ex991020910.htm

Cincinnati, Ohio – February 9, 2010 – American Financial Group, Inc. (NYSE/NASDAQ: AFG) today reported record 2009 fourth quarter net earnings attributable to shareholders of $161 million ($1.38 per share), compared to $39 million ($.32 per share) reported in the 2008 fourth quarter. Record net earnings attributable to shareholders for 2009 were $519 million ($4.45 per share), compared to $196 million ($1.67 per share) in 2008. The significant improvement in the 2009 results reflects after-tax net realized gains of $40 million and $26 million in the 2009 fourth quarter and twelve month periods, respectively, compared to after-tax net realized losses of $83 million and $270 million in the respective 2008 periods.

Core net operating earnings were $121 million ($1.04 per share) for the 2009 fourth quarter compared to $122 million ($1.04 per share) in the 2008 fourth quarter. Core net operating earnings were a record $493 million ($4.23 per share) for 2009 compared to $476 million ($4.07 per share) for 2008. Core net operating earnings for 2009 and 2008 generated returns on equity of 16% and 17%, respectively.

AFG’s net earnings attributable to shareholders, determined in accordance with generally accepted accounting principles (“GAAP”), include certain items that may not be indicative of its ongoing core operations. The following table identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends.

In millions, except per share amounts	Three months ended December 31,					Twelve months ended December 31,
	2009		2008			2009		2008
Components of net earnings attributable to shareholders:
Core net operating earnings(a)	$	121	$	122		$	493	$	476

Signficant A&E Charges		-		-			-		(10	)
Realized investment gains (losses)		40		(83	)		26		(270	)

Net earnings attributable to shareholders	$	161	$	39		$	519	$	196

Components of EPS:
Core net operating earnings	$	1.04	$	1.04		$	4.23	$	4.07

Significant A&E Charges		-		-			-		(.09	)
Realized investment gains (losses)		.34		(.72	)		.22		(2.31	)

Diluted EPS	$	1.38	$	0.32		$	4.45	$	1.67

Craig Lindner and Carl Lindner III, AFG’s Co-Chief Executive Officers, commented: “We are quite pleased that AFG continued to produce excellent core net operating earnings in the fourth quarter of 2009. Working with an expectation that premium levels would be lower this year, our teams have executed cautiously, yet opportunistically, to address the challenges presented by a soft rate environment and a depressed economy. We thank God and our management team for these results, particularly during one of the most challenging global economies in decades. We believe that AFG’s ability to produce strong results in this environment demonstrates the value in our specialized insurance businesses. Additionally, the stabilization of market conditions has led to a meaningful improvement in the market value of our investment portfolio, which, coupled with strong earnings, has fueled growth in shareholders’ equity of $1.3 billion since the end of 2008.

“During the fourth quarter of 2009, AFG repurchased 3.3 million shares of common stock at an average price per share of $24.62. An additional 1.7 million shares were purchased from January 1 through February 8, 2010 at an average price of $25.12 per share. We believe that purchasing shares at these prices is an effective use of our excess capital, producing a favorable effect on our earnings per share and book value per share. Additionally, we have increased our core earnings guidance for 2010 to be between $3.30 and $3.70 per share, up from $3.10 to $3.50 per share. The 2010 earnings guidance is lower than 2009 results due to the level of favorable reserve development recorded in 2009, the above average profitability in our 2009 crop operations, a continued soft market and lower investment returns expected in 2010. As previously announced, we increased our common stock dividend by 6% over the 2009 rate, reflecting our confidence in the company’s long-term financial outlook.”

The P&C specialty insurance operations generated excellent underwriting profits for the 2009 fourth quarter and full year of $98 million and $424 million, with combined ratios of 84% and 82%, respectively. The 2009 fourth quarter and full year combined ratios improved three points and five points from the respective 2008 periods primarily as a result of higher crop underwriting profits. Results for the 2009 fourth quarter include $17 million (3 points) in unfavorable development compared to $58 million (8 points) of favorable development in 2008. Full year favorable development was $205 million in 2009 (8 points) compared with $251 million (9 points) in 2008. In addition, catastrophe losses totaled $18 million in 2009 compared to $59 million in 2008.

