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v3.19.3.a.u2

Insurance | 12 Months Ended
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Dec. 31, 2019
Insurance [Abstract] |
Insurance | Insurance Cash and securities owned by U.S.-based insurance subsidiaries, having a carrying value of approximately $1.04 billion at December 31, 2019, were on deposit as required by regulatory authorities. In addition, $217 million was on deposit in support of AFG’s underwriting activities at Lloyd’s. At December 31, 2019, AFG and its subsidiaries had $414 million in undrawn letters of credit (none of which was collateralized) and similar agreements supporting the underwriting capacity of its U.K.-based Lloyd’s insurer, Neon. Property and Casualty Insurance Reserves Estimating the liability for unpaid losses and loss adjustment expenses (“LAE”) is inherently judgmental and is influenced by factors that are subject to significant variation. Determining the liability is a complex process incorporating input from many areas of the Company including actuarial, underwriting, pricing, claims and operations management. The process used to determine the total reserve for liabilities involves estimating the ultimate incurred losses and LAE, adjusted for amounts already paid on the claims. The IBNR reserve is derived by first estimating the ultimate unpaid reserve liability and subtracting case reserves for loss and LAE. In determining management’s best estimate of the ultimate liability, management (with the assistance of Company actuaries) considers items such as the effect of inflation on medical, hospitalization, material, repair and replacement costs, the nature and maturity of lines of insurance, general economic trends and the legal environment. In addition, historical trends adjusted for changes in underwriting standards, policy provisions, product mix and other factors are analyzed using actuarial reserve development techniques. Weighing all of the factors, the management team determines a single or “point” estimate that it records as its best estimate of the ultimate liability. Ranges of loss reserves are not developed by Company actuaries. This reserve analysis and review is completed each quarter and for almost every business within AFG’s property and casualty insurance sub-segments. Each review includes in-depth analysis of several hundred subdivisions of the business, employing multiple actuarial techniques. For each subdivision, actuaries use informed, professional judgment to adjust these techniques as necessary to respond to specific conditions in the data or within the business. Some of the standard actuarial methods employed for the quarterly reserve analysis may include (but may not be limited to):
• | Case Incurred Development Method
• | Paid Development Method
• | Bornhuetter-Ferguson Method
• | Incremental Paid LAE to Paid Loss Methods
Management believes that each method has particular strengths and weaknesses and that no single estimation method is most accurate in all situations. When applied to a particular group of claims, the relative strengths and weaknesses of each method can change over time based on the facts and circumstances. Ultimately, the estimation methods chosen are those which management believes produce the most reliable indication for the particular liabilities under review. The period of time from the occurrence of a loss through the settlement of the liability is referred to as the “tail”. Generally, the same actuarial methods are considered for both short-tail and long-tail lines of business because most of them work properly for both. The methods are designed to incorporate the effects of the differing length of time to settle particular claims. For short-tail lines, management tends to give more weight to the Case Incurred and Paid Development methods, although the various methods tend to produce similar results. For long-tail lines, more judgment is involved, and more weight may be given to the Bornhuetter-Ferguson method. Liability claims for long-tail lines are more susceptible to litigation and can be significantly affected by changing contract interpretation and the legal environment. Therefore, the estimation of loss reserves for these classes is more complex and subject to a higher degree of variability. The level of detail in which data is analyzed varies among the different lines of business. Data is generally analyzed by major product or by coverage within product, using countrywide data; however, in some situations, data may be reviewed by state or region. Appropriate segmentation of the data is determined based on data credibility, homogeneity of development patterns, mix of business, and other actuarial considerations. Supplementary statistical information is also reviewed to determine which methods are most appropriate to use or if adjustments are needed to particular methods. Such information includes:
• | Open and closed claim counts
• | Average case reserves and average incurred on open claims
• | Closure rates and statistics related to closed and open claim percentages
• | Average closed claim severity
• | Ultimate claim severity
• | Reported loss ratios
• | Projected ultimate loss ratios
• | Loss payment patterns
