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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934


For the Quarterly Period Ended Commission File
June 30, 2002 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 August 1, 2002, there were 10,593,000 shares of the Registrant's
Common Stock outstanding, all of which were owned by American Financial Group,
Inc.













Page 1 of 26
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AMERICAN FINANCIAL CORPORATION 10-Q
PART I
FINANCIAL INFORMATION

AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars In Thousands)


June 30, December 31,
2002 2001
----------- -----------


ASSETS:
Cash and short-term investments $ 444,299 $ 543,644
Investments:
Fixed maturities - at market
(amortized cost - $11,159,709 and $10,593,205) 11,429,209 10,748,605
Other stocks - at market
(cost - $182,049 and $187,810) 323,749 313,710
Policy loans 214,928 211,288
Real estate and other investments 255,922 262,801
----------- -----------
Total investments 12,223,808 11,536,404

Recoverables from reinsurers and prepaid
reinsurance premiums 2,545,203 2,286,509
Agents' balances and premiums receivable 774,730 666,171
Deferred acquisition costs 886,281 818,323
Other receivables 337,520 254,137
Variable annuity assets (separate accounts) 518,546 529,590
Prepaid expenses, deferred charges and other assets 465,966 451,362
Goodwill 312,594 312,134
----------- -----------

$18,508,947 $17,398,274
=========== ===========

LIABILITIES AND CAPITAL:
Unpaid losses and loss adjustment expenses $ 4,943,957 $ 4,777,580
Unearned premiums 1,814,249 1,640,955
Annuity benefits accumulated 6,051,718 5,832,120
Life, accident and health reserves 912,087 638,522
Payable to American Financial Group, Inc. 328,011 356,689
Long-term debt:
Holding companies 241,776 228,252
Subsidiaries 270,134 270,752
Variable annuity liabilities (separate accounts) 518,546 529,590
Accounts payable, accrued expenses and other
liabilities 1,339,907 1,185,146
----------- -----------
Total liabilities 16,420,385 15,459,606

Minority interest 476,397 460,737

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 986,625 984,125
Retained earnings 314,761 255,127
Unrealized gain on marketable securities, net 229,000 156,900
----------- -----------
Total shareholders' equity 1,612,165 1,477,931
----------- -----------

$18,508,947 $17,398,274
=========== ===========





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,
-------------------- -------------------------


2002 2001 2002 2001
---- ---- ---- ----
INCOME:
Property and casualty insurance
premiums $618,935 $679,563 $1,222,843 $1,324,286
Life, accident and health premiums 72,709 70,533 143,644 139,691
Investment income 213,518 214,374 434,477 424,164
Realized losses on:
Securities (47,490) (26,425) (65,290) (33,306)
Subsidiaries - - - (1,586)
Other income 62,405 56,915 110,017 115,207
-------- -------- ---------- ----------
920,077 994,960 1,845,691 1,968,456

COSTS AND EXPENSES:
Property and casualty insurance:
Losses and loss adjustment expenses 459,037 526,411 901,950 1,022,627
Commissions and other underwriting
expenses 166,689 192,902 336,955 377,876
Annuity benefits 71,016 70,716 146,541 139,980
Life, accident and health benefits 59,392 52,211 115,312 106,294
Interest charges on borrowed money 11,554 14,777 22,648 33,650
Other operating and general expenses 121,600 114,505 234,911 222,376
-------- -------- ---------- ----------
889,288 971,522 1,758,317 1,902,803
-------- -------- ---------- ----------

Operating earnings before income taxes 30,789 23,438 87,374 65,653
Provision for income taxes 5,685 4,347 8,388 19,299
-------- -------- ---------- ----------

Net operating earnings 25,104 19,091 78,986 46,354

Minority interest expense, net of tax (6,311) (4,188) (11,379) (11,107)
Equity in net losses of
investees, net of tax (2,353) (2,313) (5,087) (5,647)
-------- -------- ---------- ----------
Earnings before cumulative effect
of accounting change 16,440 12,590 62,520 29,600
Cumulative effect of accounting change - (10,040) - (10,040)
-------- -------- ---------- ----------

NET EARNINGS $ 16,440 $ 2,550 $ 62,520 $ 19,560
======== ======== ========== ==========


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, 2002 $72,154 $993,750 $255,127 $156,900 $1,477,931

Net earnings - - 62,520 - 62,520
Change in unrealized - - - 72,100 72,100
----------
Comprehensive income 134,620

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 $314,761 $229,000 $1,612,165
======= ======== ======== ======== ==========


BALANCE AT JANUARY 1, 2001 $72,154 $984,391 $258,371 $139,200 $1,454,116

Net earnings - - 19,560 - 19,560
Change in unrealized - - - 25,740 25,740
----------
Comprehensive income 45,300

