Good day, and thank you for standing by. Welcome to the American Financial Group Third Quarter 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Diane Weidner, Vice President, Investor Relations. Please go ahead.

Good morning and welcome to American Financial Group's Third Quarter 2023 Earnings Results Conference Call. We released our 2023 third quarter 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. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to 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 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. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release. If you are reading a transcript of this 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.

Good morning. I’ll begin my remarks by sharing a few highlights from AFG’s 2023 third quarter after which Craig and I will walk through more details. We’ll then open it up for Q&A where Craig, Brian and I will respond to your questions. I am pleased to report strong under-writing results during the quarter despite elevated catastrophe losses, higher interest rates contributed to meaningfully higher year-over-year investment income culminating in a very strong annualized third quarter, core operating return on equity of 18.3%. Our entrepreneurial opportunistic culture and disciplined operating philosophy continue to serve us well in a favorable property and casualty market and a dynamic economic environment. These factors, coupled with a commitment to effective capital management, enable us to continue to create long-term value for our shareholders. Craig and I thank God, our talented management team and our great employees for helping us to achieve these results. I'll now turn to the discussion over to Craig to walk us through AFG's third quarter results, investment performance and to discuss our overall financial position at September 30.

Thanks, Carl. Please turn to Slides 3 and 4 for a summary of earnings information for the quarter. AFG reported core net operating earnings of $2.45 per share in the 2023 third quarter. Higher year-over-year net investment income was partially offset by lower underwriting profit in our Specialty Property and Casualty insurance operations. 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 $14.8 billion investment portfolio are presented on Slides 5 and 6. The higher interest rate environment contributed to significantly higher year-over-year investment income. Looking at results for the third quarter, Property and Casualty net investment income was 17% higher than the comparable 2022 period. Excluding the impact of alternative investments, net investment income in our P&C insurance operations for the three months ended September 30, 2023, increased 33% year-over-year. As you'll see on Slide 6, approximately 68% of our portfolio is invested in fixed maturities. In the current interest rate environment, we're able to invest in high-quality, medium-duration fixed maturity securities at yields of approximately 6%. Current reinvestment rates compare favorably to the 4.68% yield earned on fixed maturities at our P&C portfolio during the third quarter of 2023 and 3.63% earned for the full year in 2022. We have a long-standing commitment to quality, with 93% of this portfolio rated investment grade and 96% of the P&C portfolio rated NAIC 1 or 2, and have strategically managed duration to take advantage of market opportunities. We expect the yield earned on our P&C fixed maturity portfolio to increase by about 10 basis points in the fourth quarter of 2023 compared to the 4.68% earned in the third quarter of 2023. Our third quarter 2023 P&C net investment income includes…

Thanks, Craig. Please turn to Slides 8 and 9 of the webcast, which include an overview of our third quarter results. As you'll see on Slide 8, third quarter 2023 Property and Casualty operating earnings increased 3% year-over-year. Underwriting margins continue to be strong and are generating desired returns in nearly all of our Specialty Property and Casualty businesses. And we're growing our Specialty Property and Casualty businesses through increasing exposures, new opportunities and a continued favorable pricing environment. The Specialty Property and Casualty insurance operations generated an underwriting profit of $143 million compared to $158 million in the third quarter of 2022, a 9% decrease. Higher year-over-year underwriting profit in our Property and Transportation and Specialty Financial groups was more than offset by lower underwriting profit in our Specialty Casualty Group. The third quarter 2023 combined ratio was a strong 92.2%, 1.1 points higher than the 91.1% reported in the comparable prior year period. Results for the 2023 third quarter include three points in catastrophe losses, a 0.5 point higher than last year's third quarter, and 2.3 points of favorable prior year reserve development, 8/10 lower than the comparable period. Gross written premiums were flat, and net written premiums were up 4% when compared to the third quarter of 2022. As we discussed last quarter, earlier plantings of corn and soybeans pushed some crop insurance premium into 2023 second quarter versus third. Our 2023 crop premiums also reflect the impact of less favorable spring commodity futures pricing and related volatility in 2023 compared to 2022. Excluding the crop business, gross and net written premiums grew by a healthy 7% and 10%, respectively, when compared to the prior year period. Average renewal pricing across our Property & Casualty Group, excluding workers' comp, was up approximately 7% for the quarter, 2…

Thank you.[Operator Instructions] Our first question comes from the line of Meyer Shields with KBW. Your line is now open.

