afg-20210630

____________________________________________________________________________________________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2021

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____ to ____

Commission File No. 1-13653

AMERICAN FINANCIAL GROUP, INC.

Incorporated under the Laws of Ohio IRS Employer I.D. No. 31-1544320

301 East Fourth Street, Cincinnati, Ohio 45202

(513) 579-2121

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock

AFG

New York Stock Exchange

5.875% Subordinated Debentures due March 30, 2059

AFGB

New York Stock Exchange

5.625% Subordinated Debentures due June 1, 2060

AFGD

New York Stock Exchange

5.125% Subordinated Debentures due December 15, 2059

AFGC

New York Stock Exchange

4.50% Subordinated Debentures due September 15, 2060

AFGE

New York Stock Exchange

As of August 1, 2021, there were 84,749,383 shares of the Registrant’s Common Stock outstanding, excluding 14.9 million shares owned by subsidiaries.

____________________________________________________________________________________________

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

TABLE OF CONTENTS



			Page
Part I — Financial Information
Item 1 — Financial Statements:
Consolidated Balance Sheet			2
Consolidated Statement of Earnings			3
Consolidated Statement of Comprehensive Income			4
Consolidated Statement of Changes in Equity			5
Consolidated Statement of Cash Flows			7
Notes to Consolidated Financial Statements			8
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3 — Quantitative and Qualitative Disclosure about Market Risk			79
Item 4 — Controls and Procedures			79

Part II — Other Information

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			79
Item 6 — Exhibits			80
Signature			80

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

PART I

ITEM 1. — FINANCIAL STATEMENTS

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

(Dollars in Millions)


	June 30, 2021		December 31, 2020
Assets:
Cash and cash equivalents	$	3,365	$	1,665
Investments:
Fixed maturities, available for sale at fair value (amortized cost — $9,481 and $8,812; allowance for expected credit losses of $9 and $12)	9,732		9,084
Fixed maturities, trading at fair value	26		24
Equity securities, at fair value	965		889
Investments accounted for using the equity method	1,378		1,235
Mortgage loans	461		377
Real estate and other investments	198		220
Total cash and investments	16,125		13,494
Recoverables from reinsurers	3,330		3,288
Prepaid reinsurance premiums	865		768
Agents’ balances and premiums receivable	1,423		1,229
Deferred policy acquisition costs	258		244
Assets of managed investment entities	5,086		4,971
Other receivables	682		678
Other assets	835		977
Goodwill	176		176
Assets of discontinued annuity operations	—		47,885
Total assets	$	28,780	$	73,710

Liabilities and Equity:
Unpaid losses and loss adjustment expenses	$	10,498	$	10,392
Unearned premiums	3,054		2,803
Payable to reinsurers	829		807
Liabilities of managed investment entities	5,029		4,914
Long-term debt	1,963		1,963
Other liabilities	1,806		1,584
Liabilities of discontinued annuity operations	—		44,458
Total liabilities	23,179		66,921

Shareholders’ equity:
Common Stock, no par value — 200,000,000 shares authorized — 84,713,927 and 86,345,246 shares outstanding	85		86
Capital surplus	1,303		1,281
Retained earnings	4,023		4,149
Accumulated other comprehensive income, net of tax	190		1,273
Total shareholders’ equity	5,601		6,789
Noncontrolling interests	—		—
Total equity	5,601		6,789
Total liabilities and equity	$	28,780	$	73,710

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AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

(In Millions, Except Per Share Data)


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Revenues:
Property and casualty insurance net earned premiums	$	1,250	$	1,184	$	2,423	$	2,393
Net investment income	164		88		352		192
Realized gains (losses) on:
Securities	43		108		120		(220)
Subsidiary	4		—		4		—
Income of managed investment entities:
Investment income	44		49		90		108
Gain (loss) on change in fair value of assets/liabilities	6		(3)		8		(16)
Other income	20		19		43		43
Total revenues	1,531		1,445		3,040		2,500

Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses	714		771		1,381		1,478
Commissions and other underwriting expenses	390		409		770		829
Interest charges on borrowed money	23		23		47		40
Expenses of managed investment entities	39		42		78		95
Other expenses	77		60		141		103
Total costs and expenses	1,243		1,305		2,417		2,545
Earnings (loss) from continuing operations before income taxes	288		140		623		(45)
Provision (credit) for income taxes	48		37		116		(4)
Net earnings (loss) from continuing operations, including noncontrolling interests	240		103		507		(41)
Net earnings (loss) from discontinued operations	762		64		914		(96)
Net earnings (loss), including noncontrolling interests	1,002		167		1,421		(137)
Less: Net earnings (loss) from continuing operations attributable to noncontrolling interests	—		(10)		—		(13)
Net Earnings (Loss) Attributable to Shareholders	$	1,002	$	177	$	1,421	$	(124)

Earnings (Loss) Attributable to Shareholders per Basic Common Share from:
Continuing operations	$	2.83	$	1.26	$	5.94	$	(0.31)
Discontinued operations	8.95		0.72		10.69		(1.07)
Total basic earnings (loss) attributable to shareholders	$	11.78	$	1.98	$	16.63	$	(1.38)
Earnings (Loss) Attributable to Shareholders per Diluted Common Share:
Continuing operations	$	2.81	$	1.26	$	5.90	$	(0.31)
Discontinued operations	8.89		0.71		10.61		(1.07)
Total diluted earnings (loss) attributable to shareholders	$	11.70	$	1.97	$	16.51	$	(1.38)
Average number of Common Shares:
Basic	85.0		89.7		85.5		90.0
Diluted	85.6		90.0		86.1		90.0

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Millions)


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Net earnings (loss), including noncontrolling interests	$	1,002	$	167	$	1,421	$	(137)

Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities arising during the period	133		1,021		(148)		156
Reclassification adjustment for realized (gains) losses included in net earnings	(7)		(7)		(18)		12
Reclassification adjustment for unrealized gains of subsidiaries sold	(884)		—		(884)		—
Total net unrealized gains (losses) on securities	(758)		1,014		(1,050)		168
Net unrealized gains (losses) on cash flow hedges:
Unrealized holding gains (losses) on cash flow hedges arising during the period	6		12		(1)		48
Reclassification adjustment for investment income included in net earnings	(4)		(9)		(11)		(18)
Reclassification adjustment for unrealized gains on cash flow hedges of subsidiaries sold	(29)		—		(29)		—
Total net unrealized gains (losses) on cash flow hedges	(27)		3		(41)		30
Foreign currency translation adjustments	—		4		—		(6)
Pension and other postretirement plans adjustments (“OPRP”):
Unrealized holding losses on pension and OPRP arising during the period	(1)		—		(1)		—
Reclassification adjustment for pension settlement loss included in net earnings	9		—		9		—
Total pension and OPRP adjustments	8		—		8		—
Other comprehensive income (loss), net of tax	(777)		1,021		(1,083)		192

Total comprehensive income, net of tax	225		1,188		338		55
Less: Comprehensive income (loss) attributable to noncontrolling interests	—		(10)		—		(11)
Comprehensive income attributable to shareholders	$	225	$	1,198	$	338	$	66

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(Dollars in Millions)


		Shareholders’ Equity												Redeemable
	Common	Common Stock and Capital		Retained		Accumulated Other Comp.				Noncon- trolling		Total		Noncon- trolling
	Shares	Surplus		Earnings		Income		Total		Interests		Equity		Interests
Balance at March 31, 2021	85,126,062	$	1,364	$	4,354	$	967	$	6,685	$	—	$	6,685

Net earnings	—	—		1,002		—		1,002		—		1,002
Other comprehensive loss	—	—		—		(777)		(777)		—		(777)
Dividends ($14.50 per share)	—	—		(1,232)		—		(1,232)		—		(1,232)
Shares issued:
Exercise of stock options	561,732	30		—		—		30		—		30
Restricted stock awards	—	—		—		—		—		—		—
Other benefit plans	27,833	3		—		—		3		—		3
Dividend reinvestment plan	34,348	4		—		—		4		—		4
Stock-based compensation expense	—	2		—		—		2		—		2
Shares acquired and retired	(916,520)	(15)		(99)		—		(114)		—		(114)
Shares exchanged — benefit plans	(14,380)	—		(2)		—		(2)		—		(2)
Forfeitures of restricted stock	(105,148)	—		—		—		—		—		—

