Good morning. My name is Sasha and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2008 American Financial Group's Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Mr. Keith Jensen, Senior Vice President. Please go ahead sir.

Thank you. Good morning. I'm here with Carl Lindner the 3rd, Co-CEO of American Financial Group and we're pleased to welcome you to American Financial Group's 2008 third quarter earnings results conference call. If you are viewing the webcast from our website, you can follow along with the slide presentation if you'd like. Certain statements made during this call are not historical facts and may be considered forward-looking statements based on estimates, assumptions and projections which management believes are reasonable, but by their nature subject to risks and uncertainties. The factors which could cause actual results to differ materially from those suggested by such forward-looking statements include but are not limited to those discussed or identified from time to time in AFG's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K and quarterly reports on Form 10-Q. We do not promise to update such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements. Core net operating earnings is a non-GAAP financial measure which sets aside items that are not considered to be part of ongoing operations such as realized gains or losses on investments, effects of accounting changes, discontinued operations, significant asbestos and environmental charges and certain other recurring items. AFG believes it to be a useful tool for analysts and investors in analyzing ongoing operating trends and will be discussed for various periods during this call. A reconciliation of net earnings to core net operating earnings is included in our earnings release. Now I'm pleased to turn the call over to Carl Lindner the 3rd, Co-Chief Executive Officer of American Financial Group.

Good morning and thank you for joining us. We released our 2008 third quarter results yesterday afternoon. I'd like to start by covering some highlights on slide 3 of the webcast. Core net operating earnings per share for the quarter were $0.98 compared to $0.97 in the 2007 third quarter. Improved results in our annuity and supplemental insurance operations, and higher investment income were offset by lower underwriting results in our property and casualty operations, largely driven by catastrophe losses. Record core net operating earnings for the first nine months of 2008 were $3.03 per share compared to $2.81 per share for the comparable 2007 period. Net earnings were $0.18 per share compared to $0.93 per share in the 2007 third quarter. Our 2008 third quarter results were impacted by net realized losses on investments of approximately $94 million or $0.80 per share after tax. These charges include other than temporary impairments as well as realized losses on sales of investments, primarily in the financial sector. Our insurance operating results for the quarter and through nine months of the year remain strong. We remain on target to meet the company's 2008 operating objectives. We're particularly pleased with the results in our annuity and supplemental insurance businesses, which benefited from increased spreads in the annuity lines during the quarter. Our concentration in fixed annuities is particularly advantageous in the current investment environment. Through the first nine months of 2008, our record core earnings per share are 8% above the 2007 period and our annualized core operating return on equity was 16%. Our capital adequacy, financial condition and liquidity remain very strong as evidenced by Standard & Poor's recent report affirming the stable outlook our investment grade debt ratings and our insurance operations financial strength ratings. We have focused on maintaining appropriate…

[Operator Instructions]. Your first question comes from the line of Amit Kumar with Fox-Pitt, Kelton.

Good morning.

Good morning.

I guess, just quickly going back to the discussion on your life operations, and recently there has been a lot of focus on risk-based capital and RBC ratios. If I go back and look at your '07 RBC ratios for your life operations, they seem to be in the I guess 3.30 to 3.50 range. And I was wondering if you could just sort of update that number for us and maybe just talk about what your target range is. That's my first question.

As a practical matter... this is Keith Jensen... as a practical matter, what we do, Amit, is target our capital based on the Standard & Poor's capital model, because over time we found that to be a more constrictive capital model than the RBC calculations. So as we manage capital and target how much to have put into each of our businesses, we really use that as our primary measure. And in that regard as you probably know, S&P has been in the process of changing that cap adequacy model. But we have over the past several years and now in this period of transition continued to target 150% of S&P cap adequacy as our target. And so from that perspective, I would expect actually that during the course of this year, the RBC level at the life operation to actually increase a bit because of changes in the S&P model that are driving us to put additional capital in.

Okay. That's helpful. In terms of maybe just expanding the discussion and maybe moving on to the P&C operations, what's the target premium to surplus in the current cycle for you?

