AFG's insurance subsidiaries lease the majority of their office and storage facilities in numerous cities throughout the United States, including Great American's and AAG's home offices in Cincinnati. An AAG subsidiary owns an office building in Mobile, Alabama which is being marketed for sale or lease; one-fifth of its 82,000 square feet is company occupied.
(d) Includes AFC preferred stock following the Mergers and trust preferred securities of subsidiaries issued in 1996 and 1997.
Sources of Funds AFG and its subsidiaries, AFC Holding, AFC and American Premier, are organized as holding companies with almost all of their operations being conducted by subsidiaries. These parent corporations, however, have continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Funds to meet these obligations come primarily from dividend and tax payments from their subsidiaries.
The senior debentures of AFG, AFC and AAG are rated investment grade by three nationally recognized rating agencies; the subordinated debentures of APU and AAG are rated investment grade by two of the agencies.
A new five-year, $300 million bank credit line was established by AFC in February 1998 replacing two subsidiary holding company lines. The new credit line provides ample liquidity and can be used to obtain funds for operating subsidiaries or, if necessary, for the parent companies. At December 31, 1998, there was $80 million borrowed under the line.
In 1997, AFG filed a shelf registration statement for the future issuance of up to an aggregate of $500 million in common stock, debt or trust securities. The filing provides AFG with greater flexibility to access the capital markets from time to time as market and other conditions permit. In December 1997, AFG issued $100 million of 7-1/8% Senior Debentures due 2007 under this shelf registration statement. AFG used the proceeds to retire outstanding preferred stock of AFC and minority shares of a subsidiary.
Dividend payments from subsidiaries have been very important to the liquidity and cash flow of the individual holding companies in the past. However, the reliance on such dividend payments has been lessened by the combination of (i) strong capital at AFG's insurance subsidiaries (and the related decreased likelihood of a need for investment in those companies), (ii) the reductions of debt at the holding companies (and the related decrease in ongoing cash needs for interest and principal payments), (iii) AFG's ability to obtain financing in capital markets, as well as (iv) the sales of noncore investments.
Under tax allocation agreements with AFC, its 80%-owned U.S. subsidiaries generally compute tax provisions as if filing separate returns based on book taxable income computed in accordance with generally accepted accounting principles. The resulting provision (or credit) is currently payable to (or receivable from) AFC.
From the inception of the Year 2000 Project in the early 1990's through December 31, 1998, AFG estimates that it has incurred approximately $46 million in costs related to the Project, including capitalized costs of $10 million for new systems. During 1998, $27 million in such costs have been expensed. AFG estimates that it will incur an additional $26 million of such costs in completing the Project, about two-thirds of which is projected to be expensed.
Exposure to Market Risk Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. AFG's exposures to market risk relate primarily to its investment portfolio and annuity contracts which are exposed to interest rate risk and, to a lesser extent, equity price risk. AFG's long-term debt is also exposed to interest rate risk. AFG's investments in derivatives were not significant at December 31, 1998.
Equity Price Risk Equity price risk is the potential economic loss from adverse changes in equity security prices. Although AFG's investment in "Other stocks" is less than 4% of total investments, it is concentrated in a relatively limited number of major positions. While this approach allows management to more closely monitor the companies and industries in which they operate, it does increase risk exposure to adverse price declines in a major position.
Debt and Preferred Securities The following table shows scheduled principal payments (in millions) on fixed-rate and variable-rate long-term debt of AFG and its subsidiaries and related weighted average interest rates. At December 31, 1998, there were $325 million of subsidiary trust preferred securities outstanding, none of which are scheduled for redemption during the next five years; weighted average interest rate on these securities is 8.66%.
Fixed-Rate Debt Variable-Rate Debt Weighted Weighted Scheduled Average Scheduled Average Principal Interest Principal Interest Payments Rate Payments Rate 1999 $ 90.7 9.69% $ .3 5.86% 2000 49.1 9.85 .2 5.80 2001 1.2 7.13 .1 5.58 2002 1.1 6.81 85.7 5.95 2003 1.1 6.68 27.2 6.09 Thereafter 333.3 7.92 .2 5.58
Fixed income investment funds are generally invested in securities with short-term and intermediate-term maturities with an objective of optimizing total return while allowing flexibility to react to changes in market conditions. At December 31, 1998, the average life of AFG's fixed maturities was just under 6 years.
