(The following article by Cliff Peale was posted on the Cincinnati Enquirer website on November 10.)
CINCINNATI — American Financial Group Inc. has rid itself of one of its oldest and most troublesome environmental liabilities.
But a settlement of a 20-year-old dispute over a contaminated Pennsylvania rail yard carries a big cost for the Cincinnati-based insurer.
AFG said Tuesday the mediated settlement with several other railroad companies would include an after-tax charge of $33.8 million, or 45 cents per share, to increase its reserves for environmental exposure.
That will reduce third-quarter profits, which were announced Oct. 21, to $138.2 million, or $1.85 per share, from $172 million, or $2.30 per share. Core earnings from AFG’s insurance operations will not change.
The disputes concern environmental clean-up costs associated with a rail yard in Paoli, Pa., that had been owned by Penn Central Railroad, which American Financial’s predecessor company bought in the 1980s.
AFG no longer owns the property. The exposure is the largest for American Premier, an AFG subsidiary that is essentially a holding company for some of the old Penn Central assets.
“Since we’re a former owner, we are considered a partially responsible party under environmental law,” said Anne Watson, vice president of investor relations at AFG.
AFG said it should be able to recover some of those costs from other potentially liable parties, but it hasn’t recorded those assets on its balance sheet.
AFG’s stock closed Tuesday at $31.27, up 22 cents.