare accounts kind of, Where do you feel AFG is in terms of the remediation actions and kind of, I think you did say pricing versus loss trend, you feel comfortable or good about? And that's my final question, thanks.

Yeah, that's a complex question, you know, when you're in 36 businesses and that, but I'll take a crack at it. In our nonprofit specialty human services businesses, which we've referenced, there's kind of reference to different kind of things, both housing and daycare accounts and that. I think we're pretty much have completed the non-renewal of the housing account effort, which if you think back to the $50 million comment quarters ago and all that, that was roughly probably 20 of the $50 million or so in that. But I think we're pretty much through that. We no longer provide property or liability insurance for any low-income or affordable housing accounts at this point. On the daycare side, I think we probably have maybe $9 or $10 million left of business that we think will be finished non-renewing by year-end on the daycare. We started that effort early this year, and we feel that that will be completed by year-end. You know, we still are a big rider of YMCAs, which provide daycare. So, you know, there are a certain number of agents that have great books of business in that area. And, you know, we kind of have specialized and focused on YMCA. And so we continue to write daycare with specific risks. But our, you know, a significant portion of our daycare business that wasn't profitable has been, you know, will be closed. will be finished on the non-renewal of that by year end. I think one other thing in which we have talked about in this business and other businesses, we have been reducing umbrella capacity from $15 million to $5 million in that. We currently have about 20 remaining in-force umbrellas over $5 million. I think by year end that will probably be zero in that. So those are the primary efforts in our nonprofit business, which clearly has, you know, has had a stronger social inflation, you know, exposure than a lot of our businesses in that. So those are the things going on there. I think I've mentioned, you know, public sector. We ride over pools. You know, we're pretty much through We've been through the process of increasing our retentions, and we're continuing to take rate there. But I think, you know, we're going to see some more opportunities in that area now that we're through that cycle. In the excess liability business, we're still, in a couple of our business units, we're still taking, you know, double-digit increases in price there. One thing I've mentioned in the past is adjusting limits downward, moving limits up, non-renewal of some accounts that have had higher commercial auto liability exposure and the underlying insurer in that. I think in our Fortune 1000 business, my understanding is we're pretty much through you know, that readjusting the book in our Great American Custom book, which is more focused on Fortune 1000 and that. So I would expect us to see some opportunities, you know, now that that's the adjustments in the limits profile that we want is done to see, you know, some growth opportunities there. Commercial auto. not really in our specialty casualty business. You mentioned it though. I think, you know, the second quarter we had healthy growth and I think we're, you know, as we're continuing to outperform the industry by probably eight points in that we're still trying to get our commercial auto liability portion of that business to an underwriting profit. But that said with the, With the 15% price increase we're getting commercial auto liability, we feel that we're beginning to see more opportunities. I think everybody's mentioned MGAs probably on the calls. We're aware of one MGA that may be dropping out of a particular part or segment, you know, of the commercial auto business, which we would see as an opportunity, you know, over the next six months or so. So I hope that covered a few different subjects for you.

That was comprehensive.

Thank you very much.

Our next question comes from Gregory Peters at Raymond James.

Well, hello, everyone. I think for the first question, I'd like to focus on the inland marine, ocean marine business, and maybe the trade credit business too. First of all, in inland marine and ocean marine, it feels like I'm hearing from some of the other specialty players that they see opportunities for growth in that business. And I guess my question for you is how you're positioned for growth there. But there's marine cargo involved with the trade credit business. There's export and domestic trade involved. And as I'm thinking about your businesses, I'm just curious what the volatility and the tariffs might mean for that business in the interim until things settle up.

yeah greg um you know we have a uh we have a very nice ocean marine book of business uh both um you know here in the us and through our singapore um office uh you know we write you know we have a very strong focus on on ocean marine uh and that also uh and our property in the marine book is um you know a nice business not so much for We're trying to focus more on more inland marine builders, inland marine coverages versus, as some do, just large property placements and that. But they're both good businesses for us. Ocean Marine has provided some growth opportunities for us the past couple years. uh, in that. So, you know, I think we're, you know, we're, we're pleased with that. Uh, as we've, uh, I think on the property and in the Marine side, uh, the builders risk, there's, it hasn't been as many opportunities, you know, on the builders risk side, I think because of just where we are in the economy, um, whether it's tariff activity or not, I'm not sure. Um, But that's probably acted as a little bit of a regulator on our property and in the marine businesses that Builders Whisk and traditional in the marine products are kind of our focus in that. Those businesses have been, you know, over a long period of time, been very profitable businesses for us also in that. Clearly, you know, it's kind of hard to see exactly what the tariff impact is going to be. But clearly, you know, an ocean and in the marine, as I've mentioned, I think at the S&P conference, you know, could be impacted due to lower shipping and cargo transport volumes. I'm not so sure we're really seeing anything right now. I think the bigger question is as these tariff percents are completed country by country, then what happens? So that's my take at this point.

