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|SECURITIES AND EXCHANGE COMMISSION                                                     
|---------------------------------------------------------------------------------------
|Washington, D. C. 20549                                                                
|                                                                                       
|                                                                                       
|FORM 10-Q                                                                              
|                                                                                       
|Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934





|For the Quarterly Period Ended
June 30, 2007 | Commission File
No. 1-11632
|-------------------------------------------- | ---------------------------





|Incorporated under   | IRS Employer I.D.
No. 06-1356481
|-------------------- | --------------------------------
|the Laws of Delaware

250 East Fifth Street, Cincinnati, Ohio 45202
(513) 333-5300

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes X    No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer:    Large Accelerated Filer    Accelerated FilerX    Non-Accelerated Filer
Indicate by check mark whether the Registrant is a shell company.      Yes  NoX
As of August 1, 2007, there were 47,774,881 shares of the Registrant's Common Stock outstanding.









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GREAT AMERICAN FINANCIAL RESOURCES, INC.



TABLE OF CONTENTS







|Part I        | Financial Information                                                                                                                                                             | Page
|------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Item 1        | Financial Statements:                                                                                                                                                             |     
|              | Consolidated Balance Sheet                                                                                                                                                        | 2   
|              | Consolidated Income Statement                                                                                                                                                     | 3   
|              | Consolidated Statement of Changes in Stockholders' Equity                                                                                                                         | 4   
|              | Consolidated Statement of Cash Flows                                                                                                                                              | 5   
|              | Notes to Consolidated Financial Statements                                                                                                                                        | 6   
|Item 2        | Management's Discussion and Analysis of Financial Condition                                                                                                                       |     
|              | and Results of Operations                                                                                                                                                         | 20  
|Item 3        | Quantitative and Qualitative Disclosure of Market Risk                                                                                                                            | 29  
|Item 4        | Controls and Procedures                                                                                                                                                           | 30  
|              |                                                                                                                                                                                   |     
|              |                                                                                                                                                                                   |     
|Part II       | Other Information                                                                                                                                                                 |     
|Item 6        | Exhibits                                                                                                                                                                          | 30  
|              | Signature                                                                                                                                                                         | 30  
|              |                                                                                                                                                                                   |     
|              |                                                                                                                                                                                   |     
|Exhibit Index |                                                                                                                                                                                   |     
|Exhibit 31(a) | Certification of the Chief Executive Officer Pursuant to 
Section 302(a)of the Sarbanes-Oxley Act of 2002                                                                         | E-1 
|Exhibit 31(b) | Certification of the Chief Financial Officer Pursuant to
Section 302(a)of the Sarbanes-Oxley Act of 2002                                                                          | E-2 
|Exhibit 32    | Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | E-3 









GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q

PART I

ITEM 1 - FINANCIAL STATEMENTS

GREAT AMERICAN FINANCIAL RESOURCES, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEET - (UNAUDITED)

(Dollars in millions)

|                                                         |           |             
|-------------------------------------------------------- | --------- | ------------
|                                                         |           |             
|                                                         | June 30,  | December 31,
|                                                         | 2007      | 2006        
|Assets                                                   |           |             
|Investments:                                             |           |             
|Fixed maturities:                                        |           |             
|Available-for-sale - at fair value                       |           |             
|(amortized cost - $9,699.9 and $9,104.3)                 | $ 9,535.3 | $ 9,120.5   
|Trading securities - at fair value                       | 279.8     | 276.4       
|Equity securities - at fair value                        |           |             
|(cost - $278.8 and $214.0)                               | 305.6     | 238.4       
|Mortgage loans on real estate                            | 189.0     | 170.6       
|Real estate                                              | 78.0      | 78.0        
|Policy loans                                             | 269.2     | 267.1       
|Cash and cash equivalents                                | 107.7     | 564.3       
|Total cash and investments                               | 10,764.6  | 10,715.3    
|                                                         |           |             
|Accrued investment income                                | 127.2     | 124.5       
|Unamortized insurance acquisition costs                  | 1,015.1   | 946.1       
|Reinsurance recoverable                                  | 650.5     | 677.3       
|Deferred tax benefit on unrealized losses                | 39.7      | -           
|Other assets                                             | 351.0     | 171.7       
|Variable annuity assets (separate accounts)              | 717.2     | 700.5       
|                                                         |           |             
|                                                         | $13,665.3 | $13,335.4   
|                                                         |           |             
|Liabilities and Stockholders' Equity                     |           |             
|Annuity benefits accumulated                             | $ 9,829.1 | $ 9,456.7   
|Unearned revenue                                         | 101.1     | 104.1       
|Life, accident and health reserves                       | 1,446.4   | 1,414.7     
|Long-term debt                                           | 264.1     | 273.1       
|Payable to affiliates, net                               | 153.5     | 133.4       
|Deferred tax liability on unrealized gains               | -         | 14.0        
|Accounts payable, accrued expenses and other liabilities | 128.4     | 164.9       
|Variable annuity liabilities (separate accounts)         | 717.2     | 700.5       
|Total liabilities                                        | 12,639.8  | 12,261.4    
|                                                         |           |             
|Stockholders' Equity:                                    |           |             
|Common Stock, $1 par value                               |           |             
|-100,000,000 shares authorized                           |           |             
|-47,774,881 and 47,569,236 shares outstanding            | 47.8      | 47.6        
|Capital surplus                                          | 419.7     | 416.7       
|Retained earnings                                        | 628.2     | 583.4       
|Accumulated other comprehensive income (loss), net       | (70.2)    | 26.3        
|Total stockholders' equity                               | 1,025.5   | 1,074.0     
|                                                         |           |             
|                                                         | $13,665.3 | $13,335.4   
|                                                         |           |             









GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



GREAT AMERICAN FINANCIAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT - (UNAUDITED)

(In millions, except per share amounts)



|                                               | Three months ended June 30, | Six months endedJune 30,
|---------------------------------------------- | --------------------------- | ------------------------
|                                               | 2007                        | 2006                    
|Revenues:                                      |                             |                         
|Life, accident and health premiums             | $103.4                      | $ 75.5                  
|Net investment income                          | 158.0                       | 149.7                   
|Realized gains (losses) on:                    |                             |                         
|Investments                                    | 7.7                         | (8.7)                   
|Retirement of debt                             | -                           | (0.6)                   
|Other income                                   | 31.8                        | 21.7                    
|                                               | 300.9                       | 237.6                   
|Costs and Expenses:                            |                             |                         
|Annuity benefits                               | 90.4                        | 84.0                    
|Life, accident and health benefits             | 85.5                        | 66.6                    
|Insurance acquisition expenses                 | 40.7                        | 30.3                    
|Interest and debt expenses                     | 5.3                         | 5.7                     
|Other expenses                                 | 44.3                        | 32.6                    
|                                               | 266.2                       | 219.2                   
|                                               |                             |                         
|Operating earnings before income taxes         | 34.7                        | 18.4                    
|Provision for income taxes                     | 11.8                        | 6.3                     
|                                               |                             |                         
|Income from continuing operations              | 22.9                        | 12.1                    
|Discontinued hotel operations, net of tax      | -                           | (0.1)                   
|Gain on sale of discontinued hotel, net of tax | 1.9                         | 31.6                    
|                                               |                             |                         
|Net Income                                     | $ 24.8                      | $ 43.6                  
|                                               |                             |                         
|                                               |                             |                         
|Basic earnings per common share:               |                             |                         
|Continuing operations                          | $ 0.48                      | $ 0.25                  
|Discontinued hotel operations                  | -                           | -                       
|Gain on sale of discontinued hotel             | 0.04                        | 0.67                    
|                                               |                             |                         
|Net income                                     | $ 0.52                      | $ 0.92                  
|                                               |                             |                         
|Diluted earnings per common share:             |                             |                         
|Continuing operations                          | $ 0.47                      | $ 0.25                  
|Discontinued hotel operations                  | -                           | -                       
|Gain on sale of discontinued hotel             | 0.04                        | 0.66                    
|                                               |                             |                         
|Net income                                     | $ 0.51                      | $ 0.91                  
|                                               |                             |                         
|Average number of common shares:               |                             |                         
|Basic                                          | 47.7                        | 47.4                    
|Diluted                                        | 48.4                        | 48.0                    
|                                               |                             |                         







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



GREAT AMERICAN FINANCIAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (UNAUDITED)

(In millions)

|                                                                | Six months ended
|--------------------------------------------------------------- | ----------------
|                                                                | June 30,        
|                                                                | 2007            
|Common Stock:                                                   |                 
|Balance at beginning of period                                  | $ 47.6          
|Common Stock issued                                             | 0.4             
|Common Stock retired                                            | (0.2)           
|Balance at end of period                                        | $ 47.8          
|                                                                |                 
|                                                                |                 
|Capital Surplus:                                                |                 
|Balance at beginning of period                                  | $416.7          
|Common Stock issued                                             | 6.9             
|Common Stock retired                                            | (3.9)           
|Stock option settlements                                        | (1.6)           
|Agent stock option grants                                       | 0.3             
|Stock-based compensation expense                                | 1.3             
|Balance at end of period                                        | $419.7          
|                                                                |                 
|                                                                |                 
|Retained Earnings:                                              |                 
|Balance at beginning of period                                  | $583.4          
|Net income                                                      | 44.8            
|Balance at end of period                                        | $628.2          
|                                                                |                 
|                                                                |                 
|Accumulated Other Comprehensive Loss:                           |                 
|Balance at beginning of period                                  | $ 26.3          
|Change in net unrealized gains (losses) during the period       | (99.8)          
|Change in unrealized pension and other post retirement benefits | 3.3             
|Balance at end of period                                        | ($70.2)         
|                                                                |                 
|                                                                |                 
|                                                                |                 
|                                                                |                 
|Comprehensive Loss                                              |                 
|Net income                                                      | $ 44.8          
|Change in net unrealized gains (losses) during the period       | (99.8)          
|Change in unrealized pension and other post retirement benefits | 3.3             
|Comprehensive loss                                              | ($ 51.7)        
|                                                                |                 





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



GREAT AMERICAN FINANCIAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)

