NATL National Interstate Corp. (MM)

PROXY STATEMENT

This proxy statement contains information related to a special meeting of shareholders of National Interstate Corporation (“National Interstate,” the “Company,” “we,” “us” or “our”), which will be held at 4059 Kinross Lakes Parkway, Richfield, Ohio 44286, on [•], 2016, at 10:00 a.m., Eastern time, and any adjournments or postponements thereof. We are furnishing this proxy statement to shareholders of the Company as part of the solicitation of proxies by the Company’s board of directors (the “Board of Directors” or the “Board”) for use at the special meeting. This proxy statement is dated [•], 2016 and is first being mailed to shareholders on or about [•], 2016.

SUMMARY TERM SHEET

This Summary Term Sheet discusses certain material information contained in this proxy statement, including with respect to the Agreement and Plan of Merger, dated July 25, 2016, among Parent, Merger Sub and the Company, as amended by Amendment No. 1, dated as of August 15, 2016, to which we sometimes refer in this proxy statement as the “Merger Agreement.” We encourage you to read carefully this entire proxy statement, including its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary Term Sheet may not contain all of the information that may be important to you. Each item in this Summary Term Sheet includes page references directing you to a more complete description of that item in this proxy statement.

The proposed merger is a “going private transaction” under the rules of the U.S. Securities and Exchange Commission (the “SEC”). If the merger is completed, the Company will become a privately held company, wholly-owned by Great American Insurance Company, an Ohio corporation (“Parent” or “GAIC”). Parent is a direct wholly-owned subsidiary of American Financial Group, Inc. , an Ohio corporation (“AFG”). AFG is currently publicly listed and traded on the New York Stock Exchange under the symbol “AFG.”

The Parties to the Merger Agreement

National Interstate Corporation

National Interstate Corporation is an Ohio corporation. Founded in 1989, National Interstate is the holding company for a specialty property-casualty insurance group which differentiates itself by offering products and services designed to meet the unique needs of niche markets. Products include insurance for passenger, truck, and moving and storage transportation companies, alternative risk transfer, or captive programs for commercial risks, specialty personal lines products focused primarily on recreational vehicle owners, and transportation and general commercial insurance in Hawaii and Alaska. The Company’s insurance subsidiaries, including the four insurers, National Interstate Insurance Company of Hawaii, Inc., National Interstate Insurance Company, Vanliner Insurance Company and Triumphe Casualty Company, are rated “A” (Excellent) by A.M. Best Company. Headquartered in Richfield, Ohio, National Interstate is an independently operated subsidiary of Great American Insurance Company, a property-casualty subsidiary of AFG. See “ Important Information Regarding National Interstate—Company Background ” beginning on page [•].

Additional information about National Interstate is contained in our public filings, certain of which are incorporated by reference into this proxy statement. See “ Where You Can Find Additional Information ” beginning on page [•].

Great American Insurance Company

Great American Insurance Company is an Ohio corporation and is a wholly-owned subsidiary of AFG. AFG is an insurance holding company based in Cincinnati, Ohio with assets of approximately $50 billion. Founded in 1872, Great American Insurance Company is the flagship company of Great American Insurance Group, through

which AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of fixed and fixed-indexed annuities in the retail, financial institutions and education markets. See “ The Parties to the Merger—Great American Insurance Company ” beginning on page [•].

GAIC Alloy, Inc.

GAIC Alloy, Inc. (“Merger Sub”) is an Ohio corporation. Merger Sub is a wholly-owned subsidiary of Parent and was formed solely for the purpose of engaging in the merger and other related transactions. Merger Sub has not engaged in any business other than in connection with the merger and other related transactions. See “ The Parties to the Merger—GAIC Alloy, Inc. ” beginning on page [•].

The Merger Proposal

You are being asked to consider and vote upon a proposal to adopt the Merger Agreement.

The Merger Agreement provides that, at the closing of the merger, Merger Sub will be merged with and into the Company, the separate corporate existence of Merger Sub will cease, and the Company will continue its corporate existence under Ohio law as the surviving corporation in the merger and a wholly-owned subsidiary of Parent. Upon completion of the merger, each outstanding common share of the Company, par value $0.01 per share (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights, as described more fully under “ The Merger Agreement—Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•]) will be converted into the right to receive $32.00 per common share, in cash, without interest and less any required withholding taxes. In addition, the Merger Agreement provides that the Company will declare a special cash dividend of $0.50 per common share payable immediately prior to the effective time of the merger to all shareholders of record as of such time (including Parent). Upon completion of the merger, the common shares will no longer be publicly traded, and shareholders (other than Parent) will cease to have any ownership interest in the Company.

The Special Meeting (Page [•])

The special meeting will be held at 4059 Kinross Lakes Parkway, Richfield, Ohio 44286, on [•], 2016, at 10:00 a.m., Eastern time.

Record Date and Quorum (Page [•])

The holders of record of the common shares as of the close of business on [•], 2016 (the record date for determination of shareholders entitled to notice of and to vote at the special meeting) are entitled to receive notice of and to vote at the special meeting.

The presence at the special meeting, in person or by proxy, of the holders of common shares entitled to exercise at least a majority of the outstanding voting power of the Company on the record date will constitute a quorum, permitting the Company to conduct its business at the special meeting. Under the Merger Agreement, Parent, as holder of approximately 51.2% of the outstanding common shares, agreed to vote all common shares it owns in favor of adoption of the Merger Agreement and the presence of these shares assures a quorum at the special meeting.

Required Shareholder Votes for the Merger (Page [•])

The merger cannot be completed without the affirmative vote of (i) the holders of common shares entitled to at least two-thirds of the voting power of the Company and (ii) at least a majority of the outstanding common shares owned by the shareholders other than Purchasers and their affiliates (assuming for this purpose that the Company and its subsidiaries are not affiliates of Purchasers), to whom we sometimes refer in this proxy statement as the “Public Shareholders”. Pursuant to our articles of incorporation, common shares are entitled to one vote per share. The approval of the proposal to adopt the Merger Agreement is a condition to the parties’ obligations to consummate the merger. Under the Merger Agreement, Parent, as holder of approximately 51.2% of the outstanding common shares, agreed to vote all common shares it owns in favor of adoption of the Merger Agreement and the presence of these shares assures a quorum at the special meeting.

A failure to vote common shares or an abstention from voting will have the same effect as a vote against adoption of the Merger Agreement.

As of the record date, there were [•] common shares outstanding. Parent has voting power with respect to 10,200,000 common shares, representing approximately 51.2% of the outstanding voting power as of the record date. Under the Merger Agreement, Parent, as holder of approximately 51.2% of the outstanding common shares, agreed to vote all common shares it owns in favor of adoption of the Merger Agreement.

In connection with the Merger Agreement, Parent and Company entered into a Voting Agreement with Alan R. Spachman, The Hudson Investment Trust, Alan R. Spachman Revocable Trust Under Deed Dated 5/23/2007 and Florence McDermott Spachman Revocable Trust, pursuant to which each shareholder party to the Voting Agreement (other than Parent) has agreed from July 25, 2016 through the termination of the Voting Agreement to, among other things, vote all common shares held by such shareholder (an aggregate of 1,937,230 common shares as of such date), whether owned on July 25, 2016 or acquired thereafter, in favor of the proposal to adopt the Merger Agreement. See “ Voting Agreement Involving Common Shares ” beginning on page [•].

Except in their capacities as members of the Board or as members of the special committee that was established to evaluate and negotiate a potential transaction and consider other alternatives available to the Company (as described more fully under “ Special Factors—Background of the Merger ” on page [•]), and except as contemplated by the Voting Agreement, no executive officer or director of the Company has made any recommendation either in support of or in opposition to the merger or the Merger Agreement. Joseph E. (Jeff) Consolino, Ronald J. Brichler, Gary J. Gruber and Donald D. Larson (to whom we sometimes refer in this proxy statement as the “Affiliated Directors”), who are senior executives of Parent or American Financial Group, Inc., the parent corporation of Parent (“AFG”), recused themselves from the determination of the Board to approve and recommend the Merger Agreement and the merger.

Conditions to the Merger (Page [•])

The obligations of the Company, Parent and Merger Sub to effect the merger are subject to the fulfillment or waiver, at or before the effective time, of the following conditions:

The obligation of the Company to effect the merger is subject to the satisfaction or waiver of each of the following conditions at or prior to the date of the closing of the merger:

The obligation of Purchasers to effect the merger is subject to the satisfaction or waiver of each of the following conditions at or prior to the closing date of the merger:

When the Merger Becomes Effective (Page [•])

We anticipate completing the merger in the fourth quarter of 2016, subject to adoption of the Merger Agreement by the Company’s shareholders as specified herein and the satisfaction or waiver of the other conditions to closing.

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger (Page [•])

Based in part on the unanimous recommendation of the special committee, the Board of Directors (other than the Affiliated Directors, who recused themselves from the determination related to such recommendation) recommends unanimously that the shareholders of the Company vote “FOR” the adoption of the Merger Agreement

and the approval of the business combination and the related transactions contemplated thereby. For a description of the reasons considered by the special committee and the Board for their recommendations, see “ Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger ” beginning on page [•].

As a result of the consummation of the merger, each of the common shares (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights, as described more fully under “ The Merger Agreement—Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•]) will be converted into the right to receive the $32.00 per share cash merger consideration, without interest and less any required withholding taxes. In addition, all shareholders of record as of immediately prior to the effective time of the merger (including Parent) will have the right to receive the $0.50 per share special dividend.

In evaluating the fairness and advisability of the Merger Agreement, the special committee considered information with respect to the Company’s financial condition, results of operations, businesses, competitive position and business strategy, on both a historical and prospective basis, as well as current industry, economic and market conditions and trends. The special committee considered the following factors, each of which the special committee believes supports its determination as to fairness:

The special committee also considered a number of factors discussed below, relating to the procedural safeguards that it believes were and are present to ensure the fairness of the merger. The special committee believes these factors support its determinations and recommendations and provide assurance of the procedural fairness of the merger to the Public Shareholders:

In the course of reaching its determinations and making its recommendations, the special committee also considered the following countervailing factors concerning the Merger Agreement and the merger:

The Board of Directors, in making its determination as to the fairness and advisability of the Merger Agreement and the merger, considered a number of factors, including the following:

For a more complete discussion of the factors considered by our Board of Directors in reaching its decision to approve and adopt the Merger Agreement and the merger, see “Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger” on page [•].

Opinion of Morgan Stanley (Page [•] and Annex A-3)

Morgan Stanley was retained by the special committee to act as its financial advisor in connection with the merger. On July 24, 2016, Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the special committee to the effect that, as of that date and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the Merger Consideration to be received by holders of common shares (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights, as described more fully under “ The Merger Agreement—Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•]) pursuant to the Merger Agreement was fair from a financial point of view to such holders of common shares.

The full text of the written opinion of Morgan Stanley, dated July 24, 2016, is attached as Annex A-3 and is incorporated by reference into this proxy statement in its entirety. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. The summary of the opinion of Morgan Stanley in this proxy statement is qualified in its entirety by reference to the full text of the opinion. You are encouraged to, and should, read Morgan Stanley’s opinion and the section below captioned “ Special Factors—Opinion of Morgan Stanley & Co. LLC ” on page [•] summarizing Morgan Stanley’s opinion carefully and in their entirety. Morgan Stanley’s opinion was directed to the special committee, in its capacity as such, and addresses only the fairness from a financial point of view of the consideration to be received by holders of common shares (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights) in connection with the merger, as of the date of the opinion, and does not address any other aspects or implications of the merger. Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation to any shareholder as to how to vote at any shareholders’ meeting to be held in connection with the merger or whether to take any other action with respect to the merger.

Purposes and Reasons of Parent and Merger Sub for the Merger (Page [•])

Purchasers decided to pursue the merger because the Company’s operations represent an important strategic component of the overall operations of Parent and acquiring the remaining shares of the Company would simplify Parent’s operations and ownership structure and facilitate ongoing investment in the Company. Parent has no intention to reduce or sell its interest in the Company. For a full description of the purposes and reasons of Parent and Merger Sub, see “ Special Factors—Purposes and Reasons of Parent and Merger Sub for the Merger ” beginning on page [•].

Certain Effects of the Merger (Page [•])

If the conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Ohio law as the surviving corporation in the merger and a wholly-owned subsidiary of Parent. Upon completion of the merger, each common share outstanding at the effective time of the merger (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights, as described more fully under “ The Merger Agreement— Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•]) will be converted into the right to receive $32.00, in cash, without interest and less any required withholding taxes. In addition, the Merger Agreement provides that the Company will declare a special cash dividend of $0.50 per common share payable immediately prior to the effective time of the merger to all shareholders of record as of such time (including Parent). Upon completion of the merger, the common shares will no longer be publicly traded, and shareholders (other than Parent) will cease to have any ownership interest in the Company. For a full description of certain effects of the merger, see “ The Merger Agreement—Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•].

