-----------------------------------------------------------------------------
                       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 FILE
SEPTEMBER 30, 2001                                           NO. 1-7361



                         AMERICAN FINANCIAL CORPORATION




INCORPORATED UNDER                                           IRS EMPLOYER I.D.
THE LAWS OF OHIO                                             NO. 31-0624874


                 ONE EAST FOURTH STREET, CINCINNATI, OHIO 45202
                                 (513) 579-2121






      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, 2001, there were 10,593,000 shares of the Registrant's
Common Stock outstanding, all of which were owned by American Financial Group,
Inc.

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                                  Page 1 of 21
 -----------------------------------------------------------------------------



<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q
                                     PART I
                              FINANCIAL INFORMATION

                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                               September 30,    December 31,
                                                                       2001            2000
                                                               ------------     -----------
<S>                                                            <C>             <C>
ASSETS:
   Cash and short-term investments                              $   488,957     $   437,263
   Investments:
     Fixed maturities - at market
       (amortized cost - $10,578,181 and $10,148,248)            10,914,781      10,164,648
     Other stocks - at market
       (cost - $185,890 and $174,959)                               304,990         385,359
     Investment in investee corporations                               -             23,996
     Policy loans                                                   214,797         213,469
     Real estate and other investments                              227,952         270,250
                                                                -----------     -----------
         Total investments                                       11,662,520      11,057,722

   Recoverables from reinsurers and prepaid
     reinsurance premiums                                         2,247,868       1,845,171
   Agents' balances and premiums receivable                         738,456         700,215
   Deferred acquisition costs                                       802,290         763,097
   Other receivables                                                297,163         239,806
   Variable annuity assets (separate accounts)                      453,780         533,655
   Prepaid expenses, deferred charges and other assets              532,490         508,163
   Cost in excess of net assets acquired                            319,468         322,380
                                                                -----------     -----------

                                                                $17,542,992     $16,407,472
                                                                ===========     ===========
<PAGE>

LIABILITIES AND CAPITAL:
   Unpaid losses and loss adjustment expenses                   $ 4,887,388     $ 4,515,561
   Unearned premiums                                              1,598,200       1,414,492
   Annuity benefits accumulated                                   5,717,539       5,543,683
   Life, accident and health reserves                               614,708         599,360
   Payable to American Financial Group, Inc.                        379,786         439,371
   Long-term debt:
     Holding companies                                              231,540         204,338
     Subsidiaries                                                   252,110         195,087
   Variable annuity liabilities (separate accounts)                 453,780         533,655
   Accounts payable, accrued expenses and other
     liabilities                                                  1,401,782         998,104
                                                                -----------     -----------
         Total liabilities                                       15,536,833      14,443,651

   Minority interest                                                464,775         509,705

   Shareholders' Equity:
     Preferred Stock - at liquidation value                          72,154          72,154
     Common Stock, no par value
       - 20,000,000 shares authorized
       - 10,593,000 shares outstanding                                9,625           9,625
     Capital surplus                                                982,662         974,788
     Retained earnings                                              223,143         258,349
     Unrealized gain on marketable securities, net                  253,800         139,200
                                                                -----------     -----------
         Total shareholders' equity                               1,541,384       1,454,116
                                                                -----------     -----------

                                                                $17,542,992     $16,407,472
                                                                ===========     ===========
</TABLE>

                                        2


<PAGE>

                       AMERICAN FINANCIAL CORPORATION 10-Q

                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                    Three months ended                  Nine months ended
                                                        September 30,                       September 30,
                                              ----------------------------        ------------------------------
                                                     2001             2000                2001              2000
                                                     ----             ----                ----              ----
<S>                                           <C>              <C>                 <C>               <C>
INCOME:
    Property and casualty insurance
      premiums                                 $  664,381       $  661,077          $1,988,667        $1,856,935
    Life, accident and health premiums             69,116           66,523             208,807           166,146
    Investment income                             216,060          211,218             643,301           630,185
    Realized gains (losses) on:
      Securities                                      (22)         (15,223)            (33,328)          (20,563)
      Subsidiaries                                  7,065           (5,962)              5,479            19,038
      Other investments                              -              27,230                -               27,230
    Other income                                   59,836           68,780             171,966           178,595
                                               ----------       ----------          ----------        ----------
                                                1,016,436        1,013,643           2,984,892         2,857,566

COSTS AND EXPENSES:
    Property and casualty insurance:
      Losses and loss adjustment expenses         626,642          562,308           1,649,269         1,463,456
      Commissions and other underwriting
        expenses                                  189,327          195,267             567,203           556,272
    Annuity benefits                               74,016           72,139             213,996           218,027
    Life, accident and health benefits             53,952           50,699             160,246           124,308
    Interest charges on borrowed money             14,236           18,313              47,886            50,411
    Other operating and general expenses          116,345          112,698             338,721           338,560
                                               ----------       ----------          ----------        ----------
                                                1,074,518        1,011,424           2,977,321         2,751,034
                                               ----------       ----------          ----------        ----------
Operating earnings (loss) before
  income taxes                                    (58,082)           2,219               7,571           106,532
Provision (credit) for income taxes               (20,581)          (1,010)             (1,282)           31,608
                                               ----------       ----------          ----------        ----------

Net operating earnings (loss)                     (37,501)           3,229               8,853            74,924
Minority interest expense, net of tax              (7,984)          (3,124)            (19,091)          (14,471)
Equity in net losses of investees,
  net of tax                                       (6,395)         (13,570)            (12,042)           (4,368)
                                               ----------       ----------          ----------        ----------
Earnings (loss) before cumulative
    effect of accounting change                   (51,880)         (13,465)            (22,280)           56,085
Cumulative effect of accounting change               -                -                (10,040)             -
                                               ----------       ----------          ----------        ----------

NET EARNINGS (LOSS)                           ($   51,880)     ($   13,465)        ($   32,320)       $   56,085
                                               ==========       ==========          ==========        ==========
</TABLE>

                                        3
<PAGE>

                       AMERICAN FINANCIAL CORPORATION 10-Q

                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                Common Stock                      Unrealized
                                                  Preferred      and Capital     Retained        Gain (Loss)
                                                      Stock          Surplus     Earnings      on Securities             Total
                                                  ---------     ------------     --------      -------------        ----------
<S>                                                <C>             <C>          <C>                <C>             <C>
BALANCE AT JANUARY 1, 2001                          $72,154         $984,413     $258,349           $139,200        $1,454,116

  Net earnings (loss)                                  -                -         (32,320)              -              (32,320)
  Change in unrealized                                 -                -            -               114,600           114,600
                                                                                                                    ----------
    Comprehensive income                                                                                                82,280