Would you say the same thing about the trade credit business too as it relates to tariffs?

Actually, our trade credit business is growing. I think there's been a little bit of hardening in that market. It's a very, very small specialty business for us. But yeah, I do think, you know, depending on, you know, who gets what tariff and what country, it could have some impact, probably more on the premium side at some point. But right now, you know, anything, we're seeing some growth there. Perfect.

I guess I want to go back to some of the comments you made in your opening remarks, and specifically you talked about M&A. And I don't know if there's been a shift in market conditions, if you're seeing a bigger pipeline today than you were a year or two ago, but I feel like you're always in the market. So when you mentioned it on the call, maybe there's something percolating or Obviously, I'm just curious for your perspectives on the M&A side of the equation, because you called it out in the comments.

Sure. M&A is, you know, it's a business, $100 million type of business for us. It gets a little bit volatile based off of, you know, what the M&A environment is, you know, in this country in particular. This year is, you know, there seems to be quite a bit of activity. Last year was probably a lower amount of activity, and so the business was, you know, a smaller business. This year, though, there's, you know, we've seen quite a bit of activity, and we have a very capable group of, you know, underwriters in this area, and we've done, it's been a very profitable business for us. I think others have kind of strayed into some of the fringe, higher risk, you know, parts of this business, which, you know, we haven't as much. And, you know, we're really kind of stuck pretty much on the representations and warranties and the tax indemnity and credit insurance aspects and that. And We have a good reputation. We're known for, you know, knowing the business well and being, you know, strong specialists in the area.

Thanks for the additional detail. Sure.

Our next question comes from Andrew Anderson at Jefferies.

Yeah, thanks. This is for Andrew. A crop peer gave an early indication that 2025 could be good to very good for crop profitability, and it sounded like in your prepared remarks there are some positive indicators. So just curious if we should still be thinking about this year as an average year, or is it still too early?

You know, I think it's still too early, you know, for us to put our usual, you know, average, below average, above average kind of, you know, caption on it, uh, and that, but I think, uh, you know, as you see what's, uh, on the commodity futures pricing, you know, they remain in acceptable ranges, uh, relative to spring discovery prices. I, I didn't see the final yesterday, but I believe corn's down about 14%, soybeans down, um, a little under 6% on prices. Um, You know, the average deductible that farmers in our book of business that's chosen up excluding the rainfall products would be about 20.5% we would project this year. So, you know, you need losses or a combination of commodity price decrease and loss, you know, to exceed that first line of loss. defense, which is the deductible that the farmers choose up in that. And then when you look at the most recent crop progress reports, the overall corn and soybean conditions are slightly better than last year at this time. You know, there was some concern people have had about the excessive heat, but there's been so much moisture and, you know, adequate moisture to date that we don't think it's problematic to date. But, you know, I think it's important that good moisture levels remain in August and, you know, through early September in that. So I might mention as part of the Big Beautiful Bill, There was actually an increased loss adjustment expense payment within states that have over 120% loss ratio. So actually there was a nice adjustment, improved improvement in the program through the big beautiful bill. where the LAE payment now is 6% versus an existing 1.5%. So it's always nice. There's always some tweaks in a program, you know, down or that are slightly negative. But over time, it seems like generally there are more positive things that happen. And that's one of the most recent things. The Farm Bill, I think, has been extended until September of

I think through September of this year in that.

Okay, thanks for that. And then just pivoting, I think your workers' comp book is slightly skewed to specialty workers' comp, so just curious how the pricing environment is in that end of the market and if you expect any positive momentum on the workers' comp front. And also I think California is the largest state for workers' comp for you, so just curious if you're seeing any different loss experience there.

