Thank you for standing by, and welcome to the American Financial Group 2022 Fourth Quarter and Full Year Results Conference Call. [Operator Instructions]. I would now turn the conference to your host, Ms. Diane Weidner, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to American Financial Group's Fourth Quarter 2022 Earnings Results Conference Call. . We released our 2022 fourth quarter and full year results yesterday afternoon. Our press release, investor supplement and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call. 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 in responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release. And finally, if you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy. And as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I am pleased to turn the call over to Carl Lindner III to discuss our results.

Well, good morning. We're pleased to share highlights of AFG's 2022 fourth quarter and full year results, after which Craig and Brian and I will respond to your questions. AFG's financial performance during the fourth quarter was excellent and a strong finish to an outstanding year. Core operating return on equity topped 21% and nearly all of our Property & Casualty businesses grew during the year, establishing a record level of premium production for the company. We are also very pleased to report record full year underwriting profit and investment income in our Specialty Property and Casualty business. Our compelling mix of Specialty Insurance businesses and entrepreneurial culture, disciplined operating philosophy and astute team of in-house investment professionals collectively have enabled us to outperform many of our peers over time. Craig and I thank God, our talented management team and our employees for helping us to achieve these exceptionally strong results. I'll now turn the discussion over to Craig to walk us through AFG's fourth quarter results, investment performance and our overall financial position at December 31.

Thanks, Carl. As you'll see on Slide 3, AFG's core net operating earnings were $11.63 per share for the full year 2022, generating a core operating return on equity of 21.2%, which was even better than the excellent 18.6% core ROE achieved in 2021. The earnings power of our operations, coupled with efficient capital management, allows AFG to produce returns on equity in excess of most of our peer property and casualty insurers. Understanding that capital management is a critical component of delivering top-tier ROEs, we make capital management one of our highest priorities. Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future. Carl and I are pleased that we returned $1.23 billion to shareholders during 2022, including just over $1 billion or $12 per share in special dividends and $197 million in regular common stock dividends. Our quarterly dividend was increased by 12.5% to an annual rate of $2.52 per share beginning in October of 2022. We're proud of our track record of value creation. During 2021 and 2022, we returned a total of $3.9 billion in capital to shareholders in the form of dividends and share repurchases. In addition to deploying the excess capital created from the sale of our annuity business, we've continued to generate and deploy excess capital through AFG's strong property and casualty operations. Growth in adjusted book value per share plus dividends was an impressive 18.5% in 2022. Turning to Slides 4 and 5. You'll see that the fourth quarter of 2022 core net operating earnings per share of $2.99 produced an annualized fourth quarter core return on equity of 22.3%. Net earnings per share of $3.24 included after-tax noncore realized gains on securities of $0.25…

Thank you, Craig. Please turn to Slides 9 and 10 of the webcast, which include an overview of fourth quarter results. Our Specialty Property & Casualty businesses closed out 2022 on a strong note, producing record full year underwriting profit and record full year pretax Property & Casualty core operating earnings. I'm especially pleased that each of our Specialty Property & Casualty subsegments produced combined ratios of 90% or better for the fourth quarter despite elevated industry catastrophe losses. We set new records for premium production in 2022 and are meeting or exceeding targeted returns in nearly all of our businesses. When we look at year-over-year comparison of our Property & Casualty results for the fourth quarter, it's easy to lose sight of the strong fourth quarter results in 2022, especially noting the average crop results achieved in 2022 following the extremely results reported in our crop business in the comparable prior year period. As you'll see on Slide 9, the fourth quarter 2022 combined ratio was an excellent 86.6%, although 5.9 points higher than the exceptional 80.7% reported in the comparable prior year period. If we put our crop business to the side, our combined ratio for the fourth quarter was comparable to the 2021 fourth quarter results. Results for the 2022 fourth quarter include a modest 0.9 points in catastrophe losses despite elevated industry catastrophe losses during the quarter. By comparison, catastrophe losses in the 2021 fourth quarter added 1.8 points to the combined ratio. Fourth quarter 2022 results included 3.6 points of favorable prior year reserve development compared to 5 points in the fourth quarter of 2021. Gross and net written premiums increased 6% and 5%, respectively in the 2022 fourth quarter compared to the prior year quarter. Year-over-year growth was reported within each of the Specialty…

[Operator Instructions]. Our first question comes from Paul Newsome from Piper Sandler.

Congratulations on the year. I was hoping you could just kind of reassess a little bit the competitive environment for the variety of your specialty businesses. It felt like it got a little bit more competitive in 2022. I don't know if that's a fair thing as the year went by, and it maybe seems like it's not really tailing off despite some of the volatility inflation and the higher reinsurance prices. Is that a fair assessment? Or am I obviously probably oversimplifying it?