(In millions)



|                                                            | Six months ended
|----------------------------------------------------------- | ----------------
|                                                            | June 30,        
|                                                            | 2007            
|Cash Flows from Operating Activities:                       |                 
|Net income                                                  | $  44.8         
|Adjustments:                                                |                 
|Increase in life, accident and health reserves              | 30.5            
|Benefits to annuity policyholders                           | 179.2           
|Amortization of insurance acquisition costs                 | 65.2            
|Depreciation and amortization                               | 6.5             
|Realized (gains) losses on investments                      | (8.8)           
|Gain on sale of discontinued hotel                          | (2.9)           
|Realized losses on retirement of debt                       | 1.1             
|Net trading portfolio activity                              | (8.4)           
|Increase in insurance acquisition costs                     | (103.2)         
|Decrease (increase) in reinsurance recoverable              | 14.4            
|Increase in other assets                                    | (136.0)         
|Decrease in other liabilities                               | (12.9)          
|Increase in payable to affiliates, net                      | 20.1            
|Other, net                                                  | (6.7)           
|Net cash provided by operating activities                   | 82.9            
|                                                            |                 
|Cash Flows from Investing Activities:                       |                 
|Purchases of and additional investments in:                 |                 
|Fixed maturity investments                                  | (1,324.6)       
|Equity securities                                           | (94.4)          
|Real estate, mortgage loans and other assets                | (32.8)          
|Cash and short-term investments of businesses acquired, net | -               
|Proceeds received from sale of Puerto Rican operations, net | -               
|Maturities and redemptions of fixed maturity investments    | 322.9           
|Sales of:                                                   |                 
|Fixed maturity investments                                  | 382.5           
|Equity securities                                           | 43.3            
|Real estate, mortgage loans and other assets                | 14.1            
|Increase in policy loans                                    | (2.1)           
|Net cash provided by (used in) investing activities         | (691.1)         
|                                                            |                 
|Cash Flows from Financing Activities:                       |                 
|Annuity receipts                                            | 817.4           
|Annuity surrenders, benefits and withdrawals                | (691.7)         
|Net transfers from variable annuity assets                  | 31.9            
|Additions to long-term debt                                 | 92.0            
|Reductions of long-term debt                                | (102.1)         
|Issuance of Common Stock                                    | 7.2             
|Other                                                       | (3.1)           
|Net cash provided by (used in) financing activities         | 151.6           
|                                                            |                 
|Net increase (decrease) in cash and cash equivalents        | (456.6)         
|Cash and cash equivalents at beginning of period            | 564.3           
|Cash and cash equivalents at end of period                  | $  107.7        
|                                                            |                 





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





A.	Description of the Company

Great American Financial Resources, Inc. ("GAFRI" or "the Company"), through its subsidiaries, markets fixed, indexed and variable annuities, and various forms of supplemental insurance through independent agents.  To a lesser extent, the Company also markets certain of its supplemental insurance products through a captive agency force.

Acquisition by American Financial Group, Inc.

American Financial Group, Inc. ("AFG") and its subsidiaries owned 81% of GAFRI's Common Stock at August 1, 2007.  On May 17, 2007, AFG and GAFRI entered into a definitive merger agreement under which GAFRI would acquire the GAFRI shares which AFG does not currently own at a price of $24.50 per share in cash, for a total purchase price of approximately $225 million.  GAFRI expects the merger to be completed in September 2007, and will use excess capital plus borrowings from AFG to fund the transaction.



Basis of Presentation

Certain reclassifications have been made to prior years to conform to the current year's presentation.  All significant intercompany balances and transactions have been eliminated.  All acquisitions have been treated as purchases.  The results of operations of companies since their formation or acquisition are included in the consolidated financial statements.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Changes in circumstances could cause actual results to differ materially from those estimates.

Investments

Gains or losses on securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other than temporary, a provision for impairment is charged to earnings (included in realized gains (losses) on investments) and the cost basis of that investment is reduced.

Derivatives





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

benefits accumulated) and (iv) related call options (included in other assets) designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those indexed-annuity products.  Changes in the fair value of derivatives are included in current earnings.

The terms of the interest rate swaps match those of the debt; therefore, the swaps are considered to be (and are accounted for as) 100% effective fair value hedges.  Both the swaps and the hedged debt are adjusted for changes in fair value by offsetting amounts.  Accordingly, since the swaps are included with long-term debt in the Balance Sheet, the only effect on GAFRI's financial statements is that the interest expense on the hedged debt is recorded based on the variable rate.

Goodwill

Reinsurance

Under certain of these agreements, GAFRI's insurance subsidiaries cede life insurance policies to a third party on a funds withheld basis whereby GAFRI retains the assets (securities) associated with the reinsurance contracts.  Interest is credited to the reinsurer based on the actual investment performance of the retained assets.  These reinsurance contracts are considered to contain embedded derivatives (that must be adjusted to fair value) because the yield on the payables is based on specific blocks of the ceding companies' assets, rather than the overall creditworthiness of the ceding company.  GAFRI determined that a change in the fair value of the underlying portfolios of fixed maturity securities is an appropriate measure of the value of the embedded derivative.  GAFRI classifies the securities related to these transactions as "trading."  The adjustment to fair value on the embedded derivatives offsets the investment income recorded on the adjustment to fair value of the related trading portfolios.

Insurance Acquisition Costs and Expenses

Insurance acquisition expenses in the income statement reflect primarily the amortization of DPAC and PVFP.  In addition, certain commission costs are expensed as paid and included in insurance acquisition expenses.  All other uncapitalized acquisition costs such as marketing and underwriting expenses are included in "Other expenses."

Deferred Policy Acquisition Costs ("DPAC")Policy acquisition costs (principally commissions, advertising, underwriting, policy issuance and sales expenses that vary with and are primarily related to the production of new business) are deferred to the extent that such costs are deemed recoverable.  DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses.

DPAC related to annuities and universal life insurance products is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies.  Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and variable annuity policy charges, less death and annuitization benefits in excess of account balances and estimated future policy administration expenses.

To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains.  DPAC related to annuities is also adjusted, net of tax, for the change in





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized.  This adjustment is included in unrealized gains (losses) on marketable securities, a component of "Accumulated other comprehensive income (loss), net" in the stockholders' equity section of the Balance Sheet.

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.  Such anticipated premium revenues were estimated using the same assumptions used for computing liabilities for future policy benefits.

Life and health insurance contracts are reviewed periodically using actuarial assumptions revised based on actual and anticipated experience, to determine if there is

a potential premium deficiency.  If any such deficiency exists, it is recognized by a charge to income and a reduction in unamortized acquisition costs.

Present Value of Future Profits ("PVFP")

The PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

Annuity Benefits Accumulated

Reserves for two-tier annuities (annuities with different stated account values depending on whether a policyholder annuitizes, dies or surrenders) are recorded at the lower-tier value plus additional reserves for (i) accrued persistency and premium bonuses; and (ii) excess benefits expected to be paid on future deaths and annuitizations ("EDAR") that require payment of the upper-tier value.  The liability for EDAR is accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that accruals are in relation to the present value of total expected assessments.  Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and variable annuity policy charges, and unearned revenues once they are recognized as income.

Reserves for traditional single-tier fixed annuities are generally recorded at the stated annuitization value.  Reserves for indexed annuities are recorded at a value reflecting the fixed guarantees in the product plus the fair value of the equity participation in the contract.

Unearned Revenue

Life, Accident and Health Reserves

The liability for future policy benefits for interest sensitive life and universal life policies is equal to the sum of the accumulated fund balances under such policies.







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued





Variable Annuity Assets and Liabilities

GAFRI's variable annuity contracts contain a guaranteed minimum death benefit ("GMDB") to be paid if the policyholder dies before the annuity payout period commences.  In periods of declining equity markets, the GMDB may exceed the value of the policyholder's account.  A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Life, Accident and Health Premiums and Benefits

For interest sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability.  Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.  Surrender benefits reduce the account value.  Death benefits are expensed when incurred, net of the account value.

Payable to Subsidiary Trusts

Income Taxes

Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis and are measured using enacted tax rates.  The Company recognizes deferred tax assets if it is more likely than not that a benefit will be realized.  Current and deferred tax assets and liabilities of companies in AFG's consolidated tax group are aggregated with other amounts receivable from or payable to affiliates.  Current and deferred tax assets and liabilities of companies not in the consolidated tax group are shown in "Other liabilities" in the Balance Sheet.

Implementation of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)" ("FIN 48") on January 1, 2007, had no effect on GAFRI's financial position.  FIN 48 sets forth criteria for recognition and measurement of tax positions taken or expected to be taken in a tax return.  FIN 48 requires that companies recognize the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position.  FIN 48 also provides guidance on derecognition, classification, interest, penalties, accounting in interim periods and disclosure.  GAFRI's reserve for unrecognized income tax benefits (included in "Payable to affiliates, net" in the Balance Sheet) was approximately $11 million at January 1, 2007.  Recognition of these benefits would reduce GAFRI's effective tax rate.  GAFRI does not anticipate significant changes to this reserve within the next twelve months.





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued





Stock-Based Compensation

Benefit Plans

GAFRI and certain of its subsidiaries provide certain benefits to eligible retirees.  The projected future cost of providing these benefits is expensed over the period the employees earn such benefits.

Earnings Per Share

Statement of Cash Flows

C.	Discontinued Operations

On June 2, 2006, GAFRI sold Chatham Bars Inn, a resort hotel located on Cape Cod, Massachusetts, for $166 million.  In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", the operating results and the gain on the sale of the hotel are included in discontinued operations in the Consolidated Income Statement.  Discontinued operations for 2007 represent additional gains on operations sold in previous years, primarily the settlement of a contingency associated with the Chatham sale.

In January 2006, GAFRI sold Great American Life Assurance Company of Puerto Rico ("GA-PR") for $37.5 million in cash, recognizing a pre-tax loss of $0.5 million.  This loss was offset by a like amount of GA-PR earnings recorded prior to the sale.  In connection with the sale, GAFRI established a $7.9 million letter of credit to provide for potential liabilities.







