American Financial Group Inc. (NYSE:AFG) Q2 2020 Earnings Conference Call - Final Transcript

Aug 05, 2020 • 11:30 am ET

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American Financial Group Inc. (NYSE:AFG) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Our first question comes from the line of Paul Newsom with Piper Sandler. Your line is open.

Analyst
Paul Newsom

Good morning and thanks for the call. I was hoping to get a little bit more detail on the pandemic-related charges. I know you said it was primarily an IBNR increase. But one of the things that we've been discussing about amongst the investment community is whether or not this is an ongoing potential claims issue, given that some of these stay-at-home issues have continued. And it seems to be some differences in how people are accounting across the industry. So maybe you could address those issues.

Executive
Brian S. Hertzman

Paul, this is

Executive
Carl H. Lindner

I think, just overall, I'll let Brian run through the breakdown of the $85 million that we've posted. But overall, based off of the facts and the knowledge that we have today, that's kind of our best estimate in that, 90% IBNR and that. But conditions can change. The world can change, things can get better. Things could go longer. So I don't in some ways, I don't know how anybody running an insurance company can talk about what the ultimate loss is. But Brian, why don't you walk through or...

Executive
Brian S. Hertzman

Sure. So for AFG, like all insurance companies, it is a difficult calculation to make. As Carl mentioned, 90% of our reserves are for IBNR at this point. We took a very hard look at each individual line of business. Looking at our exposures, basing everything we know through June 30 and booked our best estimate of what that number would be. So it's not a pay as you go or anything like that. But on the other hand, it's not a number that we just put out of the air. So for us, we hope that it is a number that covers everything that we have, and it definitely is what we believe is a prudent number for what we know through the end of the second quarter. So I would say it's a fully-baked number for everything that we know through this date.

Analyst
Paul Newsom

Fantastic. Turning to the alternative investments, which are obviously the hot topic of last quarter, should we expect a full rebound in some of these losses given that they had a pretty substantial rebound in the equity markets or something less? Or any indications about what could happen with that those performance bonds investments prospectively would be great.

Executive
S. Craig Lindner

Sure. Paul, this is Craig. I think the first thing people need to understand is kind of the makeup or breakdown of the marked-to-market assets. Let me run through that with you. So the marked-to-market assets total around $2.2 billion. 7% of that number is in CLOs, both debt and equity that we marked-to-market. 40% is in real estate investments, where our focus is pretty much on multi-family, which has held up extremely well. 40% is in more traditional private equity funds, 9% in private debt funds, and then kind of miscellaneous for the balance. By the way,