Well, we have 30 or so specialty businesses. And I'd say we felt that there was more competition in certain of our businesses for sure in California, workers' comp and higher excess layers on national excess liability types of risk on clearly in the public D&O arena. There seem to be -- particularly in those 2 -- last 2 areas I mentioned, there seem to be more competitors that were in that market and certainly was more competitive in that. I think in most of our other businesses, it's probably pretty status quo with maybe marginally more competitive in that. But I think the social inflation, the increased property cat pricing and a slowing economy and those factors, I think, have kept the majority of our business in a reasonably competitive environment.

Makes sense. Maybe a few thoughts on sort of the talent pool as you're trying to grow it. It doesn't seem like you added a ton of new teams or new segments in a while, other than maybe a couple here and there. Is this just a sign of how competitive it is in the environment? Or is it philosophically you're trying to be more careful and more conservative in how you think about new products and new businesses?

Well, last year, we grew 11%. So I think that coming -- certainly during COVID and coming out of COVID, the talent market was tighter in all businesses pretty much. Ours wasn't any exception. But I think our HR department and our group did an outstanding job in attracting the talent necessary to grow our business in that. So I didn't see that as too much of a limiting factor. I think what we have going for us is a -- we're a very successful company. We've created a culture and values and incentives that people really like to work with them in our industry, and we have a reputation for that. So I don't see talent as being a limiter on growth or a limiter in what we want to do. I think it's more -- I think we're always looking and have room to expand geographically in all of our businesses and in some sub-niches. It's always more difficult to find the right additional opportunities in businesses to grow your business or to find acquisitions that are not only accretive but, in our case, our hurdle is we want to earn double-digit returns on equity over time in the M&A side. It's a piece of cake being accretive with interest rates as low as they've been in that, but we're about adding businesses and investing capital at double-digit returns.

Our next question comes from the line of Michael Zaremski of BMO.

First question on the outlook in terms of the decel in average renewal rates outlook, 2 to 4 year-over-year. I think hearing some of the color in the prepared remarks, some of it might be coming from workers' comp, but maybe you can kind of elaborate if there's any other lines of business you'd like to call out, maybe even moving some moving higher, some moving lower in terms of expectations?

Yes, Mike, good question. I think certainly, in workers' comp, there continues to be some rate give up tied to positive results in that. I think it's kind of a good news, bad news. The prior year excellent year for the industry and for us have turned out better generally over the last couple of years than what was expected. So I do think that is a factor. That said, I think in some of our comp businesses, we're going to be growing in that. And our comp businesses continue to have excellent results. Our pricing guidance ex comp is 3% to 5%. And when you look at kind of the prospective loss ratio trends excluding comp, they're right around 5%. So I think the -- where we're not quite getting to where we want to be on our rate increases or in some of the lines I just mentioned. Public D&O is more competitive than what it should be. The higher excess liability business, particularly among Fortune 1000. I think as a business, we're not going to get to the -- to a prospective loss ratio trend. So I do think -- I want to be careful because I do think that in our case, we've had really strong cumulative multiyear increases in our book, and we're running in an 87% percent combined ratio this year. And some of our businesses are higher than that. Some of our businesses are better than that. And in our case, we look at each one of the businesses and what the strategy should be in each one. So anyhow, that would be my perspective on things.

Okay. That's helpful. I admit I'll have to reread the transcript a bit on the good reinsurance renewal color. But I think I heard that retention went up materially. And if that is correct, should we be just thinking about anything in our models in terms of seasonality now or cat load or something?

I think what we've tried hard to do every year when we give guidance is to bake everything into our guidance. And I think we've tried to reflect that. I think one thing, in our case, I think retention went from 20 to 50, we probably should have been at 50 anyhow because when you look at the rate online, we had to pay and the amount of premiums that we had to pay for that lower layer, you could argue that we probably should have kept it anyhow. And that -- so you have -- it's not $30 million of extra exposure, it's really $30 million -- I would guess, we probably paid $15 million or something like that. So it's not really the full amount of the retention that really impacts us, if you understand what I'm saying.

Okay. Yes, now that helps put it in context. Okay. And maybe I appreciate that there's lots of different lines of business, but there's been a lot of discussion on some of your competitors' calls about loss trend maybe creeping up a bit for some, particularly not just on the property side, but a bit on the casualty side. Some have talked about the transportation segment that you guys have one of the most profitable transportation segments of publicly traded insurers. But any changes that you'd like to call out you're seeing on the margins on loss trends?

