American Financial Group Inc.

05/07/2026 | Press release | Distributed by Public on 05/07/2026 13:32

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
INDEX TO MD&A
Page Page
Forward-Looking Statements
29
Managed Investment Entities
37
Overview
30
Results of Operations
39
Critical Accounting Policies
30
General
39
Liquidity and Capital Resources
31
Segmented Statement of Earnings
40
Ratios
31
Property and Casualty Insurance
41
Condensed Consolidated Cash Flows
31
Holding Company, Other and Unallocated
49
Parent and Subsidiary Liquidity
32
Recent Accounting Standards
50
Investments
33
Uncertainties
36
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Some of the forward-looking statements can be identified by the use of words such as "anticipates", "believes", "expects", "projects", "estimates", "intends", "plans", "seeks", "could", "may", "should", "will" or the negative version of those words or other comparable terminology. Such forward-looking statements include statements relating to: expectations concerning market and other conditions and their effect on future premiums, revenues, earnings, investment activities and the amount and timing of share repurchases and special dividends; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.
Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to the following and the risks and uncertainties AFG describes in the "Risk Factors" section of its most recent Annual Report on Form 10-K, as updated by its other reports filed with the Securities and Exchange Commission, including:
•whether or not the sale of Charleston Harbor Resort & Marina closes and AFG's net gain as a result of the sale;
•changes in financial, political and economic conditions, including changes in interest and inflation rates and impacts from tariffs or other trade actions, currency fluctuations and extended economic recessions or expansions in the U.S. and/or abroad;
•performance of securities markets;
•new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG's investment portfolio;
•the availability of capital;
•changes in insurance law or regulation, including changes in statutory accounting rules, including modifications to capital requirements;
•changes in the legal environment affecting AFG or its customers;
•tax law and accounting changes;
•levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from pandemics, civil unrest and other major losses;
•disruption caused by cyber-attacks or other technology breaches or failures by AFG or its business partners and service providers, which could negatively impact AFG's business or reputation and/or expose AFG to litigation;
•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 ability of reinsurers to pay their obligations;
•competitive pressures;
•the ability to obtain adequate rates and policy terms;
•changes in AFG's credit ratings or the financial strength ratings assigned by major ratings agencies to AFG's operating subsidiaries; and
•the impact of the conditions in the international financial markets and the global economy relating to AFG's international operations.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
The forward-looking statements herein are made only as of the date of this report. The Company assumes no obligation to publicly update any forward-looking statements.
OBJECTIVE
The objective of Management's Discussion and Analysis is to provide a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of AFG's financial condition, changes in financial condition and results of operations. The tables and narrative that follow are presented in a manner that is consistent with the information that AFG's management uses to make operational decisions and allocate capital resources. They are provided to demonstrate the nature of the transactions and events that could impact AFG's financial results. This discussion should be read in conjunction with the financial statements beginning on page 2.
OVERVIEW
Financial Condition
AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends and taxes. Therefore, certain analyses are most meaningfully presented on a parent only basis while others are best done on a total enterprise basis. In addition, because its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.
Results of Operations
Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses.
AFG reported net earnings of $191 million ($2.29 per share, diluted) for the first three months of 2026 compared to $154 million ($1.84 per share, diluted) for the first three months of 2025, reflecting higher underwriting profit.
Outlook
Management expects overall premium growth and strong underwriting results in the current property and casualty insurance market. In addition, management anticipates improved returns on alternative investments, relative to the returns earned in 2025 and the first quarter of 2026, will have a positive impact on net investment income beginning in the second half of 2026.
AFG's financial condition, results of operations and cash flows are impacted by the economic, legal and regulatory environment. Economic inflation, social inflation and other economic conditions may impact premium levels, loss cost trends and investment returns.
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.
CRITICAL ACCOUNTING POLICIES
Significant accounting policies are summarized in Note A - "Accounting Policies" to the financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions change and, thus, impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements is most significant are as follows:
•the valuation of investments, including the determination of impairment allowances,
•the establishment of insurance reserves, especially asbestos and environmental-related reserves,
•the recoverability of reinsurance, and
•the establishment of asbestos and environmental liabilities of former railroad and manufacturing operations.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
For a discussion of these policies, see Management's Discussion and Analysis - "Critical Accounting Policies" in AFG's 2025 Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Ratios
AFG's debt to total capital ratio on a consolidated basis is shown below (dollars in millions):
December 31,
March 31, 2026 2025 2024
Principal amount of long-term debt $ 1,848 $ 1,848 $ 1,498
Total capital 6,653 6,718 6,204
Ratio of debt to total capital:
Including subordinated debt 27.8 % 27.5 % 24.1 %
Excluding subordinated debt 17.6 % 17.5 % 13.3 %
The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and ratings agencies to evaluate AFG's financial strength and liquidity and to provide insight into how AFG finances its operations. The ratio is calculated by dividing the principal amount of AFG's long-term debt by its total capital, which includes long-term debt and shareholders' equity (excluding accumulated other comprehensive income (loss), net of tax). In addition, maintaining a ratio of debt, excluding subordinated debt and debt secured by real estate (if any), to total capital of 35% or lower is a financial covenant in AFG's bank credit facility.
Condensed Consolidated Cash Flows
AFG's principal sources of cash include insurance premiums, income from its investment portfolio and proceeds from the maturities, redemptions and sales of investments. Insurance premiums in excess of acquisition expenses and operating costs are invested until they are needed to meet policyholder obligations or made available to the parent company through dividends to cover debt obligations and corporate expenses, and to provide returns to shareholders through share repurchases and dividends. Cash flows from operating, investing and financing activities as detailed in AFG's Consolidated Statement of Cash Flows are shown below (in millions):
Three months ended March 31,
2026 2025
Net cash provided by operating activities $ 474 $ 342
Net cash provided by (used in) investing activities (613) 23
Net cash used in financing activities (235) (495)
Net change in cash and cash equivalents $ (374) $ (130)
Net Cash Provided by Operating Activities AFG's property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses. AFG's net cash provided by operating activities is impacted by the level and timing of premiums, claim and expense payments and recoveries from reinsurers. Cash flows provided by operating activities also include the activity of AFG's managed investment entities (collateralized loan obligations ("CLO")) other than those activities included in investing or financing activities. The changes in the assets and liabilities of the managed investment entities included in operating activities increased cash flows from operating activities by $162 million during the first three months of 2026 and $42 million in the first three months of 2025, accounting for a $120 million increase in cash flows from operating activities in the 2026 period compared to the 2025 period. As discussed in Note A - "Accounting Policies - Managed Investment Entities" to the financial statements, AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities and such assets and liabilities are shown separately in AFG's Balance Sheet. Excluding the impact of the managed investment entities, net cash provided by operating activities was $312 million and $300 million in the first three months of 2026 and 2025, respectively.
