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What changed in AMERICAN FINANCIAL GROUP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of AMERICAN FINANCIAL GROUP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+490 added−502 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in AMERICAN FINANCIAL GROUP INC's 2023 10-K

490 paragraphs added · 502 removed · 405 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

54 edited+23 added−14 removed58 unchanged
Biggest changeNeon generated approximately 45% of the non U.S.-based direct written premiums in 2020. 2022 2021 2020 2022 2021 2020 California 12.7 % 13.0 % 13.3 % Iowa 2.7 % 2.4 % 1.9 % Florida 8.2 % 8.7 % 9.7 % Michigan 2.4 % 2.3 % 2.3 % Texas 7.0 % 6.6 % 6.9 % New Jersey 2.3 % 2.4 % 2.3 % Illinois 6.2 % 6.2 % 5.5 % Pennsylvania 2.2 % 2.5 % 2.6 % New York 5.9 % 6.8 % 6.8 % Ohio 2.2 % 2.2 % 2.2 % Georgia 3.2 % 3.3 % 3.5 % Nebraska 2.1 % 1.6 % 1.5 % Missouri 2.9 % 2.5 % 2.4 % North Carolina 2.0 % 2.0 % 2.1 % Kansas 2.9 % 2.6 % 2.2 % Other 32.4 % 32.3 % 32.7 % Indiana 2.7 % 2.6 % 2.1 % 100.0 % 100.0 % 100.0 % 2022 STATUTORY DIRECT WRITTEN PREMIUMS Reinsurance Consistent with standard practice of most insurance companies, AFG reinsures a portion of its property and casualty business with other insurance companies and assumes a relatively small amount of business from other insurers.
Biggest changeApproximately 2% of AFG’s direct written premiums in 2023 were derived from non U.S.-based insurers. 2023 2022 2021 2023 2022 2021 California 12.6 % 12.7 % 13.0 % New Jersey 2.5 % 2.3 % 2.4 % Florida 8.9 % 8.2 % 8.7 % Iowa 2.5 % 2.7 % 2.4 % Texas 7.5 % 7.0 % 6.6 % Michigan 2.3 % 2.4 % 2.3 % New York 5.8 % 5.9 % 6.8 % Pennsylvania 2.3 % 2.2 % 2.5 % Illinois 5.4 % 6.2 % 6.2 % North Carolina 2.2 % 2.0 % 2.0 % Georgia 3.4 % 3.2 % 3.3 % Ohio 2.1 % 2.2 % 2.2 % Missouri 2.8 % 2.9 % 2.5 % Other 34.6 % 34.5 % 33.9 % Indiana 2.6 % 2.7 % 2.6 % 100.0 % 100.0 % 100.0 % Kansas 2.5 % 2.9 % 2.6 % 2023 STATUTORY DIRECT WRITTEN PREMIUMS Reinsurance Consistent with standard practice of most insurance companies, AFG reinsures a portion of its property and casualty business with other insurance companies and assumes a relatively small amount of business from other insurers.
Property, Inland Marine and Ocean Marine Coverage primarily for commercial properties, builders’ risk, contractors’ equipment, property, motor truck cargo, marine cargo, boat dealers, marina operators/dealers and excursion vessels.
Property, Inland Marine and Ocean Marine Coverage primarily for commercial properties, builders’ risk, contractors’ equipment, property, motor truck cargo, marine cargo, boat dealers, marina operators and dealers and excursion vessels.
In addition, employees have access to professional investment and retirement planning advisors to help prepare for their financial future. AFG prioritizes workplace safety and is dedicated to minimizing employees’ risk of accident or injury. AFG’s obligations and procedures are outlined in our Workplace Safety and Security Policy along with our Safety and Accident Reporting Policy.
In addition, employees have access to professional investment and retirement planning advisors to help prepare for their financial future. Safety and Security AFG prioritizes workplace safety and is dedicated to minimizing employees’ risk of accident or injury. AFG’s obligations and procedures are outlined in our Workplace Safety and Security Policy along with our Safety and Accident Reporting Policy.
Recoverables from the following companies were individually between 5% and 13% of AFG’s total property and casualty reinsurance recoverable (including prepaid reinsurance premiums and net of payables to reinsurers) at December 31, 2022: Everest Reinsurance Company, Hannover Rueck SE, Munich Reinsurance America, Inc., Swiss Reinsurance America Corporation and Transatlantic Reinsurance Company.
Recoverables from the following companies were individually between 5% and 13% of AFG’s total property and casualty reinsurance recoverable (including prepaid reinsurance premiums and net of payables to reinsurers) at December 31, 2023: Everest Reinsurance Company, Hannover Rueck SE, Munich Reinsurance America, Inc., Swiss Reinsurance America Corporation and Transatlantic Reinsurance Company.
Although the cost of catastrophe reinsurance varies depending on exposure and the level of worldwide loss activity, AFG continues to obtain reinsurance coverage in adequate amounts at acceptable rates. In January 2023, AFG’s property and casualty insurance subsidiaries renewed their catastrophe reinsurance coverages.
Although the cost of catastrophe reinsurance varies depending on exposure and the level of worldwide loss activity, AFG continues to obtain reinsurance coverage in adequate amounts at acceptable rates. In January 2024, AFG’s property and casualty insurance subsidiaries renewed their catastrophe reinsurance coverages.
Statutory information is only prepared for AFG’s U.S.-based subsidiaries, which represented approximately 98% of AFG’s direct written premiums in 2022, and is provided for industry comparisons or where comparable GAAP information is not readily available.
Statutory information is only prepared for AFG’s U.S.-based subsidiaries, which represented approximately 98% of AFG’s direct written premiums in 2023, and is provided for industry comparisons or where comparable GAAP information is not readily available.
AFG’s net exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 500 years (a “500-year event”) is expected to be approximately 2% of AFG’s Shareholders’ Equity. 7 Tab l e of Contents Property and Casualty Insurance Products AFG is focused on growth opportunities in what it believes to be more profitable specialty businesses where AFG personnel are experts in particular lines of business or customer groups.
AFG’s net exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 500 years (a “500-year event”) is expected to be approximately 2% of AFG’s Shareholders’ Equity. 7 Table of Contents Property and Casualty Insurance Products AFG is focused on growth opportunities in what it believes to be more profitable specialty businesses where AFG personnel are experts in particular lines of business or customer groups.
(Information on AFG’s Internet site is not part of this Form 10-K.) See Note D — “Segments of Operations” to the financial statements for information on AFG’s assets, revenues and earnings before income taxes by segment. 2 Tab l e of Contents Building Long-Term Value for AFG Shareholders AFG allows each of its businesses the autonomy to make decisions related to underwriting, claims and policy servicing.
(Information on AFG’s Internet site is not part of this Form 10-K.) See Note D — “Segments of Operations” to the financial statements for information on AFG’s assets, revenues and earnings before income taxes by segment. 2 Table of Contents Building Long-Term Value for AFG Shareholders AFG allows each of its businesses the autonomy to make decisions related to underwriting, claims and policy servicing.
Being a responsible employer and contributing to communities’ economic sustainability includes making sure employees have the ability and access to achieve their financial goals. AFG maintains competitive and equitable pay by conducting regular market comparisons. AFG offers an employee stock purchase program, a retirement savings plan with matching employer contributions, and company-wide profit sharing programs.
Being a responsible employer and contributing to communities’ economic sustainability includes providing employees the opportunity to have the ability and access to achieve their financial goals. AFG maintains competitive and equitable pay by conducting regular market comparisons. AFG offers an employee stock purchase program, a retirement savings plan with employer matching contributions and company-wide profit sharing programs.
To date, the Insurance Data Security Model Law has been adopted by a number of states, including Ohio, where several of AFG’s insurance subsidiaries are domiciled. Certain states are developing or have developed regulations related to privacy and data security.
To date, the Insurance Data Security 16 Table of Contents Model Law has been adopted by a number of states, including Ohio, where several of AFG’s insurance subsidiaries are domiciled. Certain states are developing or have developed regulations related to privacy and data security.
At December 31, 2022, 97% (based on statutory carrying value of $10.08 billion) of AFG’s fixed maturity investments held by its insurance companies had a National Association of Insurance Commissioners (“NAIC”) designation of 1 or 2 (the highest of the six designations) based not only on the probability of loss but also on the severity of loss.
At December 31, 2023, 97% (based on statutory carrying value of $10.54 billion) of AFG’s fixed maturity investments held by its insurance companies had a National Association of Insurance Commissioners (“NAIC”) designation of 1 or 2 (the highest of the six designations) based not only on the probability of loss but also on the severity of loss.
Losses from these incidents are usually tracked separately from other business of insurers because of their sizable effects on overall operations. Total net losses to AFG’s insurance operations from current accident year catastrophes were $88 million in 2022, $86 million in 2021 and $128 million in 2020 and are included in the table above.
Losses from these incidents are usually tracked separately from other business of insurers because of their sizable effects on overall operations. Total net losses to AFG’s insurance operations from current accident year catastrophes were $162 million in 2023, $88 million in 2022 and $86 million in 2021 and are included in the table above.
Under applicable restrictions, the maximum amount of dividends available to AFG in 2023 from its insurance subsidiaries without seeking prior regulatory approval is approximately $887 million. Investment Regulation Investments must comply with applicable laws and regulations that prescribe the kind, quality and concentration of investments.
Under applicable restrictions, the maximum amount of dividends available to AFG in 2024 from its insurance subsidiaries without seeking prior regulatory approval is approximately $944 million. Investment Regulation Investments must comply with applicable laws and regulations that prescribe the kind, quality and concentration of investments.
In addition to traditional reinsurance, AFG has catastrophe coverage through a catastrophe bond structure with Riverfront Re Ltd., which provides coverage of up to 94% of $325 million for catastrophe losses in excess of $125 million through December 31, 2024.
In addition to traditional reinsurance, AFG has catastrophe coverage through a catastrophe bond structure with Riverfront Re Ltd., which provides coverage of up to 94% of $323 million for catastrophe losses in excess of $127 million through December 31, 2024.
While there is no directly comparable index to AFG’s portfolio, shown below is a widely used benchmark in the financial services industry. 2022 2021 2020 Total return on AFG’s fixed maturities (4.4 %) 1.9 % 4.0 % Barclays Capital U.S.
While there is no directly comparable index to AFG’s portfolio, shown below is a widely used benchmark in the financial services industry. 2023 2022 2021 Total return on AFG’s fixed maturities 7.2 % (4.4 %) 1.9 % Barclays Capital U.S.
These operations are conducted through the subsidiaries listed in the following table, which includes independent financial strength ratings and 2022 gross written premiums (in millions) for each major subsidiary. These ratings are generally based on concerns for policyholders and agents and are not directed toward the protection of investors.
AFG’s property and casualty insurance operations are conducted through the subsidiaries listed in the following table, which includes independent financial strength ratings and 2023 gross written premiums (in millions) for each major subsidiary. These ratings are generally based on concerns for policyholders and agents and are not directed toward the protection of investors.
Reinsurance premiums ceded and assumed are presented in the following table (in millions): 2022 2021 2020 Reinsurance ceded $ 2,851 $ 2,373 $ 2,074 Reinsurance ceded, excluding crop 1,768 1,665 1,483 Reinsurance assumed — including involuntary pools and associations 283 246 225 Loss and Loss Adjustment Expense Reserves The consolidated financial statements include the estimated liability for unpaid losses and LAE of AFG’s insurance subsidiaries.
Reinsurance premiums ceded and assumed are presented in the following table (in millions): 2023 2022 2021 Reinsurance ceded $ 2,964 $ 2,851 $ 2,373 Reinsurance ceded, excluding crop 1,878 1,768 1,665 Reinsurance assumed — including involuntary pools and associations 347 283 246 Loss and Loss Adjustment Expense Reserves The consolidated financial statements include the estimated liability for unpaid losses and LAE of AFG’s insurance subsidiaries.
Major differences for statutory accounting include charging policy acquisition costs to expense as incurred rather than spreading the costs over the periods covered by the policies; reporting investment grade bonds and redeemable preferred stocks at amortized cost rather than fair value; netting of reinsurance recoverables and prepaid reinsurance premiums against the corresponding liabilities rather than reporting such items separately; and charging to surplus certain GAAP assets, such as furniture and fixtures and agents’ balances over 90 days old. 5 Tab l e of Contents AFG’s statutory combined ratio averaged 91.3% for the period 2013 to 2022 as compared to 99.4% for the property and casualty commercial lines industry over the same period.
Major differences for statutory accounting include charging policy acquisition costs to expense as incurred rather than spreading the costs over the periods covered by the policies; reporting investment grade bonds and redeemable preferred stocks at amortized cost rather than fair value; netting of reinsurance recoverables and prepaid reinsurance premiums against the corresponding liabilities rather than reporting such items separately; and charging to surplus certain GAAP assets, such as furniture and fixtures and agents’ balances over 90 days old. 5 Table of Contents AFG’s statutory combined ratio averaged 90.9% for the period 2014 to 2023 as compared to 98.4% for the property and casualty commercial lines industry over the same period.
Likewise, AFG will withdraw from markets that do not meet its profit objectives or business strategy. 8 Tab l e of Contents 2022 SPECIALTY PROPERTY AND CASUALTY BY SUB-SEGMENT (*) Excludes underwriting profits and losses recorded outside of AFG’s Specialty property and casualty group.
Likewise, AFG will withdraw from markets that do not meet its profit objectives or business strategy. 8 Table of Contents 2023 SPECIALTY PROPERTY AND CASUALTY BY SUB-SEGMENT (*) Excludes underwriting profits and losses recorded outside of AFG’s Specialty property and casualty group.
For AFG’s U.S.-based operations, the Company placed $75 million of coverage in excess of a $50 million per event primary retention in the traditional reinsurance markets.
For AFG’s U.S.-based operations, the Company placed $55 million of coverage in excess of a $70 million per event primary retention in the traditional reinsurance markets.
AFG has foreign insurance company subsidiaries domiciled in the United Kingdom, Ireland, Mexico, Bermuda, and the Cayman Islands and branch operations in Canada and Singapore, all of which are subject to regulation by the insurance regulator of such jurisdiction. 16 Tab l e of Contents
AFG has foreign insurance company subsidiaries domiciled in the United Kingdom, Ireland, Mexico, Bermuda, and the Cayman Islands and branch operations in Canada and Singapore, all of which are subject to regulation by the insurance regulator of such jurisdiction. 17 Table of Contents
Universal Bond Index (13.0 %) (1.1 %) 7.6 % The following table shows AFG’s available for sale fixed maturity investments by Standard & Poor’s Corporation or comparable rating as of December 31, 2022 (dollars in millions).
Universal Bond Index 6.2 % (13.0 %) (1.1 %) 15 Table of Contents The following table shows AFG’s available for sale fixed maturity investments by Standard & Poor’s Corporation or comparable rating as of December 31, 2023 (dollars in millions).
