UPDATE 1-American Financial Q3 core oper earnings tops market

* Q3 core net operating EPS $1.07 vs est $0.92

* Q3 EPS $1.09 vs $0.18 last yr

* Core earnings outlook raised to $4.05-$4.25/shr for 2009

* Sees 2010 core earnings at $3.10- $3.50/shr

* 2010 annual div increased to $0.55/shr from $0.52/shr

Oct 26 (Reuters) - American Financial Group Inc (AFG.N) posted quarterly core operating earnings above market expectations, helped by a 22 percent drop in expenses, and raised its 2009 core earnings outlook.

The Cincinnati, Ohio- based property and casualty specialty insurer increased its core earnings outlook for 2009 to between $4.05 and $4.25 per share, up from its prior view of $3.80 to $4.10 per share.

It expects core earnings in 2010 to be in the range of $3.10 to $3.50 per share.

The 2010 earnings guidance is lower than that for 2009 due to the level of reserve development recorded in 2009, profitability in crop operations in 2009 and a continued soft market and lower investment returns expected in 2010, American Financial said in a statement.