# AMERICAN FINANCIAL GROUP INC (AFG) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from AMERICAN FINANCIAL GROUP INC's 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1042046/000104204623000009/afg-20221231.htm Accession: 0001042046-23-000009 Filing date: 2023-02-24 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/AFG/ All MD&A years: /company/AFG/mda/ Previous year: /company/AFG/mda/fy2021/ (FY 2021) Next year: /company/AFG/mda/fy2023/ (FY 2023) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations [[GREPCENT_TABLE]] [["INDEX TO MD&A"],["","Page","","","Page"],["Objective","28","","Results of Operations \u2014 Fourth Quarter","50"],["Overview","28","","Segmented Statement of Earnings","50"],["Critical Accounting Policies","29","","Property and Casualty Insurance","51"],["Liquidity and Capital Resources","29","","Holding Company, Other and Unallocated","59"],["Ratios","29"],["Condensed Consolidated Cash Flows","30","","Results of Operations \u2014 Full Year","62"],["Parent and Subsidiary Liquidity","31","","Segmented Statement of Earnings","62"],["Condensed Parent Only Cash Flows","33","","Property and Casualty Insurance","64"],["Off-Balance Sheet Arrangements","33","","Holding Company, Other and Unallocated","76"],["Investments","33","","Real Estate Entities Acquired from the Annuity Operations"],["Uncertainties","36","","80"],["Managed Investment Entities","42","","Discontinued Annuity Operations","80"],["Results of Operations","47","","Recent Accounting Standards","81"],["General","47"]] [[/GREPCENT_TABLE]] OBJECTIVE The objective of Management’s Discussion and Analysis is to provide a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of AFG’s financial condition, changes in financial condition and results of operations. The tables and narrative that follow are presented in a manner that is consistent with the information that AFG’s management uses to make operational decisions and allocate capital resources. They are provided to demonstrate the nature of the transactions and events that could impact AFG’s financial results. This discussion should be read in conjunction with the financial statements beginning on page F-1. OVERVIEW Financial Condition AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Therefore, certain analyses are most meaningfully presented on a parent only basis while others are best done on a total enterprise basis. In addition, because its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful. At December 31, 2022, AFG (parent) held approximately $879 million in cash and investments and had $500 million available under a bank line of credit, which expires in December 2025. Results of Operations Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses. AFG’s former annuity operations are reported as discontinued operations. AFG reported net earnings from continuing operations attributable to shareholders of $276 million ($3.24 per share, diluted) for the fourth quarter of 2022 compared to $355 million ($4.18 per share, diluted) in the fourth quarter of 2021. The year-over-year decrease was due primarily to lower returns on AFG’s alternative investment portfolio as compared to the very strong performance of this portfolio in the fourth quarter of 2021 and lower underwriting profit in the crop operations. These items were partially offset by higher investment income other than from alternative investments. 28 Table of Contents Full year 2022 net earnings from continuing operations attributable to shareholders were $898 million ($10.53 per share, diluted) compared to $1.08 billion ($12.62 per share, diluted) in 2021. Higher underwriting profit and higher investment income outside of alternative investments were more than offset by net realized losses on securities in 2022 compared to net realized gains on securities in 2021 and lower returns on AFG’s alternative investment portfolio compared to the very strong performance of this portfolio in 2021. Sale of the Annuity Business In May 2021, AFG sold its annuity business, including Great American Life Insurance Company and its two insurance subsidiaries, Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company to Massachusetts Mutual Life Insurance Company (“MassMutual”). Total proceeds from the sale were $3.57 billion and AFG realized an after-tax gain on the sale of $656 million in the first six months of 2021. Outlook AFG’s financial condition, results of operations and cash flows are impacted by the economic, legal and regulatory environment. Inflation, supply chain disruption, labor shortages and other economic conditions may impact premium levels, loss cost trends and investment returns. Management believes that AFG’s strong financial position and current liquidity and capital at its subsidiaries will give AFG the flexibility to continue to effectively address and respond to the ongoing uncertainties presented by the macro-economic environment, the conflict between Russia and Ukraine and the lingering effects of the COVID-19 pandemic. AFG’s insurance subsidiaries continue to have capital at or in excess of the levels required by ratings agencies in order to maintain their current ratings, and the parent company does not have any near-term debt maturities. Management expects continued premium growth and strong underwriting results in the ongoing favorable property and casualty insurance market. In addition, the deployment of cash in the rising interest rate environment during 2022 will continue to have a positive impact on investment income on fixed maturity investments in 2023. CRITICAL ACCOUNTING POLICIES Significant accounting policies are summarized in Note A — “Accounting Policies” to the financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions change and, thus, impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements is most significant are as follows: •the valuation of investments, including the determination of impairment allowances, •the establishment of insurance reserves, especially asbestos and environmental-related reserves, •the recoverability of reinsurance, and •the establishment of asbestos and environmental liabilities of former railroad and manufacturing operations. See “Liquidity and Capital Resources — Uncertainties” for a discussion of insurance reserves, recoverables from reinsurers and contingencies related to American Premier’s former operations and “Liquidity and Capital Resources — Investments” for a discussion of the allowance for credit losses (impairments) on investments. LIQUIDITY AND CAPITAL RESOURCES Ratios AFG’s debt to total capital ratio on a consolidated basis is shown below (dollars in millions). Management intends to maintain the ratio of debt to capital at or below 30% and intends to maintain the capital of its significant insurance subsidiaries at or above levels currently indicated by rating agencies as appropriate for the current ratings. [[GREPCENT_TABLE]] [["","","","December 31,"],["","2022","","2021"],["Principal amount of long-term debt","","","$","1,521","","","$","1,993"],["Total capital","","","6,099","","","6,869"],["Ratio of debt to total capital:"],["Including subordinated debt","","","24.9","%","","29.0","%"],["Excluding subordinated debt","","","13.9","%","","19.2","%"]] [[/GREPCENT_TABLE]] 29 Table of Contents The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and ratings agencies to evaluate AFG’s financial strength and liquidity and to provide insight into how AFG finances its operations. In addition, maintaining a ratio of debt, excluding subordinated debt and debt secured by real estate (if any), to total capital of 35% or lower is a financial covenant in AFG’s bank credit facility. The ratio is calculated by dividing the principal amount of AFG’s long-term debt by its total capital, which includes long-term debt and shareholders’ equity (excluding unrealized gains (losses) related to fixed maturity investments). The NAIC’s model law for risk-based capital (“RBC”) applies to property and casualty companies. RBC formulas determine the amount of capital that an insurance company needs so that it has an acceptable expectation of not becoming financially impaired. At December 31, 2022, the capital ratios of all AFG insurance companies exceeded the RBC requirements. Condensed Consolidated Cash Flows AFG’s principal sources of cash include insurance premiums, income from its investment portfolio and proceeds from the maturities, redemptions and sales of investments. Insurance premiums in excess of acquisition expenses and operating costs are invested until they are needed to meet policyholder obligations or made available to the parent company through dividends to cover debt obligations and corporate expenses, and to provide returns to shareholders through share repurchases and dividends. Cash flows from operating, investing and financing activities as detailed in AFG’s Consolidated Statement of Cash Flows are shown below (in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2022","","2021","","2020"],["Net cash provided by operating activities","$","1,153","","","$","1,714","","","$","2,183"],["Net cash used in investing activities","(1,051)","","","(436)","","","(1,564)"],["Net cash used in financing activities","(1,361)","","","(1,957)","","","(123)"],["Net change in cash and cash equivalents","$","(1,259)","","","$","(679)","","","$","496"]] [[/GREPCENT_TABLE]] Net Cash Provided by Operating Activities   AFG’s property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses. AFG’s net cash provided by operating activities is impacted by the level and timing of property and casualty premiums, claim and expense payments and recoveries from reinsurers. AFG’s discontinued annuity operations, which were sold in May 2021, typically produced positive net operating cash flows as investment income exceeded acquisition costs and operating expenses. Interest credited on annuity policyholder funds is a non-cash increase in AFG’s annuity benefits accumulated liability and annuity premiums, benefits and withdrawals are considered financing activities due to the deposit-type nature of annuities. Cash flows provided by operating activities also include the activity of AFG’s managed investment entities (collateralized loan obligations (“CLO”)) other than those activities included in investing or financing activities. The changes in the assets and liabilities of the managed investment entities included in operating activities reduced cash flows from operating activities by $183 million in 2022 and $144 million in 2021 and increased cash flows from operating activities by $25 million in 2020, resulting in a $39 million decrease in cash flows from operating activities in 2022 compared to 2021 and a $169 million decrease in cash flows from operating activities in 2021 compared to 2020. As discussed in Note A — “Accounting Policies — Managed Investment Entities” to the financial statements, AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities and such assets and liabilities are shown separately in AFG’s Balance Sheet. Excluding the impact of the managed investment entities, net cash provided by operating activities was $1.34 billion, $1.86 billion and $2.16 billion in 2022, 2021 and 2020, respectively, reflecting the absence of operating cash flows from the disposed annuity operations. Net Cash Used in Investing Activities   AFG’s investing activities consist primarily of the investment of funds provided by its property and casualty businesses and, prior to the May 2021 sale, its discontinued annuity operations. Cash proceeds from the sale of the annuity operations in excess of cash and cash equivalents held in the annuity subsidiaries that were sold was a $1.51 billion source of cash provided by investing activities in 2021. Investing activities also include the purchase and disposal of managed investment entity investments, which are presented separately in AFG’s Balance Sheet. Net investment activity in the managed investment entities was a $180 million use of cash in 2022 compared to a $43 million use of cash in 2021, resulting in a $137 million increase in net cash used in investing activities in 2022 compared to 2021. See Note A — “Accounting Policies — Managed Investment Entities” and Note H — “Managed Investment Entities” to the financial statements. Excluding the impact of the sale of the annuity operations and the activity of the managed investment entities, net cash used in investing activities was $871 million in 2022 compared to $1.90 billion in 2021, a decrease of $1.03 billion as the opportunistic investment of cash on hand in the property and casualty operations during the rising interest rate environment in 2022 was more than offset by the absence of investing activities from the disposed annuity operations. 30 Table of Contents Net cash used in investing activities was $436 million in 2021 compared to $1.56 billion in 2020, a decrease of $1.13 billion. Excluding the impact of the May 2021 sale of the annuity business ($1.51 billion source of cash), net cash used in investing activities was $1.95 billion in 2021 compared to $1.56 billion in 2020, an increase of $383 million. As discussed below (under net cash used in financing activities), AFG’s discontinued annuity operations had net cash flows from annuity policyholders of $477 million in 2021 through the May 31, 2021 effective date of the sale compared to $351 million in 2020. In addition to the investment of funds provided by the insurance operations, AFG Parent increased its net purchases of fixed maturities by $1.19 billion in 2021 compared to 2020 due primarily to proceeds received from the sale of the annuity business as well as dividends received from subsidiaries. Investing activities also include the December 2021 acquisition of Verikai for $120 million in cash and the purchase and disposal of managed investment entity investments, which are presented separately in AFG’s Balance Sheet. See Note C — “Acquisitions and Sale of Businesses” and Note H — “Managed Investment Entities” to the financial statements. Net investment activity in the managed investment entities was a $43 million use of cash in 2021 compared to $281 million in 2020, accounting for a $238 million decrease in net cash used in investing activities in 2021 compared to 2020. Net Cash Used In Financing Activities   AFG’s financing activities consist primarily of issuances and retirements of long-term debt, issuances and repurchases of common stock, dividend payments and, prior to the sale of the annuity business, transactions with annuity policyholders. Net cash used in financing activities was $1.36 billion in 2022 compared to $1.96 billion in 2021, a decrease in net cash used in financing activities of $596 million. Debt retirements were a $477 million use of cash in 2022 compared to no debt retirements in 2021. In 2022, AFG repurchased $11 million of its Common Stock compared to $319 million in 2021, resulting in a $308 million decrease in net cash used in financing activities in 2022 compared to 2021. AFG paid cash dividends totaling $1.21 billion in 2022 compared to $2.37 billion in 2021, resulting in a net $1.16 billion decrease in net cash used in financing activities in 2022 compared to 2021. Net annuity receipts exceeded annuity surrenders, benefits, withdrawals and transfers by $477 million in 2021 through the May 31, 2021 effective date of the sale, resulting in a $477 million decrease in net cash used by financing activities in 2022 compared to 2021. Financing activities also include issuances and retirements of managed investment entity liabilities, which are nonrecourse to AFG and presented separately in AFG’s Balance Sheet. Issuances of managed investment entity liabilities exceeded retirements by $324 million in 2022 compared to $193 million in 2021, resulting in a $131 million increase in net cash provided by financing activities in 2022 compared to 2021. See Note A — “Accounting Policies — Managed Investment Entities” and Note H — “Managed Investment Entities” to the financial statements. Net cash used in financing activities was $1.96 billion in 2021 compared to $123 million in 2020, an increase of $1.83 billion. Net annuity receipts exceeded annuity surrenders, benefits, withdrawals and transfers by $477 million in 2021 through the May 31, 2021 effective date of the sale compared to $351 million in 2020, resulting in a $126 million increase in net cash provided by financing activities in 2021 compared to 2020. In 2020, GALIC transferred $554 million of cash as part of a reinsurance agreement to cede in force traditional fixed and indexed annuities. In 2020, AFG issued $300 million of 5.25% Senior Notes due in 2030, $150 million of 5.625% Subordinated Debentures due in 2060 and $200 million of 4.50% Subordinated Debentures due in 2060. The net proceeds of these offerings contributed $634 million to net cash provided by financing activities in 2020. The November 2020 redemption of AFG’s 6% Subordinated Debentures due in 2055 was a $150 million use of cash in 2020. In addition to its regular quarterly cash dividends, AFG paid special cash dividends of $26.00 per share in 2021 and $2.00 per share 2020, which resulted in total cash dividends of $2.37 billion in 2021 compared to $334 million in 2020. Issuances of managed investment entity liabilities exceeded retirements by $193 million in 2021 compared to $221 million in 2020, resulting in a $28 million decrease in net cash provided by financing activities in 2021 compared to 2020. Parent and Subsidiary Liquidity Parent Holding Company Liquidity   Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and investments or to generate cash through borrowings, sales of other assets, or similar transactions. AFG’s capital and liquidity was significantly enhanced as a result of the 2021 sale of its annuity business to MassMutual for proceeds of $3.57 billion. By the end of the second quarter of 2022, AFG had deployed the proceeds from this sale primarily through special cash dividends, share repurchases, debt retirements and the purchase of Verikai. AFG’s ongoing operations continue to generate significant excess capital for future returns of capital to shareholders in the form of regular and special cash dividends and through opportunistic share repurchases or to be deployed into its property and casualty businesses as management identifies the potential for profitable organic growth, and opportunities to expand through acquisitions and start-ups that meet target return thresholds. 31 Table of Contents During 2022, AFG repurchased 89,368 shares of its Common Stock for $11 million and paid special cash dividends totaling $1.02 billion ($2.00 per share in March, $8.00 per share in May and $2.00 per share in November). In addition, on February 1, 2023, AFG declared a special cash dividend of $4.00 per share (aggregate of approximately $340 million) payable on February 28, 2023. AFG may, at any time and from time to time, seek to retire or purchase its outstanding debt through cash purchases or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, AFG’s liquidity requirements, contractual restrictions and other factors. During 2022, AFG repurchased $472 million principal amount of its senior notes for $477 million cash. During 2021, AFG repurchased 2,777,684 shares of its Common Stock for $319 million and paid special cash dividends of $26.00 per share of AFG Common Stock ($14.00 per share in June, $2.00 per share in August, $4.00 per share in October, $4.00 per share in November and $2.00 per share in December) totaling $2.21 billion. In December 2021, AFG acquired Verikai, Inc., a machine learning and artificial intelligence company that utilizes a predictive risk tool to assess insurance risk, for $120 million using cash on hand at the parent. In 2020, AFG repurchased 4,531,394 shares of its Common Stock for $313 million and paid a special cash dividend of $2.00 per share of AFG Common Stock in December totaling $173 million. In 2020, AFG issued $300 million of 5.25% Senior Notes due in April 2030, $150 million of 5.625% Subordinated Debentures due in June 2060 and $200 million of 4.50% Subordinated Debentures due in September 2060 to increase liquidity and provide flexibility at the parent holding company in its response to the uncertainties of the economic environment. The net proceeds from the offerings were used for general corporate purposes, which included repurchases of outstanding common shares and the November 2020 redemption of AFG’s $150 million outstanding principal amount of 6% Subordinated Debentures due in November 2055 at par value. All debentures and notes issued by AFG are rated investment grade by two nationally recognized rating agencies. Under a currently effective shelf registration statement, AFG can offer additional equity or debt securities. The shelf registration provides AFG with flexibility to access the capital markets from time to time as market and other conditions permit. AFG can borrow up to $500 million under its revolving credit facility, which expires in December 2025. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.875% (currently 1.375%) over LIBOR based on AFG’s credit rating. The credit facility also includes provisions relating to the replacement of LIBOR with different floating rates in the event of the discontinuance of LIBOR. There were no borrowings under this agreement, or under any other parent company short-term borrowing arrangements, during 2022 or 2021. Under a tax allocation agreement with AFG, all 80% (or more) owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary’s contribution to amounts due under AFG’s consolidated tax return. Subsidiary Liquidity   The liquidity requirements of AFG’s insurance subsidiaries relate primarily to the policyholder claims and underwriting expenses and payments of dividends and taxes to AFG. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements. Funds received in excess of cash requirements are generally invested in marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short duration investments. For statutory accounting purposes, equity securities of non-affiliates are generally carried at fair value. At December 31, 2022, AFG’s insurance companies owned publicly traded equity securities with a fair value of $1.01 billion. Decreases in market prices could adversely affect the insurance group’s capital, potentially impacting the amount of dividends available or necessitating a capital contribution. Conversely, increases in market prices could have a favorable impact on the group’s dividend-paying capability. Property and casualty reserves for unpaid losses and loss adjustment expenses were $11.97 billion at December 31, 2022 and include case reserves and claims incurred but not reported (“IBNR”). The ultimate amount to be paid to settle reserves is an estimate, subject to significant uncertainty. Actual payments to settle claims cannot be determined until a settlement is reached with the claimant. Final claim settlements may vary significantly from estimated amounts. See “Uncertainties — Property and Casualty Insurance Reserves” below. The timing of future payments for the next twelve months and beyond could vary materially from historical payment patterns due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. 