[May 10, 2010]

A.M. Best Revises Outlook to Stable and Affirms Ratings of Great American Financial Resources, Inc.'s Key Annuity Companies

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a" of Great American Life Insurance Company (GALIC) and Annuity Investors Life Insurance Company (AILIC) key annuity companies of Great American Financial Resources, Inc. (GAFRI). Additionally, A.M. Best has downgraded the FSRs and ICRs of the supplemental health subsidiaries of GAFRI. The outlook for all the above ratings has been revised to stable from negative. GAFRI is a wholly owned subsidiary of American Financial Group, Inc. [NYSE: AFG]. The two operating entities and two holding companies mentioned above are headquartered in Cincinnati, OH. (See link below for a detailed list of companies and ratings.)

The revised outlook for GAFRI's principal annuity subsidiaries reflects the companies' solid operating earnings, improved risk-adjusted capital positions and the significant recovery in the market value of these entities' fixed income portfolios. The ratings also reflect the companies' established position among the market leaders in certain individual tax-deferred annuity products, their stable liability structure and the recent capital contributions made by GAFRI to augment the surplus of GALIC and AILIC.

A.M. Best remains concerned about the annuity companies' investment exposure to financial sector corporate bonds and real estate-related investments-in particular, non-agency residential mortgage-backed securities. A.M. Best notes that these companies have incurred significant realized losses in their bond portfolios over the pst three years. Additionally, new regulations in the 403(b) market have somewhat altered the competitive landscape. GAFRI has responded to these changes by creating a third-party administrator, which should facilitate client retention as well as new sales.

Concurrently, A.M. Best has downgraded the ICR of GAFRI's five active supplemental health insurance companies by one notch. The outlook for these ratings is stable.

The downgrading of the ratings for GAFRI's supplemental health subsidiaries primarily recognizes the continuing challenges these companies face in profitably growing their businesses and their lower risk-adjusted capitalization relative to GAFRI's annuity companies. As such, A.M. Best believes the supplemental health business is not central to GAFRI's long-term strategy as a provider of long-term financial solutions. Supplemental health products have provided some diversification to GAFRI's tax-sheltered annuity focus-about 21% of GAFRI's statutory net premiums and almost 15% of GAAP pre-tax operating earnings were generated by this segment in 2009.

Historically, operating performance of the supplemental health unit has fluctuated and trends are generally flat-to-declining. A.M. Best notes that sizeable annual dividends have been paid by several of GAFRI's supplemental health subsidiaries in recent years. The individual health business, primarily Medicare supplement coverage, represents the majority of current premium income and exposes the companies to the considerable regulatory and competitive pressures associated with this business. GAFRI's supplemental health companies are no longer actively marketing life insurance or long-term care policies and have de-emphasized sales of annuities.

For a complete listing of Great American Financial Resources, Inc. and its subsidiaries' FSRs, ICRs and debt ratings, please visit www.ambest.com/press/051005gafri.pdf.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

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