American Financial Group, Inc. (AFG) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates a mixed outlook. While there are positive aspects such as expected premium growth in 2026 and favorable pricing, there are concerns about social inflation, California workers' comp, and a lack of share repurchases. The Q&A section highlights cautious management actions and some uncertainty, balancing the positive outlook. Without a market cap, the stock's reaction is uncertain, leading to a neutral prediction.
Key Financial Performance
Core Net Operating Earnings (Full Year 2025) $10.29 per share, generating a core operating return on equity of 18.2%. This reflects strong performance across specialty insurance businesses and disciplined operations.
Core Net Operating Earnings (Q4 2025) $3.65 per share, producing an annualized fourth quarter core return on equity of 25.2%. This was driven by strong profitability in specialty insurance operations.
Capital Returned to Shareholders (2025) Over $700 million, including $334 million in special dividends, $274 million in regular common stock dividends, and $99 million in share repurchases. This reflects a strong financial position and confidence in the company's future.
Property and Casualty Net Investment Income (Q4 2025) Approximately 12% lower year-over-year due to lower returns from alternative investments, despite higher interest rates and balances of invested assets.
P&C Net Investment Income (Full Year 2025, excluding alternative investments) Increased 5% year-over-year, benefiting from higher interest rates and balances of invested assets.
Underwriting Profit (Q4 2025) Grew 41%, generating an 84.1% combined ratio, an improvement of nearly 5 points from the prior year period. This was driven by strong profitability in crop insurance operations and favorable reserve development.
Gross Written Premiums (Q4 2025) Up 2% year-over-year, while net written premiums were down 1%. This reflects growth in diversified specialty P&C businesses and disciplined underwriting in challenging markets.
Property and Transportation Group Combined Ratio (Q4 2025) 70.6%, an improvement of nearly 19 points from the prior year period. This was driven by record yields for corn and soybeans, favorable commodity pricing trends, and lower catastrophe losses.
Specialty Casualty Group Combined Ratio (Q4 2025) 96.7%, 5.3 points higher than the prior year period. This reflects competitive pressures in certain lines of business and growth in others.
Specialty Financial Group Combined Ratio (Q4 2025) 83, 2.3 points higher than the prior year period. This reflects lower premiums in financial institutions business and higher seeding of coastal exposed property business.
Growth in Book Value Per Share (2025) 17.2%, excluding AOCI, plus dividends. This reflects strong value creation for shareholders.
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Operating Highlights
Crop Insurance Operations: Fourth quarter underwriting profit set a new quarterly record, led by exceptionally strong profitability in crop insurance operations. Record yields for corn and soybeans and favorable commodity pricing trends contributed to a very strong crop year.
Specialty Property and Casualty Businesses: Achieved an 84.1% combined ratio in Q4 2025, an improvement of nearly 5 points from the prior year period. Diversified portfolio helped navigate economic conditions and insurance cycles.
Renewal Rates: Average renewal rates across Property and Casualty Group, excluding workers' comp, were up approximately 5% for the quarter. Including workers' comp, rates were up 4% overall. Renewal rate increases have been reported for 38 consecutive quarters.
Geographic Expansion in Multifamily Investments: A sizable portion of the multifamily property portfolio is located in desirable geographies with strong job and wage growth. Signs of recovery in these markets are evident, with tightening supply expected to drive higher rental and occupancy rates in late 2026.
Capital Management: Returned over $700 million to shareholders in 2025, including $334 million in special dividends, $274 million in regular dividends, and $99 million in share repurchases. Increased quarterly dividend by 10% to $3.52 per share annually.
Investment Portfolio Performance: $17.2 billion portfolio with 65% in fixed maturities. Current yields on fixed maturity securities are approximately 5.25%. Alternative investments returned 0.9% in Q4 2025, with long-term expectations of 10% annual returns.
Start-up Businesses and Underwriting Actions: Optimistic about several start-up businesses and near completion of underwriting actions in Specialty Casualty businesses. Focused on disciplined growth despite competitive conditions.
2026 Business Plan Assumptions: Expecting 3%-5% growth in net written premiums, a combined ratio of approximately 92.5%, and core net operating earnings per share of approximately $11 in 2026. Core operating return on equity projected at 18%.
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Risk or Challenges
Lower returns from alternative investments: The company's Property and Casualty net investment income was approximately 12% lower in Q4 2025 compared to Q4 2024 due to lower returns from alternative investments, which offset the benefits of higher interest rates and higher balances of invested assets.
Excess supply in multifamily investments: The company's multifamily investments continue to be impacted by an excess supply of new properties in targeted markets, which has affected overall returns. Although there are signs of recovery, this remains a challenge.
