CINCINNATI, Feb. 13 /PRNewswire-FirstCall/ -- American Financial
Group, Inc. (NYSE:AFGNASDAQ:AFG) today reported net earnings of
$88.5 million ($1.12 per share) for the 2005 fourth quarter
compared to $92.6 million ($1.23 per share) for the 2004 fourth
quarter. Net earnings for the 2005 full year were $206.6 million
($2.62 per share) compared to $359.9 million ($4.81 per share) for
2004. Core net operating earnings (before significant items
described below) of $87.5 million ($1.11 per share) for the fourth
quarter and $297.1 million ($3.78 per share) for the full year of
2005 were up 31% and 38% from the comparable 2004 periods. The
increase in the 2005 fourth quarter and full year is primarily due
to improved results within the specialty property and casualty
insurance ("P&C") operations. This group's underwriting profit
for the 2005 fourth quarter and full year was 11% and 69% higher
than in the respective 2004 periods. Its gross investment income
for those 2005 periods was 13% and 10% above the same periods a
year earlier. The 2005 full year results include $34.2 million
($.44 per share) of after-tax losses from hurricanes Katrina, Rita
and Wilma compared to $24.1 million ($.32 per share) of hurricane
losses in 2004. AFG's net earnings include certain significant
items that may not be indicative of its ongoing core operations.
The following table identifies such items and reconciles net
earnings to core net operating earnings, a non- GAAP financial
measure that AFG believes is a useful tool for investors and
analysts in analyzing ongoing operating trends. In millions, except
Three months ended Twelve months ended per share amounts December
31, December 31, 2005 2004 2005 2004 Net earnings (see components
below) $88.5 $92.6 $206.6 $359.9 Components of net earnings: Core
net operating earnings (before significant items below)(a) $87.5
$66.6 $297.1 $215.4 Gains on major real estate sales(b) 25.8 - 45.9
- Unlocking charge and DAC write-off(c) (15.6) - (15.6) - Subtotal
$97.7 $66.6 $327.4 $215.4 Realized investment gains (losses) (3.4)
28.8 11.3 192.2(d) Asbestos & environmental charges(e) - -
(121.6) (33.8) Other, including 2004 accounting changes(f) (5.8)
(2.8) (10.5) (13.9) Net earnings $88.5 $92.6 $206.6 $359.9 Diluted
EPS (see components below) $1.12 $1.23 $2.62 $4.81 Components of
EPS: Core net operating earnings (before items below)(a) $1.11 $.88
$3.78 $2.88 Gains on major real estate sales(b) .32 - .58 -
Unlocking charge and DAC write-off(c) (.20) - (.20) - Subtotal
$1.23 $.88 $4.16 $2.88 Realized investment gains (losses) (.04) .39
.14 2.57(d) Asbestos & environmental charges(e) - - (1.55)
(.45) Other, including 2004 accounting changes(f) (.07) (.04) (.13)
(.19) Diluted EPS $1.12 $1.23 $2.62 $4.81 Footnotes a-f are
contained in the accompanying Notes To Financial Schedules at the
end of this release. Craig Lindner and Carl Lindner III, AFG's
Co-Chief Executive Officers, jointly stated: "2005 was a banner
year for AFG's insurance operations even though it is considered to
be the costliest year ever for the insurance industry. Our record
core net operating earnings per share for 2005 was 31% above the
2004 results and was above our previously announced earnings
guidance. Our net earnings, however, were lower than in 2004,
reflecting the impact of the A&E reserve charge taken in the
2005 third quarter and the gain in 2004 relating to the sale of the
Provident Financial Group shares. We also generated additional
income through some opportunistic real estate sales during 2005. We
ended the year in a strong capital position with improved leverage
and financial flexibility. Shareholders' equity (excluding
unrealized gains on fixed maturities) at the end of 2005 was 9%
above year-end 2004 with a debt-to-capital ratio of 27%, in line
with our targeted objective for the year. Our long-term objective
is to lower our debt-to-capital ratio to below 25%. We expect to
achieve this objective by year-end 2006. Our holding company cash
and investments were approximately $160 million at year-end,
providing solid liquidity going into 2006. We expect continued
growth and profitability in our insurance operations and are
raising our 2006 core earnings guidance to between $3.90 and $4.20
per share." Business Segment Results The P&C specialty
insurance operations generated an underwriting profit of $60.9
million in the 2005 fourth quarter, $6 million higher than the same
quarter a year earlier. These results included a $45 million charge
related to the residual value business with one customer and $12.6
million of losses primarily from Hurricane Wilma, offset by strong
profitability in the crop insurance and California workers'
compensation operations as well as favorable reserve development in
a number of other businesses. Gross written premiums for the 2005
fourth quarter were approximately 3% higher than the same 2004
period. While premium levels for the specialty insurance operations
continued to be impacted by the overall moderating rate environment
relative to the year earlier, certain specialty operations
experienced solid volume growth and higher rate levels. In the 2005
fourth quarter, overall average rates were down about 1% and net
written premiums were about even compared with the same prior year
period. Net written premiums reflect the effect of additional
multi-peril crop insurance premiums ceded to the federal
government. The 2004 fourth quarter includes the premium increase
associated with the commutation of a reinsurance agreement.