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued





D.	Acquisitions

On August 7, 2006, GAFRI (parent) acquired all of the outstanding shares of Ceres Group, Inc.  During the six months ended June 30, 2007, GAFRI continued to refine the allocation of the purchase price to the individual assets acquired and liabilities assumed based on their estimated fair values.  The refinement of the allocation of the purchase price included in the current period balance sheet is based on the best estimates of management and independent appraisers.

In the first quarter of 2006, GALIC acquired, through a reinsurance transaction, the fixed annuity block written by Old Standard Life Insurance Company.  As part of the assets received in the reinsurance transaction, GALIC also acquired the stock of Old West Annuity and Life Insurance Company.

GAFRI's financial statements include the results of the above since their acquisition.

E.	Segments of Operations

GAFRI manages its business as four segments: (i) annuity operations; (ii) supplemental insurance; (iii) life operations; and (iv) corporate and other, which include holding company assets and costs as well as interest and other debt expenses.

Revenue from GAFRI's annuity operations consists primarily of investment income as well as operating revenues from its real estate investments.  GAFRI's annuity products are sold through independent agents to employees of primary and secondary educational institutions and in the non-qualified markets.  GAFRI is engaged in a variety of real estate operations including hotels and marinas.

GAFRI's supplemental insurance businesses (United Teacher Associates Insurance Company ("UTA"), Loyal American Life Insurance Company, Continental General Insurance Company, Central Reserve Life Insurance Company and Provident American Life and Health Insurance Company primarily offer a variety of Medicare Supplement, long term care and limited benefit policies to supplement primary health insurance and other insurance coverage.  These products are offered primarily through independent agents and, to a lesser extent, captive agents.

Traditional term and universal life insurance products had been marketed through national marketing organizations until 2004, when GAFRI suspended new sales of these life insurance products due to inadequate volume and returns.  The Company continues to service its in-force block of these policies.

"Corporate and other" consists primarily of GAFRI (parent) and AAG Holding (intermediate holding company) and includes interest expense.





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following table shows (in millions) GAFRI's revenues and operating profit by significant business segment.



|                                                                         | Three months ended  June 30, | Six months ended  June 30,
|------------------------------------------------------------------------ | ---------------------------- | --------------------------
|                                                                        
|                                                                         | 2007                         | 2006                      
|Revenues                                                                 |                              |                           
|Fixed annuity operations                                                 | $141.4                       | $130.6                    
|Variable annuity operations                                              | 6.3                          | 6.0                       
|Real estate operations                                                   | 8.5                          | 7.4                       
|Total annuity operations                                                 | 156.2                        | 144.0                     
|                                                                         |                              |                           
|Supplemental insurance operations                                        | 119.1 (2)                    | 79.3                      
|Life operations                                                          | 17.4                         | 18.2                      
|Corporate and other                                                      | 0.5                          | 5.4                       
|Total operating revenues                                                 | 293.2                        | 246.9                     
|                                                                         |                              |                           
|Realized gains (losses)                                                  | 7.7                          | (9.3)                     
|Total revenues per income statement                                      | $300.9                       | $237.6                    
|                                                                         |                              |                           
|Operating profit - pre-tax                                               |                              |                           
|Fixed annuity operations                                                 | $ 29.4                       | $ 25.9                    
|Variable annuity operations                                              | 1.2                          | 0.6                       
|Real estate operations                                                   | 1.0                          | 0.4                       
|Total annuity operations                                                 | 31.6                         | 26.9                      
|                                                                         |                              |                           
|Supplemental insurance operations                                        | 6.4 (2)                      | 3.9                       
|Life operations                                                          | 0.5                          | 2.0                       
|Corporate and other:                                                     |                              |                           
|Interest and other debt expenses                                         | (5.3)                        | (5.7)                     
|Other                                                                    | (6.2)(3)                     | 0.6                       
|Pre-tax earnings from continuing
        operations                      | 27.0                         | 27.7                      
|                                                                         |                              |                           
|Realized gains (losses)                                                  | 7.7                          | (9.3)                     
|Total operating earnings before 
      income taxes per income statement | $ 34.7                       | $ 18.4                    



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F.	Goodwill





|                           | Fixed Annuity | SupplementalInsurance | Total
|-------------------------- | ------------- | --------------------- | -----
|                           |               |                       |      
|Balance at January 1, 2007 | $6.2          | $ 9.7                 | $15.9
|Additional goodwill (a)    | -             | 8.8                   | 8.8  
|Other                      | (0.1)         | -                     | (0.1)
|Balance at June 30, 2007   | $6.1          | $18.5                 | $24.6



---

(a) Subsidiary purchase accounting refinement related to the Ceres acquisition.









GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



G.	Unamortized Insurance Acquisition Costs

Unamortized insurance acquisition costs consisted of the following (in millions):



|                                           | June 30, | December 31,
|------------------------------------------ | -------- | ------------
|                                           | 2007     | 2006        
|                                           |         
|Deferred policy acquisition costs ("DPAC") | $  784.8 | $742.9      
|Policyholder sales inducements             | 133.2    | 109.4       
|Unrealized DPAC adjustment                 | 22.0     | (1.2)       
|PVFP                                       | 75.1     | 95.0        
|                                           | $1,015.1 | $946.1      

The unrealized DPAC adjustment reflects the change in DPAC assuming the unrealized gains or losses on securities had actually been realized.  See Note B to the Financial Statements - "Accounting Policies".

In the second quarter of 2007, PVFP was reduced by $12.3 million due to a refinement of the purchase price allocation for the August 2006 Ceres acquisition.  The PVFP amounts in the table above are net of $78.1 million and $70.5 million of accumulated amortization at June 30, 2007 and December 31, 2006, respectively.  Amortization of the PVFP was $2.4 million in the second quarter of 2007 and $7.6 million in the first six months of 2007 compared to $1.6 million in the second quarter of 2006 and $3.2 million in the first six months of 2006.  The increase in amortization compared to the 2006 periods reflects the acquisition of Ceres, including the effect of higher lapses in the Medicare supplement lines.

H.	Long-Term Debt

Long-term debt consisted of the following (in millions):



|                                                  | June 30, | December 31,
|------------------------------------------------- | -------- | ------------
|                                                  | 2007     | 2006        
|                                                  |         
|Direct obligations of GAFRI                       | $  0.8   | $  0.8      
|Obligations of AAG Holding (guaranteed by GAFRI): |          |             
|7-1/2% Senior Debentures due 2033                 | 112.5    | 112.5       
|7-1/4% Senior Debentures due 2034                 | 86.3     | 86.3        
|6-7/8% Senior Notes due 2008                      | 28.5     | 31.5        
|Bank Credit Facility maturing 2011                | 16.0     | -           
|                                                  | 244.1    | 231.1       



|Payable to Subsidiary Trusts:                       |        |       
|--------------------------------------------------- | ------ | ------
|AAG Holding 8-7/8% Subordinated Debentures due 2027 | -      | 22.0  
|AAG Holding 7.35% Subordinated Debentures due 2033  | 20.0   | 20.0  
|                                                    | 20.0   | 42.0  
|                                                    | $264.1 | $273.1

To achieve a desired balance between fixed and variable rate debt, GAFRI entered into interest rate swaps, which effectively convert its 6-7/8% Senior Notes to a floating rate of 3-month LIBOR plus 2.9% (effective rate of approximately 8.3% at June 30, 2007 and December 31, 2006).  In March 2007, GAFRI repurchased $3.0 million principal amount of its 6-7/8% Senior Notes for $3.1 million in cash.

Also in March 2007, GAFRI used funds borrowed under its bank credit facility (discussed below) to redeem its remaining 8-7/8% subordinated debentures due 2027 for $22.9 million.

In March 2006, the Company replaced its existing $165 million bank credit agreement with a new $500 million five-year revolving credit facility shared with AFG. Under terms of the new agreement, GAFRI may borrow up to $175 million with the ability to borrow up to $200 million, conditioned on AFG not borrowing in excess of $300 million.  AFG has agreed with GAFRI not to borrow more than $325 million under the credit facility and has agreed to guarantee amounts borrowed by GAFRI.  Amounts borrowed bear interest at rates ranging from 0.5% to 1.25% over LIBOR based on AFG's credit rating.  At June 30, 2007, the interest rate on the credit facility was approximately 6.1%.





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

At June 30, 2007, GAFRI had virtually no scheduled principal payments on debt for the next five years other than AAG Holding's Senior Notes due in 2008 and the bank credit facility due in 2011.

I.	Stockholders' Equity

In the first six months of 2007, GAFRI issued 432,297 shares of Common Stock upon the exercise of stock options.  Also in the first six months of 2007, GAFRI granted stock options for 0.6 million shares of Common Stock (at an average price of $23.76) under GAFRI's stock option plans.

GAFRI uses the Black-Scholes option-pricing model to calculate the "fair value" of its option grants.  The fair value of options granted in the first six months of 2007 was $7.33 per share based on the following assumptions: dividend yield of less than 1%; expected volatility of 20% (due to limited trading volume of GAFRI's common stock, implied volatility of a peer group's publicly traded options used); risk-free interest rate of 4.7%; and expected option life of 6.5 years.

GAFRI's total stock compensation expense was $0.7 million for the second quarter and $1.3 million in the first six months of 2007 compared to $0.6 million and $1.1 million in the second quarter and first six months of 2006, respectively.

In the first quarter of 2007, GAFRI retired 219,295 shares of common stock which had been purchased in prior years to pre-fund two of the Company's non-qualified benefit plans.

The Company is authorized to issue 25,000,000 shares of Preferred Stock, par value $1.00 per share.

J.	Contingencies

Except as discussed in Management's Discussion and Analysis - "Environmental Reserve Charge", there have been no significant changes to the matters discussed and referred to in Note M - "Contingencies" of GAFRI's Annual Report on Form 10-K for 2006.

