American Financial Group Releases Q4 and Full Year 2003 Results

February 13, 2004

Cincinnati-based American Financial Group, Inc. reported net earnings for the 2003 fourth quarter of $196.6 million ($2.68 per share). These results included a tax benefit of $136.0 million ($1.90 per share) resulting from AFG’s previously announced merger with its subsidiary, American Financial Corporation (“AFC”).

In addition, a net realized gain ($36.7 million) on the sale of AFG’s remaining shares in Infinity Property and Casualty Corporation (“Infinity”) was offset by an after-tax loss ($35.8 million) related to the planned disposal of an insurance subsidiary. AFG’s net earnings for last year’s fourth quarter were $44.2 million ($.64 per share) which included a charge for an asbestos litigation settlement, offset by certain tax resolution benefits and net realized gains on investments.

Net earnings for the 2003 full year were $293.8 million compared to $84.6 million for 2002. The 2003 results included higher tax benefits and net realized gains on investments whereas 2002 included net realized losses and the effect of an accounting change related to the transitional goodwill impairment test.

Core earnings from insurance operations were $46.4 million ($.65 per share) for the fourth quarter of 2003 and included $3.9 million of investee earnings from AFG’s former investment in Infinity. Reported core earnings from insurance operations (including those which now comprise Infinity) for the previous year’s fourth quarter were $43.8 million ($.63 per share). AFG’s core earnings from insurance operations for the full year 2003 of $155.8 million ($2.22 per share) were lower than 2002 principally due to a 2003 second quarter charge of $28.5 million ($.41 per share) resulting from an arbitration decision relating to a 1995 claim.

Carl Lindner, AFG chairman and CEO stated, “Our shareholders’ equity grew over 20 percent in 2003. The merger of our holding companies during the fourth quarter improved financial leverage and simplified the overall corporate structure. The sale of our remaining Infinity shares gave us substantial cash, providing both liquidity at the holding company and growth opportunities for our insurance operations. In addition, we have completed several debt refinancing transactions, totaling over $300 million, with proceeds being used primarily to retire higher coupon trust preferred securities and bank lines of credit. We are optimistic about our ongoing prospects for growth and profitability and remain comfortable with our 2004 core earnings guidance of $2.75 to $3.00 per share.”

Business segment results

The P/C Group generated an underwriting profit of $14.4 million in the 2003 fourth quarter, with a combined ratio of 97.0 percent. The combined ratio for the 2002 fourth quarter, excluding the effect of an asbestos litigation settlement, was 96.9 percent which benefited from the solid underwriting profit reported by the personal lines operations, now part of Infinity. The 2003 combined ratio for the P/C Group, before a 2.3 point charge for the above- mentioned arbitration decision, was 96.6 percent compared to 99.8 percent for the 2002 full year, excluding the asbestos litigation charge.

The Specialty Group reported a solid underwriting profit for the 2003 fourth quarter with a combined ratio of 96.1 percent, an improvement of 2.0 points from the 2002 fourth quarter. The Group’s gross written premiums for the 2003 quarter grew more than 15 percent as compared to the 2002 period, reflecting rate increases in most of its businesses. Net written premiums for the 2003 quarter were nearly 37 percent above the 2002 period, reflecting the impact of reinsurance agreements.

The Specialty Group’s 2003 combined ratio was 96.0 percent, an improvement of 2.4 points compared with the 2002 combined ratio. For the 2003 year, gross and net written premiums were nearly 20 percent and 18 percent, respectively, above the 2002 amounts, reflecting the effect of rate increases and volume growth in certain businesses, partly offset by planned reductions in less profitable lines of business. Rate increases in the specialty operations averaged about 20 percent for 2003.

Carl Lindner III, AFG co-president and head of the P/C Group commented: “I am pleased with the growth and solid underwriting performance of our Specialty Group in the fourth quarter and for all of 2003. The majority of our individual business units reported an underwriting profit and achieved double-digit premium growth for the year. We saw some moderation in rate increases during the latter part of 2003 with the fourth quarter averaging about 16 percent. We are committed to maintaining rate adequacy going forward and believe that pricing will remain firm in 2004, particularly in certain casualty markets. We expect average rate increases in the range of 5 percent to 8 percent in 2004.

“As we have repeatedly said, we are committed to growing our specialty operations and achieving underwriting profitability and I believe our performance and the sale of Infinity demonstrate that commitment. We will continue our focus on disciplined underwriting, particularly proper risk selection and adequate pricing.”

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