The following table presents (by type of coverage) the amount of each loss above the specified retention covered by treaty reinsurance programs in AFG’s U.S.-based property and casualty insurance operations (in millions) as of January 1, 2023: Reinsurance Coverage AFG Primary Coverage AFG Participation (a) Maximum Retention Amount % $ Loss (b) U.S.-based operations: California Workers’ Compensation $ 2 $ 148 1 % $ 1 $ 3 Summit Workers’ Compensation 5 35 — % — 5 Other Workers’ Compensation 2 48 3 % 1 3 Commercial Umbrella 2 48 10 % 5 7 Property — General 10 40 21 % 8 18 Property — Catastrophe (c) 50 75 — % — 50 (a) Includes the participation of AFG’s internal reinsurance program.
The following table presents (by type of coverage) the amount of each loss above the specified retention covered by treaty reinsurance programs in AFG’s U.S.-based property and casualty insurance operations (in millions) as of January 1, 2024: Reinsurance Coverage AFG Maximum Loss (b) Primary Retention Coverage Amount AFG Participation (a) % $ U.S.-based operations: California Workers’ Compensation $ 2 $ 148 1 % $ 1 $ 3 Summit Workers’ Compensation 5 35 — % — 5 Other Workers’ Compensation 2 48 3 % 1 3 Commercial Umbrella 2 48 13 % 6 8 Property — General 10 40 3 % 1 11 Property — Catastrophe (c) 70 55 — % — 70 (a) Includes the participation of AFG’s internal reinsurance program.
A reconciliation of the liability for losses and LAE reported in the annual statements filed with the state insurance departments in accordance with statutory accounting principles (“SAP”) to the liability reported in the accompanying consolidated financial statements in accordance with GAAP at December 31, 2022 follows (in millions): Liability reported on a SAP basis, net of $110 million of retroactive reinsurance $ 7,829 Reinsurance recoverables, net of allowance 3,767 Other, including reserves of foreign insurers 378 Liability reported on a GAAP basis $ 11,974 Asbestos and Environmental-related (“A&E”) Insurance Reserves AFG’s property and casualty group, like many others in the industry, has A&E claims arising in most cases from general liability policies written more than thirty-five years ago.
A reconciliation of the liability for losses and LAE reported in the annual statements filed with the state insurance departments in accordance with statutory accounting principles (“SAP”) to the liability reported in the accompanying consolidated financial statements in accordance with GAAP at December 31, 2023 follows (in millions): Liability reported on a SAP basis, net of $101 million of retroactive reinsurance $ 8,412 Reinsurance recoverables, net of allowance 4,288 Other, including reserves of foreign insurers 387 Liability reported on a GAAP basis $ 13,087 Asbestos and Environmental-related (“A&E”) Insurance Reserves AFG’s property and casualty group, like many others in the industry, has A&E claims arising in most cases from general liability policies written more than thirty-five years ago.
These include tuition reimbursement programs, monetary incentives and extensive personal and professional learning opportunities. Professional development is one of many reasons why AFG believes average employee tenure exceeds industry averages. AFG provides a competitive benefits package that includes an extensive wellness program and paid time away from work for employees to maintain a healthy work-life balance.
Professional development is one of many reasons why AFG believes average employee tenure exceeds industry averages. Compensation and Benefits AFG provides a competitive benefits package that includes an extensive wellness program and paid time away from work for employees to maintain a healthy work-life balance.
(*) The sources of the commercial lines industry ratios are ©2023 Conning, Inc., as published in Conning’s Property-Casualty Forecast & Analysis by Line of Insurance 2022Q4 edition and ©2023 S&P Global Market Intelligence LLC for 2022 and ©2022 A.M. Best Company’s Review & Preview Reports for preceding years.
(*) The sources of the commercial lines industry ratios are ©2024 Conning, Inc., as published in Conning’s Property-Casualty Forecast & Analysis by Line of Insurance 2023Q4 edition and ©2023 A.M. Best Company’s Review & Preview Reports for preceding years.
Ratings Gross Written Premiums AM Best S&P Insurance Group Great American Insurance A+ A+ $ 6,957 National Interstate A+ not rated 1,034 Summit (Bridgefield Casualty and Bridgefield Employers) A+ A+ 549 Republic Indemnity A+ A+ 202 Mid-Continent Casualty A+ A+ 179 Other 136 $ 9,057 The primary objectives of AFG’s property and casualty insurance operations are to achieve solid underwriting profitability and provide excellent service to its policyholders and agents.
Ratings Gross Written Premiums AM Best S&P Insurance Group Great American Insurance A+ A+ $ 7,353 National Interstate A+ not rated 1,112 Summit (Bridgefield Casualty and Bridgefield Employers) A+ A+ 608 Republic Indemnity A+ A+ 218 Mid-Continent Casualty A+ A+ 190 Other 175 $ 9,656 The primary objectives of AFG’s property and casualty insurance operations are to achieve solid underwriting profitability and provide excellent service to its policyholders and agents.
The following table (in millions) is a progression of the property and casualty group’s A&E reserves. 2022 2021 2020 Reserves at beginning of year $ 408 $ 422 $ 383 Incurred losses and LAE — — 47 Paid losses and LAE (23) (14) (8) Reserves at end of year, net of reinsurance recoverable 385 408 422 Reinsurance recoverable, net of allowance 140 147 150 Gross reserves at end of year $ 525 $ 555 $ 572 12 Tab l e of Contents In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has periodically conducted comprehensive external studies of its asbestos and environmental reserves relating to the run-off operations of its property and casualty insurance segment and its exposures related to former railroad and manufacturing operations and sites with the aid of specialty actuarial, engineering and consulting firms and outside counsel, with an in-depth internal review during the intervening years.
The following table (in millions) is a progression of the property and casualty group’s A&E reserves. 2023 2022 2021 Reserves at beginning of year $ 385 $ 408 $ 422 Incurred losses and LAE — — — Paid losses and LAE (15) (23) (14) Reserves at end of year, net of reinsurance recoverable 370 385 408 Reinsurance recoverable, net of allowance 128 140 147 Gross reserves at end of year $ 498 $ 525 $ 555 In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has historically conducted periodic comprehensive external studies of its asbestos and environmental reserves relating to the run-off operations of its property and casualty insurance segment and its exposures related to former railroad and manufacturing operations and sites with the aid of specialty actuarial, engineering and consulting firms and outside counsel, with an in-depth internal review during all other years. 12 Table of Contents An in-depth internal review of AFG’s A&E reserves was completed in the third quarter of 2023 by AFG’s internal A&E claims specialists in consultation with specialty outside counsel.
See Note D — “Segments of Operations” to the financial statements for the reconciliation of AFG’s earnings before income taxes by significant business segment to the statement of earnings. 6 Tab l e of Contents The following table shows the performance of AFG’s property and casualty insurance operations (dollars in millions): 2022 2021 2020 Gross written premiums $ 9,057 $ 7,946 $ 7,087 Ceded reinsurance (2,851) (2,373) (2,074) Net written premiums $ 6,206 $ 5,573 $ 5,013 Net earned premiums $ 6,085 $ 5,404 $ 5,099 Loss and LAE 3,629 3,157 3,271 Underwriting expenses 1,680 1,514 1,604 Underwriting gain $ 776 $ 733 $ 224 GAAP ratios: Loss and LAE ratio 59.7 % 58.5 % 64.1 % Underwriting expense ratio 27.6 % 28.0 % 31.4 % Combined ratio 87.3 % 86.5 % 95.5 % Statutory ratios: Loss and LAE ratio 57.3 % 55.9 % 60.7 % Underwriting expense ratio 29.7 % 29.6 % 31.2 % Combined ratio 87.0 % 85.5 % 91.9 % Industry statutory combined ratio (*) All lines 107.4 % 101.8 % 98.8 % Commercial lines 102.3 % 99.8 % 99.9 % (*) The sources of the industry ratios are ©2023 Conning, Inc., as published in Conning’s Property-Casualty Forecast & Analysis by Line of Insurance 2022Q4 edition and ©2023 S&P Global Market Intelligence LLC for 2022 and ©2022 A.M.
See Note D — “Segments of Operations” to the financial statements for the reconciliation of AFG’s earnings before income taxes by significant business segment to the statement of earnings. 6 Table of Contents The following table shows the performance of AFG’s property and casualty insurance operations (dollars in millions): 2023 2022 2021 Gross written premiums $ 9,656 $ 9,057 $ 7,946 Ceded reinsurance (2,964) (2,851) (2,373) Net written premiums $ 6,692 $ 6,206 $ 5,573 Net earned premiums $ 6,531 $ 6,085 $ 5,404 Loss and LAE 4,017 3,629 3,157 Underwriting expenses 1,883 1,680 1,514 Underwriting gain $ 631 $ 776 $ 733 GAAP ratios: Loss and LAE ratio 61.6 % 59.7 % 58.5 % Underwriting expense ratio 28.8 % 27.6 % 28.0 % Combined ratio 90.4 % 87.3 % 86.5 % Statutory ratios: Loss and LAE ratio 60.3 % 57.3 % 55.9 % Underwriting expense ratio 30.2 % 29.7 % 29.6 % Combined ratio 90.5 % 87.0 % 85.5 % Industry statutory combined ratio (*) All lines 102.2 % 104.0 % 100.0 % Commercial lines 94.0 % 98.4 % 95.9 % (*) The sources of the industry ratios are ©2024 Conning, Inc., as published in Conning’s Property-Casualty Forecast & Analysis by Line of Insurance 2023Q4 edition and ©2023 A.M.
Individual risks are ceded and assumed based on an offer and acceptance of risk by each party to the transaction. AFG purchases facultative reinsurance, both pro rata and excess of loss, depending on the risk and available reinsurance markets. Treaty reinsurance provides for risks meeting prescribed criteria to be automatically ceded and assumed according to contract provisions.
AFG purchases facultative reinsurance, both pro rata and excess of loss, depending on the risk and available 10 Table of Contents reinsurance markets. Treaty reinsurance provides for risks meeting prescribed criteria to be automatically ceded and assumed according to contract provisions.
The following chart shows the allocation of AFG’s $14.51 billion investment portfolio at December 31, 2022: Investment Portfolio For additional information on AFG’s investments, see Note F — “Investments” to the financial statements and Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Investments. ” AFG’s earned yield (net investment income divided by average invested assets) on fixed maturities held by continuing operations was 3.5% for 2022, 3.0% for 2021 and 3.5% for 2020. 14 Tab l e of Contents The table below compares the total return, which includes changes in fair value, on AFG’s fixed maturities held by continuing operations to a comparable public index.
The following chart shows the allocation of AFG’s $15.26 billion investment portfolio at December 31, 2023: Investment Portfolio For additional information on AFG’s investments, see Note F — “Investments” to the financial statements and Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Investments. ” AFG’s earned yield (net investment income divided by average invested assets) on fixed maturities held by continuing operations was 4.7% for 2023, 3.5% for 2022 and 3.0% for 2021.
As in recent years, there were no new or emerging broad industry trends that were identified in this review. Marketing The property and casualty insurance group directs its sales efforts primarily through independent insurance agents and brokers, although small portions are written through employee agents. Independent agents and brokers generally receive a commission on the sale of each policy.
Marketing The property and casualty insurance group directs its sales efforts primarily through independent insurance agents and brokers, although small portions are written through employee agents. Independent agents and brokers generally receive a commission on the sale of each policy.
The decentralized approach allows each unit the autonomy necessary to respond to local and specialty market conditions while capitalizing on the efficiencies of centralized investment and administrative support functions. AFG’s property and casualty insurance operations had approximately 6,900 employees as of December 31, 2022.
The decentralized approach allows each unit the autonomy necessary to respond to local and specialty market conditions while capitalizing on the efficiencies of centralized investment and administrative support functions.
The 2022 internal review identified no new trends and recent claims activity was generally consistent with AFG’s expectations resulting from AFG’s in-depth internal review in 2021 and most recent external study in 2020.
The 2023 internal review identified no new trends and recent claims activity was generally consistent with AFG’s expectations resulting from AFG’s in-depth internal reviews in 2022 and 2021 and most recent external study in 2020. As a result, the 2023 review resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves.
AFG’s insureds with these exposures have been the driver of the property and casualty segment’s asbestos reserve increases in recent years.
Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of the property and casualty segment’s asbestos reserve increases in recent years.
Investment Portfolio AFG’s in-house team of investment professionals have followed a consistent strategy over many years and changing economic conditions. Management believes that AFG’s investment expertise has been the driver of strong investment results and effective portfolio risk management over many years.
Management believes that AFG’s investment expertise has been the driver of strong investment results and effective portfolio risk management over many years.
The members of the Great American Insurance Group have been in business for over 150 years. Management believes that over 50% of the 2022 gross written premiums in AFG’s Specialty property and casualty group are produced by “top 10” ranked businesses.
The members of the Great American Insurance Group have been in business for over 150 years. Management believes that approximately 55% of the 2023 gross written premiums in AFG’s Specialty property and casualty group are produced by “top 10” ranked businesses. AFG’s address is 301 East Fourth Street, Cincinnati, Ohio 45202; its phone number is (513) 579-2121.
Premium Distribution The following table shows the net written premiums by sub-segment for AFG’s property and casualty insurance operations for 2022, 2021 and 2020 (excluding the Neon business sold in 2020) (in millions): 2022 2021 2020 Property and transportation $ 2,515 $ 2,157 $ 1,887 Specialty casualty 2,728 2,540 2,304 Specialty financial 711 658 604 Other specialty (*) 252 218 197 $ 6,206 $ 5,573 $ 4,992 (*) Premiums assumed by AFG’s internal reinsurance program from the operations that make up AFG’s Specialty property and casualty insurance sub-segments.
Premium Distribution The following table shows the net written premiums by sub-segment for AFG’s property and casualty insurance operations for 2023, 2022 and 2021 (in millions): 2023 2022 2021 Property and transportation $ 2,551 $ 2,515 $ 2,157 Specialty casualty 2,944 2,728 2,540 Specialty financial 935 711 658 Other specialty (*) 262 252 218 $ 6,692 $ 6,206 $ 5,573 (*) Premiums assumed by AFG’s internal reinsurance program from the operations that make up AFG’s Specialty property and casualty insurance sub-segments. 9 Table of Contents The geographic distribution of statutory direct written premiums by AFG’s U.S.-based insurers for 2023, 2022 and 2021 is shown below.
AFG’s property and casualty operations recorded current accident year COVID-19 related losses of $16 million in 2021 and $115 million in 2020. AFG generally seeks to reduce its exposure to catastrophes through individual risk selection, including minimizing coastal and known fault-line exposures, and through the purchase of reinsurance.
AFG generally seeks to reduce its exposure to catastrophes through individual risk selection, including minimizing coastal and known fault-line exposures, and through the purchase of reinsurance.
This quota share provides for a ceding commission to AFG and a profit-sharing provision. During both 2022 and 2021, AFG reinsured 50% of premiums not reinsured by the FCIC in the private market and purchased stop loss protection coverage for the remaining portion of the business.
During both 2023 and 2022, AFG reinsured 50% 11 Table of Contents of its crop premiums not reinsured by the FCIC in the private market and purchased stop loss protection coverage for the remaining portion of the business. In 2024, AFG expects to continue to reinsure 50% of the premiums not reinsured by the FCIC in the private market.
This has been accomplished through organic growth, carefully selected acquisitions, start-ups and dispositions. 3 Tab l e of Contents Timeline of Selected Start-ups, Acquisitions and Dispositions 4 Tab l e of Contents Property and Casualty Insurance Segment General AFG’s property and casualty insurance operations provide a wide range of commercial coverages through approximately 35 insurance businesses (at December 31, 2022) that make up the Great American Insurance Group.
