0001193125-17-028911.txt : 20170202 0001193125-17-028911.hdr.sgml : 20170202 20170202145057 ACCESSION NUMBER: 0001193125-17-028911 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20170201 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20170202 DATE AS OF CHANGE: 20170202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FINANCIAL GROUP INC CENTRAL INDEX KEY: 0001042046 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 311544320 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13653 FILM NUMBER: 17567940 BUSINESS ADDRESS: STREET 1: GREAT AMERICAN INSURANCE GROUP TOWER STREET 2: 301 E. 4TH STREET CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5135792121 MAIL ADDRESS: STREET 1: GREAT AMERICAN INSURANCE GROUP TOWER STREET 2: 301 E. 4TH STREET CITY: CINCINNATI STATE: OH ZIP: 45202 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN FINANCIAL GROUP HOLDINGS INC DATE OF NAME CHANGE: 19970709 8-K 1 d274769d8k.htm CURRENT REPORT Current Report

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 1, 2017

 

 

 

AMERICAN FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)

 

 

 

Ohio   1-13653   31-1544320

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

301 East Fourth Street, Cincinnati, OH   45202
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code 513-579-2121

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Section 2 - Financial Information

Item 2.02 Results Of Operations And Financial Condition.

Reference is made to the press release of American Financial Group, Inc. (the “Company”) relating to the announcement of the Company’s results of operations for the fourth quarter of 2016 and full year ended December 31, 2016 as well as the availability of the Investor Supplement on the Company’s website. The press release was issued on February 1, 2017. A copy of the press release is attached to this Form 8-K as Exhibit 99.1 and a copy of the Investor Supplement is attached as Exhibit 99.2 and are incorporated herein by reference.

The information contained herein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 as amended (the “Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Section 9 - Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

 

  (a) Financial statements of business acquired. Not applicable.

 

  (b) Pro forma financial information. Not applicable.

 

  (c) Shell company transactions. Not applicable

 

  (d) Exhibits

 

Exhibit No.

  

Description

99.1    Earnings Release dated February 1, 2017, reporting American Financial Group Inc. fourth quarter and full year results for the period ended December 31, 2016.
99.2    Investor Supplement – Fourth Quarter 2016

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

   AMERICAN FINANCIAL GROUP, INC.
        Date: February 2, 2017   
   By: Karl J. Grafe                                             
          Karl J. Grafe
          Vice President

 

2

EX-99.1 2 d274769dex991.htm EARNINGS REPORT Earnings Report

Exhibit 99.1

 

LOGO

American Financial Group, Inc. Announces Record 2016 Fourth Quarter and Full Year Results

 

    Record net earnings of $4.33 per share in the fourth quarter and $7.33 per share for the full year

 

    Record fourth quarter core net operating earnings of $1.98 per share; up 30% from 2015

 

    Record core net operating earnings per share of $6.03 for the full year; up 11% from 2015

 

    Full year 2016 ROE of 14.8%; 2016 core operating ROE of 12.2%

 

    Full year 2017 core net operating earnings guidance between $6.20 - $6.70 per share

CINCINNATI – February 1, 2017 – American Financial Group, Inc. (NYSE: AFG) today reported record 2016 fourth quarter net earnings attributable to shareholders of $385 million ($4.33 per share) compared to $129 million ($1.45 per share) for the 2015 fourth quarter. Results for the fourth quarter of 2016 include non-core tax benefits of $111 million ($1.25 per share) as a result of the restructuring of Neon, our Lloyd’s insurer, and $66 million ($0.74 per share) related to the merger with National Interstate, as well as $32 million ($0.36 per share) in after-tax realized gains. Comparatively, net earnings in the 2015 fourth quarter included non-core losses of $7 million ($0.07 per share). Details may be found in the table below. Net earnings attributable to shareholders for the year were $7.33 per share, compared to $3.94 per share in 2015. Due to the impact of rising interest rates on our fixed maturity portfolio, book value per share decreased by $2.90 to $56.55 per share during the fourth quarter of 2016. Return on equity was 14.8% and 8.3% for 2016 and 2015, respectively.

Core net operating earnings were $176 million ($1.98 per share) for the 2016 fourth quarter, compared to $136 million ($1.52 per share) in the 2015 fourth quarter. The $1.98 per share established an all-time high for AFG’s quarterly core EPS. The improved results were attributable to higher underwriting profit in our Specialty Property and Casualty (“P&C”) insurance segment and significantly higher operating earnings in our Annuity Segment. Book value per share, excluding unrealized gains related to fixed maturities, increased by $1.43 to $53.11 per share during the fourth quarter of 2016. Core net operating earnings for the fourth quarters of 2016 and 2015 generated annualized returns on equity of 15.7% and 12.7%, respectively. Core operating return on equity was 12.2% and 11.5% for 2016 and 2015, respectively.

During the fourth quarter of 2016, AFG repurchased approximately 116,000 shares of common stock at an average price per share of $75.09. During 2016, AFG repurchased 1.9 million shares for $133 million, at an average price per share of $69.47.

AFG’s net earnings attributable to shareholders, determined in accordance with U.S. generally accepted accounting principles (“GAAP”), include certain items that may not be indicative of its ongoing core operations. The table below identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure. AFG believes that its core net operating earnings provides management, financial analysts, rating agencies and investors with an understanding of the results from the ongoing operations of the Company by excluding the impact of net realized investment gains and losses and other special items that are not necessarily indicative of operating trends. AFG’s management uses core net operating earnings to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business. Core net operating earnings is also used by AFG’s management as a basis for strategic planning and forecasting.

 

Page 1


In millions, except per share amounts    Three months ended
December 31,
     Twelve months ended
December 31,
 
     2016      2015      2016      2015  

Components of net earnings attributable to shareholders:

           

Core operating earnings before income taxes

   $ 266       $ 220       $ 840       $ 762   

Pretax non-core items:

           

Realized gains (losses) on securities

     51         (21      19         (19

Realized gain (loss) on sale of subsidiaries:

           

Long-term care business

     —           (4      2         (166

Other

     —           —           —           5   

Gain on sale of apartment properties and hotel

     —           15         32         66   

Special A&E charges

     —           —           (41      (79

Neon exited lines charge

     —           —           (65      —     

Loss on early retirement of debt

     —           —           —           (4
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings before income taxes

     317         210         787         565   

Provision (credit) for income taxes:

           

Core operating earnings

     88         83         290         263   

Non-core items:

           

Tax benefit related to National Interstate merger

     (66      —           (66      —     

Tax benefit related to Neon restructuring

     (111      —           (111      —     

Other

     18         (3      6         (68
  

 

 

    

 

 

    

 

 

    

 

 

 

Total provision (credit) for income taxes

     (71      80         119         195   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings, including noncontrolling interests

     388         130         668         370   

Less net earnings attributable to noncontrolling interests:

           

Core operating earnings

     2         1         16         13   

Non-core items

     1         —           3         5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net earnings attributable to noncontrolling interests

     3         1         19         18   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings attributable to shareholders

   $ 385       $ 129       $ 649       $ 352   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings:

           

Core net operating earnings(a)

   $ 176       $ 136       $ 534       $ 486   

Non-core items

     209         (7      115         (134
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings attributable to shareholders

   $ 385       $ 129       $ 649       $ 352   
  

 

 

    

 

 

    

 

 

    

 

 

 

Components of Earnings Per Share:

           

Core net operating earnings(a)

   $ 1.98       $ 1.52       $ 6.03       $ 5.44   

Non-core Items:

           

Realized gains (losses) on securities

     0.36         (0.15      0.16         (0.12

Realized gain (loss) on sale of subsidiaries:

           

Long-term care business

     —           (0.03      0.01         (1.21

Other

     —           —           —           0.04   

Gain on sale of apartment properties and hotel

     —           0.11         0.17         0.40   

Special A&E charges

     —           —           (0.30      (0.58

Neon exited lines charge

     —           —           (0.73      —     

Loss on early retirement of debt

     —           —           —           (0.03

Tax benefit related to National Interstate merger

     0.74         —           0.74         —     

Tax benefit related to Neon restructuring

     1.25         —           1.25         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted Earnings Per Share

   $ 4.33       $ 1.45       $ 7.33       $ 3.94   
  

 

 

    

 

 

    

 

 

    

 

 

 

Footnote (a) is contained in the accompanying Notes to Financial Schedules at the end of this release.

Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive Officers, commented: “AFG’s fourth quarter and full year results established new records for earnings. Strong operating profitability in both the P&C and Annuity segments of our business, superior investment performance and effective capital management have enabled us to achieve five-year compounded growth in adjusted book value plus dividends of 10%.

“AFG had approximately $950 million of excess capital (including parent company cash of approximately $200 million) at December 31, 2016. Over the past year, we increased our quarterly dividend by 12% and in the fourth quarter of 2016, we paid a special dividend of $1.00 per share. Our excess capital will be deployed into AFG’s core businesses as we identify potential for healthy, profitable organic growth, and opportunities to expand our specialty niche businesses through

acquisitions and

 

Page 2


start-ups that meet our target return thresholds. In addition, share repurchases, particularly when executed at attractive valuations, are an important and effective component of our capital management strategy. We will continue to make opportunistic share repurchases and return capital to shareholders through dividends.

“Based on current information, we expect core net operating earnings in 2017 to be between $6.20 and $6.70 per share. Our core earnings per share guidance assumes no change in the corporate tax rate of 35%, and excludes non-core items such as realized gains and losses, as well as other significant items that are not able to be estimated with reasonable precision, or that may not be indicative of ongoing operations.”

Specialty Property and Casualty Insurance Operations

The Specialty P&C insurance operations generated underwriting profit of $110 million for the 2016 fourth quarter compared to $100 million in the fourth quarter of 2015. Higher underwriting profitability in our Property and Transportation Group and Specialty Financial Groups was partially offset by lower underwriting profitability in our Specialty Casualty Group. The fourth quarter 2016 combined ratio of 90.4% includes 0.9 points of adverse prior year reserve development, compared to 0.4 points of favorable prior year reserve development in the comparable 2015 period. Fourth quarter results in 2016 include $12 million (1.1 points on the combined ratio) in catastrophe losses, compared to $9 million (0.8 points on the combined ratio) in the comparable 2015 period.

Gross and net written premiums were up 6% and 3%, respectively, in the 2016 fourth quarter compared to the same period in 2015. Each of our Specialty P&C groups reported growth during the quarter. Average renewal pricing across our entire P&C Group was up 1% for the quarter, and was flat for the year. Further details of AFG’s Specialty P&C operations may be found in the accompanying schedules.

The Property and Transportation Group reported an underwriting profit of $75 million in the fourth quarter of 2016, compared to $34 million in the comparable prior year period, due primarily to higher underwriting profit in our crop insurance business, largely the result of favorable growing conditions and relatively stable commodity pricing. Catastrophe losses for this group were $6 million in the fourth quarter of 2016 and $3 million in the comparable 2015 period.

Fourth quarter 2016 gross and net written premiums in this group were 12% and 4% higher, respectively, than the comparable prior year period. The increase was primarily attributed to higher crop insurance premiums, the large majority of which were ceded to the Federal Crop Insurance Program. Excluding crop, fourth quarter 2016 gross and net written premiums in this group were virtually unchanged from the prior year period. Overall renewal rates increased 2% in the fourth quarter of 2016, including a 4% increase in National Interstate’s renewal rates. The average renewal rate increase for this group during 2016 was approximately 3%.

