管理層發言
Good day, and thank you for your patience. Welcome to the American Financial Group Fourth Quarter Results Conference Call for 2025. Please note that this conference is being recorded. I will now turn the call over to Diane Weidner, Vice President of Investor Relations. Please proceed.
Thank you. Good morning, and welcome to American Financial Group's Fourth Quarter and Full Year 2025 Earnings Results Conference Call. We released our results yesterday afternoon. Our press release, investor supplement and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call. Joining me this morning are Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause our actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or in responses to questions. A reconciliation of net earnings to core net operating earnings is included in our earnings release. And finally, if you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy. As a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I'm pleased to turn the call over to Craig Lindner to discuss our results.
Good morning. I'll begin by sharing the highlights of AFG's 2025, 4th quarter and full year results, after which Carl will walk through more details about our P&C operations and share AFG's business plan assumptions for 2026. We'll then open it up for Q&A, where Carl, Brian and I will respond to your questions. The fourth quarter marked a strong finish to a great year for AFG. Our compelling mix of specialty insurance businesses, entrepreneurial culture, disciplined operating philosophy and highly skilled team of in-house investment professionals collectively have enabled us to outperform many of our peers and continue to position us well for the future. Carl and I thank God, our talented management team and our great employees for helping us achieve these results. As you'll see on Slide 3, AFG's core net operating earnings were $10.29 per share for the full year 2025, generating a core operating return on equity of 18.2%. This ROE is calculated using an average of the 5 most recent quarter-end balances of shareholders' equity, excluding AOCI. We closed out the year with an exceptionally strong fourth quarter. As you'll see on Slides 4 and 5, core net operating earnings per share were $3.65 per share, producing an annualized fourth quarter core return on equity of 25.2%. Capital management is one of our highest priorities. Returning capital to our shareholders is a key component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future. In 2025, we returned over $700 million to shareholders, which included $334 million or $4 per share in special dividends, $274 million in regular common stock dividends, and $99 million in share repurchases. Over the past 5 years, dividend payments and share repurchases have totaled $6.3 billion. Additionally, we increased our quarterly dividend by 10% to an annual rate of $3.52 per share beginning in October of 2025. Now I'd like to turn to an overview of AFG's investment performance and share a few comments about AFG's financial position, capital and liquidity. The details surrounding our $17.2 billion portfolio are presented on Slides 6 and 7. Looking at results for the 2025, 4th quarter, Property and Casualty net investment income was approximately 12% lower than the comparable 2024 period as lower returns from alternative investments more than offset the impact of higher interest rates and higher balances of invested assets. For the full year ended December 31, 2025, P&C net investment income, excluding alternative investments, increased 5% year-over-year. Approximately 65% of our portfolio is invested in fixed maturities. In the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 5.25%. The duration of our P&C fixed maturity portfolio, including cash and cash equivalents, was 2.9 years at December 31, 2025. The annualized return on alternative investments in our P&C portfolio was 0.9% for the fourth quarter of 2025 compared to 4.9% for the prior year quarter. Although the overall returns on our multifamily investments continue to be impacted by an excess supply of new properties in some of our targeted markets, we are seeing signs of recovery. New starts have fallen nearly 50% since 2022, and completions peaked in 2024 and are rapidly declining. We continue to believe that in the last half of 2026, the tightening supply and significantly reduced pipeline will drive higher rental and occupancy rates. Importantly, a sizable portion of our portfolio of multifamily properties is located in desirable geographies with strong job and wage growth. Longer term, we continue to remain optimistic regarding the prospects of attractive returns from our overall alternative investment portfolio, with an expectation of annual returns averaging 10% or better. Please turn to Slide 8, where you'll find a summary of AFG's financial position at December 31, 2025. During the fourth quarter, we returned $240 million to our shareholders through the payment of a $2 per share special dividend in November and a regular $0.88 per share quarterly dividend. In conjunction with our fourth quarter earnings release, we declared a special dividend of $1.50 per share payable on February 25, 2026, to shareholders of record on February 16, 2026. The aggregate amount of the special dividend will be approximately $125 million. With this special dividend, the company has declared $55.5 per share, or $4.7 billion in special dividends since the beginning of 2021. AFG ended the year in a strong capital position. Our leverage ratio was less than 28%. We have no debt maturities until 2030 and our insurance company financial strength ratings are at the A+ level for AM Best and Standard & Poor's. We expect our operations to continue to generate significant excess capital in 2026, which provides ample opportunity for acquisitions, additional special dividends, or share repurchases over the rest of the year. We evaluate the best alternatives for capital deployment on a regular basis. We continue to view total value creation as measured by growth in book value plus dividends as an important measure of performance over the long term. For the year ended December 31, 2025, AFG's growth in book value per share, excluding AOCI, plus dividends was 17.2%. We're extremely proud of the value we've created for shareholders over time. I'll now turn the call over to Carl to discuss the results of our P&C operations and our business plan assumptions for 2026.