Net Cash Provided by (Used in) Investing Activities AFG's investing activities consist primarily of the investment of funds provided by its property and casualty businesses. Investing activities also include the purchase and disposal of managed investment entity investments, which are presented separately in AFG's Balance Sheet. Net
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
investment activity in the managed investment entities was a $173 million use of cash in the first three months of 2026 compared to a $218 million source of cash in the first three months of 2025, accounting for a $391 million increase in net cash used in investing activities in the first three months of 2026 compared to the 2025 period. See Note A - "Accounting Policies - Managed Investment Entities" and Note F - "Managed Investment Entities" to the financial statements. Excluding the activity of the managed investment entities, investing activities were a $440 million use of cash in the first three months of 2026 compared to $195 million in the first three months of 2025, an increase of $245 million reflecting the investment of cash in fixed maturity investments.
Net Cash Used in Financing Activities AFG's financing activities consist primarily of issuances and retirements of long-term debt, issuances and repurchases of Common Stock and dividend payments. Net cash used in financing activities was $235 million for the first three months of 2026 compared to $495 million in the first three months of 2025, a decrease of $260 million. AFG paid cash dividends totaling $198 million in the first three months of 2026 compared to $233 million in the first three months of 2025, resulting in a $35 million decrease in cash used in financing activities in the 2026 quarter compared to the 2025 quarter. During the first three months of 2026, AFG repurchased $60 million of its Common Stock compared to $58 million in the comparable 2025 period, an increase in cash used in financing activities of $2 million. Financing activities also include issuances and retirements of managed investment entity liabilities, which are nonrecourse to AFG and presented separately in AFG's Balance Sheet. Issuances of managed investment entity liabilities exceeded retirements by $21 million in the first three months of 2026 compared to retirements exceeding issuances by $207 million in the first three months of 2025, accounting for a $228 million decrease in net cash used in financing activities in the 2026 period compared to the 2025 period. See Note A - "Accounting Policies - Managed Investment Entities" and Note F - "Managed Investment Entities" to the financial statements.
Parent and Subsidiary Liquidity
Parent Holding Company Liquidity Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and investments or to generate cash through borrowings, sales of other assets or similar transactions.
AFG's operations continue to generate significant excess capital for future returns of capital to shareholders in the form of regular and special cash dividends and through opportunistic share repurchases or to be deployed into its property and casualty businesses as management identifies the potential for profitable organic growth, and opportunities to expand through acquisitions of established businesses or start-ups that meet target return thresholds.
During the first three months of 2026, AFG repurchased 466,097 shares of its Common Stock for $60 million and paid a special cash dividend totaling $125 million ($1.50 per share) in February.
In September 2025, AFG issued $350 million in 5.00% Senior Notes due in September 2035.
During 2025, AFG repurchased 799,398 shares of its Common Stock for $99 million and paid special cash dividends totaling $334 million ($2.00 per share in both March and November).
AFG 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, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, AFG's liquidity requirements, contractual restrictions and other factors.
At March 31, 2026, AFG (parent) held approximately $408 million in cash and investments. Management believes that AFG's cash balances are held at stable banking institutions, although the amounts of many of these deposits are in excess of federally insured balances. AFG can borrow up to $450 million under its revolving credit facility, which expires in June 2028. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.75% (based on AFG's credit rating, currently 1.25%) over a SOFR-based floating rate. There were no borrowings under AFG's credit facility, or under any other parent company short-term borrowing arrangements, during 2025 or the first three months of 2026.
Under a tax allocation agreement with AFG, all 80% (or more) owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary's contribution to amounts due under AFG's consolidated tax return.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Subsidiary Liquidity The liquidity requirements of AFG's insurance subsidiaries relate primarily to the policyholder claims and underwriting expenses and payments of dividends and taxes to AFG. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements. Funds received in excess of cash requirements are generally invested in marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short duration investments.
AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and underwriting expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Management believes that the capital levels in AFG's insurance subsidiaries are adequate to maintain its business and rating agency ratings. Nonetheless, changes in statutory accounting rules, changes in rating agency measures, significant declines in the fair value of the insurance subsidiaries' investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital.
Investments
AFG's investment portfolio at March 31, 2026, contained $11.40 billion in fixed maturity securities classified as available for sale and carried at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) and $80 million in fixed maturities classified as trading with holding gains and losses included in net investment income. In addition, AFG's investment portfolio includes $555 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $198 million in equity securities carried at fair value with holding gains and losses included in net investment income. AFG's investment portfolio also includes $2.44 billion in investments accounted for using the equity method (limited partnerships and similar investments). Under the equity method, AFG records its share of the earnings or losses of the investee based on when it is reported by the investee in its financial statements rather than in the period in which the investee declares a dividend. AFG's share of the earnings or losses from equity method investments is included in net investment income and is generally recorded on a quarter lag due to the timing of the receipt of the investee's financial statements.
Fair values for AFG's portfolio are determined by AFG's internal investment professionals using data from nationally recognized pricing services, non-binding broker quotes and other market information. Fair values of equity securities are determined by published closing prices when available. For AFG's fixed maturity portfolio, approximately 91% was priced using pricing services at March 31, 2026 and 2% was priced using non-binding broker quotes. The remaining 7% was priced internally using a variety of inputs including credit spreads, trade information, prices of comparable securities, estimates of cash flow and other security specific features. When prices obtained for the same security vary, AFG's internal investment professionals select the price they believe is most indicative of an exit price. For additional information on determination of fair value, see Note C - "Fair Value Measurements" to the financial statements.
The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of structured securities are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers' prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs.
Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG's internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the services to value specific securities.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
In general, the fair value of AFG's fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG's fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have had at March 31, 2026 (dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.
Fair value of fixed maturity portfolio $ 11,477
Percentage impact on fair value of 100 bps increase in interest rates (3.5 %)
Pretax impact on fair value of fixed maturity portfolio $ (402)
Approximately 96% of the fixed maturities held by AFG at March 31, 2026, were rated "investment grade" (credit rating of AAA to BBB) by nationally recognized rating agencies, 1% were rated "non-investment grade" and 3% were not rated. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high-quality investment portfolio should generate a stable and predictable investment return.
AFG has $75 million of direct exposure to office commercial real estate through property ownership, mortgages or equity method investments. AFG's fixed maturity portfolio includes securities (the majority of which are AAA-rated) with a carrying value of approximately $235 million that have minimal exposure to office commercial real estate.
Summarized information for the unrealized gains and losses recorded in AFG's Balance Sheet at March 31, 2026, is shown in the following table (dollars in millions). There were $451 million of available for sale fixed maturity securities with no unrealized gains or losses at March 31, 2026.
Securities
With
Unrealized
Gains 		Securities
With
Unrealized
Losses
Available for Sale Fixed Maturities
Fair value of securities $ 4,912 $ 6,034
Amortized cost of securities, net of allowance for expected credit losses $ 4,800 $ 6,272
Gross unrealized gain (loss) $ 112 $ (238)
Fair value as % of amortized cost 102 % 96 %
Number of security positions 869 1,097
Number individually exceeding $2 million gain or loss 2 26
Concentration of gains (losses) by type or industry (exceeding 5% of unrealized):
Residential mortgage-backed securities
$ 32 $ (117)
Other asset-backed securities 21 (49)
Banking 13 (6)
States and municipalities 6 (35)
Percentage rated investment grade 97 % 97 %
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
The table below sets forth the scheduled maturities of AFG's available for sale fixed maturity securities at March 31, 2026, based on their fair values. Securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.
Securities
With
Unrealized
Gains 		Securities
With
Unrealized
Losses
Maturity
One year or less 3 % 8 %
After one year through five years 22 % 15 %
After five years through ten years 17 % 10 %
After ten years 1 % 3 %
43 % 36 %
CLOs and other asset-backed securities (average life of approximately 3.5 years)
35 % 30 %
Residential mortgage-backed securities (average life of approximately 6 years)
22 % 34 %
100 % 100 %
The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount:
Aggregate
Fair
Value 		Aggregate
Unrealized
Gain (Loss) 		Fair
Value as
% of Cost
Fixed Maturities at March 31, 2026
Securities with unrealized gains:
Exceeding $500,000 (44 securities)
$ 691 $ 39 106 %
$500,000 or less (825 securities)
4,221 73 102 %
$ 4,912 $ 112 102 %
Securities with unrealized losses:
Exceeding $500,000 (95 securities)
$ 1,324 $ (150) 90 %
$500,000 or less (1,002 securities)
4,710 (88) 98 %
$ 6,034 $ (238) 96 %
The following table (dollars in millions) summarizes the unrealized losses for all securities with unrealized losses by issuer quality and the length of time those securities have been in an unrealized loss position:
Aggregate
Fair
Value 		Aggregate
Unrealized
Loss 		Fair
Value as
% of Cost
Securities with Unrealized Losses at March 31, 2026
Investment grade fixed maturities with losses for:
Less than one year (430 securities)
$ 3,300 $ (39) 99 %
One year or longer (535 securities)
2,561 (191) 93 %
$ 5,861 $ (230) 96 %
Non-investment grade fixed maturities with losses for:
Less than one year (40 securities)
$ 53 $ (2) 96 %
One year or longer (92 securities)
120 (6) 95 %
$ 173 $ (8) 96 %
When a decline in the value of a specific investment is considered to be other-than-temporary, an allowance for credit losses (impairment) is charged to earnings (accounted for as a realized loss). The determination of whether unrealized losses are other-than-temporary requires judgment based on subjective as well as objective factors as detailed in AFG's 2025 Form 10-K under Management's Discussion and Analysis - "Investments."
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Based on its analysis, 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 March 31, 2026. Although AFG has the ability to continue holding its fixed maturity investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers' creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG's ability or intent change regarding a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, increases in the allowance for credit losses could be material to results of operations in future periods. Significant declines in the fair value of AFG's investment portfolio could have a significant adverse effect on AFG's liquidity. For information on AFG's realized gains (losses) on securities, see "Results of Operations - Realized Gains (Losses) on Securities."
Uncertainties
Management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations. See Management's Discussion and Analysis - "Uncertainties - Asbestos and Environmental-related ("A&E") Insurance Reserves" in AFG's 2025 Form 10-K.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
MANAGED INVESTMENT ENTITIES
Accounting standards require AFG to consolidate its investments in collateralized loan obligation ("CLO") entities that it manages and owns an interest in (in the form of debt). See Note A - "Accounting Policies - Managed Investment Entities" and Note F - "Managed Investment Entities" to the financial statements. The effect of consolidating these entities is shown in the tables below (in millions). The "Before CLO Consolidation" columns include AFG's investment and earnings in the CLOs on an unconsolidated basis.
CONDENSED CONSOLIDATING BALANCE SHEET
Before CLO
Consolidation 		Managed
Investment
Entities 		Consol.