In May 2021, AFG completed the sale of its Annuity business to Massachusetts Mutual Life Insurance Company for $3.57 billion in cash. 3 Table of Contents Timeline of Selected Start-ups, Acquisitions and Dispositions 4 Table of Contents Property and Casualty Insurance Segment General AFG’s property and casualty insurance operations provide a wide range of commercial coverages through approximately 35 insurance businesses (at December 31, 2023) that make up the Great American Insurance Group.
These amounts are net of allowances of approximately $8 million for expected credit losses on reinsurance recoverables. The collectability of a reinsurance balance is based upon the financial condition of a reinsurer as well as individual claim considerations.
The collectability of a reinsurance balance is based upon the financial condition of a reinsurer as well as individual claim considerations.
AFG respects human rights, appreciates diversity and values the unique perspective each employee brings to the workplace. When employees feel actively engaged with AFG’s mission and strategy, they deliver higher levels of service to its customers and create stronger bottom-line results for its business.
AFG believes that when employees feel actively engaged with the Company’s mission and strategy, they deliver higher levels of service to its customers and create better results for its business.
See the Corporate Social Responsibility Report located on AFG’s website for more information regarding human capital programs and initiatives. None of the information provided on the website is incorporated into, or deemed to be a part of, this Annual Report on Form 10-K or in any other report or document we file with the SEC.
None of the information provided on the website is incorporated into, or deemed to be a part of, this Annual Report on Form 10-K or in any other report or document we file with the SEC. Investment Portfolio AFG’s in-house team of investment professionals have followed a consistent strategy over many years and changing economic conditions.
AFG can elect the desired retention of risk on a state-by-state, county, crop or plan basis according to the SRA. The SRA also includes an additional fixed percentage quota share cede. AFG typically reinsures 10% to 20% of gross written premiums with the FCIC. AFG also purchases quota share reinsurance in the private market.
In addition to the coverage shown above, AFG reinsures its multi-peril crop insurance (“MPCI”) business through the Federal Crop Insurance Corporation (“FCIC”) based on the Standard Reinsurance Agreement (“SRA”). AFG can elect the desired retention of risk on a state-by-state, county, crop or plan basis according to the SRA. The SRA also includes an additional fixed percentage quota share cede.
AFG is subject to credit risk with respect to its reinsurers, as the ceding of risk to reinsurers does not relieve AFG of its liability to its insureds until claims are fully settled. Reinsurance is provided on either a facultative or treaty basis. Facultative reinsurance is generally provided on a risk-by-risk basis.
The availability and cost of reinsurance are subject to prevailing market conditions, which may affect the volume and profitability of business that is written. AFG is subject to credit risk with respect to its reinsurers, as the ceding of risk to reinsurers does not relieve AFG of its liability to its insureds until claims are fully settled.
Amortized Fair Value Cost, net (*) Amount % S&P or comparable rating AAA, AA, A $ 8,026 $ 7,549 75 % BBB 1,880 1,740 17 % Total investment grade 9,906 9,289 92 % BB 228 219 2 % B 62 60 1 % CCC, CC, C 103 109 1 % D 7 8 — % Total non-investment grade 400 396 4 % Not rated 419 410 4 % Total $ 10,725 $ 10,095 100 % (*) Amortized cost, net of allowance for expected credit losses.
Amortized Cost, net (*) Fair Value Amount % S&P or comparable rating AAA, AA, A $ 7,806 $ 7,529 73 % BBB 2,300 2,225 21 % Total investment grade 10,106 9,754 94 % BB 211 207 2 % B 78 73 1 % CCC, CC, C 40 41 — % D 3 4 — % Total non-investment grade 332 325 3 % Not rated 302 298 3 % Total $ 10,740 $ 10,377 100 % (*) Amortized cost, net of allowance for expected credit losses.
The quarterly and annual financial reports filed with the state insurance departments utilize statutory accounting principles (“SAP”) that are different from U.S. GAAP.
The quarterly and annual financial reports filed with the state insurance departments utilize statutory accounting principles (“SAP”) that are different from U.S. GAAP. In developing SAP, insurance regulators were primarily concerned with monitoring the solvency of insurance companies to assure an insurer’s ability to pay all its current and future obligations to policyholders.
In developing SAP, insurance regulators were primarily concerned with monitoring the solvency of insurance companies to assure an insurer’s ability to pay all its current and future obligations to policyholders. 15 Tab l e of Contents Cybersecurity Regulations Numerous states have enacted new insurance laws that require certain regulated entities to implement and maintain comprehensive information security programs to safeguard the personal information of insureds.
Cybersecurity Regulations Numerous states have enacted new insurance laws that require certain regulated entities to implement and maintain comprehensive information security programs to safeguard the personal information of insureds.
AFG strives to attract diverse and exceptional people who can grow within AFG by fostering a workplace culture that inspires and rewards people and by developing a workforce that can meet the Company’s current and future goals. 13 Tab l e of Contents AFG offers training programs that encourage people to build careers in insurance and develop professional skills that positively impact employees’ careers as well as AFG’s customers and business.
AFG strives to attract diverse and exceptional people who can grow within AFG by fostering a workplace culture that inspires and rewards people and by developing a workforce that can help the Company meet its current and future goals.
Management believes that sophisticated data analysis for refinement of risk profiles, extensive specialized knowledge and loss prevention service have helped AFG compete successfully. Human Capital Resources AFG management values diversity and recognizes the benefits derived when people with different cultures, backgrounds and experiences work together to achieve business results.
Management believes that sophisticated data analysis for refinement of risk profiles, extensive specialized knowledge and loss prevention service have helped AFG compete successfully. Human Capital Resources Culture AFG’s principal cultural goal is for all employees to feel included, respected, safe and empowered to perform at their best.
(c) Although AFG’s maximum potential loss per event is generally $50 million, there are certain unlikely scenarios where AFG’s exposure could be as high as $82 million. 11 Tab l e of Contents In addition to the coverage shown above, AFG reinsures its crop insurance business through the Federal Crop Insurance Corporation (“FCIC”) based on the Standard Reinsurance Agreement (“SRA”).
(b) Maximum loss per event for claims up to reinsurance coverage limit. (c) Although AFG’s maximum potential loss per event is generally $70 million, there are certain unlikely scenarios where AFG’s exposure could be as high as $73 million.
As highlighted in the illustration below, over the past 20 plus years, AFG has sharpened its focus on the businesses that management knows best.
As highlighted in the illustration below, over the past 25 plus years, AFG has sharpened its focus on the businesses that management knows best. This has been accomplished through organic growth, carefully selected acquisitions, start-ups and dispositions. On July 3, 2023, AFG completed the acquisition of Crop Risk Services (“CRS”) from American International Group (“AIG”).
In 2023, AFG expects to continue to reinsure 50% of the premiums not reinsured by the FCIC in the private market. The balance sheet caption “Recoverables from reinsurers” included approximately $210 million on paid losses and LAE and $3.77 billion on unpaid losses and LAE at December 31, 2022.
The balance sheet caption “Recoverables from reinsurers” included approximately $189 million on paid losses and LAE and $4.29 billion on unpaid losses and LAE at December 31, 2023. These amounts are net of allowances of approximately $10 million for expected credit losses on reinsurance recoverables.
Removed
On May 28, 2021, AFG completed the sale of its Annuity business to Massachusetts Mutual Life Insurance Company (“MassMutual”) for $3.57 billion in cash. MassMutual acquired Great American Life Insurance Company (“GALIC”) and its two insurance subsidiaries, Annuity Investors Life Insurance Company (“AILIC”) and Manhattan National Life Insurance Company.
Added
CRS is a primary crop insurance general agent based in Decatur, Illinois, with crop year 2022 gross written premiums of approximately $1.2 billion and was the seventh largest provider of multi-peril crop insurance in the United States based on 2022 premiums.
Removed
In addition to AFG’s annuity operations, these subsidiaries included AFG’s run-off life and long-term care operations. AFG’s address is 301 East Fourth Street, Cincinnati, Ohio 45202; its phone number is (513) 579-2121.
Added
As a result of the acquisition, AFG will remain the fifth ranked writer of U.S. crop insurance and the largest U.S. owned participant in the United States multi-peril crop insurance program.
Removed
In addition to the premiums in the table above, the Neon exited lines had $21 million of net written premiums in 2020. 9 Tab l e of Contents The geographic distribution of statutory direct written premiums by AFG’s U.S.-based insurers for 2022, 2021 and 2020 is shown below.
Added
Reinsurance is provided on either a facultative or treaty basis. Facultative reinsurance is generally provided on a risk-by-risk basis. Individual risks are ceded and assumed based on an offer and acceptance of risk by each party to the transaction.
Removed
Approximately 2% of AFG’s direct written premiums in 2022 were derived from non U.S.-based insurers. In December 2019, AFG initiated actions to exit the Lloyd’s of London insurance market, which included placing its Lloyd’s subsidiaries, including its Lloyd’s Managing Agency, Neon Underwriting Ltd., into run-off.
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AFG typically reinsures 10% to 20% of MPCI gross written premiums with the FCIC. AFG also purchases quota share reinsurance on its crop business in the private market. This quota share provides for a ceding commission to AFG and a profit-sharing provision.
Removed
In December 2020, AFG completed the sale of the legal entities comprising Neon to RiverStone Holdings Limited.
Added
The Company helps employees succeed by cultivating specialized knowledge and offering professional education and leadership development in a service-oriented culture. AFG respects human rights, appreciates diversity and inclusion and values the unique perspective each employee brings to the workplace.
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The availability and cost of reinsurance are subject to prevailing market conditions, which may affect the volume and profitability of business 10 Tab l e of Contents that is written.
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Employees and Engagement As of December 31, 2023, the Company had approximately 8,500 employees, of which approximately 7,700 were employed at Great American Insurance Group, and approximately 49% of AFG’s workforce were women.
Removed
(b) Maximum loss per event for claims up to reinsurance coverage limit.
Added
AFG believes that its strong culture and values, along with the resources, competitive compensation and benefits, training and development and other opportunities afforded its employees, contribute meaningfully to what the Company views as positive retention and recruitment trends over the long-term. The Company’s voluntary turnover rate in 2023 was approximately 7.4%.
Removed
AFG is continuing to evaluate the frequency of future external studies. An in-depth internal review of AFG’s A&E reserves was completed in the third quarter of 2022 by AFG’s internal A&E claims specialists in consultation with specialty outside counsel and an outside consultant.
Added
The Company believes that its overall average employee tenure, which is nearly 10.5 years, and average tenure of over 18 years for the Company’s approximately 175 most senior leaders, evidences the Company’s relative success in growing careers.
Removed
As a result, and consistent with the internal review in 2021, the 2022 review resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves. Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures.
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To help inform management on employees’ views and perspectives on key matters, on a triennial basis, AFG has conducted, and now plans to conduct on a biennial basis, an employee engagement survey (“Employee Survey”).
Removed
As a result of the comprehensive external study of AFG’s A&E reserves completed in the third quarter of 2020, AFG’s property and casualty insurance segment recorded a $47 million pretax special charge to increase its asbestos reserves by $26 million (net of reinsurance) and its environmental reserves by $21 million (net of reinsurance).
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The Employee Survey enables each participant to provide anonymous feedback in response to questions on a broad scope of issues, including culture, engagement, development, diversity, empowerment and other issues that AFG believes are important measures of long-term employee satisfaction.
Removed
The increase was primarily associated with updated estimates of site investigation and remedial costs with respect to existing sites and newly identified sites. AFG has updated its view of legal defense costs on open environmental claims as well as a number of claims and sites where the estimated investigation and remediation costs have increased.
Added
With the benefit of this direct feedback, management can assess employees’ perspectives on salient issues, thereby informing management’s decisions on which practices should remain unchanged and which should be considered for potential enhancement or revision. AFG’s most recent Employee Survey was conducted in 2022. Employee participation was high, with 92% of the Company’s employees completing the survey.
Removed
AFG’s Diversity and Equal Employment Opportunity Policy reinforces AFG’s commitment to attracting, developing and retaining a diverse workforce, which management believes fosters creativity and propels ongoing success.
Added
Management was encouraged by this strong engagement and by what management viewed as positive overall results, which on the whole reaffirmed management’s belief that employees appreciate the Company’s culture and the 13 Table of Contents opportunities available to them and understand their link to AFG’s strategy and business.
Removed
AFG’s policy requires employment decisions to be made without regard to race, color, religion, creed, national origin, citizenship status, ancestry, age, physical or mental disability, gender, sex, marital status, pregnancy (or related condition), sexual orientation, gender identity, veteran status, genetic information or any other factors that are protected by applicable federal, state or local law.
Added
By way of example, some of the Employee Survey results included the following: • 94% of employees agreed that “the people in my work group are committed to delivering high-quality products and services”; • 95% of employees agreed that “I understand how my job contributes to the organization’s strategy and goals”; and • 92% of employees agreed that “I would recommend the organization as a good place to work”.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition, these investments may be illiquid due to contractual provisions, and AFG may be unable to obtain liquidity through distributions from these investments in a timely manner or on favorable terms. 20 Tab l e of Contents Alternative or “other” investments may not meet regulatory admissibility requirements or may result in increased regulatory capital charges to the insurance subsidiaries that hold these investments, which could limit those subsidiaries’ ability to pay dividends and negatively impact AFG’s liquidity.
Biggest changeAlternative or “other” investments may not meet regulatory admissibility requirements or may result in increased regulatory capital charges to the insurance subsidiaries that hold these investments, which could limit those subsidiaries’ ability to pay dividends and negatively impact AFG’s liquidity. AFG’s access to capital may be limited or may not be available on favorable terms.
Weather conditions, including too much moisture (flooding or excessive rain) or not enough moisture (droughts), and the level of crop prices in the commodities market heavily impact AFG’s crop insurance business. These factors are inherently unpredictable and could result in significant volatility in the results of the crop insurance business from one year to the next.
Weather conditions, including too much moisture (flooding or excessive rain), not enough moisture (droughts), and the level of crop prices in the commodities market heavily impact AFG’s crop insurance business. These factors are inherently unpredictable and could result in significant volatility in the results of the crop insurance business from one year to the next.
Any increase in the frequency or severity of catastrophic events may result in losses exceeding AFG’s reinsurance protection or may result in substantial volatility in or materially impact AFG’s results of operations or financial condition. Volatility in crop prices, as a result of weather conditions or other events, could adversely impact AFG’s results of operations.
In addition, any increase in the frequency or severity of catastrophic events may result in losses exceeding AFG’s reinsurance protection or may result in substantial volatility in or materially impact AFG’s results of operations or financial condition. Volatility in crop prices, as a result of weather conditions or other events, could adversely impact AFG’s results of operations.
AFG cannot predict or eliminate its exposure to events of war, terrorism, political unrest or geopolitical uncertainty, and to the extent that losses from such events occur, AFG’s financial condition and results of operations could be materially adversely affected. AFG’s international operations exposes it to investment, political and economic risks, including foreign currency and credit risk.
