Prompt:
Human: References to margins and adjusted operating margins reflect the performance for the Americas and International segments.
We will refer to Net Service Revenue or NSR, which is defined as revenue excluding pass-through revenue.
Our discussion of year-over-year NSR growth for the fourth quarter and full year is adjusted to exclude the benefit of the extra week to the prior year fourth quarter.
As a reminder, we sold the Management Services business in January of 2020 and we closed on the sale of the Power and Civil construction businesses in October 2020 and January 2021 respectively.
The financial results of these businesses are classified as discontinued operations in our financial statements.
Lara Poloni, our President will discuss key operational priorities and Gaurav Kapoor, our Chief Financial Officer will review our financial performance and outlook in greater detail.
We will conclude with a question-and-answer session.
I want to begin by acknowledging our teams across the globe whose contributions made fiscal 2021 a tremendous success.
Our people remain our greatest assets, and it's because of their commitment to our success that we are so well positioned for the future.
I'm proud of our team's accomplishments, and I'm energized by the opportunity we see in 2022 and beyond.
Turning to our results.
We exceeded our expectations on every key metric, highlighted by accelerating organic NSR growth, record operating margins, double-digit earnings growth and strong cash flow.
It really was a very successful year.
Our NSR for the fourth quarter increased by 6.5%, which marked a third consecutive quarter of accelerating organic growth and included the strong contributions from both the Americas and International businesses.
We delivered a 14.8% segment adjusted operating margin in the fourth quarter and 13.8% for the full year.
Both results exceeded our expectations and extends our lead over the industry.
To put this performance in context, our margin in the fourth quarter is more than 600 basis points higher than in fiscal 2018.
This performance directly reflects the high value we provide to clients and the actions we have taken to create the best industry delivery platform.
Looking back to February, at our Investor Day, we set margin targets at the time that we were very ambitious.
Today, we are ahead of schedule on our plans, and we have even greater conviction in our 17% longer-term goal, which we now view as achievable rather than aspirational.
Importantly, our strong margins afford us the opportunity to accelerate investments in our teams to drive organic growth and into our Digital AECOM capabilities, which I will discuss in greater detail in a moment.
Turning to earnings, we delivered at the high end of our guidance ranges for both adjusted EBITDA and EPS.
Full-year adjusted EBITDA was $830 million and adjusted earnings per share was $2.82, which marked an 11% and 31% increase respectively.
Free cash flow was $583 million and was driven by our strong earnings and continued high cash flow conversion.
Our cash flow result is a testament to the focus on efficiently converting our earnings to cash as well as the high quality lowest mix of our business.
We have repurchased more than $1 billion of stock since last September, or 13% of the Company.
And we have $940 million remaining under our current authorization.
We remain committed to repurchasing stock with available cash and cash flow, which we believe is the best and highest returning use of our capital after our investments in growth.
Turning to our wins and backlog.
Our win rate remains high, and we continue to gain market share.
We delivered $3.7 billion of wins in the fourth quarter, including a 1.2 book-to-burn ratio in the design business.
Our contracted backlog, which is a key indicator of revenue growth increased by 18% and included 4% growth in design business.
Our pipeline of opportunities is up to double-digits in the Americas design business.
And based on our clients' strengthening funding backdrop, including benefits from the $1.2 trillion infrastructure bill in the US, we expect our backlog to continue to grow.
Overall, our performance demonstrates that we are outgrowing the industry organically and capturing market share.
There are two areas in particular that highlight our success and showcase the value we deliver to clients.
First, we set as a key objective to substantially grow our Program Management business and we are delivering.
This is especially apparent in the Middle East where we had several recent successes on high priority and larger programs where a combination of technical leadership, global thinking and program management expertise were instrumental in our success.
This includes winning significantly expanded program management and design roles in transformational projects in Saudi Arabia, such as for AlUla City and a large transportation project in Qatar, where more than 100 employees have joined AECOM from the incumbent to support this work.
Second, we are demonstrating our leadership on ESG.
Our investment at the Natural Capital Laboratory in UK is a great example.
We established this project in 2019 to study the environmental change and biodiversity impact with precision by leveraging drones, artificial intelligence, GIS Data and thermal imaging.
The ability to more exactly measure the impacts of decarbonization is a critical element of the global agenda to drive decarbonization and carbon sequestration.
Our investment in our work at the NCL underscores how AECOM and our professionals are leading in the development of standards and methods to measure decarbonization which will be especially important for creating reliable markets for sustainability investments.
Let's turn to the next slide.
I mentioned earlier that our strong performance in fiscal 2021 has created the opportunity to accelerate investments and expand our advantages.
We break these investments into three categories: People, Clients and Digital.
Beginning with our people.
We are a knowledge-based business and our diverse professionals serve as our greatest advantage.
Therefore, it is critical that we have the right culture and programs in place to attract and retain the best talent in the industry.
To do this, we've implemented a flexible work model designed to facilitate optimal work life balance.
In addition, we've enhanced the benefit programs and increased our investment in technical and professional development.
Most importantly, our people are winning and delivering the most challenging and iconic projects.
All of this culminates in a culture of high engagement, high satisfaction and low attrition.
Turning to how we deliver for clients.
We are leading with our higher margin program management and advisory capabilities and investing across our key account programs to ensure our clients are benefiting from our best expertise globally.
We're also developing technology to automate and pre-populate certain elements of our designs, which capitalizes on our vast expertise, accelerates the design process and extends the capacity of our workforce.
Finally, today we unveiled Digital AECOM which brings together all of our innovative digital capabilities.
After more than a year of focused investment and the launch of many digital solutions, we are now formally rolling out our digital products.
A great example of this is PlanEngage, a digital platform that reinvents the public engagement process for an infrastructure project by creating greater certainty on cost, time and stakeholder management.
Successful community engagement is a critical step in a project, but this process is really digitized.
PlanEngage simplifies this process by integrating all the key elements of a project into a digital tool, which allows our clients to capture information to make more informed decisions and advance projects more quickly.
This solution is years ahead of the competition by our estimation.
And we see PlanEngage becoming the industry standard.
With the passage of the Infrastructure Act in the US, this tool will be even more valuable.
Across these focus areas, one theme is constant.
Our investment will expand our advantage as demand grows and labor constraints challenges some in our industry.
Please turn to the next slide.
Looking to fiscal 2022 and beyond, the spotlight on infrastructure has never been brighter.
In the US, the $1.2 trillion Infrastructure and Jobs Act marks a generational investment in America's infrastructure.
This bill provides much needed long-term funding certainty across our strongest end markets such as transit modernization, electrification, environmental remediation and climate resilience.
Importantly, we are positioned to benefit from nearly every line item in this bill.
We anticipate this funding will increase our addressable market in our most profitable business by double-digits over the coming years.
And we expect the most meaningful benefits in fiscal 2023 and beyond.
In addition to the strengthened federal funding environment, all of our state and local clients are on an equally strong footing.
Today, state DOT [Phonetic] budgets are significantly above prior projections and the fiscal outlooks are stronger.
Our public sector pipeline in US is up double-digits and with the strong funding backdrop now in place, we anticipate the pace of decisions will accelerate as well.
Our international markets are equally strong.
Conditions in our largest markets have improved, and we're delivering strong growth across all major international markets in the fourth quarter.
In addition, we had strong backlog growth in each of our larger geographies.
I'm especially pleased to see that our strategy with a focus on Program Management contributing to the success in places like the Middle East and in key transportation wins in the UK, where regaining market share has been a key priority.
As the number one ranked transportation facilities and environmental engineering firm as well as the number two ranked water design firm, we are uniquely positioned to benefit.
Turning to our financial guidance.
We've initiated adjusted EBITDA and adjusted earnings per share guidance of between $880 million and $920 million and between $3.20 and $3.40.
This reflects 8% and 17% growth at the respective midpoints.
Underpinning this growth is an expectation for another year of accelerating organic NSR growth and at least 30 basis point increase in our margins to another record high of 14.1%.
Our guidance incorporates all the planned growth investments we are making in our people, business development, client delivery and digital capabilities.
I also want to comment on the 2024 financial projections we shared at our Investor Day in February.
Based on our strong performance to date and the returns we expect on our investments, we are raising our long-term adjusted earnings per share guidance to at least $4.75 in fiscal 2024.
This represents a more than doubling of our fiscal 2020 earnings and a nearly 20% CAGR from 2021 to 2024.
I am pleased with how well our teams have responded to our new strategy and their many accomplishments in fiscal 2021.
In particular, I'd like to highlight our success on some of our larger key pursuits, our global approach, technical leadership, program management capabilities, advisory expertise and multiyear investments are bearing fruit.
A great example of this is in the Middle East where we prioritize as a long-term growth opportunity.
We have gained market share with wins from megacities, including NEOM and AlUla in Saudi Arabia.
Key to these successes was the integration of global capabilities, including expertise from every region and market sector.
Our culture of collaboration has truly distinguished us from competitors, particularly as our clients work to address multi-decade investment programs that require more holistic thinking.
