Good morning. My name is Lutania and I will be your conference operator today. At this time, I would like to welcome everyone to the American Financial Group's '08 Fourth Quarter Year-End Results 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). At this time, I will hand the call over to Mr. Keith Jensen, Senior Vice President. Thank you. Mr. Jensen, please go ahead.

Thank you very much. Good morning, and welcome to American Financial Group's 2008 fourth quarter earnings results conference call. I'm here this morning with Carl Lindner the III and Craig Lindner, the Co-CEOs of American Financial Group. 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. They're 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 or financial conditions 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 the ongoing operations such as net realized gains or losses on investments, effects of accounting changes, discontinued operations, significant asbestos and environmental charges, and certain other non-recurring items. AFG believes this non-GAAP measure to be a useful tool for analysts and investors, in analyzing the ongoing operating trends, and will be discussed for various periods during this call. A reconciliation of net earnings to core operating earnings is included in our earnings release. Now, I'm pleased to turn the call over to Carl Lindner the III, Co-Chief Executive Officer of American Financial Group, to discuss our results.

Good morning and thank you for joining us. We released our 2008 fourth quarter and full results yesterday afternoon. Despite a challenging year in the insurance industry, we're pleased with the American Financial Group's record core operating earnings per share and financial strength. Craig and I want to thank our talented management team and employees for their efforts and contributions, and we want to thank God for blessing AFG this past year. Let's turn to slides three and four of the webcast for some highlights. Our record core net operating earnings of $4.08 per share were 4% above 2007 and at the high end of our earnings guidance. Our core operating return on equity was a strong 17%. Core net operating earnings for the 2008 fourth quarter were $1.04, compared to a $1.21 in the same quarter a year ago. Improved results in our annuity and supplemental insurance operations, and higher investment income in the specialty, property and casualty operations, were more than offset by lower underwriting profits. Our net earnings for the 2008 fourth quarter and year were lower than the 2007 periods, because of higher net realized losses on investments, which includes impairment charges. However, AFG still generated a return on equity of about 7%, and over the last five years is averaged 12%, including realized gains and losses. Our capital adequacy, financial condition and liquidity remain strong and our key areas of focus for us, particularly in these unstable economic times. We've maintained capital in our insurance businesses that is consistent with amounts required for our rating levels. Our financial leverage is at the level committed to the rating agencies and the capital markets. At year-end, we had approximately a $190 million in parent company cash and investments on hand, of which a $136 million will be…

Thank you. (Operator Instructions). Your first question comes from the line of John Wen with JDG Research (ph).

Good morning. Carl, one of your competitors in the work comp market in California, Zenith who I think you know and regard well, had a spike in both excellent calendar year results in the last quarter. Would you care to comment on the diversions of results of your Republic versus Zenith?

I don't follow Zenith that closely. They're a good competitor. I respect Stanley and how he's run his business over a long time. I can speak to our business. In January, we've been -- we've said we've been more conservative probably in our reserving, probably than most as we kind of see how the order action years (ph) develop out with the effects of the reform legislation. I think that maybe the biggest differential between us and quite a few people within the industry. We are also to emphasize more the small or medium sized accounts, not larger accounts which seemed to be -- attract more attention over time and that. We have an excellent claims group that know that environment well, and are very capable. I think those are probably the few things that might differentiate us from others.

Keith, your GAAP, P&L, OTTI charges, are your STAT P&L charges in that category roughly the same or significantly less?

They would be pretty similar, John.

Okay. And also Keith, I assume you have changed the crop quarter share?

We have on a go forward basis, what we have done John is we have maintained the existing quarter share which is a five-year deal and we've entered into an agreement where we have the option of ceding another 5 to 45% of the book. The profit share arrangements are similar, except when we go beyond a 20% underwriting margin then there is a sharing that has us share a 90-10 with us having 90% of the profit. Other than that it's similar to what we have had.

Okay. And the share is your trigger, not the -- not Munich?

No, it is our trigger into the share, and the other thing John we've extended the existing quarter share so that both of them will be co-termed as five years from now. So they are five year deal from this point forward.

Okay. Craig, Carl mentioned net investment income was also outstanding and obviously you all have much less alternative investment exposure than most of your peers, would you say that's the major reason that your investment income was up with such a -- very pleasant for the quarter?

Certainly that was one of the reasons, John. We also moved out of some common stocks and we invested in the fixed income securities.

Okay.

I mean frankly just the spreads on corporate bonds, high grade corporate bonds which is principally what we're buying today are very large, very wide.

Right. And Craig, in your annuity business we have been reading a lot about deferral through the market changes that have occurred. Have you seen any material impact on your operations or your penetration of school districts?

Yeah, I mean, John I would say just in general the -- that market is pretty much in disarray right now. The school systems generally we're not ready for the implementation of the new regulations. We think that we're coming out just fine. We have a planned administration company that is able to give the school systems a lot of help in handling our new responsibilities and it's too early to know with certainty because there are some school districts that we lost or lot of new school systems that we gained. We think net-net that we have at least as big a market share as we did before. But the whole market is unsettled right now as people are trying to figure it how to comply with the new regulations.

And the status of the Ballack and Hartford (ph), is that in the play yet?