32 Table of Contents AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and underwriting expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Even in the current uncertain economic environment, management believes that the capital levels in AFG’s insurance subsidiaries are adequate to maintain its business and rating agency ratings. Nonetheless, changes in statutory accounting rules, significant declines in the fair value of the insurance subsidiaries’ investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital. Condensed Parent Only Cash Flows AFG’s parent holding company only condensed cash flows from operating, investing and financing activities are shown below (in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2022","","2021","","2020"],["Net cash provided by operating activities","$","327","","","$","833","","","$","483"],["Net cash provided by (used in) investing activities","992","","","2,167","","","(294)"],["Net cash used in financing activities","(1,683)","","","(2,626)","","","(140)"],["Net change in cash and cash equivalents","$","(364)","","","$","374","","","$","49"]] [[/GREPCENT_TABLE]] Parent Net Cash Provided by Operating Activities   Parent holding company cash flows from operating activities consist primarily of dividends and tax payments received from AFG’s insurance subsidiaries, reduced by tax payments to the IRS and holding company interest and other expenses. Parent holding company net cash provided by operating activities was $327 million in 2022 compared to $833 million in 2021 and $483 million in 2020. The $506 million decrease in net cash provided by operating activities in 2022 as compared to 2021 and the $350 million increase in net cash provided by operating activities in 2021 as compared to 2020 were due primarily to higher cash dividends received from subsidiaries in 2021. Parent Net Cash Provided by (Used in) Investing Activities   Parent holding company investing activities consist of capital contributions to and returns of capital from subsidiaries and parent company investment activity. Parent holding company net cash provided by investing activities was $992 million in 2022 and $2.17 billion in 2021 compared to net cash used in investing activities of $294 million in 2020. The $992 million in net cash provided by investing activities in 2022 is substantially lower than the $2.17 billion in net cash provided by investing activities in 2021 due to proceeds of $3.57 billion related to the May 2021 sale of the annuity business partially offset by the $120 million purchase of Verikai in December 2021. The $2.17 billion in net cash provided by investing activities in 2021 is substantially higher than the $294 million in net cash used in investing activities in 2020 due to proceeds of $3.57 billion related to the May 2021 sale of the annuity business, partially offset by the net purchase of fixed maturity investments of $1.19 billion in 2021 and the $120 million purchase of Verikai in December 2021. Parent Net Cash Used in Financing Activities   Parent company financing activities consist primarily of the issuance and retirement of long-term debt, repurchases of AFG Common Stock, dividends to shareholders, and, to a lesser extent, proceeds from employee stock option exercises. Significant long-term debt and common stock transactions are discussed above under “Parent Holding Company Liquidity.” Parent holding company net cash used in financing activities was $1.68 billion in 2022 compared to $2.63 billion in 2021 and $140 million in 2020. The $943 million decrease in net cash used in financing activities in 2022 as compared to 2021 reflects lower dividends paid to shareholders (due primarily to special dividends of $12.00 per share in 2022 compared to special dividends of $26.00 per share in 2021) partially offset by the impact of net retirements of long-term debt in 2022. The $2.49 billion increase in net cash used in financing activities in 2021 as compared to 2020 reflects higher dividends paid to shareholders (due primarily to special dividends of $26.00 per share in 2021 compared to special dividends of $2.00 per share in 2020) and the impact of net issuances of long-term debt in 2020. Off-Balance Sheet Arrangements See Note P — “Additional Information — Financial Instruments — Unfunded Commitments” to the financial statements. Investments AFG attempts to optimize investment income while building the value of its portfolio, placing emphasis upon total long-term performance. AFG’s investment portfolio at December 31, 2022, contained $10.10 billion in fixed maturity securities classified as available for sale and carried at fair value with unrealized gains and losses included in accumulated other comprehensive 33 Table of Contents income and $32 million in fixed maturities classified as trading with holding gains and losses included in net investment income. In addition, AFG’s investment portfolio includes $672 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $338 million in equity securities carried at fair value with holding gains and losses included in net investment income. Unrealized gains and losses on AFG’s fixed maturity securities are included in shareholders’ equity after adjustments for deferred income taxes. Fixed income investment funds are generally invested in securities with intermediate-term maturities with an objective of optimizing total return while allowing flexibility to react to changes in market conditions. At December 31, 2022, the average life of AFG’s fixed maturities was about 4.2 years. Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services, non-binding broker quotes and other market information. Fair values of equity securities are generally based on published closing prices. For AFG’s fixed maturity portfolio, approximately 87% was priced using pricing services at December 31, 2022 and 7% was priced using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price. The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers’ prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the services to value specific securities. In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have had at December 31, 2022 (dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional. [[GREPCENT_TABLE]] [["Fair value of fixed maturity portfolio","$","10,127"],["Percentage impact on fair value of 100 bps increase in interest rates","(3.0","%)"],["Pretax impact on fair value of fixed maturity portfolio","$","(304)"]] [[/GREPCENT_TABLE]] Approximately 92% of the fixed maturities held by AFG at December 31, 2022, were rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies, 4% were rated “non-investment grade” and 4% were not rated. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high-quality investment portfolio should generate a stable and predictable investment return. Municipal bonds represented approximately 12% of AFG’s fixed maturity portfolio at December 31, 2022. AFG’s municipal bond portfolio is high quality, with over 99% of the securities rated investment grade at that date. The portfolio is well diversified across the states of issuance and individual issuers. At December 31, 2022, approximately 93% of the municipal bond portfolio was held in revenue bonds, with the remaining 7% held in general obligation bonds. 34 Table of Contents Summarized information for the unrealized gains and losses recorded in AFG’s Balance Sheet at December 31, 2022, is shown in the following table (dollars in millions). Approximately $296 million of available for sale fixed maturity securities had no unrealized gains or losses at December 31, 2022. [[GREPCENT_TABLE]] [["","Securities With Unrealized Gains","","Securities With Unrealized Losses"],["Available for Sale Fixed Maturities"],["Fair value of securities","$","915","","","$","8,884"],["Amortized cost of securities, net of allowance for expected credit losses","$","876","","","$","9,553"],["Gross unrealized gain (loss)","$","39","","","$","(669)"],["Fair value as % of amortized cost","104","%","","93","%"],["Number of security positions","335","","","1,841"],["Number individually exceeding $2 million gain or loss","1","","","64"],["Concentration of gains (losses) by type or industry (exceeding 5% of unrealized):"],["Mortgage-backed securities","$","23","","","$","(183)"],["Banking","5","","","(18)"],["States and municipalities","3","","","(51)"],["Other asset-backed securities","1","","","(184)"],["Collateralized loan obligations","1","","","(67)"],["Asset managers","1","","","(47)"],["Percentage rated investment grade","82","%","","95","%"]] [[/GREPCENT_TABLE]] The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at December 31, 2022, based on their fair values. Securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers. [[GREPCENT_TABLE]] [["","Securities With Unrealized Gains","","Securities With Unrealized Losses"],["Maturity"],["One year or less","9","%","","3","%"],["After one year through five years","22","%","","26","%"],["After five years through ten years","22","%","","8","%"],["After ten years","9","%","","2","%"],["","62","%","","39","%"],["Collateralized loan obligations and other asset-backed securities (average life of approximately 3.5 years)","20","%","","44","%"],["Mortgage-backed securities (average life of approximately 6 years)","18","%","","17","%"],["","100","%","","100","%"]] [[/GREPCENT_TABLE]] The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount: [[GREPCENT_TABLE]] [["","Aggregate Fair Value","","Aggregate Unrealized Gain (Loss)","","Fair Value as % of Cost"],["Fixed Maturities at December 31, 2022"],["Securities with unrealized gains:"],["Exceeding $500,000 (16 securities)","$","122","","","$","15","","","114","%"],["$500,000 or less (319 securities)","793","","","24","","","103","%"],["","$","915","","","$","39","","","104","%"],["Securities with unrealized losses:"],["Exceeding $500,000 (355 securities)","$","4,130","","","$","(497)","","","89","%"],["$500,000 or less (1,486 securities)","4,754","","","(172)","","","97","%"],["","$","8,884","","","$","(669)","","","93","%"]] [[/GREPCENT_TABLE]] 35 Table of Contents The following table (dollars in millions) summarizes the unrealized losses for all securities with unrealized losses by issuer quality and the length of time those securities have been in an unrealized loss position: [[GREPCENT_TABLE]] [["","Aggregate Fair Value","","Aggregate Unrealized Loss","","Fair Value as % of Cost"],["Securities with Unrealized Losses at December 31, 2022"],["Investment grade fixed maturities with losses for:"],["Less than one year (1,244 securities)","$","6,203","","","$","(405)","","","94","%"],["One year or longer (308 securities)","2,232","","","(227)","","","91","%"],["","$","8,435","","","$","(632)","","","93","%"],["Non-investment grade fixed maturities with losses for:"],["Less than one year (202 securities)","$","337","","","$","(20)","","","94","%"],["One year or longer (87 securities)","112","","","(17)","","","87","%"],["","$","449","","","$","(37)","","","92","%"]] [[/GREPCENT_TABLE]] To evaluate fixed maturities for expected credit losses (impairment), management considers the following: a)whether the unrealized loss is credit-driven or a result of changes in market interest rates, b)the extent to which fair value is less than cost basis, c)cash flow projections received from independent sources, d)historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases, e)near-term prospects for improvement in the issuer and/or its industry, f)third-party research and communications with industry specialists, g)financial models and forecasts, h)the continuity of interest payments, maintenance of investment grade ratings and hybrid nature of certain investments, i)discussions with issuer management, and j)ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value. Based on its analysis of the factors listed above, management believes AFG will recover its cost basis (net of any allowance) in the fixed maturity securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at December 31, 2022. Although AFG has the ability to continue holding its fixed maturity investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers’ creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG’s ability or intent change regarding a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, increases in the allowance for credit losses could be material to results of operations in future periods. Significant declines in the fair value of AFG’s investment portfolio could have a significant adverse effect on AFG’s liquidity. For information on AFG’s realized gains (losses) on securities, see “Results of Operations — Realized Gains (Losses) on Securities.” Uncertainties As more fully explained in the following paragraphs, management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations. Property and Casualty Insurance Reserves   Estimating the liability for unpaid losses and loss adjustment expenses (“LAE”) is inherently judgmental and is influenced by factors that are subject to significant variation. Determining the liability is a complex process incorporating input from many areas of the Company including actuarial, underwriting, pricing, claims and operations management. The estimates of liabilities for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon: (i) the accumulation of case estimates for losses reported prior to the close of the accounting periods on direct business written (“case reserves”); (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of claims incurred but not reported (including possible development on known claims); (iv) estimates (based on experience) of expense for investigating and adjusting claims; and (v) the current state of law and coverage litigation. The process used to determine the total reserve for liabilities involves estimating the ultimate incurred losses and LAE, adjusted for amounts already paid on the claims. The IBNR reserve is derived by estimating the ultimate unpaid reserve 36 Table of Contents liability and subtracting case reserves for loss and LAE. See Note O — “Insurance — Property and Casualty Insurance Reserves” to the financial statements for a discussion of the factors considered and actuarial methods used in determining management’s best estimate of the ultimate liability for unpaid losses and LAE. The following table shows (in millions) the breakdown of AFG’s property and casualty insurance reserves between case reserves, IBNR reserves and LAE reserves (estimated amounts required to adjust, record and settle claims, other than the claim payments themselves) at December 31, 2022 and gross written premiums for the year ended December 31, 2022. [[GREPCENT_TABLE]] [["","Gross Loss Reserves"],["","Case","","IBNR","","LAE","","Total Reserves","","Gross Written Premiums"],["Statutory Line of Business"],["Other liability \u2014 occurrence","$","980","","","$","2,787","","","$","720","","","$","4,487","","","$","1,589"],["Workers\u2019 compensation","923","","","1,200","","","344","","","2,467","","","1,239"],["Other liability \u2014 claims made","235","","","620","","","386","","","1,241","","","829"],["Commercial auto/truck liability/medical","385","","","400","","","150","","","935","","","623"],["Special property (fire, allied lines, inland marine, earthquake)","463","","","253","","","32","","","748","","","2,391"],["Products liability \u2014 occurrence","102","","","253","","","158","","","513","","","219"],["Commercial multi-peril","158","","","146","","","84","","","388","","","407"],["Other lines","259","","","440","","","112","","","811","","","1,458"],["Total Statutory","3,505","","","6,099","","","1,986","","","11,590","","","8,755"],["Adjustments for GAAP:"],["Foreign operations","149","","","183","","","42","","","374","","","305"],["Deferred gains on retroactive reinsurance","\u2014","","","15","","","\u2014","","","15","","","\u2014"],["Loss reserve discounting","(5)","","","\u2014","","","\u2014","","","(5)","","","\u2014"],["Other","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(3)"],["Total Adjustments for GAAP","144","","","198","","","42","","","384","","","302"],["Total GAAP Reserves and Premiums","$","3,649","","","$","6,297","","","$","2,028","","","$","11,974","","","$","9,057"]] [[/GREPCENT_TABLE]] While current factors and reasonably likely changes in variable factors are considered in estimating the liability for unpaid losses and LAE, there is no method or system that can eliminate the risk of actual ultimate results differing from such estimates. Following is a discussion of certain critical variables affecting the estimation of loss reserves of the more significant long-tail lines of business (asbestos and environmental liabilities are separately discussed below). Many other variables may also impact ultimate claim costs. An important assumption underlying reserve estimates is that the cost trends implicitly built into development patterns will continue into the future. However, future results could vary due to an unexpected change in the underlying cost trends. This unexpected change could arise from a variety of sources including a general increase in economic inflation, inflation from social programs, new medical technologies, or other factors such as those listed below in connection with AFG’s largest lines of business. It is not possible to isolate and measure the potential impact of just one of these variables, and future cost trends could be partially impacted by several such variables. However, it is reasonable to address the sensitivity of the reserves to potential impact from changes in these variables by measuring the effect of a possible overall 1% change in future cost trends that may be caused by one or more variables. Utilizing the effect of a 1% change in overall cost trends enables changes greater than 1% to be estimated by extrapolation. Each additional 1% change in the cost trend would increase the effect on net earnings by an amount slightly (about 5%) greater than the effect of the previous 1%. For example, if a 1% change in cost trends in a line of business would change net earnings by $20 million, a 2% change would change net earnings by approximately $41 million. The estimated cumulative adverse impact that a 1% change in cost trends in AFG’s more significant long-tail lines of property and casualty business (exceeding 5% of total reserves) would have on net earnings is shown below (in millions). [[GREPCENT_TABLE]] [["Line of business","Effect of 1% Change in Cost Trends"],["Other liability \u2014 occurrence","$","62"],["Workers\u2019 compensation","65"],["Other liability \u2014 claims made","22"],["Commercial auto/truck liability/medical","15"]] [[/GREPCENT_TABLE]] 37 Table of Contents The judgments and uncertainties surrounding management’s reserve estimation process and the potential for reasonably possible variability in management’s most recent reserve estimates may also be viewed by looking at how recent historical estimates of reserves have developed. The following table shows (dollars in millions) what the impact on AFG’s net earnings would be on the more significant lines of business if the December 31, 2022, reserves (net of reinsurance) developed at the same rate as the average development of the most recent five years. [[GREPCENT_TABLE]] [["","5-yr. Average Development (a)(b)","","Net Reserves (b) December 31, 2022","","Effect on Net Earnings (a)(b)"],["Other liability \u2014 occurrence","4.8","%","","$","2,005","","","$","96"],["Workers\u2019 compensation","(5.9","%)","","2,107","","","(124)"],["Other liability \u2014 claims made","(2.7","%)","","890","","","(24)"],["Commercial auto/truck liability/medical","(0.5","%)","","706","","","(4)"]] [[/GREPCENT_TABLE]] (a)Adverse (favorable), net of tax effect. (b)Excludes asbestos and environmental liabilities. The following discussion describes key assumptions and important variables that affect the estimate of the reserve for loss and LAE of the more significant lines of business and explains what caused them to change from assumptions used in the preceding period. Other Liability — Occurrence This long-tail line of business consists of coverages protecting the insured against legal liability resulting from negligence, carelessness, or a failure to act causing property damage or personal injury to others. Some of the important variables affecting estimation of loss reserves for other liability — occurrence include: •Litigious climate •Unpredictability of judicial decisions regarding coverage issues •Magnitude of jury awards •Outside counsel costs •Timing of claims reporting AFG recorded adverse prior year reserve development of $109 million in 2022, $39 million in 2021 and $99 million in 2020 related to its other liability — occurrence coverage due primarily to continued claim severity increases in excess and umbrella liability coverages. While management applies the actuarial methods discussed in Note O — “Insurance — Property and Casualty Insurance Reserves” to the financial statements, more judgment is involved in arriving at the final reserve to be held. For recent accident years, more weight is given to the Bornhuetter-Ferguson method. Workers’ Compensation This long-tail line of business provides coverage to employees who may be injured in the course of employment. Some of the important variables affecting estimation of loss reserves for workers’ compensation include: •Legislative actions and regulatory and legal interpretations •Future medical cost inflation •Economic conditions •Frequency of reopening claims previously closed •Advances in medical equipment and processes •Pace and intensity of employee rehabilitation •Changes in the use of pharmaceutical drugs •Changes in mortality trends for permanently injured workers Approximately 27% and 24% of AFG’s workers’ compensation reserves at December 31, 2022 relate to policies written in Florida and California, respectively. AFG recorded favorable prior year reserve development of $189 million and $169 million in 2022 and 2021, respectively, related to its workers’ compensation coverage due to lower than anticipated medical severity. AFG recorded favorable prior year reserve development of $178 million in 2020 due to lower than anticipated medical claim severity and improving claim closure rates, particularly in the southeastern United States and California. 38 Table of Contents Other Liability — Claims Made This long-tail line of business consists mostly of directors’ and officers’ liability (“D&O”). Some of the important variables affecting estimation of loss reserves for other liability — claims made include: •Litigious climate •Economic conditions •Variability of stock prices •Magnitude of jury awards The general state of the economy and the variability of the stock price of the insured can affect the frequency and severity of shareholder class action suits and other situations that trigger coverage under D&O policies. For example, from 2008 to 2010, economic conditions led to higher frequency of claims, particularly in the D&O policies for small account and not-for-profit organizations. Since then, claim frequency has decreased from its peak in 2010 and has stabilized to near pre-2008 levels. AFG recorded favorable prior year reserve development of $24 million in 2022, $2 million in 2021 and $8 million in 2020 on its D&O business as claim frequency and severity were less than expected across several prior accident years. Commercial Auto/Truck Liability/Medical This line of business is a mix of coverage protecting the insured against legal liability for property damage or personal injury to others arising from the operation of commercial motor vehicles. The property damage liability exposure is usually short-tail with relatively prompt reporting and settlement of claims. The bodily injury and medical payments exposures are longer-tailed; although the claim reporting is relatively prompt, the final settlement can take longer to achieve. Some of the important variables affecting estimation of loss reserves for commercial auto/truck liability/medical are similar to other liability — occurrence and include: •Magnitude of jury awards •Unpredictability of judicial decisions regarding coverage issues •Litigious climate and trends •Change in frequency of severe accidents •Health care costs and utilization of medical services by injured parties AFG recorded adverse prior year reserve development of $32 million and $7 million in 2022 and 2021, respectively, for this line of business due to higher than anticipated severity. Favorable prior year reserve development of $16 million was recorded in 2020. Although severity trends were elevated at that time, they were generally lower than initially projected for prior years. Recoverables from Reinsurers and Availability of Reinsurance   AFG is subject to credit risk with respect to its reinsurers, as reinsurance contracts do not relieve AFG of its liability to policyholders. To mitigate this risk, substantially all reinsurance is ceded to companies rated “A” or better by S&P or is secured by “funds withheld” or other collateral. The availability and cost of reinsurance are subject to prevailing market conditions, which are beyond AFG’s control and which may affect AFG’s level of business and profitability. Although the cost of certain reinsurance programs may increase, management believes that AFG will be able to maintain adequate reinsurance coverage at acceptable rates without a material adverse effect on AFG’s results of operations. AFG’s gross and net combined ratios are shown in the table below. See Item 1 — Business — “Property and Casualty Insurance Segment — Reinsurance” for more information on AFG’s reinsurance programs. For additional information on the effect of reinsurance on AFG’s historical results of operations see Note O — “Insurance — Reinsurance” to the financial statements. The following table illustrates the effect that purchasing property and casualty reinsurance has had on AFG’s combined ratio over the last three years. [[GREPCENT_TABLE]] [["","2022","","2021","","2020"],["Before reinsurance (gross)","90.9","%","","87.4","%","","97.1","%"],["Effect of reinsurance","(3.6","%)","","(0.9","%)","","(1.6","%)"],["Actual (net of reinsurance)","87.3","%","","86.5","%","","95.5","%"]] [[/GREPCENT_TABLE]] 39 Table of Contents Asbestos and Environmental-related (“A&E”) Insurance Reserves   Asbestos and environmental reserves of the property and casualty group consisted of the following (in millions): [[GREPCENT_TABLE]] [["","December 31,"],["","2022","","2021"],["Asbestos","$","220","","","$","232"],["Environmental","165","","","176"],["A&E reserves, net of reinsurance recoverable","385","","","408"],["Reinsurance recoverable, net of allowance","140","","","147"],["Gross A&E reserves","$","525","","","$","555"]] [[/GREPCENT_TABLE]] Asbestos reserves include claims asserting alleged injuries and damages from exposure to asbestos. Environmental reserves include claims relating to polluted sites. Asbestos claims against manufacturers, distributors or installers of asbestos