Earnings Call Transcript - AFG Q2 2025

Diane P. Weidner, Vice President of Investor Relations

Good morning, and welcome to American Financial Group's Second Quarter 2025 Earnings Results Conference Call. We released our 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 in 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. And 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.

Carl Henry Lindner, Co-CEO

Good morning. I'll begin by sharing a few highlights of AFG's 2025 second quarter results, after which Craig and I will walk through more details. We'll then open it up for Q&A, where Craig and Brian and I'll be happy to respond to your questions. We're pleased to report an annualized core operating return on equity of 15.5% despite quarterly returns from alternative investments that tempered overall results. Underwriting margins in our Specialty Property & Casualty insurance businesses were strong, and higher interest rates increased net investment income, excluding alternatives, by 10% year-over-year. In addition, we returned over $100 million to our shareholders during the second quarter of 2025 through a combination of regular dividends and share repurchases. Our compelling mix of specialty insurance businesses, entrepreneurial culture, disciplined operating philosophy and an astute team of in-house investment professionals continue to serve us well in environments such as these and position us for long-term success. 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 these details.

Stephen Craig Lindner, Co-CEO

Thanks, Carl. Please turn to Slides 3 and 4 for second quarter highlights. AFG reported core net operating earnings of $2.14 per share compared to $2.56 per share in the prior year-end period. Our 2025 results reflect a year-over-year decrease in underwriting profit and lower returns on alternative investments. I'll begin with an overview of AFG's investment performance and share a few comments about AFG's financial position, capital and liquidity. The detail of surrounding our $16 billion portfolio were presented on Slides 5 and 6. Excluding the impact of alternative investments, net investment income at our property and casualty insurance operations for the three months ended June 30, 2025, increased 10% year-over-year as a result of higher interest rates and higher balances of invested assets. As you'll see on Slide 6, approximately two-thirds 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 5.75%, which compare favorably to the 5.2% yield earned on fixed maturities at our P&C portfolio during the second quarter of 2025. The duration of our P&C fixed maturity portfolio, including cash and cash equivalents, was 2.8 years at June 30, 2025. The annualized return on alternative investments in our P&C portfolio was approximately 1.2% for the 2025 second quarter compared to 5.1% for the prior year quarter. As a result, overall P&C net investment income was approximately 5% lower than the comparable 2024 period. The impact on rental rates and occupancy from a surge in new apartment supply in certain otherwise strong markets reduced the fair value of some multifamily investments. This tempered the performance of our alternative investment portfolio in the second quarter of 2025 by nearly $30 million. Although substantial supply persists, new construction starts have plummeted. We expect current inventory to be absorbed over the next 12 months. Notably, multifamily starts were down approximately 20% year-over-year and down nearly 50% from their 2022 peaks. The combination of tightening supply and a significantly reduced development pipeline is forecast to drive higher rental and occupancy rates over the next several years and should result in stronger returns on our multifamily investments. Longer term, we continue to remain optimistic regarding the prospects of attractive returns from our overall alternative investment portfolio with an expectation of annual returns averaging 10% or better. Please turn to Slide 7, where you'll find a summary of AFG's financial position at June 30, 2025. During the quarter, we returned over $100 million to our shareholders, including $39 million in share repurchases and our $0.80 per share regular quarterly dividend. We expect our operations to continue to generate significant excess capital throughout the remainder of 2025, which provides ample opportunity for acquisitions, special dividends or share repurchases. We evaluate the best alternatives for capital deployment on a regular basis. 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 six months ended June 30, 2025, AFG's growth in book value per share, excluding AOCI plus dividends, was 6%. Our strong operating results, coupled with effective capital management at our entrepreneurial opportunistic culture and disciplined operating philosophy enable us to continue to create value for our shareholders. I'll now turn the call over to Carl to discuss the results of our P&C operations.

