10-Q: AFG Q3 Earnings Rise on Underwriting Gains, Investment Income

American Financial Group reports increased net earnings for Q3 2025 driven by higher underwriting profit and net realized gains on securities, despite a decline in nine-month earnings.

Summary

• Net earnings for the third quarter of 2025 increased to $215 million ($2.58 diluted EPS) from $181 million ($2.16 diluted EPS) in Q3 2024.
• Net earnings for the first nine months of 2025 decreased to $543 million ($6.50 diluted EPS) from $632 million ($7.54 diluted EPS) in 9M 2024.
• Core net operating earnings for Q3 2025 rose to $224 million, up from $194 million in Q3 2024, reflecting higher underwriting profit and net investment income.
• Core net operating earnings for the first nine months of 2025 decreased by $85 million to $555 million, primarily due to lower underwriting profit and reduced net investment income from alternative investments.
• Property and Casualty (P&C) underwriting profit increased by $22 million (19%) to $139 million in Q3 2025, with the combined ratio improving to 93.1% from 94.4% in Q3 2024.
• P&C underwriting profit for the first nine months of 2025 decreased by $75 million (18%) to $345 million, and the combined ratio deteriorated to 93.4% from 91.9% in 9M 2024.
• Catastrophe losses significantly decreased to $23 million (1.2 points on the combined ratio) in Q3 2025 from $90 million (4.4 points) in Q3 2024.
• Net investment income in P&C operations increased by $10 million (5%) to $205 million in Q3 2025, but decreased by $35 million (6%) to $554 million in 9M 2025, mainly due to lower returns on alternative investments.
• Special A&E (asbestos and environmental) charges increased to $25 million pretax in Q3 2025 and 9M 2025, up from $14 million in the comparable 2024 periods.
• The remaining 52% of Radion Insurance Holdings, LLC was acquired for $7 million in cash in Q3 2025, making it a wholly-owned subsidiary.
• Issued $350 million in 5.00% Senior Notes due 2035 in September 2025, with net proceeds for general corporate purposes, including potential share repurchases.
• Repurchased 788,134 shares of Common Stock for $98 million during the first nine months of 2025.
• A special cash dividend of $2.00 per share, totaling approximately $167 million, was declared on November 4, 2025, payable on November 26, 2025.

Sentiment

Score: 6

Explanation: Q3 results showed strong growth in net earnings and underwriting profit, driven by lower catastrophe losses and higher investment income. However, the nine-month results reflect a decline in net earnings and core operating earnings, primarily due to lower alternative investment income and reduced underwriting profit in some segments. Management's outlook remains positive for premium growth and underwriting, supported by the elevated interest rate environment. The increase in A&E charges and deterioration in the 9M combined ratio are concerns, but the strong balance sheet and favorable A&E reserve survival ratios provide stability.

Positives

• Q3 2025 net earnings increased to $215 million from $181 million in Q3 2024, reflecting higher core net operating earnings and net realized gains on securities.
• Property & Casualty underwriting profit increased by $22 million (19%) in Q3 2025 to $139 million, demonstrating improved operational efficiency.
• The overall P&C combined ratio improved to 93.1% in Q3 2025 from 94.4% in Q3 2024, indicating better underwriting profitability.
• Catastrophe losses were significantly lower in Q3 2025 at $23 million (1.2 points on the combined ratio) compared to $90 million (4.4 points) in Q3 2024.
• Net investment income in P&C operations increased by $10 million (5%) to $205 million in Q3 2025.
• The Specialty financial sub-segment showed a substantial increase in underwriting profit by $30 million (143%) in Q3 2025, with a strong combined ratio of 81.1%.
• The Property and transportation sub-segment's underwriting profit increased by $22 million (67%) in Q3 2025.
• Favorable prior year reserve development of $24 million was recorded in Specialty P&C operations in Q3 2025.
• The company maintains a strong financial position, with insurance subsidiaries holding capital at or exceeding levels required by ratings agencies.
• The parent company has no debt maturities until 2030, providing financial stability.
• A special cash dividend of $2.00 per share was declared, signaling confidence in capital generation and commitment to shareholder returns.
• Approximately 96% of the fixed maturities held were rated investment grade, indicating a high-quality investment portfolio.