Treatment of Company Equity Awards (Page [•])

At the effective time of the merger, each outstanding option to purchase common shares granted under the Company’s Long Term Incentive Plan, whether or not vested, will be cancelled in exchange for the right to receive a lump sum cash payment equal to the product of (a) the excess, if any, of (i) the sum of the $32.00 per share merger consideration and $0.50 over (ii) the per share exercise price for such option and (b) the total number of common shares underlying such option, less applicable taxes required to be withheld.

In addition, at the effective time of the merger, each outstanding award of restricted common shares granted under the Company’s Long Term Incentive Plan will be cancelled in exchange for the right to receive a lump sum cash payment equal to the product of (i) the $32.00 per share merger consideration and (ii) the number of common shares subject to such restricted share award, less applicable taxes required to be withheld. Holders of restricted share awards will also have the right to receive the $0.50 per share special dividend in respect of common shares underlying such awards.

All such payments will be made by the surviving corporation, without interest, as promptly as reasonably practicable following the effective time of the merger, and in no event later than 10 business days thereafter.

Interests of the Company’s Directors and Executive Officers in the Merger (Page [•])

In considering the recommendations of the special committee and of the Board of Directors with respect to the Merger Agreement, you should be aware that, aside from their interests as shareholders of the Company, the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, those of other shareholders of the Company generally. In particular, the Affiliated Directors currently serve on the board of directors of or are otherwise employed by the Parent or its parent, AFG, which, together, will control the Company following the merger. Interests of executive officers and directors (other than the Affiliated Directors) that may be different from or in addition to the interests of the Company’s shareholders include the fact that:

These interests are discussed in more detail in the section entitled “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” beginning on page [•]. The special committee and the Board of Directors were aware of the different or additional interests described herein and considered those interests along with other matters in recommending and/or approving, as applicable, the Merger Agreement and the transactions contemplated thereby, including the merger.

Voting Agreement (Page [•])

In connection with the merger, Parent and the Company entered into a Voting Agreement with Alan R. Spachman, The Hudson Investment Trust, Alan R. Spachman Revocable Trust Under Deed Dated 5/23/2007 and Florence McDermott Spachman Revocable Trust. The shareholders party to the Voting Agreement (other than Parent) beneficially owned in the aggregate 1,937,230 common shares as of July 25, 2016, which, based upon the Company’s representation in the Merger Agreement that, as of such date, there were 19,991,694 outstanding common shares, represented approximately 9.7% of the outstanding common shares. The terms and conditions of the Voting Agreement will apply to any common shares acquired by any such shareholder during the “voting period” from July 25, 2016 through the termination of the Voting Agreement.

Pursuant to the terms of the Voting Agreement, each shareholder party thereto (other than Parent) has agreed, during the voting period, to vote all common shares held by such shareholder, whether owned on July 25, 2016 or acquired thereafter: (i) in favor of any proposal to approve the merger and the Merger Agreement, provided that the parties to the Merger Agreement do not agree to an “excluded amendment” as described in clause (ii) below; (ii) at the request of Parent, in favor of adoption of any proposal (other than as set forth in clause (i) above) in respect of which the special committee has (A) determined is reasonably necessary to facilitate the acquisition of the Company by Parent in accordance with the terms of the Merger Agreement, (B) disclosed the determination described in clause (A) in the Company’s proxy materials or other written materials disseminated to the shareholders of the Company and (C) recommended to be adopted by all of the shareholders of the Company; provided, however, that a shareholder is not required to vote in favor of any waiver, modification or amendment to the terms of the Merger Agreement that would (x) reduce the merger consideration payable pursuant to the Merger Agreement as in effect on July 25, 2016, (y) reduce the amount of the special dividend or (z) impose any materially adverse obligation on such shareholder (defined in the Voting Agreement as an “excluded amendment”); and (iii) against (A) any action, proposal, transaction or agreement which could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of such shareholder under the Voting Agreement and (B) any action, proposal, transaction or agreement that could reasonably be expected to materially impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the merger or the fulfillment of Parent’s, the Company’s or Merger Sub’s conditions under the Merger Agreement or change in any manner the voting rights of any class of shares of the Company (including any amendments to the Company’s articles of incorporation or code of regulations). For more information, see “ Voting Agreement Involving Common Shares ” beginning on page [•].

Material U.S. Federal Income Tax Consequences of the Merger (Page [•])

If you are a U.S. holder, the receipt of cash in exchange for common shares pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of common shares for cash pursuant to the merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

Anticipated Accounting Treatment of the Merger (Page [•])

The Merger will be accounted for in accordance with U.S. generally accepted accounting principles. Because the Company was a 51%-owned consolidated subsidiary of Parent prior to the Merger, AFG will account for the Merger as an equity transaction for financial accounting purposes, whereby the excess of the consideration paid over the carrying value of the non-controlling interest acquired will be recorded as a direct reduction in AFG’s shareholders’ equity in accordance with FASB Accounting Standards Codification Topic 810, Consolidation.

Dissenters’ Rights (Page [•] and Annex B)

If the merger is completed, a holder of common shares who does not vote in favor of adopting the Merger Agreement may deliver to the Company before the vote on the proposal is taken at the special meeting a written demand for payment of the fair cash value of his or her shares as to which the dissenting shareholder seeks relief under Section 1701.85 of the Ohio Revised Code. The dissenting shareholder is entitled to relief only if the shareholder complies with all of the procedures outlined in Section 1701.85 of the Ohio Revised Code. The fair cash value of the common shares determined by the court could be more, the same as, or less than the $32.00 per common share that shareholders are entitled to receive pursuant to the Merger Agreement.

SECTION 1701.85 OF THE OHIO REVISED CODE GOVERNING THE RIGHTS OF DISSENTING SHAREHOLDERS IS REPRINTED IN ITS ENTIRETY AS ANNEX B TO THIS PROXY STATEMENT. ANY NATIONAL INTERSTATE SHAREHOLDER WHO WISHES TO EXERCISE DISSENTING SHAREHOLDERS’ RIGHTS OR WHO WISHES TO PRESERVE HIS, HER, OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX B CAREFULLY AND SHOULD CONSULT HIS, HER, OR ITS LEGAL ADVISOR, BECAUSE FAILURE TO TIMELY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF THOSE RIGHTS.

No Solicitation (Page [•])

Pursuant to the Merger Agreement, except as described below, the Company will not, nor will it authorize or permit any of its subsidiaries or any of its or their respective officers or directors (in their capacities as such), employees, investment bankers, attorneys, accountants, consultants or other advisors or representatives (such officers or directors (in their capacities as such), employees, investment bankers, attorneys, accountants, consultants and other advisors or representatives, which we refer to collectively in this proxy statement from time to time as “ representatives ”) to directly or indirectly:

If, prior to the time shareholders approve the proposal to adopt the Merger Agreement, the Company receives an unsolicited bona fide written acquisition proposal, (ii) the special committee determines by resolution in good faith, after consultation with its outside financial advisors and outside legal counsel, that the acquisition proposal constitutes or would reasonably be expected to lead to a “superior proposal,” as defined in the section entitled “ The Merger Agreement—Other Covenants and Agreements—No Solicitation ” beginning on page [•] and (iii) after consultation with its outside financial advisors and outside legal counsel, the special committee determines that failure to take the actions below with respect to such acquisition proposal would be inconsistent with its fiduciary duties under Ohio law, then the Company may in response to such acquisition proposal:

The Company must promptly (and, in any event, within 24 hours) advise Parent in writing by email if (i) any inquiries, proposals or offers with respect to an acquisition proposal are received by, (ii) any information is requested from, or (iii) any discussions or negotiations are sought to be initiated or continued with, it or any of its representatives. The Company is required to keep Parent informed, on a current basis, of the status and terms of any such inquiries, proposals or offers (including any determination made, or actions taken, and any material amendments to the terms of any proposals or offers) and the status of any such discussions or negotiations, including any changes in the Company’s intentions as previously notified.

Except as described below, neither the Board nor any committee thereof (including the special committee) is permitted to:

We refer in this proxy statement to any of the actions above as an “adverse company recommendation.”

At any time prior to the time shareholders approve the proposal to adopt the Merger Agreement, the special committee may make an adverse company recommendation pursuant to the procedures set forth in the Merger Agreement, if the special committee determines by resolution in good faith, after consultation with its outside financial advisors and outside legal counsel, that failure to take such action so would be inconsistent with its fiduciary duties under Ohio law, in response to (i) a superior proposal received by the Board after the date of the Merger Agreement or (ii) an “intervening event,” as described in the section entitled “ The Merger Agreement—Other Covenants and Agreements—No Solicitation ” beginning on page [•].

Financing (Page [•])

The Company and Parent estimate that the total amount of funds required to complete the merger and related transactions and pay related fees and expenses will be approximately $[•]. See “ Special Factors—Financing ” on page [•]. The obtaining of financing is not a condition to the obligations of Parent and Merger Sub to effect the merger pursuant to the terms of the Merger Agreement.

Termination (Page [•])

The Company and Parent may terminate the Merger Agreement by mutual written consent at any time prior to the effective time of the merger. In addition, either the Company or Parent, in each case by written notice to the other, may terminate the Merger Agreement if:

Parent may terminate the Merger Agreement:

The Company may terminate the Merger Agreement:

Termination Fee and Parent Expenses (Page [•])

Termination Fee

The Company will be required to pay a termination fee of $13,500,000 to Parent if Parent terminates the Merger Agreement following:

Parent Expenses

In addition, the Company will be required to reimburse reasonable out-of-pocket fees and expenses up to $3,950,000 (including reasonable legal fees and expenses), actually incurred on or prior to the termination of the Merger Agreement in connection with the merger by Parent, Merger Sub and their respective affiliates if Parent terminates the Merger Agreement following:

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers address briefly some questions you may have regarding the special meeting, the Merger Agreement and the merger. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement for further information.

Parent and certain shareholders of the Company (including Alan R. Spachman, The Hudson Investment Trust, Alan R. Spachman Revocable Trust Under Deed Dated 5/23/2007 and Florence McDermott Spachman Revocable Trust) have agreed, subject to certain conditions, to vote all common shares that they beneficially own in favor of adopting the Merger Agreement, pursuant to the Voting Agreement. See “ Voting Agreement Involving Common Shares ” on page [•].

As of the record date, there were [•] outstanding common shares. As of the record date, Parent and its affiliates beneficially owned [10,200,000] common shares, or approximately 51.2% of the outstanding common shares. As of the record date, the shareholders party to the Voting Agreement (other than Parent) beneficially owned [1,937,230] common shares in the aggregate, or approximately 9.7% of the outstanding common shares.

Each of the directors and executive officers of the Company has informed the Company that, as of the date of this proxy statement, he or she intends to vote in favor of the adoption of the Merger Agreement.

You should read “ Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger ” beginning on page [•] for a discussion of the factors that the special committee and the Board of Directors (other than the Affiliated Directors, who recused themselves from the determination related to such recommendation) considered in deciding to recommend and/or approve, as applicable, the Merger Agreement. See also “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” beginning on page [•].

If the merger is completed, any restricted share awards will be cancelled in exchange for the right to receive a lump sum cash payment equal to the product of (i) the $32.00 per share merger consideration and (ii) the number of common shares subject to such restricted share award, less applicable taxes required to be withheld. Holders of restricted share awards will also have the right to receive the $0.50 per share special dividend in respect of common shares underlying such awards.

If you are a shareholder of record, you can ensure that your shares are voted at the special meeting by submitting your proxy via:

If you hold your common shares in “street name” through a broker, bank or other nominee, you should follow the directions provided by it regarding how to instruct it to vote your common shares. Without those instructions, your common shares will not be voted, which will have the same effect as voting against adoption of the Merger Agreement.

Please note that if you hold your common shares in “street name” and you have instructed a broker, bank or other nominee to vote your common shares, the above-described options for revoking your voting instructions do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to revoke your voting instructions.

If your common shares are held through a broker, bank or other nominee, you will receive either a voting form or a proxy card from the nominee with specific instructions about the voting methods available to you. As a beneficial owner, in order to ensure your common shares are voted, you must provide voting instructions to the broker, bank or other nominee by the deadline provided in the materials you receive from them.

Innisfree M&A, Incorporated
501 Madison Avenue
20th Floor
New York, NY 10022
Toll Free: (888) 750-5834

If your broker, bank or other nominee holds your common shares, you can also call your broker, bank or other nominee for additional information.

SPECIAL FACTORS

Background of the Merger

The Company has been a subsidiary of Parent since AFG initially invested in it in 1990. Parent is a wholly-owned subsidiary of AFG. The Company completed its initial public offering of common shares in 2005. Parent did not purchase or sell any common shares in, and has not purchased or sold any common shares since, the initial public offering.

The Board and senior management of the Company periodically review the Company’s long-term strategic plans with the goal of maximizing shareholder value. As part of this ongoing process, the Board and the Company’s senior management has, from time to time, considered strategic alternatives that may be available to the Company.

