Inve US ▾
AFAFG

American Financial Group (AFG) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Aug 5, 2026

Source: earnings call transcript

Executive summary

American Financial Group Q2 FY26 — Record P&C Operating Income and Strong Underwriting

The company achieved record Q2 pre-tax P&C operating income, driven by strong underwriting, healthy premium growth, and increased net investment income. Core net operating earnings per share rose 32% year-over-year, yielding a 19.2% annualized core operating ROE. Management highlighted broad-based premium growth across three-quarters of its businesses and consistent renewal rate increases, while maintaining conservative loss picks in social inflation-exposed lines.

Highlights

5

  • Set a new second quarter record for pre-tax property and casualty operating income, driven by strong underwriting margins, healthy premium growth, and higher net investment income.

  • Core net operating earnings of $2.82 per share in Q2 FY26, a 32% increase from the prior year period.

  • Achieved an annualized core operating return on equity of 19.2% in Q2 FY26.

  • Net investment income at P&C operations increased 23% year-over-year, establishing a new second quarter record.

  • Specialty Property and Casualty businesses produced a 91.5% combined ratio in Q2 FY26, an improvement of 1.6 points from the prior year.

Concerns

3

  • California workers' comp business is not performing well, although it represents only 14% of their workers' comp portfolio.

  • Renewal pricing in the Specialty Financial Group decreased less than 1% in Q2 FY26, reflecting strong margins but a slight rate decline.

  • Social inflation remains a concern, leading to continued conservative initial loss picks, particularly in Specialty Casualty lines.

Guidance & targets

CategoryTargetConfidence
Pre-tax core operating gain from asset sale
$125 million or $1.20 per share
medium materiality
High
Excess capital generation
significant excess capital
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Specialty Property and Casualty businesses (overall)
Achieved a 44% increase in underwriting profit in the first six months. Three-quarters of businesses reported higher year-over-year premiums. Overall renewal rate increases for 40 consecutive quarters.
Combined ratio: 91.5% (Q2 FY26), improved 1.6 points from 93.1% (Q2 FY25)Favorable prior year reserve development: 3.4 points (Q2 FY26) vs 0.7 points (Q2 FY25)Catastrophe losses: 1.8 points (Q2 FY26) vs 2.3 points (Q2 FY25)Gross written premiums growth: 7% (Q2 FY26)Net written premiums growth: 6% (Q2 FY26)Average renewal rates (ex-WC): ~5% (Q2 FY26)Average renewal rates (incl-WC): ~4% (Q2 FY26)
———44% increase in underwriting profit (H1 FY26)
Property and Transportation Group
Higher year-over-year underwriting profits in transportation and agricultural businesses were primary drivers. Growth primarily from crop insurance, new business opportunities, higher exposures, and a favorable rate environment in several transportation businesses. Reported a small underwriting profit in commercial auto liability for the second consecutive quarter. Crop results depend on harvest yields and prices in H2 2026, with most profitability booked in Q4.
Combined ratio: 90.3% (Q2 FY26), improved 4.9 points from 95.2% (Q2 FY25)Gross written premiums growth: 8% (Q2 FY26)Net written premiums growth: 5% (Q2 FY26)Overall renewal rates: ~8% (Q2 FY26)Commercial auto liability renewal rates: 15%
————
Specialty Casualty Group
Continued to be mindful of social inflation and conservative in initial loss picks. Growth from new business opportunities, increased exposures, and higher rates in workers' comp, targeted markets, excess and surplus lines, energy, construction, environmental, and M&A liability.
Combined ratio: 94.5% (Q2 FY26), 0.6 points higher than 93.9% (Q2 FY25)Gross written premiums growth: 5% (Q2 FY26)Net written premiums growth: 6% (Q2 FY26)Renewal rates (ex-WC): ~4% (Q2 FY26)Pricing (incl-WC): ~2% (Q2 FY26)
————
Specialty Financial Group
Primarily due to growth in financial institutions business. Strong margins earned on these businesses overall. Growth drivers include lender-placed property business (post-quota share renewal), Great American Europe, and specialty equipment services.
Combined ratio: 85.6% (Q2 FY26), improved over 0.5 point from Q2 FY25Gross written premiums growth: 10% (Q2 FY26)Net written premiums growth: 10% (Q2 FY26)Renewal pricing: decreased <1% (Q2 FY26)
————

Deals & partnerships

Not stated Sale of Charleston Harbor Resort & Marina.

AFG reached definitive agreements to sell the Charleston Harbor Resort & Marina. The property is owned equally by the P&C operations and AFG parent, so the gain on sale will be reported as net investment income and split equally between the two entities. This transaction was not contemplated in AFG's original business plan assumptions.