First of all, California is only about 15% of our workers' comp business. I would think Florida probably would be the largest state. Workers' comp is about 13.5% of our overall gross written premium. Overall results continue to be, for second quarter and six months, continue to be excellent, though the six months calendar year combined raised slightly higher than last year. Our national interstate, the transportation related workers comp, our summit which is southeastern mainly, strategic comp which is large deductible. Those parts of our business have had good calendar year and accident year underwriting results again this year. Republic, our California workers comp is the one entity that has an underwriting loss in the second quarter in that. We feel we have a strong reserve position as it relates to pricing. I think that was kind of, you know, what seemed to be your question. One thing I really like is, you know, we're seeing a moderating price trend with workers' comp. Our pricing, overall pricing in comp was down only about one percent in the second quarter of this year and six months in that. And in Florida, our largest state, I think the one percent decrease that was put into place in January of this year, that was the lowest decrease in seven years in the state of Florida. And in California, actually, you know, we're achieving We achieved about a 5% price increase in the second quarter. That brings our pricing to 1% year-to-date. More importantly, California approved an 8.7% increase, effective 9-1-25. That's the first hike in a decade. Now it's needed, you know, in an industry, California comp, the whole industry, I think the combined ratio is in the 120s in that. We have a, you know, we have a more moderate underwriting loss. We've always generally performed better than the industry. But I really like, you know, what I'm saying in that, you know, as far as the comp pricing environment. So it's still very competitive. but it sure feels like a firming market is coming in California in particular.

Is that helpful? Thanks for your answers. Yep, thank you.

Our next question comes from Meyer Shields at Keith Brouillette in Blitz.

Great, thanks so much. Good morning. Carl, if you could dig a little bit deeper into what you're seeing here. in terms of pricing and rate adequacy and professional lines. I'm asking because you sounded somewhat cautious, and we've heard a couple of other carriers talk about maybe green shoots or bottoming, and I just want to get your perspective on that, please.

Sure. Let me just, from an overall macro perspective, We have good results in the second quarter and six months for our D&O business and our banking-related D&O product business, ABIS. It's a significant business for us, $400 million in D&O and ABIS. And if you include the other professional liability business we write, it's a half billion dollars plus. Net written premiums are down in the second quarter in six months. We continue to see the public company businesses, you know, continues to be competitive. Though I would say I am enthusiastic about seeing, you know, I think the price on that business was only down 1.6% in the second quarter in that, you know, When you look at our overall D&O executive liability businesses, overall, our rates were actually flat in the second quarter in year-to-date 2025. And that's kind of what we expect for the whole year. But I'm very pleased to see, you know, the public company pricing level out some. Now, in our case, public D&O is only 15% of our of our D and O premium. So, you know, it's, we're more opportunistic, um, players, uh, you know, and, and that, that part of the business in that our ABIS actually in our financial or, you know, related, um, D and O and products, uh, pricing was up about 4%, uh, through six months, uh, of this year. So, um, yeah, still competitive on public, you know, but certainly signs that, uh, it's stabilizing. particularly on primary policies. Hope that's helpful.

It is very much so. Thank you. And I just want to confirm, because I'm trying to get my head around the impact of the earlier crop reporting. Should we think of some portion of the premiums, losses, and related expenses that showed up last year in the third quarter as moving to the second quarter this year? Is that how that plays out?

Hey, Mayor. This is Brian. So we'll start with the premium side. So on the premiums, for the full year, we would expect crop premiums to be slightly lower than last year just because commodity prices during the discovery period were lower this year than last year. But what's opposite in that second quarter is just the earlier plantings and earlier reporting of acreage. So we would estimate that that shift in premiums is about $100 million gross and $40 million net from the when you're going quarter over quarter. So that's the amount of premium that would have otherwise been reported in the third quarter, but was instead in the second quarter because of the advanced reporting. So if you want to think about a flip between quarters on the top line, $40 million in net written premiums is about that flip. Now on the profitability side, in our crop business, we tend to book close to zero profits in the second quarter. The only profit that would come through the second quarter would be kind of development from prior periods. as the vast majority of our crops are still on the ground. So we tend to report most of the profitability in our crop business actually in the fourth quarter, a little bit in the third, then some in the fourth, and it may develop favorably into the next year. So all else being equal, when you look at our numbers, you can think of our combined ratio in crop being kind of closer to 100 in the second quarter. And then if it's profitable, that tends to help our combined ratio look better in the fourth quarter, all things being equal. So there's no real impact on profits, but there is on the written premiums.

Okay, that's helpful, but just take it one step further. That means that whatever the earned premium component of that $40 million that's producing a higher combined ratio than the rest of property and transportation, that's moved from the third quarter to the second quarter, so there's a little bit less of that 100% combined ratio earned premium in the third quarter. That's what I'm trying to get at. Footwork should be a little better for that segment.

