American Financial Group, Inc. · NYSE:AFG
American Financial — Dowling & Partners Investor Meeting 2017
39 slides from American Financial's conference presentation, Nov 17, 2017
Slide 1: Specialty Property and Casualty Insurance; Fixed and Fixed-Indexed Annuities
Specialty Property and Casualty Insurance Fixed and Fixed-Indexed Annuities Dowling & Partners Investor Meeting November 17, 2017 11
Slide 2: Forward Looking Statement
Forward Looking Statement Certain statements made during this presentation, as well as included in this document, are not historical facts and may be considered “forward-looking statements” and are based on estimates, assumptions and projections which management believes are reasonable but by their
Slide 3: AFG: A Specialty Insurer
AFG: A Specialty Insurer AFG’s specialty insurance businesses operate under the Great American Insurance Group brand. For more than 140 years, we have provided insurance products that help businesses manage their unique financial risks and exposures and individuals save for their financial futures.
Slide 4: Insurance Businesses
Insurance Businesses P&C Property & Specialty Specialty Annuity Transportation Casualty Financial • Inland and Ocean • Executive and • Fidelity / Crime • Fixed and Fixed-Indexed Marine Professional Liability Annuities • Surety • Agricultural-Related • Umbrella and Excess • Sold in retail, financial
Slide 5: Building Long-Term Value for AFG Shareholders
Building Long-Term Value for AFG Shareholders Superior Superior Intelligent VALUE Underwriting Investment Deployment Results Talent of Capital CREATION Culture • Entrepreneurial Business Model • Incentives 55
Slide 6: Corporate Culture
Corporate Culture Integrity Clear & Open Integrity Communication Specialization Intelligent Specialization Deployment of Capital Self- Self- Accountability Discipline Discipline Entrepreneurial Spirit Respect Work / Family for Others Balance Customer Customer Focus Focus 66
Slide 7: Significant Insider Ownership
Significant Insider Ownership AFG Shareholder Base Significant ownership by management creates strong alignment of interests with shareholders over the long term 10% 29% The Lindner Family formed AFG in 1959 and continue to be significant shareholders. 61% Ownership Details • Co-CEOs / family = 25%
Slide 8: Focusing on What We Know Best
Focusing on What We Know Best Start-up of Acquisition of Public Sector Summit Holding Division Southeast, Inc. Acquisition of Acquired Employers Start-up of remaining 49% of Comp Aviation NATL shares not Associates Division owned by AFG (ECA) Acquired all minority IPO of Infinity Sale of Shares of G
Slide 9: Intelligent Use of Excess Capital
Intelligent Use of Excess Capital 2016 Capital Management Capital Returned to Shareholders • Paid $1.00 per share special dividend in December 2016 Five Years Ended 12/31/2016 (in millions) • $133 million in share repurchases ($69.47 per share average) Total Repurchases $ 935 2017 Capital Management
Slide 10: Compounded Shareholder Return
Compounded Shareholder Return As of October 31, 2017 5 Years 10 Years AFG 26.0% 16.4% S&P 500 Property & Casualty Insurance Index 19.6% 9.1% S&P 500 Life & Health Insurance Index 17.3% 3.8% S&P Midcap Insurance 20.4% 12.2% S&P 500 15.1% 7.5% Price appreciation plus dividends through 10/31/17. Source
Slide 11: Specialty Property & Casualty Premium
Specialty Property & Casualty Premium Low correlation • Lower relative coastal exposure Gross Written Premiums Gross Written Premiums Full Year 2016 LTM Ended September 30, 2017 $6.0 Billion $6.4 Billion 11% 11% Property & Transportation 42% 41% Specialty Casualty 47% 48% Specialty Financial Over 60
Slide 12: Statutory Combined Ratio
Superior Underwriting Talent 115% Statutory Combined Ratio 110% 107.2% 106.7% 104.4% 105% 103.0% 102.7% Commercial Lines 98.2% 100% 96.7% 97.1% 97.5% Industry 1 95.1% 95% 95.6% 94.1% 93.6% 2 89.1% 92.7% 90% 92.6% AFG 90.2% 85% 82.3% 87.3% 84.8% 80% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1
Slide 13: Strong Alignment Creates Superior Underwriting Results
Strong Alignment Creates Superior Underwriting Results • Unique incentive programs for P&C Group based on underwriting profitability • Annual awards - based on AY COR targets derived from ROE requirements - paid over 2-3 years - no rewards for volume unless COR targets are met - claw back feature •