Entries 		Consolidated
As Reported
March 31, 2026
Assets:
Cash and investments $ 17,276 $ - $ (133) (*) $ 17,143
Assets of managed investment entities - 3,987 - 3,987
Other assets 11,223 - - (*) 11,223
Total assets $ 28,499 $ 3,987 $ (133) $ 32,353
Liabilities:
Unpaid losses and loss adjustment expenses and unearned premiums
$ 18,825 $ - $ - $ 18,825
Liabilities of managed investment entities - 3,977 (123) (*) 3,854
Long-term debt and other liabilities 4,996 - - 4,996
Total liabilities 23,821 3,977 (123) 27,675
Shareholders' equity:
Common Stock and Capital surplus 1,511 10 (10) 1,511
Retained earnings 3,294 - - 3,294
Accumulated other comprehensive income (loss), net of tax (127) - - (127)
Total shareholders' equity 4,678 10 (10) 4,678
Total liabilities and shareholders' equity $ 28,499 $ 3,987 $ (133) $ 32,353
December 31, 2025
Assets:
Cash and investments $ 17,325 $ - $ (143) (*) $ 17,182
Assets of managed investment entities - 4,050 - 4,050
Other assets 11,410 - - (*) 11,410
Total assets $ 28,735 $ 4,050 $ (143) $ 32,642
Liabilities:
Unpaid losses and loss adjustment expenses and unearned premiums
$ 18,830 $ - $ - $ 18,830
Liabilities of managed investment entities
- 4,050 (143) (*) 3,907
Long-term debt and other liabilities
5,085 - - 5,085
Total liabilities 23,915 4,050 (143) 27,822
Shareholders' equity:
Common Stock and Capital surplus 1,513 - - 1,513
Retained earnings 3,357 - - 3,357
Accumulated other comprehensive income (loss), net of tax (50) - - (50)
Total shareholders' equity 4,820 - - 4,820
Total liabilities and shareholders' equity $ 28,735 $ 4,050 $ (143) $ 32,642
(*)Elimination of the fair value of AFG's investment in CLOs and related accrued interest.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Before CLO
Consol. (a) 		Managed
Investment
Entities 		Consol.
Entries 		Consolidated
As Reported
Three months ended March 31, 2026
Revenues:
Net earned premiums
$ 1,609 $ - $ - $ 1,609
Net investment income 174 - 13 (b) 187
Realized gains (losses) on securities
(18) - - (18)
Income of managed investment entities:
Investment income - 67 - 67
Gain (loss) on change in fair value of assets/liabilities - 1 (21) (b) (20)
Other income 31 - (2) (c) 29
Total revenues 1,796 68 (10) 1,854
Costs and Expenses:
Insurance benefits and expenses 1,462 - - 1,462
Expenses of managed investment entities - 68 (10) (b)(c) 58
Interest charges on borrowed money and other expenses 95 - - 95
Total costs and expenses 1,557 68 (10) 1,615
Earnings before income taxes 239 - - 239
Provision for income taxes 48 - - 48
Net earnings $ 191 $ - $ - $ 191
Three months ended March 31, 2025
Revenues:
Net earned premiums
$ 1,580 $ - $ - $ 1,580
Net investment income 175 - (2) (b) 173
Realized gains (losses) on securities
3 - - 3
Income of managed investment entities:
Investment income - 76 - 76
Gain (loss) on change in fair value of assets/liabilities - 5 (8) (b) (3)
Other income 30 - (3) (c) 27
Total revenues 1,788 81 (13) 1,856
Costs and Expenses:
Insurance benefits and expenses 1,495 - - 1,495
Expenses of managed investment entities - 79 (11) (b)(c) 68
Interest charges on borrowed money and other expenses 96 - - 96
Total costs and expenses 1,591 79 (11) 1,659
Earnings before income taxes 197 2 (2) 197
Provision for income taxes 43 - - 43
Net earnings $ 154 $ 2 $ (2) $ 154
(a)Includes a loss of $13 million in the first three months of 2026 and income of $2 million in the first three months of 2025, representing the change in fair value of AFG's CLO investments and $2 million and $3 million of income in the first three months of 2026 and 2025, respectively, in CLO management fees earned.
(b)Elimination of the change in fair value of AFG's investments in the CLOs, including $8 million in both the first three months of 2026 and 2025, in distributions recorded as interest expense by the CLOs.
(c)Elimination of management fees earned by AFG.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS
General
AFG's net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. Core net operating earnings excludes realized gains (losses) on securities because such gains and losses are influenced significantly by financial markets, interest rates and the timing of sales. In addition, special charges related to coverage that AFG no longer writes, such as asbestos and environmental exposures, are excluded from core earnings.
The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings to core net operating earnings, a non-GAAP financial measure. AFG believes core net operating earnings is a useful tool for investors and analysts in analyzing ongoing operating trends and for management to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business.
Three months ended March 31,
2026 2025
Components of net earnings:
Core operating earnings before income taxes $ 257 $ 194
Pretax non-core item:
Realized gains (losses) on securities
(18) 3
Earnings before income taxes 239 197
Provision for income taxes:
Core operating earnings 51 42
Non-core item:
Realized gains (losses) on securities
(3) 1
Total provision for income taxes 48 43
Net earnings $ 191 $ 154
Net earnings:
Core net operating earnings $ 206 $ 152
Realized gains (losses) on securities
(15) 2
Net earnings $ 191 $ 154
Diluted per share amounts:
Core net operating earnings $ 2.47 $ 1.81
Realized gains (losses) on securities
(0.18) 0.03
Net earnings $ 2.29 $ 1.84
Net earnings were $191 million in the first three months of 2026 compared to $154 million in the first three months of 2025 reflecting higher core net operating earnings partially offset by net realized losses on securities in the first three months of 2026 compared to net realized gains on securities in the first three months of 2025. Core net operating earnings in the first three months of 2026 increased $54 million compared to the first three months of 2025 reflecting higher underwriting profit. Net realized losses on securities in the first three months of 2026 include after-tax losses of $13 million and net realized gains on securities in the first three months of 2025 include after-tax gains of $5 million, resulting from the change in fair value of equity securities that were still held at the balance sheet date.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2026 AND 2025
Segmented Statement of Earnings
AFG reports its operations as two segments: (i) Property and casualty insurance ("P&C") and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities ("MIEs").