K.	Additional Information

Statutory Information



|                               | June 30, | December 31,
|------------------------------ | -------- | ------------
|                               | 2007     | 2006        
|Capital and surplus            | $653.5   | $643.8      
|Asset valuation reserve        | 107.1    | 88.3        
|Interest maintenance reserve   | -        | -           
|                               |          |             
|Six months ended June 30,     
|                               | 2007     | 2006        
|Pre-tax income from operations | $19.1    | $45.2       
|Net income                     | 24.1     | 97.4        

The decrease in statutory pre-tax income from operations in the first six months of 2007 compared to the same period in 2006 is due primarily to the impact of (i) higher commissions and costs associated with higher first year statutory premiums; (ii) lower spreads on GALIC's in-force annuity business; and (iii) higher death claims.  Net income in 2006 included an after-tax statutory gain on the June 2006 sale of Chatham Bars Inn of approximately $50 million.

In the first six months of 2007, GALIC paid a $30 million dividend to GAFRI.  The maximum amount of dividends payable by GALIC and Ceres' subsidiaries for the remainder of 2007 without prior regulatory approval is $91 million and $19 million, respectively.





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Variable Annuities



|Condensed Consolidating InformationGAFRI has guaranteed all of the outstanding debt of its wholly-owned subsidiary, AAG Holding Company, Inc.  Condensed (unaudited) consolidating financial statements for GAFRI are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



CONDENSED CONSOLIDATING BALANCE SHEET

(In millions)





|                                                     |          | AAG      | ALL OTHER | CONS       |          
|---------------------------------------------------- | -------- | -------- | --------- | ---------- | ---------
|JUNE 30, 2007                                        | GAFRI    | HOLDING  | SUBS      | ENTRIES    | CONS     
|                                                     |          |          |           |            |          
|Assets                                               |          |          |           |            |          
|Cash and investments                                 | $   21.5 | $      - | $10,743.4 | ($   0.3)  | $10,764.6
|Investment in subsidiaries                           | 956.9    | 1,185.1  | 20.3      | (2,162.3)  | -        
|Notes receivable from subs                           | 102.4    | -        | -         | (102.4)    | -        
|Unamortized insurance acquisition 
    costs         | -        | -        | 1,015.1   | -          | 1,015.1  
|Other assets                                         | 24.9     | 6.6      | 1,091.3   | 45.6       | 1,168.4  
|Variable annuity assets 
    (separate accounts)     | -        | -        | 717.2     | -          | 717.2    
|                                                     | $1,105.7 | $1,191.7 | $13,587.3 | ($2,219.4) | $13,665.3
|                                                     |          |          |           |            |          
|Liabilities and Stockholders' Equity                 |          |          |           |            |          
|Insurance liabilities                                | $     -  | $     -  | $11,382.1 | ($    5.5) | $11,376.6
|Notes payable to GAFRI                               | -        | 102.4    | -         | (102.4)    | -        
|Other long-term debt                                 | 0.8      | 335.4    | -         | (72.1)     | 264.1    
|Other liabilities                                    | 79.4     | 8.5      | 199.6     | (5.6)      | 281.9    
|Variable annuity liabilities
    (separate accounts) | -        | -        | 717.2     | -          | 717.2    
|                                                     | 80.2     | 446.3    | 12,298.9  | (185.6)    | 12,639.8 
|                                                     |          |          |           |            |          
|                                                     |          |          |           |            |          
|Total stockholders' equity                           | 1,025.5  | 745.4    | 1,288.4   | (2,033.8)  | 1,025.5  
|                                                     | $1,105.7 | $1,191.7 | $13,587.3 | ($2,219.4) | $13,665.3





|                                                     |          |          |           |            |          
|---------------------------------------------------- | -------- | -------- | --------- | ---------- | ---------
|DECEMBER 31, 2006                                    |          |          |           |            |          
|                                                     |          |          |           |            |          
|Assets                                               |          |          |           |            |          
|Cash and investments                                 | $   16.9 | $     -  | $10,698.8 | $   (0.4)  | $10,715.3
|Investment in subsidiaries                           | 1,010.9  | 1,256.8  | 24.1      | (2,291.8)  | -        
|Notes receivable from subs                           | 102.4    | -        | -         | (102.4)    | -        
|Unamortized insurance acquisition 
    costs         | -        | -        | 946.1     | -          | 946.1    
|Other assets                                         | 24.7     | 5.8      | 898.4     | 44.6       | 973.5    
|Variable annuity assets 
    (separate accounts)     | -        | -        | 700.5     | -          | 700.5    
|                                                     | $1,154.9 | $1,262.6 | $13,267.9 | ($2,350.0) | $13,335.4
|                                                     |          |          |           |            |          
|Liabilities and Stockholders' Equity                 |          |          |           |            |          
|Insurance liabilities                                | $     -  | $     -  | $10,980.6 | ($    5.1) | $10,975.5
|Notes payable to GAFRI                               | -        | 102.4    | -         | (102.4)    | -        
|Other long-term debt                                 | 0.8      | 396.8    | -         | (124.5)    | 273.1    
|Other liabilities                                    | 80.1     | 10.4     | 227.8     | (6.0)      | 312.3    
|Variable annuity liabilities
    (separate accounts) | -        | -        | 700.5     | -          | 700.5    
|                                                     | 80.9     | 509.6    | 11,908.9  | (238.0)    | 12,261.4 
|                                                     |          |          |           |            |          
|Total stockholders' equity                           | 1,074.0  | 753.0    | 1,359.0   | (2,112.0)  | 1,074.0  
|                                                     | $1,154.9 | $1,262.6 | $13,267.9 | ($2,350.0) | $13,335.4
|                                                     |          |          |           |            |          





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

CONDENSED CONSOLIDATING INCOME STATEMENT

(In millions)









|FOR THE THREE MONTHS ENDED                    |       | AAG     | ALL OTHER | CONS     |       
|--------------------------------------------- | ----- | ------- | --------- | -------- | ------
|JUNE 30, 2007                                 | GAFRI | HOLDING | SUBS      | ENTRIES  | CONS  
|                                              |       |         |           |          |       
|Revenues:                                     |       |         |           |          |       
|Life, accident and health premiums            | $  -  | $  -    | $103.4    | $   -    | $103.4
|Net investment income and other revenue       | 4.1   | -       | 195.4     | (2.0)    | 197.5 
|Equity in earnings of subsidiaries            | 36.7  | 45.8    | -         | (82.5)   | -     
|                                              | 40.8  | 45.8    | 298.8     | (84.5)   | 300.9 
|                                              |       |         |           |          |       
|Costs and Expenses:                           |       |         |           |          |       
|Insurance benefits and expenses               | -     | -       | 216.6     | -        | 216.6 
|Interest and debt expenses                    | 0.1   | 8.9     | -         | (3.7)    | 5.3   
|Other expenses                                | 6.0   | 0.7     | 37.6      | -        | 44.3  
|                                              | 6.1   | 9.6     | 254.2     | (3.7)    | 266.2 
|                                              |       |         |           |          |       
|Earnings before income taxes                  | 34.7  | 36.2    | 44.6      | (80.8)   | 34.7  
|Provision for income taxes                    | 11.8  | 12.3    | 15.2      | (27.5)   | 11.8  
|                                              |       |         |           |          |       
|Income from continuing operations, net of tax | 22.9  | 23.9    | 29.4      | (53.3)   | 22.9  
|Discontinued hotel operations, net of tax     | 1.9   | -       | 1.9       | (1.9)    | 1.9   
|                                              |       |         |           |          |       
|Net income                                    | $24.8 | $23.9   | $ 31.3    | ($ 55.2) | $ 24.8







|FOR THE SIX MONTHS ENDED                  |       |       |        |          |       
|----------------------------------------- | ----- | ----- | ------ | -------- | ------
|JUNE 30, 2007                             |       |       |        |          |       
|                                          |       |       |        |          |       
|Revenues:                                 |       |       |        |          |       
|Life, accident and health premiums        | $  -  | $  -  | $210.0 | $   -    | $210.0
|Net investment income and other revenue   | 10.0  | (3.4) | 380.5  | (4.3)    | 382.8 
|Equity in earnings of subsidiaries        | 61.1  | 80.7  | -      | (141.8)  | -     
|                                          | 71.1  | 77.3  | 590.5  | (146.1)  | 592.8 
|                                          |       |       |        |          |       
|Costs and Expenses:                       |       |       |        |          |       
|Insurance benefits and expenses           | -     | -     | 435.3  | -        | 435.3 
|Interest and debt expenses                | 0.1   | 19.0  | -      | (8.1)    | 11.0  
|Other expenses                            | 6.6   | 1.6   | 73.9   | -        | 82.1  
|                                          | 6.7   | 20.6  | 509.2  | (8.1)    | 528.4 
|                                          |       |       |        |          |       
|Earnings before income taxes              | 64.4  | 56.7  | 81.3   | (138.0)  | 64.4  
|Provision for income taxes                | 21.5  | 19.3  | 27.8   | (47.1)   | 21.5  
|                                          |       |       |        |          |       
|Income from continuing operations         | 42.9  | 37.4  | 53.5   | (90.9)   | 42.9  
|Discontinued hotel operations, net of tax | 1.9   | -     | 1.9    | (1.9)    | 1.9   
|                                          |       |       |        |          |       
|Net income                                | $44.8 | $37.4 | $ 55.4 | ($ 92.8) | $ 44.8







