Good day, ladies and gentlemen. And welcome to the American Financial Group first quarter earnings conference call. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions]. I would now like to turn the presentation over to your host for today's conference, Mr. Keith Jensen, Senior Vice President of American Financial. Please proceed.

Thank you. Good morning and welcome to American Financial Group's 2008 first quarter earnings results conference call. If you're viewing the webcast from our website, you can follow along with the slide presentation if you would like. Certain statements made during this call are not historical facts and may be considered forward-looking statements. They are based on estimates, assumptions and projections which management believes are reasonable, but by their nature subject to risk and uncertainties. The factors which could cause actual results to differ materially from those suggested by such forward-looking statements include, but are not limited to those discussed or identified from time to time in AFG's filing with the Securities and Exchange Commission, including the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q. We do not promise to update such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements. Core net operating earnings is a non-GAAP financial measures which sets aside items that are not considered to be part of ongoing operations such as net realized gains or losses on investments, effects of accounting changes, discontinued operations, significant asbestos and environmental charges and certain other non-recurring items. AFG believes it to be a useful tool for analysts and investors in analyzing ongoing operating trends and will be discussed through various periods during this call. A reconciliation of net earnings to core net operating earnings is included in our earnings release. Now, I'm pleased to turn the call over to Carl Lindner III, Co-Chief Executive Officer of American Financial Group to discuss our results.

Good morning and thanks for joining us. We've released our 2008 first quarter results yesterday afternoon. I'd like to start by covering some of the first quarter highlights on slide three of the webcast. Our first quarter record operating results were excellent, getting us off to a great start towards meeting our objectives for the year. Our outstanding results reflect continuing execution of our specialty niche strategy and our consistent focus on pricing and underwriting discipline. Our record first quarter core net operating earnings of $128 million or $1.09 per share were up 15% over the same period a year earlier due to continuing strong underwriting profits and higher investment income and specialty, property and casualty operations. Our annualized core operating return on equity was at 17%. Net earnings for the 2008 first quarter were impacted by impairment charges taken on some of the our investments, most of which were related to declines in the market value of our equity position and financial institutions, including National City. We're disappointed with the level of AFG stock price and believe in this environment that repurchasing our shares opportunistically is an effective use of our excess capital. And along those lines during the first quarter, we repurchased 1 million shares and under our repurchase program bought an additional 800,000 shares in April. The average price of these common stock purchases was $26.30 per share. Last week we also announced that we plan to redeem all of our Senior Convertible Notes due June 2, 2033. The aggregate redemption amount, including interest of all the notes redeemed would be around $193.5 million. We do plan to use a combination of cash on-hand and short-term borrowings to fund the redemption. Note holders also have an option of exercising their conversion rights. In that instance, we'll pay…

[Operator Instructions]. Your first question comes from the line of Charlie Gates of Credit Suisse.

High, good morning.

Hi, Charlie.

I guess first question, can you put a box around the homebuilder program? Approximately, how large is that in terms of sales?

We really haven't disclosed that publicly. It's primarily in our mid-continent subsidiary, and it would be probably in... I don't know, 50 to 80 range.

Okay. That was my first question. I guess the second question, approximately what portion of sales would you term excess in surplus lines?

Give us a second here.

Alright. On the quarter it would be about $50 million net.

To what extent do you see standard market companies coming in there?

A lot, that's why... probably the... our access and surplus lines business is probably the most competitive part of our business besides the large casualty counts that are written in some of the various business units and that. Our premiums would be downed heavier in that line and the homebuilders for the obvious reasons in that. But in the E&S business, primary companies are coming back hard into that.

Just because essentially there is requested any cost for growth for some of these companies I guess? Those are the only two questions I had at this time. Hey, the other question, when logically would you announce the results of the E&A review?

We haven't specifically timed that. I suspect we'll do the review through the mid part of the year. So I would expect sometime during the summer.

Thank you.

Your next question comes from the line of Jay Cohen of Merrill Lynch.

Yes, thank you. A couple of questions. First is, when you look at your mortgage-backed portfolio, how many downgrades of securities have you seen in that portfolio?

Maybe the easiest way to deal with that Jay, the AAA portion of that portfolio, the mortgage-backed is 98% at year-end. It was 98.3% now, at year-end it was about 99%. So it's been pretty modest and it was really, I think the major ones have been as a result of the downgrade of FGIC.

Okay, as opposed to some... is that emerged?

Correct.

Secondly, you mentioned on the D&O side, at least five reported claims. For these kind of claims are you playing at the excess layers I'm assuming?