Slide 14: Pretax Property & Casualty Returns 2012 - 2016
Pretax Property & Casualty Returns 2012 - 2016 TRV 23% AFG 20% RLI 18% W.R. Berkley 17% The Hartford 16% CINF 13% CNA 13% Fairfax 12% Arch Capital 12% Markel 12% Alleghany 11% XL Group 10% Argo 8% 0% 5% 10% 15% 20% 25% Source: Dowling & Partners 14 14
Slide 15: Specialty Property & Casualty Premium Growth
Specialty Property & Casualty Premium Growth Dollars in billions P&C Net Written Premium and Renewal Rates $5.0 $4.7 $4.3 $4.4 Net Written Premium $4.0 $4.0 $3.3 $2.8 $2.9 $3.0 $2.0 $1.0 $0.0 1 2011 2012 2013 2014 2015 2016 2017E Rate Increases 1% 3% 4% 3% 1% 1% 0% − 1% 1 Includes Summit premiums fo
Slide 16: Annuity Segment – Overview
Annuity Segment – Overview • Significant transformation since 2009 • Record earnings, premiums and assets in 2016 • Leader in its channels • Consumer-centric business model has generated strong statutory earnings, resulting in excess capital and significant dividend paying capacity • Emphasis on - a
Slide 17: Annuity Segment – Strengths in the Marketplace
Annuity Segment – Strengths in the Marketplace • American Money Management Corporation skills • Ratings and ALIRT score • Focus on fixed and indexed annuities only • Long history in the industry and long-term agent relationships • Consistent crediting rate strategy • Reputation for simple, consumer-
Slide 18: Growth in Annuity Segment Assets (GAAP)
$10 $15 $20 $25 $30 $35 $40 $- $5 1974 1975 1976 1977 1978 1979 Dollars in billions 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Growth in Annuity Segment Assets (GAAP) 2000 2001 2002 2003 18% Compounded Annual Growth 2004 2005 2006 2007 2008 20
Slide 19: Annuity Market Share by Product Line
Annuity Market Share by Product Line Dollars in billions Shift from Variable Annuities to Traditional Fixed and Fixed-Indexed Annuities Fixed-indexed annuity market share increased by more than 80% 1% FY 2012 4% 4% 1H 2017 17% 44% 31% 13% 66% 20% VA Fixed FIA SPIA DIA Market share for Bank, Independ
Slide 20: Annuity Segment – Significant Transformation Since 2009
Annuity Segment – Significant Transformation Since 2009 • Focus on core competency of fixed and fixed-indexed annuities and away from lines of business without critical mass or competitive advantage • Nearly tripled earnings, tripled premiums, more than doubled assets • Reduced unit costs significan
Slide 21: Growth in Annuity Earnings, Premiums and Assets
Growth in Annuity Earnings, Premiums and Assets Pretax Operating Earnings, Fixed and Fixed-Indexed Annuity as reported 1 Annuity Premiums Assets (in millions) (in billions) (in billions) $400 $5.0 $40 $350 $368 $4.5 $35 $4.4 $4.0 $33.4 $300 $30 $3.5 $250 $3.0 $25 $200 $2.5 $20 $150 $2.0 $15 $1.5 $10
Slide 22: Diversified Specialty Niche Insurance Businesses - Annuity
Diversified Specialty Niche Insurance Businesses - Annuity Channel Market Rank Distribution Product Focus 2016 Premiums Financial #1 FIAs 30+ Financial Institutions; ~ 5,000 agents Institutions #3 in Total ‒ Direct through Financial Institutions $2.4B Sales ‒ Independent Agents and Brokers Fixed R
Slide 23: Protection From Changes in Interest Rates
Protection From Changes in Interest Rates As of September 30, 2017 Protection from Rising Protection from Falling Interest Rates Interest Rate Environment • 87% of inforce annuities have some surrender penalty • Ability to lower crediting rates by 88 bps on $24 billion - 64% of annuity reserves have
Slide 24: Department of Labor Rule
Department of Labor Rule • The DOL Fiduciary Rule became effective on June 9, 2017, although the DOL delayed certain requirements until January 1, 2018. • Insurance-only agents are able to continue selling fixed-indexed annuities through the end of 2017, provided the agent acts in the customer’s bes
Slide 25: AFG Investment Portfolio
AFG Investment Portfolio As of September 30, 2017 Fixed Maturities Portfolio – 90% investment grade; 98% NAIC 1 & 2 Real Estate and Other 4% States & Equities 4% Municipalities 18% Policy and Mortgage Loans Corporates 2% 49% Residential MBS Cash and 9% Equivalents 5% Commercial MBS 3% Asset-Backed F
Slide 26: Investment Portfolio Information and Outperformance
