The operating results of AFG's annuity, life and health business were negatively impacted in 2003 by the continued narrowing of spreads in its fixed annuity operations. This spread narrowing was partially offset by improved results in the other annuity, life and health operations.
The settlement has received the approval of the bankruptcy court supervising the reorganization of A.P. Green. It remains subject to the confirmation by the bankruptcy court 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 should be completed in 2004. No assurance can be made that a plan of reorganization will be confirmed; no payments are required until completion of the process. If there is no plan confirmation, the outcome of this litigation will again be subject to the complexities and uncertainties associated with a Chapter 11 proceeding and asbestos coverage litigation.
Equity price risk is the potential economic loss from adverse changes in equity security prices. Although AFG's investment in "Other stocks" is less than 4% of total investments, one-half of "Other stocks" is invested in Provident Financial Group. In February 2004, Provident announced that it is being acquired by National City Corporation, one of the nation's largest banks. If this transaction is completed, AFG will receive 8.1 million shares (approximately 1%) of National City in exchange for its investment in Provident.
Specialty casualty development includes amounts related to executive liability, other liability and excess casualty runoff. Executive liability development impacted 2001, 2002 and 2003 and resulted primarily from claim severity on directors' and officers' liability policy coverages for 1996 through 2000. Both settlement and defense costs related to shareholder lawsuits have increased beyond estimates. The development in other liability impacted both 2003 and 2002 reflecting an unexpected shift of judicial climate in some previously conservative states. Verdicts, judgments, and settlements have increased. The development in excess casualty runoff during 2002 reflects higher frequency of claims related to the 1999 and 2000 accident years. Excess casualty runoff development in 2001, and to a lesser extent in 2002, was affected by increased severity resulting from a rigorous claims review of case reserves established by former management.
The increase in life, accident and health premiums and benefits in 2003 and 2002 reflect the addition of new distribution sources for GAFRI's supplemental insurance products, partially offset in 2003 by lower sales of life insurance products. In addition, life, accident and health benefits for 2003 and 2002 reflect the effects of adverse mortality in GAFRI's life insurance operations.
In September 2002, AFG realized a $9.3 million pretax gain on the sale of its minority ownership in a residential homebuilding company.
2003 compared to 2002 Interest expense decreased in 2003 primarily due to lower average indebtedness and lower interest charges on amounts due reinsurers.
The information required by the following Items will be included in AFG's definitive Proxy Statement for the 2004 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission within 120 days after the end of Registrant's fiscal year and is incorporated herein by reference.
If the goodwill amortization of $13.7 million ($.20 per share, basic and diluted) in 2001 had not been expensed, net loss for the period would have been $1.2 million ($.02 per share).