Competitive pressures in executive liability and excess and surplus lines: The company experienced heightened competitive pressures in its executive liability and excess and surplus lines businesses, leading to lower year-over-year premiums in these areas.
Softening rates and competitive conditions: The company is mindful of pockets of softening rates and continued competitive conditions, which could impact its ability to grow profitably in 2026.
Catastrophe losses: Results for Q4 2025 included 2 points related to catastrophe losses, an increase from 1.1 points in Q4 2024, indicating a rise in losses from catastrophic events.
Lower premiums in financial institutions business: The Specialty Financial Group reported lower premiums in its financial institutions business, which has been a strong growth area in the past, due to decisions to cede more coastal exposed property business.
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Guidance & Outlook
Growth in Net Written Premiums: Expected growth of 3% to 5% in 2026 from the $7.1 billion reported in 2025.
Combined Ratio: Projected combined ratio of approximately 92.5% for 2026.
Reinvestment Rate: Anticipated reinvestment rate of approximately 5.25% in 2026.
Alternative Investments Return: Expected annual return of approximately 8% on the $2.8 billion portfolio of alternative investments in 2026.
Core Net Operating Earnings Per Share: Projected core net operating earnings per share of approximately $11 in 2026.
Core Operating Return on Equity: Expected core operating return on equity, excluding AOCI, of approximately 18% in 2026.
Crop Year Assumptions: Assumes an average crop year for 2026.
Market Conditions and Growth Outlook: Optimistic about start-up businesses and underwriting actions in Specialty Casualty businesses, while remaining cautious about pockets of softening rates and competitive conditions.
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Shareholder Return Plan
Special Dividends in 2025: $334 million or $4 per share
Regular Common Stock Dividends in 2025: $274 million
Special Dividend Declared for February 2026: $1.50 per share, approximately $125 million
Total Special Dividends Since 2021: $55.5 per share or $4.7 billion
Quarterly Dividend Increase in October 2025: 10% increase to an annual rate of $3.52 per share
Share Repurchases in 2025: $99 million
Total Dividend Payments and Share Repurchases Over 5 Years: $6.3 billion
Capital Deployment Strategy for 2026: Significant excess capital expected, with opportunities for acquisitions, additional special dividends, or share repurchases.
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Key Q&A
Q:What does the 2026 business plan assume in terms of rates relative to the 5% P&C renewal pricing ex comp seen in Q4, and is there any assumption of prior period releases in the 92.5% combined ratio target?
A:The 2026 business plan does not specifically identify any amount for prior year development. Historically, AFG has tended to have favorable development, though not immune to adverse development. Workers' comp favorable development is expected to moderate, while adverse development in casualty lines is not expected to reoccur due to rate and reserving actions. Pricing is expected to remain favorable in profitable areas, though rate increases have moderated in some businesses.
Q:Was the uptick in the casualty underlying loss ratio for the quarter due to changes in loss picks or other factors?
A:The uptick was due to caution around social inflation-exposed businesses and California workers' compensation insurance. Loss picks were adjusted conservatively to account for these factors, coupled with rate increases to set up for favorable development in future periods.
Q:Was there something unusual in the frequency or medical trend in a particular state that led to workers' comp results, and how is cumulative trauma risk being viewed?
A:Loss trends in workers' comp remain benign overall, with positive trends in frequency and severity. California workers' comp is an exception, with a combined ratio exceeding 120 for the industry. AFG is addressing this with rate increases and has accounted for cumulative trauma risk in its loss reserve picks for years. Workers' comp is expected to grow 3%-5% in 2026.
Q:What is the outlook for start-up businesses and their expected contributions?
A:AFG is seeing progress in start-up businesses like specialty construction, E&S binding, and Embedded Solutions. These areas are expected to show more premium growth and bear fruit in 2026.
Q:Is there any spillover into the first half of 2026 from the 2025 crop year results?
A:Yes, there is usually a true-up in the first quarter based on area coverage results and reinsurance. AFG expects some positive true-up and stability in the premium base, with potential for crop business growth if commodity prices remain stable.
Q:What drove the current accident year improvement in the Property and Transportation segment, and what is the run rate?
A:The improvement was driven by very strong crop results, with other businesses in the segment performing well and remaining stable. The run rate for 2026 assumes an average crop year, unlike the above-average results in 2025.
Q:What caused the inflection in pricing in the lender-placed business, and are there political concerns?
A:Pricing inflection is due to variations in client property profiles, such as coastal exposure. There are no significant political concerns, as the business provides a backstop for financial institutions and is regulated state by state.
