American Financial Offers Prelim. Estimate of LT Care Charge Driven by Continued Low Interest Rates, Sees $0.88-1.09/Share Charge
American Financial Group, Inc. (NYSE/NASDAQ: AFG) today released preliminary results of its periodic review of its closed block of long-term care insurance, including the impact of the previously announced external actuarial study. Preliminary results indicate the Company will be required to record an after-tax charge of $80 to $100 million ($0.88 to $1.09 per diluted common share) to write off deferred acquisition costs and strengthen reserves on this block of business. This charge is primarily due to lower projected future investment rates resulting from the continued low interest rate environment and assumes no material change in the interest rate environment between now and when full year 2012 results are announced. This charge will be excluded from core net operating earnings. As a result, AFG reaffirmed its previously announced 2012 core net operating earnings guidance of $3.10 to $3.30 per share.
The charge also reflects changes in claims, expense and persistency assumptions, including the impact of data from the external study, which supplemented the Company's internal analysis of claim experience relative to broader industry trends. After the charge, the Company expects that its long-term care subsidiaries will continue to remain adequately capitalized and will not require a capital contribution from AFG.
Full year core net operating earnings will include the results of the review (“unlocking”) of major actuarial assumptions, including investment rates, on the Company's annuity business. Preliminary results indicate this review will result in an after-tax charge of less than $15 million ($0.16 per diluted common share), which is reflected in the earnings guidance above.
Final results of both the long-term care periodic review and the annuity DAC unlocking will be included in the announcement of full year 2012 results to be issued in January 2013.
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