DRAFT OF 1/10/03



                       FORMATION AND SEPARATION AGREEMENT



                                     BETWEEN



                       AMERICAN PREMIER UNDERWRITERS, INC.



                                       AND



                   INFINITY PROPERTY AND CASUALTY CORPORATION



                        DATED AS OF _______________, 2002

<PAGE>

                       FORMATION AND SEPARATION AGREEMENT



      THIS FORMATION AND SEPARATION AGREEMENT (this "AGREEMENT") is made and

entered into as of December 31, 2002, between AMERICAN PREMIER UNDERWRITERS,

INC., an Ohio corporation ("APU"), and INFINITY PROPERTY AND CASUALTY

CORPORATION, an Ohio corporation (the "Company").



                                    RECITALS



      APU has sponsored the formation of the Company and in connection

therewith:





      A     APU will transfer to the Company, all of the issued and outstanding

            capital stock of each of the NSA Insurance Subsidiaries (as defined

            below) in exchange for all issued and outstanding common shares, no

            par value per share (the "Common Shares"), of the Company and a note

            payable to APU in the amount of $55 million and in the form attached

            hereto as Exhibit A (the "APU Note").





      B.    Great American Insurance Company, including certain of its

            subsidiaries, shall transfer to the Company its personal insurance

            business written through independent agents.



      C.    The Company has filed a registration statement under the Securities

            Act (as defined below) for the purpose of selling a portion of the

            Common Shares owned by APU (the "Public Offering").



      D.    The Company has filed a registration statement under the Securities

            Act for the purpose of offering for sale to the public $180 million

            in principal amount of senior notes (the "Senior Note Offering").



      E.    APU and the Company wish to provide for certain transactions to be

            entered into in connection with the formation of the Company and the

            Public Offering and to set forth herein certain arrangements that

            will govern the relationship between APU, the Company and their

            respective Affiliates (as defined below).



      NOW, THEREFORE, in consideration of the mutual promises, covenants and

agreements set forth herein, the sufficiency of which is acknowledged, the

parties hereby agree as follows:



                                    ARTICLE I



                                   DEFINITIONS



      Section 1.1. Definitions. As used in this Agreement, the following terms

have the following meanings (such meanings to be equally applicable to both the

singular and plural forms of the terms defined):

<PAGE>

                                      -2-



      "ACTION" means any action, suit, arbitration, inquiry, proceeding or

investigation by or before any court, any governmental or other regulatory or

administrative agency or commission or any arbitration tribunal.



      "AFFILIATE" of any Person or entity means any Person which, directly or

indirectly, controls, is under common control with, or is controlled by, such

Person.



      "AFG" means American Financial Group, Inc., an Ohio corporation.



      "ANCILLARY AGREEMENTS" means the Reinsurance Agreement, Registration

Rights Agreement, Investment Advisory Agreement, Services Agreement,

Noncompetition Agreement, Tax Allocation Indemnification Agreement, License

Agreement and Sublease Agreement in each case as defined and described in more

detail in Section 3.1 hereof.



      "ASSUMED AGENCY BUSINESS" means the personal insurance business written by

Great American Insurance Company and its wholly-owned subsidiaries through

independent agents and which will be transferred to the Company under the

Reinsurance Agreement as described in Section 3.1 hereof.



      "BUSINESS" means collectively the insurance business conducted through the

NSA Insurance Subsidiaries and the Assumed Agency Business.



      "BUSINESS DAY" means any day excluding Saturday, Sunday and any day on

which banks in Cincinnati, Ohio have the option by law or other governmental

action to close.



      "CLOSING" has the meaning specified in Section 3.2.



      "CLOSING DATE" has the meaning specified in Section 3.2.



      "COMMISSION" means the Securities and Exchange Commission.



      "COMMON SHARES" has the meaning specified in the Recitals.



      "COMPANY" has the meaning specified in the preamble of this Agreement.



      "CONTINUING EMPLOYEES" means active employees of AFG who, as of the

Closing Date, will render or have rendered their services to the NSA Insurance

Subsidiaries or the Assumed Agency Business. For purposes of this Agreement,

active employees shall include employees who are on approved absences from work

(e.g., disability leave, statutory leave, approved leave of absence, etc.) as of

the Closing Date .



      "CORPORATE OBLIGATIONS" mean all liabilities related to the Business other

than (a) Extracontractual Obligations, (b) claims payments, including loss

adjustment expenses, and (c) other obligations for which a reserve has been

established. The date on which a Corporate Obligation is incurred by the Company

shall be deemed, in all circumstances, to be the date of the action taken or not

taken giving rise to the Obligation.

<PAGE>

                                      -3-



      "EXTRACONTRACTUAL OBLIGATIONS" means those liabilities not covered under

any other provision of this Agreement and which arise from or in connection with

the operation, administration, underwriting or claim handling of the Business,

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