Thank you for standing by, and welcome to American Financial Group's First Quarter 2024 Earnings Conference Call. Please go ahead.

Thank you. Good morning, and welcome to American Financial Group's First Quarter 2024 Earnings Results Conference Call. We released our 2024 first quarter results yesterday afternoon. Our press release, investor supplement, and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause our actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or responses to questions. A reconciliation of net earnings to core net operating earnings is included in our earnings release. And finally, if you're reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy. As a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results.

Good morning. I'll begin my remarks by sharing a few highlights of AFG's 2024 First Quarter, after which Craig and I will walk through more details. I will then open it up for Q&A, where Craig, Brian, and I will respond to your questions. AFG's financial performance during the first quarter was excellent. In addition to producing an annualized first quarter operating return on equity of 20%, net written premiums grew by 8% year-over-year. Our compelling mix of specialty insurance businesses, entrepreneurial culture, disciplined operating philosophy, and astute in-house investment professionals have collectively enabled us to outperform many of our peers over time. Craig and I thank God, our talented management team, and our great employees for helping us to achieve these results. I'll now turn the discussion over to Craig to walk us through some of the details.

Thanks, Carl. Please turn to Slides 3 and 4 for a summary of earnings information for the quarter. AFG reported core net operating earnings of $2.76 per share in the 2024 first quarter. The year-over-year decrease reflects lower return to AFG's alternative investment portfolio when compared to the very strong performance of this portfolio in the prior year period. Now I'd like to turn to an overview of AFG investment performance, financial position, and share a few comments about AFG's capital and liquidity. The details surrounding our $15.3 billion investment portfolio are presented on Slides 5 and 6. Looking at results for the first quarter, Property & Casualty net investment income was approximately 1% lower than the comparable 2023 period. Excluding the impact of alternative investments, net investment income in our P&C insurance operations for the three months ended March 31, 2024, increased by 16% year-over-year as a result of the impact of higher interest rates and higher balances of invested assets. As you'll see on Slide 6, approximately 68% of our portfolio is invested in fixed maturities. In the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 6%. Current reinvestment rates compare favorably to the nearly 5% yield earned on fixed maturities at our P&C portfolio during the first quarter of 2024. The duration of our P&C fixed maturity portfolio, including cash and cash equivalents, was 2.9 years at March 31, 2024. We've strategically managed duration to take advantage of market opportunities as interest rates have increased from recent historic lows. The annualized return on alternative investments in our P&C portfolio was approximately 9% for the 2024 first quarter compared to 14.2% for the prior year quarter. Strong returns related to our traditional private equity portfolio were offset by lower returns on investments tied to multifamily housing, which represent about half of our alternative investment portfolio. We continue to experience headwinds from the impact of increased supply and the leveling out of rental rates on these investments. We expect these headwinds may continue throughout the remainder of 2024. Longer-term, we remain optimistic regarding the prospects of our investments in multifamily housing as these properties continue to generate strong net operating income and have desirable geographic positioning and high occupancy rates. The average annual return on alternative investments over the five calendar years ended December 31, 2023, was approximately 13%. Please turn to Slide 7, where you will find a summary of AFG's financial position at March 31, 2024. During the quarter, we returned $269 million to our shareholders through the payment of our regular $0.71 per share quarterly dividend as well as a $2.5 per share special dividend. We expect our operations to continue to generate significant excess capital throughout the remainder of 2024, which provides ample opportunity for additional special dividends or share repurchases over the next year. We continue to view total value creation as measured by growth in book value plus dividends as an important measure of performance over the long term. For the three months ended March 31, 2024, AFG's growth in book value per share, excluding AOCI plus dividends, was 5.1%. I'll now turn the call back over to Carl to discuss the results of our P&C operations.

