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                       Commission
          September 30, 1998                                   File
                                                               No. 1-11632



                             AMERICAN ANNUITY GROUP, INC.



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



                    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      



          As  of November  1, 1998,  there  were 42,683,595  shares of  the
          Registrant's Common Stock outstanding.




                                     Page 1 of 23


                          AMERICAN ANNUITY GROUP, INC. 10-Q
                                        PART I
                                FINANCIAL INFORMATION

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
                              CONSOLIDATED BALANCE SHEET
                                (Dollars in millions)

                                                   September 30,December31,
                                                           1998        1997 
          Assets
            Investments:
              Fixed maturities:
                Held to maturity - at amortized cost 
                 (market - $2,047.6 and $2,340.6)        $1,942.9 $2,276.4 
            Available for sale - at market
                 (amortized cost - $3,802.2 and $3,922.0)
                                                          4,035.1  4,099.4
              Equity securities - at market 
                 (cost - $41.6 and $30.9)                    81.2     83.0
              Investment in affiliate                        20.4     16.8 
              Mortgage loans on real estate                  41.4     52.1 
              Real estate                                    49.9     42.0 
              Policy loans                                  221.2    241.0 
              Short-term investments                         54.7     13.9 
                Total investments                         6,446.8  6,824.6 
           
            Cash                                            139.1     36.8 
            Accrued investment income                        96.7    101.6 
            Unamortized insurance acquisition costs, net    236.1    261.6 
            Other assets                                    153.6    185.2 
            Assets held in separate accounts                 84.9    300.5 

                                                         $7,157.2 $7,710.3 

          Liabilities and Capital
             Annuity benefits accumulated                $5,424.7 $5,528.1 
            Life, accident and health reserves              339.6    709.9 
            Notes payable                                   161.2    135.8 
            Payable to affiliates, net                       53.4     35.8 
            Deferred taxes on unrealized gains               82.3     71.8 
            Accounts payable, accrued expenses and other
              liabilities                                   103.1    119.5 
            Liabilities related to separate accounts         84.9    300.5 
                Total liabilities                         6,249.2  6,901.4 
           
            Mandatorily redeemable preferred securities
              of subsidiary trusts                          225.0    225.0 

            Stockholders' Equity:
              Common Stock, $1 par value
                -100,000,000 shares authorized
                - 42,839,057 and 43,199,147
                   shares outstanding                        42.8     43.2 
              Capital surplus                               359.8    368.0 
              Accumulated deficit at December 31, 1992     (212.6)  (212.6)
              Retained earnings since January 1, 1993       336.0    252.1 
              Unrealized gains on 
                marketable securities, net                  157.0    133.2 
                Total stockholders' equity                  683.0    583.9

           
                                                         $7,157.2 $7,710.3 

                                          2


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
                            CONSOLIDATED INCOME STATEMENT
                       (In millions, except per share amounts)


                                       Three months ended Nine months ended     
                                             September 30    September 30,
                                             1998     1997    1998    1997 
          Revenues:
            Life, accident and
              health premiums              $ 50.4   $ 32.1  $145.7   $84.8 
           Net investment income            129.8    126.7   387.7   369.4   
            Realized gains on
              sales of investments            4.0      1.5    15.7     1.7 
            Gain on sale of
              subsidiaries                   21.6       -     21.6      -  
            Equity in net earnings
              (loss) of affiliate            (0.6)    (1.5)    4.0     1.8 
            Other income                      4.4      2.9    11.4     8.2 
                                            209.6    161.7   586.1   465.9 
                                                    
          Costs and Expenses: 
            Annuity benefits                 64.5     72.9   204.7   212.3 
            Life, accident and
              health benefits                40.5     28.2   115.2    78.2 
            Insurance acquisition
              expenses                       19.5      7.6    49.4    23.8 
            Trust preferred distribution
              requirement                     4.8      4.7    14.3    10.7 
            Interest and other
              debt expenses                   2.8      1.9     8.0     6.9 
            Provision for
              relocation expenses              -       4.0      -      4.0 
            Other expenses                   22.5     18.7    69.1    54.2 
                                            154.6    138.0   460.7   390.1 
                                                    
          Income before income taxes
            and extraordinary item           55.0     23.7   125.4    75.8 
          Provision for income
           taxes                             17.7      7.3    40.7    23.7 
                                                    
          Income before
            extraordinary item               37.3     16.4    84.7    52.1
                                                    
          Extraordinary item -
           loss on prepayment of debt          -      (1.5)   (0.8)   (1.5)

          Net Income                       $ 37.3   $ 14.9  $ 83.9   $ 50.6
                                                    
                                                    
            Preferred dividend requirement     -        -       -      1.0 
                                                    
            Net income applicable
              to Common Stock              $ 37.3   $ 14.9  $ 83.9   $49.6 
            Average number of common shares:                       
              Basic                          43.0     43.2    43.1    43.2 
              Diluted                        43.7     43.8    43.8    43.6 

          Basic earnings (loss) per common share:
            Before extraordinary item       $0.87    $0.38   $1.97   $1.18 
            Loss on prepayment of debt         -     (0.03)  (0.02)  (0.03)
            Net income                      $0.87    $0.35   $1.95    $1.15

          Diluted earnings (loss) per common share: 
            Before extraordinary item       $0.85    $0.37   $1.93   $1.17 
            Loss on prepayment
               of debt                         -     (0.03)  (0.02)  (0.03)
            Net income                      $0.85    $0.34   $1.91   $1.14 

                                          3

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                    (In millions)

                                                       Nine months ended   
                                                         September 30,    
                                                             1998 1997 
          Preferred Stock:
            Balance at beginning of period               $   -      $ 49.0 
            Preferred Stock retired                          -       (49.0)
              Balance at end of period                   $   -      $   -  
           
          Common Stock:
            Balance at beginning of period               $ 43.2     $ 43.3 
            Common Stock retired                           (0.4)      (0.1)
              Balance at end of period                   $ 42.8     $ 43.2 
           

          Capital Surplus:

            Balance at beginning of period               $368.0     $358.5 
            Common Stock issued                             0.4        0.2 
            Common Stock retired                           (8.6)      (0.7)
            Preferred Stock retired                          -         2.0 
            Preferred dividends declared                     -        (1.0)
              Balance at end of period                   $359.8     $359.0 


          Accumulated Deficit at December 31, 1992      ($212.6)   ($212.6)


          Retained Earnings Since January 1, 1993: 
            Balance at beginning of period              $ 252.1     $186.5 
            Net income                                     83.9       50.6 
              Balance at end of period                   $336.0     $237.1 