Negatives

• Net earnings for the first nine months of 2025 decreased to $543 million from $632 million in 9M 2024.
• Core net operating earnings for the first nine months of 2025 decreased by $85 million compared to 9M 2024.
• Property & Casualty underwriting profit decreased by $75 million (18%) for the first nine months of 2025.
• The overall P&C combined ratio deteriorated to 93.4% in 9M 2025 from 91.9% in 9M 2024.
• Net investment income in P&C operations decreased by $35 million (6%) for the first nine months of 2025, primarily due to lower returns on alternative investments.
• Special A&E charges increased to $25 million pretax in Q3 2025 and 9M 2025, up from $14 million in the comparable 2024 periods.
• The Specialty casualty sub-segment's underwriting profit decreased significantly by $30 million (48%) in Q3 2025 and $108 million (51%) in 9M 2025.
• Net prior year reserve development for Specialty P&C operations decreased to $56 million favorable in 9M 2025 from $104 million favorable in 9M 2024.
• Gross written premiums decreased by $83 million (2%) in Q3 2025, primarily due to earlier reporting of crop acreage.
• Net written premiums decreased by $101 million (4%) in Q3 2025.
• The underwriting expense ratio increased by 1.0 percentage point in Q3 2025 and 1.1 percentage points in 9M 2025, reflecting higher software costs and increased commission rates in some areas.
• Lower income on fixed maturity investments for holding company and other operations contributed to an $4 million (18%) decrease in net investment income in 9M 2025.
• The impact of a surge in new apartment supply in certain markets reduced the fair value of some multi-family investments, tempering the performance of alternative investment portfolio in 9M 2025.

Risks

• Changes in financial, political, and economic conditions, including interest and inflation rates, tariffs, currency fluctuations, and economic recessions or expansions.
• Performance of securities markets, which can impact investment portfolio valuation.
• New legislation or declines in credit quality or credit ratings that could materially impact the valuation of securities in the investment portfolio.
• Availability of capital for operations and growth initiatives.
• Changes in insurance law or regulation, including statutory accounting rules and modifications to capital requirements.
• Changes in the legal environment affecting the company or its customers.
• Tax law and accounting changes.
• Levels of natural catastrophes and severe weather, terrorist activities, incidents of war, pandemics, civil unrest, and other major losses.
• Disruption caused by cyber-attacks or other technology breaches or failures by the company or its business partners and service providers.
• Development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims.
• Availability of reinsurance and the ability of reinsurers to pay their obligations.
• Competitive pressures within the insurance industry.
• The ability to obtain adequate rates and policy terms for insurance products.
• Changes in the company's credit ratings or the financial strength ratings assigned by major ratings agencies to its operating subsidiaries.
• The impact of conditions in the international financial markets and the global economy relating to international operations.
• Uncertainty regarding the adequacy of insurance reserves and contingencies arising out of former railroad and manufacturing operations.
• Potential for material increases in the allowance for credit losses on fixed maturity investments if the ability or intent to hold them until recovery changes.
• Significant declines in the fair value of the investment portfolio could have a significant adverse effect on liquidity.

Future Outlook

Management expects continued premium growth across many business units and strong underwriting results in the favorable property and casualty insurance market. The elevated interest rate environment is anticipated to positively impact investment income on fixed maturity investments into 2026. The company believes its strong financial position, liquidity, and capital at its subsidiaries will enable it to effectively address future challenges. The recently enacted One Big Beautiful Bill Act is not expected to materially impact future results of operations.

