American Financial Group, Inc. (AFG) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Shareholders Meeting for American Financial Group, Inc. Our host for today's call is Karl Grafe, Corporate Secretary. [Operator Instructions] I will now turn the call over to your host. Mr. Grafe, you may begin, sir.

Thank you. Good morning, everyone, and welcome to the 2020 Annual Meeting of Shareholders of American Financial Group. I'm Karl Grafe, Corporate Secretary of the company. Obviously, everything is very different this year due to the coronavirus pandemic, including AFG and many other issuers moving to a virtual shareholder meeting. While the AFG Board enjoys the annual opportunity to visit with longtime shareholders, clearly, the health and safety of all concerns -- concerned remains our highest priority and dictates that we avail ourselves of this option. It is my pleasure to introduce your Board of Directors, each of whom has dialed in today. I will start with our Co-Chief Executive Officers, Carl Lindner III and Craig Lindner, who also serve on our Board; and we have our Lead Independent Director, Greg Joseph. Also virtually with us today are our remaining management directors, Jeff Consolino, who serves as the company's Executive Vice President and Chief Financial Officer; and John Berding, the President of the company's American Money Management Corporation subsidiary. The remainder of our independent directors with us today are Ken Ambrecht, Gina Drosos, Jim Evans, Terry Jacobs, Mary Beth Martin, Will Verity and John Von Lehman. Joe Maniola and Brian Harves of Ernst & Young, the company's independent registered public accounting firm, have dialed in. And while they have indicated that they do not wish to make any statement, they will be available to respond to appropriate questions from shareholders following the meeting. As is our custom, after the formal meeting has been adjourned, the Board will answer a few general questions. Only validated stockholders will be able to submit questions in the designated field on the web portal. In the interest of expediency, rather than repeating business matters discussed during last week's earnings conference call, we would direct shareholders to the transcript of that call, which has been posted to the company's website. Now I would like to recall the 2020 Annual Meeting of Shareholders of American Financial Group to order. The Board fixed March 27, 2020, as the record date for determining shareholders entitled to vote at this meeting. A notice of Internet availability of the notice of the meeting, the proxy statement and the 2019 Annual Report to shareholders or alternatively, the documents themselves, were distributed on or about April 3, 2020, to all company shareholders as of the record date. The shareholder list shows that as of the record date, there were 89,857,336 shares of common stock outstanding entitled to vote at the meeting. We are informed by the transfer agent that there are, represented in person or by proxy, shares of common stock representing 82,265,941 votes or approximately 91.5% of the voting power on the record date. Since this represents more than a majority of all issued and outstanding shares entitled to vote on the record date, a quorum is present for purposes of transacting business. There are 3 proposals for consideration by shareholders, which are all fully described in the proxy statement. After I read all of the proposals, there will be a brief period during which we will respond to any shareholder questions about them. Therefore, I would ask that shareholders submit any questions at this time in the designated field on the web portal. Proposal #1. Our first proposal is to elect 12 directors to hold office for 1 year or until their successors are duly elected and qualified. All 12 nominees have been introduced to you at this meeting. Proposal #2. The second proposal is the ratification of the company's independent registered public accounting firm. The company's Audit Committee charter provides that the Audit Committee annually appoint a firm of independent public accountants to serve as auditors. Although the Audit Committee has the sole authority to appoint auditors, it would like to know the opinion of shareholders regarding its appointment of Ernst & Young as auditors for 2020. And Proposal 3. The third proposal relates to an advisory vote on the compensation of our named executive officers and as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This has been referred to as the say-on-pay vote. Since the 2011 annual meeting, we have held this vote annually, based in large part on the vote of our shareholders. We ask that shareholders approve, on an advisory basis, the compensation of our named executive officers as disclosed in the proxy statement. While it is a nonbinding vote, the Compensation Committee and the Board will certainly take the results of the vote into account when making future compensation decisions. Are there any questions or comments about any of the proposals? There being no questions, the polls are now open. Any shareholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Shareholders who have sent in proxies or voted via telephone or Internet and do not wish to change their vote need not take any action at this time. [Voting]

