American Financial Group Inc.
American Financial Group Inc.
Incorporated: 1955 as Henthy Realty Company
Total Assets: $3.9 billion (2001)
Stock Exchanges: New York
Ticker Symbol: AFG
NAIC: 524113 Direct Life Insurance Carriers; 524126 Direct Property and Casualty Insurance Carriers
American Financial Group Inc. (AFG)—formerly known as American Financial Corp.—is a diversified holding company with subsidiaries that offer private passenger automobile and specialty property and casualty insurance as well as retirement annuities, life, and supplemental health and long-term care insurance products. AFG operates with three main insurance segments—Personal, Specialty, and Annuity and Life—and has interests in United States, Puerto Rico, Canada, Mexico, Europe, and Asia. The Lindner family owns nearly 45 percent of AFG.
AFG’s principal founders were chairman and president, Carl H. Lindner, and his younger brothers, Robert D. and Richard E. Lindner. The Lindner brothers, born and raised in Ohio, started in business without the benefit of formal education, business connections, or family money. Carl Henry Lindner, born April 22, 1919, and his brothers left high school before graduating to help with the family’s small dairy business. The business finally succeeded in the 1940s under Carl Lindner’s leadership, with an entrepreneurial concept credited to their father. The Lindners’ United Dairy Farmers outlets, stores where purchasers could save on the cost of milk by direct purchase instead of home delivery, were spread through the Cincinnati area. The success of the outlets spurred the Lindner brothers into further business ventures.
On November 15, 1955, Henthy Realty Company was incorporated in Ohio by the Lindners. By 1959, the company owned three small savings and loan associations in Ohio and recorded assets of $17.7 million.
AFC Expands into Insurance: 1960s
In September 1960, the company adopted the name, American Financial Corporation (AFC). Through its subsidiaries, this financial holding company owned office buildings in Cincinnati, Norwood, and Loveland, Ohio; leased motor vehicles; and developed commercial properties.
In 1962, American Financial Corporation obtained property and casualty insurance business with the acquisition of Dempsey & Siders Agency. In 1963, AFC undertook life insurance business by acquiring United Liberty Life. The same year AFC acquired 98 percent of the outstanding shares of Athens National Bank in Ohio. The stock purchase totaled $2.3 million in cash and assumption of seller debt.
During the 1960s, American Financial Corporation acquired large stock positions in a number of companies, including the Insurance Company of North America, Chubb & Son, and Ohio Casualty. From 1968 to 1972, AFC pursued several companies, acquiring or gaining control of 16 concerns and their subsidiaries, seven of which were insurance related.
AFC remained active in the financial arena, and in 1966 sold its interest in Athens National Bank before acquiring a 92 percent share of The Provident Bank in Ohio. According to Barron’s, July 4, 1988, the management of Provident Bank resisted the takeover bid. AFC triumphed and its assets increased to nearly $350 million.
In February 1971, AFC pursued a new venture—The Cincinnati Enquirer. AFC acquired 95.5 percent of the daily newspaper, beating out such competitors as the Knight-Ridder chain and Omaha investor Warren Buffett. At the close of 1971, AFC’s stockholders numbered more than 14,000 and its assets stood at over $538 million.
National General Corporation Is Acquired: 1974
By late 1973, AFC had amassed approximately 96 percent of common stock and 85 percent of the warrants and had gained financial control of a West Coast conglomerate, National General Corporation. The merger was completed in March 1974.
National General Corporation, incorporated in Delaware in 1952 as National Theatres, Inc., was involved in the operation of motion picture theaters in the United States and abroad, motion picture production and distribution, and cable and closed-circuit television. However, 70 percent of National General Corporation’s (NGC) assets were in insurance and publishing.
NGC’s holdings included the publishers Grosset & Dunlap, Inc., and Bantam Books, Inc.; the Great American Life Insurance Company of East Orange, New Jersey, procured in 1968; and its parent sponsor, the Great American Insurance Company.