AFG cannot predict or eliminate its exposure to events of war, terrorism, political unrest or geopolitical uncertainty, and to the extent that losses from such events occur, AFG’s financial condition and results of operations could be materially adversely affected. AFG’s international operations expose it to investment, political and economic risks, including foreign currency and credit risk.
If AFG does not effectively develop, implement and monitor these relationships, third-party providers do not perform as anticipated, technological or other problems are incurred with a transition, or outsourcing relationships relevant to AFG’s business process functions are terminated, AFG may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business.
If AFG does not effectively develop, implement and monitor these relationships, third-party providers do not perform as anticipated, technological or other problems are incurred with a transition, or outsourcing relationships relevant to AFG’s business process functions are 22 Table of Contents terminated, AFG may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business.
AFG uses the modeled outputs and related analyses to assist in decision-making in areas such as underwriting, claims, reserving, reinsurance and catastrophe risk. The modeled outputs and related analyses are subject to various assumptions, uncertainties, model errors and the inherent limitations of any statistical analysis, including the use of historical internal and industry data.
AFG uses the modeled outputs and related analyses to assist in decision-making 20 Table of Contents in areas such as underwriting, claims, reserving, reinsurance and catastrophe risk. The modeled outputs and related analyses are subject to various assumptions, uncertainties, model errors and the inherent limitations of any statistical analysis, including the use of historical internal and industry data.
Any AMT incurred, under this provision, would be treated as a timing difference and generate a deferred tax asset which would be carried forward to offset regular tax liability in the future.
Any AMT incurred, under this provision, would be treated as a timing difference and generate a deferred tax asset that would be carried forward to offset regular tax liability in the future.
Any excise tax incurred on corporate stock repurchases will generally be recognized as part of the cost basis of the stock acquired and not reported as part of income tax expense. As additional guidance is provided, AFG will continue to evaluate the impact that the new law will have on AFG’s financial results in 2023 and beyond.
Any excise tax incurred on corporate stock repurchases will generally be recognized as part of the cost basis of the stock acquired and not reported as part of income tax expense. As additional guidance is provided, AFG will continue to evaluate the impact that the new law will have on AFG’s financial results.
RISKS RELATED TO TECHNOLOGY, DATA SECURITY AND PRIVACY AFG may experience difficulties with technology or data security, which could have an adverse effect on its business or reputation. AFG uses computer systems and services to store, retrieve, evaluate and utilize company and customer data and information.
RISKS RELATED TO TECHNOLOGY, DATA SECURITY AND PRIVACY AFG may experience difficulties with technology or data security, which could have an adverse effect on its business or reputation. AFG uses computer systems and services, which may include or utilize AI applications, to store, retrieve, evaluate and utilize company and customer data and information.
GENERAL RISK FACTORS Certain shareholders exercise substantial control over AFG’s affairs, which may impede a change of control transaction. Carl H. Lindner III and S. Craig Lindner are each Co-Chief Executive Officers and Directors of AFG. Together, Carl H. Lindner III and S. Craig Lindner beneficially own 11.7% of AFG’s outstanding Common Stock as of February 1, 2023.
GENERAL RISK FACTORS Certain shareholders exercise substantial control over AFG’s affairs, which may impede a change of control transaction. Carl H. Lindner III and S. Craig Lindner are each Co-Chief Executive Officers and Directors of AFG. Together, Carl H. Lindner III and S. Craig Lindner beneficially own 11.9% of AFG’s outstanding Common Stock as of February 1, 2024.
In addition, claims for catastrophic events, or an unusual frequency of smaller losses in a particular period, could expose AFG to large losses, cause substantial volatility in its results of operations and could have a material adverse effect on its ability to write new business if AFG is not able to adequately assess and reserve for the increased frequency and severity of catastrophes resulting from these environmental factors.
In addition, claims for catastrophic events, or an unusual frequency of smaller losses in a particular period, such as from lower severity convective storms, could expose AFG to large losses, cause substantial volatility in its results of operations and could have a material adverse effect on its ability to write new business if AFG is not able to adequately assess and reserve for the increased frequency and severity of catastrophes resulting from these environmental factors.
In addition, as industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claim and coverage may emerge.
In addition, as industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge.
AFG’s administrative and technical controls as well as other preventative actions used to reduce the risk of cyber incidents and protect AFG’s information may be insufficient to detect 21 Tab l e of Contents or prevent future unauthorized access, other physical and electronic break-ins, cyber-attacks or other security breaches to AFG’s computer systems or those of third parties with whom AFG does business.
AFG’s administrative and technical controls as well as other preventative actions used to reduce the risk of cyber incidents and protect AFG’s information may be insufficient to detect or prevent future unauthorized access, other physical and electronic break-ins, cyber-attacks or other security breaches to AFG’s computer systems or those of third parties with whom AFG does business.
Catastrophes can be caused by unpredictable natural events such as hurricanes, windstorms, severe storms, tornadoes, floods, hailstorms, earthquakes, explosions and fire, and by other events, such as terrorist attacks and civil unrest, as well as pandemics and other similar outbreaks in many parts of the world, including the outbreak of COVID-19.
Catastrophes can be caused by unpredictable natural events such as hurricanes, windstorms, severe storms, tornadoes, floods, hailstorms, earthquakes, explosions and fire, and by other events, such as terrorist attacks and civil unrest, as well as pandemics and other similar outbreaks in many parts of the world.
Investment returns are an important part of AFG’s profitability. AFG’s investments are subject to market-wide risks and fluctuations, including in the fixed maturity and equity securities markets, which could impair its profitability, financial condition and cash flows. AFG’s investment portfolio is highly concentrated in fixed maturity investments that are sensitive to changes in interest rates.
AFG’s investments are subject to market-wide risks and fluctuations, including in the fixed maturity and equity securities markets, which could impair its profitability, financial condition and cash flows. AFG’s investment portfolio is highly concentrated in fixed maturity investments that are sensitive to changes in interest rates.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. The effective date of these provisions is January 1, 2023.
For example, on August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. These provisions became effective January 1, 2023.
A reduction in the number of independent agencies marketing AFG’s products, the failure of agencies to successfully market AFG’s products, changes in the strategy or operations of agencies (including agency consolidation) or the choice of agencies to reduce their writings of AFG products could adversely affect AFG’s revenues and profitability.
A reduction in the number of independent agencies marketing AFG’s products, the failure of agencies to successfully market AFG’s products, changes in the strategy or operations of agencies (including agency consolidation), the inability of AFG to collect amounts owed by agencies or the choice of agencies to reduce their writings of AFG products could adversely affect AFG’s revenues and profitability.
These factors could produce results that would have a negative impact on AFG’s results of operations and financial condition. 17 Tab l e of Contents AFG’s success will depend on its ability to maintain and enhance effective operating procedures and manage risks on an enterprise-wide basis.
These factors could produce results that would have a negative impact on AFG’s results of operations and financial condition. 18 Table of Contents AFG’s success will depend on its ability to maintain and enhance effective operating procedures and manage risks on an enterprise-wide basis.
Well-capitalized new entrants to the property and casualty insurance industry, or existing competitors that receive substantial infusions of capital or access to third-party capital, provide increasing competition, which may adversely impact 18 Tab l e of Contents AFG’s business and profitability.
Well-capitalized new entrants to the property and casualty insurance industry, or existing competitors that receive substantial infusions of capital or access to third-party capital, provide increasing competition, which may adversely impact 19 Table of Contents AFG’s business and profitability.
These issues may adversely affect AFG’s business, including by extending coverage beyond underwriting intent or by increasing the number, size or types of claims as a result of, among other things, plaintiffs targeting property and casualty insurers in purported class action litigation relating to claims-handling and other practices; increased claims due to third party funding of litigation; and social inflation trends like more frequent claims and judgements that are unfavorable for insurers.
These issues may adversely affect AFG’s business, including by extending coverage beyond underwriting intent or by increasing the number, size or types of claims as a result of, among other things, plaintiffs targeting property and casualty insurers in purported class action litigation relating to claims-handling and other practices; increased claims due to third party funding of litigation; and social inflation and legal system abuse influencing trends like more frequent claims, judgments that are unfavorable for insurers and an increase in “nuclear verdicts” leading to higher jury awards.
If, based upon these models or other factors, AFG underestimates the frequency and/or severity of loss events or overestimates the risks it is exposed to, new business growth and retention of AFG’s existing business may be adversely affected which could have an adverse effect on AFG’s results of operations and financial condition. 19 Tab l e of Contents Exposure to asbestos or environmental claims could materially adversely affect AFG’s results of operations and financial condition.
If, based upon these models or other factors, AFG underestimates the frequency and/or severity of loss events or overestimates the risks it is exposed to, new business growth and retention of AFG’s existing business may be adversely affected which could have an adverse effect on AFG’s results of operations and financial condition.
AFG’s access to capital may be limited or may not be available on favorable terms. AFG’s future capital requirements depend on many factors, including rating agency and regulatory requirements, the performance of the investment portfolio, the ability to write new business successfully and the ability to establish premium rates and loss reserves at levels sufficient to cover losses.
AFG’s future capital requirements depend on many factors, including rating agency and regulatory requirements, the performance of the investment portfolio, the ability to write new business successfully and the ability to establish premium rates and loss reserves at levels sufficient to cover losses.
AFG and certain of its third-party vendors collect and store sensitive data in the ordinary course of AFG’s business, including personal identification information of its employees and that of its customers, vendors, investors and other third parties. In connection with AFG’s property and casualty insurance operations, data may include medical information.
AFG and certain of its third-party vendors collect and store sensitive data in the ordinary course of AFG’s business, including personal identification information of its employees and that of its customers, vendors, investors and other third parties and may include health information.
AFG is also subject to credit risk with respect to its reinsurers, as AFG will remain liable to its insureds regardless of whether a reinsurer is able to meet its obligations under agreements covering the reinsurance ceded. As of December 31, 2022, AFG has $3.98 billion of recoverables from reinsurers on its balance 22 Tab l e of Contents sheet.
AFG is also subject to credit risk with respect to its reinsurers, as AFG will remain liable to its insureds regardless of whether a reinsurer is able to meet its obligations under agreements covering the reinsurance ceded. As of December 31, 2023, AFG has $4.48 billion of recoverables from reinsurers on its balance sheet.
In addition, broad market and industry fluctuations may materially and adversely affect the trading price or volume of AFG Common Stock, regardless of AFG’s actual operating performances. 24 Tab l e of Contents
In addition, broad market and industry fluctuations may materially and adversely affect the trading price or volume of AFG Common Stock, regardless of AFG’s actual operating performance.
The process of estimating unpaid losses and LAE reserves involves a high degree of judgment and is subject to a number of variables.
The process of estimating unpaid losses and LAE reserves involves a high degree of judgment and is subject to numerous internal and external factors.
Other members of the Lindner family own, directly or through trusts, a significant number of additional shares of AFG Common Stock. As a result, the Lindner family has the ability to exercise significant influence over AFG’s management and over matters requiring shareholder approval. Such influence could prevent an acquisition of AFG at a price which other shareholders may find attractive.
Other members of the Lindner family own, directly or through trusts, a significant number of additional shares of AFG Common Stock. As a result, the Lindner family has the ability to exercise significant influence over AFG’s management and over matters requiring shareholder approval.
Any changes in federal income tax laws, including changes to the TCJA or IRA, could adversely affect the federal income taxation of AFG’s ongoing operations and have a material adverse impact on its financial condition and results of operations. New accounting rules or changes to existing accounting standards could adversely impact AFG’s reported results of operations.
Any changes in federal income tax laws, including changes to the IRA or the Tax Cuts and Jobs Act of 2017, could adversely affect the federal income taxation of AFG’s ongoing operations and have a material adverse impact on its financial condition and results of operations.
Further, technology companies or other third parties have created, and may in the future create, technology-enabled business models, processes, platforms or alternate distribution channels that may adversely impact AFG’s competitive position in some parts of its business.
Further, technology companies or other third parties have created, and may in the future create, technology-enabled business models, processes, platforms or alternate distribution channels that may adversely impact AFG’s competitive position in some parts of its business. AFG may utilize artificial intelligence and machine learning (“AI”) in its business or incorporate AI into its products and services.
As a U.S.-based SEC registrant, AFG prepares its financial statements in accordance with GAAP, as promulgated by the Financial Accounting Standards Board, subject to the accounting-related rules and interpretations of the SEC.
New accounting rules or changes to existing accounting standards could adversely impact AFG’s reported results of operations. As a U.S.-based SEC registrant, AFG prepares its financial statements in accordance with GAAP, as promulgated by the Financial Accounting Standards Board, subject to the accounting-related rules and interpretations of the SEC.
The results of operations of companies in the property and casualty insurance industry historically have been subject to fluctuations and uncertainties from many factors including competitive pressures, rising loss costs and changes in the level of reinsurance capacity, among others. Such factors often cause cyclical changes in the insurance industry with effects that are not uniform among product lines.
The results of operations of companies in the property and casualty insurance industry historically have been subject to fluctuations and uncertainties from many factors including competitive pressures, rising loss costs and changes in the level of reinsurance pricing and capacity, among others.
Limited availability of credit, deteriorations of the global mortgage and real estate markets, declines in consumer confidence and consumer spending, increases in prices or in the rate of inflation, periods of high unemployment, persistently low or rapidly increasing interest rates, disruptive geopolitical events and other events outside of AFG’s control, such as a major epidemic or a continuation or worsening of the COVID-19 pandemic or another pandemic, could contribute to increased volatility and diminished expectations for the economy and the financial markets, including the value of AFG’s investment portfolio and the market for its stock.
Limited availability of credit, deteriorations of the domestic or global equity, debt, mortgage and real estate markets; declines in consumer confidence and consumer spending; increases in prices or in the rate of inflation; periods of high unemployment; persistently low or rapidly increasing interest rates; disruptive geopolitical events and other events outside of AFG’s control, such as a major epidemic or another pandemic (including a renewed surge of COVID-19 or any variants of the virus), could contribute to increased volatility and diminished expectations for the economy and the financial markets, including the value of AFG’s investment portfolio and the market for its stock. 21 Table of Contents AFG’s alternative investments may be illiquid and volatile in terms of value and returns, which could negatively affect AFG’s investment income and liquidity.
AFG’s alternative investments may be illiquid and volatile in terms of value and returns, which could negatively affect AFG’s investment income and liquidity. AFG has invested, and intends to continue to invest in, alternative investments, such as limited partnerships and subordinate tranches of collateralized loan obligations for which changes in value are reported in net earnings.
AFG has invested, and intends to continue to invest in, alternative investments, such as limited partnerships and subordinate tranches of collateralized loan obligations for which changes in value are reported in net earnings.
In addition to the financial strength ratings of AFG’s principal insurance company subsidiaries, various rating agencies also publish credit ratings for AFG. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner, are part of AFG’s overall financial profile and affect AFG’s ability to access certain types of capital.
Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner, are part of AFG’s overall financial profile and affect AFG’s ability to access and the associated cost of certain types of capital.
Litigation by nature is unpredictable, and the outcome of any case is uncertain and could result in liabilities that vary from the amounts AFG has currently recorded.
AFG is involved in routine legal proceedings incidental to its insurance operations and litigation related to asbestos and environmental claims from its historical operations. Litigation by nature is unpredictable, and the outcome of any case is uncertain and could result in liabilities that vary from the amounts AFG has currently recorded.
