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Acquisitions and Sale of Businesses | 6 Months Ended
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Jun. 30, 2015
Business Combinations [Abstract] |
Acquisitions and Sale of Businesses | Acquisitions and Sale of Businesses Acquisition of Summit Holding Southeast, Inc. On April 1, 2014, AFG acquired Summit Holding Southeast, Inc. and its related companies (“Summit”), from Liberty Mutual Insurance for $259 million using cash on hand at the parent company. Immediately following the acquisition, AFG made a capital contribution of $140 million, bringing its total capital investment in the Summit business to $399 million. Summit, which is based in Lakeland, Florida and is a leading provider of specialty workers’ compensation solutions in the southeastern United States, generated $539 million in net written premiums in 2014, including $410 million after the acquisition date. Summit continues to operate under the Summit brand as a member of AFG’s Great American Insurance Group. Summit is included in the Specialty casualty sub-segment and generated $129 million and $258 million in net earned premiums and $7 million and $12 million in underwriting profit in the second quarter and first six months of 2015, respectively. Expenses related to the acquisition were less than $1 million and were expensed as incurred. The purchase price was allocated to the acquired assets and liabilities of Summit based on management’s best estimate of fair value as of the acquisition date. The allocation of the purchase price is shown in the table below (in millions):
Total purchase price |  |  | $ | 259 |
Tangible assets acquired: |  |  |
Cash and cash equivalents | $ | 1,078 |  |  |
Fixed maturities, available for sale | 92 |  |  |
Recoverables from reinsurers | 116 |  |  |
Agents’ balances and premiums receivable | 41 |  |  |
Deferred tax assets, net (a) | 67 |  |  |
Other receivables | 21 |  |  |
Other assets | 11 |  |  |
Total tangible assets acquired |  |  | 1,426 |
Liabilities acquired: |  |  |
Unpaid losses and loss adjustment expenses | 1,142 |  |  |
Unearned premiums | 3 |  |  |
Payable to reinsurers | 3 |  |  |
Other liabilities | 66 |  |  |
Total liabilities acquired |  |  | 1,214 |
Net tangible assets acquired, at fair value |  |  | 212 |
Excess purchase price over net tangible assets acquired |  |  | $ | 47 |
Allocation of excess purchase price: |  |  |
Intangible assets acquired (b) |  |  | $ | 47 |
Deferred tax on intangible assets acquired (a) |  |  | (16 | )
Goodwill |  |  | 16 |
|  |  | $ | 47 |
(a) | Included with AFG’s net deferred tax liabilities, which are included in Other liabilities in AFG’s Consolidated Balance Sheet.
(b) | Included in Other assets in AFG’s Consolidated Balance Sheet.
Acquisition of Renewal Rights On March 27, 2014, AFG completed a renewal rights agreement with Selective Insurance Company of America to acquire Selective’s pooled public entity book of business for $8 million. At the acquisition date, this book of business had approximately $38 million in in-force gross written premiums. The acquired business generated $33 million of gross written premiums and $23 million of net written premiums in 2014. Sale of Long-term Care Business AFG ceased new sales of long-term care insurance, which is included in the run-off long-term care and life segment, in January 2010. AFG has continued to service and accept renewal premiums on its outstanding policies, which are guaranteed renewable. On April 13, 2015, AFG reached an agreement to sell all of its run-off long-term care insurance business to HC2 Holdings, Inc. (“HC2”) for an initial payment of $7 million in cash and HC2 securities (subject to adjustment based on certain items, including operating results through the closing date). AFG may also receive up to $13 million of additional proceeds from HC2 in the future based on the release of certain statutory liabilities of the legal entities sold by AFG. The legal entities involved in the transaction, United Teacher Associates Insurance Company and Continental General Insurance Company, contain all of AFG’s long-term care insurance reserves, as well as smaller blocks of annuity and life insurance business. The transaction is expected to close in the second half of 2015, subject to customary conditions, including receipt of required regulatory approvals. Including the