American Financial Group delivered a record Q2 2026 print on August 4, 2026, with net earnings of $248 million ($2.99 per share, diluted) up 43% year over year, and core net operating earnings (a non-GAAP measure that strips out realized investment gains and losses) of $234 million ($2.82 per share) up 31%. Pretax property-and-casualty operating income of $350 million set a new second-quarter record, the Specialty P&C combined ratio improved 1.6 points to 91.5%, and annualized return on equity of 20.3% compared to 15.0% in the year-earlier period. The print benefited from a $57 million favorable prior-year reserve development tailwind in the second quarter (3.4 points of combined-ratio relief, up from just 0.7 points a year ago) and a 23% jump in P&C net investment income driven by a 7.1% return on alternative investments versus 1.2% the prior year.
AFG is a Cincinnati-based specialty insurance holding company that now runs as a pure-play P&C operator after divesting its Annuity segment to Massachusetts Mutual in 2024. The current quarter, in our view, showcases the post-divestiture franchise: a diversified book of 36 specialty businesses across Property & Transportation, Specialty Casualty, and Specialty Financial, all writing at renewal rate increases averaging 5% ex-workers' compensation, with a 6% net written premium growth print. The Property & Transportation Group alone saw underwriting profit double to $57 million and its combined ratio improve 4.9 points to 90.3%, driven by stronger transportation and agricultural results.
The load-bearing risk is the alternative-investment return volatility, which contributed 50 cents of the $2.99 GAAP EPS this quarter through the P&C segment (versus just 7 cents in Q2 2025). The five-year average annual return on alternative investments has been approximately 11%, but the prior-year quarter ran at 1.2%, and the quarter-to-quarter dispersion can swing GAAP EPS by 30-40 cents in either direction. A second watch item is the pending $125 million pretax gain on the sale of Charleston Harbor Resort & Marina, which is expected to close in Q3 2026 and was not in the original business plan. The falsifiable clock is the Q3 2026 print, which the market reads as the first clean read on the underlying underwriting trajectory without the favorable PYD tailwind and with the Charleston Harbor gain layered in. A combined ratio above 93% in Q3 with normalized PYD would signal the franchise has reached its cyclical peak.