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Ultimate Parent: American Financial Group, Inc GREAT AMERICAN LIFE INSURANCE COMPANY. Cincinnati, Ohio

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Cincinnati, Ohio

A

Rating Rationale: The rating assignments of the members of the Great

American Life Group (Great American Group) refl ect the group be-ing among the market leaders in fi xed-indexed annuity sales, its con-sistent net operating earnings and risk-adjusted capitalization, and its strategic value as a material contributor to the consolidated fi nancial results of its parent, American Financial Group, Inc. (AFG). Offset-ting raOffset-ting factors include the group’s concentrated business profi le within the overall individual annuity market, premium declines within the retail and educational channels, and the group’s exposure to real estate-related investments, in particular, residential and commercial mortgage-backed securities, relative to its peers.

The Great American Group continues to be a market leader in fi xed-indexed annuity sales in the bank channel. Strong persistency of the group’s two-tiered annuities and its fi xed-indexed annuity sales have enabled the group to offset the ongoing decrease in 403(b) fi rst-year premiums. The Great American Group has reported a signifi cant in-crease in single premium fi xed and fi xed-indexed annuity products

Ultimate Parent:

American Financial Group, Inc

GREAT AMERICAN LIFE

INSURANCE COMPANY

Mail: P.O. Box 5420, Cincinnati, OH 45201-5420

Web: www.gaig.com

Tel: 513-357-3300 Fax: 513-412-1673

AMB#: 006474 NAIC#: 63312

Ultimate Parent#: 058317 FEIN#: 13-1935920

BEST’S CREDIT RATING

Best’s Financial Strength Rating: A Outlook: Stable Best’s Financial Size Category: XIV

RATING RATIONALE

The following text is derived from A.M. Best’s Credit Report on Great American Life Group (AMB# 069545).

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A.M. Best notes, however, that both companies within the group re-ported net realized capital gains prior to 2014, and that the amount of the net realized loss in 2014 was relatively small given the amount of invested assets and capitalization within the organization.

A.M. Best believes the potential for positive rating actions for the members of Great American Group in the near to medium term would be limited to positive rating actions taken by A.M. Best on the core property/casualty operations of AFG. Factors that could lead to a negative rating action include a negative rating action taken by A.M. Best on the core property/casualty operations of AFG, signifi cant and sustained spread compression as a result of the ongoing low interest rate environment, an increased concentration of non-agency RMBS and CMBS within the group’s investment portfolio, or a material de-terioration in risk-adjusted capitalization.

KEY FINANCIAL INDICATORS ($000)

Total Capital

Capital Asset Net Net

Surplus Valuation Premiums Invest Net Year Assets Funds Reserve Written Income Income 2010 11,470,511 990,856 38,190 1,941,971 672,782 161,214 2011 13,950,468 1,070,504 22,608 2,802,897 760,457 152,176 2012 16,508,610 1,274,746 98,774 2,955,415 856,797 155,600 2013 20,182,199 1,511,800 140,569 3,801,650 1,029,481 262,249 2014 22,772,580 1,636,032 176,262 3,469,381 1,208,262 356,017 (*) Data refl ected within all tables of this report has been compiled from the company-fi led statutory statement.

BUSINESS PROFILE

The following text is derived from A.M. Best’s Credit Report on Great American Life Group (AMB# 069545).

American Financial Group, Inc. (AFG), headquartered in Cincinnati, Ohio, is a publicly traded holding company that, through its insurance subsidiaries, primarily markets property and casualty insurance, fo-cusing on specialized commercial products for businesses, in addition to sales of traditional fi xed and fi xed-indexed annuity products in the retail, fi nancial institutions and education markets.

The retail distribution channels is comprised of approximately six-ty national marketing organizations (NMO) and marketing general agents (MGA) with over 1,200 actively producing agents. AFG also in recent years. Due to improved distribution from its bank channels

and independent agents, as well as favorable spreads, the group has remained competitive in the pricing of its single premium annuity prod-ucts. As a result, the Great American Group reported strong individual fi xed and fi xed-indexed annuity sales the past four years. Strong an-nuity sales have enabled the group to report consistent growth in net operating earnings. The sizable premium growth has also resulted in a signifi cant increase in the group’s assets under management, thus re-sulting in increasing net investment income, which has also contributed to the growth in earnings. The consistency in the group’s net operating earnings has resulted in both Great American Life Insurance Company (GALIC) and Annuity Investors Life Insurance Company (AILIC) maintaining levels of risk-adjusted capitalization in excess of minimum levels necessary to support the ratings.