          Unrealized Gains, Net:
            Balance at beginning of period               $133.2     $ 61.8 
            Change during period                           23.8       57.2 
              Balance at end of period                   $157.0     $119.0 



          Comprehensive Income:
            Net income                                   $ 83.9     $ 50.6 
            Other comprehensive income -
              change in net unrealized
              gains on marketable securities               23.8       57.2 
                                                                           
              Comprehensive income                       $107.7     $107.8 


                                          4


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENT OF CASH FLOWS
                                    (In millions)

                                                         Nine months ended
                                                           September 30,   

                                                             1998     1997
          Cash Flows from Operating Activities:
            Net income                                     $ 83.9   $ 50.6 
            Adjustments:
              Extraordinary loss on prepayment of debt        0.8      1.5 
              Increase in life, accident
                 and health reserves                         45.1     24.7 
              Benefits to annuity policyholders             204.7    212.3 
              Amortization of deferred
                policy acquisition costs
                and present value of future
                profits acquired                             39.5     21.2 
              Equity in net earnings of affiliate            (4.0)    (1.8)
              Depreciation and amortization                   7.1      3.8 
              Realized gains on sales of investments        (15.7)    (1.7)
              Gain on sale of subsidiaries                  (21.6)      -  
              Increase in insurance acquisition costs       (87.4)   (52.5)
              Increase in accrued investment income          (3.6)    (4.5)
              Increase in other assets                      (24.8)   (20.2)
              Increase in other liabilities                  22.2     16.0 
              Other, net                                    (21.1)   (13.5)
                                                            225.1    235.9 

          Cash Flows from Investing Activities:
            Purchases of and additional investments in:
              Fixed maturity investments                   (838.8)(1,037.3)
              Equity securities                             (17.0)    (7.6)
              Real estate, mortgage loans and
              other assets                                  (18.6)    (8.6)
              Affiliates                                       -      (4.9)
            Purchase of subsidiaries, net
              of cash acquired                               (9.5)      -  
            Maturities and redemptions of
              fixed maturity investments                    546.2    290.1 
            Sales of:
              Subsidiaries                                  164.6       -  
              Fixed maturity investments                    268.3    480.7 
              Equity securities                               5.1      5.3 
              Real estate, mortgage loans
                and other assets                             22.5      7.9 
            Cash and short-term investments
               of subsidiaries sold                         (40.5)      -  
            Decrease (increase) in policy loans               0.8     (2.9)
                                                             83.1   (277.3)

          Cash Flows from Financing Activities:
            Fixed annuity receipts                          358.7    369.7 
            Annuity surrenders, benefits
              and withdrawals                              (538.9)  (439.8)
            Additions to notes payable                      150.0     63.0 
            Reductions of notes payable                    (125.9)   (94.7)
            Issuance of trust preferred securities             -     149.3 
            Retirement of Common Stock                       (9.0)    (0.8)
            Retirement of Preferred Stock                      -     (47.0)
            Cash dividends paid                                -      (1.0)
                                                           (165.1)    (1.3)

          Net increase (decrease) in cash
             and short-term investments                     143.1    (42.7)

          Cash and short-term investments
             at beginning of period                          50.7     84.1 
          Cash and short-term investments
             at end of period                              $193.8   $ 41.4 


                                          5


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


          A. Description of the Company

             American Annuity Group,  Inc. ("AAG" or "the Company") markets
             retirement products,  primarily fixed and variable  annuities,
             and various  forms of life  and supplemental  health insurance
             on  a  nationwide basis  through  independent  agents, payroll
             deduction plans, financial institutions and  in-home sales.   


             American Financial  Group, Inc.  ("AFG") and its  subsidiaries
             owned 82% of AAG's Common Stock at November 1, 1998.

          B. Accounting Policies

             Basis  of   Presentation      The  accompanying   Consolidated
             Financial  Statements  for   AAG  and  its   subsidiaries  are
             unaudited,  but  management  believes  that  all   adjustments
             (consisting  only   of   normal   recurring  accruals   unless
             otherwise disclosed  herein) necessary  for fair  presentation
             have  been  made.    The results  of  operations  for  interim
             periods are  not  necessarily  indicative  of  results  to  be
             expected for the  year.   The financial  statements have  been
             prepared in accordance with the  instructions to Form 10-Q and
             therefore  do  not  include  all  information   and  footnotes
             necessary  to  be  in   conformity  with  generally   accepted
             accounting principles.  

             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.

             All acquisitions subsequent to the  1992 acquisition of  Great
             American Life  Insurance Company  ("GALIC") have  been treated
             as purchases.   The results of  operations of  companies since
             their  acquisition have  been  included in  AAG's Consolidated
             Financial Statements.  

             Investments   Debt  securities  are  classified  as  "held  to
             maturity"  and  reported  at amortized  cost  if  AAG  has the
             positive intent  and ability to hold  them to maturity.   Debt
             and equity securities are classified  as "available for  sale"
             and  reported at fair  value with  unrealized gains and losses
             reported as  a separate component  of stockholders'  equity if
             the  securities are  not  classified as  held to  maturity  or
             bought  and  held principally  for selling  in the  near term.
             Only  in certain  limited circumstances,  such as  significant
             issuer  credit deterioration  or if  required by  insurance or
             other regulators,  may a company change  its intent to hold  a
             certain security  to maturity  without  calling into  question
             its intent  to hold other debt  securities to maturity in  the
             future.

             Short-term investments are  carried at cost; mortgage loans on
             real estate  are generally carried  at amortized  cost; policy
             loans are stated  at the  aggregate unpaid balance.   Premiums
             and  discounts  on mortgage-backed  securities  are  amortized
             over their expected average lives using the interest method.


                                          6


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


          Gains or losses on sales of securities are recognized at the time
          of disposition with the  amount of gain or loss 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 and the carrying
          value of that investment is reduced.
            
          Investment in Affiliate   AAG's investments in  equity securities
          of  companies  that  are  20%  to  50%   owned  by  AFG  and  its
          subsidiaries  are generally  carried  at  cost,  adjusted  for  a
          proportionate share  of their  undistributed earnings  or losses.
          Changes in AAG's  equity in its affiliate caused  by issuances of
          the  affiliate's stock  are  recognized  in  earnings  when  such
          issuances are not part of a broader reorganization.  

          Insurance Acquisition  Expenses   Insurance acquisition  expenses
          consist  primarily of deferred  policy acquisition costs  and the
          present value of future profits  on business in force of acquired
          insurance  companies.     In  addition,  certain   marketing  and
          commission costs are  expensed as paid and  included in insurance
          acquisition expenses.

          Deferred  Policy Acquisition  Costs ("DPAC")   DPAC  (principally
          commissions, advertising, underwriting, policy issuance and sales
          expenses  that  vary  with  and  are  primarily  related  to  the
          production of new  business) is deferred to the  extent that such
          costs are deemed recoverable.