Great American Life Insurance Company (GALIC) was originally located in East Orange, New Jersey. The company was sponsored by Great American Insurance Company, and initial resources were generated by the purchase of 100,000 shares of common stock. GALIC was incorporated and licensed in 1959. In 1962, GALIC sold an additional 100,000 shares of common stock to its sponsor for nearly $1.3 million. At that time, GALIC, licensed in all states except Kansas and New York, wrote nonparticipating life, accident, and health insurance.
The Great American Insurance Company (GAIC) was incorporated in New York on March 6, 1872, and began business in New York City the following day with $1 million in authorized capital. The company remained at this status until 1903, when it received additional capital of $500,000 and was paid surplus funds of over $913,000. Eight years later, in May 1911, The Rochester German Insurance Company, located in Rochester, New York, merged with GAIC.
Starting in 1918, Great American Insurance Company began steadily to increase its capital from the $2 million gained in 1911 from the merger. GAIC created a holding company in 1929 that was dissolved in 1953. The increases in capital were facilitated by the trading of shares in a number of other insurance companies, including the Detroit Fire & Marine Insurance Company, the American Alliance Company, Great American Indemnity Company, and the Rochester American Insurance Company.
In May 1948, GAIC’s corporate structure was simplified. Its wholly-owned subsidiary, County Fire Insurance Company, in Philadelphia, was dissolved, the outstanding capital stock canceled, and its assets and liabilities transferred to GAIC. In 1953, the group was simplified further by dissolution of the affiliate, Great American Corporation, and a merger with the affiliate, American Alliance Insurance Company.
First Insurance Company of Hawaii was acquired by GAIC in 1963. Another acquisition, that of Constellation Insurance Company, renamed in 1975 Constellation Reinsurance Company, was completed two years later. By 1966, GAIC’s assets had grown to $15.6 million.
In 1967, control of Great American Insurance Company was taken by the newly formed Great American Holding Corporation. The following year this holding company became a subsidiary of National General Corporation and then was merged with that organization less than four months later. The administrative offices of Great American Insurance Company were moved to the National General Corporation’s headquarters in Los Angeles, California, in 1970.
The offices were again moved after the merger of National General Corporation and American Financial Corporation, this time to Cincinnati, Ohio, AFC’s headquarters. AFC had already gained control of GAIC in December 1971. AFC’s 1974 merger with National General Corporation gave AFC direct ownership and all outstanding capital stock in GAIC, whose assets totaled $566 million. According to Barron’s, July 4, 1988, “What attracted [Carl] Lindner to the company [National General Corporation] was its giant property and casualty operation, Great American Insurance Co.” With the NGC merger and the acquisition of Great American Insurance Company and GALIC, AFC’s assets escalated to over $2 billion. The merger also launched American Financial Corporation as one of the country’s major international insurance concerns.
Great American Insurance Company and its subsidiaries were writing practically all forms of insurance in every state and territory, as well as in Canada and in other countries. There were approximately 5,600 agents and brokers representing the company worldwide, with regional offices in 18 U.S. cities.
While Carl Lindner remained in active control as chairman, GAIC administration was directed by Stanley R. Zax, president since December 1973. GALIC was led by Jovite LaBonte, who had been appointed president and director in 1972.
American Financial Group strives to deliver financial solutions that fulfill today’s needs and tomorrow’s dreams—to be a trusted partner delivering long-term value to our customers, employees, and investors. Our purpose is to enable individuals and businesses to manage financial risk. We provide insurance products and services tailored to meet the specific and ever-changing financial risk exposures facing our customers. We build value for our investors through the strength of our customers’ satisfaction and by consistently producing superior operating results.
Under LaBonte’s direction, GALIC stopped writing group life coverage and individual and group accident and health policies in 1974. The company’s business—produced through managing general agents, agents, and brokers—included non-participating ordinary life and term contracts. In 1975, GALIC introduced a new product line—tax sheltered and single-premium annuity contracts. By 1980 these contracts produced 97 percent of all premium income.
Financial Problems Bring Change: Mid- to Late 1970s
Although the property and casualty insurance industry experienced some difficulty at the time of NGC’s merger, AFC had now moved decisively into the insurance industry. The National Underwriter, October 24, 1975, reported that, according to Charles Keating, who was AFC’s executive vice-president from 1973 to 1977, “the management of AF[C] has been intentionally evolving toward the insurance business ever since it was formed.” An estimated 60 percent of AFC’s revenues in 1975 were being generated from property and casualty insurance, mostly from Great American Insurance Company.