Capital contribution from parent - 6,134 - - 6,134
Dividends on Preferred Stock - - (2,886) - (2,886)
Other - (9) - - (9)
------- -------- -------- -------- ----------

BALANCE AT JUNE 30, 2001 $72,154 $990,516 $275,045 $164,940 $1,502,655
======= ======== ======== ======== ==========
















4

AMERICAN FINANCIAL CORPORATION 10-Q

AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)


Six months ended
June 30,
-----------------------

2002 2001
---- ----
OPERATING ACTIVITIES:
Net earnings $ 62,520 $ 19,560
Adjustments:
Cumulative effect of accounting change - 10,040
Equity in net losses of investees 5,087 5,647
Depreciation and amortization 92,899 71,503
Annuity benefits 146,541 139,980
Realized losses on investing activities 57,539 10,167
Deferred annuity and life policy acquisition costs (80,775) (73,530)
Increase in reinsurance and other receivables (355,340) (77,612)
Increase in other assets (41,250) (26,742)
Increase in insurance claims and reserves 375,850 169,679
Increase in other liabilities 99,369 74,352
Increase in minority interest 7,160 4,770
Other, net (1,651) 1,521
---------- --------
367,949 329,335
---------- --------
INVESTING ACTIVITIES:
Purchases of and additional investments in:
Fixed maturity investments (2,484,455) (981,049)
Equity securities (10,562) (2,907)
Subsidiary (48,500) -
Real estate, property and equipment (29,689) (31,090)
Maturities and redemptions of fixed maturity
investments 827,153 337,280
Sales of:
Fixed maturity investments 1,168,341 368,003
Equity securities 18,109 9,148
Subsidiaries - 22,000
Real estate, property and equipment 10,559 43,456
Cash and short-term investments of acquired
(former) subsidiaries, net 4,642 (132,858)
Decrease (increase) in other investments 12,989 (171)
---------- --------
(531,413) (368,188)
---------- --------

FINANCING ACTIVITIES:
Fixed annuity receipts 361,223 271,827
Annuity surrenders, benefits and withdrawals (278,496) (341,310)
Net transfers to variable annuity assets (2,855) (1,368)
Additional long-term borrowings 59,000 78,868
Reductions of long-term debt (46,434) (83,192)
Borrowings from AFG 7,400 7,600
Payments to AFG (37,500) (53,500)
Capital contribution 4,667 9,334
Cash dividends paid (2,886) (2,886)
---------- --------
64,119 (114,627)
---------- --------

NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (99,345) (153,480)

Cash and short-term investments at beginning
of period 543,644 437,263
---------- --------

Cash and short-term investments at end of period $ 444,299 $283,783
========== ========



5

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
payments and adjusted to reflect actual payments.

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.

Emerging Issues Task Force Issue No. 99-20 established a new standard for
recognizing interest income and impairment on certain asset-backed
investments. Interest income on these 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. 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.

GOODWILL Goodwill represents the excess of cost of subsidiaries over AFC's
equity in their underlying net assets. Through December 31, 2001, goodwill
was being amortized over periods of 20 to 40 years. Effective January 1,
2002, AFC implemented Statement of Financial Accounting Standards ("SFAS")
No. 142, under which goodwill is no longer amortized but is subject to an
impairment test at least annually. As required under SFAS No. 142, AFC
will complete the transitional test for goodwill impairment (as of January
1, 2002) by the end of 2002. Any resulting write-down will be reported by
restating first quarter 2002 results for the cumulative effect of a change
in accounting principle.


6

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.

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 ("DPAC") Policy acquisition costs
(principally commissions, premium taxes and other marketing and
underwriting expenses) related to the production of new business are
deferred. 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. 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 gains (losses) on marketable securities.

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. 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.

7

AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


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.

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, who retains all investment risk.
Accordingly, GAFRI's liability for these accounts equals the value of the
account assets.

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.


8

AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


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. The
Company makes all contributions to the retirement fund and matches a
portion of employee contributions to the savings fund. Employees have been
permitted to direct the investment of their contributions to independently
managed investment funds, while Company contributions have been invested
primarily in securities of AFG and affiliates. Employees are being
afforded the flexibility to direct the investment of a portion of their
vested retirement fund account balances (increasing from 12.5% in July
2002 to 100% in April 2004) from securities of AFG and its affiliates to
independently managed investment funds. The Plan owns 12% of AFG's
outstanding Common Stock. Company contributions are charged against
earnings in the year for which they are declared.

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 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.
Changes in the fair value of derivatives are included in current earnings.

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.