Prior to the Mergers, the realization of capital gains, primarily through sales of equity securities, was an integral part of AFG's investment program. Individual securities are sold creating gains or losses as market opportunities exist. Pretax capital gains recognized upon disposition of securities, including investees, during the past five years have been: 1998 - $16 million; 1997 - $57 million; 1996 - $166 million; 1995 - $84 million and 1994 - $50 million. At December 31, 1998, the net unrealized gain (before income taxes) on AFG's fixed maturities and equity securities was $403 million and $223 million, respectively.
Results for 1998 include a pretax charge in the fourth quarter of $214 million attributable to an increase in loss reserves relating to asbestos and environmental coverages ("A&E"), $180 million in pretax gains, primarily from the sale of substantially all of AFG's Commercial lines division and the Funeral Services division, and a $34 million decline in the underwriting results in AFG's property and casualty insurance business (excluding the special A&E charge) due primarily to increased catastrophe losses.
Property and Casualty Insurance - Underwriting Following the sale of its Commercial lines division in late 1998, AFG's property and casualty group is engaged primarily in private passenger automobile and specialty insurance businesses. Accordingly, AFG has realigned its property and casualty group into two major business groups: Personal and Specialty.
Underwriting profitability is measured by the combined ratio which is a sum of the ratios of underwriting losses, loss adjustment expenses, underwriting expenses and policyholder dividends to premiums. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the ratio is over 100%, underwriting results are generally considered unprofitable. The combined ratio does not reflect investment income, other income or federal income taxes.
1998 1997 1996 Net Written Premiums (GAAP) Personal $1,279 $1,345 $1,384 Specialty 1,312(*) 1,468 1,367 Other Lines 18 45 37 $2,609 $2,858 $2,788
(*) Before a reduction of $138 million for the unearned premium transfer related to the sale of the Commercial lines division.
The Personal group's net written premiums decreased $39.6 million (3%) during 1997 due primarily to a reinsurance agreement, effective January 1, 1997, under which 80% of all AFG's homeowners' business was reinsured. Excluding the impact of
the reinsurance agreement, premiums increased 4%. Volume increases in the California nonstandard auto business resulting from enactment of legislation which requires drivers to provide proof of insurance in order to obtain a valid permit contributed to a growth in personal automobile business. Rate increases during 1995 and early 1996, primarily in the nonstandard auto group, contributed to the improvement in the combined ratio in 1997.
1998 compared to 1997 Investment income increased $14.8 million (2%) from 1997 due primarily to an increase in the average amount of investments held partially offset by decreasing market interest rates.
Investee Corporation Equity in net losses of investee corporation represents AFG's proportionate share of the results of Chiquita Brands International. Equity in net losses excludes AFG's share of amounts included in extraordinary items; the amount for 1996 includes $1.5 million in earnings from Citicasters which was sold in 1996.
AFG recorded equity in net losses of Chiquita of $13.2 million, $5.6 million and $18.4 million in 1998, 1997 and 1996, respectively. Chiquita's loss attributable to common shareholders (before extraordinary items) was $35.5 million, $16.6 million and $39.7 million during these same periods.
Chiquita's results for 1998 include pretax writedowns and costs of $74 million resulting from widespread flooding in Honduras and Guatemala caused by Hurricane Mitch. Excluding these unusual items, Chiquita's operating income improved $52 million in 1998 compared to 1997 due primarily to lower delivered product costs for bananas on higher worldwide volume, which more than offset the adverse effect of lower banana pricing.
Chiquita's results for 1996 include pretax writedowns and costs of $70 million resulting from (i) industry-wide flooding in Costa Rica, Guatemala and Honduras, (ii) certain strategic undertakings designed to achieve further long-term reductions in the delivered product cost of Chiquita bananas and (iii) certain claims relating to prior European Union quota restructuring actions.
Annuity benefits decreased $17.2 million (6%) from 1997 due primarily to decreases in crediting rates and changes in actuarial assumptions. Annuity benefits increased $7 million (3%) in 1997 due primarily to an increase in average annuity benefits accumulated partially offset by decreases in crediting rates.