Investment Portfolio Information and Outperformance Fixed Income Property & Annuity & Casualty Runoff Annualized Total Return 1 Approximate Average Nine Years Ended 12/31/16 Duration – Fixed Maturities 4.0 years 5.0 years as of September 30, 2017 Annualized yield on AFG 6.4% available for sale fixed
Slide 27: 2017 Outlook – AFG
2017 Outlook – AFG AFG Core Earnings Guidance $5.90 – $6.20 per share NWP Growth Combined Ratio Specialty P&C Group Overall 6% – 9% 94% – 95% Business Groups: Property & Transportation 3% – 6% 92% – 94% Specialty Casualty 10% – 13% 96% – 98% Specialty Financial 2% – 5% 88% – 90% P&C average renewal
Slide 28: Appendix
AMERICAN | FINANCIAL GROUP, INC. Appendix
Slide 29: Financial Highlights
Financial Highlights Dollars in millions, except per share amounts Three Months Ended September 30, • Results of Operations: 2017 2016 – Core net operating earnings $ 95 $ 134 – Core net operating earnings per share $ 1.06 $ 1.51 – Average number of diluted shares 90.0 88.5 Sept 30, Dec. 31, • Book
Slide 30: Specialty Property & Casualty Businesses
Specialty Property & Casualty Businesses Dollars in millions Net Written Premiums 1 2015 2016 LTM 2017E Specialty Property $ 1,636 $ 1,672 $ 1,735 3% − 6% & Transportation Specialty Casualty $ 2,052 $ 2,036 $ 2,235 10% − 13% Specialty Financial $ 540 $ 572 $ 594 2% − 5% Other Specialty $ 99 $ 106 $
Slide 31: Specialty Property & Casualty Businesses
Specialty Property & Casualty Businesses GAAP Combined Ratio 2015 2016 9/30/2017 YTD 2017E Specialty Property 96.9% 90.0% 94.3% 92% − 94% & Transportation Specialty Casualty 92.7% 96.1% 97.1% 96% − 98% Specialty Financial 83.1% 84.9% 90.4% 88% − 90% Other Specialty 85.5% 91.4% 95.8% n/a Total Specia
Slide 32: Fourth Quarter 2017 Specialty Property & Casualty Updates
Fourth Quarter 2017 Specialty Property & Casualty Updates • Estimating a pretax loss in the range of $20 to $25 million, net of reinsurance and inclusive of reinstatement premiums (midpoint is approximately $0.18 per share). CA Wildfires • The vast majority of these losses are in our winery program
Slide 33: Annuity Segment
Annuity Segment Dollars in millions, unless otherwise noted 2015 2016 9/30/2017 YTD 2017E Annuity Premiums $ 4,140 $ 4,435 $ 3,432 Slightly lower than 2016 Average Fixed Annuity Investments $ 25,174 $ 28,223 $ 30,919 10% to 11% growth Average Fixed Annuity Reserves $ 24,898 $ 28,146 $ 31,141 11% to
Slide 34: Snapshot of Current AFG Annuity Segment Sales
Snapshot of Current AFG Annuity Segment Sales • Target market = middle and mass affluent baby boomers (not high wealth clients) • Average single premium policy size ~$100,000 • Approximately 85% of 2016 sales were FIA • About 50% of 2016 sales were qualified / IRA • Almost 20% of new FIA premiums ha
Slide 35: U.S. Growth in Persons Aged 65+
U.S. Growth in Persons Aged 65+ Population in millions 80 74.1 Millions of Persons Aged 65+ 70 65.9 60 56.4 50 47.8 40.3 40 35.0 36.8 30 20 10 0 2000 2005 2010 2015E 2020E 2025E 2030E Source: U.S. Census Bureau, 2014 National Projections. 35 35
Slide 36: Annuity Product Snapshot
Annuity Product Snapshot Dollars in millions Premiums by Product Line FIA Traditional Fixed Variable $5,000 $4,500 1% 1% 1% $4,000 1% 14% 10% $3,500 23% 15% 2% $3,000 $2,500 30% $2,000 85% 89% $1,500 76% 84% $1,000 68% $500 $- 2012 2013 2014 2015 2016 36 36
Slide 37: Annuity Product Snapshot (continued)
Annuity Product Snapshot (continued) Dollars in millions Premiums by Distribution Channel Finl Institutions Retail Education $5,000 $4,500 5% 6% 6% $4,000 7% $3,500 10% 40% $3,000 46% 51% 44% $2,500 $2,000 61% $1,500 55% $1,000 43% 49% 48% $500 29% $- 2012 2013 2014 2015 2016 37 37
Slide 38: Annuity Product Snapshot (continued)
Annuity Product Snapshot (continued) Dollars in millions Premiums by Tax Qualification Type Non-Qualified Qualified/IRA Qualified/403(b) $5,000 $4,500 5% 6% 6% $4,000 7% $3,500 10% 48% $3,000 41% 46% $2,500 42% $2,000 40% $1,500 $1,000 53% 51% 48% 47% 50% $500 $- 2012 2013 2014 2015 2016 38 38
Slide 39: Annuity Sales by Type
Annuity Sales by Type For three months ended September 30, 2017 Q - Retail Registered Reps Most “at risk” 14% to DOL Proposal NQ - Banks Q - Retail 31% IRA Sales by Other Channel 11% Q - Banks NQ - Registered 19% Reps 10% NQ - Retail Other 10% Q = Qualified NQ = Non-Qualified 403(b) 5% 39 39
American Financial Group — Dowling & Partners Investor Meeting 2017 on 6ix