Hi, good morning. It’s [Indiscernible] on for Meyer. Thank you for taking my questions. My first question will be on -- just curious on the A&E reserve charge. Is that onetime only for this quarter?

This is Brian. On A&E, we monitor our A&E exposures, both in our Property and Casualty operations and in our runoff railroad and manufacturing operations every quarter. And then on an annual basis, we do an in-depth review of those reserves. So this charge in this quarter is related to that annual deep review of the exposures in the runoff railroad manufacturing operations. So it is the first charge of that size we had in a number of years, but we do monitor it all the time. So there's always the possibility of expense there, but this is coming out of that annual once a year deeper view.

Got you. So for next year, would it be like similar charges? Just curious.

We wouldn't -- I mean, we don't know of anything right now that's not recorded. But those can change over time. And we have had charges in other years. The reason we do the annual review is to sort of catch anything that might be out there, but it's impossible to predict what might happen in future periods.

Got you. Thank you. My second question is on the renewal pricing still trending up. Can you break down the way on rates and exposures?

This is Brian again. So when we talk about renewal pricing, we're giving you just the pricing increase, not the exposure increase. So the exposure increases would help to increase premium growth beyond what we're giving you just for rate. So what we're giving for rate is just the price component.

Sorry about that. Okay, thank you.

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

Hey good afternoon. Just curious, I heard the commentary on workers' comp profitability won't be the -- likely won't be as profitable, but still very profitable as last year. Is that -- is that something new? Or is that just -- is that what you've been -- what you reminded us last quarter when I think you made some revisions? And maybe just on work comp is -- is pricing -- has anything changed pricing-wise? Since last quarter, obviously, higher interest rates are a great tailwind to you all in that line. And some of your peers, too, a long-winded question, have said that they're not really seeing any change in medical trend, but keeping a close eye on it.

Yes. I think my commentary is pretty consistent throughout the year in that as of the last quarter. This quarter is just a reminder that that -- we have excellent workers' comp results. They're just not going to be at the same levels as 2022 in that lower prior year favorable development is the significant factor there. On the loss ratio trend side yes, I think we're seeing the same as others. There's not big changes there in that overall. They seem to be a reasonable perspective loss ratio trend. I mean, we still think that our overall prospective loss ratio trend is probably down with the exposure change of about 4% down, maybe 2% or so. So those seem to be reasonable. Our California business is the -- Republic is the only business that's performing at an underwriting loss today in that. The other businesses, Summit, strategic comp, National Interstates, workers' comp business all have excellent results in that. We feel good about our reserve position, and workers' comp remains a very competitive market with the results in the industry. Pricing, not -- pricing is down about 4% year-to-date when you look at our overall workers' comp business. Not sure that's much different than any of the previous couple of quarters. I hope that's helpful.

Yes. That's helpful. And maybe switching gears a little bit to casualty ex-workers' comp. I know -- I think it was last quarter, you talked about, right, and not just you, all others as well have been talking about a bit of a higher trend line in certain lawsuit inflationary lines like public entity, commercial auto. I know you changed your expectations there a bit. But I'm kind of just curious as -- I know it's only been one quarter, but has anything changed? I mean, we can see pricing seems to be actually moving in the right direction. I don't know if you want to call out if you guys been trying to add to your reserves or anything?

Yes. I think the positive -- it's a heavy public entity renewal period. And I think the good news is it reflects what I -- I think what I talked about on the last call about the changes that we've been putting into place on that particular business in that. And -- and seeing the strong price increases was particularly strong, double-digit in the period in that. But that's as well as decreasing limits, raising retentions and being really appropriate and being involved in heavily on -- with mock trials and monitoring counsel and being heavily involved in active claims. So we're doing quite a few things. But yes, the third quarter is very pleased, in particular with the strong public entity price increase there and -- which drove the overall segment up.

Okay. And just lastly, with the inclusion of the Crop acquisition, I know you've given guidance on it, too, but just curious now that you've maybe learned a little bit more, is -- when we think of not this year, but next year and outer years, is a normal crop year -- has that changed due to the acquisition or just maybe other variables?

Well, yes, I mean, the dollar amount will change just because there's going to be a lot more business. But -- yes, the profit margins, I don't -- I think our criteria will probably be pretty much the same.

Thank you.

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

Hey good afternoon. Just looking at reserves in the quarter and reserve development. Can you kind of help us think about how social inflation impacted movements this quarter? Has your view of social inflation changed?