B. ACQUISITIONS AND SALES OF SUBSIDIARIES

MANHATTAN NATIONAL LIFE INSURANCE On June 28, 2002, GAFRI acquired
Manhattan National Life Insurance Company ("MNL") from Conseco, Inc. for
$48.5 million in cash. While MNL is not currently writing new policies,
the company reported over $43 million of statutory renewal premiums in
2001. At December 31, 2001, MNL had approximately 90,000 policies in force
(primarily term life) representing over $12 billion in face amount of
insurance, statutory assets of $297.8 million and statutory capital and
surplus of $23.1 million.

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 an estimated $10.7 million
pretax loss. 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; the deferred gain is being
recognized over the estimated settlement period (weighted average of 4
years) of the ceded claims.




9

AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


C. SEGMENTS OF OPERATIONS AFC's property and casualty group is engaged
primarily in specialty and private passenger automobile 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.

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,
--------------------- ------------------------

2002 2001 2002 2001
---- ---- ---- ----
REVENUES (a)
Property and casualty insurance:
Premiums earned:
Specialty $370,286 $356,188 $ 726,701 $ 672,495
Personal 248,617 322,629 495,820 650,261
Other lines (b) 32 746 322 1,530
-------- -------- ---------- ----------
618,935 679,563 1,222,843 1,324,286
Investment and other income 75,678 106,440 175,937 213,775
-------- -------- ---------- ----------
694,613 786,003 1,398,780 1,538,061
Annuities, life and health (c) 207,620 202,562 425,042 419,592
Other 17,844 6,395 21,869 10,803
-------- -------- ---------- ----------
$920,077 $994,960 $1,845,691 $1,968,456
======== ======== ========== ==========

OPERATING PROFIT (LOSS)
Property and casualty insurance:
Underwriting:
Specialty $ 7,377 ($ 4,609) $ 12,671 ($ 6,839)
Personal (2,654) (35,795) (7,893) (63,577)
Other lines (b) (11,514) 654 (20,840) (5,801)
-------- -------- ---------- ----------
(6,791) (39,750) (16,062) (76,217)
Investment and other income 32,923 69,147 96,174 144,349
-------- -------- ---------- ----------
26,132 29,397 80,112 68,132
Annuities, life and health 11,108 17,335 33,089 47,458
Other (d) (6,451) (23,294) (25,827) (49,937)
-------- -------- ---------- ----------
$ 30,789 $ 23,438 $ 87,374 $ 65,653
======== ======== ========== ==========

(a) Revenues include sales of products and services as well as other income
earned by the respective segments.
(b) Represents development of lines in "run-off"; AFC has ceased
underwriting new business in these operations.
(c) Represents primarily investment income.
(d) Includes holding company expenses.







10

AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

D. GOODWILL Effective January 1, 2002, goodwill is no longer amortized but
is subject to annual impairment testing under a two step process.
Under the first step, an entity's net assets are broken down into
reporting units and compared to their fair value. If the carrying amount
of a reporting unit exceeds its fair value, the second step of the
goodwill impairment test is performed to measure the amount of impairment
loss, if any. AFC has completed the first step of its transitional
impairment test and has identified potential impairment of goodwill in its
annuities and life insurance segment and the personal lines segment of its
property and casualty insurance business. The second step of the
impairment test, that will measure the amount of impairment loss, will be
completed by the end of the year with any resulting impairment charge
reported by restating first quarter 2002 results for the cumulative effect
of a change in accounting principle. Management believes that while an
impairment charge may be as much as 15% of the carrying value of goodwill
at June 30, 2002, it may be as little as half of that amount.

If the goodwill amortization of $3.4 million in the second quarter and
$6.9 million in the first six months of 2001 had not been expensed, net
earnings for the periods would have been $6.0 million and $26.5 million,
respectively.

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.

F. LONG-TERM DEBT The carrying value of long-term debt consisted of the
following (in thousands):
June 30, December 31,
2002 2001
-------- ---------
HOLDING COMPANIES:
AFC notes payable under bank line $218,000 $203,000
APU 10-7/8% Subordinated Notes due May 2011 11,527 11,557
Other 12,249 13,695
-------- --------

$241,776 $228,252
======== ========
SUBSIDIARIES:
GAFRI 6-7/8% Senior Notes due June 2008 $100,000 $100,000
GAFRI notes payable under bank line 121,100 121,100
Notes payable secured by real estate 35,936 36,253
Other 13,098 13,399
-------- --------

$270,134 $270,752
======== ========

At June 30, 2002, scheduled principal payments on debt for the balance of
2002 and the subsequent five years were as follows (in millions):

Holding
Companies Subsidiaries Total
--------- ------------ ------
2002 $227.2 $ .6 $227.8
2003 - 1.2 1.2
2004 - 122.4 122.4
2005 - 10.4 10.4
2006 - 19.1 19.1
2007 79.7 .6 80.3

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.