AFG's net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the three months ended March 31, 2026 and 2025 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions):
Other
P&C Consol. MIEs Holding Co., other and unallocated Total Non-core reclass GAAP Total
Three months ended March 31, 2026
Revenues:
Net earned premiums
$ 1,609 $ - $ - $ 1,609 $ - $ 1,609
Net investment income 168 13 6 187 - 187
Realized gains (losses) on securities
- - - - (18) (18)
Income of MIEs:
Investment income - 67 - 67 - 67
Gain (loss) on change in fair value of assets/liabilities
- (20) - (20) - (20)
Other income 4 (2) 27 29 - 29
Total revenues 1,781 58 33 1,872 (18) 1,854
Costs and Expenses:
Losses and loss adjustment expenses 906 - - 906 - 906
Commissions and other underwriting expenses 547 - 9 556 - 556
Interest charges on borrowed money - - 23 23 - 23
Expenses of MIEs - 58 - 58 - 58
Other expenses 19 - 53 72 - 72
Total costs and expenses 1,472 58 85 1,615 - 1,615
Earnings before income taxes 309 - (52) 257 (18) 239
Provision for income taxes 62 - (11) 51 (3) 48
Core Net Operating Earnings 247 - (41) 206
Non-core earnings (loss) (*):
Realized gains (losses) on securities, net of tax
- - (15) (15) 15 -
Net Earnings $ 247 $ - $ (56) $ 191 $ - $ 191
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Other
P&C Consol. MIEs Holding Co., other and unallocated Total Non-core reclass GAAP Total
Three months ended March 31, 2025
Revenues:
Net earned premiums
$ 1,580 $ - $ - $ 1,580 $ - $ 1,580
Net investment income 170 (2) 5 173 - 173
Realized gains (losses) on securities
- - - - 3 3
Income of MIEs:
Investment income - 76 - 76 - 76
Gain (loss) on change in fair value of assets/liabilities
- (3) - (3) - (3)
Other income 3 (3) 27 27 - 27
Total revenues 1,753 68 32 1,853 3 1,856
Costs and Expenses:
Losses and loss adjustment expenses 965 - - 965 - 965
Commissions and other underwriting expenses 521 - 9 530 - 530
Interest charges on borrowed money - - 19 19 - 19
Expenses of MIEs - 68 - 68 - 68
Other expenses 21 - 56 77 - 77
Total costs and expenses 1,507 68 84 1,659 - 1,659
Earnings before income taxes 246 - (52) 194 3 197
Provision for income taxes 53 - (11) 42 1 43
Core Net Operating Earnings 193 - (41) 152
Non-core earnings (loss) (*):
Realized gains (losses) on securities, net of tax
- - 2 2 (2) -
Net Earnings $ 193 $ - $ (39) $ 154 $ - $ 154
(*)See the reconciliation of core earnings to GAAP net earnings under "Results of Operations - General" for details on the tax impacts of these reconciling items.
Property and Casualty Insurance Segment - Results of Operations
Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company's performance. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses and loss adjustment expenses, and commissions and other underwriting expenses to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect net investment income, other income, other expenses or federal income taxes.
AFG's property and casualty insurance operations contributed $309 million in pretax earnings in the first three months of 2026 compared to $246 million in the first three months of 2025, an increase of $63 million (26%), reflecting higher underwriting profit.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
The following table details AFG's earnings before income taxes from its property and casualty insurance operations for the three months ended March 31, 2026 and 2025 (dollars in millions):
Three months ended March 31,
2026 2025 % Change
Gross written premiums $ 2,435 $ 2,291 6 %
Reinsurance premiums ceded (771) (680) 13 %
Net written premiums 1,664 1,611 3 %
Change in unearned premiums (55) (31) 77 %
Net earned premiums 1,609 1,580 2 %
Loss and loss adjustment expenses 906 965 (6 %)
Commissions and other underwriting expenses 547 521 5 %
Underwriting gain 156 94 66 %
Net investment income 168 170 (1 %)
Other income and expenses, net (15) (18) (17 %)
Earnings before income taxes
$ 309 $ 246 26 %
Three months ended March 31,
2026 2025 Change
Combined Ratios:
Specialty lines
Loss and LAE ratio 56.3 % 61.0 % (4.7 %)
Underwriting expense ratio 34.0 % 33.0 % 1.0 %
Combined ratio 90.3 % 94.0 % (3.7 %)
Aggregate - including exited lines
Loss and LAE ratio 56.4 % 61.1 % (4.7 %)
Underwriting expense ratio 34.0 % 33.0 % 1.0 %
Combined ratio 90.4 % 94.1 % (3.7 %)
AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.
To understand the overall profitability of particular lines, the timing of claims payments and the related impact of investment income must be considered. Certain "short-tail" lines of business (primarily property coverages) generally have quick loss payouts, which reduce the time funds are held, thereby limiting investment income earned thereon. In contrast, "long-tail" lines of business (primarily liability coverages and workers' compensation) generally have payouts that are either structured over many years or take many years to settle, thereby significantly increasing investment income earned on related premiums received.
Gross Written Premiums
Gross written premiums ("GWP") were $2.44 billion for the first three months of 2026 compared to $2.29 billion for the first three months of 2025, an increase of $144 million (6%). Detail of gross written premiums is shown below (dollars in millions):
Three months ended March 31,
2026 2025
GWP % GWP % % Change
Property and transportation $ 999 41 % $ 897 39 % 11 %
Specialty casualty 1,089 45 % 1,068 47 % 2 %
Specialty financial 347 14 % 326 14 % 6 %
$ 2,435 100 % $ 2,291 100 % 6 %
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Reinsurance Premiums Ceded
Reinsurance premiums ceded ("Ceded") were 32% of gross written premiums for the first three months of 2026 compared to 30% for the first three months of 2025, an increase of 2 percentage points. Detail of reinsurance premiums ceded is shown below (dollars in millions):
Three months ended March 31,
2026 2025 Change in
Ceded % of GWP Ceded % of GWP % of GWP
Property and transportation $ (403) 40 % $ (334) 37 % 3 %
Specialty casualty (300) 28 % (296) 28 % - %
Specialty financial (68) 20 % (50) 15 % 5 %
$ (771) 32 % $ (680) 30 % 2 %
Net Written Premiums
Net written premiums ("NWP") were $1.66 billion for the first three months of 2026 compared to $1.61 billion for the first three months of 2025, an increase of $53 million (3%). Detail of net written premiums is shown below (dollars in millions):
Three months ended March 31,
2026 2025
NWP % NWP % % Change
Property and transportation $ 596 36 % $ 563 35 % 6 %
Specialty casualty 789 47 % 772 48 % 2 %
Specialty financial 279 17 % 276 17 % 1 %
$ 1,664 100 % $ 1,611 100 % 3 %
Net Earned Premiums
Net earned premiums ("NEP") were $1.61 billion for the first three months of 2026 compared to $1.58 billion for the first three months of 2025, an increase of $29 million (2%). Detail of net earned premiums is shown below (dollars in millions):
Three months ended March 31,
2026 2025
NEP % NEP % % Change
Property and transportation $ 526 33 % $ 500 32 % 5 %
Specialty casualty 799 50 % 794 50 % 1 %
Specialty financial 284 17 % 286 18 % (1 %)
$ 1,609 100 % $ 1,580 100 % 2 %
Gross written premiums for the first three months of 2026 increased $144 million (6%) compared to the first three months of 2025 driven primarily by new business opportunities, a good renewal rate environment and increased exposures. Overall average renewal rates increased approximately 3% in the first three months of 2026. Excluding the workers' compensation businesses, renewal pricing increased approximately 5%.