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

CONDENSED CONSOLIDATING INCOME STATEMENT

(In millions)







|FOR THE THREE MONTHS ENDED                          |       | AAG     | ALL OTHER | CONS     |       
|--------------------------------------------------- | ----- | ------- | --------- | -------- | ------
|JUNE 30, 2006                                       | GAFRI | HOLDING | SUBS      | ENTRIES  | CONS  
|                                                    |       |         |           |          |       
|Revenues:                                           |       |         |           |          |       
|Life, accident and health premiums                  | $  -  | $  -    | $ 75.5    | $   -    | $ 75.5
|Net investment income and other revenue             | 8.5   | (0.3)   | 158.2     | (4.3)    | 162.1 
|Equity in earnings of subsidiaries                  | 12.6  | 73.4    | -         | (86.0)   | -     
|                                                    | 21.1  | 73.1    | 233.7     | (90.3)   | 237.6 
|                                                    |       |         |           |          |       
|Costs and Expenses:                                 |       |         |           |          |       
|Insurance benefits and expenses                     | -     | -       | 180.9     | -        | 180.9 
|Interest and debt expenses                          | -     | 10.3    | -         | (4.6)    | 5.7   
|Other expenses                                      | 2.7   | 2.4     | 27.5      | -        | 32.6  
|                                                    | 2.7   | 12.7    | 208.4     | (4.6)    | 219.2 
|                                                    |       |         |           |          |       
|Earnings before income taxes                        | 18.4  | 60.4    | 25.3      | (85.7)   | 18.4  
|Provision for income taxes                          | 6.3   | 21.2    | 8.8       | (30.0)   | 6.3   
|                                                    |       |         |           |          |       
|Income from continuing operations                   | 12.1  | 39.2    | 16.5      | (55.7)   | 12.1  
|Discontinued hotel operations, net of tax           | (0.1) | -       | (0.1)     | 0.1      | (0.1) 
|Gain on sale of discontinued hotel, 
    net of tax | 31.6  | -       | 31.6      | (31.6)   | 31.6  
|                                                    |       |         |           |          |       
|Net income                                          | $43.6 | $39.2   | $ 48.0    | ($ 87.2) | $ 43.6











|FOR THE SIX MONTHS ENDED                            |       | AAG     | ALL OTHER | CONS     |       
|--------------------------------------------------- | ----- | ------- | --------- | -------- | ------
|JUNE 30, 2006                                       | GAFRI | HOLDING | SUBS      | ENTRIES  | CONS  
|                                                    |       |         |           |          |       
|Revenues:                                           |       |         |           |          |       
|Life, accident and health premiums                  | $  -  | $  -    | $152.0    | $   -    | $152.0
|Net investment income and other revenue             | 13.1  | (2.1)   | 332.7     | (8.7)    | 335.0 
|Equity in earnings of subsidiaries                  | 39.8  | 113.6   | -         | (153.4)  | -     
|                                                    | 52.9  | 111.5   | 484.7     | (162.1)  | 487.0 
|                                                    |       |         |           |          |       
|Costs and Expenses:                                 |       |         |           |          |       
|Insurance benefits and expenses                     | -     | -       | 360.0     | -        | 360.0 
|Interest and debt expenses                          | -     | 20.7    | -         | (8.8)    | 11.9  
|Other expenses                                      | 5.0   | 4.3     | 57.9      | -        | 67.2  
|                                                    | 5.0   | 25.0    | 417.9     | (8.8)    | 439.1 
|                                                    |       |         |           |          |       
|Earnings before income taxes                        | 47.9  | 86.5    | 66.8      | (153.3)  | 47.9  
|Provision for income taxes                          | 16.7  | 30.4    | 23.4      | (53.8)   | 16.7  
|                                                    |       |         |           |          |       
|Income from continuing operations                   | 31.2  | 56.1    | 43.4      | (99.5)   | 31.2  
|Discontinued hotel operations, net of tax           | (0.6) | -       | (0.6)     | 0.6      | (0.6) 
|Gain on sale of discontinued hotel, 
    net of tax | 31.6  | -       | 31.6      | (31.6)   | 31.6  
|                                                    |       |         |           |          |       
|Net income                                          | $62.2 | $56.1   | $ 74.4    | ($130.5) | $ 62.2







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)



|FOR THE SIX MONTHS ENDED                                      |         | AAG     | ALL OTHER | CONS     |          
|------------------------------------------------------------- | ------- | ------- | --------- | -------- | ---------
|JUNE 30, 2007                                                 | GAFRI   | HOLDING | SUBS      | ENTRIES  | CONS     
|                                                              |         |         |           |          |          
|Cash Flows from Operating Activities:                         |         |         |           |          |          
|Net income                                                    | $ 44.8  | $ 37.4  | $   55.4  | ($ 92.8) | $   44.8 
|Adjustments:                                                  |         |         |           |          |          
|Equity in net earnings of
      subsidiaries and affiliates   | (42.3)  | (53.0)  | -         | 95.3     | -        
|Increase in life, accident and health
      reserves          | -       | -       | 30.5      | -        | 30.5     
|Benefits to annuity policyholders                             | -       | -       | 179.2     | -        | 179.2    
|Amortization of insurance acquisition costs                   | -       | -       | 65.2      | -        | 65.2     
|Depreciation and amortization                                 | 1.3     | 0.9     | 4.3       | -        | 6.5      
|Realized (gains) losses on investments                        | 0.1     | -       | (8.9)     | -        | (8.8)    
|Gain on sale of discontinued hotel                            | -       | -       | (2.9)     | -        | (2.9)    
|Realized (gain) loss on retirement of debt                    | (1.6)   | 3.4     | 0.9       | (1.6)    | 1.1      
|Net trading portfolio activity                                | -       | -       | (8.4)     | -        | (8.4)    
|Increase in insurance acquisition costs                       | -       | -       | (103.2)   | -        | (103.2)  
|Decrease in reinsurance recoverable                           | -       | -       | 14.4      | -        | 14.4     
|Decrease (increase) in other assets                           | (1.4)   | 1.9     | (136.5)   | -        | (136.0)  
|Increase (decrease) in other liabilities                      | 0.6     | (1.9)   | (11.6)    | -        | (12.9)   
|Increase (decrease) in payable to
      affiliates, net       | 2.6     | (0.8)   | 18.3      | -        | 20.1     
|Capital contribution from parent (to
      subsidiary)        | (185.4) | 185.4   | -         | -        | -        
|Dividends from subsidiaries(to parent)                        | 137.3   | (107.0) | (30.3)    | -        | -        
|Other, net                                                    | (4.1)   | (4.1)   | 2.4       | (0.9)    | (6.7)    
|Net cash provided by (used in) operating 
        activities  | (48.1)  | 62.2    | 68.8      | -        | 82.9     
|                                                              |         |         |           |          |          
|Cash Flows from Investing Activities:                         |         |         |           |          |          
|Purchases of investments and other assets                     | -       | -       | (1,469.1) | 17.3     | (1,451.8)
|Maturities and redemptions of fixed 
    maturity investments | 32.2    | -       | 346.1     | (55.4)   | 322.9    
|Sales of investments and other assets                         | 17.3    | -       | 439.9     | (17.3)   | 439.9    
|Increase in policy loans                                      | -       | -       | (2.1)     | -        | (2.1)    
|Net cash provided by (used in) investing
      activities     | 49.5    | -       | (685.2)   | (55.4)   | (691.1)  
|                                                              |         |         |           |          |          
|Cash Flows from Financing Activities:                         |         |         |           |          |          
|Annuity receipts                                              | -       | -       | 817.4     | -        | 817.4    
|Annuity surrenders, benefits and withdrawals                  | -       | -       | (691.7)   | -        | (691.7)  
|Net transfers from variable annuity assets                    | -       | -       | 31.9      | -        | 31.9     
|Additions to long-term debt                                   | -       | 92.0    | -         | -        | 92.0     
|Reductions of long-term debt                                  | (0.1)   | (154.2) | (3.2)     | 55.4     | (102.1)  
|Issuance of Common Stock                                      | 7.2     | -       | -         | -        | 7.2      
|Other                                                         | (3.1)   | -       | -         | -        | (3.1)    
|Net cash provided by (used in) financing
      activities     | 4.0     | (62.2)  | 154.4     | 55.4     | 151.6    
|                                                              |         |         |           |          |          
|Net increase (decrease) in cash and cash
  equivalents        | 5.4     | -       | (462.0)   | -        | (456.6)  
|Beginning cash and cash equivalents                           | 2.8     | -       | 561.5     | -        | 564.3    
|                                                              |         |         |           |          |          
|Ending cash and cash equivalents                              | $  8.2  | $   -   | $  99.5   | $   -    | $  107.7 





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)

|FOR THE SIX MONTHS ENDED                                         |        | AAG     | ALL OTHER | CONS     |          
|---------------------------------------------------------------- | ------ | ------- | --------- | -------- | ---------
|JUNE 30, 2006                                                    | GAFRI  | HOLDING | SUBS      | ENTRIES  | CONS     
|                                                                 |        |         |           |          |          
|Cash Flows from Operating Activities:                            |        |         |           |          |          
|Net income                                                       | $62.2  | $ 56.1  | $   74.4  | ($130.5) | $   62.2 
|Adjustments:                                                     |        |         |           |          |          
|Equity in net earnings of
      subsidiaries and affiliates      | (57.3) | (73.7)  | -         | 131.0    | -        
|Increase in life, accident and health
      reserves             | -      | -       | 21.0      | -        | 21.0     
|Benefits to annuity policyholders                                | -      | -       | 166.8     | -        | 166.8    
|Amortization of insurance acquisition costs                      | -      | -       | 50.5      | -        | 50.5     
|Depreciation and amortization                                    | 2.2    | 0.8     | 3.2       | -        | 6.2      
|Realized losses on investments                                   | 1.4    | -       | 3.0       | 0.2      | 4.6      
|Gain on sale of discontinued hotel                               | -      | -       | (48.7)    | -        | (48.7)   
|Realized loss on retirement of debt                              | 2.2    | 2.1     | -         | -        | 4.3      
|Net trading portfolio activity                                   | -      | -       | (13.1)    | -        | (13.1)   
|Increase in insurance acquisition costs                          | -      | -       | (66.9)    | -        | (66.9)   
|Increase in reinsurance recoverable                              | -      | -       | (4.3)     | -        | (4.3)    
|Increase in other assets                                         | (1.1)  | (0.6)   | (9.8)     | -        | (11.5)   
|Increase (decrease) in other liabilities                         | (0.2)  | 0.1     | (1.0)     | -        | (1.1)    
|Increase in payable to affiliates, net                           | 11.9   | 1.6     | 12.9      | -        | 26.4     
|Capital contribution from parent (to
      subsidiary)           | (30.0) | 30.0    | -         | -        | -        
|Dividends from subsidiaries(to parent)                           | 37.5   | (12.4)  | (25.1)    | -        | -        
|Other, net                                                       | 1.1    | (1.8)   | 0.5       | (0.7)    | (0.9)    
|Net cash provided by operating activities                        | 29.9   | 2.2     | 163.4     | -        | 195.5    
|                                                                 |        |         |           |          |          
|Cash Flows from Investing Activities:                            |        |         |           |          |          
|Purchases of investments and other assets                        | -      | -       | (1,154.7) | -        | (1,154.7)
|Proceeds received from sale of Puerto Rican 
    operations, net | 37.5   | -       | (10.3)    | -        | 27.2     
|Maturities and redemptions of fixed 
    maturity investments    | 1.2    | -       | 255.3     | -        | 256.5    
|Cash and short-term investments of businesses
    acquired, net  | -      | -       | 104.8     | -        | 104.8    
|Sales of investments and other assets                            | 5.9    | -       | 835.9     | -        | 841.8    
|Increase in policy loans                                         | -      | -       | (3.9)     | -        | (3.9)    
|Net cash provided by investing activities                        | 44.6   | -       | 27.1      | -        | 71.7     
|                                                                 |        |         |           |          |          
|Cash Flows from Financing Activities:                            |        |         |           |          |          
|Fixed annuity receipts                                           | -      | -       | 515.4     | -        | 515.4    
|Annuity surrenders, benefits and withdrawals                     | -      | -       | (592.0)   | -        | (592.0)  
|Net transfers from variable annuity assets                       | -      | -       | 7.2       | -        | 7.2      
|Additions to long-term debt                                      | -      | 15.0    | -         | -        | 15.0     
|Reductions of long-term debt                                     | (65.9) | (16.9)  | -         | -        | (82.8)   
|Issuance of Common Stock                                         | 2.9    | -       | -         | -        | 2.9      
|Other                                                            | (0.8)  | -       | -         | -        | (0.8)    
|Net cash used in financing activities                            | (63.8) | (1.9)   | (69.4)    | -        | (135.1)  
|                                                                 |        |         |           |          |          
|Net increase in cash and short-term   investments                | 10.7   | 0.3     | 121.1     | -        | 132.1    
|Beginning cash and short-term investments                        | 7.9    | 0.3     | 146.1     | -        | 154.3    
|                                                                 |        |         |           |          |          
|Ending cash and short-term investments                           | $18.6  | $ 0.6   | $  267.2  | $  -     | $  286.4 





