Good day, ladies and gentlemen and welcome to American Financial Group’s First Quarter 2015 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, this conference call may be recorded. At this time, I would like to hand the conference over to Ms. Diane Weidner, Assistant Vice President, Investor Relations. Ma’am, you may begin.

Thank you. Good morning and welcome to American Financial Group’s first quarter 2015 earnings results conference call. I am 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 this 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 maybe 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 the 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 significant items that are generally not considered to be part of ongoing operation, such as net realized gains and losses, discontinued operations and certain non-recurring items. AFG believes this non-GAAP measure is 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, thus it may contain factual or transcription errors that could materially alter the intent or meaning of our statement. Now, I am pleased to turn the call over to Carl Lindner III to discuss our results.

Good morning. We released our 2015 first quarter results yesterday afternoon. I am assuming that our participants have reviewed our earnings release and the investor supplement posted on our website. We are pleased to report core net operating earnings per share of $1.25, a 25% increase from the comparable prior year period. These results reflect higher underwriting profit and higher net investment income at our Specialty, Property and Casualty insurance operations and higher core operating earnings in our annuity and Run-Off Long-Term Care and Life segments. These results also represent the highest first quarter core net operating earnings per share in the AFG’s history. This is the fourth consecutive quarter that we have achieved new quarterly highs in AFG’s core earnings per share. Annualized core operating return on equity was 10.8% for the 2015 first quarter compared to 9.1% for the first quarter of 2014. Net earnings per diluted share were $0.21 and include a $1.18 per share loss from the previously announced sale of our long-term care insurance business and also $0.14 per share of realized gains. During the quarter, we repurchased $31 million of AFG common shares at an average price per share of $59.32. We are maintaining our 2015 core operating earnings guidance for AFG in the range of $5.10 to $5.50 per share. Craig and I will discuss our guidance for each segment of our business later in the call. Now, Slides 4 and 5 of the webcast include an overview of results in our Specialty, Property and Casualty operations. Beginning on Slide 4, you will see that gross and net written premiums were up 17% and 23% respectively in the 2015 first quarter compared to the same quarter a year earlier, due primarily to higher premiums in our Specialty Casualty Group, which includes results from…

Thank you, Carl. The annuity segment reported core pre-tax operating earnings of $75 million in the 2015 first quarter compared to $73 million in the comparable 2014 period, a 3% increase as shown on Slide 7. Annuity earnings before the impact of fair value accounting were $92 million during the first quarter compared to $88 million in the first quarter of 2014, a 5% increase. As you will see on Slide 8, AFG’s 2015 earnings continued to benefit from the growth in annuity assets. Our quarterly average annuity investments and reserves grew approximately 12% and 13% respectively year-over-year. However, the impact of this growth was partially offset by the run-off of higher yielding investments. In addition, both periods benefited from stronger than usual investment results. As you will see on both slides, variances from expectations of certain items such as projected interest rates, stock market growth, option costs and surrenders have an impact on the accounting for fixed indexed annuities. These accounting adjustments are recognized through AFG’s reported core earnings. In the first quarters of 2015 and 2014, lower than expected interest rates resulted in an unfavorable impact on earnings of $13 million and $12 million respectively. The impact of lower interest rates is included within the impact of fair value accounting amounts shown on Slides 7 and 8. Additional information about the components of spreads for AFG’s fixed annuity operations can be found in AFG’s quarterly investor supplement posted on our website. Annuity premiums were $813 million in the first quarter of 2015, a decrease of 16% from the comparable prior year period. This year-over-year decrease was due primarily to lower sales of traditional fixed annuities in the financial institutions market and lower sales of FIAs in the retail channel. AFG attributes these decreases to aggressive and in some…

