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



|For the Quarterly Period Ended
June 30, 2003 | Commission FileNo. 1-7361
|-------------------------------------------- | -------------------------



AMERICAN FINANCIAL CORPORATION

|Incorporated under
the Laws of Ohio | IRS Employer I.D.
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        Indicate by check mark whether the Registrant is an accelerated filer. Yes     No X       As of August 1, 2003, there were 10,593,000 shares of the Registrant's Common Stock outstanding, all of which were owned by American Financial Group, Inc.













---

AMERICAN FINANCIAL CORPORATION



TABLE OF CONTENTS







|                                                                        | Page
|----------------------------------------------------------------------- | ----
|Part I- Financial Information                                           |     
|Item  1 - Financial Statements:                                         |     
|Consolidated Balance Sheet                                              | 2   
|Consolidated Statement of Earnings                                      | 3   
|Consolidated Statement of Changes in Shareholders' Equity               | 4   
|Consolidated Statement of Cash Flows                                    | 5   
|Notes to Consolidated Financial Statements                              | 6   
|Item  2 - Management's Discussion and Analysis of Financial Condition   |     
|and Results of Operations                                               | 15  
|Item  3 - Quantitative and Qualitative Disclosure of Market Risk        | 27  
|Item  4 - Controls and Procedures                                       | 27  
|                                                                        |     
|Part II- Other Information                                              |     
|Item  1 - Legal Proceedings                                             | 28  
|Item  6 - Exhibits and Reports on Form 8-K                              | 28  
|Signature                                                               | 29  
|                                                                        |     
|Exhibit Index                                                           |     
|Exhibit 12- Computation of Ratio of Earnings to Fixed Charges           | E-1 
|Exhibit 31(a)- Certification of the Chief Executive Officer Pursuant to |     
|Section 302(a) of the Sarbanes-Oxley Act of 2002                        | E-2 
|Exhibit 31(b)- Certification of the Chief Financial Officer Pursuant to |     
|Section 302(a) of the Sarbanes-Oxley Act of 2002                        | E-3 
|Exhibit 32- Certification of the Chief Executive Officer and the        |     
|Chief Financial Officer Pursuant to Section 906 of the                  |     
|Sarbanes-Oxley Act of 2002                                              | E-4 
|                                                                        |     
|                                                                        |     
|                                                                        |     
|                                                                        |     
|                                                                        |     







AMERICAN FINANCIAL CORPORATION 10-Q

PART I

FINANCIAL INFORMATION

AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars In Thousands)

|                                                    | June 30,    | December 31,
|--------------------------------------------------- | ----------- | ------------
|                                                    | 2003        | 2002        
|Assets:                                             |             |             
|Cash and short-term investments                     | $   894,588 | $   870,797 
|Investments:                                        |             |             
|Fixed maturities - at market                        |             |             
|(amortized cost - $11,075,809 and $11,549,710)      | 11,724,809  | 12,006,910  
|Other stocks - at market                            |             |             
|(cost - $167,446 and $173,933)                      | 311,446     | 299,133     
|Investment in investee corporations                 | 222,136     | -           
|Policy loans                                        | 213,737     | 214,852     
|Real estate and other investments                   | 264,667     | 257,731     
|Total investments                                   | 12,736,795  | 12,778,626  
|                                                    |             |             
|Recoverables from reinsurers and prepaid            |             |             
|reinsurance premiums                                | 2,873,095   | 2,866,780   
|Agents' balances and premiums receivable            | 563,240     | 708,327     
|Deferred acquisition costs                          | 807,642     | 842,070     
|Other receivables                                   | 261,827     | 306,904     
|Variable annuity assets (separate accounts)         | 492,573     | 455,142     
|Prepaid expenses, deferred charges and other assets | 312,294     | 425,127     
|Goodwill                                            | 169,331     | 248,683     
|                                                    |             |             
|                                                    | $19,111,385 | $19,502,456 
|                                                    |             |             
|Liabilities and Capital:                            |             |             
|Unpaid losses and loss adjustment expenses          | $ 4,639,326 | $ 5,203,831 
|Unearned premiums                                   | 1,587,804   | 1,847,924   
|Annuity benefits accumulated                        | 6,778,284   | 6,453,881   
|Life, accident and health reserves                  | 950,439     | 902,393     
|Payable to reinsurers                               | 407,135     | 508,718     
|Payable to American Financial Group, Inc.           | 441,200     | 310,010     
|Long-term debt:                                     |             |             
|Holding companies                                   | 19,758      | 267,512     
|Subsidiaries                                        | 251,764     | 296,771     
|Variable annuity liabilities (separate accounts)    | 492,573     | 455,142     
|Accounts payable, accrued expenses and other        |             |             
|liabilities                                         | 1,089,112   | 1,032,079   
|Total liabilities                                   | 16,657,395  | 17,278,261  
|                                                    |             |             
|Minority interest                                   | 549,876     | 494,472     
|                                                    |             |             
|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                                     | 990,056     | 987,539     
|Retained earnings                                   | 411,079     | 343,705     
|Unrealized gain on marketable securities, net       | 421,200     | 316,700     
|Total shareholders' equity                          | 1,904,114   | 1,729,723   
|                                                    |             |             
|                                                    | $19,111,385 | $19,502,456 
|                                                    |             |             