Thank you, Craig. Please turn to Slides 9 and 10 of the webcast, which include an overview of our fourth quarter results. Fourth quarter underwriting profit set a new quarterly record for AFG, led by exceptionally strong profitability in our crop insurance operations. Nearly all the businesses in our diversified specialty P&C portfolio continue to meet or exceed targeted returns, and we continue to feel confident about the strength of our reserves. We've assembled a diversified portfolio of Specialty Property and Casualty businesses that helps us navigate the peaks and valleys of the insurance cycle and respond to changing economic conditions. The non-correlation of many of our businesses, both to each other and to the broader insurance market, has been instrumental to AFG's strong and consistent performance over many years. Turning to Slide 9, you'll see that underwriting profit in our Specialty Property and Casualty insurance businesses grew 41% and generated an outstanding 84.1% combined ratio in the fourth quarter of 2025, an improvement of nearly 5 points from the prior year period. Results for the 2025 4th quarter include 2 points related to catastrophe losses compared to 1.1 points in the 2024 4th quarter. Fourth quarter 2025 results benefited from 1.6 points of favorable prior year reserve development compared to 1.8 points of adverse prior year reserve development in the fourth quarter of 2024. Fourth quarter 2025 gross written premiums were up 2%, and net written premiums were down 1% when compared to the same period in 2024. For the full year, gross written premiums increased 2% and net written premiums were flat. As noted, we continued to benefit from the diversification across our 36 businesses and achieved premium growth in many of them as a result of a combination of new business opportunities, a good renewal rate environment, and increased exposures, while remaining disciplined and focused on underwriting profitability in some of the more challenging markets. Average renewal rates across our Property and Casualty Group, excluding workers' comp, were up approximately 5% for the quarter, in line with the previous quarter. Average renewal rates, including workers' comp, were up approximately 4% overall. We've reported overall renewal rate increases for 38 consecutive quarters, and we believe we are achieving overall renewal rate increases in excess of prospective loss ratio trends, allowing us to meet or exceed targeted returns. Now I'd like to turn to Slide 10 to review a few highlights from each of our Specialty Property and Casualty business groups. Details are included in our earnings release, so I'll focus on summary results here. The businesses in the Property and Transportation Group achieved an outstanding 70.6% calendar year combined ratio in the fourth quarter of 2025, an improvement of nearly 19 points from the comparable 2024 period. Record yields for corn and soybeans and favorable commodity pricing trends throughout the growing season contributed to a very strong crop year and lower year-over-year catastrophe losses in our property-exposed businesses. Fourth quarter gross written premiums for 2025 in this group increased 5% from the comparable prior year period for the fourth quarter of 2025, while net written premiums were approximately 2% lower year-over-year. The increase in gross written premiums was due primarily to growth in our crop products that are heavily ceded and to a lesser extent, growth in a transportation captive that has higher premium sessions. Overall renewal rates in this group increased approximately 6% on average in the fourth quarter of 2025, consistent with pricing in the previous quarter. Pricing for the full year for this group was up approximately 7% overall. We continue to remain focused on rate adequacy, particularly in our commercial auto liability line of business where rates were up approximately 15% in the fourth quarter and up 14% for the full year. The businesses in our Specialty Casualty Group achieved a 96.7% calendar year combined ratio overall in the fourth quarter, 5.3 points higher than the 91.4% reported in the comparable period in 2024. Combined ratios at this level for these longer-tailed lines of business typically generate returns on equity in the high teens or better. Fourth quarter 2025 gross and net written premiums increased 2% and 3%, respectively, when compared to the same prior year period. Primary drivers of growth included new business opportunities, favorable renewal pricing in our targeted markets business, new business opportunities in our mergers and acquisition business, growth in our workers' comp businesses, and new premiums from one of our startup businesses. Growth was tempered by lower year-over-year premiums in our executive liability and excess and surplus lines business, where we experienced heightened competitive pressures for both new and renewal business. Overall, renewal pricing in this group was up about 5% during the fourth quarter. Average renewal pricing, excluding workers' comp, was up 6% in the fourth quarter. For the full year, pricing excluding workers' comp was up about 8%. I continue to be pleased that we continue to achieve renewal rate increases of 10% or better during the quarter and