The Specialty Casualty Group reported an underwriting profit of $13 million in the 2016 fourth quarter compared to $50 million in the comparable 2015 period. Underwriting losses in one of our excess and surplus lines businesses, primarily related to coverage written for New York contractors, and lower profitability in our targeted markets operations were the primary reasons for the lower underwriting profit year-over-year. Catastrophe losses for this group were $4 million in the fourth quarter of 2016 and $1 million in the comparable 2015 period.

Gross and net written premiums increased 3% and 1%, respectively, for the fourth quarter of 2016 when compared to the same prior year period. Higher premiums in our targeted markets and executive liability businesses were partially offset by lower premiums in our excess and surplus lines operations, primarily the result of tougher underwriting standards related to New York contractors business, as well as lower

 

Page 3


premiums within our workers’ compensation businesses. Net written premiums were also impacted by higher ceded premiums within Neon. Renewal pricing for this group was flat during the fourth quarter, and included a decrease of approximately 2% in our workers’ compensation businesses. Excluding workers’ compensation, renewal pricing in this group was up approximately 1% for the quarter and the full year.

The Specialty Financial Group reported an underwriting profit of $20 million in the fourth quarter of 2016, compared to $15 million in the fourth quarter of 2015. All businesses in this group reported higher year-over-year underwriting profit. Catastrophe losses for this group were $2 million in the fourth quarter of 2016 and $5 million in the comparable prior year period. All businesses in this group continued to achieve excellent underwriting margins during 2016.

Gross and net written premiums both increased by 1% in the 2016 fourth quarter when compared to the same 2015 period. Renewal pricing in this group decreased approximately 1% on average for both the fourth quarter and for the full year of 2016.

Carl Lindner III stated: “I’m very pleased with the overall profitability of our Specialty P&C Group. I am especially pleased that our Property and Transportation Group ended the year with strong underwriting results and returns on equity, driven by excellent results in our crop and inland marine operations, as well as higher profitability in our transportation and equine mortality businesses. In addition, we continued to report outstanding operating results in our Specialty Financial Group, and solid results in our Specialty Casualty Group.”

Mr. Lindner continued, “Despite competitive conditions, I’m optimistic about 2017. We are forecasting an overall calendar year combined ratio in the 92% to 94% range, and we are targeting growth in net written premiums in the range of 2% to 6%.”

Further details about AFG’s Specialty P&C operations may be found in the accompanying schedules and in our Quarterly Investor Supplement, which is posted on our website.

Annuity Segment

The Annuity Segment reported a record $132 million in pretax operating earnings in the fourth quarter of 2016, an increase of 31% from the $101 million reported in the fourth quarter of 2015. In addition, as shown in the table below, earnings before the impact of fair value accounting on fixed-indexed annuities (FIAs) were $103 million, up 7% from the prior year period:

 

Components of Core Annuity Operating Earnings Before Income Taxes

 
In millions    Three months ended
December 31,
     Pct.
Change
    Twelve months ended
December 31,
    Pct.
Change
 
     2016      2015            2016     2015        

Annuity earnings before fair value accounting for FIAs

   $ 103       $ 96         7   $ 395      $ 354        12

Impact of fair value accounting for FIAs

     29         5         nm        (27     (23     nm   
  

 

 

    

 

 

      

 

 

   

 

 

   

Pretax Annuity Operating Earnings

   $ 132       $ 101         31   $ 368      $ 331        11
  

 

 

    

 

 

      

 

 

   

 

 

   

Annuity Earnings Before Fair Value Accounting for FIAs – AFG’s fourth quarter 2016 earnings continued to benefit from favorable investment results, including the continued significant positive impact of certain investments required to be marked to market through earnings. In addition, AFG’s quarterly average annuity investments and reserves grew approximately 11% and 12%, respectively, year-over-year; the benefit of this growth was partially offset by the runoff of higher yielding investments.

 

Page 4


In the fourth quarters of 2016 and 2015, AFG conducted detailed reviews (“unlocking”) of the major actuarial assumptions underlying its annuity operations. The review resulted in a positive unlocking of $1 million in the fourth quarter of 2016; in the fourth quarter of 2015, the positive unlocking amount was $10 million. Unlocking amounts are included in “Annuity earnings before fair value accounting for FIAs” in the table above.

Impact of Fair Value Accounting for FIAs – Variances from expectations of certain items (such as projected interest rates, option costs and surrenders), as well as changes in the stock market, have an impact on the accounting for FIAs; these accounting adjustments are recognized through AFG’s reported core earnings. Many of these adjustments are not economic in nature, but rather impact the timing of reported results.

In the fourth quarter of 2016, a significant increase in interest rates, as well as an increase in the stock market, resulted in a large favorable impact on annuity earnings. This compares to a relatively small favorable impact on annuity earnings in the fourth quarter of 2015, primarily the result of the increase in the stock market.

Annuity Premiums – AFG’s Annuity Segment reported statutory premiums of $1.1 billion in the fourth quarter of 2016, virtually unchanged from the fourth quarter of 2015.

Craig Lindner stated, “AFG’s Annuity Segment had another record year, achieving pretax operating earnings of $368 million and annuity premiums of $4.4 billion. In addition, as a result of its strong statutory results, the Annuity Segment continues to generate significant amounts of excess capital. I am very pleased with these results, which illustrate our investment skills, disciplined product pricing and commitment to consumer-friendly products. We believe that our business model positions us well in a changing regulatory environment.”

Department of Labor (DOL) Rule – The Company continues to implement product and process changes needed to comply with the DOL fiduciary rule and is proceeding under the premise the DOL rule becomes effective in April 2017 in its current form. There is considerable discussion surrounding the possibility of a delay or other action impacting the rule. In addition, there remains pending litigation seeking to invalidate the rule. However, until there is some definitive action impacting the rule, the Company intends to continue to pursue necessary changes.

Assuming the rule is effective in April 2017, AFG believes the biggest impact will be on insurance-only licensed agents whose sales represented less than 10% of our fourth quarter premium. While AFG’s management continues to believe the adjustments required of the Company and its distribution partners to comply with the rule will impact 2017 annuity premiums, management does not believe the new rule will have a material impact on AFG’s results of operations.

2017 Annuity Outlook – AFG expects that 2017 annuity sales will be flat to down 10% compared to the $4.4 billion sold in 2016, resulting in year-over-year average asset and reserve growth of 8% to 10%; the favorable earnings impact of this growth will be partially offset by the runoff of higher yielding investments. As a result, AFG anticipates that its annuity operating earnings will be in the range of $375 to $395 million, an increase from the $368 million reported in 2016.

This guidance assumes (i) the Department of Labor rule is implemented in April 2017, (ii) interest rates and the stock market rise moderately, and (iii) a more normalized return on investments that are required to be marked to market. Fluctuations in the returns on these investments, or large changes in interest rates and/or the stock market, as compared to our expectations, could lead to significant positive or negative impacts on the Annuity Segment’s results.

 

Page 5


More information about premiums and the results of operations for our Annuity Segment may be found in AFG’s Quarterly Investor Supplement, which is posted on our website.

Investments

AFG recorded fourth quarter 2016 net realized gains of $32 million after tax and after deferred acquisition costs (DAC), compared to net realized losses of $14 million in the comparable prior year period. Unrealized gains on fixed maturities were $306 million after tax and after DAC at December 31, 2016, an increase of $28 million from year-end 2015. Our portfolio continues to be high quality, with 89% of our fixed maturity portfolio rated investment grade and 97% with a National Association of Insurance Commissioners’ designation of NAIC 1 or 2, its highest two categories.

For the three months ended December 31, 2016, P&C net investment income was approximately 15% higher than the comparable 2015 period, reflecting the positive impact of certain investments required to be marked to market through earnings and higher income from equity in the earnings of limited partnerships and similar investments.

More information about the components of our investment portfolio may be found in our Quarterly Investor Supplement, which is posted on our website.

Tax Benefit Related to National Interstate Merger

As previously announced, on November 10, 2016 holders of National Interstate common shares voted to approve an Agreement and Plan of Merger. The Merger allowed National Interstate and its subsidiaries to become members of the AFG consolidated tax group, which resulted in a non-core tax benefit of $66 million to AFG during the fourth quarter of 2016.

Tax Benefit Related to Neon Restructuring

During December 2016, AFG undertook a restructuring that included the liquidation for tax purposes of the foreign subsidiary that is the parent of our Neon operations, resulting in a taxable loss for U.S. tax purposes. AFG reported the tax benefit associated with this loss as a non-core tax benefit of $111 million in the fourth quarter of 2016.

About American Financial Group, Inc.

American Financial Group is an insurance holding company based in Cincinnati, Ohio with assets over $50 billion. Through the operations of Great American Insurance Group, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of fixed and fixed-indexed annuities in the retail, financial institutions and education markets. Great American Insurance Group’s roots go back to 1872 with the founding of its flagship company, Great American Insurance Company.

Forward Looking Statements

This press release contains certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this press release not dealing with historical results are forward-

 

Page 6


looking and are based on estimates, assumptions and projections. Examples of such forward-looking statements include statements relating to: the Company’s expectations concerning market and other conditions and their effect on future premiums, revenues, earnings, investment activities and the amount and timing of share repurchases; 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: changes in financial, political and economic conditions, including changes in interest and inflation rates, 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; regulatory actions (including changes in statutory accounting rules); 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 civil unrest and other major losses; 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; trends in persistency and mortality; 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 our operating subsidiaries; the impact of the conditions in the international financial markets and the global economy (including those associated with the United Kingdom’s expected withdrawal from the European Union, or “Brexit”) relating to our international operations; and other factors identified in our filings with the Securities and Exchange Commission.

The forward-looking statements herein are made only as of the date of this press release. The Company assumes no obligation to publicly update any forward-looking statements.

Conference Call

The company will hold a conference call to discuss 2016 fourth quarter and full year results at 11:30 am (ET) tomorrow, Thursday, February 2, 2017. Toll-free telephone access will be available by dialing 877-459-8719 (international dial-in 424-276-6843). The conference ID for the live call is 48169817. Please dial in five to ten minutes prior to the scheduled start time of the call.

A replay will be available approximately two hours following the completion of the call and will remain available until 11:59 pm (ET) on February 9, 2017. To listen to the replay, dial 1-855-859-2056 (international dial-in 404-537-3406) and provide the conference ID 48169817.

The conference and accompanying webcast slides will also be broadcast live over the Internet. To listen to the call via the Internet, go to the Investor Relations page on AFG’s website, www.AFGinc.com, and follow the instructions under Webcasts and Presentations.

The archived webcast will be available immediately after the call via the same link on the Investor Relations page until February 9, 2017 at 11:59 pm (ET). An archived audio MP3 file will be available within 24 hours of the call.

Contact:

Diane P. Weidner

Asst. Vice President - Investor Relations

513-369-5713

 

Page 7


Websites:

www.AFGinc.com

www.GreatAmericanInsuranceGroup.com

# # #

(Financial summaries follow)

This earnings release and AFG’s Quarterly Investor Supplement are available in the Investor Relations section of AFG’s website: www.AFGinc.com.

