American Financial Group Decides to Exit Lloyd’s, Putting Neon into Run-off

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American Financial Group (AFG) disclosed it will exit the Lloyd’s of London insurance marketplace in 2020, which it joined in 2008 through an acquisition. AFG will place its Lloyd’s subsidiaries including its Lloyd’s managing agency, Neon Underwriting Ltd., into run-off.

The Cincinnati, Ohio-based insurance holding company said its departure from Lloyd’s will allow it to shift capital to its other insurance businesses “that have the potential to earn targeted returns on investment.” AFG entered the Lloyd’s marketplace when it acquired Lloyd’s insurer Marketform (now Neon) in 2008 for $75 million.

AFG, in its announcement, explained that Neon and its predecessor, Marketform, haven’t met profitability objectives since AFG’s acquisition. The company said it reviewed Neon’s anticipated results for 2019 and its 2020 prospects, after which it determined Neon won’t meet profit goals once again.

Neon produced approximately 7% of AFG’s property and casualty net written premiums in 2019. AFG said it will work with Neon and Neon’s regulators to ensure that Neon continues to meet its obligations to policyholders and achieves an orderly run-off of operations.

AFG estimates that it will incur a non-core after-tax charge between $50 million and $60 million in the fourth quarter of 2019 for Neon reserve strengthening and expenses related to exit costs associated with the run-off of this business. Based on information available at this time, it is expected that the company will report approximately $60 million to $75 million in after-tax earnings from other non-core items in the fourth quarter of 2019, including realized gains from the mark to market of equity securities and annuity non-core earnings, which reflect the impact of fair value accounting on its fixed-indexed annuity business.

After consideration of these items and other results in the fourth quarter of 2019, AFG reaffirmed its previously announced 2019 core net operating earnings guidance of $8.50 to $8.70 per share.

AFG holds assets of over $65 billion. Through the operations of Great American Insurance Group, AFG pursues property/casualty insurance, focusing on specialized commercial products for businesses. It also handles the sale of traditional fixed, fixed-indexed and variable-indexed annuities in the retail, financial institutions, broker-dealer, registered investment adviser and education markets.

Source: American Financial Group

A version of this article first appeared in Insurance Journal’s sister publication, Carrier Management.

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