Carl Henry Lindner, Co-CEO

Thank you, Craig. Please turn to Slides 8 and 9 of the webcast, which include an overview of our second quarter results. Overall, underwriting profitability was strong in our Specialty P&C businesses in the second quarter of 2025 and we remain confident about the strength of our reserves. A continued favorable pricing environment, increased exposures and new business opportunities enabled us to grow our Specialty Property & Casualty businesses, and we continue to expect premium growth for the full year in 2025. Looking at a few details, you'll see on Slide 8 that our Specialty Property & Casualty Insurance businesses generated a 93.1% combined ratio in the second quarter of 2025, 2.6 points higher than the 90.5% reported in the second quarter of last year. Results for the 2025 second quarter include 2.3 points related to catastrophe losses consistent with results in the 2024 second quarter. Second quarter 2025 results benefited from 0.7 point of favorable prior year reserve development compared to 2.3 points in the second quarter of 2024. Second quarter 2025 gross and net written premiums were up 10% and 7%, respectively, when compared to the second quarter of 2024. Earlier reporting of crop acreage by insureds impacted the timing of the recording of crop premiums and contributed to the year-over-year increase, particularly when compared to later reporting of acreage the previous year. So if you exclude the crop business, our gross and net written premiums grew 6% and 5%, respectively. Average renewal pricing across our Property & Casualty Group, excluding our workers' comp businesses, was up approximately 7% in the second quarter, consistent with pricing increases achieved in the first quarter, including workers' compensation, renewal rates were up approximately 6% overall, about one point higher than in the previous quarter. We reported overall renewal rate increases for 36 consecutive quarters, and we believe we're achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed our targeted returns. Now I'd like to turn to Slide 9 to review a few highlights from each of our Specialty Property & Casualty business groups. Details are included in our earnings release, so I'll focus on summary results here. The businesses in the Property & Transportation Group achieved a 95.2% calendar year combined ratio overall in the second quarter of 2025, 2.5 points higher than the 92.7% reported in the comparable 2024 period. The second quarter 2025 combined ratio benefited from 2.2 points of favorable prior year reserve development compared to 6.3 points in the 2024 second quarter, particularly reflecting especially strong results for our crop business in the prior year period. Second quarter 2025 gross and net written premiums in this group were up 15% and 10% higher, respectively, than the comparable prior year. As mentioned before, earlier reporting of crop acreage compared to 2024, which impacts the timing of crop premiums contributed to higher second quarter premiums in this group. Again, when you exclude the crop business, gross and net written premiums in this group grew by 6% and 5%, respectively. Increased exposures, new business opportunities and a favorable rate environment contributed to our growth in our transportation businesses. Overall renewal rates in this group increased approximately 8% in the second quarter of 2025, a point higher than the pricing achieved in this group for the first quarter 2025. We continue to remain focused on rate adequacy, particularly in our commercial auto liability line of business where rates were up approximately 15% in the second quarter. In terms of our crop business, commodity futures pricing remains in acceptable ranges relative to spring discovery prices. And based on the most recent crop progress reports, overall corn and soybean conditions are slightly better than last year at this time. We believe that there's been adequate moisture to date in those areas so that the excessive heat in recent weeks shouldn't be problematic. However, moisture levels through August and early September remain important. Now the businesses in our Specialty Casualty Group achieved a solid 93.9% calendar year combined ratio overall in the second quarter, 4.8 points higher than the very strong 89.1% reported in the comparable period in 2024. Second quarter 2025 gross and net written premiums increased 4% and 2%, respectively when compared to the same prior year period. Higher year-over-year premiums in our mergers and acquisitions business and growth across a variety of other businesses in the group, resulting from new business opportunities, higher rates and strong policy retention were partially offset by lower premiums due to a challenging market in our Directors and Officers Liability business. In addition, we continued to nonrenew certain housing and daycare accounts in our social services businesses. Excluding our workers' comp businesses, renewal rates for this group were up 8% in the second quarter. Pricing in this group, including workers' comp was up about 6%. I'm pleased that we achieved renewal rate increases in the mid-teens in our most social inflation exposed businesses, including our social services and excess liability businesses. The Specialty Financial group continued to achieve excellent underwriting margins and reported a combined ratio of 86.1% for the second quarter of 2025, 3.6 points better than the 89.7% reported in the comparable period in 2024. These results reflect higher year-over-year underwriting profitability in our financial institutions and surety businesses. Second quarter 2025 gross and written net premiums in this group were up 15%, 12%, respectively, when compared to the prior year period, due primarily to growth in our financial institutions business. Renewal pricing in this group was flat in the second quarter. Craig and I are proud of our history of long-term value creation. We have years of experience navigating economic and insurance cycles. Our insurance professionals continue to exercise their Specialty Property and Casualty knowledge and expertise to successfully compete in a dynamic marketplace. Our in-house investment team has been both strategic and opportunistic in the management of our $16 billion investment portfolio. One of our greatest strengths is finding opportunities in times of uncertainty. We feel we're well positioned to continue to build long-term value for our shareholders for the remainder of 2025 and beyond. I will now open the lines for the Q&A portion of today's call. Craig and Brian and I would be happy to respond to your questions.