The stock market collapse in 1973–74 lessened the values AFC was able to realize from the sale of Bantam Books, Grosset & Dunlap, and the various theater units gained from the NGC merger. Inflation caused insurance claims and expenses to soar above premium income. Housing starts plummeted during the 1974–75 recession. The merger was costly—more than $500 million in cash, security, and debt assumption.
By early 1975, American Financial Corporation was facing a serious crisis—the maturity of an $85 million debt issue without cash or bank lines for payment. This situation existed in spite of the fact that, at the close of 1974, GAIC’s new premiums written exceeded $387 million and consolidated policy-holders’ surplus funds totaled $112 million. To cover the debt, AFC sold several small insurance operations. American Empire Insurance Company and Constellation Reinsurance Company were sold to and absorbed by Great American Insurance Company. AFC also sold The Cincinnati Enquirer, the price in excess of $50 million, providing a $10.6 million profit for AFC. In addition, GAIC increased premiums for commercial lines and shortened auto policies to six months. AFC was soon back on solid ground.
AFC’s insurance divisions underwent considerable structural change in 1976. AFC sold its 68 percent interest in United Liberty Life Insurance Company to GAIC for consolidation purposes. Great American Insurance Company in Cincinnati was incorporated as the result of the merger of Great American Insurance Company in New York with American Continental Insurance Company of Ohio. The latter had been incorporated in October 1942 as Manufacturers & Merchants Indemnity Company and had undergone several name changes, from Selective Insurance Company in 1956 to American Continental Insurance Company in 1972. In October 1976, all AFC’s insurance operations were consolidated under Great American Insurance Company.
At the close of 1976, GAIC had 4,320 employees and had written $578 million in net premiums. Its subsidiaries included Agricultural Insurance Company, American National Fire Insurance Company, Great American Life Insurance Company, Republic Indemnity Company of America, American Alliance Insurance Company, Fidelity National Life Insurance Company, American Insurance Agency, American-Financial Insurance Group, and the Constellation Reinsurance Company. In 1977, the latter was reorganized and sold.
From 1977 to 1979, AFC and GAIC pursued a number of stock and acquisition interests. In 1977, AFC purchased the Stonewall Insurance Company, which included two property-casualty insurance and two life-health subsidiary companies. GAIC purchased the outstanding stock in these enterprises but later sold the two life insurance divisions.
In 1978, GAIC acquired K.C.C. Holding Company and purchased all outstanding stock in American Continental Insurance Company and its two affiliate insurance companies. In late 1979, the outstanding capital stock was acquired in Transport Management Company in Dallas.
Ronald F. Walker, GAIC’s executive vice-president since 1972, took over its presidency in 1980. During Walker’s first year in office, Great American Insurance Company sold two of its life insurance subsidiaries to Great American Life Insurance Company: United Liberty Life Insurance Company and FN Life Insurance Company. The latter was absorbed by GALIC, now located in Ohio, by a merger in 1982. Carl Lindner continued to serve actively as chairman and CEO.
In 1981, Lindner made the company private. He and his immediate family owned nearly 90 percent of AFC and the majority of its subsidiaries, including Great American Insurance Company and Great American Life Insurance Company.
- The Lindner brothers establish the Henthy Realty Company.
- The company adopts the name American Financial Corporation (AFC).
- AFC acquires Dempsey & Siders Agency, a property and casualty business.
- The firm branches out into life insurance with the purchase of United Liberty Life.
- AFC gains control of The Great American Insurance Company (GAIC).
- National General Corporation is acquired.
- All AFC insurance operations are consolidated under GAIC.
- AFC acquires a 49.9 percent interest in the MIC group.
- The firm launches a new group of specialty product lines.
- American Premier Underwriters merges with AFC, creating a new company entitled American Financial Group Inc.
- Worldwide Insurance Co. is purchased.
- GAIC sells its Japanese division.