Thank you, Craig. Please turn to Slides 8 and 9 of the webcast, which include an overview of our first quarter results. As you'll see on Slide 8, our Specialty Property & Casualty Insurance businesses generated a strong 90.1% combined ratio in the first quarter of '24, 1 point higher than the 89.2% reported in the first quarter of last year. Results for the 2024 first quarter included 2.3 points of catastrophe losses compared to 2.2 points in last year's first quarter, and 3.3 points of favorable prior year reserve development compared to 4.5 points in the first quarter of 2023. First quarter 2024 gross and net written premiums were both up 8% when compared to the same period last year. Year-over-year growth was reported within each of the Specialty Property and Casualty groups as a result of additional crop premiums from the Crop Risk Services acquisition, new business opportunities, increased exposures, and a good renewal rate environment. Along those lines, average renewal pricing across our Property & Casualty Group, excluding our Workers' Compensation businesses, was up 8% for the quarter, accelerating about 1% from the previous quarter. Including Workers' Compensation, renewal rates were up 6% overall, in line with the previous quarter. This is our 31st consecutive quarter to report overall renewal rate increases, and we believe we're achieving overall renewal rate increases and excessive prospective loss ratio trends to meet or exceed targeted returns. In addition to renewal pricing, we continue to focus on insured debt values in our property-related businesses to ensure that our premiums reflect inflationary considerations. Now I'd like to turn to Slide 9 to review a few highlights from each Specialty Property and Casualty business group. Details are included in our earnings release, so I'll focus on our summary results here. The businesses in the Property and Transportation Group achieved an 89 combined ratio overall in the first quarter of 2024, an improvement of 2 points from the 91 reported in the comparable 2023 period. First quarter 2024 gross and net written premiums in this group were 10% and 7% higher, respectively, than the comparable prior year period. Additional crop premium associated with the CRS acquisition, as well as new business opportunities, a favorable rate environment and strong account retentions in our commercial auto and ocean marine businesses were the primary drivers of the increase in premiums. Overall renewal rates in this group increased approximately 9% on average in the first quarter of 2024, an increase of about 2 points from the previous quarter. I'm particularly pleased with renewal rates that need in our commercial auto liability line of business where rates were up 21%. The businesses in our Specialty Casualty Group achieved a strong 89.8 combined ratio in the first quarter of 2024, 2.3 points higher than the 87.5 reported in the comparable period last year. Cat losses added 2.2 points to the Specialty Casualty Group first quarter 2024 combined ratio and were the result of a winter storm that affected a large social services account in the northwestern part of the country. I'm particularly pleased with the continued very strong underwriting margins in our executive liability and Workers' Compensation businesses. First quarter 2024 gross and net premiums increased 3% and 4%, respectively, when compared to the same prior year period. While most businesses in this group reported premium growth during the first quarter, the higher year-over-year premiums resulted primarily from the growth in our excess and surplus lines and excess liability businesses, as a result of great increases in new business opportunities, higher rates, strong account retention and new business opportunities in several of our targeted markets businesses contributed to the year-over-year growth to a lesser extent. Now renewal pricing for this group, excluding our Workers' Compensation businesses, was up approximately 8% in the first quarter and was up about 5% overall, with both measures up about 1% from the renewal pricing in the previous quarter. I'm particularly pleased that we achieved renewal rate increases in excess of 10% in several of our social inflation exposed businesses during the quarter, including our public entity, social services, and excess liability businesses. The Specialty Financial group continued to achieve excellent underwriting margins and reported an 86.3 combined ratio for the first quarter of 2024, a slight improvement from the comparable period in 2023. First quarter 2024 gross and net written premiums were up 26% and 27%, respectively, when compared to the same 2023 period. While most businesses in this group reported year-over-year growth, our financial institutions business was the primary driver of the higher premiums, representing a continuation of the growth we reported in both of our lender-placed and residential investor business products in the second half of 2023. Renewal pricing in this group was up approximately 7% in the first quarter. Craig and I are pleased to report these strong results for the first quarter, and we're proud of our proven track record of long-term value creation. Our insurance professionals have exercised their Specialty Property and Casualty knowledge and experience to skillfully navigate the marketplace. Our in-house investment team has been both strategic and opportunistic in the management of our $15 billion investment portfolio. We're well positioned to continue to build long-term value for our shareholders for the remainder of 2024 and beyond. We'll now open the lines for the Q&A portion of today's call. Craig, Brian, and I would be happy to respond to your questions.

Our first question comes from Charlie Lederer of Citigroup.

