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Investments
 12 Months Ended
Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at December 31 consisted of the following (in millions): 
 
2017
 
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
$
244

 
$
1

 
$
(3
)
 
$
(2
)
 
$
242

 
$
315

 
$
3

 
$
(3
)
 
$
—

 
$
315

States, municipalities and political subdivisions
6,887

 
254

 
(18
)
 
236

 
7,123

 
6,650

 
200

 
(69
)
 
131

 
6,781

Foreign government
124

 
3

 
—

 
3

 
127

 
131

 
5

 
—

 
5

 
136

Residential MBS
2,884

 
349

 
(6
)
 
343

 
3,227

 
3,367

 
281

 
(13
)
 
268

 
3,635

Commercial MBS
927

 
36

 
(1
)
 
35

 
962

 
1,446

 
49

 
(2
)
 
47

 
1,493

Asset-backed securities
7,836

 
142

 
(16
)
 
126

 
7,962

 
5,962

 
43

 
(46
)
 
(3
)
 
5,959

Corporate and other
18,136

 
638

 
(38
)
 
600

 
18,736

 
15,864

 
473

 
(112
)
 
361

 
16,225

Total fixed maturities
$
37,038

 
$
1,423

 
$
(82
)
 
$
1,341

 
$
38,379

 
$
33,735

 
$
1,054

 
$
(245
)
 
$
809

 
$
34,544

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
786

 
$
263

 
$
(22
)
 
$
241

 
$
1,027

 
$
879

 
$
160

 
$
(23
)
 
$
137

 
$
1,016

Perpetual preferred stocks
535

 
39

 
(1
)
 
38

 
573

 
472

 
21

 
(7
)
 
14

 
486

Total equity securities
$
1,321

 
$
302

 
$
(23
)
 
$
279

 
$
1,600

 
$
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 December 31, 2017 and December 31, 2016, respectively, were $158 million and $189 million. Gross unrealized gains on such securities at December 31, 2017 and December 31, 2016 were $137 million and $130 million, respectively. Gross unrealized losses on such securities at December 31, 2017 and December 31, 2016 were $4 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 primarily to residential MBS.
The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2017 and 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
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
55

 
100
%
 
$
(3
)
 
$
123

 
98
%
 
States, municipalities and political subdivisions
(8
)
 
825

 
99
%
 
(10
)
 
431

 
98
%
 
Foreign government
—

 
4

 
100
%
 
—

 
—

 
—
%
 
Residential MBS
(1
)
 
118

 
99
%
 
(5
)
 
118

 
96
%
 
Commercial MBS
(1
)
 
67

 
99
%
 
—

 
—

 
—
%
 
Asset-backed securities
(7
)
 
1,195

 
99
%
 
(9
)
 
299

 
97
%
 
Corporate and other
(20
)
 
2,031

 
99
%
 
(18
)
 
603

 
97
%
 
Total fixed maturities
$
(37
)
 
$
4,295

 
99
%
 
$
(45
)
 
$
1,574

 
97
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(22
)
 
$
117

 
84
%
 
$
—

 
$
—

 
—
%
 
Perpetual preferred stocks
—

 
41

 
100
%
 
(1
)
 
13

 
93
%
 
Total equity securities
$
(22
)
 
$
158

 
88
%
 
$
(1
)
 
$
13

 
93
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 December 31, 2017, the gross unrealized losses on fixed maturities of $82 million relate to 841 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 78% of the gross unrealized loss and 90% of the fair value.

The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. Factors considered and resources used by management include:

a)
whether the unrealized loss is credit-driven or a result of changes in market interest rates,
b)
the extent to which fair value is less than cost basis,
c)
cash flow projections received from independent sources,
d)
historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases,
e)
near-term prospects for improvement in the issuer and/or its industry,
f)
third party research and communications with industry specialists,
g)
financial models and forecasts,
h)
the continuity of dividend payments, maintenance of investment grade ratings and hybrid nature of certain investments,
i)
discussions with issuer management, and
j)
ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery in 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. During 2017, AFG recorded $1 million in other-than-temporary impairment charges related to its residential MBS.

In 2017, AFG recorded approximately $19 million and $4 million in other-than-temporary impairment charges related to other fixed maturities (other than residential MBS securities) and other investments, respectively.

AFG recorded $55 million in other-than-temporary impairment charges on common stocks in 2017. At December 31, 2017, the gross unrealized losses on common stocks of $22 million relate to 16 securities, none of which has been in an unrealized loss position for more than 12 months.

AFG recorded $9 million in other-than-temporary impairment charges on preferred stock in 2017. At December 31, 2017, the gross unrealized losses on preferred stocks of $1 million relate to 7 securities. Three preferred stocks have been in an unrealized loss position for 12 months or more and all are investment grade rated.

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 December 31, 2017. As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities currently classified as “available for sale” will be required to be carried at fair value through net earnings instead of accumulated other comprehensive income and will therefore no longer be evaluated for other-than-temporary impairment.