Another great example is in the US where we were recently selected for a large program for a client who selected us based on our leadership capabilities in many verticals including in PFAS, even as PFAS expertise wasn't the main criteria in the pursuit.
We are continuing to prioritize our time and capital on the best opportunities, which has been instrumental in our high win rate over the past year and in our confidence in continued market share gains.
Looking ahead, our clients continue to prioritize investments in ESG, and we are well positioned to capitalize on this trend.
At the COP26 Summit earlier this month, this commitment was front and center as the most prominent public and private sector voices spoke with unity on the challenge and the opportunity.
In demonstrating how we are leading in ESG alongside our clients, we published our Global ESG Report last week, which includes disclosures aligned with the SASB and TCFD frameworks.
This report is an important step in our ESG journey and underscores our commitment to regularly communicating our progress on our sustainable legacy strategies.
Finally, Troy spoke about our focus on ensuring we attract and retain the industry's best and brightest.
And I'm pleased to report we are operating from a strong position.
To that point, we conducted a global employee survey in September that revealed very strong levels of engagement, including the vast majority recommending AECOM as a great place to work.
High employee engagement is also leading to the highest client satisfaction scores in our Company's history in fiscal 2021.
With our momentum, we are in an enviable position from which to deliver another strong year in fiscal 2022.
Please turn to the next slide.
Our fourth quarter and full year results serve as clear evidence of the strength of our business and the benefit of our focused strategy.
We delivered: Accelerating NSR growth; the highest margins in our Company's history; another year of double-digit adjusted EBITDA growth; more than 30% adjusted earnings per share growth and; a seventh consecutive year of free cash flow at or above our guidance range.
Our strong financial performance is creating increased opportunities to invest in organic growth while also bolstering our confidence in delivering on our long-term organic growth and financial goals.
Importantly, all of this was achieved while making critical investments in people, teams and digital capabilities that will sustain our advantages in fiscal 2022 and beyond.
Please turn to the next slide.
In the Americas, NSR increased by 7% in the fourth quarter, including growth in both design and construction management businesses.
Contracted backlog increased by 21% to set a new record.
This included growth in the design business and a large construction management project that moved into contracted backlog and firmed up our outlook for the year.
I should note that our awarded backlog was reduced by $1.3 billion as a result of this client only advancing the first phase of this project at this time.
However, the economic impact of the shift is not material to our earnings outlook.
And, our confidence in the growth outlook for the construction management business is higher than it ever has been in many years.
The fourth quarter adjusted operating margin was 19.8%, a 290 basis point increase from the prior year to a new all-time high and reflects strong execution.
Please turn to the next slide.
Turning to the International segment.
NSR increased by 6% in the fourth quarter, including growth across all of our largest regions, and backlog increased by 10%.
This is a result of our organic growth investments, market share gains, steadily improving market conditions.
Our adjusted operating margin in the third quarter was 7.4%, an 80 basis point improvement from the prior year.
We continue to make progress on our margin improvement initiatives and remain confident in our goal of achieving double-digit International margins.
Please turn to the next slide.
Turning to cash flow, liquidity and capital allocation.
Fourth quarter free cash flow of $299 million contributed to full year free cash flow of $583 million.
Our performance reflects the benefit of our improved cash phasing throughout the year, which allowed us to accelerate our stock repurchases.
We have now repurchased nearly 20.5 million shares since September 2020, or approximately 13% of our starting share count at an average price of approximately $51.
As we look ahead, we will continue to make critical investments to build on our industry-leading organic growth.
As a result, we expect our capital expenditures in fiscal 2022 to include investment primarily relating to the advancement of our digital strategy as well as ongoing investments to reconfigure our real estate footprint and support our flexible work programs.
These investments will impact the conversion of our earnings to free cash flow in fiscal 2022.
However, the underlying cash generation within the business is firmly intact.
To that point, we expect free cash flow of between $450 million and $650 million in fiscal 2022.
Importantly, our investments in growth and innovation will continue to separate us from our peers, and we are progressing toward our 17% longer-term margin target.
Please turn to the next slide.
For fiscal 2022, we are guiding to adjusted EBITDA of between $880 million and $920 million or 8% growth at the midpoint and adjusted earnings per share of $3.20 and $3.40 or a 17% growth at the midpoint.
This guidance contemplates the improved market conditions we're experiencing today, our substantial backlog and pipeline and the benefits of our investment in our people, client and digital capabilities.
To be clear, this guidance does not reflect any expected benefit from the recently passed legislation in the US, which, as Troy mentioned, is expected to benefit us more materially in fiscal 2023 and beyond.
We expect our MSR growth to accelerate to approximately 6% in fiscal 2022.
This is all organic growth.
In addition, we project a further 30 basis points of margin expansion to 14.1% as we continue to expand our lead on the industry while investing in people, clients and innovation.
I also want to emphasize that our adjusted earnings per share guidance only incorporates the benefit of our share repurchases completed to date, though we expect to continue to buy back stock in fiscal 2022 as part of our capital allocation program.
Also incorporated into our guidance is a 26% effective tax rate.
We expect to maintain this rate going forward, reflecting changes in our operating mix and structure.
Finally, I should note that we expect our EBITDA track with our phasing in fiscal 2021.
Our tax rate may be lower in the first quarter, and as a result, our earnings per share phasing may be more first half weighted than our seasonal pattern.
With our outperformance in fiscal 2021, our expectation for strong growth again in fiscal 2022 and the successful launch of our digital platform, we are also increasing our long-term financial targets for fiscal 2024.
This includes our expectation to now achieve adjusted earnings per share of at least $4.75 in fiscal 2024, which is 10% above our prior projection and is nearly 20% compounded annual growth rate from 2021 to 2024.
 Assistant:

Chosen response:
q4 revenue fell 6 percent to $3.4 billion.
expects 2022 adjusted earnings per share of between $3.20 and $3.40 and adjusted ebitda of between $880 million and $920 million.


Prompt:
Human: This is already above our full-year 2020 adjusted EPS.
Adjusted segment operating profit was $1 billion, up 18% versus the third quarter of 2020 and our 8th consecutive quarter of year-over-year OP growth.
Our trailing fourth quarter adjusted EBITDA was about $4.6 billion, almost a $1 billion more than a year ago.
And our trailing fourth quarter average adjusted ROIC was 9.6%, significantly higher versus the year-ago period.
I remain proud to lead a global team that is delivering robust returns and sustained growth in profit.
Our strong quarter and our ongoing upward trajectory, our system into our team's execution and agility and the consistent implementation of our strategic plan.
I'd like to take a moment now to highlight some of our accomplishments from the quarter.
I'd like to start by talking about our approach to portfolio management.
Our starting point, if they believe that in order to thrive and create value, a company needs to have a dynamic view office business portfolio.
So when we talked about the dramatic transformation of our portfolio over the last 10 years, it's not a discrete event.
Of course, those opportunities may be the -- must be the right ones.
The enduring trends of food security, health and well-being and sustainability provide unique and stable opportunities for ADM to expand our existing capabilities, and we are focusing our efforts on identifying high growth on trend areas with attractive margins and which are adjacent to our existing capabilities, that focusing from the building of our global nutrition business.
The acquisition of WILD gave us entry into flavors and a global taste platform.
We then use bolt-on acquisitions to other adjacent capabilities and build a one-stop shop with an industry-leading pantry of ingredients and solutions for Human Nutrition.
We did the same for Animal Nutrition with the acquisition of Neovia and we continue to do the same today across our business.
In order to meet growing demand for sustainable solutions, we have announced a joint venture, an offtake agreement with Marathon Oil Company to support the production of renewable diesel.
We are continuing to invest in key nutrition categories as demand for alternative protein grows from $10 billion to $30 billion over the next decade.
We are further enhancing our capabilities with the acquisition of Sojaprotein.
And with global demand for pet food grow into the $140 billion in the coming years.
We are continuing our growth with a 75% ownership stake in PetDine.
In the early of microbiome, we've signed an agreement with Vland Biotech to launch a joint venture that we perfectly positioned to help meet $1 billion in retail demand for probiotics in China.
These are just some examples of how we are dynamically positioned in our portfolio to continue driving growth for years to come.
There will be more to come.
And you can expect an increased level of investments to support our sustainable earnings growth and sort of that expand our capacity and capabilities.
As part of our portfolio management approach, we're looking to evolve our Carbohydrate Solutions business, expanding our array of solutions to meet growing customer demand driven by the enduring trend of sustainability.
We've made significant progress recently focused on two areas.
New opportunities for our alcohol production, an ever growing volume solutions platform.
Let me start with alcohol.
Last Thursday, we announced that we reached an agreement, which we expect to close at the end of the month to sell our ethanol facility in Peoria.
And yesterday, we announced a memorandum of understanding with Gevo to explore potential joint venture, one of which would include our Columbus and Cedar Rapids dry mills and our ethanol assets indicator transitioning 900 million gallons of ethanol production to support growing demand for low carbon sustainable aviation fuel.