Income Taxes See Note J to the Financial Statements for an analysis of items affecting AFG's effective tax rate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Financial Group, Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Recoverables from reinsurers and prepaid reinsurance premiums 1,973,895 998,743 Agents' balances and premiums receivable 618,198 691,005 Deferred acquisition costs 464,047 521,898 Other receivables 306,821 243,330 Assets held in separate accounts 120,049 300,491 Prepaid expenses, deferred charges and other assets 344,465 410,569 Cost in excess of net assets acquired 281,769 299,408
$15,845,203 $15,755,349 Liabilities and Capital: Unpaid losses and loss adjustment expenses $ 4,773,377 $ 4,225,336 Unearned premiums 1,232,848 1,328,910 Annuity benefits accumulated 5,449,633 5,528,111 Life, accident and health reserves 341,595 709,899 Long-term debt: Holding companies 415,536 386,661 Subsidiaries 176,896 194,084 Liabilities related to separate accounts 120,049 300,491 Accounts payable, accrued expenses and other liabilities 1,097,316 906,151 Total liabilities 13,607,250 13,579,643
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands)
A. Accounting Policies H. Minority Interest B. Acquisitions and Sales of Subsidiaries I. Shareholders' Equity and Investees J. Income Taxes C. Segments of Operations K. Extraordinary Items D. Investments L. Commitments and Contingencies E. Investment in Investee Corporations M. Quarterly Operating Results F. Cost in Excess of Net Assets Acquired N. Insurance G. Long-Term Debt O. Additional Information P. Subsequent Event
Short-term investments are carried at cost; loans receivable are carried primarily at the aggregate unpaid balance. Premiums and discounts on mortgage-backed securities are amortized over their expected average lives using the interest method.
Minority Interest For balance sheet purposes, minority interest represents the interests of noncontrolling shareholders in AFG subsidiaries, including American Financial Corporation ("AFC") preferred stock and preferred securities issued by trust subsidiaries of AFG. For income statement purposes, minority interest expense represents those shareholders' interest in the earnings of AFG subsidiaries as well as AFC preferred dividends and accrued distributions on the trust preferred securities.
Under AFG's stock option plan, options are granted to officers, directors and key employees at exercise prices equal to the fair value of the shares at the dates of grant. No compensation expense is recognized for stock option grants.
Derivatives The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," during the second quarter of 1998. SFAS No. 133 is effective for fiscal periods (both years and quarters) beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments that are embedded in other contracts, and for hedging activities. SFAS No. 133 requires the recognition of all derivatives (both assets and liabilities) in the statement of financial position at fair value. Changes in fair value of derivative instruments are included in current income or as a component of comprehensive income (outside current income) depending on the type of derivative. Implementation of SFAS No. 133 is not expected to have a material effect on AFG's financial position or results of operations.
Comprehensive Income Effective January 1, 1998, AFG implemented SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 uses the term "comprehensive income" to describe the total of net earnings plus other comprehensive income. For AFG, other comprehensive income represents the change in net unrealized gain on marketable securities net of deferred taxes. Implementation of this statement had no impact on net earnings or shareholders' equity. Appropriate data for prior periods has been added to conform to the current presentation.
Statement of Cash Flows For cash flow purposes, "investing activities" are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. "Financing activities" include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, benefits and withdrawals are also reflected as financing activities. All other activities are considered "operating". Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.
Commercial lines division In December 1998, AFG completed the sale of substantially all of its Commercial lines division to Ohio Casualty Corporation for $300 million plus warrants to purchase 3 million shares of Ohio Casualty common stock. AFG retained $300 million in securities it would otherwise have transferred to Ohio Casualty in connection with the reinsurance of business assumed by Ohio Casualty. For accounting purposes, the insurance liabilities ceded to Ohio Casualty and the sale of the other net assets are required to be accounted for separately. AFG deferred a gain of $103 million on the insurance ceded to Ohio Casualty and recognized a pretax gain of $153 million on the sale of the other net assets. The deferred gain is being recognized over the estimated remaining settlement period (weighted average of 4.25 years) of the claims ceded. AFG may receive up to an additional $40 million in the year 2000 based upon the retention and growth of the insurance businesses acquired by Ohio Casualty. The commercial lines sold generated net written premiums of approximately $250 million in 1998 (11 months), $315 million in 1997 and $314 million in 1996.
Funeral Services division In September 1998, AAG sold its Funeral Services division for approximately $165 million in cash. The division held assets of approximately $1 billion at the sale date. AFG realized a third quarter pretax gain of $21.6 million, before $2.7 million of minority interest, on this sale.