several of our social inflation-exposed businesses, including our social services and excess liability businesses, with full year increases across these lines in the range of 13% to 15%. In addition, our workers' compensation businesses collectively achieved a modest pricing increase during the quarter, similar to our results in the third quarter. Moving on to the Specialty Financial Group, we continue to achieve excellent underwriting margins and reported an excellent 83 combined ratio for the fourth quarter of 2025, 2.3 points higher than the prior year period. Fourth quarter 2025 gross and net written premiums in this group decreased by 4% and 10%, respectively, when compared to the same prior year period. Higher year-over-year premiums in our European operations were more than offset by lower premiums in our financial institutions business, which has produced very strong growth over the past several years. Net written premiums were tempered by our decision to cede more of the coastal exposed property business in our financial institutions business beginning in the second quarter of 2025. Now as we look to 2026, in lieu of providing formal earnings guidance, we have provided several key assumptions underlying our 2026 business plan, which you'll see summarized on Slide 11. We believe these assumptions are among the most relevant and helpful to analyst investors in modeling AFG's business and informing an investment thesis. These assumptions for 2026 include growth in net written premiums of 3% to 5% from the $7.1 billion reported last year, a combined ratio of approximately 92.5%, a reinvestment rate of approximately 5.25%, and an annual return of approximately 8% on our $2.8 billion portfolio of alternative investments. We expect that performance in line with these assumptions would result in core net operating earnings per share of approximately $11 in 2026 and generate a core operating return on equity, excluding AOCI, of approximately 18%. As we consider our outlook on growth, we're optimistic about several of our startup businesses and the near completion of numerous underwriting actions taken in our Specialty Casualty businesses. However, we're mindful of pockets of softening rates and continued competitive conditions, and we'll maintain our disciplined bottom line focus as we pursue opportunities to grow profitably in 2026. Our assumptions include an average crop year. We believe that the combination of our reserve strength, a continued healthy rate environment, prudent growth, and the ability to invest at a rate that exceeds our current portfolio yield positions us well as we enter 2026. Craig and I are pleased to report these exceptionally strong results for the fourth quarter and full year, and we're proud of our proven track record of long-term value creation. Our insurance professionals have exercised their Specialty Property and Casualty knowledge and experience to skillfully navigate the marketplace, and our in-house investment team has been both strategic and opportunistic in the management of our $17.2 billion investment portfolio. We look forward to continuing to build long-term value for our shareholders this year and beyond. I will now open the lines for the Q&A portion of today's call. Craig, Brian, and I would be happy to respond to your questions.
分析師問答
Our first question comes from the line of Hristian Getsov from Wells Fargo.
My first question is on the 2026 business plan. I guess, what does that business plan assume in terms of rates relative to the 5% P&C renewal pricing ex comp we saw in the Q4, and is there any assumption of prior period releases in the 92.5% combined ratio target?
When we examine our overall combined ratio, we are not specifically allocating any amounts for prior year development. Historically, AFG tends to be conservative and has generally experienced favorable development in most periods. While we are not completely shielded from adverse development, we are optimistic that our reserving strategy positions us for a greater likelihood of favorable development rather than adverse. Looking ahead to 2024 and 2025, we anticipate continued unexpected favorable development in workers' compensation; however, this will be counterbalanced by some adverse developments and social inflation in certain sectors by 2026. Although we can't predict the future, we don't expect workers' compensation to continue developing as beneficially as it has previously. Nonetheless, due to the rate and reserving actions we have implemented, we do not foresee a recurrence of adverse developments in the casualty segments. Regarding pricing, we are confident that we will continue to secure necessary price increases. In other areas, such as our financial institutions segment, rate increases have moderated, but these operations remain highly profitable and manageable.
Got it. For the quarter, we noticed a significant increase in the casualty underlying loss ratio. Were there any changes in loss picks, or was this mainly due to a conservative approach considering ongoing high loss trends? Was there something specific in the quarter that prompted this change? Also, is this pick something we could continue to use as a benchmark going forward? Any additional insights would be helpful.