If competition limits AFG’s ability to write new or renewal business at adequate rates, its results of operations will be adversely affected. AFG’s revenues could be adversely affected if it is not able to attract and retain independent agents. AFG’s reliance on the independent agency market makes it vulnerable to a reduction in the amount of business written by agents.
AFG’s revenues could be adversely affected if it is not able to attract and retain independent agents. AFG’s reliance on the independent agency market makes it vulnerable to a reduction in the amount of business written by agents. Many of AFG’s competitors also rely significantly on the independent agency market.
If AFG has not established adequate reserves to cover future claims, AFG’s results of operations and financial condition could be materially adversely affected. RISKS RELATING TO ECONOMIC, POLITICAL AND GLOBAL MARKET CONDITIONS AFG’s investment portfolio is subject to market risk, including changes in interest rates, which could have a material adverse effect on AFG’s results of operations and financial condition.
RISKS RELATING TO ECONOMIC, POLITICAL AND GLOBAL MARKET CONDITIONS AFG’s investment portfolio is subject to market risk, including changes in interest rates, which could have a material adverse effect on AFG’s results of operations and financial condition. Investment returns are an important part of AFG’s profitability.
The extent of gross losses for AFG’s insurance operations from a catastrophe event is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event, potentially mitigated by any reinsurance coverage purchased by AFG’s insurance subsidiaries.
The extent of gross losses for AFG’s insurance operations from a catastrophe event is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. In addition, certain catastrophes could result in both property and non-property claims from the same event.
Environmental, Social, and Governance standards (“ESG”) and sustainability have become major topics that encompass a wide range of issues, including climate change and other environmental risks. AFG is subject to complex and changing laws, regulation and public policy debates relating to climate change which are difficult to predict and quantify and may have an adverse impact on its business.
AFG is subject to complex and changing laws, regulation and public policy debates relating to climate change which are difficult to predict and quantify and may have an adverse impact on its business.
State insurance laws differ from state to state but, absent advance regulatory 23 Tab l e of Contents approval, restrict the maximum amount of dividends that may be paid by an insurer to its shareholders in any twelve-month period.
As a holding company without significant operations of its own, AFG’s principal sources of funds are dividends and other distributions from its insurance company subsidiaries. State insurance laws differ from state to state but may, absent advance regulatory approval, restrict the maximum amount of dividends that may be paid by an insurer to its shareholders in any twelve-month period.
The collectability of recoverables from reinsurers is subject to uncertainty arising from a number of factors, including a reinsurers’ financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract and changes in market conditions.
The collectability of recoverables from reinsurers is subject to uncertainty arising from a number of factors, including a reinsurers’ financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract and changes in market conditions. 23 Table of Contents REGULATORY AND LEGAL RISKS AFG may suffer losses from litigation, including from effects of emerging claim and coverage issues which could materially and adversely affect AFG’s financial condition and business operations.
The demand for property and casualty insurance, both admitted and excess and surplus lines, can vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases, causing AFG’s revenues to fluctuate. As a result, AFG’s premium levels and expense ratio could be materially adversely impacted.
Such factors often cause cyclical changes in the insurance industry with effects that are not uniform among product lines. The demand for property and casualty insurance, both admitted and excess and surplus lines, can vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases, causing AFG’s revenues to fluctuate.
While AFG can borrow up to $500 million under its revolving credit facility, AFG’s access to funds through this facility is dependent on the ability of its banks to meet their funding commitments. There were no borrowings outstanding under AFG’s bank credit line or any other parent company short-term borrowing arrangements during 2022.
While AFG can borrow up to $450 million under its revolving credit facility (“2023 Credit Facility”), AFG’s access to funds through the 2023 Credit Facility is dependent on the ability of its banks to meet their funding commitments.
During periods in which price competition is high, AFG may lose business to competitors offering competitive insurance products at lower prices. Some of AFG’s competitors have more capital and greater resources than AFG and may offer a broader range of products and lower prices than AFG offers.
During periods in which price competition is high or industry underwriting standards have loosened or degraded, AFG may lose business to competitors offering competitive insurance products at lower prices or more favorable terms.
As a result, A&E liabilities are subject to revision as new information becomes available and as claims are made and develop. Claimants continue to assert new and novel theories of recovery, and from time to time, there is proposed state and federal legislation regarding A&E liability, which would also affect AFG’s exposure.
Claimants continue to assert new and novel theories of recovery and expand the right to sue, judicial interpretations continue to evolve, and from time to time, there is proposed state and federal legislation regarding mass tort claim liability, which would also affect AFG’s exposure.
In addition, certain catastrophes could result in both property and non-property claims from the same event. A severe catastrophe or a series of catastrophes could result in losses exceeding AFG’s reinsurance protection and may have a material adverse impact on its results of operations or financial condition.
Reinsurance is subject to the adequacy and counterparty reinsurance risks described below under “The inability to obtain reinsurance or to collect on ceded reinsurance could adversely affect AFG’s results of operations.” A severe catastrophe or a series of catastrophes could result in losses exceeding AFG’s reinsurance protection and may have a material adverse impact on its results of operations or financial condition.
If AFG cannot obtain adequate capital or sources of credit on favorable terms, or at all, its business, operating results and financial condition could be adversely affected. The modification or elimination of the London Inter-Bank Offered Rate may adversely affect AFG’s results of operations.
There were no borrowings outstanding under the 2023 Credit Facility (or its prior bank credit line) or any other parent company short-term borrowing arrangements during 2023. If AFG cannot obtain adequate capital or sources of credit on favorable terms, or at all, its business, operating results and financial condition could be adversely affected.
These variables can be affected by both internal and external events, such as: changes in claims handling procedures, adverse changes in loss cost trends (including inflationary pressures on medical costs), economic conditions (including general inflation), legal trends and legislative changes, and varying judgments and viewpoints of the individuals involved in the estimation process, among others.
Variability is introduced by changes in claims handling procedures, the impact of general and wage inflation on loss cost trends, increasing litigation and erosion of causation and coverage defenses for insurance claims, legislative actions, evolving mass tort issues and varying judgments and viewpoints of the individuals involved in the estimation process, among others.
Legislative or regulatory requirements imposed by or promulgated in connection with the Dodd-Frank Act may impact AFG in many ways, including, but not limited to: placing AFG at a competitive disadvantage relative to its competition or other financial services entities; changing the competitive landscape of the financial services sector or the insurance industry; making it more expensive for AFG to conduct its business; and otherwise having a material adverse effect on the overall business climate as well as AFG’s financial condition and results of operations.
The potential impact on AFG remains unclear, but the implementation of any federal insurance regulations that constrain AFG’s business opportunities or reduce investment flexibility could change the competitive landscape of the financial services sector or the insurance industry, make it more expensive for AFG to conduct its business and otherwise have a material adverse effect on AFG’s financial condition and results of operations.
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Many of AFG’s competitors also rely significantly on the independent agency market. Some of AFG’s competitors offer a wider variety of products or higher commissions.
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AFG purchases catastrophe reinsurance as protection against catastrophe losses.
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AFG has asbestos and environmental (“A&E”) exposures arising from its insurance operations and former railroad and manufacturing operations. Uncertainties surrounding the final resolution of these A&E liabilities continue, and it is difficult to estimate AFG’s ultimate exposure to such liabilities and related litigation.
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As a result, AFG’s premium levels, renewal rates, expense ratio and other items could be materially adversely impacted.
Removed
The modification or elimination of the London Inter-Bank Offered Rate (“LIBOR”), a long-standing benchmark interest rate for floating-rate financial contracts, may adversely affect the interest rates on and fair value of AFG’s floating rate investments and any other assets or liabilities whose value is tied to LIBOR.
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The AI used by AFG may not operate properly or as expected, which could cause AFG to write policies it may not have otherwise written, misprice policies, assume greater risks, or overpay customer claims, among other potential negative impacts on its business and operations.
Removed
In addition, the majority of the assets and liabilities of the collateralized loan obligations that AFG manages and consolidates are tied to LIBOR. Following a series of announcements, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR for most U.S.
Added
AFG’s existing competitors, new entrants, technology companies or other third parties may leverage AI to the benefit of their business or operations or may incorporate AI into their products and services more quickly or successfully than AFG, which could make AFG less competitive and negatively impact its results of operations.
Removed
Dollar-based tenors after June 30, 2023. It remains unclear if, how and in what form, LIBOR will continue to exist after June 30, 2023. Proposals for alternative reference rates for dollars and other currencies have been announced and contractual provisions relating to alternative rates following the cessation of LIBOR are actively being included in documentation.
Added
In addition, if the content, analyses, output or recommendations produced by or with the assistance of AI are unintentionally, or are alleged to be, deficient, inaccurate or misleading, AFG’s business, financial condition and results of operation may be adversely impacted.
Removed
The Alternative Reference Rate Committee (“ARRC”), an ad hoc committee which included representatives from regulatory agencies and industry participants, has endorsed the use of the secured overnight financing rate (“SOFR”) as a replacement for LIBOR and has published recommendations on how to implement the change in reference rate.
Added
Some of AFG’s competitors have more capital and greater resources than AFG and may offer a broader range of products, lower prices or better terms than AFG offers. If competition limits AFG’s ability to write new or renewal business at adequate rates, its results of operations will be adversely affected.
Removed
In addition, term SOFR for one, three, six and twelve month periods is now being published. In addition, the State of New York has also enacted legislation which would provide for an alternative rate to LIBOR for contracts which do not include provisions relating to LIBOR cessation.
Added
Some of AFG’s competitors offer a wider variety of products or higher commissions. AFG also faces credit risk with respect to its independent agents, as they may not pay all the premiums owed to AFG and it may be difficult or impossible to recover such amounts.
Removed
Even with these changed, adoption of replacement rates has not been uniform and questions around liquidity in these alternative reference rates and how to appropriately adjust these alternative reference rates to eliminate any economic value transfer at the time of transition persist.
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AFG may also utilize AI to assist with modeled outputs and related analyses, the results of which may be unintentionally deficient, inaccurate or misleading.
Removed
In certain cases, it is also difficult to amend existing contracts to include LIBOR replacement provisions and there are no assurances that a legislative solution will be enforceable. At this time, AFG cannot predict the overall effect of the modification or elimination of LIBOR or the establishment of alternative benchmark rates.
Added
Exposure to mass tort claims could materially adversely affect AFG’s results of operations and financial condition.
Removed
REGULATORY AND LEGAL RISKS AFG may suffer losses from litigation, including from effects of emerging claim and coverage issues which could materially and adversely affect AFG’s financial condition and business operations. AFG is involved in routine legal proceedings incidental to its insurance operations and litigation related to asbestos and environmental claims from its historical operations.
Added
AFG has current exposures and may in the future have additional exposures arising from its insurance operations and former railroad and manufacturing operations, including those relating to asbestos and environmental matters (“A&E”), as well as other potentially harmful products or substances, such as per- and polyfluoroalkyl substances (“PFAS”), talc and opioids, or cumulative trauma (e.g. concussion/abuse).
Removed
The Dodd-Frank Act, enacted in June 2010, mandates changes to the regulation of the financial services industry.
Added
As a result, A&E liabilities are subject to revision as new information becomes available and as claims are made and develop.
Removed
As a holding company without significant operations of its own, AFG’s principal sources of funds are dividends and other distributions from its insurance company subsidiaries.
Added
In addition, third party funding of litigation has continued to grow, which may increase the number of claims and result in higher jury awards. If AFG has not established adequate reserves to cover future claims, AFG’s results of operations and financial condition could be materially adversely affected.
Removed
For example, on December 22, 2017, the U.S. enacted The Tax Cuts and Jobs Act of 2017 (“TCJA”), which significantly reformed the U.S. tax code. Amendments or clarifications of the TCJA from additional regulatory and administrative guidance, may occur.
Added
In addition, these investments may be illiquid due to contractual provisions, and AFG may be unable to obtain liquidity through distributions from these investments in a timely manner or on favorable terms.
Removed
AFG cannot predict if, when or in what form regulations or guidance may be provided or whether such guidance will have a retroactive effect.
Added
The use of AI by AFG or its business partners may also result in potential breaches of existing or future laws or regulations related to privacy or data security.
Added
In addition to the financial strength ratings of AFG’s principal insurance company subsidiaries, various rating agencies also publish credit ratings for AFG.
Added
In addition, potential exposure to losses related to PFAS, whether through AFG’s insurance operations or its former railroad and manufacturing operations, are inherently difficult to forecast or estimate, as many factors could influence potential liability for any such losses.
Added
These factors may include developments in PFAS-related litigation, including the establishment or expansion of theories of causation and liability; new or enhanced rules, regulations and enforcement actions by the U.S. federal government and its agencies, including the Environmental Protection Agency, as well as state governments and agencies; and medical or research findings pertaining to actual or potential harm or illness to human health resulting from PFAS.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAFG and its affiliates occupy approximately half of the aggregate 645,000 square feet of commercial and office space in these buildings.
Biggest changeAFG and its affiliates occupy approximately half of the aggregate 640,000 square feet of commercial and office space in these buildings.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAFG’s insurance company subsidiaries and its 100%-owned subsidiary, American Premier Underwriters, Inc (including its subsidiaries, “American Premier”), are parties to litigation and receive claims alleging injuries and damages from asbestos, environmental and other substances and workplace hazards and have established loss accruals for such potential liabilities.
Biggest change(including its subsidiaries, “American Premier”), are parties to litigation and receive claims alleging injuries and damages from asbestos, environmental and other substances and workplace hazards and have established loss accruals for such potential liabilities.
Such estimates are based on information currently available to American Premier and are subject to future change as additional information becomes available. 25 Tab l e of Contents PART II
Such estimates are based on information currently available to American Premier and are subject to future change as additional information becomes available.
Except for the following, management believes that none of the litigation meets the threshold for disclosure under this Item.
Except for the following, management believes that none of the litigation meets the threshold for disclosure under this Item. AFG’s insurance company subsidiaries and its 100%-owned subsidiary, American Premier Underwriters, Inc.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities AFG repurchased shares of its Common Stock during 2022 as follows: Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (b) First quarter 35,201 $ 131.05 35,201 7,655,721 Second quarter — — — 7,655,721 Third quarter 45,500 123.02 45,500 7,610,221 Fourth quarter: October 8,667 $ 123.54 8,667 7,601,554 November — — — 7,601,554 December — — — 7,601,554 Total 89,368 $ 126.23 (a) 89,368 (a) AFG declared special dividends totaling $12.00 per share of its Common Stock in 2022.
Biggest changeIssuer Purchases of Equity Securities AFG repurchased shares of its Common Stock during 2023 as follows: Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (b) First quarter 199,762 $ 119.01 199,762 7,401,792 Second quarter 374,958 115.17 374,958 7,026,834 Third quarter 755,111 112.28 755,111 6,271,723 Fourth quarter: October 361,946 110.49 361,946 5,909,777 November 170,100 109.37 170,100 5,739,677 December 10,667 115.25 10,667 5,729,010 Total 1,872,544 $ 112.98 (a) 1,872,544 (a) AFG declared special dividends totaling $5.50 per share of its Common Stock in 2023.
