Good day ladies and gentlemen. Thank you for standing by, and welcome to American Financial Group's second quarter 2022 results conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host, Diane P. Weidner, Vice President of Investor Relations, please go ahead.
Good morning, and welcome to American Financial Group's second quarter 2022 earnings results conference call. We released our 2022 second quarter 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. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group, and Brian Hertzman, AFG CFO. Before I turn the discussion over to Carl, I would draw your attention to the notes on slide two 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 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 attributable to shareholders to core net operating earnings is included in our earnings release. Finally, if you're reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy, and as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statement. Now, I'm pleased to turn the call over to Carl H. Lindner III to discuss our results.
Good morning. We're pleased to share highlights of AFG's 2022 second quarter results. After which Craig, Brian, and I will be glad to respond to your questions. AFG's financial performance during the second quarter was outstanding. We're pleased to report an annualized core operating return of nearly 21% in the quarter, including record second quarter underwriting profit alongside double-digit premium growth. Strategic positioning of our investment portfolio enabled us to invest opportunistically, and the returns in our alternative investment portfolio continued to exceed our expectations. Our entrepreneurial opportunistic culture and disciplined operating philosophy have positioned us well in this increasing interest rate environment and favorable property and casualty market. Craig and I thank God, our talented management team, and all of our employees for helping us to achieve these exceptionally strong results.
I now turn the discussion over to Craig to walk us through AFG's second quarter results, investment performance, and our overall financial position at June 30th.
Thank you, Carl. Please turn to slides three and four for summary earnings information for the quarter. AFG reported core net operating earnings of $2.85 per share, compared to $2.39 per share in the second quarter of 2021. The increase was primarily the result of significantly higher underwriting profit at our specialty P&C insurance operations. As Carl mentioned, annualized core operating return on equity in the second quarter was a very strong 20.7%. On slide four, you'll see that net earnings included after-tax non-core realized losses on securities of $73 million or $0.86 per share in the quarter. Included in this number is $65 million or $0.76 per share after-tax losses from the mark-to-market of equity securities that we continued to own at June 30.
Now I'd like to discuss the performance of AFG's investment portfolio, financial position, and share a few comments about AFG's capital and liquidity. During the second quarter, we continued to act on the opportunities presented by the increasing interest rate environment and increased the duration of our P&C fixed maturity portfolio, including cash and cash equivalents, from approximately two years at December 31, 2021, to approximately 2.7 years at June 30, 2022. Our fixed maturity reinvestment rate is approximately 4.5% and compares favorably to the fixed maturity portfolio book yield of approximately 3.3% at the end of the second quarter. In addition, our portfolio of floating rate securities, most of which are tied to one-month or three-month indices, continue to benefit from rising interest rates.
For the three months ended June 30, 2022, net investment income was slightly higher than the comparable 2021 period, as both periods included very strong results from alternative investments. The annualized return on alternative investments in the second quarter of 2022 was approximately 12.4%, compared to 21.1% for the 2021 quarter. The $62 million in pre-tax earnings from our portfolio of alternative assets in the 2022 quarter included $38 million in earnings from the sale of certain multifamily housing investments at a very favorable market. We held these investments for four-five years and achieved an average annual return in excess of 25% over that period.
Excluding the impact of alternative investments, net investment income in our property and casualty insurance operations for the three months ended June 30, 2022 increased 18% year-over-year as a result of the impact of rising interest rates and higher balances of invested assets. Carl will come back to drivers of our overall increased guidance for 2022, but I'm going to take a few minutes now to talk about the investment income assumptions embedded in our updated guidance. First of all, we'll continue to benefit from the higher interest rate environment, both from our floating rate fixed maturities and reinvestment opportunities. With regards to alternative investments, our guidance assumes an overall annual yield of 10%-12% on alternative investments for the full year based on the strong performance of this portfolio in the first half of 2022.
Our guidance reflects minimal income from alternative investments in the second half of 2022, as we assume that the continued strong performance of multifamily housing investments will offset weaker performance of traditional private equity investments, which may be under pressure from macroeconomic environment. As a reminder, investments tied to multifamily housing represents approximately 55% of our alternative investment portfolio. As you can see on slide six, our investment portfolio continues to be high quality with 91% of our fixed maturity portfolio rated investment grade and 98% of our P&C group fixed maturity portfolio with an NAIC designation of 1 or 2, its highest two categories. Please turn to slide seven, where you'll find a summary of AFG's financial position at June 30, 2022. Our excess capital was approximately $1.1 billion at June 30, 2022.