Parent currently owns approximately 51.2% of the outstanding common shares, and current or former executive officers of AFG or Parent currently comprise four of the eleven members of the Board. AFG regularly reviews its insurance businesses, operations and strategy, including its investment in the Company, with the goal of enhancing AFG shareholder value.

On February 5, 2014, Parent commenced a tender offer to acquire all of the outstanding common shares not currently owned by Parent for $28.00 per share, in cash. Parent increased the price of the tender offer to $30.00 per share on February 18, 2014. On March 5, 2014, Mr. Alan R. Spachman, a director of the Company, initiated litigation to seek to enjoin the tender offer. Following a March 14, 2014 hearing related to the litigation, on March 16, 2014, Parent withdrew and terminated the tender offer because, during the hearing before the United States District Court for the Northern District of Ohio, the court had stated that it would grant a motion for preliminary injunction enjoining the consummation of the tender offer.

On April 18, 2014, the Company entered into an agreement with Mr. Spachman whereby the Company agreed to reimburse Mr. Spachman for a portion of his legal fees and expenses that he incurred personally in connection with the tender offer by Parent. The settlement included a mutual release for all parties named in the proceedings initiated by Mr. Spachman, including certain directors of the Company. Following the payment to Mr. Spachman, the parties filed a joint stipulation with the court to dismiss all claims with prejudice.

Between May 2014 and March 2016, AFG and Parent operated their investment in the Company in the ordinary course of business and did not make any public proposals relating to (i) a tender offer, merger or other acquisition of the Company or its assets or (ii) to the election of the Company’s directors. During the period, AFG and Parent continued to evaluate the operations and results of the Company and the insurance segment in which it operates. Specifically, they discussed continued adverse reserve development, including a reserve charge of $20 million taken by the Company in the second quarter of 2014. AFG and Parent also noted the significant challenges that the commercial auto liability subsector of the property and casualty business continued to experience during the period, including that the combined ratio for the subsector exceeded 100% for each of 2011-2015. After modest improvement from 107.2% to 103.4% from 2013-2014, the combined ratio climbed to 108.8% in 2015. AFG and Parent reviewed National Interstate’s results, which largely reflected the results of the subsector. National Interstate’s combined ratio for 2013, 2014 and 2015 was 102.4%, 103.9% and 100.4%, respectively. In addition, National Interstate reported net earnings per share of $0.89, $0.56 and $1.05 and return on equity of 5.0%, 3.1% and 5.8% for 2013, 2014 and 2015, respectively.

On March 6, 2016, at a meeting of the board of directors of AFG, the AFG directors reviewed and approved a proposal for Parent to acquire all of the outstanding common shares of the Company that are not currently owned by Parent, for $30.00 per share in cash (the “Merger Transaction”). It was determined that AFG would propose the merger of a subsidiary of Parent with and into the Company with the outstanding common shares not owned by Parent or its affiliates being converted into the right to receive $30.00 per share in cash. In addition, AFG’s board of directors determined that its proposal would include the requirement that the Board appoint a special committee of independent, for purposes of serving on the special committee, and disinterested directors to consider the Merger Transaction and to make a recommendation to the Board following consultation with independent legal and financial advisors to be retained by such special committee and that the Merger Transaction would not move forward unless such transaction were approved by the special committee. AFG’s board of directors also determined that the Merger Transaction would be subject to a non-waivable condition requiring approval of a majority of the shares of the Company not owned by AFG or its affiliates.

Immediately following the March 6, 2016 meeting, Mr. Joseph E. (Jeff) Consolino, acting on behalf of AFG and Parent, contacted the directors of the Company who were not current or former executive officers of AFG, Parent or the Company and not affiliated with AFG or Parent other than by serving together on the Board with directors who are so affiliated (the “Unaffiliated Directors”) regarding AFG’s and Parent’s intent to deliver a proposal to the Company regarding the Merger Transaction. Mr. Consolino also contacted Keith A. Jensen, a former executive officer of AFG, who was then serving on the Board but whose term expired at the annual meeting of shareholders of the Company on May 5, 2016. In addition, on the evening of March 6, 2016, Messrs. Consolino and Larson contacted Messrs. Mercurio, Michelson and Gonzales to communicate AFG’s and Parent’s intent to deliver such proposal.

Later that evening on March 6, 2016, AFG sent a letter to the Board proposing the Merger Transaction. The full text of the letter sent to the Board is set forth below:

Board of Directors

National Interstate Corporation

3250 Interstate Drive

Richfield, Ohio 44286

Attn: Donald W. Schwegman

March 6, 2016

Dear Don:

American Financial Group, Inc. (“AFG”) is pleased to submit this proposal for its wholly-owned subsidiary, Great American Insurance Company (“GAIC”), to acquire all of the outstanding common shares of National Interstate Corporation (“National Interstate”) that are not currently owned by GAIC at a purchase price of $30.00 per share in cash. The proposed transaction will not be subject to a financing condition.

The $30.00 per share price represents a 32.7% premium over National Interstate’s last closing price. The $30.00 per share price is a 1.70x multiple of National Interstate’s book value per share excluding unrealized gains on fixed maturities as of December 31, 2015, and a 25.9x multiple of National Interstate’s 2015 diluted net income from operations per share.

As you know, GAIC owns approximately 51% of the outstanding National Interstate common shares, and five of the 11 National Interstate directors are current or former executive officers of GAIC or AFG. We expect that the National Interstate board of directors will appoint a new special committee to consider our proposed transaction and make a recommendation to the National Interstate board of directors. We further expect that the special committee will retain its own independent legal and financial advisors to assist in its review of our proposed transaction. We will not move forward with the transaction unless it is approved by such special committee.

None of the National Interstate directors who are current or former executive officers of GAIC or AFG will participate in the consideration of the AFG proposal by National Interstate, the special committee or the special committee’s advisors. In addition, the transaction will be subject to a non-waivable condition requiring approval of a majority of the shares of National Interstate not owned by AFG or its affiliates. We intend to implement the proposed transaction in a manner that will ensure that National Interstate will become a wholly-owned subsidiary of GAIC and that all shareholders of National Interstate will receive the same consideration for their shares in the proposed transaction.

GAIC currently intends that following completion of the proposed transaction, National Interstate’s business will continue to be run in a manner that is generally consistent with its current operations and does not currently contemplate making any significant changes in National Interstate’s strategic or operating philosophy or its business. National Interstate would proceed to operate as a separate company, 100% owned by GAIC or an affiliate, much like AFG’s other wholly-owned subsidiaries.

Given our knowledge of National Interstate, we are in a position to complete the transaction in an expedited manner and to promptly enter into discussions regarding a merger agreement with the special committee and its advisors providing for the acquisition of the remaining National Interstate shares.

In considering our proposal, you should know that in our capacity as a shareholder of National Interstate we are interested only in acquiring the shares of National Interstate not already owned by GAIC and that in such capacity we have no interest in selling any of the shares owned by us in National Interstate nor would we expect, in

our capacity as a shareholder, to vote in favor of any alternative sale, merger or similar transaction involving National Interstate.

AFG and GAIC have engaged Skadden, Arps, Slate, Meagher & Flom LLP as our legal advisor for the proposed transaction.

Due to our obligations under the securities laws, we intend to file a Schedule 13D amendment with the Securities and Exchange Commission and to issue a press release announcing our proposal before the market opens tomorrow. A copy of the press release is attached for your reference.

This indication of interest is non-binding and no agreement, arrangement or understanding between the parties will be created until such time as definitive documentation has been executed and delivered by GAIC and all other appropriate parties and the agreement, arrangement or understanding has been approved by AFG and GAIC’s boards of directors.

We believe that our proposal represents an attractive opportunity for National Interstate’s shareholders to receive a significant premium to National Interstate’s current and recent share prices. We welcome the opportunity to meet with the special committee, once formed, and/or its advisors to discuss our proposal.

We look forward to your response.

On March 7, 2016, AFG began its regularly scheduled annual leadership conference, which included among its invitees certain officers and other executives of the Company. In advance of the commencement of the meetings that morning, senior executives of AFG and Parent advised certain members of the Company’s management, including Messrs. Mercurio, Michelson and Gonzales as well as Mr. Tony Brown, Mr. Matt Grimm, Ms. Julie A. McGraw, Mr. Gary N. Monda, Mr. Jim Parks and Mr. Steve Winborn, of the Merger Transaction. Prior to the open of trading on March 7, 2016, AFG issued a press release disclosing that the proposal letter regarding the Merger Transaction had been sent to the Board. Mr. Consolino also telephoned a significant shareholder to notify such shareholder directly of the Merger Transaction.

Also that morning, at the beginning of the scheduled leadership meetings, Mr. Vito C. Peraino, Senior Vice President and General Counsel of AFG, advised meeting participants that AFG did not intend to discuss the Merger Transaction during the conference and requested that all participants proceed on the basis of “business as usual” during the scheduled meetings.

On March 9, 2016, the Unaffiliated Directors held an initial meeting telephonically to discuss the AFG proposal, the formation and composition of a special committee of the Board to consider the proposal and potential candidates to serve as outside legal counsel to a special committee of the Board.

On March 15, 2016, the Board met and discussed the receipt of the proposal relating to the Merger Transaction. At this meeting, the directors determined that the formation of a committee and any substantive discussion of the Merger Transaction should be deferred until such time as the Board had identified and engaged an independent legal advisor.

On March 16, 2016, the Unaffiliated Directors held a meeting to interview potential legal advisors. Each firm presented its qualifications and discussed the legal issues presented by transactions such as the Merger Transaction. The Unaffiliated Directors were afforded the opportunity to ask questions about the potential firms’ respective qualifications and fee proposals. After considerable discussion about the potential firms’ qualifications and expertise, the Unaffiliated Directors decided to retain Willkie Farr & Gallagher LLP (“Willkie Farr”) as outside legal counsel to a special committee of the Board that would be comprised of certain members of the Board to be determined in consultation with Willkie Farr.

On March 28, 2016, at a telephonic meeting of the Unaffiliated Directors, representatives of Willkie Farr discussed the considerations relevant to the formation and composition of a special committee, including independence and process. The Unaffiliated Directors also discussed with representatives of Willkie Farr potential

candidates to serve as financial advisor to the special committee. The Unaffiliated Directors agreed that any financial advisor to the special committee would have to be qualified and free from conflicts of interest that would prevent the financial advisor from serving as an independent financial advisor to the special committee.

On March 31, 2016, at a telephonic meeting of the Unaffiliated Directors, after extensive discussion with Willkie Farr as to the role of a special committee in considering a proposal such as the Merger Transaction and the considerations applicable to the composition of such a special committee, as well as a review of the independence of each of the Unaffiliated Directors, all of the Unaffiliated Directors expressed a willingness to serve on the special committee to be formed by the Board and determined to recommend that the Board constitute a special committee consisting of all of the Unaffiliated Directors.

On April 6, 2016, the Board convened telephonically for a meeting at which Messrs. Consolino and Michelson, Mr. I. John Cholnoky, Mr. Patrick J. Denzer, Mr. Norman L. Rosenthal, Mr. Donald W. Schwegman, Mr. Alan R. Spachman and representatives of Willkie Farr were in attendance. Despite his attendance at the meeting, Mr. Michelson did not participate in the meeting. At the opening of the meeting, Mr. Consolino stated that he and the other Affiliated Directors were aware of the purpose of the meeting to form and empower a special committee to address the offer made by AFG and had no objections to the proposed formation of the special committee but that he and the other Affiliated Directors intended to recuse themselves from consideration of matters related to the Merger Transaction. Shortly after making this statement, Mr. Consolino left the meeting. At this meeting, the Board adopted resolutions that had previously been circulated to the Board regarding the formation of a special committee to consider the Merger Transaction. The resolutions were adopted unanimously by those directors in attendance, who constituted a majority of the Board. The resolutions appointed the following directors to the special committee: Messrs. Rosenthal, Cholnoky, Denzer, Schwegman, and Spachman, each of whom the Board determined to be independent for purposes of serving on the special committee. Mr. Rosenthal was appointed to serve as the Chairman of the special committee. The special committee was delegated the power and authority to, among other things: (1) make such investigation of the Merger Transaction as the special committee deemed appropriate, (2) consider and recommend to the Board whether or not it would be in the best interests of the Company and the holders of the common shares of the Company to proceed with the Merger Transaction and/or to engage in discussions and/or negotiations with respect thereto, (3) negotiate with AFG and Parent any element of the Merger Transaction, (4) consult with and/or advise management, on behalf of the Board, in connection with discussions and/or negotiations concerning potential terms and conditions of the Merger Transaction, (5) consider such other matters as may be requested by the Board from time to time, (6) make any recommendations to the Board concerning the Merger Transaction that the special committee deemed appropriate, including recommendations with respect to any matters requested by the Board, and (7) determine to elect not to pursue the Merger Transaction. The Board also authorized the special committee, in its sole discretion, to interview, select and retain, at the Company’s expense and on behalf of the Board and/or the special committee, such additional investment bankers, financial advisors, attorneys, accountants or other advisors and secretarial assistance as it may deem appropriate, including without limitation, an investment bank to deliver a fairness opinion in connection with the Merger Transaction, and to establish the terms of engagement of each such advisor and consult with such advisors to the extent the special committee deemed necessary.