Operator, Operator

Our first question comes from Michael Zaremski at BMO Capital Markets.

Michael David Zaremski, Analyst

My first question is about the lender-placed business within Specialty Financial. I believe that may be contributing to the continued healthy growth this quarter. Could you provide some insight into how that market grows in relation to mortgage delinquencies or the dynamics of a hard versus soft market? Additionally, it seems like you may have gained market share in that area; could you offer more information on that?

Carl Henry Lindner, Co-CEO

Thank you. The lender-placed property business has relatively few competitors and generated about $700 million in gross written premium last year, making it a significant segment for us. This business tends to see greater opportunities during economic downturns, as individuals often fall behind on their payments and neglect to pay their insurance. It's primarily based on large client relationships with major financial institutions. Recent market disruptions have allowed us to seize opportunities from competitors who struggled, contributing to our growth in this area over the last few years. Additionally, we, along with others in the property sector, implemented substantial rate increases until this year. A positive aspect of our business strategy has been transitioning from insuring unpaid mortgage balances to focusing on replacement cost value, which many in the industry are adopting. As more of our large clients make this shift, it will enhance our ability to secure accurate valuations for our business. I aimed to provide a comprehensive view of this sector.

Michael David Zaremski, Analyst

Carl, would the lender-placed also be excellent margins in the segment? Is that also what's driving the pricing power kind of to decel?

Carl Henry Lindner, Co-CEO

Yes. I think this business is very profitable for us, again, made up of large accounts. I think pricing is in this business through six months is prices are up about 1%. The loss ratio trends are very low single digit in this business. And I think, again, the last thing I mentioned as far as a move from unpaid mortgage balance as a basis for premiums to move to replacement cost values. I think that helps offset the difference between the price increase and the loss ratio trend, if that makes sense.

Michael David Zaremski, Analyst

Yes, that's helpful. My follow-up is about some of the more social inflationary lines of business. You continue to reference some nonrenewals in certain areas. I assume there are always nonrenewals occurring, but you're highlighting it because it seems to be at a higher than normal level or what AFG would typically expect. I understand that the benchmarks for loss cost inflation are always changing. Could you provide a broad overview, or discuss commercial auto in comparison to other sectors like housing and daycare accounts? Where do you think AFG stands regarding remediation actions, and how do you feel about the balance between pricing and loss trends? That's my final question.

Carl Henry Lindner, Co-CEO

That's a complex question considering we operate in 36 different businesses, but I'll try to address it. In our nonprofit Specialty Human Services sector, which includes both housing and daycare accounts, we have largely completed the process of not renewing housing accounts. This effort corresponds to about $20 million out of the previously mentioned $50 million. We do not offer property or liability insurance for low-income or affordable housing accounts anymore. On the daycare front, we anticipate finishing the nonrenewal of approximately $9 million to $10 million of business by the end of the year. We began this effort at the start of the year and expect to wrap it up by year-end. We're still significantly writing for YMCAs that provide daycare, leveraging agents with established books of business in that space. While we will continue to cover specific risks, much of our unprofitable daycare business will see nonrenewals by the end of the year. Additionally, we have been reducing umbrella capacity from $15 million to $5 million and expect to have about $20 million in-force umbrellas left over $5 million, which we anticipate will drop to zero by year-end. In our public sector business, we have successfully navigated the increased retentions and are continuing to raise rates. We foresee more opportunities in this area now that we've completed that cycle. In the excess liability business, some of our units are still implementing mid double-digit price increases. We're also adjusting limits downward and non-renewing accounts with higher commercial auto liability exposure. Regarding our Fortune 1000 business, we've effectively adjusted our portfolio, which should lead to growth opportunities now that we've refined the limits profile. While commercial auto isn't really part of our Specialty Casualty business, we did experience strong growth in the second quarter and are outperforming the industry by about 8 points. Our goal remains to achieve an underwriting profit in our commercial auto liability segment. With the 15% price increase in commercial auto liability, we are seeing more opportunities arise. We have noted that one MGA might be exiting a specific segment of the commercial auto business, which could present opportunities for us in the coming six months.

Operator, Operator

Our next question comes from Gregory Peters at Raymond James.

Charles Gregory Peters, Analyst

For the first question, I'd like to focus on the Inland Marine and Ocean Marine business, as well as the trade credit business. It seems that some of the other specialty players see growth opportunities in that area. My question is how you are positioned for growth there. Additionally, with marine cargo being part of the trade credit business, and considering both export and domestic trade, I'm curious about the impact of volatility and tariffs on that business until things stabilize.

Carl Henry Lindner, Co-CEO

Yes, Greg, we have a robust Ocean Marine segment, both in the U.S. and through our Singapore office. We maintain a strong focus on Ocean Marine, and our Inland Marine segment is also performing well. We're trying to shift more towards Inland Marine builders' risks rather than just large property placements. Both areas have been beneficial for us. Ocean Marine, in particular, has generated growth opportunities over the past couple of years, which we are pleased with. However, on the property and Inland Marine side, there have been fewer opportunities for builders' risk, likely due to current economic conditions, although the impact of tariffs is uncertain. This situation has somewhat regulated our property Inland Marine business, as builders' risk and traditional Inland Marine products remain our focus. Despite this, these sectors have historically been very profitable for us. It's challenging to predict the tariff impact, but I believe that both Ocean and Inland Marine could face consequences due to reduced shipping and cargo transport volumes. At the moment, we don't notice significant changes, but the larger question lies in how the completion of tariffs country by country will affect our operations moving forward. That's my perspective at this time.

Charles Gregory Peters, Analyst

Would you say the same thing about the trade credit business too as it relates to tariffs?

Carl Henry Lindner, Co-CEO

Actually, our trade credit business is growing. I think there's been a little bit of hardening in that market. It's a very, very small specialty business for us. But yes, I do think, depending on who gets what tariff and what country it could have some impact, probably more on the premium side at some point. But right now, if anything, we're seeing some growth there.

Charles Gregory Peters, Analyst

Perfect. I want to revisit some of the points you made in your opening remarks, particularly regarding M&A. I'm curious if you've noticed a change in market conditions or if there’s a larger pipeline now compared to a year or two ago. It seems like you’re consistently active in the market. When you mentioned it during the call, it makes me wonder if there's something developing. I’d like to hear your thoughts on the M&A situation since you brought it up in your comments.

Carl Henry Lindner, Co-CEO

Sure. M&A is a $100 million business for us. It can be somewhat volatile depending on the M&A environment in this country, and this year there seems to be quite a bit of activity. Last year had a lower level of activity, making it a smaller business. However, this year we have seen significant activity, and we have a very capable group of underwriters in this area. It has been a profitable business for us. Others might be focused on the fringe, higher-risk parts of this business, which we haven't engaged in much. We primarily concentrate on representations and warranties, tax indemnity, and credit insurance. We have a solid reputation and are recognized for our expertise and specialization in this field.

Operator, Operator

Our next question comes from Andrew Andersen at Jefferies.

Unidentified Analyst, Analyst

Yes. This is Indiscernible on for Andrew. A crop peer provided an early indication that 2025 might be good to very good for crop profitability. In your prepared remarks, there appeared to be some positive indicators. So I'm wondering if we should still view this year as an average year or if it's still too early to tell?

Carl Henry Lindner, Co-CEO

I think it's still too early for us to categorize this year as above or below average. However, based on commodity futures pricing, they remain in acceptable ranges compared to spring discovery prices. I believe corn is down about 14% and soybeans are down slightly under 6%. The average deductible among farmers in our book of business, excluding the rainfall products, is projected to be about 20.5% this year. Therefore, losses or a combination of commodity price decreases and losses need to exceed that deductible, which farmers choose. Looking at the recent crop progress reports, the overall conditions for corn and soybeans are slightly better than they were last year at this time. While there are concerns about excessive heat, there has been sufficient moisture so far, which we don't consider problematic at this point. However, it is crucial that good moisture levels continue into August and early September. Additionally, as part of the Big Beautiful Bill, there has been an increase in loss adjustment expense payments in states with over a 120% loss ratio. This results in an LAE payment now being 6% compared to the previous 1.5%. There are often adjustments to programs, and while some can be slightly negative, overall there tend to be more positive changes. The Farm Bill has been extended through September of this year.

