Earnings Call Insights: American Financial Group (AFG) Q2 2025
Management View
Co-CEO Carl Henry Lindner opened by highlighting an annualized core operating return on equity of 15.5% for the quarter, noting that “quarterly returns from alternative investments ... tempered overall results.” He emphasized strong underwriting margins in Specialty Property & Casualty and a 10% year-over-year increase in net investment income, excluding alternatives. Lindner stated, “We returned over $100 million to our shareholders during the second quarter of 2025 through a combination of regular dividends and share repurchases.”
Co-CEO Stephen Craig Lindner reported core net operating earnings of $2.14 per share, down from $2.56 per share in the prior year. He attributed the decrease to “a year-over-year decrease in underwriting profit and lower returns on alternative investments.” Lindner detailed the investment portfolio, with 2/3 in fixed maturities yielding approximately 5.75%. He observed that alternative investments delivered a 1.2% return versus 5.1% the previous year, largely due to “the impact on rental rates and occupancy from a surge in new apartment supply in certain otherwise strong markets.”
CFO Brian Scott Hertzman noted that “overall P&C net investment income was approximately 5% lower than the comparable 2024 period.” He added that the performance of alternative investments was tempered by a nearly $30 million reduction in multifamily investment valuations, but stated, “We expect current inventory to be absorbed over the next 12 months.”
Outlook
Carl Henry Lindner projected ongoing premium growth for the full year in 2025, citing a continued favorable pricing environment, increased exposures, and new business opportunities. He said, “We continue to expect premium growth for the full year in 2025.”
Management signaled optimism about long-term returns from alternative investments, with an expectation of “annual returns averaging 10% or better.”
The company plans to continue generating significant excess capital, providing “ample opportunity for acquisitions, special dividends or share repurchases.”
Financial Results
AFG reported core net operating earnings of $2.14 per share, a decrease from $2.56 per share in the prior year period.
The Specialty Property & Casualty Insurance businesses posted a 93.1% combined ratio, 2.6 points higher than the 90.5% reported in Q2 2024. The segment saw 2.3 points related to catastrophe losses, consistent with the previous year. Gross and net written premiums were up 10% and 7%, respectively, versus Q2 2024, with crop business significantly influencing timing.
Excluding crop, gross and net written premiums grew 6% and 5%. Average renewal pricing, excluding workers' comp, was up about 7% in Q2, matching Q1. Including workers' comp, renewal rates rose 6%, about 1 point higher than in the previous quarter.
The Property & Transportation Group reported a 95.2% combined ratio, up from 92.7% a year prior; Specialty Casualty posted a 93.9% combined ratio, up from 89.1%. The Specialty Financial group achieved an 86.1% combined ratio, 3.6 points better than the prior year.
Management returned over $100 million to shareholders through $39 million in share repurchases and a $0.80 per share regular dividend. Book value per share growth, excluding AOCI plus dividends, was 6% for the first half of 2025.
Q&A
Michael David Zaremski, BMO Capital Markets: Asked about the lender-placed business and market dynamics. Carl Henry Lindner explained that the segment benefits from “a weak economy,” disruptions in the market, and a shift to replacement cost value. He noted, “This business is very profitable for us ... pricing is in this business through 6 months is prices are up about 1%.”
Zaremski followed up on social inflation lines and nonrenewals. Lindner detailed actions in nonprofit and social services, stating nonrenewals in housing are complete and daycare nonrenewals will finish by year-end. On excess liability, umbrella capacity is being reduced, and on commercial auto, “15% price increase ... beginning to see more opportunities.”
Charles Gregory Peters, Raymond James: Inquired about Inland Marine, Ocean Marine, and trade credit business. Lindner said growth opportunities exist in Ocean Marine, while property Inland Marine is limited by economic conditions. Trade credit is growing but “could have some impact” from tariffs eventually.
Peters also asked about M&A business, to which Lindner responded, “This year ... we've seen quite a bit of activity,” highlighting the business remains profitable.
Unidentified Analyst, Jefferies: Asked about crop profitability and workers’ comp. Lindner said it's too early to categorize the crop year but noted positive indicators. On workers’ comp, he reported excellent results overall, with California’s pricing “achieved about 5% price increase in the second quarter.”
Meyer Shields, Keefe, Bruyette, & Woods: Asked about professional lines pricing. Lindner stated, “Overall, our rates were actually flat in the second quarter and year-to-date 2025,” and observed signs of stabilization, particularly on public D&O policies.
Shields also sought clarity on crop premium timing. Hertzman clarified, “That shift in premiums is about $100 million gross and $40 million net ... reported in the second quarter because of the advanced reporting.”
Robert Edward Farnam, Janney Montgomery Scott: Raised questions on workers’ comp and excess liability. Hertzman answered, “We’re not expecting” a change in claim patterns due to shifts between undocumented and documented workers. On excess liability, he noted $10 million adverse development in social inflation-exposed businesses but highlighted ongoing favorable overall reserve development.
Sentiment Analysis
Analysts’ tone was neutral to slightly positive, probing for more detail on segment profitability, premium growth, and risk management. Questions were direct but not confrontational, focusing on business drivers and loss trends.
Management remained confident and detailed in their responses. Carl Henry Lindner used phrases like “we feel we’re well positioned” and “we continue to expect premium growth,” indicating confidence. CFO Hertzman provided thorough explanations of premium timing and reserve development.
Compared to the previous quarter, management’s tone was more optimistic on premium growth and pricing, while analysts maintained a similar neutral curiosity, with some increased focus on pricing trends and risk exposures.
Quarter-over-Quarter Comparison
Guidance language shifted from muted premium growth expectations in Q1 to a more assertive projection of continued premium growth in Q2.
Strategic focus in Q2 included more detail on capital deployment, with references to excess capital available for M&A, dividends, or repurchases.
Analysts’ focus evolved from expense ratios and growth constraints in Q1 to segment-specific opportunities and risk management in Q2.
Key metrics showed improvement in combined ratios for Specialty Financial and higher premium growth rates in most segments, while core net operating earnings per share decreased quarter-over-quarter.
Management confidence increased regarding premium growth and pricing power, particularly in lender-placed and commercial auto businesses.
Analysts’ tone remained consistent, with continued scrutiny of underwriting discipline and profitability.
Risks and Concerns
Management flagged lower returns on alternative investments and the impact of multifamily real estate supply, which caused a near $30 million decrease in portfolio value.
Ongoing exposure to social inflation in certain casualty businesses prompted continued nonrenewals, reduced umbrella capacity, and reserve strengthening.
Crop business profitability remains weather-dependent, with management noting the need for adequate moisture through August and September.
Analysts raised concerns about shifts in claim patterns, adverse development in excess liability, and the impact of tariffs on marine and trade credit segments.
Final Takeaway
AFG’s second quarter results display strong underwriting margins and disciplined capital deployment, even as alternative investment returns moderated overall performance. Management maintains a positive outlook for continued premium growth and expects to leverage excess capital for value-enhancing opportunities, while ongoing attention to pricing discipline and risk management supports confidence in delivering shareholder value for the remainder of 2025.
Read the full Earnings Call Transcript
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