Sure. When evaluating the accident year loss ratio for the Casualty Group in the quarter, you'll notice ongoing caution regarding our businesses exposed to social inflation, such as our central services, public entity, and certain excess liability operations, where there have been some occasional small instances of adverse development lately. Therefore, we are being careful with our current picks. Additionally, considering our relatively small portfolio of California workers' compensation insurance and the challenging legal environment, including issues like cumulative trauma, we are also exercising caution in our accident year selections there. Coupled with the rate increases we have implemented and are continuing to achieve, we are optimistic that these loss picks will better position us for favorable development in future periods.
Our next question comes from the line of Gregory Peters from Raymond James.
I guess I just wanted to follow up on the workers' compensation comments, Brian. Was there something unusual in the frequency or medical trend in a particular state this year that led to the results you reported or was this across the book? And I was interested in your comment about cumulative trauma. I know that's popped up and is on the radar for other workers' comp companies. I wonder if you could provide some color on how you're viewing that risk right now.
For the most part, our loss ratio trends continue to be quite favorable, and the positive trends in frequency and severity are consistent. Our workers' compensation business continues to perform excellently for both the calendar year and accident year basis in 2025. However, the combined ratio for the overall comp business in 2025 was a few points higher than last year, which I have mentioned consistently every quarter. We anticipate a similar trend for 2026. The good news is that the overall results remain strong, and we expect workers' comp to be a very profitable line, with California being the exception. The industry in California currently has a combined ratio above 120. In September, an 8.7% rate increase was approved, and we anticipate a healthy 10% price increase in the fourth quarter. There are signs of a more stable competitive environment in California, which is encouraging, and we’re making efforts to improve our combined ratio. California is the one state that stands out. The issue of cumulative trauma affects our California comp subsidiary, but we have already factored that into our loss reserve picks over the years, so it's not something unexpected. Overall, our workers' comp business grew about 1%, and we observed a modest price increase in the fourth quarter. Looking ahead, we are optimistic about overall growth this year, projecting around 3% to 5% growth in workers' comp, which is a positive sign. I hope that provides clarity on your inquiries.
Just to add on that same subject, just to size that California workers' comp business, is less than $200 million of net written premiums for the year.
Yes. It's less than 15%.
It's not a real big portion of our workers' comp business or our overall business, but we do react to what we're seeing in the environment overall, both in setting our reserve picks and also, more importantly, informing us of what we need to do from rate increases, leading to things like the near 10% in the fourth quarter.
Got it. During your comments, you also mentioned startup businesses. Could you please spend a minute sharing more information about what's driving the startup businesses and your expectations, particularly given that the broader property and casualty market seems to be softening? I'm curious about the areas of the market where you see opportunities.
Yes. Every year, we invest in and launch new businesses. After making some investments and navigating the challenges of early startups, we're starting to see success and progress in areas like specialty construction. We also have an E&S binding business, and we anticipate more premium growth in that sector. We have four or five different startups that should begin to show more progress. The Embedded Solutions area is new for us, and we are optimistic that it will yield positive results this year.
My final question, and I know you've commented on this before, but the crop business. Is there any spillover into the first half of '26 from the results of the 25-year crop year?
Yes, there is typically a true-up based on area coverage results for a reinsurance year or similar situations. We had a very strong year, so there’s often a true-up in the first quarter, and I believe there will likely be a positive true-up as it pertains to the crop reinsurance year. We're currently in the February discovery period for commodity prices. So far, it appears that during the spring discovery, corn futures prices might decrease by around 3%, while soybean prices could increase by 2%. This would suggest stability in the premium base. If this scenario holds, we might see some growth in the crop business, assuming spring discovery prices stay within their current range.
Our next question comes from the line of Michael Zaremski from BMO.
It's Dan filling in for Mike. My first question is about the Property and Transportation segment. Is the improvement in the current accident year this quarter mainly due to favorable crop conditions, or are you seeing better performance in other areas of that segment as well? I'm trying to understand the ongoing performance there.
Sure. The main reason for the lower loss ratio and expense ratio in Property and Transportation is the strong crop results. Other businesses in that segment have also performed well and remain stable. In our annual statements, we will continue to be cautious with our loss picks on commercial auto liability, similar to our approach with casualty. However, we are seeing very strong results overall in the segment. Even in commercial auto liability, despite being cautious with the loss picks, we still managed a small underwriting profit for the year. To normalize things, the key factor driving our strong performance is this above-average crop year, while we expect 2024 to be more average and look ahead to 2026. As Carl mentioned, our models anticipate an average crop year compared to this year's very strong results.