11

AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


G. MINORITY INTEREST Minority interest in AFC's balance sheet is
comprised of the following (in thousands):
June 30, December 31,
2002 2001
-------- -----------
Interest of AFG (parent) and noncontrolling
shareholders in subsidiaries' common stock $333,484 $317,824
Preferred securities issued by
subsidiary trusts 142,913 142,913
-------- --------
$476,397 $460,737
======== ========

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 trusts' obligations.

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


Date of June 30, December 31, Optional
Issuance Issue (Maturity Date) 2002 2001 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


MINORITY INTEREST EXPENSE Minority interest expense is comprised of (in
thousands):

Six months ended
June 30,
-------------------
2002 2001
---- ----
Interest of AFG (parent) and noncontrolling
shareholders in earnings of subsidiaries $ 9,684 $ 5,128
Effect of basis difference in realized gains
(losses) of subsidiaries (2,517) -
Accrued distributions by subsidiaries
on trust issued securities, net of tax 4,212 5,979
------- -------
$11,379 $11,107
======= =======

H. SHAREHOLDERS' EQUITY At June 30, 2002, and December 31, 2001, 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 June
30, 2002, and December 31, 2001, 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 June 30, 2002, and December 31, 2001.













12

AMERICAN FINANCIAL CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


The change in unrealized gain on marketable securities for the six months
ended June 30 included the following (in millions):


Minority
Pretax Taxes Interest Net
------ ----- -------- -----

2002
--------------------------------------
Unrealized holding gains on securities
arising during the period $ 57.9 ($19.9) ($2.0) $36.0
Realized losses included in net income 65.3 (22.7) (6.5) 36.1
------ ----- ---- -----
Change in unrealized gain on
marketable securities, net $123.2 ($42.6) ($8.5) $72.1
====== ===== ==== =====

2001
---------------------------------------
Unrealized holding losses on securities
arising during the period ($ 3.4) $ 1.0 ($0.8) ($ 3.2)
Adoption of EITF 99-20 16.9 (6.0) (0.9) 10.0
Realized losses included in net income 33.3 (11.7) (2.7) 18.9
------ ----- ---- -----
Change in unrealized gain on
marketable securities, net $ 46.8 ($16.7) ($4.4) $25.7
====== ===== ==== =====


I. EQUITY IN LOSSES OF INVESTEES 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.

During 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
loans ($61.5 million at December 31, 2000) owed to AFC subsidiaries, the
sale was not recognized as a divestiture for accounting purposes. Assets
of the businesses transferred ($56.4 million at June 30, 2002 and $57.1
million at December 31, 2001) are included in other assets; liabilities of
the businesses transferred ($10.6 million at June 30, 2002 and $11.8
million at December 31, 2001, after consolidation and elimination of loans
from AFC subsidiaries) are included in other liabilities. Investee losses
in the Statement of Earnings represents AFC's equity in the losses of
these two companies. One of the businesses is involved in litigation
impacting its operations; see "Investee Corporations" in Management's
Discussion and Analysis.

J. COMMITMENTS AND CONTINGENCIES Aside from matters disclosed in Item 1 of
Part II to this report, 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 2001.

13

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 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. Examples of such
forward-looking statements include statements relating to: expectations
concerning market and other conditions and their effect on future
premiums, revenues, earnings and investment activities; expected losses
and the adequacy of reserves for asbestos, environmental pollution and
mass tort claims; rate increases, improved loss experience and expected
expense savings resulting from recent initiatives.

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 tax law changes;
o levels of natural catastrophes, terrorist events, incidents of war
and other major losses;
o the ultimate amount of liabilities associated with certain asbestos
and environmental-related insurance claims;
o adequacy of loss reserves;
o availability of reinsurance and ability of reinsurers to pay their
obligations; and
o competitive pressures, including the ability to obtain rate
increases.

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.



14

AMERICAN FINANCIAL CORPORATION 10-Q

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


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 June 30, 2002,
and December 31, 2001. Including amounts due AFG, the ratio was 26% at
June 30, 2002, and 28% at December 31, 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 until December 31, 2002. At June 30, 2002, just
under three-fourths of the credit line had been used. While management
expects to negotiate a replacement bank agreement later this year, market
conditions indicate the maximum amount may be smaller and interest costs
will likely be greater.

INVESTMENTS AFC's investment portfolio at June 30, 2002, contained $11.4
billion in "Fixed maturities" and $323.7 million in "Other stocks", all
carried at market value with unrealized gains and losses reported as a
separate component of shareholders' equity on an after-tax basis. At June
30, 2002, AFC had pretax net unrealized gains of $269.5 million on fixed
maturities and $141.7 million on other stocks.

