At this time, I would like to welcome everyone to the American Financial Group's 2012 third quarter earnings conference call. (Operator Instructions) Senior Vice President, American Financial Group, Keith Jensen, you may begin your conference.

Good morning. Welcome to American Financial Group's third quarter 2012 earnings conference call. We appreciate you joining us this morning and we know many of you're in unusual circumstances as a result of the storms. I'm joined this morning by Carl Lindner III and Craig Lindner, co-CEOs of American Financial Group. If you are viewing the webcast from the website, you can follow on the slide presentation if you'd like. Certain statements made during this call are not historical facts and may be considered forward-looking statements and are based on estimates, assumptions, projections, which management believes are reasonable, but by their nature subject to risks and uncertainty. The factors which could cause actual results and/or financial condition 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 its 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 which could affect these statements. Core net operating earnings is a non-GAAP financial measure, which sets aside significant items that are generally not considered to be part of ongoing operations, such as realized gains or losses on investments, the effect of certain accounting changes, discontinued operations, special asbestos and environmental, and annuity unlocking charges, whilst recognition in our long-term care business and certain non-recurring 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 core net operating earnings is included in our earnings release. Now, it's my pleasure to turn the call over to Carl Lindner III, Co-CEO to discuss our results.

Good morning, and thank you for joining us overnight and this morning. We watched the devastation from Hurricane Sandy and the related storm systems affecting the northeaster part of the United States. We pray for the safety of those impacted the storms and the first responders, who are helping to help the victims and restore services in those communities. As you know, last week, Craig and I shared news of some important organizational changes at AFG in the coming months. Keith has announced his intention of retire in March 2013, following the completion of AFG's 2012 annual financial reporting process. Keith, we're thankful for your leadership and vision in these past 15 years. We do look forward to recognizing your contributions when we report our fourth quarter results in February. We are very pleased to welcome Jeff Consolino at AFG, who will assume the role of Chief Financial Officer on Keith's retirement. We've known Jeff for many years, first as a trusted financial advisor in several large financial transactions, and more recently as a board member of our 52% owned sub National Interstate. He's a respected industry veteran and we're delighted that he'll be joining our team. We did release our 2012 third quarter results yesterday afternoon and are pleased with another quarter of strong operating results for AFG. I am assuming that the participants on today's call have reviewed our earnings release and some of the supplemental materials posted on the website. I'll review a few highlights and focus today's discussion on key issues. I'll also briefly discuss our outlook for the remainder of 2012. I'll start by looking at third quarter results, which are summarized on Slides 3 and 4 of the webcast. Net earnings were $2.39 per share for the quarter, including $1.57 in after-tax non-core earnings,…

(Operator Instructions) Your first question comes from Amit Kumar, Macquarie Capital.

With Jeff coming in, does this signal a shift in strategy and capital management going forward?

I think AFG has got a long history of target acquisitions, of start-ups, pursuing organic growth, and appropriately and aggressively trying to allocate capital. I don't think there is going to be any dramatic change in philosophy or appetite for acquisitions or necessarily capital allocation. One thing is for sure, we'll definitely benefit from Jeff's network relationships in the industry, though. So as with the addition of Vince Mclenaghan, we're hoping that we see an increased number of opportunities throughout the world.

So you're saying that it's not a binary option. The capital management which we have seen, those trends will likely continue and above and beyond that you'll also look at other things. Did I input that correctly?

Yes. And I think as long as our stock is very attractive, selling under book value and around intangible book value, that certainly is a wise use of capital. That said, as if we have opportunities for acquisitions or to startup businesses or if this market provides opportunities to internally grow our business at a more rapid rate, certainly that could take the place or supplement share repurchases also. Those are all great things. And we want to grow our business, the scope of our business in more specialty niches and grow the business we have and increase our market position in the specialty lines that we have, also. So as we have other opportunities on the acquisition or above average organic growth opportunities, we can always go that direction versus as larger share repurchase.

Then the other question I had is, I know it's too early to talk about Hurricane Sandy. And I'm curious, first of all, if you have a view on the markets as it relates to Hurricane Sandy? And secondly, if you could also remind us what your Hurricane Irene loss was?

We'd have to go back on Irene. It wasn't any significant number. We have a lower relative catastrophe volatility the most. Actually, this storm is a large storm, and with low interest rates driving price increase, I think this just adds to the momentum. It's hard to tell, it's too early to know how significant of an event it is. Clearly, it was a very broad-base and wide geographical event that could add continued heat on pricing. I would only see that it would turn the price increase notch up a little bit in that.