Balance at June 30, 2021	84,713,927	$	1,388	$	4,023	$	190	$	5,601	$	—	$	5,601

Balance at March 31, 2020	89,827,336	$	1,399	$	3,616	$	32	$	5,047	$	—	$	5,047	$	—
Net earnings (loss)	—	—		177		—		177		—		177		(10)
Other comprehensive income	—	—		—		1,021		1,021		—		1,021		—
Dividends ($0.45 per share)	—	—		(41)		—		(41)		—		(41)		—
Shares issued:
Exercise of stock options	5,250	—		—		—		—		—		—		—
Restricted stock awards	—	—		—		—		—		—		—		—
Other benefit plans	51,955	4		—		—		4		—		4		—
Dividend reinvestment plan	2,733	—		—		—		—		—		—		—
Stock-based compensation expense	—	4		—		—		4		—		4		—
Shares acquired and retired	(1,194,236)	(19)		(57)		—		(76)		—		(76)		—
Shares exchanged — benefit plans	(540)	—		—		—		—		—		—		—
Forfeitures of restricted stock	(33,091)	—		—		—		—		—		—		—
Other	—	—		(10)		—		(10)		—		(10)		10
Balance at June 30, 2020	88,659,407	$	1,388	$	3,685	$	1,053	$	6,126	$	—	$	6,126	$	—

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) — CONTINUED

(Dollars in Millions)


		Shareholders’ Equity												Redeemable
	Common	Common Stock and Capital		Retained		Accumulated Other Comp.				Noncon- trolling		Total		Noncon- trolling
	Shares	Surplus		Earnings		Income		Total		Interests		Equity		Interests
Balance at December 31, 2020	86,345,246	$	1,367	$	4,149	$	1,273	$	6,789	$	—	$	6,789

Net earnings	—	—		1,421		—		1,421		—		1,421
Other comprehensive loss	—	—		—		(1,083)		(1,083)		—		(1,083)
Dividends ($15.00 per share)	—	—		(1,275)		—		(1,275)		—		(1,275)
Shares issued:
Exercise of stock options	964,744	49		—		—		49		—		49
Restricted stock awards	207,020	—		—		—		—		—		—
Other benefit plans	43,465	5		—		—		5		—		5
Dividend reinvestment plan	36,654	4		—		—		4		—		4
Stock-based compensation expense	—	7		—		—		7		—		7
Shares acquired and retired	(2,674,222)	(43)		(263)		—		(306)		—		(306)
Shares exchanged — benefit plans	(91,364)	(1)		(9)		—		(10)		—		(10)
Forfeitures of restricted stock	(117,616)	—		—		—		—		—		—

Balance at June 30, 2021	84,713,927	$	1,388	$	4,023	$	190	$	5,601	$	—	$	5,601

Balance at December 31, 2019	90,303,686	$	1,397	$	4,009	$	863	$	6,269	$	—	$	6,269	$	—
Cumulative effect of accounting change	—	—		7		—		7		—		7		—
Net loss	—	—		(124)		—		(124)		—		(124)		(13)
Other comprehensive income	—	—		—		190		190		—		190		2
Dividends ($0.90 per share)	—	—		(81)		—		(81)		—		(81)		—
Shares issued:
Exercise of stock options	209,343	9		—		—		9		—		9		—
Restricted stock awards	227,867	—		—		—		—		—		—		—
Other benefit plans	66,496	5		—		—		5		—		5		—
Dividend reinvestment plan	4,350	—		—		—		—		—		—		—
Stock-based compensation expense	—	10		—		—		10		—		10		—
Shares acquired and retired	(2,020,519)	(31)		(106)		—		(137)		—		(137)		—
Shares exchanged — benefit plans	(96,394)	(2)		(9)		—		(11)		—		(11)		—
Forfeitures of restricted stock	(35,422)	—		—		—		—		—		—		—
Other	—	—		(11)		—		(11)		—		(11)		11
Balance at June 30, 2020	88,659,407	$	1,388	$	3,685	$	1,053	$	6,126	$	—	$	6,126	$	—

Table of Contents

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(In Millions)


	Six months ended June 30,
	2021	2020
Operating Activities:
Net earnings (loss), including noncontrolling interests	$