Good day, ladies and gentlemen, and thank you for your patience. You’ve joined the Q2 2017 American Financial Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Assistant Vice President of Investor Relations, Ms. Diane Weidner. Ma’am, you may begin.

Thank you. Good morning and welcome to American Financial Group’s Second Quarter 2017 Earnings Results Conference Call. I’m joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Jeff Consolino, AFG’s CFO. Our press release, investor supplement and webcast representation are posted on AFG’s website. These materials will be referenced during portions of the call. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Certain statements made during this call may be considered forward-looking statements as defined under the private Security Litigation Reform Act of 1995. These statements are not guarantees of future performance. Investors should consider the risks and uncertainties that could cause actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG’s filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or responses to questions. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release. And if you are reading the transcript of this call, please note that it may not be authorized or reviewed for accuracy such that it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I am pleased to turn the call over to Carl Lindner III to discuss our results.

Good morning. We released our 2017 second quarter results yesterday afternoon. Please turn to Slide 3 of the webcast slides for an overview. AFG’s results established new second quarter records for earnings. We were pleased to report core earnings per share of $1.61, a 26% increase from the prior year period. The improved results were attributable to higher year-over-year operating earnings in our Property & Casualty and Annuity segments. Second quarter annualized core operating return on equity was 12.3% for 2017 compared to 10.5% last year. Net earnings per diluted share were also $1.61. This too established the new second quarter record for AFG. These results include non-core net realized gains on securities of $0.05 per share, which was offset by $0.05 per share related to the early retirement of debt. Craig and I thank god, our talented management team, our wonderful employees and our valued distribution partners for helping us to achieve these results. Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG’s financial future. We did pay a special cash dividend of $1.50 per share of AFG common stock at the end of May, which was an addition to our regular quarterly dividend. The payment of the special dividend won’t preclude our consideration of additional actions with respect to our regular quarterly dividend, additional special dividends or opportunistic share repurchases, especially in the absence of a significant transaction. We’ll evaluate our excess capital position again in the second half of 2017. Based on results through the first six months of 2017, we have increased AFG’s 2017 core operating earnings guidance to a range of $6.40 to $6.90 per share, up from the range of $6.20 to $6.70 per share announced previously. Craig…

Thank you, Carl. I’ll start with a review of our Annuity results for the second quarter, beginning on Slide 7. The Annuity Segment reported $85 million in pretax operating earnings in the 2017 second quarter compared to $76 million in the second quarter of 2016, an increase of 12% year-over-year. Under fair-value accounting, variances from expectations of certain items, such as projected interest rates, hedge costs and surrenders, as well as changes in the stock market, have an impact on the accounting for fixed indexed annuities. Although these accounting adjustments have been recognized through AFG’s reported core earnings, many of these adjustments are not economic in nature but rather impact the timing of reported results. In the second quarter of 2017, the benefit of a higher stock market was more than offset by slightly lower interest rates, resulting at a $16 million unfavorable impact to annuity operating earnings. In comparison, during the second quarter of 2016, a relatively large decrease in interest rates resulted in an unfavorable impact on earnings of $26 million. Annuity earnings before the impact of fair value accounting were $101 million in the second quarter of 2017, slightly lower than the $102 million reported in the second quarter of 2016. As you will see on Slide 8, AFG’s quarterly average Annuity investments and reserves grew by approximately 11% and 12%, respectively, year-over-year. The benefit of this growth was offset by the run-off of higher yielding investments. AFG’s Annuity segment reported statutory premiums of $1.3 billion in the second quarter of 2017 compared to $1.1 billion in the second quarter of 2016. Although all major channels reported year-over-year growth, the increase was due really to growth in traditional fixed annuity sales in the financial institutions channel. We're especially pleased to report year-over-year growth in premiums when industry…

Thank you, Craig. I'm very pleased with the year-over-year growth in core EPS, which is a record for our second quarter. Slide 13 shows our core net operating earnings per share, $1.61, and summarizes the operating results that Carl and Craig has covered, that $1.61 is $0.33 higher than the year-ago core net operating earnings per share of $1.28. The year-over-year improvement is broad based. Property and Causality operating earnings contributed $0.18 of improvement of which $0.07 was from underwriting, $0.06 from net investment income and $0.05 from other annuity improved by $0.07 year-over-year. These are partially offset by $0.05 of parent company expense, net of runoff care and life earnings. In the year-ago second quarter, we had an extraordinarily high effective tax rate of 36%. In the 2017 second quarter, our core net operating earnings were $145 million after tax. When you calculate our effective tax rate on core pre tax operating earnings for our 2017 second quarter, it’s 29%. A tax benefit related to stock-based compensation reduced AFG's effective tax rate by 3 percentage points in the quarter. This is related to higher-than-normal levels of stock option exercise in the 2017 second quarter. In addition, a tax deduction is available for AFG common share dividends paid ESOP shares within AFG's 401k retirement and savings plan. Dividend paid on these shares reduced AFG's effective tax rate by 1 percentage point in the second quarter. AFGs effective tax rate through the first six month of the year was 30%. Our full year earnings guidance for 2017 now assumes an effective tax rate of approximately 31% on core pre-tax and operating earnings. Slide 14 provides a reconciliation of core net operating earnings to net earnings attributable to shareholders. The $5 million or $0.05 per share after tax loss on the early…