  Capital contribution from parent                     -               9,200         -                  -                9,200
  Dividends on Preferred Stock                         -                -          (2,886)              -               (2,886)
  Other                                                -              (1,326)        -                  -               (1,326)
                                                    -------         --------     --------           --------        ----------

BALANCE AT SEPTEMBER 30, 2001                       $72,154         $992,287     $223,143           $253,800        $1,541,384
                                                    =======         ========     ========           ========        ==========






BALANCE AT JANUARY 1, 2000                          $72,154         $970,407     $296,246          ($ 14,700)       $1,324,107

  Net earnings                                         -                -          56,085               -               56,085
  Change in unrealized                                 -                -            -                 5,900             5,900
                                                                                                                    ----------
    Comprehensive income                                                                                                61,985

  Capital contribution from parent                     -               9,200         -                  -                9,200
  Dividends on Preferred Stock                         -                -          (2,886)              -               (2,886)
  Other                                                -               1,512         -                  -                1,512
                                                    -------         --------     --------           --------        ----------

BALANCE AT SEPTEMBER 30, 2000                       $72,154         $981,119     $349,445          ($  8,800)       $1,393,918
                                                    =======         ========     ========           ========        ==========
</TABLE>









                                        4
<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                 Nine months ended
                                                                    September 30,
                                                           -----------------------------
                                                                    2001            2000
                                                                    ----            ----
<S>                                                          <C>             <C>
OPERATING ACTIVITIES:
    Net earnings (loss)                                      ($   32,320)     $   56,085
    Adjustments:
      Cumulative effect of accounting change                      10,040            -
      Equity in net losses of investees                           12,042           4,368
      Depreciation and amortization                              111,343          94,135
      Annuity benefits                                           213,996         218,027
      Realized (gains) losses on investing activities              1,106         (40,246)
      Deferred annuity and life policy acquisition costs        (111,377)       (106,844)
      Increase in reinsurance and other receivables             (383,034)        (57,246)
      Increase in other assets                                   (32,298)        (55,739)
      Increase in insurance claims and reserves                  589,761         286,781
      Increase (decrease) in other liabilities                   179,263          (9,271)
      Increase (decrease) in minority interest                     9,788            (376)
      Other, net                                                   4,398          10,588
                                                              ----------      ----------
                                                                 572,708         400,262
                                                              ----------      ----------
INVESTING ACTIVITIES:
    Purchases of and additional investments in:
      Fixed maturity investments                              (1,609,151)     (1,237,409)
      Equity securities                                           (5,556)        (22,547)
      Real estate, property and equipment                        (43,660)        (57,238)
    Maturities and redemptions of fixed maturity
      investments                                                579,916         465,637
    Sales of:
      Fixed maturity investments                                 666,593         651,578
      Equity securities                                           11,978          67,473
      Subsidiaries                                                40,395          35,000
      Real estate, property and equipment                         46,683           8,156
    Cash and short-term investments of acquired
      (former) subsidiaries                                     (134,237)       (131,880)
    Decrease (increase) in other investments                      (4,711)          8,695
                                                              ----------      ----------
                                                                (451,750)       (212,535)
                                                              ----------      ----------

<PAGE>

FINANCING ACTIVITIES:
    Fixed annuity receipts                                       454,189         359,884
    Annuity surrenders, benefits and withdrawals                (482,997)       (564,454)
    Net transfers from (to) variable annuity assets                3,252         (44,305)
    Additional long-term borrowings                              185,668         131,341
    Reductions of long-term debt                                (102,067)       (133,343)
    Borrowings from AFG                                           14,077          10,500
    Payments to AFG                                              (77,500)        (78,413)
    Capital contribution                                          14,000          14,000
    Repurchases of trust preferred securities                    (75,000)         (1,427)
    Cash dividends paid                                           (2,886)         (2,886)
                                                              ----------      ----------
                                                                 (69,264)       (309,103)
                                                              ----------      ----------

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS        51,694        (121,376)

Cash and short-term investments at beginning
    of period                                                    437,263         389,018
                                                              ----------      ----------

Cash and short-term investments at end of period              $  488,957      $  267,642
                                                              ==========      ==========
</TABLE>

                                        5


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.    ACCOUNTING POLICIES

      BASIS OF PRESENTATION The accompanying consolidated financial statements
      for American Financial Corporation. ("AFC") and subsidiaries are
      unaudited; however, 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.

      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 All fixed maturity securities are considered "available for
      sale" and reported at fair value with unrealized gains and losses reported
      as a separate component of shareholders' equity. Short-term investments
      are carried at cost; loans receivable are carried primarily at the
      aggregate unpaid balance. Premiums and discounts on mortgage-backed
      securities are amortized over a period based on estimated future principal
      prepayments and adjusted to reflect actual prepayments.

      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 and the carrying value of that investment is reduced.

      Emerging Issues Task Force Issue No. 99-20 established a new standard for
      recognizing impairment of certain asset-backed investments. Impairment
      losses on these investments must be recognized when (i) the fair value of
      the security is less than its carrying value and (ii) there has been an
      adverse change in the expected cash flows. The new standard became
      effective on April 1, 2001. Impairment losses on initial application of
      this rule were recognized as the cumulative effect of an accounting
      change. Subsequent impairments are recognized as a component of net
      realized gains and losses.

      INVESTMENT IN INVESTEE CORPORATIONS Investments in securities of 20%- to
      50%-owned companies are generally carried at cost, adjusted for AFC's
      proportionate share of their undistributed earnings or losses.
<PAGE>
      Due to Chiquita's announced intention to pursue a plan to restructure its
      public debt, AFC wrote down its investment in Chiquita common stock to
      market value at December 31, 2000. In 2001, AFC suspended accounting for
      the investment under the equity method due to the expected restructuring,
      and reclassified the investment to "Other stocks".

      COST IN EXCESS OF NET ASSETS ACQUIRED The excess of cost of subsidiaries
      over AFC's equity in the underlying net assets ("goodwill") is being
      amortized over periods of 20 to 40 years.

                                        6


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


      INSURANCE As discussed under "Reinsurance" below, unpaid losses and loss
      adjustment expenses and unearned premiums have not been reduced for
      reinsurance recoverable. To the extent that unrealized gains (losses) from
      securities classified as "available for sale" would result in adjustments
      to deferred acquisition costs and policyholder liabilities had those gains
      (losses) actually been realized, such balance sheet amounts are adjusted,
      net of deferred taxes.

