American Financial Group Inc. is nurturing a start-up company that sells solutions to the millennium 2000 computer problem. Millennium Dynamics Inc. grew out of the information systems division of Great American Insurance Co. about two years ago, Carl H. Lindner, chairman of AFG, said Thursday at the corporation's annual meeting.

The fledgling firm with 125 employees and 60 client companies posted first-quarter revenue of $3 million, more business than it did in all of 1996, he said. Clients include Blue Cross-Blue Shield of Tennessee and Aramco.

Mr. Lindner held up the latest issue of Newsweek, which did a sky-is-falling cover story on the 2000 computer bug topic, and said, "This is great advertising for us."

The problem stems from an early programming shortcut of dropping the first two digits of the year on computer clocks. So when 1999, read by the computer as 99, turns to 2000, the computer will read two zeros.

Fears are the digital dilemma will scroll back corporate and government records to the year 1900, wiping out massive amounts of data.

Carl H. Lindner III, a co-president of AFG with his brothers, Keith and Craig Lindner, conceded that the problem might be overstated. "It's hard to say how much of this is fluff or reality. I suspect the answer is somewhere in between," he said.

Millennium Dynamics licenses its Vantage YR2000 conversion tool set through its own sales force and independent distributors. One shareholder noted that several technology companies with solutions to the 2000 problem have gone public and are trading at significant market premiums. He asked whether Millennium would go public. Mr. Lindner the chairman replied: "We're thinking about that."

In other remarks, Mr. Lindner noted that 1996 was AFG's first year to post actual operating figures compared with the pro-forma numbers used after the merger that made it publicly traded.

Despite a competitive insurance market that has nicked premiums, AFG earned $262 million from continuing operations in 1996 compared with $190 million in 1995.

AFG - as the successor to American Financial Corp., once a heavily leveraged company - reduced debt last year by $300 million. Combined with 1995 debt reductions, AFG has eliminated close to $1 billion in debt from its balance sheet. As a result, rating agencies have raised the senior debt of the Lindner companies to investment-grade status.

AFG shares posted a total return of 27 percent in 1996, which beat an S&P midcap stock index and a property insurance index. Mr. Lindner said AFG is creating value for shareholders, but "the market is not giving this great company the credit it deserves. "I think it just takes some time to get out and tell our story." Mr. Lindner was somber when he recalled top aide Ronald Walker, who died recently of a cerebral hemorrhage. "I regret my friend Ron Walker isn't here with us today," the 77-year-old white-haired patriarch said, stopping momentarily to collect himself.

"He unselfishly worked with me on training my three sons from high school on. They have worked hard, and they have worked smart."