Yeah. Well, some of both, but some would be excess, some would be primary but primarily excess.

Okay. I noticed in the quarter, you bought some Alt-A, a decent amount of Alt-A backed RMBS. What was behind that thinking? Just it spreads widening out and it was too attractive to pass out?

Jay, when we saw great value in that area, we just about doubled the size of our Alt-A investments in the quarter. I'm very being very careful as to the part of the structure that we're in and the collateral backing of our investment. But we think in the senior most part of the structure and collateral, i.e., principally fixed rate collateral and we think that holds up very, very well, even in a downside scenario and that it offer tremendous value.

Okay. As far as insider buying, I've noticed that Carl junior had been buying stock, any other insiders buying stock at what seems to be an attractive price?

We're not aware of anybody at this point.

Not individually, obviously as a company we've taken the position of this attractive prices and so we've been in the market actively purchasing.

Okay. Last question, on the A&E side, I know you guys have to do the study obviously. But can you talk about the general trends you've seen from a claim standpoint because you certainly listen to some other companies whether its travelers' or CNAs or A's and they talk about fairly benign claims trends. Is this something you've witnessed as well?

I think that's probably fair. We're seeing certainly a decrease in trend in terms of number of claims. On the A side we're seeing a bit of escalation in terms of the severity of mesothelioma claims. But on balance, when you take everything in concerted it is pretty benign at the moment.

Great. Thanks a lot.

Your next question comes from the line of John Gwynn of Morgan Keegan.

Thanks. Carl, we're all seeing these broker surveys on rate activity, the CIAB and others, that would indicate that we're looking at low but double digit renewal rate declines in the industry. And yet most companies seem to be reporting low to very low mid single digit declines on the renewal. Can you... do you have any thoughts on that dichotomy?

I'm not an expert between the various services that are out there but I do know some of them. We try to include some new business; some of them are maybe slanted more towards the large account side of things. Our business, our specialty business is probably more in the small to mid-sized type of premium market. So I think that might account for some. Also quite a bit of our business as in crop relates to pricing, relates to a little different. In this case this year crop prices are up pretty much and that's how we set our premiums. And so, maybe some of our businesses though very competitive may not attract quite as much competitive pricing activity as those that are skewed into the large account side. Probably in our case, I think probably less... probably no more than 10% of our business would come from the top three or four big national producers which is a little... quite a bit different than quite a few of the public companies.

Alright, well done. Thanks for that. Carl or Keith, do you... are you hearing anything new on the agricultural bill that apparently is being tossed around in Congress?

Yes, there was an extension of a period of time that they had to pass the bill. It got a one-week extension last week that expires today. There was movement in Congress yesterday to extend it for another week. In terms of impact on us, it looks like the major impact is going to be that they'll change the administrative and overhead allowance by a couple of points in the grand scheme of things that is not a significant event with respect to our operation now.

Alright. Particularly the crop prices are up so much.

Right.

Keith, when you do a budget for your company and I don't know whether you do it... I assume to get granular down to your 22 or 23 operating units. Do you have a problem getting expense levels correct?

Well, I think what happens and we do go down to each of our operating units and it's certain a bottom-up kind of a budgeting process. And each one of them obviously, look at their expense levels, individually largest expense as you know is the commission expense and so that's going to vary from product to product and unit to unit. So they build that up and they have a good feel of what their next largest is which is the salaries in the unit. So I think it's more like the challenge, it's not particularly problematic. It's pretty accurate, I think, John. It's really allocation of home office overhead and some of those issues, you know, who should get what of that.

Right. Of course, you have an advantage over my data but the quarter share ceding commission is sort of... is it volatile or seasonal rather?

Well, there is probably several ceding commissions and several quarter shares among our various businesses.

I'm looking at crops.

You're looking in the crops. Alright, not really seasonal, it's a agreement that we have with Munich where the net premiums that have been retained after we cede to the federal programs are 50/50 quarter share and then there is a profit sharing agreement that's embedded in that.

Okay.

There can be swings in that, they obviously based off the final profitability of the business.

Right, okay. And Keith, could you update us on holding company liquidity and whether that includes any subsidiary dividends year-to-date in your bank line?

Sure. As of the end of the quarter we had about $40 million of holding company cash. We had $330 million available under our bank lines. So between those two from a liquidity perspective, we had access with very, very short notice to almost $460 million.

Okay. And the 330 is off of 500 total?

That's correct. We went into our bank line a bit in the first quarter and in connection with the acquisitions that we did. We anticipate much of that to be repaid by later in the year.

