American Financial Group, Inc.’s second quarter earnings from insurance businesses will be negatively impacted by certain litigation charges and by lower than expected underwriting results in its property and casualty insurance operations.
As a result, second quarter earnings from insurance businesses are likely to be substantially below the $.65 per share recorded in the 2000 first quarter. The company also expects final determination of the earn-out related to the 1998 sale of its commercial lines business in the 2nd quarter or early in the 3rd quarter of 2000.
The agreement provided for an additional payment on retention of business through May 31, 2000. AFG plans to record a charge of approximately $.37 per share in the second quarter primarily due to certain litigation affecting two of its operating subsidiaries. Great American Financial Resources, Inc., AFG’s 83%- owned subsidiary, has reached a preliminary agreement to settle a class action lawsuit brought against its subsidiary, Great American Life Insurance Company.
In the settlement, GALIC has agreed to reimburse surrender charges incurred by certain annuity holders, to enhance the rate of return on certain policies through a lump-sum credit and to allow certain annuity holders to transfer their annuity value to other products issued by GALIC or other of its subsidiaries.
GAFRI will also incur charges in the quarter for other litigation matters, including an adverse jury verdict in a Dallas County, Texas case, which the company intends to appeal. Also included in the litigation charge is the impact of a California Supreme Court ruling which negated a jury trial verdict that held an AFG property and casualty subsidiary only proportionally liable on a claim.
If the jury verdict had been upheld, the company would have paid an amount below its previously established reserves. In addition, AFG’s second quarter earnings from insurance businesses are expected to fall below this year’s first quarter results by $.20 to $.25 per share.
The company’s results have been adversely affected by the effects of policies written in 1999 and in early 2000 at rates which were reflective of an extremely soft, overly competitive environment. During the same period, there has been an increase in frequency of claims as well as claims severity, particularly in medical and health related costs, in the company’s private passenger automobile business.
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