Also following the April 6 meeting, the Company issued a press release announcing the formation of the special committee to review the Merger Transaction and the selection of Willkie Farr as the independent legal advisor to the special committee.

On April 11, 2016, the special committee and representatives of Willkie Farr met in person to interview potential financial advisors and to consider each financial advisor’s qualifications. Each of the firms was asked to present its credentials and to address the following topics: (i) the members of the firm that would participate in the engagement and their respective experience (both in advising special committees in going private transactions and experience relevant to the Company’s business), and each member’s role in the engagement; (ii) a summary of potential conflicts of interest, including identifying any transactions, financings or relationships with AFG, Parent or any of their affiliates, as well as proposed monitoring and disclosure of conflicts that might arise during the engagement; (iii) preliminary views on the process and valuation work to be performed in connection with the engagement; and (iv) proposed fee arrangement, assuming that the special committee would request delivery of a written opinion as to the fairness of the Merger Transaction.

On April 13, 2016, the special committee and representatives of Willkie Farr met telephonically to discuss each of the potential financial advisor’s qualifications and potential conflicts of interest that would prevent each financial advisor from serving as an independent financial advisor to the special committee. Mr. Rosenthal noted that he was a former Morgan Stanley & Co. LLC (“Morgan Stanley”) employee and accordingly requested that other

members of the special committee lead the discussion regarding the ultimate selection of a financial advisor to the special committee. After extensive discussion about each of the potential financial advisors, the special committee determined to select Morgan Stanley as the financial advisor to the special committee, subject to agreement on the final economic terms of the engagement and confirmation that there were no such conflicts of interest. The special committee authorized Willkie Farr to propose a revision to Morgan Stanley’s fee proposal and to negotiate the other terms of Morgan Stanley’s engagement agreement on behalf of the special committee. The special committee also resolved to retain local counsel in Ohio.

On April 20, 2016, representatives of Willkie Farr contacted representatives of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) to provide information regarding the proposed terms of the engagement of Morgan Stanley as a financial advisor to the special committee.

On April 21, 2016, the Company announced that the special committee had retained Morgan Stanley as its financial advisor to assist the special committee in its evaluation of the Merger Transaction.

On April 22, 2016, at a telephonic meeting of the special committee, Willkie Farr informed the special committee that Squire Patton Boggs (US) LLP (“Squire”) had been retained as counsel for the special committee with respect to Ohio legal issues. Willkie Farr asked representatives of Squire to confirm that there were no conflicts of interest with respect to AFG, its directors and officers and any of AFG’s affiliates that would preclude Squire from serving as an independent legal advisor to the special committee, and Squire made this confirmation.  Representatives of Willkie Farr and Squire provided the special committee with an overview of the applicable law regarding directors’ fiduciary duties (including duties related to service on a special committee), the standards of review of fiduciary duties under Ohio law and director indemnification and limitation on liability, which was followed by an extensive discussion among the members of the special committee, Willkie Farr and Squire.  Representatives of Morgan Stanley joined the meeting to update the special committee on the actions taken by Morgan Stanley since its retention by the special committee, including the compilation of an analysis of comparable and precedent transactions as well as a review of publicly available information with respect to AFG’s 2014 proposed tender offer for the Company’s common shares that were not then owned by Parent.  The special committee and representatives of Morgan Stanley and Willkie Farr discussed the process through which they would review certain information relating to the Company and the valuation work that Morgan Stanley would perform in connection with its engagement by the special committee.

On April 27, 2016, Willkie Farr provided Skadden with a list of topics relating to the Company prepared by Morgan Stanley on behalf of the special committee regarding AFG’s operations and the Merger Transaction.

On April 28, 2016, representatives of Skadden and representatives of Willkie Farr discussed telephonically the scope of the special committee’s due diligence request and potential timing for a meeting to discuss the special committee’s questions. Representatives of Skadden and representatives of Willkie Farr also discussed certain questions regarding the insurance coverage provided to the Company’s directors under the insurance policy maintained by an affiliate of AFG for the benefit of directors and officers of AFG and its affiliated companies (including the Company).

During the period from April 19, 2016 to June 24, 2016, (i) at the direction of the special committee, representatives of Willkie Farr and Morgan Stanley conducted meetings with representatives of the Company, the purpose of which was to review certain information relating to the Company in connection with the Merger Transaction and Morgan Stanley’s financial analysis and valuation work in connection with the Merger Transaction, (ii) representatives of the Company and, at the direction of the special committee, representatives of Willkie Farr and Morgan Stanley, conducted meetings with representatives of Parent and/or Skadden, the purpose of which was to review certain information relating to Parent and the AFG proposal, and (iii) Parent and the Company conducted meetings, certain of which included representatives of Willkie Farr, Skadden and/or Morgan Stanley, the purpose of which was to allow Parent to review certain information with respect to the Company’s claims development process and reserve methodology and certain questions regarding the Company’s employee incentive plans.

On May 4, 2016, at the direction of the special committee, representatives of Morgan Stanley and Willkie Farr met telephonically with Mr. Consolino, Mr. Peraino and representatives of Skadden met telephonically to discuss and respond to the special committee’s due diligence request that was delivered on April 27, 2016.

On May 5, 2016, the Company held its 2016 annual meeting of shareholders. At the annual meeting, Mr. Jensen’s term as director of the Company terminated. The Board met later that day in a regularly scheduled meeting.

On May 6, 2016, at the direction of the special committee, representatives of Willkie Farr and Morgan Stanley held a telephonic discussion with Messrs. Mercurio and Gonzales and Ms. McGraw to discuss the Company’s 2016 business plan and medium-term outlook. Later that day, at a telephonic meeting of the special committee, the special committee discussed with representatives of Morgan Stanley and Willkie Farr the status of Morgan Stanley’s review of certain information relating to the Company and Parent.

On May 9, 2016 and May 11, 2016, at the direction of the special committee, representatives of Morgan Stanley held telephonic discussions with Messrs. Mercurio and Gonzales and Ms. McGraw to review certain financial information relating to the Company, including with respect to loss reserves and Company management’s view of the Company’s expected financial performance. The topics discussed with respect to loss reserves and management’s view of the Company’s expected performance. included, among others, (i) the Company’s overall reserving approach and process, including working group dynamics across functional areas, AFG’s role in reserve setting and ongoing evaluation, Ernst & Young LLP’s internal and external audit evaluations of the Company’s reserves, and claims department reorganization; (ii) reserve development in the first quarter of 2016; and (iii) recent reserve strengthening. The topics discussed with respect to the Company’s medium-term outlook included, among others, (i) the Company’s top-line growth, including possible views on 2017 and 2018 premium growth, the key drivers for top-line growth, and planned reinsurance efforts; (ii) the Company’s loss ratio, including the Company’s anticipated reserve redundancy and/or deficiency; (iii) the Company’s expense ratio, including the contribution from ceding commissions; and (iv) the Company’s balance sheet, including target yields for the Company’s investment portfolio, the Company’s capital distribution policy, the Company’s financial leverage targets in 2017 and 2018, and the Company’s “Best’s Capital Adequacy Ratio” targets for 2017 and 2018.

On May 12, 2016, Mr. Consolino called Mr. Gonzales to discuss the process to date regarding the potential Merger Transaction. During this call, Mr. Gonzales provided a general update on the process and its timing and summarized certain requests that Morgan Stanley had made to management of the Company relating to the management’s view of the Company’s financial outlook and other financial information.

On May 13, 2016, at a telephonic meeting of the special committee, the special committee and representatives of Morgan Stanley discussed Morgan Stanley’s ongoing review of certain financial and other information regarding the Company and financial analysis and also discussed meeting on May 19, 2016 to discuss the management’s view of the Company’s financial outlook.

Later that day and again on May 17, 2016, at the direction of the special committee, representatives of Morgan Stanley held telephonic discussions with Messrs. Mercurio, Gonzales and Monda and Ms. McGraw regarding management’s view of the Company’s financial outlook and the Company’s investment portfolio.

On May 19, 2016, the special committee held a telephonic meeting, at which it discussed with representatives of Morgan Stanley and Willkie Farr, management’s view of the Company’s financial outlook. Messrs. Mercurio, Gonzales and Monda and Ms. McGraw joined the meeting to discuss the development of, and to provide their views on, the financial outlook. The special committee engaged in extensive discussion with Messrs. Mercurio, Gonzales and Monda and Ms. McGraw regarding the process for reviewing certain information relating to the Company and their views on the Company’s financial outlook. After Messrs. Mercurio, Gonzales and Monda and Ms. McGraw left the meeting, the special committee reviewed the discussion, the Company’s first quarter financial results and publicly available information related to comparable companies with representatives of Morgan Stanley and Willkie Farr.

On May 20, 2016, Skadden delivered a draft merger agreement (the “Skadden Draft”) to Willkie Farr. In addition, as Mr. Consolino had previously indicated to the Company, Skadden delivered a due diligence request relating to the Company’s employee benefits plans and reserves, as well as the expected costs to be incurred by the Company attributable to the Special Committee process. Skadden also made a request for additional information regarding the special committee’s anticipated timeline for reviewing and responding to AFG.

On May 21, 2016, Willkie Farr acknowledged receipt of the Skadden Draft and due diligence requests but indicated that it would be premature to engage in discussions regarding the merger agreement until such time as the special committee had completed its work to analyze the AFG proposal.

On May 26, 2016, at an in-person meeting of the special committee, representatives of Morgan Stanley reviewed Morgan Stanley’s preliminary financial analysis of the Company (the “Preliminary Financial Analysis”), certain tactical considerations and potential strategic alternatives to the Merger Transaction, including the sale of the Company to a third party financial or strategic buyer (not affiliated with AFG), capital management strategies, divestiture of certain businesses and a potential acquisition that the Company was considering (the “Potential Acquisition”). See “ Special Factors—Opinion of Morgan Stanley & Co. LLC ” on page [•]. The special committee instructed Morgan Stanley to schedule a meeting the following week involving representatives of AFG, Morgan Stanley, Willkie Farr and Skadden to review the Preliminary Financial Analysis and to discuss the Merger Transaction. The special committee also authorized Morgan Stanley to prepare a written presentation to be delivered to AFG at this meeting for purposes of facilitating negotiations with AFG and its advisors.   As a negotiating tactic, the special committee felt it was important to highlight in this written presentation areas of potential additional value and synergies that the special committee had identified as potential drivers of transaction value.

On June 2, 2016, representatives of each of Morgan Stanley, Willkie Farr and Skadden and Mr. Consolino met in New York to discuss the Merger Transaction.  During this meeting, at the direction of the special committee, representatives of Morgan Stanley reviewed with Mr. Consolino the written presentation previously authorized by the special committee. This written presentation, which was prepared only for the purposes of negotiation, contained financial analysis regarding the Merger Transaction, which included certain aspects of the Preliminary Financial Analysis and certain areas of potential additional value and synergies that the special committee had identified as potential drivers of transaction value.  The representatives of Morgan Stanley also presented the special committee’s initial views as to potential ranges of values for the common shares in a transaction.  After the representatives of Morgan Stanley had finished, Mr. Consolino responded to certain items in the Preliminary Financial Analysis and areas of potential additional value but indicated that he did not have authorization to respond to any offers or additional proposals and would have to discuss the Preliminary Financial Analysis and areas of potential additional value with representatives of senior management of AFG.

On June 3, 2016, at a telephonic meeting of the special committee, the special committee discussed the June 2, 2016 meeting with representatives of Morgan Stanley and Willkie Farr and authorized Morgan Stanley to respond to inquiries received from certain investors of the Company that had contacted the Company or the special committee regarding the Merger Transaction. Between June 7, 2016 and July 11, 2016, representatives of Morgan Stanley conducted telephonic meetings with such investors regarding the Merger Transaction, in which these investors expressed their views to Morgan Stanley regarding the Company’s valuation and the potential Merger Transaction.

Later on June 3, 2016, various representatives of senior management of the Company and Parent, as well as representatives of Morgan Stanley, Willkie Farr and Skadden, held a telephonic discussion regarding the Company’s claim development process and reserves.

On June 24, 2016, AFG’s directors met telephonically to discuss the Merger Transaction and the feedback that had been provided by the special committee and its advisors during the June 2, 2016 meeting. Following discussions at this meeting, AFG’s board of directors authorized Mr. Consolino to propose an increase in AFG’s offer to $30.75 per share.

