American Financial Group NYSE: AFG reported record second-quarter pre-tax property and casualty operating income, supported by stronger underwriting margins, premium growth and higher investment income.
The insurer posted core net operating earnings of $2.82 per share for the second quarter of 2026, up 32% from the prior-year period, according to Co-CEO Craig Lindner. The result produced an annualized core operating return on equity of 19.2%.
“We’ve set a new second quarter record for pre-tax property and casualty operating income,” Co-CEO Carl Lindner III said, citing the company’s specialty insurance portfolio, underwriting discipline and investment operations.
Investment Income and Capital Deployment
Net investment income at the company’s property and casualty operations rose 23% year over year during the quarter, establishing a second-quarter record. Craig Lindner said the increase was driven by improved returns from alternative investments.
AFG’s $17.1 billion investment portfolio was approximately two-thirds invested in fixed maturities as of June 30. The company said it was investing in fixed-maturity securities at yields of about 5.5%, while the duration of its P&C fixed-maturity portfolio, including cash and equivalents, was 3.1 years.
Alternative investments generated an annualized return of approximately 7.1% in the second quarter, compared with 1.2% a year earlier. The company continues to expect long-term annualized returns of 10% or better from its overall alternative investment portfolio.
In April, AFG reached definitive agreements to sell the Charleston Harbor Resort & Marina. The transaction is expected to close in the third quarter, subject to approvals and customary closing conditions. The company expects a pre-tax core operating gain of about $125 million, or $1.20 per share, from the sale. The gain will be reported as net investment income and split equally between AFG’s P&C operations and parent company.
During the quarter, AFG returned nearly $100 million to shareholders, including $26 million in share repurchases and its regular quarterly dividend of $0.88 per share. The company said it expects continued excess capital generation through the rest of 2026, providing flexibility for acquisitions, special dividends or additional repurchases.
Book value per share excluding accumulated other comprehensive income, plus dividends, increased 5% in the quarter.
P&C Underwriting Results Improve
AFG’s specialty property and casualty operations produced a 91.5 combined ratio in the second quarter, improving from 93.1 in the year-earlier period. Results included 3.4 points of favorable prior-year reserve development, compared with 0.7 points a year earlier. Catastrophe losses added 1.8 points to the combined ratio, down from 2.3 points in the prior-year quarter.
Second-quarter gross written premiums increased 7%, while net written premiums rose 6%. Renewal rates excluding workers’ compensation increased approximately 5%, while rates including workers’ compensation rose about 4%. The company has recorded overall renewal rate increases for 40 consecutive quarters, Carl Lindner said.
For the first six months of the year, underwriting profit rose 44%, while roughly three-fourths of AFG’s businesses reported higher premiums. The company operates across 36 specialty insurance businesses.
- Property and transportation: The segment reported a 90.3 calendar-year combined ratio, improving 4.9 points from the prior-year quarter. Gross and net written premiums rose 8% and 5%, respectively, aided by crop insurance, transportation opportunities, higher exposures and favorable pricing. Renewal rates increased about 8%.
- Specialty casualty: The segment’s calendar-year combined ratio was 94.5, 0.6 points higher than a year earlier. Gross written premiums rose 5% and net written premiums increased 6%, driven by new business, increased exposures and higher rates across several operations.
- Specialty financial: The segment reported an 85.6 calendar-year combined ratio, improving by more than half a point year over year. Gross and net written premiums each increased 10%, primarily reflecting growth in the financial institutions business.
Commercial Auto, Crop and Workers’ Compensation
Within property and transportation, AFG reported a small underwriting profit in commercial auto liability for the second consecutive quarter. Carl Lindner clarified that commercial auto overall remained solidly profitable, while the company continues to focus on pricing that exceeds loss-cost trends in the liability component. Commercial auto liability renewal rates rose 15% in the quarter.
AFG said its crop insurance business entered the year with commodity futures prices in acceptable ranges relative to spring discovery prices, while crop progress reports indicated a solid start to the season. However, the company said moisture conditions through August and early September remain important, and final 2026 crop results will depend on yields and prices in the second half.
The company noted that its crop business creates third-quarter seasonality because most crop premiums are earned in that period, while loss ratios are initially booked conservatively. Most annual crop profitability is recorded in the fourth quarter, when claims and yields become clearer.
Workers’ compensation pricing declined approximately 2% in the second quarter and 3% through the first six months, following what Carl Lindner described as strong results and a strong reserve position. Workers’ compensation premiums grew at a mid-single-digit rate during the quarter, despite lower premiums in California, which represents 14% of the company’s workers’ compensation business.
Management said it remains conservative in businesses exposed to social inflation, including certain casualty lines. CFO Brian Hertzman said segment loss ratios can shift based on business mix and that AFG evaluates businesses based on return on equity rather than the combined ratio alone.
Growth Strategy and Technology Investments
AFG said it continues to find growth opportunities despite softening in some insurance markets. Carl Lindner said the company has completed much of its “reset” in social-inflation-exposed businesses through measures including re-underwriting selected classes, reducing limits and raising retentions. He said the company is now better positioned to “play offense versus defense” in certain lines.
Management also discussed artificial intelligence initiatives, saying the company is deploying tools for submission automation, document intelligence, claims workflow automation and AI-enabled recorded statements. Carl Lindner said underwriting applications remain in earlier stages, with pilots focused on training, knowledge retrieval and decision support, while the company is further along in applying AI to claims processes.
Hertzman said AFG’s decentralized business model does not prevent technology sharing, noting that successful tools developed within one business unit can be considered across the organization.
About American Financial Group (NYSE:AFG)
American Financial Group, Inc NYSE: AFG is a diversified holding company primarily engaged in property and casualty insurance and reinsurance. Through its flagship subsidiary, Great American Insurance Company, the firm underwrites a broad range of specialty insurance products for commercial and industrial clients, including inland marine, excess and surplus lines, executive liability, and environmental liability coverage. In addition, American Financial Group offers supplemental accident and health insurance and assumes reinsurance risks from other insurers, helping to diversify its underwriting portfolio.
The company traces its roots to 1946, when it was founded by Carl Lindner, Sr.
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