            REINSURANCE In the normal course of business, AFC's insurance
      subsidiaries cede reinsurance to other companies to diversify risk and
      limit maximum loss arising from large claims. To the extent that any
      reinsuring companies are unable to meet obligations under agreements
      covering reinsurance ceded, AFC's insurance subsidiaries would remain
      liable. Amounts recoverable from reinsurers are estimated in a manner
      consistent with the claim liability associated with the reinsured
      policies. AFC's insurance subsidiaries report as assets (a) the estimated
      reinsurance recoverable on unpaid losses, including an estimate for losses
      incurred but not reported, and (b) amounts paid to reinsurers applicable
      to the unexpired terms of policies in force. AFC's insurance subsidiaries
      also assume reinsurance from other companies. Income on reinsurance
      assumed is recognized based on reports received from ceding companies.

            DEFERRED ACQUISITION COSTS Policy acquisition costs (principally
      commissions, premium taxes and other marketing and underwriting expenses)
      related to the production of new business are deferred ("DPAC"). For the
      property and casualty companies, DPAC is limited based upon recoverability
      without any consideration for anticipated investment income and is charged
      against income ratably over the terms of the related policies. 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. 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.

            UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES The net liabilities
      stated for unpaid claims and for expenses of investigation and adjustment
      of unpaid claims are based upon (a) the accumulation of case estimates for
      losses reported prior to the close of the accounting period on direct
      business written; (b) estimates received from ceding reinsurers and
      insurance pools and associations; (c) estimates of unreported losses based
      on past experience; (d) estimates based on experience of expenses for
      investigating and adjusting claims and (e) the current state of the law
      and coverage litigation. These liabilities are subject to the impact of
      changes in claim amounts and frequency and other factors. Changes in
      estimates of the liabilities for losses and loss adjustment expenses are
      reflected in the Statement of Operations in the period in which
      determined. In spite of the variability inherent in such estimates,
      management believes that the liabilities for unpaid losses and loss
      adjustment expenses are adequate.

<PAGE>

            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 yield, mortality, morbidity and surrenders and include
      provisions for unfavorable deviations. Reserves established for accident
      and health claims are modified as necessary to reflect actual experience
      and developing trends.
                                        7


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


            VARIABLE ANNUITY ASSETS AND LIABILITIES Separate accounts related to
      variable annuities represent deposits invested in underlying investment
      funds on which Great American Financial Resources, Inc. ("GAFRI"), an
      83%-owned subsidiary, earns a fee. Investment funds are selected and may
      be changed only by the policyholder.

            PREMIUM RECOGNITION Property and casualty premiums are earned over
      the terms of the policies on a pro rata basis. Unearned premiums represent
      that portion of premiums written which is applicable to the unexpired
      terms of policies in force. On reinsurance assumed from other insurance
      companies or written through various underwriting organizations, unearned
      premiums are based on reports received from such companies and
      organizations. For traditional life, accident and health products,
      premiums are recognized as revenue when legally collectible from
      policyholders. 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.

            POLICYHOLDER DIVIDENDS Dividends payable to policyholders are
      included in "Accounts payable, accrued expenses and other liabilities" and
      represent estimates of amounts payable on participating policies which
      share in favorable underwriting results. Estimates are accrued during the
      period in which premiums are earned. Changes in estimates are included in
      income in the period determined. Policyholder dividends do not become
      legal liabilities unless and until declared by the boards of directors of
      the insurance companies.

      MINORITY INTEREST For balance sheet purposes, minority interest represents
      (i) the interests of noncontrolling shareholders in AFC subsidiaries,
      including preferred securities issued by trust subsidiaries of GAFRI and
      (ii) American Financial Group, Inc.'s ("AFG") direct ownership interest in
      American Premier Underwriters, Inc. ("American Premier" or "APU") and
      American Financial Enterprises, Inc. For income statement purposes,
      minority interest expense represents those shareholders' interest in the
      earnings of AFC subsidiaries as well as accrued distributions on the trust
      preferred securities.

      INCOME TAXES AFC files consolidated federal income tax returns which
      include all 80%-owned U.S. subsidiaries, except for certain life insurance
      subsidiaries and their subsidiaries. Deferred income taxes are calculated
      using the liability method. Under this method, deferred income tax assets
      and liabilities are determined based on differences between financial
      reporting and tax bases and are measured using enacted tax rates. Deferred
      tax assets are recognized if it is more likely than not that a benefit
      will be realized.
<PAGE>
      BENEFIT PLANS AFC provides retirement benefits to qualified employees of
      participating companies through contributory and noncontributory defined
      contribution plans contained in AFG's Retirement and Savings Plan. Under
      the retirement portion of the plan, company contributions are invested
      primarily in securities of AFG and affiliates. Under the savings portion
      of the plan, AFC matches a specific portion of employee contributions.
      Contributions to benefit plans are charged against earnings in the year
      for which they are declared.






                                        8


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


      AFC and many of its subsidiaries provide health care and life insurance
      benefits to eligible retirees. AFC also provides postemployment benefits
      to former or inactive employees (primarily those on disability) who were
      not deemed retired under other company plans. The projected future cost of
      providing these benefits is expensed over the period employees earn such
      benefits.

      DERIVATIVES Effective October 1, 2000, AFC implemented Statement of
      Financial Accounting Standards ("SFAS") No. 133, "Accounting for
      Derivative Instruments and Hedging Activities", which establishes
      accounting and reporting standards for derivative instruments (including
      derivative instruments that are embedded in other contracts) and for
      hedging activities. Prior year financial statements were not restated.
      SFAS No. 133 generally requires that derivatives (both assets and
      liabilities) be recognized in the balance sheet at fair value with changes
      in fair value included in current earnings.

      Derivatives included in AFC's Balance Sheet consist primarily of
      investments in common stock warrants (included in other stocks), the
      equity-based component of certain annuity products (included in annuity
      benefits accumulated) and call options (included in other investments)
      used to mitigate the risk embedded in the equity-indexed annuity products.

      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 obtaining resources from owners and providing them with a return
      on their investments, borrowing money and repaying amounts borrowed.
      Annuity receipts, benefits and withdrawals are also reflected as financing
      activities. 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.


<PAGE>

B.    SALE OF SUBSIDIARIES

      SEVEN HILLS INSURANCE COMPANY In July 2001, AFC sold Seven Hills Insurance
      Company for $18.4 million, realizing a pretax gain of $7.1 million. As a
      part of the sale, AFC assumed all liability for Seven Hills' business
      prior to the date of the sale.

      JAPANESE DIVISION In December 2000, AFC agreed to sell its Japanese
      property and casualty division to Mitsui Marine & Fire Insurance Company
      of America for $22 million in cash and recorded a $10.7 million pretax
      loss on the sale. Upon completion of the sale in March 2001, AFC realized
      an additional pretax loss of $1.6 million and deferred a gain of
      approximately $21 million on ceded insurance which is being recognized
      over the estimated settlement period (weighted average of 4 years) of the
      ceded claims. At the same time, a reinsurance agreement under which Great
      American Insurance ceded a portion of its pool of insurance to Mitsui was
      terminated. The Japanese division generated net written premiums of
      approximately $60 million per year to Great American while Great American
      ceded approximately $45 million per year to Mitsui.

