Good day, ladies and gentlemen, and welcome to the American Financial Group 2014 fourth quarter and full year results conference call. [Operator Instructions] I would now like to turn the call over to Diane Weidner.

Thank you. Good morning, and welcome to American Financial Group's fourth quarter 2014 earnings results conference call. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Jeff Consolino, AFG's Chief Financial Officer. If you are viewing the webcast from our website, you can follow along with 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 and projections, which management believes are reasonable, but by their nature subject to risks and uncertainties. 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 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 and assumptions or other factors that 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 net realized gains and losses, discontinued operations and certain non-recurring items. AFG believes this non-GAAP measure as 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. If you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy, plus it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now, I'm pleased to turn the call over to Carl Lindner III to discuss our results.

Good morning. We released our 2014 fourth quarter results yesterday afternoon, and I'm assuming that our participants have reviewed our earnings release and the investor supplement posted on our website. We're please to report core net operating earnings per share of $1.35, a 5% increase from the comparable prior-year period. These results reflect higher underwriting profit and higher net investment income in our Specialty Property and Casualty operations, which was partially offset by lower core operating earnings in our Annuity and Run-off Long-term Care and Life segments. These results set new AFG records for the fourth quarter and full year core operating earnings per share. Craig and I thank God and our management team and all of our employees for helping to achieve these results. Annualized core operating return on equity was 11.7% for the 2014 fourth quarter compared to 11.8% for the fourth quarter of 2013. Net earnings per diluted share were $1.41 and include $0.06 per share of realized gains, generating a fourth quarter annualized return on equity of 12.1%. We also focused on returning capital to shareholders over the course of the year. Turning to Slide 4, you'll see a few highlights. We paid $169 million in dividends during the year, representing $81 million in regular common stock dividends and an $88 million special dividend paid in December 2014. Our quarterly dividend was increased by 14% to an annual rate of $1 per share beginning in October 2014, and we repurchased $191 million of AFG's common shares at an average price per share of $57.73. We also intelligently deployed capital through the acquisition of Summit, the launch of our Aviation Division and purchase of renewal rights to grow our public sector business. We also acted upon opportunities to grow our Specialty Casualty insurance businesses and we achieved…

Thank you, Carl. The Annuity segment reported core pre-tax operating earnings of $85 million in the 2014 fourth quarter compared to $92 million in the comparable 2013 period, an 8% decrease as shown on Slide 8. This decrease was largely the result of the impact of fair value accounting on our fixed index annuities. Annuity earnings before the impact of fair value accounting were $93 million during the fourth quarter, which compares to $86 million in forth quarter of 2013, an 8% increase. AFG's 2014 earnings continue to benefit from growth in annuity sales and a favorable impact of lower than expected surrenders. Our quarterly average annuity investments and reserves grew approximately 14% and 15% respectively year-over-year. However, the impact of this growth was partially offset by the run-off of higher yielding investments. In addition, fourth quarter earnings in both years benefited from unanticipated investment and other income. In 2014 and 2013, AFG conducted a detailed unlocking review of the major actuarial assumptions underlying its annuity operations. The results of the unlocking review were immaterial in both the fourth quarters of 2014 and 2013. Interest rate and stock market fluctuations have an impact on the accounting for fixed indexed annuities and these accounting adjustments are recognized through AFG's reported core earnings, as shown on Slides 8 and 9. In the fourth quarter of 2014, the combination of an increase in the stock market, but a decrease on longer-term interest rates, as measured by the corporate A2 rate, resulted in an unfavorable impact on earnings. Conversely, in the fourth quarter of 2013, the combination of a much larger increase in the stock market had a moderate increase in long-term interest rates, resulted in a favorable impact on earnings. Additional information about the components of spreads for AFG's fixed annuity operations can…