          DPAC related to  annuities and universal life  insurance products
          is amortized, with interest, in  relation to the present value of
          expected  gross profits  on the policies.   These  expected gross
          profits consist  principally of  estimated future  net investment
          income  and surrender, mortality  and other policy  charges, less
          estimated  future  interest   on  policyholders'  funds,   policy
          administration expenses and  death benefits in excess  of account
          values.   DPAC is  reported net of  unearned revenue  relating to
          certain  policy charges  that represent  compensation for  future
          services.  These unearned revenues are recognized as income using
          the same assumptions and factors used to amortize DPAC.

          To  the  extent  that   realized  gains  and  losses  result   in
          adjustments to  the amortization  of DPAC,  such adjustments  are
          reflected as components of realized gains.

          To  the extent  that unrealized  gains  (losses) from  securities
          classified as "available for sale" would result in adjustments to
          DPAC, unearned  revenues and  policyholder liabilities had  those
          gains (losses) actually been realized, such balance sheet amounts
          are adjusted, net of deferred taxes.

          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.

          Present   Value  of  Future   Profits    Included   in  insurance
          acquisition costs are  amounts representing the present  value of
          future  profits  on  business  in  force  of  acquired  insurance
          companies, which represent  the portion of  the costs to  acquire
          such companies  that is allocated  to the  value of the  right to
          receive  future cash flows  from insurance contracts  existing at
          the date of acquisition.

                                          7

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


             These amounts are amortized with  interest over the  estimated
             remaining life  of  the acquired  policies  for annuities  and
             universal life products and over  the expected premium  paying
             period for traditional life and health insurance products.

             Start-up Costs   Certain costs associated with introducing new
             products and distribution channels are deferred  and amortized
             on a straight-line  basis over  five years.  See  Management's
             Discussion and  Analysis  - "New  Accounting  Standards to  be
             Implemented."

             Annuity  Benefits Accumulated   Annuity  receipts and  benefit
             payments are  recorded as increases  or decreases  in "annuity
             benefits  accumulated" rather  than  as revenue  and  expense.

             Increases in this  liability for interest credited are charged
             to expense  and decreases for  surrender charges  are credited
             to other income.

             Life,  Accident and  Health Reserves   Liabilities  for future
             policy  benefits under traditional  life, accident  and health
             policies are  computed  using the  net  level premium  method.
             Computations  are  based  on  anticipated  investment  yields,
             mortality, morbidity  and  surrenders  and include  provisions
             for  unfavorable  deviations.     Reserves  are  modified   as
             necessary to  reflect actual experience and developing trends.

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

             Assets Held  In and Liabilities  Related To  Separate Accounts
             Separate  account  assets and  related  liabilities  represent
             variable  annuity  deposits  and,  in  1997,  include deposits
             maintained by  several banks under  a previously  offered tax-
             deferred annuity  program,  which  was  part  of  the  Funeral
             Services Division.    

             Life,  Accident  and  Health  Premiums   and  Benefits     For
             traditional life, accident  and health products, premiums  are
             recognized   as   revenue   when   legally   collectible  from
             policyholders.   Policy  reserves have  been established  in a
             manner  which  allocates policy  benefits  and  expenses on  a
             basis consistent with  the recognition of related premiums and
             generally  results  in the  recognition  of  profits over  the
             premium-paying period of the policies.

             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.

             Income Taxes   AAG and its  principal subsidiary, GALIC,  have
             separate  tax allocation  agreements with  American  Financial
             Corporation ("AFC"), a  subsidiary of AFG, which designate how
             tax  payments are  shared by  members of  the  tax group.   In
             general,  both companies  compute taxes  on a  separate return
             basis.   GALIC is obligated  to make  payments to (or  receive
             benefits from) AFC  based on taxable  income without regard to
             temporary  differences.   If GALIC's  taxable income (computed
             on a statutory accounting basis)  exceeds a current period net
             operating loss  of AAG, the  taxes payable by GALIC associated
             with the excess are payable to AFC.   If the AFC tax group
             utilizes any of AAG's net operating  losses or deductions
             that originated prior to AAG's  entering AFC's consolidated
             tax group, AFC will pay to AAG an amount equal to the
             benefit received.


                                          8

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


             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 AFC's consolidated tax
             group  are aggregated  with other  amounts receivable  from or
             payable to affiliates.

             Stock-Based Compensation  As  permitted under Statement of
             Financial   Accounting   Standards   ("SFAS")   No.   123,
             "Accounting  for Stock-Based  Compensation",  AAG accounts
             for stock options and other stock-based compensation plans
             using  the intrinsic  value  based  method  prescribed  by
             Accounting Principles  Board Opinion  No. 25,  "Accounting
             for Stock Issued to Employees."

             Benefit  Plans   AAG sponsors an Employee  Stock Ownership
             Retirement Plan ("ESORP") covering  all employees who  are
             qualified as  to age  and length  of service.   The ESORP,
             which  invests  primarily  in  securities  of  AAG,  is  a
             trusteed,  noncontributory  plan for  the  benefit  of the
             employees of AAG and its subsidiaries.  Contributions  are
             discretionary  by the  directors  of AAG  and are  charged
             against  earnings in the year for which they are declared.
             Qualified employees having  vested rights in the  plan are
             entitled to benefit payments at age 60.

             AAG 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  In  1997, AAG  implemented SFAS No.  128,
             "Earnings   Per   Share."      This   standard  requires   the
             presentation  of  basic and  diluted  earnings  per share  for
             entities   with  potentially   dilutive  securities.     Basic
             earnings per share are calculated  using the weighted  average
             number of  shares  of  common  stock  outstanding  during  the
             period.  Diluted earnings per share include the  effect of the
             assumed exercise of dilutive common stock options.   

             Comprehensive  Income       Effective  January  1,  1998,  AAG
             implemented SFAS  No. 130,  "Reporting Comprehensive  Income."
             SFAS No. 130 uses the term "comprehensive income"  to describe
             the  total of  net earnings  plus other  comprehensive income.
             For AAG, other comprehensive income  represents the change  in
             net unrealized gains  on marketable securities net of deferred
             taxes and a reclassification adjustment  for gains and  losses
             included in  net earnings.   Implementation of  this statement
             had no impact on net earnings or stockholders'  equity.  Prior
             periods  have  been  restated  to   conform  to  the   current
             presentation.