Management Comments

• "Management expects premium growth in many of AFG's business units and continued strong underwriting results in the ongoing generally favorable property and casualty insurance market."
• "Management anticipates the elevated interest rate environment (since early 2022) will continue to have a positive impact on investment income on fixed maturity investments into 2026."
• "Management believes that AFG's strong financial position and current liquidity and capital at its subsidiaries will give AFG the flexibility to continue to effectively address and respond to anticipated and unanticipated challenges."
• "AFG's insurance subsidiaries continue to have capital at or in excess of the levels required by ratings agencies in order to maintain their current ratings, and the parent company does not have any debt maturities until 2030."
• "Management believes AFG has sufficient resources to meet its liquidity requirements."
• "Management believes AFG will recover its cost basis (net of any allowance) in the fixed maturity securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at September 30, 2025."

Industry Context

The company operates within a generally favorable property and casualty insurance market, benefiting from premium growth opportunities and a good renewal rate environment. The elevated interest rate environment since early 2022 is expected to continue positively impacting investment income from fixed maturity investments. However, the industry faces challenges from economic inflation, social inflation, and supply chain disruptions, which can affect premium levels, loss cost trends, and investment returns. A surge in new apartment supply has also impacted the fair value of certain multi-family investments, affecting alternative investment performance.

Comparison to Industry Standards

• The property and casualty insurance segment's three-year survival ratio for asbestos reserves (22.6 times paid losses) compares favorably with the industry average of 8.7 times paid losses (AM Best, December 31, 2024).
• The property and casualty insurance segment's three-year survival ratio for environmental reserves (38.5 times paid losses) compares favorably with the industry average of 7.5 times paid losses (AM Best, December 31, 2024).
• The property and casualty insurance segment's total A&E three-year survival ratio (27.4 times paid losses) compares favorably with the industry average of 8.4 times paid losses (AM Best, December 31, 2024).

Legal Proceedings

• No significant changes to the matters discussed and referred to in Note M Contingencies of the 2024 Form 10-K, which covers property and casualty insurance reserves for environmental exposures, asbestos, and other mass tort claims, and environmental and occupational injury and disease claims of former railroad and manufacturing operations.
• A $7 million net tax expense was recorded in Q2 2025 related to a pending state income tax examination regarding the sale of a subsidiary in a prior year.
• A $4 million net tax expense was recorded in Q2 2024 related to a pending IRS settlement regarding the sale of a different subsidiary in a prior year.

Stakeholder Impact

• Shareholders: Positive impact from increased Q3 net earnings, special cash dividend declaration, and ongoing share repurchase program. Potential negative impact from decreased 9M net earnings and higher A&E charges.
• Employees: Stock incentive plans are in place, with compensation expense recognized.
• Customers: Continued strong underwriting results and premium growth suggest stable service and pricing environment.
• Creditors: Issuance of new senior notes, but no debt maturities until 2030, and strong capital levels in insurance subsidiaries provide stability.

Next Steps

• Management is evaluating the full impact of the One Big Beautiful Bill Act, but does not expect the tax provisions to be material to future results of operations.
• Management is evaluating the impact of ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2024-03 (Disaggregation of Income Statement Expenses) on disclosures, but not on financial condition or results of operations.
• The company may, at any time and from time to time, seek to retire or purchase its outstanding debt through cash purchases or exchanges for equity or debt.

Key Dates

Recommendation

While Q3 results show strong performance with improved underwriting profit and lower catastrophe losses, the nine-month period reflects a decline in overall net earnings and core operating earnings, primarily due to lower returns from alternative investments and reduced underwriting profit in some key segments. The increase in special A&E charges is a concern. However, the company maintains a strong capital position, favorable A&E reserve survival ratios compared to industry benchmarks, and a positive outlook for premium growth and investment income from elevated interest rates. The declaration of a special dividend signals confidence in capital generation. The mixed performance warrants a 'hold' as investors assess whether the Q3 improvements can offset the 9M declines and if the positive outlook materializes amidst ongoing challenges in alternative investments and social inflation.

Keywords

Property and casualty insurance, Specialty insurance, Underwriting profit, Combined ratio, Net earned premiums, Net investment income, Catastrophe losses, Asbestos and environmental liabilities, SEC filing, 10-Q, Financial results, Insurance reserves, Share repurchases, Dividends, CLOs, Radion Insurance Holdings, Senior Notes, Alternative investments