Good morning, my name is [Andrea] and I will be your conference operator today. At this time, I would like to welcome everyone to the American Financial Group 2009 Second Quarter Earnings conference call. (Operator Instructions). Mr. Jensen, you may begin your conference.

Thank you very much. Good morning. I'm here today with Carl Lindner III and Craig Lindner, the Co-CEO's of American Financial Group. I'm pleased to welcome you to American Financial's 2009 second quarter earnings results conference call. If you've viewing the Webcast from our Website, you can follow along through the slide presentation if you'd like. Certain statements made during this call are not historical facts and may be considered forward-looking statements. They're based on estimates, assumptions and projects, which management believes are reasonable but by their nature, subject to risks and uncertainties. Factors which could cause actual results or financial conditions 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 filings with the Securities and Exchange Commission including the annual report on Form 10-K and 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 measure, which sets aside items that are generally not considered to be part of ongoing operations, such as realized gains and losses on investments, the effects of accounting changes, discontinued operations, significant asbestos and environmental charges and certain other nonrecurring items. AFG believes this non-GAAP measure to be a useful tool for analysts and investors in analyzing ongoing operating trends and will be discussed for various periods during this call. A reconciliation of net earnings attributable to shareholders to coordinate 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.

Good morning and thank you for joining us. We released our 2009 second quarter results yesterday afternoon. Even with the continuing challenges in the economy we believe AFG's strong operating results reflect the successful execution of our specialization strategy. Turn to slide three of the Webcast for some highlights. Our record second quarter net operating earnings of $1.01 per share were up 5% from the second quarter of 2008. Improved results, underwriting results in our specialty property and casualty operations and higher investment income were offset somewhat by lower results in the annuity and supplemental insurance group. Record core earnings per share for the first six months of 2009 were up 4% over the same period in 2008. And in the first half of 2009, our annualized core operating return on equity was a strong 18%. Our net earnings of $1.09 per share and for the 2009 second quarter and $1.98 for the first half of 2009 were substantially higher than the 2008 periods, primarily because the realized gains on investments, which include the offsetting effects of impairment charges. As you'll see on slide four, we were very pleased that AFG's book value per share including all and realized gains and losses on investments increased to $26.48 as a result of improvements and net unrealized losses on investments coupled with our strong earnings. That was about an increase of 23% from the $21.54 per share reported at the end of 2008. We're very pleased with that. AFG's generated an annualized return on equity of about 17% including realized gains and losses for the first six months of this year. Craig and I thank God, our great management team and our dedicated employees for the great quarter. In addition, our capital adequacy, financial condition and liquidity remain strong and are key…

(Operator Instructions). Your first question comes from Jay Cohen – Bank of America. Jay Cohen – BAS-ML: Let's see, a couple of questions. I guess, just first, it's not a big line of business for you, but it has gotten some attention in the industry, trade credit. Can you talk about how big that business is and what your claims experience has been over the last year?

Sure. In general, this is our foreign trade – foreign credit insurance association and it has run volumes annually in the 25 million range. That's a bit up this year because pricing has improved substantially. But as you said, it has been a relatively small portion of the whole. We have been profitable in that line from an underwriting perspective really for decades. So it's been a very strong performer, although as you said, one of the smaller portions of our business.

Can last year, and in this environment this year, we've probably been reserving more conservatively there just to cover ourselves for anything we think we're missing there. Jay Cohen – BAS-ML: Have you seen a big uptick in claims or an uptick in claims?

Yes, there've been a few more issues than normal, but again, nothing that's material or that we're worried about at this point. I think in reserving at a higher combined ratio and a more conservative basis, we think that we're prudent. Jay Cohen – BAS-ML: And I believe you said, moving to the crop side, I believe you said that the underwriting results for your crop book this year would be similar to '08. Would you describe '08 as a normalized or normal year? I mean, some people looked at '08 and said gee, it was kind of a rough year given the drop in commodity prices, given the flooding towards the middle of the year, and I'm wondering, how would you view '08 relative to other years?