             Statement of Cash  Flows   For cash flow purposes,  "investing
             activities"  are defined  as making  and collecting  loans and
             acquiring and  disposing  of debt  or  equity instruments  and
             property  and   equipment.    "Financing  activities"  include
             annuity receipts, benefits and withdrawals and obtaining
             resources from owners and  providing them with a return
             on their investments.  All other activities are considered
             "operating."  Short-term investments having original maturities
             of  three months or less when purchased are considered to
             be cash equivalents for purposes of the financial statements.

                                          9


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


          C. Acquisitions and Sales of Subsidiaries

             In December 1997, AAG acquired  Great American Life  Assurance
             Company of  Puerto  Rico, Inc.  ("GA  Life", formerly  General
             Accident Life  Assurance  Company of  Puerto  Rico, Inc.)  for
             approximately $50 million in cash.

             On September 30,  1998, AAG sold its Funeral Services Division
             ("FSD")  for approximately  $165 million  in cash  realizing a
             $14.8 million after  tax gain. This division included American
             Memorial  Life Insurance  Company and  Arkansas  National Life
             Insurance Company and  had assets of approximately $1 billion.
             Proforma  operations  for AAG,  assuming  the  sale had  taken
             place  at the  beginning  of each  period presented,  were  as
             follows (in millions):
                                                                         
                                        Proforma Adjustments 
           Nine months
           ended                     
           September                          Gain on   Use of   
           30, 1998        Historical  (FSD)1    Sale Proceeds      Adjusted
           Revenues:
           Life, accident
           and health
           premiums         $145.7    ($ 78.6)   $ -    $  -         $ 67.1
           Net investment
           income            387.7      (30.7)     -      8.0         365.0
           Realized gains
           on sales of
           investments        15.7       (0.5)     -       -           15.2
           Gain on sale of
           subsidiaries       21.6         -    (21.6)     -             - 
           Equity in net
            earnings of
           affiliate           4.0         -       -       -            4.0
           Other income       11.4       (2.2)     -       -            9.2
                             586.1     (112.0)   (21.6)   8.0         460.5
          Costs and Expenses:                                
            Annuity benefits 204.7      (4.3)      -       -          200.4
            Life, accident
             and health
              benefits       115.2     (72.9)      -       -           42.3
            Insurance
             acquisition
             expenses         49.4     (16.2)      -       -           33.2
          Trust preferred
            distribution
             requirement      14.3        -        -       -           14.3
          Interest and
           other debt
            expenses           8.0        -        -       -            8.0
          Other expenses      69.1      (7.3)      -       -           61.8
                             460.7    (100.7)      -       -          360.0

          Income before
           income taxes      125.4     (11.3)    (21.6)   8.0         100.5
          Provision for
           income taxes       40.7      (4.2)     (6.8)   2.8          32.5
                                                             
          Income from
           continuing
           operations        $ 84.7  ($  7.1)   ($14.8)  $5.2         $ 68.0

          Basic earnings per common share:      
          Operations          $1.33                                    $1.29
          Realized gains
           (including
           sale of FSD)        0.58                                     0.23
          Equity in net
           earnings of
           affiliate           0.06                                     0.06
          Income from
           continuing
           operations         $1.97                                    $1.58


          Diluted earnings per common share:
            Operations        $1.30                                    $1.26
            Realized gains
           (including sale
            of FSD)            0.57                                     0.23
            Equity in net
             earnings of
             affiliate         0.06                                     0.06
            Income from
             continuing
              operations      $1.93                                    $1.55

           (1)   Reflects  results of  operations  of the  Funeral Services
          Division.
           (2)  Assumes the after tax proceeds (approximately $145 million)
          from  the sale  were invested  at the  beginning of  1998 earning
          7.4%. 

                                          10

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

                                                                      
                                                Proforma Adjustments      
                                            
          Year ended                                  Use of    
          December 31, 1997  Historical   FSD(1)    Proceeds(2)     Adjusted   
          Revenues:
          Life, accident and
            health premiums    $121.5    ($ 77.7)       $   -      $ 43.8 
          Net investment
            income              494.3      (36.0)         10.7      469.0 
          Realized gains on
           sales of investments   5.2        0.1            -         5.3 
          Equity in net earnings
            of affiliate          0.8         -             -         0.8 
           Other income          12.4       (2.1)           -        10.3 
                                634.2     (115.7)         10.7      529.2 
          Costs and Expenses:
           Annuity benefits     278.8       (4.4)           -       274.4 
           Life, accident
            and health
            benefits            110.1      (76.4)           -        33.7 
          Insurance acquisition
            expenses             36.3      (13.8)           -        22.5 
            Trust preferred
             distribution
              requirement        15.5         -             -        15.5 
          Interest and other
           debt expenses          8.9         -             -         8.9 
          Provision for
           relocation
            expenses              4.0         -             -         4.0 
          Other expenses         76.4       (7.5)           -        68.9 
                                530.0     (102.1)           -       427.9 
           
          Income before
           income taxes         104.2      (13.6)         10.7      101.3 
          Provision for
           income taxes          32.8       (4.8)          3.7       31.7 
                                                 
          Income from
           continuing
           operations          $ 71.4    ($  8.8)        $ 7.0     $ 69.6 

          Preferred dividend
           requirement           1.0          -             -         1.0      
           
          Basic earnings per common share:
           Operations          $1.54                                $1.50 
           Realized gains       0.08                                 0.08 
           Equity in net
           earnings of
            affiliate           0.01                                 0.01 
           Income from
             continuing
             operations        $1.63                                $1.59      
               
          Diluted earnings per common share:                        
            Operations         $1.52                                $1.48 
            Realized gains      0.08                                 0.08 
            Equity in net
             earnings of
             affiliate          0.01                                 0.01 
           Income from
            continuing
             operations        $1.61                                $1.57 

           
          (1) Reflects results of operations of Funeral Services Division.
          (2) Assumes the  after tax proceeds (approximately  $145 million)
          from  the sale  were invested  at the  beginning of  1997 earning
          7.4%.        

                                          11

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


          D. Investments

             The  carrying  value of  AAG's  fixed  maturity portfolio  was
             comprised of the following at September 30, 1998:

                                                  Held to  Available
                                                  Maturity for Sale Total  
          U. S. Government and government
           agencies and authorities                  -%        4%   4%  
          States, municipalities and political            
               subdivisions                          *         1    1   
          Public utilities                           6         2    8   
          Mortgage-backed securities                 9        21    30   
          All other corporate                       18        39    57   
                                                    33%       67%  100%  
          * less than 1%

             "Investing  activities" related  to fixed maturity investments
             in AAG's Statement  of Cash  Flows consisted of the  following
             (in millions):

                                      Held to    Available         
                                     Maturity    for Sale     Total  
           1998 
          Purchases                  $ -        ($  838.8)  ($838.8) 
          Maturities and paydowns   233.7           312.5     546.2 
          Sales                      32.3*          236.0     268.3 

          1997
          Purchases                  $ -       ($1,037.3) ($1,037.3)
          Maturities and paydowns   140.0          150.1      290.1 
          Sales                        -           480.7      480.7 

* Sold (at a gain of $0.6 million) due to significant deterioration of the
issuers' creditworthiness.
            