This number included parent company cash and investments of approximately $750 million. During the quarter, we returned $728 million to our shareholders through the payment of our regular $56 cent per share quarterly dividend and $8 per share in a special dividend paid in May. Book value per share plus dividends declined 0.9 of a point in the second quarter. Excluding unrealized losses related to fixed maturities, we achieved growth at adjusted book value per share plus dividends of 3.6% during the second quarter. The short duration of our fixed maturity portfolio and somewhat limited exposure to publicly traded common stocks when compared to some peer companies helped our performance in this period.
Year to date, AFG paid $10 per share in special dividends and paid a total of $36 per share in special dividends since the sale of its annuity operations in May of 2021. Through a combination of these special dividends, share repurchases, the redemption of debt, and the purchase of Verikai, we have deployed the $3.57 billion in cash proceeds from the sale of our annuity business while continuing to be in a strong excess capital position.
While all of AFG's excess capital is available for internal growth and acquisitions, based on assumptions underlying AFG's current guidance, we still expect to have $400 million-$500 million of excess capital available for potential share repurchases or additional special dividends through the end of 2022 while staying within our most restrictive debt-to-capital guideline. I will now turn the call back to Carl to discuss the results of our P&C operations and to discuss our expectations for 2022.
Thanks, Craig Lindner. Please turn to slides 8 and 9 of the webcast, which include an overview of the second quarter results. Operating earnings in our property and casualty segment established a new second quarter record for AFG, and I'm pleased that virtually all of our businesses are meeting or exceeding return on equity targets. As you'll see on slide eight, the specialty P&C insurance operations generated an underwriting profit of $197 million compared to $153 million in the second quarter of 2021, a 29% increase year-over-year, also setting a new record for the second quarter underwriting profit. Higher year-over-year underwriting profit in our Specialty Casualty and Specialty Financial groups was partially offset by lower underwriting profit in our Property and Transportation Group.
The second quarter 2022 combined ratio was a very strong 85.8%, improving 2.1 points from the prior year period. Results in this quarter included 1.6 points in catastrophe losses and 6.3 points of favorable prior year reserve development. Gross and net written premiums increased 10%, 11% respectively in the 2022 second quarter compared to the prior year quarter. Year-over-year growth that was reported within each of the specialty property and casualty groups, as a result of a combination of new business opportunities, increased exposures, and a good renewal rate environment. The drivers of growth vary considerably across our portfolio of specialty property and casualty businesses.
In the aggregate, year-over-year growth in gross written premium for the second quarter of 2022, excluding crop, is about 65% attributable to new business opportunities and change in exposures and about 35% attributable to rate increases. Average renewal pricing across our P&C group, excluding workers' comp, was up about 6% for the quarter and up about 4% overall. Even though the pace of rate increases has slowed in some lines, renewal rate increases in the majority of our businesses continue to be at or in excess of estimated prospective loss ratio trends, which have been approximately 5% for our specialty P&C businesses, excluding workers' comp, and approximately 3% overall throughout 2022.
As a reminder, when we talk about prospective loss ratio trend, it's our view on loss costs going forward in light of the current economic and legal environment, adjusted for the automatic increases in premium on exposures that move with inflation. Now, you know, when we remove the benefit of inflation-sensitive exposure growth from our prospective loss ratio trend, such as payrolls and property values, among other considerations, we arrive at an underlying prospective loss cost trend estimate that's closer to 5% overall and 6.5% excluding workers' compensation. With these things in mind, we feel very good about the level of rate increases that we continue to achieve and that we've achieved over the last few years, which were meaningfully in excess of loss ratio trends.
Now I'd like to turn to Slide nine to review a few highlights from each of our Specialty Property and Casualty business groups. Property and Transportation Group reported an underwriting profit of $39 million in the second quarter of 2022 compared to $62 million in the second quarter of 2021, reflecting a couple of larger losses and higher catastrophe losses in our property and inland marine business and lower levels of favorable prior year reserve development when compared to an elevated level of favorable development in the first half of 2021. Several of the businesses benefited from COVID-19-related lower claims frequency in the first half of 2021. Catastrophe losses in this group, net of reinsurance and inclusive of reinstatement premiums, were $19 million in the second quarter of 2022 compared to $7 million in the comparable 2021 period.