Excluding these items, net written premiums for the 2005 period
were 8% higher than the 2004 period. The 2005 underwriting profit
of the P&C specialty insurance operations was $207.8 million,
$85.0 million higher than in 2004. For 2005, gross written premiums
were about the same as in 2004 while net written premiums were 10%
higher, reflecting the effect of increased premium retention in
certain Property and Transportation businesses. Further details of
the P&C Specialty operations may be found in the accompanying
schedules. The Property and Transportation businesses reported a
combined ratio of 66.4% and 83.0%, respectively, for the 2005
fourth quarter and full year, higher than the same 2004 periods.
While the crop insurance operations achieved strong profitability
in 2005, the results were lower than the record profitability
recorded in 2004. The transportation, marine and other agricultural
operations also generated strong underwriting profits in 2005.
Gross written premiums for the 2005 fourth quarter and full year
increased 16% and 1%, respectively, above the same 2004 periods.
New premium volume in the 2005 fourth quarter resulting from the
recent acquisition of Farmers Crop Insurance Alliance, coupled with
solid volume growth in the transportation, inland marine and equine
businesses, more than offset the effect of lower commodity prices
earlier in the year which were used to establish crop insurance
coverages and lower volume resulting from competitive pricing
within the excess property insurance operations. Net written
premiums for the 2005 three and twelve month periods grew 14% and
33%, respectively, over the 2004 periods due primarily to
considerably lower premiums ceded under reinsurance agreements
principally within the crop insurance and inland marine operations.
The California Workers' Compensation business continued to report
strong profitability, reflecting the benefit of the improving
claims environment resulting from the workers' compensation reforms
enacted in California. Its underwriting results benefited from
favorable prior year reserve development of $11.8 million, or 13.8
points, in the 2005 fourth quarter and $24.4 million, or 7.0 points
for the year. Gross written premiums for the 2005 fourth quarter
were about 5% below the 2004 fourth quarter resulting from the
lower rate environment, partly offset by good volume growth. For
the year, gross written premiums were about the same as 2004. Rate
decreases in California, which are responsive to the improving
claims environment, averaged about 25% for the 2005 fourth quarter
and 16% for the full year. The Specialty Casualty group again
reported excellent results for the 2005 fourth quarter with a
combined ratio of 83.7%, 23.3 points better than the comparable
2004 period. This group generated an underwriting profit of $63.4
million for the 2005 full year with its combined ratio improving
8.5 points to 91.3%. This significant improvement is the result of
a substantial decrease in unfavorable development in the executive
liability operations along with strong underwriting profits in the
excess and surplus and targeted markets businesses. Gross written
premiums for the 2005 fourth quarter and full year were 3% below
the same 2004 periods resulting primarily from volume reductions in
our excess and surplus lines business, reflecting stronger
competition in those commercial casualty markets. Overall, this
group's rate increases averaged 3% for the 2005 fourth quarter and
4% for the year. The Specialty Financial group's underwriting loss
in the fourth quarter of 2005 included a $45 million charge
associated with the residual value business with one customer. The
group's combined ratio for 2005 was 121.3%, which included 12
points for the residual value charge. The losses from the residual
value business were partly offset by strong profitability in the
fidelity and crime and financial institutions operations. Gross
written premiums for the 2005 fourth quarter were comparable to the
2004 fourth quarter; however the decline in net written premiums
