American Financial Group Forecasts 2025 Premium Growth with Strong Underwriting and Capital Returns

Key Highlights from American Financial Group's Q2 2025 Earnings Call

During the second quarter of 2025, American Financial Group (AFG) reported a range of financial results and strategic insights that reflect both challenges and opportunities. The company’s leadership emphasized strong underwriting performance in key segments while acknowledging the impact of lower returns on alternative investments.

Management View

Co-CEO Carl Henry Lindner highlighted an annualized core operating return on equity of 15.5% for the quarter. He noted that while alternative investments contributed to a decline in overall results, the company maintained strong underwriting margins in its Specialty Property & Casualty segment. Additionally, net investment income, excluding alternatives, saw a 10% year-over-year increase. Lindner also mentioned that the company returned over $100 million to shareholders through dividends and share repurchases during the quarter.

Co-CEO Stephen Craig Lindner reported core net operating earnings of $2.14 per share, down from $2.56 per share in the previous year. He attributed the decrease to lower underwriting profits and reduced returns on alternative investments. The investment portfolio was primarily composed of fixed maturities yielding approximately 5.75%, with alternative investments delivering a 1.2% return compared to 5.1% in the prior year. This drop was largely due to increased apartment supply affecting rental rates and occupancy in certain markets.

CFO Brian Scott Hertzman noted that P&C net investment income was about 5% lower than the same period in 2024. He added that the decline in multifamily investment valuations by nearly $30 million impacted the performance of alternative investments. However, he expressed confidence that current inventory would be absorbed within the next 12 months.

Outlook

Carl Henry Lindner projected continued premium growth for the full year of 2025, citing favorable pricing conditions, increased exposures, and new business opportunities. He reiterated that the company expects premium growth for the entire year.

Management also signaled optimism regarding long-term returns from alternative investments, anticipating annual returns of 10% or better. AFG plans to continue generating significant excess capital, which could be used for acquisitions, special dividends, or share repurchases.

Financial Results

AFG reported core net operating earnings of $2.14 per share, a decline from $2.56 per share in the prior year. The Specialty Property & Casualty segment posted a 93.1% combined ratio, up 2.6 points from 90.5% in Q2 2024. Gross and net written premiums increased by 10% and 7%, respectively, with crop business influencing timing. Excluding crop, growth was 6% and 5%.

Average renewal pricing, excluding workers' comp, rose about 7% in Q2, matching Q1. Including workers' comp, renewal rates increased by 6%. The Property & Transportation Group reported a 95.2% combined ratio, up from 92.7% in the prior year. Specialty Casualty had a 93.9% combined ratio, while Specialty Financial achieved an 86.1% combined ratio, a 3.6-point improvement.

The company 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 Insights

During the earnings call, analysts asked questions about various segments and market dynamics. Co-CEO Carl Henry Lindner discussed lender-placed business, noting that it benefits from a weak economy and disruptions in the market. He also mentioned that pricing in this business has increased by about 1% over six months.

On social inflation lines and nonrenewals, Lindner detailed actions in nonprofit and social services, stating that nonrenewals in housing are complete and daycare nonrenewals will finish by year-end. He also mentioned that umbrella capacity is being reduced and that commercial auto pricing increased by 15%.

Analysts also inquired about Inland Marine, Ocean Marine, and trade credit businesses. Lindner indicated that growth opportunities exist in Ocean Marine, while Inland Marine is limited by economic conditions. Trade credit is growing but may face impacts from tariffs.

Sentiment Analysis

Analysts’ tone was neutral to slightly positive, focusing on segment profitability, premium growth, and risk management. Management remained confident, using phrases like “we feel we’re well positioned” and “we continue to expect premium growth.” CFO Hertzman provided detailed explanations on 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.

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.