Approximately 93% of the fixed maturities held by AFC at June 30, 2002,
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.










15

AMERICAN FINANCIAL CORPORATION 10-Q

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


Summarized information for the unrealized gains and losses recorded in
AFC's balance sheet at June 30, 2002, is shown in the following table
(dollars in millions). Approximately $517 million of "Fixed maturities"
and $46 million of "Other stocks" had no unrealized gains or losses at
June 30, 2002.

Securities Securities
with with
Unrealized Unrealized
Gains Losses
---------- ----------
FIXED MATURITIES
----------------
Market value of securities $9,052 $1,860
Amortized cost of securities $8,674 $1,968
Gross unrealized gain or loss $ 378 $ 108
Market value as a % of amortized cost 104% 95%
Number of security positions 1,533 312
Number individually exceeding
$2 million gain or loss 4 12
Concentration of gains or losses by
type or industry (exceeding 5% of
unrealized):
Mortgage-backed securities $128.6 $ 8.6
Banks 34.5 -
State and municipal 25.6 4.8
U.S. government 23.4 .9
Asset-backed securities 14.2 13.9
Air transportation 4.7 8.9
Telephone communications 3.9 19.4
Cable television .2 7.9
Percentage rated investment grade 97% 78%

OTHER STOCKS
------------
Market value of securities $ 257 $ 21
Cost of securities $ 105 $ 31
Gross unrealized gain or loss $ 152 $ 10
Market value as a % of cost 245% 68%
Number individually exceeding
$2 million gain or loss 2 1

AFC's investment in equity securities of Provident Financial Group, a
Cincinnati-based commercial banking and financial services company,
represents $138 million of the $152 million in unrealized gains on other
stocks at June 30, 2002.

The table below sets forth the scheduled maturities of fixed maturity
securities at June 30, 2002, based on their market values.

Securities Securities
with with
Unrealized Unrealized
MATURITY Gains Losses
-------- ---------- ----------
One year or less 6% 1%
After one year through five years 19 25
After five years through ten years 24 38
After ten years 15 15
--- ---
64 79
Mortgage-backed securities 36 21
--- ---
100% 100%
=== ===

16

AMERICAN FINANCIAL CORPORATION 10-Q

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


AFC realized aggregate losses of $11 million during the second quarter of
2002 on $209.9 million in sales of fixed maturity securities (28 issues;
23 issuers) that had unrealized losses at March 31, 2002. Market values of
22 of the issues increased an aggregate of $4 million from March 31 to
date of sale. One of the securities was a Worldcom bond that decreased in
value by $3.3 million from March 31 to the date of sale due to the decline
in Worldcom's financial condition. Market values of the remaining five
securities decreased an aggregate of $1.2 million from March 31 to the
sale date. Six of the 28 issues had unrealized losses greater than
$500,000 at March 31. Excluding Worldcom, actual losses on sale were $1.3
million less than the unrealized loss at March 31. Although AFC had the
ability to continue holding these investments, its intent to hold them
changed due primarily to deterioration in the issuer's credit, 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 length of time
securities have been in an unrealized gain or loss position at June 30,
2002.


Market
Aggregate Aggregate Value as
Market Unrealized % of Cost
Value Gain (Loss) Basis
--------- ---------- ---------

Fixed Maturities
---------------------------------------------
SECURITIES WITH UNREALIZED GAINS:
Exceeding $500,000 at 6/30/02 and for:
Less than one year (172 issues) $2,192 $133 106.5%
More than one year (51 issues) 688 60 109.6
Less than $500,000 at 6/30/02 (1,310 issues) 6,172 185 103.1
------ ----
$9,052 $378 104.4
====== ====

SECURITIES WITH UNREALIZED LOSSES:
Exceeding $500,000 at 6/30/02 and for:
Less than one year (37 issues) $ 307 ($ 47) 86.7%
More than one year (14 issues) 100 (31) 76.3
Less than $500,000 at 6/30/02 (261 issues) 1,453 (30) 98.0
------ ----
$1,860 ($108) 94.5
====== ====
Other Stocks
---------------------------------------------
SECURITIES WITH UNREALIZED GAINS:
Exceeding $500,000 at 6/30/02 and for:
Less than one year (2 issues) $ 10 $ 2 125.0%
More than one year (3 issues) 233 147 270.9
Less than $500,000 at 6/30/02 (57 issues) 14 3 127.3
------ ----
$ 257 $152 244.8
====== ====
SECURITIES WITH UNREALIZED LOSSES:
Exceeding $500,000 at 6/30/02 and for:
Less than one year (3 issues) $ 4 ($ 6) 40.0%
More than one year (0 issues) - - -
Less than $500,000 at 6/30/02 (71 issues) 17 (4) 81.0
------ ----
$ 21 ($ 10) 67.7
====== ====

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 2001 Form 10-K.

