American Financial Group (



Q3 2011 Earnings Call

October 26, 2011 11:30 AM ET


Keith Jensen – SVP

Carl Henry Lindner – Co-President and Co-CEO


Amit Kumar – Macquarie

Matthew Rohrmann – Keefe Bruyette & Woods

Jay Cohen – Bank of America



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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 2011 Third 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. Keith Jensen, Senior VP of American Financial Group. You may begin.

Keith Jensen

Thank you. Good morning. This is Keith Jensen and we are pleased to welcome you to American Financial Group’s 2011 third quarter earnings results conference call. I’m joined this morning by Carl Lindner III, and Craig Lindner, Co-CEOs of American Financial Group. If you’re viewing the webcast from our website, you can follow along with the 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. The factors which could cause actual results and/or financial condition 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 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 part of ongoing operations such as net realized gains or losses on investments, the effect of accounting changes, discontinued operations, significant asbestos and environmental charges, and certain other non-recurring items.

AFG believes that this non-GAAP measure to be useful for analysts and investors in analyzing the ongoing operating results 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 Henry Lindner

Good morning, and thank you, for joining us. Craig and I started out by thanking God for the life of AFG’s Founder and Chairman, Carl H. Lindner Jr. And we’d like to thank you all for all your prayers and condolences in connection with the passing of our dad, Carl H Lindner Jr. We’re humbled by the outpouring of love from his many friends from Cincinnati and across the country, not to mention as many tributes and fond memories shared with us over the past week. Until his final days, our dad shared his passion for his business with employees throughout the AFG organization. Carl’s presence in our corporate offices and boardroom will be missed tremendously. His incredible legacy carries on to the many people touch over the years.

Yesterday afternoon we released our 2011 third quarter results. Despite a challenging quarter for the industry, Craig and I are very pleased to report solid operating results that are consistent with our expectations. Core net operating earnings for the third quarter were down $0.17 per share from the comparable 2010 period. We are proud of the insurance professionals that remain disciplined in the under writing and product pricing decisions. This mind-set particularly right now is essential given the continued low interest rate environment and national and global economic uncertainty. I am assuming that the participants on today’s call reviewed our earnings release and supplemental materials posted on our web site.

I will review a few highlights and focus today’s discussions on key issues. I will also briefly discuss our outlook for the remainder of 2011. But let’s start by looking at our third quarter results summarized on slides 3 and 4 of the webcast.

Net earnings per share were $0.94 for the quarter which included realized gains of $0.04 per share. Lower earnings and our insurance operations and lower realized gains were partially offset by the effect of share repurchases. Year-to-date earnings per share $2 and $0.24 a share.

Core net operating earnings for the third quarter were $91 million or $0.90 per share compared to the prior year’s results of $117 million or a $1.07 per share. Net operating earnings per share for the first nine months were 14% less than the 2010 results. Lower underwriting profit and lower investment income in our Specialty Property and Casualty insurance operations were partially offset by increased earnings in our annuity and supplemental operations during the nine month period.

Nine month annualized core operating return on equity was approximately 9%. One of the important strategic objectives is to deploy our excess capital and – and enhance its shareholder value. We’ve continued our share repurchases and purchased 2.6 million shares of our common stock at an average price of $32.25 per share during the third quarter. The average purchase price was approximately 83% of book value per share as of September 30, 2011. We feel this remains an effective means of increasing shareholder value. There are approximately 5 million shares remaining under our current repurchase authorization.

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