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SEC filingStrong quarter driven by higher underwriting profit across all specialty sub-segments, partially offset by lower alternative investment returns and realized losses on equity securities.
American Financial Group delivered a strong quarter, with operating income rising 21.3% to $239.0 million and net income increasing 24.0% to $191.0 million. The improvement was driven by higher underwriting profit across all specialty sub-segments, reflecting new business opportunities and favorable renewal pricing in targeted markets and workers' compensation businesses. The operating margin improved to 12.9%.
Gross written premiums grew, supported by new business and pricing actions. Reinsurance premiums ceded as a percentage of gross written premiums increased 3 percentage points in the first three months of 2026 compared to the prior year, reflecting growth in heavily ceded crop insurance products. This cession strategy helps manage risk while allowing AFG to participate in profitable crop insurance markets.
Net investment income was impacted by lower alternative investment returns and realized losses on equity securities. Despite these headwinds, AFG's investment portfolio remains well-positioned, with a focus on fixed-income securities and CLO investments. AFG's investments in subordinate debt tranches of CLOs receive residual income after expenses and senior obligations, providing a source of yield but also subject to variability.
Net cash provided by operating activities increased to $474.0 million, up from $342.0 million in the prior year quarter, reflecting strong premium collections and CLO-related inflows. AFG's insurance subsidiaries maintain capital at or above levels required by ratings agencies, and the parent company has no debt maturities until 2030. Management believes AFG's strong financial position and liquidity provide flexibility to address anticipated and unanticipated challenges.
AFG continues to benefit from favorable trends in its specialty insurance businesses, including lower than anticipated claim frequency in fidelity and crime and lower than expected claim severity in surety. Management remains focused on underwriting discipline and capital management to support long-term shareholder value.