These actions represent our commitment to a process that we began when we first analysis to tissue review of our dry mills.
Taken together, they will allow us to significantly reduce our exposure to vehicle fuel ethanol while using our expertise and assets to capitalize on new opportunities.
SAF is one of those opportunities.
The U.S. and EU have set goals that together with support almost 4 billion gallons of annual sustainable aviation fuel production by 2030 and more than 45 billion by 2050.
The other focus area for our Carbohydrate Solutions evolution were biosolutions growth platform.
Biosolutions, which we launched a year ago, it's an effort focused on using our product streams to expand our participation in sustainable higher margin solutions for attractive end markets like pharmaceuticals and personal care.
This is an area of significant potential and our team is doing a great job identifying new and exciting opportunities.
Earlier this fall, for example, we signed an MoU with LG Chem for the production of lactic and polylactic acids for bioplastics, another plant-based products.
These efforts and enable in biosolutions to deliver 10% annualized revenue growth including more than $80 million in new revenue wins in the first nine months of this year and we believe there are many new opportunities to come.
So from the transformation of our dry mills to our growing biosolutions platform, our work to evolve our work Carbohydrate Solutions capabilities is a perfect example of how we're managing our portfolio and delivering the smart strategic growth and one of the many reasons we remain convinced and our ability to deliver sustainable earnings growth in the years to come.
I'll talk a little bit more about our business outlook at the end of our call.
And of course, we'll be going into much more detail at our Global Investor Day on December 10th.
The Ag Services and royalties team continue their outstanding year with another quarter of substantial profit growth.
In Ag Services, we're proud to tell the team executed in a challenging environment, including a swift return to operation after Hurricane Ida.
Overall results were significantly lower versus the prior year quarter, driven by approximately $50 million in that timing effects that should reverse in coming quarters, as well as $54 million in insurance settlement recorded in the prior year period, and lower export volumes caused by Hurricane Ida.
Global trade continues its strong performance.
The Crushing team delivered substantially higher year-over-year results, executed well, delivering stronger margins in a dynamic environment that includes strong demand for vegetable oils to support our existing food customers as well as the increasing production of renewable diesel.
Results were also driven by about $70 million in net positive timing effects in the quarter.
Refined Products and Other results were significantly higher than prior year period, driven by positive timing effects of approximately $80 million, our expected to reverse in future quarters.
Strong execution in EMEA and North American biodiesel and strong refining premiums due to demand for renewable diesel and foodservice recovery in North America also contributed to the results.
Equity earnings from Wilmar were lower year-over-year.
Looking ahead, we expect to see continued fundamental demand strength for Ag Services and Oilseeds products including from China, as well as solid global soybean crush margin environment in the fourth quarter, partially offset by some higher manufacturing costs.
In addition, RPO will be negatively impacted by timing reversals.
All told, we expect results in the fourth quarter to be significantly higher than the third quarter of this year.
Carbohydrate Solutions results were lower year-over-year.
The Startches and Sweetener sub segment including ethanol production from our wet mills showed their agility by managing through dynamic market conditions and optimizing mix between sweeteners and ethanol production through the quarter.
Year-over-year results were significantly lower, primarily due to higher input costs.
Vantage Corn Processors results were much higher versus the third quarter of 2020 supported by the resumption of production of at our two dry mills and improved fuel ethanol margins, particularly late in the quarter.
Looking ahead to the fourth quarter, we expect the solid fundamentals from the end of the third quarter to continue for Carbohydrate Solutions with good ethanol margins extending through the quarter due to industry supply demand balance and solid demand for corn oil and starches offset by higher manufacturing costs, particularly in Europe as well as the absence of the pure dry mill.
Also fourth quarter results for the segment should be similar to the previous year fourth quarter.
On Slide 8, the Nutrition business remains on its solid growth trajectory was 17% higher revenues and 15% on a constant currency basis and 20% higher profits year-over-year and continued strong EBITDA margins.
The human nutrition team delivered revenue growth of 12% year-over-year on a constant currency basis, helping to drive 9% higher profit, higher volume improved pilot mix, particular strength in beverage drove strong flavor results in EMEA in North America, partially offset by lower results in APAC.
Specialty Ingredients continued to benefit from strong demand for alternative proteins, offset by some higher costs.
Health & Wellness results were higher on robust sales growth in bioactives and fiber.
Aninal Nutrition profits were nearly double the year-ago period and sales were up 19% on a constant currency basis, driven primarily by the strength in the mineral assets as well as feed additives and ingredients, partially offset by higher costs in LATAM and slower demand recovery in APAC.
Looking ahead, we expect nutrition to continue on its impressive growth path with strength across the Human and Animal Nutrition leading to strong year-over-year earnings expansion in the fourth quarter and a 20% full year growth versus 2020.
Let me finish up with few observations from the other segment as well as some of the corporate line items.
Other business results were substantially lower than the prior year period, driven primarily by captive insurance underwriting losses, most of which were offset by corresponding recoveries in the other business segments.
We expect fourth quarter to have some additional insurance underwriting losses, resulting in a breakeven other business for the fourth quarter.
As expected, net interest expense for the quarter decreased year-over-year on lower interest rates and the favorable liability management actions taken in the prior year.
In the corporate lines, unallocated corporate costs of $230 million were driven primarily by higher IT offerings and project-related costs and transverse cost into the centralized centers of excellence in supply chain and operation.
Looking at total corporate costs including net interest, corporate unallcoated and other corporate, we are still on track fourth calendar year to be overall similar to 2020.
The effective tax rate for the third quarter of 2021 was approximately 18%.
We anticipate our calendar year adjusted effective tax rate to be the upper end of our previously communicated range of 14% through 16% and potentially a bit higher depending upon the geographic mix in the fourth quarter.
Our balance sheet remains solid with a net debt to total capital ratio of about 26% and available liquidity of about $11.5 billion.
From consistent sustained profitable growth for the ongoing management of our business and product portfolio, our team has a lot to be positive.
And there's one other thing we achieved last quarter that I want to mention.
We have many team members impacted when Hurricane Ida hit in late August.
So we provide temporary housing arrangements, portable generators, food and water and more.
In fact, many ADM colleagues travelled through the region and spend time helping repair their coworkers damaged homes.
I put the rest of my close remarks those insured as we plan to go into our outlook in far more of this when our December 10 Global Investor Day.
As I look back at the third quarter and all of the last nine months, I continue to see a team and a company that are delivering on our goals and our purpose.
We are closing out 2021 with great momentum.
We are on track for a strong fourth quarter and the second consecutive year of record earnings per share.
And as we look ahead to 2022, we see another strong year for ADM.
Robust global demand environment will continue to go for opportunities for us to leverage our indispensable global origination, processing, and logistics capabilities.
And nutrition will continue on its strong growth trajectory in line with our 15% per annum trend rate growth and on its way to $1 billion in operating profit in the coming years.
Of course, there are things we continue to watch including energy costs and inflation more widely and much abilities to meet needs in the enduring trend areas of food security, health and wellbeing and sustainability and a truly unparallel team of nearly 40,000 colleagues around the world, we remain very optimistic in a strong year to come.
 Assistant:

Chosen response: on track for a strong q4.


Prompt:
Human: There are many factors that may cause future results to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q filed with the SEC.
Today, I will discuss our progress to-date on a number of key strategic objectives before turning the call over to our CFO, Gustavo Pimenta to discuss our financial results in more detail.
We had an excellent second quarter with a 24% increase in adjusted earnings per share from the second quarter of 2020 and a record 1.8 gigawatts of renewables under long-term contracts added to our backlog bringing our total to 8.5 gigawatt.
We remain on track to achieve 7% to 9% average annual growth in adjusted earnings per share and parent-free cash flow through 2025.
I will give more color on our accomplishments while covering the following three themes shown on slide 4.
One, the growth and transformation of our U.S. Utilities; two, our rapidly growing renewables business; and three, our strategic advantage from innovation.
As you may recall, during our Investor Day in March, we outlined our plan to invest $2.3 billion to transform our two U.S. Utilities, AES Ohio and AES Indiana.
During the second quarter we concluded key outstanding regulatory proceedings at both of our U.S. Utilities, clearing the path for investment in the latest technologies, which will enable us to deliver a higher level of service and reduce carbon emissions.
At the core of our efforts is a focus and deep understanding of the digital tools that vastly improved customer experience and enable the integration and orchestration of diverse and distributed renewable resources.
Starting with AES Ohio on slide 5 where we expect to nearly double the rate base by growing 12% annually through 2025.
Recently, we made a substantial headway on outstanding regulatory filings.
First, the Commission approved AES Ohio stipulation allowing predictable cash flows and investment in smart grid initiatives over the next four years.
And second, AES Ohio also received approval for the FERC-regulated formulary allowing recovery of transmission investments.
