American Financial Group Sets 2025 Core EPS Target at $10.50, Projects 5% Premium Growth
American Financial Group (NYSE: AFG) has projected a core earnings per share (EPS) of $10.50 for 2025, alongside a 5% growth in net written premiums. The specialty insurance provider continues to emphasize disciplined underwriting, strategic capital management, and a focus on shareholder returns, despite challenges posed by social inflation and catastrophe losses.
Strong Financial Performance in 2024
Record Growth in Premiums and Return on Equity
In 2024, American Financial Group achieved remarkable financial performance, driven by steady premium growth and robust investment returns. Co-CEO Carl Lindner highlighted a 7% growth in net written premiums and an annual core operating return on equity exceeding 19%. This strong performance underscores the company’s ability to navigate a challenging market while maintaining profitability.
Core Net Operating Earnings and Capital Returns
The company reported core net operating earnings per share of $10.75 for 2024, marking a strong financial position. Book value per share, including dividends, grew by 19.6% year-over-year. AFG’s capital management strategy remained shareholder-focused, with an impressive $791 million returned to shareholders, including $6.50 per share in special dividends.
Investment Portfolio Performance
Strong Alternative Investment Returns
CFO Brian Hertzman detailed the performance of American Financial Group’s investment portfolio, which saw a 21% year-over-year increase in P&C net investment income in Q4 2024. This growth was primarily driven by improved alternative investment returns and favorable reinvestment rates. The total portfolio stands at $15.9 billion, with reinvestment rates reaching 5.75%.
2025 Outlook: Growth Amid Market Challenges
Earnings and Premium Growth Projections
American Financial Group has set ambitious targets for 2025, projecting core net operating EPS of $10.50 and an 18% core operating return on equity. Net written premiums are expected to grow 5% from the $7.1 billion reported in 2024.
The company also anticipates a combined ratio of 92.5% for 2025, incorporating estimated wildfire losses of $60 million to $70 million. Additionally, AFG expects an 8% return on its alternative investments portfolio.
Impact of Business Mix and Reinsurance
The company expects a slight increase in the expense ratio due to shifts in business mix and lower ceding commissions from reinsurers. This could lead to minor margin pressure, though management remains confident in overall profitability.
Q4 2024 Performance Overview
Earnings and Combined Ratio Trends
American Financial Group reported Q4 2024 core net operating earnings per share of $3.12, with an annualized 21.9% core return on equity for the quarter.
The Specialty P&C businesses achieved a combined ratio of 89%, though this figure was 1.3 points higher than the previous year due to adverse prior-year reserve development in social inflation-exposed lines. Premium growth for Q4 was 3% gross and 1% net year-over-year, reflecting a slowdown compared to the full-year figures.
Specialty Financial Group Performance
The Specialty Financial group reported an 80.7% combined ratio, benefiting from growth in financial institutions business and favorable renewal pricing.
Analyst and Investor Sentiment
Key Concerns Raised by Analysts
While analysts acknowledged AFG’s strong premium growth and investment income, concerns were raised about reserve development in social inflation-exposed lines and rising expense ratios.
- Gregory Peters (Raymond James) inquired about California wildfire loss exposure, to which Co-CEO Carl Lindner responded that losses stemmed from lender-placed property and nonprofit exposures.
- John Newsome (Piper Sandler) questioned reserve developments in Specialty Casualty, with Lindner attributing this to higher-than-expected severity in older accident years.
- Andrew Andersen (Jefferies) sought clarification on 2025 combined ratio guidance, with CFO Hertzman citing higher workers’ comp loss ratios but improvements in pricing and underwriting terms.
Management’s Confidence in Pricing Strategies
Despite these concerns, AFG’s leadership expressed confidence in pricing strategies and underwriting adjustments to mitigate challenges. The company’s long-term operational discipline and capital management remain key strengths.
Market Comparison: Q4 vs. Previous Quarters
| Metric | Q4 2024 | Q3 2024 | YoY Change |
| Core Net Operating EPS | $3.12 | $3.05 | +2.3% |
| Annualized Core ROE | 21.9% | 22.1% | -0.2% |
| Net Written Premiums | +3% YoY (gross) | +19% YoY (gross) | Growth Slowed |
| Combined Ratio | 89% Specialty P&C | 87.7% Specialty P&C | +1.3 Points Higher |
| Investment Income | +21% YoY | +18% YoY | Strong Growth |
Risks and Future Challenges
Social Inflation and Reserve Development
One of the primary concerns for 2025 is adverse reserve development in social inflation-exposed lines, particularly in excess liability businesses serving Fortune 500 companies. AFG plans to offset this through underwriting discipline and pricing adjustments.
Catastrophe Exposure and Wildfire Losses
Management has factored in $60 million to $70 million in wildfire losses for 2025. While AFG’s catastrophe risk management is robust, these losses pose a challenge to overall profitability.
Rising Expense Ratios
Expense ratio pressures, driven by higher broker commissions and lower ceding commissions from reinsurers, remain a focal point for investors. AFG’s strategic pricing adjustments are expected to help offset these pressures.
AFG’s Growth Strategy for 2025
American Financial Group continues to deliver strong financial results, with steady premium growth, solid investment income, and disciplined capital management. While challenges like social inflation, catastrophe exposure, and expense ratio pressures persist, the company’s leadership remains confident in navigating these hurdles. Looking ahead, AFG’s 2025 projections of $10.50 core EPS and 5% premium growth position it well for sustained profitability. With a focus on pricing strength, underwriting discipline, and investment strategy, AFG is poised for another year of solid performance in the specialty insurance market.
