American Financial Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2024

There are 10 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the American Financial Group 4th Quarter and Full Year 2023 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Diane Weidner, Vice President, Investor Relations. Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to American Financial Group's 4th Quarter 2023 Earnings Results Conference Call. We released our 2023 4th quarter and full year results yesterday afternoon. Our press release, investor supplement and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call.

Speaker 1

I'm joined this morning by Carl Lindner III and Craig Lindner, Co CEOs of American Financial Group and Brian Hertzmann, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Some of the matters to be discussed today are forward looking. These forward looking statements involve certain risks and uncertainties that could cause our actual results and or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website.

Speaker 1

We may include references to core net operating earnings, a non GAAP financial measure in our remarks or in responses to questions. A reconciliation of net earnings to core net operating earnings is included in our earnings release. And finally, if you are reading a transcript of call, please note that it may not be authorized or reviewed for accuracy. And as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results.

Speaker 2

Good morning. I'll begin my remarks by sharing a few highlights from AFG's 4th quarter and full year results, after which Craig and I will walk through more details. We'll then open it up for Q and A, where Craig, Brian and I will on equity of nearly 20% in 2023. Net written premiums grew by 8% during the year. And we continue to create value for our shareholders through effective capital management.

Speaker 2

Our compelling mix of specialty insurance businesses and entrepreneurial culture, Disciplined operating philosophy and an astute team of in house investment professionals collectively have enabled us to outperform many of our peers over time. Craig and I thank God, our talented management team and our great employees for helping us to achieve these results. And I'll turn the discussion over to Craig to walk us through some of these details.

Speaker 3

Thanks, Coral. As you'll see on Slide 3, AFG's core net operating earnings were $10.56 per share for the full year 2023 generating a core operating return on equity of 19.8%. This ROE is calculated using an average of the 5 most recent quarter end balances of shareholders' equity excluding As Carl noted, capital management is one of our highest priorities. Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future. We've returned $900,000,000 to shareholders during 2023, including $466,000,000 or $5.50 per share in special dividends, dollars 221,000,000 in regular common stock dividends $213,000,000 in share repurchases.

Speaker 3

Dividend payments and share repurchases totaled $5,920,000,000 over the past 5 years and our quarterly dividend was increased by 12.7% to an annual rate of $2.84 per share beginning in October of 2023. Growth in adjusted book value per share plus dividends was an impressive 16.6% in 2023. We're proud of the value we've created for shareholders over time. Turning to Slides 45, you'll see the 4th quarter 2023 core net operating earnings per share of $2.84 produced an annualized 4th quarter core return on equity of 20.9 percent. Net earnings per share of $3.13 included an after tax non core realized gain on securities of $0.29 per share, which include fair value changes on securities that we continue to hold at the end of the quarter.

Speaker 3

Now I'd like to turn to an overview of AFG's investment performance, financial position and share a few comments about AFG's capital and liquidity. The details surrounding our $15,300,000,000 investment portfolio are presented on Slides 67. Looking at results for the Q4, property and casualty net investment income was approximately 1% higher than the comparable 2022 period. Excluding the impact of alternative investments, net investment income at our PNC Insurance operations for the 3 months ended December 31, 2023 increased by 19% year over year is a result of the impact of rising interest rates and higher balances of invested assets. For the 12 months ended December 31, 2020 P and C net investment income was $729,000,000 approximately 7% higher than 2022 And a new record for AFG.

Speaker 3

Excluding alternative investments, net investment income at our P and C Insurance operations for 2023 increased 35% year over year. As you'll see on Slide 7, approximately 68% of our portfolio is invested in fixed maturities. In the current interest rate environment, able to invest in fixed maturity securities at yields of approximately 5.5%. Current reinvestment rates compare favorably to the approximately 5% yield earned on fixed maturities in our P and C portfolio during the Q4 of 2023. The duration of our P and C fixed maturity portfolio, including cash and cash equivalents, was 2.9 years 31, 2023.