Now, moving on to AES Indiana on slide 6 where we're investing $1.5 billion over the next five years as part of our grid modernization program and our transition to more renewables-based generation.
We recently received regulatory approval for our 195 megawatt Hardy Hills Solar Project.
And we announced an agreement to acquire the Petersburg Solar Project, which includes 250 megawatts of solar and a 100 megawatt hours of energy storage.
We expect to grow the rate base at AES Indiana by more than 7% annually.
With many of the key regulatory approvals behind us, we are now positioned to execute on our utility modernization and decarbonization programs, which have been years in the making.
Now, turning to the second theme of renewables growth on slide 7; last year was a record-breaking year of renewable contracts for us with over 3 gigawatt signed.
So far this year, we have already signed almost 3 gigawatt of contracts for wind, solar, and energy storage nearly double the amount at the same time last year.
More than 90% of the new contracts are in the U.S. and we are well on our way toward achieving or exceeding our target of 4 gigawatts for 2021.
At the same time, more than 80% are with C&I customers negotiated on a bilateral basis.
Our new projects will yield after-tax returns at the project level in line with our low teens average for the U.S. and mid to high teens internationally.
Our progress so far this year includes our recent agreement to acquire 612 megawatts of operating wind assets in New York as shown on slide 8.
New York State's supportive renewables policies, combined with the scarcity of wind projects in the Northeast provides us with several pathways for long-term attractive cash flows to support repowering by 2025.
This wind acquisition complements our solar and energy storage pipeline providing us with another resource to offer diversified and differentiated products to our consumers.
Turning to slide 9, we're particularly pleased with our ability to advance new clean energy products.
This year we announced the world's first ever large scale 24/7 carbon-free energy netted on an hourly basis supplying Google's Virginia data centers.
We see this concept of real-time renewable generation as opposed to the purchase of offsetting renewable credits as the new highest standard in Clean Energy.
We have since replicated similar structures with other large-scale customers helping them to achieve their sustainability targets while supporting our renewables growth goals or a total of 1.5 gigawatts of these Clean Energy products signed or awarded thus far this year.
We see these innovative carbon free energy products as examples of our unique advantages both in our technical and commercial ability as well as our culture of working together with customers to understand their specific needs.
Turning to slide 10, with nearly 3 gigawatts of renewables and energy storage projects added this year we now have a backlog of 8.5 gigawatt including 2.5 gigawatts currently under construction.
We expect to bring 1.4 gigawatts online during the remainder of 2021.
The strength of our U.S. renewables growth in the rapidly expanding market will support achieving our goal of having 50% of our earnings from renewables and utilities and 50% of our earnings from the U.S. by 2025.
We also continue to aggressively grow our pipeline of early mid and late-stage development projects to support future growth.
As you can see on slide 11, we now have a pipeline of 37 gigawatts, among the largest in the world.
More than 60% of this pipeline is in the U.S. including 8 gigawatts in the hottest market in the country, California.
Now to decarbonization on slide 12; last month, AES Andes announced that 1.1 gigawatts of coal-fired generation would be voluntarily retired as soon as January 2025 and will be replaced with 2.3 gigawatt of newly contracted renewable.
Since 2017, we have announced the sale or retirement of almost 12 gigawatts of coal-fired generation, which is among the largest programs of any American company.
I am pleased to report that these exits along with our substantial renewable additions reduce our generation from coal to approximately 20% of total generation on a pro forma basis, an additional reduction of 5 percentage points since last quarter.
I would like to address two key concerns that we're hearing from investors related to growth in renewables, inflationary pressures and supply chain bottlenecks.
As one of the largest global renewable developers with a strong reputation we have a long history of successfully negotiating strategic supply agreements resulting in preferential access and pricing.
Furthermore, we lock-in the hardware prices when we sign the PPA sheltering us from future price fluctuations.
With 90% of the equipment needed for our 8.5 gigawatt backlog already secured, we feel very comfortable in our ability to execute on our strong pipeline over the short- and medium-term.
Now, turning to slide 13 and our third theme of innovation; as our entire sector continues to rapidly evolve, we increasingly find that there is a competitive advantage for those who are able to effectively incorporate new technologies and business models.
For example, we have benefited significantly from our Energy Storage business, which we started over 10 years ago and which now is one of the largest in the industry.
There are important synergies between our core businesses and technology ventures.
For example, this year, about half of our renewables energy PPA include an energy storage component.
Last month, once again, we were awarded the highest honor in the Power and Utility sector, the Edison Award from the Edison Electric Institute for our work developing energy storage as a cost-effective alternative to new gas peaking plants.
Specifically, the award was for the AES Alamitos Battery Energy Storage System consisting of 400 megawatt hours of energy storage that can supply power to tens of thousands of homes in milliseconds.
This is our seventh Edison Award overall and third U.S. Edison Award over the last decade.
I would like to note that we have won many more Edison Awards than any other company in recent years.
Turning to slide 14, we also continue to build on our prior success in creating technology unicorns.
For example, we have previously mentioned our strategic investment in 5B, a prefabricated solar solution company that has patented technology allowing solar projects to be built in a third of the time and on half as much land while being resistant to hurricane force winds.
We continue to grow 5B's footprint across several markets including the U.S., Puerto Rico, Chile and Panama and they are now expanding into India where we are working with domestic partners to establish local manufacturing.
We hope India will enable 5B to reach much greater scale, much more quickly, which combined with our leading work in robotics construction will help us lower all-in solar costs as we advance on the learning curve.
Turning to slide 15, similarly, we continue to benefit from our investment in Uplight, which provide cloud-based energy efficiency solutions to more than a 110 million households and businesses through its numerous utility customers, including AES Ohio in AES Indiana.
In July, we closed the previously announced transaction with Schneider Electric and a group of investors that valued Uplight at $1.5 billion.
In conclusion, we're very pleased with our progress to-date across all of our key strategic initiatives.
Not only are we well-positioned to achieve all of our financial goals but we are on track to hit our transformational targets of more than 50% of our earnings from renewables and utilities and more than 50% from the U.S. while having less than 10% of our generation from coal by 2025.
As Andres mentioned, we are making excellent progress this year having already achieved significant milestones on our strategic and financial objectives.
We are pleased to see the continued economic recovery across our markets driven by the reopening of local economies.
In Latin America, many of our clients continue to benefit from record steel, copper and [Indecipherable] prices resulting in a significant improvement in electricity demand across our businesses.
This also reflects in our day sales outstanding, which remain at a historically low levels.
Turning to our financial results for the second quarter on slide 17; adjusted earnings per share was up 24% to $0.31, primarily reflecting execution on our growth plan, demand recovery at our U.S. Utilities and parent interest savings.
These positive drivers were partially offset by lower contributions from Chile and Brazil and a slightly higher adjusted tax rate.
Turning to slide 18, adjusted pre-tax contribution or PTC was $303 million for the quarter, an increase of $65 million versus the second quarter of 2020.
I'll discuss the key drivers of our second quarter results in more detail beginning on slide 19.
In the U.S. & Utilities Strategic Business Unit or SBU, PTC was up $71 million driven primarily by the demand recovery at our utilities, higher contributions from about 1 gigawatt of new renewable assets, and the commencement of Power Purchase Agreements or PPAs at Southland Energy in California.
Turning to slide 20, we are very encouraged to see material recovery, consistent demand at our U.S. Utilities.
For Q2 on a weather-normalized basis demand at AES Ohio is up 9% and demand at AES Indiana is up 4%.
The net combined volume in Ohio and Indiana is largely back to 2019 pre-COVID levels.
This recovery is mainly driven by higher load from commercial and industrial customers this year as a result of the reopening of local businesses.
Separately, in California, our 2.3 gigawatt Southland legacy units are well-positioned to contribute to the State's pressing energy needs and its transition to a more sustainable carbon free future.
In fact, the State Water Board is considering the California Energy Agencies' recommendation for our 876 megawatt Redondo Beach facility to be extended for two years through 2023 to align with our remaining legacy units.
This proposed extension would be an upside to expectations through 2025.
Now, turning back to our quarterly results on slide 21; at our South America SBU lower PTC was mostly driven by recovery of expenses from customers in Chile in 2020, lower equity earnings from Guacolda also in Chile and drier hydrology in Brazil.
These impacts were partially offset by higher generation at the Chivor hydro plant in Colombia.
Higher PTC at our Mexico Central America and the Caribbean or MCAC SBU primarily reflects better hydrology in Panama, which was partially offset by the sale of Itabo in the Dominican Republic.
Finally, in Eurasia PTC remained relatively flat.
The impact from the sale of OPGC in India was largely offset by lower interest expense in Bulgaria.
Turning to slide 24; with our first half results we are on track to achieve our full year 2021 adjusted earnings per share guidance of $1.50 to $1.58.
As we have discussed in the past, our typical quarterly earnings profile was more back-end weighted with roughly 40% of earnings occurring in the first half of the year.
Growth in the year-to-go will be primarily driven by 1.4 gigawatts of new renewables assets coming online in the remainder of the year, continued demand recovery across our markets, reduced interest expense and cost savings benefits.