Right. Craig, one last question. The performance of fixed-rate collateral, forget about the price of the securities but they're actual losses in that (inaudible) that's still performing pretty well, isn't it?

Yes, it is John. It has performed very well.

Okay. Alright, thanks a lot.

[Operator Instructions]. Your next question comes from the line of Adnan Alam of ADAR Investment Management [ph].

Hi, I was wondering if you could give us a little bit of color on the processes you use to mark-to-market your investment portfolio? And if the methodology has changed any this quarter?

Okay. The process that we go through specifically with the mortgage-backed since that we go to the brokers and get indicative quotes from them. Obviously, those securities that are publicly traded, we go to the public markets and know our process in terms of seeking those values has not changed this quarter.

And do you by chance know what the split is between those that are publicly traded versus ones you have to get from brokers?

I don't have the top of my hand.

Okay, thanks.

Substantially all of it is data from brokers.

Okay, thank you.

Welcome.

Your next question comes from the line of Amit Kumar of Fox-Pitt, Kelton.

Thanks. I guess just going back to the crop book and you're talking about the second half and how it's going to improve. Can you just talk about all this chatter about rising crop prices and I guess the offset is receptionary force is... what exactly would happen even the crop prices would keep on increasing? Would we see like the retentions rising in terms of the customers or does it remain the same?

Well, this is really a protection to the farmers against catastrophes and the multiple pearls that can affect them. And so for them to not be in the program would be fairly risky. It would be living like having a car and not insuring your car. So we really don't see in terms of the volume of people that are involved in the acreage covered, we don't look for substantial changes as to the value because of crop prices. The program is one that by and large looks at revenue per acre kind of an approach and sets prices based on what the prices are in March for the summer crops and in September for the fall crops. So with the prices rising, that really does not have an adverse effected by what the commodity prices are at specified dates in the program.

Okay, that's helpful. And I guess, perhaps just going to back to your D&O exposure... I think you talked about 5 policies. But what's the actual financial institution book as a percent of your overall top line?

Within the D&O we really have not disclosed the proportion of the book that's in various industries.

Okay. That's all for now, thank you so much.

Your next question comes from the line of Abe Schloss [ph] of Maxim Group.

Good morning.

Good morning.

Just a quick question on our buybacks. Are we still in the market buying back stock? And how much do we have authorized? Where do we stand, really?

We have 1.3 million shares that are authorized during the month of April under our program. Purchasing, we bought an additional 800,000 shares but we're not in the market at this point.

Thank you.

And your next question is a follow-up from the line of Amit Kumar of Fox-Pitt, Kelton.

Thanks again. I guess just going back to the market scenario and recently we saw the SAFECO deal and they are happy now there are deals in the past. But what are your thoughts on M&A? And I know previously, we've talked about more so being focused on trying to do smaller new things and grow top line, but as you look forward, like you know, has any of that thought process changed or recently we've had some carriers talk about even in a moving overseas and expanding, where do you stand on that front? Thanks.

I think we really think about things pretty much the same way as far as using excess capital. You know, organic growth opportunities and starting businesses. And, makes sense, small to medium size acquisitions. You know, it's kind of really what we have been doing. Our market form transaction which between two-thirds of Marketform, a Lloyd's insurer where we have invested in purchase pricing capital, roughly $120 million. It allows us to meet the pen-up demand that we have and a lot of our specialty businesses here in the US to grow in Europe. Market form writes a substantial amount of non-US med-mail and some other specialty coverages. They have an underwriting culture that fits, matches ours very well. And we are moving forward and trying to leverage off that platform to write businesses like equine mortality, ocean marine, D&O and quite a few businesses that we have expertise in here that our guys have really wanted to have a vehicle to expand. So we're excited about the ability to leverage market form into a more significant entity there. That would be our primary expansion outside the United States.

Very helpful. Thanks so much.

Your next question comes from the line of Marvin Weinstock of Maxim Group.

Hi.

Hi, Marvin.

Pertaining to the reorganization of the buying in of the notes. Assuming all the notes and the stock are tempted or redeemed. How will that affect our book value and... and the overall situation?

If all the notes are redeemed, it would not affect our book value because we would use a draw down on our line of credit to pay the cash portion of the redemption. So that would be just exchanging debt for debt and then the issuance of the new shares would be equal to and over-setting the expense of an early redemption. So it has no effect on book value.

Thank you.

And you have no further questions. I would now like to turn the call back over to management for closing remarks.

Thank you very much and thank you for joining us today. We are pleased with this quarter and we look forward to reporting to you on the second quarter. Thank you and have a good day.

Thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect.