American Financial Group Inc.’s (AFG) fourth-quarter net earnings were up 40 percent from a year earlier to $44.2 million, or 64 cents per share, from $31.5 million, or 46 cents per share, thanks to AFG’s focus on specialty commercial lines and genera favorable trends in commercial insurance, according to a company statement.
The results included an after-tax charge of $19.5 million relating to the settlement of asbestos litigation affecting one of its operating subsidiaries. This settlement charge was offset by the benefit of the resolution of certain tax issues and net realized gains on investments.
Net earnings for the full year were $84.6 million, or $1.22 per share, an improvement from a loss of $14.8 million, or 22 cents per share, in 2001.
AFG’s core earnings from insurance operations for the full year 2002 were $167.2 million ($2.42 per share), an increase of $61.5 million, or 87 cents per share, over 2001. These increases were due to significantly improved property and casualty underwriting results and real estate gains, partially offset by reduced earnings in the annuity and life operations.
The Cincinnati, Ohio-based firm’s P&C Group generated an underwriting profit of $17.2 million in the 2002 fourth quarter, excluding the litigation charge. The group’s combined ratio of 97.0 reflects a three point improvement compared with the same period a year ago. Gross written premiums increased 5 percent for the 2002 quarter due to continued strong growth in the Specialty Group, partly offset by premium reductions within the Personal Group. Net written premiums for the 2002 quarter decreased nearly 16 percent compared to the 2001 period, reflecting the increased level of reinsurance as compared to the previous year.
The 2002 combined ratio for the P&C Group was 99.9, an improvement of more than four points compared to the 2001 combined ratio. Gross written premiums for 2002 increased about 12 percent over the prior year. Net written premiums decreased approximately 6.5 percent, reflecting the effects of changes in reinsurance as compared to the previous year.
The Specialty Group reported an underwriting profit of $7.2 million for the 2002 fourth quarter with a combined ratio of 98.1 compared with 95.4 in the 2001 fourth quarter. The 2002 results included the impact of Midwestern droughts on AFG’s crop business and adverse development in certain lines of business that are no longer written by the company. The Group’s gross
written premiums for the 2002 quarter grew approximately 16 percent as compared to
the 2001 period and, for the full year, were 21 percent above 2001, reflecting the effect of rate increases and volume growth in certain businesses, partly offset by planned reductions in less profitable lines of business.
“I am very pleased that our overall property and casualty operations generated a solid underwriting profit in the 2002 fourth quarter and reported a combined ratio just under 100 for the year,” said Carl H. Linder III, AFG co-president and head of the P&C Group. “For the past several years, we have been realigning our mix of business and focusing on rate adequacy. We have
continued to tell the market that we were committed to achieving underwriting profits and that we would sacrifice volume for profits. I believe the improvement in our results demonstrates that commitment.”
AFG also announced that its subsidiary, Great American Insurance Co., has entered into an agreement for the settlement of asbestos related coverage litigation from insurance policies issued during the 1970s and 1980s. The Company believes that the settlement with parties related to and known as A.P. Green Industries Inc. will enhance financial certainty and
provide a resolution to litigation that represents AFG’s largest known asbestos-related claim and the only such claim that AFG believes to be material.
The settlement is for $123.5 million (before tax), all but $30 million of which will be covered by previously established reserves and anticipated reinsurance recoverables for this matter. As a result, AFG has recorded a charge of $30 million ($19.5 million after-tax) for the fourth quarter of 2002. The agreement allows up to 10 percent of the settlement to be paid in AFG common stock. The survival ratio for the remaining asbestos reserves, as measured by the average asbestos payments over the last three years, was 22.4.
The settlement is subject to a number of contingencies, including approval of the bankruptcy court supervising the reorganization of A.P. Green and subsequent confirmation of a plan of reorganization that includes an injunction prohibiting the assertion against Great American of any present or future asbestos personal injury claims under policies issued to A.P. Green and related companies. This process could take a year or more and no payments are required until its completion.
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