AFG Notes Environmental Clean-Up Settlement Related to Former Railroad Sub’s Site

Cincinnati-based American Financial Group Inc. announced the settlement of litigation over the allocation of environmental cleanup costs at a site that was part of the historical operations of a subsidiary’s railroad predecessor. The settlement resolves the largest of the subsidiary’s outstanding environmental exposures.

Based on the settlement, the company has recorded an after-tax charge of $33.8 million ($.45 per share) to increase the subsidiary’s reserves for environmental exposures. The charge has been recorded in the third quarter of 2004 as required under generally accepted accounting principles.

Previously announced net earnings for the quarter and nine-months ended Sept. 30, 2004 have been reduced to $138.2 million and $267.3 million ($1.85 and $3.58 per share), respectively. As shown in the attached summary of earnings, core earnings from insurance operations for those periods did not change.

Although management has been advised by counsel that the company should be able to recover a significant amount of these costs from a financially viable third-party, no recovery asset has been recorded at this time.