17

AMERICAN FINANCIAL CORPORATION 10-Q

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


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 As more fully explained in the following paragraphs,
management believes that the areas posing the greatest risk of material
loss are the adequacy of its insurance reserves and American Premier's
contingencies arising out of its former operations.

PROPERTY AND CASUALTY INSURANCE RESERVES Future costs of claims
are projected based on historical trends adjusted for changes in
underwriting standards, policy provisions, product mix and other factors.
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 monitors items such as the effect of inflation on medical,
hospitalization, material, repair and replacement costs, general economic
trends and the legal environment.

ASBESTOS AND ENVIRONMENTAL-RELATED ("A&E") RESERVES Establishing
reserves for A&E claims is subject to uncertainties that are significantly
greater than those presented by other types of claims. Estimating ultimate
liability for asbestos claims presents unique and difficult challenges to
the insurance industry 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. The casualty insurance industry is engaged, as is AFC,
in extensive litigation over these coverage and liability issues as the
volume and severity of claims against asbestos defendants continue to
increase.

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 amount currently recorded due to outstanding
issues and uncertainties such as whether coverage exists, whether claims
are to be allocated among triggered policies and implicated years, whether
claimants who exhibit no signs of illness will be successful in pursuing
their claims, predicting the number of future claims, and the impact of
recent bankruptcy filings.

Further, certain policyholders assert that each bodily injury claim should
be treated as a separate occurrence under the policy, and that their
claims are not subject to aggregate limits on coverage because either
their policies did not 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, the outcome of disputes related to
asbestos and environmental matters, whether through litigation or
negotiation, may result in liabilities exceeding current related reserves
by amounts that

18

AMERICAN FINANCIAL CORPORATION 10-Q

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


could have a material adverse effect upon AFC's results of operations and
financial condition.

For further discussion of uncertainties and litigation involving AFC, see
"Legal Proceedings."

RESULTS OF OPERATIONS

GENERAL Pretax operating earnings for the second quarter and six months of
2002 were $30.8 million and $87.4 million compared to $23.4 million and
$65.7 million for the comparable 2001 periods. Results reflect
significantly improved property and casualty underwriting results,
partially offset by a decrease in income from the sale of real estate and
higher realized losses.

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.















19

AMERICAN FINANCIAL CORPORATION 10-Q

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


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,
------------------ ---------------------


2002 2001 2002 2001
---- ---- ---- ----
GROSS WRITTEN PREMIUMS (GAAP)
Specialty $662.1 $544.1 $1,241.0 $1,030.0
Personal 335.9 312.9 689.5 692.9
Other lines - .1 .3 .1
------ ------ -------- --------
$998.0 $857.1 $1,930.8 $1,723.0
====== ====== ======== ========

NET WRITTEN PREMIUMS (GAAP)
Specialty $393.8 $393.8 $ 780.5 $ 750.4
Personal 244.9 252.0 501.3(a) 622.5
Other lines - - .3 -
------ ------ -------- --------
$638.7 $645.8 $1,282.1 $1,372.9
====== ====== ======== ========

COMBINED RATIOS (GAAP)
Specialty 98.0% 101.3% 98.3% 101.0%
Personal 101.1 111.1 101.6 109.8
Aggregate (including
discontinued lines) 101.1 105.9 101.4 105.7

(a) Reflects the ceding of $171 million in premiums in 2002
compared to $50 million in 2001 under a reinsurance
agreement (effective April 1, 2001).


SPECIALTY The Specialty group's gross written premiums for the second
quarter and six months of 2002 increased more than 20% over the comparable
2001 periods. These increases reflect the impact of rate increases and the
realization of growth opportunities in certain commercial markets,
partially offset by the decision to discontinue certain lines of business
(during 2001) that were not achieving adequate returns. Specialty rate
increases averaged approximately 30% during the first six months of 2002
and are expected to average about 30% for the year. Net written premiums
were comparable to 2001 for the second quarter and increased by 4% for the
six months. Strong growth in gross written premiums was offset by
increased reinsurance coverage in certain lines.

The Specialty group reported a solid underwriting profit for the six
months and second quarter of 2002 with a combined ratio of 98.0% for the
quarter and 98.3% for the six months. The improvement in the combined
ratios compared to 2001 reflects strategic changes in the mix of specialty
businesses and the impact of rate increases.

