Thank you for standing by, and welcome to the American Financial Group 2022 Third Quarter Conference Call. At this time, all participants are a listen-only mode. After the speaker's presentation, there will be question-and-answer session. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now turn the conference to your host Ms. Diane Weidner, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to American Financial Group's Third Quarter 2022 Earnings Results Conference Call. We released our 2022 third quarter results yesterday afternoon. Our press release, investor supplement, and webcast presentation are posted on AFG's website, under the Investor Relations section. These materials will be referenced during portions of today's call. I'm joined this morning by Carl Lindner III, and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings, with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure in our remarks or responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release. If you're reading a transcript of this call, please note that, it may not be authorized or reviewed for accuracy. And as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now, I'm pleased to turn the call over to Carl Lindner III to discuss our results.

Good morning. We're pleased to share highlights of AFG's 2022 third quarter results, after which Craig and Brian and I'll be glad to respond to any questions. We're very pleased with AFG's performance during the third quarter. We achieved an annualized core operating return of over 17% in the quarter, with strong underwriting results despite elevated industry catastrophe losses. Strategic positioning of our investment portfolio has continued to enable us to invest opportunistically, and the returns in our alternative investment portfolio, again, exceeded our expectations. Craig and I thank God, our talented management team, and all of our employees for helping us to achieve these exceptionally strong results. Returning capital to our shareholders is an important component of our capital management strategy, and reflects our strong financial position and our confidence in AFG's financial future. With our third quarter earnings release, we announced a special cash dividend of $2 per share payable on November 22, 2022 to shareholders of record on November 15, 2022. This special dividend is in addition to the company's regular quarterly cash dividend of $0.63 per share, most recently paid on October 25 of this year. With the special dividend, the company has declared $12 per share in special dividends in 2022. In the aftermath of Hurricane Ian, we're reminded of the critical role that insurance plays in the wake of catastrophes such as this. Our claims teams continue to work with our agents and policyholders to identify and process covered claims quickly, and efficiently to help our customers restore their businesses and rebuild their communities. Our thoughts and prayers remain with those who have been affected by the devastation caused by Hurricane Ian. I'll now turn the discussion over to Craig to walk us through AFG's third quarter results investment performance and our overall financial position at September 30.

Thanks, Carl. Please turn to slides 3 and 4, for summary earnings information for the quarter. AFG reported core net operating earnings of $2.24 per share, compared to $2.71 per share in the third quarter of 2021. The year-over-year decrease was primarily the result of lower year-over-year returns in AFG's alternative investment portfolio, as compared to the very strong performance of this portfolio in the prior year period. On slide 4, you'll see that net earnings included after-tax non-core net realized losses on securities of $28 million, or $0.32 per share in the quarter. Included in this number is $21 million or $0.24 per share and after-tax net losses from the mark-to-market of equity securities that we continued to own at September 30. Now, I'd like to discuss the performance of AFG's investment portfolio, financial position and share a few comments about AFG's capital and liquidity. The details showing our $14.3 billion investment portfolio are presented on slides 5 and 6. Pre-tax unrealized losses on AFG's fixed maturity portfolio were $701 million at the end of the third quarter, reflecting the increase in market interest rates and widened credit spreads compared to year-end 2021. During the first nine months of 2022, we acted on opportunities presented by the increasing interest rate environment, and lengthen the duration of our P&C fixed maturity portfolio, including cash and cash equivalents from approximately two years at December 31, 2021 to approximately 2.7 years at September 30, 2022. In the current interest rate environment, we're able to invest in high-quality medium duration fixed maturity securities at yields of around 6%, which compare favorably to the 3.73% yield earned on fixed maturities in the third quarter of 2022, and 3.11% earned in the third quarter of 2021. In addition to the favorable impact of higher reinvestment…

Thank you, Craig. Now if you please turn to Slides 8 and 9 of the webcast, which include an overview of third quarter results. Operating earnings in our Property & Casualty business continue to be excellent and I'm pleased to report exceptionally strong growth in gross and net written premiums during the quarter. Catastrophe losses were manageable and we're continuing to achieve renewal pricing in excess of prospective loss ratio trends in the vast majority of our businesses, so that nearly all of our businesses are meeting or exceeding return on equity targets. As you'll see on Slide 8, the Specialty P&C insurance operations generated an underwriting profit of $158 million compared to $169 million in the third quarter of 2021, a 7% decrease. Higher year-over-year underwriting profit in our Specialty Casualty Group was more than offset by lower underwriting profit in our Property and Transportation and Specialty Financial groups. The third quarter 2022 combined ratio was a strong 91.1%, 2.1 points higher than the 89 reported in the comparable prior year period. Results for the 2022 third quarter include 2.5 points in catastrophe losses and 3.1 points of favorable prior year reserve development. Catastrophe is primarily due to Hurricane Ian impacted AFG's underwriting results for the third quarter of 2022 by $39 million including the impact of reinstatement premiums and the favorable impact of the reduction in certain profitability-based commissions due to agents which related to the catastrophe losses. Gross and net written premiums increased 19% and 15% respectively in the 2022 third quarter compared to the prior year quarter. Year-over-year growth was reported within each of the Specialty P&C groups, as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment. The drivers of growth vary considerably across our portfolio of…

Thank you. [Operator Instructions] Our first question comes from the line of Michael Phillips from Morgan Stanley. Your line is open.