With higher catastrophe losses and lower favorable development, the businesses in the Property and Transportation Group achieved a 92.4% calendar year combined ratio overall in the second quarter, 5.8 points higher than the comparable period in 2021. Second quarter 2022 gross and net written premiums in this group were 13% and 12% higher, respectively, when compared to the 2021 second quarter. The year-over-year growth was primarily attributed to increased exposures and higher rates in our transportation businesses and growth in our crop insurance business. All the businesses in this group reported growth in gross written premiums during the quarter. Overall renewal rates in this group increased 5% on average for the second quarter of 2022.
Now, as far as our crop insurance business, with the exception of some isolated dry areas, much of the nation's corn and soybean crop is in decent shape. Industry reports indicate 61% of corn and 60% of soybean crops are in good to excellent condition and in line with results last year at this time. Current commodity pricing is really in great shape. Corn is up approximately 1%, and soybeans are currently down approximately 4% from spring discovery prices. Assuming that there's adequate rainfall throughout August, we would point to an average or better crop year.
The Specialty Casualty Group reported an underwriting profit of $130 million in the 2022 second quarter compared to $71 million in the comparable 2021 period, primarily the result of higher profitability in our workers' compensation, excess and surplus lines, and executive liability businesses. The businesses in the Specialty Casualty Group achieved an exceptionally strong 80.1% calendar year combined ratio overall in the second quarter, an improvement of 7.8 points from the comparable period in 2021. Second quarter 2022, gross and net written premiums increased 6% and 9%, respectively, when compared to the same prior year period. Now when you exclude workers' compensation, gross and net written premiums grew 6% and 11%, respectively.
Factors contributing to year-over-year premium growth included increased exposures in our excess and surplus lines business, rate increases and new business opportunities in several of our targeted market businesses, and payroll growth in our workers' compensation business. This growth was partially offset by lower year-over-year premiums in our mergers and acquisitions liability business. The majority of this or the businesses in this group achieved good renewal pricing and reported premium growth during the second quarter. Renewal pricing for this group, excluding our workers' compensation businesses, was up 7% in the second quarter. Overall, renewal rates for this group overall were up 4%. Moving on to the Specialty Financial Group, they reported an underwriting profit of $37 million in the second quarter of 2022 compared to an underwriting profit of $21 million in the second quarter of 2021.
Improved results in our trade and Trade Credit and Fidelity and Crime businesses were the primary contributors to the higher year-over-year underwriting profitability. This group continued to achieve excellent underwriting margins and reported an exceptionally strong 78.4 combined ratio for the second quarter of 2022, which it is an improvement of eight points from the comparable period. In second quarter 2022, gross and net written premiums were up 13% and 11% respectively when compared to the prior year period. New business opportunities within our Lender Services business and exposure growth and new business opportunities in our Trade Credit and Surety businesses contributed to the increase in the quarter. Renewal pricing in this group was up approximately 2% for the quarter. Now if you turn to slide 10, you'll see a full-page summary of our 2022 outlook.
Overall, we continue to expect an ongoing favorable property and casualty market with opportunities for growth arising from both continued rate increases and exposure growth. Based on the strong results reported through the second quarter, we now expect AFG's core net operating earnings in 2022 to be in the range of $10.75-$11.75 per share, an increase of $0.25 per share at the midpoint of our previous guidance, $10.50-$11.50 per share. Our revised guidance reflects higher expected underwriting profit in our Specialty Casualty and Specialty Financial groups and an average crop year. Earlier in the call, Craig shared our expectations and assumptions regarding full year investment income. We continue to expect a 2022 combined ratio for the Specialty Property and Casualty Group overall between 85% and 87%.
Net written premiums are now expected to be 9%-13% higher than the $5.6 billion reported in 2021, which is an increase of one percentage point from the midpoint of our previous estimate. Looking at each sub-segment, based on our results for the first half of the year, we now estimate a combined ratio in the range of 88%-91% in our Property and Transportation Group. This guidance continues to assume average crop earnings for the year. We now expect growth in net written premiums for this group to be in the range of 13%-17%, an improvement from the range of 11%-15% estimated previously. Our Specialty Casualty Group is now expected to produce an outstanding combined ratio in the range of 79%-83%.