During the afternoon of June 24, 2016, at the direction of the special committee, representatives of each of Morgan Stanley and Willkie Farr met with Mr. Consolino and representatives of Skadden in New York to further discuss the Merger Transaction. At this meeting, Mr. Consolino presented information regarding AFG’s views on the ranges of values and underlying valuation assumptions that Morgan Stanley had communicated to Mr. Consolino on behalf of the special committee on June 2, 2016. Mr. Consolino stated at this meeting AFG’s belief that AFG’s March 7, 2016 proposal of $30.00 per share had been full and fair. However, Mr. Consolino indicated that AFG would be willing to increase the price of the Merger Transaction to $30.75 per share (the “Revised Proposal”). At the conclusion of this meeting. Mr. Consolino stated that AFG had no further due diligence to perform on the Company and encouraged the special committee and its advisors to engage in discussions to finalize a transaction.

On June 26, 2016, at the direction of the special committee, a representative of Morgan Stanley had a telephonic discussion with Mr. Consolino regarding the Revised Proposal, during which they discussed certain aspects of the Preliminary Financial Analysis and Mr. Consolino raised the possibility of AFG offering to pay a higher price for the outstanding shares of the Company.

On June 27, 2016, prior to the open of business, AFG disclosed that it had increased the price for the Merger Transaction to $30.75 per share.

Later that day, the special committee held a telephonic meeting with representatives of Morgan Stanley and Willkie Farr to discuss the Revised Proposal. The special committee collectively determined that the Revised Proposal was inadequate and not in the best interest of the Public Shareholders and determined that the Company would issue a press release rejecting the Revised Proposal. The special committee noted that it intended to continue to consider the options available to the Company, including maintaining the Company as a public company and negotiating further to obtain an offer that more appropriately reflects the special committee’s views on valuation.

On June 29, 2016, the Company issued a press release announcing that the special committee had unanimously rejected AFG’s increased $30.75 per share offer and that the special committee had determined that the revised offer was inadequate and not in the best interest of the Public Shareholders.

On June 29, 2016 and June 30, 2016, representatives of the parties discussed timing for a potential meeting or call among Mr. Consolino, Mr. Rosenthal and representatives of Morgan Stanley.

On July 1, 2016, at the direction of the special committee, a representative of Morgan Stanley had a telephone conversation with Mr. Consolino to discuss the special committee’s determination and potential next steps. During this meeting, Mr. Consolino expressed his interest in speaking to Mr. Rosenthal directly regarding the Merger Transaction. Mr. Consolino expressed his belief that AFG may consider a price in excess of the Revised Proposal but that a price of $32.00 per share or higher was unlikely.

Later that day, at a telephonic meeting of the special committee, the special committee and representatives of Morgan Stanley and Willkie Farr discussed the telephonic discussion between Mr. Consolino and representatives of Morgan Stanley earlier that day.  The special committee and representatives of Morgan Stanley and Willkie Farr also discussed certain financial information relating to the Company and potential responses to the Revised Proposal.  The special committee determined that Mr. Rosenthal and Morgan Stanley would propose a telephonic discussion with Mr. Consolino for later that day.

Later that day, Mr. Rosenthal had a telephonic discussion with Mr. Consolino and a representative of Morgan Stanley. Mr. Rosenthal provided the special committee’s views on the valuation of the Company. Mr. Rosenthal also expressed his confidence in the new senior management team in place at the Company and his belief that the team would yield improved business prospects, and he asked Mr. Consolino to articulate AFG’s views on valuation. Mr. Rosenthal also indicated that the special committee was disappointed in the Revised Proposal and that shareholders with which Morgan Stanley had spoken were supportive of the special committee’s rejection of the Revised Proposal. Mr. Rosenthal finally stated that he would be willing to take a further revised proposal to the special committee. In response, Mr. Consolino reiterated AFG’s views on the valuation of the Company and indicated that he believed certain shareholders would accept the Revised Proposal. Mr. Consolino indicated that he would speak with AFG shortly and might provide the special committee with an updated proposal. Mr. Consolino also stated that AFG was prepared to proceed with the Company as an independent company in the event that the parties could not reach agreement on the Merger Transaction and noted that AFG would not condition entering into a transaction with the Company on a unanimous recommendation of the Merger Agreement by the Special Committee.

On July 3, 2016, at a telephonic meeting of the special committee, representatives of Willkie Farr and Morgan Stanley discussed the process and potential responses to a further revised proposal from AFG. Representatives of Willkie Farr provided the special committee with a reminder of the directors’ fiduciary duties, including with respect to accepting or rejecting the any proposals made by AFG and its affiliates.

On July 5, 2016, AFG’s directors met telephonically to discuss the Merger Transaction and to receive feedback from Mr. Consolino regarding his discussions with representatives of Morgan Stanley and the special committee’s expectations regarding an offer price that the special committee would approve. Following discussions at this meeting, AFG’s board of directors authorized Mr. Consolino to propose an increase in AFG’s offer for the Company to $32.00 per share.

On July 6, 2016, Mr. Consolino delivered a letter via e-mail to Morgan Stanley proposing a best and final increase of the offer price to $32.00 per share (the “Second Revised Proposal”). The full text of the letter is set forth below:

July 6, 2016

Special Committee of the Board of Directors

National Interstate Corporation

3250 Interstate Drive

Richfield, Ohio 44286

Attn: Norman L. Rosenthal, Chairman of the Special Committee

Dear Norman:

American Financial Group, Inc. (“AFG” or “we”) is pleased to provide the special committee (the “Special Committee”) of the Board of Directors of National Interstate Corporation (“National Interstate”) with its further increased offer for its wholly-owned subsidiary, Great American Insurance Company (“GAIC”), to acquire all of the outstanding common shares of National Interstate that are not currently owned by GAIC at a purchase price of $32.00 per share in cash. This represents our best and final offer, and we will offer no further increases from this price. This is a full and fair price offer that will provide upfront liquidity to, and for the benefit of, National

Interstate’s shareholders. As previously communicated, the proposed transaction will not be subject to a financing condition.

The $32.00 per share price represents a 41.5% premium over National Interstate’s unaffected share closing price on March 4, 2016, the last trading day prior to public announcement of our proposal and a 6.5% premium over yesterday’s closing price. The $32.00 per share price is a 1.8x multiple of National Interstate’s book value per share excluding unrealized gains on fixed maturities as of March 31, 2016, and a 27.6x multiple of National Interstate’s 2015 diluted net income from operations per share. We have raised our offer price $2.00 per share since our initial proposal, which represents aggregate additional consideration of approximately $20 million that will be paid to National Interstate shareholders other than GAIC.

Our proposed transaction remains subject to the condition that it be approved by a majority of the special committee. When the special committee approves the transaction, shareholders holding a majority of the shares of National Interstate not owned by AFG or its affiliates will have the ability to approve the transaction for the benefit of National Interstate’s shareholders. We are confident based on our discussions with National Interstate’s shareholders that such approval will be obtained. We will be filing this letter with the Securities and Exchange Commission as an exhibit to a Schedule 13D amendment, and we are also issuing a press release before the market opens today containing this letter.

This proposal is non-binding and no agreement, arrangement or understanding between the parties will be created until such time as definitive documentation has been executed and delivered by GAIC and all other appropriate parties and the agreement, arrangement or understanding has been approved by AFG and GAIC’s boards of directors.

We look forward to working with the special committee and its advisors to announce a transaction expeditiously.

Following delivery of the letter on July 6, 2016, AFG issued a press release announcing the increase of its offer price to a best and final $32.00 per share.

On July 7, 2016, at the direction of the special committee, representatives of Morgan Stanley and Willkie Farr held a telephonic discussion with Messrs. Mercurio and Gonzales and Ms. McGraw regarding the Company’s updated second quarter financial information and the Potential Acquisition. Mr. Mercurio indicated that he expected the Company to meet or nearly meet the financial targets for the second quarter according to the Company’s internal business plan for 2016.

On July 8, 2016, at a telephonic meeting of the special committee, representatives of Morgan Stanley reviewed an updated preliminary financial analysis of the Company (the “Updated Valuation Analysis”). Representatives of Morgan Stanley recapped for the special committee and representatives of Willkie Farr input received from certain investors regarding the Merger Transaction and AFG’s proposals to date, and the special committee and representatives of Morgan Stanley and Willkie Farr extensively discussed a number of matters, including the impact of the Company’s pending second quarter financial results and the Potential Acquisition on the Company’s valuation. The special committee resolved unanimously not to vote on whether to accept or reject the Second Revised Proposal and determined that Mr. Rosenthal and a representative of Morgan Stanley would arrange a telephonic discussion with Messrs. Lindner III and Consolino to further discuss the Second Revised Proposal. The special committee and representatives of Morgan Stanley and Willkie Farr also engaged in discussion regarding the Skadden Draft.

Later on July 8, 2016, the Company issued a press release announcing that the special committee had received the Second Revised Proposal and stating that the special committee was reviewing and evaluating the Second Revised Proposal with its financial and legal advisors.

On July 11, 2016, Messrs. Rosenthal, Lindner III and Consolino met by telephone with representatives of Morgan Stanley to discuss the Second Revised Proposal. During this meeting, Mr. Consolino reaffirmed the Second Revised Proposal and reiterated AFG’s request that the special committee meet and vote on the Merger Transaction.

On July 13, 2016, at a telephonic meeting of the special committee, representatives of Morgan Stanley recapped for the special committee and representatives of Willkie Farr recent input received from certain investors regarding the Merger Transaction and AFG’s proposals to date. Representatives of Morgan Stanley also discussed the July 11 ^th call with Messrs. Rosenthal, Lindner III and Consolino regarding the Second Revised Proposal and a July 12 ^th call between a representative of Morgan Stanley and Mr. Consolino regarding the Second Revised Proposal. The special committee directed representatives of Morgan Stanley to arrange a telephonic discussion with representatives of the Company for an update with respect to the Company’s pending second quarter financial information and the Potential Acquisition.

On July 14, 2016, at the direction of the special committee, representatives of Morgan Stanley held a telephonic discussion with Mr. Consolino to further discuss the Second Revised Proposal, during which Mr. Consolino responded to certain factors of the Updated Valuation Analysis.

On July 15, 2016, at the direction of the special committee, representatives of Morgan Stanley had a telephonic discussion with Ms. McGraw to further discuss the Company’s second quarter financial results and the Potential Acquisition. Ms. McGraw provided a preliminary overview of the financial results and described the expected timing of their release to the Board and the public and discussed certain revisions that had been made to the Company’s projected financial results with respect to the Potential Acquisition.

Later that day, at a telephonic meeting of the special committee, the special committee and representatives of Morgan Stanley and Willkie Farr engaged in extensive discussion with respect to Company management’s view of the Company’s pending second quarter financial results as well as Company management’s revised financial analysis of, and the timing and likelihood of, the Potential Acquisition. In light of the revised financial analysis with respect to the Potential Acquisition, the special committee and representatives of Morgan Stanley and Willkie Farr discussed the diminished value accretion that the Potential Acquisition would represent to the Company’s business. The special committee agreed to request a call with certain members of senior management of the Company to further discuss the Company’s financial results and the Potential Acquisition before taking a formal vote with respect to the Second Revised Proposal.

On July 18, 2016, the special committee, Messrs. Gonzales and Mercurio, Ms. McGraw and representatives of Morgan Stanley had a telephonic discussion during which they engaged in extensive discussion regarding Company management’s view of the likely outcome of Company’s pending second quarter financial results, Company management’s revised financial analysis of the Potential Acquisition. They also discussed a further updated valuation analysis to be prepared by Morgan Stanley that incorporated the Company management’s revised projected financial results (the “Second Revised Valuation Analysis”).

Later that day, Mr. Consolino had a telephonic discussion with representatives of Morgan Stanley to further discuss the Second Revised Proposal.

On July 20, 2016, at a telephonic meeting of the special committee, the special committee and representatives of Morgan Stanley and Willkie Farr discussed the July 18, 2016 call with Mr. Consolino as well as potential responses to the Second Revised Proposal. The special committee and representatives of Morgan Stanley and Willkie Farr engaged in extensive discussion with respect to the pending second quarter financial results as well as revised financial analysis prepared by Company management which no longer reflected material value accretion arising from the Proposed Transaction. Representatives of Morgan Stanley discussed recent telephonic meetings with certain investors regarding the Merger Transaction and the Second Revised Proposal. Representatives of Willkie Farr provided the special committee with an overview of the directors’ fiduciary duties. Following extensive discussion regarding a potential response to the Second Revised Proposal, the special committee agreed that Morgan Stanley would request a call with Mr. Consolino and representatives of Skadden and Willkie Farr to communicate that a majority of the special committee likely could support the Second Revised Proposal and that, in the alternative, the special committee would likely unanimously support a transaction that included merger consideration of $32.50 per share in cash. In addition, Mr. Spachman directed representatives of Willkie Farr to communicate that he was

prepared to approve the Merger Transaction and to vote his shares in favor of the Merger Transaction at $32.50 per share.

