American Financial Group Inc. (NYSE:AFG) Q3 2014 Earnings Conference Call - Final Transcript

Feb 03, 2015 • 11:30 am ET

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American Financial Group Inc. (NYSE:AFG) Q3 2014 Earnings Conference Call - Final Transcript

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Presentation
Executive
Jeff Consolino

Thank you, Craig. We went through a lot of detail on a very pleasing quarter and on our 2015 earnings guidance. I am going to tie it all together in a few slides, before we open up the lines for questions.

Slide 15 shows our fourth quarter consolidated results by segment. Core net operating earnings per share in the quarter were a record $1.35. $1.35 is based on core net operating earnings in the quarter of $122 million. Looking at core pre-tax operating earnings by segment, you will see our P&C segment improved by $10 million against last year's quarter.

On slide five, Carl showed you that the Specialty P&C Group's underwriting profits increased by $4 million. You can see on page four of the Investor supplement that Q4 2014 investment income for the P&C segment was $8 million higher than the prior year; thanks to the increase in average P&C invested assets resulting from the Summit acquisition.

Other expenses within the P&C segment increased by about $2 million in the quarter. This is primarily the amortization of Summit's acquisition intangibles, which run about $7 million per year. The sum of these three items produces the $10 million improvement in the P&C segment core pre-tax operating earnings. We closed on the Summit acquisition at the beginning of the 2014 second quarter.

Q1 2015 will be the final quarter, where our Specialty P&C segment's quarterly comparatives are affected by the Summit transaction. Craig previously covered our Annuity segment earnings, which was $7 million lower quarter-over-quarter; thanks to the vagaries of fair value accounting. Interest expense of parent holding companies increased $2 million, due to the hybrid debt offering in September of 2014.

Other expense was lower by $12 million than the year-ago fourth quarter, largely as a result of third-party fee income paid to our American Money Management subsidiary, lower accruals associated with certain employee benefit plans as well as other miscellaneous items. You may recall that the third quarter other expense comparison was also favorable for 2014 against 2013. Our guidance range, however, does not anticipate similar beneficial impacts in 2015.

Turning to slide 16, you will see that realized gains contributed $0.06 per share to diluted earnings per common share. On slide 17, you will see that AFG's adjusted book value per share was $48.76 at 12/31/14; its highest level ever. Our excess capital stood at approximately $810 million at December 31, 2014 and included $290 million of parent company cash.

We earned net income of $127 million in the fourth quarter and returned $174 million to our shareholders through dividends and through share repurchases. Approximately 4.5 million shares remain under our repurchase authorization as of February 2, 2015. We plan to continue returning excess capital to our shareholders through the course of 2015.

On slide 18, you will find a single page summary of our 2015 guidance. It shows AFG's core net operating earnings guidance of $5.10 to $5.50 per diluted share as well as guidance reviewed earlier in