I don't think so. I think in past calls, I've kind of mentioned when we look at prospective loss ratio trends and the numbers that we're using for those, they -- I think we've been pretty conservative or tried to stay with what the trends are for instance. And I think I've talked about commercial auto liability not being where we want it to be, probably at around breakeven underwriting profit. We took about 9% rate and our prospective loss ratio trend for that we're using about 7%. We think that's pretty good. And I think I mentioned in the past on some of the excess liability, that part of our business, how we're using, depending on what the business is tend to almost 14% in prospective loss ratio trend as we set our pricing, as we look at our reserving and that. So I don't think that's really changed. I think we've kind of been in that mode for pretty much for the year.

Okay. And just lastly, just switching gears on the investment portfolio and maybe this was already answered. But in terms of the alternative guide of 7%, does that imply a weaker 1Q '23? Or is just -- it's been a great run and trying to bake in some -- maybe some more lower returns given the macro environment, although interest rates are up. So just trying to -- how to think about that.

Yes. This is Craig. I'll tell you how we arrived at the 7% number. As you know, about 60% of the alternatives are invested in multifamily. We've had just an incredible run in multifamily returns the last couple of years, as I recall, were something in the neighborhood of 20%. We were able to push the renewal rates at extraordinary levels. And we also had some sales of properties. So I'd say our view is that we're back to a more normal environment now. We still really like the asset class. We still like our positioning there. But we're back to a more normal environment instead of getting the double-digit type increases in rental rates. We're now -- I mean we would guess that this year, it will be somewhere between 3% and 5% increases in the rental rates. So that will drive the NOI. We think that the marks on the portfolio are reasonably conservative. The average cap rate at the year-end market value was right around 5%. And the strong growth markets that we're in, we're not seeing transactions above 5%. So we like our positioning there. We don't see the really large increases in mark-to-market, and we don't see ourselves selling properties like we have the last couple of years. So anyway, looking for a high single-digit return on the multifamily piece, the real estate piece which is about 60% of the portfolio. The balance of the alternatives, the 40% that is in more traditional private equity is the piece that's much tougher for us to value. Last year, we substantially outperformed the market. I think the S&P was down some 18% and our private equity was up, I believe, around 6% or so. As you know, private equity marks typically are done on a lag basis. So we're just being a little more cautious on our outlook for the -- that traditional private equity piece. It's -- that's the piece though that's much harder for us to value. I hope it comes in -- given the strength of the market early in the year, I hope that the returns on that piece are stronger than what we're assuming. But that's how we arrived at the 7% number on the $2.1 billion of alternatives.

[Operator Instructions]. Our next question comes from Meyer Shields of KBW.

A quick question, I guess, to start with. I think it's more of a modeling question than a reality question. But the other specialty segment had some adverse reserve development in every quarter in 2022. And I was hoping you could talk about what's going through that.

Sure. Sure. This is Brian. So the other specialty is primarily our internal reinsurance facility. So that's where we take on more of our business corporately than we do in the individual business units. So what we're seeing there is adverse development in some of the social inflation exposed lines, the excess liability type of lines where we have participated in the reinsurance above the business unit. So social inflation is driving the number there. We obviously are -- as you know, we're conservative in our reserving. So we are -- we feel like we're in a good place now, but that's what's driving the $13 million in the quarter and the $40 million for the year as an adverse development coming out of the social inflation exposed businesses that would be part of our Specialty Casualty segment going into that reinsurance facility.

Okay. That's helpful. And then one other question. Can you give us a sense as to the macroeconomic growth that underpins your net written premium growth expectations for 2023?

I'm not sure we really -- really have kind of underpinned based off of a given GDP number versus more of -- each of our businesses are so different than the other with kind of their own mini economic environments in that, whether it's equine mortality or workers' comp in that. But clearly, we've couched our premium guidance in an economy that has slowed down and slowing down in some cases. And whether it's impact on payroll or sales or things that premiums are based off in different businesses. That definitely has an impact in that.

Okay. Understood. Like the third question is if that the delta between pricing and premium growth is 1%, which seems fairly conservative.

As I mentioned before, we try to -- the crop business is going to -- it's a fairly -- we're projecting that to be down 3%. We won't know for sure until the average of soybean and corn's future prices for the month of February. So we'll know more at the end of February exactly what that is. I think that has an impact. And then I mentioned earlier on the call, some of the competition that doesn't make any sense in things like public D&O and in high excess liability, where I think new entrants have jumped in trying to establish a position. That will come back to haunt us at some point, particularly -- those are 2 businesses that have social inflation exposure in that. So I have no doubt about that.

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

Thank you all for joining us this morning. This concludes our prepared remarks and Q&A session, and we look forward to talking with you all again next quarter. Thank you.

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