          E. Investment in Affiliate

             Investment  in  affiliate reflects  AAG's  4%  ownership  (2.7
             million shares; carrying value of  $20.4 million at  September
             30,   1998)   of  the   common   stock   of  Chiquita   Brands
             International which is  accounted for under the equity method.
             AFG and its other subsidiaries own an  additional 33% interest
             in  the common  stock  of Chiquita.    Chiquita is  a  leading
             international  marketer, producer  and distributor  of bananas
             and other quality fresh and processed food products.

             The  market  value  of  AAG's   investment  in  Chiquita   was
             approximately $28  million  at  September  30,  1998  and  $44
             million at December 31, 1997.    

             Included  in equity  in  Chiquita's 1998  earnings is  a  $1.0
             million  gain attributable  to Chiquita's  issuance of  common
             stock.    In  November  1998, Chiquita  reported  that  it had
             incurred significant damage to its  operations in Honduras  as
             a  result of  widespread flooding  caused by  Hurricane Mitch.
             Chiquita  estimated  that  its  asset write-offs  relating  to
             Honduras for  its fourth quarter  will be  in the $50  million
             range   pretax.      Accordingly,   AAG   would   record   its
             proportionate share (4%) of any after tax write-off.


                                          12


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


          F. Unamortized Insurance Acquisition Costs

             Unamortized  insurance  acquisition  costs  consisted  of  the
             following (in millions):
       
                                                  September 30,   December 31,
                                                       1998           1997   
                                                                 
          Deferred policy acquisition costs             $301.0     $300.6   
          Present value of future profits acquired        66.5      102.0 
          Unearned revenues                             (131.4)    (141.0)
                                                        $236.1     $261.6 


          G. Notes Payable

             Notes payable consisted of the following (in millions):

                                                   September 30, December 31,
                                                           1998         1997  
           Direct obligations of AAG                     $  1.3     $  1.3 
           Obligations of AAG Holding
            (guaranteed by AAG):                                
             6-7/8% Senior Notes due 2008                 100.0         -  
             Unsecured Bank Credit Line due 2003           57.0         -  
             Secured Bank Credit Line due 1999               -        75.0 
             Unsecured Bank Credit Line due 1998             -        32.0 
             11-1/8% Senior Subordinated Notes due 2003      -        24.1 
                  Other subsidiary debt                     2.9        3.4 
                       Total                             $161.2     $135.8 

             In June 1998, AAG Holding sold $100 million principal  amount
             of 6-7/8% Senior Notes due  2008 and used the net proceeds to
             repay outstanding indebtedness under the unsecured bank
             credit line.

             In  January 1998, AAG Holding replaced its existing bank lines
             with a new  $200 million  unsecured credit  agreement.   Loans
             under the credit  agreement mature from 2000 to 2003  and bear
             interest at  floating  rates  based  on  prime  or  Eurodollar
             rates.   In February  1998, AAG  Holding borrowed $50  million
             under the  new  credit  line  and retired  its  11-1/8%  Notes
             realizing  a  pretax  extraordinary  loss  of   $1.2  million;
             included   in   the  Notes   retired   by   AAG  Holding   was
             approximately  $24.3 million principal amount of 11-1/8% Notes
             previously acquired by AAG and GALIC.

             In August 1997, AAG  Holding retired its  9-1/2% Senior  Notes
             realizing a pretax extraordinary loss of $2.4 million.

             At September  30, 1998, scheduled  principal payments  on debt
             for the remainder  of 1998 and the subsequent five  years were
             as follows (in millions):

                1998      1999      2000      2001      2002      2003    
                $0.2      $0.8      $0.8      $0.6      $0.5     $57.5    

             At September 30, 1998  and December 31, 1997, the weighted
             average  interest  rate  on  amounts  borrowed  under  AAG
             Holding's bank credit lines was 6.11% and 6.80%, 
             respectively.

                                          13


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


          H. Mandatorily  Redeemable  Preferred  Securities  of  Subsidiary
          Trusts

             Wholly-owned subsidiary trusts  of AAG Holding have issued
             $225  million  of  preferred  securities  and,   in  turn,
             purchased   $225  million  of  newly-issued   AAG  Holding
             subordinated  debt which  provide  interest  and principal
             payments to fund  the Trusts' obligations.   The preferred
             securities  are  mandatorily redeemable  upon maturity  or
             redemption of the subordinated debt.  The three  preferred
             securities issues are summarized as follows:

          Date of                                          Optional
          Issuance      Issue(Maturity Date)     Amount   Redemption Dates 
          November 1996 9-1/4% TOPrS* (2026)  $75,000,000 On or after
                                                          11/7/2001
          March 1997    8-7/8% Preferred
                          Securities (2027)   75,000,000  On or after
                                                          3/1/2007
          May 1997      7-1/4% ROPES** (2041) 75,000,000  Prior to
                                                          9/28/2000 and      
                                                          after 9/28/2001

               *  Trust Originated Preferred Securities
               ** Remarketed Par Securities

           AAG  and   AAG  Holding  effectively  provide  an  unconditional
          guarantee of the Trusts' obligations. 

          I.   Stockholders' Equity

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

               In March 1997,  AAG retired all of its  outstanding Series B
               Preferred Stock for approximately $47 million.

               At September 30, 1998, there  were 3.0 million shares of AAG
               Common  Stock  reserved for  issuance  under AAG's  Employee
               Stock  Option  Plan.   Under  the  Stock  Option  Plan,  the
               exercise price of each option equals the market price of AAG
               Common  Stock  at  the  date  of  grant.     Options  become
               exercisable at the rate of  20% per year commencing one year
               after grant.  All options expire ten years after the date of
               grant.

          "Retained   earnings  since   January   1,  1993"   reflects
          accumulated changes in AAG's retained earnings since its
          acquisition of GALIC.