Wondering if you guys can share more about the reserve development in the quarter, I guess, specifically in Specialty Financial and Specialty Casualty, just kind of the moving pieces there?

Charlie, this is Brian. So to talk about the Casualty segment first. There's a few things going on there. First of all, we did continue to see favorable development coming out of our Workers' Compensation business as well as lower severity in our Executive Liability business. Offsetting that is some increased severity in our excess liability businesses and some increased severity in the social services businesses. When Carl mentioned the lower profitability in the Social Services businesses, that's coming through prior year development. It's just on a few claims there, while we don't comment on specific claims. It is over a couple of the more recent accident years. And then in the financial group, there's a small amount of adverse development there, and that's related to our innovative markets business where we're seeing a little bit of increased severity there. The innovative markets business includes some coverages related to complex intellectual property.

Got it. Okay. And that's helpful. Regarding the commercial auto liability pricing increase, which was 21%, what does that compare to in the fourth quarter? Additionally, how should we consider that in relation to its effect on your underlying margins in Property and Transportation as the year progresses?

I definitely think it's a very positive result. I believe for all of 2023, it was around 11%. But I believe the fourth quarter jumped up to around 15% or so. So I definitely like the trends. It's our goal. We have solid underwriting performance for our overall Commercial Auto business in the first quarter and last year. But the Commercial Auto liability part of the business isn't where we want it with a small underwriting loss in that. So it's our objective to lower our overall commercial auto combined ratio, particularly in commercial auto liability. So achieving rate increases at that level is very welcome at this point.

Our next question comes from the line of Michael Zaremski of BMO.

If we look at the Specialty Casualty segment, overall growth has been slowing down, which seems logical. Workers' Compensation pricing is not particularly strong, given the high profitability. Meanwhile, pricing power in some other lines of business appears to be improving as the industries and AFG's reserve releases start to taper off. It feels like the cycle is unfolding as expected. Are we seeing certain lines of non-Comp pricing trend upward because the industry is noticing that margins are tightening? I'm trying to understand if this cycle feels like it's moving in a positive direction, with Workers' Comp also seemingly turning in the right way but experiencing some downward pressure due to profits.

Yes. When addressing growth, the Workers' Comp segment's first quarter premium is roughly flat or slightly up. Excluding Workers' Comp, which is part of the Specialty Casualty segment, we're experiencing about 6% growth. I've mentioned before that in businesses exposed to social inflation, I'm pleased to see double-digit price increases in several of those areas, which is encouraging. However, due to the claims environment affecting many of these lines, our team is working to position us for ongoing success despite the challenges posed by social inflation. Previously, I've discussed how we are significantly raising the retentions when writing business in municipal pools and moving up the towers with some smaller limits in our excess liability businesses. I'm very pleased with the overall Workers' Comp results in the first quarter, which is definitely a positive sign.

That's helpful. I just have a follow-up regarding Workers' Comp, which has been a strong and profitable area for your business. Is there... pardon me.

Mike, I wanted to highlight an aspect of the crop business. We're optimistic about the early progress this crop year, which is off to a strong start. Plantings of corn and soybeans are happening at a rate that surpasses the average over the past five years. Additionally, the U.S. drought conditions are showing improvement compared to April of last year, particularly with less drought in much of the Western corn belt. We are not facing major worries regarding floods or excessive preventive claims. Corn and soybean prices have remained stable, which is encouraging. I’ve also been informed that the winter wheat sector is showing much better performance compared to last year. Although it's still very early, I'm happy with how things are beginning to shape up in this important area for us.

And the winter wheat, and I did have a follow-up on Workers' Comp. The winter wheat as a percentage of your portfolio, if you can remind us?

I think it's maybe 8% or something like that. I think all wheat is maybe 10% or something around that.

My follow-up question is about Workers' Compensation, which is a significant and lucrative segment for your company. In comparing overall industry trends to American Financial Group's performance last year, your Workers' Comp business was highly profitable, but it showed a notable decrease in profitability year-over-year. I'm looking at this from a combined ratio perspective, and although your reserve releases remained high, they did slow down. Surprisingly, the industry as a whole showed improvement. I'm curious about your specific situation; when you think back to the actions taken in 2023, do you believe some of those changes were influenced by your concentration in certain states, leading to a different experience compared to the industry?