We are also reaffirming our expected 7% to 9% average annual growth target through 2025.
Now, turning to our credit profile on slide 25; strong credit metrics remain one of our top priorities.
In the last four years, we attained two to three notches of upgrades from the three credit rating agencies, including investment grade ratings from Fitch and S&P.
We are also very encouraged by the recent change in outlook to positive on our Ba1 rating at Moody's.
These actions validate the strength of our business model and our commitment to improving our credit metrics.
We expect the positive momentum in these metrics to continue enabling us to reach BBB ratios by 2025.
Now to our 2021 parent capital allocation plan on slide 26; consistent with our prior disclosures, sources shown on the left hand side of this slide reflect approximately $2 billion of total discretionary cash.
This includes $800 million of parent-free cash flow, $100 million of proceeds received from the sale of Itabo in the Dominican Republic, and the successful issuance of the $1 billion of equity units in March.
Now to uses on the right hand side, we'll be returning $450 million to shareholders this year consistent of our common share dividend and the coupon of the equity units.
And we plan to invest approximately $1.4 to $1.5 billion in our subsidiaries, as we capitalize on attractive opportunities for growth.
Approximately 60% of these investments are in global renewables reflecting our success in originations during 2020 and our expectations for 2021.
And about 25% of these investments are in our U.S. Utilities to fund rate based growth with a continued focus on grid and fleet modernization.
In the first half of the year, we invested approximately $700 million primarily in renewables, which is roughly 50% of our expected investments for the year.
In summary, we are making significant progress on executing on the strategic and financial objectives we laid out in our Investor Day in March positioning AES as a leader in the energy transition while delivering superior returns to our shareholders.
In summary, the world has decided to seriously tackle climate change, and this is driving unprecedented and accelerating growth in demand for renewables and energy efficiency applications and services.
In relative terms, I don't believe anyone is better positioned than AES to capitalize on this once in the lifetime transformation of our sector.
We have a proven track record of success.
We have the most innovative new products and an 8.5 gigawatt backlog and a 37 gigawatt pipeline of projects.
All-in-all we are enthusiastic about our future and we feel confident about delivering on our 7% to 9% average annual growth rate.
Our core Contracted Generation and Utilities businesses have shown great resilience in the face of global and regional effects of COVID.
Beyond our robust growth rates in earnings and cash flow from our core businesses, we are creating very significant value for our shareholders through our technology joint ventures.
There has never been a better time for AES.
 Assistant:

Chosen response:
aes achieves key strategic milestones and reaffirms guidance through 2025.
q2 adjusted non-gaap earnings per share $0.31 including items.
reaffirming 2021 adjusted earnings per share guidance range of $1.50 to $1.58.


Prompt:
Human: These materials will be referenced during portions of today's call.
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 responses to questions.
This was an outstanding quarter.
We're extremely pleased with the company's performance and continued strong market conditions.
Third quarter pre-tax core operating earnings and AFG's Property and Casualty Insurance segment were 60% higher than the comparable prior year period, and each of our Specialty Property and Casualty groups reported healthy growth and excellent underwriting margins.
Results in our portfolio of alternative investments continue to exceed our expectations and produced strong investment returns in the quarter.
This year, market conditions in the Property and Casualty business remain among the best I've seen in my 40 plus year career.
We believe that our disciplined, yet opportunistic operating philosophy, a lower net catastrophe exposure than our peers and a continued economic recovery contributed to these outstanding results.
I'll now turn the discussion over to Craig to walk us through AFG's third quarter results, investment performance and our overall financial position at September 30th.
As you'll see on Slide 3, AFG reported core net operating earnings of $2.71 per share, an impressive 96% increase year-over-year.
The increase was primarily the result of substantially higher underwriting profit in our Specialty P&C insurance operations and significantly higher P&C net investment income due to the continued strong performance of AFG's $1.7 billion and alternative investments.
Annualized core operating return on equity in the third quarter was nearly 18%.
Turning to Slide 4, you'll see the third quarter 2021 net earnings per share of $2.56 included non-core after-tax realized losses on securities of $0.15 per share, most of which pertain to fair value adjustments on securities that we continue to hold at the end of the quarter.
Now I'd like to turn to an overview of AFG's investment performance, financial position and share a few comments about AFG's capital and liquidity.
The details surrounding our $16.4 billion investment portfolio are presented on Slides 5 and 6.
Pre-tax unrealized gains on AFG's fixed maturity portfolio were $225 million at the end of the third quarter.
For the nine months ended September 30, 2021, P&C net investment income was approximately 66% higher than the comparable 2020 period and included significantly higher earnings from alternative investments.
We're especially pleased with the performance of our alternative investments during the quarter.
Earnings from these investments may vary from quarter-to-quarter based on reported results and valuation of the underlying investments and generally are reported on a quarter lag.
The annualized return on alternative investments reported in core operating earnings in the third quarter of 2021 was a very strong 20.3%.
The average annual return on these investments over the past five calendar years was approximately 10%.
Alternative investments with underlying real estate exposures have been a key contributor to the performance of this portfolio.
We view our investments in real estate and real estate related entities is a core competency.
In addition to our portfolio of directly owned properties and mortgage loans, our real estate related investments include real estate funds and real estate partnerships accounted for by the equity method.
We found great success in investing in multifamily properties and desirable communities where we continue to achieve very strong occupancy and collection rates and steady rate increases.
These multifamily properties represented over half of our alternative investment portfolio on September 30, 2021.
Due to the significant portion of our alternative assets that are tied to real estate relative to our peers, we also believe that this portfolio of investments has a lower correlation to broader market performance and has the potential to produce more consistent returns over time.
Excluding the impact of alternative investments, P&C net investment income for the nine months ended September 30, 2021 decreased by 8% year-over-year, reflecting lower market interest rates.
As you can see on Slide 6, our investment portfolio continues to be high quality with 88% of our fixed maturity portfolio rated investment grade and 97% of our P&C group fixed maturities portfolio with an NAIC designation of 1 or 2, its highest two categories.
Our excess capital was approximately $3 billion at September 30, 2021.
This number included parent company cash and investments of approximately $2.7 billion.
Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future.
Year-to-date, AFG has declared $24 per share and special dividends.
While all AFG's excess capital is available for internal growth and acquisitions, approximately $180 million of excess capital can be used for share repurchases and additional special dividends while staying within our most restrictive debt to capital guideline.
This figure is in addition to our regular quarterly dividend and a $4 per share special dividend declared and accrued in September and paid at the beginning of October, and the $4 per share special dividend declared yesterday.
We expect to continue to have significant excess capital and liquidity through the end of the year and beyond.
Our excess capital affords us the financial flexibility to make opportunistic repurchases, pay additional special dividends, grow our Specialty P&C niche businesses organically and through acquisitions and start-ups that meet our target return thresholds.
Annualized growth and book value per share plus dividends was an outstanding 37% in the first nine months of 2021.
Book value per share excluding unrealized gains related to fixed maturities was $59.70 at September 30, 2021 compared to $63.61 per share.
At the end of 2020 and reflects the $21.5 per share and dividends declared during the first nine months of 2021.
Results during the quarter were excellent as you'll see on the overview on Slide 8.
Third quarter pre-tax core operating earnings in AFG's Property and Casualty Insurance segment establish another record for the third time this year at $329 million.
Specialty Property and Casualty Insurance operations generated an underwriting profit of $169 million in the 2021 third quarter, an impressive 63% increase year-over-year, driven primarily by higher year-over-year underwriting profit in our Specialty Casualty Group and to a lesser extent our Specialty Financial Group.
Despite the impact of Hurricane Ida and other natural disasters during the quarter, our catastrophe losses were very manageable at $31 million.
Each of our Specialty Property and Casualty Groups reported strong premium growth, underwriting margins across our portfolio of businesses were excellent, and overall Specialty P&C combined ratio of 89%.
The third quarter 2021 combined ratio improved 3.1 points from the 92.1% reported in the comparable prior year period and included 2 points of catastrophe losses and 5.4 points of favorable prior year reserve development.
Turning to pricing, we continue to see strong renewal rate momentum and we're continuing to achieve strong renewal rate increases in the vast majority of our businesses with exceptionally strong renewal pricing in our longer tail liability businesses outside of workers' comp.
Average renewal pricing across our entire Property and Casualty group was up approximately 11% for the quarter.
Excluding our workers' comp business, renewal pricing was up approximately 13% in the third quarter.
Both measures are an improvement over the rate increases reported in the second quarter of 2021.
This quarter marked our 21st consecutive quarter of overall Specialty Property and Casualty rate increases, which continue to be meaning -- meaningful and excess of perspective estimated loss ratio trends.
Gross and net written premiums for the third quarter of 2021 were up 19% and 16% respectively when compared to the third quarter of last year.
The drivers of growth vary considerably across our portfolio of specialty property and casualty businesses.