2



AMERICAN FINANCIAL CORPORATION 10-Q



AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS

(In Thousands)



|                                       | Three months ended | Six months ended
|-------------------------------------- | ------------------ | ----------------
|                                       | June 30,           | June 30,        
|                                       | 2003               | 2002            
|Income:                                |                    |                 
|Property and casualty insurance        |                    |                 
|premiums                               | $412,500           | $618,935        
|Life, accident and health premiums     | 83,218             | 72,709          
|Investment income                      | 188,095            | 213,518         
|Realized gains (losses) on:            |                    |                 
|Securities                             | 17,898             | (47,490)        
|Subsidiaries                           | 7,704              | -               
|Other income                           | 69,626             | 62,405          
|                                       | 779,041            | 920,077         
|Costs and Expenses:                    |                    |                 
|Property and casualty insurance:       |                    |                 
|Losses and loss adjustment expenses    | 317,839            | 459,037         
|Commissions and other underwriting     |                    |                 
|expenses                               | 123,871            | 166,689         
|Annuity benefits                       | 80,860             | 71,016          
|Life, accident and health benefits     | 59,307             | 59,392          
|Annuity and life acquisition expenses  | 33,271             | 25,233          
|Interest charges on borrowed money     | 10,194             | 11,554          
|Other operating and general expenses   | 94,626             | 96,367          
|                                       | 719,968            | 889,288         
|                                       |                    |                 
|Operating earnings before income taxes | 59,073             | 30,789          
|Provision for income taxes             | 17,030             | 5,685           
|                                       |                    |                 
|Net operating earnings                 | 42,043             | 25,104          
|                                       |                    |                 
|Minority interest expense, net of tax  | (7,650)            | (6,311)         
|Equity in net earnings (losses)        |                    |                 
|of investees, net of tax               | 2,417              | (2,353)         
|Earnings before cumulative effect      |                    |                 
|of accounting change                   | 36,810             | 16,440          
|Cumulative effect of accounting change | -                  | -               
|                                       |                    |                 
|Net Earnings                           | $ 36,810           | $ 16,440        
|                                       |                    |                 

3



AMERICAN FINANCIAL CORPORATION 10-Q



AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(Dollars in Thousands)



|                                 |           | Common Stock |          | Unrealized |           
|-------------------------------- | --------- | ------------ | -------- | ---------- | ----------
|                                 | Preferred | and Capital  | Retained | Gain on    |           
|                                 | Stock     | Surplus      | Earnings | Securities | Total     
|Balance at January 1, 2003       | $72,154   | $997,164     | $343,705 | $316,700   | $1,729,723
|                                 |           |              |          |            |           
|Net earnings                     | -         | -            | 70,260   | -          | 70,260    
|Change in unrealized             | -         | -            | -        | 104,500    | 104,500   
|Comprehensive income             |           |              |          |            | 174,760   
|                                 |           |              |          |            |           
|Capital contribution from parent | -         | 4,667        | -        | -          | 4,667     
|Dividends on Preferred Stock     | -         | -            | (2,886)  | -          | (2,886)   
|Other                            | -         | (2,150)      | -        | -          | (2,150)   
|                                 |           |              |          |            |           
|Balance at June 30, 2003         | $72,154   | $999,681     | $411,079 | $421,200   | $1,904,114
|                                 |           |              |          |            |           
|                                 |           |              |          |            |           
|                                 |           |              |          |            |           
|                                 |           |              |          |            |           
|Balance at January 1, 2002       | $72,154   | $993,750     | $255,127 | $156,900   | $1,477,931
|                                 |           |              |          |            |           
|Net earnings                     | -         | -            | 22,160   | -          | 22,160    
|Change in unrealized             | -         | -            | -        | 72,100     | 72,100    
|Comprehensive income             |           |              |          |            | 94,260    
|                                 |           |              |          |            |           
|Capital contribution from parent | -         | 3,067        | -        | -          | 3,067     
|Dividends on Preferred Stock     | -         | -            | (2,886)  | -          | (2,886)   
|Other                            | -         | (567)        | -        | -          | (567)     
|                                 |           |              |          |            |           
|Balance at June 30, 2002         | $72,154   | $996,250     | $274,401 | $229,000   | $1,571,805





4



AMERICAN FINANCIAL CORPORATION 10-Q

AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(In Thousands)

|                                                           | Six months ended June 30,
|---------------------------------------------------------- | -------------------------
|                                                           | 2003                     
|Operating Activities:                                      |                          
|Net earnings                                               | $   70,260               
|Adjustments:                                               |                          
|Cumulative effect of accounting change                     | -                        
|Equity in net (earnings) losses of investees               | (2,974)                  
|Depreciation and amortization                              | 93,225                   
|Annuity benefits                                           | 155,707                  
|Realized losses on investing activities                    | 6,783                    
|Deferred annuity and life policy acquisition costs         | (82,239)                 
|Increase in reinsurance and other receivables              | (246,974)                
|Decrease (increase) in other assets                        | 36,797                   
|Increase in insurance claims and reserves                  | 369,408                  
|Increase (decrease) in payable to reinsurers               | (22,781)                 
|Decrease in other liabilities                              | (18,528)                 
|Increase in minority interest                              | 6,304                    
|Dividends from investees                                   | 432                      
|Other, net                                                 | 825                      
|                                                           | 366,245                  
|                                                           |                          
|Investing Activities:                                      |                          
|Purchases of and additional investments in:                |                          
|Fixed maturity investments                                 | (3,549,798)              
|Equity securities                                          | (24,562)                 
|Subsidiary                                                 | -                        
|Real estate, property and equipment                        | (14,088)                 
|Maturities and redemptions of fixed maturity               |                          
|investments                                                | 949,402                  
|Sales of:                                                  |                          
|Fixed maturity investments                                 | 2,093,884                
|Equity securities                                          | 15,322                   
|Subsidiaries                                               | 247,380                  
|Real estate, property and equipment                        | 7,433                    
|Cash and short-term investments of acquired                |                          
|(former) subsidiaries, net                                 | (112,666)                
|Decrease in other investments                              | 4,349                    
|                                                           | (383,344)                
|Financing Activities:                                      |                          
|Fixed annuity receipts                                     | 440,769                  
|Annuity surrenders, benefits and withdrawals               | (282,890)                
|Net transfers from (to) variable annuity assets            | 6,747                    
|Additional long-term borrowings                            | 35,320                   
|Reductions of long-term debt                               | (328,180)                
|Borrowings from AFG                                        | 169,500                  
|Payments to AFG                                            | (36,100)                 
|Issuances of trust preferred securities                    | 33,943                   
|Capital contribution                                       | 4,667                    
|Cash dividends paid                                        | (2,886)                  
|                                                           | 40,890                   
|                                                           |                          
|Net Increase (Decrease) in Cash and Short-term Investments | 23,791                   
|                                                           |                          
|Cash and short-term investments at beginning               |                          
|of period                                                  | 870,797                  
|                                                           |                          
|Cash and short-term investments at end of period           | $  894,588               