Thank you, Craig. We went through a lot of detail on a very pleasing quarter and on our 2015 earnings guidance. I am going to tie it all together in a few slides, before we open up the lines for questions. Slide 15 shows our fourth quarter consolidated results by segment. Core net operating earnings per share in the quarter were a record $1.35. $1.35 is based on core net operating earnings in the quarter of $122 million. Looking at core pre-tax operating earnings by segment, you will see our P&C segment improved by $10 million against last year's quarter. On Slide 5, Carl showed you that the Specialty P&C group's underwriting profits increased by $4 million. You can see on Page 4 of the Investor supplement that Q4 2014 investment income for the P&C segment was $8 million higher than the prior year, thanks to the increase in average P&C invested assets resulting from the Summit acquisition. Other expenses within the P&C segment increased by about $2 million in the quarter. This is primarily the amortization of Summit's acquisition intangibles, which run about $7 million per year. The sum of these three items produces the $10 million improvement in the P&C segment core pre-tax operating earnings. We closed on the Summit acquisition at the beginning of the 2014 second quarter. Q1 2015 will be the final quarter, where our Specialty P&C segment's quarterly comparatives are affected by the Summit transaction. Craig previously covered our Annuity segment earnings, which was $7 million lower quarter-over-quarter, thanks to the vagaries of fair value accounting. Interest expense of parent holding companies increased to $2 million, due to the hybrid debt offering in September of 2014. Other expense was lower by $12 million than the year ago fourth quarter, largely as a result of…

[Operator Instructions] The first question comes from Amit Kumar from Macquarie.

Just a few quick questions. Number one, just going back to the discussion on adverse development in international, did you expand on the cost for that reserve development or not?

We did not expand on it, but I'm prepared to expand on it a little bit here, if you like. First of all, I think it's important to note that we believe our reserves are as adequate at the yearend December 2014 date as they were at the beginning of the year. That's to say that our balance sheet is as strong at yearend as it was when we began the year. And I make this comment after considering the growth in our reserves during, including the growth attributable to Summit. Overall, Specialty P&C Group prior-year development in the quarter was unfavorable by just under $10 million, $9.9 million. And again, I know we're talking about a specific quarter, but in the context of this please consider that we had favorable development in the Specialty P&C Group for the whole year. Among our sub-segments Specialty Financial is still showing favorable development. We had modest unfavorable development in Property and Transportation, mainly attributable to reserve change in our non-National Interstate transportation business. And so out of the $14 million of unfavorable reserve development in this Specialty Casualty sub-segment, $11 million of that was associated with our international operations. In those international operations, management made a yearend adjustment to reserves. Some people will ask the questions, so I will answer it. The adjustment was not related to Italian public hospital business, the adjustment expands a number of lines of business in the international business. And I really can't single out any one line as something that contributed more than others, so that's the lion's share of what happened in that Specialty Casualty sub-segment. Again, within that segment, we had favorable development in the aggregate for our workers comp units, favorable development in the aggregate E&S, some specially liability units. Outside international, we did strengthened reserves somewhat for some other items, such as extra-contractual obligation or discontinued profit matters and that would be the balance outside of international and what you saw at move.

So net-net, it was more a change in, I guess, methodology versus any specific meaningful adverse trend. Is it correct?

I don't want to say a change in methodology. The methodology remains broadly the same. There was a yearend adjustment and that yearend adjustment covered a lot of the lines of business in international and that's where we chose to book it.

The other question I had is on the commercial auto. And this was sort of a go-forward, sort of broader question. Some reports are out there which predicted U.S., I guess commercial auto will grow for 2015. And can you sort of talk about how you're thinking about loss cost trends for commercial auto and maybe the correlation they might have with gas prices.

Jeff, since you're the Chairman of National Interstate, that's the biggest part of our, you want to talk about loss cost trends within National Interstate.

First, I would encourage you to dial-in to the National Interstate earnings call at the end of February, if you like to hear from management on the business directly from them. National Interstate did put out a preannouncement last night, they talked about their expectations for the forth quarter and full year 2014. And embedded in that is the commentary that they had adverse severity coming through in the quarter. And that has been an issue with National Interstate in many, but not all quarters, I mean back a couple of years and it really is severity that we're having a harder time getting our arms around rather than frequency. In terms of loss cost trends, what you will see when the company reports its full year results is a continued migration upwards in the accident year combined ratios, as of '14 and some of the recent years. National Interstate has been assertive in obtaining appropriate rate increases. It's been a focus for management. They've been diligent in non-renewing the business that they didn't think would be profitable for them. But when faced with an escalation and severity and skinning of margin, I think you'll hear from management that they are going to redouble their efforts there and they are going to need to continue to get rate. It's clear that the rate is available and it's clear that these trends are affecting more companies than just National Interstate, but they really do need to keep working to restore the business to a level of profitability that management would be proud of and we as shareholders would be proud of.