PERSONAL The Personal group's gross written premiums for the second
quarter increased 7% compared to the second quarter of 2001 as the impact
of rate increases was partially offset by lower business volume. Effective
April 1, 2001, AFC began reinsuring 80% of the automobile physical damage
business written by three of its insurance subsidiaries. In July 2001, the
agreement was amended to increase the level of reinsurance to 90% and to
add an additional insurance subsidiary. This agreement enables AFC to
reallocate some of its capital to the more profitable specialty
operations. The decline in net written premiums for the second quarter and
six months reflects the impact of this reinsurance agreement. Rate
increases implemented in the first six months of 2002 were about 8% and
are expected to be about 10% for the year.


20

AMERICAN FINANCIAL CORPORATION 10-Q

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


As a result of rate increases implemented over the last year, the Personal
group's combined ratio improved by 10 points for the second quarter and
8.2 points for the six months compared to the 2001 periods. Nearly 90% of
the Personal group's business is written through independent agents.
Business written through this distribution channel achieved an
underwriting profit for the third consecutive quarter with a combined
ratio of 98.2% for second quarter of 2002. Management expects the Personal
group as a whole to achieve underwriting profitability by the fourth
quarter of 2002.

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).


Three months ended Six months ended
June 30, June 30,
------------------ ----------------

2002 2001 2002 2001
---- ---- ---- ----
Other income $29.6 $29.4 $44.9 $61.4
Other operating and general expenses 17.7 16.6 32.2 31.6
Interest charges on borrowed money .7 .6 1.3 1.3
Minority interest expense, net .5 1.4 .5 3.3


Other income includes net pretax gains on the sale of real estate assets
of $7.5 million in the second quarter and $7.6 million in the first six
months of 2002 compared to $9.3 million and $24.6 million for the 2001
periods.

OTHER INCOME Excluding gains on sales of real estate assets (discussed
above), other income increased $7.3 million (15%) for the second quarter
and $11.8 million (13%) for the first six months of 2002 compared to 2001
due primarily to fees earned by the Specialty group's new warranty
business and higher fee income in certain other specialty insurance
operations.

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.

LOSSES ON SECURITIES Realized losses on securities include provisions for
other than temporary impairment of securities still held as follows:
second quarter of 2002 and 2001 - $70.1 million and $29.2 million; six
months of 2002 and 2001 -$88.4 million and $37.2 million, respectively.
Increased impairment charges in recent years reflect a rise in corporate
defaults in the marketplace.

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
include gains of $3.7 million in the second quarter of 2002 and $660,000
for the first six months of 2002 compared to gains of $3.2 million and
$2.3 million in the 2001 periods to adjust the carrying value of AFC's
investment in warrants to market value ($26.4 million at June 30, 2002).

LOSS ON SUBSIDIARIES AFC recognized a $1.6 million pretax loss in
connection with the sale of the Japanese division in 2001.

ANNUITY BENEFITS Annuity benefits reflect amounts accrued on annuity
policyholders' funds accumulated. The majority of GAFRI's fixed rate
annuity

21

AMERICAN FINANCIAL CORPORATION 10-Q

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


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.

INTEREST EXPENSE Interest expense for the second quarter and first six
months of 2002 decreased compared to 2001 as lower average interest rates
on AFC's variable rate debt (including AFC's payable to AFG) more than
offset higher average indebtedness.

OTHER OPERATING AND GENERAL EXPENSES Other operating and general expenses
for the second quarter and first six months of 2001 include goodwill
amortization of $3.4 million and $6.9 million, respectively. Under SFAS
No. 142, which was implemented January 1, 2002, goodwill is no longer
amortized. Excluding 2001 goodwill amortization, other operating and
general expenses increased $10.5 million (9%) for the second quarter and
$19.4 million (9%) for the first six months compared to 2001. Expenses of
the Specialty group's new warranty business, higher expenses related to
growth in certain other Specialty operations and increased amortization of
annuity and life deferred policy acquisition costs were partially offset
by lower IT-related expenses.

INCOME TAXES The 2002 provision for income taxes includes a $16 million
first quarter tax benefit for the reduction of previously accrued amounts
due to the resolution of certain tax matters.

INVESTEE CORPORATIONS Equity in losses of investee corporations represents
losses of two start-up manufacturing businesses (see Note G). In November
2001, an injunction was issued against one of the companies which would
prohibit the company from using equipment subject to litigation alleging
the misappropriation of a trade secret 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, or if operating results fail to improve, a substantial
portion of AFC's investment ($32.3 million as of June 30, 2002), may be
written off.

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 write down of $16.9 million ($10.0 million
after tax and minority interest) of the carrying value of certain
collateralized debt obligations as of April 1, 2001.


-----------------------------------------------------------


ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
------------------------------------------------------


As of June 30, 2002, there were no material changes to the information
provided in AFC's Form 10-K for 2001 under the caption "Exposure to Market
Risk" in Management's Discussion and Analysis of Financial Condition and
Results of Operations.