I'll give you a similar answer to that. We actually don't use a targeted premium to surplus. Again, with the P&C side, we have... very similar to what we do in life, we target to meet the Standard & Poor's and A.M. Best cap adequacy ranges that would be at the level above our current rating, because what we've tried to do is take cap adequacy off the table as a rating factor. So it tended to be at the high end of the ranges. So for us, premium to surplus is an outcome rather than a target. So whatever the capital that's required under those models becomes the denominator in that calculation and it's really an outcome rather than a target.

And I guess you said high end of the ranges, is that what you said?

Yes, it is.

Okay. That's very helpful. And just quickly moving on. Recently, we've seen a lot of chatter coming out of the reinsurers talking about perhaps seeing the first signs of some sort of change coming on the horizon. We've seen different commentary, but I guess the consensus is that at least the signs point in that direction. And obviously there is a lag in terms of how that impacts the primary guys and what happens in that space. I was wondering if you could sort of comment specifically what you might be hearing out there and what is your view on the cycle turn, especially based on what we have seen in the last couple of months.

Generally, the property and casualty markets have continued to be very competitive. So the property and casualty industry has... their excess capital has to be impacted a lot by the hurricane losses and by the impairment, the asset write-downs in the third quarter and this year. So I think there is probably a lot less excess capital for the industry to play around with. I think that makes me enthusiastic about maybe a quick return in property and casualty pricing. And I think capital in this environment is very dear to everyone and certainly our discipline and our approach is going to be to make every dollar of our capital count. And if we don't have businesses that are earning the right returns, we are going to begin to try to nudge pricing.

That's helpful. And I guess final question, in terms of opportunities coming out of AIG, we've seen a lot of smaller or mid level players talk about them. And also, we've seen some of these companies raise the limits on their policies to sort of make them more attractive in at least chasing that sliver. Have you undertaken any specific steps recently to sort of tap on to those opportunities?

Not really. We provide pretty large limits in a lot of the businesses that we would compete. And in particularly if we would have capacity in the D&O to provide $25 million plus type of limits, we'd also have that capacity in our excess liability I think probably even up to $50 million in a couple of those lines. So if anything, though, I think with what's going on with AIG, I think there could be a trend or a tendency for insureds and agents to want to use layering of large casualty accounts maybe more than what they have in the past. So I recognize some competitors are bumping limits up, and that may be effective. But I think there will also be a trend of going back to having more insurers just to spread the risk versus less, where you have large D&O limits or large excess liability or umbrella limits going on. So which one wins over, it's hard to say at this point. But I've kind of heard both theories kind of be put out there.

And then are you seeing a meaningful increase in submissions or quotes?

Yes. I think we're seeing some increase in submissions related to AIG's problems and frankly probably some others. So we see that as an opportunity. That said, AIG seems to be even more price competitive than what they have been in the past. I'm not sure that bodes well for the Fed's loan if long term if that's the case though.

Okay. That's very helpful. Thanks so much.

Your next question comes from the line of Abon Shillof [ph] with Maxim.

Hello. This is Marvin Weinstock. My question is with our book value over 24 at this point, is there any potential for American Financial buybacks?

I think there is always a potential for American Financial stock buybacks. I think right now at this juncture, as Craig and I've said in the past, we're trying to keep powder dry when you have volatile financial markets like this and you also have some potentially unusual opportunities either in the annuity side or in specific property and casualty businesses or even in the investment portfolio. So I think today we're probably erring more towards keeping some powder dry versus share repurchase.

Thank you. One other question --

Hi, it's Abon [ph] here. Just a quick question. As far as our dividend policy goes, we've had a couple of increases recently. Is our dividend secure and any chances of an increase?

Craig and I usually do a review towards the end of the year. And as far as any dividend increases in that, we'll... we plan on doing the same review.

Okay. Thank you. First of all, congratulations under these circumstances, you guys came out with a great report.

Thank you.

[Operator Instructions]. There are no audio questions at this time.

All right. Well thank you very much for joining us. We appreciate your attention and we look forward to reporting at year end to you. Thank you and have a good day.

This concludes today's conference call. You may now disconnect. .