UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2011

Commission File No. 1-13653

AMERICAN FINANCIAL GROUP, INC.

Incorporated under the Laws of Ohio		IRS Employer I.D. No. 31-1544320

301 East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2121

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock		New York Stock Exchange and Nasdaq Global Select Market
7-1/8% Senior Debentures due February 3, 2034		New York Stock Exchange
7% Senior Notes due September 30, 2050		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Other securities for which reports are submitted pursuant to Section 15(d) of the Act:
9-7/8% Senior Notes due June 15, 2019

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

State the aggregate market value of the voting and non -voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter: $2.8 billion.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 97,895,717 shares (excluding 14.9 million shares owned by subsidiaries) as of February 1, 2012.

Proxy Statement for 2012 Annual Meeting of Stockholders (portions of which are incorporated by reference into Part III hereof).

 

 

AMERICAN FINANCIAL GROUP, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

		Page
FORWARD-LOOKING STATEMENTS			1
Part I
Item 1 — Business			2
Item 1A — Risk Factors			15
Item 1B — Unresolved Staff Comments			none
Item 2 — Properties			21
Item 3 — Legal Proceedings			21
Item 4 — Mine Safety Disclosures			none
Part II
Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			23
Item 6 — Selected Financial Data			24
Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 7A — Quantitative and Qualitative Disclosures About Market Risk			53
Item 8 — Financial Statements and Supplementary Data			56
Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			none
Item 9A — Controls and Procedures			56
Item 9B — Other Information			none
Part III
Item 10 — Directors, Executive Officers and Corporate Governance			S-1
Item 11 — Executive Compensation			S-1
Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			S-1
Item 13 — Certain Relationships and Related Transactions, and Director Independence			S-1
Item 14 — Principal Accountant Fees and Services			S-1
Part IV
Item 15 — Exhibits and Financial Statement Schedules			S-1
EX-12
EX-21
EX-23
EX-31.A
EX-31.B
EX-31.C
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

FORWARD-LOOKING STATEMENTS

The disclosures in this Form 10-K contain certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Some of the forward-looking statements can be identified by the use of words such as “anticipates”, “believes”, “expects”, “projects”, “estimates”, “intends”, “plans”, “seeks”, “could”, “may”, “should”, “will” or the negative version of those words or other comparable terminology. Such forward-looking statements include statements relating to: expectations concerning market and other conditions and their effect on future premiums, revenues, earnings and investment activities; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.

Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to the following and those discussed in Item 1A — “Risk Factors.”

•

changes in financial, political and economic conditions, including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions in the U.S. and abroad;

•

performance of securities markets;

•

AFG’s ability to estimate accurately the likelihood, magnitude and timing of any losses in connection with investments in the non-agency residential mortgage market;

•

new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio;

•

the availability of capital;

•

regulatory actions (including changes in statutory accounting rules);

•

changes in the legal environment affecting AFG or its customers;

•

tax law and accounting changes;

•

levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from civil unrest and other major losses;

•

development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims;

•

availability of reinsurance and ability of reinsurers to pay their obligations;

•

the unpredictability of possible future litigation if certain settlements of current litigation do not become effective;

•

trends in persistency, mortality and morbidity;

•

competitive pressures, including those in the annuity bank distribution channels, the ability to obtain adequate rates and policy terms; and

•

changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries.

The forward-looking statements herein are made only as of the date of this report. The Company assumes no obligation to publicly update any forward-looking statements.

PART I

ITEM 1

Business

Introduction

American Financial Group, Inc. (“AFG”) is a holding company that, through subsidiaries, is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of traditional fixed and indexed annuities and a variety of supplemental insurance products, such as Medicare supplement. Its address is 301 East Fourth Street, Cincinnati, Ohio 45202; its phone number is (513) 579-2121. SEC filings, news releases, AFG’s Code of Ethics applicable to directors, officers and employees and other information may be accessed free of charge through AFG’s Internet site at: www.AFGinc.com. (Information on AFG’s Internet site is not part of this Form 10-K.)

Property and Casualty Insurance Operations

General

AFG’s specialty property and casualty insurance operations consist of approximately 30 niche insurance businesses offering a wide range of commercial coverages. These businesses report to a single senior executive and operate under a business model that allows local decision-making for underwriting, claims and policy servicing in each of the niche operations. These businesses are managed by experienced professionals in particular lines of business or customer groups and operate autonomously but with certain central controls and accountability. The decentralized approach allows each unit the autonomy necessary to respond to local and specialty market conditions while capitalizing on the efficiencies of centralized investment and administrative support functions. AFG’s property and casualty insurance operations employed approximately 5,200 persons as of December 31, 2011.

The primary objectives of AFG’s property and casualty insurance operations are to achieve solid underwriting profitability and provide excellent service to its policyholders and agents. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses, loss adjustment expenses (“LAE”), underwriting expenses and policyholder dividends to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect investment income, other income, or federal income taxes.

While many costs included in underwriting are readily determined (commissions, administrative expenses, and many of the losses on claims reported), the process of determining overall underwriting results is highly dependent upon the use of estimates in the case of losses incurred or expected but not yet reported or developed. Actuarial procedures and projections are used to obtain “point estimates” of ultimate losses. While the process is imprecise and develops amounts which are subject to change over time, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

AFG’s statutory combined ratio averaged 87.4% for the period 2009 to 2011 as compared to 102.7% for the property and casualty industry over the same period (Source: “A.M. Best’s U.S. Property/Casualty — Review & Preview” — February 2012 Edition). AFG believes that its specialty niche focus, product line diversification and underwriting discipline have contributed to the Company’s ability to consistently outperform the industry’s underwriting results. Management’s philosophy is to refrain from writing business that is not expected to produce an underwriting profit even if it is necessary to limit premium growth to do so.

Financial data is reported in accordance with U.S. generally accepted accounting principles (“GAAP”) for shareholder and other investment purposes and reported on a statutory basis for insurance regulatory purposes. Major differences for statutory accounting include charging policy acquisition costs to expense as incurred rather than spreading the costs over the periods covered by the policies; reporting investment grade bonds and redeemable preferred stocks at amortized cost rather than fair value; netting of reinsurance recoverables and prepaid reinsurance premiums against the corresponding liabilities rather than reporting such items separately; and charging to surplus certain GAAP assets, such as furniture and fixtures and agents’ balances over 90 days old.

Unless indicated otherwise, the financial information presented for the property and casualty insurance operations herein is presented based on GAAP. Statutory information is provided for industry comparisons or where comparable GAAP information is not readily available.

Property and Casualty Results

Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. See Note C — “Segments of Operations” to the financial statements for the reconciliation of AFG’s operating profit by significant business segment to the Statement of Earnings.

The following table shows the performance of AFG’s property and casualty insurance operations (dollars in millions):

		2011				2010				2009
Gross written premiums		$	4,106			$	3,589			$	3,763
Ceded reinsurance			(1,336	)			(1,181	)			(1,452	)
Net written premiums		$	2,770			$	2,408			$	2,311
Net earned premiums		$	2,759			$	2,550			$	2,412
Loss and LAE			1,694				1,457				1,187
Special asbestos and environmental (“A&E”) charge			50				—				—
Underwriting expenses			835				797				808
Underwriting gain		$	180			$	296			$	417
GAAP ratios:
Loss and LAE ratio			63.2	%			57.2	%			49.2	%
Underwriting expense ratio			30.2				31.3				33.5
Combined ratio			93.4	%			88.5	%			82.7	%
Statutory ratios:
Loss and LAE ratio			60.4	%			53.5	%			46.2	%
Underwriting expense ratio			32.3				33.8				36.1
Combined ratio			92.7	%			87.3	%			82.3	%
Industry statutory combined ratio (a)
All lines			107.5	%			101.0	%			99.5	%
Commercial lines			108.2	%			102.7	%			103.0	%

As with other property and casualty insurers, AFG’s operating results can be adversely affected by unpredictable catastrophe losses. Certain natural disasters (hurricanes, earthquakes, tornadoes, floods, etc.) and other incidents of major loss (explosions, civil disorder, terrorist events, fires, etc.) are classified as catastrophes by industry associations. Losses from these incidents are usually tracked separately from other business of insurers because of their sizable effects on overall operations. Total net losses to AFG’s insurance operations from catastrophes, primarily hailstorms, hurricanes and tornadoes, were $46 million in 2011, $49 million in 2010 and $18 million in 2009.

AFG generally seeks to reduce its exposure to catastrophes through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. AFG’s exposure to a catastrophic earthquake or windstorm that industry models indicate could occur once in every 500 years (a “500-year event”) is expected to be less than 2.5% of AFG’s shareholders’ equity.