Speaker 3

We've strategically managed duration to take advantage of market opportunities as interest rates have increased from recent historic lows. The annualized return on alternative investments was approximately 0.8% the 2023 Q4 compared to 5.3% for the prior year quarter. Following several years of exceptionally strong returns on investments tied to multifamily housing, which averaged 15% over the past 5 years, We're seeing the impact of increased supply and the leveling out of rental rates on these investments, which represent about half of our alternative investment portfolio. We expect these headwinds to continue into 2024. Longer term, we remain very optimistic regarding the prospects of our investments and multifamily housing as these properties continue to generate strong net operating income and have desirable geographic positioning and high occupancy rates.

Speaker 3

The return on P and C alternative investments was 7% for 2023 compared to 13.2% in 2022. The average Annual return on alternative investments over the past 5 calendar years ended December 31, 2023 was approximately 13%. Please turn to Slide 8, where you'll find a summary of AFG's financial position At December 31, 2023, AFG had approximately $800,000,000 of excess capital at the end of 2023. In reviewing our disclosures compared to peer companies and considering the diversity of practice and how calculate excess capital, we're likely to move away from providing a specific excess capital number in the future. Yesterday, we announced a special dividend of $2.50 per share payable on February 28, 2024.

Speaker 3

This special dividend is in addition to the company's regular quarterly cash dividend of $0.71 per share most recently paid on January 25, 2024. We expect our operations to continue to generate significant excess capital throughout the remainder of 20 24, which provides ample opportunity for additional share repurchases or special dividends over the next year. We continue to view total value creation as measured by growth and book value per share plus dividends is an important measure of performance over the long term. For the 12 months ended December 31, 2023, AFG's book value per share plus dividends increased by 24.1%. AFG's adjusted book value per share plus dividends, which excludes unrealized losses related to fixed maturities, increased by 16.6% during 2023.

Speaker 3

I'll now turn the call back over to Carl to discuss the results of our P and C operations.

Speaker 2

Thank you, Craig. Now if you'd please turn to Slides 9 and and Casualty combined ratio of 90.3%. We're proud of our consistent record of profitable underwriting results over many years. We're seeing opportunities to grow our specialty property and casualty businesses through increasing exposures, new opportunities and a continued favorable pricing environment. We set new records for premium production in 2023 And we're meeting or exceeding targeted returns in nearly all of our businesses.

Speaker 2

As you'll see on Slide 9, our specialty property and casualty businesses reported A strong 4th quarter, nice finish to a successful year. The specialty property and casualty insurance operations generated an outstanding 87.7% combined ratio in the Q4 of 2023, about a point higher than the exceptional 86.6% reported in the prior year Q4. Results for the 2023 Q4 include 1.4 points of catastrophe losses, about a half point higher than last year's 4th quarter and 3.3 points of favorable prior year reserve development compared to 3.6 points in the Q4 of 2022. 4th quarter 2023 gross and net premiums were both up 8% when compared to the same period in 2022 and gross and net written premiums increased 7% 8%, respectively, for the full year in 2023. Average renewal pricing across our property and casualty group, Our workers' comp business was up approximately 7% for the quarter, in line with renewal rates in the previous quarter.

Speaker 2

Including workers' compensation, renewal rates were up approximately 6%, one point higher renewal increases reported in the prior quarter. This is our 30th consecutive quarter to report overall renewal rate increases and we believe we are achieving overall rate renewal rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns. In addition to renewal pricing, we are focusing on, insured values in related businesses to ensure that our premiums reflect inflationary considerations. Now I'd like to turn to Slide 10 to review a few highlights from each of our specialty property and casualty business groups. Details are included in our earnings release, so I'll focus on summary results here.

Speaker 2

The businesses in the Property and Transportation Group achieved a 90.3 percent calendar year combined ratio overall in the 4th quarter, in line with the 90% achieved in the comparable period last year. Excluding crop, the 4th quarter calendar year combined ratio in this group improved 3 points year over year. 4th quarter 2023 gross and net written premiums in this group were up 4% and 1%, respectively, when compared to the 2022 Q4 due primarily to slightly higher crop premium related to the CRS acquisition, which was partially offset by the timing of renewals in several of our transportation businesses. Overall renewal rates in this group increased 7% on average in the Q4 of 2023, a point higher than the previous quarter. Pricing for the full year for this group was up 6% overall.