      STONEWALL INSURANCE COMPANY In September 2000, AFC sold Stonewall
      Insurance Company, realizing a pretax loss of $6 million. AFC recognized
      an additional pretax loss of $4.3 million in the fourth quarter of 2000 as
      a result of post-closing adjustments. Stonewall was a non-operating
      property and casualty subsidiary with approximately $320 million in
      assets, engaged primarily in the run-off of approximately $170 million in
      asbestos and environmental liabilities associated with policies written
      through 1991.

                                        9


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


      COMMERCIAL LINES DIVISION In 1998, AFC sold its Commercial lines division
      to Ohio Casualty Corporation. In August 2000, AFC received an additional
      payment of $25 million from Ohio Casualty based on retention and growth
      through May 2000 of the businesses sold. This earn-out was recognized as
      additional "gain on sale of subsidiary" in the second quarter of 2000.

C.    SEGMENTS OF OPERATIONS AFC's property and casualty group is engaged
      primarily in private passenger automobile and specialty insurance
      businesses. The Specialty group includes a highly diversified group of
      specialty business units. Some of the more significant areas are inland
      and ocean marine, California workers' compensation, agricultural-related
      coverages, executive and professional liability, fidelity and surety
      bonds, collateral protection, and umbrella and excess coverages. The
      Personal group writes nonstandard and preferred/standard private passenger
      auto and other personal insurance coverage. AFC's annuity, life and health
      business markets primarily retirement products as well as life and
      supplemental health insurance.
<PAGE>
      The following table (in thousands) shows AFC's revenues and operating
      profit (loss) by significant business segment. Operating profit (loss)
      represents total revenues less operating expenses.
<TABLE>
<CAPTION>
                                                                Three months ended                 Nine months ended
                                                                  September 30,                      September 30,
                                                           -------------------------          ---------------------------
                                                                  2001          2000                 2001            2000
                                                                  ----          ----                 ----            ----
<S>                                                        <C>           <C>                 <C>              <C>
         REVENUES (a)
         Property and casualty insurance:
           Premiums earned:
             Specialty                                      $  390,254    $  334,846           $1,062,749      $  917,057
             Personal                                          273,905       326,591              924,166         940,237
             Other lines - primarily
               discontinued                                        222          (360)               1,752            (359)
                                                            ----------    ----------           ----------      ----------
                                                               664,381       661,077            1,988,667       1,856,935
           Investment and other income                         117,233        98,703              331,008         349,181
                                                            ----------    ----------           ----------      ----------
                                                               781,614       759,780            2,319,675       2,206,116
         Annuities, life and health (b)                        228,044       235,862              647,636         619,144
         Other                                                   6,778        18,001               17,581          32,306
                                                            ----------    ----------           ----------      ----------
                                                            $1,016,436    $1,013,643           $2,984,892      $2,857,566
                                                            ==========    ==========           ==========      ==========

         OPERATING PROFIT (LOSS)
         Property and casualty insurance:
           Underwriting:
             Specialty                                     ($   32,119)  ($   56,580)         ($   38,958)    ($   81,758)
             Personal                                          (21,104)      (34,704)             (84,681)        (72,029)
             Other lines (c)                                   (98,365)       (5,214)            (104,166)         (9,006)
                                                            ----------    ----------           ----------      ----------
                                                              (151,588)      (96,498)            (227,805)       (162,793)
           Investment and other income                          73,115        57,450              217,464         235,457
                                                            ----------    ----------           ----------      ----------
                                                               (78,473)      (39,048)             (10,341)         72,664
         Annuities, life and health                             36,959        50,501               84,417          75,806
         Other (d)                                             (16,568)       (9,234)             (66,505)        (41,938)
                                                            ----------    ----------           ----------      ----------
                                                           ($   58,082)   $    2,219           $    7,571      $  106,532
                                                            ==========    ==========           ==========      ==========
</TABLE>

         (a)    Revenues include sales of products and services as well as other
                income earned by the respective segments.
         (b)    Represents primarily investment income.
         (c)    Represents primarily losses related to asbestos and other
                environmental matters ("A&E")
         (d)    Includes holding company expenses.




                                       10


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


D.    INVESTEE CORPORATIONS Investment in investee corporations at December 31,
      2000, reflects AFC's ownership of 24 million shares (33%) of Chiquita
      common stock. The market value of this investment was $24 million at
      December 31, 2000. Chiquita is a leading international marketer, producer
      and distributor of quality fresh fruits and vegetables and processed
      foods. Summarized financial information for Chiquita for the nine months
      ended September 30, 2000, follows (in millions):

         Net Sales                                $1,725
         Operating Income                             88
         Net Loss                                     (6)

      In January 2001, Chiquita announced a restructuring initiative that
      included discontinuing all interest and principal payments on its public
      debt. A restructuring is expected to result in the conversion of a
      significant portion of Chiquita's $862 million in public debt into common
      equity. Although the expected restructuring would not impact Chiquita's
      day-to-day operations, it would adversely affect the holders of its stock,
      including AFC.

      START-UP MANUFACTURING BUSINESSES Since 1998, AFC subsidiaries have made
      loans to two start-up manufacturing businesses which were previously owned
      by unrelated third-parties. During 2000, the former owners chose to
      forfeit their equity interests to AFC rather than invest additional
      capital. In the fourth quarter of 2000, AFC sold the equity interests to a
      group of employees for nominal cash consideration plus warrants to
      repurchase a significant ownership interest. Due to the absence of
      significant financial investment by the buyers relative to the amount of
      debt owed to AFC subsidiaries, the sale was not recognized as a
      divestiture for accounting purposes. Assets of the businesses transferred
      (approximately $55 million at September 30, 2001 and December 31, 2000)
      are included in other assets; liabilities of the businesses transferred
      (approximately $9 million at September 30, 2001 and $7 million at December
      31, 2000, after elimination of loans from AFC subsidiaries) are included
      in other liabilities. AFC's equity in the losses of these two companies
      ($6.4 million in the third quarter and $12.0 million in the first nine
      months of 2001) is included in investee losses in the Statement of
      Operations. One of the businesses is involved in litigation impacting its
      operations; see "Investee Corporations" in Management's Discussion and
      Analysis.