Property and Casualty Insurance Products

AFG is focused on growth opportunities in what it believes to be more profitable specialty businesses where AFG personnel are experts in particular lines of business or customer groups. The following are examples of AFG’s specialty businesses:

Property and Transportation
Inland and Ocean Marine		Provides coverage primarily for builders’ risk, contractors’ equipment, property, motor truck cargo, marine cargo, boat dealers, marina operators/dealers and excursion vessels.
Agricultural-related		Provides federally reinsured multi-peril crop (allied lines) insurance covering most perils as well as crop-hail, equine mortality and other coverages for full-time operating farms/ranches and agribusiness operations on a nationwide basis.
Commercial Automobile		Provides coverage for vehicles (such as buses and trucks) in a broad range of businesses including the moving and storage and transportation industries, and a specialized physical damage product for the trucking industry.
Specialty Casualty
Executive and Professional Liability		Markets coverage for directors and officers of businesses and non-profit organizations; errors and omissions; and provides non-U.S. medical malpractice insurance.
Umbrella and Excess Liability		Provides higher layer liability coverage in excess of primary layers.
Excess and Surplus		Provides liability, umbrella and excess coverage for unique, volatile or hard to place risks, using rates and forms that generally do not have to be approved by state insurance regulators.
General Liability		Provides coverage for contractor-related businesses, energy development and production risks, and environmental liability risks.
Targeted Programs		Includes coverage (primarily liability and property) for social service agencies, leisure, entertainment and non-profit organizations, customized solutions for other targeted markets and alternative risk programs using agency captives.
Workers’ Compensation		Provides coverage for prescribed benefits payable to employees who are injured on the job.
Specialty Financial
Fidelity and Surety		Provides fidelity and crime coverage for government, mercantile and financial institutions and surety coverage for various types of contractors and public and private corporations.
Lease and Loan Services		Provides coverage for insurance risk management programs for lending and leasing institutions, including equipment leasing and collateral and mortgage protection.

Management believes specialization is the key element to the underwriting success of these business units. These specialty businesses are opportunistic and their premium volume will vary based on prevailing market conditions. AFG continually evaluates expansion in existing markets and opportunities in new specialty markets that meet its profitability objectives. For example, in July 2010, a majority-owned subsidiary of AFG acquired Vanliner Group, Inc. (“Vanliner”), a market leader in providing insurance for the moving and storage industry. Likewise, AFG will withdraw from markets that do not meet its profit objectives or business strategy, such as the withdrawal from certain program business in 2010 and 2011.

Premium Distribution

The following table shows the net written premiums by sub-segment for AFG’s property and casualty insurance operations for 2011 (net written premiums for 2007 are given to show changes over a four-year period)(dollars in millions):

		2011				2007
Property and transportation		$	1,436			$	1,132
Specialty casualty			867				1,022
Specialty financial			398				488
Other			69				70
		$	2,770			$	2,712

The geographic distribution of statutory direct written premiums by AFG’s U.S.-based insurers in 2011 compared to 2007 is shown below. Amounts exclude business written under special arrangements on behalf of, and fully reinsured to, the purchasers of several divisions sold. Approximately 5% of AFG’s direct written premiums in 2011 were derived from non U.S.-based insurers, primarily Marketform, a majority-owned United Kingdom-based Lloyd’s insurer acquired in 2008.

		2011				2007
California			12.0	%			14.7	%
Illinois			8.0				6.1
Texas			6.8				8.0
New York			4.8				4.4
Florida			4.5				7.4
Kansas			4.1				3.2
Iowa			3.8				*
Missouri			3.2				2.1
Indiana			2.9				2.5
South Dakota			2.7				*
Pennsylvania			2.6	%			2.4	%
Ohio			2.4				2.3
Georgia			2.4				2.3
Nebraska			2.3				2.0
North Carolina			2.2				2.3
North Dakota			2.2				*
New Jersey			2.1				2.1
Minnesota			2.1				*
Oklahoma			2.0				2.7
Other			26.9				35.5
			100.0	%			100.0	%

Ratings

The following table shows independent ratings and 2011 net written premiums (in millions) of AFG’s major property and casualty insurance subsidiaries. Such ratings are generally based on concerns for policyholders and agents and are not directed toward the protection of investors. During 2010, AFG’s principal property and casualty insurance companies were upgraded by Standard & Poor’s (“S&P”) to A+. AFG believes that maintaining an S&P rating of at least “A-” is important to compete successfully in certain lines of business.

		Ratings				Net Written
Company		AM Best		S&P		Premiums
Great American Pool(*)		A		A+		$	1,847
National Interstate		A		not rated			442
Marketform Lloyd’s Syndicate		A		A+			146
Republic Indemnity		A		A+			135
Mid-Continent		A		A+			127
American Empire Surplus Lines		A+		A+			35
Other							38
						$	2,770

Reinsurance

Consistent with standard practice of most insurance companies, AFG reinsures a portion of its business with other insurance companies and assumes a relatively small amount of business from other insurers. AFG uses reinsurance for two primary purposes: (i) to provide higher limits of coverage than it would otherwise be willing to provide (i.e. large line capacity) and (ii) to protect its business by reducing the impact of catastrophes. The availability and cost of reinsurance are subject to prevailing market conditions, which may affect the volume and profitability of business that is written. AFG is subject to credit risk with respect to its reinsurers, as the ceding of risk to reinsurers does not relieve AFG of its liability to its insureds until claims are fully settled.

The commercial marketplace requires large policy limits ($25 million or more) in several of AFG’s lines of business, including certain executive and professional liability, umbrella and excess liability, and fidelity and surety coverages. Since these limits exceed management’s desired exposure to an individual risk, AFG generally enters into reinsurance agreements to reduce its net exposure under such policies to an acceptable level. Reinsurance continues to be available for this large line capacity exposure with satisfactory pricing and terms.

AFG has taken steps to limit its exposure to wind and earthquake losses by purchasing catastrophe reinsurance. In addition, AFG purchases catastrophe reinsurance for its workers’ compensation businesses. Although the cost of catastrophe reinsurance varies depending on exposure and the level of worldwide loss activity, AFG has been able to obtain reinsurance coverage in adequate amounts at acceptable rates due to management’s decision to limit overall exposure to catastrophe losses through individual risk selection (including minimizing coastal and known fault-line exposures) and the Company’s limited historical catastrophe losses.

In addition to the large line capacity and catastrophe reinsurance programs discussed above, AFG purchases reinsurance on a product-by-product basis. AFG regularly reviews the financial strength of its current and potential reinsurers. These reviews include consideration of credit ratings, available capital, claims paying history and expertise. This process periodically results in the transfer of risks to more financially secure reinsurers. Substantially all reinsurance is ceded to companies with investment grade or better S&P ratings or is secured by “funds withheld” or other collateral. Under “funds withheld” arrangements, AFG retains ceded premiums to fund ceded losses as they become due from the reinsurer. Recoverables from the following companies were individually between 5% and 11% of AFG’s total reinsurance recoverable (net of payables to reinsurers) at December 31, 2011: Everest Reinsurance Company, Munich Reinsurance America, Inc. and Swiss Reinsurance America Corporation. In addition, AFG has a reinsurance recoverable from Ohio Casualty Insurance Company of $212 million related to that company’s purchase of AFG’s commercial lines business in 1998.

Reinsurance is provided on one of two bases, facultative or treaty. Facultative reinsurance is generally provided on a risk by risk basis. Individual risks are ceded and assumed based on an offer and acceptance of risk by each party to the transaction. AFG purchases facultative reinsurance, both pro rata and excess of loss, depending on the risk and available reinsurance markets. Treaty reinsurance provides for risks meeting prescribed criteria to be automatically ceded and assumed according to contract provisions.

The following table presents (by type of coverage) the amount of each loss above the specified retention maximum generally covered by treaty reinsurance programs (in millions) as of January 1, 2012:

		Retention				Reinsurance
Coverage		Maximum				Coverage(a)
California Workers’ Compensation		$	3			$	147
Other Workers’ Compensation			2				48
Commercial Umbrella			4				46
Property — General			3				98
Property — Catastrophe			26				154

In addition to the coverage shown above, AFG reinsures a portion of its crop insurance business through the Federal Crop Insurance Corporation (“FCIC”). The FCIC offers both proportional (or “quota share”) and non-proportional coverages. The proportional coverage provides that a fixed percentage of risk is assumed by the FCIC. The non-proportional coverage allows AFG to select desired retention of risk on a state-by-state, county, crop or plan basis. AFG typically reinsures 15% to 25% of gross written premium with the FCIC. AFG also purchases quota share reinsurance in the private market. This quota share provides for a ceding commission to AFG and a profit sharing provision. During 2011, AFG reinsured 52.5% of premiums not reinsured by the FCIC in the private market and purchased stop loss protection coverage for the remaining portion of the business. AFG expects to utilize similar levels of reinsurance in 2012. In 2010 and 2009, AFG reinsured approximately 50% and 90%, respectively, of premiums not reinsured by the FCIC.

Included in the Balance Sheet caption “recoverables from reinsurers” were approximately $72 million on paid losses and LAE and $2.2 billion on unpaid losses and LAE at December 31, 2011. These amounts are net of allowances of approximately $26 million for doubtful collection of reinsurance recoverables. The collectibility of a reinsurance balance is based upon the financial condition of a reinsurer as well as individual claim considerations.