Certainly, as it relates to different school systems choosing companies that they are they are allowing to sell products in their system, there has to be a consideration, if the company's reporting that numbers.

Okay. Well, thanks a lot. That's all I have.

Thank you. Your next question comes from the line of Adnan Alam with ADAR Investment (ph).

Hi, I had a question regarding your investment portfolio. Can you please, give us a little bit of color as to how you're marking it, and if the methodology has changed any?

The methodology has not changed any. There is, if you think of it in terms of the levels that are disclosed publicly, level one which would be our marketable securities are traded and public exchanges are obviously using those exchanges for the vast majority of the portfolio. We use broker quotes, and at times we will obtained two or three quotes, then our investment professionals will review those to ensure that they are reasonable, in light of the circumstances that we're aware of. And then, about 5% of portfolios in the Level 3 category where we use models and other means of evaluating the securities, but there has been no change.

In Level 2 when you use quotes, are you using the bit or the midpoint?

Usually the midpoint. Again, we don't take it without having some of the expertise that we have in-house looking at it, but generally it ends up being a midpoint type quote.

Okay, thanks a lot.

You're welcome.

Your next question comes from the line of Amit Kumar with Fox-Pitt, Kelton.

Well thanks, and congrats on the quarter. Just quickly, I guess going back to the crop book, I might have missed this, did you separately breakout the premiums from the crop book?

No we did not; they are embedded in the property and transportation.

Approximately, what would that number be?

This past year it would have been about $1 billion gross.

And in -- I'm sorry.

That it would have been -- I mean look I can look for that, did you have a follow-up while I'm looking.

Yes in terms of your crop book, is there any cotton in it or it mostly corn and soybean?

It's corn, soybean, so it would be the largest. The net MR would be 390.

Okay. That's helpful. I guess just moving on in terms of the guidance and obviously your guidance shifted from what it was previously, what would you say was the biggest component which changed compared to your prior guidance?

I think that the largest thing that happened is that we had the benefit of the results of the fourth quarter looking at the various businesses and as Carl said, some of the rate decreases we are starting to moderate and that was helpful to us as we looked at it and we also are very encouraged by what's going on in the annuity and supplemental business as we look forward.

And investment income...

Correct.

How we project investment income this next year.

Okay, and in terms of the annuity and supplemental business, can you talk about maybe some of the spread assumptions or maybe the new money rate? Just give us some more color on that.

I can do that, sure. The new money rate really depends upon the product that we are selling. We try to match duration of assets and liabilities, but I can take a 10 year product to give you an example. We're assuming on 10 year product that we kind achieve a 620 reinvestment rate. And at that type of reinvestment rate we're generating a return in the mid teens after-tax.

Okay, that's helpful. And just two quick questions. And I'll re-queue, in terms of the MBS portfolio and you talked about the marks and there have been question on how the marks were set up, but do you have some sort of a guesstimate how much that mark would have moved if you looked at it as of today?

It would have improved a couple of points.

Okay. And I guess final question and I will re-queue. The unrealized gains, has that number changed meaningfully in over Q4 or is it I think it was like $100 million or so?

Just to be clear, we do not do a detailed valuation of our real estate each quarter or in some cases each year. I think the $100 million, we felt good about that at the end of last quarter. There has undoubtedly been some change in the real estate markets. But I wouldn't say that it's dramatically different than what we had estimated previously.

We certainly still have meaningful unstated value there, I would just say I wouldn't want to have to go sell those properties in this environment.

That's okay, this very helpful. Thanks so much.

Thank you. (Operator Instructions). Your next question comes from the line of Peter Sue with Lincoln Square Capital (ph).

Yes, hey guys. I was just hoping that you can kind of quantify and also provide some color as for the nature of your professional liability exposure from last two (ph) years '07 and '08 and also if you could discuss where the loss ratios are tagged and how they've developed? Thanks.

We probably don't give out that specific a data. We're with our D&O and we say professional liability, if you're talking about directors and officer's liability and those related products. We're pleased with the results in that business. When we look at our D&O book probably a $112 million of the $170 million or $180 million of the business or two-thirds is small accounts and Canadian related business, financial institutions are roughly 10% of the gross written premiums, policy count in that area is less than 1% of our D&O policy count. We have very little hedge fund exposure. We probably have 850,000 of gross premium related to the hedge funds. So, in general we're pleased as far as claims related to the sub-prime crisis and that type of thing, Keith what -- how many claims do we have, seven suits maybe or two notice?

We've got... we have seven suits and if those went to fully net losses, it would be about $50 million, but we have no expectation and take of (ph) for limits. And one other thing Carl, I'd add in terms of the accident year, our accident year in '06 and '07 with D&O has been, it was 92 at the beginning when we first set them and that was going to improve since that time.

As far as made of exposures to D&O, I think we have maybe one claim which is pretty minimal. And now we have probably five funds or funds managers, one primary and four excess so not a lot of underwriting exposure there in the D&O side.

Okay, that's very helpful. Thank you.

(Operator Instructions). At this time there are no further questions.

Alright, thank you very much. We appreciate you taking the time to join us today. We look forward to reporting to you at the end of the first quarter. Have a good day.

Thank you. This concludes today's American Financial Group '08 fourth quarter year end results conference call. You may now disconnect.