reflects the effect of the commutation of a reinsurance agreement
in the 2004 fourth quarter coupled with an increase in premiums
ceded in the 2005 quarter under reinsurance agreements. Gross
written premiums for 2005 were 5% above 2004 as a result of growth
in the profitable fidelity and crime and several other lender
services lines. Carl Lindner III stated: "We stayed focused on our
direction and saw excellent execution in our core insurance
operations. Underwriting margins for the Specialty P&C group
reached all time highs despite another heavy hurricane season and a
softer pricing environment. Our average rate levels were about the
same as in 2004. Our 2005 results clearly demonstrate our strong
commitment to pricing and underwriting discipline and our ability
to manage risks appropriately." "Looking into 2006, we expect
growth in net written premiums of 5-7% and a continuation of the
strong underwriting profits experienced in 2005. Our Property and
Transportation group is expected to grow its premiums substantially
as a result of the Farmers acquisition and maintain solid
underwriting margins. We have decided to discontinue writing new
residual value business in 2006 and expect that we will experience
a return to underwriting profitability in our Specialty Financial
group this year. Underwriting margins in the Specialty Casualty
group should remain stable with premiums flat to slightly up. As a
result of the significant rate reductions in our California
Workers' Compensation business, premiums are likely to decline and
the combined ratio is expected to increase over the 2005 level.
However, we continue to believe that the current rate levels are
adequate to generate favorable returns in this business. We expect
a slight decline in the Specialty Group's overall average rates in
2006." The Annuity and Supplemental Insurance Group, managed by
Great American Financial Resources, Inc. ("GAFRI"), reported core
net operating earnings of $14.9 million for the 2005 fourth quarter
compared to $14.7 million for the 2004 fourth quarter. Core net
operating earnings for the 2005 full year increased more than 15%
to $65.6 million compared to $56.6 million in 2004, reflecting
improvement in each of the group's continuing lines of business.
These 2005 results exclude (i) a charge to deferred acquisition
costs ("DAC") and insurance reserves related to the annuity
operations due primarily to the interest rate environment, (ii) a
DAC write-off related to an unexpected increase in mortality in the
run-off life operations, and (iii) a gain from the sale of a hotel,
all of which were recorded in the fourth quarter. Statutory
premiums for the 2005 fourth quarter were about 18% higher compared
to the same period in 2004 primarily reflecting sales of recently
introduced single premium indexed annuity products. Statutory
premiums of $1.1 billion for the full year were 10% higher than in
2004. Premiums in 2005 include approximately $100 million of
traditional fixed annuity premiums from policyholders of an
unaffiliated company in rehabilitation who chose to transfer their
funds to GAFRI in the first quarter of 2005. In addition, sales of
the indexed annuity products, higher supplemental health insurance
premiums, and increased first year premiums in the niche 403(b)
fixed annuity market more than offset decreases in traditional
single premium deferred annuities and variable annuities. Craig
Lindner stated: "The growth and diversification of the 2005
premiums demonstrate the strength of our core businesses. The
growth in first year 403 (b) premiums results from numerous
initiatives we have implemented over the last several years as well
as continuing momentum in this market. The indexed-annuity premium
volume has been encouraging since we re-entered this market in
mid-year 2005. The company's financial position will allow us to
aggressively pursue our strategy of growing our core businesses
organically and through acquisitions. Growth is one of our primary
goals for 2006 and beyond. While the interest rate environment
remains a significant challenge, our financial strength,