Reinsurance premiums ceded and assumed are presented in the following table (in millions):

		2011				2010				2009
Reinsurance ceded		$	1,336			$	1,181			$	1,452
Reinsurance ceded, excluding crop			652				727				680
Reinsurance assumed — including involuntary pools and associations			45				47				32

Loss and Loss Adjustment Expense Reserves

The consolidated financial statements include the estimated liability for unpaid losses and LAE of AFG’s insurance subsidiaries. This liability represents estimates of the ultimate net cost of all unpaid losses and LAE and is determined by using case-basis evaluations, actuarial projections and management’s judgment. These estimates are subject to the effects of changes in claim amounts and frequency and are periodically reviewed and adjusted as additional information becomes known. In accordance with industry practices, such adjustments are reflected in current year operations. Generally, reserves for reinsurance assumed and involuntary pools and associations are reflected in AFG’s results at the amounts reported by those entities.

The following table presents the development of AFG’s liability for losses and LAE, net of reinsurance, on a GAAP basis for the last ten years. The top line of the table shows the estimated liability (in millions) for unpaid losses and LAE recorded at the balance sheet date for the indicated years. The second line shows the re-estimated liability as of December 31, 2011. The remainder of the table presents intervening development as percentages of the initially estimated liability. The development results from additional information and experience in subsequent years, particularly with regard to A&E charges, settlements and reallocations as detailed below. The middle line shows a cumulative deficiency (redundancy), which represents the aggregate percentage increase (decrease) in the liability initially estimated. The lower portion of the table indicates the cumulative amounts paid as of successive periods as a percentage of the original loss reserve liability. For purposes of this table, reserves of businesses sold are considered paid at the date of sale. See Note O - “Insurance - Property and Casualty Insurance Reserves” to the financial statements for an analysis of changes in AFG’s estimated liability for losses and LAE, net and gross of reinsurance, over the past three years on a GAAP basis.

		2001				2002				2003				2004				2005				2006				2007				2008				2009				2010				2011
Liability for unpaid losses and loss adjustment expenses:
As originally estimated		$	3,338			$	3,466			$	2,901			$	3,155			$	3,619			$	3,791			$	3,868			$	4,154			$	3,899			$	4,164			$	4,282
As re-estimated at December 31, 2011		$	4,306			$	4,289			$	3,444			$	3,310			$	3,332			$	3,280			$	3,268			$	3,756			$	3,673			$	4,095				N/A
Liability re-estimated:
One year later			104.5	%			104.4	%			104.9	%			106.3	%			98.4	%			97.4	%			93.6	%			95.2	%			96.0	%			98.3	%
Two years later			110.0	%			109.7	%			114.0	%			106.1	%			98.8	%			92.3	%			89.7	%			91.6	%			94.2	%
Three years later			113.8	%			118.0	%			114.7	%			107.7	%			95.2	%			89.5	%			85.8	%			90.4	%
Four years later			121.1	%			118.8	%			118.0	%			106.0	%			93.6	%			87.0	%			84.5	%
Five years later			122.8	%			122.1	%			118.5	%			105.5	%			92.1	%			86.5	%
Six years later			126.5	%			123.0	%			118.8	%			104.4	%			92.1	%
Seven years later			127.7	%			123.6	%			117.9	%			104.9	%
Eight years later			128.6	%			123.1	%			118.7	%
Nine years later			128.2	%			123.7	%
Ten years later			129.0	%
Cumulative deficiency (redundancy) (a)			29.0	%			23.7	%			18.7	%			4.9	%			(7.9	%)			(13.5	%)			(15.5	%)			(9.6	%)			(5.8	%)			(1.7	%)			N/A
Cumulative paid as of:
One year later			32.7	%			42.2	%			27.3	%			25.4	%			23.5	%			22.3	%			21.0	%			24.0	%			21.3	%			23.3	%
Two years later			61.3	%			60.9	%			46.4	%			40.8	%			37.5	%			34.8	%			32.9	%			37.2	%			35.9	%
Three years later			74.4	%			72.7	%			58.8	%			52.4	%			46.9	%			43.6	%			41.6	%			47.0	%
Four years later			82.8	%			80.3	%			68.5	%			60.1	%			53.6	%			49.9	%			47.5	%
Five years later			88.4	%			86.2	%			75.2	%			65.6	%			58.7	%			54.2	%
Six years later			93.4	%			90.7	%			80.1	%			70.5	%			62.1	%
Seven years later			97.0	%			94.2	%			84.4	%			73.8	%
Eight years later			100.1	%			96.9	%			87.4	%
Nine years later			102.7	%			99.1	%
Ten years later			104.8	%
(a)   Cumulative deficiency (redundancy):
Special A&E charges, settlements and reallocations			9.4	%			8.2	%			9.8	%			9.1	%			2.9	%			2.8	%			1.6	%			1.2	%			1.3	%			1.2	%
Other			19.6	%			15.5	%			8.9	%			(4.2	%)			(10.8	%)			(16.3	%)			(17.1	%)			(10.8	%)			(7.1	%)			(2.9	%)
Total			29.0	%			23.7	%			18.7	%			4.9	%			(7.9	%)			(13.5	%)			(15.5	%)			(9.6	%)			(5.8	%)			(1.7	%)			N/A

The following is a reconciliation of the net liability to the gross liability for unpaid losses and LAE.

		2001				2002				2003				2004				2005				2006				2007				2008				2009				2010				2011
As originally estimated:
Net liability shown above		$	3,338			$	3,466			$	2,901			$	3,155			$	3,619			$	3,791			$	3,868			$	4,154			$	3,899			$	4,164			$	4,282
Add reinsurance recoverables			1,525				1,804				2,059				2,234				2,243				2,309				2,300				2,610				2,513				2,249				2,238
Gross liability		$	4,863			$	5,270			$	4,960			$	5,389			$	5,862			$	6,100			$	6,168			$	6,764			$	6,412			$	6,413			$	6,520
As re-estimated at December 31, 2011:
Net liability shown above		$	4,306			$	4,289			$	3,444			$	3,310			$	3,332			$	3,280			$	3,268			$	3,756			$	3,673			$	4,095
Add reinsurance recoverables			2,516				2,626				2,750				2,544				2,323				2,141				1,933				2,281				1,983				2,007
Gross liability		$	6,822			$	6,915			$	6,194			$	5,854			$	5,655			$	5,421			$	5,201			$	6,037			$	5,656			$	6,102				N/A
Gross cumulative Deficiency (redundancy) (a)			40.3	%			31.2	%			24.9	%			8.6	%			(3.5	%)			(11.1	%)			(15.7	%)			(10.7	%)			(11.8	%)			(4.8	%)			N/A
(a)   Gross cumulative deficiency (redundancy):
Special A&E charges, settlements and reallocations			7.4	%			6.2	%			6.7	%			6.1	%			2.1	%			2.1	%			1.0	%			0.7	%			0.7	%			0.8	%
Other			32.9	%			25.0	%			18.2	%			2.5	%			(5.6	%)			(13.2	%)			(16.7	%)			(11.4	%)			(12.5	%)			(5.6	%)
Total			40.3	%			31.2	%			24.9	%			8.6	%			(3.5	%)			(11.1	%)			(15.7	%)			(10.7	%)			(11.8	%)			(4.8	%)			N/A

In evaluating the re-estimated liability and cumulative deficiency (redundancy), it should be noted that each percentage includes the effects of changes in amounts for prior periods. For example, AFG’s $50 million special A&E charge related to losses recorded in 2011, but incurred before 2001, is included in the re-estimated liability and cumulative deficiency (redundancy) percentage for each of the previous years shown. Conditions and trends that have affected development of the liability in the past may not necessarily exist in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table.

A significant portion of the adverse development in the tables is due to A&E exposures for which AFG has been held liable under general liability policies written prior to 1987, even though such coverage was not intended. Other factors affecting adverse development included changes in the legal environment, including more liberal coverage decisions and higher jury awards, higher legal fees, the general state of the economy and medical cost inflation.

The differences between the liability for losses and LAE reported in the annual statements filed with the state insurance departments in accordance with statutory accounting principles (“SAP”) and that reported in the accompanying consolidated financial statements in accordance with GAAP at December 31, 2011 are as follows (in millions):

Liability reported on a SAP basis, net of $157 million of retroactive reinsurance		$	3,749
Reinsurance recoverables, net of allowance			2,238
Other, including reserves of foreign insurers			533
Liability reported on a GAAP basis		$	6,520

Asbestos and Environmental (“A&E”) Reserves AFG’s property and casualty group, like many others in the industry, has A&E claims arising in most cases from general liability policies written more than twenty-five years ago. The establishment of reserves for such A&E claims presents unique and difficult challenges and is subject to uncertainties significantly greater than those presented by other types of claims. For a discussion of these uncertainties, see Item 7 — “Management’s Discussion and Analysis” — “Uncertainties — Asbestos and Environmental— related Insurance Reserves” and Note M — “Contingencies” to the financial statements.