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



ITEM 2



Management's Discussion and Analysis

of Financial Condition and Results of Operations



---

|Index to MD&A                  
|-------------------------------
|                               
|Page                           
|Forward-Looking Statements     
|General                        
|Overview                       
|Critical Accounting Policies   
|Liquidity and Capital Resources
|Ratios                         
|Sources and Uses of Funds      
|Independent Ratings            
|Investments                    



---

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.  The safe harbor does not apply to statements with respect to the pending transaction with AFG.  Some of the forward-looking statements can be identified by the use of forward-looking words such as "anticipates", "believes", "expects", "estimates", "intends", "plans", "seeks", "could", "may", "should", "will" or the negative version of those words or other comparable terminology.  Such forward-looking statements relate to: expectations concerning market and other conditions and their effect on future premiums, revenues, earning and investment activities; recoverability of asset values; mortality and the adequacy of reserves for environmental pollution.

Actual results could differ materially from those contained in or implied by such forward-looking statements for a variety of factors including:

- changes in economic conditions, including interest rates, performance and volatility of securities markets, and the availability of capital;
- trends in persistency, mortality and morbidity;
- regulatory actions;
- changes in regulatory and legal environments;
- tax law changes;
- changes in laws governing retirement savings vehicles;
- cost of environmental clean-up at former manufacturing sites operated by the Company's predecessor;
- availability of reinsurance and ability of reinsurers to pay their obligations;
- results of acquisitions;
- competitive pressures; and
- changes in debt and claims paying ratings.

Forward-looking statements included in this Form 10-Q are made only as of the date of this report and under Section 27A of the Securities Act and Section 21E of the Exchange Act; we do not have any obligation to update any forward-looking statement to reflect subsequent events or circumstances.



GENERAL

Great American Financial Resources, Inc. ("GAFRI" or "the Company") and its subsidiary, AAG Holding Company, Inc., are organized as holding companies with nearly all of their operations being conducted by their subsidiaries.  These companies, however, have continuing expenditures for administrative expenses, corporate services and for the payment of interest and principal on borrowings and stockholder dividends.







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued

OVERVIEW

Financial Condition

GAFRI has significantly strengthened its capital and liquidity over the last several years.  Since December 31, 2002, stockholders' equity (excluding unrealized gains (losses)) has grown approximately $430 million (64%) to $1.1 billion and its debt to capital ratio decreased from more than 36% to 19.1%; in addition, the adjusted capital of GAFRI's largest insurance subsidiary increased nearly $289 million (59%) to $774 million.

Results of Operations

Through the operations of its insurance subsidiaries, GAFRI is engaged in the sale of retirement annuities and various forms of supplemental insurance products.

GAFRI's net income for the second quarter of 2007 was $24.8 million ($0.51 per diluted share) compared to $43.6 million ($0.91 per diluted share) for the same period in 2006.  GAFRI's net income for the first six months of 2007 was $44.8 million ($0.92 per diluted share), compared to $62.2 million ($1.30 per diluted share) for the same period in 2006.

GAFRI's net income in the second quarter and first six months of 2006 included an after-tax gain of $31.6 million ($0.66 per diluted share) on the sale of a hotel.  (See Note C to the Financial Statements)  Excluding the impact of the hotel sale, GAFRI's net income in the second quarter and first six months of 2007 increased significantly over the same periods in 2006, reflecting higher realized investment gains and improvements in GAFRI's supplemental insurance and fixed annuity segments, as well as slightly higher earnings in the Company's variable annuity business.  These increases were partially offset by higher mortality in the runoff life operations and a $2 million environmental charge taken in the second quarter of 2007 related to GAFRI's former manufacturing operations.

CRITICAL ACCOUNTING POLICIES

Significant accounting policies are described in Note B to the Financial Statements.  The preparation of financial statements in conformity with U.S. generally accepted accounting principals ("GAAP") requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements.  As more information becomes known, these estimates and assumptions could change and thus impact amounts reported in the future.

Management believes that the following items are the areas where the degree of judgment required to determine amounts recorded in the financial statements make the accounting policies critical:

- The recoverability of unamortized insurance acquisition costs;
- The establishment of insurance reserves;
- The determination of "other than temporary" impairments on investments; and
- Environmental reserves with respect to GAFRI's former manufacturing operations.

For further discussion of these policies, see "Critical Accounting Policies" in GAFRI's 2006 Form 10-K.







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



LIQUIDITY AND CAPITAL RESOURCES

Ratios



|                             | June 30, | December 31,
|---------------------------- | -------- | ------------
|                             | 2007     | 2006        
|Consolidated Debt            | $  264   | $  273      
|Stockholders' Equity         | 1,117    | 1,064       
|Total Capital                | $1,381   | $1,337      
|                             |          |             
|Consolidated Debt to Capital | 19.1%    | 20.4%       

The National Association of Insurance Commissioners' ("NAIC") risk-based capital ("RBC") formula determines the amount of capital that an insurance company needs to ensure that it has an acceptable expectation of not becoming financially impaired.  At June 30, 2007, the capital ratio of GAFRI's principal insurance subsidiary was 6.5 times its authorized control level RBC.

Sources and Uses of Funds

Parent Holding Company Liquidity  To pay interest and principal on borrowings and other holding company costs, GAFRI (parent) and AAG Holding use primarily capital distributions from Great American Life Insurance Company ("GALIC") and Ceres Group, Inc., bank borrowings and cash and investments on hand.  Capital distributions from GAFRI's insurance subsidiaries are subject to regulatory restrictions relating to statutory surplus and earnings.  In the first six months of 2007, GALIC paid a $30 million dividend to GAFRI.  The maximum amount of dividends payable by GALIC and Ceres' subsidiaries for the remainder of 2007 without prior regulatory approval is $91 million and $19 million, respectively.

In March 2006, the Company replaced its existing bank credit agreement with a $500 million five-year credit facility shared with its parent company American Financial Group, Inc.  Under terms of the agreement, GAFRI may borrow up to $175 million with the ability to borrow up to $200 million, conditioned on AFG not borrowing in excess of $300 million.  At June 30, 2007, GAFRI had borrowings of $16 million outstanding on the credit agreement, bearing interest at a rate of 6.1%.  Under a currently effective shelf registration, GAFRI and AAG Holding can issue up to $250 million in additional equity or debt securities.

On August 7, 2006, GAFRI (parent) acquired all of the outstanding shares of Ceres Group Inc. for $204.4 million in cash.  To fund the acquisition, GAFRI used cash on hand and borrowings under its bank line.  Following the acquisition and the concurrent reinsurance transactions, Ceres distributed $60 million to GAFRI.  GAFRI expects that Ceres' insurance subsidiaries will have the capability to pay up to $50 million of additional dividends in 2007, subject to regulatory approval.

In March 2007, GAFRI redeemed all of its 8-7/8% trust preferred securities using funds borrowed under the bank credit agreement.  See Note H to the Financial Statements - "Long-Term Debt".  Also in March 2007, GAFRI repurchased $3.0 million principal amount of its 6-7/8% Senior Notes for $3.1 million.  In 2006, GAFRI repurchased $68.5 million principal amount of its 6-7/8% Senior Notes for $70.8 million.

GAFRI believes that it has sufficient resources to meet its liquidity requirements.

Subsidiary Liquidity





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued

In GAFRI's annuity business, where profitability is largely dependent on earning a "spread" between invested assets and annuity liabilities, the duration of investments is generally maintained close to that of liabilities.  With declining rates, GAFRI receives some protection due to the ability to lower crediting rates, subject to guaranteed minimums.  In a rising interest rate environment, significant protection from withdrawals exists in the form of temporary and permanent surrender charges on GAFRI's annuity products.  Annuity surrenders (after surrender fees) totaled approximately $264 million and $493 million in the second quarter and first six months of 2007 compared to $211 million and $422 million in the comparable 2006 periods.  Management believes the increase in surrenders is due to (i) the higher interest rate environment (compared to when certain policies were initially sold); (ii) recent acquisitions of blocks of annuity business; and (iii) policies coming out of their surrender charge periods.