Gross and net written premiums were down 12% and 15%, respectively, in the 2009 fourth quarter compared to the same quarter a year earlier. Full year 2009 gross and net written premiums were 12% and 20% lower, respectively, than in 2008. A soft market, a decision to exit certain automotive related lines of business, depressed economic conditions and lower crop prices contributed to declines in gross written premium. Increased cessions under our crop reinsurance agreement further reduced net written premium. Gross and net written premiums, excluding crop operations, decreased 8% and 10% for the year, respectively. Overall average renewal rates in 2009 were flat when compared with the prior year period. Further details of the P&C Specialty operations may be found in the accompanying schedules.

The Property and Transportation group reported an underwriting profit of $115 million in the 2009 fourth quarter, a 25% improvement over the prior year period. The 2009 full year underwriting profit was $236 million, 51% above 2008. Favorable crop yields and relatively stable commodity prices resulted in record profitability for our crop operations and contributed in large measure to these results. Catastrophe losses for this group were $7 million in 2009 compared to $50 million in 2008. Our other property and transportation businesses reported strong underwriting profits notwithstanding soft market conditions.

Increased cessions under a crop reinsurance treaty reduced net written premiums for the 2009 fourth quarter and year. Additional declines in gross and net written premiums resulted from lower spring commodity prices, planned volume reductions in our inland marine operations and soft market conditions in the property and inland marine and transportation operations. Excluding crop, net written premiums for this group decreased 8% and 11% for the 2009 fourth quarter and full year, respectively, when compared to the 2008 periods.

The Specialty Casualty group reported an underwriting loss of $45 million in the 2009 fourth quarter and a 2009 full year underwriting profit of $63 million. These results were considerably lower than 2008 primarily due to $48 million and $56 million, respectively, of pre-tax adverse development in Marketform’s Italian public hospital medical malpractice business related to 2008 and prior years, which Marketform has ceased writing. Approximately one-third of this adverse development is attributable to non-controlling shareholders of Marketform. Also contributing to these results were higher accident year losses in a book of targeted program business, lower underwriting profits in our general liability and excess and surplus lines resulting from a depressed economy, particularly in the homebuilders’ market, and competitive market conditions. Other businesses in this group produced excellent underwriting profit margins, but at lower levels than 2008. Declines in gross and net written premiums for the 2009 fourth quarter and full year are primarily attributable to lower general liability coverages resulting from the softening in the homebuilders market and strong competition in the excess and surplus lines. These declines were partially offset by premium growth from Marketform, our start-up Environmental Division and our Executive Liability business.

The Specialty Financial group reported underwriting income of $38 million for the fourth quarter of 2009, compared to a loss of $65 million for the same period a year ago. Underwriting income in 2009 for this group was $134 million, compared to an underwriting loss of $46 million in the comparable 2008 period. Results for the 2009 fourth quarter and full year include favorable development in our run-off Residual Value Insurance (“RVI”) operations of $21 million and $90 million, respectively, due to a significant improvement in used car sale prices during the year. Declines in gross and net written premiums were primarily the result of AFG’s exit from certain automotive-related lines of business during 2009. Premium growth in the Financial Institutions and Fidelity and Crime businesses partially offset these declines.

The California Workers’ Compensation group reported underwriting profit of $2 million in the 2009 fourth quarter, compared to $11 million in the same 2008 period. For the year, this group posted a small underwriting loss, compared to an underwriting gain of $45 million in 2008. These results reflect the competitive pricing environment in California. Our 2009 accident year combined ratio was 112%, an increase of 18 points from the prior year period, primarily as a result of rising average cost of claims. Gross and net premiums decreased for the quarter and twelve month periods in large measure due to the rate reductions in traditional workers’ compensation business in California and reductions in employer payrolls. Our Republic Indemnity subsidiary filed for an 8% rate increase, effective January 1, 2010. Renewal rates for business written in California were up 3% for 2009.

Carl Lindner III stated: “The overall results produced by our P&C Group during the fourth quarter and full year of 2009 exceeded our expectations. Our emphasis on disciplined underwriting and adequate pricing continue to result in strong underwriting profits. We believe this strong performance is further evidence of the benefits of the depth and breadth of our specialty expertise, which have served us well during times of economic uncertainty.

“Looking into 2010, we expect to produce strong underwriting profits, and forecast an overall calendar year combined ratio in the 88% to 91% range. Our objective is to achieve a slight increase in the Specialty Group’s overall average renewal rates in 2010. We expect our specialty P&C net written premiums to be up 10% to12%, as we return to historical levels of reinsurance cessions under our crop quota share agreement. Excluding crop, we expect net written premiums for our P&C operations to increase 2 - 4%.”