operational efficiencies and strong distribution relationships have
allowed us to produce favorable results. We believe we are
well-positioned to continue this trend." The previously announced
sale of Great American Life Assurance Company of Puerto Rico
("GA-PR"), for $37.5 million in cash, was completed in January of
this year. During 2005 GAFRI received dividend payments from GA-PR
totaling $100 million. GAFRI acquired GA-PR for approximately $50
million in 1997. The company does not expect to record a material
after-tax gain or loss on the sale. The above discussion of GAFRI's
core net operating earnings and statutory premiums exclude GA-PR's
results. In February 2006, GAFRI repurchased $36.5 million
principal amount of its 6-7/8% Senior Notes for approximately $37.8
million in cash. A reconciliation of this group's "core net
operating earnings," a non-GAAP measure, to net income as well as
further details may also be found in the earnings release issued
today by Great American Financial Resources, Inc. (NYSE:GFR). AFG
owns 82% of GFR common stock and a proportional share of its
earnings is included in AFG's results. About American Financial
Group, Inc. Through the operations of the Great American Insurance
Group, AFG is engaged primarily in property and casualty insurance,
focusing on specialized commercial products for businesses, and in
the sale of retirement annuities and supplemental insurance
products. Forward Looking Statements This press release contains
certain statements that may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements in this press release not dealing with historical
results are forward-looking and are based on estimates, assumptions
and projections. Examples of such forward-looking statements
include statements relating to: the Company's expectations
concerning market and other conditions and their effect on future
premiums, revenues, earnings and investment activities;
recoverability of asset values; expected losses and the adequacy of
reserves for asbestos, environmental pollution and mass tort
claims; rate increases and improved loss experience. Actual results
could differ materially from those expected by AFG depending on
certain factors including but not limited to: the unpredictability
of possible future litigation if certain settlements do not become
effective, changes in economic conditions including interest rates,
performance of securities markets, the availability of capital,
regulatory actions and changes in the legal environment affecting
AFG or its customers, tax law changes, levels of natural
catastrophes, terrorist activities, including any nuclear,
biological, chemical or radiological events, incidents of war and
other major losses, development of insurance loss reserves and
other reserves, particularly with respect to amounts associated
with asbestos and environmental claims, availability of reinsurance
and ability of reinsurers to pay their obligations, trends in
mortality and morbidity, competitive pressures, including the
ability to obtain rate increases, and changes in debt and claims
paying ratings. Conference Call The company will hold a conference
call to discuss the 2005 fourth quarter and full year results at
1:00 p.m. (ET) today. Toll-free telephone access will be available
by dialing 1-866-831-6272 (international dial in 617-213- 8859).
Please dial in five to ten minutes prior to the scheduled start
time of the call. A replay of the call will also be available at
around 3:00 p.m. (ET) today until 11:59 p.m. on February 20, 2006.
To listen to the replay, dial 1-888-286-8010 (international dial in
617-801-6888) and provide the confirmation code 10113639. The
conference call will also be broadcast over the Internet. To listen
to the call via the Internet, go to AFG's website,
http://www.afginc.com/ , and follow the instructions at the Webcast
link within the Investor Relations section. This earnings release
and additional Financial Supplements are available in the Investor
Relations section of AFG's web site: http://www.afginc.com/.
