On August 31, American Financial Group (NYSE:AFG) announced it had closed the sale of Charleston Harbor Resort & Marina, a property it had agreed to offload back in April. The insurer expects to book a pretax core operating gain of roughly $125 million, or $1.20 per share after tax, subject to final cost accounting. It is a tidy windfall from a business American Financial Group did not even list among its original 2026 plans, but the more interesting story sits in the underwriting results the company posted three weeks earlier.
Underwriting Muscle Flexes Harder
American Financial Group’s specialty property and casualty business improved its combined ratio to 91.5% in the second quarter, a 1.6-point gain from the year-ago period, while underwriting profit climbed to $144 million from $114 million. Much of that gain traces to the Property and Transportation Group, where profit more than doubled to $57 million from $27 million and the combined ratio improved by 4.9 points to 90.3%. Net written premiums across the company grew 6% year over year, and American Financial Group pushed through average renewal rate increases of about 5%, excluding workers’ compensation, even as it acknowledged that some corners of the P&C market have softened.
That combination, growing the book while still raising prices, helped produce a 20.3% annualized return on equity and a core operating return on equity of 19.2% for the quarter. Net investment income in the P&C business also set a second-quarter record, up 23% from a year ago, largely because the alternative investment portfolio returned an annualized 7.1% for the quarter. Management pointed to a five year average near 11% on that book and guided to long-term annual returns of 10% or better.
Cracks In The Armor
Not every part of the business moved in the same direction. The Specialty Casualty Group’s underwriting profit slipped to $45 million from $49 million, and its combined ratio ticked up to 94.5% from 93.9%. The dip traces mostly to workers’ compensation and professional liability results, which softened enough to outweigh gains in the group’s environmental, construction and energy-related casualty lines. Pricing cooled in places too: renewal rates in the Specialty Financial Group actually fell slightly, less than 1%, even as premiums in that group grew 10%.
The alternative investment gains that lifted this quarter’s numbers also swing hard from period to period. A 7.1% quarterly return follows a 1.2% return in the same quarter a year earlier, a reminder that this slice of net investment income is far less predictable than the underwriting side of the business. American Financial Group’s fixed maturity portfolio, meanwhile, carried $116 million in after-tax unrealized losses at quarter-end, even though 97% of it remains investment grade.
Wall Street’s Mixed Signal
Hedge fund ownership of American Financial Group fell to 39 funds last quarter, down from 45, a sign of cooling institutional conviction. Short interest sits at just 2.30% of float, which points to little organized skepticism toward the shares. The stock trades at a forward P/E of 11.53, as of September 21, a modest multiple that assumes limited growth ahead. Fewer funds holding a stock this cheaply valued and this lightly shorted is a tension worth noting.
The Real Question Ahead
The marina sale is a one-time boost, not a repeatable earnings driver, and American Financial Group has said the final figure still depends on closing adjustments. The more durable story is whether the company can keep growing premiums while raising prices in a market it admits is softening in places, and whether alternative investment returns keep running above their long-term average or drift back toward it. For the underwriting engine to keep carrying the stock, the casualty softness would need to stabilize rather than spread.
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