Our guidance assumes continued strong results across all the businesses in this group, including continued calendar year profitability for our workers' comp businesses overall. We expect net written premiums to be 6%-10% higher than the 2021 results, consistent with our initial guidance. Premium growth will be tempered by rate decreases in our workers' comp book, which are the result of favorable loss experience in this line of business. Excluding workers' compensation, we now expect 2022 premiums in this group to be in the range of 9%-13%, an improvement from the range of 7%-11%. We now expect the Specialty Financial Group combined ratio to be in the range of 81%-85%, and we continue to expect net written premiums for this group to be between 4% and 8% higher.
Based on results through the first 6 months, we now expect renewal rates to increase between 4% and 6% in our specialty P&C operations overall. Excluding comp, we now expect renewal rates increases to be in the range of 5%-7%. Both ranges are down one point, 1% at the midpoint from our previous guidance. Craig and I are very pleased to report these exceptionally strong results for the second quarter, and we're proud of our proven record of long-term value creation. We believe that our entrepreneurial, opportunistic culture, combined with our strong balance sheet and financial flexibility, position us very well for the remainder of 2022. We'll now open the lines for the Q&A portion of today's call. Craig and Brian, I would be happy to respond to your questions. Thank you.
Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star one one. Please stand by while we compile the Q&A roster. Our first question coming from the line of Michael Phillips with Morgan Stanley, your line is open.
Thank you. Good morning, everybody?. I was hoping you could kind of run through, in whatever detail you would like, I guess, what segments of your business are kind of most exposed to recessionary environments? As you highlight those, you know, kinda what impacts you think it might have on those businesses?
I'm not sure there's any one any part of our business I, you know, that would be more exposed, than others, in that. In fact, I think something like lender, you know, some of the businesses that don't correlate to the cycle like, lender-placed property, you know, could be the opposite. You know, if things slow down and there are more foreclosures, you know, within the business. We're not huge commercial multi-peril writers, for instance, you know, which, probably, you know, since we're not a big main street commercial package writer, you know, I would think within the industry that, you know, that would be an area particularly, you know, small to medium-sized commercial package type business that might get impacted, you know, maybe more than others.
You know, we're in the nonprofit package space pretty well, and have some targeted package business. Overall, we're really pretty small in comparison in that area to others. Those would be my thoughts.
Okay. Thank you. You gave what it sounded like pretty enthusiastic or positive comments on average or better crop year, but I think you said assuming rainfall in all this. I mean, maybe if that doesn't happen, how much downside do you think there could be if the drought kind of continues for the next few weeks or months?
Well, like I said, you know, commodity prices are in good shape. You know, when you look at the crop conditions right now, you know, I'm very optimistic at this point. You know, when you take a look at this week, seems like, you know, starting in August, we're getting some rainfall, you know, across the country. I think, you know, I'm very optimistic at this point. You know, we can tell you a whole lot more, you know, at the third quarter conference call.
Okay. Fair enough. Thank you very much.
Thank you. Our next question coming from the line of Paul Newsome with Piper Sandler. [Yelena Saltin].
Good morning. Paul, I guess I got myself a little confused about with your rate versus inflation commentary. It sounds like you are essentially excluding from claims inflation as well as rate inflation numbers the effect of the exposure increases within your book of business. Is that a fair way of characterizing it, or am I just getting myself confused?
This is Brian. What we were trying to clarify in Carl's comments, when we look at the loss ratio trends, that loss ratio trend would be our loss cost offset by the favorable impact of exposure changes from the automatic things where premiums go up because payroll goes up or property values go up. When we were giving and have been giving sort of 5% as a loss ratio trend, built into that number is about 1.5% favorable from exposure changes. Carl commented that when you take our overall loss ratio trend, excluding workers' comp of 5% and change it to just loss cost without the exposure change, it goes to 6.5%. Our
I guess when we talk about loss ratio trend, that's where we adjust for exposure. When we talk about rate increases, we're talking about strictly renewal rate increases without an exposure.