Now that everyone has had the opportunity to vote, I now declare the polls for the 2020 Annual Meeting of Shareholders of American Financial Group closed. The preliminary vote report indicates with 91.5%, approximately 82.25 million of the 89.9 million outstanding shares voting the following: with respect to the proposal to elect directors, the 12 nominees proposed by the Board of Directors were elected by an average of 94.1%, with each receiving at least 88.7% of the shares being voted in their favor; the proposal to ratify our independent registered public accounting firm was approved with 96% of the vote being in favor; the vote on an advisory basis of the compensation of our named executive officers was approved, with 93.3% of the shares being voted in favor. We will be reporting the final vote results in a Form 8-K to be filed with the SEC within a couple of business days. There being no further business to come before the meeting, the 2020 Annual Meeting of Shareholders of American Financial Group is now adjourned. Now we would like to entertain any shareholder questions germane to the meeting that have been submitted through the web portal.

And the first question is a question relating to the holdings of BlackRock and Vanguard that are each 10% and 8.5% of the company's shares. And the question is does the Board see this growing ownership concentration as a positive or negative development? And also, are there any conflicts of interest with one of these holders managing company retirement plan assets? I'd turn that over to Craig Lindner for a response.

Okay. Thanks, Karl. We actually view their ownership position as a positive and do not view this as a conflict. Although we do offer Vanguard funds in our retirement plan, they represent a tiny portion of Vanguard's assets under management. And because of the size and significant index funds that these 2 firms own -- these 2 firms own a very large position in most public companies. I think if you'd go check the ownership of any major company, they typically own 7% to 10%, 8%, 10% -- 8% to 10% of almost every major public company out there. We're actually very pleased with the confidence exhibited by their large ownership position of AFG stock.

Thank you, Craig. And now the next question is a question directed to Ernst & Young. And the question leads in that lead auditor partner rotation is a mean of protecting auditor independence. Could Ernst & Young, their representatives, describe the lead partner rotation process and indicate who has decision-making authority in that process? I would turn that to -- direct that to Joe Maniola of Ernst & Young.

This is Joe Maniola. The process is as follows. E&Y leadership selects potential candidates with the appropriate levels of experience, including insurance industry experience. Those candidates meet with members of the Audit Committee and members of management. The Audit Committee has the ultimate decision-making authority on that and would consider the inputs of management after those meetings and resumes have been reviewed. And then once the candidate is selected, they would participate alongside the existing lead audit partner in terms of key meetings and completing the final audit of the existing partner in order to transition and be on board for the beginning of the next rotation.

Thank you, Joe. And then our last question relates to the company's COVID-19 response information. And I would turn that to Carl Lindner for a response.

Yes. We don't have any COVID response information on the website, but we have made some comments on our earnings conference call about COVID. And I'm happy to talk about that a little bit right now. We continue to do our part to help prevent the spread of the virus by making decisions that are guided by information from our health officials and government leaders and shaped by AFG's corporate values. The safety of our employees are -- remains our highest priority. And we've been communicating with our employees about best practices related to the coronavirus since early February and have updated various workplace policies, such as our travel policy, in response to new information and developments. We have business continuity plans across all of our locations, which include work-from-home arrangements and other remote and alternate work scheduling capabilities. Very happy to say that over the past month or so, about 98% of our workforce is currently working from home and doing so very effectively. I think our investment in the planning, the development and testing of business continuity plans across our enterprise over the past couple of years has helped us to seamlessly activate these plans and continue to provide the superior service that our insureds and distribution partners rely on. I think we're also -- our corporate crisis management team has also been developing our company-coordinated return-to-office plan. Obviously, recommendations are being developed with adherence to federal guidelines as well as state and local orders. Again, our employees' well-being is the top priority. Our plan considers returning to the office safely and minimizing risk to others while balancing our business needs. We expect that we'll be -- our return-to-office approach will be a phased approach and will also be dependent upon an office's geographical location. So that's a little bit of color. I hope that's helpful.

Thank you, Carl. Well, there being no further questions, that concludes today's virtual shareholder meeting event. Thank you, everyone, for participating, and we hope you have a good day.

This now concludes the meeting. Thank you for joining, and have a pleasant day.