Okay. That's helpful. Then switching gears maybe to Specialty Financial and specifically on the lender-placed business there. Just curious about what drove the inflection in pricing a little bit sequentially from plus 1 from minus 2 in the prior quarter. And then bigger picture just with increased political focus on personal lines profitability. Is there any concern about that business just from a political lens on the lender placed?
No, I don't think we have concerns on the political front. The farm bill has actually been extended into September 2026 and is supported by both Republicans and Democrats. Regarding pricing, our customers are large groupings of properties, and it varies quarter-by-quarter based on factors like coastal property, which may require a higher price compared to accounts without it. There will always be some fluctuations in pricing. Nevertheless, this business is very profitable, and I believe rates have stabilized. There is still a push to transition the main part of the business to a replacement cost value instead of an unpaid mortgage balance, which remains beneficial. Last year, in the second quarter, we decided to cede more of the coastal exposed property business, which affected us mainly in the latter half of the year. This year, we anticipate low single-digit growth in this business, all things considered.
Our next question comes from the line of Paul Newsome from Piper Sandler.
I was hoping if you could give us a little bit more color about some of the social inflation related businesses that you are remediating in the last year. So it sounds like those businesses are maybe stabilized. Are you in a position where you can now grow those businesses? Or are they just sort of stabilized? So maybe little bit of thoughts on that and whether those businesses take a little longer before they go back to a growth potential.
Yes. As we've stated before, we believe we've navigated through a series of corrective measures in our nonprofit and excess liability sectors, which included restructuring to lower average limits and adjusting prices. In the fourth quarter, Specialty Casualty experienced low single-digit growth, which is encouraging. Overall, the excess liability business also showed growth. This suggests that there could be opportunities for mid-single-digit growth in both the excess liability and nonprofit sectors this year. Therefore, we anticipate those businesses returning to growth, along with Specialty Casualty as a whole.
Makes sense. I wanted to ask a little bit of an extra question on the alternative investment portfolio. You're obviously hoping for expecting a higher return this next year, but maybe not quite as high as it's historically been. Are there certain maybe macroeconomic things or particular things about the portfolio that as an outsider, we should be looking towards that would signal that extra couple of percent back to normal?
Paul, this is Craig. As I think you know, around 50% of the alternative portfolio is in multifamily. And there has been a big oversupply the last couple of years of new multifamily properties that have been delivered. And the absorption rate is actually very strong, but we think it's probably going to take another couple of quarters to get back to a more normal environment. Historically, even with the poor returns in the recent past, over the last 5 years, we've still earned between 10% and 11% total return on our multifamily investments and Goodyear is significantly above that. So, to get back to the historical levels of returns on the alternatives, it is going to require the multifamily properties to have a better rate environment, which, as I said in the conference call script, we're seeing clearly a bottoming, and we're seeing some favorable signs in terms of absorption and new stores at a 10- or 12-year low. So we think sometime in the last half of the year, we're going to see a better environment in 2027 and going forward for some number of years, we think is going to be a pretty favorable environment for multifamily. But that's what is going to be required to get back to our historical return levels on alternatives.
So the insights.
The group is addressing the question regarding lender-placed property and political exposure. I was discussing the lender aspect, and when examining the regulation of that sector, it has predominantly been managed on a state-by-state basis. However, I don't perceive significant political risk associated with lender-placed property. It primarily relates to the lenders and the services they provide, especially considering that much of this business arises from homeowners having their insurance canceled by their insurer. Thus, it effectively acts as a secure backup for financial institutions to ensure coverage. Therefore, I don't see substantial political risk in this area.
Our next question comes from Meyer Shields from KBW.
My first question is on the premium growth. Business turn assumption of 3% to 5%. Just curious if you guys could elaborate on which specific business lines are seeing the most favorable pricing getting into 2026? And what you see the greatest opportunities for profitable growth within our 3% to 5% premium growth assumption?
Yes. I think the good news is that at this point for the vast majority of our businesses, we think that we have an opportunity for premium growth this year. I think also when you look at the profitability of our businesses, almost all of our businesses are really meeting or exceeding the targeted returns that we require. So I think we'd love to have as much opportunity as we can get within pretty much all of our businesses in that.