Yes, I think '08 was, for us, it turn – we didn't – as the year, early in the year, we didn't think it was going to be a great year. As it ended, up it was a pretty decent year, kind of a normal year. This year looks solid right now. Actually, probably the '09 yield projections right now are higher for corn and soybeans versus last year. Probably the biggest risk because of some of the late planning would be the impact of an early frost and that we're not big in Texas, so the Texas drought is not really a big issue for us. On wheat, Texas wheat and some of the wheat had a little bit of a rough go, but we took a very conservative position there in putting most of that in the heavier government insured bucket, in the program in that. So we kind of like the way things are shaping up. When you take a look at that the spring strike prices, soybeans are pretty close to that. Corn prices are down some 20% and that. Most of our business is done on a revenue basis, but again I think I talked about in the past that the average farmer's deductible is 20% to 25%, so even on corn, if corn process are down 20% when all's said and done, the farmer really kind of – if yields are good, that doesn't concern us at this point. So bottom line, we feel the crop picture looks pretty good right now. Jay Cohen – BAS-ML: That's great. Last question, California Comp; it's got to be such a small part of your business. I just noticed the number. I guess it's been shrinking for the past three or four years. Do you see that – this might be a tough question, do you see that 2009 underwriting results as kind of, at the bottom? Or is it reasonable to expect that business to continue to deteriorate? I know there's a lot of unknowns in there, but how do you view the business as you look out beyond 2009?

I think nine could be a bottom. I think the – one key question is the impact of the OnBank decisions and whether the appeals on those – whether those get thrown out, and so one big unknown is really on a few of those disability claims rulings, how much of an impact will those have on results? That could take a couple of years to play out if it's not thrown out – those aren't thrown out on appeal. So I think '09 or '10, depending on the impact of those, I think you're getting to a bottom. I think one positive thing that's happened, I mentioned, is that we got a 6% rate increase in July. As you know, everybody files rates, but there's still credits insurers can apply, credits or debits and that. So with the real key number to me, is not what's filed; it's really what insurers are achieving. July was the first month that we achieved a positive increase for probably five years or so. So to me, that's very key and my expectations are as that we probably be able to achieve that or hopefully more through the end of the year. Particularly as our competitors, particularly some of the competitors have been more aggressive or some of the new competitors start seeing what the results really are. My guess is the industry could be in '09, there are no numbers out there, but my guess is that the industry could be 115 to 120 on an accident year basis in '09. Jay Cohen – BAS-ML: That's a wake-up call.

Yes. Republic, we feel is probably 111 with the disability stuff. If those get thrown out, we're 107, so 6% plus in rate helps. We definitely need rate on our book. The industry, I don't know what they're thinking, but the industry clearly needs double digit rate, would be my guess.

Our next question comes from Amit Kumar – Fox-Pitt Kelton. Amit Kumar – Fox-Pitt Kelton: Thanks and congrats on the numbers, great results. I guess just staying on the crop book here for a moment, were there any crop losses in Q2? What's a number on a gross basis?

No there weren't. Basically, what we do, Amit, for the current accident year, unless there's a significant event that takes place, we don't recognize really gains or losses through the first couple of quarters because it's just premature and you don't know what your yields are going to be and you don't really have a good sense of the pricing. In the second quarter, there was a small amount of favorable development coming forward from 2008, however. Amit Kumar – Fox-Pitt Kelton: And could you just remind us what the premiums were? I know you mentioned that if you take the crop number, say it's a 10% delta. Could you sort of give us the comparable crop premium numbers on a gross and net basis for this quarter as well as Q2 '08?

Sure, the crop for – again this is early in the year and so we don't record much premium. The crop for '08 was 32 million, and because of the reinsure, and this is net, because of the reinsurance arrangement it was actually a negative 4 million for the current year. And in the – I'm just flipping through my papers here to make sure I've got it right – and then year-to-date, crop hail gross is 148 versus 165 last year. Amit Kumar – Fox-Pitt Kelton: Okay, that's helpful. In terms of the marketplace, and if you sort of go back and look at Ben Berkley's commentary yesterday on what's going on, or even if you look at the RIMS survey I think which came out yesterday, it does seem that the economy is obviously having an impact and there is still a lot of talk about aggressive competition. When you sort of look at what's going on out there today, and if you go back in 12 months, how has your perception changed in terms of a market turn?