Millennium Dynamics, Inc. In December 1997, AFG completed the sale of the assets of its software solutions and consulting services subsidiary, Millennium Dynamics, Inc. ("MDI"), to a subsidiary of Peritus Software Services, Inc. for $30 million in cash and 2,175,000 shares of Peritus common stock. AFG recognized a pretax gain of approximately $50 million on the sale.
Buckeye In 1996, AFG sold Buckeye Management Company to Buckeye's management (including an AFG director who resigned in March 1996) and employees for $60 million in cash, net of transaction costs. AFG recognized a $33.9 million pretax gain on the sale. In connection with the sale, the AFG director converted his AFG convertible preferred stock into 446,799 shares of AFG Common Stock and sold such shares in the open market.
Effective January 1, 1998, AFG implemented SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires segment information to be reported based on how management internally evaluates the operating performance of its business units. Implementation of this standard had no impact on AFG's financial position or results of operations.
1998 1997 1996 Assets Property and casualty insurance (a) $ 8,278,898 $ 7,517,856 $ 7,116,088 Annuities and life 7,174,544 7,693,463 7,009,127 Other 199,623 343,316 726,252 15,653,065 15,554,635 14,851,467 Investment in investees 192,138 200,714 199,651
$15,845,203 $15,755,349 $15,051,118 Revenues (b) Property and casualty insurance: Premiums earned: Personal $ 1,289,689 $ 1,356,642 $ 1,447,751 Specialty 1,371,509 1,429,143 1,355,906 Other lines 37,540 38,596 40,855 2,698,738 2,824,381 2,844,512 Investment and other income 643,106 448,849 500,897 3,341,844 3,273,230 3,345,409 Annuities and life (c) 729,854 638,348 585,079 Other (8,466) 114,709 201,864 4,063,232 4,026,287 4,132,352 Equity in net losses of investees (13,198) (5,564) (16,955)
The table below sets forth the scheduled maturities of fixed maturities based on market value as of December 31, 1998. Data based on amortized cost is generally the same. Mortgage-backed securities had an average life of approximately 4.6 years at December 31, 1998.
Realized 11,542 34,464 (16,102) 29,904 Change in Unrealized 222,188 107,600 (115,426) 214,362
Realized (16,545) 13,075 8,199 4,729 Change in Unrealized (271,803) 70,000 70,631 (131,172)
Maturities and Gross Gross Purchases Redemptions Sales Gains Losses Held to Maturity (*) $ .8 $ 585.0 $ 45.3 $12.1 ($ .5) Available for Sale 2,154.4 663.8 750.2 24.9 ( 17.5) Total $2,155.2 $1,248.8 $ 795.5 $37.0 ($18.0)
Held to Maturity $ 202.8 $ 332.5 $ 9.3 $ 2.4 ($ 1.2) Available for Sale 1,925.8 284.8 871.8 29.6 (47.3) Total $2,128.6 $ 617.3 $ 881.1 $32.0 ($48.5)
E. Investment in Investee Corporation Investment in investee corporation reflects AFG's ownership of 24 million shares (37%) of Chiquita common stock. The market value of this investment was $229 million and $391 million at December 31, 1998 and 1997, respectively. Chiquita is a leading international marketer, producer and distributor of quality fresh fruits and vegetables and processed foods. Equity in net losses excludes AFG's share of amounts included in extraordinary items; the amount for 1996 includes $1.5 million in earnings from Citicasters which was sold in 1996.
F. Cost in Excess of Net Assets Acquired At December 31, 1998 and 1997, accumulated amortization of the excess of cost over net assets of purchased subsidiaries amounted to approximately $143 million and $133 million, respectively. Amortization expense was $11.9 million in 1998, $11.6 million in 1997 and $10.8 million in 1996.
At December 31, 1998, sinking fund and other scheduled principal payments on debt for the subsequent five years were as follows (in thousands):
In February 1998, AFC entered into an unsecured credit agreement with a group of banks under which AFC can borrow up to $300 million through December 2002. Borrowings bear interest at floating rates based on prime or Eurodollar rates. At December 31, 1998 and 1997, the weighted average interest rate on amounts borrowed under this bank credit line and a previous one was 5.68% and 6.81%, respectively.