E.    PAYABLE TO AMERICAN FINANCIAL GROUP AFC has a reciprocal Master Credit
      Agreement with various AFG holding companies under which these companies
      make funds available to each other for general corporate purposes.
<PAGE>
F.    LONG-TERM DEBT  The carrying value of long-term debt consisted of the
      following (in thousands):

<TABLE>
<CAPTION>
                                                               September 30,   December 31,
                                                                       2001           2000
                                                               ------------    -----------
<S>                                                               <C>            <C>
            HOLDING COMPANIES:
               AFC notes payable under bank line                   $206,000       $178,000
               APU 10-7/8% Subordinated Notes due May 2011           11,570         11,611
               Other                                                 13,970         14,727
                                                                   --------       --------

                                                                   $231,540       $204,338
                                                                   ========       ========
            SUBSIDIARIES:
               GAFRI 6-7/8% Senior Notes due June 2008             $100,000       $100,000
               GAFRI notes payable under bank line                  121,100         48,500
               Notes payable secured by real estate                  16,500         31,201
               Other                                                 14,510         15,386
                                                                   --------       --------

                                                                   $252,110       $195,087
                                                                   ========       ========
</TABLE>

                                       11


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


      At September 30, 2001, sinking fund and other scheduled principal payments
      on debt for the balance of 2001 and the subsequent five years were as
      follows (in millions):

                     Holding
                   Companies   Subsidiaries      Total
            2001      $   .5         $   .3     $   .8
            2002       216.5            1.3      217.8
            2003         -              1.3        1.3
            2004         -            122.1      122.1
            2005         -             10.0       10.0
            2006         -               .7         .7

      Debentures purchased in excess of scheduled payments may be applied to
      satisfy any sinking fund requirement. The scheduled principal payments
      shown above assume that debentures previously purchased are applied to the
      earliest scheduled retirements.

      AFC and GAFRI each have an unsecured credit agreement with a group of
      banks under which they can borrow up to $300 million and $155 million,
      respectively. Borrowings bear interest at floating rates based on prime or
      Eurodollar rates. Loans mature in December 2002 under the AFC credit
      agreement and in December 2004 under the GAFRI credit agreement.

G.    MINORITY INTEREST  Minority interest in AFC's balance sheet is comprised
      of the following (in thousands):

<TABLE>
<CAPTION>
                                                               September 30,         December 31,
                                                                       2001                 2000
                                                               ------------          -----------
<S>                                                               <C>                  <C>
            Interest of AFG (parent) and noncontrolling
              shareholders in subsidiaries' common stock           $321,862             $291,792
            Preferred securities issued by
              subsidiary trusts                                     142,913              217,913
                                                                   --------             --------

                                                                   $464,775             $509,705
                                                                   ========             ========
</TABLE>


<PAGE>

      TRUST ISSUED PREFERRED SECURITIES Wholly-owned subsidiary trusts of GAFRI
      have issued preferred securities and, in turn, purchased a like amount of
      subordinated debt which provides interest and principal payments to fund
      the respective trusts' obligations. The preferred securities must be
      redeemed upon maturity or redemption of the subordinated debt. GAFRI
      effectively provides unconditional guarantees of its respective trusts'
      obligations.

      The preferred securities consisted of the following (in thousands):
<TABLE>
<CAPTION>


      Date of                                   September 30,     December 31,    Optional
      Issuance       Issue (Maturity Date)              2001             2000     Redemption Dates
      -------------  ------------------------   ------------      -----------     ---------------------
<S>                 <C>                             <C>              <C>         <C>
      November 1996  GAFRI 9-1/4% TOPrS (2026)       $72,913          $72,913     On or after 11/7/2001
      March 1997     GAFRI 8-7/8% Pfd   (2027)        70,000           70,000     On or after 3/1/2007
      May 1997       GAFRI 7-1/4% ROPES (2041)          -              75,000
</TABLE>

      On September 28, 2001, GAFRI redeemed its ROPES for $75 million in cash.




                                       12


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


      MINORITY INTEREST EXPENSE Minority interest expense is comprised of (in
      thousands):
                                                             Nine months ended
                                                                September 30,
                                                          ---------------------
                                                                2001       2000
                                                                ----       ----
            Interest of AFG (parent) and noncontrolling
              shareholders in earnings of subsidiaries       $10,122    $ 5,508
            Accrued distributions by subsidiaries
              on trust issued preferred securities,
                net of tax                                     8,969      8,963
                                                             -------    -------
                                                             $19,091    $14,471
                                                             =======    =======

H.    SHAREHOLDERS' EQUITY At September 30, 2001 and December 31, 2000, American
      Financial Group beneficially owned all of the outstanding shares of AFC's
      Common Stock.

      PREFERRED STOCK Under provisions of both the Nonvoting (4.0 million shares
      authorized) and Voting (4.0 million shares authorized) Cumulative
      Preferred Stock, the Board of Directors may divide the authorized stock
      into series and set specific terms and conditions of each series. At
      September 30, 2001 and December 31, 2000, the outstanding voting shares of
      AFC's Preferred Stock consisted of the following:

            SERIES J, no par value; $25.00 liquidating value per share; annual
            dividends per share $2.00; redeemable at AFC's option at $25.75 per
            share beginning December 2005 declining to $25.00 at December 2007
            and thereafter; 2,886,161 shares (stated value $72.2 million)
            outstanding at September 30, 2001 and December 31, 2000.


<PAGE>

      UNREALIZED GAIN ON MARKETABLE SECURITIES The change in unrealized gain
      (loss) on marketable securities for the nine months ended September 30
      included the following (in millions):
<TABLE>
<CAPTION>
                                                                                 Minority
                                                           Pretax      Taxes     Interest      Net
                                                           ------      -----     --------     -----
<S>                                                       <C>         <C>         <C>       <C>
                          2001
-----------------------------------------------------
      Unrealized holding gains on securities
        arising during the period                          $175.4     ($60.9)     ($19.2)    $ 95.3
      Realized losses included in net income and
        unrealized gains of subsidiary sold                  33.1      (11.6)       (2.2)      19.3
                                                           ------      -----       -----     ------
      Change in unrealized gain on
        marketable securities, net                         $208.5     ($72.5)     ($21.4)    $114.6
                                                           ======      =====       =====     ======

                          2000
-----------------------------------------------------
      Unrealized holding losses on securities
        arising during the period                          ($ 9.9)     $ 4.3       ($3.0)    ($ 8.6)
      Realized losses included in net income and
        unrealized losses of subsidiary sold                 25.2       (8.8)       (1.9)      14.5
                                                            -----      -----        ----      -----
      Change in unrealized gain (loss) on
        marketable securities, net                          $15.3     ($ 4.5)      ($4.9)     $ 5.9
                                                            =====      =====        ====      =====
</TABLE>

I.    COMMITMENTS AND CONTINGENCIES There have been no significant changes to
      the matters discussed and referred to in Note M "Commitments and
      Contingencies" of AFC's Annual Report on Form 10-K for 2000.