Results for the fourth quarter included a $13 million pre-tax write-off of deferred acquisition costs ("DAC") related primarily to our fixed annuity business. Results for the same period in 2008 included a $10 million DAC write off related primarily to our variable annuity business. These charges were recorded in connection with our review of major actuarial assumptions, including management’s expectation of investment yields.

AFG recorded fourth quarter net realized gains of $40 million after-tax, which include the previously announced gain of $49 million on the sale of a portion of its common stock investment in Verisk Analytics, Inc. This gain was partially offset by the net effect of impairments and gains on sales of other investments. AFG continues to own approximately 6.7 million shares (cost basis of approximately $24 million) of Verisk Class B common shares that are convertible into Class A shares on a share-for-share basis after the expiration of holding periods. Realized losses, including impairments, were $83 million after tax in the comparable 2008 period. Our portfolio continues to be high quality, with 92% of our fixed maturity portfolio rated investment grade and 95% with a National Association of Insurance Commissioners’ designation of NAIC 1 or 2, its highest two categories.

American Financial Group is an insurance holding company, based in Cincinnati, Ohio with assets in excess of $25 billion. Through the operations of Great American Insurance Group, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of traditional fixed, indexed and variable annuities and a variety of supplemental insurance products. Great American Insurance Group’s roots go back to 1872 with the founding of its flagship company, Great American Insurance Company.

This press release contains certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this press release not dealing with historical results are forward-looking and are based on estimates, assumptions and projections. Examples of such forward-looking statements include statements relating to: the Company's expectations concerning market and other conditions and their effect on future premiums, revenues, earnings and investment activities; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.

Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to: changes in financial, political and economic conditions, including changes in interest rates and extended economic recessions or expansions; performance of securities markets; our ability to estimate accurately the likelihood, magnitude and timing of any losses in connection with investments in the non-agency residential mortgage market; new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in our investment portfolio, including mortgage-backed securities; the availability of capital; regulatory actions (including changes in statutory accounting rules); changes in legal environment affecting AFG or its customers; tax law and accounting changes; levels of natural catastrophes, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war and other major losses; development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims; availability of reinsurance and ability of reinsurers to pay their obligations; the unpredictability of possible future litigation if certain settlements of current litigation do not become effective; trends in persistency, mortality and morbidity; competitive pressures, including the ability to obtain adequate rates; changes in AFG's credit ratings or the financial strength ratings assigned by major ratings agencies to our operating subsidiaries; and other factors identified in our filings with the Securities and Exchange Commission.

The company will hold a conference call to discuss the 2009 fourth quarter and full year earnings at 11:30 a.m. (ET) tomorrow, February 10, 2010. Toll-free telephone access will be available by dialing 1-888-892-6137 (international dial in 706-758-4386). The conference ID for the live call is 50600945. Please dial in five to ten minutes prior to the scheduled start time of the call.

A replay of the call will also be available two hours from the conclusion of the call, at approximately 1:30 p.m. (ET) on February 10, 2010 until 11:59 p.m. on February 17, 2010. To listen to the replay, dial 1-800-642-1687 (international dial in 706-645-9291) and provide the Conference ID 50600945. The conference call will also be broadcast over the Internet. To listen to the call via the Internet, go to AFG’s website, www.AFGinc.com, and follow the instructions at the Webcast link within the Investor Relations section.

Carl H. Lindner III, Co-Chief Executive Officer, and Keith A. Jensen, Senior Vice President and chief financial officer, will make a company presentation at the Bank of America Merrill Lynch 2010 Insurance Conference being held at The New York Palace in New York City, on Tuesday, February 23, 2010 at 1:10 p.m. (ET). Their presentation will be broadcast live over the Internet via the Webcast link below within the Investor Relations section of AFG’s website, www.AFGinc.com.