Yeah, you know, there is some commentary out there, you know, from Evan and others. I just wanted to make sure that our investors, you know, we could kinda have a comparable number, you know, or a comparable number, you know, that we could put out there. I think one significant thing is, you know, we haven't changed that. We've kind of been, you know, those have been the prospective, you know, loss ratio or loss cost trends or loss ratio trends that we've been using since the beginning of the year. Tweaked a little bit from first to second quarter, you know, in the liability side. We've been pretty much at that level of, you know, prospective loss cost trend or loss ratio trend since the beginning of the year.
Okay. I mean, 'cause I think it's very apt. My guess is that we're gonna have a prospective conversation, but not just to everyone, about the impact of exposure on a loss trend versus the piece that it has on that's effectively rate. Do you have any particular opinions on, you know, how much that would affect your books or, you know, what effectively an increase in exposure means from an effective amount of rate or, you know?
I think Brian just kinda gave that to you.
Yeah. We would look at the exposure part on the loss ratio. If without exposure changes, our prospective loss cost trend is 6.5. That goes to 5% when you take into exposure. It's sort of 1.5 points on the loss ratio is the way I would say that the change in exposure is favorable on the loss ratio by about 1.5%.
Yeah, excluding comp.
Excluding comp. Yeah, excluding comp.
Is that so effectively, that's assuming it's every point is equivalent to rate that or not that? Is that kind of how I should be thinking about it? I apologize.
I think, again, the way we run the business, you know, we're trying to match rate or look at what rate, you know, is necessary to continue to exceed the loss ratio trends in that. Excluding comp, you know, we got about 6% in rate in the second quarter, and the loss ratio trend versus a loss ratio trend of about 5%. There are lines of business, you know, within our portfolio where it's for instance public D&O, which might be 22% of our D&O book, but the public D&O part of that as has been reported in the industry, some of the industry media was down a couple percent or something.
That was the first time we've seen a price decline in public D&O. Again, you know, we're more of an opportunistic player in public D&O. It's only about 22% of our D&O book. There are parts of our business where we're seeing, you know, rates that are below loss cost trends, in that, but not many. I think the other area. When you add 10-15 competitors over a two-year period of time, you know, and they're all focused on public D&O, you know what, you know what's gonna happen.
I think the other area in our whole book that I've seen, you know, that we see a lot more competition and, you know, major deceleration in rate, you know, is on kind of the Fortune 1000 excess liability, you know, Fortune 500, Fortune 1000 excess liability. Those would be, you know, the public D&O. Those would probably be the areas that we would see, you know, the biggest disconnect. Now, in our case, you saw what our Specialty Casualty combined ratio was. If you're reporting, you know, Specialty Casualty overall combined ratio of, you know, in the 80 or, you know, in the low 80s or whatever, you know, you certainly have some room in that, you know, if the trends change a little bit.
I continue to be very pleased. Again, you know, the majority of our businesses continue to be at or exceeding our loss ratio trends. I'm very happy with how we're positioned.
No, that's great. Thank you. That's helpful to me. Sorry about my own confusion.
No problem.
Our next question coming from the line of C. Gregory Peters with Raymond James, your line is open.
Good afternoon, everyone, and thanks for the answers. I guess just as a follow-up, Carl, you said you talked about the 10-15 new competitors in D&O, and you talked about the competition in excess liability. When you look at the combined ratio results, you know, in Specialty Casualty and Specialty Financial, it just begs the question why there isn't more competition. I mean, if your guidance for Specialty Casualty is 79%, that's gotta be, like, a record low in the company's history or a record result, right?
It's a strong result. There's no doubt about it. Yeah.
outside of those two lines that you mentioned, you're not seeing any change in the really competitive landscape on the other businesses?
You know, Greg, I think you have to look business by business. Those would be the two that kind of stick out, you know, where I think, you know, things have kind of gotten more competitive than I would've thought. You know, particularly with social inflation. I think there's probably a backlog of SPAC, you know, SPAC type of claims in the D&O side. We're blessed in that not only are we light on public D&O, we just haven't written SPACs. One reason why our growth in D&O is a little less than others is because we didn't get into the SPAC market. I think it's those two areas competitively that I've seen the biggest difference.
You know, in SFG, you know, it takes knowledge and specialization in things like Lender-Placed Property or Fidelity and Crime. If you don't know what you're doing on things like casinos and armored cars and things that, you know, we specialize in, you can get your head handed to you real easy. I feel very comfortable about the, you know, about our specialty financial businesses and our ability to differentiate ourself and continue to have great results. We've had results in the 80s for as long as I can remember in the specialty financial segment, in that. Especially carefully , as a company, you know, we've been. I think we have great expertise and particularly in the excess liability and in the D&O areas that we write.
I think different than others, we've made great returns and great underwriting results, particularly in the excess liability and umbrella area, you know, for many years and, you know, had a few bumps here and there, but overall have always, you know, done well. I think, yeah, our culture and the way we approach those businesses, you know, feel very comfortable long term will continue to have great results, regardless of Social Inflation.
Thanks for the color. I don't wanna make too much of this, but you did comment in Property Transportation that there's a couple losses. Is it just the anomalies of the business, or is there anything underlying there that we should be thinking about?
Yeah, I think there were two things I mentioned. You know, the level of catastrophe losses in the second quarter were higher than last year, and there was some large loss activity. In the property business, you know, as everybody knows, you can have some bumps, you know, quarter by quarter. Now, you know, the property and transportation segment is still through six months reporting a combined ratio in the high eighties. You know, I think our guidance speaks for itself on the combined ratio there. We're very optimistic and positive about that business. To boot, you know, if we as the crop year kind of takes shape, most of our crop earnings are really booked in the fourth quarter in that.
That has an impact on the last half of the year, you know, when you look at the Property Transportation combined ratio also.
Makes sense.
To boot, you know, if, as the crop year kind of takes shape, most of our crop earnings are really booked in the fourth quarter in that. That has an impact on the last half of the year, you know, when you look at the Property and Transportation combined ratio also.
Alternative side for all the insurance companies have come under, you know, some overview just because of what's gone on in the market. You talked about the 55% in multifamily that's done well. Can you speak to the 45% that's not multifamily? Give us a sense of what the composition of that looks like.
Sure. That is the piece that we kind of don't have great visibility on, Greg. We've got very good visibility on multifamily and, you know, year-over-year, have very, very strong increases in the rental rates. The guidance that we gave, I believe, has some conservatism in it because we just don't have visibility on the, you know, the 45% of the alternative portfolio that, you know, is in more traditional private equity. We are not big investors in tech, venture, you know, venture capital or those types of things. My hope is that if the market stabilizes here for the balance of the year, we could do, you know, somewhat better.
It's a very diversified portfolio with very little investment in tech or venture capital.
Got it. Thank you for the detail and your time.
Sure.
As a reminder, ladies and gentlemen, to ask a question, you will need to press star one one. Please stand by for our next question. Our next question coming from the line of Meyer Shields with KBW, y our line is open.
Thanks. Two quick questions, if I can. First, when you look at your current geographic exposure for crop, any major changes from last year?
Not anything, yeah, not anything significant.
Okay, fair enough. Second question, just I was hoping you could update us on, I guess pricing trends and the intensity of competition in transportation specifically.
Meyer, could you repeat your question, please?
Yeah. I'm just trying to get a sense of the rate competition in the transportation market. I know people are broadly nervous about commercial auto, but I don't know how that translates to the transportation market in National Interstate.
Yeah, you know, I think the business has gotten marginally more competitive. I think the competition landscape is transitioning a little bit, I think as some markets have, you know, shown better results in commercial auto. But there's a lot of pockets in the overall commercial auto market also that are, you know, pretty hard in that. The bottom line, you know, the commercial auto liability markets combined ratio improves in 2020 and all that. You know, it's still even in our case, we're making on the commercial auto liability side of our business, you know, a couple points of underwriting profit.
The severity, you know, has just, you know, frequency is probably a little bit less than pre-pandemic levels, but the severity and the social inflation aspect of things still has us in a mode to be defensive and and take rate. I think in a quarter or, you know, we still took 9% in commercial auto liability rates in that. Yeah, I hope the market doesn't get too enthusiastic because I think, you know, we're a company in National Interstate that have probably had nine or 10 years of rate increase. We've, you know, taken early underwriting actions in different areas. I think the commercial auto liability, you know, is something that we and the market continue, you know, will continue to be hard and in need of rate.
I hope that gives you some perspective.
Oh, it absolutely does. One last question, if I can. When we talk about excess capital, is that influenced more by GAAP or debt-free accounting, specifically for the fixed maturity portfolio?
The question was about what influences the excess capital or?
Yeah. In other words, when interest rates rise, but nothing else changes, and you've got a held-to-maturity portfolio, does that change things?
