AMERICAN FINANCIAL GROUP INC

Property and Casualty Insurance Segment — Results of Operations

Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses and loss adjustment expenses, and commissions and other underwriting expenses to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect net investment income, other income, other expenses or federal income taxes.

AFG’s property and casualty insurance operations contributed $378 million in pretax earnings in the fourth quarter of 2024 compared to $357 million in the fourth quarter of 2023, an increase of $21 million (6%) as a result of higher net investment income which was partially offset by lower underwriting profit.

The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the three months ended December 31, 2024 and 2023 (dollars in millions):

AFG’s statutory combined ratio has been better than the U.S. industry average for 37 of the most recent 39 years. Management believes that AFG’s insurance operations have performed better than the industry as a result of its specialty niche focus, product line diversification, stringent underwriting discipline and alignment of compensation incentives.

AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.

To understand the overall profitability of particular lines, the timing of claims payments and the related impact of investment income must be considered. Certain “short-tail” lines of business (primarily property coverages) generally have quick loss payouts, which reduce the time funds are held, thereby limiting investment income earned thereon. In contrast, “long-tail” lines of business (primarily liability coverages and workers’ compensation) generally have payouts that are either structured over many years or take many years to settle, thereby significantly increasing investment income earned on related premiums received.

Gross Written Premiums

Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $2.04 billion for the fourth quarter of 2024 compared to $1.99 billion for the fourth quarter of 2023, an increase of $51 million (3%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):

Reinsurance Premiums Ceded

Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 29% of gross written premiums for the fourth quarter of 2024 compared to 27% of gross written premiums for the fourth quarter of 2023, an increase of 2 percentage points. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):

Net Written Premiums

Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $1.46 billion for the fourth quarter of 2024 compared to $1.45 billion for the fourth quarter of 2023, an increase of $15 million (1%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):

Net Earned Premiums

Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $1.85 billion for the fourth quarter of 2024 compared to $1.73 billion for the fourth quarter of 2023, an increase of $118 million (7%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

Gross written premiums for the fourth quarter of 2024 increased $51 million (3%) compared to the fourth quarter of 2023 driven primarily by new business opportunities, a good renewal rate environment and increased exposures. Overall average renewal rates increased approximately 7% in the fourth quarter of 2024. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates increased approximately 8%.

Property and transportation Gross written premiums decreased $38 million (6%) in the fourth quarter of 2024 compared to the fourth quarter of 2023. This decrease was due primarily to the impact of lower year-over-year commodity pricing on winter wheat premiums, coupled with elevated pricing competition and the non-renewal of certain under-performing accounts in the transportation businesses. Average renewal rates increased 7% for this group in the fourth quarter of 2024. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the fourth quarter of 2024 and the fourth quarter of 2023 reflecting higher cessions in the crop business offset by the impact of lower cessions in certain transportation businesses.

Specialty casualty Gross written premiums increased $57 million (5%) in the fourth quarter of 2024 compared to the fourth quarter of 2023. The primary drivers of growth were new business opportunities and favorable renewal pricing in several of the targeted markets businesses and in the excess and surplus business. The mergers and acquisitions liability business also benefited from an increase in mergers and acquisition activity. This growth was tempered by lower year-over-year workers’ compensation premiums. Average renewal rates for this group increased approximately 8% in the fourth quarter of 2024. Excluding rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 11%. Reinsurance premiums ceded as a percentage of gross written premiums increased 1 percentage point for the fourth quarter of 2024 compared to the fourth quarter of 2023 reflecting higher premiums in the excess and surplus and mergers and acquisitions liability businesses, which cede a larger percentage of premiums than some of the other businesses in the Specialty casualty sub-segment as well as higher cessions in the public sector business, partially offset by lower cessions in certain more heavily reinsured products in the social services business.

Specialty financial Gross written premiums increased $32 million (11%) in the fourth quarter of 2024 compared to the fourth quarter of 2023 due primarily to growth in the financial institutions business. Average renewal rates for this group increased approximately 3% in the fourth quarter of 2024. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in the fourth quarter of 2024 compared to the fourth quarter of 2023 reflecting the impact of lower gross written premiums in the innovative markets business, which cedes a larger percentage of premiums than some of the other businesses in the Specialty financial sub-segment.

Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed decreased $12 million (17%) in the fourth quarter of 2024 compared to the fourth quarter of 2023 reflecting a decrease in premiums retained, primarily from businesses in the Specialty casualty sub-segment.

Combined Ratio

Performance measures such as the combined ratio are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. The combined ratio is the sum of the loss and loss adjustment expenses (“LAE”) and underwriting expense ratios. These ratios are calculated by dividing each of the respective expenses by net earned premiums. The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment:

The Specialty property and casualty insurance operations generated an underwriting profit of $204 million in the fourth quarter of 2024 compared to $212 million in the fourth quarter of 2023, a decrease of $8 million (4%). Higher underwriting profit in the Property and transportation and Specialty financial sub-segments was more than offset by lower year-over-year underwriting profit in the Specialty casualty sub-segment, which was impacted by net adverse prior year reserve development in certain social inflation exposed businesses. Overall catastrophe losses were $21 million (1.1 points on the combined ratio), including $1 million in net reinstatement premiums in the fourth quarter of 2024 compared to catastrophe losses of $25 million (1.4 points), including $1 million in net reinstatement premiums in the fourth quarter of 2023.

Property and transportation Underwriting profit for this group was $82 million for the fourth quarter of 2024 compared to $67 million in the fourth quarter of 2023, an increase of $15 million (22%), reflecting higher year-over-year underwriting profitability in the crop insurance operations. Catastrophe losses for this group were $10 million (1.3 points on the combined ratio), including $1 million in net reinstatement premiums in the fourth quarter of 2024 compared to catastrophe losses of $5 million (0.6 points), including $2 million in net reinstatement premiums in the fourth quarter of 2023.

Specialty casualty Underwriting profit for this group was $82 million for the fourth quarter of 2024 compared to $114 million in the fourth quarter of 2023, a decrease of $32 million (28%). Higher year-over-year underwriting profit in the targeted markets businesses was more than offset by lower underwriting profit in the excess liability, workers’ compensation and executive liability businesses. Catastrophe losses, including the impact of lower than previously estimated losses from Hurricane Helene, had a favorable impact of $5 million (0.8 points on the combined ratio) compared to catastrophe losses of $8 million (1.1 points), including a $1 million favorable impact from lower than previously estimated net reinstatement premiums in the fourth quarter of 2023.

Specialty financial Underwriting profit for this group was $54 million for the fourth quarter of 2024 compared to $45 million in the fourth quarter of 2023, an increase of $9 million (20%). This year-over-year increase reflects higher underwriting profit in the financial institutions business. Catastrophe losses were $17 million (6.2 points on the combined ratio) in the fourth quarter of 2024 compared to $4 million (2.0 points) in the fourth quarter of 2023.

Other specialty This group reported an underwriting loss of $14 million for the fourth quarter of 2024 and the fourth quarter of 2023, reflecting losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments. Favorable changes in estimated losses from Hurricane Helene resulted in a favorable impact of $1 million from catastrophe losses in the fourth quarter of 2024 compared to catastrophe losses of $8 million in the fourth quarter of 2023.

Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include adverse prior year reserve development of $2 million in the fourth quarter of 2024 and $1 million in the fourth quarter of 2023 related to business outside of the Specialty group that AFG no longer writes.

Losses and Loss Adjustment Expenses

AFG’s overall loss and LAE ratio was 63.8% for the fourth quarter of 2024 compared to 60.8% for the fourth quarter of 2023, an increase of 3.0 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):

Current accident year losses and LAE, excluding catastrophe losses

The current accident year loss and LAE ratio, excluding catastrophe losses for AFG’s Specialty property and casualty insurance operations was 60.8% for the fourth quarter of 2024 compared to 62.6% in the fourth quarter of 2023, a decrease of 1.8 percentage points.

Property and transportation The 1.7 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects improved profitability in the crop, ocean marine and property and inland marine businesses, partially offset by higher claim severity in the commercial auto business.

Specialty casualty The 1.9 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in certain programs in the social services business that have a lower loss and LAE ratio than some of the other businesses in the Specialty casualty sub-segment and improved results in the workers’

compensation businesses, partially offset by higher claim severity in the excess and surplus business and the impact of pressure on rates in the executive liability business.

Specialty financial The 1.4 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in the financial institutions business, which has a lower loss and LAE ratio than some of the other businesses in the Specialty financial sub-segment.