Thank you. [Operator Instructions] Our first question comes from the line of Greg Peters of Raymond James. Your line is open.

Thank you for the call and taking my question. Carl, in your comments, you talked about our rate increases in commercial auto. Scar city could provide some additional color around the performance of national inner state and. Also I noted in your comments around Neon, it sounded like it might be somewhat disciplined in their performance. I just don’t want to infer anything that is it the case, so maybe you can clarify of what you’re expectations are around that operations as well.

Sure, we can address some of those things, Greg. I might let Jeff address Neon and try to make a comment, but let's talk about commercial auto. I'm pleased with the progress on our commercial auto business in our Property and Casualty Group. As we talked about it, its primarily made up of national interstates business as well as great American business which is focused on owner operators and primarily auto physical damage with some other collateral types of coverage's in that. Let me talk about national interstate first. Through six months, '17 the national interstate accident year combine ratio and calendar-year combined ratio improved year-on-year by a little more than a point to be just under 96, under a 96 combined. I think, in the past, as we bought in the remainder of the shares we didn’t own, I mentioned that it would be our objective to operate the business at 95 or under and that’s what it would take to get a healthy double-digit return on the incremental investment that we have made in national interstate. So, I'm pleased with the progress there. Our objective is to run that business by 2018 at a combine ration of 95 or better. The rate increase, the national interstate was 4% overall in the quarter, I think the significant pieces of that on the non-captive commercial auto liability business, so we were up high single-digits in rate increase in that. Workers’ comp kind of -- with only being up for percent kind of pulls the overall down in National Interstate. So we continued to get rate. I'm hoping that we see some opportunities in that. There have been --- Westfield has pulled out of the trucking business, for instance, so they are right in our backyard hoping to get some opportunities at National Interstate on some market disruption like them. On the great American business, we had great calendar year and accident year underwriting results in the first half, so very pleased with that, very focus business on owner operators in them. On Neon, I didn’t mean to imply that I was unhappy. I'm pleased with the progress that they are making, tough with the high standards we have on under writing profitability net has a ways to go to please me even more long term and get to the right long-term returns. Jeff, do you have any comments?

I really don’t, Greg, unless you have more specifics on Neon. So hopefully Carl gave you a sense of his attitude in his profit-driven evaluation of our various business units.

No, I don’t have a follow-up as it relates to Neon. I just -- just based on the commentary, one clarification on that. Craig, if you don’t mind -- and I appreciate the color you were providing regarding the competitive environment, I was hoping to get some additional color both on your views of what’s going in the bank channel and in the independent channel, and how -- given the uncertainty of DOL, how this competitive behavior might change over the course of next couple of quarters.

Sure, Greg. It is a very competitive environment right now. Obviously interest rates have not moved up the way most people were expecting them to this year, and our response to that has been to adjust the credited rates for pretty discipline in pricing and that is resulting in a bit of a slowdown of premiums. There are some companies out there that have not adjusted credited rates, and unless we’re doing something that we’re not able to do on the investment side are to see how they’re making their rate returns frankly on new business. The industry premiums were a bit soft in sales of traditional and indexed annuities in the first six months. It’s our understanding that the industry was down 10% or so in sales. We have heard from distribution that the July was somewhat soft also. I heard to know what the rest of the year will look like but I suspect for the balance of the year that premiums are going to be a bit sluggish.

And finally, I think you’ve guided to tax rate of 31% for the year, and I’m curious if that’s sort of the run rate we should think about on a normalized basis?