The graph assumes that an initial investment of $100 was made on December 31, 2017 and all dividends were reinvested. The stock price performance presented below is not intended to be indicative of future price performance.
The graph assumes that an initial investment of $100 was made on December 31, 2018 and all dividends were reinvested. The stock price performance presented below is not intended to be indicative of future price performance.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AFG Common Stock is listed and traded on the New York Stock Exchange under the symbol AFG. There were approximately 4,600 shareholders of record of AFG Common Stock at February 1, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AFG Common Stock is listed and traded on the New York Stock Exchange under the symbol AFG. There were approximately 4,400 shareholders of record of AFG Common Stock at February 1, 2024.
(b) The S&P 500 Property & Casualty Insurance Index included the following companies at December 31, 2022 (weighted by market capitalization): The Allstate Corporation, Arch Capital Group Ltd., Chubb Limited, Cincinnati Financial Corporation, Loews Corporation, The Progressive Corporation, The Travelers Companies, Inc. and W.R. Berkley Corporation. 27 Tab l e of Contents
(b) The S&P 500 Property & Casualty Insurance Index included the following companies at December 31, 2023 (weighted by market capitalization): The Allstate Corporation, Arch Capital Group Ltd., Chubb Limited, Cincinnati Financial Corporation, The Hartford Financial Services Group, Inc., Loews Corporation, The Progressive Corporation, The Travelers Companies, Inc. and W.R. Berkley Corporation.
As of December 31, 2017 2018 2019 2020 2021 2022 AFG $ 100 $ 87 $ 110 $ 93 $ 180 $ 200 S&P 500 Index 100 96 126 149 191 157 S&P 500 P&C Index (b) 100 95 120 128 150 178 (a) Cumulative total shareholder return measures the performance of a company’s stock (or an index) over time and is calculated as the change in the stock price plus cumulative dividends (assuming dividends are reinvested) over a specific period of time divided by the stock price at the beginning of the time period.
As of December 31, 2018 2019 2020 2021 2022 2023 AFG $ 100 $ 127 $ 107 $ 207 $ 230 $ 213 S&P 500 Index 100 131 156 200 164 207 S&P 500 P&C Index (b) 100 126 134 157 187 207 (a) Cumulative total shareholder return measures the performance of a company’s stock (or an index) over time and is calculated as the change in the stock price plus cumulative dividends (assuming dividends are reinvested) over a specific period of time divided by the stock price at the beginning of the time period.
Adjusted for the special dividends, the average price paid per share was $120.29 for 2022. (b) Represents the remaining shares that may be repurchased until December 31, 2025 under the Plans authorized by AFG’s Board of Directors in October 2020 and May 2021.
(b) Represents the remaining shares that may be repurchased until December 31, 2025 under the Plans authorized by AFG’s Board of Directors in October 2020 and May 2021.
AFG acquired 57,195 shares of its Common Stock (at an average of $136.94 per share) in the first nine months of 2022, 64 shares (at $139.38 per share) in November 2022 and 161 shares (at an average of $140.20 per share) in December 2022 in connection with its stock incentive plans. 26 Tab l e of Contents Stock Performance Graph The following graph compares the performance of AFG Common Stock during the five year period from December 31, 2017 through December 31, 2022 with the performance of (i) the S&P 500 Composite Stock Index (“S&P 500 Index”) and (ii) the S&P 500 Property & Casualty Insurance Index.
AFG acquired 56,629 shares of its Common Stock (at an average of $131.98 per share) in the first nine months of 2023, 7,363 shares (at an average of $112.70 per share) in October 2023 and 68 shares (at $109.84 per share) in November 2023 in connection with its stock incentive plans. 29 Table of Contents Stock Performance Graph The following graph compares the performance of AFG Common Stock during the five year period from December 31, 2018 through December 31, 2023 with the performance of (i) the S&P 500 Composite Stock Index (“S&P 500 Index”) and (ii) the S&P 500 Property & Casualty Insurance Index.
Added
Adjusted for the special dividends, the average price paid per share was $111.56 for 2023. In addition, at December 31, 2023, AFG has a $2 million payable related to the excise tax on share repurchases that was enacted January 1, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table details the principal amount of AFG’s long-term debt balances as of December 31, 2022, December 31, 2021 and December 31, 2020 (dollars in millions): December 31, 2022 2021 2020 Direct obligations of AFG: 4.50% Senior Notes due June 2047 $ 582 $ 590 $ 590 3.50% Senior Notes due August 2026 — 425 425 5.25% Senior Notes due April 2030 261 300 300 5.125% Subordinated Debentures due December 2059 200 200 200 4.50% Subordinated Debentures due September 2060 200 200 200 5.625% Subordinated Debentures due June 2060 150 150 150 5.875% Subordinated Debentures due March 2059 125 125 125 Other 3 3 3 Total principal amount of Holding Company Debt $ 1,521 $ 1,993 $ 1,993 Weighted Average Interest Rate 4.9 % 4.6 % 4.6 % The decrease in interest expense in 2022 compared to 2021 and the increase in interest expense in 2021 compared to 2020 reflect the following financial transactions completed by AFG between January 1, 2020 and December 31, 2022: • Issued $300 million of 5.25% Senior Notes in April 2020 • Issued $150 million of 5.625% Subordinated Debentures in May 2020 • Issued $200 million of 4.50% Subordinated Debentures in September 2020 • Redeemed $150 million of 6% Subordinated Debentures in November 2020 • Redeemed $425 million of 3.50% Senior Notes in the first and second quarters of 2022 • Retired $8 million of 4.50% Senior Notes in the third and fourth quarters of 2022 • Retired $39 million of 5.25% Senior Notes in the third and fourth quarters of 2022 Holding Company and Other — Special A&E Charges As a result of the in-depth internal reviews and comprehensive external study of A&E exposures discussed under “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves,” AFG’s holding companies and other 78 Table of Contents operations outside of its property and casualty insurance segment recorded minor charges in 2022 and 2021, which are included in AFG’s core operating earnings, compared to a pretax non-core special charge of $21 million in 2020 to increase liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations.
Biggest changeHolding Company and Other — Special A&E Charge As a result of the in-depth internal reviews of A&E exposures discussed under “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves,” AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded a pretax non-core special charge of $15 million in 2023 and minor charges in 2022 and 2021 (included in AFG’s core operating earnings) to increase liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations.
Net annuity receipts exceeded annuity surrenders, benefits, withdrawals and transfers by $477 million in 2021 through the May 31, 2021 effective date of the sale, resulting in a $477 million decrease in net cash used by financing activities in 2022 compared to 2021.
Net annuity receipts exceeded annuity surrenders, benefits, withdrawals and transfers by $477 million in 2021 through the May 31, 2021 effective date of the sale, resulting in a $477 million decrease in net cash used in financing activities in 2022 compared to 2021.
Holding Company and Other — P&C Fees and Related Expenses Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing.
Holding Company and Other — P&C Fees and Related Expenses Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing.
However, future results could vary due to an unexpected change in the underlying cost trends. This unexpected change could arise from a variety of sources including a general increase in economic inflation, inflation from social programs, new medical technologies, or other factors such as those listed below in connection with AFG’s largest lines of business.
However, future results could vary due to an unexpected change in the underlying cost trends. This unexpected change could arise from a variety of sources including a general increase in economic inflation, social inflation, new medical technologies, or other factors such as those listed below in connection with AFG’s largest lines of business.
Holding Company and Other — Other Expenses Excluding the non-core loss on retirement of debt and the non-core loss on pension settlement discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $143 million in 2022 compared to $172 million in 2021, a decrease of $29 million (17%).
Excluding the non-core loss on retirement of debt and the non-core loss on pension settlement discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $143 million in 2022 compared to $172 million in 2021, a decrease of $29 million (17%).
While management believes that AFG’s reserves for A&E claims are a reasonable estimate of ultimate liability for such claims, actual results may vary materially from the amounts currently recorded due to the difficulty in predicting the number of future claims, the impact of bankruptcy filings and unresolved issues such as whether coverage exists, whether 40 Table of Contents policies are subject to aggregate limits on coverage, how claims are to be allocated among triggered policies and implicated years and whether claimants who exhibit no signs of illness will be successful in pursuing their claims.
While management believes that AFG’s reserves for A&E claims are a reasonable estimate of ultimate liability for such claims, actual results may vary materially from the amounts currently recorded due to the difficulty in predicting the number of future claims, the impact of bankruptcy filings and unresolved issues such as whether coverage exists, whether 43 Table of Contents policies are subject to aggregate limits on coverage, how claims are to be allocated among triggered policies and implicated years and whether claimants who exhibit no signs of illness will be successful in pursuing their claims.
Excluding crop, gross and net written premiums increased 8% and 9%, respectively, compared to 2021 reflecting increased exposures, new business opportunities and renewal rate increases. Overall average renewal rates increased approximately 5% in 2022. Excluding the workers’ compensation business, renewal pricing increased approximately 6%.
Excluding crop, gross and net written premiums increased 8% and 9%, respectively, in 2022 compared to 2021 reflecting increased exposures, new business opportunities and renewal rate increases. Overall average renewal rates increased approximately 5% in 2022. Excluding the workers’ compensation businesses, renewal pricing increased approximately 6%.
Property and transportation Net favorable reserve development of $92 million in 2022 reflects lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business.
Net favorable reserve development of $92 million in 2022 reflects lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business.
Property and transportation Net favorable reserve development of $13 million in the fourth quarter of 2022 reflects lower than expected claim severity in the ocean marine, aviation and property and inland marine businesses and lower than anticipated claim frequency in the trucking business.
Net favorable reserve development of $13 million in the fourth quarter of 2022 reflects lower than expected claim severity in the ocean marine, aviation and property and inland marine businesses and lower than anticipated claim frequency in the trucking business.
Because this ratio can be significantly impacted by a number of factors such as loss payout variability, caution should be exercised in attempting to determine reserve adequacy based simply on the survival ratio. At December 31, 2022, the property and casualty insurance segment’s three-year survival ratios compare favorably with industry survival ratios published by A.M.
Because this ratio can be significantly impacted by a number of factors such as loss payout variability, caution should be exercised in attempting to determine reserve adequacy based simply on the survival ratio. At December 31, 2023, the property and casualty insurance segment’s three-year survival ratios compare favorably with industry survival ratios published by A.M.
Some of the important variables affecting estimation of loss reserves for commercial auto/truck liability/medical are similar to other liability — occurrence and include: • Magnitude of jury awards • Unpredictability of judicial decisions regarding coverage issues • Litigious climate and trends • Change in frequency of severe accidents • Health care costs and utilization of medical services by injured parties AFG recorded adverse prior year reserve development of $32 million and $7 million in 2022 and 2021, respectively, for this line of business due to higher than anticipated severity.
Some of the important variables affecting estimation of loss reserves for commercial auto/truck liability/medical are similar to other liability — occurrence and include: • Magnitude of jury awards • Unpredictability of judicial decisions regarding coverage issues • Litigious climate and trends • Change in frequency of severe accidents • Health care costs and utilization of medical services by injured parties AFG recorded adverse prior year reserve development of $29 million in 2023, $32 million in 2022 and $7 million in 2021 for this line of business due to higher than anticipated severity.
Approximately 39% of AFG’s net asbestos reserves relate to policies written directly by AFG subsidiaries. Claims from these policies generally are product-oriented claims with only a limited amount of non-products exposures and are dominated by small to mid-sized commercial entities that are mostly regional policyholders with few national target defendants.
Approximately 47% of AFG’s net asbestos reserves relate to policies written directly by AFG subsidiaries. Claims from these policies generally are product-oriented claims with only a limited amount of non-products exposures and are dominated by small to mid-sized commercial entities that are mostly regional policyholders with few national target defendants.
A 1% variation in loss cost trends, caused by any of the factors previously described, would change net earnings by approximately $32 million. AFG tracks its A&E claims by policyholder. The following table shows, by type of claim, the number of policyholders that did not receive any payments in the calendar year separate from policyholders that did receive a payment.
A 1% variation in loss cost trends, caused by any of the factors previously described, would change net earnings by approximately $30 million. AFG tracks its A&E claims by policyholder. The following table shows, by type of claim, the number of policyholders that did not receive any payments in the calendar year separate from policyholders that did receive a payment.
The following tables for the three months ended December 31, 2022 and 2021 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions): Other P&C Consol.
The following tables for the three months ended December 31, 2023 and 2022 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions): Other P&C Consol.
The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have had at December 31, 2022 (dollars in millions).
The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have had at December 31, 2023 (dollars in millions).
Based on its analysis of the factors listed above, management believes AFG will recover its cost basis (net of any allowance) in the fixed maturity securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at December 31, 2022.
Based on its analysis of the factors listed above, management believes AFG will recover its cost basis (net of any allowance) in the fixed maturity securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at December 31, 2023.
Realized Gains (Losses) on Securities AFG’s realized gains (losses) on securities were net losses of $116 million in 2022 compared to net gains of $110 million in 2021, a change of $226 million (205%).
AFG’s consolidated realized gains (losses) on securities were net losses of $116 million in 2022 compared to net gains of $110 million in 2021, a change of $226 million (205%).
The following table shows (in millions) the breakdown of AFG’s property and casualty insurance reserves between case reserves, IBNR reserves and LAE reserves (estimated amounts required to adjust, record and settle claims, other than the claim payments themselves) at December 31, 2022 and gross written premiums for the year ended December 31, 2022.
The following table shows (in millions) the breakdown of AFG’s property and casualty insurance reserves between case reserves, IBNR reserves and LAE reserves (estimated amounts required to adjust, record and settle claims, other than the claim payments themselves) at December 31, 2023 and gross written premiums for the year ended December 31, 2023.
MIEs Holding Co., other and unallocated Total Non-core reclass GAAP Total Year ended December 31, 2022 Revenues: Property and casualty insurance net earned premiums $ 6,085 $ — $ — $ 6,085 $ — $ 6,085 Net investment income 683 10 24 717 — 717 Realized gains (losses) on securities — — — — (116) (116) Income of MIEs: Investment income — 268 — 268 — 268 Gain (loss) on change in fair value of assets/liabilities — (31) — (31) — (31) Other income 12 (17) 122 117 — 117 Total revenues 6,780 230 146 7,156 (116) 7,040 Costs and Expenses: Property and casualty insurance: Losses and loss adjustment expenses 3,629 — — 3,629 — 3,629 Commissions and other underwriting expenses 1,680 — 38 1,718 — 1,718 Interest charges on borrowed money — — 85 85 — 85 Expenses of MIEs — 230 — 230 — 230 Other expenses 52 — 194 246 9 255 Total costs and expenses 5,361 230 317 5,908 9 5,917 Earnings from continuing operations before income taxes 1,419 — (171) 1,248 (125) 1,123 Provision for income taxes 295 — (40) 255 (30) 225 Core Net Operating Earnings 1,124 — (131) 993 Non-core earnings (loss) attributable to shareholders (a): Realized gains (losses) on securities, net of tax — — (92) (92) 92 — Loss on retirement of debt, net of tax — — (7) (7) 7 — Other, net of tax — — 4 4 (4) — Net Earnings Attributable to Shareholders $ 1,124 $ — $ (226) $ 898 $ — $ 898 62 Table of Contents Other P&C Annuity Consol.