Significant retirements of long-term debt since January 1, 1997, have been as follows (in millions):
H. Minority Interest Minority interest in AFG's balance sheet is comprised of the following (in thousands): 1998 1997 Interest of noncontrolling shareholders in subsidiaries' common stock $124,622 $115,843 Preferred securities issued by subsidiary trusts 325,000 325,000 AFC preferred stock 72,154 72,154
AFCH and AAG effectively provide unconditional guarantees of their respective trusts' obligations and AFG guarantees AFCH's obligation.
Stock Options At December 31, 1998, there were 4.7 million shares of AFG Common Stock reserved for issuance under AFG's Stock Option Plan. Options are granted with an exercise price equal to the market price of AFG Common Stock at the date of grant. Options generally become exercisable at the rate of 20% per year commencing one year after grant; those granted to nonemployee directors of AFG are fully exercisable upon grant. All options expire ten years after the date of grant. Data for AFG's Stock Option Plan is presented below:
Options Outstanding Options Exercisable Average Average Average Range of Exercise Remaining Exercise Exercise Prices Shares Price Life Shares Price $17.24 - $20.00 99,405 $18.22 2.0 years 99,405 $18.22 $20.00 - $25.00 1,271,850 $23.95 5.0 952,577 $23.94 $25.00 - $30.00 291,864 $27.16 5.0 257,791 $27.26 $30.00 - $35.00 1,013,250 $30.34 7.1 597,900 $30.22 $35.00 - $45.19 1,132,000 $39.09 8.6 178,200 $37.81
Amounts applicable to extraordinary items 495 4,054 7,003 Provision for income taxes as shown on the Statement of Earnings $ 79,584 $120,127 $ 91,277
1998 1997 1996 Subject to tax in: United States $196,020 $317,615 $331,842 Foreign jurisdictions 7,469 (9,292) (14,268)
1998 1997 1996 Current taxes (credits): Federal $63,368 $ 35,495 $22,450 Foreign 94 - (1,735) State 652 (2,544) 6,369 Deferred taxes: Federal 14,553 83,581 56,869 Foreign 422 (459) 321
For income tax purposes, certain members of the AFC consolidated tax group had the following carryforwards available at December 31, 1998 (in millions):
Expiring Amount { 1999 - 2003 $70 Operating Loss { 2004 - 2008 56 Capital Loss 1999 68 Other - Tax Credits 15
1998 1997 Deferred tax assets: Net operating loss carryforwards $ 44.3 $ 66.6 Capital loss carryforwards 23.7 32.0 Insurance claims and reserves 291.2 287.5 Other, net 110.0 148.8 469.2 534.9 Valuation allowance for deferred tax assets (88.6) (97.9) 380.6 437.0 Deferred tax liabilities: Deferred acquisition costs (121.3) (127.4) Investment securities (267.9) (268.2) (389.2) (395.6)
Cash payments for income taxes, net of refunds, were $45.9 million, $51.6 million and $40.2 million for 1998, 1997 and 1996, respectively.
K. Extraordinary Items Extraordinary items represent AFG's proportionate share of gains and losses related to debt retirements by the following companies. Amounts shown are net of minority interest and income tax benefits (in thousands): 1998 1997 1996 Holding Companies: AFC (parent) ($ 77) ($5,395) ($ 9,672) APU (parent) (44) (588) (3,254) Subsidiaries: AAG (649) (1,250) (7,159) Other - - 57 Investee: Chiquita - - (8,639)
American Premier's liability for environmental claims of $32.4 million at December 31, 1998, consists of a number of proceedings and claims seeking to impose responsibility for hazardous waste remediation costs at certain railroad sites formerly owned by PCTC and certain other sites where hazardous waste was allegedly generated by PCTC's railroad related operations. It is difficult to estimate remediation costs for a number of reasons, including the number and financial resources of other potentially responsible parties, the range of costs for remediation alternatives, changing technology and the time period over which these matters develop. American Premier's liability is based on information currently available and is subject to change as additional information becomes available.
1st 2nd 3rd 4th Total Quarter Quarter Quarter Quarter Year 1998 $22.0 $8.9 $25.4 $123.4 $179.7 1997 2.5 4.2 29.7 54.6 91.0
Insurance Reserves The liability for losses and loss adjustment expenses for certain long-term scheduled payments under workers' compensation, auto liability and other liability insurance has been discounted at rates ranging from 3.5% to 8%. As a result, the total liability for losses and loss adjustment expenses at December 31, 1998, has been reduced by $41 million.
