AMERICAN FINANCIAL GROUP INC

Financial Condition

AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Therefore, certain analyses are most meaningfully presented on a parent only basis while others are best done on a total enterprise basis. In addition, because its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.

Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses. AFG’s former annuity operations are reported as discontinued operations.

AFG reported net earnings of $263 million ($3.13 per share, diluted) for the fourth quarter of 2023 compared to $276 million ($3.24 per share, diluted) in the fourth quarter of 2022. The year-over-year decrease was due primarily to lower returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs).

Full year 2023 net earnings were $852 million ($10.05 per share, diluted) compared to $898 million ($10.53 per share, diluted) in 2022. The year-over-year decrease was due primarily to lower returns on AFG’s alternative investment portfolio when compared to the strong performance of this portfolio in the prior year period and lower property and casualty underwriting profit. These items were partially offset by the impact of higher yields on fixed maturity investments, higher balances of invested assets and lower net realized losses on securities.

Sale of the Annuity Business

In May 2021, AFG sold its annuity business, including Great American Life Insurance Company and its two insurance subsidiaries, Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company to Massachusetts Mutual Life Insurance Company (“MassMutual”). Total proceeds from the sale were $3.57 billion and AFG realized an after-tax gain on the sale of $656 million.

Outlook

AFG’s financial condition, results of operations and cash flows are impacted by the economic, legal and regulatory environment. Economic inflation, social inflation, supply chain disruption, labor shortages, banking system instability and other economic conditions may impact premium levels, loss cost trends and investment returns. Management believes that AFG’s strong financial position and current liquidity and capital at its subsidiaries will give AFG the flexibility to continue to effectively address and respond to the ongoing uncertainties presented by the macro-economic environment and the conflicts in Ukraine and Israel. AFG’s insurance subsidiaries continue to have capital at or in excess of the levels required by ratings agencies in order to maintain their current ratings, and the parent company does not have any near-term debt maturities.

Management expects continued premium growth and strong underwriting results in the ongoing favorable property and casualty insurance market. In addition, the deployment of cash during the elevated interest rate environment (since early 2022) will continue to have a positive impact on investment income on fixed maturity investments in 2024.