In recent years, the Company's insurance subsidiaries have entered into several reinsurance transactions in connection with (i) the sale of GA-PR; (ii) the acquisition of Ceres and (iii) certain of its life and supplemental insurance operations.  These transactions provided additional capital and liquidity and were entered into in the normal course of business in order to exit certain lines, fund acquisitions and transfer risk.  The Company may enter into additional reinsurance transactions in the future.

GAFRI believes its insurance subsidiaries maintain sufficient liquidity to pay claims and benefits, operating expenses, dividends and tax payments, as well as meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies.

Independent Ratings

GAFRI's operations could be materially and adversely affected by ratings downgrades.  In connection with recent reviews by independent rating agencies, management indicated that it intends to maintain lower ratios of debt to capital than it has in recent years and intends to maintain the capital of its significant insurance subsidiaries at levels currently indicated by the rating agencies as appropriate for the current ratings.  Items that could adversely affect capital levels include (i) an extended period of low interest rates and a resulting significant narrowing of annuity "spread" (the difference between earnings received by the Company on its investments less the amount credited to policyholders' annuity accounts); (ii) investment impairments; (iii) a sustained decrease in the stock market; (iv) adverse mortality or morbidity; (v) changes in capital levels associated with current rating agency requirements; and (iv) higher than planned dividends paid due to liquidity needs by GAFRI and AAG Holding.

Following are the Company's insurance ratings as of June 30, 2007:



| |        |                |             | Standard   
| | ------ | -------------- | ----------- | -----------
| |        | A.M. Best      | Fitch       | & Poor's   
| | GALIC* | A  (Excellent) | A+ (Strong) | A- (Strong)
| | AILIC  | A  (Excellent) | A+ (Strong) | A- (Strong)
| | Loyal  | A  (Excellent) | A+ (Strong) | Not rated  
| | UTA    | A- (Excellent) | A+ (Strong) | Not rated  
| | CGIC   | B++(Good)      | A  (Strong) | Not rated  
| | CRLIC  | B++(Good)      | A  (Strong) | Not rated  



---

*GALIC is rated A3 (good financial security) by Moody's.





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued

GAFRI and GALIC received a "positive" outlook from Moody's.  Continental General Insurance Company ("CGIC") and Central Reserve Life Insurance Company ("CRLIC") received positive outlooks from A.M. Best.  All of the other ratings carry a "stable" outlook.  In evaluating a company, independent rating agencies review such factors as the company's: (i) capital adequacy; (ii) profitability; (iii) leverage and liquidity; (iv) book of business; (v) quality and estimated market value of assets; (vi) adequacy of policy reserves; (vii) experience and competency of management; (viii) operating profile; and (ix) risk management.

Investments

GAFRI invests primarily in fixed income investments that, including loans and short-term investments, comprised 96% of its investment portfolio at June 30, 2007.  GAFRI generally invests in securities having intermediate-term maturities with an objective of optimizing interest yields while maintaining an appropriate relationship of maturities between GAFRI's assets and expected liabilities.

The NAIC assigns quality ratings to publicly traded as well as privately placed securities.  At June 30, 2007, approximately 94% of GAFRI's Insurance Companies' fixed maturity portfolio was comprised of investment grade bonds (NAIC rating of "1" or "2").  Management believes that a high quality investment portfolio is more likely to generate a stable and predictable investment return.



At June 30, 2007, the mortgage-backed securities ("MBSs") portfolio represented approximately 30% of the Insurance Companies' investments.  MBSs are subject to significant prepayment risk due to the fact that, in periods of declining interest rates, mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of the lower current rates.  The market that these securities trade in is highly liquid.  Aside from interest rate risk referred to above, GAFRI does not believe a material risk (relative to earnings or liquidity) is inherent in holding such investments.

Approximately 99% of the Insurance Companies' MBSs are rated "AAA".  At June 30, 2007, approximately 2% of GAFRI's fixed maturity portfolio was invested in mortgage-backed securities in which the underlying collateral is sub-prime mortgages.  At that date, the net unrealized loss on these securities was approximately $3.0 million.  The securities are collateralized by fixed-rate mortgages and have an overall average life of approximately 3 years.  None of the securities have been subject to downgrades or "watch listing" by rating agencies.  At June 30, 2007, GAFRI had no collateral debt obligations secured by residential mortgages.

Summarized information for the unrealized gains and losses recorded in GAFRI's balance sheet at June 30, 2007, is shown in the following table (dollars in millions).  Approximately $118 million of available-for-sale "Fixed Maturities" and $10 million of "Equity Securities" had no unrealized gains or losses at June 30, 2007.



|                                                       | Securities 
with 
Unrealized | Securities 
with 
Unrealized
|------------------------------------------------------ | ---------------------------- | ----------------------------
|Available-for-sale Fixed Maturities                    | Gains                        | Losses                      
|Fair value of securities                               | $2,201                       | $7,216                      
|Amortized cost of securities                           | $2,146                       | $7,436                      
|Gross unrealized gain (loss)                           | 55                           | ($  220)                    
|Fair value as % of amortized cost                      | 103%                         | 97%                         
|Number of security positions                           | 708                          | 1,080                       
|Number individually exceeding $2 million gain or loss  | -                            | 3                           
|Concentration of gains or (losses) by type or industry |                              |                             
|(exceeding 5% of unrealized):                          |                              |                             
|Mortgage-backed securities                             | $ 10.3                       | ($ 81.9)                    
|Banks, savings and credit institutions                 | 4.7                          | (46.5)                      
|Gas and electric services                              | 7.6                          | (14.8)                      
|Insurance companies                                    | 4.3                          | (14.5)                      
|Percentage rated investment grade                      | 87%                          | 97%                         





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



|                             | Securities 
with 
Unrealized | Securities 
with 
Unrealized
|---------------------------- | ---------------------------- | ----------------------------
|Equity Securities            | Gains                        | Losses                      
|Fair value of securities     | $204                         | $ 92                        
|Cost of securities           | $169                         | $100                        
|Gross unrealized gain (loss) | $ 35                         | ($ 8)                       
|Fair value as % of cost      | 121%                         | 92%                         

The table below sets forth the scheduled maturities of GAFRI's available-for-sale fixed maturity securities at June 30, 2007, based on their fair values.  Asset backed securities and other securities with sinking funds are reported at average maturity.  Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.



|                                   | Securities 
with 
Unrealized | Securities 
with 
Unrealized
|---------------------------------- | ---------------------------- | ----------------------------
|Maturity*                          | Gains*                       | Losses*                     
|One year or less                   | 7%                           | 1%                          
|After one year through five years  | 45                           | 7                           
|After five years through ten years | 25                           | 48                          
|After ten years                    | 8                            | 8                           
|                                   | 85                           | 64                          
|Mortgage-backed securities         | 15                           | 36                          
|                                   | 100%                         | 100%                        



---

*Excludes $118 million of fixed maturities with no unrealized gains or losses.

When a decline in the value of a specific investment is considered to be "other than temporary," a provision for impairment is charged to earnings (accounted for as a realized loss) and the cost basis of that investment is reduced.  The determination of whether unrealized losses are "other than temporary" requires judgment based on subjective as well as objective factors.  A listing of factors considered and resources used is contained in the discussion of "Investments" under Management's Discussion and Analysis in GAFRI's 2006 Form 10-K.

The table below (dollars in millions) summarizes the unrealized gains and losses on all securities by dollar amount.

|Fixed Maturities at June 30, 2007  | Aggregate 
Fair Value | Aggregate 
Unrealized Gain (Loss) | Fair 
Value as 
% of Cost Basis
|---------------------------------- | --------------------- | --------------------------------- | -------------------------------
|                                   |                       |                                   |                                
|Securities with unrealized gains:  |                       |                                   |                                
|Exceeding $500,000 (13 issues)     | $  113                | $  9                              | 108.7%                         
|Less than $500,000 (695 issues)    | 2,088                 | 46                                | 102.3%                         
|                                   | $2,201                | $ 55                              | 102.6%                         
|                                   |                       |                                   |                                
|Securities with unrealized losses: |                       |                                   |                                
|Exceeding $500,000 (130 issues)    | $2,596                | ($114)                            | 95.8%                          
|Less than $500,000 (950 issues)    | 4,620                 | (106)                             | 97.8%                          
|                                   | $7,216                | ($220)                            | 97.0%                          
|                                   |                       |                                   |                                
|Equity Securities at June 30, 2007 |                       |                                   |                                
|                                   |                       |                                   |                                
|Securities with unrealized gains:  |                       |                                   |                                
|Exceeding $500,000 (19 issues)     | $112                  | $ 29                              | 134.9%                         
|Less than $500,000 (35 issues)     | 92                    | 6                                 | 107.0%                         
|                                   | $204                  | $ 35                              | 120.7%                         
|                                   |                       |                                   |                                
|Securities with unrealized losses: |                       |                                   |                                
|Exceeding $500,000 (4 issues)      | $ 51                  | ($  6)                            | 89.5%                          
|Less than $500,000 (22 issues)     | 41                    | (2)                               | 95.3%                          
|                                   | $ 92                  | ($  8)                            | 92.0%                          
|                                   |                       |                                   |                                







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



The following table (dollars in millions) summarizes the unrealized loss for all securities with unrealized losses by issuer quality and length of time those securities have been in an unrealized loss position.

|Fixed Maturities with UnrealizedLosses at June 30, 2007 | Aggregate 
Fair Value | Aggregate
UnrealizedLoss | Fair
Value as
% of CostBasis
|------------------------------------------------------- | --------------------- | ------------------------ | ----------------------------
|                                                        |                       |                          |                             
|Investment grade with losses for:                       |                       |                          |                             
|One year or less (482 issues)                           | $3,481                | ($ 70)                   | 98.0%                       
|Greater than one year (519 issues)                      | 3,494                 | (144)                    | 96.0%                       
|                                                        | $6,975                | ($214)                   | 97.0%                       
|                                                        |                       |                          |                             
|                                                        |                       |                          |                             
|Non-investment grade with losses for:                   |                       |                          |                             
|One year or less (51 issues)                            | $  134                | ($  3)                   | 97.8%                       
|Greater than one year (28 issues)                       | 107                   | (3)                      | 97.3%                       
|                                                        | $  241                | ($  6)                   | 97.6%                       
|                                                        |                       |                          |                             
|                                                        |                       |                          |                             
|Equity Securities with Unrealized                       |                       |                          |                             
|Losses at June 30, 2007                                 |                       |                          |                             
|                                                        |                       |                          |                             
|One year or less (23 issues)                            | $   88                | ($  7)                   | 92.6%                       
|Greater than one year (3 issues)                        | 4                     | (l)                      | 80.0%                       
|                                                        | $   92                | ($  8)                   | 92.0%                       
|                                                        |                       |                          |                             

Based on its analysis, management believes that (i) GAFRI will recover its cost basis in the securities with unrealized losses and (ii) GAFRI has the ability and intent to hold the securities until they mature or recover in value.  Although GAFRI has the ability to continue holding its investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers' creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset liability management decisions, market movements, changes in views about appropriate asset allocation, or the desire to offset taxable realized gains.  Should GAFRI's ability or intent change with regard to a particular security, a charge for impairment would likely be required.  While it is not possible to accurately predict if or when a specific security will become impaired, charges for other than temporary impairment could be material to results of operations in a future period.  Management believes it is not likely that future impairment charges will have a significant effect on GAFRI's liquidity.