          The change in  net unrealized gains on  marketable securities for
          the  nine months ended  September 30  included the  following (in
          millions):
                                                                
                                        1998                   1997  
                           Pretax      Taxes    Net    Pretax    Taxes   Net   
          Unrealized
           holding
          gains on
           securities
           arising
            during
           the period     $65.0      ($21.2)   $43.8    $89.7  ($31.4) $58.3 
          Less reclassification
           adjustment for
           investment gains
            realized in net
            income and
            unrealized
            gains of
           subsidiaries
              sold       (30.7)        10.7    (20.0)   (1.7)    0.6   (1.1)
          Change in net
           unrealized
           gains
           on marketable
            securities   $34.3       ($10.5)   $23.8    $88.0  ($30.8) $57.2 


                                          14



                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


          J.   Contingencies

               The Company is continuing its clean-up activities at certain
               of  its  former  manufacturing  operations  and  third-party
               sites, in some  cases in accordance with  consent agreements
               with federal and  state environmental agencies.   Changes in
               regulatory standards and further investigations could affect
               estimated costs  in the  future.   Management believes  that
               reserves  recorded  are  sufficient  to  satisfy  the  known
               liabilities   and   that   the  ultimate   cost   will  not,
               individually, or in  the aggregate, have a  material adverse
               effect on the  financial condition or results  of operations
               of AAG.

          K.   Additional Information

               Statutory Information of  Great American Life Insurance
               Company    Insurance  companies  are  required to  file
               financial  statements with  state insurance  regulatory
               authorities prepared on  an accounting basis prescribed
               or  permitted  by such  authorities  (statutory basis).
               Certain statutory  amounts  for  GALIC,  AAG's  primary
               insurance subsidiary, were as follows (in millions):

                                        September 30, December 31,
                                                1998         1997 
                Capital and surplus           $319.7       $317.0 
                Asset valuation reserve         60.1         64.7 
                Interest maintenance reserve    22.3         23.9 

                                     Nine months ended September 30,
                                                1998         1997 
                Pretax income from operations $106.0        $67.7 
                Net income from operations      94.3         51.7 
                Net income                      29.8         53.8 

              The amount  of dividends which  can be paid by  GALIC without
          prior   approval  of   regulatory  authorities   is   subject  to
          restrictions  relating to capital  and surplus and  statutory net
          income.   Based on  net income  for the year  ended December  31,
          1997, GALIC  may pay $73.6  million in dividends in  1998 without
          prior approval.  In the first nine months of 1998, $27 million of
          capital distributions were paid to AAG; an additional $45 million
          was declared and accrued in September 1998.


                                         15 

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
                   of Financial Condition and Results of Operations


          GENERAL

          American  Annuity Group, Inc.  ("AAG" 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,
          satisfaction  of  liabilities  in  connection  with  discontinued
          operations and  for  the payment  of  interest and  principal  on
          borrowings and stockholder dividends.

          Year 2000 Status    AAG's  Year 2000 Project is  a corporate-wide
          program  designed  to  ensure  that  its  computer  systems  will
          function properly in the year 2000.  The Project also encompasses
          communicating  with agents,  vendors, financial  institutions and
          others with  which the  companies conduct  business to  determine
          their Year  2000 readiness and  resulting effects on AAG.   AAG's
          Year 2000 Project  is being coordinated by its  Year 2000 Project
          Office which  monitors the  work being  performed by the  various
          business units  and reports quarterly  to the Audit  Committee of
          the Board of Directors and more frequently to senior management.

          To address  the Year  2000 problem,  AAG's  operations have  been
          divided  into separate  system groups.   At  September 30,  1998,
          these groups  were in the  process of either (i)  modifying their
          software  programs or (ii)  replacing programs with  new software
          that is Year 2000 compliant.  Nearly two-thirds of the groups are
          "on target" to  meet AAG's goal  of having program  modifications
          and new software installations substantially completed by the end
          of 1998, with testing continuing in 1999.  About one-third of the
          groups  are being  "closely watched" because  there is  some risk
          that critical dates in the project  schedule may be missed with a
          potential for some disruption of normal business operations.  One
          group  is considered "critical" since it has significantly missed
          internal  project  deadlines.   This  project  has  recently been
          reorganized and staffing levels have been increased.  The project
          is being closely  monitored and will be reviewed  to determine if
          it can be  upgraded to the "closely watched"  category during the
          fourth quarter of 1998.   

          As  part of  the Year  2000  Project, contingency  plans will  be
          developed during  the next  six months in  order to  mitigate the
          extent of any potential disruptions to business operations.  

          Many  of the  systems being  replaced  were planned  replacements
          which were merely accelerated  due to the Year 2000  problem.  In
          addition, a  significant portion  of AAG's  Year 2000  Project is
          being  completed using internal staff.  Therefore, cost estimates
          for the  Year 2000 Project do not  entirely represent incremental
          costs.

          Since the  beginning of 1997, AAG has incurred $8 million in Year
          2000 costs, including  capitalized costs  of $7  million for  new
          systems.   During the first  nine months  of 1998, $1  million in
          Year 2000 costs have been  expensed.  AAG estimates that it  will
          incur an additional  $11 million of such costs  in completing the
          Project.

          Projected  Year  2000 costs  and  completion dates  are  based on
          management's best  estimates.  However, there can be no assurance
          that  these  estimates   will  be  achieved.     Should  software
          modifications  and new software installations not be completed on
          a  timely basis, the resulting disruptions  could have a material
          adverse affect on operations.

          AAG's operations could also be affected by the inability of third
          parties such as  agents, vendors and policyholders'  employers to
          become Year 2000 compliant.

                                          16


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


          Forward-Looking Statements    The  Private Securities  Litigation
          Reform Act of  1995 encourages corporations to  provide investors
          with information about the Company's anticipated  performance and
          provides  protection from liability if future results are not the
          same  as  management's  expectations.    This  document  contains
          certain forward-looking statements that  are based on assumptions
          which management believes  are reasonable, but, by  their nature,
          inherently  uncertain.   Future  results could  differ materially
          from those  projected.  Factors that could cause such differences
          include, but are not limited to:  changes in economic conditions,
          regulatory  actions,   the  Year   2000  issue   and  competitive
          pressures.   AAG undertakes no obligation  to update any forward-
          looking statements.  

          LIQUIDITY AND CAPITAL RESOURCES  

          Ratios     AAG's ratio  of  earnings to  fixed charges  exceeds 6
          times.   Its proforma  ratio of consolidated  debt to  capital at
          September 30, 1998 was 16%.   Proforma consolidated debt includes
          the Company's  notes payable  and its  Remarketed Par  Securities
          ("ROPES"), net of unrestricted cash and marketable investments on
          hand at  AAG (parent).   Capital represents  the sum  of proforma
          consolidated debt, redeemable preferred  securities of subsidiary
          trusts and stockholders' equity (excluding unrealized gains).  
                                                     
          The  National  Association of  Insurance  Commissioners' ("NAIC")
          risk-based  capital  ("RBC")  formulas determine  the  amount  of
          capital that  an insurance company needs to ensure that it has an
          acceptable  expectation of not becoming financially impaired.  At
          September 30, 1998, the capital ratios of each of AAG's principal
          insurance  subsidiaries was  at least  4.4  times its  authorized
          control level RBC. 