Later that day, representatives of Morgan Stanley and Willkie Farr engaged in a teleconference with Mr. Consolino and representatives of Skadden. During this meeting, representatives of Morgan Stanley notified Mr. Consolino that a less than unanimous majority of the special committee would likely support recommending to the Board approval of the Merger Transaction at a price of $32.00 per share but that the special committee would likely unanimously approve the Merger Transaction at a price of $32.50 per share. In addition, the representatives stated that Mr. Spachman was prepared to approve the Merger Transaction and to vote his shares in favor of the Merger Transaction at $32.50 per share.

On July 21, 2016, Mr. Consolino and Mr. Lindner III discussed the feedback received from Morgan Stanley and Willkie Farr the previous evening. During this discussion, Mr. Consolino and Mr. Lindner III discussed that AFG could consider permitting the Company to pay a special dividend of $0.50 per share to all shareholders immediately prior to the effective time of the consummation of a merger if the special committee was prepared to unanimously approve the Merger Transaction at the current offer price of $32.00 per share. Mr. Consolino also noted that, along with unanimous approval by the special committee, AFG should require Mr. Spachman to support the transaction as a shareholder through the execution of a voting agreement. Following discussion, it was determined that Mr. Consolino should make this proposal to Morgan Stanley.

Later in the day on July 21, 2016, Mr. Consolino contacted representatives of Morgan Stanley and communicated that AFG would support the payment by the Company of a $0.50 per share special dividend in connection with a merger closing in addition to regular quarterly dividends if (i) the special committee would unanimously support the Merger Transaction at $32.00 per share, (ii) Mr. Spachman would support the Merger Transaction by executing a voting agreement, (iii) the special committee accept the merger agreement draft substantially in the form of the Skadden Draft and (iv) a transaction were announced prior to the open of the financial markets on Monday, July 25, 2016 (the “Final Proposal”).

Later that day, the special committee met telephonically with representatives of Morgan Stanley and Willkie Farr and engaged in discussion regarding the Final Proposal. The special committee unanimously resolved to instruct Morgan Stanley to use Company management’s projections for 2016-2018 as the basis for its financial analysis of the Final Proposal.

Later that day, at the direction of the special committee, representatives of Morgan Stanley confirmed to Mr. Consolino that although the special committee would need to formally approve the Merger Transaction, the special committee had instructed its advisors to proceed with AFG’s advisors to negotiate the Merger Transaction and certain terms of the Merger Agreement based on the overall Final Proposal.

During the evening of July 21, 2016, Willkie Farr delivered a revised draft of the merger agreement to Skadden (the “Willkie Draft”). Willkie Farr’s draft introduced the concept that, given AFG’s and Parent’s knowledge of the Company, knowledge of matters by AFG or Parent should be excepted from certain of the Company’s representations and warranties. Willkie Farr also added various exceptions to the definition of “material adverse effect” and deleted certain representations and warranties by the Company. In addition, Willkie Farr suggested various changes to the “fiduciary out” provisions (including regarding the definition of “superior proposal” and the standard pursuant to which the special committee could change its recommendation of the merger) and eliminated the contractual provisions that provided for the payment of a termination fee or any expense reimbursement by the Company if the merger agreement were terminated under certain circumstances, including a change in the special committee’s recommendation of the merger or if the requisite majority of the shareholders failed to approve the merger.

On July 22, 2016, Skadden delivered a draft of the voting agreement to Willkie Farr and a further revised version of the merger agreement (the “Revised Skadden Draft”) to Willkie Farr, which proposed a compromise relating to selected open issues on the merger agreement.

During the afternoon of July 23, 2016, representatives of Skadden and representatives of Willkie Farr participated in a teleconference to discuss the Revised Skadden Draft and responses that Skadden had made to

various revisions in the Willkie Draft. Later that evening, Willkie Farr delivered a markup of the voting agreement and draft disclosure schedules to Skadden.

On July 23, 2016 and July 24, 2016, representatives of Willkie Farr and Skadden had various teleconference and e-mail communications regarding the Merger Transaction, the Merger Agreement, the voting agreement and certain other transaction documents.

On July 24, 2016, Skadden distributed a package proposal to settle open issues under the merger agreement, particularly with respect to a two-tier termination fee (at lower dollar amounts that had initially been proposed by AFG), the terms of the voting agreement and related proxy. Later on July 24, 2016, representatives of Willkie Farr and Skadden met telephonically to discuss certain terms of the merger agreement, the package proposal that had been delivered by Skadden and questions regarding the draft disclosure schedules. Representatives of Willkie Farr noted that the special committee was particularly focused on the standard by which the special committee could change its recommendation of the merger and requested that the lower termination fee contemplated by the package proposal be revised to include a capped expense reimbursement provision. During this call, representatives of Skadden accepted Willkie Farr’s proposals regarding the “fiduciary out” standard and a capped expense reimbursement provision in connection with certain termination events in lieu of a reduced termination fee.

During the evening of July 24, 2016, the special committee had a telephonic meeting to finalize consideration of the Final Proposal and the Merger Agreement and to hold a formal vote on the Final Proposal. After discussing the timing and process related to recommending to the Board that it approve the Merger Transaction, representatives of Willkie Farr reiterated the fiduciary duties and responsibilities of the special committee. Willkie Farr then proceeded to provide an overview of the Merger Transaction, including a summary of key terms in the merger agreement.

Willkie Farr also provided an overview of the voting agreement that AFG had requested of Mr. Spachman in connection with the Merger (the “Voting Agreement”), a draft of which had been circulated to Mr. Spachman on July 23, 2016 and which had been the subject of negotiation between Willkie Farr and Skadden.

Next, representatives of Morgan Stanley reviewed Morgan Stanley’s financial presentation with respect to the Merger Transaction, a copy of which presentation is filed as an exhibit to the transaction statement on Schedule 13E-3 filed in connection with the Merger Transaction, and delivered to the special committee Morgan Stanley’s oral opinion, which was subsequently confirmed by delivery of a written opinion dated July 24, 2016, that, as of such date, and based upon and subject to assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its opinion, the Merger Consideration to be received by the holders of the Company’s common shares (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights, as described more fully under “ The Merger Agreement—Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•]) pursuant to the Merger Agreement was fair from a financial point of view to such holders of common shares, as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC ” beginning on page [•].

After further discussion, the special committee unanimously determined that the Merger Agreement and the Merger Transaction were fair to and in the best interests of the Public Shareholders and resolved to recommend to the Board such approval of the Merger Agreement and the Merger Transaction.

Immediately following the special committee, the entire Board met to consider the approval of the Merger Transaction. Following the recommendation from the special committee that the Board approve the Merger Agreement and the Merger Transaction, the Unaffiliated Directors and Messrs. Mercurio and Michelson unanimously voted to approve the Merger Agreement and the Merger Transaction. The remainder of the Board, having left the meeting, recused themselves from the approval.

On the evening of July 24, 2016, following the meeting of the Board, representatives of Willkie Farr and Skadden met telephonically to finalize the terms of the merger agreement (including the disclosure schedules thereto) and the Voting Agreement. Later that evening, Skadden distributed to Willkie Farr a final copy of the

merger agreement and the Voting Agreement reflecting the agreed terms, and Willkie Farr distributed to Skadden a final copy of the Company’s disclosure schedules.

During the morning of July 25, 2016, the parties exchanged executed copies of the Merger Agreement and the Voting Agreement.

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger

The special committee, acting with the advice and assistance of its legal and financial advisors, evaluated and negotiated the merger, including the terms and conditions of the Merger Agreement, and determined that the Merger Agreement and the business combination and related transactions contemplated thereby are fair and in the best interest of the Company and the Public Shareholders. The special committee unanimously recommended to the Board that it:

Overview

The special committee held more than 14 meetings to discuss the Merger Transaction, as it was revised from time to time. On nine occasions, the special committee discussed the price that was proposed and other substantive issues raised by the Merger Transaction.

Reasons for the Merger—Additional Considerations

In the course of reaching its determination and making its recommendations, the special committee considered information with respect to the Company’s financial condition, results of operations, businesses, competitive position and business strategy, on a historical and a prospective basis, as well as current industry, economic and market conditions and trends.

The special committee also considered the following factors as being generally supportive of its determination and recommendations:

In addition to the foregoing factors, which the special committee considered as being generally positive or favorable in making its determination and recommendations in favor of the merger, the special committee also considered that its determination and recommendations were supported by its belief that there were limited strategic alternatives for enhancing value for the Public Shareholders, especially in light of AFG’s statement that it would not consider selling its stake in the Company or vote in favor of any such alternative transaction, as well as the risks and uncertainties to the Company’s stockholders associated with such alternatives.

The special committee also considered a number of factors discussed below, relating to the procedural safeguards that it believes were and are present to ensure the fairness of the merger. The special committee believes these factors support its determinations and recommendations and provide assurance of the procedural fairness of the merger to the Public Shareholders:

In the course of reaching its determinations and making its recommendations, the special committee also considered the following countervailing factors concerning the Merger Agreement and the merger:

The special committee also considered the financial analyses and the opinion of Morgan Stanley, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the Merger Agreement. These analyses, including a discussion of the Company financial plan that served as a basis for certain of the financial analyses, are summarized below in the sections entitled “ Special Factors—Opinion of Morgan Stanley & Co. LLC ” on page [•] and “ Special Factors—Projected Financial Information ” on page [•]. As part of making its determination regarding the fairness of the merger, the special committee relied upon the Company financial plan and the projections described in the section entitled “ Special Factors—Projected Financial Information ” on page [•] and assumed that such plan had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the financial performance of the Company for the year ending December 31, 2016.

Recommendation of the Board of Directors of the Company

The Board consists of eleven directors. On July 24, 2016, based in part on the unanimous recommendation of the special committee, as well as on the basis of the other factors described above, the Board (other than the Affiliated Directors, who recused themselves from such determination) unanimously:

In reaching these determinations, the Board (other than the Affiliated Directors, who recused themselves from such determination) considered a number of factors, including the following material factors:

The foregoing discussion of the information and factors considered by the special committee and by the Board is not intended to be exhaustive but includes the material factors considered by the special committee and the Board, respectively, including the factors considered by the special committee and the Board discussed above. In view of the wide variety of factors considered by the special committee and by the Board in evaluating the merger Agreement and the merger, neither the special committee nor the Board found it practicable, or attempted, to quantify, rank or otherwise assign relative weights to the foregoing factors in reaching their respective conclusion. In addition, individual members of the special committee and of the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others.

Other than as described in this proxy statement, the Board is not aware of any firm offer by any other person during the prior two years for a merger or consolidation of the Company with another company, the sale or transfer of all or substantially all of the Company’s assets or a purchase of the Company’s securities that would enable such person to exercise control of the Company.

The Board (other than the Affiliated Directors, who recused themselves from the determination related to such recommendation) recommends unanimously that you vote “FOR” the adoption of the Merger Agreement and the business combination and related transactions contemplated thereby.

Opinion of Morgan Stanley & Co. LLC

The special committee retained Morgan Stanley to provide it with financial advisory services in connection with the merger. The special committee selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, and its knowledge of the Company’s business and affairs. On July 24, 2016, Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the special committee to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the Merger Consideration to be received by the holders of common shares (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights, as described more fully under “ The Merger Agreement—Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•]) pursuant to the Merger Agreement was fair from a financial point of view to such holders of shares of common shares.

The full text of the written opinion of Morgan Stanley, dated July 24, 2016, is attached to this proxy statement as Annex A-3 , and is incorporated by reference into this proxy statement in its entirety. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. The summary of the opinion of Morgan Stanley in this proxy statement is qualified in its entirety by reference to the full text of the opinion. You are encouraged to, and should, read Morgan Stanley’s opinion and this section summarizing Morgan Stanley’s opinion carefully and in their entirety. Morgan Stanley’s opinion was directed to the special committee, in its capacity as such, and addresses only the fairness from a financial point of view of the merger consideration to be received by the holders of common shares (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights) in connection with the merger, as of the date of the opinion, and does not address any other aspects or implications of the merger. Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation to any shareholder of the Company as to how to vote at any shareholders’ meeting to be held in connection with the merger or whether to take any other action with respect to the merger.

In connection with rendering its opinion, Morgan Stanley, among other things:

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to it by the Company, and which formed a substantial basis for its opinion. With respect to the Company’s financial projections, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company and the special committee of the future financial performance of the Company. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the merger. Morgan Stanley is not a legal, tax, regulatory or actuarial advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of the Company and its legal, tax, regulatory or actuarial advisors with respect to legal, tax, regulatory or actuarial matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the merger consideration to be received by the holders of Company common shares in the merger.

Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was it furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, July 24, 2016. Events occurring after such date may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion. In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition, business combination or other extraordinary

transaction, involving the Company, nor did Morgan Stanley negotiate with any of the parties, other than Parent, which expressed interest to Morgan Stanley in the possible acquisition of the Company or certain of its constituent businesses.