It's a little tricky, and that's a little tricky just because we did, in some of our earlier season products, the ones that were actually more earning in the first half of the year, we did have some growth there and some changes in how much we've seeded. So the earned premium is higher still and is higher for other reasons also in the second quarter. So I would say really the driver of profit recognition is going to be how the weather goes the next couple of months. and whether that pushes us to above average or average there or where that sits right now. As Carl said, the conditions look good, but we don't want to call that before too soon.

Okay, that helps a lot. Thank you so much.

Our next question comes from Bob Farnam at Janie Montgomery Scott.

Hey there. Just a follow-up question on workers' comp. I've gotten some questions about undocumented workers, and I'm not sure if that really impacts the types of classes that you write, but the question was, have you seen or do you expect the industry to see any change in claim patterns as undocumented workers are swapped out for citizens or documented workers? And the thought being that undocumented workers aren't thought to file workers' comp claims because they're worried about their immigration issues.

Hi, this is Brian.

So we, when we insure our companies, we're insuring for any of their workers, whether they're undocumented or not, and would pay any claims that come through. So if you're asking as undocumented workers, maybe are reduced and replaced by documented workers, will that have an impact or not? We're not seeing anything yet. We will continue to pay all the claims that we owe and collect the right premiums for the payrolls that are in place, regardless of whether they're documented or undocumented.

Yeah, no, the question was, you know, the thought is the undocumented workers don't even file claims because they're worried about it. So are you expecting maybe an increase in reported claims as those workers are replaced with documented workers. That was just the question. Yeah.

At the moment, we're not expecting that, but it's obviously something we'll keep an eye on as we price our business and set reserves going forward. Okay.

And so I also have some questions on the excess liability business. You've had, you know, modest adverse development in the last several quarters. Is that related to any particular accident years or particular lines of business or classes of business? I'm just kind of curious if, you know, what you saw this quarter, is it similar to what you saw in, you know, most of last year and in the first quarter this year?

This is Brian. So I think first it's important to remember that overall, you know, our reserves continue to develop favorably, and we had $11 million in net favorable development in the quarter. So when you look at the casualty group, there is $10 million of adverse development there, and that is driven by adverse severity in parts of our social inflation-exposed businesses, particularly the excess and surplus that you mentioned, and also in our nonprofit social services businesses. In those businesses where we saw an uptick in settlements, we adjusted our case reserves from known claims, and we did increase for similar potential liabilities out there. So the claims of these social inflation-exposed businesses can be lumpy. So when you look at the adverse development by accident year, it really is spread over a lot of different years. So it's no one big thing or one big year. It's just little amounts over several years. You may also see in our current accident year picks that we prudently increased some of those for the same reasons. So we're constantly trying to learn from what we see and adjusting both our loss picks and pricing in relatively real time so that we can maintain or improve our good results.

Right. Okay. Do you write the primary layers on that excess liability book, or is that third parties that write the primary layers?

Where we're seeing the adverse development is mostly coming out of the ones where we are writing the excess layers.

Were you writing the primary layers as well? No. Okay. That's everything. Thanks.

Our next question comes from Michael Zurimski at BMO Capital Markets.

Thanks for taking the follow-up. My question is on the previous $10.50, 25 guide. Obviously, the street is lower due partially to the first quarter investment returns. I guess my question is focused on maybe the year-to-date reserve releases of about a point down 65% approximately year-over-year. Still, obviously, a very good guy releases. Great to see. Would you be able to share whether that reserve release ratio is, you know, better or worse in line with what you had contemplated when putting that guide together, the 1050 guide?

With so many different lines of business and products, it's really hard to say. I think if you remember we talked about when we gave our business plan assumptions at the beginning of the year, we did talk about an expectation of lower levels of favorable development. Now, all the reasons behind that ended up not necessarily being exactly what we thought in the beginning, but we did anticipate and I think hopefully did share that we thought that some of the favorable development we had been seeing would diminish a bit and that we were optimistic about improvements in the accident year, ex-CATS loss ratio, which we did see improvements other than where we were more prudent on some of those social inflation-exposed businesses. So I think overall... It's pretty much in line with what we were expecting, but not necessarily business unit by business unit, but within a range, I'd say yeah.

Okay. Thanks for taking the follow-up. Thank you.

This concludes the question and answer session. I would now like to turn it back to Diane for closing remarks.

Thank you all for joining us this morning and for the great discussion and good questions. We look forward to talking with you all next quarter when we share results for the third quarter. We hope you have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.