American Financial Group, Inc. (NYSE: AFG) reported a record-breaking fourth quarter to conclude fiscal year 2025, driven by a surge in underwriting profitability and disciplined capital management. Despite a complex investment environment, the insurance giant delivered a significant earnings beat and signaled its confidence in 2026 by declaring yet another special dividend.
Key Earnings Highlights
Fourth quarter net earnings per share of $3.58; core net operating earnings per share of $3.65
Full year net earnings per share of $10.08; core net operating earnings per share of $10.29
Fourth quarter underwriting profit increased 41% year-over-year and set a new quarterly record
Full year 2025 ROE of 17.8%; 2025 core operating ROE of 18.2%
Total capital returned to shareholders during 2025 was $707 million; includes $334 million ($4.00 per share) in special dividends and $99 million in share repurchases
Board of Directors declares $1.50 per share special dividend, payable February 25, 2026.
Key Takeaways
Underwriting: A “Perfect Storm” of Profitability
The 41% jump in underwriting profit was the centerpiece of the quarter, fueled by two primary factors:
Minimal Catastrophes: Catastrophe losses accounted for just 0.2 points of the combined ratio ($4 million), compared to 1.1 points in the prior-year period.
Property & Transportation Excellence: This sub-segment saw underwriting profit skyrocket 167% to $216 million. The result was bolstered by $20 million in favorable prior-year reserve development, particularly within crop insurance operations.
Pricing Discipline: Average renewal rates across the P&C group (excluding workers’ compensation) rose 5%, helping the company stay ahead of inflationary pressures in loss costs.
Investment Portfolio: The “Alt” Headwind
While underwriting was a home run, the investment side faced a slight drag.
Alternative Investments: The annualized return on the $2.8 billion alternative investment portfolio fell to 0.9% in Q4, down significantly from 4.9% a year ago. Management noted that an oversupply in the multi-family housing market continues to impact returns, though they anticipate a recovery in the latter half of 2026.
Fixed Income: Excluding alternatives, P&C net investment income actually grew 5% as the company benefited from higher reinvestment rates on its core fixed-maturity portfolio.
Capital Management: The $1.50 Dividend “Cherry on Top”
Special Dividend: Alongside the earnings release, the board declared a $1.50 per share special dividend payable on February 25, 2026. This follows $4.00 in special dividends already paid during 2025.
Total Returns: In 2025 alone, AFG returned $707 million to shareholders through dividends and share repurchases.
Book Value Growth: Book value per share (excluding AOCI) grew to $58.38, a 17.2% increase for the year when including dividends.
2026 Outlook: “Disciplined Growth”
Management provided a roadmap for 2026 that balances growth with its signature underwriting rigor:
Core EPS Target: Approximately $11.00.
Net Written Premium Growth: Projected at 3% to 5%.
Combined Ratio Goal: Approximately 92.5% (a conservative normalization from Q4’s exceptional 84.1%).
Alternative Return Assumption: Re-pegged at a long-term average of 8%.
Management Commentary
“We are extremely pleased with a strong finish to 2025… reporting our highest quarterly underwriting profit ever. AFG continues to have significant excess capital, and returning that to shareholders remains a top priority as we enter 2026.” — Carl H. Lindner III and S. Craig Lindner, Co-CEOs.
Investor Outlook
The investor outlook for American Financial Group (AFG) in 2026 is defined by a transition from a “perfect” underwriting year to a more normalized but high-growth phase. Management’s projections emphasize disciplined pricing and a major recovery in investment returns.
