Answer
American Financial Group (AFG) reported an annualized return on equity (ROE) of 15.0 % for the second quarter of 2025.
To understand what this figure means, we can look at two dimensions:
| Dimension | What the 15 % ROE tells us |
|---|---|
| Historical performance for AFG | • In the same quarter a year earlier (Q2 2024) AFG’s ROE was 18 %. • The 15 % figure therefore represents a decline of about 3 percentage points (≈ 17 % lower than the prior‑year level). • The drop is driven by a combination of lower net earnings ($174 M vs $209 M a year ago) and a modest increase in the equity base, which together reduce the return generated on each dollar of capital. |
| Comparison with peers (U.S. property‑&‑casualty insurers & diversified insurance groups) | • The insurance industry is capital‑intensive and typically generates mid‑single‑digit to low‑double‑digit ROE. • In 2025, many comparable publicly‑traded insurers (e.g., Chubb, The Travelers Companies, ** Liberty Mutual, Cincinnati Financial) posted **ROE ranging from roughly 9 % to 13 % for the first half of the year. • AFG’s 15 % ROE is therefore **above the average peer level, indicating that AFG still creates more profit per unit of equity than most of its direct competitors. • Even though it is lower than its own 2024 Q2 performance, the 15 % rate remains relatively strong within the sector and suggests the company retains a competitive advantage in underwriting discipline, investment returns, or expense management. |
Key Take‑aways
Downward trend for AFG – The 15 % ROE is 3 percentage points lower than the 18 % ROE recorded in Q2 2024. This reflects a modest slowdown in profitability, primarily because earnings fell while the equity base grew.
Still out‑performing the industry – Most U.S. insurance peers are generating ROE in the 9 %–13 % range. AFG’s 15 % is well above that benchmark, underscoring that the company continues to deliver a higher return on capital than the typical competitor.
Implications for investors –
- Positive – The 15 % ROE signals that AFG’s capital is still being employed efficiently relative to the broader market, which can support a higher valuation multiple and justify a stable or modestly rising dividend.
- Caution – The decline from 18 % to 15 % suggests a potential head‑wind (e.g., tougher underwriting conditions, higher claims, or a more conservative investment portfolio). Investors should monitor whether the ROE stabilizes, improves, or continues to slide in subsequent quarters.
- Positive – The 15 % ROE signals that AFG’s capital is still being employed efficiently relative to the broader market, which can support a higher valuation multiple and justify a stable or modestly rising dividend.
Contextual Summary
- Historical: AFG’s ROE fell from 18 % (Q2 2024) to 15 % (Q2 2025) – a ~17 % reduction in the rate of return on equity.
- Peer‑group: The industry average for comparable insurers in 2025 is ≈ 11 % (mid‑range of 9 %–13 %). AFG’s 15 % is ~4 percentage points higher, indicating relative strength despite the year‑over‑year dip.
Overall, AFG’s 15 % ROE remains strong by sector standards, but the downward shift from its own historical level is a signal to watch. If the company can re‑accelerate earnings growth or improve capital efficiency, the ROE could rebound toward or even exceed its 2024 peak. Otherwise, the current level still places AFG among the better‑performing insurers in terms of capital returns.