Property and transportation Gross written premiums increased $102 million (11%) in the first three months of 2026 compared to the first three months of 2025. This increase was due primarily to growth in crop insurance products that are heavily ceded, and to a lesser extent, new business opportunities, higher exposures and a favorable rate environment in the transportation businesses. Average renewal rates increased approximately 6% for this group in the first three months of 2026. Reinsurance premiums ceded as a percentage of gross written premiums increased 3 percentage points in the first three months of 2026 compared to the first three months of 2025, reflecting growth in the heavily ceded crop insurance products.
Specialty casualty Gross written premiums increased $21 million (2%) in the first three months of 2026 compared to the first three months of 2025. The primary drivers of growth included new business opportunities and favorable renewal pricing in the targeted markets and workers' compensation businesses. This growth was tempered by heightened competitive conditions in the excess and surplus lines business. Average renewal rates increased approximately 3% for this group in the first three months of 2026. Excluding the workers' compensation businesses, renewal rates for this group
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
increased approximately 6%. Reinsurance premiums ceded as a percentage of gross written premiums in the first three months of 2026 were comparable to the first three months of 2025.
Specialty financial Gross written premiums increased $21 million (6%) in the first three months of 2026 compared to the first three months of 2025, due primarily to growth in the lender services businesses. Average renewal rates increased approximately 1% for this group in the first three months of 2026. Reinsurance premiums ceded as a percentage of gross written premiums increased 5 percentage points in the first three months of 2026 compared to the first three months of 2025, reflecting higher cessions of catastrophe exposed business in the financial institutions business.
Combined Ratio
The table below (dollars in millions) details the components of the combined ratio:
Three months ended March 31, Three months ended March 31,
2026 2025 Change 2026 2025
Property and transportation
Loss and LAE ratio 57.1 % 62.1 % (5.0 %)
Underwriting expense ratio 30.5 % 30.4 % 0.1 %
Combined ratio 87.6 % 92.5 % (4.9 %)
Underwriting profit $ 65 $ 37
Specialty casualty
Loss and LAE ratio 64.7 % 67.6 % (2.9 %)
Underwriting expense ratio 31.1 % 30.0 % 1.1 %
Combined ratio 95.8 % 97.6 % (1.8 %)
Underwriting profit $ 34 $ 20
Specialty financial
Loss and LAE ratio 31.2 % 41.1 % (9.9 %)
Underwriting expense ratio 48.8 % 45.9 % 2.9 %
Combined ratio 80.0 % 87.0 % (7.0 %)
Underwriting profit $ 57 $ 37
Total Specialty
Loss and LAE ratio 56.3 % 61.0 % (4.7 %)
Underwriting expense ratio 34.0 % 33.0 % 1.0 %
Combined ratio 90.3 % 94.0 % (3.7 %)
Underwriting profit $ 156 $ 94
Aggregate - including exited lines
Loss and LAE ratio 56.4 % 61.1 % (4.7 %)
Underwriting expense ratio 34.0 % 33.0 % 1.0 %
Combined ratio 90.4 % 94.1 % (3.7 %)
Underwriting profit $ 156 $ 94
The Specialty property and casualty insurance operations generated an underwriting profit of $156 million in the first three months of 2026 compared to $94 million in the first three months of 2025, an increase of $62 million (66%), reflecting higher year-over-year underwriting profit in each of the Specialty sub-segments. Overall catastrophe losses were $35 million (2.2 points on the combined ratio) in the first three months of 2026 compared to $72 million (4.5 points) in the first three months of 2025.
Property and transportation Underwriting profit for this group was $65 million for the first three months of 2026 compared to $37 million for the first three months of 2025, an increase of $28 million (76%), reflecting higher underwriting profit in the agricultural, transportation and ocean marine businesses. Catastrophe losses were $12 million (2.2 points on the combined ratio) in the first three months of 2026 compared to $10 million (2.0 points) in the first three months of 2025.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Specialty casualty Underwriting profit for this group was $34 million for the first three months of 2026 compared to $20 million for the first three months of 2025, an increase of $14 million (70%). Higher underwriting profit in the targeted markets, workers' compensation and executive and professional liability businesses were the principal drivers of these improved results. Catastrophe losses were $11 million (1.4 points on the combined ratio) in the first three months of 2026 compared to catastrophe losses of $27 million (3.4 points) in the first three months of 2025.