Thank you, Craig. I will conclude with a view of AFG’s consolidated first quarter results and share a few comments about capital and liquidity. Slide 14 recaps AFG’s first quarter consolidated results by segment. Core net operating earnings per share in the quarter were $1.25, up 25% from a year ago. $1.25 is based on core net operating earnings in the quarter of $112 million, which is an increase of $21 million year-over-year. You will see on Page 4 of our quarterly investor supplement, a more detailed view of the components of this change. Carl previously discussed the change in Specialty P&C underwriting income in the quarter. P&C segment underwriting profit rose by $2 million against last year’s result. P&C investment income rose by $12 million or 18%. This was a result of an increase in average P&C invested assets as a consequence of the Summit acquisition. In addition, P&C other expenses improved by $7 million. The sum of these three items produces the $21 million improvement in P&C segment core pretax operating earnings. This is up 19% year-over-year. We have closed on the Summit acquisition at the beginning of the 2014 second quarter. Q1 2013 will be the final quarter where our Specialty P&C segment’s quarterly comparative are affected by the Summit transaction. Craig previously covered our annuity segment earnings, which were $2 million higher year-over-year. Results in our Run-Off Long-Term Care and Life segment improved by $6 million from the prior year. Interest expense of parent holding companies increased by $2 million due to the hybrid debt offering in September 2014 and other expense was $2 million lower than the 2014 first quarter. Turning to Slide 15, you will see a reconciliation of core net operating earnings to net earnings on an aggregate and per share basis. On Slide 16, you will see that AFG’s adjusted book value per share was $48.55 at March 31, 2015. Our excess capital stood at approximately $790 million at March 31, 2015. This included $270 million in parent company cash. We returned $53 million to our shareholders through dividends and share repurchases during the quarter. Approximately 4.5 million shares remain under our repurchase authorization as of April 24, 2015. We plan to continue returning excess capital to our shareholders through the course of 2015. On Slide 17, you will find a single page summary of our 2015 guidance. As a reminder, AFG has expected 2015 results exclude non-core items such as realized investment gains and losses, the loss on the disposition of the Run-Off Long-term Care Insurance subsidiaries and other significant items that may not be indicative of ongoing operations. Now, we would like to open the lines for any questions.

Thank you. [Operator Instructions] First question comes from Vincent DeAugustino from KBW. Your line is open. Please go ahead.

Hi, good morning everyone. Just to start with Craig, looking at the annuity business, we are obviously paying attention to the DOL potential regulations that could be coming down, but any sense for how much of your annuity business is placed in IRA accounts?

I think the total qualified business Vincent would be something in the neighborhood of 45% of the business.

Okay, thank you for that. And then just as far as – I mean it’s anybody’s guess right now, but I mean I am just curious your guys have thoughts on any potential adaptations that you might have to run through and kind of how you are thinking about any of those at this time?

Related to the new potential rules, is that…

On the fiduciary standard, yes.

First of all, the wording hasn’t been finalized. We are obviously studying it and taking it very seriously. I think given the fact that we have higher ratings and our sales practices I believe are a lot cleaner than some others. Honestly, I think that it potentially could benefit us. We are obviously going to have to be very careful to be totally compliant, but at least our early read is that something it potentially could be a benefit.

Okay, that’s very good to hear. And then, just in the press release and in the comments today you guys have mentioned ocean marine of development, any chance that some of that was coming from the 2014 accident years resulted the West Coast port disruptions?

No. I think, it might be related to a custom bonds type of business within ocean marine.

Okay, good to know. And then just the last one for me on workers comp, looking at California, so relative to your assessment of loss cost trends there and then also to the – to relative stickiness of reform based savings that we have seen come and go based on past reforms, I am curious of your opinion on the justification of the rating bureau’s rate decrease there and then how that compares roughly to the experience of your booking and whether or not you think that type of magnitude is justified by the loss cost environment there? Thank you.