Management has conducted comprehensive studies of its asbestos and environmental reserves with the aid of outside actuarial and engineering firms and specialty outside counsel every two years with an in-depth internal review during the intervening years. Charges resulting from these studies and reviews are included in “Incurred losses and LAE” in the table below. The 2011 comprehensive study relied on a ground-up exposure analysis and considered products and non-products exposures, paid claims history, the pattern of new claims, settlements and projected development. As a result of the study, AFG recorded a $50 million special charge (net of reinsurance) in the second quarter of 2011 to increase the property and casualty group’s A&E reserves. During the course of the in-depth internal review in 2010, there were no newly identified emerging trends or issues that management believes significantly impacted the overall adequacy of AFG’s A&E reserves. Likewise, the 2009 comprehensive study resulted in only minor adjustments to A&E reserves. For a discussion of the A&E reserve strengthening, see “Management’s Discussion and Analysis” — “Results of Operations — Asbestos and Environmental Reserve Charges.”

The following table (in millions) is a progression of the property and casualty group’s A&E reserves.

		2011				2010				2009
Reserves at beginning of year		$	342			$	378			$	399
Incurred losses and LAE			50				8				4
Paid losses and LAE			(30	)			(44	)			(25	)
Reserves at end of year, net of reinsurance recoverable			362				342				378
Reinsurance recoverable, net of allowance			92				74				79
Gross reserves at end of year		$	454			$	416			$	457

Marketing

The property and casualty insurance group directs its sales efforts primarily through independent property and casualty insurance agents and brokers, although small portions are written through employee agents. Independent agents and brokers generally receive a commission on the sale of each policy. Some agents and brokers are eligible for a bonus commission based on the overall profitability of policies placed with AFG by the broker or agent in a particular year. The property and casualty insurance group writes insurance through several thousand agents and brokers.

Competition

AFG’s property and casualty insurance businesses compete with other individual insurers, state funds and insurance groups of varying sizes, some of which are mutual insurance companies possessing competitive advantages in that all their profits inure to their policyholders. See Item 1A - “Risk Factors.” They also compete with self-insurance plans, captive programs and risk retention groups. Due to the specialty nature of these coverages, competition is based primarily on service to policyholders and agents, specific characteristics of products offered and reputation for claims handling. Financial strength ratings, price, commissions and profit sharing terms are also important factors. Management believes that sophisticated data analysis for refinement of risk profiles, extensive specialized knowledge and loss prevention service have helped AFG compete successfully.

Annuity and Supplemental Insurance Operations

General

AFG’s annuity and supplemental insurance operations are conducted through Great American Financial Resources, Inc. (“GAFRI”). GAFRI’s primary insurance subsidiaries include Great American Life Insurance Company (“GALIC”), Annuity Investors Life Insurance Company (“AILIC”), United Teacher Associates Insurance Company (“UTA”) and Loyal American Life Insurance Company (“Loyal”). These companies market retirement products, primarily fixed and indexed annuities, and various forms of supplemental insurance such as Medicare supplement. All of these companies sell their products through independent producers. GAFRI and its subsidiaries employed approximately 800 persons at December 31, 2011.

Following is certain information concerning GAFRI’s largest subsidiaries (dollars in millions).

2011

Statutory

Policies

Ratings

Company

Principal Products

Premiums

In Force

AM Best

S&P

GALIC

Fixed and indexed annuities

$

2,803

392,000

A

A+

AILIC

Fixed and indexed annuities

301

137,000

A

A+

UTA

Supplemental insurance

206

194,000

B++

not rated

Loyal

Supplemental insurance

103

132,000

A-

not rated

AFG believes that the ratings assigned by independent insurance rating agencies are important because agents, potential policyholders and school districts often use a company’s rating as an initial screening device in considering annuity products. AFG believes that (i) a rating in the “A” category by A.M. Best is necessary to successfully market tax-deferred annuities to public education employees and other non-profit groups and (ii) a rating in the “A” category by at least one rating agency is necessary to successfully compete in other annuity markets. During 2010, AFG’s principal annuity subsidiaries were upgraded by S&P to A+ and its principal supplemental insurance subsidiaries were downgraded one notch by A.M. Best to A- and B++. Ratings are an important competitive factor; AFG believes that these entities can successfully compete in these markets with their respective ratings.

Statutory premiums of AFG’s annuity and supplemental insurance companies over the last three years were as follows (in millions):

		Premiums
		2011				2010				2009
Non-403(b) indexed annuities		$	1,549			$	735			$	402
Non-403(b) fixed annuities			239				430				294
Bank fixed annuities			971				737				314
403(b) fixed and indexed annuities			257				305				337
Variable annuities			70				73				87
Total annuities			3,086				2,280				1,434
Supplemental insurance			384				402				390
Life insurance			35				39				44
Total		$	3,505			$	2,721			$	1,868

Annuities

AFG’s principal retirement products are Flexible Premium Deferred Annuities (“FPDAs”) and Single Premium Deferred Annuities (“SPDAs”). Annuities are long-term retirement saving instruments that benefit from income accruing on a tax-deferred basis. The issuer of the annuity collects premiums, credits interest or earnings on the policy and pays out a benefit upon death, surrender or annuitization. FPDAs are characterized by premium payments that are flexible in both amount and timing as determined by the policyholder and are generally made through payroll deductions. SPDAs are generally issued in exchange for a one-time lump-sum premium payment.

Annuity contracts are generally classified as either fixed rate (including indexed) or variable. With a traditional fixed rate annuity, AFG seeks to maintain a desired spread between the yield on its investment portfolio and the rate it credits. AFG accomplishes this by: (i) offering crediting rates that it has the option to change after any initial guarantee period (subject to minimum interest rate guarantees); (ii) designing annuity products that encourage persistency; and (iii) maintaining an appropriate matching of assets and liabilities.

An indexed annuity provides policyholders with the opportunity to receive a crediting rate tied, in part, to the performance of an existing market index (generally the S&P 500) while protecting against the related downside risk through a guarantee of principal (excluding surrender charges). AFG purchases call options designed to substantially offset the effect of the index participation in the liabilities associated with indexed annuities.

As an ancillary product to its traditional fixed rate and indexed annuities, AFG offers variable annuities. With a variable annuity, the earnings credited to the policy vary based on the investment results of the underlying investment options chosen by the policyholder, generally without any guarantee of principal except in the case of death of the insured. Premiums directed to the underlying investment options maintained in separate accounts are invested in funds managed by various independent investment managers. AFG earns a fee on amounts deposited into separate accounts. Subject to contractual provisions, policyholders may also choose to direct all or a portion of their premiums to various fixed rate options, in which case AFG earns a spread on amounts deposited.

Supplemental and Life Insurance Products

AFG offers a variety of supplemental insurance products primarily to individuals age 55 and older. Principal products include coverage for Medicare supplement, cancer and accidental injury. These products are sold primarily through independent agents, including a former captive career agency force that was sold by AFG in the fourth quarter of 2010. At December 31, 2011, AFG’s reserves related to Medicare supplement, cancer, accidental injury and similar products were $191 million, net of reinsurance recoverables.

AFG ceased new sales of long-term care insurance beginning in January 2010. Renewal premiums on approximately 60,000 policies will be accepted unless those policies lapse. At December 31, 2011, AFG’s long-term care insurance reserves were $490 million, net of reinsurance recoverables.

Although AFG no longer actively markets new life insurance products, it continues to service and receive renewal premiums on its in-force block of approximately 211,000 policies and $21 billion gross ($5 billion net) of life insurance in force at December 31, 2011. At December 31, 2011, AFG’s life insurance reserves were $492 million, net of reinsurance recoverables.

Marketing

The majority of AFG’s FPDAs are sold in qualified markets under sections 403(b) and 457 of the Internal Revenue Code. In the 403(b) and 457 markets, schools, government agencies and certain other non-profit organizations may allow employees to save for retirement through contributions made on a before-tax basis. Federal income taxes are not payable on pretax contributions or earnings until amounts are withdrawn.

AFG sells its single premium non-403(b) fixed rate annuities, excluding bank production (discussed below), primarily through a network of approximately 100 national marketing organizations (“NMOs”) and managing general agents (“MGAs”) who, in turn, direct over 1,500 actively producing agents.

In 2011, AFG began selling its 403(b) fixed rate annuities directly through writing agents rather than through NMOs and MGAs as it had historically done. AFG believes that, by eliminating the costs associated with NMOs and MGAs in this market segment, it will be able to increase sales by offering higher crediting rates to policyholders and higher commissions to writing agents while still reducing its overall costs.

AFG also sells non-403(b) fixed rate annuities in banks through independent agents and brokers, as well as through direct relationships with certain financial institutions.

Premiums generated through AFG’s direct relationship with PNC Bank and through Regions Bank and BB&T by independent brokers were the largest individual sources of annuity premiums in 2011 and accounted for approximately 11%, 11% and 7%, respectively, of AFG’s overall annuity premiums in 2011.

AFG is licensed to sell its fixed annuity products in all states except New York; it is licensed to sell its variable products in all states except New York and Vermont. In 2011, the only states that accounted for 5% or more of AFG’s annuity premiums were Florida (11%), California (9%), Michigan (6%), Pennsylvania (5%) and Ohio (5%). At December 31, 2011, AFG had approximately 448,000 annuity policies in force.