Speaker 2

We continue to remain focused on rate adequacy, particularly in our commercial auto liability business. This is our 11th year of rate increases in this line of business, Getting you back to when we first identified an uptick in commercial auto loss severity in 2012. So we've been at it for a long time and we're pleased that our Starting point for rate increases is different than some of our peers. The businesses in our Specialty Casualty Group achieved an exceptionally strong 84.6 calendar year combined ratio overall in the 4th quarter, 3.3 points higher than the 81.3 reported in the comparable prior year period. With combined ratios at these levels, the underwriting margins in these businesses are generating returns in the mid-20s.

Speaker 2

4th quarter of 2023 gross and net written premiums increased 6% 7%, respectively, when compared to the same prior year period. Renewal pricing for this group, the renewal pricing in the previous quarter. Pricing for this group for the full year, excluding workers' comp, was up 6% and up 4% overall. Specialty Financial Group continued to achieve Excellent underwriting margins and reported an outstanding 81.3 combined ratio for the Q4 of 2023, an improvement of 1.8 points over prior year period. 4th quarter 2023 gross and net written premiums were up 27% 26%, respectively, when compared to the same 2022 period and 32% for the full year.

Speaker 2

Renewal pricing in this group was up 9% in in the Q4, accelerating 4 points from the previous quarter. Renewal pricing in this group was up 5% for the full year of 2023. As noted in yesterday's earnings release, for many years, AFG established a range of core net operating earnings per share guidance for the New Year and provided various other guidance measures as a part of its 4th quarter earnings release. After reviewing industry and peer practices And following a number of discussion with analysts and shareholders, we have decided we'll no longer provide a range of core earnings per share guidance our other guidance measures beginning in 2024. As noted throughout this call, it's clear that our focus has always been on long term shareholder value creation by generating strong returns on equity that grow book value per share.

Speaker 2

We believe that historically providing a greater level of guidance metrics as compared to peer has created distraction from our strong ROEs and a record of long term value creation. As a result, we believe that this change aligns with that focus. In lieu of guidance, though we have provided several key assumptions underlying our 2024 business plan, which you'll see summarized on Slide 11. These assumptions for 2024 include Growth in net written premiums of 8% compared to last year, a combined ratio similar to 90.3 achieved in 2023, a reinvestment rate of approximately 5.5% and a return of approximately 6% on our $2,400,000,000 portfolio of alternative investments. We expect that performance in line with the assumptions included Our business plan would result in core operating earnings per share of approximately $11 in 20.24 and generate core operating return on equity excluding AOCI of approximately 20%.

Speaker 2

We believe that our disclosures are sufficiently detailed and clear And over the course of 2024, our discussions with investors will focus on the considerations that drive long term shareholder value. Our IR team and our management team remain available to answer questions and look forward to continuing to educate investors about our business. Craig and I are pleased to report these exceptionally strong results for the Q4 and full year, and we're proud of our proven track record of long term value creation. Insurance professionals have exercised their specialty property and casualty knowledge and experience to skillfully navigate the marketplace And our in house investment team has been both strategic and opportunistic in the management of our $15,000,000,000 investment portfolio. We're well positioned to continue to build long term value for our shareholders in 2024 and beyond.

Speaker 2

Now we'll open the lines for the Q and A portion of

Operator

Our first question comes from the line of Charlie Lederer with Citi. Your line is now open.

Speaker 4

Hey, good morning. Wondering, can you please break out the reserve development, I guess, for non workers' comp casualty reserve development across Accent years 2020 to 2022 versus the softer market years prior to that in the quarter? Hey, can you hear me?