However, A.M. Best remains concerned that ongoing spread compres-sion could have a considerable impact on earnings, especially given the concentration of the organization’s business profi le. As its indi-vidual life and long-term care insurance lines of business continue to run off, the Great American Group is almost exclusively an annuity writer. With over nine-tenths of its reserves in annuities, the group is more dependent than ever on the pricing and profi tability of its annu-ity products. A.M. Best notes that the members of the Great Ameri-can Group have remained diligent in the pricing of annuity products since the onset of the low interest rate environment. The group has seen sizable premium growth in bank annuities, although new annuity pre-miums in the retail and educational (403(b)/457) channels continue to decline. While retail sales were down in 2014 due to aggressive pricing by some new entrants into the fi xed traditional and indexed annuity marketplaces, the impact of 10-year Treasury rates, ongoing budgetary constraints and volatility of the labor market have had a direct impact on the level of new premiums for 403(b) plans. As a result, the Great American Group, primarily AILIC, continues to realize decreases in di-rect premiums. A.M. Best notes that bank channel sales within GALIC have been able to mostly offset the decline in premiums within its retail and educational marketplaces. While the overall investment portfolio contains a small percentage of mortgage loans, real estate and equities, it maintains a higher percentage of non-agency residential mortgage-backed securities (RMBS) and commercial mortgage-mortgage-backed securities (CMBS) relative to peers. Although the levels of fi xed maturity impair-ments and subprime mortgage downgrades have improved signifi cantly relative to the height of the economic crisis, potential additional asset impairments could have a material impact on long-term capital growth.

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GALIC also has blocks of traditional, term and universal life insur-ance products that have been in run-off since 2004 in addition to its long-term care products, which have been 100% reinsured by United Teacher Associates (UTA), another subsidiary of AFG, since 2009. AILIC is the sole writer of variable annuity products as part of the annuity operations of AFG. Its products also include fi xed and fi xed-indexed annuities. These products are sold primarily to employees of educational institutions. In 2011, the company has taken over for GALIC in focusing its marketing efforts in the 403(b) and 457 mar-kets. Due to AILIC’s penetration in the 403(b) and 457 markets, the group believes it remains a leading producer of 403(b) K-12 fi xed and fi xed-indexed annuity sales through independent agents.

Overall, the Great American Group is consistently a top fi ve provider of fi xed-indexed annuities in the United States and ranked number one in fi xed-indexed annuity sales through banks in 2014. Initiated in 2006, the company’s bank market products contributed approximately $1.8 billion in net premium for the Great American Group in 2014. The growth in annuity sales in recent years has been attributable to growth within the bank channel due to new product enhancements and banking relationships. Individual single premium indexed annuities sold via independent agents have also contributed to Great American Group’s signifi cant premium growth over the years. However, in-tense pricing competition and lower interest rates has limited annuity growth via the retail channel in 2014.

Territory: The company is licensed in the District of Columbia,

Guam, U.S. Virgin Islands, AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY.

Business Trends: Great American Group’s direct premium had a

moderate decline in 2014 compared to prior year. The sales growth within the fi nancial institutions was not enough to offset the decrease in the retail and educational channels due to lower interest rates and increased competition. Sales of single premium annuities, primarily single premium fi xed-indexed annuities, continue to maintain steady growth due to the success of income annuity riders and greater pen-etration within some of the fi nancial institutions. GAFRI also has run-off blocks of life insurance and long-term care that contribute a mod-est amount of statutory premium. Despite the decrease in some of its blocks of business and distribution channels, GAFRI was still able to produce over $3.7 billion in statutory premium for 2014.

sells single premium annuities in fi nancial institutions, also known as bank channels, through direct and indirect relationships with certain banks and through independent brokers and agents. Education market annuities are written directly by agents instead of NMOs or MGAs. AFG issues its annuity products through the subsidiaries within Great American Financial Resources, Inc. (GAFRI). GAFRI operates as a wholly owned subsidiary of AFG. The company was formed in 1992 as the vehicle for AFG to participate in the annuity market and to expand into life and supplemental health lines of business. Through its sub-sidiaries, GAFRI operates in two segments: annuities, along with the combination of run-off long-term care (LTC), and run-off life insurance products. Great American Group is the principal provider of premium and earnings within GAFRI.