On the great American side, a lot of business is physical damage, so the loss cost trend on that business is probably more around 2% or so in that. I don't think we consider ourselves experts, as to the impact on lower gas prices on our business. So my gut would say that it has a potentially larger impact on private passenger auto, which may tie directly more towards increased miles driven, an app. I think we are still trying to figure out how much or how little impact that has on our overall commercial auto business, and that clearly lower gas prices have to help the profitability of our customers in that. So I think that's probably a positive.

And just finally on stop, in terms of the outflow, I know it's too early right now, but I guess the commodity prices for some of the crops off down double-digit versus prior year. Maybe it's too early, but can you sort of give the early view on your crop insurance book? And are you thinking about reinsurance differently based on the pricing outlook in the reinsurance market, maybe use more reinsurance for crop? That's the final question.

If you look at our property in transportation guidance for 2015, you'll see our overall guidance for that is zero to 4%. If you exclude crop, that range turns into 3% to 7%. So I mean, if you kind of look between the lines there, roughly the crop, right now when you look at spring discovery prices from last year and when you take a look at future's prices as they are right now, that and considering the commodity price decrease being offset by business we pickup, rough and dirty, I think right now we're thinking that our crop premium might be down 7%, 8% something like that. As far as how much we reinsure that, that's something that we're really kind of setting the strategy on right now as we move forward.

The next question comes from Vincent DeAugustino from KBW.

Just to, I guess, start with the trade credit kind of notation in the press release. I guess I am assuming that that relates, I guess in some way to dollar strengthening here up until yearend, if that's correct?

I wouldn't assume that Vincent.

And then just on National Interstate, just a clarification, was the rate increase there 5% for fourth quarter '14 or did I get that wrong?

Sorry, say that again, Vincent.

On the National Interstate rate increase for the quarter, did you mention that the pace was 5% for fourth quarter '14?

Correct.

Yes, it's correct.

I would also refer you to National Interstate's pre-announcement, which talks about average rate increases throughout the year of approximately 7%.

And then I guess, Craig, on the Annuity side, is there any opportunity just from a topline standpoint for just any new intermediary expansion as far as growth as an opportunity?

We certainly are focusing on the bank market, Vincent, and establishing new relationships there. That is the segment that we're pretty optimistic about. There is somewhat of a barrier to entry. You need a certain minimum level of ratings to get in most of the big banks and so that's the area we're really focusing on in this environment for growth.

And then speaking with you, Craig, and then I guess, Jeff, if it makes sense. On the Long-term Care disclosure, I mean first, thank you very much for the additional disclosures on the mechanics. I recall, last quarter there was some discussion around assumptions on interest rates and then kind of you're coaching us to not think about, just doing a complete level set change and really assuming some normalization on the out year. So on the $34 million, can we kind of dive into what the two parts were on the initial and on out year assumptions, and then kind of where the current assumptions on reinvestment are today?

If you flip, we did make a disclosure in the supplement. I don't know whether you saw that or not.

Page 28, 29? There we go.

On Page 29, so our assumption is this year we're going to have a net reinvestment rate of 4.52%, and that will climb to a 6.25% over a seven-year period of time. I would make the point to you that the duration of the liabilities in Long-term Care is very, very long. So it does give us the opportunity to buy some things in the Long-term Care operation that wouldn't be appropriate for the Annuity business.

And then just lastly for me. Carl on the P&C guidance as far as top line, so the ex-Summit numbers we have, I am assuming that there is no assumed benefit from any M&A activity into the current topline forecast.

That's correct. There is no additional acquisitions that are figured in that.

And then just from an M&A standpoint, clearly we're seeing a lot more press releases. I mean those are some pretty big transactions. On the smaller side, are you guys seeing the pipeline is still looking pretty good?