                                       13


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                                     ITEM 2

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      GENERAL

      AFC and American Premier are organized as holding companies with almost
      all of their operations being conducted by subsidiaries. These parent
      corporations, however, have continuing cash needs for administrative
      expenses, the payment of principal and interest on borrowings, shareholder
      dividends, and taxes. Therefore, certain analyses are best done on a
      parent only basis while others are best done on a total enterprise basis.
      In addition, since most of its businesses are financial in nature, AFC
      does not prepare its consolidated financial statements using a
      current-noncurrent format. Consequently, certain traditional ratios and
      financial analysis tests are not meaningful.

      IT INITIATIVE In 1999, AFC initiated an enterprise-wide project to study
      its information technology ("IT") resources, needs and opportunities. The
      initiative, involving improvements in physical infrastructure and business
      support systems, entails extensive effort and costs over a period of
      several years. While the costs precede the expected savings, management
      believes the benefits in efficiencies and effectiveness will exceed the
      costs incurred, all of which have been and will be funded through
      available working capital.

      FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of
      1995 provides a safe harbor for forward-looking statements. Some of the
      forward-looking statements can be identified by the use of forward-looking
      words such as "believes", "expects", "may", "will", "should", "seeks",
      "intends", "plans", "estimates", "anticipates" or the negative version of
      those words or other comparable terminology. Actual results could differ
      materially from those contained in or implied by such forward-looking
      statements for a variety of factors including:

       o  changes in economic conditions, including interest rates, performance
          of securities markets, and the availability of capital;
       o  regulatory actions;
       o  changes in legal environment;
       o  judicial decisions and rulings;
       o  tax law changes;
       o  levels of catastrophes and other major losses;
       o  the actual amount of liabilities associated with certain
          environmental and asbestos-related insurance claims;
       o  adequacy of loss reserves;
       o  availability of reinsurance; and
       o  competitive pressures, including the ability to obtain rate increases.

      Forward-looking statements speak only as of the date made. AFC undertakes
      no obligations to update any forward-looking statements to reflect events
      or circumstances arising after the date on which they are made.
<PAGE>

      LIQUIDITY AND CAPITAL RESOURCES

      RATIOS AFC's debt to total capital ratio at the parent holding company
      level (excluding amounts due AFG) was approximately 13% at September 30,
      2001 and 12% at December 31, 2000. Including amounts due AFG, the ratio
      was 28% at September 30, 2001 and 31% at December 31, 2000.


                                       14


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
            OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

      AFC's ratio of earnings to fixed charges, excluding and including
      preferred dividends, (on a total enterprise basis) was .91 and .86 for the
      first nine months of 2001 and 2.02 and 1.87 for the entire year of 2000.
      Due primarily to the $100 million strengthening of asbestos and
      environmental reserves in the third quarter, fixed charges exceeded
      earnings by $6 million ($11 million including preferred dividends) during
      the first nine months of 2001.

      SOURCES OF FUNDS Management believes the parent holding companies have
      sufficient resources to meet their liquidity requirements, primarily
      through funds generated by their subsidiaries' operations. If funds
      provided by subsidiaries through dividends and tax payments are
      insufficient to meet fixed charges in any period, the holding companies
      would be required to generate cash through borrowings, sales of securities
      or other assets, or similar transactions.

      AFC has a revolving credit agreement with several banks under which it can
      borrow up to $300 million. This credit line provides liquidity and can be
      used to obtain funds for operating subsidiaries or, if necessary, for the
      parent companies. At September 30, 2001, there was $206 million borrowed
      under the line.

      Dividend payments from subsidiaries have been very important to the
      liquidity and cash flow of the individual holding companies during certain
      periods in the past. However, the reliance on such dividend payments has
      been lessened in recent years by the combination of (i) reductions in the
      amounts and cost of debt at the holding companies from historical levels
      (and the related decrease in ongoing cash needs for interest and principal
      payments), (ii) the ability to obtain financing in capital markets, as
      well as (iii) the sales of certain noncore investments.

      INVESTMENTS Approximately 93% of the fixed maturities held by AFC were
      rated "investment grade" (credit rating of AAA to BBB) by nationally
      recognized rating agencies at September 30, 2001. Investment grade
      securities generally bear lower yields and lower degrees of risk than
      those that are unrated and noninvestment grade. Management believes that
      the high quality investment portfolio should generate a stable and
      predictable investment return.

      AFC's equity securities are concentrated in a relatively limited number of
      major positions. This approach allows management to more closely monitor
      the companies and the industries in which they operate.


<PAGE>

      RESULTS OF OPERATIONS

      GENERAL AFC had a pretax operating loss of $58.1 million for the third
      quarter and operating earnings of $7.6 million for the nine months ended
      September 30, 2001, compared to earnings of $2.2 million and $106.5
      million in the comparable 2000 periods. Results for the third quarter of
      2001 include a $100 million asbestos and environmental charge and losses
      of $25 million resulting from the World Trade Center terrorist attack.
      Results for 2000 include a third quarter charge of $35 million for reserve
      strengthening in the California workers' compensation business and special
      litigation charges of $41 million recorded in the second quarter. Results
      for the first nine months of 2001 include realized losses of $27.8 million
      compared to gains of $25.7 million in the comparable 2000 period.





                                       15


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
            OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

      PROPERTY AND CASUALTY INSURANCE - UNDERWRITING AFC's property and casualty
      group consists of two major business groups: Specialty and Personal.

      The Specialty group includes a highly diversified group of business lines.
      Some of the more significant areas are inland and ocean marine, California
      workers' compensation, agricultural-related coverages, executive and
      professional liability, fidelity and surety bonds, collateral protection,
      and umbrella and excess coverages.

      The Personal group sells nonstandard and preferred/standard private
      passenger auto insurance and, to a lesser extent, homeowners' insurance.
      Nonstandard automobile insurance covers risk not typically accepted for
      standard automobile coverage because of an applicant's driving record,
      type of vehicle, age or other criteria.

      Underwriting profitability is measured by the combined ratio which is a
      sum of the ratios of underwriting losses, loss adjustment expenses,
      underwriting expenses and policyholder dividends to premiums. When the
      combined ratio is under 100%, underwriting results are generally
      considered profitable; when the ratio is over 100%, underwriting results
      are generally considered unprofitable. The combined ratio does not reflect
      investment income, other income or federal income taxes.

      For certain lines of business and products where the credibility of the
      range of loss projections is less certain (primarily the various specialty
      businesses listed above), management believes that it is prudent and
      appropriate to use conservative assumptions until such time as the data,
      experience and projections have more credibility, as evidenced by data
      volume, consistency and maturity of the data. While this practice
      mitigates the risk of adverse development on this business, it does not
      eliminate it.