5



AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Basis of PresentationThe 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 periods to conform to the current period's presentation.  All significant intercompany balances and transactions have been eliminated.  All acquisitions have been treated as purchases.  The results of operations of companies since their formation or acquisition are included in the consolidated financial statements.

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

Investments

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

Interest income on non-investment grade asset-backed investments is recorded at a yield based on projected cash flows.  The yield is adjusted prospectively to reflect actual cash flows and changes in projected amounts.  Impairment losses on these investments must be recognized when (i) the fair value of the security is less than its cost basis and (ii) there has been an adverse change in the expected cash flows.  These impairment losses are included in realized gains and losses.

Investment in Investee Corporations



6



AMERICAN FINANCIAL CORPORATION 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



Goodwill

Insurance

Reinsurance

Deferred Policy Acquisition Costs ("DPAC")

DPAC related to annuities and universal life insurance products is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of expected gross profits on the policies.  To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains.  DPAC related to annuities is also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized.  This adjustment is included in "Unrealized gain on marketable securities, net" in the shareholders' equity section of the Balance Sheet.

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.

Annuity and Life Acquisition Expenses

Unpaid Losses and Loss Adjustment Expenses

7



AMERICAN FINANCIAL CORPORATION 10-Q



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED





(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.  Establishing reserves for asbestos and environmental claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve 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 Earnings 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.

Annuity Benefits Accumulated

Life, Accident and Health Reserves

Variable Annuity Assets and Liabilities

Premium Recognition

Policyholder Dividends

8



AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED





Minority Interest

Recently issued accounting standards will require AFC's trust-issued preferred securities to be classified as liabilities beginning in the third quarter of 2003; distributions on these securities will be shown as interest expense.

Income Taxes

Benefit Plans

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

Statement of Cash Flows

9



AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



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.

Fidelity Excess and Surplus Insurance Company

Direct automobile insurance business

Infinity Property and Casualty Corporation

New Jersey private passenger automobile insurance business

Manhattan National Life Insurance

10



AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



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.



|                                                                                 | Three months ended | Six months ended
|-------------------------------------------------------------------------------- | ------------------ | ----------------
|                                                                                 | June 30,           | June 30,        
|                                                                                 | 2003               | 2002            
|Revenues (a)                                                                     |                    |                 
|Property and casualty insurance:                                                 |                    |                 
|Premiums earned:                                                                 |                    |                 
|Specialty                                                                        | $391,458           | $370,286        
|Personal                                                                         | 21,043             | 248,617         
|Other lines                                                                      | (1)                | 32              
|                                                                                 | 412,500            | 618,935         
|Investment and other income                                                      | 131,897            | 75,678          
|                                                                                 | 544,397            | 694,613         
|Annuities, life and health (b)                                                   | 228,603            | 207,620         
|Other (d)                                                                        | 6,041              | 17,844          
|                                                                                 | $779,041           | $920,077        
|                                                                                 |                    |                 
|Operating Profit (Loss)                                                          |                    |                 
|Property and casualty insurance:                                                 |                    |                 
|Underwriting:                                                                    |                    |                 
|Specialty                                                                        | $ 17,173           | $  7,377        
|Personal                                                                         | (1,432)            | (2,654)         
|Other lines (c)                                                                  | (44,951)           | (11,514)        
|                                                                                 | (29,210)           | (6,791)         
|Investment and other income                                                      | 83,396             | 32,923          
|                                                                                 | 54,186             | 26,132          
|Annuities, life and health                                                       | 13,241             | 11,108          
|Other (d)                                                                        | (8,354)            | (6,451)         
|                                                                                 | $ 59,073           | $ 30,789        
|                                                                                 |                    |                 
|(a)  Revenues include sales of products and services as well as other           
|income earned by the respective segments.                                       
|(b)  Investment income comprises approximately three-fifths of these revenues.  
|(c)  Represents development of lines in "run-off" and includes a 2003 second    
|quarter pretax charge of $43.8 million for an arbitration decision relating     
|to a 1995 property claim from a discontinued business; AFC has ceased           
|underwriting new business in these operations.                                  
|(d)  Other revenues for the six months ended June 30, 2003, includes the loss on
|the public offering of Infinity.  Operation profit (loss) includes holding      
|company expenses.                                                               



11



AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



Summarized financial information for Infinity is shown below for the six months ended June 30, 2003 (in millions).



|Earned premiums | $331.4
|--------------- | ------
|Total revenues  | 361.3 
|Net earnings    | 23.8  
|                |       

Equity in net earnings (losses) of investees for the first six months of 2002 represents AFC's share of the losses from two start-up manufacturing businesses that were formerly subsidiaries.  One of these businesses was sold in the fourth quarter of 2002; equity in the net loss of the remaining business was $707,000 for the second quarter and $1.6 million for the first six months of 2003.

Substantially all of the $79.4 million decrease in goodwill during the first six months of 2003 related to the sale of subsidiaries in AFC's Personal segment.