I think that things are still competitive today, probably with fewer outliers as competitors, meaning outliers being competitors that are burning their way through the market. And obviously when we have – when our renewal rates are flat and as I see on other earnings reports and the RIMS report and that with the rate change, is clearly prices have stabilized at this point. And as I mentioned getting some – we've gotten some positive increases in places in excess liability, in parts of our D&O book, parts of our non-profit book, in July and California Worker's Comp. So there's definitely – I definitely see some momentum and clearly, now when you look at underlying accident years, combined ratios for the industry in different lines of business, there's clearly a need for that with the low interest – continued low interest rates, you're just not going to earn the right returns unless the pricing changes. Amit Kumar – Fox-Pitt Kelton: And what is your opinion on the cycle turn? When do you see that happening?

I wish I had that kind of a crystal ball. We're trying to keep our heads down and make the right decisions business by business and that and if our volume is softer than others, that's fine for right now. I probably see – I probably would say that there will probably continue to be a gradual improvement. If there's some larger event, a major competitor that goes down or ratings change or major catastrophe here, where multiple companies are exposed in a heavy way, things like that could accelerate that trend. Amit Kumar – Fox-Pitt Kelton: That's helpful, I guess one last question and I'll re-queue. On the Specialty Financial segment side, I presume the reserve re-leases came because the domestic leases will sort of run out in Q3? Is that the reserve re-lease number from or are there still reserves associated with the domestic part?

There are still some reserves associated with the domestic. There's about $30 million in reserves left on the domestic. The $40 million that we took this quarter is primarily a result of the fact that we've got another quarter behind us and the second quarter had a substantial number of vehicles coming off lease and so we got to a point where there was certainty. As you know, Amit, when you look back over the last 6 to 12 months, there's been huge volatility at the end of last year. The used car prices were pretty weak and they've strengthened and we're pleased for that, but we continue to hold reserves because there has been volatility. Amit Kumar – Fox-Pitt Kelton: And I guess all else being equal, if nothing changes, that $30 million will be released in Q3?

It would be unfair to say that all of it gets released because there will certainly be some losses. But as Carl said, if we maintain current severity and frequency, we would expect some releases.

Your next question comes from Jay Cohen – Bank of America. Jay Cohen – BAS-ML: Yes, one thing that seems to be emerging as we hear from a number of insurance and reinsurance companies is that the claims environment has remained accommodating I guess, for lack of a better word, and you alluded to it as well. You're just not seeing much in the way of claims inflation. And I'm wondering if you can flesh that out a little bit, maybe some reasons why you think that is. And what are some of the early signs that you look for to see that claims inflation? Is it severity? Is it frequency? I think it's an important part of this story for the group and certainly for you guys as well. I'm wondering if you can just give us more color on it.

It seems to me that from a severity perspective or the value of claims, I wouldn't expect that you'd see dramatic changes across the board there unless you had dramatic changes in the overall inflation in the economy as a whole, and of course we're not seeing that yet. In terms of frequency, I think the nature of our business, there's nothing in the inflation world, for the most part there's nothing in the inflation world that affects our frequency. There would be clearly a few lines but nothing significant, and so I don't expect there to be a linear relationship between claims and frequency and the economy as a whole or inflation. And as we indicated, part of what we do, we certainly look at what the developments are with respect to case reserves because we try and keep those fresh and responsive to what's going on in the economy at the time those reserves are established. But in addition to that, when we look at lost development factors because we look at them over a 15 to 20-year period, we've certainly taken into account what an overall normal kind of inflationary trend would be and during a 15 to 20-year period, of course you have times of almost deflation and times of more rapid inflation. So we think those things kind of play in and it's just one of those things where we're going to have to monitor it and if we see more inflation in the economy as a whole, then I think we'd become a little bit more worried about it.

I mean we do quarterly reserve evaluations and month-to-quarterly combined accident year combined ratio projections, so we have plenty of opportunities to adjust our inflation factors every year as we do those calculations in that. Now California Comp, probably because of these disability rulings, potentially could be the most inflationary or impact the severity in a line of business that we have. Conversely in the crop business, it's deflationary because of the crop price decrease declines from last year and in corn. So keep in mind that 45% of our business is property and transportation, which is shorter tail and maybe and our reserve leverage is a little bit lower than probably a lot of commercial insurers for that reason. So kind of the impact to – potential impact on earnings and potential impact on capital, whatever it is, is a little different.