Competition

AFG’s annuity and supplemental insurance businesses operate in highly competitive markets. They compete with other insurers and financial institutions based on many factors, including: (i) ratings; (ii) financial strength; (iii) reputation; (iv) service to policyholders and agents; (v) product design (including interest rates credited, index participation and premium rates charged); (vi) commissions; and (vii) number of school districts in which a company has approval to sell. Since most policies are marketed and distributed through independent agents, the insurance companies must also compete for agents.

No single insurer dominates the markets in which AFG’s annuity and supplemental insurance businesses compete. See Item 1A — “Risk Factors.” Competitors include (i) individual insurers and insurance groups, (ii) mutual funds and (iii) other financial institutions. In a broader sense, AFG’s annuity and supplemental insurance businesses compete for retirement savings with a variety of financial institutions offering a full range of financial services. In the bank annuity market, AFG’s annuities compete directly against competitors’ bank annuities, certificates of deposit and other investment alternatives at the point of sale.

Sales of annuities, including renewal premiums, are affected by many factors, including: (i) competitive annuity products and rates; (ii) the general level and volatility of interest rates, including the slope of the yield curve; (iii) the favorable tax treatment of annuities; (iv) commissions paid to agents; (v) services offered; (vi) ratings from independent insurance rating agencies; (vii) other alternative investments; (viii) performance and volatility of the equity markets; (ix) media coverage of annuities; (x) regulatory developments regarding suitability and the sales process; and (xi) general economic conditions.

Other Operations

Through subsidiaries, AFG is engaged in a variety of other operations, including commercial real estate operations in Cincinnati (office buildings and The Cincinnatian Hotel), New Orleans (Le Pavillon Hotel), Whitefield, New Hampshire (Mountain View Grand Resort), Chesapeake Bay (Skipjack Cove Yachting Resort and Bay Bridge Marina), Charleston (Charleston Harbor Resort and Marina), Palm Beach (Sailfish Marina and Resort), Florida City, Florida (retail commercial development) and apartments in Louisville and Pittsburgh. These operations employed approximately 500 full-time employees at December 31, 2011.

Investment Portfolio

General

A summary of AFG’s fixed maturities and equity securities is shown in Note E to the financial statements. For additional information on AFG’s investments, see Item 7 — Management’s Discussion and Analysis — “Investments.” Portfolio yields are shown below.

		2011				2010				2009
Yield on Fixed Maturities (a):
Excluding realized gains and losses			5.7	%			6.2	%			6.9	%
Including realized gains and losses			5.8	%			6.6	%			6.8	%
Yield on Equity Securities (a):
Excluding realized gains and losses			4.8	%			5.0	%			5.0	%
Including realized gains and losses			18.5	%			15.8	%			20.7	%

The table below compares total returns, which include changes in fair value, on AFG’s fixed maturities and equity securities to comparable public indices. While there are no directly comparable indices to AFG’s portfolio, the two shown below are widely used benchmarks in the financial services industry. Both AFG’s performance and the indices include changes in unrealized gains and losses.

		2011				2010				2009
Total return on AFG’s fixed maturities			7.7	%			10.9	%			21.1	%
Barclays Capital U.S. Universal Bond Index			7.4	%			7.2	%			8.6	%
Total return on AFG’s equity securities			6.9	%			17.4	%			48.0	%
Standard & Poor’s 500 Index			2.1	%			15.1	%			26.5	%

Fixed Maturity Investments

AFG’s bond portfolio is invested primarily in taxable bonds. The following table shows AFG’s available for sale fixed maturities by Standard & Poor’s Corporation or comparable rating as of December 31, 2011 (dollars in millions).

		Amortized				Fair Value
S&P or comparable rating		Cost				Amount				%
AAA, AA, A		$	13,847			$	14,820				68	%
BBB			4,422				4,745				22
Total investment grade			18,269				19,565				90
BB			667				638				3
B			584				547				3
CCC, CC, C			720				723				3
D			322				334				2
Total non-investment grade			2,293				2,242				11
Total		$	20,562			$	21,807				100	%

At December 31, 2011, approximately 77% of AFG’s mortgage-backed securities (“MBS”), having a fair value of $6.8 billion, were rated investment grade (BBB or better) by major rating firms. The National Association of Insurance Commissioners (“NAIC”) has retained third-party investment management firms to assist in the determination of appropriate NAIC designations for MBS based not only on the probability of loss (which is the primary basis of ratings by the major ratings firms), but also on the severity of loss and statutory carrying value. At December 31, 2011, 97% (based on statutory carrying value of $6.5 billion) of AFG’s MBS portfolio held by its insurance companies had an NAIC designation of 1 or 2 (the highest of the six designations).

Equity Investments

At December 31, 2011, AFG held common and perpetual preferred stocks with a fair value of $928 million, the largest of which was a $130 million common stock investment in Verisk Analytics, Inc. (“Verisk”), a provider of risk information for insurance companies. AFG recorded after-tax gains of $49 million in 2011, $17 million in 2010 and $49 million in 2009 on sales of a portion of its investment in Verisk.

Regulation

AFG’s insurance company subsidiaries are subject to regulation in the jurisdictions where they do business. In general, the insurance laws of the various states establish regulatory agencies with broad administrative powers governing, among other things, premium rates, solvency standards, licensing of insurers, agents and brokers, trade practices, forms of policies, maintenance of specified reserves and capital for the protection of policyholders, deposits of securities for the benefit of policyholders, investment activities and relationships between insurance subsidiaries and their parents and affiliates. Material transactions between insurance subsidiaries and their parents and affiliates generally must receive prior approval of the applicable insurance regulatory authorities and be disclosed. In addition, while differing from state to state, these regulations typically restrict the maximum amount of dividends that may be paid by an insurer to its shareholders in any twelve-month period without advance regulatory approval. Such limitations are generally based on net earnings or statutory surplus. Under applicable restrictions, the maximum amount of dividends available to AFG in 2012 from its insurance subsidiaries without seeking regulatory clearance is approximately $546 million.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), among other things, established a Federal Insurance Office (“FIO”) within the U.S. Treasury. Under this law, regulations will need to be created for the FIO to carry out its mandate to focus on systemic risk oversight. The FIO is required to gather information regarding the insurance industry and submit to Congress a plan to modernize and improve insurance regulation in the U.S. At this time, it is difficult to predict the extent to which the Dodd-Frank Act, or any resulting regulations, will impact AFG’s operations.

Marketform, AFG’s UK-based Lloyd’s insurer, is subject to regulation by the European Union’s executive body, the European Commission. In 2014, Marketform will be required to adopt new capital adequacy and risk management regulations known as Solvency II. Implementation is not expected to be material to AFG.

Most states have created insurance guaranty associations to provide for the payment of claims of insurance companies that become insolvent. Annual guaranty assessments for AFG’s insurance companies have not been material.

ITEM 1A

Risk Factors

In addition to the other information set forth in this report, the following factors could materially affect AFG’s business, financial condition, cash flows or future results. Any one of these factors could cause AFG’s actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing AFG. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect AFG’s business, financial condition and/or operating results.

Adverse developments in the financial markets and deterioration in global economic conditions could have a material adverse effect on AFG’s results of operations and financial condition.

The highly volatile debt and equity markets, lack of liquidity, widening credit spreads and the collapse of several financial institutions during 2008 and early 2009 resulted in significant realized and unrealized losses in AFG’s investment portfolio. Although domestic economic conditions and financial markets have improved, financial markets continue to be volatile and there is continued uncertainty with regards to the global economy, particularly in Europe. See Item 7A — “Quantitative and Qualitative Disclosures about Market Risk” — “European Debt Exposure.” At December 31, 2011, AFG’s net unrealized gain on fixed maturity investments was $1.2 billion consisting of gross gains of $1.5 billion and gross losses of $249 million. Although AFG intends to hold its investments with unrealized losses until they recover in value, its intent may change for a variety of reasons as discussed in Item 7 — “Management’s Discussion and Analysis” — “Investments.” A change in AFG’s ability or intent with regard to a security in an unrealized loss position would result in the recognition of a realized loss.

AFG’s investment performance could also be adversely impacted by the types of investments, industry groups and/or individual securities in which it invests. As of December 31, 2011, 87% of AFG’s investment portfolio was invested in fixed maturity securities. Certain risks are inherent in connection with fixed maturity securities including loss upon default and price volatility in reaction to changes in interest rates and general market factors. AFG’s equity securities, which represent 4% of its investment portfolio, are subject to market price volatility.

MBS represented about one-third of AFG’s fixed maturity securities at December 31, 2011. AFG’s MBS portfolio will continue to be impacted by general economic conditions, including unemployment levels, real estate values and other factors that could negatively affect the creditworthiness of borrowers. MBS in which the underlying collateral is subprime mortgages represented 3% of AFG’s total fixed maturity portfolio at December 31, 2011; MBS in which the underlying collateral is Alt-A mortgages (risk profile between prime and subprime) represented approximately 3%. See Item 7A — “Quantitative and Qualitative Disclosures About Market Risk” — “Fixed Maturity Portfolio.”

