Fitch Affirms American Financial Group, Inc. Ratings

Fitch has also assigned the GAIC group IFS rating to Republic Indemnity Company of California, Mid-Continent Insurance Co., Oklahoma Surety Co., and American Empire Insurance Co. Lastly, the trust originated preferred securities of American Annuity Group Capital Trust IV was affirmed at 'BBB'. The Rating Outlook for all ratings is Stable.

AFG is a public holding company with subsidiaries engaged primarily in the sale of property/casualty (P&C) insurance, annuities and supplemental insurance. The company had total assets of $26.1 billion and total shareholders equity of $3.0 billion as of Sept. 30, 2007. The companies' P&C insurance operations were the 33rd largest in the U.S. based on 2006 net written premiums.

AFG's ratings continue to be based on its solid market position as a specialty property/casualty insurance organization, adequate statutory capital levels, and favorable trends in underwriting results and profitability. Fitch's rating's also consider AFG's strong performance under Fitch's new economic capital model, Prism, under which the company's aggregated capital position, including both P&C and annuity and supplemental insurance operations, exceeds Fitch's standards for a 'AA-' level of confidence at year-end 2006.

Partially offsetting these positives are AFG's relatively high reinsurance leverage versus comparably rated peers and exposure to asbestos and other longer tail liabilities that add uncertainty and potential volatility to GAIC's loss reserves.

Fitch notes that since AFG announced a long-term objective to lower the company's debt-to-capital ratio below 25% by the end of 2006, the company has achieved its goal and maintained a debt to total capital ratio of 21.9% at Sept. 30, 2007. AFG's interest coverage in the first nine months of 2007 was strong, at 9.9 times excluding the impact of realized investment gains.

AFG reported 3.4% growth in P&C net written premiums in the first nine months of 2007, as volume growth more than offset rate decreases in most lines of business, particularly California workers compensation business, which currently accounts for roughly 10% of Great American's total net written premiums. Great American's GAAP underwriting results have continued to impress, with a combined ratio of 86.5% for the first nine months of 2007. Consolidated GAAP net income over the same period totaled $293.3 million, an 8% decrease from the prior year period due to a third quarter asbestos charge of roughly $56 million after taxes.

In September 2007, AFG acquired the remaining 18% of GAFRI it did not already own for $238 million. GAFRI's ratings benefit from AFG's guarantee of GAFRI's debt and the financial flexibility provided by the larger organization, which should be enhanced subsequent the planned un-stacking of GAFRI from AFG's P&C subsidiary by year-end 2007. GAFRI's ratings are also based on its solid position in a niche market and strong balance sheet fundamentals.

GAFRI has a successful niche in the qualified annuity market, particularly in the K-12 education market. This business is typified by strong persistency. However, Fitch will be monitoring the affect the new 403(b) regulations, could have on GAFRI's competitive position and surrender activity, as well as other industry participants. GAFRI's balance sheet fundamentals continue to be strong, with its reduced equity-adjusted financial leverage of 18% (guaranteed by AFG). Additionally, GAFRI's Prism score of 'AA-' is adequate for the rating. Further, GAFRI has demonstrated strong asset/liability management expertise with its high quality, highly liquid investment portfolio.

Margin pressure at GAFRI is a rating concern. The prevailing low interest rate environment has put strain on spread income to below historic levels. Yet, the business remains profitable. Additional concerns include the intensely competitive annuity markets, changing regulatory environment, Medicare supplement market and its annuity earnings profile, which is slowly diversifying to include additional supplemental insurance fueled by the 2006 acquisition of Ceres Group (Ceres). Fitch continues to monitor the integration of the Ceres' insurance subsidiaries and believes a one-notch rating differential remains prudent at this time.

The following ratings are affirmed by Fitch:

American Financial Group, Inc.

--Issuer Default Rating (IDR) at 'A-'/Stable;

--7.125% senior due 2009 at 'BBB+'/Stable;

--7.125% senior due 2007 at 'BBB+'/Stable;

--Senior convertible notes due 2033 at 'BBB+'/Stable;

--Senior debentures due 2034 at 'BBB+'/Stable.

American Premier Underwriters, Inc.

--Issuer Default Rating (IDR) at 'A-'/Stable;

--10.875% subordinate notes due 2011 at 'BBB'/Stable.

Great American Insurance Company Intercompany Pool*

--Insurer Financial Strength at 'A+'/Stable.

*Members of the Pool include: Great American Insurance Company, Great American Insurance Company of New York, Great American Fidelity Insurance Company, Great American Spirit Insurance Company, Great American Security Insurance Company, Great American Protection Insurance Company, Great American Alliance Insurance Company, Great American Assurance Company, Great American E&S Insurance Company, Great American Contemporary Insurance Company and Worldwide Casualty Insurance Company.

Republic Indemnity Company of America

--Insurer Financial Strength at 'A+'/Stable.

American Empire Surplus Lines Insurance Company

--Insurer Financial Strength at 'A+'/Stable.

Mid-Continent Casualty Company

--Insurer Financial Strength at 'A+'/Stable.

Great American Financial Resources, Inc.

--Issuer Default Rating at 'A-'/Stable;

--7.50% senior notes at 'BBB+'/Stable;

--6.875% senior notes at 'BBB+'/Stable.

--7.25% senior notes at 'BBB+'/Stable.

American Annuity Group Capital Trust IV

--7.35% preferred securities at 'BBB'/Stable.

Great American Life Insurance Company

--Insurer Financial Strength at 'A+'/Stable.

Loyal American Life Insurance Company

--Insurer Financial Strength at 'A+'/Stable.

Annuity Investors Life Insurance Company

--Insurer Financial Strength at 'A+'/Stable.

United Teacher Associates Insurance Company

--Insurer Financial Strength at 'A+'/Stable.

Central Reserve Life Insurance Company

--Insurer financial strength at 'A'/Stable

Continental General Insurance Company

--Insurer Financial Strength at 'A'/Stable

The following ratings are assigned by Fitch:

Republic Indemnity Company of California

--Insurer Financial Strength at 'A+'/Stable.

Mid-Continent Insurance Co.

--Insurer Financial Strength at 'A+'/Stable.

Oklahoma Surety Co.

--Insurer Financial Strength at 'A+'/Stable.

American Empire Insurance Co.

--Insurer Financial Strength at 'A+'/Stable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.