Overall, in the aggregate, year-over-year growth in gross written premium during the first nine months of 2021 excluding crop insurance was fairly evenly split, but just over half attributable to net net growth and change in exposures and just under half attributable to rate increases.
Property and Transportation Group reported an underwriting profit of $45 million in the third quarter of '21 compared to $47 million in the third quarter of 2020.
Higher underwriting profits in our crop business in Singapore branch were more than offset by lower underwriting profit in our transportation, property and inland marine and non-crop agricultural businesses.
We continue to be pleased with the performance of our portfolio of transportation businesses, which has served us very well over time.
The diversity within this book, which includes specialty transportation niches like rigging and crane and ambulance and paratransit, home delivery, moving and storage, coverage for owner operators and workers' comp solutions tailored to the wheels industry has helped us deliver attractive margins and strong returns in this group of businesses.
Knowing what we know at this point, we also expect to have an above average crop year from both the profitability and a growth standpoint with net written premiums projected to be up approximately 32% for this year.
Yields throughout much of the corn belt are average to well above average, offsetting below average drought related yields from the North Central States, freeze-related losses in Texas and drought-related losses in the Western United States.
About 40% of our MPCI corn and soybean business is in the eastern corn belt, where growing conditions were more favorable.
The month of October serves as the discovery period for the majority of our corn and all of our soybean business.
Corn and soybean harvest pricing settled at 17% percent and 4% higher respectively than spring discovery pricing, and was comfortably within desired ranges of volatility.
The third quarter 2021 gross and net written premiums in this group were 26% and 22% higher respectively than the comparable prior year period, with growth reported in all businesses in this group.
The growth came primarily from our crop insurance business, primarily a result of the impact of higher commodity futures pricing and projected volatility on rates.
And also our transportation businesses, primarily the result of new accounts combined with strong renewals.
Overall, renewal rates in the Property and Transportation Group increased 5% on average for the third quarter of '21.
The Specialty Casualty Group reported an underwriting profit of $110 million in the 2021 third quarter compared to $53 million last year.
Higher profitability in our workers' compensation excess and surplus lines, excess liability and general liability businesses were key drivers of these results.
This Group reported a very strong 82 calendar year combined ratio for the third quarter, an impressive improvement of 8.7 points from the comparable period in 2020.
Underwriting profitability in our workers' comp businesses overall continues to be excellent.
Our workers' compensation book is another area where the strength and diversity of our stand-alone worker's comp businesses has served us well.
Gross and net written premiums for the Specialty Casualty Group increased 15% and 14% respectively when compared to the same prior year period.
Nearly all of the businesses in this group achieved strong renewal pricing and reported premium growth during the third quarter.
Significant renewal rate increases and new business opportunities contributed to higher premiums in our excess and surplus lines business.
Renewal rate increases, strong account retention and new business opportunities contributed to higher premiums in our targeted markets business.
And our mergers and acquisitions liability and executive liability businesses also contributed meaningfully to the year-over-year growth.
Renewal pricing for this group was up 13% in the third quarter and excluding workers' compensation businesses, renewal rates in this group were up approximately 18%.
Both measures are improvements from the rate increases achieved in the second quarter of 2021.
Now the Specialty Financial Group reported an underwriting profit of $26 million in the third quarter of 2021 compared to an underwriting profit of $13 million in the third quarter of 2020.
Improved results in our surety and financial institutions businesses contributed to the higher year-over-year underwriting profitability.
This group continued to achieve excellent underwriting margins and reported an 84.2 combined ratio for the third quarter.
Gross and net written premiums increased by 9% and 8% respectively in the 2021 third quarter when compared to the prior year period and nearly all businesses in this group reported growth, including our surety, fidelity and crime and lender services businesses.
Renewal pricing in this group was up approximately 8% for the quarter, consistent with the results in the second quarter of 2021.
Although the largest business in the special financial group is our financial institution services division, which generates about half of the group's gross written premium.
This group also includes a compelling mix of Specialty Property and Casualty businesses, offering coverages such as fidelity and crime, surety, trade credit and coverages tailored to lending and leasing institutions.
For more than 10 years, the average overall combined ratio of this group has consistently been below 90.
Now turning to A&E reserves.
During the third quarter of 2021, we did complete our annual ground-up review of our asbestos and environmental exposures relating to the run-off operations within the Property and Casualty group.
This was undertaken internally and reviewed all open accounts and considered any trends observed.
Good news is we have identified no new trends and activity was within our expectations and consistent with the expectations from our 2020 external study.
As a result, the review resulted in no net change to the property and casualty group's A&E reserves.
We do continue to enjoy robust survival ratios, which are well above industry averages in which our one measure of the strength of our A&E reserves.
Based on a relatively moderate payment patterns and the pace of new filings, we'll most likely continue to assess our reserves utilizing in-house resources next year.
We have also assessed the adequacy of our asbestos and environmental reserves for historic railroad and manufacturing operations.
Asbestos liabilities continue to be adequate, though we are making a small adjustment to our environmental liabilities based on slightly revised projections at three environmental sites.
Based on results for the first nine months of the year, we now expect AFG's core net operating earnings in 2021 to be in the range of $10.10 to $10.70, up significantly from our previous range of $8.40 to $9.20 per share.
We're obviously pleased once again to increase our 2021 core earnings per share guidance in a meaningful way.
This guidance reflects an assumed annualized return of approximately 10% on alternative investments in the fourth quarter of 2021, which would produce a return of approximately 20% on our $1.7 billion of alternative investments for the full year in 2021.
As we consider the outlook for our Specialty Property and Casualty operations based on results to the first nine months, we strengthened our guidance across the board, indicating higher expected 2021 net repayments and stronger underwriting profit.
We now expect the 2021 combined ratio for the Specialty Property and Casualty Group overall between 86% and 88%, an improvement of 2 points at the midpoint of the range of our previous estimate.
Net written premiums are now expected to be 11% to 14% higher than the $5 billion reported last year.
Growth in net written premiums excluding workers' comp is now expected to be in the range of 13% to 17%, an increase from the range of 12% to 16% estimated previously.
And then looking at each sub segment.
We now expect the Property and Transportation group combined ratio to be in a range of 86% to 88%.
Our guidance assumes above average crop earnings for the year and we continue to expect growth in net written premiums for this group to be in the range of 15% to 19%.
Our Specialty Casualty Group is now expected to produce a combined ratio in the range of 85% to 87%.
Our guidance assumes continued strong renewal pricing in our E&S excess liability and several of our other longer-tail liability businesses.
We have raised our projection for growth in net written premiums to a range of 8% to 12% higher than 2020 results.
Premium growth will be tempered by rate decreases in our workers' compensation book, which are result of favorable loss experience in this line of business.
Excluding workers' comp, we now expect 2021 premiums in the Specialty and Casualty Group to grow in a range of 15% to 19%, an increase of 5 percentage points from the midpoint of our previous guidance.
And we now expect the Specialty Financial Group combined ratio to be in a range of 84% to 86%, reflecting strong underwriting results for the first nine months of the year.
We continue to expect growth in net written premiums for this group to be between 10% and 14% based on projected premium growth in our fidelity and crime and surety businesses.
And our expectations for overall renewal pricing are unchanged from last quarter, remaining in the range of 9% to 11% overall.
And excluding workers' comp, we expect renewal rate increases to be in the range of 11% to 13%.
Craig and are very pleased to report these exceptionally strong results and a significant increase in our earnings expectations for the full year.
We believe that our entrepreneurial opportunistic culture, combined with our strong balance sheet and financial flexibility position us very well as we close out the year and we look forward to the opportunities in 2022.
We'll now open the lines for the Q&A portion of today's call, and we'd all be happy to respond to any questions.
 Assistant:

Chosen response:
q3 core operating earnings per share $2.71.
q3 earnings per share $2.56.
american financial- sees fy 2021 core net operating earnings $10.10 - $10.70 per share, an increase from previous guidance of $8.40 - $9.20 per share.


Prompt:
Human: As we all know COVID-19 pandemic as lasted in some of the most difficult times for so many people around the globe, and we continue to pray for all those affected.
I'd like to share my appreciation for our employees and sales force in Japan and the United States for their tireless work in helping our policyholders and communities impacted by the pandemic.
During this difficult time, it's important to note, that we remain focused on doing what we do best, that is providing protection products to help consumers when they need it most.
Financially, backlog continues to be impacted by the pandemic, but remain strong in terms of capital and liquidity.
In addition, our investments are high-quality diversified and they are among the highest return on capital and lowest cost of capital in the industry.
Amid the challenges of COVID-19, this quarter was also significantly impacted by the release of favorable US tax regulations related to the utilization of foreign tax credits.
You'll recall that our Japanese subsidiary is taxed as a US domestic company for US tax purposes.
In the quarter, we recognized a cumulative year-to-date benefit from these regulations of $202 million or $0.28 per share compared to our previous run rate.
Max will provide additional details.