Included in deferred acquisition costs in AFC's Balance Sheet are $66.2 million and $66.8 million at June 30, 2003, and December 31, 2002, respectively, representing the present value of future profits ("PVFP") related to acquisitions by AFC's annuity and life business.  The PVFP amounts are net of $61.6 million and $57.3 million of accumulated amortization.  Amortization of the PVFP was $2.1 million in the second quarter and $4.3 million in the first six months of 2003 and $1.9 million in the second quarter and $3.6 million in the first six months of 2002.  During each of the next five years, the PVFP is expected to decrease at a rate of approximately 13% of the balance at the beginning of each respective year.

12



AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED





|                                            | June 30, | December 31,
|------------------------------------------- | -------- | ------------
|                                            | 2003     | 2002        
|Holding Companies:                          |          |             
|AFC notes payable under bank line           | $   -    | $248,000    
|APU 10-7/8% Subordinated Notes due May 2011 | 11,465   | 11,498      
|Other                                       | 8,293    | 8,014       
|                                            |          |             
|                                            | $ 19,758 | $267,512    
|Subsidiaries:                               |          |             
|GAFRI 6-7/8% Senior Notes due June 2008     | $100,000 | $100,000    
|GAFRI notes payable under bank line         | 112,600  | 148,600     
|Notes payable secured by real estate        | 27,343   | 35,610      
|Other                                       | 11,821   | 12,561      
|                                            |          |             
|                                            | $251,764 | $296,771    
|                                            |          |             

At June 30, 2003, scheduled principal payments on debt for the balance of 2003 and the subsequent five years were as follows (in millions):



|     | Holding   |              |       
|---- | --------- | ------------ | ------
|     | Companies | Subsidiaries | Total 
|2003 | $  -      | $  1.0       | $  1.0
|2004 | -         | 114.6        | 114.6 
|2005 | -         | 11.2         | 11.2  
|2006 | -         | 19.4         | 19.4  
|2007 | 5.4       | .1           | 5.5   
|2008 | -         | 100.1        | 100.1 
|     |           |              |       

AFC may borrow up to $280 million under its credit agreement.  The line consists of two facilities:  a 364-day revolving facility, extendable annually, for one-third of the total line and a three-year revolving facility for the remaining two-thirds.  Amounts borrowed bear interest at rates ranging from 1.25% to 2.25% over LIBOR based on AFG's credit rating.  In addition, GAFRI has an unsecured credit agreement under which it can borrow up to $155 million at floating rates based on prime or Eurodollar rates through December 2004.



|                               | June 30, | December 31,
|------------------------------ | -------- | ------------
|                               | 2003     | 2002        
|Interest of AFG (parent) and   |          |             
|noncontrolling shareholders in |          |             
|subsidiaries' common stock     | $371,963 | $351,559    
|Preferred securities issued by |          |             
|subsidiary trusts              | 177,913  | 142,913     
|                               | $549,876 | $494,472    
|                               |          |             

Subsidiary Preferred Securities

13



AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



The preferred securities consisted of the following (in thousands):



|Date of                                                                                                                                                                                                                                                                                                                                       |                            | Amount Outstanding | Optional             
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------ | ---------------------
|Issuance                                                                                                                                                                                                                                                                                                                                      | Issue (Maturity Date)      | 6/30/03   12/31/02 | Redemption Dates     
|November 1996                                                                                                                                                                                                                                                                                                                                 | GAFRI  9-1/4% TOPrS (2026) | $72,913    $72,913 | Currently redeemable 
|March 1997                                                                                                                                                                                                                                                                                                                                    | GAFRI  8-7/8% Pfd   (2027) | 70,000     70,000  | On or after 3/1/2007 
|May 2003                                                                                                                                                                                                                                                                                                                                      | GAFRI   7.35% Pfd   (2033) | 20,000       -     | On or after 5/15/2008
|May 2003                                                                                                                                                                                                                                                                                                                                      | Variable Rate Pfd   (2033) | 15,000       -     | On or after 5/23/2008
|                                                                                                                                                                                                                                                                                                                                             
|In May 2003, GAFRI issued $20 million liquidation value of trust preferred securities for proceeds of $20 million before issue costs of approximately $600,000.  Until May 2008, these securities pay interest quarterly at an annual rate of 7.35%, after which the interest rate will reset quarterly to an annual rate of LIBOR plus 4.1%.
|                                                                                                                                                                                                                                                                                                                                             
|In May 2003, a subsidiary of Great American Insurance issued $15 million liquidation value of variable rate trust preferred securities for proceeds of $15 million before issue costs of $456,000.  These securities pay interest quarterly at an annual rate of LIBOR plus 4.2%.                                                            
|                                                                                                                                                                                                                                                                                                                                             

Minority Interest Expense



|                                            | Six months ended
|------------------------------------------- | ----------------
|                                            | June 30,        
|                                            | 2003            
|Interest of AFG (parent) and noncontrolling |                 
|shareholders in earnings of subsidiaries    | $ 7,337         
|Accrued distributions by subsidiaries       |                 
|on preferred securities, net of tax         | 4,331           
|                                            | $11,668         
|                                            |                 

1. Shareholders' Equity

Preferred Stock



|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 June 30, 2003, and December 31, 2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





14



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.

Forward-Looking Statements

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



The forward-looking statements herein are made only as of the date of this report.  AFC assumes no obligation to publicly update any forward-looking statements.



15



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued





CRITICAL ACCOUNTING POLICIES

Significant accounting policies are summarized in Note A to the financial statements.  The preparation of financial statements requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements.  As more information becomes known, these estimates and assumptions could change and thus impact amounts reported in the future.  Management believes that the establishment of insurance reserves, especially asbestos and environmental-related reserves, and the determination of "other than temporary" impairment on investments are the two areas where the degree of judgment required to determine amounts recorded in the financial statements make the accounting policies critical.  For further discussion of these policies, see "Liquidity and Capital Resources - Investments"and"Liquidity and Capital Resources - Uncertainties."