MIEs Holding Co., other and unallocated Total Non-core reclass GAAP Total Year ended December 31, 2022 Revenues: Property and casualty insurance net earned premiums $ 6,085 $ — $ — $ 6,085 $ — $ 6,085 Net investment income 683 10 24 717 — 717 Realized gains (losses) on securities — — — — (116) (116) Income of MIEs: Investment income — 268 — 268 — 268 Gain (loss) on change in fair value of assets/liabilities — (31) — (31) — (31) Other income 12 (17) 122 117 — 117 Total revenues 6,780 230 146 7,156 (116) 7,040 Costs and Expenses: Property and casualty insurance: Losses and loss adjustment expenses 3,629 — — 3,629 — 3,629 Commissions and other underwriting expenses 1,680 — 38 1,718 — 1,718 Interest charges on borrowed money — — 85 85 — 85 Expenses of MIEs — 230 — 230 — 230 Other expenses 52 — 194 246 9 255 Total costs and expenses 5,361 230 317 5,908 9 5,917 Earnings from continuing operations before income taxes 1,419 — (171) 1,248 (125) 1,123 Provision for income taxes 295 — (40) 255 (30) 225 Core Net Operating Earnings 1,124 — (131) 993 Non-core earnings (loss) (*): Realized gains (losses) on securities, net of tax — — (92) (92) 92 — Loss on retirement of debt, net of tax — — (7) (7) 7 — Other, net of tax — — 4 4 (4) — Net Earnings $ 1,124 $ — $ (226) $ 898 $ — $ 898 65 Table of Contents Other P&C Annuity Consol.
Specialty casualty The 1.7 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 reflects favorable trends in workers’ compensation and the impact of higher rates in the executive liability, excess and surplus and excess liability businesses.
The 1.7 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 reflects favorable trends in workers’ compensation and the impact of higher rates in the executive liability, excess and surplus and excess liability businesses.
Specialty financial Gross written premiums increased $89 million (11%) in 2022 compared to 2021 due primarily to higher premiums in the financial institutions business related to lender-placed mortgage protection insurance, rate increases and new business opportunities in the fidelity and crime business and new business opportunities in the innovative markets and commercial equipment leasing businesses.
Gross written premiums increased $89 million (11%) in 2022 compared to 2021 due primarily to higher premiums in the financial institutions business related to lender-placed mortgage protection insurance, rate increases and new business opportunities in the fidelity business and new business opportunities in the innovative markets and commercial equipment leasing businesses.
The process used to determine the total reserve for liabilities involves estimating the ultimate incurred losses and LAE, adjusted for amounts already paid on the claims. The IBNR reserve is derived by estimating the ultimate unpaid reserve 36 Table of Contents liability and subtracting case reserves for loss and LAE.
The process used to determine the total reserve for liabilities involves estimating the ultimate incurred losses and LAE, adjusted for amounts already paid on the claims. The IBNR reserve is derived by estimating the ultimate unpaid reserve 39 Table of Contents liability and subtracting case reserves for loss and LAE.
Specialty casualty Net favorable reserve development of $190 million in 2022 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability and excess and surplus businesses, partially offset by higher than anticipated claim severity in the general liability, umbrella and excess liability and certain targeted markets businesses.
Net favorable reserve development of $190 million in 2022 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability and excess and surplus businesses, partially offset by higher than anticipated claim severity in the general liability, umbrella and excess liability, and certain targeted markets businesses.
RBC formulas determine the amount of capital that an insurance company needs so that it has an acceptable expectation of not becoming financially impaired. At December 31, 2022, the capital ratios of all AFG insurance companies exceeded the RBC requirements.
RBC formulas determine the amount of capital that an insurance company needs so that it has an acceptable expectation of not becoming financially impaired. At December 31, 2023, the capital ratios of all AFG insurance companies exceeded the RBC requirements.
Net earnings attributable to shareholders were $898 million for the full-year of 2022 compared to $2.00 billion in 2021 reflecting net earnings from the discontinued annuity operations in 2021 and net realized losses on securities in 2022 compared to net realized gains on securities in 2021.
Net earnings were $898 million for the full-year of 2022 compared to $2.00 billion in 2021 reflecting net earnings from the discontinued annuity operations in 2021 and net realized losses on securities in 2022 compared to net realized gains on securities in 2021.
Specialty casualty Net favorable reserve development of $50 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency and severity in the workers’ compensation and excess and surplus businesses and lower than expected claim frequency in the executive liability business.
Net favorable reserve development of $50 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency and severity in the workers’ compensation and excess and surplus businesses and lower than expected claim frequency in the executive liability business.
Holding Company and Other — Other Income Other income in the table above includes $5 million in the fourth quarter of 2022 and $4 million in the fourth quarter of 2021, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities).
Holding Company and Other — Other Income Other income in the table above includes $4 million in the fourth quarter of 2023 and $5 million in the fourth quarter of 2022, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities).
Some of the important variables affecting estimation of loss reserves for other liability — occurrence include: • Litigious climate • Unpredictability of judicial decisions regarding coverage issues • Magnitude of jury awards • Outside counsel costs • Timing of claims reporting AFG recorded adverse prior year reserve development of $109 million in 2022, $39 million in 2021 and $99 million in 2020 related to its other liability — occurrence coverage due primarily to continued claim severity increases in excess and umbrella liability coverages.
Some of the important variables affecting estimation of loss reserves for other liability — occurrence include: • Litigious climate • Unpredictability of judicial decisions regarding coverage issues • Magnitude of jury awards • Outside counsel costs • Timing of claims reporting AFG recorded adverse prior year reserve development of $96 million in 2023, $109 million in 2022 and $39 million in 2021 related to its other liability — occurrence coverage due primarily to continued claim severity increases in excess and umbrella liability coverages.
The timing of future payments for the next twelve months and beyond could vary materially from historical payment patterns due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. 32 Table of Contents AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and underwriting expenses.
The timing of future payments for the next twelve months and beyond could vary materially from historical payment patterns due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and underwriting expenses.
The ratio is calculated by dividing the principal amount of AFG’s long-term debt by its total capital, which includes long-term debt and shareholders’ equity (excluding unrealized gains (losses) related to fixed maturity investments). The NAIC’s model law for risk-based capital (“RBC”) applies to property and casualty companies.
The ratio is calculated by dividing the principal amount of AFG’s long-term debt by its total capital, which includes long-term debt and shareholders’ equity (excluding unrealized gains (losses) related to fixed maturity investments). 32 Table of Contents The NAIC’s model law for risk-based capital (“RBC”) applies to property and casualty companies.
Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net favorable reserve development of $1 million in the fourth quarter of 2022 and net adverse reserve development of $2 million in the fourth quarter of 2021 related to business outside the Specialty group that AFG no longer writes.
Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $1 million in the fourth quarter of 2023 and net favorable reserve development of $1 million in the fourth quarter of 2022 related to business outside of the Specialty group that AFG no longer writes.
At December 31, 2022, the average life of AFG’s fixed maturities was about 4.2 years. Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services, non-binding broker quotes and other market information. Fair values of equity securities are generally based on published closing prices.
At December 31, 2023, the average life of AFG’s fixed maturities was about 4.3 years. Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services, non-binding broker quotes and other market information. Fair values of equity securities are generally based on published closing prices.
The following tables for the years ended December 31, 2022, 2021 and 2020 identify such items by segment and reconcile net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions): Other P&C Consol.
The following tables for the years ended December 31, 2023, 2022 and 2021 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions): Other P&C Consol.
Specialty financial The loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 is unchanged compared to the 2021 period.
The loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 is unchanged compared to the 2021 period.
The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses in AFG’s segmented results.
The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of loss adjustment and other underwriting expenses in AFG’s segmented results.
In 2021, AFG recognized a non-core after-tax gain of $3 million related to contingent consideration received from the sale of Neon. 47 Table of Contents The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure.
In 2021, AFG recognized a non-core after-tax gain of $3 million related to contingent consideration received from the sale of Neon. 49 Table of Contents The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings to core net operating earnings, a non-GAAP financial measure.
The following is a reconciliation of income taxes at the statutory rate to the provision for income taxes as shown in the segmented statement of earnings (dollars in millions): Three months ended December 31, 2022 2021 Amount % of EBT Amount % of EBT Earnings before income taxes (“EBT”) $ 346 $ 445 Income taxes at statutory rate $ 73 21 % $ 93 21 % Effect of: Change in valuation allowance (10) (3 %) (5) (1 %) Employee stock ownership plan dividend paid deduction (1) — % (6) (1 %) Stock-based compensation (1) — % (1) — % Tax exempt interest (1) — % (2) — % Dividend received deduction (1) — % (1) — % Nondeductible expenses 3 1 % 2 — % Foreign operations 1 — % — — % Other 7 1 % 10 1 % Provision for income taxes $ 70 20 % $ 90 20 % See Note M — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate. 61 Table of Contents RESULTS OF OPERATIONS — YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 Segmented Statement of Earnings Subsequent to the sale of its annuity operations, AFG reports its continuing operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”).
The following is a reconciliation of income taxes at the statutory rate to the provision for income taxes as shown in the segmented statement of earnings (dollars in millions): Three months ended December 31, 2023 2022 Amount % of EBT Amount % of EBT Earnings before income taxes (“EBT”) $ 335 $ 346 Income taxes at statutory rate $ 70 21 % $ 73 21 % Effect of: Change in valuation allowance — — % (10) (3 %) Employee stock ownership plan dividend paid deduction (2) (1 %) (1) — % Stock-based compensation — — % (1) — % Tax exempt interest (1) — % (1) — % Dividend received deduction (1) — % (1) — % Nondeductible expenses 3 1 % 3 1 % Foreign operations — — % 1 — % Other 3 — % 7 1 % Provision for income taxes $ 72 21 % $ 70 20 % See Note M — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate. 63 Table of Contents RESULTS OF OPERATIONS — YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021 Segmented Statement of Earnings Subsequent to the sale of its annuity operations, AFG reports its continuing operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”).
Some of the important variables affecting estimation of loss reserves for workers’ compensation include: • Legislative actions and regulatory and legal interpretations • Future medical cost inflation • Economic conditions • Frequency of reopening claims previously closed • Advances in medical equipment and processes • Pace and intensity of employee rehabilitation • Changes in the use of pharmaceutical drugs • Changes in mortality trends for permanently injured workers Approximately 27% and 24% of AFG’s workers’ compensation reserves at December 31, 2022 relate to policies written in Florida and California, respectively.
Some of the important variables affecting estimation of loss reserves for workers’ compensation include: • Legislative actions and regulatory and legal interpretations • Future medical cost inflation • Economic conditions • Frequency of reopening claims previously closed • Advances in medical equipment and processes • Pace and intensity of employee rehabilitation • Changes in the use of pharmaceutical drugs • Changes in mortality trends for permanently injured workers Approximately 26% and 25% of AFG’s workers’ compensation reserves at December 31, 2023 relate to policies written in Florida and California, respectively.
In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short duration investments. For statutory accounting purposes, equity securities of non-affiliates are generally carried at fair value. At December 31, 2022, AFG’s insurance companies owned publicly traded equity securities with a fair value of $1.01 billion.
In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short duration investments. For statutory accounting purposes, equity securities of non-affiliates are generally carried at fair value. At December 31, 2023, AFG’s insurance companies owned publicly traded equity securities with a fair value of $1.02 billion.
Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high-quality investment portfolio should generate a stable and predictable investment return. Municipal bonds represented approximately 12% of AFG’s fixed maturity portfolio at December 31, 2022.
Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high-quality investment portfolio should generate a stable and predictable investment return. Municipal bonds represented approximately 9% of AFG’s fixed maturity portfolio at December 31, 2023.
The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $2 million and $3 million in the fourth quarter of 2022 and the fourth quarter of 2021, respectively.
The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $1 million and $2 million in the fourth quarter of 2023 and the fourth quarter of 2022, respectively.
Property and transportation Underwriting profit for this group was $208 million in 2022 compared to $279 million in 2021, a decrease of $71 million (25%), reflecting lower year-over-year profitability in the crop operations compared to the very strong results in 2021 and lower underwriting profit in the transportation businesses, primarily the result of lower favorable prior year reserve development.
Underwriting profit for this group was $208 million in 2022 compared to $279 million in 2021, a decrease of $71 million (25%), reflecting lower year-over-year profitability in the crop operations compared to the very strong results in 2021 and 70 Table of Contents lower underwriting profit in the transportation businesses, primarily the result of lower favorable prior year reserve development.
The management fees are eliminated in consolidation — see the other income line in the Consolidated MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $16 million in 2022, $6 million in 2021 and $4 million in 2020.
The management fees are eliminated in consolidation — see the other income line in the Consolidated MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $5 million in 2023, $16 million in 2022 and $6 million in 2021.
Significant long-term debt and common stock transactions are discussed above under “Parent Holding Company Liquidity.” Parent holding company net cash used in financing activities was $1.68 billion in 2022 compared to $2.63 billion in 2021 and $140 million in 2020.
Significant long-term debt and common stock transactions are discussed above under “Parent Holding Company Liquidity.” Parent holding company net cash used in financing activities was $901 million in 2023 compared to $1.68 billion in 2022 and $2.63 billion in 2021.
During the 2022 and 2021 internal reviews, no new trends were identified and recent claims activity was generally consistent with AFG’s expectations resulting from AFG’s most recent external study in 2020. As a result, both the 2022 and 2021 reviews resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves.
During the 2023 internal review, no new trends were identified and recent claims activity was generally consistent with AFG’s expectations resulting from its in-depth internal reviews in 2022 and 2021 and most recent external study in 2020. As a result, the 2023 review resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves.
GAAP pretax earnings from continuing operations includes the earnings from these entities through the May 31, 2021 effective date of the sale and certain other expenses that will be retained from the annuity operations.
GAAP pretax earnings from continuing operations includes the earnings from these entities through the May 31, 2021 effective date of the sale and certain other expenses that were retained from the annuity operations.
AFG recorded favorable prior year reserve development of $24 million in 2022, $2 million in 2021 and $8 million in 2020 on its D&O business as claim frequency and severity were less than expected across several prior accident years.
AFG recorded favorable prior year reserve development of $33 million in 2023, $24 million in 2022 and $2 million in 2021 on its D&O business as claim frequency and severity were less than expected across several prior accident years.
Management views this fee income, net of the $14 million in the fourth quarter of 2022 and $13 million in the fourth quarter of 2021 in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies.
Management views this fee income, net of the $14 million in both the fourth quarter of 2023 and the fourth quarter of 2022 in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies.
Management views this fee income, net of the $51 million in 2022, $47 million in 2021 and $46 million in 2020, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies.
Management views this fee income, net of the $57 million in 2023, $51 million in 2022 and $47 million in 2021, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies.
Specialty financial Underwriting profit for this group was $114 million in 2022 compared to $96 million in 2021, an increase of $18 million (19%) due primarily to higher year-over-year underwriting profit in the trade credit and financial institutions businesses. COVID-19 related losses were $7 million (1.1 points) in 2021.