Net prior year reserve development

AFG’s Specialty property and casualty insurance operations recorded net adverse reserve development related to prior accident years of $34 million in the fourth quarter of 2024 compared to net favorable reserve development related to prior accident years of $57 million in the fourth quarter of 2023, a change of $91 million (160%).

Property and transportation Net favorable reserve development of $3 million in the fourth quarter of 2024 reflects lower than anticipated losses in the crop business and lower than expected claim severity in the aviation business, partially offset by higher than anticipated claim severity in the commercial auto business. Net favorable reserve development of $12 million in the fourth quarter of 2023 reflects lower than anticipated losses in the crop business and lower than expected claim frequency in the ocean marine and property and inland marine businesses.

Specialty casualty Net adverse reserve development of $36 million in the fourth quarter of 2024 reflects higher than anticipated claim frequency and severity in the umbrella and excess liability businesses and higher than expected claim severity in the social services and general liability businesses, partially offset by lower than expected claim severity in the workers’ compensation businesses. Net favorable reserve development of $37 million in the fourth quarter of 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses, partially offset by higher than anticipated claim severity in the excess and surplus business and higher than expected claim frequency and severity in the excess liability and general liability businesses.

Specialty financial Net favorable reserve development of $8 million in the fourth quarter of 2024 reflects lower than anticipated claim frequency and severity in the financial institutions business and lower than expected claim severity in the fidelity business. Net favorable reserve development of $8 million in the fourth quarter of 2023 reflects lower than anticipated claim frequency and severity in the fidelity business and lower than expected claim frequency in the financial institutions and trade credit businesses.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of $9 million in the fourth quarter of 2024 and less than $1 million in the fourth quarter of 2023 primarily associated with AFG’s internal reinsurance program. The net adverse reserve development in 2024 is primarily related to social inflation exposed business assumed from the Specialty casualty sub-segment.

Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $2 million in the fourth quarter of 2024 and $1 million in the fourth quarter of 2023 related to business outside of the Specialty group that AFG no longer writes.

Catastrophe losses

AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. Based on data available at December 31, 2024 (including the expected placement of a catastrophe bond structure or additional other reinsurance protection in the second quarter of 2025), AFG’s exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 100, 250 or 500 years as a percentage of AFG’s Shareholders’ Equity is shown below:

Catastrophe losses of $20 million (before $1 million in net reinstatement premiums) in the fourth quarter of 2024 resulted primarily from Hurricane Milton. Catastrophe losses of $24 million (before $1 million in net reinstatement premiums) in the fourth quarter of 2023 resulted primarily from storms in multiple regions of the United States.

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $467 million in the fourth quarter of 2024 compared to $468 million for the fourth quarter of 2023, a decrease of $1 million. AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 25.3% for the fourth quarter of 2024 compared to 27.0% for the fourth quarter of 2023, a decrease of 1.7 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):

Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums decreased 1.4 percentage points in the fourth quarter of 2024 compared to the fourth quarter of 2023. The decrease reflects the impact on the ratio of higher earned premiums, including in the crop business which has a lower commissions and other underwriting expense ratio than some of the other businesses in the Property and transportation sub-segment, and lower average commission rates in the transportation businesses due to a change in the mix of business.

Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums decreased 1.6 percentage points in the fourth quarter of 2024 compared to the fourth quarter of 2023 reflecting a change in the mix of business towards products with lower commission rates.

Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums decreased 3.9 percentage points in the fourth quarter of 2024 compared to the fourth quarter of 2023 reflecting the impact on the ratio of higher earned premiums in the financial institutions business and a change in the mix of business towards products with lower commission rates.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $195 million in the fourth quarter of 2024 compared to $161 million in the fourth quarter of 2023, an increase of $34 million (21%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):

(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.

The increase in the property and casualty insurance segment’s net investment income for the fourth quarter of 2024 compared to the fourth quarter of 2023 reflects the impact of higher balances of invested assets, higher returns on fixed maturity investments and higher returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs). The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.96% for the fourth quarter of 2024 compared to 4.23% for the fourth quarter of 2023, an increase of 0.73 percentage points. The annualized return earned on alternative investments was 4.9% in the fourth quarter of 2024 compared to 0.8% in the comparable prior year period.

Property and Casualty Other Income and Expenses, Net

Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $19 million for the fourth quarter of 2024 compared to $15 million for the fourth quarter of 2023, an increase of $4 million (27%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):