I'm not sure there's a significant difference in that. We continue to have great results from last year. Our first quarter results for Workers' Comp remain excellent. I believe our Summit business, strategic comp business, high deductible business, and National Interstate's Workers' Comp are all performing very well. Our California business, however, has shown underwriter losses both last year and in the first quarter, which represents a relatively small portion of our Workers' Comp business. This could have some impact. Overall, we're off to a strong start with excellent comp results in the first quarter. We anticipate that this year's profitability may not match last year's levels, partly due to a 15% decline in rates in Florida, which is significant for one of our large comp subsidiaries, Summit.

Our next question comes from the line of C. Gregory Peters of Raymond James.

This is Sid on for Greg. Just wanted to follow up on the growth in the Specialty Financial. I know in the prepared remarks, you highlighted the financial institutions. But curious if you could provide a little bit more information on what you're seeing as attractive in that area of your business? It feels like there's been a step change in growth. I'm just trying to get a sense if we should expect this to continue.

We anticipate solid growth this year, with a very strong first quarter. Many companies are focusing on property opportunities, and we have a long history of success in this business with substantial underwriting profitability. With pricing increasing by 9% and the industry prioritizing the accurate insured values, states like Florida and others are ensuring coverage reflects replacement costs rather than just the principal balance. While we are competitively addressing both pricing and insured values, some competitors have struggled, allowing us to acquire significant accounts, one in particular last year that we are still benefiting from. It’s important to note that this business can be inconsistent; gaining or losing an account can significantly affect our overall performance. We hope to further expand our portfolio with additional accounts, but we remain cautious about those with excessive catastrophe exposure. In summary, we are satisfied with the business's current performance, which shows good profitability and notable growth beyond the pricing and insured value increases we are experiencing. We are optimistic about the future of this business.

Okay. And then as my follow-up, in the press release, I believe you said the returns in the alternative investment portfolio exceeded expectations for the quarter. I know you're not providing detailed guidance anymore, but just curious if the first quarter results change your view on the expected performance of the portfolio for this year or if the 6% annualized return is still the right bogey to use for 2024?

Sure. This is Craig. On our last conference call, when we talked about assumptions that went into our plan, we talked about a 6% assumption on total return on alternatives for the year, and that was made up of a low single-digit return on our multifamily properties, which account for about half of that portfolio, at a stronger return on the other investments. What I would say is multifamily is performing pretty much in line with our expectations. We're pretty much in line with what we were kind of expecting to see when we guided to or said that we were using a low single-digit return on that piece. I don't think we changed our thoughts on that, kind of given the outlook for the balance of the year on multifamily. We had a very good start. We had very good returns on the balance of the alternative portfolio. But as you know, that can be pretty lumpy. I think we did benefit from the very strong market in the fourth quarter of 2023. In calendar year 2023, we report the return margin on a quarter delayed basis. So, I think in the first quarter, we benefited from the very strong work last year. It's early in the year. Hard to predict what the market is going to do for the balance of the year. So at this point in time, we would not change the assumed 6% return for the year.

Our next question comes from the line of Andrew Andersen of Jefferies.

In the press release, you pointed to improved profitability on Workers' Comp. Am I correct in thinking that is due to stronger releases year-over-year and not due to the underlying loss ratio? And maybe with that, could you touch on the seasonality of perhaps how '23's Workers' Comp developed on a quarterly basis?

The combined ratio in Workers' Comp remained fairly consistent both quarter-over-quarter and in terms of development. There was some growth in Workers' Comp this year, but the underlying loss ratios stayed similar. Development can be somewhat irregular, but in the first quarter of 2024, it mirrored the first quarter of 2023. Our press release indicated that we had improved margins there, and I noted that we performed well. Overall, I would say we had a strong quarter.

Okay. And then maybe looking at some Schedule P accident year picks for other liability claims made seem to improve year-over-year, and occurrence was kind of flat year-over-year for accident year '23. I guess I would have thought there'd be maybe a little bit more conservatism just given the loss trend environment. But can you kind of help us think through these picks here?