Greg, this is Jeff. We’ve historically been a full-rate tax payer with the federal rate of 35%. I think we do a reasonable job in our financial footnotes. I think it’s no doubt our financials isn’t reconciling our effective rate and statutory rate. But in terms of the deposits, it’s the negative there. We benefit from tax-exempt interest in our muni portfolio. We benefit from the dividends received deduction, our common stock and other equity investments. Those generally have benefited our effective tax rate by 3 to 4 percentage points in any given period. And then there’ve been some givebacks. National Interstate, which we’ve talked about in the past, they were consolidated for GAAP but not in our consolidation for tax. That double taxation penalized effective tax rate. That’s gone effective with the November merger, so that no longer can be a drag on our effective tax rate. And Neon maintain a full evaluation allowance against our deferred tax. Their loss historically have not benefited to shield our U.S. income. And as Neons’s losses moderate, that drag -- that drives our effective tax rate up, which has been call it 3 points in past periods should strength. And then there is one more kind of changer here, which I alluded to in our comments, which is there is new accounting pronouncement out there, it’s called ASU 2016-09. We early adopted it in the fourth quarter of '16 as it requires that the excess tax benefits you get from share-based payments you recorded through your income statement tax line or as previously receive equity, that benefit our tax rate in the quarter by 3 points. Any projection is entirely uncertain and AFG doesn’t control when people are going to exercise stock options or things of that nature, but we do think that will lower our effective tax rate in addition to four other factors that I talked about there, that’s how we wind up that that 31% for the full year versus the 30% we’ve had kind of year-to-date. I guess the last thing I would – on in the quarter, which I mentioned in the script, was we do get a deduction for the special dividend and another dividends we make on shares held for our employee 401k, which is in the form of and ESOP, that had an effect on Q2. So those are the factors, Greg, to really go into the tax rate.

Thank you. Our next question comes from Jay Cohen of Bank of America Merrill Lynch. Your question, please?

My question is on the Florida worker’s comp market. Could you give us an update on what you’re seeing there post these changes from a rating standpoint. And then the second part of the question. We are hearing about increased competition broadly speaking in workers' comp from a pricing standpoint. So given, I guess, expected improvement in Florida but potential for pressure elsewhere due to competitive conditions, net, net do you see your comp business getting better or worse from a margin stand point.

Hi, Jay. This is Carl. Maybe I can talk about each of the major pieces of this and that types of – and National Interstate really is a pretty significant rider of workers’ comp. Their rates have been kind of flattish, up a little bit in this past quarter, down a little bit in other quarters, but overall kind of flattish here recently. In the Summit book of business, I'm very pleased with Summit’s results and the caliber and our management team there. They reclaim the number one rider in Florida last year. We had good underwriting profitability since we acquired Summit last three year, and with the Florida rate increase, that is in fact it's become a growth business this past year. I think Summit is up double digit in net premium. So I think with the Florida rate increase, we feel good about Summit’s prospects for a solid underwriting profit this year, and it also makes us feel good about going forward. In Summit, there have been, as in the rest of the country driven by NCCI rate changes, there have been some rate decreases and many of the other states in that. I think for Summit, Florida rate increases kind offset some of the decreases and some of the other states in that. Pricing overall in Summit will be up mid-single digits this year, 6%, and that kind of reflects my previous comments here just 1 minute or so ago, double-digit heavy increases in Florida offset by some decreases elsewhere. We feel good about our overall reserve position at Summit. So I think that Summit should continue to have solid stable profitability in that. Republic or California workers’ comp rider. We’ve had healthy underwriting results and double-digit returns the last four years. I think our outlook for…

Yes, that’s really good. You actually answered one of my follow-up questions too on claims. So very helpful. Good one. Thanks, Carl.

Thank you. Our next question comes from Paul Newsome of Sandler O'Neill. Your line is open.

One of the feedback I’m having recently for investors is concerned to that, just generally speaking, growing premiums [indiscernible] in what is still a pretty soft market and that that will certainly inevitably lead to lower margins. Could you, perhaps, address that concern?

This is Carl. I think when you look at our overall loss ratio trend, that kind loss costs offset by positive inflation or exposure changes to your premium base. Our overall loss ratio trends about 1.6%. And I think we mentioned our overall rate in the second quarter was up 1%. We're not – our overall pricing is pretty flat, so our guidance of 0% to 1% is probably a fair – it’s probably a fair way to look at those things. I think that in the business where we feel loss cost trends are exceeding, are going to harm us, I think those are the years that we focused on on getting rate. For instance, I have talked about National Intestate’s rate and the focus there. So in businesses where we need it, whether its commercial auto or New York contractors as we talked about, I believe we have been making the right decisions and getting rate above loss costs. Nation Interstate is in their fifth year – of six year of rate increase in that, and other businesses where we're reaching our profitability targets and the loss cost trends are stable with the use of predictive analytics and segmenting our business. I think we’ve been more flexible in pricing the business in that. So I think when you look at our book of business, one other thing I may be say is, is between our Annuity business and maybe a third of our Property and Causality business, those businesses don’t really correlate to the general property and casualty cycle. So I too think that maybe makes us a little different. Businesses like crop really kind move under their own cycle in that, and the prices are pretty fixed in that business set by the government. So I hope that maybe gives you a little color.