	Three months ended December 31,					Twelve months ended December 31,
	2009		2008			2009			2008
Income
P&C insurance premiums	$	603	$	763		$	2,412		$	2,867
Life, accident & health premiums		113		109			444			435
Investment income		300		303			1,200			1,123
Realized investment gains (losses)		60		(133	)		38			(426	)
Other income		49		62			226			294
		1,125	$	1,104			4,320			4,293
Costs and expenses
P&C insurance losses & expenses		506		667			1,995			2,512
Annuity, life, accident & health benefits and expenses		256		250			983			932
Interest & other financing expenses		19		18			67			70
Other expenses		109		107			463			463
		890		1,042			3,508			3,977
Operating earnings before income taxes		235		62			812			316
Provision for income taxes		78		25			282			116

Net earnings including noncontrolling interests		157		37			530			200
Less: Net (earnings) loss attributable to noncontrolling interests		4		2			(11	)		(4	)

Net earnings attributable to shareholders	$	161	$	39		$	519		$	196

Diluted Earnings per Common Share	$	1.38	$	0.32		$	4.45		$	1.67

Average number of Diluted Shares		116.6		116.6			116.8			116.7

	December 31,		December 31,
	2009		2008
Selected Balance Sheet Data:
Total Cash and Investments	$	19,791	$	16,871
Long-term Debt	$	828	$	1,030
Shareholders’ Equity	$	3,781	$	2,490
Shareholders’ Equity (Excluding unrealized gains(losses) on fixed maturities)	$	3,733	$	3,210
Book Value Per Share	$	33.35	$	21.54
Book Value Per Share (Excluding unrealized gains(losses) on fixed maturities)	$	32.92	$	27.77
Common Shares Outstanding		113.4		115.6

	Three months ended December 31,						Pct. Change		Twelve Months ended December 31,						Pct. Change
	2009			2008					2009			2008

Gross written premiums	$	725		$	826			(12%)	$	3,762		$	4,266			(12%)

Net written premiums	$	517		$	608			(15%)	$	2,311		$	2,886			(20%)

Ratios (GAAP):
Loss & LAE ratio		57	%		57	%				49	%		56	%
Expense ratio		27	%		30	%				33	%		31	%

Combined Ratio(Excluding A&E)		84	%		87	%				82	%		87	%

Total Combined Ratio		84	%		87	%				83	%		88	%

Supplemental:
Gross Written Premiums:
Property & Transportation	$	275		$	338			(19%)	$	1,816		$	2,160			(16%)
Specialty Casualty		265			290			(9%)		1,200			1,273			(6%)
Specialty Financial		148			148			-		557			596			(7%)
California Workers’ Compensation		40			49			(18%)		194			238			(19%)
Other		(3	)		1			-		(5	)		(1	)		-
	$	725		$	826			(12%)	$	3,762		$	4,266			(12%)

Net Written Premiums:
Property & Transportation	$	210		$	248			(16%)	$	872		$	1,292			(33%)
Specialty Casualty		158			180			(12%)		755			816			(7%)
Specialty Financial		99			121			(19%)		448			492			(9%)
California Workers’ Compensation		34			41			(17%)		168			213			(21%)
Other		16			18			-		68			73			(6%)
	$	517		$	608			(15%)	$	2,311		$	2,886			(20%)

Combined Ratio (GAAP):
Property & Transportation		51	%		75	%				74	%		88	%
Specialty Casualty		124	%		72	%				92	%		75	%
Specialty Financial		71	%		153	%				74	%		109	%
California Workers’ Compensation		95	%		78	%				100	%		78	%

Aggregate Specialty Group		84	%		87	%				82	%		87	%

	Three months ended December 31,					Pct. Change			Twelve months ended December 31,				Pct. Change
	2009		2008						2009		2008

Retirement annuity premiums:
Fixed annuities	$	145	$	121			20%		$	494	$	513		(4%	)
Bank annuities		26		54			(52%	)		314		345		(9%	)
Indexed annuities		152		171			(11%	)		539		727		(26%	)
Variable annuities		19		27			(30%	)		87		91		(4%	)
		342		373			(8%	)		1,434		1,676		(14%	)

Supplemental insurance		100		95			5%			390		381		2%
Life insurance		10		(9	)		-			44		32		38%

Total statutory premiums	$	452	$	459			(2%	)	$	1,868	$	2,089		(11%	)

In millions	Three months ended December 31,						Twelve months ended December 31,
	2009			2008			2009			2008

P&C operating earnings	$	185		$	180		$	741		$	690

Annuity & supplemental insurance operating earnings		35			38			162			158

Interest & other corporate expense		(38	)		(27	)		(136	)		(105	)

Core operating earnings before income taxes		182			191			767			743
Related income taxes		61			69			274			267

Core net operating earnings	$	121		$	122		$	493		$	476

Contact:	Diane P. Weidner	Web Sites:
	Assistant Vice President - Investor Relations	www.AFGinc.com
	(513) 369-5713	www.GreatAmericanInsurance.com
		www.GAFRI.com