AMERICAN FINANCIAL GROUP INC
For the period ended Dec 31, 2023. Filed Feb 23, 2024.
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FY2023 · Filed Feb 23, 2024
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Holding Company, Other and Unallocated
Holding Company, Other and Unallocated — Results of Operations
AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $53 million in the fourth quarter of 2023 compared to $44 million in the fourth quarter of 2022, an increase of $9 million (20%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $53 million for the fourth quarter of 2023 compared to $45 million for the fourth quarter of 2022, an increase of $8 million (18%).
The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance segment for the three months ended December 31, 2023 and 2022 (dollars in millions):
| Three months ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | % Change | |
| Revenues: | |||
| Net investment income | $7 | $9 | (22%) |
| Other income — P&C fees | 42 | 22 | 91% |
| Other income | 5 | 7 | (29%) |
| Total revenues | 54 | 38 | 42% |
| Costs and Expenses: | |||
| Property and casualty insurance — loss adjustment and underwriting expenses | 28 | 8 | 250% |
| Other expense — expenses associated with P&C fees | 14 | 14 | —% |
| Other expenses (*) | 46 | 41 | 12% |
| Costs and expenses, excluding interest charges on borrowed money | 88 | 63 | 40% |
| Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money | (34) | (25) | 36% |
| Interest charges on borrowed money | 19 | 20 | (5%) |
| Core loss before income taxes, excluding realized gains and losses | (53) | (45) | 18% |
| Pretax non-core gain on retirement of debt | — | 1 | (100%) |
| GAAP loss before income taxes, excluding realized gains and losses | $(53) | $(44) | 20% |
(*)Excludes a pretax non-core gain on retirement of debt of $1 million in the fourth quarter of 2022.
Holding Company and Other — Net Investment Income
AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $7 million in the fourth quarter of 2023 compared to $9 million in the fourth quarter of 2022, a decrease of $2 million (22%), reflecting the impact of lower average investment balances, partially offset by the impact of higher interest rates on cash and fixed maturity investments.
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. In the fourth quarter of 2023, AFG collected $23 million in fees for these services compared to $22 million in the fourth quarter of 2022. 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. In addition, AFG’s property and casualty insurance businesses earned $19 million in fees as compensation for providing services during the fourth quarter of 2023 related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date and collected less than $1 million in fees from AFG’s disposed annuity operations during the fourth quarter of 2022 as compensation for certain services provided under a transition services agreement. 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.
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). 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.
Holding Company and Other — Other Expenses
Excluding the non-core gain on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $46 million in the fourth quarter of 2023 compared to $41 million in the fourth quarter of 2022, an increase of $5 million (12%). This increase is due primarily to the impact of higher holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance and higher aircraft related expenses in the fourth quarter of 2023 compared to the fourth quarter of 2022.
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 $19 million in the fourth quarter of 2023 compared to $20 million in the fourth quarter of 2022, a decrease of $1 million (5%).
Holding Company and Other — Gain on Retirement of Debt
During the fourth quarter of 2022, AFG retired $38 million principal amount of its senior notes, which resulted in a $1 million pretax gain.
Realized Gains (Losses) on Securities
AFG’s realized gains (losses) on securities were net gains of $31 million in the fourth quarter of 2023 compared to $27 million in the fourth quarter of 2022, an increase of $4 million (15%). Realized gains (losses) on securities consisted of the following (in millions):
| Three months ended December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| Realized gains (losses) before impairment allowances: | ||
| Disposals | $(2) | $(6) |
| Change in the fair value of equity securities | 33 | 26 |
| Change in the fair value of derivatives | 2 | (1) |
| Other | — | 10 |
| 33 | 29 | |
| Change in allowance for impairments on securities | (2) | (2) |
| Realized gains (losses) on securities | $31 | $27 |
The $33 million net realized gain from the change in the fair value of equity securities in the fourth quarter of 2023 includes gains of $15 million on investments in banks and financing companies, $6 million on investments in retail companies, $5 million on investments in healthcare companies and $5 million on investments in media companies. The $26 million net realized gain from the change in the fair value of equity securities in the fourth quarter of 2022 includes gains of $7 million on investments in banks and financing companies, $7 million on investments in energy and natural gas companies and $7 million on investments in retail companies, partially offset by losses of $7 million on investments in media companies.
Consolidated Income Taxes
AFG’s consolidated provision for income taxes was $72 million for the fourth quarter of 2023 compared to $70 million in the fourth quarter of 2022, an increase of $2 million (3%). 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.
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