Underwriting profit for this group was $114 million in 2022 compared to $96 million in 2021, an increase of $18 million (19%) due primarily to higher year-over-year underwriting profits in the trade credit and financial institutions businesses. COVID-19 related losses were $7 million (1.1 points on the combined ratio) in 2021.
Overall catastrophe losses were $11 million (0.9 points on the combined ratio), including a $13 million favorable impact from lower than previously estimated reinstatement premiums related to Hurricane Ian, in the fourth quarter of 2022 compared to catastrophe losses of $25 million (1.8 points) in the fourth quarter of 2021.
Overall catastrophe losses were $25 million (1.4 points on the combined ratio), including $1 million in net reinstatement premiums in the fourth quarter of 2023 compared to catastrophe losses of $11 million (0.9 points), including a $13 million favorable impact in the fourth quarter of 2022 from lower than previously estimated reinstatement premiums related to Hurricane Ian.
This decrease reflects lower holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance, partially offset by higher charges to increase the liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations.
This decrease reflects lower holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance, partially offset by higher charges (included in AFG’s core operating earnings) to increase the liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations.
Included in the pricing of mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral.
Included in 36 Table of Contents the pricing of mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral.
Total proceeds from the sale were $3.57 billion and AFG realized an after-tax gain on the sale of $656 million in the first six months of 2021. Outlook AFG’s financial condition, results of operations and cash flows are impacted by the economic, legal and regulatory environment.
Total proceeds from the sale were $3.57 billion and AFG realized an after-tax gain on the sale of $656 million. Outlook AFG’s financial condition, results of operations and cash flows are impacted by the economic, legal and regulatory environment.
AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations.
AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations.
Such repurchases or exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, AFG’s liquidity requirements, contractual restrictions and other factors. During 2022, AFG repurchased $472 million principal amount of its senior notes for $477 million cash.
Such repurchases or exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, AFG’s liquidity requirements, contractual restrictions and other factors. During 2023, AFG repurchased $23 million principal amount of its senior notes for $21 million cash.
The fourth quarter of 2022 reflects net adverse reserve development associated with AFG’s internal reinsurance program (primarily from social inflation exposed casualty businesses) and, to a lesser extent, both periods reflect the amortization of deferred gains on the retroactive reinsurance transactions entered into in connection with the sale of businesses in 1998 and 2001.
The fourth quarter of 2022 reflects net adverse reserve development associated with AFG’s internal reinsurance program (primarily from social inflation exposed casualty businesses) and, to a lesser extent, both periods reflect the amortization of the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of a business in 1998.
Holding Company and Other — Interest Charges on Borrowed Money AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $85 million in 2022, $94 million in 2021 and $88 million in 2020.
Holding Company and Other — Interest Charges on Borrowed Money AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $76 million in 2023, $85 million in 2022 and $94 million in 2021.
Total charges recorded to increase liabilities for A&E exposures of AFG’s former railroad and manufacturing operations (included in other expenses) were $17 million in 2022, $9 million in 2021 and $28 million in 2020.
Total charges recorded to increase liabilities for A&E exposures of AFG’s former railroad and manufacturing operations (included in other expenses) were $22 million in 2023, $17 million in 2022 and $9 million in 2021.
(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $5 million and $3 million in the fourth quarter of 2022 and 2021, respectively, in distributions recorded as interest expense by the CLOs. (c) Elimination of management fees earned by AFG. 44 Table of Contents CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED Before CLO Consol.
(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $11 million and $5 million in the fourth quarter of 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs. (c) Elimination of management fees earned by AFG. 47 Table of Contents CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED Before CLO Consol.
The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.86% in 2022 compared to 5.12% in 2021, a decrease of 0.26 percentage points as higher yields on fixed maturity investments were more than offset by lower returns on alternative investments.
The property and casualty insurance segment’s overall yield on investments was 4.86% in 2022 compared to 5.12% in 2021, a decrease of 0.26 percentage points as higher yields on fixed maturity investments were more than offset by lower returns on alternative investments.
The $506 million decrease in net cash provided by operating activities in 2022 as compared to 2021 and the $350 million increase in net cash provided by operating activities in 2021 as compared to 2020 were due primarily to higher cash dividends received from subsidiaries in 2021.
The $392 million increase in net cash provided by operating activities in 2023 as compared to 2022 and the $506 million decrease in net cash provided by operating activities in 2022 as compared to 2021 were due primarily to higher cash dividends received from subsidiaries in 2023 and 2021.
For AFG’s fixed maturity portfolio, approximately 87% was priced using pricing services at December 31, 2022 and 7% was priced using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.
For AFG’s fixed maturity portfolio, approximately 89% was priced using pricing services at December 31, 2023 and 5% was priced using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.
Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.3 percentage points in 2022 compared to 2021 reflecting higher underwriting expenses in the workers’ compensation business.
Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.3 percentage points in 2022 compared to 2021 reflecting higher underwriting expenses in the workers’ compensation businesses.
Holding Company and Other — Net Investment Income AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $24 million, $36 million and $12 million in 2022, 2021 and 2020, respectively.
Holding Company and Other — Net Investment Income AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $40 million, $24 million and $36 million in 2023, 2022 and 2021, respectively.
(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $18 million and $12 million in 2022 and 2021, respectively, in distributions recorded as interest expense by the CLOs. (c) Elimination of management fees earned by AFG. 45 Table of Contents CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED Before CLO Consol.
(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $29 million and $18 million in 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs. (c) Elimination of management fees earned by AFG. 48 Table of Contents CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED Before CLO Consol.
Covid-19 related losses During 2022, AFG’s Specialty property and casualty insurance operations released $19 million of prior accident year COVID-19 reserves based on improved loss experience in the trade credit and workers’ compensation businesses.
Covid-19 related losses AFG’s Specialty property and casualty insurance operations released prior accident year COVID-19 reserves of $20 million in 2023 based on improved loss experience across several businesses. In 2022, AFG’s Specialty property and casualty insurance operations released $19 million of prior accident year COVID-19 reserves based on improved loss experience in the trade credit and workers’ compensation businesses.
Catastrophe losses of $86 million in 2021 resulted primarily from winter storms in Texas in the first quarter; storms in multiple regions of the United States in the second, third and fourth quarters; Hurricane Ida in the third quarter and Kentucky tornadoes and Colorado fires in the fourth quarter.
Catastrophe losses of $86 million in 2021 (before $12 million in net reinstatement premiums) resulted primarily from winter storms in Texas in the first quarter; storms in multiple regions of the United States in the second, third and fourth quarters; Hurricane Ida in the third quarter and Kentucky tornadoes and Colorado fires in the fourth quarter.
The following table shows (dollars in millions) what the impact on AFG’s net earnings would be on the more significant lines of business if the December 31, 2022, reserves (net of reinsurance) developed at the same rate as the average development of the most recent five years. 5-yr.
The following table shows (dollars in millions) what the impact on AFG’s net earnings would be on the more significant lines of business if the December 31, 2023, reserves (net of reinsurance) were to develop at the same rate as the average development of the most recent five years. 5-yr.
Property and casualty reserves for unpaid losses and loss adjustment expenses were $11.97 billion at December 31, 2022 and include case reserves and claims incurred but not reported (“IBNR”). The ultimate amount to be paid to settle reserves is an estimate, subject to significant uncertainty.
Property and casualty reserves for unpaid losses and loss adjustment expenses were $13.09 billion at December 31, 2023 and include case reserves and claims incurred but not reported (“IBNR”). The ultimate amount to be paid to settle reserves is an estimate, subject to significant uncertainty.
Cash flows from operating, investing and financing activities as detailed in AFG’s Consolidated Statement of Cash Flows are shown below (in millions): Year ended December 31, 2022 2021 2020 Net cash provided by operating activities $ 1,153 $ 1,714 $ 2,183 Net cash used in investing activities (1,051) (436) (1,564) Net cash used in financing activities (1,361) (1,957) (123) Net change in cash and cash equivalents $ (1,259) $ (679) $ 496 Net Cash Provided by Operating Activities AFG’s property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses.
Cash flows from operating, investing and financing activities as detailed in AFG’s Consolidated Statement of Cash Flows are shown below (in millions): Year ended December 31, 2023 2022 2021 Net cash provided by operating activities $ 1,970 $ 1,153 $ 1,714 Net cash provided by (used in) investing activities 414 (1,051) (436) Net cash used in financing activities (2,031) (1,361) (1,957) Net change in cash and cash equivalents $ 353 $ (1,259) $ (679) Net Cash Provided by Operating Activities AFG’s property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses.
In addition, the deployment of cash in the rising interest rate environment during 2022 will continue to have a positive impact on investment income on fixed maturity investments in 2023. CRITICAL ACCOUNTING POLICIES Significant accounting policies are summarized in Note A — “Accounting Policies” to the financial statements.
In addition, the deployment of cash during the elevated interest rate environment (since early 2022) will continue to have a positive impact on investment income on fixed maturity investments in 2024. CRITICAL ACCOUNTING POLICIES Significant accounting policies are summarized in Note A — “Accounting Policies” to the financial statements.
In addition, AFG’s investment portfolio includes $672 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $338 million in equity securities carried at fair value with holding gains and losses included in net investment income.
In addition, AFG’s investment portfolio includes $571 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $447 million in equity securities carried at fair value with holding gains and losses included in net investment income.
The net adverse reserve development reflects $44 million, $16 million and $24 million in 2022, 2021, and 2020, respectively, of net adverse development associated with AFG’s internal reinsurance program, primarily related to social inflation exposed business assumed from the Specialty casualty sub-segment.
The net adverse reserve development reflects $4 million, $44 million and $16 million in 2023, 2022 and 2021, respectively, of net adverse development associated with AFG’s internal reinsurance program. The net adverse reserve development in 2022 and 2021 relates primarily to social inflation exposed business assumed from the Specialty casualty sub-segment.
Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include net favorable prior year reserve development of $1 million in the fourth quarter of 2022 and net adverse prior year reserve development of $2 million in the fourth quarter of 2021 related to business outside of the Specialty group that AFG no longer writes. 55 Table of Contents Losses and Loss Adjustment Expenses AFG’s overall loss and LAE ratio was 60.7% for the fourth quarter of 2022 compared to 56.6% for the fourth quarter of 2021, an increase of 4.1 percentage points.
Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include adverse prior year reserve development of $1 million in the fourth quarter of 2023 and net favorable prior year reserve development of $1 million in the fourth quarter of 2022 related to business outside of the Specialty group that AFG no longer writes. 57 Table of Contents Losses and Loss Adjustment Expenses AFG’s overall loss and LAE ratio was 60.8% for the fourth quarter of 2023 compared to 60.7% for the fourth quarter of 2022, an increase of 0.1 percentage points.
AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 25.8% for the fourth quarter of 2022 compared to 24.2% for the fourth quarter of 2021, an increase of 1.6 percentage points.
AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 27.0% for the fourth quarter of 2023 compared to 25.8% for the fourth quarter of 2022, an increase of 1.2 percentage points.
The increase in 2022 compared to 2021 is due primarily to income from the sale of real estate in 2022.
The decrease in 2023 compared to 2022 and the increase in 2022 compared to 2021 is due primarily to income from the sale of real estate in 2022.
The $992 million in net cash provided by investing activities in 2022 is substantially lower than the $2.17 billion in net cash provided by investing activities in 2021 due to proceeds of $3.57 billion related to the May 2021 sale of the annuity business partially offset by the $120 million purchase of Verikai in December 2021.
The $992 million in net cash provided by investing activities in 2022 is substantially lower than the $2.17 billion in net cash provided by investing activities in 2021 due to proceeds of $3.57 billion related to the May 2021 sale of the annuity business partially offset by net purchases of fixed maturity investments of $1.19 billion in 2021 and the $120 million purchase of Verikai in December 2021.
Line of business Effect of 1% Change in Cost Trends Other liability — occurrence $ 62 Workers’ compensation 65 Other liability — claims made 22 Commercial auto/truck liability/medical 15 37 Table of Contents The judgments and uncertainties surrounding management’s reserve estimation process and the potential for reasonably possible variability in management’s most recent reserve estimates may also be viewed by looking at how recent historical estimates of reserves have developed.
Line of business Effect of 1% Change in Cost Trends Other liability — occurrence $ 70 Workers’ compensation 66 Other liability — claims made 25 Commercial auto/truck liability/medical 17 40 Table of Contents The judgments and uncertainties surrounding management’s reserve estimation process and the potential for reasonably possible variability in management’s most recent reserve estimates may also be viewed by looking at how recent historical estimates of reserves have developed.
Excluding crop, the loss and LAE ratio for the current year, excluding catastrophe losses was comparable to 2021.
Excluding crop, the loss and LAE ratio for the current year, excluding catastrophe losses was comparable in 2022 and 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeLong-Term Debt The following table shows scheduled principal payments on fixed-rate long-term debt of AFG and its subsidiaries and related weighted average interest rates for each of the subsequent five years and for all years thereafter (dollars in millions): December 31, 2022 December 31, 2021 Scheduled Principal Payments Rate Scheduled Principal Payments Rate 2023 $ — — % 2022 $ — — % 2024 — — % 2023 — — % 2025 — — % 2024 — — % 2026 — — % 2025 — — % 2027 — — % 2026 425 3.5 % Thereafter 1,521 4.9 % Thereafter 1,568 4.9 % Total $ 1,521 4.9 % Total $ 1,993 4.6 % Fair Value $ 1,302 Fair Value $ 2,261 82 Table of Contents
Biggest changeLong-Term Debt The following table shows scheduled principal payments on fixed-rate long-term debt of AFG and its subsidiaries and related weighted average interest rates for each of the subsequent five years and for all years thereafter (dollars in millions): December 31, 2023 December 31, 2022 Scheduled Principal Payments Rate Scheduled Principal Payments Rate 2024 $ — — % 2023 $ — — % 2025 — — % 2024 — — % 2026 — — % 2025 — — % 2027 — — % 2026 — — % 2028 — — % 2027 — — % Thereafter 1,498 4.9 % Thereafter 1,521 4.9 % Total $ 1,498 4.9 % Total $ 1,521 4.9 % Fair Value $ 1,345 Fair Value $ 1,302 82 Table of Contents
At December 31, 2022 and 2021, the fair value of AFG’s equity securities totaled $1.01 billion and $1.04 billion, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value.
At December 31, 2023 and 2022, the fair value of AFG’s equity securities totaled $1.02 billion and $1.01 billion, respectively. These investments are exposed to price risk, which is the potential loss arising from decreases in fair value.
Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional. 2022 2021 Fair value of fixed maturity portfolio $ 10,127 $ 10,385 Percentage impact on fair value of 100 bps increase in interest rates (3.0 %) (2.0 %) Pretax impact on fair value of fixed maturity portfolio $ (304) $ (208) Equity Price Risk AFG’s equity securities are reported at fair value with holding gains and losses recognized in net earnings.
Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional. 2023 2022 Fair value of fixed maturity portfolio $ 10,434 $ 10,127 Percentage impact on fair value of 100 bps increase in interest rates (3.0 %) (3.0 %) Pretax impact on fair value of fixed maturity portfolio $ (313) $ (304) Equity Price Risk AFG’s equity securities are reported at fair value with holding gains and losses recognized in net earnings.

Other AFGD 10-K year-over-year comparisons