products were presented under the products liability section of their policies, which typically had aggregate limits that capped an insurer’s liability. In addition, asbestos claims are being presented as “non-products” claims, such as those by installers of asbestos products and by property owners or operators who allegedly had asbestos on their property, under the premises or operations section of their policies. Unlike products exposures, these non-products exposures typically had no aggregate limits, creating greater exposure for insurers. Further, in an effort to seek additional insurance coverage, some insureds with installation activities who have substantially eroded their products coverage are presenting new asbestos claims as non-products operations claims or attempting to reclassify previously settled products claims as non-products claims to restore a portion of previously exhausted products aggregate limits. Approximately 39% of AFG’s net asbestos reserves relate to policies written directly by AFG subsidiaries. Claims from these policies generally are product-oriented claims with only a limited amount of non-products exposures and are dominated by small to mid-sized commercial entities that are mostly regional policyholders with few national target defendants. The remainder is assumed reinsurance business that includes exposures from 1954 to 1983. The asbestos and environmental assumed claims are ceded by various insurance companies under reinsurance treaties. A majority of the individual assumed claims have exposures of less than $100,000 to AFG. Asbestos losses assumed include some of the industry known manufacturers, distributors and installers. Pollution losses include industry known insured names and sites. Establishing reserves for A&E claims relating to policies and participations in reinsurance treaties and former operations is subject to uncertainties that are significantly greater than those presented by other types of claims. For this group of claims, traditional actuarial techniques that rely on historical loss development trends cannot be used and a range of reasonably possible losses cannot be estimated. Case reserves and expense reserves are established by the claims department as specific policies are identified. In addition to the case reserves established for known claims, management establishes additional reserves for claims not yet known or reported and for possible development on known claims. These additional reserves are management’s best estimate based on periodic comprehensive studies and internal reviews adjusted for payments and identifiable changes, supplemented by management’s review of industry information about such claims, with due consideration to individual claim situations. Management believes that estimating the ultimate liability for asbestos claims presents a unique and difficult challenge to the insurance industry due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage. Environmental claims likewise present challenges in prediction, due to uncertainty regarding the interpretation of insurance policies, complexities regarding multi-party involvements at sites, evolving cleanup standards and protracted time periods required to assess the level of cleanup required at contaminated sites. The following factors could impact AFG’s A&E reserves and payments: •There is interest at the state level to attempt to legislatively address asbestos liabilities and the manner in which asbestos claims are resolved. These developments are fluid and could result in piecemeal state-by-state solutions. •The manner by which bankruptcy courts are addressing asbestos liabilities is in flux. •AFG’s insureds may make claims alleging significant non-products exposures. While management believes that AFG’s reserves for A&E claims are a reasonable estimate of ultimate liability for such claims, actual results may vary materially from the amounts currently recorded due to the difficulty in predicting the number of future claims, the impact of bankruptcy filings and unresolved issues such as whether coverage exists, whether 40 Table of Contents policies are subject to aggregate limits on coverage, how claims are to be allocated among triggered policies and implicated years and whether claimants who exhibit no signs of illness will be successful in pursuing their claims. A 1% variation in loss cost trends, caused by any of the factors previously described, would change net earnings by approximately $32 million. AFG tracks its A&E claims by policyholder. The following table shows, by type of claim, the number of policyholders that did not receive any payments in the calendar year separate from policyholders that did receive a payment. Policyholder counts represent policies written by AFG subsidiaries and do not include assumed reinsurance. [[GREPCENT_TABLE]] [["","2022","","2021","","2020"],["Number of policyholders with no indemnity payments:"],["Asbestos","103","","","100","","","97"],["Environmental","129","","","131","","","116"],["","232","","","231","","","213"],["Number of policyholders with indemnity payments:"],["Asbestos","45","","","45","","","48"],["Environmental","25","","","20","","","22"],["","70","","","65","","","70"],["Total","302","","","296","","","283"]] [[/GREPCENT_TABLE]] Amounts paid (net of reinsurance recoveries) for asbestos and environmental claims, including LAE, were as follows (in millions): [[GREPCENT_TABLE]] [["","2022","","2021","","2020"],["Asbestos","$","12","","","$","8","","","$","8"],["Environmental","11","","","6","","","\u2014"],["Total","$","23","","","$","14","","","$","8"]] [[/GREPCENT_TABLE]] The survival ratio is a measure often used by industry analysts to compare A&E reserves’ strength among companies. This ratio is typically calculated by dividing reserves for A&E exposures by the three-year average of paid losses, and therefore measures the number of years that it would take to pay off current reserves based on recent average payments. Because this ratio can be significantly impacted by a number of factors such as loss payout variability, caution should be exercised in attempting to determine reserve adequacy based simply on the survival ratio. At December 31, 2022, the property and casualty insurance segment’s three-year survival ratios compare favorably with industry survival ratios published by A.M. Best (as of December 31, 2021, and adjusted for several large portfolio transfers) as detailed in the following table: [[GREPCENT_TABLE]] [["","Property and Casualty Insurance Reserves"],["","Three-Year Survival Ratio (Times Paid Losses)"],["","Asbestos","","Environmental","","Total A&E"],["AFG (12/31/2022)","24.3","","","27.7","","","25.6"],["Industry (12/31/2021)","8.5","","","5.7","","","7.7"]] [[/GREPCENT_TABLE]] During the third quarter of 2022, AFG completed an in-depth internal review of its asbestos and environmental exposures relating to the run-off operations of its property and casualty insurance segment and its exposures related to former railroad and manufacturing operations and sites. In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has periodically conducted comprehensive external studies of its asbestos and environmental reserves with the aid of specialty actuarial, engineering and consulting firms and outside counsel, with an in-depth internal review during the intervening years. AFG is continuing to evaluate the frequency of future external studies. During the 2022 and 2021 internal reviews, no new trends were identified and recent claims activity was generally consistent with AFG’s expectations resulting from AFG’s most recent external study in 2020. As a result, both the 2022 and 2021 reviews resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves. A comprehensive external study of AFG’s A&E reserves was completed in the third quarter of 2020. As a result of the 2020 external study, AFG’s property and casualty insurance segment recorded a $47 million pretax special charge to increase its asbestos reserves by $26 million (net of reinsurance) and its environmental reserves by $21 million (net of reinsurance). 41 Table of Contents Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of the property and casualty segment’s asbestos reserve increases in recent years. AFG is seeing modestly increasing estimates for indemnity and defense compared to prior studies on certain specific open claims. The increase in property and casualty environmental reserves in 2020 was primarily associated with updated estimates of site investigation and remedial costs with respect to existing sites and its estimate of future, but as yet unreported, claims. AFG has updated its view of legal defense costs on open environmental claims as well as a number of claims and sites where the estimated investigation and remediation costs have increased. Contingencies related to Subsidiaries’ Former Operations   The A&E study and reviews discussed above encompassed reserves for various environmental and occupational injury and disease claims and other contingencies arising out of the railroad operations disposed of by American Premier’s predecessor and certain manufacturing operations disposed of by American Premier and its subsidiaries and by Great American Financial Resources, Inc. AFG recorded minor charges to increase liabilities for those operations as a result of the 2022 and 2021 internal reviews and a pretax special charge of $21 million as a result of the 2020 comprehensive external study. For a discussion of the charges recorded for those operations, see “Results of Operations — Holding Company, Other and Unallocated.” Liabilities for claims and contingencies arising from these former railroad and manufacturing operations totaled $96 million at December 31, 2022. For a discussion of the uncertainties in determining the ultimate liability, see Note N — “Contingencies” to the financial statements. MANAGED INVESTMENT ENTITIES Accounting standards require AFG to consolidate its investments in collateralized loan obligation (“CLO”) entities that it manages and owns an interest in (in the form of debt). See Note A — “Accounting Policies — Managed Investment Entities” and Note H — “Managed Investment Entities” to the financial statements. The effect of consolidating these entities is shown in the tables below (in millions). The “Before CLO Consolidation” columns include AFG’s investment and earnings in the CLOs on an unconsolidated basis. 42 Table of Contents CONDENSED CONSOLIDATING BALANCE SHEET [[GREPCENT_TABLE]] [["","Before CLO Consolidation","","Managed Investment Entities","","Consol. Entries","","","","Consolidated As Reported"],["December 31, 2022"],["Assets:"],["Cash and investments","$","14,627","","","$","\u2014","","","$","(115)","","","(*)","","$","14,512"],["Assets of managed investment entities","\u2014","","","5,447","","","\u2014","","","","","5,447"],["Other assets","8,872","","","\u2014","","","\u2014","","","(*)","","8,872"],["Total assets","$","23,499","","","$","5,447","","","$","(115)","","","","","$","28,831"],["Liabilities:"],["Unpaid losses and loss adjustment expenses and unearned premiums","$","15,220","","","$","\u2014","","","$","\u2014","","","","","$","15,220"],["Liabilities of managed investment entities","\u2014","","","5,444","","","(112)","","","(*)","","5,332"],["Long-term debt and other liabilities","4,227","","","\u2014","","","\u2014","","","","","4,227"],["Total liabilities","19,447","","","5,444","","","(112)","","","","","24,779"],["Shareholders\u2019 equity:"],["Common Stock and Capital surplus","1,453","","","3","","","(3)","","","","","1,453"],["Retained earnings","3,142","","","\u2014","","","\u2014","","","","","3,142"],["Accumulated other comprehensive income (loss), net of tax","(543)","","","\u2014","","","\u2014","","","","","(543)"],["Total shareholders\u2019 equity","4,052","","","3","","","(3)","","","","","4,052"],["Total liabilities and shareholders\u2019 equity","$","23,499","","","$","5,447","","","$","(115)","","","","","$","28,831"],["December 31, 2021"],["Assets:"],["Cash and investments","$","15,821","","","$","\u2014","","","$","(76)","","","(*)","","$","15,745"],["Assets of managed investment entities","\u2014","","","5,296","","","\u2014","","","","","5,296"],["Other assets","7,890","","","\u2014","","","\u2014","","","(*)","","7,890"],["Total assets","$","23,711","","","$","5,296","","","$","(76)","","","","","$","28,931"],["Liabilities:"],["Unpaid losses and loss adjustment expenses and unearned premiums","$","14,115","","","$","\u2014","","","$","\u2014","","","","","$","14,115"],["Liabilities of managed investment entities","\u2014","","","5,296","","","(76)","","","(*)","","5,220"],["Long-term debt and other liabilities","4,584","","","\u2014","","","\u2014","","","","","4,584"],["Total liabilities","18,699","","","5,296","","","(76)","","","","","23,919"],["Shareholders\u2019 equity:"],["Common Stock and Capital surplus","1,415","","","\u2014","","","\u2014","","","","","1,415"],["Retained earnings","3,478","","","\u2014","","","\u2014","","","","","3,478"],["Accumulated other comprehensive income (loss), net of tax","119","","","\u2014","","","\u2014","","","","","119"],["Total shareholders\u2019 equity","5,012","","","\u2014","","","\u2014","","","","","5,012"],["Total liabilities and shareholders\u2019 equity","$","23,711","","","$","5,296","","","$","(76)","","","","","$","28,931"]] [[/GREPCENT_TABLE]] (*)Elimination of the fair value of AFG’s investment in CLOs and related accrued interest. 43 Table of Contents CONDENSED CONSOLIDATING STATEMENT OF EARNINGS [[GREPCENT_TABLE]] [["","Before CLO Consolidation (a)","","Managed Investment Entities","","Consol. Entries","","","","Consolidated As Reported"],["Three months ended December 31, 2022"],["Revenues:"],["Property and casualty insurance net earned premiums","$","1,623","","","$","\u2014","","","$","\u2014","","","","","$","1,623"],["Net investment income","168","","","\u2014","","","\u2014","","","(b)","","168"],["Realized gains (losses) on securities","27","","","\u2014","","","\u2014","","","","","27"],["Income of managed investment entities:"],["Investment income","\u2014","","","93","","","\u2014","","","","","93"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","(1)","","","(5)","","","(b)","","(6)"],["Other income","29","","","\u2014","","","(5)","","","(c)","","24"],["Total revenues","1,847","","","92","","","(10)","","","","","1,929"],["Costs and Expenses:"],["Insurance benefits and expenses","1,413","","","\u2014","","","\u2014","","","","","1,413"],["Expenses of managed investment entities","\u2014","","","92","","","(10)","","","(b)(c)","","82"],["Interest charges on borrowed money and other expenses","88","","","\u2014","","","\u2014","","","","","88"],["Total costs and expenses","1,501","","","92","","","(10)","","","","","1,583"],["Earnings before income taxes","346","","","\u2014","","","\u2014","","","","","346"],["Provision for income taxes","70","","","\u2014","","","\u2014","","","","","70"],["Net earnings","$","276","","","$","\u2014","","","$","\u2014","","","","","$","276"],["Three months ended December 31, 2021"],["Revenues:"],["Property and casualty insurance net earned premiums","$","1,452","","","$","\u2014","","","$","\u2014","","","","","$","1,452"],["Net investment income","212","","","\u2014","","","(3)","","","(b)","","209"],["Realized gains (losses) on securities","7","","","\u2014","","","\u2014","","","","","7"],["Income of managed investment entities:"],["Investment income","\u2014","","","46","","","\u2014","","","","","46"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","2","","","(1)","","","(b)","","1"],["Other income","47","","","\u2014","","","(4)","","","(c)","","43"],["Total revenues","1,718","","","48","","","(8)","","","","","1,758"],["Costs and Expenses:"],["Insurance benefits and expenses","1,182","","","\u2014","","","\u2014","","","","","1,182"],["Expenses of managed investment entities","\u2014","","","47","","","(7)","","","(b)(c)","","40"],["Interest charges on borrowed money and other expenses","91","","","\u2014","","","\u2014","","","","","91"],["Total costs and expenses","1,273","","","47","","","(7)","","","","","1,313"],["Earnings before income taxes","445","","","1","","","(1)","","","","","445"],["Provision for income taxes","90","","","\u2014","","","\u2014","","","","","90"],["Net earnings","$","355","","","$","1","","","$","(1)","","","","","$","355"]] [[/GREPCENT_TABLE]] (a)Includes income of less than $1 million in the fourth quarter of 2022 and $3 million in the fourth quarter of 2021, representing the change in fair value of AFG’s CLO investments and $5 million and $4 million of income in the fourth quarter of 2022 and 2021, respectively, in CLO management fees earned. (b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $5 million and $3 million in the fourth quarter of 2022 and 2021, respectively, in distributions recorded as interest expense by the CLOs. (c)Elimination of management fees earned by AFG. 44 Table of Contents CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED [[GREPCENT_TABLE]] [["","Before CLO Consol. (a)","","Managed Investment Entities","","Consol. Entries","","","","Consolidated As Reported"],["Year ended December 31, 2022"],["Revenues:"],["Property and casualty insurance net earned premiums","$","6,085","","","$","\u2014","","","$","\u2014","","","","","$","6,085"],["Net investment income","707","","","\u2014","","","10","","","(b)","","717"],["Realized gains (losses) on securities","(116)","","","\u2014","","","\u2014","","","","","(116)"],["Income of managed investment entities:"],["Investment income","\u2014","","","268","","","\u2014","","","","","268"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","(2)","","","(29)","","","(b)","","(31)"],["Other income","134","","","\u2014","","","(17)","","","(c)","","117"],["Total revenues","6,810","","","266","","","(36)","","","","","7,040"],["Costs and Expenses:"],["Insurance benefits and expenses","5,347","","","\u2014","","","\u2014","","","","","5,347"],["Expenses of managed investment entities","\u2014","","","265","","","(35)","","","(b)(c)","","230"],["Interest charges on borrowed money and other expenses","340","","","\u2014","","","\u2014","","","","","340"],["Total costs and expenses","5,687","","","265","","","(35)","","","","","5,917"],["Earnings from continuing operations before income taxes","1,123","","","1","","","(1)","","","","","1,123"],["Provision for income taxes","225","","","\u2014","","","\u2014","","","","","225"],["Net earnings from continuing operations, including noncontrolling interests","898","","","1","","","(1)","","","","","898"],["Net earnings from discontinued operations","\u2014","","","\u2014","","","\u2014","","","","","\u2014"],["Less: Net earnings (loss) from continuing operations attributable to noncontrolling interests","\u2014","","","\u2014","","","\u2014","","","","","\u2014"],["Net earnings attributable to shareholders","$","898","","","$","1","","","$","(1)","","","","","$","898"],["Year ended December 31, 2021"],["Revenues:"],["Property and casualty insurance net earned premiums","$","5,404","","","$","\u2014","","","$","\u2014","","","","","$","5,404"],["Net investment income","750","","","\u2014","","","(20)","","","(b)","","730"],["Realized gains (losses) on:"],["Securities","110","","","\u2014","","","\u2014","","","","","110"],["Subsidiaries","4","","","\u2014","","","\u2014","","","","","4"],["Income of managed investment entities:"],["Investment income","\u2014","","","181","","","\u2014","","","","","181"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","3","","","7","","","(b)","","10"],["Other income","129","","","\u2014","","","(16)","","","(c)","","113"],["Total revenues","6,397","","","184","","","(29)","","","","","6,552"],["Costs and Expenses:"],["Insurance benefits and expenses","4,704","","","\u2014","","","\u2014","","","","","4,704"],["Expenses of managed investment entities","\u2014","","","183","","","(28)","","","(b)(c)","","155"],["Interest charges on borrowed money and other expenses","358","","","\u2014","","","\u2014","","","","","358"],["Total costs and expenses","5,062","","","183","","","(28)","","","","","5,217"],["Earnings from continuing operations before income taxes","1,335","","","1","","","(1)","","","","","1,335"],["Provision for income taxes","254","","","\u2014","","","\u2014","","","","","254"],["Net earnings from continuing operations, including noncontrolling interests","1,081","","","1","","","(1)","","","","","1,081"],["Net earnings from discontinued operations","914","","","\u2014","","","\u2014","","","","","914"],["Less: Net earnings (loss) from continuing operations attributable to noncontrolling interests","\u2014","","","\u2014","","","\u2014","","","","","\u2014"],["Net earnings attributable to shareholders","$","1,995","","","$","1","","","$","(1)","","","","","$","1,995"]] [[/GREPCENT_TABLE]] (a)Includes a loss of $10 million in 2022 and income of $20 million in 2021, representing the change in fair value of AFG’s CLO investments and $17 million and $16 million of income in 2022 and 2021, respectively, in CLO management fees earned. (b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $18 million and $12 million in 2022 and 2021, respectively, in distributions recorded as interest expense by the CLOs. (c)Elimination of management fees earned by AFG. 45 Table of Contents CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED [[GREPCENT_TABLE]] [["","Before CLO Consol. (a)","","Managed Investment Entities","","Consol. Entries","","","","Consolidated As Reported"],["Year ended December 31, 2020"],["Revenues:"],["Property and casualty insurance net earned premiums","$","5,099","","","$","\u2014","","","$","\u2014","","","","","$","5,099"],["Net investment income","460","","","\u2014","","","1","","","(b)","","461"],["Realized gains (losses) on:"],["Securities","(75)","","","\u2014","","","\u2014","","","","","(75)"],["Subsidiaries","23","","","\u2014","","","\u2014","","","","","23"],["Income of managed investment entities:"],["Investment income","\u2014","","","201","","","\u2014","","","","","201"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","(11)","","","(9)","","","(b)","","(20)"],["Other income","95","","","\u2014","","","(15)","","","(c)","","80"],["Total revenues","5,602","","","190","","","(23)","","","","","5,769"],["Costs and Expenses:"],["Insurance benefits and expenses","4,896","","","\u2014","","","\u2014","","","","","4,896"],["Expenses of managed investment entities","\u2014","","","190","","","(23)","","","(b)(c)","","167"],["Interest charges on borrowed money and other expenses","367","","","\u2014","","","\u2014","","","","","367"],["Total costs and expenses","5,263","","","190","","","(23)","","","","","5,430"],["Earnings from continuing operations before income taxes","339","","","\u2014","","","\u2014","","","","","339"],["Provision for income taxes","25","","","\u2014","","","\u2014","","","","","25"],["Net earnings from continuing operations, including noncontrolling interests","314","","","\u2014","","","\u2014","","","","","314"],["Net earnings from discontinued operations","407","","","\u2014","","","\u2014","","","","","407"],["Less: Net earnings (loss) from continuing operations attributable to noncontrolling interests","(11)","","","\u2014","","","\u2014","","","","","(11)"],["Net earnings attributable to shareholders","$","732","","","$","\u2014","","","$","\u2014","","","","","$","732"]] [[/GREPCENT_TABLE]] (a)Includes a loss of $1 million representing the change in fair value of AFG’s CLO investments and $15 million of income in CLO management fees earned. (b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $8 million in distributions recorded as interest expense by the CLOs. (c)Elimination of management fees earned by AFG. 46 Table of Contents RESULTS OF OPERATIONS General AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. In addition to discontinued operations, core net operating earnings excludes realized gains (losses) on securities because such gains and losses are influenced significantly by financial markets, interest rates and the timing of sales. In addition, special charges related to coverage that AFG no longer writes, such as asbestos and environmental exposures, are excluded from core earnings. In January 2021, AFG entered into a definitive agreement to sell its Annuity business to MassMutual. Beginning with the first quarter of 2021 and through the May 31, 2021 effective date of the sale, the results of its annuity segment and the run-off life and long-term care operations are reported as discontinued operations, which included adjusting prior period results to reflect these operations as discontinued. AFG recorded $914 million in non-core net earnings from the discontinued annuity operations in 2021, which includes a $656 million after-tax gain on the sale, compared to $407 million in 2020. See “Discontinued Annuity Operations” below for details of the impact of the discontinued annuity operations on AFG’s net earnings attributable to shareholders for 2021 and 2020. In December 2019, AFG initiated actions to exit the Lloyd’s of