          Sources and  Uses of  Funds    To pay  interest and  principal on
          debt, dividends on preferred  securities, obligations related  to
          discontinued manufacturing  operations and other  holding company
          costs AAG  and AAG Holding  use cash and  investments on  hand as
          well  as payments from their principal subsidiary, Great American
          Life   Insurance  Company  ("GALIC"),  in  the  form  of  capital
          distributions.   At September 30,  1998, AAG and AAG  Holding had
          approximately  $100 million of cash  and investments on hand. The
          amount of  capital distributions  which can be  paid by  GALIC is
          subject  to  restrictions  relating  to  statutory   surplus  and
          earnings.   In the  first nine  months  of 1998,  GALIC made  $27
          million in such payments; the maximum amount of dividends payable
          by GALIC  during the remainder  of 1998 without  prior regulatory
          approval is $47 million.

          Since year-end 1996 (through September 1998), AAG has retired $65
          million principal amount of its public debentures and $49 million
          of preferred  stock.   In addition,  AAG acquired  Great American
          Life Assurance  Company  of Puerto  Rico,  Inc. ("GA  Life")  for
          approximately  $50 million  in December 1997.   AAG  funded these
          outlays  with  issuances  of  trust  preferred  securities,  bank
          borrowings, dividends from GALIC and  cash on hand.  GALIC funded
          its  March 1998 acquisition  of Arkansas National  Life Insurance
          Company using cash on hand.

          In  June 1998, AAG Holding retired  $100 million of its bank line
          using proceeds from a public debt offering.


                                          17


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


          Including  cash   and  investments   on  hand   and  the   unused
          availability under a bank line of credit, AAG and AAG Holding had
          more than  $240 million  of liquidity  at November 1,  1998.   On
          September 30,  1998, AAG sold  its Funeral Services  Division and
          netted approximately  $165 million  in cash  ($145 million  after
          tax).   The  majority  of  the proceeds  were  received by  AAG's
          insurance subsidiaries.   The ultimate use of these  proceeds has
          not been determined.  Based  upon the current level of operations
          and anticipated growth, AAG believes that it will have sufficient
          resources to meet its liquidity requirements.

          Investments    Insurance laws  restrict the types and  amounts of
          investments  which  are  permissible for  life  insurers.   These
          restrictions are designed to  ensure the safety and  liquidity of
          insurers' investment portfolios.  The NAIC has developed  a model
          investment law which management believes will not have a material
          impact on AAG's operations.

          The NAIC  assigns quality ratings  to publicly traded as  well as
          privately placed securities.   These ratings  range from Class  1
          (highest  quality) to  Class 6  (lowest quality).   The following
          table  shows the  Company's  fixed  maturity  portfolio  by  NAIC
          designation (and comparable Standard & Poor's Corporation rating)
          as of September 30, 1998:

                NAIC                                       % of Total 
                Rating   Comparable S&P Rating            Market Value
                   1     AAA, AA, A                              67%  
                   2     BBB                                     25   
                              Total investment grade             92   
                   3     BB                                       4   
                   4     B                                        3   
                   5     CCC, CC, C                               1   
                   6     D                                        -   
                              Total non-investment grade          8   
                              Total fixed maturities            100%  

          Management  believes  that  the  high  credit  quality  of  AAG's
          investment portfolio  should generate  a  stable and  predictable
          investment return.

          AAG   invests  primarily  in   fixed  income  investments  which,
          including  loans and short-term investments, comprised 98% of its
          investment  portfolio at  September  30,  1998.    AAG  generally
          invests in  securities with intermediate-term maturities  with an
          objective  of  optimizing interest  yields  while maintaining  an
          appropriate relationship of  maturities between AAG's assets  and
          expected liabilities.

          At September 30, 1998,  AAG's mortgage-backed securities ("MBSs")
          portfolio represented less  than one-third of its  fixed maturity
          investments.   AAG invests primarily  in MBSs which have  a lower
          risk of  prepayment.  In addition,  the majority of MBSs  held by
          AAG were purchased  at a discount.  Management  believes that the
          structure and  discounted  nature of  the  MBSs will  reduce  the
          effect of prepayments  on earnings over  the anticipated life  of
          the MBS portfolio.

          Nearly 90% of  AAG's MBSs are rated "AAA"  with substantially all
          being investment  grade  quality.    The market  in  which  these
          securities  trade is  highly liquid.    Aside from  interest rate
          risk, AAG does not believe  a material risk (relative to earnings
          or liquidity) is inherent in holding such investments.


                                          18

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


          Contingencies    A  managing general  agency which  produced less
          than 7% of GALIC's premiums in the  first nine months of 1997 was
          named  a  defendant  in a  lawsuit  filed  in  July  1996 by  two
          regulatory agencies in  California.  The managing  general agency
          has settled the allegations brought against it by agreeing, among
          other things, to modify certain sales practices.   The regulatory
          agencies have taken a position  that GALIC may be responsible for
          certain acts of its insurance  agents in connection with the sale
          of GALIC's annuities.   GALIC is engaged in  discussions with the
          regulatory agencies to resolve this matter.  This agent no longer
          markets products for GALIC.  The ultimate outcome is not expected
          to have a  material adverse impact on the  financial condition of
          the Company.
            
          RESULTS OF OPERATIONS

          General     The operations of  GA Life and  Arkansas National are
          included in  AAG's consolidated  financial statements  from their
          dates  of   acquisition  in   December  1997   and  March   1998,
          respectively.   On  September  30,  1998,  the Company  sold  its
          Funeral  Services Division, which included American Memorial Life
          Insurance Company and  Arkansas National.  The  results contained
          herein  include  the results  of  this division  for  all periods
          presented.    

          The Company's principal  products are its fixed  annuities Single
          Premium  Deferred   Annuities  ("SPDAs")  and   Flexible  Premium
          Deferred Annuities  ("FPDAs").   The  following table  summarizes
          AAG's premiums for  annuities and other forms of  life and health
          insurance (in millions):

                                    Three months ended     Nine months ended
                                       September 30,          September 30,  
                                         1998       1997    1998      1997 
             Retirement Annuities:
              SPDAs                       $ 70      $ 63    $190     $190 
              FPDAs - renewal               27        30     106      119 
              FPDAs - first year             8         6      25       24 
              Variable annuities
               - flexible premium            6         -      14        1 
              Variable annuities
               - single premium             21        12      50       27 
             Other life insurance           24         6      59       17 
             Accident and health insurance   5         5      15       16 
               Total premiums
                (excluding Funeral
                 Services Division)        161        122    459      394  
              
             Funeral Services
               Division premiums            36        28     102       79 
                 Total premiums           $197      $150    $561     $473 
           
          AAG's  growth in total  premiums (excluding the  Funeral Services
          Division) is primarily the result  of increased sales of variable
          annuities and the inclusion of premiums from GA Life.