Got it. My second question will be on the Specialty Financial Group. You guys reported a decline in net written premium due to the increase in ceding of coastal exposed property business in the financial institutions. Just curious if you can provide more color on the reinsurance strategy change made there and whether this level of session is expected going forward in 2026.
Yes. We started that in the second quarter of '25. So that book would have rolled on a different reinsurance basis through the first half of this year. If you're familiar with us, historically, we're a company that's had a relatively lower catastrophe exposure than our peers, and we've had a lower appetite for coastal property, pure earthquake risk, et cetera. So I think we carefully manage FIS is probably the business that has our biggest property exposure. So we very carefully manage that to what our coastal exposures are to what our overall company philosophy is. And when you look at our 1 in 250 or 1 in 500 exposure to capital, Brian, 1 in 500 exposure today for hurricane.
Yes, it's less than 3%. So compared to industry numbers that might be closer to double digits.
Our next question comes from the line of Andrew Andersen from Jefferies.
You had previously been doing some reunderwriting on Casualty around social services and I think within some pockets of E&S. Are you done with these underwriting actions as we head into 2026 and are they no longer a headwind?
Yes. For the most part, we might have a couple of million dollars of business that still needs to be non-renewed this year, particularly in the daycare side of things, but we're pretty much through the nonrenewal actions in housing accounts and that. So last year, the premium was down. I think this year, as I think I mentioned earlier, I think we would expect kind of some modest premium growth in this business and that some.
And then, Brian, if we go back to Specialty Casualty and the underlying loss ratio there, I'm just trying to understand the $69 million in the quarter. Was there an intra-year catch-up in the fourth quarter? I suppose I'm just trying to get better color on what was the true underlying trend and what is maybe the kick-off point for '26 underlying?
Sure. So we look at our loss picks every quarter and make adjustments throughout the year. So in some of those units, things haven't been adjusted all year. The one that probably had a larger adjustment in the fourth quarter was the California workers' comp. But again, that's on the business that for the full year is less than $100 million of premium. So I wouldn't say that that's a run rate. I think the California workers' comp adjustment probably elevates the loss ratio a little bit. I think if you look at the full year loss ratio for casualty, that's probably a better indication of like a run rate type of number.
Okay. And then maybe one more. Just looking at the expense ratio, I think as we came into '25, there was maybe some business mix shift headwind and some commission changes. Have those kind of found their level now and perhaps we could see some improvement into '26?
There will always be a mix of business impact. As Carl mentioned, our embedded insurance could lead to some growth in that area. When evaluating businesses, we focus on the overall return on equity and the combined ratios that influence those returns. If we grow a business with a higher expense ratio, it will negatively affect us. We continue to invest in the company's future, including initiatives in customer experience, data analytics, AI, machine learning, and IT security. While these investments may have a negative effect in the short term, they are positioning us for solid returns in the long run. There may be some fluctuations, but overall we should be in a good position. It's also important to note that in some of our businesses, we receive ceding commissions that vary with profitability. For instance, in the fourth quarter, the expense ratio for our property transportation appears very low due to a strong crop year, which raises the ceding commission and lowers underwriting expenses. In the financial segment, where we have a highly profitable underplace business, broker and agent commissions fluctuate with long-term profitability. As we maintain strong performance in that business over consecutive quarters, those profit-based commissions increase, improving loss ratios, but may also raise the expense ratio slightly.
Our next question comes from the line of Michael Zaremski from BMO.
Just one more for me on capital management. I see the special dividend announcement. But just curious why there are no buybacks or material amount this quarter. You've done buybacks at valuation levels in previous quarters. Just wondering, should we think about share repurchases to resume in 2026? Or how should we be thinking about that?
Yes, Mike, this is Craig. I wouldn't read too much into no share repurchases in the fourth quarter. We said previously, we're opportunistic in terms of repurchase programs. And when our shares are trading at a meaningful discount, we like to keep enough dry powder on hand to be in a position to buy a significant amount of shares. I would comment that we did make a decision to reduce the special dividend that we're paying in the first quarter by $0.50 versus the previous year to save a little more dry powder for other alternatives, including the potential for share repurchases.
Thank you. At this time, I would now like to turn the conference back over to Diane Weidner for closing remarks.
Thank you all for joining us this morning and for the great opportunity to answer your questions and share a little bit more about AFG story. We look forward to chatting with you all again next quarter when we share our first quarter results. Hope you all have a great day.
This concludes today's conference call. Thank you for participating. You may now disconnect.