Summary of Financial Analyses

The following is a brief summary of the material financial analyses performed by Morgan Stanley in connection with the preparation of its opinion to the special committee. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before July 22, 2016 (the last trading day immediately preceding the July 24, 2016 presentation by Morgan Stanley to the special committee), and is not necessarily indicative of current market conditions. Some of the summaries of financial analyses below include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion.

In performing the financial analysis summarized below and arriving at its opinion, Morgan Stanley used and relied upon certain financial projections provided by the Company’s management and approved by the special committee and referred to in this proxy statement as the “Management Projections,” and certain financial projections based on Wall Street research reports and referred to in this proxy statement as the “Street Case.”

Historical Trading Range Analysis

Morgan Stanley reviewed the historical trading range of the common shares for the 52-week period ending March 4, 2016 (the last trading day prior to the announcement of Parent’s initial proposal) and noted that, during such period, the maximum trading price per common share was $28.98 and the minimum trading price per common share was $22.26. Morgan Stanley also noted that that the volume weighted average price per common share for the 3 month period ending March 4, 2016 was $24.97 and that the closing price per common share on March 4, 2016 was $22.61.

Comparable Company Analysis

Morgan Stanley performed a comparable company analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded.

Morgan Stanley reviewed and compared, using publicly available information, certain current and historical financial information for the Company with corresponding current and historical financial information, ratios and public market multiples for companies selected, based on Morgan Stanley’s professional judgment and experience, that share similar business characteristics and have certain comparable operating characteristics including, among other things, similar lines of business, market capitalizations and/or other similar operating characteristics (we refer to these companies as the comparable companies). These companies were the following:

For each of the comparable companies, Morgan Stanley calculated the ratio of such company’s price per share of common equity divided by the book value of such company’s common equity (“P/BV”) using market data as of July 22, 2016. The following table presents the results of this analysis:

Based on the results of this analysis and its professional judgment, Morgan Stanley applied a P/BV range of 1.00x to 1.45x to the Company’s book value per common share of $18.46 as of March 31, 2016, which resulted in an implied per share equity value range of the Company of $18.46 to $26.77 (as compared to the closing price per common share of $22.61 on March 4, 2016, the volume weighted average stock price per common share for the three month period ending on March 4, 2016 of $24.97, and Parent’s final proposed price per common share of $32.50).

For each comparable company, Morgan Stanley also calculated such company’s price/2016 earnings per share ratio by dividing such company’s stock price as of July 22, 2016 by its estimated earnings per share (2016 P/E). For purposes of this analysis, Morgan Stanley utilized publicly available estimates of earnings, prepared by equity research analysts, available as of July 22, 2016. Based on the results of this analysis, Morgan Stanley applied a 2016 P/E range of 12.0x to 16.0x, which resulted in an implied per share equity value range of the Company of $18.90 to $25.20, based on estimated net income per common share of $1.58 in the Street Case, and an implied per share equity value range of the Company of $24.70 to $32.94, based on estimated net income per common share of $2.06 in the Management Projections (as compared to the Company’s closing common share price of $22.61 on March 4, 2016, the volume weighted average stock price per common share for the three month period ending on March 4, 2016 of $24.97, and Parent’s final proposed price per common share of $32.50).

No company included in the comparable company analysis is identical to the Company. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of the Company. These include, among other things, the impact of competition on the business of the Company and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company and the industry, and in the financial markets in general. Mathematical analysis (such as determining the median) is not, in itself, a meaningful method of using comparable company data.

Premiums Paid Analysis

Using publicly available information, Morgan Stanley reviewed the terms of 24 U.S. minority “squeeze-out” transactions (i.e., transactions in which a majority shareholder acquires the minority shareholders’ interests in a company in exchange for cash or shares) announced between January 1, 2000 to December 31, 2015. These transactions consisted of 12 U.S. minority “squeeze-out” transactions in the insurance sector and 12 U.S. minority “squeeze-out transactions” in other sectors. The following is a list of the transactions reviewed:

Morgan Stanley calculated the premiums paid in these transactions over the applicable stock price of the acquired company (i.e., the amount by which the price that the majority shareholder paid for the minority shareholders’ shares exceeded the market price of such shares) for the one day, three month and fifty-two week periods prior to the announcement of the acquisition offer. The following table summarizes the mean premiums paid for the 24 transactions on a combined basis over each of these time periods.

Based on the results of this analysis, Morgan Stanley applied a premium range of 15% to 35% to the closing share price per common share of $22.61 on March 4, 2016, which resulted in an implied per share equity value range of the Company of $26.00 to $30.52 (as compared to the maximum trading price of the common shares for the 52-week period ending March 4, 2016 of $28.98). Based on the results of this analysis, Morgan Stanley also applied a premium range of 15% to 35% to the volume weighted average stock price per common share for the

three-month period ending March 4, 2016 of $24.97, which resulted in an implied per share equity value range of the Company of $28.72 to $33.71 (as compared to the maximum trading price of the common shares for the 52-week period ending March 4, 2016 of $28.98).

Dividend Discount Analysis

Morgan Stanley performed a dividend discount analysis to calculate a range of implied present values of the distributable cash flows that the Company is forecasted to generate. The range was determined by adding:

In performing its analysis, Morgan Stanley assumed a cost of equity of 6.8% to 8.8%, which it used as the discount rate. Morgan Stanley calculated the terminal value for the common shares by applying a regression analysis that examined the correlation between the return on equity and P/BV of selected peer group companies to determine a range of P/BV multiples from 1.2x to 1.6x. This resulted in an implied per share equity value range of the common shares of $25.00 to $33.00 (as compared to the closing price per common share of $22.61 on March 4, 2016, the volume weighted average stock price per common share for the three month period ending on March 4, 2016 of $24.97, and Parent’s final proposed price per common share of $32.50).

Precedent Transactions

Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and premia of selected transactions. Morgan Stanley compared publicly available statistics for (i) 5 property and casualty insurance (“P&C”) transactions that were announced since June 1, 2014 to appropriately reflect the current M&A environment in the P&C industry and (ii) 6 P&C transactions announced between January 1, 2010 and May 31, 2014 in which the target companies were of similar size and business focus to that of the Company. The following is a list of the insurance transactions reviewed:

Utilizing publicly available information, including publicly available estimates of earnings prepared by equity research analysts, Morgan Stanley noted the P/BV and next twelve month price/earnings (NTM P/E) ratios for each of the transactions listed above. Based on the results of this analysis and its professional judgment, Morgan Stanley applied a P/BV range of 1.40x to 1.80x to the Company’s book value per common share of $18.46 as of March 31, 2016, which resulted in an implied per common share equity value range of $25.84 to $33.23 (as compared to the closing price per common share of $22.61 on March 4, 2016, the volume weighted average stock price per common share for the three month period ending on March 4, 2016 of $24.97, and Parent’s final proposed price per common share of $32.50). Based on the results of this analysis, Morgan Stanley also applied a 2016 P/E range of 13.0x to 17.0x, which resulted in an implied per common share equity value range of $20.48 to $26.78, based on estimated net income per common share of $1.58 in the Street Case, and an implied per common share equity value range of $26.76 to $35.00, based on estimated net income per common share of $2.06 in the Management Projections.

No company or transaction utilized in the precedent transactions analysis is identical to the Company or the merger. In evaluating the precedent transactions, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond our control. These include, among other things, the impact of competition on the Company’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company and the industry, and in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared. The fact that points in the range of implied present value per share of the Company derived from the valuation of precedent transactions were less than or greater than the consideration is not necessarily dispositive in connection with Morgan Stanley’s analysis of the consideration for the merger, but is one of many factors Morgan Stanley considered.

Preliminary Presentations by Morgan Stanley

In addition to its July 24, 2016 opinion and presentation to the special committee and the underlying financial analyses performed in relation thereto, Morgan Stanley also delivered preliminary presentation materials to the special committee on May 19, 2016, May 26, 2016, July 1, 2016, July 8, 2016, July 18, 2016 and July 20, 2016. The preliminary financial considerations and other information in such preliminary presentation materials were based on information and data that was available as of the dates of the respective presentations. Morgan Stanley also continued to refine various aspects of its financial analyses. Accordingly, the results and other information presented in such preliminary presentation materials differ slightly from the July 24, 2016 financial analyses.

The preliminary presentation materials referenced above were for discussion purposes only and did not present any findings or make any recommendations or constitute an opinion of Morgan Stanley with respect to the fairness of the merger consideration or otherwise. The preliminary presentation materials delivered by Morgan Stanley to the special committee contained substantially similar analyses as described above under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Summary of Financial Analyses ” on page [•]. The financial analyses performed by Morgan Stanley in relation to its opinion dated July 24, 2016 supersede all analyses and information presented in the preliminary presentation materials.

May 19, 2016 Preliminary Presentation Materials

The May 19, 2016 preliminary presentation materials contained a preliminary analysis of expected Company earnings in the Management Projections and in the Street Case, based on publicly available estimates of earnings prepared by equity research analysts available as of May 10, 2016. The preliminary analysis of expected Company earnings in the May 19, 2016 preliminary presentation materials indicated that expected net income per common share for 2016 was $2.06 in the Management Projections and that expected net income per common share for 2016 was $1.56 in the Street Case.

The May 19, 2016 preliminary presentation materials also contained a preliminary comparable company analysis utilizing the same methodology and same comparable company peer group as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Summary of Financial Analyses—Comparable Company Analysis ” on page [•], but utilizing for comparative purposes publicly available information, including publicly available estimates of earnings prepared by equity research analysts, as of May 17, 2016. The preliminary comparable company analysis in the May 19, 2016 preliminary presentation materials revealed a comparable company P/BV range of 0.94x to 3.13x and a comparable company 2016 P/E range of 8.6x to 27.9x.

May 26, 2016 Preliminary Presentation Materials

The May 26, 2016 preliminary presentation materials contained a situation overview including a summary of Parent’s initial proposal on March 7, 2016, indicating a per common share value of $30.00.

The May 26, 2016 preliminary presentation materials contained a preliminary historical trading range analysis utilizing the same methodology as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Summary of Financial Analyses—Historical Trading Range Analysis ” on page [•].

The May 26, 2016 preliminary presentation materials also contained a preliminary comparable company analysis of the Company utilizing the same methodology and same comparable company peer group as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Summary of Financial Analyses—Comparable Company Analysis ” on page [•], but utilizing for comparative purposes publicly available information, including publicly available estimates of earnings prepared by equity research analysts, as of May 20, 2016. The preliminary comparable company analysis in the May 26, 2016 preliminary presentation materials revealed a comparable company P/BV range of 0.90x to 3.27x, which Morgan Stanley used to apply a P/BV range of 1.00x to 1.40x to the Company’s book value per common share of $18.46 as of March 31, 2016, which resulted in an implied per common share equity value range of $18.46 to $25.84 (as compared to the closing price of the common shares of $22.61 on March 4, 2016, the volume weighted average stock price per common share for the three month period ending on March 4, 2016 of $24.97, and Parent’s initial proposed price per common share of $30.00). The preliminary comparable company analysis in the May 26, 2016 preliminary presentation materials also revealed a comparable company 2016 P/E range of 8.9x to 28.2x, which Morgan Stanley used to apply a 2016 P/E range of 10.0x to 15.0x. This resulted in an implied per share equity value range of the Company of $15.75 to $23.63, based on estimated net income per common share of $1.58 in the Street Case, and an implied per share equity value range of the Company of $20.59 to $30.88, based on estimated net income per common share of $2.06 in the Management Projections (as compared to the closing price of the common shares of $22.61 on March 4, 2016, the volume weighted average stock price per common share for the three month period ending on March 4, 2016 of $24.97, and Parent’s initial proposed price per common share of $30.00).

The May 26, 2016 preliminary presentation materials also contained a preliminary dividend discount analysis of the Company utilizing the same methodology as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Summary of Financial Analyses—Dividend Discount Analysis ” on page [•], but utilizing a cost of equity of 6.7% to 8.7%. The preliminary dividend discount analysis in the May 26, 2016 preliminary presentation materials indicated an implied per common share equity value range of $25.00 to $33.00 (as compared to the closing price per common share of $22.61 on March 4, 2016, the volume weighted average stock price per common share for the three month period ending on March 4, 2016 of $24.97, and Parent’s initial proposed price per common share of $30.00).

The May 26, 2016 preliminary presentation materials also contained a preliminary premiums paid analysis utilizing the same methodology and same group of precedent transactions as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Summary of Financial Analyses—Premiums Paid Analysis ” on page [•].

The May 26, 2016 preliminary presentation materials also contained a preliminary precedent transactions analysis utilizing the same methodology and same group of precedent transactions as described as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Summary of Financial Analyses—Precedent Transactions ” on page [•].

July 1, 2016 Preliminary Presentation Materials

The July 1, 2016 preliminary presentation materials contained an updated situation overview including a summary of Parent’s revised proposal of June 24, 2016, indicating a per common share value of $30.75. The July 1, 2016 preliminary presentation materials indicated that based on the Company’s book value per common share of $18.46 as of March 31, 2016, the revised price of $30.75 per common share implied a P/BV of 1.67x (as compared to a P/BV of 1.63x based on Parent’s initial proposal of $30.00 per common share).