          Pretax  Operating  Earnings     Pretax  earnings  from operations
          (before  realized gains,  equity  in  results  of  affiliate  and
          provision  for relocation  expenses) for  the  third quarter  and
          first nine months  of 1998 were $30.0 million  and $84.1 million,
          respectively, compared to $27.7 million and $76.3 million for the
          same periods in 1997.

          Life, Accident  and Health Premiums  and Benefits    Increases in
          life, accident and health premiums and benefits reflect primarily
          the acquisition of  GA Life and increased sales  of pre-need life
          insurance.

                                         19 

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


          Net Investment Income   Net investment income increased 2% in the
          third quarter and 5% in the first nine months of 1998 compared to
          the same periods  in 1997  due primarily  to an  increase in  the
          Company's average fixed maturity investment base.
           
          This  increase was partially offset by decreasing market interest
          rates.  Investment  growth resulted  from acquisitions,  internal
          cash  flow  generated  by  AAG's  insurance  operations  and  the
          investment  of a  portion of  the proceeds  from the  issuance of
          trust preferred securities.   Investment income  is shown net  of
          investment expenses of  $2.3 million in 1998 and  $2.6 million in
          1997.   Lower investment expenses  in 1998 reflect a  decrease in
          fees charged by an affiliate.

          Equity  in Net  Earnings  (Loss) of  Affiliate     Equity in  net
          earnings (loss) of affiliate represents AAG's proportionate share
          of  the results  of  Chiquita  Brands  International.    Chiquita
          reported net income  (loss) for the third quarter  and first nine
          months of 1998  of ($11 million)  and $83 million,  respectively,
          compared to ($28  million) and  $56 million  for  the same
          periods in  1997. Included in  equity  in  Chiquita's  1998
          earnings  are  gains attributable to Chiquita's issuance of
          common stock.    

          Annuity Benefits   Annuity benefits reflect interest credited  to
          annuity  policyholders'  funds  accumulated.    The  majority  of
          GALIC's fixed  rate annuity products  permit GALIC to  change the
          crediting  rate  at any  time (subject  to minimum  interest rate
          guarantees of 3% or 4% per  annum).  As a result, management  has
          been  able to  react  to  changes in  market  interest rates  and
          maintain  a  desired  interest   rate  spread.  While  management
          believes  the recent interest rate environment has contributed to
          an increase in annuitizations and surrenders, GALIC's persistency
          rate remains  over 87%.   A continuation of the  current interest
          rate environment could adversely affect this rate.  
            
          Insurance Acquisition  Expenses    Insurance acquisition expenses
          include amortization  of deferred  acquisition costs  as well  as
          certain  marketing  expenses  and commissions  on  sales  of life
          insurance   products.    The   increase  in  1998   reflects  the
          acquisition of  GA Life  as well as  increased sales  of pre-need
          life insurance products.   Expenses in the third  quarter and the
          first  nine months  of  1998  also  include amortization  of  the
          present  value of future profits of businesses acquired amounting
          to $2.9 million and $7.7  million, respectively, compared to $1.7
          million and $5.4 million for the same periods in 1997.

          Trust  Preferred  Distribution  Requirement      Trust  preferred
          distribution requirement represents amounts  accrued on preferred
          securities  issued by  subsidiaries of  AAG Holding  in 1997  and
          1996.  A portion of the proceeds from these issuances was used to
          retire debt.

          Interest  and Other  Debt  Expenses       AAG's interest  expense
          increased 16% in 1998.  During 1997 and 1998 the Company replaced
          higher  coupon public debt with significantly lower interest rate
          bank debt.  This  decrease in average rates was offset  by higher
          average debt,  which resulted  primarily from  funds borrowed  to
          acquire GA Life.      

          Provision for  Relocation Expenses      In  the third quarter  of
          1997,  AAG  began  relocating most  of  the  operations  of Loyal
          American   Life  Insurance  Company   from  Mobile,   Alabama  to
          Cincinnati,  Ohio to  more closely  coordinate  its efforts  with
          those  of  other AAG  operations.    The  estimated cost  of  the
          relocation  ($4.0 million) was  expensed in the  third quarter of
          1997.  The  relocation was substantially  completed in the  first
          quarter of 1998.

                                          20

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


          Other  Expenses    Increases  in other  expenses reflect  (i) the
          acquisitions  of GA  Life  and  Arkansas  National,  (ii)  higher
          depreciation  and  amortization  costs  and  (iii)  increases  in
          personnel costs.

          Extraordinary  Item    Extraordinary item reflects  AAG's losses,
          net of tax, on prepayment of its debt.

          New  Accounting  Standards to  be  Implemented     The  Financial
          Accounting   Standards  Board   issued  Statement   of  Financial
          Accounting Standard ("SFAS") No. 131, "Disclosures about Segments
          of an  Enterprise and Related Information," which is scheduled to
          become  effective  during  the  fourth  quarter  of  1998.    The
          implementation  of SFAS  No. 131  will  have no  effect on  AAG's
          financial position or net income.

          Statement of Position  ("SOP") 98-5, "Reporting  on the Costs  of
          Start-Up Activities,"  was issued  during the  second quarter  of
          1998.   The  SOP is  effective for  fiscal years  beginning after
          December 15, 1998, and requires that costs of start-up activities
          be  expensed as  incurred.   The  SOP  requires that  unamortized
          balances of previously  deferred costs be expensed  no later than
          the first quarter  of 1999 and reported as  the cumulative effect
          of a change in accounting principle.  AAG had approximately
          $8 million in capitalized start-up costs at September 30, 1998.

                                          21

                          AMERICAN ANNUITY GROUP, INC. 10-Q
                                       PART II
                                  OTHER INFORMATION



                                        ITEM 6

                           Exhibits and Reports on Form 8-K

          (a)    Exhibit 27 - Financial  Data Schedule as of  September 30,
          1998.  For submission             in electronic filing only.

          (b)   Report on Form 8-K:

                Date of Report                Items Reported  
                October 15, 1998              Sale of Funeral Services     
                                               Division 
               
                                          22

                          AMERICAN ANNUITY GROUP, INC. 10-Q
                                       PART II
                                  OTHER INFORMATION


                                      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.

                                             American Annuity Group, Inc.


          November 16, 1998                  BY:/s/William J. Maney        
             
                                             William J. Maney
                                             Senior Vice President,
                                             Treasurer and  Chief Financial
                                             Officer

                                          23