Finding Opportunity in the Insurance Industry: 1980s
Lindner had long established a reputation for insurance company acquisitions. During the 1980s, AFC made major stock purchases in Mission Insurance Company (MIC), a property-casualty insurance concern in California, which concentrated on workers’ compensation insurance. The insurance industry was beginning to emerge from the past decade’s recession years, and by early 1984 Lindner had acquired a 49.9 percent interest in the MIC group.
Mission Insurance Company’s financial troubles soon came to light—a situation blamed on poor underwriting and the company’s reinsurance business. Final reports in 1983 showed a loss of $37.3 million. Stock plunged from $41 to $6.38 a share; a loss of $198 million was recorded in 1984, leaving a net worth of $43 million to support the $400 million of premiums in force.
In March 1985, AFC initiated a recapitalization program for MIC. Shares of the Transport Indemnity Company, a trucking insurance company acquired by GAIC in 1981 that had been losing money, were added to MIC’s capital and surplus. However, AFC’s efforts did not solve the failing concern’s problem. In October 1985, the California Insurance Commissioner declared MIC insolvent and placed it under conservatorship. For the first nine months of the year, AFC was $31 million in the red. According to Barron’s, July 4, 1988, “Lindner’s American Financial took a loss of $162 million, writing off the entire value of its stock interest and Mission loans.”
During AFC’s harried involvement with MIC, Great American Insurance Company, then ranked number 24 among casualty insurers, was operating as the company’s core insurance operation and generating enormous cash revenues. In mid-1984, about the same time MIC’s flaws had surfaced, GAIC implemented significant price increases.
By 1986, the property and casualty insurance industry had rebounded from its crisis era. AFC added several new product lines, including life insurance. Great American Life Insurance Company’s activity had by then become focused predominantly on individual tax-sheltered annuities, which accounted for almost all premium income in 1986.
American Financial Corporation’s annual report for 1987 showed that property and casualty insurance represented 27 percent of its revenues, with life insurance and annuities at eight percent. While ranked as the second-largest contributor of revenues, property and casualty insurance was AFC’s highest source of assets, with life insurance and annuities second at 26 percent and 21 percent, respectively. That year, Great American Insurance Company showed net earnings of $200 million. The years 1988 and 1989 saw slightly smaller net earnings of $188 and $102 million, respectively.
Nearly all of the 1987 premiums of AFC’s annuity and life insurance business were related to annuities, sold primarily to teachers. These annuity premiums increased 26 percent from 1985 to 1986, and decreased by 11 percent from 1986 to 1987. The decline was attributed to a reduced demand for IRA’s due to new tax regulations.
By the late 1980s, AFC had grown from a small company with $17.7 million in assets and 50 employees to a conglomerate with 53,000 employees and $12 billion in assets. American Financial’s primary insurance business in 1990 was in multiline property and casualty insurance, headed by its wholly-owned subsidiary, Great American Insurance Company. Continually evolving to capture long-term success, in 1989 the company introduced a new group of specialty product lines, including animal mortality and a broad range of individually tailored insurance programs. In January 1989, GALIC stopped writing additional life insurance policies and Great American Life Insurance Company’s business remained almost exclusively in tax-sheltered annuities.
The Formation of American Financial Group: 1995
AFC underwent several changes during the 1990s, the most significant being the 1995 merger with American Premier Underwriters, an insurance company partially owned by the Lindner family. Under the terms of the deal, a new holding company entitled American Financial Group Inc. (AFG) was created. Then, in 1997, AFG began a restructuring effort in order to cut back on expenses and merged with two of its subsidiaries, AFC and American Financial Enterprises Inc. It also began selling off unprofitable businesses and, in 1998, GAIC sold the majority of its Commercial Lines Division to Ohio Casualty Insurance Company.
Despite the changes in its operating structure, Carl Lindner remained in control of AFG. As chairman and CEO, Lindner continued to eye expansion in the insurance sector as key to future growth for the company. As such, AFG acquired Worldwide Insurance Co. in 1999 from an Aegon USA subsidiary. The deal bolstered AFG’s auto insurance business.