AFG cannot predict whether and the extent to which industry sectors in which it maintains investments may suffer losses as a result of potential declines in commercial and economic activity, or how any such decline might impact the ability of companies within the affected industry sectors to pay interest or principal on their securities, or how the value of any underlying collateral might be affected.

Investment returns are an important part of AFG’s overall profitability. Accordingly, adverse fluctuations in the fixed income or equity markets could adversely impact AFG’s profitability, financial condition or cash flows.

In addition, should economic conditions deteriorate or remain weak, it could have a material adverse effect on AFG’s insureds and reinsurers. However, the impact that this would have on AFG’s business cannot be predicted.

Intense competition could adversely affect AFG’s profitability.

The property and casualty group operates in a highly competitive industry that is affected by many factors that can cause significant fluctuations in its results of operations. The industry has historically been subject to pricing cycles characterized by periods of intense competition and lower premium rates (a “downcycle”) followed by periods of reduced competition, reduced underwriting capacity due to lower policyholders’ surplus and higher premium rates (an “upcycle”). The trend of AFG’s underwriting results typically follows that of the industry and a prolonged downcycle could adversely affect AFG’s results of operations.

AFG’s specialty insurance businesses compete with other individual insurers, state funds and insurance groups of varying sizes, some of which are mutual insurance companies possessing competitive advantages in that all their profits inure to their policyholders. In addition, certain foreign insurers can write business in the U.S. on a tax-advantaged basis and therefore hold a competitive advantage over AFG. AFG also competes with self-insurance plans, captive programs and risk retention groups. Peer companies and major competitors in some or all of AFG’s specialty lines include the following companies and/or their subsidiaries: ACE Ltd., American International Group Inc. (Chartis and Lexington Insurance), Arch Capital Group Ltd., Chubb Corp., Cincinnati Financial Corp., CNA Financial Corp., Liberty Mutual, Markel Corp., Munich Re Group (Midland), Hartford Financial Services Group, HCC Insurance Holdings, Inc., Ironshore Insurance Ltd., RLI Corp., The Travelers Companies Inc., Tokio Marine Holdings, Inc. (Philadelphia Consolidated), W.R. Berkley Corp., Wells Fargo Corp. (Rural Community Insurance), XL Group Plc, Fairfax Financial Holdings Limited (Zenith National) and Zurich Financial Services Group.

AFG’s annuity and supplemental insurance businesses compete with individual insurers and insurance groups, mutual funds and other financial institutions. Competitors include the following companies and/or their subsidiaries: ING Life Insurance and Annuity Company, Metropolitan Life Insurance Company, American International Group Inc., Western National Life Insurance Company, Life Insurance Company of the Southwest, Midland National Life Insurance Company, Allianz Life Insurance Company of North America, Aviva Life and Annuity Company, Mutual of Omaha Insurance Company and Bankers Life and Casualty Company. Bank annuity premiums represented approximately one-third of AFG’s annuity premiums in 2011 and have been a key driver in the growth of AFG’s annuity business over the last three years. Approximately 89% of AFG’s bank annuity premiums in 2011 were generated through three large banks. Although AFG has been able to add several new banks in 2010 and 2011, the failure to replace these banks if they significantly reduce sales of AFG annuitites could adversely impact AFG’s future profitability. In the bank annuity market, AFG competes directly against competitors’ bank annuities, certificates of deposit and other investment alternatives at the point of sale.

Competition is based on many factors, including service to policyholders and agents, product design, reputation for claims handling, ratings and financial strength. Price, commissions, fees, profit sharing terms, interest crediting rates, technology and distribution channels are also important factors. Some of AFG’s competitors have more capital and greater resources than AFG, and may offer a broader range of products and lower prices than AFG offers. If competition limits AFG’s ability to write new or renewal business at adequate rates, its results of operations will be adversely affected.

AFG’s revenues could be negatively affected if it is not able to attract and retain independent agents.

AFG’s reliance on the independent agency market makes it vulnerable to a reduction in the amount of business written by agents. Many of AFG’s competitors also rely significantly on the independent agency market. Accordingly, AFG must compete with other insurance carriers for independent agents’ business. Some of its competitors offer a wider variety of products, lower price for insurance coverage or higher commissions. Loss of a substantial portion of the business that AFG writes through independent agents could adversely affect AFG’s revenues and profitability.

The inability to obtain reinsurance or to collect on ceded reinsurance could adversely impact AFG’s results.

AFG relies on the use of reinsurance to limit the amount of risk it retains. The following amounts of gross property and casualty premiums have been ceded to other insurers: 2011 — $1.3 billion (33%); 2010 — $1.2 billion (33%) and 2009 — $1.5 billion (39%). The availability and cost of reinsurance are subject to prevailing market conditions, which are beyond AFG’s control and which may affect AFG’s level of business and profitablility. AFG also reinsures the death benefits above certain retained amounts on its run-off life insurance business. AFG is also subject to credit risk with respect to its reinsurers, as AFG will remain liable to its insureds if any reinsurer is unable to meet its obligations under agreements covering the reinsurance ceded.

AFG is subject to comprehensive regulation, and its ability to earn profits may be restricted by these regulations.

As previously discussed under Item 1 — “Business” — “Regulation,” AFG is subject to comprehensive regulation by government agencies in the states and countries where its insurance company subsidiaries are domiciled and where these subsidiaries issue policies and handle claims. AFG must obtain prior approval for certain corporate actions. The regulations may limit AFG’s ability to obtain rate increases or take other actions designed to increase AFG’s profitability. Such regulation is primarily intended for the protection of policyholders rather than securityholders.

In July 2010, the Dodd-Frank Act was signed into law. Among other things, this law established the Federal Insurance Office within the U.S. Treasury and authorizes it to gather information regarding the insurance industry and submit to Congress a plan to modernize and improve insurance regulation in the U.S.

Existing insurance-related laws and regulations may become more restrictive in the future or new restrictive laws may be enacted; it is not possible to predict the potential effects of these laws and regulations. The costs of compliance or the failure to comply with existing or future regulations could harm AFG’s financial results and its reputation with customers.

The failure of AFG’s insurance subsidiaries to maintain a commercially acceptable financial strength rating would have a significant negative effect on their ability to compete successfully.

As discussed under Item 1 — “Business” — “Property and Casualty Insurance Operations” and Item 1 - “Business” — “Annuity and Supplemental Insurance Operations — General,” financial strength ratings are an important factor in establishing the competitive position of insurance companies and may be expected to have an effect on an insurance company’s sales. A downgrade out of the “A” category in AFG’s insurers’ claims-paying and financial strength ratings could significantly reduce AFG’s business volumes in certain lines of business, adversely impact AFG’s ability to access the capital markets and increase AFG’s borrowing costs.

The continued threat of terrorism and ongoing military and other actions, as well as civil unrest, may adversely affect AFG’s financial results.

The continued threat of terrorism, both within the United States and abroad, and the ongoing military and other actions and heightened security measures in response to these types of threats, as well as civil unrest, may cause significant volatility and declines in the equity markets in the United States, Europe and elsewhere, loss of life, property damage, additional disruptions to commerce and reduced economic activity. Actual terrorist attacks could cause losses from insurance claims related to AFG’s property and casualty and life insurance operations with adverse financial consequences. In addition, some of the assets in AFG’s investment portfolios may be adversely affected by declines in the capital markets and economic activity caused by the continued threat of terrorism, ongoing military and other action, heightened security measures and civil unrest.

AFG may experience difficulties with technology or data security, which could have an adverse effect on its business or reputation.

AFG uses computer systems to store, retrieve, evaluate and utilize company and customer data and information. Systems failures or outages could compromise AFG’s ability to perform business functions in a timely manner, which could harm its ability to conduct business and hurt its relationships with business partners and customers. In the event of a disaster such as a natural catastrophe, an industrial accident, a blackout, a computer virus, a terrorist attack or war, AFG’s systems may be inaccessible to employees, customers or business partners for an extended period of time. Even if AFG’s employees are able to report to work, they may be unable to perform their duties for an extended period of time if the Company’s data or systems are disabled or destroyed.

Despite the implementation of security measures, these systems may also be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any compromise of security could have a material adverse effect on AFG’s business or reputation and could subject AFG to liability if confidential customer information is misappropriated from its computer systems.

AFG’s property and casualty reserves may be inadequate, which could significantly affect AFG’s financial results.

AFG’s property and casualty insurance subsidiaries record reserve liabilities for the estimated payment of losses and loss adjustment expenses for both reported and unreported claims. Due to the inherent uncertainty of estimating reserves, it has been necessary in the past, and will continue to be necessary in the future, to revise estimated liabilities as reflected in AFG’s reserves for claims and related expenses. The historic development of reserves for losses and loss adjustment expense may not necessarily reflect future trends in the development of these amounts. Accordingly, it is not appropriate to extrapolate future redundancies or deficiencies based on historical information. To the extent that reserves are inadequate and are strengthened, the amount of such increase is treated as a charge to earnings in the period in which the deficiency is recognized.