Speaker 5

Hi, this is Brian Hertzmann. On that question, If you look at where we've seen development by year and casualty, most of them we've seen some adverse development coming out of calendar 2018 2019 is less consistent than with prior periods. If you look at development overall in casualty, we think it's best to look at it For the full year to understand trends, so if you're looking at the full year, I think the first thing to do is to keep in perspective that we're talking about businesses With the calendar year combined ratio for the full year of 87% with ROEs in the mid-20s, so very strong performing businesses. We discussed in some of the previous quarters for the full year of 2024, we did have lower levels of favorable development in workers' comp as Our initial loss picks have come down in recent years, reflecting our experience and considering some of the price decreases in that business, as well as being mindful about potential for medical cost inflation going forward. We talked in previous quarters about some adverse development from social inflation in areas like public sector.

Speaker 5

As with any company that has an E and S business, there can be over time, there can be occasional large loss which we had in various lines of business in different quarters across the year.

Speaker 4

Got it. Thanks. That's helpful. I guess, Sorry if I missed it. Did you say the adverse on 2018 2019 that you said at the beginning, was that did you say what line those were in, in the quarter?

Speaker 5

So most of that in the for the year, most of that's coming out on the social and inflation exposed businesses. In the quarter, It wasn't necessarily all seasonal inflation. It was some of that was the just the occasional large losses that could happen in something like E and S.

Speaker 4

Got it. Okay. And then maybe just on the premium growth embedded in your business plan, Would you be able to kind of parse out, I guess, like how much of that what you're expecting for crop, I guess, From a non CRS and then including CRS perspective and kind of versus the rest of the business?

Speaker 2

We've kind of moved away from talking segment by segment. I'm happy To give you some color on the crop, the crop business is Part of the premium determination for this year is a volatility factor, which is determined in the next month or so. And also, kind of the average of February futures prices for the December contract in corn and the November contract, I believe, in soybeans. When you look at the current pricing, It's the average of the whole month of February. So we don't know until we get down to the end of February exactly what the impact on the premiums are.

Speaker 2

I think our 8% reflects In our current view, the crop premiums aren't going to be as large as what we would previously projected and that because of the commodity prices. I can tell you that with the CRS Business that were added, that business will be up about 50% on a gross written premium basis for This year.

Speaker 5

I hope

Speaker 3

that's helpful.

Speaker 4

Yes. Thank you. I guess just one follow-up. Would you expect any changes in your crop retention plans just from if pricing is materially lower?

Speaker 2

I know. I think probably one of the positive things if you're starting off, if The pricing for corn and soybeans ends up being lower from a price exposure, Since this is revenue protection or revenue coverage, you could argue that it may be tougher see prices come off by significant amounts from a lower spring discovery prices. That's in fact what happens at the end of February. So that can kind of cut both ways. We'll have lower premium, but Maybe you have lower exposure from a price decline standpoint from those base levels, If that makes sense.

Speaker 4

Yes, understood. Thank you.

Operator

Thank you. Our next question comes from the line of Paul Newsome with Piper Sandler. Your line is now open.

Speaker 6

Good morning. Thanks for the call. Wanted to touch maybe back on your comments about pricing being Above where you think you could inflation is to achieve target. At the moment, the ROE is very high. Is that really a comment that you continue to expect to achieve sort of the targeted returns or are you Thinking that the price increases are sufficiently to maintain the current sort of margins that you have today.

Speaker 2

Paul, I think overall, we're achieving price overall price increase levels that or any excess overall of the perspective loss ratio trends in our business. In some businesses, those increases might lead to returns that exceed Our targets in other businesses, they would lead towards meeting our targets. I think we're blessed Today, except for a few businesses, almost all of our businesses are meeting the targeted returns.

Speaker 6

Great. Maybe we could turn to Capital Management a little bit. I think in the past, you've talked about the stock being attractive in your view and you got sort of 10, 11 times EPS, which is kind of where it's been. But you haven't seen a huge aggressive stock repurchase focusing more on special dividend. Is that still kind of your view or is there a different view on allocation of capital Because of the M and A environment or just your general thoughts on how those pieces all go together?