I can take either – there are a number of different questions there. Let me first of all start out by saying that I just visited with our guys out there a week or so ago and they feel very positive about the claims environment in California and also how reform is holding at this point. And I think that probably relates some to the WCIRB rate decline that was filed of 10% or so. One thing to keep in mind about that 10% rate, when you – that’s against the WCIRB’s previous rate that was filed. I believe that you look at that compare to where the industry is, it’s more like a 5% decrease when you look at the actual. So I look at it as whether a 5% rate decrease may be to where the industry average is reasonable. And I think the latest industry projection talking about the industries is 103 accident year, so still not in the red from an underwriting standpoint. So it seems like I understand politically why filed rates get filed, where they are, but 103 is no great accident year at this point. The bottom line is no matter what the file, the industries, the WCIRBs suggest you rate is, each company files their own, kind of based off on their own results. Republic, we are very pleased with Republic’s results. When you look over a long period of time Republic, January has outperformed the industry by a pretty good margin. That’s what actually gave us an opportunity probably earlier than others to grow our business over the past couple of years as we got better quicker, it gave us an opportunity to grow our business. Republic’s 2013 and 2014 accident years project healthy underwriting profits and double-digit returns on equity versus the industry number that I mentioned that’s still in the red. We feel good about – I just saw I think the WCIRB talked about a $6.8 billion reserve deficiency in the industry. When we look at Republic, we feel Republic has a – has a good reserve adequacy, strong reserve adequacy today. Our loss cost trends – our loss trends are probably in the 3% to 4% in that. And with the profitability of our business that doesn’t concern me, when we look forward to probably overall this year, we will probably have low single-digit rate decline once we figure out what we are going to file in relationship to this way this WCIRB filing. The department still has to approve that. So, we are really just kind of sitting back waiting for to see what the department’s ruling is. And then strategically we will make up our mind, what our response or what our potential filing is. Does that answer your question or?

Yes, very much. A lot of good color there. So, thanks and best of luck, guys.

Thank you. Our next question comes from Jay Cohen from Bank of America Merrill Lynch. Your line is open. Please go ahead.

Thank you. I wanted to ask about the broader workers’ comp market have had a couple of companies say that, that business has gotten more competitors, so not just in California, but nationwide, what are you seeing from a competitive standpoint in workers’ compensation?

In Florida, did you just to clarify or overall?

I was thinking given that you are now in this business in many different states, just broadly speaking what are you saying?

Well, again, the biggest part of – in California, I think the market is more competitive, but still seems to be allowing us to grow at least early this year. That’s postured with the California State Fund, I think just filed a 9% rate increase there. So – and there is other companies that even though the industry is estimated to be at 103, there is other competitors there that focus more on Southern California and still we are trying to work through problems in their book in Southern California. So, it’s kind of mixed. They are overall probably more competitive, but kind of mixed depending on which companies have what results. In the Southeast, I think things are – meaning Florida and in Summit’s marketplaces. Generally, yes, the market probably is more competitive. There have been some rate declines filed in a number of the – in Florida and in a number of the states that Summit operates in. So, yes, I think as results again for the industry have improved, I think there is some more competition. In our strategic comp part of our business, I think there is probably some more competition there though. Our approach in that business is more large deductible really heavy loss prevention and working with the insurers right kind of a different model than our other businesses, so maybe a little less so, though I think overall, we are seeing more competition even there.

Got it. The other question I had again sort of on competitive conditions, but outside the U.S., what are you seeing? And I guess related to that, where do you see some growth opportunities this year outside the U.S.?

Well, probably – we are starting this – we will probably begin to ride a little business in Singapore towards the end of the year. In the Lloyd’s market, it’s very competitive there right now. And our emphasis is going to be more on improving underwriting profitability that we have versus growing in that. Our Lloyd’s insurer market form is our – that’s really where most of our business is internationally in Europe in that. So, I think we are going to be more focused, because the environment there on improving profitability versus lots of growth, I think you can expect us to as I had mentioned before I think over the next 12 months to 18 months to hire some additional talent and start some additional businesses, specialty businesses outside the U.S.

That’s great. Thank you, Carl.

Thank you. Our next question comes from Ryan Byrnes from Janney Capital. Your line is open. Please go ahead.