London insurance market, which included placing its Lloyd’s subsidiaries including its Lloyd’s Managing Agency, Neon Underwriting Ltd., into run-off. Neon and its predecessor, Marketform, had failed to achieve AFG’s profitability objectives since AFG’s purchase of Marketform in 2008. Consistent with the treatment of other items that are not indicative of AFG’s ongoing operations (both favorable and unfavorable), beginning with the first quarter of 2020, AFG’s core net operating earnings for its property and casualty insurance segment excludes the run-off operations of Neon (“Neon exited lines”). In December 2020, AFG sold GAI Holding Bermuda and its subsidiaries, comprising the legal entities that own Neon, to RiverStone Holdings Limited. AFG recorded $111 million in non-core losses related to the runoff of the Neon business in 2020, which included a $23 million gain on the sale of the business. In conjunction with the sale, AFG recognized a tax benefit of $72 million, resulting in a net $39 million non-core after-tax loss from the Neon exited lines in 2020. In 2021, AFG recognized a non-core after-tax gain of $3 million related to contingent consideration received from the sale of Neon. 47 Table of Contents The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure. AFG believes core net operating earnings is a useful tool for investors and analysts in analyzing ongoing operating trends and for management to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business. [[GREPCENT_TABLE]] [["","Three months ended December 31,","","Year ended December 31,"],["2022","","2021","","2022","","2021","","2020"],["Components of net earnings attributable to shareholders:"],["Core operating earnings before income taxes","$","318","","","$","438","","","$","1,248","","","$","1,232","","","$","609"],["Pretax non-core items:"],["Realized gains (losses) on securities","27","","","7","","","(116)","","","110","","","(75)"],["Special A&E charges","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(68)"],["Neon exited lines (*)","\u2014","","","\u2014","","","\u2014","","","4","","","(122)"],["Gain (loss) on retirement of debt","1","","","\u2014","","","(9)","","","\u2014","","","(5)"],["Other","\u2014","","","\u2014","","","\u2014","","","(11)","","","\u2014"],["Earnings before income taxes","346","","","445","","","1,123","","","1,335","","","339"],["Provision for income taxes:"],["Core operating earnings","63","","","87","","","255","","","239","","","128"],["Non-core items:"],["Realized gains (losses) on securities","6","","","3","","","(24)","","","23","","","(16)"],["Special A&E charges","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(14)"],["Neon exited lines (*)","\u2014","","","\u2014","","","\u2014","","","1","","","(72)"],["Gain (loss) on retirement of debt","1","","","\u2014","","","(2)","","","\u2014","","","(1)"],["Other","\u2014","","","\u2014","","","(4)","","","(9)","","","\u2014"],["Total provision for income taxes","70","","","90","","","225","","","254","","","25"],["Net earnings from continuing operations, including noncontrolling interests","276","","","355","","","898","","","1,081","","","314"],["Net earnings from discontinued operations","\u2014","","","\u2014","","","\u2014","","","914","","","407"],["Less net earnings (loss) attributable to noncontrolling interests related to the Neon exited lines (*)","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(11)"],["Net earnings attributable to shareholders","$","276","","","$","355","","","$","898","","","$","1,995","","","$","732"],["Net earnings:"],["Core net operating earnings","$","255","","","$","351","","","$","993","","","$","993","","","$","481"],["Realized gains (losses) on securities","21","","","4","","","(92)","","","87","","","(59)"],["Special A&E charges","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(54)"],["Neon exited lines (*)","\u2014","","","\u2014","","","\u2014","","","3","","","(39)"],["Gain (loss) on retirement of debt","\u2014","","","\u2014","","","(7)","","","\u2014","","","(4)"],["Other","\u2014","","","\u2014","","","4","","","(2)","","","\u2014"],["Net earnings from continuing operations","276","","","355","","","898","","","1,081","","","325"],["Discontinued annuity operations","\u2014","","","\u2014","","","\u2014","","","914","","","407"],["Net earnings attributable to shareholders","$","276","","","$","355","","","$","898","","","$","1,995","","","$","732"],["Diluted per share amounts:"],["Core net operating earnings","$","2.99","","","$","4.12","","","$","11.63","","","$","11.59","","","$","5.40"],["Realized gains (losses) on securities","0.25","","","0.06","","","(1.06)","","","1.01","","","(0.67)"],["Special A&E charges","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(0.61)"],["Neon exited lines (*)","\u2014","","","\u2014","","","\u2014","","","0.04","","","(0.45)"],["Gain (loss) on retirement of debt","\u2014","","","\u2014","","","(0.09)","","","\u2014","","","(0.04)"],["Other","\u2014","","","\u2014","","","0.05","","","(0.02)","","","\u2014"],["Diluted per share amounts, continuing operations","3.24","","","4.18","","","10.53","","","12.62","","","3.63"],["Discontinued annuity operations","\u2014","","","\u2014","","","\u2014","","","10.68","","","4.57"],["Net earnings attributable to shareholders","$","3.24","","","$","4.18","","","$","10.53","","","$","23.30","","","$","8.20"]] [[/GREPCENT_TABLE]] (*)As discussed above, the Neon run-off operations are considered property and casualty insurance non-core earnings (losses). In 2021, AFG recognized a non-core after-tax gain of $3 million related to contingent consideration received on the sale of Neon. 48 Table of Contents AFG reported net earnings attributable to shareholders of $276 million in the fourth quarter of 2022 compared to $355 million in the fourth quarter of 2021 reflecting lower core net operating earnings partially offset by higher net realized gains on securities in the fourth quarter of 2022 compared to the fourth quarter of 2021. Core net operating earnings for the fourth quarter of 2022 decreased $96 million compared to the fourth quarter of 2021 reflecting lower returns on AFG’s alternative investment portfolio as compared to the very strong performance of this portfolio in the fourth quarter of 2021 and lower underwriting profit in the crop operations. These items were partially offset by higher investment income outside of alternative investments compared to the fourth quarter of 2021. Net earnings attributable to shareholders were $898 million for the full-year of 2022 compared to $2.00 billion in 2021 reflecting net earnings from the discontinued annuity operations in 2021 and net realized losses on securities in 2022 compared to net realized gains on securities in 2021. The discontinued annuity operations includes an after-tax gain on the sale of the annuity subsidiaries of $656 million in 2021. Core net operating earnings were comparable in 2022 and 2021 as higher underwriting profit and higher investment income outside of alternative investments were offset by lower returns on AFG’s alternative investment portfolio compared to the very strong performance of this portfolio in 2021. Realized gains (losses) on securities in 2022 and 2021 resulted primarily from the change in fair value of equity securities that were still held at the balance sheet date. Net earnings attributable to shareholders were $2.00 billion for the full-year of 2021 compared to $732 million in 2020 reflecting higher core net operating earnings, net realized gains on securities in 2021 compared to net realized losses in 2020, the impact of special A&E charges and non-core losses from the Neon exited lines in 2020 and higher net earnings from the discontinued annuity operations in 2021 (through the sale date) compared to 2020. The discontinued annuity operations includes an after-tax gain from the sale of the annuity subsidiaries of $656 million in 2021. Core net operating earnings increased $512 million in 2021 compared to 2020 reflecting higher underwriting profit, higher net investment income and income from the sale of real estate in the fourth quarter of 2021, partially offset by higher interest charges on borrowed money and higher holding company expenses. 49 Table of Contents RESULTS OF OPERATIONS — THREE MONTHS ENDED DECEMBER 31, 2022 AND 2021 Segmented Statement of Earnings Subsequent to the sale of its annuity operations, AFG reports its operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”). AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the three months ended December 31, 2022 and 2021 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions): [[GREPCENT_TABLE]] [["","","","Other"],["","P&C","","Consol. MIEs","","Holding Co., other and unallocated","","Total","","Non-core reclass","","GAAP Total"],["Three months ended December 31, 2022"],["Revenues:"],["Property and casualty insurance net earned premiums","$","1,623","","","$","\u2014","","","$","\u2014","","","$","1,623","","","$","\u2014","","","$","1,623"],["Net investment income","159","","","\u2014","","","9","","","168","","","\u2014","","","168"],["Realized gains (losses) on securities","\u2014","","","\u2014","","","\u2014","","","\u2014","","","27","","","27"],["Income of MIEs:"],["Investment income","\u2014","","","93","","","\u2014","","","93","","","\u2014","","","93"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","(6)","","","\u2014","","","(6)","","","\u2014","","","(6)"],["Other income","\u2014","","","(5)","","","29","","","24","","","\u2014","","","24"],["Total revenues","1,782","","","82","","","38","","","1,902","","","27","","","1,929"],["Costs and Expenses:"],["Property and casualty insurance:"],["Losses and loss adjustment expenses","986","","","\u2014","","","\u2014","","","986","","","\u2014","","","986"],["Commissions and other underwriting expenses","419","","","\u2014","","","8","","","427","","","\u2014","","","427"],["Interest charges on borrowed money","\u2014","","","\u2014","","","20","","","20","","","\u2014","","","20"],["Expenses of MIEs","\u2014","","","82","","","\u2014","","","82","","","\u2014","","","82"],["Other expenses","14","","","\u2014","","","55","","","69","","","(1)","","","68"],["Total costs and expenses","1,419","","","82","","","83","","","1,584","","","(1)","","","1,583"],["Earnings before income taxes","363","","","\u2014","","","(45)","","","318","","","28","","","346"],["Provision for income taxes","73","","","\u2014","","","(10)","","","63","","","7","","","70"],["Core Net Operating Earnings","290","","","\u2014","","","(35)","","","255"],["Non-core earnings (loss) (*):"],["Realized gains (losses) on securities, net of tax","\u2014","","","\u2014","","","21","","","21","","","(21)","","","\u2014"],["Net Earnings","$","290","","","$","\u2014","","","$","(14)","","","$","276","","","$","\u2014","","","$","276"]] [[/GREPCENT_TABLE]] 50 Table of Contents [[GREPCENT_TABLE]] [["","","","Other"],["","P&C","","Consol. MIEs","","Holding Co., other and unallocated","","Total","","Non-core reclass","","GAAP Total"],["Three months ended December 31, 2021"],["Revenues:"],["Property and casualty insurance net earned premiums","$","1,452","","","$","\u2014","","","$","\u2014","","","$","1,452","","","$","\u2014","","","$","1,452"],["Net investment income","196","","","(3)","","","16","","","209","","","\u2014","","","209"],["Realized gains (losses) on securities","\u2014","","","\u2014","","","\u2014","","","\u2014","","","7","","","7"],["Income of MIEs:"],["Investment income","\u2014","","","46","","","\u2014","","","46","","","\u2014","","","46"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","1","","","\u2014","","","1","","","\u2014","","","1"],["Other income","18","","","(4)","","","29","","","43","","","\u2014","","","43"],["Total revenues","1,666","","","40","","","45","","","1,751","","","7","","","1,758"],["Costs and Expenses:"],["Property and casualty insurance:"],["Losses and loss adjustment expenses","822","","","\u2014","","","\u2014","","","822","","","\u2014","","","822"],["Commissions and other underwriting expenses","351","","","\u2014","","","9","","","360","","","\u2014","","","360"],["Interest charges on borrowed money","\u2014","","","\u2014","","","23","","","23","","","\u2014","","","23"],["Expenses of MIEs","\u2014","","","40","","","\u2014","","","40","","","\u2014","","","40"],["Other expenses","8","","","\u2014","","","60","","","68","","","\u2014","","","68"],["Total costs and expenses","1,181","","","40","","","92","","","1,313","","","\u2014","","","1,313"],["Earnings before income taxes","485","","","\u2014","","","(47)","","","438","","","7","","","445"],["Provision for income taxes","102","","","\u2014","","","(15)","","","87","","","3","","","90"],["Core Net Operating Earnings","383","","","\u2014","","","(32)","","","351"],["Non-core earnings (loss) (*):"],["Realized gains (losses) on securities, net of tax","\u2014","","","\u2014","","","4","","","4","","","(4)","","","\u2014"],["Net Earnings","$","383","","","$","\u2014","","","$","(28)","","","$","355","","","$","\u2014","","","$","355"]] [[/GREPCENT_TABLE]] (*)See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax impacts of these reconciling items. Property and Casualty Insurance Segment — Results of Operations Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses and loss adjustment expenses, and commissions and other underwriting expenses to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect net investment income, other income, other expenses or federal income taxes. AFG’s property and casualty insurance operations contributed $363 million in pretax earnings in the fourth quarter of 2022 compared to $485 million in the fourth quarter of 2021, a decrease of $122 million (25%). The decrease in pretax earnings reflects lower returns on AFG’s alternative investment portfolio as compared to the very strong performance of this portfolio in the fourth quarter of 2021 and lower underwriting profit in the crop operations. These items were partially offset by higher investment income outside of alternative investments compared to the fourth quarter of 2021. 51 Table of Contents The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the three months ended December 31, 2022 and 2021 (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021","","% Change"],["Gross written premiums","$","1,845","","","$","1,737","","","6","%"],["Reinsurance premiums ceded","(507)","","","(467)","","","9","%"],["Net written premiums","1,338","","","1,270","","","5","%"],["Change in unearned premiums","285","","","182","","","57","%"],["Net earned premiums","1,623","","","1,452","","","12","%"],["Loss and loss adjustment expenses","986","","","822","","","20","%"],["Commissions and other underwriting expenses","419","","","351","","","19","%"],["Underwriting gain","218","","","279","","","(22","%)"],["Net investment income","159","","","196","","","(19","%)"],["Other income and expenses, net","(14)","","","10","","","(240","%)"],["Earnings before income taxes","$","363","","","$","485","","","(25","%)"],["","Three months ended December 31,"],["Combined Ratios:","2022","","2021","","Change"],["Specialty lines"],["Loss and LAE ratio","60.8","%","","56.5","%","","4.3","%"],["Underwriting expense ratio","25.8","%","","24.2","%","","1.6","%"],["Combined ratio","86.6","%","","80.7","%","","5.9","%"],["Aggregate \u2014 including exited lines"],["Loss and LAE ratio","60.7","%","","56.6","%","","4.1","%"],["Underwriting expense ratio","25.8","%","","24.2","%","","1.6","%"],["Combined ratio","86.5","%","","80.8","%","","5.7","%"]] [[/GREPCENT_TABLE]] Starting in 1986, AFG’s statutory combined ratio has been better than the U.S. industry average for 35 of the 37 years. Management believes that AFG’s insurance operations have performed better than the industry as a result of its specialty niche focus, product line diversification, stringent underwriting discipline and alignment of compensation incentives. AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial. To understand the overall profitability of particular lines, the timing of claims payments and the related impact of investment income must be considered. Certain “short-tail” lines of business (primarily property coverages) generally have quick loss payouts, which reduce the time funds are held, thereby limiting investment income earned thereon. In contrast, “long-tail” lines of business (primarily liability coverages and workers’ compensation) generally have payouts that are either structured over many years or take many years to settle, thereby significantly increasing investment income earned on related premiums received. Gross Written Premiums Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $1.85 billion for the fourth quarter of 2022 compared to $1.74 billion for the fourth quarter of 2021, an increase of $108 million (6%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021"],["","GWP","","%","","GWP","","%","","% Change"],["Property and transportation","$","601","","","32","%","","$","558","","","32","%","","8","%"],["Specialty casualty","1,007","","","55","%","","968","","","56","%","","4","%"],["Specialty financial","237","","","13","%","","211","","","12","%","","12","%"],["","$","1,845","","","100","%","","$","1,737","","","100","%","","6","%"]] [[/GREPCENT_TABLE]] 52 Table of Contents Reinsurance Premiums Ceded Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 27% of gross written premiums for both the fourth quarter of 2022 and the fourth quarter of 2021. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021","","Change in"],["","Ceded","","% of GWP","","Ceded","","% of GWP","","% of GWP"],["Property and transportation","$","(178)","","","30","%","","$","(141)","","","25","%","","5","%"],["Specialty casualty","(352)","","","35","%","","(340)","","","35","%","","\u2014","%"],["Specialty financial","(38)","","","16","%","","(38)","","","18","%","","(2","%)"],["Other specialty","61","","","","","52"],["","$","(507)","","","27","%","","$","(467)","","","27","%","","\u2014","%"]] [[/GREPCENT_TABLE]] Net Written Premiums Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $1.34 billion for the fourth quarter of 2022 compared to $1.27 billion for the fourth quarter of 2021, an increase of $68 million (5%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021"],["","NWP","","%","","NWP","","%","","% Change"],["Property and transportation","$","423","","","32","%","","$","417","","","33","%","","1","%"],["Specialty casualty","655","","","49","%","","628","","","49","%","","4","%"],["Specialty financial","199","","","15","%","","173","","","14","%","","15","%"],["Other specialty","61","","","4","%","","52","","","4","%","","17","%"],["","$","1,338","","","100","%","","$","1,270","","","100","%","","5","%"]] [[/GREPCENT_TABLE]] Net Earned Premiums Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $1.62 billion for the fourth quarter of 2022 compared to $1.45 billion for the fourth quarter of 2021, an increase of $171 million (12%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021"],["","NEP","","%","","NEP","","%","","% Change"],["Property and transportation","$","682","","","42","%","","$","597","","","41","%","","14","%"],["Specialty casualty","686","","","42","%","","636","","","44","%","","8","%"],["Specialty financial","193","","","12","%","","165","","","11","%","","17","%"],["Other specialty","62","","","4","%","","54","","","4","%","","15","%"],["","$","1,623","","","100","%","","$","1,452","","","100","%","","12","%"]] [[/GREPCENT_TABLE]] Gross written premiums for the fourth quarter of 2022 increased $108 million (6%) compared to the fourth quarter of 2021 reflecting new business opportunities, increased exposures and renewal rate increases. Overall average renewal rates increased approximately 5% in the fourth quarter of 2022. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates increased approximately 6%. Property and transportation Gross written premiums increased $43 million (8%) in the fourth quarter of 2022 compared to the fourth quarter of 2021. This increase was due primarily to higher winter wheat commodity prices and new opportunities in the crop business. Average renewal rates increased 7% for this group in the fourth quarter of 2022. Reinsurance premiums ceded as a percentage of gross written premiums increased 5 percentage points for the fourth quarter of 2022 compared to the fourth quarter of 2021 reflecting growth in crop insurance products with higher cessions. Specialty casualty Gross written premiums increased $39 million (4%) in the fourth quarter of 2022 compared to the fourth quarter of 2021. New accounts and strong account retention in the social services business, increased exposures from payroll growth and new business in the workers’ compensation businesses, and additional opportunities in the excess and surplus operations contributed to the higher year-over-year premiums. This growth was partially offset by lower premiums in the mergers and acquisitions liability and executive liability businesses. Average renewal rates for this 53 Table of Contents group increased approximately 4% in the fourth quarter of 2022. Excluding rate decreases in the workers’ compensation business, renewal rates for this group increased approximately 6%. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the fourth quarter of 2022 and the fourth quarter of 2021. Specialty financial Gross written premiums increased $26 million (12%) in the fourth quarter of 2022 compared to the fourth quarter of 2021 due primarily to the growth in the financial institutions and commercial equipment leasing businesses. Average renewal rates for this group increased approximately 4% in the fourth quarter of 2022. Reinsurance premiums ceded as a percentage of gross written premiums decreased 2 percentage points in the fourth quarter of 2022 compared to the fourth quarter of 2021 reflecting lower than previously estimated reinstatement premiums related to Hurricane Ian, partially offset by higher cessions in the innovative markets business. Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased $9 million (17%) in the fourth quarter of 2022 compared to the fourth quarter of 2021 reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment. Combined Ratio Performance measures such as the combined ratio are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. The combined ratio is the sum of the loss and loss adjustment expenses (“LAE”) and underwriting expense ratios. These ratios are calculated by dividing each of the respective expenses by net earned premiums. The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment: [[GREPCENT_TABLE]] [["","Three months ended December 31,","","","","Three months ended December 31,"],["","2022","","2021","","Change","","2022","","2021"],["Property and transportation"],["Loss and LAE ratio","71.8","%","","66.0","%","","5.8","%"],["Underwriting expense ratio","18.2","%","","14.5","%","","3.7","%"],["Combined ratio","90.0","%","","80.5","%","","9.5","%"],["Underwriting profit","","","","","","","$","68","","","$","116"],["Specialty casualty"],["Loss and LAE ratio","55.4","%","","53.5","%","","1.9","%"],["Underwriting expense ratio","25.9","%","","24.5","%","","1.4","%"],["Combined ratio","81.3","%","","78.0","%","","3.3","%"],["Underwriting profit","","","","","","","$","128","","","$","140"],["Specialty financial"],["Loss and LAE ratio","33.8","%","","31.7","%","","2.1","%"],["Underwriting expense ratio","49.3","%","","53.8","%","","(4.5","%)"],["Combined ratio","83.1","%","","85.5","%","","(2.4","%)"],["Underwriting profit","","","","","","","$","33","","","$","24"],["Total Specialty"],["Loss and LAE ratio","60.8","%","","56.5","%","","4.3","%"],["Underwriting expense ratio","25.8","%","","24.2","%","","1.6","%"],["Combined ratio","86.6","%","","80.7","%","","5.9","%"],["Underwriting profit","","","","","","","$","217","","","$","281"],["Aggregate \u2014 including exited lines"],["Loss and LAE ratio","60.7","%","","56.6","%","","4.1","%"],["Underwriting expense ratio","25.8","%","","24.2","%","","1.6","%"],["Combined ratio","86.5","%","","80.8","%","","5.7","%"],["Underwriting profit","","","","","","","$","218","","","$","279"]] [[/GREPCENT_TABLE]] The Specialty property and casualty insurance operations generated an underwriting profit of $217 million for the fourth quarter of 2022 compared to $281 million in the fourth quarter of 2021, a decrease of $64 million (23%). Higher underwriting profit in the Specialty financial sub-segment was more than offset by lower underwriting profit in the Property 54 Table of Contents and transportation and Specialty casualty sub-segments. Overall catastrophe losses were $11 million (0.9 points on the combined ratio), including a $13 million favorable impact from lower than previously estimated reinstatement premiums related to Hurricane Ian, in the fourth quarter of 2022 compared to catastrophe losses of $25 million (1.8 points) in the fourth quarter of 2021. Property and transportation Underwriting profit for this group was $68 million for the fourth quarter of 2022 compared to $116 million in the fourth quarter of 2021, a decrease of $48 million (41%). The lower underwriting profit was primarily the result of average underwriting profitability in the crop operations when compared to the exceptionally strong crop results reported in the 2021 period. Catastrophe losses for this group were $7 million (1.0 points on the combined ratio), including a $1 million favorable impact from net reinstatement premiums, in the fourth quarter of 2022 compared to $15 million (2.5 points) in the fourth quarter of 2021. Specialty casualty Underwriting profit for this group was $128 million for the fourth quarter of 2022 compared to $140 million in the fourth quarter of 2021, a decrease of $12 million (9%). Higher year-over-year underwriting profit in the excess and surplus and excess liability businesses were more than offset by lower underwriting profitability in the workers’ compensation businesses. Catastrophe losses were $7 million (1.1 points on the combined ratio), including a $1 million favorable impact from net reinstatement premiums, in the fourth quarter of 2022 compared to catastrophe losses of $3 million (0.5 points) in the fourth quarter of 2021. Specialty financial Underwriting profit for this group was $33 million for the fourth quarter of 2022 compared to $24 million in the fourth quarter of 2021, an increase of $9 million (38%). This increase reflects the favorable impact on underwriting profit from lower than previously estimated reinstatement premiums related to Hurricane Ian. Catastrophe losses were a favorable impact of $3 million (1.9 points on the combined ratio) including a $10 million favorable impact from the change in estimated reinstatement premiums in the fourth quarter of 2022 compared to $6 million (3.7 points) in the fourth quarter of 2021. Other specialty This group reported an underwriting loss of $12 million for the fourth quarter of 2022 compared to an underwriting profit of $1 million in the fourth quarter of 2021, a change of $13 million (1,300%), reflecting higher losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments (primarily losses from social inflation exposed operations in the Specialty casualty sub-segment) in the fourth quarter of 2022 compared to the fourth quarter of 2021. Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include net favorable prior year reserve development of $1 million in the fourth quarter of 2022 and net adverse prior year reserve development of $2 million in the fourth quarter of 2021 related to business outside of the Specialty group that AFG no longer writes. 55 Table of Contents Losses and Loss Adjustment Expenses AFG’s overall loss and LAE ratio was 60.7% for the fourth quarter of 2022 compared to 56.6% for the fourth quarter of 2021, an increase of 4.1 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","Amount","","Ratio","","Change in"],["","2022","","2021","","2022","","2021","","Ratio"],["Property and transportation"],["Current year, excluding COVID-19 related and catastrophe losses","$","494","","","$","381","","","72.6","%","","63.9","%","","8.7","%"],["Prior accident years development","(13)","","","(2)","","","(1.8","%)","","(0.4","%)","","(1.4","%)"],["Current year COVID-19 related losses","\u2014","","","\u2014","","","\u2014","%","","\u2014","%","","\u2014","%"],["Current year catastrophe losses including the impact of net reinstatement premiums","8","","","15","","","1.0","%","","2.5","%","","(1.5","%)"],["Property and transportation losses and LAE and ratio","$","489","","","$","394","","","71.8","%","","66.0","%","","5.8","%"],["Specialty casualty"],["Current year, excluding COVID-19 related and catastrophe losses","$","423","","","$","391","","","61.6","%","","61.3","%","","0.3","%"],["Prior accident years development","(50)","","","(55)","","","(7.3","%)","","(8.5","%)","","1.2","%"],["Current year COVID-19 related losses","\u2014","","","1","","","\u2014","%","","0.2","%","","(0.2","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","8","","","3","","","1.1","%","","0.5","%","","0.6","%"],["Specialty casualty losses and LAE and ratio","$","381","","","$","340","","","55.4","%","","53.5","%","","1.9","%"],["Specialty financial"],["Current year, excluding COVID-19 related and catastrophe losses","$","67","","","$","58","","","36.0","%","","35.5","%","","0.5","%"],["Prior accident years development","(8)","","","(13)","","","(4.1","%)","","(8.2","%)","","4.1","%"],["Current year COVID-19 related losses","\u2014","","","1","","","\u2014","%","","0.7","%","","(0.7","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","7","","","6","","","1.9","%","","3.7","%","","(1.8","%)"],["Specialty financial losses and LAE and ratio","$","66","","","$","52","","","33.8","%","","31.7","%","","2.1","%"],["Total Specialty"],["Current year, excluding COVID-19 related and catastrophe losses","$","1,021","","","$","866","","","63.5","%","","59.5","%","","4.0","%"],["Prior accident years development","(58)","","","(73)","","","(3.6","%)","","(5.0","%)","","1.4","%"],["Current year COVID-19 related losses","\u2014","","","2","","","\u2014","%","","0.2","%","","(0.2","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","24","","","25","","","0.9","%","","1.8","%","","(0.9","%)"],["Total Specialty losses and LAE and ratio","$","987","","","$","820","","","60.8","%","","56.5","%","","4.3","%"],["Aggregate \u2014 including exited lines"],["Current year, excluding COVID-19 related and catastrophe losses","$","1,021","","","$","866","","","63.5","%","","59.5","%","","4.0","%"],["Prior accident years development","(59)","","","(71)","","","(3.6","%)","","(4.9","%)","","1.3","%"],["Current year COVID-19 related losses","\u2014","","","2","","","\u2014","%","","0.2","%","","(0.2","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","24","","","25","","","0.8","%","","1.8","%","","(1.0","%)"],["Aggregate losses and LAE and ratio","$","986","","","$","822","","","60.7","%","","56.6","%","","4.1","%"]] [[/GREPCENT_TABLE]] Current accident year losses and LAE, excluding COVID-19 related and catastrophe losses The current accident year loss and LAE ratio, excluding COVID-19 related and catastrophe losses for AFG’s Specialty property and casualty insurance operations was 63.5% for the fourth quarter of 2022 compared to 59.5% in the fourth quarter of 2021, an increase of 4.0 percentage points. Property and transportation   The 8.7 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses is due primarily to lower profitability in the crop insurance business 56 Table of Contents compared to the very strong results recorded in the 2021 quarter. Excluding crop, the loss and LAE ratio for the current year, excluding catastrophe losses was comparable to the fourth quarter of 2021. Specialty casualty   The 0.3 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses reflects higher reported losses in the social services business, partially offset by improved results in the general liability business. Specialty financial   The 0.5 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses reflects higher reported losses in lender-placed mortgage protection insurance in the financial institutions business. Net prior year reserve development AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $58 million in the fourth quarter of 2022 compared to $73 million in the fourth quarter of 2021, a decrease of $15 million (21%). Property and transportation   Net favorable reserve development of $13 million in the fourth quarter of 2022 reflects lower than expected claim severity in the ocean marine, aviation and property and inland marine businesses and lower than anticipated claim frequency in the trucking business. Net favorable reserve development of $2 million in the fourth quarter of 2021 reflects lower than expected claim frequency in the aviation business and lower than anticipated claim severity in the ocean marine business, partially offset by higher than expected claim severity in the property and inland marine business. Specialty casualty   Net favorable reserve development of $50 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency and severity in the workers’ compensation and excess and surplus businesses and lower than expected claim frequency in the executive liability business. Net favorable reserve development of $55 million in the fourth quarter of 2021 reflects lower than anticipated claim severity in the workers’ compensation businesses. Specialty financial   Net favorable reserve development of $8 million in the fourth quarter of 2022 reflects lower than anticipated claim frequency in the trade credit and financial institutions businesses. Net favorable reserve development of $13 million in the fourth quarter of 2021 reflects lower than anticipated claim frequency in the surety and trade credit businesses. Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of $13 million in the fourth quarter of 2022 and net favorable reserve development of $3 million in the fourth quarter of 2021. The fourth quarter of 2022 reflects net adverse reserve development associated with AFG’s internal reinsurance program (primarily from social inflation exposed casualty businesses) and, to a lesser extent, both periods reflect the amortization of deferred gains on the retroactive reinsurance transactions entered into in connection with the sale of businesses in 1998 and 2001. Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net favorable reserve development of $1 million in the fourth quarter of 2022 and net adverse reserve development of $2 million in the fourth quarter of 2021 related to business outside the Specialty group that AFG no longer writes. Catastrophe losses AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. Based on data available at December 31, 2022 and considering the reinsurance coverage in place for 2023, AFG’s exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 100, 250 or 500 years as a percentage of AFG’s Shareholders’ Equity is shown below: [[GREPCENT_TABLE]] [["","","","Approximate impact of modeled loss"],["","Industry Model","","on AFG\u2019s Shareholders\u2019 Equity"],["","100-year event","","2%"],["","250-year event","","2%"],["","500-year event","","2%"]] [[/GREPCENT_TABLE]] 57 Table of Contents Catastrophe losses of $24 million (before net reinstatement premiums) in the fourth quarter of 2022 resulted primarily from Winter Storm Elliott. Catastrophe losses of $25 million in the fourth quarter of 2021 resulted primarily from storms in multiple regions of the United States, Kentucky tornadoes and Colorado fires. Commissions and Other Underwriting Expenses AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $419 million in the fourth quarter of 2022 compared to $351 million for the fourth quarter of 2021, an increase of $68 million (19%). AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 25.8% for the fourth quarter of 2022 compared to 24.2% for the fourth quarter of 2021, an increase of 1.6 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021","","Change in"],["","U/W Exp","","% of NEP","","U/W Exp","","% of NEP","","% of NEP"],["Property and transportation","$","125","","","18.2","%","","$","87","","","14.5","%","","3.7","%"],["Specialty casualty","177","","","25.9","%","","156","","","24.5","%","","1.4","%"],["Specialty financial","94","","","49.3","%","","89","","","53.8","%","","(4.5","%)"],["Other specialty","23","","","34.8","%","","19","","","36.3","%","","(1.5","%)"],["","$","419","","","25.8","%","","$","351","","","24.2","%","","1.6","%"]] [[/GREPCENT_TABLE]] Property and transportation   Commissions and other underwriting expenses as a percentage of net earned premiums increased 3.7 percentage points in the fourth quarter of 2022 compared to the fourth quarter of 2021 reflecting lower profitability-based ceding commissions received from reinsurers in the crop business. Specialty casualty   Commissions and other underwriting expenses as a percentage of net earned premiums increased 1.4 percentage points in the fourth quarter of 2022 compared to the fourth quarter of 2021 reflecting higher underwriting expenses in the workers’ compensation business. Specialty financial   Commissions and other underwriting expenses as a percentage of net earned premiums decreased 4.5 percentage points in the fourth quarter of 2022 compared to the fourth quarter of 2021 reflecting the increase in net earned premiums in the fourth quarter of 2022 due to lower than previously estimated reinstatement premiums from Hurricane Ian and lower underwriting expenses in the international operations. Property and Casualty Net Investment Income Net investment income in AFG’s property and casualty insurance operations was $159 million in the fourth quarter of 2022 compared to $196 million in the fourth quarter of 2021, a decrease of $37 million (19%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,","","","","%"],["","2022","","2021","","Change","","Change"],["Net investment income:"],["Net investment income, excluding alternative investments","$","131","","","$","80","","","$","51","","","64","%"],["Alternative investments","28","","","116","","","(88)","","","(76","%)"],["Total net investment income","$","159","","","$","196","","","$","(37)","","","(19","%)"],["Average invested assets (at amortized cost)","$","14,304","","","$","13,552","","","$","752","","","6","%"],["Yield (net investment income as a % of average invested assets)","4.45","%","","5.79","%","","(1.34","%)"],["Tax equivalent yield (*)","4.53","%","","5.92","%","","(1.39","%)"]] [[/GREPCENT_TABLE]] (*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield. The decrease in the property and casualty insurance segment’s net investment income for the fourth quarter of 2022 compared to the fourth quarter of 2021 reflects lower returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs) as compared to the very strong performance of this portfolio in the prior year period, partially offset by the impact of higher yields on fixed maturity investments and growth in the property and casualty insurance segment. The property and casualty insurance segment’s overall yield on investments (net investment 58 Table of Contents income as a percentage of average invested assets) was 4.45% for the fourth quarter of 2022 compared to 5.79% for the fourth quarter of 2021, a decrease of 1.34 percentage points as higher yields on fixed maturity investments were more than offset by lower returns on alternative investments. The annualized return earned on alternative investments was 5.3% in the fourth quarter of 2022 compared to 26.3% in the prior year period. Property and Casualty Other Income and Expenses, Net Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $14 million for the fourth quarter of 2022 compared to net income of $10 million for the fourth quarter of 2021, a change of $24 million (240%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021"],["Other income:"],["Income related to the sale of real estate","$","\u2014","","","$","12"],["Other","\u2014","","","6"],["Total other income","\u2014","","","18"],["Other expenses:"],["Amortization of intangibles","4","","","1"],["Interest expense on funds withheld","8","","","6"],["Other","2","","","1"],["Total other expenses","14","","","8"],["Other income and expenses, net","$","(14)","","","$","10"]] [[/GREPCENT_TABLE]] Holding Company, Other and Unallocated — Results of Operations AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $44 million for the fourth quarter of 2022 compared to $47 million for the fourth quarter of 2021, a decrease of $3 million (6%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $45 million for the fourth quarter of 2022 compared to $47 million for the fourth quarter of 2021, a decrease of $2 million (4%). The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance segment for the three months ended December 31, 2022 and 2021 (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021","","% Change"],["Revenues:"],["Net investment income","$","9","","","$","16","","","(44","%)"],["Other income \u2014 P&C fees","22","","","22","","","\u2014","%"],["Other income","7","","","7","","","\u2014","%"],["Total revenues","38","","","45","","","(16","%)"],["Costs and Expenses:"],["Property and casualty insurance \u2014 loss adjustment and underwriting expenses","8","","","9","","","(11","%)"],["Other expense \u2014 expenses associated with P&C fees","14","","","13","","","8","%"],["Other expenses (*)","41","","","47","","","(13","%)"],["Costs and expenses, excluding interest charges on borrowed money","63","","","69","","","(9","%)"],["Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money","(25)","","","(24)","","","4","%"],["Interest charges on borrowed money","20","","","23","","","(13","%)"],["Core loss before income taxes, excluding realized gains and losses","(45)","","","(47)","","","(4","%)"],["Pretax non-core gain on retirement of debt","1","","","\u2014","","","\u2014","%"],["GAAP loss before income taxes, excluding realized gains and losses","$","(44)","","","$","(47)","","","(6","%)"]] [[/GREPCENT_TABLE]] (*)Excludes a pretax non-core gain on retirement of debt of $1 million in the fourth quarter of 2022. 59 Table of Contents Holding Company and Other — Net Investment Income AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $9 million in the fourth quarter of 2022 compared to $16 million in the fourth quarter of 2021, a decrease of $7 million (44%), reflecting the impact of the stock market performance on a small portfolio of securities held by the parent company that are carried at fair value through net investment income. These securities increased in value by less than $1 million in the fourth quarter of 2022 compared to an increase in value of $7 million in the fourth quarter of 2021. Holding Company and Other — P&C Fees and Related Expenses Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In the fourth quarter of 2022, AFG collected $22 million in fees for these services compared to $19 million in the fourth quarter of 2021. Management views this fee income, net of the $14 million in the fourth quarter of 2022 and $13 million in the fourth quarter of 2021 in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. In addition, AFG’s property and casualty insurance businesses collected less than $1 million and $3 million in fees from AFG’s disposed annuity operations during the fourth quarter of 2022 and the fourth quarter of 2021, respectively, as compensation for certain services provided under a transition services agreement. The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses in AFG’s segmented results. Holding Company and Other — Other Income Other income in the table above includes $5 million in the fourth quarter of 2022 and $4 million in the fourth quarter of 2021, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $2 million and $3 million in the fourth quarter of 2022 and the fourth quarter of 2021, respectively. Holding Company and Other — Other Expenses Excluding the non-core gain on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $41 million in the fourth quarter of 2022 compared to $47 million in the fourth quarter of 2021, a decrease of $6 million (13%). This decrease is due primarily to the impact of lower holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance in the fourth quarter of 2022 compared to the fourth quarter of 2021. Holding Company and Other — Interest Charges on Borrowed Money AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $20 million in the fourth quarter of 2022 compared to $23 million in the fourth quarter of 2021, a decrease of $3 million (13%) reflecting the retirement of AFG’s $425 million principal amount of 3.50% Senior Notes during the first six months of 2022. Holding Company and Other — Gain on Retirement of Debt During the fourth quarter of 2022, AFG retired $38 million principal amount of its senior notes, which resulted in a $1 million pretax gain. 60 Table of Contents Realized Gains (Losses) on Securities AFG’s realized gains (losses) on securities were net gains of $27 million in the fourth quarter of 2022 compared to $7 million in the fourth quarter of 2021, an increase of $20 million (286%). Realized gains (losses) on securities consisted of the following (in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["2022","","2021"],["Realized gains (losses) before impairment allowances:"],["Disposals","$","(6)","","","$","3"],["Change in the fair value of equity securities","26","","","6"],["Change in the fair value of derivatives","(1)","","","(2)"],["Other","10","","","\u2014"],["","29","","","7"],["Change in allowance for impairments on securities","(2)","","","\u2014"],["Realized gains (losses) on securities","$","27","","","$","7"]] [[/GREPCENT_TABLE]] The $26 million net realized gain from the change in the fair value of equity securities in the fourth quarter of 2022 includes gains of $7 million on investments in banks and financing companies, $7 million on investments in energy and natural gas companies and $7 million on investments in retail companies, partially offset by losses of $7 million on investments in media companies. The $6 million net realized gain from the change in the fair value of equity securities in the fourth quarter of 2021 includes gains of $12 million on investments in capital goods companies and $2 million on investments in energy and natural gas companies, partially offset by losses of $5 million on investments in healthcare companies, $3 million on investments in media companies and $2 million on investments in banks and financing companies. Consolidated Income Taxes AFG’s consolidated provision for income taxes was $70 million for the fourth quarter of 2022 compared to $90 million in the fourth quarter of 2021, a decrease of $20 million (22%). The following is a reconciliation of income taxes at the statutory rate to the provision for income taxes as shown in the segmented statement of earnings (dollars in millions): [[GREPCENT_TABLE]] [["","Three months ended December 31,"],["","2022","","2021"],["","Amount","","% of EBT","","Amount","","% of EBT"],["Earnings before income taxes (\u201cEBT\u201d)","$","346","","","","","$","445"],["Income taxes at statutory rate","$","73","","","21","%","","$","93","","","21","%"],["Effect of:"],["Change in valuation allowance","(10)","","","(3","%)","","(5)","","","(1","%)"],["Employee stock ownership plan dividend paid deduction","(1)","","","\u2014","%","","(6)","","","(1","%)"],["Stock-based compensation","(1)","","","\u2014","%","","(1)","","","\u2014","%"],["Tax exempt interest","(1)","","","\u2014","%","","(2)","","","\u2014","%"],["Dividend received deduction","(1)","","","\u2014","%","","(1)","","","\u2014","%"],["Nondeductible expenses","3","","","1","%","","2","","","\u2014","%"],["Foreign operations","1","","","\u2014","%","","\u2014","","","\u2014","%"],["Other","7","","","1","%","","10","","","1","%"],["Provision for income taxes","$","70","","","20","%","","$","90","","","20","%"]] [[/GREPCENT_TABLE]] See Note M — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate. 61 Table of Contents RESULTS OF OPERATIONS — YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 Segmented Statement of Earnings Subsequent to the sale of its annuity operations, AFG reports its continuing operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”). AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the years ended December 31, 2022, 2021 and 2020 identify such items by segment and reconcile net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions): [[GREPCENT_TABLE]] [["","","","Other"],["","P&C","","Consol. MIEs","","Holding Co., other and unallocated","","Total","","Non-core reclass","","GAAP Total"],["Year ended December 31, 2022"],["Revenues:"],["Property and casualty insurance net earned premiums","$","6,085","","","$","\u2014","","","$","\u2014","","","$","6,085","","","$","\u2014","","","$","6,085"],["Net investment income","683","","","10","","","24","","","717","","","\u2014","","","717"],["Realized gains (losses) on securities","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(116)","","","(116)"],["Income of MIEs:"],["Investment income","\u2014","","","268","","","\u2014","","","268","","","\u2014","","","268"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","(31)","","","\u2014","","","(31)","","","\u2014","","","(31)"],["Other income","12","","","(17)","","","122","","","117","","","\u2014","","","117"],["Total revenues","6,780","","","230","","","146","","","7,156","","","(116)","","","7,040"],["Costs and Expenses:"],["Property and casualty insurance:"],["Losses and loss adjustment expenses","3,629","","","\u2014","","","\u2014","","","3,629","","","\u2014","","","3,629"],["Commissions and other underwriting expenses","1,680","","","\u2014","","","38","","","1,718","","","\u2014","","","1,718"],["Interest charges on borrowed money","\u2014","","","\u2014","","","85","","","85","","","\u2014","","","85"],["Expenses of MIEs","\u2014","","","230","","","\u2014","","","230","","","\u2014","","","230"],["Other expenses","52","","","\u2014","","","194","","","246","","","9","","","255"],["Total costs and expenses","5,361","","","230","","","317","","","5,908","","","9","","","5,917"],["Earnings