22

AMERICAN FINANCIAL CORPORATION 10-Q

PART II
OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS
-----------------


AFC's subsidiaries are parties to litigation and receive claims asserting
alleged injuries and damages from asbestos, environmental and other
substances and workplace hazards and have established loss accruals for
such potential liabilities.

As previously reported, A.P. Green Industries, Inc. and its subsidiary,
A.P. Green Services, Inc. (the "Policyholders") filed petitions for
bankruptcy under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Western District of Pennsylvania (In re: Global
Industrial Technologies, Inc., et al., filed February 14, 2002). Great
American Insurance Company and certain other insurers are parties to
litigation with the Policyholders involving liability coverage for a
substantial number of asbestos related bodily injury claims that have been
asserted against the Policyholders. These claims (some of which are direct
actions against Great American) allege that the refractory materials
manufactured, sold or installed by the Policyholders contained asbestos
and resulted in bodily injury from exposure to asbestos. The Policyholders
seek to recover defense and indemnity expenses related to those claims
from a number of insurers, including Great American, and in an effort to
maximize coverage assert that Great American's policies on various grounds
are not subject to aggregate limits on liability, that each exposure
alleged by a claimant constitutes a separate occurrence, and that each
insurer is liable for all sums the Policyholders become legally obliged to
pay. Prior to the bankruptcy filing, Great American sought to have these
coverage issues decided as part of a contribution and declaratory judgment
action that it brought several years earlier (Great American Insurance
Company, et al. v. The Royal Insurance Company, et al., United States
District Court, Southern District of Ohio, filed January 29, 1998) (the
"District Court Action") and asked the court to declare, among other
things, that all asbestos bodily injury claims against the Policyholders
constitute not more than one occurrence and are subject to a $1,000,000
aggregate limit under each of the four Great American policies at issue in
the action and should be allocated among triggered policies and implicated
years on a pro rata basis. Great American believes that its coverage
defenses are substantial and intends to vigorously defend its position if
it is unable to arrive at a mutually acceptable resolution of the claims.
The bankruptcy filing, however, stays the District Court Action. In March
2002, Great American and certain other insurers filed a motion in the
Bankruptcy Court to modify the stay so as to permit the District Court
action to proceed. During the same month, the Policyholders filed
adversary proceedings in the Bankruptcy Court to decide the coverage
issues.

On June 4, 2002, the Bankruptcy Court entered orders continuing
proceedings on both the stay motion and the adversary proceeding and
referring the insurance coverage dispute to non-binding mediation. If the
mediation does not result in a negotiated settlement, and if the stay is
not modified or the adversary proceedings are permitted to go forward in
the Bankruptcy Court, then the resolution of these disputes will be
subject to the complexities and uncertainties associated with a Chapter 11
proceeding.

For a further discussion of the uncertainties relative to confronting
asbestos and environmental claims, see the following sections of AFC's
2001 Form 10-K: Business - "Asbestos and Environmental Reserves" and Note
M - "Commitments And Contingencies" to the Financial Statements. As a
consequence of these uncertainties, the outcome of disputes related to
asbestos and environmental

23

AMERICAN FINANCIAL CORPORATION 10-Q

PART II
OTHER INFORMATION - CONTINUED

matters, whether through litigation or negotiation, may result in
liabilities exceeding current related reserves by an amount that could
have a material adverse effect on AFC's results of operations and
financial condition.

In March 2000, a jury in Dallas, Texas, returned a verdict against Great
American Life Insurance Company ("GALIC") with total damages of $11.2
million in a lawsuit brought by two former agents of GALIC (Martin v.
Great American Life Insurance Company, 191st District Court of Dallas
County, Texas, Case No. 96-04843). The former agents had alleged that
their agency agreement with GALIC had been wrongfully terminated. On
August 6, 2002, the Texas Fifth District Court of Appeals issued an
opinion reversing the verdict in its entirety and finding that GALIC had
no liability to the plaintiffs based on the facts of the case. The
plaintiffs have no further appeal rights in this case.


ITEM 6

EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------


(a) Exhibit 99 - Certification pursuant to 18 U.S.C. section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K: none

























24

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 13, 2002 BY: Fred J. Runk
-----------------------------------
Fred J. Runk
Senior Vice President and Treasurer





































25

AMERICAN FINANCIAL CORPORATION 10-Q


EXHIBIT 99

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

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

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




August 13, 2002 BY: Carl H. Lindner
- ------------------------- -----------------------------------
Date Carl H. Lindner
Chairman of the Board and
Chief Executive Officer




August 13, 2002 BY: Fred J. Runk
- ------------------------- -----------------------------------
Date Fred J. Runk
Senior Vice President and Treasurer



















26