AFG17-03

 

Page 8


AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

SUMMARY OF EARNINGS AND SELECTED BALANCE SHEET DATA

(In Millions, Except Per Share Data)

 

     Three months ended
December 31,
    Twelve months ended
December 31,
 
     2016     2015     2016      2015  

Revenues

         

P&C insurance net earned premiums

   $ 1,144      $ 1,120      $ 4,328       $ 4,224   

Life, accident & health net earned premiums

     6        24        24         104   

Net investment income

     429        416        1,696         1,633   

Realized gains (losses) on:

         

Securities

     51        (21     19         (19

Subsidiaries

     —          (4     2         (161

Income (loss) of managed investment entities:

         

Investment income

     49        43        190         155   

Gain (loss) on change in fair value of assets/liabilities

     6        (18     15         (34

Other income

     52        58        224         243   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     1,737        1,618        6,498         6,145   
  

 

 

   

 

 

   

 

 

    

 

 

 

Costs and expenses

         

P&C insurance losses & expenses

     1,040        1,026        4,111         4,015   

Annuity, life, accident & health benefits & expenses

     222        247        1,019         1,042   

Interest charges on borrowed money

     21        17        77         75   

Expenses of managed investment entities

     42        32        151         112   

Other expenses

     95        86        353         336   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total costs and expenses

     1,420        1,408        5,711         5,580   
  

 

 

   

 

 

   

 

 

    

 

 

 

Earnings before income taxes

     317        210        787         565   

Provision for income taxes(b)

     (71     80        119         195   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net earnings including noncontrolling interests

     388        130        668         370   

Less: Net earnings (loss) attributable to noncontrolling interests

     3        1        19         18   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net earnings attributable to shareholders

   $ 385      $ 129      $ 649       $ 352   
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted earnings per Common Share

   $ 4.33      $ 1.45      $ 7.33       $ 3.94   
  

 

 

   

 

 

   

 

 

    

 

 

 

Average number of diluted shares

     88.8        89.2        88.5         89.4   

 

Selected Balance Sheet Data:

   December 31,
2016
     December 31,
2015
 

Total cash and investments

   $ 41,433       $ 37,736   

Long-term debt(c)

   $ 1,283       $ 998   

Shareholders’ equity(d)

   $ 4,916       $ 4,592   

Shareholders’ equity (excluding unrealized gains/losses related to fixed maturities)(d)

   $ 4,617       $ 4,313   

Book value per share

   $ 56.55       $ 52.50   

Book value per share (excluding unrealized gains/losses related to fixed maturities)

   $ 53.11       $ 49.32   

Common Shares Outstanding

     86.9         87.5   

Footnotes (b), (c) and (d) are contained in the accompanying Notes to Financial Schedules at the end of this release.

 

Page 9


AMERICAN FINANCIAL GROUP, INC.

SPECIALTY P&C OPERATIONS

(Dollars in Millions)

 

     Three months ended
December 31,
    Pct.
Change
    Twelve months ended
December 31,
    Pct.
Change
 
     2016     2015           2016     2015        

Gross written premiums

   $ 1,441      $ 1,356        6   $ 5,981      $ 5,832        3
  

 

 

   

 

 

     

 

 

   

 

 

   

Net written premiums

   $ 1,083      $ 1,056        3   $ 4,386      $ 4,327        1
  

 

 

   

 

 

     

 

 

   

 

 

   

Ratios (GAAP):

            

Loss & LAE ratio

     63.7     61.8       61.7     62.2  

Underwriting expense ratio

     26.7     29.2       30.6     30.9  
  

 

 

   

 

 

     

 

 

   

 

 

   

Specialty Combined Ratio

     90.4     91.0       92.3     93.1  
  

 

 

   

 

 

     

 

 

   

 

 

   

Combined Ratio – P&C Segment

     90.4     91.0       94.5     94.7  
  

 

 

   

 

 

     

 

 

   

 

 

   

Supplemental Information:(e)

            

Gross Written Premiums:

            

Property & Transportation

   $ 577      $ 515        12   $ 2,504      $ 2,455        2

Specialty Casualty

     684        661        3     2,792        2,739        2

Specialty Financial

     180        179        1     685        637        8

Other

     —          1        na        —          1        na   
  

 

 

   

 

 

     

 

 

   

 

 

   
   $ 1,441      $ 1,356        6   $ 5,981      $ 5,832        3
  

 

 

   

 

 

     

 

 

   

 

 

   

Net Written Premiums:

            

Property & Transportation

   $ 394      $ 378        4   $ 1,672      $ 1,636        2

Specialty Casualty

     510        503        1     2,036        2,052        (1 %) 

Specialty Financial

     154        152        1     572        540        6

Other

     25        23        9     106        99        7
  

 

 

   

 

 

     

 

 

   

 

 

   
   $ 1,083      $ 1,056        3   $ 4,386      $ 4,327        1
  

 

 

   

 

 

     

 

 

   

 

 

   

Combined Ratio (GAAP):

            

Property & Transportation

     83.9     92.4       90.0     96.9  

Specialty Casualty

     97.4     90.2       96.1     92.7  

Specialty Financial

     86.0     88.7       84.9     83.1  

Aggregate Specialty Group

     90.4     91.0       92.3     93.1  

 

     Three months ended
December 31,
    Twelve months ended
December 31,
 
     2016     2015     2016     2015  

Reserve Development (Favorable)/Adverse:

        

Property & Transportation

   $ 13      $ 8      $ (21   $ 15   

Specialty Casualty

     3        (7     (13     (11

Specialty Financial

     (6     (5     (23     (30

Other

     —          (1     (4     (11
  

 

 

   

 

 

   

 

 

   

 

 

 

Specialty Group Excluding A&E and Neon Charge

     10        (5     (61     (37

Special A&E Reserve Charge – P&C Run-off

     —          —          36        67   

Neon Exited Lines Charge and Other

     —          —          57        3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Reserve Development

   $ 10      $ (5   $ 32      $ 33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Points on Combined Ratio:

        

Property & Transportation

     3.0        1.8        (1.2     0.9   

Specialty Casualty

     0.5        (1.4     (0.7     (0.5

Specialty Financial

     (4.5     (3.6     (4.0     (5.7

Aggregate Specialty Group

     0.9        (0.4     (1.4     (0.8

Total P&C Segment

     0.9        (0.4     0.7        0.8   

Footnote (e) is contained in the accompanying Notes to Financial Schedules at the end of this release.

 

Page 10


AMERICAN FINANCIAL GROUP, INC.

ANNUITY SEGMENT

(Dollars in Millions)

Components of Statutory Premiums

 

     Three months ended
December 31,
    Pct.
Change
    Twelve months ended
December 31,
    Pct.
Change
 
     2016     2015           2016     2015        

Annuity Premiums:

            

Financial Institutions

   $ 626      $ 534        17   $ 2,418      $ 1,970        23

Retail

     437        512        (15 %)      1,796        1,934        (7 %) 

Education Market

     40        51        (22 %)      184        194        (5 %) 

Variable Annuities

     8        10        (20 %)      37        42        (12 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Annuity Premiums

   $ 1,111      $ 1,107        —     $ 4,435      $ 4,140        7
  

 

 

   

 

 

     

 

 

   

 

 

   
Components of Operating Earnings Before Income Taxes   
     Three months ended
December 31,
    Pct.
Change
    Twelve months ended
December 31,
    Pct.
Change
 
     2016     2015           2016     2015        

Revenues:

            

Net investment income

   $ 346      $ 309        12   $ 1,356      $ 1,224        11

Other income

     27        23        17     103        98        5
  

 

 

   

 

 

     

 

 

   

 

 

   

Total revenues

     373        332        12     1,459        1,322        10

Costs and Expenses:

            

Annuity benefits

     160        189        (15 %)      800        732        9

Acquisition expenses

     54        20        170     181        163        11

Other expenses

     27        22        23     110        96        15
  

 

 

   

 

 

     

 

 

   

 

 

   

Total costs and expenses

     241        231        4     1,091        991        10
  

 

 

   

 

 

     

 

 

   

 

 

   

Operating earnings before income taxes

   $ 132      $ 101        31   $ 368      $ 331        11
  

 

 

   

 

 

     

 

 

   

 

 

   
Supplemental Annuity Information             
     Three months ended
December 31,
    Pct.
Change
    Twelve months ended
December 31,
    Pct.
Change
 
     2016     2015           2016     2015        

Operating earnings before impact of fair value accounting on FIAs

   $ 103      $ 96        7   $ 395      $ 354        12

Impact of fair value accounting

     29        5        nm        (27     (23     nm   
  

 

 

   

 

 

     

 

 

   

 

 

   

Operating earnings before income taxes

   $ 132      $ 101        31   $ 368      $ 331        11
  

 

 

   

 

 

     

 

 

   

 

 

   

Average Fixed Annuity Reserves*

   $ 29,250      $ 26,048        12   $ 28,146      $ 24,898        13

Net Interest Spread*

     2.70     2.53       2.73     2.69  

Net Spread Earned Before Impact of Fair Value Accounting*

     1.42     1.31       1.39     1.35  

Net Spread Earned After Impact of Fair Value Accounting*

     1.82     1.39       1.29     1.26  

 

* Excludes fixed annuity portion of variable annuity business.

 

Page 11


AMERICAN FINANCIAL GROUP, INC.

Notes to Financial Schedules

 

a) Components of core net operating earnings (in millions):

 

     Three months ended
December 31,
    Twelve months ended
December 31,
 
     2016     2015     2016     2015  

Core Operating Earnings before Income Taxes:

        

P&C insurance segment

   $ 180      $ 163      $ 630      $ 566   

Annuity segment, before impact of fair value accounting

     103        96        395        354   

Impact of fair value accounting

     29        5        (27     (23

Run-off long-term care and life segment

     2        —          2        14   

Interest & other corporate expense

     (50     (45     (176     (162
  

 

 

   

 

 

   

 

 

   

 

 

 

Core operating earnings before income taxes

     264        219        824        749   

Related income taxes

     88        83        290        263   
  

 

 

   

 

 

   

 

 

   

 

 

 

Core net operating earnings

   $ 176      $ 136      $ 534      $ 486   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

b) Excluding the impact of the Neon Exited Lines Charge that was reported in the second quarter of 2016, the Tax Benefit related to the National Interstate Merger and the Tax Benefit Related to the Neon Restructuring reported in the fourth quarter of 2016, AFG’s effective tax rate for the fourth quarter and twelve months ended December 31, 2016 was 33% and 35%, respectively. AFG maintains a full valuation allowance against the deferred tax benefits associated with losses related to AFG’s specialist Lloyd’s insurance business, Neon (formerly known as Marketform).

 

c) December 2015 and prior periods have been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt. The impact of this adjustment was to reduce the carrying value of long-term debt on AFG’s balance sheet by $22 million at December 31, 2015, from amounts originally reported. Adjustments to the income statement increased interest charges on borrowed money by $1 million for the twelve months ended December 31, 2015.

 

d) Shareholders’ Equity at December 31, 2016 includes $299 million ($3.44 per share) in unrealized after-tax gains related to fixed maturities. Shareholders’ Equity at December 31, 2015 includes $279 million ($3.18 per share) in unrealized after-tax gains related to fixed maturities.

