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Call Start: 12:15

American Financial Group (AFG)

Q2 2012 Earnings Call

July 31, 2012 11:30 AM ET


Keith Jensen – SVP

Carl Lindner – Co-President and Co-CEO

Craig Lindner – Co-President and Co-CEO


Amit Kumar – Macquarie

Ron Bobman – Capital Returns Management

Ryan Byrnes – Jean McQueeney

Jay Cohen – Bank of America

Gabe Schwab – Maxim Group



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Good morning. My name is Tina and I will be your conference operator today. At this time I would like to welcome everyone to the American Financial Group’s 2012 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Jensen, you may begin your conference.

Keith Jensen

Good morning. Thank you and welcome to American Financial Group’s second quarter 2012 earnings results conference call. I’m joined this morning by Carl Lindner III and Craig Lindner, co-CEOs of American Financial Group. If you are viewing the webcast from our website, follow our slide presentation if you’d like.

Certain statements made during this call are not historical facts and may be considered forward-looking statements and are based on estimates assumptions and projections which management believes are reasonable, but by their nature subject to risks and uncertainties.

Factors which could cause actual results and/or financial conditions to differ materially from those suggested by such forward-looking statements include, but are not limited to those discussed or identified from time to time in AFG’s filings with the Securities and Exchange Commission, including the annual report on Form 10-K and quarterly reports on Form 10-Q. We do not promise to update such forward-looking statements or to reflect actual results or changes in assumptions or other factors that could affect these statements.

Core net operating earnings is a non-GAAP financial measure, which sets aside significant items that are generally not considered to be part of the ongoing operations, such as net realized gains or losses on investments, and the usual unlocking charges, effect of certain accounting changes, discontinued operations, special asbestos and environmental charges, and certain other non-recurring items.

AFG believes this non-GAAP measure to be a useful tool for analysts and investors in analyzing ongoing operation trends and will be discussed for various periods during this call. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release.

Now I’m pleased to turn the call over to Carl Lindner III to discuss our results.

Carl Lindner

Good morning. And thank you for joining us. We released our 2012 second quarter results yesterday afternoon and are pleased with another quarter of strong operating earnings in our Specialty, Property and Casualty and annuity and supplemental businesses. I am assuming that the participants on today’s call reviewed our earnings release and supplemental materials posted on the website. I’m going to review a few highlights and focus today’s discussion on key issues. I will also briefly discuss our outlook for the remainder of 2012.

Now let’s start by looking at our second quarter results summarized on slides three and four of the webcast. Net earnings were $1.01 per share for the quarter including realized gains of $0.10 per share, core net operating earnings for the quarter were $90 million or $0.91 per shares compared to the prior year’s result of $74 million or $0.72 per share.

Record profit in our annuity and supplemental group and approved underwriting results in our Specialty, Property and Casualty operations were offset somewhat by lower Property and Casualty investment income. While both periods reflect the effect of share repurchases. Annualize core operating return on equity was approximately 9%. Our capital adequacy, financial condition and liquidity remain strong in our key areas of focus for us.

We maintain sufficient capital in our insurance businesses to meet our commitments to the rating agencies in support of our current rating roles. Our excess capital was approximately $590 million at June 30th, 2012, which included cash at the parent company of approximately $484 million.

As you know, in June, we issued $230 million of 6.375 debentures due 2042. The proceeds from this offering are included in our parent company cash balance at June 30th. In July, AFG use these proceeds to regain approximately $200 million of 7.5 and 7.25 senior notes due in 2033 and 2034. The remainder of the proceeds are used for general corporate purposes.

We’ve continued to deploy our excess capital in ways that enhance shareholder value. We repurchased 2.5 million shares of our common stock during the second quarter in average price of $30.55 per share for approximately 95% of June 30, 2012 book value per share. As of July 30th, 2012 there are approximately 3.4 million shares remaining under our repurchase authorization.

Based on the company’s operating performance and its strong capital and liquidity position, AFG’s Board of Directors approved an increase in the annual dividend from $0.70 to $0.78 per share per year effective for dividend payments made on or after October 1st, 2012.

This increase reflects our confidence in the company’s financial condition and its prospects for long-term growth. The five-year annual compounded growth rate of our dividend is 12.5%.

In addition to share repurchases and dividends, we continue to seek other alternatives for deployment of our excess capital. We’ve invested excess capital when we see potential for healthy profitable organic growth, and we’re always looking for opportunities to expand our special niche businesses through startups or acquisitions, so that makes sense.

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