Unidentified Analyst, Analyst

Okay. And then just pivoting, I think your workers' comp book is slightly skewed to specialty workers' comp. So just curious how the pricing environment is in that end of the market. And if you expect any positive momentum on the workers' comp front? And also I think California is the largest state for workers' comp for you. So just curious if you're seeing any different loss experience there.

Carl Henry Lindner, Co-CEO

California accounts for about 15% of our workers' compensation business, while Florida is likely a larger state for us, with workers' comp representing around 13.5% of our total gross written premium. Our overall performance for the second quarter and the first half of the year remains strong, even though the combined rate for the first six months has risen slightly compared to last year. Our segments, such as National Interstate for transportation-related workers' comp and Summit in the Southeastern region, along with strategic comp for larger deductibles, have reported good underwriting results this year. However, Republic, our California workers' comp segment, faced an underwriting loss in the second quarter. We believe we have solid reserves in place. Regarding pricing, we're observing a moderating trend in workers' comp. Overall, pricing in this area decreased by about 1% in the second quarter and over the past six months. In Florida, which is our largest state, the 1% reduction implemented in January is the smallest drop in seven years. In California, we achieved roughly a 5% increase in pricing during the second quarter, resulting in a year-to-date increase of 1%. More importantly, California has approved an 8.7% increase effective September 1, 2025, marking the first hike in ten years; this adjustment is necessary as the industry there, with a combined ratio in the 120s, struggles. While we generally perform better than the industry, we see positive signs in the comp pricing environment, indicating that a firmer market may be emerging in California specifically.

Operator, Operator

Our next question comes from Meyer Shields at Keefe, Bruyette, & Woods.

Meyer Shields, Analyst

Carl, I was hoping if you could dig a little bit deeper into what you're seeing in terms of pricing and rate adequacy and professional lines. I'm asking because you sounded somewhat cautious, and we've heard a couple of other carriers talk about maybe green shoots are bottoming. And I just want to get your perspective on that, please.

Carl Henry Lindner, Co-CEO

Sure. From an overall macro perspective, we have achieved good results in the second quarter and the first half of the year for our Directors and Officers (D&O) business and our banking-related D&O product business, ABIS, which is significant for us at $400 million in D&O and ABIS. Including our other professional liability business, our total exceeds $0.5 billion. Net written premiums decreased in both the second quarter and the first six months. The public company sector remains competitive; however, I am optimistic as the pricing only dropped by 1.6% in the second quarter. Looking at our overall D&O executive liability businesses, our rates remained flat in the second quarter and year-to-date for 2025, which aligns with our expectations for the entire year. It’s encouraging to see public company pricing stabilize. Public D&O comprises only 15% of our D&O premium, so we take a more opportunistic stance in that area. In our ABIS and related D&O products, pricing increased by about 4% in the first half of this year. While the public D&O market remains competitive, there are certainly indications of stabilization, especially concerning primary policies. I hope that provides clarity.

Meyer Shields, Analyst

It is very much so. And I just want to confirm because I'm trying to get my head around the impact of the earlier crop reporting. Should we think of some portion of the premium losses and related expenses that showed up last year in the third quarter as moving to the second quarter this year? Is that how that plays out?

Brian Scott Hertzman, CFO

Meyer, this is Brian. Let's start with the premium side. For the full year, we expect crop premiums to be slightly lower than last year due to lower commodity prices during the discovery period compared to last year. However, the earlier planting and early reporting of acreage in the second quarter offsets this. We estimate that this shift in premiums results in about $100 million gross and $40 million net from quarter to quarter. This means that the premium that would have been reported in the third quarter is reflected in the second quarter due to the advanced reporting. If you consider the shift between quarters for net written premium, it equates to about $40 million. On the profitability front, we usually see minimal profits in our crop business during the second quarter. The only profits recognized in this period stem from prior developments, as most of our crops remain on the ground. Thus, we typically report most of our crop business profitability in the fourth quarter, with some in the third, and it may also extend into the following year. Therefore, when reviewing our numbers, our combined ratio in crop for the second quarter can be viewed as closer to $100 million. If it turns profitable, it usually enhances our combined ratio in the fourth quarter, assuming all else remains constant. So, while there’s no significant impact on profits, there is a notable effect on the written premiums.