 

e) Supplemental Notes:

 

    Property & Transportation includes primarily physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages.

 

    Specialty Casualty includes primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, specialty coverages in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance.

 

    Specialty Financial includes risk management insurance programs for leasing and financing institutions (including collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance.

 

    Other includes an internal reinsurance facility.

 

Page 12

EX-99.2 3 d274769dex992.htm INVESTOR SUPPLEMENT Investor Supplement

Exhibit 99.2

 

LOGO  

 

American Financial Group, Inc.

 

 

Investor Supplement - Fourth Quarter 2016

 

 

February 1, 2017

 

 

American Financial Group, Inc.

  Corporate Headquarters
  Great American Insurance Group Tower
  301 E Fourth Street
  Cincinnati, OH 45202
  513 579 6739


American Financial Group, Inc.

Table of Contents - Investor Supplement - Fourth Quarter 2016

   LOGO

 

Section

   Page  

Table of Contents - Investor Supplement - Fourth Quarter 2016

     2   

Financial Highlights

     3   

Summary of Earnings

     4   

Earnings Per Share Summary

     5   

Property and Casualty Insurance Segment

  

Property and Casualty Insurance - Summary Underwriting Results (GAAP)

     6   

Specialty - Underwriting Results (GAAP)

     7   

Property and Transportation - Underwriting Results (GAAP)

     8   

Specialty Casualty - Underwriting Results (GAAP)

     9   

Specialty Financial - Underwriting Results (GAAP)

     10   

Other Specialty - Underwriting Results (GAAP)

     11   

Annuity Segment

  

Annuity Earnings (GAAP)

     12   

Detail of Annuity Benefits Expense (GAAP)

     13   

Net Spread on Fixed Annuities (GAAP)

     14   

Annuity Premiums (Statutory)

     15   

Fixed Annuity Benefits Accumulated (GAAP)

     16   

Consolidated Balance Sheet / Book Value / Debt

  

Consolidated Balance Sheet

     17   

Book Value Per Share and Price / Book Summary

     18   

Capitalization

     19   

Additional Supplemental Information

     20   

Consolidated Investment Supplement

  

Total Cash and Investments

     21   

Net Investment Income

     22   

Fixed Maturities - By Security Type - AFG Consolidated

     23   

Fixed Maturities - By Security Type Portfolio

     24   

Fixed Maturities - Credit Rating

     25   

Mortgage-Backed Securities - AFG Consolidated

     26   

Mortgage-Backed Securities Portfolio

     27   

Mortgage-Backed Securities - Credit Rating

     28   

Appendix

  

A. Fixed Maturities - Credit Rating by Type

     29   

 

Page 2


American Financial Group, Inc.

Financial Highlights

(in millions, except per share information)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Highlights

              

Net earnings

   $ 385      $ 109      $ 54      $ 101      $ 129      $ 649      $ 352   

Core net operating earnings

     176        134        113        111        136        534        486   

Total assets

     55,072        54,845        52,733        51,038        49,837        55,072        49,837   

Adjusted shareholders’ equity (a)

     4,617        4,487        4,356        4,325        4,313        4,617        4,313   

Property and Casualty net written premiums

     1,083        1,268        1,056        979        1,056        4,386        4,327   

Annuity statutory premiums

     1,111        941        1,098        1,285        1,107        4,435        4,140   

Per share data

              

Diluted earnings per share

   $ 4.33      $ 1.23      $ 0.62      $ 1.14      $ 1.45      $ 7.33      $ 3.94   

Core net operating earnings per share

     1.98        1.51        1.28        1.25        1.52        6.03        5.44   

Adjusted book value per share (a)

     53.11        51.68        50.16        49.72        49.32        53.11        49.32   

Cash dividends per common share

     1.3125        0.2800        0.2800        0.2800        1.2800        2.1525        2.0300   

Financial ratios

              

Annualized return on equity (b)

     34.4     9.9     5.1     9.4     12.1     14.8     8.3

Annualized core operating return on equity (b)

     15.7     12.2     10.5     10.3     12.7     12.2     11.5

Property and Casualty combined ratio - Specialty:

              

Loss & LAE ratio

     63.7     62.9     61.2     58.3     61.8     61.7     62.2

Underwriting expense ratio

     26.7     30.3     32.7     33.0     29.2     30.6     30.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio - Specialty

     90.4     93.2     93.9     91.3     91.0     92.3     93.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net spread on fixed annuities:

              

Net interest spread

     2.70     2.85     2.84     2.54     2.53     2.73     2.69

Net spread earned:

              

Before impact of fair value accounting

     1.42     1.46     1.45     1.20     1.31     1.39     1.35

Impact of fair value accounting (c)

     0.40     0.01     (0.37 %)      (0.46 %)      0.08     (0.10 %)      (0.09 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

After impact of fair value accounting

     1.82     1.47     1.08     0.74     1.39     1.29     1.26
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Excludes unrealized gains related to fixed maturity investments, a reconciliation to the GAAP measure is on page 18.
(b) Excludes accumulated other comprehensive income.
(c) Change in fair value of derivatives offset by the estimated related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.

 

Page 3


American Financial Group, Inc.

Summary of Earnings

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Property and Casualty Insurance

              

Underwriting profit

   $ 110      $ 78      $ 62      $ 87      $ 100      $ 337      $ 292   

Net investment income

     85        93        89        83        74        350        319   

Other expense

     (15     (18     (12     (12     (11     (57     (45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Property and Casualty Insurance operating earnings

     180        153        139        158        163        630        566   

Annuity earnings

     132        107        76        53        101        368        331   

Run-off Long-Term Care and Life earnings

     2        1        —          (1     —          2        14   

Interest expense of parent holding companies (a)

     (21     (19     (19     (18     (16     (77     (73

Other expense (a)

     (29     (29     (19     (22     (29     (99     (89
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax core operating earnings

     264        213        177        170        219        824        749   

Income tax expense

     88        79        64        59        83        290        263   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core net operating earnings

     176        134        113        111        136        534        486   

Non-core items, net of tax:

              

Realized gains (losses) on securities

     32        1        (10     (10     (14     13        (12

Realized gain (loss) on sale of subsidiaries

     —          —          1        —          (3     1        (104

Gain on sale of hotel and apartment properties

     —          —          15        —          10        15        36   

Special A&E charges:

              

Property and Casualty Insurance run-off operations

     —          (23     —          —          —          (23     (44

Former Railroad and Manufacturing operations

     —          (3     —          —          —          (3     (8

Neon exited lines charge

     —          —          (65     —          —          (65     —     

Tax benefit related to National Interstate merger

     66        —          —          —          —          66        —     

Tax benefit related to Neon restructuring

     111        —          —          —          —          111        —     

Other

     —          —          —          —          —          —          (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ 385      $ 109      $ 54      $ 101      $ 129      $ 649      $ 352   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) December 2015 has been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt.

 

Page 4


American Financial Group, Inc.

Earnings Per Share Summary

(in millions, except per share information)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16      09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Core net operating earnings

   $ 176       $ 134      $ 113      $ 111      $ 136      $ 534      $ 486   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ 385       $ 109      $ 54      $ 101      $ 129      $ 649      $ 352   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average number of diluted shares

     88.774         88.461        88.390        88.495        89.228        88.530        89.362   

Diluted earnings per share:

               

Core net operating earnings per share

   $ 1.98       $ 1.51      $ 1.28      $ 1.25      $ 1.52      $ 6.03      $ 5.44   

Realized gains (losses) on securities

     0.36         0.02        (0.11     (0.11     (0.15     0.16        (0.12

Realized gain (loss) on sale of subsidiaries

     —           —          0.01        —          (0.03     0.01        (1.17

Gain on sale of hotel and apartment properties

     —           —          0.17        —          0.11        0.17        0.40   

Special A&E charges:

               

Property and Casualty Insurance run-off operations

     —           (0.26     —          —          —          (0.26     (0.49

Former Railroad and Manufacturing operations

     —           (0.04     —          —          —          (0.04     (0.09

Neon exited lines charge

     —           —          (0.73     —          —          (0.73     —     

Tax benefit related to National Interstate merger

     0.74         —          —          —          —          0.74        —     

Tax benefit related to Neon restructuring

     1.25         —          —          —          —          1.25        —     

Other

     —           —          —          —          —          —          (0.03
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 4.33       $ 1.23      $ 0.62      $ 1.14      $ 1.45      $ 7.33      $ 3.94   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 5


American Financial Group, Inc.

Property and Casualty Insurance - Summary Underwriting Results (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Property and Transportation

   $ 75      $ 44      $ 15      $ 32      $ 34      $ 166      $ 48   

Specialty Casualty

     13        13        23        29        50        78        146   

Specialty Financial

     20        19        22        23        15        84        87   

Other Specialty

     2        2        3        2        1        9        14   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit - Specialty

     110        78        63        86        100        337        295   

Other core charges, included in loss and LAE

     —          —          1        (1     —          —          3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit - Core

     110        78        62        87        100        337        292   

Special A&E charges, included in loss and LAE

     —          (36     —          —          —          (36     (67

Neon exited lines charge, included in loss and LAE

     —          —          (57     —          —          (57     —     

Neon exited lines charge, included in underwriting expenses

     —          —          (8     —          —          (8     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit (loss) - Property and Casualty Insurance

   $ 110      $ 42      $ (3   $ 87      $ 100      $ 236      $ 225   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Included in results above:

              

Current accident year catastrophe losses:

              

Catastrophe reinstatement premium

   $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Catastrophe loss

     12        14        21        8        9        55        35   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current accident year catastrophe losses

   $ 12      $ 14      $ 21      $ 8      $ 9      $ 55      $ 35   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Prior year loss reserve development (favorable) / adverse

   $ 10      $ 22      $ 28      $ (28   $ (5   $ 32      $ 33   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio:

              

Property and Transportation

     83.9     91.1     95.9     90.6     92.4     90.0     96.9

Specialty Casualty

     97.4     97.4     95.3     94.3     90.2     96.1     92.7

Specialty Financial

     86.0     86.4     84.4     82.6     88.7     84.9     83.1

Other Specialty

     94.9     91.5     89.2     89.7     97.1     91.4     85.5

Combined ratio - Specialty

     90.4     93.2     93.9     91.3     91.0     92.3     93.1

Other core charges

     0.0     0.1     0.1     (0.1 %)      0.0     (0.1 %)      0.0

Neon exited lines charge, loss and LAE

     0.0     0.0     5.5     0.0     0.0     1.3     0.0

Neon exited lines charge, underwriting expenses

     0.0     0.0     0.8     0.0     0.0     0.2     0.0

Special A&E charges

     0.0     3.0     0.0     0.0     0.0     0.8     1.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio

     90.4     96.3     100.3     91.2     91.0     94.5     94.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio excl. catastrophe and prior year development

     88.4     93.1     94.8     93.2     90.6     92.4     93.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE components - property and casualty insurance

              

Current accident year, excluding catastrophe loss

     61.7     62.8     62.1     60.2     61.4     61.8     62.2

Prior accident year loss reserve development

     0.9     2.0     2.7     (2.8 %)      (0.4 %)      0.7     0.8

Current accident year catastrophe loss

     1.1     1.2     2.0     0.8     0.8     1.3     0.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE ratio

     63.7     66.0     66.8     58.2     61.8     63.8     63.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 6


American Financial Group, Inc.