This is Brian. So we're still being very mindful of social inflation and think that it is something that the industry as a whole is going to be monitoring for a long time. So when you look at our Casualty segment, the lower levels of all favorable development reflect two things. One is the lower levels of favorable development coming out of workers' comp that we talked about earlier. And then also, we're not seeing favorable development in the social inflation expense business that we might have seen in previous periods. So I would say there's an absence of favorable development. There are ins and outs, where some units have had some unfavorable development. But overall, I would say social inflation is reducing our favorable development as much as it would be increasing any adverse development.

Okay. And on the workers' comp business, can you kind of help us -- you mentioned the loss ratio trend and some of the pricing in the calendar year view, but how should we think about where you're booking workers' comp accident year picks compared to last year?

Sure. So a couple of things are going on there. One is, as Carl mentioned, there are rate decreases happening in workers' comp. So that puts some pressure on the accident year. And then even though we haven't been experiencing medical cost inflation, we're mindful of that and being careful to consider that, as we said, current year accident pick. So the accident year loss ratio in workers' comp would be a little bit higher for those two things, but still producing those ROEs when you look at the business overall that Carl mentioned earlier.

Okay, thank you.

Thank you. Our next question comes from the line of Gregory Peters with Raymond James. Your line is now open.

Well, good afternoon, everyone. I thought I'd start with my first question, going back to Craig's presentation on the investment portfolio and the performance. And I think, Craig, you mentioned that the fixed income yields are now up to around 6%, which is a nice lift from where it was a year ago. Can you maybe step back and give us some perspective on how -- because of the higher yield environment, you might be altering allocations where you have new money going into whether it's industry group or sector type? And also as investments come up and mature, how you're allocating those inside the portfolio?

Sure, Greg. I wouldn't say that we are significantly altering our allocations. I'd say, certainly, fixed income is more attractive than it's been in a long time. So probably a bit heavier weighting to medium-term fixed maturity investments versus certain other asset classes. But I wouldn't expect us to change the allocations at a very significant way. We do think on the real estate side as an example, there are going to be some really interesting opportunities over the next couple of years. And time will tell whether we're right on how things are going to evolve there. But we do think that there's going to be an opportunity to get some extraordinary returns in the real estate market. I don't think you should expect to see a significant change, though, in the allocation in the investment portfolio.

Okay. Fair enough. It makes sense. And then I guess, pivot back to Carl. And let's focus on the -- the property business, Property and Transportation business ex-crop. I think you called out in your comments, an underperforming book of transportation business, maybe it was $50 million that you're re-underwriting. Can you give us some perspective within your Property and Transportation business of how the competitive landscape is? Do you feel like there's more pressure from competition at this juncture? Or do you feel like it's status quo? Any updated perspective would be helpful.

Are you asking me to focus on commercial auto in particular? Is that...

Well, yes, commercial auto would be one topic. But inside Property Transportation, there are other businesses on top of just commercial auto outside of crop. So just the -- I'm just focused on ex-crop business inside Property Transportation.

Yes. I mean, there's a number of different businesses. Our transportation business is a significant part. I think it's a mixed picture within the transportation business. There are some parts of the business that seem to be more competitive, others that seem to be tightening. And with competitors, some competitors like Nationwide and others leaving part of the space in that. Our business continues to perform well. And has for years. That said, on the commercial auto liability part, it's not where we want it to be. It's probably 101-ish or so and through nine months. And for that reason, we're continuing to take strong commercial auto liability rate increases of about 10% year-to-date. We -- versus a prospective loss ratio trend of about 7% or so in that. We have -- and when you put our businesses together in that space, mid-single-digit net written premium growth through nine months in that. So -- that's kind of that part of the business, business -- parts of the business like our nonstandard aviation or Property Inland Marine or Ocean Marine, there seems -- to continue to be opportunities in those areas for growth. And we continue to have good results in those businesses in that. So I think that speaks to some of the larger businesses within the Property and Transportation, excluding comp.

Great. Well, thanks for the detail.

Sure.

Thank you.[Operator Instructions] Our next question comes from the line of Paul Newsome of Piper Sandler. Your line is now open. Paul Newsome, your line is open. Please check your mute button.[Operator Instructions] And I'm currently showing no other questions at this time. I'd like to turn the call back over to Diane Weidner for closing remarks.

Thank you, and thank you all for joining us today as we've walked through our third quarter 2023 results. If you have any other questions, feel free to reach out to our IR department, and we look forward to talking with you next quarter. This concludes our call for today. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.