<PAGE>

      Net written premiums and combined ratios for AFC's property and casualty
      insurance subsidiaries were as follows (dollars in millions):
<TABLE>
<CAPTION>
                                               Three months ended         Nine months ended
                                                  September 30,              September 30,
                                           ----------------------     ------------------------
                                                  2001       2000         2001            2000
                                                  ----       ----         ----            ----
<S>                                           <C>         <C>        <C>             <C>
            NET WRITTEN PREMIUMS (GAAP)
               Specialty                       $417.3      $341.7     $1,167.7(a)     $  974.9
               Personal                         190.6       299.4        813.1           997.3
               Other lines                        -           (.3)         -               (.3)
                                               ------      ------     --------        --------
                                               $607.9      $640.8     $1,980.8        $1,971.9
                                               ======      ======     ========        ========

            COMBINED RATIOS (GAAP) (b)
               Specialty (c)                    108.3%      116.8%       103.7%          108.9%
               Personal                         107.7       110.6        109.2           107.6
               Aggregate (including
                  discontinued lines) (d)       122.8       114.7        111.4           108.8
</TABLE>
            (a)  Before a reduction of $29.7 million for unearned premium
                 transfer related to the sale of the Japanese division.
            (b)  Combined ratios for the entire year of 2000 were:
                 Specialty - 107.9%, Personal - 108.6%, Aggregate - 108.0%.
            (c)  Includes 6.5% and 2.3% for the three and nine month periods of
                 2001 relating to the attack on the World Trade Center.
            (d)  Includes an aggregate of 18.8% and 6.2% for the three and
                 nine month periods of 2001 relating to the A&E charge and the
                 attack on the World Trade Center.
                                       16


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
            OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

      ASBESTOS AND ENVIRONMENTAL RESERVES CHARGE Throughout the property and
      casualty insurance industry, estimating ultimate liability for asbestos
      claims has become increasingly uncertain due to inconsistent court
      decisions, recent bankruptcy filings, novel theories of coverage, and
      judicial interpretations that often expand theories of recovery and
      broaden the scope of coverage. The casualty insurance industry as a whole
      is engaged in extensive litigation over these coverage and liability
      issues as the volume and severity of claims against asbestos defendants
      continue to increase.

      In October 2001, AFC completed a comprehensive study of its A&E reserves.
      This study was initiated after experiencing an increase in the number and
      severity of asbestos claims during the second quarter of 2001 and
      observing the developments of adverse trends in the property and casualty
      insurance industry concerning asbestos losses. As a result, AFC recorded a
      third quarter charge of $100 million. This charge, accompanied by a
      transfer of $36 million from excess reserves for other environmental
      claims, resulted in an increase of $136 million in asbestos reserves. At
      September 30, 2001, A&E reserves were $554 million (before deducting
      reinsurance recoverables of $119 million).

      While management believes that the reserves, as strengthened, are a
      reasonable estimate of ultimate liability for A&E claims, actual results
      may vary materially from the amount currently recorded due to
      uncertainties such as insureds seeking bankruptcy protection, predicting
      the number of future claims, the ability of claimants who exhibit no signs
      of illness to successfully pursue claims, and the potential for allocation
      of liability among insurers.

      Further, certain policyholders assert that their claims are not subject to
      aggregate limits on coverage because either their policies failed to
      contain aggregate limits with respect to products liability coverage or,
      faced with exhaustion of products coverage limits, their asbestos claims
      fall within non-products liability coverage which is not subject to any
      aggregate limit. These claims are now being contested in insurance
      coverage litigation in various jurisdictions. In rejecting the claims that
      are the basis of this litigation, AFC believes its coverage defenses are
      substantial and intends to continue to vigorously defend its position.
      Nonetheless, such claims may have a material adverse effect upon AFC if
      resolved unfavorably.

<PAGE>
      SPECIALTY The Specialty group's increase in net written premiums reflects
      the impact of rate increases implemented in 2000 and 2001 and the
      realization of growth opportunities in certain commercial markets. Through
      the first nine months of this year, rate increases in the California
      worker's compensation business have been in excess of 35% and have
      averaged over 17% in the other specialty operations. AFC expects these
      levels of rate increases to continue for the remainder of 2001. The
      improvement in the combined ratio compared to the 2000 periods reflects
      the impact of these rate increases. Excluding the effect of the attack on
      the World Trade Center, the Specialty group's combined ratio improved to
      101.8% for the third quarter and 101.4% for the first nine months of 2001.

      PERSONAL The Personal group's decline in net written premiums reflects a
      reinsurance agreement, effective April 1, 2001, under which AFC cedes 90%
      of the automobile physical damage business written by certain of its
      insurance subsidiaries. This agreement is enabling AFC to reallocate some
      of its capital to the more profitable specialty operations. Excluding the
      effect of this agreement, the Personal group's net written premiums
      declined slightly for the third quarter and nine months as lower business
      volume was partially offset by the impact of significant rate increases.
      Through the first nine months of 2001, the group has implemented rate
      increases of 12%. As a result, the combined ratio improved to 107.7% for
      the third quarter of 2001.
                                       17


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
           OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

      LIFE, ACCIDENT AND HEALTH PREMIUMS AND BENEFITS The increase in life,
      accident and health premiums and benefits for the nine months is due
      primarily to the acquisition of a block of supplemental health insurance
      business in 2000.

      REAL ESTATE OPERATIONS AFC's subsidiaries are engaged in a variety of real
      estate operations including hotels, apartments, office buildings and
      recreational facilities; they also own several parcels of land. Revenues
      and expenses of these operations, including gains and losses on disposal,
      are included in AFC's statement of earnings as shown below (in millions).
<TABLE>
<CAPTION>
                                                   Three months ended      Nine months ended
                                                     September 30,            September 30,
                                                  -------------------     -------------------
                                                         2001    2000          2001      2000
                                                         ----    ----          ----      ----
<S>                                                   <C>      <C>           <C>       <C>
        Other income                                   $24.3    $26.8         $85.7     $71.2
        Other operating and general expenses            17.9     18.5          49.5      49.8
        Interest charges on borrowed money                .3       .6           1.6       1.9
        Minority interest expense, net                    .5       .7           3.8       1.9
</TABLE>

      Other income includes net pretax gains on the sale of real estate assets
      of $2.0 million in the third quarter and $26.6 million in the first nine
      months of 2001 compared to $.8 million and $7.5 million for the 2000
      periods.