The July 1, 2016 preliminary presentation materials also indicated that based on publicly available information, including publicly available estimates of earnings prepared by equity research analysts, as of July 1, 2016, the revised price of $30.75 per common share implied a 2016 P/E of 19.5x based on estimated earnings per common share of $1.58 in the Street Case, and an implied 2016 P/E of 14.9x, based on estimated net income per common share of $2.06 in the Management Projections.

July 8, 2016 Preliminary Presentation Materials

The July 8, 2016 preliminary presentation materials contained an updated situation overview including a summary of Parent’s further revised proposal of July 6, 2016, indicating a per common share value of $32.00. The July 8, 2016 preliminary presentation materials indicated that based on the Company’s book value per common share of $18.46 as of March 31, 2016, Parent’s further revised proposal of $32.00 per common share implied a P/BV of 1.73x (as compared to a P/BV of 1.67x based on Parent’s revised proposal of $30.75 per common share and a P/BV of 1.63x based on Parent’s initial proposal of $30.00 per common share).

The July 8, 2016 preliminary presentation materials also indicated that the revised price of $32.00 per common share implied a 2016 P/E of 20.6 x based on estimated net income per common share of $1.56 in the Street Case based on publicly available estimates of earnings, prepared by equity research analysts, available as of July 8, 2016, and an implied 2016 P/E of 15.5x, based on estimated net income per common share of $2.06 in the Management Projections.

The July 8, 2016 preliminary presentation materials also indicated that, based on publicly available information as of July 6, 2016, the revised price of $32.00 per common share represented a premium of 42% based on the closing price per common share on March 4, 2016 of $22.61, a 28% premium based on the volume weighted average price per common share for the three month period ending March 4, 2016 of $24.97, a premium of 10% based on the maximum price per common share for the 52-week period ending March 4, 2016 of $28.98, and a premium of 6% based on the closing price per common share on July 6, 2016 of $30.12.

July 18, 2016 Preliminary Presentation Materials

The July 18, 2016 preliminary presentation materials contained an update on the Company’s year-to-date financial results through May 2016 relative to the Management Projections for the same time period.

July 20, 2016 Preliminary Presentation Materials

The July 20, 2016 preliminary presentation materials contained an update on the Company’s year-to-date financial results through May 2016 relative to the Management Projections for the same time period, which

was identical to the interim financial results described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Preliminary Presentations by Morgan Stanley—July 18, 2016 Preliminary Presentation Materials ” on page [•]. The July 20, 2016 preliminary presentation materials also contained the same P/BV and 2016 P/E analyses as described under “ Special Factors—Opinion of Morgan Stanley & Co. LLC—Preliminary Presentations by Morgan Stanley—July 8, 2016 Preliminary Presentation Materials ” on page [•], but utilizing for comparative purposes estimated earnings of $1.58 per common share in the Street Case based on publicly available estimates of earnings, prepared by equity research analysts available as of July 20, 2016, and also utilizing for comparative purposes the closing price per common share on July 15, 2016 of $30.71, based on publicly available information.

General

In connection with the review of the merger by the special committee, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the Company. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond the Company’s control. These include, among other things, the impact of competition on the Company’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company and the industry, and in the financial markets in general. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the consideration to be received by holders of common shares (other than common shares (a) held by Parent or Merger Sub, (b) held by the Company in treasury or any wholly-owned subsidiary of the Company, or (c) held by holders of common shares who have properly demanded dissenters’ rights, as described more fully under “ The Merger Agreement—Effect of the Merger on the Common Shares of the Company and Merger Sub ” on page [•]) in connection with the merger and in connection with the delivery of its opinion to the special committee. These analyses do not purport to be appraisals or to reflect the prices at which the common shares might actually trade. The consideration to be paid by Parent pursuant to the merger agreement was determined through negotiations on an arms-length basis under Ohio law between the special committee and Parent and was approved by the Board of Directors. Morgan Stanley provided advice to the special committee during these negotiations but did not, however, recommend any specific consideration to the special committee, nor did Morgan Stanley opine that any specific consideration to be received by shareholders constituted the only appropriate consideration for the merger. Morgan Stanley’s opinion and its presentation to the special committee was one of many factors taken into consideration by the special committee in deciding to approve the merger agreement and the transactions contemplated thereby. Consequently, the analyses as described above should not be viewed as determinative of the recommendation of the special committee with respect to the consideration to be received by shareholders pursuant to the merger agreement or of whether the special committee would have been willing to agree to a different form or amount of consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley’s customary practice.

Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation to any shareholder of the Company as to how to vote at the Company special meeting to be held in connection with the merger or whether to take any other action with respect to the merger. Morgan Stanley’s opinion did not address the relative merits of the merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available.

The special committee retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading and prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley and its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions and finance positions and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Company, Parent and their respective affiliates, or any other company, or any currency or commodity, that may be involved in the merger, or any related derivative instrument.

Under the terms of its engagement letter, Morgan Stanley provided the special committee with financial advisory services and a fairness opinion, described in this section and attached to this proxy statement as Annex A-3, in connection with the merger, and the Company has agreed to pay Morgan Stanley a fee of $4 million for its services, $1 million of which is contingent upon the closing of the merger, $1.5 million of which was payable upon rendering its opinion and $1.5 million of which was payable upon execution of the engagement letter. The Company has also agreed to reimburse Morgan Stanley for its reasonable and documented expenses, including reasonable fees of outside counsel and other professional advisors, incurred in connection with its engagement, up to an amount equal to $125,000. In addition, the Company has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the U.S. federal securities laws, relating to or arising out of Morgan Stanley’s engagement.

In the two years prior to the date of its opinion, Morgan Stanley or its affiliates have not been engaged in financial advisory or financing assignments for the Company, Parent or their respective affiliates. Morgan Stanley and its affiliates may seek to provide financial advisory and financing services to the Company, Parent and their affiliates in the future and would expect to receive fees for the rendering of these services.

Purposes and Reasons of Parent and Merger Sub for the Merger

Under the SEC rules governing “going-private” transactions, each of Parent and Merger Sub is required to express its purposes and reasons for the merger to the Public Shareholders of the Company, as defined in Rule 13e-3 of the Exchange Act. Parent and Merger Sub are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

AFG and Parent decided to pursue the merger because after careful consideration they concluded that the best available and most attractive investment for AFG’s excess capital at this time is the merger. AFG and Parent believe that the Company can be operated more effectively as a privately held company for a number of reasons, including AFG and Parent’s belief that:

would be simplified if the merger is consummated in that it would no longer be owned, in part, by the Public Shareholders but instead would be owned 100% by AFG and Parent;

Position of AFG, Parent and Merger Sub as to Fairness of the Merger

Under the SEC rules governing “going-private” transactions, AFG, Parent and Merger Sub are affiliates of the Company and, therefore, are required to express their beliefs as to the substantive and procedural fairness of the merger to the Public Shareholders of the Company. AFG, Parent and Merger Sub are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

As described below, AFG, Parent and Merger Sub believe that the merger is fair to the Public Shareholders of the Company on the basis of (i) the factors described in the “ Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger ” section beginning on page [•], which factors AFG, Parent and Merger Sub agree with and adopt, and (ii) the additional factors described below. In this section, when we refer to the “Board of Directors” and the “Board,” we are referring to the members of the Company’s Board of Directors other than the Affiliated Directors (who recused themselves from the Board’s determinations regarding the merger).

None of AFG, Parent or Merger Sub participated in the deliberations of the special committee or the vote of the Board of Directors regarding, or received advice from the Company’s legal advisor or the special committee’s legal or financial advisors as to, the fairness of the merger. As described in the “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” section beginning on page [•], AFG, Parent and Merger Sub have interests in the merger different from those of the Public Shareholders by virtue of the fact that, as a result of the merger, the Company will become a wholly owned subsidiary of each of AFG and Parent.

The interests of the Public Shareholders were represented by the special committee, which negotiated the terms and conditions of the Merger Agreement with the assistance of the special committee’s legal and financial advisors. None of AFG, Parent or Merger Sub have performed, or engaged a financial advisor to perform, any valuation or other analysis for the purpose of assessing the fairness of the merger to the Public Shareholders. AFG and Parent also did not engage a financial advisor in connection with negotiating the terms of the merger.

Based on AFG’s, Parent’s and Merger Sub’s knowledge and analysis of available information regarding the Company, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and the analysis and resulting conclusions of, the Board and the special committee described in the “ Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger ” section beginning on page [•], AFG, Parent and Merger Sub believe that the merger is substantively fair to the Public Shareholders of the Company. In particular, AFG, Parent and Merger Sub considered the following:

AFG, Parent and Merger Sub did not consider the liquidation value of the Company because they considered the Company to be a viable, going concern and therefore did not consider liquidation value to be a relevant valuation method.

AFG, Parent and Merger Sub believe that the merger is procedurally fair to the Public Shareholders of the Company based upon the following:

While members of AFG and Parent are officers and directors of the Company, because of their participation in the transaction as described in the “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” section beginning on page [•], they did not serve on the special committee, nor did they participate in, or vote in connection with, the special committee’s evaluation or recommendation of the Merger Agreement and the merger or the Board’s approval of the Merger Agreement and the merger. For these reasons, AFG and Parent do not believe that their interests in the merger influenced the decision of the special committee or the Board with respect to the Merger Agreement or the merger.

The foregoing discussion of the information and factors considered and given weight by AFG, Parent and Merger Sub in connection with the fairness of the Merger Agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by them. AFG, Parent and Merger Sub did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Merger Agreement and the merger. Rather, each of AFG, Parent and Merger Sub made its fairness determination after considering all of the foregoing as a whole. AFG, Parent and Merger Sub believe these factors provide a reasonable basis upon which to form their belief that the merger is fair to the Public Shareholders of the Company. This belief should not, however, be construed as a recommendation to any shareholder to approve the merger or adopt the Merger Agreement. None of AFG, Parent or Merger Sub makes any recommendation as to how shareholders should vote their common shares relating to the merger.

Certain Effects of the Merger

If shareholders approve the proposal to adopt the Merger Agreement and the other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into the Company with the Company being the surviving corporation. If the merger is completed, all of our equity interests will be owned by Parent. Except for Parent, none of our current shareholders will have any ownership interest in, or be a shareholder of, the Company after the completion of the merger. As a result, our current shareholders (other than AFG, Purchasers and any shareholder who may also have an indirect ownership interest in Parent) will no longer benefit from any increase in our value, nor will they bear the risk of any decrease in our value. Following the merger, only Parent and AFG (and any shareholder who may also have an ownership interest in Parent) will benefit from any increase in our value and also will bear the risk of any decrease in our value.

Upon the consummation of the merger:

The Company does not expect to grant any equity awards under the existing Company equity plans following the closing of the merger.

Following the merger, all of the equity interests in the surviving corporation will be owned by Parent. If the merger is completed, AFG and Parent will be the sole beneficiaries of our future earnings and growth, if any, and will be entitled to vote on corporate matters affecting the Company following the merger. Similarly, AFG and Parent will also bear the risks of ongoing operations, including the risks of any decrease in our value after the merger.

If the merger is completed, the Public Shareholders will have no interest in the Company’s net book value or net earnings. The primary benefit of the merger to the Public Shareholders is the right to receive the merger consideration and the $0.50 per share special dividend. The primary detriments to the Public Shareholders include the lack of any interest that such shareholders will hold in the Company’s potential future earnings, growth or value following the completion of the merger. Additionally, the receipt of cash in exchange for common shares pursuant to the merger will generally be a taxable sale transaction for U.S. federal income tax purposes to shareholders who surrender their common shares in the merger.

In connection with the merger, certain members of the Company’s management will receive benefits and be subject to obligations that are different from, or in addition to, the benefits and obligations of the Company’s shareholders generally, as described in more detail under “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” beginning on page [•]. Those incremental benefits are expected to include, among other benefits, certain executive officers continuing as executive officers of the surviving corporation.

The common shares are currently registered under the Exchange Act and are quoted on NASDAQ under the symbol “NATL.” As a result of the merger, the Company will be a privately held corporation and there will be no public market for its shares. After the merger, the common shares will cease to be quoted on NASDAQ and price quotations with respect to sales of common shares in the public market will no longer be available. In addition, registration of the common shares under the Exchange Act will be terminated.

At the effective time of the merger, the articles of incorporation and code of regulations of the Company will be amended and restated to be in the form of (except with respect to the name of the Company) the articles of incorporation and code of regulations of Merger Sub and, as so amended, will be the articles of incorporation and code of regulations of the Company following the merger until thereafter amended in accordance with their respective terms and Ohio law.

Parent anticipates that the Company’s executive officers as of the effective time of the merger will continue as the initial executive officers of the Company following the merger.