RESULTS OF OPERATIONS

General

Environmental Reserve Charge





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued

Statutory Annuity Premiums



|                                       | Three months endedJune 30, | Six months endedJune 30,
|-------------------------------------- | -------------------------- | ------------------------
|Annuity Premiums                       | 2007                       | 2006                    
|403(b) Fixed and Indexed Annuities:    |                            |                         
|First Year                             | $ 17                       | $ 14                    
|Renewal                                | 39                         | 33                      
|Subtotal                               | 56                         | 47                      
|                                       |                            |                         
|Non-403(b) Traditional Fixed Annuities | 79                         | 113                     
|Non-403(b) Indexed Annuities           | 284                        | 109                     
|Variable Annuities                     | 20                         | 24                      
|Total Annuity Premiums                 | $439                       | $293                    

Statutory annuity premiums in the second quarter and first six months of 2007 were 50% and 59% higher, respectively, than the same 2006 periods due primarily to higher fixed indexed-annuity sales, partially offset by lower sales of traditional fixed annuities in GAFRI's non-403(b) line of business.

Life, Accident and Health Premiums and Benefits



|                                                          | Three months ended June 30, | Six months endedJune 30,
|--------------------------------------------------------- | --------------------------- | ------------------------
|Premiums                                                  | 2007                        | 2006                    
|Supplemental insurance operations                         |                             |                         
|First year                                                | $ 16                        | $ 9                     
|Renewal                                                   | 79                          | 58                      
|Cincinnati life operations (in runoff)                    | 8                           | 9                       
|                                                          | $103                        | $76                     
|                                                          |                             |                         
|Benefits                                                  |                             |                         
|Supplemental insurance operations                         | $ 72                        | $56                     
|Cincinnati life operations (in runoff)                    | 14                          | 11                      
|                                                          | $ 86                        | $67                     
|                                                          |                             |                         
|Ratio of Supplemental benefits to
  Supplemental premiums | 76%                         | 84%                     

GAFRI's supplemental insurance premiums and benefits increased due to the August 2006 Ceres acquisition.  The supplemental insurance loss ratio decreased as a result of rate increases, favorable development (not expected to recur) in certain supplemental product lines and the acquisition of Ceres.  However, the impact of less than expected new sales and increased lapses in the Medicare supplement line could result in a higher loss ratio than expected.

The Ceres acquisition broadens GAFRI's distribution in both the independent agent and captive agent channels.  Prior to the acquisition, GAFRI's supplemental insurance products were sold through relatively few national marketing organizations.

Premiums and benefits of GAFRI's Cincinnati Life operations reflect primarily traditional term and universal life insurance products.  In 2004, GAFRI suspended new sales of these insurance products due to inadequate volume and returns.





GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued

Net Investment Income

The yield earned on GAFRI's investment portfolio, excluding real estate investments and realized gains, was approximately 5.9% and 6.1% for the first six months of 2007 and 2006, respectively.

Realized Gains (Losses)

Investments

Realized gains (losses) on investments included provisions for other than temporary impairment on securities still held as follows:  second quarter of 2007 and 2006 - $1.1 million and $1.6 million; six months of 2007 and 2006 - $7.7 million and $3.0 million, respectively.

Retirement of Debt

Loss on retirement of debt in 2007 reflects the redemption of the Company's 8-7/8% subordinated debentures in March 2007 and the repurchase of $3 million of the Company's 6-7/8% notes.

Loss on retirement of debt in 2006 reflects pre-tax losses on repurchases of $63.6 million principal amount of the Company's 6-7/8% Senior Notes for $65.8 million in cash.  In addition, in connection with the repurchase, GAFRI paid $1.9 million to effectively terminate the portion of an interest rate swap that covered the repurchased debt; this amount is included in loss on retirement of debt in the Consolidated Income Statement.

Other Income

Real Estate Operations - Continuing



|                   | Three months endedJune 30, | Six months endedJune 30,
|------------------ | -------------------------- | ------------------------
|                   | 2007                       | 2006                    
|                   |                            |                         
|Other income       | $8.5                       | $ 7.4                   
|Other expenses:    |                            |                         
|Operating expenses | 6.1                        | 6.0                     
|Depreciation       | 0.9                        | 0.8                     
|Other              | 0.5                        | 0.2                     



---

(1)  Includes $4.9 million of income resulting from a March 2006 payment received from Palm      Beach County, Florida in exchange for the imposition of certain limitations on future      development of a marina owned by the Company.

Real Estate Operations - Discontinued

On June 2, 2006, GAFRI sold Chatham Bars Inn, a resort hotel located on Cape Cod, Massachusetts, for a price of $166 million.  In the second quarter of 2007, GAFRI received an additional escrow payment in connection with the sale.  The operating results and gain on sale of Chatham have been included in discontinued operations in the Consolidated Income Statement.







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued

Annuity Benefits

Annuity benefits increased $6.4 million (8%) and $12.4 million (7%) in the second quarter and first six months of 2007, respectively, compared to the same periods in 2006.  This increase reflects higher annuity reserves due to internal growth resulting from higher sales of fixed indexed annuities, partially offset by a lower average crediting rate.

Historically, management has been able to react to changes in market interest rates and maintain a desired interest rate spread.  Management believes that significant changes in projected investment yields could result in charges (or credits) to earnings in the period the projections are modified.

Insurance Acquisition Expenses

Unanticipated spread compression, decreases in the stock market, adverse mortality experience, and higher than expected lapse rates could lead to write-offs of DPAC or PVFP in the future.

Interest and Debt Expenses

Other Expenses

Income Taxes

Recent Accounting Standard



Item 3



Quantitative and Qualitative Disclosure of Market Risk

As of June 30, 2007, there were no material changes to the information provided in Item 7A - "Quantitative and Qualitative Disclosure about Market Risk" in GAFRI's 2006 Form 10-K.







GREAT AMERICAN FINANCIAL RESOURCES, INC. 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued





Item 4



Controls and Procedures



GAFRI's Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated GAFRI's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report.  Based on that evaluation, GAFRI's Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls are effective.  During the first six months of 2007, there have been no changes in GAFRI's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, GAFRI's internal controls over financial reporting.



PART II

OTHER INFORMATION



Item 6



Exhibits

Exhibits:



|Number | Exhibit Description                                                                                                                                                           
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                               
|31(a)  | Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                    
|       |                                                                                                                                                                               
|31(b)  | Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                    
|       |                                                                                                                                                                               
|32     | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





Signature



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

|               |  | GREAT AMERICAN FINANCIAL RESOURCES, INC.
|-------------- |  | ----------------------------------------
|               |  |                                         
|               |  |                                         
|               |  |                                         
|August 8, 2007 |  | BY:/s/Christopher P. Miliano            
|               |  | Christopher P. Miliano                  
|               |  | Chief Financial Officer                 









GREAT AMERICAN FINANCIAL RESOURCES, INC.



EXHIBIT 31(a)



SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

|I, S. Craig Lindner, the principal executive officer of Great American Financial Resources, Inc., certify that
|--------------------------------------------------------------------------------------------------------------
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|4.                                                                                                            
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|(a)                                                                                                           
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|(b)                                                                                                           
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|(c)                                                                                                           
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|(d)                                                                                                           
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|5.                                                                                                            
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|(a)                                                                                                           
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|(b)                                                                                                           
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|Date:  August 8, 2007                                                                                         





GREAT AMERICAN FINANCIAL RESOURCES, INC.



EXHIBIT 31(b)



SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS - CONTINUED

|I, Christopher P. Miliano, the principal financial officer of Great American Financial Resources, Inc., certify that
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|3.                                                                                                                  
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|4.                                                                                                                  
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|(a)                                                                                                                 
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|(b)                                                                                                                 
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|(c)                                                                                                                 
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|(d)                                                                                                                 
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|5.                                                                                                                  
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|(a)                                                                                                                 
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|(b)                                                                                                                 
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|Date:  August 8, 2007                                                                                               





GREAT AMERICAN FINANCIAL RESOURCES, INC.



EXHIBIT 32



CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER



Pursuant to 18 USC Section 1350 as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002









In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of Great American Financial Resources, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2007 (the "Report"), the undersigned officers of the Company, certify, pursuant to Section 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
    Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, 
    the financial condition and results of operations of the Company.













|/s/ S. Craig LindnerS. Craig Lindner
Chief Executive Officer | /s/ Christopher P. MilianoChristopher P. Miliano
Chief Financial Officer
|------------------------------------------------------------ | ------------------------------------------------------------------------



August 8, 2007



A signed original of this written statement will be retained by the Registrant
  and furnished to the Securities and Exchange Commission or its staff upon request.