      OTHER INCOME Excluding gains on the sale of real estate assets (discussed
      above), other income decreased $25.8 million (15%) in the first nine
      months of 2001 due primarily to income of $11.2 million from the sale of
      certain lease rights in the third quarter of 2000 and income from the sale
      of operating assets and lease residuals in the first quarter of 2000.

      REALIZED GAINS Realized capital gains have been an important part of the
      return on investments. Individual assets are sold creating gains and
      losses as market opportunities exist.

      GAINS (LOSSES) ON SECURITIES In addition to gains (losses) on sales of
      securities, provisions for other than temporary impairment of securities
      still held are included as follows: third quarter of 2001 and 2000 - $22.9
      million and $6.6 million; nine months of 2001 and 2000 - $60.1 million and
      $9.9 million, respectively. The provisions for the 2001 periods include $8
      million for the write-down of AFC's investment in Chiquita from $1.00 per
      share to $.67 per share.
<PAGE>

      Under SFAS No. 133, which was adopted as of October 1, 2000, warrants to
      purchase common stock of publicly traded companies are generally
      considered derivatives and marked to market through current earnings as
      realized gains and losses. Realized losses on securities in 2001 includes
      gains of $60,000 in the third quarter and $2.4 million in the first nine
      months to adjust the carrying value of AFC's investment in warrants to
      market value.

      GAIN (LOSS) ON SUBSIDIARIES Gain (loss) on sales of subsidiaries in 2001
      includes a third quarter pretax gain of $7.1 on the sale of Seven Hills
      Insurance Company and a first quarter pretax loss of $1.6 million
      representing an adjustment to the fourth quarter 2000 loss recorded on the
      sale of the Japanese division. In 2000, AFC recognized a $25 million gain
      in the second quarter representing an earn-out related to the 1998 sale of
      its Commercial lines division and a $6 million loss in the third quarter
      on the sale of Stonewall Insurance Company.


                                       18


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
           OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

      GAIN ON OTHER INVESTMENTS In September 2000, GAFRI realized a $27.2
      million pretax gain on the sale of its minority ownership in a company
      engaged in the production of ethanol.

      ANNUITY BENEFITS Annuity benefits reflect amounts accrued on annuity
      policyholders' funds accumulated. The majority of GAFRI's fixed rate
      annuity products permit GAFRI 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. In 2000, annuity
      benefits also includes a second quarter charge of $14.2 million related to
      the settlement of a policyholder class action lawsuit.

      GAFRI's equity-indexed fixed annuities provide policyholders with a
      crediting rate tied, in part, to the performance of an existing stock
      market index. GAFRI attempts to mitigate the risk in the equity-based
      component of these products through the purchase of call options on the
      appropriate index. GAFRI's strategy is designed so that an increase in the
      liabilities due to an increase in the market index will be substantially
      offset by unrealized gains on the call options. Under SFAS No. 133, both
      the equity-based component of the annuities and the related call options
      are considered derivatives and marked to market through current earnings
      as annuity benefits. Adjusting these derivatives to market value had a net
      effect of less than $1 million on annuity benefits during the third
      quarter or the first nine months of 2001.

      INTEREST EXPENSE Interest expense for the third quarter and nine months of
      2001 decreased compared to 2000 as lower average interest rates on AFC's
      variable rate debt and lower average subsidiary indebtedness more than
      offset higher average borrowings under the AFC bank line.

      OTHER OPERATING AND GENERAL EXPENSES Other operating and general expenses
      for 2000 include second quarter charges of $18.3 million related to the
      settlement of the policyholder class action lawsuit against a GAFRI
      subsidiary and $8.8 million for an adverse California Supreme Court ruling
      against an AFC property and casualty subsidiary. Excluding these
      litigation charges, other operating and general expenses increased $21
      million (7%) for the first nine months of 2001 compared to 2000 due
      primarily to increased expenses associated with the IT initiative and
      slightly higher holding company expenses.


<PAGE>

      INVESTEE CORPORATIONS Equity in losses of investee corporations in 2001
      represents losses of two start-up manufacturing businesses (see Note D).
      Investee losses in 2001 include a third quarter judgement of $2.7 million
      against one of the companies for the misappropriation of a trade secret
      and the infringement of a patent. In November 2001, an injunction was
      issued which would prohibit the company from using the equipment which was
      the subject of the trade secret claim and effectively close the plant. The
      injunction was subsequently modified, pending appeal, to permit operations
      to continue and require certain escrow payments. If the investee is
      unsuccessful in its attempt to have the injunction lifted or further
      modified, a substantial portion of AFC's investment ($35 million as of
      November 1, 2001), may be written off.

      Equity in net losses of investees in 2000 represents AFC's proportionate
      share of Chiquita's earnings. Due to Chiquita's restructuring plans, AFC
      suspended its use of equity accounting in 2001.




                                       19


<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
           OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

      CUMULATIVE EFFECT OF ACCOUNTING CHANGE The cumulative effect of accounting
      change represents the implementation of a new accounting standard (EITF
      99-20) which resulted in a pretax write-down of $16.9 million ($10 million
      after-tax and minority interest) of the carrying value of certain
      collateralized debt obligations as of April 1, 2001.

      RECENT ACCOUNTING STANDARDS  In July 2001, the Financial Accounting
      Standards Board issued SFAS No. 141, "Business Combinations", and No. 142,
      "Goodwill and Other Intangible Assets."  Under SFAS No. 141, business
      combinations initiated after June 30, 2001 are required to be accounted
      for using the purchase method of accounting.  Under SFAS No. 142, goodwill
      will no longer be required to be amortized beginning January 1, 2002, but
      will be subject to an impairment test at least annually.  A transitional
      test for impairment is required to be completed in 2002 with any resulting
      writedown reported during the first quarter as a cumulative effect of a
      change in accounting principle.  Based on current levels of goodwill,
      amortization is approximately $3.5 million per quarter.


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                                     ITEM 3

             QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

      As of September 30, 2001, there were no material changes to the
      information provided in AFC's Form 10-K for 2000 under the caption
      "Exposure to Market Risk" in Management's Discussion and Analysis of
      Financial Condition and Results of Operations.






















                                       20
<PAGE>


                       AMERICAN FINANCIAL CORPORATION 10-Q
                                     PART II
                          OTHER INFORMATION - CONTINUED


                                     ITEM 6

                        EXHIBITS AND REPORTS ON FORM 8-K


(a) Exhibits: none

(b) Reports on Form 8-K:  none





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                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, American
Financial Corporation has duly caused this Report to be signed on its behalf by
the undersigned duly authorized.

                                   American Financial Corporation




November 14, 2001                  BY:   FRED J. RUNK
                                         -----------------------------------
                                         Fred J. Runk
                                         Senior Vice President and Treasurer



















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