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American Financial Group, Inc. Announces 2012 Fourth Quarter And Full Year Results

American Financial Group, Inc. (NYSE/NASDAQ: AFG) today reported net earnings attributable to shareholders of $50 million ($0.54 per share) for the 2012 fourth quarter, compared to $109 million ($1.09 per share) for the 2011 fourth quarter. The fourth quarter 2012 results include a $99 million ($1.08 per share) after-tax charge to write-off deferred acquisition costs and strengthen reserves in AFG’s run-off long-term care operation. This non-core charge was partially offset by realized gains, the settlement of open tax years following a favorable decision in AFG’s tax case, and a gain resulting from a post-closing adjustment to the cash proceeds from the third quarter sale of AFG’s Medicare supplement and critical illness businesses. These and other non-core items are outlined in the table below. Book value per share, excluding appropriated retained earnings and unrealized gains on fixed maturities, increased by $3.89 to $42.52 per share during the year. Net earnings attributable to shareholders for the year were a record $5.09 per share, compared to $3.32 per share in 2011. Return on equity was 13% and 9% for 2012 and 2011, respectively.

Core net operating earnings for the 2012 and 2011 fourth quarter and full year periods are shown in the table below. Improved results in the Company’s fixed annuity operations were more than offset by lower underwriting profit and lower investment income in our specialty property and casualty (“P&C”) insurance operations. Core net operating earnings for 2012 and 2011 generated returns on equity of 8% and 10%, respectively.

During the fourth quarter of 2012, AFG repurchased $100 million of common stock at an average price per share of $38.77. Repurchases for the full year in 2012 were $415 million, at an average per share price that was approximately 90% of year end book value.

AFG’s net earnings attributable to shareholders, determined in accordance with generally accepted accounting principles (“GAAP”), include certain items that may not be indicative of its ongoing core operations. The following table identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends.

In millions, except per share amounts

Three months ended

December 31,
  Twelve months ended

December 31,
2012   2011 2012   2011
Components of net earnings attributable to shareholders:
Core net operating earnings (a) $ 61 $ 106 $ 314 $ 363

Non-Core Items:

Gain on sale of Med supp & critical illness
13 - 114 -

Other realized gains
36 31 128 45

Long-term care reserve charge
(99 ) - (99 ) -

Special A&E charges (b)
- - (21 ) (38 )

AFG tax case and settlement of open tax years
39 - 67 -

Valuation allowance on deferred tax assets (c)
- (28 ) - (28 )

  -     -     (15 )   -  

Net earnings attributable to shareholders
$ 50   $ 109   $ 488   $ 342  

Components of Earnings Per Share:
Core net operating earnings $ 0.67 $ 1.05 $ 3.27 $ 3.52

Non-Core Items:

Gain on sale of Med supp & critical illness
0.15 - 1.19 -

Other realized gains
0.37 0.32 1.34 0.45

Long-term care reserve charge
(1.08 ) - (1.03 ) -

Special A&E charges (b)
- - (0.22 ) (0.37 )

AFG tax case and settlement of open tax years
0.43 - 0.70 -

Valuation allowance on deferred tax assets (c)
- (0.28 ) - (0.28 )

  -     -     (0.16 )   -  

Diluted Earnings Per Share
$ 0.54   $ 1.09   $ 5.09   $ 3.32  

Footnotes (a), (b) and (c) are contained in the accompanying Notes to Financial Schedules at the end of this release.

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