Thanks. Good morning, everybody. Curious your thoughts kind of high-level question either your own book of business or the industry, you guys are pretty unique book of business obviously. But we're hearing kind of a mixed bag in P&C price and so far this quarter. Obviously, lots of moving parts here because of reinsurance and inflation and property. But I guess where do you see pricing head again either for yourself or the industry next year? And you're actually more concerned on the casualty, where you see casualty had for next year?

I think when you look at the macro environment that we're operating in today with a higher level of catastrophes than expected and the impact is having increased reinsurance pricing on both the property and the casualty side, social inflation kind of bumps that every company is having in some of the casualty exposed lines. And the other thing that's kind of interesting is I think which folks haven't picked up is the size of the unrealized losses in the fixed income portfolios that do have some impact on rating agencies' calculations of debt to capital or capital required. So, a very interesting environment. My bet is that there's going to be continued opportunities and to take price increases going into 2023. The few areas that we see more competition than there should be and pricing that's too soft probably, the Fortune 1000 excess liability arena in that. I think that's because there's been quite a few new entrants, new competitors in that space. And I think everybody thinks that playing in the higher excess wares protects them, but I think that there will be -- things will come home to roost for those -- for some new competitors that have been too aggressive. I think the other side is in the D&O the public D&O marketplace, we saw our rates decline in that. Public D&O is only 22% of our business. And we think we're making an underwriting profit there. But, I noticed a few competitors had fairly large reserve adjustments in the quarter, in the public D&O, professional lines area doesn't surprise me. So I think, even there, I think that there may be some adjustment in what's going on in an overweight competitive market there going forward. Those are kind of the areas. California workers' comp also I think seems to be more competitive than what it should be when you look at the rate decreases over time in that. But bottom-line as you can tell I'm very bullish for the reasons that I've mentioned about the ability to get continued price going forward or frankly and commercial auto liability and the casualty lines in that they're going to be a need to continue to stay up with higher inflation and loss costs.

Okay. No great. Thank you. That's really appreciate it. You mentioned excess layers kind of come on -- come here and more competitive there you do a good bit of that as well. I mean there's some leverage effect obviously of inflation in those layers. So, I guess on your own book any concerns that you have on how inflation will impact the Specialty Casualty business in the excess layers there?

Well sure. And I think that we're using on more of the Fortune 500 1000. That part of our business we're using higher prospective loss ratio trends as we price our business. And we're trying to continue to get double-digit increases on that. So, I think we're trying to adjust in how we project loss costs and in the prices that we're getting. And the primary D&O seems to be not as impacted because I think everybody recognizes the first hour being lower down the first dollar exposures that are there. I feel really blessed with our excess and our umbrella and excess liability business in that we're working off of a substantial or excellent underwriting profitability base on that book of business. So, outside of a bump that we had and the habitational umbrella and excess business a number of years ago we're a program that we're out of. I think we're blessed with a good foundational profitability to begin with. So, I think we're trying to adjust for the higher prospective loss ratio trends and that. So, continue to feel real good about our umbrella and excess liability businesses and the opportunities there.

Okay. Thank you. I guess just finally because you also mentioned social inflation and that comes up all the time of course, involvement and social inflation kind of go hand and hand. I think any things you're seeing in your long-haul trucking business that might give yellow flags over the next year?

I think we've been seeing lots of things that concern us in the commercial auto liability part of our business over the past eight years. And I think that's one reason why we've been taking rate in commercial auto liability and commercial auto for 11 -- almost 10, 11 years now. So, when we take a look at our commercial auto liability perspective loss ratio trend we're using about 7% today. And we're continuing to try to get that close to that in rate. Our overall commercial auto -- our overall commercial auto business is meeting our targeted returns and combined ratio targets but the commercial auto liability part of our commercial auto business is I think is more having a small underwriting profit or even breakeven results as generally we try to be conservative in our projections with the rate and the inflation that we're seeing. So, as I've mentioned before I think we're going to -- I think we need to continue to take rate particularly in the commercial auto liability part of our business in that.

Okay. Thank you for your time. Appreciate it.

Thank you. Our next question comes from the line of Paul Newsome of PSC. Your line is open. Paul Newsome, your line is open.

Sorry about that I didn't hear my name called. I was hoping you could talk a little bit about the outlook for the workers' comp business. And we've had this amazing general downtrend in frequency for years and years and the industry has had huge reserve releases out of that business. Are you thinking that the hope is the margins sort of hold in if that frequency trend continues? Or do you expect essentially some level of margin expansion obviously it's in a good range of profitability today. But just maybe some thoughts on sort of what you think is going to happen big picture from a profit perspective change.