AFG’s results could be negatively impacted by severe weather conditions or other catastrophes.

AFG recorded catastrophe losses of $46 million in 2011 (primarily from tornadoes), $49 million in 2010 (primarily from hailstorms) and $18 million in 2009 (primarily from tornadoes). Catastrophes (some of which are seasonal) can be caused by natural events such as hurricanes, windstorms, tornadoes, floods, hailstorms, severe winter weather, earthquakes, explosions and fire, and by man-made events, such as terrorist attacks and riots. While not considered a catastrophe by industry standards, droughts could also have a significant adverse impact on AFG’s crop insurance results. The extent of losses from a catastrophe is a function of the amount of insured exposure in the area affected by the event and the severity of the event. In addition, certain catastrophes could result in both property and non-property claims from the same event. A severe catastrophe or a series of catastrophes could result in losses exceeding AFG’s reinsurance protection and may have a material adverse impact on its results of operations or financial condition.

Climate change and related regulation could adversely affect AFG’s property and casualty insurance operations.

While AFG does not believe that its operations are likely to be impacted by existing laws and regulations regarding climate change, it is possible that future regulation in this area could result in additional compliance costs and demands on management time.

To the extent that global climate change meaningfully alters weather and tidal patterns, or sea levels, it is possible that the AFG’s property and casualty insurance operations could experience an increase in claims, primarily in coastal areas and in AFG’s crop and agricultural businesses.

Volatility in crop prices could negatively impact AFG’s financial results.

Weather conditions and the level of crop prices in the commodities market heavily impact AFG’s crop insurance business. These factors are inherently unpredictable and could result in significant volatility in the results of the crop insurance business from one year to the next. AFG’s crop results could also be negatively impacted by pests and disease.

Exposure to asbestos or environmental claims could materially adversely affect AFG’s results of operations and financial condition.

AFG has asbestos and environmental (“A&E”) exposures arising from its insurance operations and former railroad and manufacturing operations. A&E liabilities are especially difficult to estimate for many reasons, including the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage. Claimants continue to assert new theories of recovery, and from time to time, there is proposed state and federal legislation regarding A&E liability, which would also affect AFG’s exposure. If AFG has not established adequate reserves to cover future claims, AFG’s results of operations and financial condition could be materially adversely affected.

Changes in interest rates could adversely impact the spread AFG earns on its annuity products.

The profitability of AFG’s annuity business is largely dependent on spread (the difference between what it earns on its investments and the crediting rate it pays on its annuity contracts). Most of AFG’s annuity products have guaranteed minimum crediting rates (ranging from 4% down to currently 1% on new business). During periods of falling interest rates, AFG may not be able to fully offset the decline in investment earnings with lower crediting rates. During periods of rising rates, there may be competitive pressure to increase crediting rates to avoid a decline in sales or increased surrenders, thus resulting in lower spreads. In addition, an increase in surrenders could require the sale of investments at a time when the prices of those assets are lower due to the increase in market rates, which may result in realized investment losses.

Variations from the actuarial assumptions used to establish certain assets and liabilities in AFG’s annuity and supplemental insurance business could negatively impact AFG’s reported financial results.

The earnings on certain products sold by AFG’s annuity and supplemental insurance business depend significantly upon the extent to which actual experience is consistent with the assumptions used in setting reserves and establishing and amortizing deferred policy acquisition costs (“DPAC”). These assumptions relate to investment yields (and spreads over fixed annuity crediting rates), mortality, surrenders, annuitizations, morbidity (frequency and severity of sickness), policy persistency (percentage of policies remaining in force), and, on some policies, the ability to obtain price increases. Developing such assumptions is complex and involves information obtained from company-specific and industry-wide data, as well as general economic information. These assumptions, and therefore AFG’s results of operations, could be negatively impacted by changes in any of the factors listed above. Although charges related to changes in these assumptions were immaterial in 2011, AFG recorded a $25 million pretax charge in 2010 due primarily to the impact of changes in assumptions related to future investment yields and annuitization and death benefits partially offset by the impact of lower expected expenses and crediting rates in the fixed annuity business.

AFG’s ability to get price increases and appropriate investment yields on its closed block of long-term care policies may adversely affect AFG’s profitability.

AFG ceased writing new long-term care insurance policies in January 2010. Previous policies written are guaranteed renewable, but can be re-priced to reflect adverse experience, subject to regulatory approval. Inability to get needed regulatory approval may adversely impact AFG’s results of operations.

In addition, given the duration of the long-term care product, AFG may be unable to purchase appropriate assets with cash flows and durations necessary to match those of future claims in that business.

As a holding company, AFG is dependent on the operations of its insurance company subsidiaries to meet its obligations and pay future dividends.

AFG is a holding company and a legal entity separate and distinct from its insurance company subsidiaries. As a holding company without significant operations of its own, AFG’s principal sources of funds are dividends and other distributions from its insurance company subsidiaries. As discussed under “Regulation,” state insurance laws limit the ability of insurance companies to pay dividends or other distributions and require insurance companies to maintain specified levels of statutory capital and surplus. AFG’s rights to participate in any distribution of assets of its insurance company subsidiaries are subject to prior claims of policyholders and creditors (except to the extent that its rights, if any, as a creditor are recognized). Consequently, AFG’s ability to pay debts, expenses and cash dividends to its shareholders may be limited.

Adverse developments in the financial markets may limit AFG’s access to capital.

Financial markets in the U.S. and elsewhere experienced extreme volatility during the latter part of 2008 and early 2009. These circumstances exerted downward pressure on stock prices and limited access to the equity and debt markets for certain issuers, including AFG.

The three-year revolving credit facility under which AFG can borrow up to $500 million expires in August 2013. There is no assurance that this facility will be renewed. In addition, AFG’s access to funds through this facility is dependent on the ability of its banks to meet their funding commitments. There were no borrowings outstanding under this agreement during 2011.

If AFG cannot obtain adequate capital or sources of credit on favorable terms, or at all, its business, operating results and financial condition would be adversely affected.

AFG may be adversely impacted by a downgrade in the ratings of its debt securities.

AFG’s debt securities are rated by Standard & Poor’s and Moody’s independent corporate credit rating agencies. AFG’s senior indebtedness is currently rated BBB+ by Standard & Poor’s and Baa2 by Moody’s. Securities ratings are subject to revision or withdrawal at any time by the assigning rating organization. A security rating is not a recommendation to buy, sell or hold securities. An unfavorable change in either of these ratings could make it more expensive to access the capital markets and may increase the interest rate charged under AFG’s current multi-bank credit line.

AFG is a party to litigation which, if decided adversely, could impact its financial results.

AFG and its subsidiaries are named as defendants in a number of lawsuits. See Item 1 — “Business” — “Property and Casualty Insurance Operations — Asbestos and Environmental (“A&E”) Reserves,” Item 3 — “Legal Proceedings,” and Item 7 — “Management’s Discussion and Analysis” — “Uncertainties.” Litigation, by its very nature, is unpredictable and the outcome of these cases is uncertain and could result in liabilities that may vary from amounts AFG has currently recorded and a material variance could have a material effect on AFG’s business, operations, profitability or financial condition.

Certain shareholders exercise substantial control over AFG’s affairs, which may impede a change of control transaction.

Carl H. Lindner III and S. Craig Lindner are each Co-Chief Executive Officers and Directors of AFG. Carl H. Lindner III and S. Craig Lindner beneficially own 8.7% and 6.6%, respectively, of AFG’s outstanding Common Stock as of February 1, 2012. As a result, certain members of the Lindner family have the ability to exercise significant influence over AFG’s management, including over matters requiring shareholder approval.

The price of AFG Common Stock may fluctuate significantly, which may make it difficult for holders to resell common stock when they want or at a price they find attractive.

The price of AFG’s Common Stock, listed on the NYSE and Nasdaq Global Select Market, constantly changes. During 2011, AFG’s Common Stock traded at prices ranging between $29.45 and $37.50. AFG’s Common Stock price can fluctuate as a result of a variety of factors, many of which are beyond its control. These factors include but are not limited to:

•

actual or anticipated variations in quarterly operating results;

•

actual or anticipated changes in the dividends paid on AFG Common Stock;

•

rating agency actions;

•

recommendations by securities analysts;

•

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving AFG or its competitors;

•

operating and stock price performance of other companies that investors deem comparable to AFG;

•

news reports relating to trends, concerns and other issues in AFG’s lines of business;

•

general economic conditions, including volatility in the financial markets; and

•

geopolitical conditions such as acts or threats of terrorism or military conflicts.

ITEM 2

Properties

Subsidiaries of AFG own several buildings in downtown Cincinnati. AFG and its affiliates occupy about half of the aggregate 680,000 square feet of commercial and office space in these buildings.