The Great American Group is comprised of Great American Life Insurance Company (GALIC), which has been wholly or majority owned by AFG since 1973, and its subsidiary, Annuity Investors Life Insurance Company (AILIC), which has been a wholly owned sub-sidiary of GALIC since 1995. GALIC, which is licensed in 49 states and the District of Columbia, primarily writes both qualifi ed and non-qualifi ed fi xed and fi xed-indexed annuity products. AILIC is licensed to sell annuity products in 48 states and the District of Columbia, marketing variable, fi xed and fi xed-indexed annuity products within the 403(b) and 457 markets.

Manhattan National Life Insurance Company (Manhattan National) is also owned by GALIC. The company is licensed in 49 states and the District of Columbia to write life, annuity and supplemental health insurance products. Manhattan National services run-off blocks of in-dividual insurance, annuities and accident and health products today.

Scope of Operations: The Great American Group had traditionally

con-centrated its activities on the sale of tax-sheltered annuities (TSAs) to employees of qualifi ed not-for-profi t institutions under section 403(b) of the Internal Revenue Code, primarily employees of primary and sec-ondary schools (K-12). Flexible premium 403(b) products, which were once sold primarily through GALIC, are now sold mainly through AIL-IC. While fl exible premiums continue to represent a material portion of the group’s in-force business, the majority of new annuity sales are derived from single premium products. Single premium sales continue to represent over 90% of new fi xed annuity premium, with GALIC writing virtually all of it. Variable annuity products, which have been de-emphasized, are still being offered through AILIC. However, vari-able products make up approximately 1% of the group’s total statutory net premium.

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investment income due to the growth in its admitted assets from the signifi cant sales increase of its annuity products. Recent expense ini-tiatives, improved market conditions and strong annuity persistency have also contributed to the growth in statutory operating earnings. The increase in operating earnings for Great American Group’s fi xed annuity business has been partially offset by lower earnings in its vari-able and 403(b) annuity operations in addition to the run-off of its ordinary life business.

Material net realized gains in 2012 and 2013 have also contributed to the growth within Great American Group’s net income. A.M. Best notes that the favorable net realized results in 2012 and 2013 were mostly attributable to gains within the equity portfolio. Although there was a relatively small net realized loss within the group in 2014, the amount of that loss was immaterial compared to the realized losses that occurred during the economic crisis.

Investment Results: Despite the ongoing low interest rate environment,

net investment income within Great American Group’s subsidiaries continues to grow. The increase in investment income has been attrib-utable to the growth in invested assets. Additionally, net yields con-tinue to be favorable due to the performance of its mortgage-backed securities. A.M. Best notes that the group’s MBS exposure, when combined with the interest-sensitive annuity liabilities GAFRI has, exposes the group to interest rate risk. However, A.M. Best acknowl-edges that the company has been actively managing this exposure, particularly as it is faced with lower interest rates and volatile equity markets. Additionally, the cash fl ow and disintermediation risks as-sociated with GALIC’s and AILIC’s annuity business are somewhat mitigated by the relatively stable liability characteristics associated with the company’s tax-sheltered annuity operations, the two-tiered crediting structure of in-force business and the surrender charges im-posed on the annuity products.

BALANCE SHEET STRENGTH

The following text is derived from A.M. Best’s Credit Report on Great American Life Group (AMB# 069545).

Capitalization: Great American Group maintains a solid level of

risk-adjusted capital relative to its current ratings, as measured by Best’s Capital Adequacy Ratio (BCAR). The capital demands of the com-pany’s primary product line are mitigated somewhat by the surrender protection inherent in the long-term nature of its annuity liabilities.

OPERATING PERFORMANCE

The following text is derived from A.M. Best’s Credit Report on Great American Life Group (AMB# 069545).

Operating Results: GAFRI, the intermediate holding company of the

companies in the Great American Group, continues to generate strong operating profi tability, driven largely by its lead operating company, GALIC. Fixed annuities, sold via bank and retail distribution channels, continue to comprise the majority of GAFRI’s statutory pre-tax operat-ing earnoperat-ings. The organization’s improved pre-tax operatoperat-ing earnoperat-ings are attributable to the strong growth in its fi xed-indexed annuity pre-miums. Statutory earned premiums have had considerable growth in recent years due primarily to the addition of new banks, broker dealers and other fi nancial institutions, as well as the addition of new products and product features. In addition, GAFRI has been able to maintain fairly consistent spreads by adjusting its crediting rates and commis-sions, when applicable, while keeping its expense structure relatively fl at. A.M. Best notes that net income has also benefi ted from the group’s net realized capital gains on its investment portfolio in recent years. GAFRI’s supplemental health insurance operations, which are primar-ily made up of Medicare supplemental insurance, were a signifi cant contributor to earnings before 2013. A.M. Best notes that the organiza-tion’s health products provided earnings diversifi cation to GAFRI, rep-resenting over 10% of the company’s 2011 and 2012 statutory pre-tax operating earnings. However, with the sale of its Medicare supplement and critical illness lines of business to Cigna in 2012, earnings from the supplemental health business segments declined substantially in 2013. Going forward, profi tability within GAFRI’s health division will be de-pendent upon the loss ratios of its long-term care business, which have historically been volatile.