Specialty - Underwriting Results (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Gross written premiums

   $ 1,441      $ 1,899      $ 1,398      $ 1,243      $ 1,356      $ 5,981      $ 5,832   

Ceded reinsurance premiums

     (358     (631     (342     (264     (300     (1,595     (1,505
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net written premiums

     1,083        1,268        1,056        979        1,056        4,386        4,327   

Change in unearned premiums

     61        (109     (29     19        64        (58     (103
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earned premiums

     1,144        1,159        1,027        998        1,120        4,328        4,224   

Loss and LAE

     729        729        629        582        693        2,669        2,625   

Underwriting expense

     305        352        335        330        327        1,322        1,304   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit

   $ 110      $ 78      $ 63      $ 86      $ 100      $ 337      $ 295   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Included in results above:

              

Current accident year catastrophe losses:

              

Catastrophe reinstatement premium

   $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Catastrophe loss

     12        14        21        8        9        55        35   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current accident year catastrophe losses

   $ 12      $ 14      $ 21      $ 8      $ 9      $ 55      $ 35   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Prior year loss reserve development (favorable) / adverse

   $ 10      $ (14   $ (30   $ (27   $ (5   $ (61   $ (37
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio:

              

Loss and LAE ratio

     63.7     62.9     61.2     58.3     61.8     61.7     62.2

Underwriting expense ratio

     26.7     30.3     32.7     33.0     29.2     30.6     30.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio

     90.4     93.2     93.9     91.3     91.0     92.3     93.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio excl. catastrophe and prior year development

     88.4     93.1     94.8     93.2     90.6     92.4     93.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE components:

              

Current accident year, excluding catastrophe loss

     61.7     62.8     62.1     60.2     61.4     61.8     62.2

Prior accident year loss reserve development

     0.9     (1.1 %)      (2.9 %)      (2.7 %)      (0.4 %)      (1.4 %)      (0.8 %) 

Current accident year catastrophe loss

     1.1     1.2     2.0     0.8     0.8     1.3     0.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE ratio

     63.7     62.9     61.2     58.3     61.8     61.7     62.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 7


American Financial Group, Inc.

Property and Transportation - Underwriting Results (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Gross written premiums

   $ 577      $ 991      $ 538      $ 398      $ 515      $ 2,504      $ 2,455   

Ceded reinsurance premiums

     (183     (406     (156     (87     (137     (832     (819
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net written premiums

     394        585        382        311        378        1,672        1,636   

Change in unearned premiums

     71        (92     (17     28        64        (10     (37
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earned premiums

     465        493        365        339        442        1,662        1,599   

Loss and LAE

     319        339        245        211        317        1,114        1,159   

Underwriting expense

     71        110        105        96        91        382        392   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit

   $ 75      $ 44      $ 15      $ 32      $ 34      $ 166      $ 48   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Included in results above:

              

Current accident year catastrophe losses:

              

Catastrophe reinstatement premium

   $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Catastrophe loss

     6        7        12        6        3        31        21   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current accident year catastrophe losses

   $ 6      $ 7      $ 12      $ 6      $ 3      $ 31      $ 21   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Prior year loss reserve development (favorable) / adverse

   $ 13      $ (5   $ (12   $ (17   $ 8      $ (21   $ 15   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio:

              

Loss and LAE ratio

     68.6     68.8     67.0     62.2     71.7     67.0     72.4

Underwriting expense ratio

     15.3     22.3     28.9     28.4     20.7     23.0     24.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio

     83.9     91.1     95.9     90.6     92.4     90.0     96.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio excl. catastrophe and prior year development

     79.7     90.7     95.8     94.1     89.9     89.3     94.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE components:

              

Current accident year, excluding catastrophe loss

     64.4     68.4     66.9     65.7     69.2     66.3     70.2

Prior accident year loss reserve development

     3.0     (1.2 %)      (3.2 %)      (5.2 %)      1.8     (1.2 %)      0.9

Current accident year catastrophe loss

     1.2     1.6     3.3     1.7     0.7     1.9     1.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE ratio

     68.6     68.8     67.0     62.2     71.7     67.0     72.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 8


American Financial Group, Inc.

Specialty Casualty - Underwriting Results (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Gross written premiums

   $ 684      $ 722      $ 688      $ 698      $ 661      $ 2,792      $ 2,739   

Ceded reinsurance premiums

     (174     (218     (185     (179     (158     (756     (687
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net written premiums

     510        504        503        519        503        2,036        2,052   

Change in unearned premiums

     —          (7     (6     (17     12        (30     (41
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earned premiums

     510        497        497        502        515        2,006        2,011   

Loss and LAE

     348        330        329        313        315        1,320        1,265   

Underwriting expense

     149        154        145        160        150        608        600   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit

   $ 13      $ 13      $ 23      $ 29      $ 50      $ 78      $ 146   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Included in results above:

              

Current accident year catastrophe losses:

              

Catastrophe reinstatement premium

   $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Catastrophe loss

     4        2        3        1        1        10        4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current accident year catastrophe losses

   $ 4      $ 2      $ 3      $ 1      $ 1      $ 10      $ 4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Prior year loss reserve development (favorable) / adverse

   $ 3      $ (2   $ (10   $ (4   $ (7   $ (13   $ (11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio:

              

Loss and LAE ratio

     68.2     66.5     66.1     62.4     61.1     65.8     62.9

Underwriting expense ratio

     29.2     30.9     29.2     31.9     29.1     30.3     29.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio

     97.4     97.4     95.3     94.3     90.2     96.1     92.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio excl. catastrophe and prior year development

     96.1     97.4     96.6     94.9     91.4     96.3     93.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE components:

              

Current accident year, excluding catastrophe loss

     66.9     66.5     67.4     63.0     62.3     66.0     63.2

Prior accident year loss reserve development

     0.5     (0.3 %)      (2.0 %)      (0.7 %)      (1.4 %)      (0.7 %)      (0.5 %) 

Current accident year catastrophe loss

     0.8     0.3     0.7     0.1     0.2     0.5     0.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE ratio

     68.2     66.5     66.1     62.4     61.1     65.8     62.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 9


American Financial Group, Inc.

Specialty Financial - Underwriting Results (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Gross written premiums

   $ 180      $ 186      $ 172      $ 147      $ 179      $ 685      $ 637   

Ceded reinsurance premiums

     (26     (37     (28     (22     (27     (113     (97
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net written premiums

     154        149        144        125        152        572        540   

Change in unearned premiums

     (13     (4     (5     7        (15     (15     (23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earned premiums

     141        145        139        132        137        557        517   

Loss and LAE

     46        45        42        45        46        178        154   

Underwriting expense

     75        81        75        64        76        295        276   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit

   $ 20      $ 19      $ 22      $ 23      $ 15      $ 84      $ 87   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Included in results above:

              

Current accident year catastrophe losses:

              

Catastrophe reinstatement premium

   $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Catastrophe loss

     2        5        3        1        5        11        9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current accident year catastrophe losses

   $ 2      $ 5      $ 3      $ 1      $ 5      $ 11      $ 9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Prior year loss reserve development (favorable) / adverse

   $ (6   $ (6   $ (7   $ (4   $ (5   $ (23   $ (30
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio:

              

Loss and LAE ratio

     32.4     31.6     30.1     34.0     32.8     32.0     29.7

Underwriting expense ratio

     53.6     54.8     54.3     48.6     55.9     52.9     53.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio

     86.0     86.4     84.4     82.6     88.7     84.9     83.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio excl. catastrophe and prior year development

     88.8     87.0     87.0     84.8     88.8     86.9     87.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE components:

              

Current accident year, excluding catastrophe loss

     35.2     32.2     32.7     36.2     32.9     34.0     33.7

Prior accident year loss reserve development

     (4.5 %)      (3.9 %)      (4.6 %)      (3.3 %)      (3.6 %)      (4.0 %)      (5.7 %) 

Current accident year catastrophe loss

     1.7     3.3     2.0     1.1     3.5     2.0     1.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and LAE ratio

     32.4     31.6     30.1     34.0     32.8     32.0     29.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 10


American Financial Group, Inc.

Other Specialty - Underwriting Results (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Gross written premiums

   $ —        $ —        $ —        $ —        $ 1      $ —        $ 1   

Ceded reinsurance premiums

     25        30        27        24        22        106        98   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net written premiums

     25        30        27        24        23        106        99   

Change in unearned premiums

     3        (6     (1     1        3        (3     (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earned premiums

     28        24        26        25        26        103        97   

Loss and LAE

     16        15        13        13        15        57        47   

Underwriting expense

     10        7        10        10        10        37        36   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting profit

   $ 2      $ 2      $ 3      $ 2      $ 1      $ 9      $ 14   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Included in results above:

              

Current accident year catastrophe losses:

              

Catastrophe reinstatement premium

   $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Catastrophe loss

     —          —          3        —          —          3        1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current accident year catastrophe losses

   $ —        $ —        $ 3      $ —        $ —        $ 3      $ 1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Prior year loss reserve development (favorable) / adverse

   $ —        $ (1   $ (1   $ (2   $ (1   $ (4   $ (11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio:

              

Loss and LAE ratio

     59.5     55.2     52.5     52.1     61.0     54.9     49.4

Underwriting expense ratio

     35.4     36.3     36.7     37.6     36.1     36.5     36.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio

     94.9     91.5     89.2     89.7     97.1     91.4     85.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio excl. catastrophe and prior year development

     93.7     95.1     86.4     96.0     98.1     92.8     96.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 11


American Financial Group, Inc.

Annuity Earnings (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended      Twelve Months Ended  
     12/31/16      09/30/16      06/30/16     03/31/16     12/31/15      12/31/16     12/31/15  

Net investment income

   $ 346       $ 351       $ 344      $ 315      $ 309       $ 1,356      $ 1,224   

Guaranteed withdrawal benefit fees

     14         14         13        12        12         53        43   

Policy charges and other miscellaneous income

     13         12         11        14        11         50        55   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     373         377         368        341        332         1,459        1,322   

Annuity benefits expense

     160         189         223        228        189         800        732   

Acquisition expenses

     54         53         40        34        20         181        163   

Other expenses

     27         28         29        26        22         110        96   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total costs and expenses

     241         270         292        288        231         1,091        991   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Annuity earnings before income taxes

   $ 132       $ 107       $ 76      $ 53      $ 101       $ 368      $ 331   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Detail of Annuity earnings before income taxes

                 

Earnings before income taxes and impact of fair value accounting

   $ 103       $ 106       $ 102      $ 84      $ 96       $ 395      $ 354   

Impact of fair value accounting (a)

     29         1         (26     (31     5         (27     (23
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Annuity earnings before income taxes

   $ 132       $ 107       $ 76      $ 53      $ 101       $ 368      $ 331   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) Change in fair value of derivatives offset by the estimated related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.

 

Page 12


American Financial Group, Inc.