Reserves transferred to Ohio Casualty (481) - - Reclassification of allowance for uncollectible reinsurance 77 - -
Net Investment Income The following table shows (in millions) investment income earned and investment expenses incurred by AFG's insurance companies.
1998 1997 1996 Insurance group investment income: Fixed maturities $849.6 $830.6 $817.8 Equity securities 9.1 6.4 8.2 Other 12.1 10.6 13.5 870.8 847.6 839.5 Insurance group investment expenses (*) (42.6) (37.3) (38.5)
Future minimum rentals, related principally to office space and railroad rolling stock, required under operating leases having initial or remaining noncancelable lease terms in excess of one year at December 31, 1998, were as follows: 1999 - $40 million; 2000 - $35 million; 2001 - $31 million; 2002 - $25 million; 2003 - $19 million; and $19 million thereafter. At December 31, 1998, minimum sublease rentals to be received through the expiration of the leases aggregated $9 million.
Liabilities: Annuity benefits accumulated $ 5,450 $ 5,307 $ 5,528 $ 5,319 Long-term debt: Holding companies 415 428 387 401 Subsidiaries 177 176 194 195
Minority Interest: Trust preferred securities $ 325 $ 336 $ 325 $ 339 AFC preferred stock 72 80 72 74
Financial Instruments with Off-Balance-Sheet Risk On occasion, AFG and its subsidiaries have entered into financial instrument transactions which may present off-balance-sheet risks of both a credit and market risk nature. These transactions include commitments to fund loans, loan guarantees and commitments to purchase and sell securities or loans. At December 31, 1998, AFG and its subsidiaries had commitments to fund credit facilities and contribute limited partnership capital totaling up to $80 million.
In a 1997 transaction, AAG purchased for $4.9 million a minority ownership position in a company engaged in the production of ethanol. AFG's Chairman purchased the remaining ownership. During 1998, this company borrowed $4.0 million from AAG under a subordinated note bearing interest at 14% and paid a $6.3 million capital distribution, including $3.1 million to AAG. AAG's equity investment in this company at December 31, 1998 was $1.8 million. In addition, AAG and Great American have each extended a $5 million line of credit to this company; no amounts have been borrowed under the credit lines.
$1,934,453 $1,893,607 Liabilities and Shareholders' Equity: Accounts payable, accrued expenses and other liabilities $ 1,659 $ 8,131 Long-term debt 100,000 100,000 Payables to affiliates 116,617 122,767 Shareholders' equity 1,716,177 1,662,709
Year Ended December 31, 1998 1997 1996 Income: Dividends from subsidiaries $ 282 $ 281 $693,758 Equity in undistributed earnings of subsidiaries 209,453 301,385 (345,484) Investment and other income 22,367 35,470 11,723 232,102 337,136 359,997
Extraordinary items - loss on prepayment of debt (770) (7,233) (28,667)
(*) The Parent Only Financial Statements include the accounts of AFG and its predecessor, AFC Holding Company, a wholly-owned subsidiary.
Financing Activities: Additional long-term borrowings - 98,987 - Issuance of subordinated notes to subsidiary trust - - 96,464 Issuances of common stock 13,238 13,845 26,296 Repurchases of common stock (20,651) (97,320) (8,563) Cash dividends paid (79,457) (77,941) (79,051) (86,870) (62,429) 35,146
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS THREE YEARS ENDED DECEMBER 31, 1998 (IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E (a) RESERVES FOR DEFERRED UNPAID CLAIMS (b) AFFILIATION POLICY AND CLAIMS DISCOUNT (c) WITH ACQUISITION ADJUSTMENT DEDUCTED IN COLUMN C UNEARNED REGISTRANT COSTS EXPENSES PREMIUMS
(a) Grossed up for reinsurance recoverables of $1,468 and $736 at December 31, 1998 and 1997, respectively. (b) Discounted at rates ranging from 3.5% to 8%. (c) Grossed up for prepaid reinsurance premiums of $314 and $189 at December 31, 1998 and 1997, respectively. (d) Before a reduction of $138 million for unearned premium transfer related to the sale of the Commercial lines division.
s/CARL H. LINDNER Chairman of the Board March 29, 1999 Carl H. Lindner of Directors