AFG06-03 AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES SUMMARY OF
EARNINGS (In Millions, Except Per Share Data) Three months ended
Twelve months ended December 31, December 31, 2005 2004 2005 2004
Revenues P&C insurance premiums $590.7 $544.7 $2,366.5 $2,110.3
Life, accident & health premiums 94.7 87.6 371.0 351.4
Investment income 224.6 210.6 865.3 800.2 Realized gains (losses) -
investments (6.8) 41.5 20.5 302.0(g) Other income(h) 115.7 92.7
415.0 342.4 1,018.9 977.1 4,038.3 3,906.3 Costs and expenses
P&C insurance losses & expenses(i) 532.3 493.5 2,341.5
1,998.8 Annuity, life, accident & health benefits 221.1(j)
176.8 782.0(j) 696.8 Interest & other financing expenses 19.9
20.3 79.5 81.1 Other expenses(k) 118.4 140.5 478.5 540.1 891.7
831.1 3,681.5 3,316.8 Operating earnings before income taxes 127.2
146.0 356.8 589.5 Related income taxes 31.2 41.4 115.8 186.1 Net
operating earnings 96.0 104.6 241.0 403.4 Minority interest
expense, net of tax (5.9) (9.8) (28.0) (32.4) Investee losses, net
of tax (.3) (.6) (5.1) (3.1) Earnings from continuing operations
89.8 94.2 207.9 367.9 Discontinued operations (1.3) (1.6) (1.3)
(2.4) Cumulative effect of accounting changes(e) - - - (5.6) Net
earnings $88.5 $92.6 $206.6 $359.9 Diluted Earnings per Common
Share: Continuing operations $1.14 $1.25 $2.64 $4.92 Discontinued
operations (.02) (.02) (.02) (.03) Cumulative effect of accounting
changes(e) - - - (.08) Net earnings $1.12 $1.23 $2.62 $4.81 Average
number of Diluted Shares 79.2 75.5 78.5 74.8 December 31, December
31, Selected Balance Sheet Data: 2005 2004 Total Cash and
Investments $16,224 $15,637 Long-term Debt $943 $1,029 Payable to
Subsidiary Trusts (Issuers of Preferred Securities) $57 $78
Shareholders' Equity $2,458 $2,431 Shareholders' Equity (Excluding
unrealized gains on fixed maturities) $2,442 $2,249 Book Value Per
Share $31.48 $31.72 Book Value Per Share (Excluding unrealized
gains on fixed maturities) $31.28 $29.35 Common Shares Outstanding
78.1 76.6 Footnotes are contained in the accompanying Notes to
Financial Schedules. AMERICAN FINANCIAL GROUP, INC. P&C
SPECIALTY GROUP UNDERWRITING RESULTS (In Millions) Three months
Twelve Months ended Pct. ended Pct. December 31, Change December
31, Change 2005 2004 2005 2004 Gross written premiums $811 $790 3%
$3,637 $3,639 - Net written premiums $545 $538 1% $2,445 $2,224 10%
Ratios (GAAP): Loss & LAE ratio 63.5% 67.5% 63.7% 66.7% Expense
ratio 26.1% 22.1% 27.4% 27.2% Policyholder dividend ratio .1% .3%
.1% .2% Combined Ratio(l,m) 89.7% 89.9% 91.2% 94.1% Supplemental:
Gross Written Premiums: Property & Transportation $270 $231 16%
$1,357 $1,337 1% Specialty Casualty 325 336 (3%) 1,406 1,453 (3%)
Specialty Financial 125 126 - 493 468 5% California Workers'
Compensation 92 96 (5%) 382 380 - Other (1) 1 NA (1) 1 NA $811 $790
3% $3,637 $3,639 - Net Written Premiums: Property &
Transportation $180 $158 14% $909 $683 33% Specialty Casualty 176
158 11% 743 740 - Specialty Financial 89 118 (24%) 384 395 (3%)
California Workers' Compensation 83 87 (3%) 344 339 2% Other 17 17
- 65 67 (4%) $545 $538 1% $2,445 $2,224 10% Combined Ratio (GAAP):
Property & Transportation(m) 66.4% 57.3% 83.0% 80.7% Specialty
Casualty(m) 83.7% 107.0% 91.3% 99.8% Specialty Financial (m,n)
160.1% 129.1% 121.3% 108.9% California Workers' Compensation 52.9%
84.1% 70.0% 89.5% Aggregate Specialty Group(l,m) 89.7% 89.9% 91.2%
94.1% Supplemental Notes: 1. Property & Transportation includes
primarily physical damage and liability coverage for buses, trucks
and recreational vehicles, inland and ocean marine,
agricultural-related products and other property coverages. 2.