AFG’s insurance subsidiaries lease the majority of their office and storage facilities in numerous cities throughout the United States, including Great American’s and GAFRI’s home offices in Cincinnati. In 2011, AFG consolidated operations from several leased and owned locations in downtown Cincinnati into a new office tower in that city subject to a 15-year lease. National Interstate occupies approximately 90% of the 177,000 square feet of office space on 17.5 acres of land that it owns in Richfield, Ohio. See Item 1 — “Business” — “Other Operations” for a discussion of AFG’s other commercial real estate operations.

ITEM 3

Legal Proceedings

AFG and its subsidiaries are involved in various litigation, most of which arose in the ordinary course of business, including litigation alleging bad faith in dealing with policyholders and challenging certain business practices of insurance subsidiaries. Except for the following, management believes that none of the litigation meets the threshold for disclosure under this Item.

AFG’s insurance company subsidiaries and its 100%-owned subsidiary, American Premier Underwriters (including its subsidiaries, “American Premier”), are parties to litigation and receive claims alleging injuries and damages from asbestos, environmental and other substances and workplace hazards and have established loss accruals for such potential liabilities; other than the A.P. Green Industries proceedings discussed below, none of such litigation or claims is individually material to AFG. The ultimate loss for these claims may vary materially from amounts currently recorded as the conditions surrounding resolution of these claims continue to change.

American Premier is a party or named as a potentially responsible party in a number of proceedings and claims by regulatory agencies and private parties under various environmental protection laws, including the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), seeking to impose responsibility on American Premier for hazardous waste or discharge remediation costs at certain railroad sites formerly owned by its predecessor, Penn Central Transportation Company (“PCTC”), and at certain other sites where hazardous waste or discharge allegedly generated by PCTC’s railroad operations and American Premier’s former manufacturing operations is present. It is difficult to estimate American Premier’s liability for remediation costs at these sites for a number of reasons, including the number and financial resources of other potentially responsible parties involved at a given site, the varying availability of evidence by which to allocate responsibility among such parties, the wide range of costs for possible remediation alternatives, changing technology and the period of time over which these matters develop. Nevertheless, American Premier believes that its accruals for potential environmental liabilities are adequate to cover the probable amount of such liabilities, based on American Premier’s estimates of remediation costs and related expenses and its estimates of the portions of such costs that will be borne by other parties. Such estimates are based on information currently available to American Premier and are subject to future change as additional information becomes available.

As previously reported, Great American Insurance Company and certain other insurers were parties to declaratory judgment coverage litigation brought in 2001 in the United States District Court for the Southern District of Ohio (arising from claims alleging asbestos exposure resulted in bodily injury) under insurance policies issued during the 1970’s and 1980’s to Bigelow-Liptak Corporation and related companies, subsequently known as A.P. Green Industries, Inc. (“A.P. Green”).

A.P. Green sought to recover defense and indemnity expenses related to those claims from a number of insurers, including Great American.

In February 2002, A.P. Green filed petitions for bankruptcy under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Pennsylvania (In Re Global Industrial Technologies, Inc., et al, filed February 14, 2002) and subsequently (in 2002) commenced adversary proceedings in that Court against Great American Insurance Company and other companies to obtain an adjudication of the insured’s rights under the above-referenced insurance policies.

In 2003, Great American Insurance Company entered into an agreement, which was approved by the Bankruptcy Court, for the settlement of coverage litigation related to A.P. Green asbestos claims. The settlement of $123.5 million (Great American has the option to pay in cash or over time with 5.25% interest) has been fully accrued and allows up to 10% of the settlement to be paid in AFG Common Stock. The settlement agreement is conditioned upon confirmation of a plan of reorganization that includes an injunction prohibiting the assertion against Great American of any present or future asbestos personal injury claims under policies issued to A.P. Green and related companies.

During 2007, the Bankruptcy Court confirmed the A. P. Green Plan of Reorganization which includes the injunction required by Great American’s settlement agreement. Certain parties subsequently appealed the confirmation.

On May 3, 2011, in connection with the appeal of the 2007 bankruptcy court confirmation, the Third Circuit Court of Appeals issued an opinion holding that two non-settling insurers had standing to challenge the trust established to administer silica claims which had been approved as part of the plan of bankruptcy along with the trust established to administer asbestos claims. The court also vacated the order confirming the Plan of Reorganization and remanded the Plan to the bankruptcy court for further proceedings on this limited issue. While the bankruptcy court had previously concluded that the trust to administer silica claims was a valid and legitimate trust, the Third Circuit held that a fuller evidentiary hearing is required on remand. Management believes that resolution of this issue ultimately will not impact the Great American settlement.

PART II

ITEM 5

Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities

AFG Common Stock is listed and traded on the New York Stock Exchange and the Nasdaq Global Select Market under the symbol AFG. The information presented in the table below represents the high and low sales prices per share reported on the NYSE Composite Tape.

		2011								2010
		High				Low				High				Low
First Quarter		$	35.21			$	32.19			$	28.64			$	23.90
Second Quarter			36.19				33.94				30.25				25.40
Third Quarter			36.05				29.45				30.88				26.69
Fourth Quarter			37.50				29.66				32.75				30.04

There were approximately 7,200 shareholders of record of AFG Common Stock at February 1, 2012. AFG declared and paid quarterly dividends of $.1625 per share in January, April and July 2011. In August 2011, AFG increased its quarterly dividend to $.175 and declared and paid its first dividend at that rate in October 2011. In 2010, AFG declared and paid quarterly dividends of $.1375 per share in January, April and July and $.1625 per share in October. The ability of AFG to pay dividends will be dependent upon, among other things, the availability of dividends and payments under intercompany tax allocation agreements from its insurance company subsidiaries.

Issuer Purchases of Equity Securities AFG repurchased shares of its common stock during 2011 as follows:

										Total Number				Maximum Number
										of Shares				of Shares
		Total								Purchased as				that May
		Number				Average				Part of Publicly				Yet be Purchased
		of Shares				Price Paid				Announced Plans				Under the Plans
		Purchased				Per Share				or Programs				or Programs (a)
First Quarter			2,457,721			$	34.04				2,457,721				10,250,706
Second Quarter			2,710,121			$	34.79				2,710,121				7,540,585
Third Quarter			2,635,444			$	32.25				2,635,444				4,905,141
October			152,700			$	31.09				152,700				4,752,441
November			727,000			$	35.17				727,000				4,025,441
December			598,400			$	36.20				598,400				3,427,041

In addition, AFG acquired 2,467 shares of its common stock (at $36.48 per share) in October 2011, 1,900 shares (at $35.73 per share) in November 2011, and 16,384 shares (at an average of $36.62 per share) in December 2011 in connection with its stock incentive plans.

ITEM 6

Selected Financial Data

The following table sets forth certain data for the periods indicated (dollars in millions, except per share data).

		2011				2010				2009				2008				2007
Earnings Statement Data (a):
Total Revenues		$	4,750			$	4,497			$	4,320			$	4,293			$	4,379
Operating Earnings Before Income Taxes			560				689				812				316				639
Earnings from Continuing Operations			320				423				530				200				413
Discontinued Operations			—				—				—				—				2
Less: Net Earnings (Loss) Attributable to Noncontrolling Interests			(23	)			(56	)			11				4				32
Net Earnings Attributable to Shareholders			343				479				519				196				383
Basic Earnings Per Common Share:
Earnings from Continuing Operations		$	3.39			$	4.38			$	4.49			$	1.71			$	3.24
Discontinued Operations			—				—				—				—				.01
Net Earnings Attributable to Shareholders			3.39				4.38				4.49				1.71				3.25
Diluted Earnings Per Common Share:
Earnings from Continuing Operations		$	3.33			$	4.33			$	4.45			$	1.67			$	3.09
Discontinued Operations			—				—				—				—				.01
Net Earnings Attributable to Shareholders			3.33				4.33				4.45				1.67				3.10
Cash Dividends Paid Per Share of Common Stock		$	.6625			$	.575			$	.52			$	.50			$	.40
Ratio of Earnings to Fixed Charges Including Annuity Benefits (b)			1.95				2.41				2.58				1.63				2.40
Balance Sheet Data (a):
Total Assets		$	36,042			$	32,454			$	27,683			$	26,428			$	25,808
Long-term Debt			934				952				828				1,030				937
Shareholders’ Equity			4,545				4,470				3,781				2,490				3,046

ITEM 7

Management’s Discussion and Analysis
of Financial Condition and Results of Operations

INDEX TO MD&A

		Page
General			25
Overview			25
Critical Accounting Policies			26
Liquidity and Capital Resources			27
Ratios			27
Parent and Subsidiary Liquidity			27
Contractual Obligations			29
Off-Balance Sheet Arrangements			29
Investments			29
Uncertainties			34
Managed Investment Entities			44
Results of Operations			46
General			46
Income Items			46
Expense Items			52
New Accounting Standards			53

GENERAL

Following is a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of AFG’s financial condition and results of operations. This discussion should be read in conjunction with the financial statements beginning on page F-1.

As discussed in Note A — “Accounting Policies — Recent Accounting Standards,” certain historical amounts presented herein will be retrospectively restated in 2012 to reflect the adoption of new accounting guidance related to deferred policy acquisition costs (“DPAC”).