Sure. So on the general liability occurrence, I think it's important to know there can be changes in mix of business. Also, we've been getting rate increases there. In some of our excess businesses, we've also still been looking at higher attachment points and higher deductibles. There's really a change of mix of business that's happening that kind of mutes the impact on the loss pick changes. In claims made, we tend to be conservative early on, and that sets us up for more changes of favorable development there.

Our next question comes from the line of Meyer Shields of Keefe, Bruyette & Woods.

I think earlier, Carl, in your comments, you talked about 20% plus rate increases in commercial auto. I'm wondering how we should think about that impacting demand for the cat solutions as opposed to maintaining same insurance programs companies that have?

I don't believe it has a significant impact either way. The entire marketplace is grappling with social inflation in commercial auto liability. Currently, the market is permitting increases. For specific captive accounts, if the performance is better, the increase wouldn't be at 21%. Some accounts and businesses may have received lower price increases, while others with poorer results have seen higher increases.

Okay. So then I guess with this is to just infer that as those rate increases earn in, the improving underwriting profit should basically emerge in a typical fashion instead of being sort of offset by clients retaining significantly more risk?

Yes. Again, it's our goal to improve the commercial liability combined ratios over the next year or two and hence, having stronger overall commercial auto results. As I mentioned in some of the specialty casualty lines, we're a very underwriting profit-driven company. In commercial auto, we're probably outperforming the market by 5 or 6 points at least, and we're serious about getting the right returns on that business.

Okay. Perfect. And if I can switch gears briefly, is the growth in Specialty Financial likely to impact the amount of reinsurance that you want to carry for the rest of the year?

Definitely, as our business has grown, we are closely monitoring the situation. In fact, I believe we're considering purchasing some gap insurance to cover the difference between our underlying cat tower and the catastrophe bond that we have.

Our next question comes from Charlie Lederer of Citigroup.

Just one follow-up. You mentioned the alternative markets business a little bit. We've heard about certain specialty peers kind of scaling it back after experiencing losses there. I know it's relatively small dollars for you. But I'm curious if you can share whether your thoughts have changed on that business.

I assume you're referring to the innovative markets business, where we talked about having some changes.

Yes. I misspoke. I said alternative. Yes, sorry, innovative markets, the IP business.

So in that business, we're evaluating the opportunities there and some of the particular programs that those losses are things that we're no longer operating in. While we have you on your question earlier about prior year development in the Specialty Casualty, I think it's important to put it in context, where we're coming from in those results. When you look at the businesses that we had some adverse development in, those are still very profitable businesses for us. For example, for the full year 2023, most of our more social inflation exposed businesses had counter underwriting profits despite some of the noise there. Only one of them had a return on equity that wasn't in double digits. In fact, when you look at our excess and surplus businesses overall, all three of those had calendar year ROEs above 20% in 2023. So I thought it might be good to remember that when you're thinking about some of the lumps in prior development that those are in businesses that are generally very profitable over a number of years.

Our next question comes from the line of Michael Zaremski of BMO.

I have a quick follow-up, likely for Craig. Regarding the real estate returns, I feel like I should know this, but I don't think we all fully understand it. Is it based on a mark-to-market approach? How does that process work? We have a grasp of how private equity operates and the delays involved in how private equity firms mark those, usually with third-party evaluations. Could you clarify how the valuations are established for your real estate portfolio?

Sure. It is similar to the private equity investments in that the general partners in our multifamily investments review the valuation on a quarterly basis and mark them to market on a quarterly basis.

Okay. Understood. As a follow-up, has there historically been more volatility in private equity or real estate? Is there a way to assess whether we should anticipate potentially uneven quarterly results from real estate, while I had thought such variations typically originated from private equity?

Yes. If you look over a long period, the multifamily returns have been very predictable. We've obviously been in a somewhat unusual environment here in the last six to nine months with a very large increase in interest rates. The operating income of the multifamily properties continues to be very strong. We're very pleased with the performance. But cap rates have moved up because of an increase in interest rates.

Thank you. I would now like to turn the conference back to Diane Weidner for closing remarks.

Thank you all for joining us today as we discussed our first quarter results. We look forward to talking to you again next quarter, and hope you all have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.