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Investments | 3 Months Ended
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Mar. 31, 2017
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments Available for sale fixed maturities and equity securities at March 31, 2017 and December 31, 2016, consisted of the following (in millions):
| March 31, 2017 |  | December 31, 2016
Amortized Cost |  | Gross Unrealized |  | Net Unrealized |  | Fair Value |  | Amortized Cost |  | Gross Unrealized |  | Net Unrealized |  | Fair Value
Gains |  | Losses |  | Gains |  | Losses
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | 289 |  |  | $ | 2 |  |  | $ | (3 | ) |  | $ | (1 | ) |  | $ | 288 |  |  | $ | 315 |  |  | $ | 3 |  |  | $ | (3 | ) |  | $ | — |  |  | $ | 315 |
States, municipalities and political subdivisions | 6,736 |  |  | 213 |  |  | (48 | ) |  | 165 |  |  | 6,901 |  |  | 6,650 |  |  | 200 |  |  | (69 | ) |  | 131 |  |  | 6,781 |
Foreign government | 133 |  |  | 5 |  |  | — |  |  | 5 |  |  | 138 |  |  | 131 |  |  | 5 |  |  | — |  |  | 5 |  |  | 136 |
Residential MBS | 3,432 |  |  | 295 |  |  | (11 | ) |  | 284 |  |  | 3,716 |  |  | 3,367 |  |  | 281 |  |  | (13 | ) |  | 268 |  |  | 3,635 |
Commercial MBS | 1,211 |  |  | 43 |  |  | (1 | ) |  | 42 |  |  | 1,253 |  |  | 1,446 |  |  | 49 |  |  | (2 | ) |  | 47 |  |  | 1,493 |
Asset-backed securities | 6,548 |  |  | 74 |  |  | (30 | ) |  | 44 |  |  | 6,592 |  |  | 5,962 |  |  | 43 |  |  | (46 | ) |  | (3 | ) |  | 5,959 |
Corporate and other | 17,096 |  |  | 544 |  |  | (72 | ) |  | 472 |  |  | 17,568 |  |  | 15,864 |  |  | 473 |  |  | (112 | ) |  | 361 |  |  | 16,225 |
Total fixed maturities | $ | 35,445 |  |  | $ | 1,176 |  |  | $ | (165 | ) |  | $ | 1,011 |  |  | $ | 36,456 |  |  | $ | 33,735 |  |  | $ | 1,054 |  |  | $ | (245 | ) |  | $ | 809 |  |  | $ | 34,544 |
Equity Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stocks | $ | 884 |  |  | $ | 216 |  |  | $ | (21 | ) |  | $ | 195 |  |  | $ | 1,079 |  |  | $ | 879 |  |  | $ | 160 |  |  | $ | (23 | ) |  | $ | 137 |  |  | $ | 1,016 |
Perpetual preferred stocks | 472 |  |  | 31 |  |  | (3 | ) |  | 28 |  |  | 500 |  |  | 472 |  |  | 21 |  |  | (7 | ) |  | 14 |  |  | 486 |
Total equity securities | $ | 1,356 |  |  | $ | 247 |  |  | $ | (24 | ) |  | $ | 223 |  |  | $ | 1,579 |  |  | $ | 1,351 |  |  | $ | 181 |  |  | $ | (30 | ) |  | $ | 151 |  |  | $ | 1,502 |
The non-credit related portion of other-than-temporary impairment charges is included in other comprehensive income. Cumulative non-credit charges taken for securities still owned at March 31, 2017 and December 31, 2016, respectively, were $170 million and $189 million. Gross unrealized gains on such securities at March 31, 2017 and December 31, 2016 were $128 million and $130 million, respectively. Gross unrealized losses on such securities at March 31, 2017 and December 31, 2016 were $2 million and $3 million, respectively. These amounts represent the non-credit other-than-temporary impairment charges recorded in AOCI adjusted for subsequent changes in fair values and relate to residential MBS. The following tables show gross unrealized losses (dollars in millions) on fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2017 and December 31, 2016.