Meyer Shields, Analyst

Okay. That's helpful. But just take it one step for this. That means that whatever the earned premium component of that $40 million that's producing a higher combined ratio than the rest of Property and Transportation, that's moved from the third quarter to the second quarter. So there's a little bit less of that 100% combined ratio earned premium in the third quarter. That's what I'm trying to get at like...

Brian Scott Hertzman, CFO

And that's a little tricky because in some of our earlier season products, particularly those that generated more earnings in the first half of the year, we did experience some growth and changes in how much we've ceded. Consequently, the earned premium remains higher for various reasons in the second quarter. I would say the key factor for profit recognition will be the weather over the next couple of months and whether that leads us to experience above-average or average conditions. As Carl mentioned, the outlook is promising, but we want to avoid making any premature conclusions.

Operator, Operator

Our next question comes from Bob Farnam at Janney Montgomery Scott.

Robert Edward Farnam, Analyst

I have a follow-up question regarding workers' compensation. I've received inquiries about undocumented workers and their potential impact on the types of classes you write. Specifically, have you noticed or do you anticipate any changes in claim patterns as undocumented workers are replaced by citizens or documented workers? The assumption is that undocumented workers are less likely to file workers' compensation claims due to concerns about their immigration status.

Brian Scott Hertzman, CFO

This is Brian. When we insure companies, we cover all their workers, regardless of their immigration status, and we will pay any claims that arise. If your question concerns whether a decrease in undocumented workers and an increase in documented workers could affect our claims, we have not observed any changes so far. We will continue to fulfill all claims and collect the appropriate premiums based on the payrolls, regardless of the workers' documentation status.

Robert Edward Farnam, Analyst

Yes. The question was about whether undocumented workers avoid filing claims due to concerns. Are you anticipating an increase in reported claims as undocumented workers are replaced with documented ones? That was the question.

Brian Scott Hertzman, CFO

Yes. At the moment, we're not expecting that, but it's obviously something we'll keep an eye on as we price our business and set reserves going forward.

Robert Edward Farnam, Analyst

Okay. And so I also have some questions on the excess liability business. You've had modest adverse development over the last several quarters. Is that related to any particular accident years or particular lines of business or classes of business. I'm just kind of curious if what you saw this quarter? Is it similar to what you saw in for most of last year and in the first quarter of this year?

Brian Scott Hertzman, CFO

This is Brian. It's important to note that our reserves are developing positively overall, with $11 million in net favorable development this quarter. In the Casualty Group, however, we experienced $10 million in adverse development, which is primarily due to increased severity in areas affected by social inflation, especially within the excess and surplus lines and in our nonprofit social services. In those sectors, we observed a rise in settlements, prompting us to adjust our case reserves for known claims and to increase our IBNR for similar potential liabilities. Claims in businesses affected by social inflation can be unpredictable, and when examining the adverse development by accident year, it is spread across numerous years rather than concentrated in a single year. Additionally, we have prudently raised some of our current accident year picks for the same reasons. We are continuously learning from these observations and adjusting our loss picks and pricing in real-time to maintain or enhance our favorable results. No.

Operator, Operator

Our next question comes from Michael Zaremski at BMO Capital Markets.

Michael David Zaremski, Analyst

My question is on the previous $10.50 '25 guide. Obviously, the Street is lower due partially to the first quarter investment returns. I guess my question is focused on the maybe the year-to-date reserve releases of about 1 point down 65% approximately year-over-year. Still obviously a very good guide, releases, great to see. Would you be able to share whether that reserve release ratio is better or worse in line with what you had contemplated when putting that guide together, the $10.50 guide?

Carl Henry Lindner, Co-CEO

With so many different lines of business and products, it's really hard to say. I think if you remember, we talked about when we gave our business plan assumptions at the beginning of the year, we did talk about an expectation of lower levels of favorable development. Now all the reasons behind that ended up not necessarily being exactly what we thought in the beginning. But we did anticipate and I think, hopefully did share that we thought that some of the favorable development we would have been seeing would diminish a bit, and that we're optimistic about improvements in the accident year ex-cat loss ratio, which we did see improvements other than where we were more prudent on some of the social inflation exposed businesses. So I think overall, it's pretty much in line with what we were expecting but not necessarily business unit by business unit, but within a range, I'd say, yes.

Diane P. Weidner, Vice President of Investor Relations

Thank you all for joining us this morning and for the great discussion and good questions. We look forward to talking with you all next quarter when we share results for the third quarter. I hope you have a great day.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.