Risks & headwinds

Social inflation Ongoing

Leads to conservative initial loss picks and contributed to the Specialty Casualty Group's combined ratio being 0.6 points higher YoY at 94.5% in Q2 FY26.

Mitigation:Maintaining conservative initial loss picks, re-underwriting certain classes, lowering limits, and raising retentions in social inflation-exposed businesses like public sector, excess liability, and umbrella.

Poor underwriting results in California workers' comp Q2 FY26 and ongoing

California is 14% of the workers' comp business, and the company is "not doing well there," with California premiums being down.

Mitigation:None explicitly stated beyond acknowledging the issue.

Softening in certain parts of the overall property and casualty market Ongoing

Directional, no specific figures provided.

Mitigation:Leveraging a diversified mix of 36 specialty insurance businesses, an entrepreneurial culture, disciplined operating philosophy, and an astute team of in-house investment professionals to create value through various market conditions.

What to watch in Q3 FY26

Crop insurance profitability

Q4 FY26
Current Crop year is off to a solid start with timely rainfall improving soil moisture. Most premiums earned in Q3, but profitability booked in Q4.
Target Clear indication of actual yields and claims activity, and performance of private product businesses.

Why it matters

Crop insurance results are seasonal and depend on harvest yields and prices in the second half of the year, significantly impacting Q4 profitability.

Our crop results for 2026 will depend on the harvest yields and prices in the second half of this year... Consequently, we record the majority of our calendar year crop profitability in the fourth quarter.

Find out whether AFG delivers this. Inve re-checks your case every morning.

Q&A highlights

Inquiring about the uptick in underlying loss ratios in Specialty Casualty and Financials, whether expense ratios could improve from mix shifts and productivity gains, and if increased conservatism could lead to higher prior year development.

Brian Hertzman explained that AFG focuses on return on equity, not just combined ratio. Higher loss ratios in some segments (e.g., workers' comp, European operations, certain targeted markets) are acceptable if they meet ROE objectives. The increase in expense ratio is partly due to growth in successful businesses like lender-placed insurance, which has higher underwriting expenses. The company maintains deliberate caution and conservative loss picks for social inflation-exposed businesses, indicating a preference for favorable over adverse development.

“I think it's important as you start to think about that answer is to start sort of at the beginning, which is that when we're looking at our businesses, we're looking at things from a return on equity perspective overall and not just the combined ratio, not just the loss ratio.”

asked by Hristian Getsov · answered by Brian Hertzman

2 min read 5 chapters

Detailed narrative

Investment Performance and Capital Deployment

AFG's $17.1 billion investment portfolio saw net investment income for P&C operations increase 23% year-over-year, setting a new Q2 record, driven by improved alternative investment returns. The company is investing in fixed maturity securities at yields of approximately 5.5% and expects annualized returns averaging 10% or better from alternative investments long-term. AFG returned nearly $100 million to shareholders in Q2, including $26 million in share repurchases and $0.88 per share in regular quarterly dividends, and anticipates significant excess capital generation for the remainder of 2026.

Underwriting Discipline and Market Positioning

The company's diversified portfolio of 36 specialty businesses, combined with underwriting discipline and an opportunistic culture, enabled a 44% increase in underwriting profit in the first six months of the year. Three-quarters of businesses reported higher year-over-year premiums, and average renewal rates, excluding workers' comp, were up approximately 5% for the past four quarters. Management believes these attributes position them to continue strong results despite softening in parts of the P&C market.

Social Inflation and Reserve Conservatism

Management continues to be mindful of social inflation, particularly in Specialty Casualty lines, and maintains conservative initial loss picks. Despite seeing improvements in social inflation-exposed areas, especially commercial auto liability, the company is "slow to react to good news" in reserve setting, indicating a preference for favorable over adverse development. This approach is reflected in their history of consistent overall favorable prior year reserve development.

AI Adoption and Impact

AFG is making significant investments in AI, primarily focusing on submission automation, document intelligence, claims workflow automation, and AI-enabled recorded statements to improve efficiency and customer experience. While still in early stages for AI-powered underwriting knowledge management, the company is encouraged by productivity improvements. They believe their decentralized business model with multiple business units can effectively deploy AI by sharing successful applications across segments.

Commercial Auto Liability Progress

The commercial auto liability segment achieved a small underwriting profit for the second consecutive quarter, with renewal rates up 15%. While still working towards targeted returns for this specific sub-segment, the overall commercial auto business is generating solid underwriting profits and good ROEs, allowing for more offensive growth strategies.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.