LIQUIDITY AND CAPITAL RESOURCES

Ratios

AFC's ratio of earnings to fixed charges including annuity benefits as a fixed charge, excluding and including preferred dividends, was 1.51 and 1.48 for the six months ended June 30, 2003, and 1.48 and 1.46 for the entire year of 2002, respectively.  Excluding annuity benefits, this ratio was 3.81 and 3.42 for the six months of 2003 and 3.36 and 3.09 for the year 2002, respectively.  Although the ratio excluding interest on annuities is not required or encouraged to be disclosed under Securities and Exchange Commission rules, it is presented because interest credited to annuity policyholder accounts is not always considered a borrowing cost for an insurance company.

Sources of Funds

AFC may borrow up to $280 million under a bank credit line.  The line consists of two facilities:  a 364-day revolving facility, extendable annually, for one-third of the total line and a three-year revolving facility for the remaining two-thirds.  Amounts borrowed bear interest at rates ranging from 1.25% to 2.25% over LIBOR based on AFG's credit rating.  This credit agreement provides ample liquidity and can be used to obtain funds for operating subsidiaries or, if necessary, for the parent companies.  In June 2003, borrowings from AFG under the Master Credit Agreement were used to pay down the bank line.  At June 30, 2003, there were no borrowings under the line.

Investments

of shareholders' equity on an after-tax basis.  At June 30, 2003, AFC had pretax net unrealized gains of $649.0 million on fixed maturities and $144.0 million on other stocks.  The increase in the general level of interest rates during July caused the fixed maturity amount to decline by approximately two-thirds.

16



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



Approximately 94% of the fixed maturities held by AFC at June 30, 2003, were rated "investment grade" (credit rating of AAA to BBB) by nationally recognized rating agencies.  Investment grade securities generally bear lower yields and

lower degrees of risk than those that are unrated and noninvestment grade.  Management believes that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

Individual portfolio securities are sold creating gains or losses as market opportunities exist.  Since all of these securities are carried at market value in the balance sheet, there is virtually no effect on liquidity or financial condition upon the sale and ultimate realization of unrealized gains and losses.

Summarized information for the unrealized gains and losses recorded in AFC's balance sheet at June 30, 2003, is shown in the following table (dollars in millions).  Approximately $144 million of "Fixed maturities" and $20 million of "Other stocks" had no unrealized gains or losses at June 30, 2003.



|                                              | Securities | Securities
|--------------------------------------------- | ---------- | ----------
|                                              | With       | With      
|                                              | Unrealized | Unrealized
|                                              | Gains      | Losses    
|Fixed Maturities                              |            |           
|Market value of securities                    | $10,562    | $1,019    
|Amortized cost of securities                  | $ 9,868    | $1,064    
|Gross unrealized gain (loss)                  | $   694    | ($   45)  
|Market value as % of amortized cost           | 107%       | 96%       
|Number of security positions                  | 1,822      | 183       
|Number individually exceeding                 |            |           
|$2 million gain or loss                       | 38         | 3         
|Concentration of gains (losses) by            |            |           
|type or industry (exceeding 5% of             |            |           
|unrealized):                                  |            |           
|Mortgage-backed securities                    | $ 134.8    | ($  3.4)  
|Electric services                             | 61.3       | (1.4)     
|Banks and savings institutions                | 51.1       | (.2)      
|U.S. government and government agencies       | 44.2       | (1.1)     
|State and municipal                           | 40.8       | (3.9)     
|Asset-backed securities                       | 22.2       | (6.8)     
|Air transportation (generally collateralized) | 4.8        | (14.3)    
|Percentage rated investment grade             | 95%        | 79%       
|                                              |            |           
|Other Stocks                                  |            |           
|Market value of securities                    | $   267    | $   24    
|Cost of securities                            | $   122    | $   25    
|Gross unrealized gain (loss)                  | $   145    | ($    1)  
|Market value as % of cost                     | 219%       | 96%       
|Number individually exceeding                 |            |           
|$2 million gain or loss                       | 16         | 1         
|                                              |            |           

17



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



AFC's investment in equity securities of Provident Financial Group, a Cincinnati-based commercial banking and financial services company, represents $115 million of the $145 million in unrealized gains on other stocks at June 30, 2003.

The table below sets forth the scheduled maturities of fixed maturity securities at June 30, 2003, based on their market values.  Asset backed securities and other securities with sinking funds are reported at average maturity.  Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.



|                                   | Securities | Securities
|---------------------------------- | ---------- | ----------
|                                   | With       | With      
|                                   | Unrealized | Unrealized
|                                   | Gains      | Losses    
|Maturity                           |            |           
|One year or less                   | 3%         | 1%        
|After one year through five years  | 22         | 41        
|After five years through ten years | 30         | 30        
|After ten years                    | 10         | 11        
|                                   | 65         | 83        
|Mortgage-backed securities         | 35         | 17        
|                                   | 100%       | 100%      

AFC realized aggregate losses of $4 million during the first six months of 2003 on $36.1 million in sales of fixed maturity securities (7 issues/issuers) that had individual unrealized losses greater than $500,000 at December 31, 2002.  Market values of five of the issues increased an aggregate of $4.7 million from December 31 to date of sale.  The market value of the remaining two securities decreased $316,000 from December 31 to the sale date.

Although AFC had the ability to continue holding these investments, its intent to hold them changed due primarily to deterioration in the issuers' creditworthiness, decisions to lessen exposure to a particular credit or industry, or to modify asset allocation within the portfolio.