significant tax benefit from the sale, AFG expects to receive after-tax proceeds of between $105 million and $115 million from the transaction (based on final proceeds received and final net assets at closing), excluding any potential additional proceeds from the release of statutory liabilities. Based on the status of ongoing negotiations at the end of the first quarter, management determined that the potential sale of the run-off long-term care business met the GAAP “held for sale” criteria as of March 31, 2015. Accordingly, AFG recorded a loss in the first quarter of 2015 to establish a liability (included in other liabilities in AFG’s Balance Sheet) equal to the excess of the net carrying value of the assets and liabilities to be disposed over the estimated net sale proceeds. The loss may be adjusted at the closing date based on the final proceeds received and final net assets disposed. At March 31, 2015, and June 30, 2015, the carrying value of the assets and liabilities to be disposed represented approximately 4% of both AFG’s assets and liabilities and are detailed in the table below. Under accounting guidance effective on January 1, 2015, only disposals of components of an entity that represent a strategic shift and that have a major effect on a reporting entity’s operations and financial results are reported as discontinued operations. Due to the run-off nature of the business and the immaterial expected impact on AFG’s results of operations, the pending sale of AFG’s long-term care insurance business has not been reported as a discontinued operation. The estimated impact of the pending sale of the run-off long-term care insurance business, which was recorded in AFG’s financial statements as of March 31, 2015, is shown below (in millions):
Estimated sale proceeds (*) | $ | 14 |
Assets of businesses sold: |
Cash and investments | $ | 1,397 |
Recoverables from reinsurers | 603 |
Deferred policy acquisition costs | 15 |
Other receivables | 14 |
Other assets | 7 |
Goodwill | 2 |
Total assets | 2,038 |
Liabilities of businesses sold: |
Annuity benefits accumulated | 270 |
Life, accident and health reserves | 1,537 |
Other liabilities | 27 |
Total liabilities | 1,834 |
Reclassify net unrealized gain on marketable securities | 28 |
Net assets of businesses sold | $ | 176 |
Pretax loss on subsidiaries recorded in the first quarter of 2015 | $ | (162 | )
(*) | Includes fair value of the potential additional consideration and is shown net of estimated expenses.
Revenues, costs and expenses, and earnings before income taxes for the subsidiaries to be sold were (in millions):
| Three months ended June 30, |  | Six months ended June 30,
| 2015 |  | 2014 |  | 2015 |  | 2014
Life, accident and health net earned premiums: |  |  |  |  |  |  |
Long-term care | $ | 20 |  |  | $ | 19 |  |  | $ | 37 |  |  | $ | 38 |
Life operations | 2 |  |  | 2 |  |  | 5 |  |  | 5 |
Net investment income | 19 |  |  | 18 |  |  | 37 |  |  | 39 |
Realized gains (losses) on securities and other income | — |  |  | 1 |  |  | (2 | ) |  | 2 |
Total revenues | 41 |  |  | 40 |  |  | 77 |  |  | 84 |
Annuity benefits | 2 |  |  | 2 |  |  | 4 |  |  | 4 |
Life, accident and health benefits: |  |  |  |  |  |  |
Long-term care | 25 |  |  | 28 |  |  | 46 |  |  | 57 |
Life operations | 2 |  |  | 3 |  |  | 5 |  |  | 6 |
Annuity and supplemental insurance acquisition expenses | 3 |  |  | 4 |  |  | 6 |  |  | 7 |
Other expenses | 5 |  |  | 3 |  |  | 9 |  |  | 7 |
Total costs and expenses | 37 |  |  | 40 |  |  | 70 |  |  | 81 |
Earnings before income taxes | $ | 4 |  |  | $ | — |  |  | $ | 7 |  |  | $ | 3 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1497-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1490-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1392-128463 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1486-128463 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4845-128472 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1500-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1524-128463 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4922-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4934-128472 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4926-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1383-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 + Details
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