Detail of Annuity Benefits Expense (GAAP)

($ in millions)

   LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16      12/31/15     12/31/16     12/31/15  

Detail of annuity benefits expense:

               

Interest credited - fixed

   $ 148      $ 145      $ 142      $ 139       $ 138      $ 574      $ 532   

Interest credited - fixed component of variable annuities

     1        1        2        1         1        5        6   

Change in expected death and annuitization reserve

     4        5        4        5         5        18        19   

Amortization of sales inducements

     7        6        6        5         6        24        26   

Guaranteed withdrawal benefit reserve

     20        18        15        16         15        69        63   

Change in other benefit reserves

     11        10        8        5         5        34        22   

Unlockings (a)

     23        —          —          —           19        23        19   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Subtotal before impact of fair value accounting

     214        185        177        171         189        747        687   

Embedded derivative mark-to-market (b)

     6        109        62        17         88        194        (11

Equity option mark-to-market

     (60     (105     (16     40         (88     (141     56   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Subtotal impact of fair value accounting

     (54     4        46        57         —          53        45   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total annuity benefits expense

   $ 160      $ 189      $ 223      $ 228       $ 189      $ 800      $ 732   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(a) Includes unlockings for fixed indexed annuity embedded derivative reserves, sales inducement asset and other reserves. Does not include unlocking income of $24 million in 2016 and $29 million in 2015 for deferred policy acquisition costs and unearned revenue reserves. These unlockings are included in acquisition expenses and other income. In total, AFG recorded an unlocking expense reduction of $1 million in 2016 and $10 million in 2015.
(b) Excludes unlocking impact of $17 million in 2016 and $28 million in 2015.

 

Page 13


American Financial Group, Inc.

Net Spread on Fixed Annuities (GAAP)

($ in millions)

   LOGO

 

    Three Months Ended     Twelve Months Ended  
    12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Average fixed annuity investments (at amortized cost)

  $ 29,192      $ 28,548      $ 27,964      $ 27,186      $ 26,401      $ 28,223      $ 25,174   

Average annuity benefits accumulated

    29,250        28,538        27,861        26,935        26,048        28,146        24,898   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments in excess of annuity benefits accumulated

  $ (58   $ 10      $ 103      $ 251      $ 353      $ 77      $ 276   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As % of average annuity benefits accumulated (except as noted)

             

Net investment income (as % of investments)

    4.72     4.88     4.88     4.60     4.65     4.77     4.83

Interest credited

    (2.02 %)      (2.03 %)      (2.04 %)      (2.06 %)      (2.12 %)      (2.04 %)      (2.14 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest spread on fixed annuities

    2.70     2.85     2.84     2.54     2.53     2.73     2.69

Policy charges and other miscellaneous income

    0.15     0.14     0.13     0.16     0.15     0.15     0.18

Other annuity benefit expenses, net

    (0.38 %)      (0.36 %)      (0.30 %)      (0.27 %)      (0.31 %)      (0.33 %)      (0.35 %) 

Acquisition expenses

    (1.06 %)      (0.72 %)      (0.55 %)      (0.47 %)      (0.75 %)      (0.70 %)      (0.74 %) 

Other expenses

    (0.35 %)      (0.39 %)      (0.38 %)      (0.38 %)      (0.32 %)      (0.38 %)      (0.36 %) 

Change in fair value of derivatives

    0.73     (0.05 %)      (0.66 %)      (0.84 %)      0.02     (0.19 %)      (0.18 %) 

Unlockings

    0.03     0.00     0.00     0.00     0.07     0.01     0.02
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net spread earned on fixed annuities

    1.82     1.47     1.08     0.74     1.39     1.29     1.26
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average annuity benefits accumulated

  $ 29,250      $ 28,538      $ 27,861      $ 26,935      $ 26,048      $ 28,146      $ 24,898   

Net spread earned on fixed annuities

    1.82     1.47     1.08     0.74     1.39     1.29     1.26
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings on fixed annuity benefits accumulated

  $ 133      $ 105      $ 75      $ 50      $ 91      $ 363      $ 313   

Investments in excess of annuity benefits accumulated

  $ (58   $ 10      $ 103      $ 251      $ 353      $ 77      $ 276   

Net investment income (as % of investments)

    4.72     4.88     4.88     4.60     4.65     4.77     4.83
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings on investments in excess of annuity benefits accumulated

  $ —        $ —        $ 1      $ 3      $ 4      $ 4      $ 13   

Variable annuity earnings

    (1     2        —          —          6        1        5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes

  $ 132      $ 107      $ 76      $ 53      $ 101      $ 368      $ 331   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Detail of net spread earned on fixed annuities - core

             

Net spread earned core - before impact of fair value accounting

    1.42     1.46     1.45     1.20     1.31     1.39     1.35

Change in fair value of derivatives

    0.73     (0.05 %)      (0.66 %)      (0.84 %)      0.02     (0.19 %)      (0.18 %) 

Estimated net offsets to deferred sales inducements and deferred policy acquisition costs

    (0.33 %)      0.06     0.29     0.38     0.06     0.09     0.09
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net spread earned core - after impact of fair value accounting

    1.82     1.47     1.08     0.74     1.39     1.29     1.26
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 14


American Financial Group, Inc.

Annuity Premiums (Statutory)

($ in millions)

   LOGO

 

     Three Months Ended      Twelve Months Ended  
     12/31/16      09/30/16      06/30/16      03/31/16      12/31/15      12/31/16      12/31/15  

Retail single premium annuities - indexed

   $ 415       $ 340       $ 413       $ 546       $ 494       $ 1,714       $ 1,864   

Retail single premium annuities - fixed

     22         18         22         20         18         82         70   

Financial institutions single premium annuities - indexed

     474         435         507         534         462         1,950         1,741   

Financial institutions single premium annuities - fixed

     152         97         100         119         72         468         229   

Education market - fixed and indexed annuities

     40         42         45         57         51         184         194   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal fixed annuity premiums

     1,103         932         1,087         1,276         1,097         4,398         4,098   

Variable annuities

     8         9         11         9         10         37         42   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total annuity premiums

   $ 1,111       $ 941       $ 1,098       $ 1,285       $ 1,107       $ 4,435       $ 4,140   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 15


American Financial Group, Inc.

Fixed Annuity Benefits Accumulated (GAAP)

($ in millions)

  LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Beginning fixed annuity reserves

   $ 28,853      $ 28,222      $ 27,499      $ 26,371      $ 25,725      $ 26,371      $ 23,462   

Premiums

     1,103        932        1,087        1,276        1,097        4,398        4,098   

Federal Home Loan Bank advances

     —          —          —          150        45        150        345   

Surrenders, benefits and other withdrawals

     (524     (586     (596     (483     (515     (2,189     (1,932

Sale of subsidiaries

     —          —          —          —          (261     —          (261

Interest and other annuity benefit expenses:

              

Interest credited

     148        145        142        139        138        574        532   

Embedded derivative mark-to-market

     6        109        62        17        88        194        (11

Change in other benefit reserves

     34        31        28        29        31        122        115   

Unlockings

     27        —          —          —          23        27        23   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending fixed annuity reserves

   $ 29,647      $ 28,853      $ 28,222      $ 27,499      $ 26,371      $ 29,647      $ 26,371   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation to annuity benefits accumulated:

              

Ending fixed annuity reserves

   $ 29,647      $ 28,853      $ 28,222      $ 27,499      $ 26,371      $ 29,647      $ 26,371   

Impact of unrealized investment gains on reserves

     76        180        188        127        64        76        64   

Fixed component of variable annuities

     184        189        186        186        187        184        187   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Annuity benefits accumulated per balance sheet

   $ 29,907      $ 29,222      $ 28,596      $ 27,812      $ 26,622      $ 29,907      $ 26,622   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Annualized surrenders and other withdrawals as a % of beginning reserves

     7.3     8.3     8.7     7.3     8.0     8.3     8.2

 

Page 16


American Financial Group, Inc.

Consolidated Balance Sheet

($ in millions)

  LOGO

 

     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     09/30/15  

Assets:

            

Total cash and investments

   $ 41,433      $ 41,805      $ 40,639      $ 39,437      $ 37,736      $ 38,132   

Recoverables from reinsurers

     2,737        2,814        2,576        2,561        2,636        3,151   

Prepaid reinsurance premiums

     539        634        521        475        480        604   

Agents’ balances and premiums receivable

     997        1,029        992        936        937        976   

Deferred policy acquisition costs

     1,239        867        881        1,055        1,184        993   

Assets of managed investment entities

     4,765        4,312        4,410        3,906        4,047        3,613   

Other receivables

     908        1,391        788        693        820        1,241   

Variable annuity assets (separate accounts)

     600        606        595        595        608        595   

Other assets (a)

     1,655        1,188        1,132        1,181        1,190        1,034   

Goodwill

     199        199        199        199        199        201   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 55,072      $ 54,845      $ 52,733      $ 51,038      $ 49,837      $ 50,540   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity:

            

Unpaid losses and loss adjustment expenses

   $ 8,563      $ 8,661      $ 8,203      $ 8,108      $ 8,127      $ 8,061   

Unearned premiums

     2,171        2,328        2,109        2,051        2,060        2,238   

Annuity benefits accumulated

     29,907        29,222        28,596        27,812        26,622        26,026   

Life, accident and health reserves

     691        700        702        708        705        2,159   

Payable to reinsurers

     634        835        588        501        591        724   

Liabilities of managed investment entities

     4,549        4,067        4,192        3,656        3,781        3,287   

Long-term debt (a)

     1,283        1,300        998        998        998        863   

Variable annuity liabilities (separate accounts)

     600        606        595        595        608        595   

Other liabilities

     1,755        1,768        1,557        1,672        1,575        1,681   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

   $ 50,153      $ 49,487      $ 47,540      $ 46,101      $ 45,067      $ 45,634   

Shareholders’ equity:

            

Common stock

   $ 87      $ 87      $ 87      $ 87      $ 87      $ 87   

Capital surplus

     1,111        1,242        1,228        1,218        1,214        1,195   

Unappropriated retained earnings

     3,343        3,079        3,016        3,002        2,987        2,981   

Unrealized gains - equities

     98        103        46        40        54        44   

Unrealized gains - fixed maturities

     306        669        639        426        278        445   

Unrealized gains (losses) - fixed maturity-related cash flow hedges

     (7     5        5        4        1        2   

Other comprehensive income, net of tax

     (22     (24     (21     (22     (29     (30
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     4,916        5,161        5,000        4,755        4,592        4,724   

Noncontrolling interests

     3        197        193        182        178        182   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 55,072      $ 54,845      $ 52,733      $ 51,038      $ 49,837      $ 50,540   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) December 2015 and prior periods have been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt.

 

Page 17


American Financial Group, Inc.

Book Value Per Share and Price / Book Summary

(in millions, except per share information)

  LOGO

 

     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     09/30/15  

Shareholders’ equity

   $ 4,916      $ 5,161      $ 5,000      $ 4,755      $ 4,592      $ 4,724   

Unrealized (gains) related to fixed maturities

     (299     (674     (644     (430     (279     (447
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted shareholders’ equity

     4,617        4,487        4,356        4,325        4,313        4,277   

Goodwill

     (199     (199     (199     (199     (199     (201

Intangibles

     (34     (44     (46     (47     (49     (51
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible adjusted shareholders’ equity

   $ 4,384      $ 4,244      $ 4,111      $ 4,079      $ 4,065      $ 4,025   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common shares outstanding

     86.924        86.813        86.850        86.966        87.474        87.327   

Book value per share:

            

Book value per share

   $ 56.55      $ 59.45      $ 57.57      $ 54.67      $ 52.50      $ 54.10   

Adjusted (a)

     53.11        51.68        50.16        49.72        49.32        48.98   

Tangible, adjusted (b)

     50.43        48.89        47.34        46.90        46.49        46.09   

Market capitalization

            

AFG’s closing common share price

   $ 88.12      $ 75.00      $ 73.93      $ 70.37      $ 72.08      $ 68.91   

Market capitalization

   $ 7,660      $ 6,511      $ 6,421      $ 6,120      $ 6,305      $ 6,018   

Price / Adjusted book value ratio

     1.66        1.45        1.47        1.42        1.46        1.41   

 

(a) Excludes unrealized gains related to fixed maturity investments.
(b) Excludes unrealized gains related to fixed maturity investments, goodwill and intangibles.