Specialty Casualty includes primarily excess and surplus, general
liability, executive and professional liability and customized
programs for small to mid-sized businesses. 3. Specialty Financial
includes risk management insurance programs for lending and leasing
institutions, surety and fidelity products and trade credit
insurance. 4. California Workers' Compensation consists of a
subsidiary that writes workers' compensation insurance primarily in
the state of California. 5. Other includes an internal reinsurance
facility and discontinued lines. Footnotes are contained in the
accompanying Notes to Financial Schedules. AMERICAN FINANCIAL
GROUP, INC. Notes To Financial Schedules GAAP to Non GAAP
Reconciliation: a) Includes 2005 fourth quarter and full year
after-tax losses from three hurricanes of $8.2 million ($.10 per
share) and $34.2 million ($.44 per share), respectively, and 2004
fourth quarter and full year losses of $1.3 million ($.02 per
share) and $24.1 million ($.32 per share), respectively, from four
hurricanes. b) Reflects 2005 4th quarter after-tax gains from the
sales of Ohio and Pennsylvania coal properties and a Texas hotel.
Also, includes a 3rd quarter $20.1 million ($.26 per share)
after-tax gain from the sale of Illinois coal property. c) Reflects
after-tax charges associated with the annuity operations and an
increase in mortality in the run-off life operations. d) Includes
$134 million ($1.80 per share) after-tax gain on the Provident
Financial Group investment related to the merger with National
City. e) Reflects 2005 after-tax charges of $116.5 million ($1.49
per share) for the P&C A&E loss reserve strengthening and
$5.1 million ($.06 per share) for environmental reserve
strengthening related to a subsidiary's former manufacturing
operations, and a 2004 after-tax charge for the settlement of
environmental litigation related to a predecessor's historical
railroad operations. f) For all periods, primarily includes losses
from non-insurance investees, discontinued operations and
retirement of debt. 2004 includes charges totaling $5.6 million
($.08 per share) for the implementation of accounting changes.
Summary Of Earnings: g) Includes a $214 million pre-tax gain on the
sale of the Provident Financial Group investment. h) Includes 2005
pre-tax gains of $73.6 million ($30.9 million and $42.7 million in
the 3rd and 4th quarters, respectively) from the sale of coal
properties and the Texas hotel. i) Includes a 2005 pre-tax charge
of $179 million for the P&C A&E and mass tort loss reserve
strengthening, 2005 pre-tax losses from hurricanes of $52.6 million
and 2004 pre-tax losses from hurricanes of $37.0 million. j)
Includes pre-tax write-offs aggregating $29.4 million (before
minority interest) associated with the fixed annuity operations as
well as an increase in mortality in the run-off life operations. k)
Includes pre-tax charges of (i) $9.5 million (before minority
interest) for an environmental reserve strengthening related to a
subsidiary's former manufacturing operations recorded in the 2005
third quarter and (ii) $52 million for the settlement of
environmental litigation related to a predecessor's historical
railroad operations recorded in the 2004 third quarter. P&C
Specialty Group Underwriting Results: l) Excludes run-off
operations. For the 2005 fourth quarter and full year, includes 7.6
points and 1.9 points, respectively, for the effect of a charge
related to the residual value business. m) Includes the following
effects from hurricane losses: Combined Ratio (GAAP): Three months
ended Twelve Months ended December 31, December 31, 2005 2004 2005
2004 Property & Transportation 1.4% 0.6% 3.8% 4.7% Specialty
Casualty 2.1% - 0.7% - Specialty Financial .5% 0.9% 1.9% 0.9%
Aggregate Specialty Group 2.1% 0.4% 2.2% 1.8% n) For the 2005
fourth quarter and full year, includes 48.4 points and 12.4 points,
respectively, for the effect of a charge related to the residual
value business. First Call Analyst: FCMN Contact: mwells@gaic.com
http://www.newscom.com/cgi-bin/prnh/20041208/CLW086LOGO
http://photoarchive.ap.org/ DATASOURCE: American Financial Group,
Inc. CONTACT: Anne N. Watson, Vice President-Investor Relations of
American Financial Group, Inc., +1-513-579-6652 Web site:
http://www.afginc.com/ http://www.greatamericaninsurance.com/
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