from continuing operations before income taxes","1,419","","","\u2014","","","(171)","","","1,248","","","(125)","","","1,123"],["Provision for income taxes","295","","","\u2014","","","(40)","","","255","","","(30)","","","225"],["Core Net Operating Earnings","1,124","","","\u2014","","","(131)","","","993"],["Non-core earnings (loss) attributable to shareholders (a):"],["Realized gains (losses) on securities, net of tax","\u2014","","","\u2014","","","(92)","","","(92)","","","92","","","\u2014"],["Loss on retirement of debt, net of tax","\u2014","","","\u2014","","","(7)","","","(7)","","","7","","","\u2014"],["Other, net of tax","\u2014","","","\u2014","","","4","","","4","","","(4)","","","\u2014"],["Net Earnings Attributable to Shareholders","$","1,124","","","$","\u2014","","","$","(226)","","","$","898","","","$","\u2014","","","$","898"]] [[/GREPCENT_TABLE]] 62 Table of Contents [[GREPCENT_TABLE]] [["","","","Other"],["","P&C","","Annuity","","Consol. MIEs","","Holding Co., other and unallocated","","Total","","Non-core reclass","","GAAP Total"],["Year ended December 31, 2021"],["Revenues:"],["Property and casualty insurance net earned premiums","$","5,404","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","5,404","","","$","\u2014","","","$","5,404"],["Net investment income","663","","","51","","","(20)","","","36","","","730","","","\u2014","","","730"],["Realized gains (losses) on:"],["Securities","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","110","","","110"],["Subsidiaries","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","4","","","4"],["Income of MIEs:"],["Investment income","\u2014","","","\u2014","","","181","","","\u2014","","","181","","","\u2014","","","181"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","\u2014","","","10","","","\u2014","","","10","","","\u2014","","","10"],["Other income","27","","","\u2014","","","(16)","","","102","","","113","","","\u2014","","","113"],["Total revenues","6,094","","","51","","","155","","","138","","","6,438","","","114","","","6,552"],["Costs and Expenses:"],["Property and casualty insurance:"],["Losses and loss adjustment expenses","3,157","","","\u2014","","","\u2014","","","\u2014","","","3,157","","","\u2014","","","3,157"],["Commissions and other underwriting expenses","1,514","","","\u2014","","","\u2014","","","33","","","1,547","","","\u2014","","","1,547"],["Interest charges on borrowed money","\u2014","","","\u2014","","","\u2014","","","94","","","94","","","\u2014","","","94"],["Expenses of MIEs","\u2014","","","\u2014","","","155","","","\u2014","","","155","","","\u2014","","","155"],["Other expenses","33","","","1","","","\u2014","","","219","","","253","","","11","","","264"],["Total costs and expenses","4,704","","","1","","","155","","","346","","","5,206","","","11","","","5,217"],["Earnings from continuing operations before income taxes","1,390","","","50","","","\u2014","","","(208)","","","1,232","","","103","","","1,335"],["Provision for income taxes","279","","","11","","","\u2014","","","(51)","","","239","","","15","","","254"],["Core Net Operating Earnings","1,111","","","39","","","\u2014","","","(157)","","","993"],["Non-core earnings (loss) attributable to shareholders (a):"],["Realized gains (losses) on securities, net of tax","\u2014","","","\u2014","","","\u2014","","","87","","","87","","","(87)","","","\u2014"],["Discontinued operations, net of tax","\u2014","","","914","","","\u2014","","","\u2014","","","914","","","\u2014","","","914"],["Neon exited lines (b)","3","","","\u2014","","","\u2014","","","\u2014","","","3","","","(3)","","","\u2014"],["Other, net of tax","\u2014","","","\u2014","","","\u2014","","","(2)","","","(2)","","","2","","","\u2014"],["Net Earnings Attributable to Shareholders","$","1,114","","","$","953","","","$","\u2014","","","$","(72)","","","$","1,995","","","$","\u2014","","","$","1,995"]] [[/GREPCENT_TABLE]] 63 Table of Contents [[GREPCENT_TABLE]] [["","","","Other"],["","P&C","","Annuity","","Consol. MIEs","","Holding Co., other and unallocated","","Total","","Non-core reclass","","Neon exited lines (b)","","GAAP Total"],["Year ended December 31, 2020"],["Revenues:"],["Property and casualty insurance net earned premiums","$","4,899","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","4,899","","","$","\u2014","","","$","200","","","$","5,099"],["Net investment income","404","","","49","","","1","","","12","","","466","","","\u2014","","","(5)","","","461"],["Realized gains (losses) on:"],["Securities","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(75)","","","\u2014","","","(75)"],["Subsidiaries","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","23","","","23"],["Income of MIEs:"],["Investment income","\u2014","","","\u2014","","","201","","","\u2014","","","201","","","\u2014","","","\u2014","","","201"],["Gain (loss) on change in fair value of assets/liabilities","\u2014","","","\u2014","","","(20)","","","\u2014","","","(20)","","","\u2014","","","\u2014","","","(20)"],["Other income","8","","","1","","","(15)","","","86","","","80","","","\u2014","","","\u2014","","","80"],["Total revenues","5,311","","","50","","","167","","","98","","","5,626","","","(75)","","","218","","","5,769"],["Costs and Expenses:"],["Property and casualty insurance:"],["Losses and loss adjustment expenses","3,006","","","\u2014","","","\u2014","","","\u2014","","","3,006","","","47","","","218","","","3,271"],["Commissions and other underwriting expenses","1,487","","","\u2014","","","\u2014","","","21","","","1,508","","","\u2014","","","117","","","1,625"],["Interest charges on borrowed money","\u2014","","","\u2014","","","\u2014","","","88","","","88","","","\u2014","","","\u2014","","","88"],["Expenses of MIEs","\u2014","","","\u2014","","","167","","","\u2014","","","167","","","\u2014","","","\u2014","","","167"],["Other expenses","42","","","31","","","\u2014","","","175","","","248","","","26","","","5","","","279"],["Total costs and expenses","4,535","","","31","","","167","","","284","","","5,017","","","73","","","340","","","5,430"],["Earnings from continuing operations before income taxes","776","","","19","","","\u2014","","","(186)","","","609","","","(148)","","","(122)","","","339"],["Provision for income taxes","164","","","4","","","\u2014","","","(40)","","","128","","","(31)","","","(72)","","","25"],["Net earnings from continuing operations, including noncontrolling interests","612","","","15","","","\u2014","","","(146)","","","481","","","(117)","","","(50)","","","314"],["Less: Net earnings (loss) from continuing operations attributable to noncontrolling interests","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(11)","","","(11)"],["Core Net Operating Earnings","612","","","15","","","\u2014","","","(146)","","","481"],["Non-core earnings (loss) attributable to shareholders (a):"],["Realized gains (losses) on securities, net of tax","\u2014","","","\u2014","","","\u2014","","","(59)","","","(59)","","","59","","","\u2014","","","\u2014"],["Discontinued operations, net of tax","\u2014","","","413","","","\u2014","","","(6)","","","407","","","\u2014","","","\u2014","","","407"],["Neon exited lines (b)","(39)","","","\u2014","","","\u2014","","","\u2014","","","(39)","","","\u2014","","","39","","","\u2014"],["Special A&E charges, net of tax","(37)","","","\u2014","","","\u2014","","","(17)","","","(54)","","","54","","","\u2014","","","\u2014"],["Loss on retirement of debt, net of tax","\u2014","","","\u2014","","","\u2014","","","(4)","","","(4)","","","4","","","\u2014","","","\u2014"],["Net Earnings Attributable to Shareholders","$","536","","","$","428","","","$","\u2014","","","$","(232)","","","$","732","","","$","\u2014","","","$","\u2014","","","$","732"]] [[/GREPCENT_TABLE]] (a)See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax and noncontrolling interest impacts of these reconciling items. (b)As discussed under “Results of Operations — General,” the Neon run-off operations are considered property and casualty insurance non-core earnings (losses). Property and Casualty Insurance Segment — Results of Operations AFG’s property and casualty insurance operations contributed $1.42 billion in GAAP pretax earnings in 2022 compared to $1.39 billion in 2021, an increase of $25 million (2%). Property and casualty core pretax earnings were $1.42 billion in 2022 compared to $1.39 billion in 2021, an increase of $29 million (2%). The increase in GAAP and core pretax earnings reflects higher underwriting profit and higher investment income outside of alternative investments, partially offset by lower returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs) and higher other net expenses in 2022 compared to 2021. AFG’s property and casualty insurance operations contributed $1.39 billion in GAAP pretax earnings in 2021 compared to $607 million in 2020, an increase of $787 million (130%). Property and casualty core pretax earnings were $1.39 billion in 2021 compared to $776 million in 2020, an increase of $614 million (79%). The increase in GAAP pretax earnings reflects 64 Table of Contents higher core pretax earnings and the impact of losses in the Neon exited lines in 2020. The increase in GAAP pretax earnings also reflects the impact of a pretax non-core special A&E charge of $47 million in 2020. The increase in core pretax earnings reflects higher core underwriting profit and significantly higher net investment income in 2021 compared to 2020 and income from the sale of real estate in the fourth quarter of 2021. Improved results from alternative investments were partially offset by lower other net investment income, due primarily to lower interest rates. The following table details AFG’s GAAP and core earnings before income taxes from its property and casualty insurance operations for the years ended December 31, 2022, 2021 and 2020 (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["Gross written premiums","$","9,057","","","$","7,946","","","$","6,995","","","14","%","","14","%"],["Reinsurance premiums ceded","(2,851)","","","(2,373)","","","(2,003)","","","20","%","","18","%"],["Net written premiums","6,206","","","5,573","","","4,992","","","11","%","","12","%"],["Change in unearned premiums","(121)","","","(169)","","","(93)","","","(28","%)","","82","%"],["Net earned premiums","6,085","","","5,404","","","4,899","","","13","%","","10","%"],["Loss and loss adjustment expenses (a)","3,629","","","3,157","","","3,006","","","15","%","","5","%"],["Commissions and other underwriting expenses","1,680","","","1,514","","","1,487","","","11","%","","2","%"],["Core underwriting gain","776","","","733","","","406","","","6","%","","81","%"],["Net investment income","683","","","663","","","404","","","3","%","","64","%"],["Other income and expenses, net","(40)","","","(6)","","","(34)","","","567","%","","(82","%)"],["Core earnings before income taxes","1,419","","","1,390","","","776","","","2","%","","79","%"],["Pretax non-core special A&E charges","\u2014","","","\u2014","","","(47)","","","\u2014","%","","(100","%)"],["Pretax non-core Neon exited lines (b)","\u2014","","","4","","","(122)","","","(100","%)","","(103","%)"],["GAAP earnings before income taxes and noncontrolling interests","$","1,419","","","$","1,394","","","$","607","","","2","%","","130","%"],["(a)Excludes a pretax non-core special A&E charge of $47 million in 2020.(b)In December 2019, AFG initiated actions to exit the Lloyd\u2019s of London insurance market, which included placing its Lloyd\u2019s subsidiaries including its Lloyd\u2019s Managing Agency, Neon Underwriting Ltd. (\u201cNeon\u201d), into run-off. As discussed under \u201cResults of Operations \u2014 General,\u201d following the December 2019 decision to exit the Lloyd\u2019s of London insurance market, the results from the Neon exited lines are treated as non-core earnings (losses). Each line item in the table above has been adjusted to remove the impact from the Neon run-off operations in 2020. The following table details the impact of the Neon exited lines to each component of earnings (loss) before income taxes in the property and casualty insurance operations for the year ended December 31, 2020 (in millions):"],["","","","","","December 31, 2020"],["","","","","","Excluding Neonexited lines","","Neonexited lines","","Total"],["Gross written premiums","","","","","$","6,995","","","$","92","","","$","7,087"],["Reinsurance premiums ceded","","","","","(2,003)","","","(71)","","","(2,074)"],["Net written premiums","","","","","4,992","","","21","","","5,013"],["Change in unearned premiums","","","","","(93)","","","179","","","86"],["Net earned premiums","","","","","4,899","","","200","","","5,099"],["Loss and loss adjustment expenses","","","","","3,006","","","218","","","3,224"],["Commissions and other underwriting expenses","","","","","1,487","","","117","","","1,604"],["Underwriting gain (loss)","","","","","406","","","(135)","","","271"],["Net investment income","","","","","404","","","(5)","","","399"],["Gain on sale of subsidiaries","","","","","\u2014","","","23","","","23"],["Other income and expenses, net","","","","","(34)","","","(5)","","","(39)"],["Earnings (loss) before income taxes and noncontrolling interests","776","","","(122)","","","654"],["Pretax non-core special A&E charges","","","","","(47)","","","\u2014","","","(47)"],["GAAP earnings (loss) before income taxes and noncontrolling interests","$","729","","","$","(122)","","","$","607"]] [[/GREPCENT_TABLE]] 65 Table of Contents [[GREPCENT_TABLE]] [["","Year ended December 31,","","Change"],["Combined Ratios:","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["Specialty lines"],["Loss and LAE ratio","59.6","%","","58.4","%","","60.9","%","","1.2","%","","(2.5","%)"],["Underwriting expense ratio","27.6","%","","28.0","%","","30.4","%","","(0.4","%)","","(2.4","%)"],["Combined ratio","87.2","%","","86.4","%","","91.3","%","","0.8","%","","(4.9","%)"],["Aggregate \u2014 including exited lines"],["Loss and LAE ratio","59.7","%","","58.5","%","","64.1","%","","1.2","%","","(5.6","%)"],["Underwriting expense ratio","27.6","%","","28.0","%","","31.4","%","","(0.4","%)","","(3.4","%)"],["Combined ratio","87.3","%","","86.5","%","","95.5","%","","0.8","%","","(9.0","%)"]] [[/GREPCENT_TABLE]] AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial. Gross Written Premiums Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $9.06 billion in 2022 compared to $7.95 billion in 2021, an increase of $1.11 billion (14%). GWP increased $859 million (12%) in 2021 compared to 2020. Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["","GWP","","%","","GWP","","%","","GWP","","%"],["Property and transportation","$","4,060","","","45","%","","$","3,263","","","41","%","","$","2,813","","","40","%","","24","%","","16","%"],["Specialty casualty","4,115","","","45","%","","3,890","","","49","%","","3,444","","","49","%","","6","%","","13","%"],["Specialty financial","882","","","10","%","","793","","","10","%","","738","","","10","%","","11","%","","7","%"],["Total specialty","9,057","","","100","%","","7,946","","","100","%","","6,995","","","99","%","","14","%","","14","%"],["Neon exited lines","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","92","","","1","%","","\u2014","%","","(100","%)"],["Aggregate","$","9,057","","","100","%","","$","7,946","","","100","%","","$","7,087","","","100","%","","14","%","","12","%"]] [[/GREPCENT_TABLE]] Reinsurance Premiums Ceded Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 31% of gross written premiums for the year ended December 31, 2022, 30% for the year ended December 31, 2021 and 29% for the year ended December 31, 2020, an increase of 1 percentage point for 2022 compared to 2021 and 1 percentage point for 2021 compared to 2020. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","Change in % of GWP"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["","Ceded","","% of GWP","","Ceded","","% of GWP","","Ceded","","% of GWP"],["Property and transportation","$","(1,545)","","","38","%","","$","(1,106)","","","34","%","","$","(926)","","","33","%","","4","%","","1","%"],["Specialty casualty","(1,387)","","","34","%","","(1,350)","","","35","%","","(1,140)","","","33","%","","(1","%)","","2","%"],["Specialty financial","(171)","","","19","%","","(135)","","","17","%","","(134)","","","18","%","","2","%","","(1","%)"],["Other specialty","252","","","","","218","","","","","197"],["Total specialty","(2,851)","","","31","%","","(2,373)","","","30","%","","(2,003)","","","29","%","","1","%","","1","%"],["Neon exited lines","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","(71)","","","77","%","","\u2014","%","","(77","%)"],["Aggregate","$","(2,851)","","","31","%","","$","(2,373)","","","30","%","","$","(2,074)","","","29","%","","1","%","","1","%"]] [[/GREPCENT_TABLE]] 66 Table of Contents Net Written Premiums Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $6.21 billion in 2022 compared to $5.57 billion in 2021, an increase of $633 million (11%). NWP increased $560 million (11%) in 2021 compared to 2020. Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["","NWP","","%","","NWP","","%","","NWP","","%"],["Property and transportation","$","2,515","","","41","%","","$","2,157","","","39","%","","$","1,887","","","38","%","","17","%","","14","%"],["Specialty casualty","2,728","","","44","%","","2,540","","","45","%","","2,304","","","46","%","","7","%","","10","%"],["Specialty financial","711","","","11","%","","658","","","12","%","","604","","","12","%","","8","%","","9","%"],["Other specialty","252","","","4","%","","218","","","4","%","","197","","","4","%","","16","%","","11","%"],["Total specialty","6,206","","","100","%","","5,573","","","100","%","","4,992","","","100","%","","11","%","","12","%"],["Neon exited lines","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","21","","","\u2014","%","","\u2014","%","","(100","%)"],["Aggregate","$","6,206","","","100","%","","$","5,573","","","100","%","","$","5,013","","","100","%","","11","%","","11","%"]] [[/GREPCENT_TABLE]] Net Earned Premiums Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $6.09 billion in 2022 compared to $5.40 billion in 2021, an increase of $681 million (13%). NEP increased $305 million (6%) in 2021 compared to 2020. Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["","NEP","","%","","NEP","","%","","NEP","","%"],["Property and transportation","$","2,487","","","41","%","","$","2,144","","","40","%","","$","1,871","","","37","%","","16","%","","15","%"],["Specialty casualty","2,659","","","44","%","","2,408","","","44","%","","2,235","","","44","%","","10","%","","8","%"],["Specialty financial","698","","","11","%","","642","","","12","%","","613","","","12","%","","9","%","","5","%"],["Other specialty","241","","","4","%","","210","","","4","%","","180","","","3","%","","15","%","","17","%"],["Total specialty","6,085","","","100","%","","5,404","","","100","%","","4,899","","","96","%","","13","%","","10","%"],["Neon exited lines","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","200","","","4","%","","\u2014","%","","(100","%)"],["Aggregate","$","6,085","","","100","%","","$","5,404","","","100","%","","$","5,099","","","100","%","","13","%","","6","%"]] [[/GREPCENT_TABLE]] The $1.11 billion (14%) increase in gross written premiums in 2022 compared to 2021 reflects growth in the crop insurance business. Excluding crop, gross and net written premiums increased 8% and 9%, respectively, compared to 2021 reflecting increased exposures, new business opportunities and renewal rate increases. Overall average renewal rates increased approximately 5% in 2022. Excluding the workers’ compensation business, renewal pricing increased approximately 6%. The $859 million (12%) increase in gross written premiums in 2021 compared to 2020 reflects an increase in each of the Specialty property and casualty sub-segments due primarily to an improving economy, new business opportunities, higher renewal rates and increased exposures. Overall average renewal rates increased approximately 9% in 2021. Excluding the workers’ compensation business, renewal pricing increased nearly 12%. Property and transportation Gross written premiums increased $797 million (24%) in 2022 compared to 2021 reflecting the impact of higher commodity futures prices on the crop insurance business. Excluding crop, gross and net written premiums grew 11% and 10%, respectively, reflecting new business opportunities, increased exposures and rate increases. Average renewal rates increased approximately 6% for this group in 2022. Reinsurance premiums ceded as a percentage of gross written premiums increased 4 percentage points in 2022 compared to 2021 reflecting growth in crop insurance products with higher cessions and higher cessions in the ocean marine business. Gross written premiums increased $450 million (16%) in 2021 compared to 2020 due primarily to higher premiums in the crop insurance business as a result of higher commodity futures pricing and rate increases, higher premiums in the transportation businesses as a result of new accounts, combined with strong renewals and increased exposures in the alternative risk transfer business. Average renewal rates increased approximately 6% for this group in 2021. Reinsurance premiums ceded as a percentage of gross written premiums increased 1 percentage point in 2021 compared to 2020 reflecting growth in the crop insurance operations, which cede a larger percentage of premiums than the other businesses in the Property and transportation sub-segment and the impact of reinstatement premiums in 2021 related to winter storms in Texas and a large property loss. 67 Table of Contents Specialty casualty Gross written premiums increased $225 million (6%) in 2022 compared to 2021 due primarily to increased exposures in the excess and surplus businesses, rate increases and new business opportunities in the targeted markets businesses and increased exposures resulting from payroll growth and new business in the workers’ compensation businesses. This premium growth was partially offset by lower year-over-year premiums in the mergers and acquisitions liability business. Average renewal rates increased approximately 5% for this group in 2022. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 7% in 2022. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2022 compared to 2021 reflecting lower cessions in the excess and surplus and excess liability businesses and lower gross written premiums in the mergers and acquisitions liability business, which cedes a larger percentage of premiums than the other businesses in the Specialty casualty sub-segment. Gross written premiums increased $446 million (13%) in 2021 compared to 2020. Significant renewal rate increases and new business opportunities contributed to higher premiums in the excess and surplus businesses and renewal rate increases, strong account retention and new business opportunities contributed to premium growth in the targeted markets businesses. The mergers and acquisitions liability and executive liability businesses also contributed meaningfully to the year-over-year growth. Average renewal rates increased approximately 11% for this group in 2021. Excluding rate decreases in the workers’ compensation business, renewal rates for this group increased approximately 17% in 2021. Reinsurance premiums ceded as a percentage of gross written premiums increased 2 percentage points in 2021 compared to 2020 reflecting growth in the excess and surplus, mergers and acquisitions liability and environmental businesses, which cede a larger percentage of premiums than the other businesses in the Specialty casualty sub-segment. Specialty financial Gross written premiums increased $89 million (11%) in 2022 compared to 2021 due primarily to higher premiums in the financial institutions business related to lender-placed mortgage protection insurance, rate increases and new business opportunities in the fidelity and crime business and new business opportunities in the innovative markets and commercial equipment leasing businesses. Average renewal rates for this group increased approximately 5% in 2022. Reinsurance premiums ceded as a percentage of gross written premiums increased 2 percentage points in 2022 compared to 2021 reflecting the impact of reinstatement premiums related to Hurricane Ian and higher cessions in the innovative markets business. Gross written premiums increased $55 million (7%) in 2021 compared to 2020 due primarily to renewal rate increases and new business opportunities within the lender services and fidelity businesses and the favorable impact of economic recovery in the surety business. Average renewal rates for this group increased approximately 7% in 2021. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in 2021 compared to 2020 reflecting lower cessions in the financial institutions business due to reduced premiums from certain collateral protection insurance that is 100% reinsured. Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased $34 million (16%) in 2022 compared to 2021 reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment. Reinsurance premiums assumed increased $21 million (11%) in 2021 compared to 2020 reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment. 68 Table of Contents Combined Ratio The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment for 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["","Year ended December 31,","","Change","","Year ended December 31,"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020","","2022","","2021","","2020"],["Property and transportation"],["Loss and LAE ratio","69.8","%","","65.1","%","","64.6","%","","4.7","%","","0.5","%"],["Underwriting expense ratio","21.9","%","","22.0","%","","25.8","%","","(0.1","%)","","(3.8","%)"],["Combined ratio","91.7","%","","87.1","%","","90.4","%","","4.6","%","","(3.3","%)"],["Underwriting profit","","","","","","","","","","","$","208","","","$","279","","","$","181"],["Specialty casualty"],["Loss and LAE ratio","54.7","%","","58.1","%","","62.5","%","","(3.4","%)","","(4.4","%)"],["Underwriting expense ratio","26.5","%","","26.2","%","","27.5","%","","0.3","%","","(1.3","%)"],["Combined ratio","81.2","%","","84.3","%","","90.0","%","","(3.1","%)","","(5.7","%)"],["Underwriting profit","","","","","","","","","","","$","500","","","$","377","","","$","223"],["Specialty financial"],["Loss and LAE ratio","34.1","%","","33.2","%","","39.5","%","","0.9","%","","(6.3","%)"],["Underwriting expense ratio","49.6","%","","51.9","%","","52.3","%","","(2.3","%)","","(0.4","%)"],["Combined ratio","83.7","%","","85.1","%","","91.8","%","","(1.4","%)","","(6.7","%)"],["Underwriting profit","","","","","","","","","","","$","114","","","$","96","","","$","50"],["Total Specialty"],["Loss and LAE ratio","59.6","%","","58.4","%","","60.9","%","","1.2","%","","(2.5","%)"],["Underwriting expense ratio","27.6","%","","28.0","%","","30.4","%","","(0.4","%)","","(2.4","%)"],["Combined ratio","87.2","%","","86.4","%","","91.3","%","","0.8","%","","(4.9","%)"],["Underwriting profit","","","","","","","","","","","$","780","","","$","737","","","$","426"],["Aggregate \u2014 including exited lines"],["Loss and LAE ratio","59.7","%","","58.5","%","","64.1","%","","1.2","%","","(5.6","%)"],["Underwriting expense ratio","27.6","%","","28.0","%","","31.4","%","","(0.4","%)","","(3.4","%)"],["Combined ratio","87.3","%","","86.5","%","","95.5","%","","0.8","%","","(9.0","%)"],["Underwriting profit","","","","","","","","","","","$","776","","","$","733","","","$","224"]] [[/GREPCENT_TABLE]] The Specialty property and casualty insurance operations generated an underwriting profit of $780 million in 2022 compared to $737 million in 2021, an increase of $43 million (6%), reflecting higher underwriting profit in the Specialty casualty and Specialty financial sub-segments, partially offset by lower underwriting profit in the Property and transportation sub-segment. Underwriting results for the Specialty property and casualty insurance operations include $16 million in COVID-19 related losses (0.3 points on the combined ratio) in 2021. Overall catastrophe losses were $93 million (1.5 points on the combined ratio), including $5 million in net reinstatement premiums, for 2022 compared to catastrophe losses of $98 million (1.7 points), including $12 million in net reinstatement premiums, for 2021. The Specialty property and casualty insurance operations generated an underwriting profit of $737 million in 2021 compared to $426 million in 2020, an increase of $311 million (73%), reflecting higher underwriting profit in each of the Specialty property and casualty sub-segments. Underwriting results for the Specialty property and casualty insurance operations include $16 million in COVID-19 related losses (0.3 points on the combined ratio) in 2021 compared to $95 million (1.9 points) in 2020. Overall catastrophe losses were $98 million (1.7 points on the combined ratio), including $12 million in net reinstatement premiums, for 2021 compared to catastrophe losses of $93 million (1.9 points), including $2 million in net reinstatement premiums, for 2020. Property and transportation Underwriting profit for this group was $208 million in 2022 compared to $279 million in 2021, a decrease of $71 million (25%), reflecting lower year-over-year profitability in the crop operations compared to the very strong results in 2021 and lower underwriting profit in the transportation businesses, primarily the result of lower favorable prior year reserve development. Catastrophe losses were $45 million (1.9 points on the combined ratio), including $3 million in net reinstatement premiums, in 2022 compared to catastrophe losses of $58 million (2.7 points), including $9 million in net reinstatement premiums, in 2021. 69 Table of Contents Underwriting profit for this group was $279 million in 2021 compared to $181 million in 2020, an increase of $98 million (54%), reflecting higher underwriting profitability in the crop and ocean marine businesses. COVID-19 related losses for this group were $7 million (0.4 points on the combined ratio) in 2020. Catastrophe losses were $58 million (2.7 points on the combined ratio), including $9 million in net reinstatement premiums, in 2021 compared to catastrophe losses of $47 million (2.5 points) in 2020. Specialty casualty Underwriting profit for this group was $500 million in 2022 compared to $377 million in 2021, an increase of $123 million (33%), reflecting higher year-over-year underwriting profit in the workers’ compensation, excess and surplus, executive liability and mergers and acquisitions liability businesses. COVID-19 related losses were $9 million (0.4 points on the combined ratio) in 2021. Catastrophe losses were $11 million (0.5 points on the combined ratio) in 2022 compared to catastrophe losses of $10 million (0.4 points), including $1 million in net reinstatement premiums, in 2021. Underwriting profit for this group was $377 million in 2021 compared to $223 million in 2020, an increase of $154 million (69%). This increase reflects higher underwriting profitability in the excess and surplus, excess liability, workers’ compensation, targeted markets and general liability businesses in 2021 compared to 2020. See “Neon exited lines” below for information about AFG’s exit from the Lloyd’s of London insurance market in 2020. COVID-19 related losses were $9 million (0.4 points on the combined ratio) in 2021 compared to $60 million (2.7 points) in 2020, primarily in the workers’ compensation and executive liability businesses. Catastrophe losses were $10 million (0.4 points on the combined ratio), including $1 million in net reinstatement premiums, in 2021 compared to catastrophe losses of $16 million (0.6 points), including $2 million in net reinstatement premiums, in 2020. Specialty financial Underwriting profit for this group was $114 million in 2022 compared to $96 million in 2021, an increase of $18 million (19%) due primarily to higher year-over-year underwriting profit in the trade credit and financial institutions businesses. COVID-19 related losses were $7 million (1.1 points) in 2021. Catastrophe losses were $36 million (4.9 points on the combined ratio), including $3 million in net reinstatement premiums, in 2022 compared to catastrophe losses of $28 million (4.1 points), including $2 million in net reinstatement premiums, in 2021. Underwriting profit for this group was $96 million in 2021 compared to $50 million in 2020, an increase of $46 million (92%) due primarily to higher year-over-year underwriting profitability in the surety, financial institutions, innovative markets and trade credit businesses. COVID-19 related losses were $7 million (1.1 points on the combined ratio) in 2021 compared to $26 million (4.3 points) in 2020, primarily related to trade credit insurance. Catastrophe losses were $28 million (4.1 points on the combined ratio), including $2 million in net reinstatement premiums, in 2021 compared to $26 million (4.3 points) in 2020. Other specialty This group reported an underwriting loss of $42 million in 2022 compared to $15 million in 2021, an increase of $27 million (180%). This increase reflects higher losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments (primarily losses from social inflation exposed operations in the Specialty casualty sub-segment) in 2022 compared to 2021. This group reported an underwriting loss of $15 million in 2021 compared to $28 million in 2020, a decrease of $13 million (46%). This decrease reflects lower losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments in 2021 compared to 2020. Neon exited lines In December 2019, AFG initiated actions to exit the Lloyd’s of London insurance market, which included placing its Lloyd’s subsidiaries including its Lloyd’s Managing Agency, Neon Underwriting Ltd., into run-off. In December 2020, AFG completed the sale of GAI Holding Bermuda and its subsidiaries, comprising the legal entities that own Neon. AFG recorded $135 million in non-core underwriting losses (including $19 million of net adverse prior year reserve development) related to this business in 2020. These losses were partially offset by a $53 million gain on the sale of Neon recorded in the fourth quarter of 2020. Consistent with the treatment of other items that are not indicative of AFG’s ongoing operations (both favorable and unfavorable), the $135 million underwriting loss at Neon and partially offsetting gain on sale in the fourth quarter of 2020 are treated as non-core. Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment include asbestos and environmental reserve charges of $47 million in 2020 and an underwriting loss of $135 million at Neon in 2020, due primarily to catastrophe losses, COVID-19 related charges and several large claims. See “Asbestos and Environmental-related (“A&E”) Insurance Reserves,” under “Uncertainties” and “Neon exited lines” above. Aggregate underwriting results for AFG’s property and casualty insurance segment also include adverse prior year reserve development of $4 million in both 2022 and 2021 and $20 million in 2020, related to business outside of the Specialty group that AFG no longer writes. 70 Table of Contents Losses and Loss Adjustment Expenses AFG’s overall loss and LAE ratio was 59.7%, 58.5% and 64.1% in 2022, 2021 and 2020, respectively. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","Amount","","Ratio","","Change in Ratio"],["","2022","","2021","","2020","","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["Property and transportation"],["Current year, excluding COVID-19 related and catastrophe losses","$","1,785","","","$","1,448","","","$","1,261","","","71.6","%","","67.2","%","","67.4","%","","4.4","%","","(0.2","%)"],["Prior accident years development","(92)","","","(103)","","","(107)","","","(3.7","%)","","(4.8","%)","","(5.7","%)","","1.1","%","","0.9","%"],["Current year COVID-19 related losses","\u2014","","","\u2014","","","7","","","\u2014","%","","\u2014","%","","0.4","%","","\u2014","%","","(0.4","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","42","","","49","","","47","","","1.9","%","","2.7","%","","2.5","%","","(0.8","%)","","0.2","%"],["Property and transportation losses and LAE and ratio","$","1,735","","","$","1,394","","","$","1,208","","","69.8","%","","65.1","%","","64.6","%","","4.7","%","","0.5","%"],["Specialty casualty"],["Current year, excluding COVID-19 related and catastrophe losses","$","1,632","","","$","1,521","","","$","1,419","","","61.4","%","","63.1","%","","63.5","%","","(1.7","%)","","(0.4","%)"],["Prior accident years development","(190)","","","(140)","","","(97)","","","(7.2","%)","","(5.8","%)","","(4.3","%)","","(1.4","%)","","(1.5","%)"],["Current year COVID-19 related losses","\u2014","","","9","","","60","","","\u2014","%","","0.4","%","","2.7","%","","(0.4","%)","","(2.3","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","11","","","9","","","14","","","0.5","%","","0.4","%","","0.6","%","","0.1","%","","(0.2","%)"],["Specialty casualty losses and LAE and ratio","$","1,453","","","$","1,399","","","$","1,396","","","54.7","%","","58.1","%","","62.5","%","","(3.4","%)","","(4.4","%)"],["Specialty financial"],["Current year, excluding COVID-19 related and catastrophe losses","$","252","","","$","231","","","$","218","","","36.0","%","","36.0","%","","35.4","%","","\u2014","%","","0.6","%"],["Prior accident years development","(47)","","","(51)","","","(28)","","","(6.8","%)","","(8.0","%)","","(4.5","%)","","1.2","%","","(3.5","%)"],["Current year COVID-19 related losses","\u2014","","","7","","","26","","","\u2014","%","","1.1","%","","4.3","%","","(1.1","%)","","(3.2","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","33","","","26","","","26","","","4.9","%","","4.1","%","","4.3","%","","0.8","%","","(0.2","%)"],["Specialty financial losses and LAE and ratio","$","238","","","$","213","","","$","242","","","34.1","%","","33.2","%","","39.5","%","","0.9","%","","(6.3","%)"],["Total Specialty"],["Current year, excluding COVID-19 related and catastrophe losses","$","3,826","","","$","3,334","","","$","3,013","","","62.8","%","","61.6","%","","61.5","%","","1.2","%","","0.1","%"],["Prior accident years development","(289)","","","(283)","","","(213)","","","(4.7","%)","","(5.2","%)","","(4.4","%)","","0.5","%","","(0.8","%)"],["Current year COVID-19 related losses","\u2014","","","16","","","95","","","\u2014","%","","0.3","%","","1.9","%","","(0.3","%)","","(1.6","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","88","","","86","","","91","","","1.5","%","","1.7","%","","1.9","%","","(0.2","%)","","(0.2","%)"],["Total Specialty losses and LAE and ratio","$","3,625","","","$","3,153","","","$","2,986","","","59.6","%","","58.4","%","","60.9","%","","1.2","%","","(2.5","%)"],["Aggregate \u2014 including exited lines"],["Current year, excluding COVID-19 related and catastrophe losses","$","3,826","","","$","3,334","","","$","3,155","","","62.8","%","","61.6","%","","61.9","%","","1.2","%","","(0.3","%)"],["Prior accident years development","(285)","","","(279)","","","(127)","","","(4.7","%)","","(5.2","%)","","(2.5","%)","","0.5","%","","(2.7","%)"],["Current year COVID-19 related losses","\u2014","","","16","","","115","","","\u2014","%","","0.3","%","","2.2","%","","(0.3","%)","","(1.9","%)"],["Current year catastrophe losses including the impact of net reinstatement premiums","88","","","86","","","128","","","1.6","%","","1.8","%","","2.5","%","","(0.2","%)","","(0.7","%)"],["Aggregate losses and LAE and ratio","$","3,629","","","$","3,157","","","$","3,271","","","59.7","%","","58.5","%","","64.1","%","","1.2","%","","(5.6","%)"]] [[/GREPCENT_TABLE]] Current accident year losses and LAE, excluding COVID-19 related and catastrophe losses The current accident year loss and LAE ratio, excluding COVID-19 related and catastrophe losses for AFG’s Specialty property and casualty insurance operations was 62.8% in 2022, 61.6% in 2021 and 61.5% in 2020. 71 Table of Contents Property and transportation   The 4.4 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 is due primarily to lower profitability in the crop insurance business compared to the very strong results recorded in the 2021. Excluding crop, the loss and LAE ratio for the current year, excluding catastrophe losses was comparable to 2021. The 0.2 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2021 compared to 2020 reflects a decrease in the loss and LAE ratio in the crop insurance operations, partially offset by an increase in the loss and LAE ratio in the property and inland marine business. Specialty casualty   The 1.7 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 compared to 2021 reflects favorable trends in workers’ compensation and the impact of higher rates in the executive liability, excess and surplus and excess liability businesses. The 0.4 percentage points decrease in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2021 compared to 2020 reflects a decrease in the loss and LAE ratios of the excess and surplus businesses, partially offset by an increase in the loss and LAE ratios of the targeted markets businesses. Specialty financial   The loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2022 is unchanged compared to the 2021 period. The 0.6 percentage points increase in the loss and LAE ratio for the current year, excluding COVID-19 related and catastrophe losses in 2021 compared to 2020 reflects an increase in the loss and LAE ratio of the financial institutions and trade credit businesses, partially offset by a decrease in the loss and LAE ratio of the fidelity business. Net prior year reserve development AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $289 million in 2022 compared to $283 million in 2021 and $213 million in 2020, increases of $6 million (2%) and $70 million (33%), respectively. Property and transportation Net favorable reserve development of $92 million in 2022 reflects lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business. Net favorable reserve development of $103 million in 2021 reflects lower than anticipated claim frequency and severity in the transportation businesses, lower than expected losses in the crop business, lower than expected claim severity in the ocean marine business and lower than expected claim frequency in the aviation business. Net favorable reserve development of $107 million in 2020 reflects lower than expected claim frequency and severity in the aviation, transportation and agricultural businesses. Specialty casualty Net favorable reserve development of $190 million in 2022 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than expected claim frequency in the executive liability and excess and surplus businesses, partially offset by higher than anticipated claim severity in the general liability, umbrella and excess liability and certain targeted markets businesses. Net favorable reserve development of $140 million in 2021 reflects lower than anticipated claim severity in the workers’ compensation businesses, partially offset by higher than anticipated claim severity in the general liability and targeted markets businesses. Net favorable reserve development of $97 million in 2020 reflects lower than anticipated claim severity in the workers’ compensation businesses and lower than anticipated claim frequency in the executive liability business, partially offset by higher than expected claim frequency and severity in general liability contractor claims and the excess and surplus and excess liability businesses and higher than anticipated claim severity in the targeted markets businesses. Specialty financial Net favorable reserve development of $47 million in 2022 reflects lower than anticipated claim frequency in the surety, trade credit and financial institutions businesses. Net favorable reserve development of $51 million in 2021 reflects lower than anticipated claim frequency in the surety and trade credit businesses and lower than expected claim frequency and severity in the financial institutions business. 72 Table of Contents Net favorable reserve development of $28 million in 2020 reflects lower than anticipated claim frequency in the trade credit business and lower than anticipated claim frequency and severity in the financial institutions, fidelity and surety businesses. Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of $40 million, $11 million and $19 million in 2022, 2021, and 2020, respectively. The net adverse reserve development reflects $44 million, $16 million and $24 million in 2022, 2021, and 2020, respectively, of net adverse development associated with AFG’s internal reinsurance program, primarily related to social inflation exposed business assumed from the Specialty casualty sub-segment. This adverse reserve development is partially offset by the amortization of the deferred gains on the retroactive reinsurance transactions entered into in connection with the sale of businesses in 1998 and 2001. Asbestos and environmental reserve charges   As previously discussed under “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves,” AFG has established property and casualty reserves for claims related to environmental exposures and asbestos claims. While there were no charges recorded in the property and casualty insurance business in 2022 or 2021, a charge of $47 million was recorded in 2020 to increase reserves (net of reinsurance recoverable) for A&E exposures of AFG’s property and casualty group (included in loss and loss adjustment expenses). Neon exited lines AFG recorded net adverse prior year reserve development of $19 million in 2020 related to Neon’s exited lines of business (included in loss and loss adjustment expenses). See “Neon exited lines” above for information about AFG’s exit of the Lloyd’s of London insurance market in 2020. Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes the special A&E charges and reserve development related to the Neon exited lines mentioned above and net adverse reserve development of $4 million in both 2022 and 2021 and $20 million in 2020 related to business outside the Specialty group that AFG no longer writes. Covid-19 related losses During 2022, AFG’s Specialty property and casualty insurance operations released $19 million of prior accident year COVID-19 reserves based on improved loss experience in the trade credit and workers’ compensation businesses. In 2021, AFG’s Specialty property and casualty insurance operations recorded $16 million in reserve charges related to COVID-19 primarily related to the workers’ compensation and trade credit businesses, and recorded favorable development of approximately $19 million of accident year 2020 reserves primarily based on loss experience in the trade credit and executive liability businesses. Underwriting results for AFG’s Specialty property and casualty insurance operations in 2020 include $95 million of reserve charges related to COVID-19. Approximately 70% of AFG’s 2020 COVID-19 related losses were reported in the workers’ compensation, executive liability and trade credit businesses, with the remainder spread across numerous other businesses. Given the uncertainties surrounding the ultimate number and scope of claims relating to the pandemic, approximately 50% of the $74 million in cumulative COVID-19 related losses are held as incurred but not reported reserves at December 31, 2022. In addition, underwriting results for the Neon exited lines includes $20 million of COVID-19 related losses in 2020. Catastrophe losses AFG generally seeks to reduce its exposure to catastrophes through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. AFG recorded net catastrophe losses of $88 million in 2022 primarily from winter storms in multiple regions of the United States in the first quarter, storms in multiple regions of the United States in the second quarter, Hurricane Ian in the third quarter and Winter Storm Elliott in the fourth quarter. Catastrophe losses of $86 million in 2021 resulted primarily from winter storms in Texas in the first quarter; storms in multiple regions of the United States in the second, third and fourth quarters; Hurricane Ida in the third quarter and Kentucky tornadoes and Colorado fires in the fourth quarter. Catastrophe losses of $128 million in 2020 resulted primarily from storms and tornadoes in multiple regions of the United States in the first quarter; storms and tornadoes in multiple regions of the United States and civil unrest in the second quarter; Hurricanes Hanna, Laura and Sally, Tropical Storm Isaias, storms and tornadoes in multiple regions of the United States and multiple wildfires in west coast states in the third quarter and Hurricanes Laura, Sally, Delta and Zeta and the Nashville explosion in the fourth quarter. 73 Table of Contents Commissions and Other Underwriting Expenses AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $1.68 billion in 2022 compared to $1.51 billion in 2021, an increase of $166 million (11%). AFG’s underwriting expense ratio was 27.6% in 2022 compared to 28.0% in 2021, a decrease of 0.4 percentage points. AFG’s property and casualty U/W Exp were $1.51 billion in 2021 compared to $1.60 billion in 2020, a decrease of $90 million (6%). AFG’s underwriting expense ratio was 28.0% in 2021 compared to 31.4% in 2020, a decrease of 3.4 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","Change in % of NEP"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["","U/W Exp","","% of NEP","","U/W Exp","","% of NEP","","U/W Exp","","% of NEP"],["Property and transportation","$","544","","","21.9","%","","$","471","","","22.0","%","","$","482","","","25.8","%","","(0.1","%)","","(3.8","%)"],["Specialty casualty","706","","","26.5","%","","632","","","26.2","%","","616","","","27.5","%","","0.3","%","","(1.3","%)"],["Specialty financial","346","","","49.6","%","","333","","","51.9","%","","321","","","52.3","%","","(2.3","%)","","(0.4","%)"],["Other specialty","84","","","34.7","%","","78","","","37.2","%","","68","","","38.5","%","","(2.5","%)","","(1.3","%)"],["Total Specialty","1,680","","","27.6","%","","1,514","","","28.0","%","","1,487","","","30.4","%","","(0.4","%)","","(2.4","%)"],["Neon exited lines","\u2014","","","","","\u2014","","","","","117"],["Total Aggregate","$","1,680","","","27.6","%","","$","1,514","","","28.0","%","","$","1,604","","","31.4","%","","(0.4","%)","","(3.4","%)"]] [[/GREPCENT_TABLE]] Property and transportation   Commissions and other underwriting expenses as a percentage of net earned premiums were comparable in 2022 and 2021. Commissions and other underwriting expenses as a percentage of net earned premiums decreased 3.8 percentage points in 2021 compared to 2020 reflecting higher profitability-based ceding commissions received from reinsurers in the crop business and the impact of higher premiums on the ratio in the property and inland marine business in 2021 compared to 2020. Specialty casualty   Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.3 percentage points in 2022 compared to 2021 reflecting higher underwriting expenses in the workers’ compensation business. Commissions and other underwriting expenses as a percentage of net earned premiums decreased 1.3 percentage points in 2021 compared to 2020 reflecting higher ceding commissions received from reinsurers as a result of growth in the excess liability businesses. Specialty financial   Commissions and other underwriting expenses as a percentage of net earned premiums decreased 2.3 percentage points in 2022 compared to 2021 reflecting lower profit-based commissions to agents in 2022 compared to 2021, and lower underwriting expenses in the international operations. Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.4 percentage points in 2021 compared to 2020 reflecting the impact of higher premiums on the ratio in 2021 compared to 2020. Aggregate   Aggregate commissions and other underwriting expenses for AFG’s property and casualty insurance segment includes $117 million of underwriting expenses in the Neon run-off operations in 2020. See “Neon exited lines” above. 74 Table of Contents Property and Casualty Net Investment Income Net investment income in AFG’s property and casualty insurance operations was $683 million in 2022 compared to $663 million in 2021, an increase of $20 million (3%). Net investment income in AFG’s property and casualty insurance operations was $663 million in 2021 compared to $404 million (excluding the Neon exited lines) in 2020, an increase of $259 million (64%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","2022 - 2021","","2021 - 2020"],["","2022","","2021","","2020","","Change","","% Change","","Change","","% Change"],["Net investment income:"],["Net investment income, excluding alternative investments","$","418","","","$","323","","","$","345","","","$","95","","","29","%","","$","(22)","","","(6","%)"],["Alternative investments","265","","","340","","","59","","","(75)","","","(22","%)","","281","","","476","%"],["Total net investment income","$","683","","","$","663","","","$","404","","","$","20","","","3","%","","$","259","","","64","%"],["Average invested assets (at amortized cost)","$","14,048","","","$","12,944","","","$","11,760","","","$","1,104","","","9","%","","$","1,184","","","10","%"],["Yield (net investment income as a % of average invested assets)","4.86","%","","5.12","%","","3.44","%","","(0.26","%)","","","","1.68","%"],["Tax equivalent yield (*)","4.96","%","","5.25","%","","3.56","%","","(0.29","%)","","","","1.69","%"]] [[/GREPCENT_TABLE]] (*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield. The increase in the property and casualty insurance segment’s net investment income in 2022 compared to 2021 reflects higher average investments and higher yields on fixed maturities, partially offset by lower returns on AFG’s alternative investments (partnerships and similar investments and AFG-managed CLOs) as compared to the very strong performance of alternative investments in the prior year. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.86% in 2022 compared to 5.12% in 2021, a decrease of 0.26 percentage points as higher yields on fixed maturity investments were more than offset by lower returns on alternative investments. The annualized return earned on alternative investments was 13.2% in 2022 compared to 25.3% in 2021. The increase in net investment income in 2021 compared to 2020 reflects significantly higher returns on alternative investments, partially offset by the effect of lower fixed maturity yields, lower short-term interest rates and lower dividend income. The property and casualty insurance segment’s overall yield on investments was 5.12% in 2021 compared to 3.44% in 2020, an increase of 1.68 percentage points. The annualized return earned on alternative investments was 25.3% in 2021 compared to 6.6% in 2020. In addition to the property and casualty segment’s net investment income from ongoing operations discussed above, the Neon exited lines reported a $5 million loss in 2020 in net investment income, primarily from changes in the fair value of equity securities. 75 Table of Contents Property and Casualty Other Income and Expenses, Net Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $40 million in 2022, $6 million in 2021 and $34 million in 2020, an increase of $34 million (567%) in 2022 compared to 2021 and a decrease of $28 million (82%) in 2021 compared to 2020. The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2022","","2021","","2020"],["Other income:"],["Income related to the sale of real estate","$","1","","","$","10","","","$","\u2014"],["Other","11","","","17","","","8"],["Total other income","12","","","27","","","8"],["Other expenses:"],["Amortization of intangibles","11","","","6","","","12"],["Interest expense on funds withheld","29","","","25","","","24"],["Other (*)","12","","","2","","","6"],["Total other expenses","52","","","33","","","42"],["Other income and expenses, net","$","(40)","","","$","(6)","","","$","(34)"]] [[/GREPCENT_TABLE]] (*)Includes $9 million of expenses in 2022 related to certain technology initiatives. In addition to the property and casualty segment’s other income and expenses, net from ongoing operations discussed above, the Neon exited lines incurred a net expense of $5 million in other income and expenses, net during 2020. Holding Company, Other and Unallocated — Results of Operations AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $180 million in 2022 compared to $219 million in 2021, a decrease of $39 million (18%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $171 million in 2022 compared to $208 million in 2021, a decrease of $37 million (18%). AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $219 million in 2021 compared to $212 million in 2020, an increase of $7 million (3%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $208 million in 2021 compared to $186 million in 2020, an increase of $22 million (12%). 76 Table of Contents The following table details AFG’s GAAP and core loss from continuing operations before income taxes from operations outside of its property and casualty insurance segment in 2022, 2021 and 2020 (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","% Change"],["","2022","","2021","","2020","","2022 - 2021","","2021 - 2020"],["Revenues:"],["Net investment income","$","24","","","$","36","","","$","12","","","(33","%)","","200","%"],["Other income \u2014 P&C fees","89","","","80","","","67","","","11","%","","19","%"],["Other income","33","","","22","","","19","","","50","%","","16","%"],["Total revenues","146","","","138","","","98","","","6","%","","41","%"],["Costs and Expenses:"],["Property and casualty insurance \u2014 loss adjustment and underwriting expenses","38","","","33","","","21","","","15","%","","57","%"],["Other expense \u2014 expenses associated with P&C fees","51","","","47","","","46","","","9","%","","2","%"],["Other expenses (*)","143","","","172","","","129","","","(17","%)","","33","%"],["Costs and expenses, excluding interest charges on borrowed money","232","","","252","","","196","","","(8","%)","","29","%"],["Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money","(86)","","","(114)","","","(98)","","","(25","%)","","16","%"],["Interest charges on borrowed money","85","","","94","","","88","","","(10","%)","","7","%"],["Core loss from continuing operations before income taxes, excluding realized gains and losses","(171)","","","(208)","","","(186)","","","(18","%)","","12","%"],["Pretax non-core special A&E charges","\u2014","","","\u2014","","","(21)","","","\u2014","%","","(100","%)"],["Pretax non-core loss on retirement of debt","(9)","","","\u2014","","","(5)","","","\u2014","%","","(100","%)"],["Pretax non-core loss on pension settlement","\u2014","","","(11)","","","\u2014","","","(100","%)","","\u2014","%"],["GAAP loss from continuing operations before income taxes, excluding realized gains and losses","$","(180)","","","$","(219)","","","$","(212)","","","(18","%)","","3","%"]] [[/GREPCENT_TABLE]] (*)Excludes pretax non-core losses on retirement of debt of $9 million in 2022 and $5 million in 2020, a pretax non-core loss of $11 million related to the settlement of pension liabilities of a small former manufacturing operation in 2021 and a pretax non-core special A&E charge of $21 million in 2020. Holding Company and Other — Net Investment Income AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $24 million, $36 million and $12 million in 2022, 2021 and 2020, respectively. The $12 million (33%) decrease in 2022 compared to 2021 and the $24 million (200%) increase in 2021 compared to 2020 are due primarily to the impact of the stock market performance on a small portfolio of securities held by the parent company that are carried at fair value through net investment income, all of which were sold in 2022. These securities decreased in value by $7 million in 2022 compared to increasing in value by $14 million in 2021 and $5 million in 2020. Excluding the change in fair value of these equity securities, net investment income outside of AFG’s property and casualty insurance segment increased $9 million in 2022 compared to 2021 and $15 million in 2021 compared to 2020 reflecting an increase in average investments, income from directly owned real estate investments acquired from the annuity subsidiaries in conjunction with the sale of the annuity business in May 2021 and, in 2022, the impact of higher interest rates. Holding Company and Other — P&C Fees and Related Expenses Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In 2022, AFG collected $82 million in fees for these services compared to $73 million in 2021 and $67 million in 2020. Management views this fee income, net of the $51 million in 2022, $47 million in 2021 and $46 million in 2020, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. In addition, AFG’s property and casualty insurance businesses collected $7 million in fees from AFG’s disposed annuity operations in both 2022 and 2021 as compensation for certain services provided under a transition services agreement. The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, all of these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses in AFG’s segmented results. 77 Table of Contents Holding Company and Other — Other Income Other income in the table above includes $17 million in 2022, $16 million in 2021 and $15 million in 2020, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidated MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $16 million in 2022, $6 million in 2021 and $4 million in 2020. The increase in 2022 compared to 2021 is due primarily to income from the sale of real estate in 2022. Holding Company and Other — Other Expenses Excluding the non-core loss on retirement of debt and the non-core loss on pension settlement discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $143 million in 2022 compared to $172 million in 2021, a decrease of $29 million (17%). This decrease reflects lower holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance, partially offset by higher charges to increase the liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations. Excluding the non-core special A&E charge, the non-core loss on retirement of debt and the non-core loss on pension settlement discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $172 million in 2021 compared to $129 million in 2020, an increase of $43 million (33%). This increase reflects higher holding company expenses related to deferred compensation obligations to employees that are tied to stock market performance and higher expenses associated with certain incentive compensation plans that are tied to AFG’s financial performance in 2021 compared to 2020. Holding Company and Other — Interest Charges on Borrowed Money AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $85 million in 2022, $94 million in 2021 and $88 million in 2020. The $9 million (10%) decrease in interest expense in 2022 compared to 2021 reflects lower average indebtedness and the $6 million (7%) increase in interest expense in 2021 compared to 2020 reflects higher average indebtedness. The following table details the principal amount of AFG’s long-term debt balances as of December 31, 2022, December 31, 2021 and December 31, 2020 (dollars in millions): [[GREPCENT_TABLE]] [["","December 31,"],["","2022","","2021","","2020"],["Direct obligations of AFG:"],["4.50% Senior Notes due June 2047","$","582","","","$","590","","","$","590"],["3.50% Senior Notes due August 2026","\u2014","","","425","","","425"],["5.25% Senior Notes due April 2030","261","","","300","","","300"],["5.125% Subordinated Debentures due December 2059","200","","","200","","","200"],["4.50% Subordinated Debentures due September 2060","200","","","200","","","200"],["5.625% Subordinated Debentures due June 2060","150","","","150","","","150"],["5.875% Subordinated Debentures due March 2059","125","","","125","","","125"],["Other","3","","","3","","","3"],["Total principal amount of Holding Company Debt","$","1,521","","","$","1,993","","","$","1,993"],["Weighted Average Interest Rate","4.9","%","","4.6","%","","4.6","%"]] [[/GREPCENT_TABLE]] The decrease in interest expense in 2022 compared to 2021 and the increase in interest expense in 2021 compared to 2020 reflect the following financial transactions completed by AFG between January 1, 2020 and December 31, 2022: •Issued $300 million of 5.25% Senior Notes in April 2020 •Issued $150 million of 5.625% Subordinated Debentures in May 2020 •Issued $200 million of 4.50% Subordinated Debentures in September 2020 •Redeemed $150 million of 6% Subordinated Debentures in November 2020 •Redeemed $425 million of 3.50% Senior Notes in the first and second quarters of 2022 •Retired $8 million of 4.50% Senior Notes in the third and fourth quarters of 2022 •Retired $39 million of 5.25% Senior Notes in the third and fourth quarters of 2022 Holding Company and Other — Special A&E Charges As a result of the in-depth internal reviews and comprehensive external study of A&E exposures discussed under “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves,” AFG’s holding companies and other 78 Table of Contents operations outside of its property and casualty insurance segment recorded minor charges in 2022 and 2021, which are included in AFG’s core operating earnings, compared to a pretax non-core special charge of $21 million in 2020 to increase liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations. The charge is due to relatively small movements across several sites that reflect changes in the scope and costs of investigation and an increase in estimated ongoing operation and maintenance costs. AFG has also increased its reserve for asbestos and toxic substance exposures arising out of these operations. Total charges recorded to increase liabilities for A&E exposures of AFG’s former railroad and manufacturing operations (included in other expenses) were $17 million in 2022, $9 million in 2021 and $28 million in 2020. Holding Company and Other — Loss on Retirement of Debt During 2022, AFG retired $472 million principal amount of its senior notes, which resulted in a $9 million pretax non-core loss. In November 2020, AFG redeemed its $150 million outstanding principal amount of 6% Subordinated Debentures due in 2055 and wrote off unamortized debt issuance costs of $5 million. Holding Company and Other — Loss on Pension Settlement In the second quarter of 2021, AFG settled pension liabilities related to a small former manufacturing operation resulting in a pretax non-core loss of $11 million. Realized Gains (Losses) on Securities AFG’s realized gains (losses) on securities were net losses of $116 million in 2022 compared to net gains of $110 million in 2021, a change of $226 million (205%). AFG’s consolidated realized gains (losses) on securities were net gains of $110 million in 2021 compared to net losses of $75 million in 2020, a change of $185 million (247%). Realized gains (losses) on securities consisted of the following (in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,"],["2022","","2021","","2020"],["Realized gains (losses) before impairment allowances:"],["Disposals","$","(15)","","","$","5","","","$","8"],["Change in the fair value of equity securities","(96)","","","110","","","(69)"],["Change in the fair value of derivatives","(12)","","","(6)","","","(1)"],["Other","10","","","\u2014","","","\u2014"],["","(113)","","","109","","","(62)"],["Change in allowance for impairments on securities","(3)","","","1","","","(13)"],["Realized gains (losses) on securities","$","(116)","","","$","110","","","$","(75)"]] [[/GREPCENT_TABLE]] The $96 million net realized loss from the change in the fair value of equity securities in 2022 includes losses of $51 million on investments in banks and financing companies, $21 million on investments in media companies, $14 million on investments in healthcare companies, $7 million on investments in technology companies and $3 million on investments in retail companies, partially offset by gains of $17 million on investments in energy and natural gas companies. The $110 million net realized gain from the change in the fair value of equity securities in 2021 includes gains of $29 million on investments in energy and natural gas companies, $18 million on investments in banks and financing companies, $17 million on investments in media companies, $14 million on investments in healthcare companies and $9 million on investments in capital goods companies. The $69 million net realized loss from the change in the fair value of equity securities in 2020 includes losses of $24 million on investments in banks and financing companies, $31 million on investments in energy and natural gas companies, $14 million on real estate investment trusts, $11 million from investments in media companies and $5 million on investments in insurance companies. 79 Table of Contents Realized Gain on Subsidiaries In 2021, AFG recognized a pretax gain on sale of subsidiary of $4 million related to contingent consideration received on the sale of Neon. See “Results of Operations — General” for the discussion of the December 2019 decision to exit the Lloyd’s of London insurance market. In 2020, AFG recorded a $23 million gain on the sale of GAI Holding Bermuda and its subsidiaries, comprising the legal entities that own Neon, to RiverStone Holdings Limited. See Note C — “Acquisitions and Sale of Businesses” to the financial statements. Consolidated Income Taxes on Continuing Operations AFG’s consolidated provision for income taxes on continuing operations was $225 million in 2022 compared to $254 million in 2021, a decrease of $29 million (11%). AFG’s consolidated provision for income taxes on continuing operations was $254 million in 2021 compared to $25 million in 2020, an increase of $229 million (916%). See Note M — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate. Consolidated Noncontrolling Interests in Continuing Operations AFG’s consolidated net earnings (loss) from continuing operations attributable to noncontrolling interests was a net loss of $11 million in 2020 reflecting losses at Neon, which was sold in 2020. See Note C — “Acquisitions and Sale of Businesses” to the financial statements. Real Estate Entities Acquired from the Annuity Operations Beginning with the first quarter of 2021, the results of the disposed annuity businesses are reported as discontinued operations, in accordance with GAAP, which included adjusting prior period results to reflect these operations as discontinued. Prior to the completion of the sale, AFG’s property and casualty insurance operations acquired certain real estate-related partnerships and AFG parent acquired certain directly owned real estate from those operations. GAAP pretax earnings from continuing operations includes the earnings from these entities through the May 31, 2021 effective date of the sale and certain other expenses that will be retained from the annuity operations. The retained real estate entities contributed $51 million in GAAP pretax earnings through the May 31, 2021 effective date of the sale compared to $49 million in 2020, an increase of $2 million (4%). This increase reflects higher earnings from the real estate-related partnerships through the sale date compared to 2020. Discontinued Annuity Operations AFG’s discontinued annuity operations, which were sold on May 31, 2021, contributed $324 million in GAAP pretax earnings (excluding the gain on the sale of the annuity operations) in 2021 compared to $509 million in 2020, a decrease of $185 million (36%), reflecting the following: •lower net realized gains on securities through the date of the sale in May 2021 compared to 2020, •significantly higher earnings from partnerships and similar investments, •the negative impact from the run-off of higher yielding investments and lower short-term interest rates, •the positive impact of strong stock market performance in 2021, •the negative impact of lower than expected interest rates in both 2021 and 2020 on the accounting for fixed indexed annuities (“FIAs”), •the negative impact of unlocking actuarial assumptions in the third quarter of 2020, and •the negative impact of the amortization of the deferred loss related to the annuity block reinsurance transaction entered into in the fourth quarter of 2020 and other reinsurance impacts in 2021. 80 Table of Contents The following table details AFG’s earnings before and after income taxes and the gain on the sale from its discontinued annuity operations for the years ended December 31, 2021 and 2020 (dollars in millions): [[GREPCENT_TABLE]] [["","Year ended December 31,","","% Change"],["","2021 (*)","","2020","","2021 - 2020"],["Pretax annuity earnings historically reported as core operating earnings:"],["Pretax annuity earnings before items below","$","106","","","$","325","","","(67","%)"],["Earnings on partnerships and similar investments","139","","","15","","","827","%"],["Total pretax annuity earnings historically reported as core operating earnings","245","","","340","","","(28","%)"],["Pretax amounts previously reported outside of annuity core earnings:"],["Unlocking","\u2014","","","(46)","","","(100","%)"],["Impact of reinsurance, derivatives related to FIAs and other impacts of changes in the stock market and interest rates on FIAs over or under option costs","(33)","","","(142)","","","(77","%)"],["Realized gains on securities","112","","","365","","","(69","%)"],["Run-off life and long-term care","\u2014","","","(8)","","","(100","%)"],["Total pretax amounts previously reported outside of annuity core earnings","79","","","169","","","(53","%)"],["GAAP pretax earnings from discontinued annuity operations, excluding the gain on the sale of the discontinued annuity operations","324","","","509","","","(36","%)"],["Provision for income taxes","66","","","102","","","(35","%)"],["GAAP net earnings from discontinued annuity operations, excluding the sale of the discontinued annuity operations","258","","","407","","","(37","%)"],["Gain on sale of discontinued annuity operations, net of tax","656","","","\u2014","","","\u2014","%"],["GAAP net earnings from discontinued annuity operations","$","914","","","$","407","","","125","%"]] [[/GREPCENT_TABLE]] (*)Results through the May 31, 2021 effective date of the sale. RECENTLY ADOPTED ACCOUNTING STANDARDS See Note A — “Accounting Policies — Credit Losses on Financial Instruments” to the financial statements for a discussion of accounting guidance adopted on January 1, 2020, which provides a new credit loss model for determining credit-related impairments for financial instruments measured at amortized cost (mortgage loans, premiums receivable and reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. ACCOUNTING STANDARDS TO BE ADOPTED In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), as amended in December 2022 by Accounting Standards Update No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("ASU 2022-06"). ASU 2020-04 provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2024, as amended by ASU 2022-06. As of December 31, 2022, AFG has not adopted any expedients or exceptions under ASU 2020-04. Management does not believe that the reference rate reform or the adoption of this guidance will have a material impact on AFG’s results of operations or financial condition. 81 Table of Contents