No, that’s great.

Just one more, if you will, to you that, when you look at our guidance and the moments in our guidance, really where we're not growing because of rates, there is opportunity because of market disruption, just to want to remind the benefit of being a very stable organization was an accountability-based modeled in our Property and Casualty business was an A-plus rating from a best. As there are opportunities that emerge from other carriers, you might be in a little bit of turmoil or other market exits. We’re pretty active place to bring the business, and this place is we’re growing, especially in this Specialty/causality with sub segment. I think, our results year-to-date and our expectation going forward reflects an element to that as well.

Specifically we mentioned an opportunity in our public sector, business in the second half for this year. So due to market disruption with some few competitors in that. So yes, Jeff, good point.

Thank you. [Operator Instructions] Our next question comes from Larry Greenberg of Janney. Your line is open.

So I was just hoping to get a little bit more color on Neon and if you could just give us some idea of where underwriting results stand right now and what some of the fixes are that you are putting in place and whether or not you need to get smaller or bigger to get better? And then if you can give us some idea of the timing to get to profitability there?

Hi, Larry. It’s Jeff Consolino. Thanks for that. In terms of Neon, I think that we have expressed the past calls. The impact Neon had on our business and the need to make a significant change. Effectively, our new management team there has been in place since the beginning of 2016. And you said something that was pretty perceptive, which was the need to get smaller or you get bigger. And a year ago, we’ve got this time we were talking about in exited lines situation of Neon and getting out of a lot of business of Neon that frankly where the core of the old market form, but upon strategic review but in the management team doesn’t standup to scrutiny of the ability to make money in today’s environment. So between 2015 and 2016 Neon shrunk, their gross premium income by about a quarter and that we’re building that back-up. As it’s been build back up, it’s been build in a way that it’s more diversified in a way that looks more like the [indiscernible], and in a way, where we think that we’re going to have a read-type position in those product lines. With the news flow of various hires that have been made over time, we’ve brought into teams. We think that’s one of the best in the M&A liability market and they run it both for Neon and have a consortium behind them. So people expect their underwriting and are willing to follow. We also announced this year bringing in the cyber team led by highly credential individual, was one of the market leaders in ahead of the market association in that product line and has the opportunity to write on our behalf but also for us to build capacity behind that person in a lead-type role. So when you – and I think a lot of our success here in the U.S. has been around the people that we have in the business, and we're trying to put in place the team there that has the same kind of capability that our U.S. operations have. The goal would be to start to achieve that market type of results and then better -- which is our expectation. We’ve outperformed the P&C, margin in our U.S. operations for very long time and we need to get to the point where we can say the same thing that Lloyd's.

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

On the follow-up on the property/casualty side. Investment income, it does look like the fixed maturity income has stayed relatively consistent, I'm wondering if you could talk about where the new money yields are relative to your portfolio and should we expect, really as we get into next year, more pressures on that -- downward pressure on that line item?.

Jay, there are some countervail things that work, right. Our P&C business continues to grow, and I'm working of on Page 22 of our supplement just in case you want to back-trace that, but we present our average cash in investments for the P&C group there. So if you look year-over-year, we have basically 5% growth and average P&C investments to all the sequel would drive the fixed maturities income higher. That said, our average portfolio yield this quarter was under 29%, which you see, and our new money rate for fixed maturities is a little under 3.3% in most recent quarter. There would be an offset to that growing portfolio of averaging down with that investment income. I look at that chart and I see it quite stable. So our forward guidance in terms of the growth in P&C net investment income is predicated on that line being fairly stable with the growing piece mainly related to the contribution this quarter from equity investees.

I guess that spread between new money yields and the portfolio yields has narrowed over the couple of years as well.

It has and we’re talking growth rate revenue that equivalent, I think our tax equivalent rate would be closure to 3.5.

Thank you. At this time, I would like to turn the call back over to Ms. Weidner for any closing remarks. Ma'am?

Thank you Aviv, and thank you all for joining us this morning to review AFG's second quarter results.

Thank you, ma'am. Ladies and gentlemen, that does conclude your program. Thank you for participation, and have a wonderful day. You may disconnect your lines at this time.