And when you talk about pricing you are probably referring to this more as a primary event than a reinsurance event, is that fair?

Yes, we think that would be more of a primary event than a reinsurance event.

Amit, the one thing I'd remind as a group is that this area is an area that we've been very cautious in for a number of years. And in fact, if you look at our return period, if you had a return period of 500 years that would be about 3% of equity. So while that past this no indicator of what happened this last few days, has been modeled into the actuarial models, historically. It would say that it's going to be a relatively low percentage of equity.

(Operator Instructions) Your next question comes from Matt Rohrmann, KBW.

Just one quick question. Most of mine were hit already, but Carl, you had talked about growth in the workers comp line. So I just wonder if you could maybe talk about the rate and sort of state whether California or others, where you're seeing that growth currently, since obviously that business has been one you've been cautious and for a number of years now?

Yes. Speaking to the California workers comp market, it's competitive, but the market is definitely turning. We've been getting some price increase over the last two to three years. We got 8% of the third quarter which is about 5% year-to-date 2012. That was on top of 8% in 2011. I think the ability there will be with the industry results in California comp estimated last year to be 136. I think there is going to be continued momentum by the market need to take rate. And although our results are projected much better, probably our '11 was probably 115 to 117 accident year. This year we're projecting our results at 108 to 110. We still need 12% plus to get to a 12.5% return or get to around 100 combined ratio, figuring 3.5% investment return. So I know what our plans are. We're going to continue to focus on getting more adequate price for our business, and with the industry combined ratio at last year at 20 points worse than us; I can't believe that they don't have to do the same thing.

I guess, Carl, obviously pushing for that rate, do you think that 12% is achievable next year in California in a given calendar year? Is it going to be multiple years?

Hard to say, I'd just see what we're doing right now. We got 8% this past quarter. We're going to continue to push to get to right amount of rates. So I think over a couple of years, that's reasonable, but we can get there assuming that we also need to stay above loss cost trends in that To me, when you look at the industry results, there ought to be a continued major push to get rate in that market. And as far as your other, we are growing double-digit at Republic, in our California worker's comp business for really a growing period for the first time in a number of years. And we're growing double-digit, primarily supported or driven by price increase and payroll increase. So to us that's a positive. On our non-California based business, written and strategic comp, we're continuing to see good opportunities in some 12 states or so that we write that high deductible, heavily loss prevented business. And we're finding opportunities to continue to grow that business at a good rate.

Matt, your last question with respect to Irene, I've been given a note that Irene was $8.5 million net of reinsurance.

And we do have a follow-up question from Amit Kumar, Macquarie Capital.

Just two questions on the non-P&C operations. First is on the discussion on the interest rate and life and annuity book. I think in the K, it mentions that the average crediting rate is 3.1% and average GMIR was 2.5%. Do you have those numbers as of Q3 2012?

Amit, I don't have those numbers. I do believe that the spread has stayed about the same as at the end of the second quarter.

And I guess the other question is on the long-term care book, how should we think about the possible range of outcomes?

It's just premature to really address that. What I will tell you is the study by the outside of actuarial firm is expected to be completed in the fourth quarter. We would expect that in some time in December. We will have detailed information to pass on to you. The one piece that I can give you guidance on is related to reinvestment rates and our disclosure in our SEC filings says that a 10 basis point change in reinvestment rates, results in an impact of around $10 million. And I can tell you that as of today, the difference between the actual and what we had previously assumed in terms of reinvestment rates is between 70 and 80 basis points. So that's the one guidance that I can give you. The rest of it related to future claims, related to future mortality rates, related to lapse rates, related to increases in premium rates; those are the things that the outside actuarial firm is studying for us, and we will have an answer sometime in December. And as soon as we have it, we will pass that on to you.

And it seems like if you could take that number and throw in some other stuff in that bucket, it's probably around, I don't know, $100 million-ish number, right?

You probably need to take a pass on that one.

And there are no further questions at this time. Are there any closing remarks?

We would express our continuing appreciation to you for your interest in the company, for you joining us today, and for those of you that have had damaged, either friends family or yourselves in these last few days. We wish you all the best. And we want you to know our prayers are with you. We look forward to reporting at the end of the year to you. Bye.

This concludes today's American Financial Group 2012 third quarter earnings conference call. You may now disconnect.