| Less Than Twelve Months |  | Twelve Months or More
Unrealized Loss |  | Fair Value |  | Fair Value as % of Cost |  | Unrealized Loss |  | Fair Value |  | Fair Value as % of Cost
March 31, 2017 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | (1 | ) |  | $ | 152 |  |  | 99 | % |  | $ | (2 | ) |  | $ | 8 |  |  | 80 | %
States, municipalities and political subdivisions | (44 | ) |  | 1,925 |  |  | 98 | % |  | (4 | ) |  | 37 |  |  | 90 | %
Foreign government | — |  |  | 4 |  |  | 100 | % |  | — |  |  | — |  |  | — | %
Residential MBS | (6 | ) |  | 455 |  |  | 99 | % |  | (5 | ) |  | 188 |  |  | 97 | %
Commercial MBS | (1 | ) |  | 71 |  |  | 99 | % |  | — |  |  | — |  |  | — | %
Asset-backed securities | (14 | ) |  | 1,313 |  |  | 99 | % |  | (16 | ) |  | 512 |  |  | 97 | %
Corporate and other | (57 | ) |  | 2,799 |  |  | 98 | % |  | (15 | ) |  | 298 |  |  | 95 | %
Total fixed maturities | $ | (123 | ) |  | $ | 6,719 |  |  | 98 | % |  | $ | (42 | ) |  | $ | 1,043 |  |  | 96 | %
Equity securities: |  |  |  |  |  |  |  |  |  |  |
Common stocks | $ | (21 | ) |  | $ | 138 |  |  | 87 | % |  | $ | — |  |  | $ | — |  |  | — | %
Perpetual preferred stocks | (2 | ) |  | 85 |  |  | 98 | % |  | (1 | ) |  | 6 |  |  | 86 | %
Total equity securities | $ | (23 | ) |  | $ | 223 |  |  | 91 | % |  | $ | (1 | ) |  | $ | 6 |  |  | 86 | %
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | (1 | ) |  | $ | 153 |  |  | 99 | % |  | $ | (2 | ) |  | $ | 8 |  |  | 80 | %
States, municipalities and political subdivisions | (64 | ) |  | 2,289 |  |  | 97 | % |  | (5 | ) |  | 44 |  |  | 90 | %
Residential MBS | (7 | ) |  | 502 |  |  | 99 | % |  | (6 | ) |  | 162 |  |  | 96 | %
Commercial MBS | (2 | ) |  | 121 |  |  | 98 | % |  | — |  |  | — |  |  | — | %
Asset-backed securities | (29 | ) |  | 1,737 |  |  | 98 | % |  | (17 | ) |  | 634 |  |  | 97 | %
Corporate and other | (93 | ) |  | 3,849 |  |  | 98 | % |  | (19 | ) |  | 312 |  |  | 94 | %
Total fixed maturities | $ | (196 | ) |  | $ | 8,651 |  |  | 98 | % |  | $ | (49 | ) |  | $ | 1,160 |  |  | 96 | %
Equity securities: |  |  |  |  |  |  |  |  |  |  |
Common stocks | $ | (23 | ) |  | $ | 215 |  |  | 90 | % |  | $ | — |  |  | $ | — |  |  | — | %
Perpetual preferred stocks | (6 | ) |  | 135 |  |  | 96 | % |  | (1 | ) |  | 6 |  |  | 86 | %
Total equity securities | $ | (29 | ) |  | $ | 350 |  |  | 92 | % |  | $ | (1 | ) |  | $ | 6 |  |  | 86 | %
At March 31, 2017, the gross unrealized losses on fixed maturities of $165 million relate to 1,048 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 84% of the gross unrealized loss and 89% of the fair value. AFG analyzes its MBS securities for other-than-temporary impairment each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan to collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data. In the first three months of 2017, AFG recorded less than $1 million in other-than-temporary impairment charges related to its residential MBS. In the first three months of 2017, AFG recorded less than $1 million in other-than-temporary impairment charges related to corporate bonds and other fixed maturities. AFG recorded $3 million in other-than-temporary impairment charges on common stocks in the first three months of 2017. At March 31, 2017, the gross unrealized losses on common stocks of $21 million relate to 17 securities, none of which has been in an unrealized loss position for more than 12 months. AFG recorded $6 million in other-than-temporary impairment charges on preferred stocks in the first three months of 2017. At March 31, 2017, the gross unrealized losses on preferred stocks of $3 million relate to 13 securities. The one preferred stock that has been in an unrealized loss position for 12 months or more is rated investment grade. Management believes AFG will recover its cost basis in the securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at March 31, 2017. A progression of the credit portion of other-than-temporary impairments on fixed maturity securities for which the non-credit portion of an impairment has been recognized in other comprehensive income is shown below (in millions):
| 2017 |  | 2016
Balance at January 1 | $ | 153 |  |  | $ | 160 |
Additional credit impairments on: |  |  |
Previously impaired securities | — |  |  | 2 |
Securities without prior impairments | — |  |  | — |
Reductions due to sales or redemptions | (7 | ) |  | (2 | )
Balance at March 31 | $ | 146 |  |  | $ | 160 |
The table below sets forth the scheduled maturities of available for sale fixed maturities as of March 31, 2017 (dollars in millions). Securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.
| Amortized |  | Fair Value
Cost |  | Amount |  | %
Maturity |  |  |  |  |
One year or less | $ | 1,038 |  |  | $ | 1,051 |  |  | 3 | %
After one year through five years | 6,034 |  |  | 6,300 |  |  | 17 | %
After five years through ten years | 12,717 |  |  | 12,990 |  |  | 36 | %
After ten years | 4,465 |  |  | 4,554 |  |  | 12 | %
| 24,254 |  |  | 24,895 |  |  | 68 | %
ABS (average life of approximately 5 years) | 6,548 |  |  | 6,592 |  |  | 18 | %
MBS (average life of approximately 4-1/2 years) | 4,643 |  |  | 4,969 |  |  | 14 | %
Total | $ | 35,445 |  |  | $ | 36,456 |  |  | 100 | %
Certain risks are inherent in fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates. There were no investments in individual issuers that exceeded 10% of shareholders’ equity at March 31, 2017 or December 31, 2016. Net Unrealized Gain on Marketable Securities In addition to adjusting equity securities and fixed maturity securities classified as “available for sale” to fair value, GAAP requires that deferred policy acquisition costs and certain other balance sheet amounts related to annuity, long-term care and life businesses be adjusted to the extent that unrealized gains and losses from securities would result in adjustments to those balances had the unrealized gains or losses actually been realized. The following table shows (in millions) the components of the net unrealized gain on securities that is included in AOCI in AFG’s Balance Sheet.
