AFG’s Q4 Core Earnings Up 6%

February 18, 2004

Cincinnati-based insurer American Financial Group Inc. (AFG) reported net earnings for the 2003 fourth quarter of $196.6 million, or $2.68 per share. These results included a tax benefit of $136 million, or $1.90 per share, resulting from AFG’s previously announced merger with its subsidiary, American Financial Corp. (AFC).

In addition, a net realized gain of $36.7 million on the sale of AFG’s remaining shares in Infinity Property and Casualty Corp. was offset by an after-tax loss of $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, or 64 cents 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 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, or 65 cents 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 for the previous year’s fourth quarter were $43.8 million, or 63 cents per share. AFG’s core earnings from insurance operations for the full year 2003 of $155.8 million, or $2.22 per share, were lower than 2002 principally due to a 2003 second quarter charge of $28.5 million, or 41 cents per share, resulting from an arbitration decision relating to a 1995 claim.

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 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 in 2002.

AFG Chairman and CEO Carl H. Lindner said the company’s insurance subsidiaries 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 to 8 percent in 2004.”

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