Calif. Workers’ Comp Puts Damper on American Financial Group 3Q Results

American Financial Group Inc. (AFG) announced a $10.8-million loss ($.18 per share) for third quarter 2000. The loss includes $22.8 million, after-tax ($.39 per share), for strengthening the loss reserves of its California workers’ compensation business in response to adverse development in prior years’ loss costs. This represents less than 1 percent of the company’s total reserves.

California workers’ comp business represents approximately 8.5 percent of AFG’s earned premiums. Excluding the workers’ comp charge, net earnings from insurance businesses would have been $12.0 million ($.21 per share), more in keeping with previously announced expectations.

Comparable earnings for the 1999 third quarter were $41.0 million ($.68 per share). AFG’s net loss for the third quarter of 2000 was $22.1 million ($.38 per share) which includes the above mentioned reserve strengthening. Net earnings for the 1999 third quarter were $30.1 million ($.50 per share).

In the company’s Nov. 6 announcement, Carl H. Lindner III, AFG co-president and head of the Property & Casualty Insurance Group, stated: “Although the California workers’ compensation market continues to firm after several years of weakness, our recently completed third-quarter actuarial review of the business indicated a need for additional prior year reserves. We have implemented rate increases of about 22 percent through September 2000, and we expect increases to be in excess of 40 percent on renewals in the fourth quarter. We recognize that these actions may reduce the volume of our business but we believe they are necessary to achieve our profitability objectives.”

AFG’s net earnings from insurance businesses for the first nine months of 2000 were $28.0 million ($.48 per share) compared to $126.6 million ($2.08 per share) in the 1999 period. Net earnings for this 2000 period were $38.9 million ($.66 per share), including the reserve strengthening charge, net realized gains of $15.1 million and investee losses of $4.2 million.

AFG’s net earnings for the first nine months of 1999 were $126.7 million ($2.08 per share) which included net realized gains of $4.5 million, investee earnings of $1.7 million, an extraordinary loss of $2.3 million attributable to early debt retirements and a charge of $3.8 million due to an accounting change implemented by a subsidiary. The company ended the quarter with shareholders’ equity of $1.3 billion and a book value per share of $22.92.

The combined ratio of AFG’s P&C group for the first nine months of 2000 was 108.8 percent compared to 100.8 percent for the 1999 period.

American Financial Group writes mainly private passenger automobile and specialty property/casualty insurance businesses, and also sells retirement annuities, life, supplemental health and long-term care insurance products.

Topics California Profit Loss Workers' Compensation Property Casualty