Meanwhile, AFG’s property and casualty business was suffering due to a weakening underwriting market, intense competition, and lower premium rates. During 1999, AFG’s stock fell by as much as 35 percent. Feeling that the company was undervalued, Lindner purchased approximately 560,000 AFG shares for over $11.6 million on the open market in March 2000.
During the first year of the new millennium, AFG was focused on strengthening its internal technology platform and set plans in motion to offer automobile insurance quotes on the Web. The firm also began cross selling its property and casualty products with its life insurance and annuity products. In February 2000, GALIC launched its long-term care insurance product line as part of AFG’s strategy to build the Great American brand name. It also announced the sale of GAIC’s Japanese property and casualty division to Mitsui Marine and Fire Insurance Company of America.
The firm posted a net loss of $56 million in 2000, due in part to a $91.4 million write down of its stake in Chiquita Brands International, a food concern whose finances were plagued by a trade dispute between the United States and the European Union related to banana imports. After the loss, AFG began to implement rate increases to secure future profits. Lindner commented on AFG’s strategy in a 2001 company press release, stating that “we will continue to maintain a strong reserve position. We expect improvement in our personal groups’ combined ratio, we expect continued growth through new product development in life and annuities, and we will continue to look for ways to use e-commerce to expand business opportunities.” Lindner also claimed that “we will sacrifice market share to achieve profitability.”
As the insurance industry as a whole began to recover from downward trends of the 1990s, AFG’s rate increases began to show signs of success. Net earnings increased to $105.7 million and the firm reported a loss of $14.8 million—down from the $56 million loss reported in 2000. AFG management felt confident that the company was headed in the right direction and expected significant improvement in its financial results in 2002 and the years to come.
AFC Holding Company; American Financial Capital Trust I; American Financial Corporation; American Money Management Corporation; American Premier Underwriters, Inc.; Pennsylvania Company; Atlanta Casualty Company; Infinity Insurance Company; Infinity National Insurance Company; Infinity Select Insurance Company; Leader Insurance Company; Leader Specialty Insurance Company; TICO Insurance Company; Republic Indemnity Company of America; Republic Indemnity Company of California; Windsor Insurance Company; Regal Insurance Company; Premier Lease & Loan Services Insurance Agency, Inc.; Premier Lease & Loan Services of Canada, Inc.; Great American Insurance Company; American Empire Surplus Lines Insurance Company; American Empire Insurance Company; Fidelity Excess and Surplus Insurance Company; Great American Alliance Insurance Company; Great American Assurance Company; Great American Contemporary Insurance Company; Great American Custom Insurance Services, Inc.; Great American E&S Insurance Company; Great American Fidelity Insurance Company; Great American Financial Resources, Inc.; AAG Holding Company, Inc.; Great American Life Insurance Company; Annuity Investors Life Insurance Company; Loyal American Life Insurance Company; United Teacher Associates Insurance Company; Great American Life Assurance Company of Puerto Rico, Inc.; Great American Insurance Company of New York; Great American Management Services, Inc.; Great American Protection Insurance Company; Great American Security Insurance Company; Great American Spirit Insurance Company; Mid-Continent Casualty Company; Oklahoma Surety Company; National Interstate Corporation; Transport Insurance Company; Worldwide Insurance Company.
The Allstate Corporation; The Progressive Corporation; State Farm Insurance Companies.
“American Financial Group Restructures Operations,” Best’s Review—Life-Health Insurance Edition, September 1997, p. 97.
“Carl Lindner Wields His Clout in the Boardroom,” Business Week, July 2, 1984.
“Investments Cause American Financial to Take a Loss,” A.M. Best Newswire, February 12, 2001.
Lombaerde, Geert De, “American Financial Diversifies, Heads Onto Web,” Business Courier Serving Cincinnati, May 12, 2000, p. 31.
——, “American Financial’s Charm Cast Spell on Another Analyst,” Business Courier Serving Cincinnati, December 29, 2000, p. 19.
Norris, Floyd, “Rescue Mission: Saving Carl Lindner’s Ailing Insurer Won’t Be Easy,” Barron’s, October 14, 1985.
—update: Christina M. Stansell