 

Page 18


American Financial Group, Inc.

Capitalization

($ in millions)

  LOGO

 

     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     09/30/15  

AFG senior obligations (a)

   $ 1,008      $ 1,008      $ 708      $ 708      $ 708      $ 708   

Borrowings drawn under credit facility

     —          —          —          —          —          —     

Obligations of subsidiaries - other

     —          18        12        12        12        12   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Debt excluding subordinated debt & debt secured by real estate

   $ 1,008      $ 1,026      $ 720      $ 720      $ 720      $ 720   

AFG subordinated debentures

     300        300        300        300        300        150   

Obligations of subsidiaries - secured by real estate

     —          —          —          —          —          10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total principal amount of long-term debt

   $ 1,308      $ 1,326      $ 1,020      $ 1,020      $ 1,020      $ 880   

Shareholders’ equity

     4,916        5,161        5,000        4,755        4,592        4,724   

Noncontrolling interests

     3        197        193        182        178        182   

Less:

            

Unrealized (gains) - fixed maturity investments

     (306     (669     (639     (426     (278     (445
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjusted capital

   $ 5,921      $ 6,015      $ 5,574      $ 5,531      $ 5,512      $ 5,341   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less:

            

Obligations of subsidiaries - secured by real estate

     —          —          —          —          —          (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjusted capital excluding obligations secured by real estate

   $ 5,921      $ 6,015      $ 5,574      $ 5,531      $ 5,512      $ 5,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratio of debt to total adjusted capital:

            

Including subordinated debt & debt secured by real estate

     22.1     22.0     18.3     18.4     18.5     16.5

Excluding subordinated debt & debt secured by real estate

     17.0     17.1     12.9     13.0     13.1     13.5

 

(a) December 2015 and prior periods have been adjusted for adoption of FASB Accounting Standard Update 2015-03, which impacted the presentation of debt issue costs and long-term debt.

 

Page 19


American Financial Group, Inc.

Additional Supplemental Information

($ in millions)

  LOGO

 

     Three Months Ended      Twelved Months Ended  
     12/31/16      09/30/16      06/30/16      03/31/16      12/31/15      12/31/16      12/31/15  

Property and Casualty Insurance

                    

Paid Losses (GAAP)

   $ 683       $ 537       $ 586       $ 547       $ 675       $ 2,353       $ 2,403   
     12/31/16      09/30/16      06/30/16      03/31/16      12/31/15      09/30/15         

Statutory Surplus

                    

Property and Casualty Insurance

   $ 2,939       $ 3,038       $ 2,601       $ 2,574       $ 2,488       $ 2,356      

AFG’s principal annuity subsidiaries (total adjusted capital)

   $ 2,234       $ 2,216       $ 2,089       $ 2,032       $ 1,918       $ 1,816      

Allowable dividends without regulatory approval

                    

Property and Casualty Insurance

   $ 496       $ 434       $ 434       $ 434       $ 434       $ 315      

Annuity and Run-off

     197         375         375         375         375         358      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total

   $ 693       $ 809       $ 809       $ 809       $ 809       $ 673      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

Page 20


American Financial Group, Inc.

Total Cash and Investments

($ in millions)

  LOGO

 

     Carrying Value - December 31, 2016  
     Property and            Parent and                   % of  
     Casualty      Annuity and     Other Non-      Consolidate     Total AFG      Investment  
     Insurance      Run-off     Insurance      CLOs     Consolidated      Portfolio  

Total cash and investments:

               

Cash and cash equivalents

   $ 1,383       $ 511      $ 213       $ —        $ 2,107         5

Fixed maturities - Available for sale

     6,510         28,021        13         —          34,544         83

Fixed maturities - Trading

     242         117        —           —          359         1

Equity securities

     1,013         496        49         —          1,558         4

Policy loans

     —           192        —           —          192         0

Mortgage loans

     261         886        —           —          1,147         3

Real estate and other investments

     497         1,197        48         (216     1,526         4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total cash and investments

   $ 9,906       $ 31,420      $ 323       $ (216   $ 41,433         100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Unrealized gain/(loss) on equity securities

   $ 102       $ 49      $ —         $ —        $ 151      
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    
     Carrying Value - December 31, 2015  
     Property and            Parent and                   % of  
     Casualty      Annuity and     Other Non-      Consolidate     Total AFG      Investment  
     Insurance      Run-off     Insurance      CLOs     Consolidated      Portfolio  

Total cash and investments:

               

Cash and cash equivalents

   $ 708       $ 282      $ 230       $ —        $ 1,220         3

Fixed maturities - Available for sale

     6,784         25,486        14         —          32,284         85

Fixed maturities - Trading

     140         114        —           —          254         1

Equity securities

     1,182         488        49         —          1,719         5

Policy loans

     —           201        —           —          201         0

Mortgage loans

     191         876        —           —          1,067         3

Real estate and other investments

     457         781        18         (265     991         3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total cash and investments

   $ 9,462       $ 28,228      $ 311       $ (265   $ 37,736         100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Unrealized gain/(loss) on equity securities

   $ 87       $ (3   $ —         $ —        $ 84      
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

Page 21


American Financial Group, Inc.

Net Investment Income

($ in millions)

  LOGO

 

     Three Months Ended     Twelve Months Ended  
     12/31/16     09/30/16     06/30/16     03/31/16     12/31/15     12/31/16     12/31/15  

Property and Casualty Insurance:

              

Gross Investment Income

              

Fixed maturities - Available for sale

   $ 64      $ 63      $ 66      $ 64      $ 63      $ 257      $ 248   

Fixed maturities - Trading

     (1     2        1        1        —          3        4   

Equity securities

     13        13        12        13        14        51        48   

Equity in investees

     7        7        2        6        (1     22        11   

Other investments

     6        10        10        1        —          27        16   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment income

     89        95        91        85        76        360        327   

Investment expenses

     (4     (2     (2     (2     (2     (10     (8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net investment income

   $ 85      $ 93      $ 89      $ 83      $ 74      $ 350      $ 319   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average cash and investments (a)

   $ 9,779      $ 9,647      $ 9,465      $ 9,366      $ 9,113      $ 9,550      $ 8,956   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average yield (b)

     3.48     3.86     3.76     3.54     3.25     3.66     3.56
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed Annuity:

              

Gross Investment Income

              

Fixed maturities - Available for sale

   $ 315      $ 307      $ 307      $ 294      $ 294      $ 1,223      $ 1,126   

Fixed maturities - Trading

     —          —          —          —          —          —          —     

Equity securities

     7        6        6        5        6        24        21   

Equity in investees

     6        9        2        5        2        22        16   

Other investments

     20        27        29        11        7        87        62   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment income

     348        349        344        315        309        1,356        1,225   

Investment expenses

     (4     (1     (2     (3     (2     (10     (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net investment income

   $ 344      $ 348      $ 342      $ 312      $ 307      $ 1,346      $ 1,215   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average cash and investments (a)

   $ 29,192      $ 28,548      $ 27,964      $ 27,186      $ 26,401      $ 28,223      $ 25,174   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average yield (b)

     4.72     4.88     4.88     4.60     4.65     4.77     4.83
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AFG consolidated net investment income:

              

Property & Casualty

   $ 85      $ 93      $ 89      $ 83      $ 74      $ 350      $ 319   

Annuity and Run-off:

              

Fixed Annuity

     344        348        342        312        307        1,346        1,215   

Variable Annuity

     2        3        2        3        2        10        9   

Run-off

     6        5        5        5        19        21        80   

Other

     —          1        4        1        3        6        4   

Consolidate CLOs

     (8     (17     (19     7        11        (37     6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net investment income

   $ 429      $ 433      $ 423      $ 411      $ 416      $ 1,696      $ 1,633   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Average cash and investments is the average of the beginning and ending quarter balances, or the average of the five quarters balances.
(b) Average yield is calculated by dividing investment income for the quarter by the average cash and investment balance over the quarter.

 

Page 22


American Financial Group, Inc.

Fixed Maturities - By Security Type - AFG Consolidated

($ in millions)

   LOGO

 

December 31, 2016

   Amortized
Cost
    Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    % of
Investment
Portfolio
 

US Government and government agencies

   $ 348      $ 348       $ —          1     1

States, municipalities and political subdivisions

     6,677        6,808         131        19     16

Foreign government

     256        261         5        1     1

Residential mortgage-backed securities

     3,371        3,639         268        11     9

Commercial mortgage-backed securities

     1,446        1,493         47        4     3

Asset-backed securities

     5,962        5,959         (3     17     14

Corporate and other bonds

     16,034        16,395         361        47     40
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total AFG consolidated

   $ 34,094      $ 34,903       $ 809        100     84
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Annualized yield on available for sale fixed maturities:

           

Excluding investment expense (a)

     4.56         

Net of investment expense (a)

     4.48         

Approximate average life and duration:

           

Approximate average life

     6.5 years            

Approximate duration

     5 years            

December 31, 2015

   Amortized
Cost
    Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    % of
Investment
Portfolio
 

US Government and government agencies

   $ 319      $ 321       $ 2        1     1

States, municipalities and political subdivisions

     6,671        6,885         214        21     18

Foreign government

     225        232         7        1     1

Residential mortgage-backed securities

     3,241        3,534         293        11     9

Commercial mortgage-backed securities

     2,112        2,188         76        7     6

Asset-backed securities

     4,961        4,934         (27     15     13

Corporate and other bonds

     14,290        14,444         154        44     38
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total AFG consolidated

   $ 31,819      $ 32,538       $ 719        100     86
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Annualized yield on available for sale fixed maturities:

           

Excluding investment expense (a)

     4.74         

Net of investment expense (a)

     4.69         

Approximate average life and duration:

           

Approximate average life

     6.5 years            

Approximate duration

     5 years            

 

(a) Annualized yield is calculated by dividing investment income for the quarter by the average cost over the quarter.

Average cost is the average of the beginning and ending quarter asset balances.

 

Page 23


American Financial Group, Inc.