(Operator Instructions). Your next question comes from Marvin Weinstock – Maximum Group. [Abe Schloss] – Maximum Group: Hi, good morning, it's [Abe Schloss] here. Quick question, first of all, congratulations on a great quarter. With our stocks lying below book and also our AFE preferred selling way below its face, any chance of a buyback on these items?

We believe that in this environment, it's prudent for us to maintain some excess capital as opposed to using it on stock buybacks today.

(Operator Instructions). Our next question is a follow-up from Amit Kumar – Fox-Pitt Kelton. Amit Kumar – Fox-Pitt Kelton: Thanks. Just two quick questions if I may, in terms of the unrealized loss reversal in Q2, do you have sort of a guesstimate for what the number might be for the month of July?

It's very preliminary but in the month of July, we would be probably in the 200 range plus or minus pre-tax and pre-DAC] Amit Kumar – Fox-Pitt Kelton: That's helpful, could you just remind us of – and I might have missed this, where exactly you're putting new money into and just give some more color on that?

We are buying high grade corporates, generally A or above corporates. We will buy a few BBB rated nonfinancial corporates but most of the new money's going into high-grade corporate bonds. Amit Kumar – Fox-Pitt Kelton: Okay, that's helpful. And I guess finally, can you sort of talk about the Chinese drywall issue and if you have any exposure on that front and what trends you might be seeing.

Yes, we do have some exposures through our Midcontinent subsidiary and some builder's liability. We have about 300 claims at this point. We've put up reserves of about $15 million, which we think is more than adequate for what we're seeing. And so far the primary things that we've had to deal with is replacement of drywall and repairing homes that have used the drywall. I know that there are some assertions out there that go beyond that but at that point that's – or at this point, that's what we're seeing. Amit Kumar – Fox-Pitt Kelton: And is that being debated on the policy language or what exactly is going on? There seems to be sort of conflicting pots coming out where one side's saying that you could argue for sort of policy language exclusion. What is your sense? Does this – did you get any sense that this issue could sort of expand further or based on where you are right now and the trends, you think some sort of a lid can you put on it?

Of course, it's really in its early stages as you know but our expectation based on what we're seeing right now and our legal review of policy language and just breadth of exposure is we don't expect it to explode into something major but again with the caveat that we're probably still early in the process as is the rest of the industry.

You have a follow-up question from Jay Cohen – Bank of America. Jay Cohen – BAS-ML: Actually my question was answered but here's just one other one since we're talking about issues on the liability side and potential claims. Credit crisis-related claims, I know you guys aren't a big player in financial institutions but if you could give us an update on what you're seeing from a claims standpoint.

I think if you – let me start off with things that have happened, credit crisis around subprime. We've looked at that. In our D&O side, we have seven suits that have been filed and two notices of potential claims. If we had limit losses, which we don't expect to be at limit or even close to limit, we'd be at about $46 million. We again have no reason to believe that we're going to get close to the limits but that's where we'd be on the D&O side. On the surety side where there could be some exposures, we don't have any significant direct exposure to subprime lenders or some of the folks that would be generating exposure for other carriers. So when I look at the subprime mortgage part of the credit crisis that would be where we're at. And I think when you look at our D&O book as a whole, a fairly modest portion of it is in financial institutions and we have really repositioned that book over the last five years or so away from the Fortune 500 and the financial institutions to it being a large portion of the book and not-for-profit side of the equation. So we really don't look at this as a major exposure area for us.

Yes, financial institutions are less than 1% of our D&O policy count. I think we have 260 policies today, 121 are insurance companies and I think 21 are banks. And of the 260, I think 227 are private institutions with the remainder being public.

There are no more questions at this time. I would like to now turn it back over for closing remarks.

Okay, thank you very much. We appreciate the opportunity to have this discussion with you and we appreciate your interest in the company. We'll be looking forward to updating you at the end of our third quarter. Have a great day. Bye.

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.