Profits soar at AFG as it mulls use of excess capital

American Financial Group (AFG) has reported 2016 first quarter net earnings of $101 million, a big improvement on the $19 million it made in the same period of 2015.

Net earnings for the quarter included $10 million in after-tax net realised losses on securities, compared to $12 million in after-tax net realised gains on securities in the prior year period. AFG’s 2015 first quarter results also included an after-tax loss of $105 million related to the sale of its run-off long-term care insurance business.

Its core net operating earnings came to $111 million for the first three months of 2016, compared with $112 million for the same period of 2016. Higher underwriting profits and higher net investment income in AFG’s specialty property and casualty insurance operations were offset by lower operating earnings in its annuity and run-off long-term care and life segments.

Its core net operating earnings for the first quarters of 2016 and 2015 generated annualized returns on equity of 10.3 percent and 10.8 percent, respectively.

Craig Lindner and Carl Lindner III, AFG’s co-chief executive officers, said in a joint statement: “We are pleased to report first quarter core net operating earnings that are consistent with last year’s first quarter record results. The diversity within our portfolio of specialty property and casualty insurance and annuity businesses helps us to deliver consistent, strong core operating earnings, and produce healthy growth across our portfolio of businesses.

“AFG had approximately $900 million of excess capital (including parent company cash of approximately $160 million) at March 31, 2016. Our excess capital will be deployed into AFG’s core businesses as we identify potential for healthy, profitable organic growth, and opportunities to expand our specialty niche businesses through acquisitions and start-ups that meet our target return thresholds.

“Share repurchases, particularly when executed at attractive valuations, are an important and effective component of our capital management strategy, as indicated by our buyback activity during the quarter. We will continue to make opportunistic share repurchases when it makes sense to do so and return capital to shareholders through dividends.”