Speaker 2

Yes. Hi. Yes, I think every year is a different mix based on we take an opportunistic approach. We think our stock is Especially attractively valued. We've shown over this in the past year that we been in the market repurchasing shares and value that.

Speaker 2

Where we're generating large amounts of Excess capital at these kinds of returns, special dividends can also be important. But obviously, Properties are organic growth, building the business itself. We're tough buyers on the M and A side that we look at lots of things and we're always starting businesses, building businesses and and acquiring things that make sense and can earn double digit returns for us over time. You've seen the Our annual increase in our annual dividend has been substantial over time. So we also think Our shareholders value a consistent increase in our annual dividend also.

Speaker 2

I mean, those are That's the way we think about things. Each year is going to be a different mix.

Speaker 6

Great. Always appreciate the help. I'll let some other folks ask questions. Thank

Operator

you. Thank you. Our next question comes from the line of Michael Zaremski with BMO Capital Markets. Your line is now open.

Speaker 7

Hey, great. Good afternoon. Just kind of want to make sure as we think through the Combined ratio guidance for next year and what ultimately equates to a very strong ROE, of course. If we reflect on 2023 a bit, in investors' minds, there was a bit of A pothole from kind of social inflationary adverse developments. I believe crop was a little below normal.

Speaker 7

There was an A and E kind of ding, maybe 1% to 2% on earnings. So I guess, Russ, just want to make sure like that if I'm thinking about those correctly, so on a go forward basis, you don't expect the combined ratio to improve, which is, just because I guess maybe pricing is in excess of trend, but just the trend is still I guess,

Speaker 2

I'm just trying

Speaker 7

to think through like am I missing something? I guess the trend is maybe moving a little higher, pricing is moving higher, but returns won't might not be as excellent if I even if I ex out those items, I just I started kind of calling out.

Speaker 2

I think the returns are very similar and we're projecting Our business plans for a combined ratio that's at the same level have a really great year. Certainly, in comparison to our peers, it's one of the stronger performances on underwriting and on return on equity So we're proud of those results. And There's there'll be businesses that as in workers' comp in this year that had less favorable development that have outstanding results when you look back on this year, but The underwriting profit wasn't as large. There's businesses, as you said, like Crop Hale, that had a below average year. And in our business plan, the way it is together, as we've In the past, when we were giving guidance, we said we were planning for average crop year.

Speaker 2

So that's The way we build our plan is really consistent with the way that we used to give guidance As far as how we would get there, our guidance generally was based off of our business plan in

Speaker 3

the past. Mike, this is Craig. One thing that I think you need to recognize in this year's plan is An assumption on return on alternatives that is somewhat below the historical level and certainly below what we to see on a go forward basis. We have $2,400,000,000 invested in alternatives. About half of that is invested in multifamily and the balance in more traditional private equity investments.

Speaker 3

In our plan for 2024, we're assuming a low single digit return on our multifamily properties And a high single digit return on the balance of our alternative investments. To give a little Color on our view of multifamily. We still like the asset class longer term. We've generated fantastic returns in the past. As I said in the conference call, as group, we've averaged 15% annual return over the last 5 years.

Speaker 3

We are in very attractive markets. Florida and Colorado represent 53% of our multifamily investments. Dallas, Phoenix and North Carolina, another 27%, the markets with very strong population growth. So the new builds in the recent past, the bulk of the new builds have been at attractive markets with population growth That is impacting our ability to push rates the way we have in the recent past. So we think it's going to take 12 to 18 months to work through this new inventory, the new supply of multifamily properties.

Speaker 3

And then we do expect that we will have the ability to push rental rates more in line with what we've done in the recent past And generate strong returns. But if you our long term expectations on Alternative investments would be for a return of 10% plus. Historically, we've done better than that. If you normalize this year's return and use 10% as a kind of a normalized number, It would add $0.90 per share to the EPS, which is about a point and a half of ROE. I think that is something that investors need to recognize because of our significant multifamily exposure, which near term is going to hurt these returns.