Fixed Maturities - By Security Type Portfolio

($ in millions)

   LOGO

 

     December 31, 2016     December 31, 2015  
Property and Casualty Insurance:    Amortized
Cost
    Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    Amortized
Cost
    Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
 

US Government and government agencies

   $ 295      $ 295       $ —          4   $ 255      $ 257       $ 2        4

States, municipalities and political subdivisions

     2,588        2,605         17        39     2,807        2,891         84        42

Foreign government

     245        249         4        4     213        219         6        3

Residential mortgage-backed securities

     980        1,026         46        15     893        932         39        13

Commercial mortgage-backed securities

     142        144         2        2     209        213         4        3

Asset-backed securities

     1,445        1,440         (5     21     1,453        1,442         (11     21

Corporate and other bonds

     976        993         17        15     979        970         (9     14
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Property and Casualty Insurance

   $ 6,671      $ 6,752       $ 81        100   $ 6,809      $ 6,924       $ 115        100
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Annualized yield on available for sale fixed maturities:

                  

Excluding investment expense (a)

     3.88            3.82       

Net of investment expense (a)

     3.67            3.71       

Tax equivalent, net of investment expense (b)

     4.20            4.31       

Approximate average life and duration:

                  

Approximate average life

     4.5 years               5 years          

Approximate duration

     3.5 years               4 years          

 

 
     December 31, 2016     December 31, 2015  
Annuity and Run-off:    Amortized
Cost
    Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    Amortized
Cost
    Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
 

US Government and government agencies

   $ 52      $ 52       $ —          0   $ 62      $ 62       $ —          0

States, municipalities and political subdivisions

     4,089        4,203         114        15     3,864        3,994         130        15

Foreign government

     11        12         1        0     12        13         1        0

Residential mortgage-backed securities

     2,390        2,601         211        9     2,347        2,590         243        10

Commercial mortgage-backed securities

     1,304        1,349         45        5     1,903        1,975         72        8

Asset-backed securities

     4,517        4,519         2        16     3,508        3,492         (16     14

Corporate and other bonds

     15,058        15,402         344        55     13,311        13,474         163        53
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total Annuity and Run-off

   $ 27,421      $ 28,138       $ 717        100   $ 25,007      $ 25,600       $ 593        100
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Annualized yield on available for sale fixed maturities:

                  

Excluding investment expense (a)

     4.72            4.98       

Net of investment expense (a)

     4.67            4.94       

Approximate average life and duration:

                  

Approximate average life

     6.5 years               6.5 years          

Approximate duration

     5 years               5.5 years          

 

(a) Annualized yield is calculated by dividing investment income for the quarter by the average cost over the quarter.

Average cost is the average of the beginning and ending quarter asset balances.

(b) Adjusts the yield on tax-exempt bonds to the fully taxable equivalent yield.

 

Page 24


American Financial Group, Inc.

Fixed Maturities - Credit Rating

($ in millions)

   LOGO

 

     December 31, 2016  

By Credit Rating (a)

   Amortized
Cost
     Fair
Value
     Unrealized
Gain (Loss)
    % of
Fair Value
 

Investment grade

          

AAA

   $ 6,117       $ 6,189       $ 72        18

AA

     7,123         7,257         134        21

A

     8,323         8,487         164        24

BBB

     8,999         9,193         194        26
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal - Investment grade

     30,562         31,126         564        89

BB

     687         695         8        2

B

     446         445         (1     1

Other (b)

     2,399         2,637         238        8
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal - Non-Investment grade

     3,532         3,777         245        11
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 34,094       $ 34,903       $ 809        100
  

 

 

    

 

 

    

 

 

   

 

 

 

97% of the fixed maturity portfolio is NAIC designated 1 or 2.

          
     December 31, 2015  

By Credit Rating (a)

   Amortized
Cost
     Fair
Value
     Unrealized
Gain (Loss)
    % of
Fair Value
 

Investment grade

          

AAA

   $ 6,519       $ 6,655       $ 136        20

AA

     6,785         6,954         169        22

A

     7,780         7,969         189        25

BBB

     7,478         7,507         29        23
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal - Investment grade

     28,562         29,085         523        90

BB

     790         765         (25     2

B

     438         417         (21     1

Other (b)

     2,029         2,271         242        7
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal - Non-Investment grade

     3,257         3,453         196        10
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 31,819       $ 32,538       $ 719        100
  

 

 

    

 

 

    

 

 

   

 

 

 

97% of the fixed maturity portfolio is NAIC designated 1 or 2.

 

(a) If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.
(b) See page 28 and 29 for more information.

 

Page 25


American Financial Group, Inc.

Mortgage-Backed Securities - AFG Consolidated

($ in millions)

   LOGO

 

December 31, 2016

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
     % of
Fair Value
    % of
Investment
Portfolio
 

Residential

             

Agency

   $ 243       $ 243       $ —           5     0

Prime (Non-Agency)

     1,406         1,557         151         30     4

Alt-A

     1,093         1,170         77         23     3

Subprime

     629         669         40         13     2

Commercial

     1,446         1,493         47         29     3
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total AFG consolidated

   $ 4,817       $ 5,132       $ 315         100     12
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

    Substantially all of AFG’s MBS securities are either senior tranches of securitizations or collateralized by senior tranches of securitizations.

 

    The average amortized cost as a percent of par is - Prime 82%; Alt-A 78%; Subprime 85%; CMBS 99%.

 

    The average FICO score of our residential MBS securities is - Prime 740; Alt-A 710; Subprime 641.

 

    96% of our Commercial MBS portfolio is investment-grade rated (81% AAA) and the average subordination for this group of assets is 37%.

 

    The approximate average life by collateral type is - Residential 4.5 years; Commercial 4 years.

 

December 31, 2015

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
     % of
Fair Value
    % of
Investment
Portfolio
 

Residential

             

Agency

   $ 260       $ 269       $ 9         5     1

Prime (Non-Agency)

     1,489         1,651         162         29     4

Alt-A

     794         872         78         15     2

Subprime

     698         742         44         13     2

Commercial

     2,112         2,188         76         38     6
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total AFG consolidated

   $ 5,353       $ 5,722       $ 369         100     15
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

Page 26


American Financial Group, Inc.

Mortgage-Backed Securities Portfolio

($ in millions)

   LOGO

 

Property and Casualty Insurance:

   December 31, 2016  

By Asset Type

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    % of Inv
Portfolio
 

Residential

            

Agency

   $ 192       $ 191       $ (1     17     2

Prime (Non-Agency)

     187         202         15        17     2

Alt-A

     342         361         19        31     4

Subprime

     259         272         13        23     3

Commercial

     142         144         2        12     1
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 1,122       $ 1,170       $ 48        100     12
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     December 31, 2015  

By Asset Type

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    % of Inv
Portfolio
 

Residential

            

Agency

   $ 151       $ 153       $ 2        13     2

Prime (Non-Agency)

     218         231         13        20     2

Alt-A

     241         257         16        23     3

Subprime

     283         291         8        25     3

Commercial

     209         213         4        19     2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 1,102       $ 1,145       $ 43        100     12
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Annuity and Run-off:

   December 31, 2016  

By Asset Type

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    % of Inv
Portfolio
 

Residential

            

Agency

   $ 51       $ 52       $ 1        1     0

Prime (Non-Agency)

     1,218         1,343         125        34     4

Alt-A

     751         809         58        21     3

Subprime

     370         397         27        10     1

Commercial

     1,304         1,349         45        34     5
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 3,694       $ 3,950       $ 256        100     13
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     December 31, 2015  

By Asset Type

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
    % of
Fair Value
    % of Inv
Portfolio
 

Residential

            

Agency

   $ 109       $ 116       $ 7        3     0

Prime (Non-Agency)

     1,270         1,408         138        31     5

Alt-A

     553         615         62        13     2

Subprime

     415         451         36        10     2

Commercial

     1,903         1,975         72        43     7
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 4,250       $ 4,565       $ 315        100     16
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

Page 27


American Financial Group, Inc.

Mortgage-Backed Securities - Credit Rating

($ in millions)

   LOGO

 

     December 31, 2016  

By Credit Rating (a)

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
     % of
Fair Value
 

Investment grade

           

AAA

   $ 1,668       $ 1,720       $ 52         34

AA

     164         169         5         3

A

     256         268         12         5

BBB

     274         288         14         6
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal - investment grade

     2,362         2,445         83         48

BB

     211         212         1         4

B

     330         333         3         6

Other

     1,914         2,142         228         42
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,817       $ 5,132       $ 315         100
  

 

 

    

 

 

    

 

 

    

 

 

 

97% of the mortgage-backed security portfolio has an NAIC 1 designation.

  

     December 31, 2015  

By Credit Rating (a)

   Amortized
Cost
     Fair Value      Unrealized
Gain (Loss)
     % of Fair
Value
 

Investment grade

           

AAA

   $ 2,409       $ 2,494       $ 85         43

AA

     255         263         8         5

A

     329         345         16         6

BBB

     272         292         20         5
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal - investment grade

     3,265         3,394         129         59

BB

     253         258         5         5

B

     305         311         6         5

Other

     1,530         1,759         229         31
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,353       $ 5,722       $ 369         100
  

 

 

    

 

 

    

 

 

    

 

 

 

97% of the mortgage-backed security portfolio has an NAIC 1 designation.

 

(a) If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.

 

Page 28


Appendix A

American Financial Group, Inc.

Fixed Maturities - Credit Rating by Type

($ in millions)

   LOGO

 

     Fair Value - December 31, 2016  

By Credit Rating (a)

   US Gov      Munis      Frgn gov      RMBS      CMBS      ABS      Corp/Oth      Total      % Total  

Investment grade

                          

AAA

   $ 299       $ 1,727       $ 171       $ 508       $ 1,213       $ 2,053       $ 218       $ 6,189         18

AA

     41         4,388         30         127         42         1,480         1,149         7,257         21

A

     —           501         55         170         98         1,593         6,070         8,487         24

BBB

     —           69         5         202         86         813         8,018         9,193         26
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal - Investment grade

     340         6,685         261         1,007         1,439         5,939         15,455         31,126         89

BB

     —           4         —           184         29         16         462         695         2

B

     —           8         —           307         25         1         104         445         1

CCC, CC, C

     —           11         —           963         —           3         32         1,009         3

D

     —           —           —           679         —           —           —           679         2
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal - Non-Investment grade

     —           23         —           2,133         54         20         598         2,828         8

Not Rated

     8         100         —           499         —           —           342         949         3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 348       $ 6,808       $ 261       $ 3,639       $ 1,493       $ 5,959       $ 16,395       $ 34,903         100
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value - December 31, 2015  

By Credit Rating (a)

   US Gov      Munis      Frgn gov      RMBS      CMBS      ABS      Corp/Oth      Total      % Total  

Investment grade

                          

AAA

   $ 262       $ 1,607       $ 138       $ 640       $ 1,854       $ 1,986       $ 168       $ 6,655         20

AA

     44         4,488         32         151         112         1,239         888         6,954         21

A

     —           569         62         173         172         1,252         5,741         7,969         25

BBB

     —           92         —           248         44         429         6,694         7,507         23
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal - Investment grade

     306         6,756         232         1,212         2,182         4,906         13,491         29,085         89

BB

     —           20         —           258         —           14         473         765         3

B

     —           —           —           306         6         2         103         417         1

CCC, CC, C

     —           9         —           894         —           4         11         918         3

D

     —           —           —           445         —           —           3         448         1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal - Non-Investment grade

     —           29         —           1,903         6         20         590         2,548         8

Not Rated

     15         100         —           419         —           8         363         905         3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 321       $ 6,885       $ 232       $ 3,534       $ 2,188       $ 4,934       $ 14,444       $ 32,538         100
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) If two agencies rate a security, the rating displayed above is the lower of the two; if three or more agencies rate a security, the rating displayed is the second lowest.

 

Page 29

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