AMERICAN FINANCIAL GROUP INC

Significant accounting policies are summarized in Note A — “Accounting Policies” to the financial statements. The preparation of financial statements in conformity with GAAP 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 change and, thus, impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements is most significant are as follows:

•the valuation of investments, including the determination of impairment allowances,

•the establishment of insurance reserves, especially asbestos and environmental-related reserves,

•the recoverability of reinsurance, and

•the establishment of asbestos and environmental liabilities of former railroad and manufacturing operations.

See“Liquidity and Capital Resources — Uncertainties” for a discussion of insurance reserves, recoverables from reinsurers and contingencies related to APU Consolidated’s former operations and“Liquidity and Capital Resources — Investments” for a discussion of the allowance for credit losses (impairments) on investments.