Great. Good morning, everybody. Just obviously once the long-term deal closed – sorry, long-term care block closed in the third quarter kind of bump your excess capital up to historically high levels. Just want to get your guys thoughts on the M&A market, obviously there has been a lot of movement in Bermuda, I am not sure that’s where you would be interested, but just want to get your thoughts on where M&A pipeline is right now?

I think it’s constant with us or consistent. We are taking a look at a steady flow of opportunities from acquisitions to startups to talent acquisitions on an ongoing basis. To me, I think our flow seems to be pretty consistent with where it’s been in the past in them. So, on the capital management side, we are going to be – each year is going to be little bit different and we are going to focus on using capital where we can get the highest and best short-term and long-term returns. And though I think – opportunistic share repurchases, dividends, special dividends, all of those things or tools in our toolkit kind of depending on what type of M&A activity we end up completing this year or that we anticipate as we go into next year.

Okay, great. That’s all I had guys. Thanks.

Ryan, this is Jeff. Just to add on you said that transformation of the long-term care transaction would bring our excess capital to historically high levels. We did tag our numbers to $790 million this quarter. And when we add in the long-term care capital that still won’t – amounts to $1 billion, we went into 2014 with – we wound up deploying that across the spectrum between the Summit acquisition plus repurchases plus dividends. So, that was our record with that local peak.

Okay. Well, I agree, it’s close to historically high levels, how about that?

Agreed.

Okay, alright. Good.

Thank you. [Operator Instructions] Our next question comes from Paul Newsome from Sandler O'Neill. Your line is open. Please go ahead.

Good morning and congratulations on the quarter. Under what environment, would you – if you would at all foresee your excess capital being essentially zero?

I don’t think we would ever allow the excess capital to go to zero. I think generally probably always we want to – we would always want to maintain $100 million to $200 million of excess capital for defensive reasons for unexpected kind of things that would impact our balance sheet or opportunistic things. Sometimes, some of the best opportunities are when you least expect them.

Well, I had an unrelated question for the – on the life side, it was hard to see some of the American equity folks a little while ago and they were talking about quite a few product that were being pulled through market and as a result very optimistic about potential sales in the year. How do those product pulls from like Guggenheim and those folks affect your business?

I caught part of that, but I didn’t catch the whole thing. Could you repeat that please?

A number of your competitors, I mentioned Guggenheim is one of them, have pulled products, annuity, fixed annuity, indexed fixed annuity products, in the last month or two. And I was wondering how that impacted your outlook?

I mean, it’s obviously a favorable thing for us if a competitor, pose a top selling product and several have. I think they got little overly ambitious with the promises they were making or with the indexes that were being used, promises that were being made and I think they understood that the profitability wasn’t as great as what they were thinking. So I mean that piece of it, when competitors pull top selling products, it’s obviously a benefit to us. I will see though that it’s still a very competitive market out there.

Is the decline in your sales demand issue or the supplier you are looking at the rate environment and deciding to sell or are you competitive or is it both?

We are just very disciplined in our pricing. I think the low interest rate environment is certainly working against us. We are disciplined on the pricing. I think there are some others who I guess may be have lower return hurdles than we do. We think that when interest rates are at the bottom, it is not the time to get overly aggressive in growing the business. We think that there are actually more risks when you are selling annuities at the very bottom of the interest rate cycle, than at a higher interest rate environments. We are very pleased that with the level of premiums and we are still going to have the midpoint of our guidance shows growth in assets of 10%, which is still pretty healthy. So we are not displeased if we end up hitting our guidance of premiums down 5% to 10% from last year. It still results in very healthy growth in both assets and reserves.

It sounds prudent. Thank you.

Thank you. I am showing no further questions at this time. I would like to hand the conference back over to Ms. Diane Weidner.

Thank you very much for joining us this morning. And, we look forward to talking to you again, when we report our second quarter results. This concludes our call for today.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program. You may all disconnect and have a wonderful day.