We always get a short at a lot of different opportunity, so I think it's about the same as it has been.

The next question comes from Ryan Byrnes from Janney Capital.

Just had a question with a Long-term Care. There was again a $40 million positive coming from rate changes. Have those rate changes been past or those proposed rate changes, I just wanted to see when those changes come into effect?

It's both. The last couple of years we have been quite a bit more successful in achieving rate increases than what we had assumed when we did our last major review back at the end of 2012. So it does incorporate what we've experienced over the last several years and our kind of updated judgment of what we're going to experience going forward.

And then also, I noticed that in the quarter that the results from the Run-off and the Long-term Care, again they were worse than usual. Was that a result of any of the extra changes or is that just kind of a one-time blip? Just trying to from a modeling perspective think about that segment?

I think as part of it was the commutation of a reinsurance agreement, $5 million GAAP loss related to that.

And then again as interest rates have dropped another 50 basis points in January, what kind of yearend outlook is baked into your assumption for the Annuity block. Just trying to figure out what you guys -- I realized it's your best guess, but just trying to figure out what you guys are using for your estimates?

Is it relates to reinvestment rates? I mean we're assuming that we're going to earn something in the neighborhood of 3.5% on -- if you turn to Page 29, you'll see the assumption that we're using related to reinvestment rates for this year and progressing out over the next seven years.

The next question comes from Paul Newsome from Sandler O'Neill.

I think we have got some pieces here in your disclosure. Could you talk about the ROE of your businesses with and without excess capital and Run-off businesses and how those compare?

If you look at the rough and dirty, the Specialty Casualty part of our business earns about a 17% return on equity, based on kind of calendar year basis; Specialty Financial around 18%; Property and Transportation around 5%, which the total was roughly 13% in the P&C side.

Is it similar in the life side?

In the Annuity business, if you look at the core operating earnings, it was little over 11%. I think it was around 11.5% last year that doesn't include realized gains. And the numbers Carl just gave you don't include realized gains, typically that's additive to the returns.

Could you also just review kind of how you think about the excess capital piece? I think there is a little bit of a buffer there that you like to keep, but more recent views on how much excess capital you'd like to keep it to the holding company as well as in other places within the corporate structure?

I mean it's not too much different what we've kind of talked about in the past. We like to keep $2 million of dry powder, both for defensive reasons and offensive reasons opportunistically. The rest, basically every year is a little bit different and if you take a look at last year versus the year before, we're very opportunistic. So we're opportunistic repurchasers of our shares. We try to do that opportunistically. We've paid special dividends when we thought that that made sense. We've increased our dividend at a double-digit rate pretty much. We're out there looking at starting businesses and acquiring businesses. So we're always looking for the highest and best use of our capital in that and I don't see this year is any different.

The next question comes from Jay Cohen from Bank of America Merrill Lynch.

A couple of questions. The first is, I guess the one part of the guidance was a little surprising to me. On the positive side was the Property Casualty investment income moving higher. Are you making any changes in the portfolio that will protect the yield to some extent?

We're certainly very proud of our American Money Management subsidiary. We've done an excellent job for AFG over time. But the major factor there is we closed on Summit April 1, 2014, that involved $400 million investment into the P&C Group, plus all of the reserve balances being invested for Summit; so we'll have higher average P&C invested assets in 2015 than we would have in 2014, because we only had nine months worth of that for '14 versus a full year. Absent that, there is no special thing. And if fact, we've taken a very close look, as Craig was saying, about reinvestment rates and try to make sure they reflect current market when we went ahead and prepared our guidance.

And the other question, Carl, you have just given us these ROE figures for the different pieces of the business. I assume you are referring to specifically 2014 results?

That's correct, Jay.

And if there is a normalized or not, and the property transportation seemed a little low, but certainly I understand what happened in '14.

National Interstate is a pretty large chunk there and that kind of pulled the average down.

I am showing no further questions. End of Q&A

Thank you for joining us this morning. We look forward to talking with you again, when we share our first quarter results in 2015. This concludes our call for today.