Turning to our operations starting with Aflac Japan, the effects of COVID-19 continues noticeably impacted our results, as seen in the third quarter, with sales decreasing 32%.
We continue to have around 50% of the workforce working from home in Japan and in September, traffic coming into the shops remained at 70% of pre-pandemic levels.
While these sales results represent sequential improvements relative to the last quarter, the effects of the reduced face-to-face activities are evident and we continue to promote virtual sales.
2020 as also ushered in a change on the Japanese political front.
Prime Minister, Abe, was Japan's longest serving Prime Minister and a source of political stability with nearly eight years in office.
Mr. Suga, was a core member of Abe's administration leadership team, serving as the Chief Cabinet Secretary.
We believe Mr. Suga's administration will carry on skilled leader skill.
This will continue to promote a good business environment in Japan and emphasize policies and terms of the response to the COVID-19 and economic policies.
Prime Minister Suga is accelerating efforts to move toward -- to move forward with regulatory reforms for a post-pandemic world, promoting digital transformation.
In that respect, I'm pleased that flagged Japan's paperless initiatives is well under way and Fred will share more.
Turning to Aflac US.
The effects of COVID-19 continued to noticeably impact our results in this segment as well, largely due to the reduced face-to-face activity, third quarter sales were down 35.7%.
In the US, we continue to feel the impact of temporary business closures and lack of access to the work side, especially among our career agents who have historically relied upon face-to-face meetings to engage our small business owners and their employees.
At the same time, the fourth quarter, typically when we see strong results and the broker driven group market, which is generally been more resilient to face-to-face to not face-to-face conditions.
As a result, we remain cautiously optimistic for modest sequential sales improvement for Aflac US in the fourth quarter compared to the second and third quarter, contingent upon the pace of the economic recovery.
We are also on track to close our acquisition of Zurich Group business benefits soon, which allows us to extend our distribution reach and appeal to brokers and large employers, while having little effect on the fourth quarter, the acquisition positions us more expanded capacity as we look forward to 2021.
To place Aflac in a position of strength, we know that we must balance investing in growth with an eye toward reducing expenses in the long run.
As such, we took an opportunity to offer a very generous voluntary separation package to eligible employees who expressed an interest.
As a result we have achieved an approximate 9% reduction in our US and corporate workforce with expected one-time expenses of $45 million in the fourth quarter.
You'll recall that the US benefit ratio was significantly affected by policyholders limited visits to the doctor.
With this in mind, we lost the US initiatives early in the third quarter to remind policyholders of the value of their wellness benefits attached to their products.
The wellness benefits pays on certain routine doctor, dentist and hospitalizations visits.
In addition, we made sure that it pays a benefit for COVID-19 testing.
The wellness initiative has been a success.
We are glad we emphasized this important aspect of our policies as it reinforces how we are there for the policyholder when they need us most.
This wellness campaign and the voluntary separation programs are a couple of near term headwinds to the profit margin.
However, we expect that they will serve us well as we enter 2021.
To conclude our operational discussion, as I've said before, we want to be where the people want to purchase insurance.
That applies to both Japan and the US.
In the past, this is meeting face-to-face with individuals to understand their situation, propose a solution and closed the sale.
However, the pandemic clearly demonstrates the need for virtual means.
In other words, non-face-to-face sales to reach potential customers and provide them with the protection that they need.
Therefore we have accelerated investments to enhance the tools available to our distribution in both countries.
As always, we are committed to prudent liquidity and capital management.
This includes maintaining strong capital ratios on behalf of the policyholders in both the US and Japan and a tactical approach to capital allocation.
It goes without saying that we treasure our record of dividend growth.
With the fourth quarter declaration 2020 will mark the 38th consecutive year of dividend increases.
Our dividend track record is supported by the strength of our capital and cash flows.
At the same time we have remained tactical in our approach to share repurchase, buying back $400 million of our shares in the third quarter.
We have also focused on integrating the growth investments that we have made in our platform.
By doing so, we look to emerge from this period of continued position of strength and leadership.
As always, we are working to achieve our earnings per share objective, while also ensuring we deliver on our promise to our policyholders.
We look forward to going into greater detail on our strategic growth plans and efforts to drive efficiency at the Financial Analyst Briefing Conference Call in a few weeks.
So now, I'd like to turn the program over to Fred.
I'm going to touch briefly on conditions in the third quarter, and how we're navigating the pandemic.
I'll also provide an update on key initiatives in Japan and the US to include our approach to managing expenses.
There are currently approximately 97,000 COVID-19 cases and 1,730 deaths in all of Japan.
Through the third quarter Aflac Japan COVID-19 impact totaled 1,750 unique claimants with incurred claims totaling approximately JPY550 million in the quarter and JPY760 million year-to-date.
In short, we are tracking well below our stress assumptions with no measurable impact from COVID-19 claims.
However, reduced sales and delaying the promotion of the new cancer rider and refreshed medical product are contributing to revenue pressure.
This pressure is offset somewhat by favorable persistency.
COVID related expenses in the quarter totaled JPY1.7 billion, which included the rollout of virtual distribution tools, employee teller working equipment and distribution support.
In the US, the dynamics are understandably more complex.
COVID-19 case levels in the US now exceed 8.5 million with deaths nearing 230,000.
Through the end of the third quarter, COVID-19 claimants in the US totaled 12,800 with incurred claims of approximately $23 million in the quarter and year-to-date approximately $57 million.
We are closely monitoring the recent surge in infections, but continue to see the rate of hospitalization, length of stay in the hospital and transition to ICU traveling below our expectations.
We believe this is attributed to advancements in treatment and the nature of the work site which is generally younger and healthier population of policyholders.
As Dan noted in his comments, we launched an initiative early in the third quarter to remain policyholders of their wellness benefits, which drove increased utilization.
This effort involved connecting with 2.7 million accident and hospital policyholders through a combination of email and direct mail in the month of August.
This impacted our benefit ratio in the period, but is designed to reinforce the value proposition of our products.
We have thus far seen limited impact persistency, however, we believe this is partially attributed to state executive orders requiring premium grace periods.
These executive orders are still in place in 13 states as of the end of the quarter.
In those states where the executive orders have expired, we have reduced pressure on lapse rates through proactive outreach to policyholders and employers, actively converting policyholders from payroll deduction to direct bill and notifying policyholders of the wellness benefits.
Turning to key operating initiatives in both Japan and the US, we are balancing investments in growth, while addressing our expense structure.
A material driver of elevated expense ratios in Japan and the US is weakness in revenue.
Thus, the need for a balanced approach.
Beginning with Japan, we are set to promote a simplified cancer rider in the fourth quarter in launching our refreshed medical product in the first quarter of 2021.
Rolled out in late October, we have the technology in place to pivot from face-to-face to virtual sales and an entirely digital customer experience.
We continue with direct mail campaigns aided by data analytics that serve to enhance the close rate.
We expect the combination of product development, a recovery in pandemic conditions and our alliance with Japan Post to be important growth drivers as we make our way through 2021.
We view the pandemic as a call to action on accelerating investment in our digital roadmap and related process improvement.
On our second quarter call, I noted, our paperless initiative across all operations in Japan.
This is a three year, and roughly JPY10 billion investment with approximately JPY2 billion spent in the third quarter, along with another JPY3.6 billion estimated spend in the fourth quarter.
While elevating our 2020 expenses, this effort will reduce the production and circulation of 80 million pieces of paper per year with run rate savings in the range of JPY3 billion annually.
As we move to the fourth quarter, we have budgeted an increase in general, administration expenses over our third quarter of approximately JPY6 billion.
This includes 50% of our 2020 annual advertising spend, concentrated in the quarter to raise new product awareness as well as a stepped up level of investment in the paperless initiative.
We are effectively accelerating investments in our digital platform into 2020 and 2021.
Turning to the US, the build out of network, dental and vision remains on track.
We have successfully filed our new network products in 48 states with approvals received in 37 states.
We are up and running with sales in 10 states and expect to ramp this up as we move into 2021.
Our consumer markets platform remains on track with hospital accident and cancer product filings expected to be completed in early 2021.
We also plan to include life insurance in 2021, recognizing that is a natural product to sell digitally empowered by the Aflac brand.
Finally, we will soon close on our Zurich Benefits acquisition having successfully completed the required regulatory approvals, along with efforts to improve overall persistency, these are the three largest incremental drivers to earn premium growth in the coming years.
Anticipating further pressure on near term earned premium as we move into 2021, we are addressing expenses in the US with a sense of urgency.
We are addressing expenses across two horizons.
Horizon one is near term focused and includes a series of actions in 2020 designed to take out approximately $100 million of annualized run rate expenses as we enter 2021.
This includes both the US platform and corporate expenses.
Early in the fourth quarter, we completed a voluntary separation plan for eligible employees, which will result in a 9% reduction to our US workforce.
We expect to record a one-time separation expense of approximately $45 million in the fourth quarter and we will realize annualized run rate savings in the $45 million to $50 million range.