We're just working on our 2023 budget and projections in that and we try to -- generally we give more detail and try to do a good job on that. So, we're early on in that process. My perspective about the comp part of our business today is it makes up about 15% of our gross written premium last year. Our overall calendar year results in the third quarter and nine months are excellent and expected to be for this year good overall even on an accident year underwriting profit basis a good overall accident year underwriting profit in the third quarter and nine months and expected for all of this year. Our Summit or Southeastern business and strategic comp National Interstate's business all are performing well on both a calendar year and an accident year of underwriting profitability basis. Our California subsidiary Republic has a small underwriting -- calendar year underwriting profit, but we're projecting an accident year underwriting loss for that business and that -- I think that we've seen significant payroll increases which have turned the premium picture around. We're actually -- we actually had mid-single-digit growth in the third quarter and nine months and expected for this year pretty much in all of our businesses and that's despite a price -- approximate price decline through nine months of about 3%. We feel our reserve position is still very strong. Our loss -- or prospective loss ratio trends are down 2% to 3% across all of our workers' comp business. So, I think that bodes well. Medical seems to be better than what a lot of the indices would present. So, I continue to be excited by and confident in the ability of our workers' comp business to be profitable and grow some going forward. Will it be at the same accident year margins as what it has been historically, that's a harder thing to call in that. I think part of that may have to do with what goes on with the economy going forward in the next year. So, I hope that gives you some color. Again we're kind of early on in our '23 planning and perspectives.

That's great. I guess the reason I'm asking is because you and other companies have been talking about how on your book sort of excluding workers' comp rates is more or less kind of matching what the underlying claims inflation appears to be. And obviously, it's up to analysts to have a view as to whether or not they get better or worse respectively. But if we're sort of in a steady state profitability on the Book ex workers' comp, would it be the workers' comp business that ends up being the swing factor that drives an improvement in underwriting prospectively in the next year or so. So I guess my question is, is there something wrong with that thought pattern, or am I missing something when I think about prospectively what the moving pieces are?

I'm not quite clear on the question. Are you asking me again if I think or workers' comp results improve? Is that what you're asking?

Well, I'm not really asking you to make a projection. What I'm asking is whether or not it's appropriate to think about sort of how the book is changing prospectively to think about the sort of nonworkers comp book is fairly stable from a profitability perspective and that would mean that what changes prospectively would be driven by the workers comp or?

I think, it's too early for me to give you an answer on that until we've kind of worked through our own planning and when we get the guidance I can -- for next year I can probably talk a little bit more about that. As I mentioned earlier, I'm very bullish about how we're situated, how we're postured with our house in order with almost all of our businesses and with the macro trends going on out there with social inflation, reinsurance costs going up for everybody, capital charge and rating agency hits for unrealized and all those -- and the high level of catastrophes and tightening in the -- very excited about the opportunities for next year.

I agree the results have been really quite wonderful. Thank you. Very helpful. Its always much appreciated.

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

Great. Thank you. I just have a couple of small questions. Carl, thank you very much for the detail on the impact of crop on the underwriting ratios in Property and Transportation. Did it have an impact on the rate increase in the quarter?

No, no not really. We don't really -- we don't include crop really in the pricing index for that segment just because of the uniqueness of it.

Okay. No, that makes sense. That's helpful. Also, with regards to the debt you mentioned that you can buy back below par that makes sense. Are there any penalties associated with current debt repurchases?

So, in our debt, we could buy back that in the open market at a discount. And most of our debt has like what would be a make-whole call provision. But then that make-whole calls were with where interest rates are today that sort of capped at par. So we could buy back to that even in a larger transaction at par or better.

Okay. Fantastic. And then with regard to the investment portfolio I was hoping you could talk about how you're thinking about the next phase of I guess the interest rate trajectory.

Yes. This is Craig, Meyer. So we think that inflation has probably peaked. Clearly, the Fed is going to continue to put increases through and in our opinion probably leave rates up longer than some others might be expecting. We are comfortable buying intermediate term five to seven-year type high-grade paper, investing a small amount of money. I think year-to-date we have invested of our new investments I think a little less than 4% was invested in non-investment-grade fixed maturity investments. You typically BB type we're not really reaching for yield. We're in the small amount of high-yield paper that we've purchased sticking with some of the better names and as I said BB type ratings. I think you should expect us to continue to extend duration of the portfolio. We were extremely pleased with the -- we are extremely pleased with the positioning the short duration of the portfolio very pleased with the large amount of floating rate securities which we're benefiting on in a major way today. But we are comfortable now investing money at a little longer duration than we have been in the last couple of years.

That’s perfect. That’s what I was looking for. Thank you very much.

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

Thank you all for joining us this morning, as we discussed our third quarter results and we look forward to talking with you all again as we share fourth quarter and full year results later on and -- thank you for your time.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.