American Financial Group, Inc. (NYSE: AFG) announced that it plans to exit the Lloyd’s of London insurance market in 2020. It has initiated actions to place its Lloyd’s subsidiaries including its Lloyd’s Managing Agency, Neon Underwriting Ltd., into run-off. AFG 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.
The exit from this business will allow AFG to reallocate capital to its other insurance businesses and opportunities that have the potential to earn targeted returns on investment. Neon and its predecessor, Marketform, have failed to achieve AFG’s profitability objectives since AFG’s purchase of Marketform in 2008. After review of Neon’s anticipated results for 2019 and its 2020 prospects, AFG has determined that Neon will not meet AFG’s return expectations. Neon produced approximately 7% of AFG’s property and casualty net written premiums in 2019.
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.