Speaker 3

It's an unusually low return expectation for this calendar year and I think that needs to be normalized when you take a look at this year's earnings expectations.

Speaker 7

Okay. Okay. That helps. I think investors will understand that. Okay.

Speaker 7

Lastly, and this one might be for Brian, just On triangulating the excess capital and the parent company cash and all those moving parts, I believe that debt to capital, if I'm thinking about the right way, is below the company's kind of maybe it's a max threshold of 30 or I don't know if it's of 30, you can clarify that. But is there would there be an option to issue some debt In the future potentially to release excess capital to the extent that weren't M and A opportunities or is that not something we should be thinking about as a lever?

Speaker 5

Thanks. So, yes, so the 30% is sort of a guideline for us. So, we would looked at that as our maximum, not that we couldn't go over that if the opportunity presented itself, but that does leave open the possibility for borrowing money at the right rate and the right environment to move towards that ratio if it makes sense from a long term value creation for shareholders perspective. So it would be on the table, but not in our immediate plan.

Operator

Thank you. Thank you. Our next question comes from the line of Andrew Anderson with Jefferies. Your line is now open.

Speaker 8

Hey, good afternoon. In the press release, you mentioned lower underwriting profit in E and S. Could you expand a On that, was that just large losses on property or casualty and does it reflect a change in underlying loss trend assumption?

Speaker 2

Yes, I think the quarter was in the 80s. The combined ratio for the overgrowth, you got to Put that in perspective. So, the quarter had an outstanding combined ratio and to start with. And when you as Brian said, when you put it in the perspective of the whole year, there was The difference in the reserve development was less favorable workers' comp for the whole year, Some impact from social inflation and in some quarters, some large loss on the casualty side activity. I think that's the right way to look back and if you're trying to look at trends for us.

Speaker 8

Thank you. And are you seeing any change in the competitive environment within E and S?

Speaker 2

I think maybe a bit more competition on we're not On the E and S property side, we don't we've been expanding our property business on the E and S side. It seems like Some more interest in that sector and some more competition there. I think on the positive side, other interesting things I think we're seeing on the D and O side where The pricing has been down double digit. In the Q4, we saw it being down single digit, which I saw as a positive trend. And when we've thought that there have been too many competitors, too much capital and pricing levels that don't make sense in public D and L.

Speaker 2

So, that was positive. I think another positive thing we saw in the Q4 on the pricing front was our commercial auto pricing there in National Interstate and Van Liner moved to double digit to 10% plus, which I see as a positive competitive sign.

Speaker 8

Thanks. And maybe just a quick numbers question, dollars 34,000,000 of other expense in the quarter. I suspect that's higher amortization from CRS, but is that kind of a good run rate for this line item in 2024?

Speaker 5

So it looks like you're looking at our line item for sort of other corporate expenses. So what falls under that line It's really everything that's not part of our property and casualty operations and then we show the interest expense separately. So that's mostly holding company expenses in that line, It's also net of any investment income earned by the parent company. So there's a couple of things going on there in the quarter when you compare it to previous quarters, particularly the Q4 of 2022. One of the bigger things in there is that during the Q4 of 2023, We had lower levels of cash and investment balances at the parent company as we tend to keep most of our cash and investments down in the P and C operations.

Speaker 5

So the investment income that sort of netted into that number is about $4,000,000 lower in 2023 compared to 20 20 2 in the same quarter. And then also in the Q4 of 2023, we just happened to have a couple of sort of one off elevated expenses and that was magnified by a benefit in the Q4 of 2022. In the Q4 of 2022, we had a benefit related to some employee benefit plans that are tied to the stock market that didn't recur this year. So when you look at the things in the Q4 of 2023 versus the 2022 quarter that are different. I would say the lower parent company investment income, which is about $4,000,000 that's probably something that would go forward and I would consider if you're looking at a run rate.

Speaker 5

The other items are really sort of one off things that could happen in any quarter, but I wouldn't consider them something that I put in a run rate.