Specialty financial Underwriting profit for this group was $57 million for the first three months of 2026 compared to $37 million in the first three months of 2025, an increase of $20 million (54%), reflecting higher underwriting profit in the financial institutions and fidelity and crime businesses. Catastrophe losses were $12 million (4.2 points on the combined ratio) in the first three months of 2026 compared to $35 million (11.9 points) in the first three months of 2025.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Losses and Loss Adjustment Expenses
AFG's overall loss and LAE ratio was 56.4% for the first three months of 2026 compared to 61.1% for the first three months of 2025, a decrease of 4.7 percentage points. The components of losses and LAE amounts and ratio are detailed below (dollars in millions):
Three months ended March 31,
Amount Ratio Change in
2026 2025 2026 2025 Ratio
Property and transportation
Current year, excluding catastrophe losses $ 336 $ 320 63.9 % 64.0 % (0.1 %)
Prior accident years development (47) (19) (9.0 %) (3.9 %) (5.1 %)
Current year catastrophe losses including the impact of net reinstatement premiums 12 10 2.2 % 2.0 % 0.2 %
Property and transportation losses and LAE and ratio $ 301 $ 311 57.1 % 62.1 % (5.0 %)
Specialty casualty
Current year, excluding catastrophe losses $ 506 $ 497 63.3 % 62.6 % 0.7 %
Prior accident years development - 12 - % 1.6 % (1.6 %)
Current year catastrophe losses including the impact of net reinstatement premiums 11 27 1.4 % 3.4 % (2.0 %)
Specialty casualty losses and LAE and ratio $ 517 $ 536 64.7 % 67.6 % (2.9 %)
Specialty financial
Current year, excluding catastrophe losses $ 99 $ 96 34.9 % 33.8 % 1.1 %
Prior accident years development (23) (13) (7.9 %) (4.6 %) (3.3 %)
Current year catastrophe losses including the impact of net reinstatement premiums 12 35 4.2 % 11.9 % (7.7 %)
Specialty financial losses and LAE and ratio $ 88 $ 118 31.2 % 41.1 % (9.9 %)
Total Specialty
Current year, excluding catastrophe losses $ 941 $ 913 58.5 % 57.8 % 0.7 %
Prior accident years development (70) (20) (4.4 %) (1.3 %) (3.1 %)
Current year catastrophe losses including the impact of net reinstatement premiums 35 72 2.2 % 4.5 % (2.3 %)
Total Specialty losses and LAE and ratio $ 906 $ 965 56.3 % 61.0 % (4.7 %)
Aggregate - including exited lines
Current year, excluding catastrophe losses $ 941 $ 913 58.5 % 57.8 % 0.7 %
Prior accident years development (70) (20) (4.3 %) (1.3 %) (3.0 %)
Current year catastrophe losses including the impact of net reinstatement premiums 35 72 2.2 % 4.6 % (2.4 %)
Aggregate losses and LAE and ratio $ 906 $ 965 56.4 % 61.1 % (4.7 %)
Current accident year losses and LAE, excluding catastrophe losses
The current accident year loss and LAE ratio, excluding catastrophe losses, for AFG's Specialty property and casualty insurance operations was 58.5% for the first three months of 2026 compared to 57.8% for the first three months of 2025, an increase of 0.7 percentage points.
Property and transportation The 0.1 percentage points decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in the property and inland marine and ocean marine businesses, both of which have a lower loss and LAE ratio than some of the other businesses in the Property and transportation sub-segment, partially offset by growth in the transportation businesses, which has a higher loss and LAE ratio than some of the other businesses in the Property and transportation sub-segment.
Specialty casualty The 0.7 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in the workers' compensation and public sector businesses, both of which have a
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
higher loss and LAE ratio than some of the other businesses in the Specialty casualty sub-segment and a decrease in net earned premiums in the executive liability and the excess and surplus lines businesses, both of which have a lower loss and LAE ratio than some of the other businesses in the Specialty casualty sub-segment.
Specialty financial The 1.1 percentage points increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in AFG's European operations, which has a higher loss and LAE ratio than some of the other businesses in the Specialty financial sub-segment and a decrease in net earned premiums in the surety business, which has a lower loss and LAE ratio than some of the other businesses in the Specialty financial sub-segment.
Net prior year reserve development
AFG's Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $70 million in the first three months of 2026 compared to $20 million in the first three months of 2025, an increase of $50 million (250%).
Property and transportation Net favorable reserve development of $47 million in the first three months of 2026 reflects lower than anticipated losses in the crop business and lower than expected claim severity in the ocean marine and commercial auto businesses. Net favorable reserve development of $19 million in the first three months of 2025 reflects lower than anticipated losses in the crop business and lower than anticipated claim frequency and severity in the trucking business.
Specialty casualty Net favorable reserve development of less than $1 million in the first three months of 2026 reflects lower than anticipated claim severity in the workers' compensation businesses, offset by higher than anticipated severity in certain social inflation exposed businesses. Net adverse reserve development of $12 million in the first three months of 2025 reflects higher than anticipated claim severity in the excess liability businesses, partially offset by lower than anticipated claim severity in the workers' compensation businesses.
Specialty financial Net favorable reserve development of $23 million in the first three months of 2026 reflects lower than anticipated claim frequency in the fidelity and crime business and lower than expected claim severity in the surety business. Net favorable reserve development of $13 million in the first three months of 2025 reflects lower than anticipated claim frequency and severity in the financial institutions business.
Catastrophe losses
AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. AFG currently has comprehensive property catastrophe reinsurance coverage in place (including a $70 million per occurrence net retention) for losses up to $625 million in the vast majority of circumstances. This coverage consists of a combination of $205 million from traditional reinsurance and $350 million of coverage through a fully collateralized catastrophe bond. Based on data available at December 31, 2025, management estimates that AFG's exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 500 years is less than 3% of AFG's Shareholders' Equity.
Catastrophe losses of $35 million in the first three months of 2026 resulted primarily from winter and convective storms in multiple regions of the United States. Catastrophe losses of $72 million in the first three months of 2025 resulted primarily from California wildfires.
Commissions and Other Underwriting Expense
Commissions and other underwriting expenses ("U/W Exp") were $547 million in the first three months of 2026 compared to $521 million for the first three months of 2025, an increase of $26 million (5%). AFG's underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 34.0% for the first
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
three months of 2026 compared to 33.0% for the first three months of 2025, an increase of 1.0 percentage points. Detail of commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):
Three months ended March 31,
2026 2025 Change in
U/W Exp % of NEP U/W Exp % of NEP % of NEP
Property and transportation $ 160 30.5 % $ 152 30.4 % 0.1 %
Specialty casualty 248 31.1 % 238 30.0 % 1.1 %
Specialty financial 139 48.8 % 131 45.9 % 2.9 %
$ 547 34.0 % $ 521 33.0 % 1.0 %
Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.1 percentage points in the first three months of 2026 compared to the first three months of 2025. The increase reflects higher costs for software and other expenses associated with certain initiatives in IT security, customer experience and data analytics, partially offset by the impact of growth in the crop and transportation businesses, both of which have a lower commissions and other underwriting expense ratio than some of the other businesses in the Property and transportation sub-segment.
Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums increased 1.1 percentage points in the first three months of 2026 compared to the first three months of 2025 reflecting higher costs for software and other expenses associated with certain initiatives in IT security, customer experience and data analytics and lower reinsurance ceding commissions in certain excess and surplus businesses, partially offset by the impact of higher ceding commissions in the public sector business.
Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums increased 2.9 percentage points in the first three months of 2026 compared to the first three months of 2025 due primarily to higher costs for software and other expenses associated with certain initiatives in IT security, customer experience and data analytics and higher profit-based commissions to agents in the financial institutions business.
Property and Casualty Net Investment Income
Net investment income in AFG's property and casualty insurance operations was $168 million in the first three months of 2026 compared to $170 million in the first three months of 2025, a decrease of $2 million (1%). The average invested assets and overall yield earned on investments held by AFG's property and casualty insurance operations are provided below (dollars in millions):
Three months ended March 31,
2026 2025 Change % Change
Net investment income:
Net investment income, excluding alternative investments $ 171 $ 158 $ 13 8 %
Alternative investments (3) 12 (15) (125 %)
Total net investment income $ 168 $ 170 $ (2) (1 %)
Average invested assets (at amortized cost) $ 16,855 $ 15,881 $ 974 6 %
Yield (net investment income as a % of average invested assets):
Excluding alternative investments
4.87 % 4.81 % 0.06 %
Alternative investments
(0.43 %) 1.75 % (2.18 %)
Overall P&C portfolio
3.99 % 4.28 % (0.29 %)
Yield on fixed maturities (before investment expenses)
5.04 % 5.13 % (0.09 %)
The decrease in the property and casualty insurance segment's net investment income for the first three months of 2026 compared to the first three months of 2025 reflects the impact of lower returns on AFG's alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs), partially offset by higher balances of invested assets.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Property and Casualty Other Income and Expenses, Net
Other income and expenses, net for AFG's property and casualty insurance operations was a net expense of $15 million for the first three months of 2026 compared to $18 million for the first three months of 2025, an improvement of $3 million (17%). The table below details the items included in other income and expenses, net for AFG's property and casualty insurance operations (in millions):
Three months ended March 31,
2026 2025
Other income
$ 4 $ 3
Other expenses:
Amortization of intangibles 5 5
Interest expense on funds withheld 10 11
Other 4 5
Total other expenses 19 21
Other income and expenses, net $ (15) $ (18)
Holding Company, Other and Unallocated - Results of Operations
AFG's net pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $52 million in both the first three months of 2026 and 2025.
The following table details AFG's loss before income taxes from operations outside of its property and casualty insurance segment for the three months ended March 31, 2026 and 2025 (dollars in millions):
Three months ended March 31,
2026 2025 % Change
Revenues:
Net investment income $ 6 $ 5 20 %
Other income - P&C fees
25 25 - %
Other income
2 2 - %
Total revenues
33 32 3 %
Costs and Expenses:
P&C - loss adjustment and underwriting expenses
9 9 - %
Other expense - expenses associated with P&C fees
16 16 - %
Other expenses
37 40 (8 %)
Costs and expenses, excluding interest charges on borrowed money
62 65 (5 %)
Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money (29) (33) (12 %)
Interest charges on borrowed money
23 19 21 %
Loss before income taxes, excluding realized gains and losses
$ (52) $ (52) - %
Holding Company and Other - P&C Fees and Related Expenses
Summit, a workers' compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG's property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In both the first three months of 2026 and 2025, AFG collected $25 million in fees for these services. Management views this fee income, net of the $16 million in both the first three months of 2026 and 2025, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. The expenses related to providing such services are embedded in property and casualty underwriting and claims servicing expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses and loss adjustment expenses in AFG's segmented results.
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Holding Company and Other - Other Income
Other income in the table above includes $2 million and $3 million in the first three months of 2026 and the first three months of 2025, respectively, in management fees paid to AFG by the AFG-managed CLOs (AFG's consolidated managed investment entities). The management fees are eliminated in consolidation - see the other income line in the Consolidate MIEs column under "Results of Operations - Segmented Statement of Earnings."
Holding Company and Other - Other Expenses
AFG's holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $37 million in the first three months of 2026 compared to $40 million in the first three months of 2025, a decrease of $3 million (8%). Other expenses for the 2025 quarter include a $4 million charge to increase liabilities related to AFG's former railroad and manufacturing operations.
Holding Company and Other - Interest Charges on Borrowed Money
AFG's holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $23 million in the first three months of 2026 compared to $19 million in the first three months of 2025, an increase of $4 million (21%), reflecting the issuance of $350 million principal amount of 5.00% Senior Notes in September 2025.
Realized Gains (Losses) on Securities
AFG's realized gains (losses) on securities were net losses of $18 million in the first three months of 2026 compared to net gains of $3 million in the first three months of 2025, a change of $21 million (700%). Realized gains (losses) on securities consisted of the following (in millions):
Three months ended March 31,
2026 2025
Realized gains (losses) before impairment allowances:
Change in the fair value of equity securities $ (12) $ 9
Change in the fair value of derivatives (1) 1
(13) 10
Change in allowance for impairments on securities (5) (7)
Realized gains (losses) on securities $ (18) $ 3
The $12 million net realized loss from the change in the fair value of equity securities in the first three months of 2026 includes losses of $7 million on investments in asset managers, $6 million on investments in media companies and $4 million on investments in healthcare companies, partially offset by gains of $7 million on investments in natural gas companies. The $9 million net realized gain from the change in the fair value of equity securities in the first three months of 2025 includes gains of $5 million on investments in media companies and $2 million on investments in natural gas companies.
Consolidated Income Taxes
AFG's consolidated provision for income taxes was $48 million for the first three months of 2026 compared to $43 million for the first three months of 2025, an increase of $5 million (12%). See Note J - "Income Taxes" to the financial statements for an analysis of items affecting AFG's effective tax rate.
ACCOUNTING STANDARDS TO BE ADOPTED
In November 2024, the FASB issued ASU No. 2024-03 ("ASU 2024-03"), Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires additional information and disaggregation of specified expense categories in the notes to financial statements. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted and applied either prospectively or retrospectively. As of March 31, 2026, AFG has not adopted ASU 2024-03. Management is evaluating the impact of the
AMERICAN FINANCIAL GROUP, INC. 10-Q
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
standard to AFG's income statement expense disclosures. Since ASU 2024-03 only requires additional disclosures, the adoption of this guidance will not have an impact on AFG's results of operations or financial condition.
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