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



|                                   |           |             |          
|---------------------------------- | --------- | ----------- | ---------
|                                   |           |             | Market   
|                                   | Aggregate | Aggregate   | Value as 
|                                   | Market    | Unrealized  | % of Cost
|                                   | Value     | Gain (Loss) | Basis    
|Fixed Maturities at June 30, 2003  |           |             |          
|Securities with unrealized gains:  |           |             |          
|Exceeding $500,000 (475 issues)    | $ 6,264   | $517        | 109.0%   
|Less than $500,000 (1,347 issues)  | 4,298     | 177         | 104.3    
|                                   | $10,562   | $694        | 107.0%   
|                                   |           |             |          
|Securities with unrealized losses: |           |             |          
|Exceeding $500,000 (24 issues)     | $   253   | ($ 30)      | 89.4%    
|Less than $500,000 (159 issues)    | 766       | (15)        | 98.1     
|                                   | $ 1,019   | ($ 45)      | 95.8%    
|                                   |           |             |          

18



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



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



|                                      |           |             |          
|------------------------------------- | --------- | ----------- | ---------
|                                      |           |             | Market   
|                                      | Aggregate | Aggregate   | Value as 
|                                      | Market    | Unrealized  | % of Cost
|                                      | Value     | Gain (Loss) | Basis    
|Fixed Maturities with Unrealized      |           |             |          
|Losses at June 30, 2003               |           |             |          
|                                      |           |             |          
|Investment grade with losses for:     |           |             |          
|Less than 6 months (37 issues)        | $551      | ($ 5)       | 99.1%    
|7 to 12 months (59 issues)            | 207       | (5)         | 97.6     
|Greater than 12 months (15 issues)    | 51        | (8)         | 86.4     
|                                      | $809      | ($18)       | 97.8%    
|                                      |           |             |          
|Non-investment grade with losses for: |           |             |          
|Less than 6 months (13 issues)        | $ 25      | ($ 2)       | 92.6%    
|7 to 12 months (17 issues)            | 27        | (3)         | 90.0     
|Greater than 12 months (42 issues)    | 158       | (22)        | 87.7     
|                                      | $210      | ($27)       | 88.6%    
|                                      |           |             |          

When a decline in the value of a specific investment is considered to be "other than temporary," a provision for impairment is charged to earnings (accounted for as a realized loss) and the cost basis of that investment is reduced.  The determination of whether unrealized losses are "other than temporary" requires judgment based on subjective as well as objective factors.  A listing of factors considered and resources used is contained in the discussion of "Investments" under Management's Discussion and Analysis in AFC's 2002 Form 10-K.

Based on its analysis, management believes (i) AFC will recover its cost basis in the securities with unrealized losses and (ii) that AFC has the ability and intent to hold the securities until they mature or recover in value.  Should either of these beliefs change with regard to a particular security, a charge for impairment would likely be required.  While it is not possible to accurately predict if or when a specific security will become impaired, charges for other than temporary impairment could be material to results of operations in a future period.  Management believes it is not likely that future impairment charges will have a significant effect on AFC's liquidity.

Uncertainties

Property and Casualty Insurance Reserves

19



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



and other factors, company actuaries determine a single or "point" estimate which management utilizes in recording its best estimate of the liabilities.  Ranges of loss reserves are not developed by company actuaries.

Estimating the liability for unpaid losses and LAE is inherently judgmental and is influenced by factors which are subject to significant variation.  Through the use of analytical reserve development techniques, management utilizes items such as the effect of inflation on medical, hospitalization, material, repair and replacement costs, general economic trends and the legal environment.

Quarterly reviews of unpaid loss and LAE reserves are prepared using standard actuarial techniques.  These may include:  Case Incurred Development Method; Paid Development Method; Bornhuetter-Ferguson Method; and Incremental Paid LAE to Paid Loss Methods.  Generally, data is segmented by major product or coverage within product using countrywide data; however, in some situations data may be reviewed by state for large volume states.

Asbestos and Environmental-related ("A&E") Reserves

While management believes that AFC's reserves for A&E claims are a reasonable estimate of ultimate liability for such claims, actual results may vary materially from the amounts currently recorded due to the difficulty in predicting the number of future claims and the impact of recent bankruptcy filings, and unresolved issues such as whether coverage exists, whether policies are subject to aggregate limits on coverage, whether claims are to be allocated among triggered policies and implicated years, and whether claimants who exhibit no signs of illness will be successful in pursuing their claims.

In February 2003, Great American Insurance Company entered into an agreement for the settlement of asbestos related coverage litigation under insurance polices issued during the 1970's and 1980's to Bigelow-Liptak Corporation and related companies, subsequently known as A.P. Green Industries, Inc. ("A.P. Green").  Management believes that this settlement will enhance financial certainty and provides resolution to litigation that represents AFC's largest known asbestos-related claim and the only such claim that management believes to be material.

20



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



The settlement is for $123.5 million (Great American has the option to pay in cash or over time with 5.25% interest), all of which is covered by reserves established prior to 2003, and anticipated reinsurance recoverables for this matter.  The agreement allows up to 10% of the settlement to be paid in AFG common stock.

The settlement is subject to a number of contingencies, including the approval of the bankruptcy court supervising the reorganization of A.P. Green and subsequent confirmation of a plan of reorganization that includes an injunction prohibiting the assertion against Great American of any present or future asbestos personal injury claims under policies issued to A.P. Green and related companies.  This process could take a year or more and no assurance can be made that all of these consents and approvals will be obtained; no payments are required until completion of the process.  If not obtained, the outcome of this litigation will again be subject to the complexities and uncertainties associated with a Chapter 11 proceeding and asbestos coverage litigation.

RESULTS OF OPERATIONS

General

Six-month pretax operating earnings improved $17.0 million compared to 2002 reflecting a $53.7 million increase in realized gains and $45.0 million increase in property and casualty underwriting results (excluding the arbitration charge) which more than offset the second quarter arbitration charge, a $43.4 million decrease in investment income due primarily to the sale of Infinity and lower yields on fixed maturity securities, and the second quarter charge in the annuity operations.