Speaker 2

Yes, I'm going to go back on the E and S umbrella and excess liability business just to be clear. When you look at If you would just look at that part of our business in the Q4, it would be in line with what the combined ratio was for the whole year in that. And we had ended up with excellent underwriting results in E and S, Umbrella and excess liability overall.

Speaker 8

Thank you very much.

Operator

Thank you. Our next question comes from the line of Meyer Shields with Keefe, Briet and Woods. Your line is now open.

Speaker 9

Great. Thanks so much. In terms of understanding, I don't want to call it guidance anymore, but the expectations, there are a few companies out there who provide some sort of outlook for combined ratio and explicitly say that that does not include reserve development. I just want to understand Whether we should look at your expectations the same way or whether maybe there's some measure of reserve lease anticipated?

Speaker 5

Hi, this is Brian. So when we look at our combined ratio overall, we feel like we set our reserves Optimistically I mean, conservatively and we're optimistic about the potential for future favorable prior year development, but We wouldn't explicitly disclose any kind of components of our combined ratio. I think it's important to know that We think our reserve position is very strong. And if you look at our plan for 2024, we did react to the higher frequency of catastrophe losses that occurred in 2023 Along with cat experiences in other recent years, when you look at things like social inflation, we've been really focused on price increases, terms and conditions like attachment points and retentions. And so we really feel really good about the actions in that area.

Speaker 5

So if you look overall, I think While we wouldn't explicitly put anything in there to say anything about prior development, we're optimistic that we could have some and feel good about where our reserves are.

Speaker 9

Okay, perfect. I just wanted to understand what the expectation entails. Carl, you mentioned some timing issues with regards to transportation. I was hoping you could flush that out.

Speaker 2

I'm not could you repeat that? I couldn't I wasn't sure what the question was.

Speaker 9

I'm sorry. So when you're talking about the Property and Transportation segment, you mentioned some timing, I think, with regard to 4th quarter premium growth. And I was just looking to understand whether some of that was deferred to the Q1 of 2024 or how we should think about that?

Speaker 5

It's really just time between quarters. Some stuff moved to other quarters. Sometimes things renew in a different month or have a different policy term or things like that.

Speaker 9

Okay. And then one final question. Outside of crop, can you talk about your expectations for reinsurance purchasing in 2024 versus 2023.

Speaker 5

So you're talking about reinsurance in general Across all of our lines. Yes. So Separating out the cat program from our just traditional other non cat reinsurance, are you focusing on the cat?

Speaker 9

Both.

Speaker 5

On the catastrophe reinsurance side, so we did renew our property cat treaty here for 2024. The attachment point for that cat treaty moved up some from 2023, mostly due to our increased exposure as we have increased property exposures in both our E and S business and in our Financial Institutions business. So we'll be attaching at a $70,000,000 level instead of a $50,000,000 level. So if you think about our property cat reinsurance tower, So the retention is $70,000,000 We then have traditional reinsurance for $55,000,000 in excess of the 70 And then our cat bond comes in on top of that, providing a coverage for the vast majority of any single event up to $450,000,000 and that cat bond is in place through the end of 2024. So, on the And the cost of that, the cost of the reinsurance, so we're buying less coverage.

Speaker 5

The risk adjusted rent is actually slightly lower for that cost in 2024 than it was in 2023. As far as reinsurance outside of the property cat cover, our business units look at that year by year and business unit by business unit to a purchase reinsurance where they think that it provides an attractive balance of risk and return for the company. So there's no real overall trend there. I wouldn't expect our reinsurance retentions to be Super different when you look across the company as a whole in 2024 versus 2023, but we are careful at each business unit in determining the right coverage each year.

Speaker 9

All right, perfect. Thank you so much.

Operator

Thank you. And I'm currently showing no further questions at this time. I'd like to hand the back over to Diane Weidner for closing remarks.

Speaker 1

Thank you, Shannon, and thank you all for joining us this morning as we reviewed our Q4 and full results for 2023. We look forward to talking with you all again next quarter. Hope you all have a great day.

Operator

This concludes today's conference

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American Financial Group Q4 2023
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