GAFRI’s individual life business continues to shrink due to the line of business being in run-off mode. Life business comprised less than 1% of the company’s 2014 pre-tax operating earnings and net premiums. A.M. Best expects to see this line of business continue to decline as GAFRI’s life insurance policies fall off its books.

Great American Group, which contributes virtually all of GAFRI’s statutory earnings, has reported statutory operating earnings in each of the past fi ve years primarily due to the growth in its individual annu-ity products. The growth in operating earnings has been attributable to higher earned premiums, favorable expense management and improved

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Investments: GAFRI accounts for approximately three-quarters of

AFG’s total investment portfolio. Great American Group, in turn, ac-counts for over 90% of GAFRI’s invested assets. Great American Group’s investment portfolio consists primarily of investment grade, fi xed income investments, which are mostly corporate fi xed income securities, but also includes municipals, commercial mortgage-backed securities (CMBS) and residential mortgage-mortgage-backed securities (RMBS). In 2014, CMBS and RMBS represented roughly one-quarter of GAFRI’s fi xed maturity portfolio. The organization’s mortgage-backed securities (MBS) portfolio is of high quality, which is evi-denced by the fact that the vast majority are rated either NAIC 1 or 2. A.M. Best notes that GAFRI invests almost exclusively in senior tranches of MBSs that were AAA-rated at issuance. The organiza-tion’s exposure to subprime and Alt-A securities decreased to less than 6% of the total investment portfolio in 2014. This is a slight de-cline compared to prior years and was due to GAFRI investing more free cash fl ows into corporates, municipals and fi nancial sector bonds in addition to a modest percentage of subprime RMBS falling of its books.

Approximately 98% of the Great American Group’s bonds are pub-licly traded, including freely tradable under SEC Rule 144 and 144(a); 97% of these are rated either NAIC 1 or 2. These fi xed income in-vestments are generally securities with maturities between fi ve and ten years, matching the duration of the group’s liabilities. At year-end 2014, privately held bonds (excluding SEC Rules144 and 144(a) bonds that are freely traded) represented approximately 2% of the bond portfolio. The remainder of Great American Group’s investment portfolio is comprised of a nominal exposure to equities, policy loans, cash and short-term securities and direct real estate-related assets, with real estate and mortgage loans representing approximately 4% of the group’s total invested assets.

Consistent with the rest of the fi nancial services industry, Great American Group’s investment portfolio experienced sizable unreal-ized investment losses during the economic crisis. In 2014, the group maintained a material statutory net unrealized gain on its investment portfolio of approximately $1.4 billion. In addition to improvements in its net unrealized gain/loss position, the Great American Group re-ported net realized statutory gains two of the past three years. The gains have been partially attributable to gains on the sale of some of its common stock holdings.

Although Great American Group, primarily GALIC, has historically made sizable stockholder dividend payments to GAFRI, consistent with its overall capital management strategy, the group’s capital and surplus has improved each of the past six years. Despite the dividend payments, as well as material realized losses in its investment portfolio in prior years, Great American Group’s capital and surplus has grown signifi cantly since 2006. The group has been able to grow its capital and surplus during that time driven primarily by higher operating earnings and contributions received from GAFRI including a $60 million capital contribution in 2012.

This increasing trend in capital and surplus has continued into 2014. The sizable increase in Great American Group’s statutory net income, partially offset by $200 million in dividends paid out during the year, has enabled the group’s risk-adjusted capitalization to increase consid-erably. A.M. Best notes that further improvement in its risk-adjusted capital will not only be dependent upon its future operating earnings and investment performance, but also upon the amount of dividends paid annually to GAFRI. However, A.M. Best also notes that Great American Group’s capital and surplus is evaluated by management on a monthly basis. Additionally, AFG and GAFRI have historically made contributions to the group when additional capital has been needed. The following text is derived from A.M. Best’s Credit Report on Great American Life Group (AMB# 069545).