| Pretax |  | Deferred Tax |  | Net
March 31, 2017 |  |  |  |  |
Net unrealized gain on: |  |  |  |  |
Fixed maturities — annuity segment (*) | $ | 800 |  |  | $ | (280 | ) |  | $ | 520 |
Fixed maturities — all other | 211 |  |  | (74 | ) |  | 137 |
Total fixed maturities | 1,011 |  |  | (354 | ) |  | 657 |
Equity securities | 223 |  |  | (78 | ) |  | 145 |
Total investments | 1,234 |  |  | (432 | ) |  | 802 |
Deferred policy acquisition costs — annuity segment | (333 | ) |  | 117 |  |  | (216 | )
Annuity benefits accumulated | (103 | ) |  | 36 |  |  | (67 | )
Unearned revenue | 15 |  |  | (5 | ) |  | 10 |
Total net unrealized gain on marketable securities | $ | 813 |  |  | $ | (284 | ) |  | $ | 529 |
December 31, 2016 |  |  |  |  |
Net unrealized gain on: |  |  |  |  |
Fixed maturities — annuity segment (*) | $ | 640 |  |  | $ | (224 | ) |  | $ | 416 |
Fixed maturities — all other | 169 |  |  | (59 | ) |  | 110 |
Total fixed maturities | 809 |  |  | (283 | ) |  | 526 |
Equity securities | 151 |  |  | (53 | ) |  | 98 |
Total investments | 960 |  |  | (336 | ) |  | 624 |
Deferred policy acquisition costs — annuity segment | (273 | ) |  | 96 |  |  | (177 | )
Annuity benefits accumulated | (78 | ) |  | 27 |  |  | (51 | )
Unearned revenue | 13 |  |  | (5 | ) |  | 8 |
Total net unrealized gain on marketable securities | $ | 622 |  |  | $ | (218 | ) |  | $ | 404 |
(*) | Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.
Net Investment Income The following table shows (in millions) investment income earned and investment expenses incurred.
| Three months ended March 31,
| 2017 |  | 2016
Investment income: |  |  |
Fixed maturities | $ | 389 |  |  | $ | 367 |
Equity securities | 21 |  |  | 19 |
Equity in earnings of partnerships and similar investments | 10 |  |  | 11 |
Other | 20 |  |  | 19 |
Gross investment income | 440 |  |  | 416 |
Investment expenses | (5 | ) |  | (5 | )
Net investment income | $ | 435 |  |  | $ | 411 |
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):
| Three months ended March 31, 2017 |  | Three months ended March 31, 2016
| Realized gains (losses) |  |  |  | Realized gains (losses) |  |
| Before Impairments |  | Impairments |  | Total |  | Change in Unrealized |  | Before Impairments |  | Impairments |  | Total |  | Change in Unrealized
Fixed maturities | $ | 5 |  |  | $ | — |  |  | $ | 5 |  |  | $ | 202 |  |  | $ | 14 |  |  | $ | (16 | ) |  | $ | (2 | ) |  | $ | 453 |
Equity securities | 2 |  |  | (9 | ) |  | (7 | ) |  | 72 |  |  | 23 |  |  | (41 | ) |  | (18 | ) |  | (23 | )
Mortgage loans and other investments | 3 |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other (*) | (1 | ) |  | 3 |  |  | 2 |  |  | (83 | ) |  | (3 | ) |  | 5 |  |  | 2 |  |  | (220 | )
Total pretax | 9 |  |  | (6 | ) |  | 3 |  |  | 191 |  |  | 34 |  |  | (52 | ) |  | (18 | ) |  | 210 |
Tax effects | (3 | ) |  | 2 |  |  | (1 | ) |  | (66 | ) |  | (12 | ) |  | 19 |  |  | 7 |  |  | (74 | )
Noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 1 |  |  | (2 | )
Net of tax and noncontrolling interests | $ | 6 |  |  | $ | (4 | ) |  | $ | 2 |  |  | $ | 125 |  |  | $ | 22 |  |  | $ | (32 | ) |  | $ | (10 | ) |  | $ | 134 |
(*) | Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.
Gross realized gains and losses (excluding impairment write-downs and mark-to-market of derivatives) on available for sale fixed maturity and equity security investment transactions included in the statement of cash flows consisted of the following (in millions):
| Three months ended March 31,
2017 |  | 2016
Fixed maturities: |  |  |
Gross gains | $ | 5 |  |  | $ | 14 |
Gross losses | — |  |  | (1 | )
Equity securities: |  |  |
Gross gains | 4 |  |  | 25 |
Gross losses | (2 | ) |  | — |

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