When we look at the debt-to-capital ratio, we mentioned having a—I think previously we mentioned that our internal guideline is a debt-to-total capital ratio of around 30%. In those numbers, particularly with S&P, that capital number does include the unrealized gains or losses on fixed maturities. When the unrealized loss increases, it does put pressure on that debt-to-capital ratio. All of the numbers that we've talked about as far as our expectations of excess capital that's available for distribution to shareholders, that piece is reflective of sort of where we think interest rates might be by the end of the year.
If you think about our excess capital, just as an example of what can happen, if you think about our excess capital at the end of March, so that was the number that was over $2 billion. But when you pro forma that for the debt retirement and special dividend, then our pro forma number that we shared last quarter was a little over $1 billion, and now we're at $1.1 billion. Then during the quarter, sort of after the special dividend, you have $157 million of earnings. You have about $50 million in just our normal dividend. Then kind of the rest of the change in the capital is from the unrealized.
You can see the biggest, the bulk of the changes going from $1 billion to $1.1 billion is really just the earnings in excess of the dividend.
Okay, perfect. That's very helpful. Thank you.
Thank you. One moment for our next question. Our next question coming from the line of Charlie Lederer with Wolfe Research, y our line is open.
Hi. Thanks for taking my question. Just wondering if you could provide any color on the reserve releases in the quarter, whether by businesses or accident year, particularly within Specialty Casualty, and how that compares to recent quarters.
Thanks, Charlie. This is Brian. In Specialty, in Specialty Casualty, the big driver of development continues to be out of our workers' comp business units in the quarter, and that's been fairly consistent in recent years. That development ranges in accident years mainly 2020 back to 2016. We still are seeing a significant favorable development in other areas like our executive liability business that Carl talked about earlier as being a strong performer as well. That's really the drivers in the quarter. That's pretty consistent with the past. I think if you look at that segment, the majority of our development's coming out of workers' comp. Then more recently, we're seeing good development coming out of the executive liability in some other areas as well.
Got it. Thank you. That's all I had.
Our next question coming from the line of Rudy Miller with The Miller Group, y our line is open.
Thank you, ma'am. Gentlemen, just a couple of quick questions. As usual, I think management does a great job with the company. I would like to ask two questions. One's more of a macro question is, what do you feel is your biggest challenge at this point of the year for American Financial Group going forward? What's your biggest challenge?
Hi, this is Carl. I think our biggest challenge is taking advantage of the market opportunities that you know that are being offered to continue to grow our business you know double digit. You know, as almost all of our businesses are hitting the right returns and that you know just wanna make, I think.
You know, with our 34 different business heads and that, for them to really recognize that this is, there's an unusual opportunity right now to, you know, to grow double digit and take advantage of it.
Thank you. Follow-up question. How are you being affected by the increase in employee salaries, et cetera? Are you still having the ability to maintain a good quality workforce? Or in today's environment, as is happening in many clients that we're invested in and companies we're involved in, we're seeing hard to maintain employees, you know, increases and turnover. How is AFG's historical turnover employee challenges of maintaining good employees? If you could give me any color on that, I'd be appreciative.
Sure. This is Craig, Rudy. First of all, say that, you know, we made a decision as a company that we should give increases in salaries this year that were somewhat above what we've done historically, given the, you know, environment, the inflation that existed and, you know, the importance of not seeing turnover pick up, you know, significantly. We've been extremely pleased with turnover rates. They're up a very small amount from historical levels. Compared to other companies that, you know, that we know about, or other industries, we're extremely pleased that the turnover rates have stayed really very stable and, as I said, slightly above historical levels but pretty comparable.
Well, that's an excellent point. I really appreciate you making that. I'll just make one final comment. Once again, I think under the current environment and what the company has accomplished for the shareholders, and certainly the dividend programs, special dividends are much appreciated, and I think you guys are one of the best management teams in the insurance industry. Thank you, sir.
Thank you.
I am showing no further questions at this time. I would now like to turn the call back over to Diane P. Weidner for any closing remarks.
Thank you. Thank you all for joining us this morning as we discussed our second quarter results. We look forward to talking with you all again as we report out on third quarter. Hope you all have a great day.
Ladies and gentlemen, that does conclude our conference call today. Thank you for your participation. You may now disconnect.