Q:Are the social inflation-related businesses stabilized, and can they grow?
A:Corrective steps in nonprofit and excess liability businesses have been completed, and these businesses are expected to see mid-single-digit growth in 2026.
Q:What is the outlook for the alternative investment portfolio?
A:The portfolio's performance depends on the multifamily sector, which has been impacted by oversupply. AFG expects improvement in the second half of 2026, with a favorable environment for multifamily in 2027 and beyond.
Q:What are the specific business lines seeing the most favorable pricing and growth opportunities in 2026?
A:Most of AFG's businesses are expected to grow in 2026, with profitability meeting or exceeding targeted returns. Workers' comp and start-up businesses are among the areas with growth opportunities.
Q:What is the reinsurance strategy for the Specialty Financial Group, and will it continue in 2026?
A:AFG has increased ceding of coastal property business to align with its lower catastrophe exposure philosophy. This strategy, started in 2025, will continue into 2026.
Q:Are the underwriting actions in Casualty around social services and E&S completed?
A:Most non-renewal actions are completed, with modest premium growth expected in 2026.
Q:What is the run rate for the Specialty Casualty underlying loss ratio?
A:The full-year loss ratio for 2025 is a better indication of the run rate for 2026, as adjustments like those in California workers' comp elevated the Q4 ratio.
Q:Will the expense ratio improve in 2026?
A:The expense ratio may see some fluctuations due to business mix and investments in customer experience, data analytics, and IT security. Profit-based commissions in certain businesses also impact the ratio.
Q:Why were there no share repurchases in Q4, and will they resume in 2026?
A:AFG is opportunistic with share repurchases and retains dry powder for opportunities. The special dividend was reduced to save funds for potential buybacks and other alternatives.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific assumptions for prior period releases in the 92.5% combined ratio target, instead providing general comments on historical trends and expectations. Additionally, the response on the Specialty Financial Group's reinsurance strategy lacked detail on the rationale behind the changes and their long-term implications.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AFG mix
AFG plan
AFG share
AOCI Slides
Capital priority
Full Results
Group Full
New start
PC AFG
Poor capital
President Investor
Results Conference
Slides share
Standard Poor
Vice President
asset PC
assumption QA
attend note
beginning AFG
capital position
completion supply
debt maturity
detail PC
discussion attend
dividend payment
equity Capital
finish AFG
future God
income investment
insurance strength
investment interest
level Standard
leverage
payment share
plan assumption
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AFG Transcript
American Financial Group, Inc. (AFG) Q4 2025 Earnings Call Transcript
Unknown2-4
The earnings call indicates a mixed outlook. While there are positive aspects such as expected premium growth in 2026 and favorable pricing, there are concerns about social inflation, California workers' comp, and a lack of share repurchases. The Q&A section highlights cautious management actions and some uncertainty, balancing the positive outlook. Without a market cap, the stock's reaction is uncertain, leading to a neutral prediction.
American Financial Group, Inc. (AFG) Q3 2025 Earnings Call Transcript
Positive11-5
The earnings call reflects strong financial performance with a 6% increase in EPS, improved underwriting profits, and a favorable pricing environment. Despite some challenges in premiums, the company maintains a positive outlook with stable crop premiums and strategic capital deployment plans. The Q&A section highlights management's proactive approach to pricing and market trends, though some responses lacked clarity. Overall, the positive financial metrics and strategic plans suggest a likely positive stock price movement over the next two weeks.
American Financial Group, Inc. (AFG) Q2 2025 Earnings Call Transcript
Positive8-6
The earnings call shows strong financial performance with a 15% increase in gross premiums, indicating growth. The Q&A reveals positive insights, such as profitability in the lender-placed business and growth opportunities in Ocean Marine and trade credit. Despite some nonrenewals and social inflation challenges, the overall sentiment is positive, with optimism in workers' compensation pricing and D&O stabilization. The company's proactive measures to adjust pricing and loss picks further support a positive outlook. However, some uncertainties remain, such as the impact of undocumented workers, but these do not overshadow the overall positive sentiment.
American Financial Group, Inc. (NYSE:AFG) Q4 2024 Earnings Call Transcript
Unknown2-6
The earnings call highlights strong financial metrics, including increased dividends and a high return on equity, which are positive indicators. However, concerns about higher expense ratios, adverse development, and unclear management responses regarding wildfire losses temper enthusiasm. The Q&A reveals uncertainties about losses and expenses, while growth in premiums is modest. The combination of strong financial performance and these concerns results in a neutral sentiment, suggesting limited stock price movement in the short term.
AFG Slides
AFG Report
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