Property and Casualty Insurance - Underwriting

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 wrote 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.

21



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued





Performance measures such as segment underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company's performance.  See Note C - "Segments of Operations" for the detail of AFC's operating profit by significant business segment.

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.

Premiums and combined ratios for AFC's property and casualty insurance subsidiaries were as follows (dollars in millions):



|                                                                                                                                                                                                                                                                                                                             | Three months ended | Six months ended
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ----------------
|                                                                                                                                                                                                                                                                                                                             | June 30,           | June 30,        
|                                                                                                                                                                                                                                                                                                                             | 2003               | 2002            
|Gross Written Premiums (GAAP)                                                                                                                                                                                                                                                                                                |                    |                 
|Specialty                                                                                                                                                                                                                                                                                                                    | $806.4             | $648.5          
|Personal (a)                                                                                                                                                                                                                                                                                                                 | 57.7               | 328.4           
|Other lines                                                                                                                                                                                                                                                                                                                  | -                  | -               
|                                                                                                                                                                                                                                                                                                                             | $864.1             | $976.9          
|                                                                                                                                                                                                                                                                                                                             |                    |                 
|Net Written Premiums (GAAP)                                                                                                                                                                                                                                                                                                  |                    |                 
|Specialty                                                                                                                                                                                                                                                                                                                    | $450.4             | $393.8          
|Personal (a)                                                                                                                                                                                                                                                                                                                 | 18.4               | 244.9           
|Other lines                                                                                                                                                                                                                                                                                                                  | -                  | -               
|                                                                                                                                                                                                                                                                                                                             | $468.8             | $638.7          
|                                                                                                                                                                                                                                                                                                                             |                    |                 
|Combined Ratios (GAAP)                                                                                                                                                                                                                                                                                                       |                    |                 
|Specialty                                                                                                                                                                                                                                                                                                                    | 95.7%              | 98.0%           
|Personal                                                                                                                                                                                                                                                                                                                     | 106.8              | 101.1           
|Aggregate (including                                                                                                                                                                                                                                                                                                         |                    |                 
|discontinued lines)(b)                                                                                                                                                                                                                                                                                                       | 107.1              | 101.1           
|                                                                                                                                                                                                                                                                                                                            
|(a)  Includes the operations of Infinity through the sale date
         in mid-February 2003 and the direct auto business through its
         sale at the end of April 2003.  In 2003, gross written premiums
         includes personal lines business written by Great American Insurance
         and ceded to Infinity.
|(b)  Includes 10.6 points and 4.6 points for the second quarter and
         six months of 2003, respectively, for the effect of an arbitration
         decision relating to a claim arising from a discontinued business.                                                                                                 

22



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued





Specialty

The Specialty group reported an underwriting profit of $17.2 million for the 2003 second quarter with a combined ratio of 95.7% and $26.7 million for the first six months with a combined ratio of 96.8%, improvements of 2.3 and 1.5 points, respectively, over the comparable 2002 periods.

Personal

Arbitration Settlement

Investment Income

Realized Gains

Gains (Losses) on Securities

Realized losses on securities include gains of $701,000 in the second quarter of 2003 and net losses of $3.8 million in the first six months of 2003 compared to gains of $3.7 million (second quarter) and $660,000 (six months) in the 2002 periods to adjust the carrying value of AFC's investment in warrants to market value.

23



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued





Gains (Losses) on Sales of Subsidiaries

Real Estate Operations



|                                     | Three months ended | Six months ended
|------------------------------------ | ------------------ | ----------------
|                                     | June 30,           | June 30,        
|                                     | 2003               | 2002            
|Other income                         | $26.4              | $29.6           
|Other operating and general expenses | 18.7               | 17.7            
|Interest charges on borrowed money   | .7                 | .7              
|Minority interest expense, net       | .2                 | .5              
|                                     |                    |                 

Other income includes net pretax gains on the sale of real estate assets of $4.7 million in the second quarter and the first six months of 2003 compared to $7.5 million and $7.6 million for the 2002 periods.

Other Income

Annuity Benefits

The majority of GAFRI's fixed annuity products permit GAFRI to change the crediting rate at any time subject to minimum interest rate guarantees (as determined by applicable law).  Approximately 45% of the annuity benefits accumulated relate to policies that have a minimum guarantee of 3%; the balance have a guarantee of 4%.  Virtually all new sales of GAFRI's fixed annuities offer

a minimum interest rate of 3%.  GAFRI has begun to seek regulatory approvals to modify products to be issued in the future to include a 1.5% minimum crediting rate.  Historically, management has been able to react to changes in market interest rates and maintain a desired interest rate spread.  The recent interest rate environment has resulted in spread compression which could continue at least through the remainder of 2003.

On its deferred annuities (annuities in the accumulation phase), GAFRI generally credits interest to policyholders' accounts at their current stated interest rates.  Furthermore, for "two-tier" deferred annuities (annuities under which a higher interest amount can be earned if a policy is annuitized rather than surrendered), GAFRI accrues an additional liability to provide for expected deaths and annuitizations.  Changes in crediting rates, actual surrender, death

24



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



and annuitization experience or modifications in actuarial assumptions can affect this accrual.  Significant changes in projected investment yields could result in charges (or credits) to earnings in the period such projections are modified.

Annuity and Life Acquisition Expenses

The increase in annuity and life acquisition expenses in the second quarter and first six months of 2003 compared to 2002 reflects a $6 million write-off of GAFRI's fixed annuity DPAC balance in the second quarter of 2003 as well as amortization costs associated with GAFRI's purchase of MNL in June 2002.