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
 
2015
Balance at January 1
$
153

 
$
160

 
$
170

Additional credit impairments on:
 
 
 
 
 
Previously impaired securities
1

 
2

 
1

Securities without prior impairments
3

 
1

 
2

Reductions due to:
 
 
 
 
 
Sales or redemptions
(12
)
 
(10
)
 
(9
)
Sale of subsidiaries
—

 
—

 
(4
)
Balance at December 31
$
145

 
$
153

 
$
160



The table below sets forth the scheduled maturities of available for sale fixed maturities as of December 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
$
746

 
$
759

 
2
%
After one year through five years
6,730

 
6,939

 
18
%
After five years through ten years
13,235

 
13,662

 
35
%
After ten years
4,680

 
4,868

 
13
%
 
25,391

 
26,228

 
68
%
ABS (average life of approximately 5 years)
7,836

 
7,962

 
21
%
MBS (average life of approximately 4.5 years)
3,811

 
4,189

 
11
%
Total
$
37,038

 
$
38,379

 
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 December 31, 2017 or 2016.

Net Unrealized Gain on Marketable Securities   In addition to adjusting fixed maturity securities and equity 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
December 31, 2017
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (a)
$
1,082

 
$
(227
)
 
$
855

Fixed maturities — all other
259

 
(55
)
 
204

Total fixed maturities
1,341

 
(282
)
 
1,059

Equity securities (b)
279

 
(58
)
 
221

Total investments
1,620

 
(340
)
 
1,280

Deferred policy acquisition costs — annuity segment
(433
)
 
91

 
(342
)
Annuity benefits accumulated
(137
)
 
29

 
(108
)
Unearned revenue
13

 
(3
)
 
10

Total net unrealized gain on marketable securities
$
1,063

 
$
(223
)
 
$
840

 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (a)
$
640

 
$
(224
)
 
$
416

Fixed maturities — all other
169

 
(59
)
 
110

Total fixed maturities
809

 
(283
)
 
526

Equity securities (b)
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



(a)
Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.
(b)
As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities currently classified as “available for sale” will be required to be carried at fair value through net earnings instead of AOCI.

Real Estate and Other Investments Real estate and other investments on AFG’s Balance Sheet includes the following at December 31 (in millions):
 
2017
 
2016
Limited partnerships and similar investments accounted for using the equity method
$
999

 
$
688

Directly owned real estate
164

 
197

Other investments
148

 
149

Total real estate and other investments
$
1,311

 
$
1,034



Net Investment Income   The following table shows (in millions) investment income earned and investment expenses incurred.
 
2017
 
2016
 
2015
Investment income:
 
 
 
 
 
Fixed maturities
$
1,607

 
$
1,510

 
$
1,461

Equity securities
79

 
81

 
76

Equity in earnings of partnerships and similar investments
64

 
44

 
27

Other
102

 
81

 
87

Gross investment income
1,852

 
1,716

 
1,651

Investment expenses
(21
)
 
(20
)
 
(18
)
Net investment income
$
1,831

 
$
1,696

 
$
1,633



Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):

 
2017
 
2016
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
17

 
$
(20
)
 
$
(3
)
 
$
532

 
$
36

 
$
(38
)
 
$
(2
)
 
$
90

Equity securities
70

 
(64
)
 
6

 
128

 
106

 
(93
)
 
13

 
67

Mortgage loans and other investments
(6
)
 
(4
)
 
(10
)
 
—

 
—

 
—

 
—

 
—

Other (*)
(3
)
 
15

 
12

 
(219
)
 
(7
)
 
15

 
8

 
(52
)
Total pretax
78

 
(73
)
 
5

 
441

 
135

 
(116
)
 
19

 
105

Tax effects
(27
)
 
25

 
(2
)
 
(5
)
 
(48
)
 
41

 
(7
)
 
(37
)
Noncontrolling interests
—

 
—

 
—

 
—

 
(2
)
 
3

 
1

 
4

Net of tax and noncontrolling interests
$
51

 
$
(48
)
 
$
3

 
$
436

 
$
85

 
$
(72
)
 
$
13

 
$
72


 
 
 
2015
 
 
 
 
 
Realized gains (losses)
 
 
 
 
 
 
 
 
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
 
 
 
 
 
 
 
 
$
19

 
$
(43
)
 
$
(24
)
 
$
(941
)
Equity securities
 
 
 
 
 
 
 
 
94

 
(94
)
 
—

 
(134
)
Mortgage loans and other investments
 
 
 
 
 
 
 
 
(2
)
 
(3
)
 
(5
)
 
—

Other (*)
 
 
 
 
 
 
 
 
(5
)
 
15

 
10

 
430

Total pretax
 
 
 
 
 
 
 
 
106

 
(125
)
 
(19
)
 
(645
)
Tax effects
 
 
 
 
 
 
 
 
(38
)
 
45

 
7

 
226

Noncontrolling interests
 
 
 
 
 
 
 
 
(2
)
 
2

 
—

 
8

Net of tax and noncontrolling interests
 
 
 
 
 
 
 
 
$
66

 
$
(78
)
 
$
(12
)
 
$
(411
)

(*)
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 consisted of the following (in millions):
 
2017
 
2016
 
2015
Fixed maturities:
 
 
 
 
 
Gross gains
$
43

 
$
55

 
$
38

Gross losses
(20
)
 
(10
)
 
(7
)
Equity securities:
 
 
 
 
 
Gross gains
87

 
110

 
99

Gross losses
(17
)
 
(4
)
 
(5
)