Liquidity: Great American Group’s liquidity position is acceptable for

the medium-term nature of the majority of its liabilities. The group’s investment portfolio exhibits favorable liquidity characteristics, given that the majority of its investment portfolio is made up of high quality, publicly traded bonds, in addition to maintaining a modest percentage of cash and short-term invested assets. Through AFG, GAFRI has the ability to access capital markets and the potential utilization of avail-able lines of credit to provide the insurance subsidiaries with additional sources of cash fl ow if needed. Additionally, GALIC is a member of the Federal Home Loan Bank (FHLB) which provides the company with another signifi cant source of liquidity if needed. FHLB borrowings as of 12/31/14 were $440 million.

The following text is derived from A.M. Best’s Credit Report on Great American Life Group (AMB# 069545).

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Balance Sheet Assets ($000)

12/31/2014

Total bonds . . . $19,678,728

Total preferred stocks . . .

36,711

Total common stocks. . .

673,565

Mortgage loans . . .

889,826

Real estate . . .

83,994

Contract loans . . .

122,527

Cash & short-term invest . . .

185,481

Prems and consids due . . .

12,378

Accrued invest income. . .

190,802

Other assets . . .

898,567

Assets . . . $22,772,580

Liabilities ($000)

Net policy reserves. . . $19,540,659

Policy claims . . .

104,624

Deposit type contracts . . .

843,785

Interest maint reserve. . .

75,132

Comm taxes expenses. . .

41,601

Asset val reserve . . .

176,262

Other liabilities . . .

354,484

Total Liabilities . . . $21,136,548

Common stock. . .

2,513

Paid in & contrib surpl . . .

766,431

Unassigned surplus . . .

867,088

Total . . . $22,772,580

MANAGEMENT

Offi cers: President and Chief Executive Offi cer, S. Craig Lindner;

Ex-ecutive Vice President, Secretary and Chief Operating Offi cer, Mark F. Muething; Executive Vice President, Treasurer and Chief Financial Of-fi cer, Christopher P. Miliano; Senior Vice President and General Coun-sel, John P. Gruber; Senior Vice President, Adrienne S. Kessling; Vice Presidents, Michael H. Haney, Michael W. Mazur, Brian P. Sponaugle; Appointed Actuary, Richard L. Sutton.

Directors: Jeffrey G. Hester, S. Craig Lindner, Christopher P. Miliano,

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0.0 5.0 10.0 15.0 20.0 25.0 2010 2011 2012 2013 2014 in billions of dollars

GREAT AMERICAN LIFE INSURANCE COMPANY

Years

Total Admitted Assets

FINANCIAL SUMMARY ($000) as of 12/31/2014

Capital & Surplus . . . $ 1,636,032 Net Premiums Written . . . $ 3,469,381 Assets. . . $ 22,772,580 Total Life Insurance Issued. . . $ 2,046 Total Life Insurance In Force . . . $ 12,989,634

PR

OO

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Why is this Best’s

®

Rating Report important to you?

A Best’s Rating Report from the A.M. Best Company showcases the

opinion from the leading provider of insurer ratings of a company’s

fi nancial strength and ability to meet its obligations to policyholders,

as well as its relative credit risk.

The A.M. Best Company is the oldest, most experienced rating

agen-cy in the world and has been reporting on the fi nancial condition of

the insurance companies since 1899.

A Best’s Financial Strength Rating is an independent opinion of an

insurer’s fi nancial strength and ability to meet its ongoing insurance

policy and contract obligations.

The Financial Strength Rating opinion addresses the relative ability

of an insurer to meet its ongoing insurance policy and contract

obliga-tions. The rating is not assigned to specifi c insurance policies or

con-tracts and does not address any other risk, including, but not limited

to, an insurer’s claims-payment policies or procedures; the ability of

the insurer to dispute or deny claims payment on grounds of

misrep-resentation or fraud; or any specifi c liability contractually borne by

the policy or contract holder. The rating is not a recommendation

to purchase, hold or terminate any insurance policy, contract or any

other fi nancial obligation issued by an insurer, nor does it address the

suitability of any particular policy or contract for a specifi c purpose

or purchaser.

In arriving at a rating decision, A.M. Best relies on third-party audited

fi nancial data and/or other information provided to it. While this

in-formation is believed to be reliable, A.M. Best does not independently

verify the accuracy or reliability of the information.

The company information appearing in this pamphlet is an extract

from the complete company report prepared by the A.M. Best

Com-pany or A.M. Best Europe – Rating Services Limited.

For the latest Best’s Financial Strength Ratings along with their defi

-nitions and A.M. Best’s Terms of Use, visit the A.M. Best website

at www.ambest.com. You may also obtain AMB Credit Reports by

visiting our site or calling our Customer Service department at

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