The vast majority of GAFRI's DPAC asset relates to its fixed annuity, variable annuity and life insurance lines of business.  Continued spread compression, decreases in the stock market and adverse mortality could lead to further write-offs of DPAC in the future.  However, absent significant deterioration in those factors, GAFRI does not anticipate any additional material write-offs in the foreseeable future.

Interest on Borrowed Money

Other Operating and General Expenses

Income Taxes

Investee Corporations

Infinity Property and Casualty Corporation

Start-up Manufacturing Businesses

25



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



Cumulative Effect of Accounting Change

Recent Accounting Standards

Interpretation No. 46

AFC is currently assessing the application of FIN 46 as it relates to its investments in two collateralized debt obligations ("CDOs"), for which AFC also acts as investment manager.  Under the CDOs, securities were issued in various senior and subordinate classes and the proceeds were invested primarily in bank loans, and to a lesser extent, high yield bonds, all of which serve as collateral for the securities issued by the CDOs.  None of the collateral was purchased from AFC.  The market value of the collateral at June 30, 2003, was approximately $835 million.

AFC's investments in the two CDOs are subordinate to the senior classes (approximately 92% of the total securities) issued by the CDOs.  To the extent there are defaults and unrecoverable losses on the underlying collateral resulting in reduced cash flows, AFC's class would bear losses first.  Holders of the CDO debt securities have no recourse against AFC for the liabilities of the CDOs; accordingly, AFC's exposure to loss on these investments is limited to its investment.  AFC's investments in the CDOs are carried at estimated market value of $10.5 million at June 30, 2003, and are included in fixed maturities in AFC's balance sheet.

SFAS No. 150

SOP 03-1

26



AMERICAN FINANCIAL CORPORATION 10-Q



Management's Discussion and Analysis

of Financial Condition and Results of Operations - Continued



GAFRI's variable annuity contracts contain a guaranteed minimum death benefit ("GMDB") (which may exceed the value of the policyholder's account) to be paid if the annuityholder dies before the annuity payout period commences.  Liabilities for any difference between the GMDB and the related account balance is borne by GAFRI and expensed when paid.  In periods of declining equity markets, the GMDB difference increases as the variable annuity account value decreases.  At June 30, 2003, the aggregate GMDB values (assuming every policyholder died on that date) exceeded the market value of the underlying variable annuities by $193 million.  Industry practice varies, but GAFRI does not establish GAAP reserves for this mortality risk.  Under SOP 03-1, GAFRI would be required to record a liability for the present value of expected GMDB payments.  Initial recognition of a GAAP liability is estimated to be less than $5 million at June 30, 2003.  Death benefits paid in excess of the variable annuity account balances were about $1.0 million in the first six months of 2003 and $1.1 million in all of 2002.

The impact of SOP 03-1 on accounting for GAFRI's fixed annuities has not yet been determined.





ITEM 3



Quantitative and Qualitative Disclosure of Market Risk

As of June 30, 2003, there were no material changes to the information provided in AFC's Form 10-K for 2002 under the caption "Exposure to Market Risk" in Management's Discussion and Analysis of Financial Condition and Results of Operations.







ITEM 4

Controls and Procedures

AFC's chief executive officer and chief financial officer, with assistance from management, have evaluated AFC's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report.  Based on that evaluation, they concluded that the controls and procedures are effective.  There have been no significant changes in AFC's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.



27



AMERICAN FINANCIAL CORPORATION 10-Q



PART II

OTHER INFORMATION



ITEM 1



Legal Proceedings

Please refer to Item 3 "Legal Proceedings" of the AFC 2002 Form 10-K.  In February 2003, Great American Insurance Company entered into an agreement for the settlement of litigation brought by certain parties referred to as A.P. Green.  The initial settlement agreement was submitted for approval of the Bankruptcy Court supervising the A.P. Green reorganization shortly after its execution.  Certain parties objected to the settlement agreement and the Company, the objecting parties and A.P. Green agreed to revise it; there was no change in the financial terms and conditions of the settlement agreement.  All parties have now agreed to settlement terms and conditions and the revised settlement agreement has been submitted, with no objections from any party, for Bankruptcy Court approval which is expected shortly.  The revised settlement agreement is conditioned upon Bankruptcy Court approval and subsequent confirmation of a plan of reorganization that includes an injunction prohibiting the assertion against Great American of any present or future asbestos personal injury claims under policies issued to A.P. Green and related companies.  No assurance can be made that all conditions will be met; no payments are required until completion of the process.  If the conditions are not met, the outcome of this litigation will again be subject to the complexities and uncertainties associated with a Chapter 11 proceeding and asbestos coverage litigation.



ITEM 6



Exhibits and Reports on Form 8-K



(a) Exhibit 12    - Computation of ratios of earnings to fixed charges.

Exhibit 31(a) - Certification of the Chief Executive Officer pursuant to
                    section 302(a) of the Sarbanes-Oxley Act of 2002.

Exhibit 31(b) - Certification of the Chief Financial Officer pursuant to
                    section 302(a) of the Sarbanes-Oxley Act of 2002.

Exhibit 32    - Certification of the Chief Executive Officer and Chief
                    Financial Officer pursuant to section 906 of the Sarbanes-
                    Oxley Act of 2002.

(b) Reports on Form 8-K:



|Date of Report | Item Reported                                    
|-------------- | -------------------------------------------------
|               |                                                  
|July 7, 2003   | Press Release regarding AFC/AFG Merger Agreement.
|               |                                                  
|               |                                                  

28



AMERICAN FINANCIAL CORPORATION 10-Q



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     
|--------------- | -----------------------------------
|                |                                    
|                |                                    
|                |                                    
|                |                                    
|August 11, 2003 | BY: s/Fred J. Runk                 
|                | Fred J. Runk                       
|                | Senior Vice President and Treasurer

29