Horizon two expense initiatives elevate near term expenses until such time the investment is complete.
Legacy platforms are decommissioned and business processes are adjusted.
The most significant investment is in our group business in migration off an old administrative platform to a new platform.
In addition, we are completing a broader digital roadmap, which includes approximately $25 million of accelerated investment in 2020.
Much of that investment coming in the fourth quarter.
As I noted, we need to balance these expense initiatives with investment in growth.
We have adopted a buy-to-build acquisition strategy.
While a tactical and prudent use of excess capital, this is not an inexpensive effort in the early years.
These build efforts include dental and vision, direct to consumer and Group benefits and taken together impacted our expense ratio in the third quarter by 110 basis points, and are expected to impact the fourth quarter by approximately 160 basis points.
I'll conclude my comments with investment conditions.
Our global investment team remains focused on asset quality, monitoring economic conditions and sourcing new investment opportunities in a low interest rate environment.
Our firm view is that we will experience a check mark-shaped recovery, meaning a slow road to recovery with pockets of volatility along the way.
Our actions prior to the pandemic tactically improved the risk profile of our portfolio combined with some additional derisking earlier this year has served us well with only modest losses on the sale of securities, impairments and loss reserve increases.
These actions have also positioned the portfolio defensively, should we see a second surge in the virus impact economic conditions.
We continue to watch closely our middle market loan and transitional real estate portfolios.
While we have seen credit rating downgrades, our middle market loan portfolio is more resilient to consisting a first-lien loans to high quality borrowers backed by strong equity sponsors.
In the case of transitional real estate, our portfolio is also consisting of only first-lien positions and is diversified with strong loans to value.
We continue to explore ways to optimize currency hedging.
Overall no material change, but we are further refining our approach to managing the unhedged dollars in Japan.
These unhedged dollars provide diversification and income benefits as well as lowering our enterprise exposure to the Yen.
As we look toward 2021, we will reset 2020 hedges on our floating rate portfolio and currency hedges at materially lower rates.
While we do not see this impacting net investment income to any great degree, you will see line item impacts to Japan's net investment income, hedge costs and corporate investment income.
Wrapping up my comments, we are not backing off critical investments to drive long-term growth and efficiency in the face of what we believe to be temporary weakness in sales results and earned premium.
We will provide further detail around this when we meet for our Annual Financial Investor Conference in the coming weeks and we will talk about the details of investments and when we expect them to turn the corner to having a positive impact on growth in profits.
I'll now pass on to Max to discuss financial performance in more detail.
Let me begin my comments with a review of our third quarter performance with a focus on how our core capital and earnings drivers have developed.
For the third quarter adjusted earnings per share increased 19.8% to $1.39 with no significant impact from FX in the quarter.
Adjusted book value per share including foreign currency translation gains and losses grew 17.4% and the adjusted ROE excluding foreign currency impact was a strong 16.8%, a material spread to our cost of capital.
This quarter was significantly impacted by the release of favorable US tax regulations related to the utilization of foreign tax credits.
As a reminder, our Japanese subsidiary is taxed as a US domestic company for US tax purposes.
In the quarter, we recognized a cumulative year-to-date benefit from these regulations, which lowered our tax rate on adjusted earnings for the quarter to 4.1%, a benefit of $0.28 versus our previous run rate.
Our tax rate for the quarter further benefited from tax credits in our solar and historic rehabilitation investments which lowered our tax expense by approximately $20 million more than in a normal quarter.
In addition, variable investment income came in $6 million above our long-term return expectations and together these two items boosted current quarter earnings per share by about $0.03.
When I go-forward basis, and under the current US corporate tax regime, we would expect our go-forward tax rate on adjusted earnings to be approximately 20%.
Turning to our Japan segment.
Total earned premium for the quarter declined 3.3%, reflecting mainly first sector policies pay up impacts while earned premium put a third sector product was down 1.7%.
Japan's revenue trends should be considered in light of impact on paid-up policies.
For example, year-over-year, earned premium was down 3.3% in the quarter while policies in force was down -- were down a little less than 1%.
This disconnect masks the strength of persistency, which has been rising during the pandemic.
In short, expenses related to managing our inforce tend to hold steady despite the drop in reported earned premium putting pressure on our expense ratio.
Japan's total benefit ratio came in at 71.3% for the quarter, up 130 basis points year-over-year and the third sector benefit ratio was 61.7%, up 170 basis points year-over-year.
The main driver for the increase was lower lapses associated with policyholders updating their coverage.
Given the current lower new business activity, this naturally pushes up our benefit ratio due to lower reserve releases, decreases back amortization and improves reported persistency.
We did experience all of this in the third quarter, manifested by our persistency improving by 80 basis points year-over-year.
The IBNR was also less favorable this quarter.
We've seen a drop in paid claims during the pandemic, more so in our medical coverages.
Our IBNR estimate has only partially reflected this drop given there is not much data to base an adjustment on.
We continue to monitor experience and we'll adjust our paid data as it gets more complete.
In addition, for our cancer claims that are more than three years old, we extended the completion of claims which led to a smaller release in IBNR compared to 2019.
Our expense ratio in Japan was 21.7%, up 110 basis points year-over-year.
Our paperless initiative kicked in at a higher gear as we digitize our operations and drive efficiencies throughout the value chain to a future state with significantly reduced paper usage.
Overall, when considering COVID related spend, promotional spend and digital and paperless initiatives, we anticipate expense ratios in Japan to remain elevated in the 22% range for the remainder of 2020.
Net investment income declined 0.2% in yen terms, despite the higher variable investment income, as our yen denominated portfolio generated lower yields, due to lower coal income in this quarter.
The pre-tax margin for Japan in the quarter was 19.4% impacted by both the higher benefit ratio as well as a higher expense ratio in the quarter.
Turning to US results.
Earned premium was down 2.6% due to weaker sales results.
Premium persistency improved 80 basis points to 78.8% as our efforts to retain accounts in key premium in-force show early positive results.
As Fred mentioned, there are still 13 states with premium grace periods in place at the end of Q3.
So we are monitoring these developments closely.
Our total benefit ratio came in at 48.3%, which was 80 basis points lower than Q3 2019.
We have seen a normalization of claims activity across our portfolio compared to the second quarter.
In order to improve customer experience and persistency, we conducted an extensive policyholder communication campaign highlighting the embedded wellness benefit in our accident product and we encouraged policyholders to utilize this benefit.
We estimate this initiative drove incremental claims of approximately $14 million and impacted our benefit ratio in the range of 100 basis points over what we would normally expect.
But we believe our efforts will add value for the customer and improve their experience along with improved long-term persistency.
Our expense ratio in the US was 37.3%, up 130 basis points year-over-year.
The inclusion of Argus added 80 basis points in the quarter and a decline in revenues, roughly explains the residual year-over-year impact.
The impact from declining revenues has become more pronounced on our ratios in this quarter relative to prior quarters.
We anticipate expense ratios in the US to remain elevated in the 39% range for the full year 2020, driven by near term weakness in revenue, uptick in seasonal business activity and expected inclusion of the Zurich Group Benefits acquisition.
Net investment income in the US was down 4.4%, due to a 14 basis points contraction in portfolio yield year-over-year.
Profitability in the US segment remains healthy at 20.5% with a low benefit ratio as the core driver.
In our corporate segment, amortized hedge income contributed $22 million on a pre-tax basis to the quarter's earnings with an ending notional position of $5 billion.
Our capital position remains strong and we ended the quarter with an SMR north of 900% in Japan and an RBC of approximately 700% in Aflac Columbus.
Our RBC is temporarily boosted by delaying statutory subsidiary dividends to Q4.
We still expect to end the year with an RBC in the range of 550% to 600%.
Holding company liquidity stood at $3.8 billion, $1.8 billion above our minimum balance.
This is down compared to earlier in the year, but reflects our decisions to delay regular Q3 subsidiary dividends to Q4.
On an annual basis we expect uninterrupted dividend flows to continue from our subsidiaries.
Leverage improved to a comfortable 22.9% due to the increase in shareholders' equity driven by the release of the tax valuation allowance of $1.4 billion.
While we remain cautious in terms of monitoring the pandemic, we have comfort in the strength of our capital ratios, excess capital, statutory earnings and dividend capacity and our ability to navigate any current and future stress brought on by the pandemic or associated economic conditions.
In the quarter, we repurchased $400 million of our own stock and paid dividends of $192 million.
We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive a strong risk adjusted return on equity with a meaningful spread to our cost of capital.
But first let me ask you to please limit yourself to one initial question followed by related follow-up question to allow other participants an opportunity to ask a question.
Adrian we'll now take the first question.
 Assistant:

Chosen response:
q3 adjusted earnings per share $1.39.
in yen terms, aflac japan's net premium income was ¥336.5 billion for quarter, or 3.3% lower than a year ago.
aflac - expect run-rate annual savings in range of $45 to $50 million, will record one-time expense associated with separation plan of about $45 million in q4.