Within each business, results of individual methods are reviewed, supplementary statistical information is analyzed, and data from underwriting, operating and claim management are considered in deriving management’s best estimate of the ultimate liability. This estimate may be the result of one method, a weighted average of several methods, or a judgmental selection as the management team determines is appropriate. The liability for losses and LAE for a very limited number of claims with long-term scheduled payments under certain workers’ compensation policies has been discounted at 4.5% at both December 31, 2019 and 2018, which represents an approximation of long-term investment yields. Because of the limited amount of claims involved, the net impact of discounting did not materially impact AFG’s total liability for unpaid losses and loss adjustment expenses (net reductions from discounting of $12 million and $13 million at December 31, 2019 and 2018, respectively). The following table provides an analysis of changes in the liability for losses and loss adjustment expenses over the past three years (in millions):
| 2019 |  | 2018 |  | 2017
Balance at beginning of period | $ | 9,741 |  |  | $ | 9,678 |  |  | $ | 8,563 |
Less reinsurance recoverables, net of allowance | 2,942 |  |  | 2,957 |  |  | 2,302 |
Net liability at beginning of period | 6,799 |  |  | 6,721 |  |  | 6,261 |
Provision for losses and LAE occurring in the current year | 3,414 |  |  | 3,195 |  |  | 3,019 |
Net increase (decrease) in the provision for claims of prior years: |  |  |  |  |
Special A&E charges | 18 |  |  | 18 |  |  | 89 |
Neon exited lines charge | 7 |  |  | — |  |  | (18 | )
Other | (168 | ) |  | (210 | ) |  | (135 | )
Total losses and LAE incurred | 3,271 |  |  | 3,003 |  |  | 2,955 |
Payments for losses and LAE of: |  |  |  |  |
Current year | (1,076 | ) |  | (963 | ) |  | (942 | )
Prior years | (1,790 | ) |  | (1,639 | ) |  | (1,586 | )
Total payments | (2,866 | ) |  | (2,602 | ) |  | (2,528 | )
Reserves of businesses disposed (*) | — |  |  | (319 | ) |  | — |
Foreign currency translation and other | 4 |  |  | (4 | ) |  | 33 |
Net liability at end of period | 7,208 |  |  | 6,799 |  |  | 6,721 |
Add back reinsurance recoverables, net of allowance | 3,024 |  |  | 2,942 |  |  | 2,957 |
Gross unpaid losses and LAE included in the balance sheet | $ | 10,232 |  |  | $ | 9,741 |  |  | $ | 9,678 |
(*) | Reflects the reinsurance to close transactions at Neon (discussed below).
The net decrease in the provision for claims of prior years in 2019 reflects (i) lower than expected claim frequency and severity at National Interstate and lower than expected losses in the crop business (all within the Property and transportation sub-segment), (ii) lower than anticipated claim frequency and severity in the workers’ compensation businesses (within the Specialty casualty sub-segment), and (iii) lower than expected claim frequency and severity in the surety and financial institutions businesses and lower than anticipated claim severity in the foreign credit business (all within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $18 million special charge to increase asbestos and environmental reserves and adverse reserve development of $7 million on Neon’s exited lines of business, (ii) higher than expected claim severity in the excess and surplus lines businesses and higher than expected claim frequency in product liability contractor claims (all within the Specialty casualty sub-segment), and (iii) net adverse reserve development related to business outside the Specialty group that AFG no longer writes. The net decrease in the provision for claims of prior years in 2018 reflects (i) lower than expected losses in the crop business and lower than expected claim severity at National Interstate (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses, lower than expected emergence in assumed 2017 property catastrophe losses at Neon and lower than expected claim severity in the executive liability business (within the Specialty casualty sub-segment) and (iii) lower than expected claim frequency and severity in the surety business, lower than expected claim severity in the fidelity business and lower than expected claim frequency in run-off businesses (within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $18 million special charge to increase asbestos and environmental reserves and (ii) higher than expected claim frequency and severity in the Singapore branch and aviation operations (within the Property and transportation sub-segment). The net decrease in the provision for claims of prior years in 2017 reflects (i) lower than expected losses in the crop and equine businesses and lower than expected claim severity in the property and inland marine and transportation businesses (all within the Property and transportation sub-segment), (ii) favorable reserve development of $18 million on Neon’s exited lines, as well as additional favorable development on ongoing lines of business within Neon, recorded in connection with the reinsurance to close agreement entered into in December 2017 for the 2015 and prior years of account, lower than anticipated claim severity in the workers’ compensation businesses and lower than expected losses in the executive liability business (all within the Specialty casualty sub-segment) and (iii) lower than anticipated claim severity in the fidelity business and lower than expected claim frequency and severity in the surety business (both within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $89 million special charge to increase asbestos and environmental reserves, (ii) higher than expected claim frequency and severity in the ocean marine business (within the Property and transportation sub-segment), (iii) higher than anticipated claim severity in the targeted markets and general liability businesses and higher than anticipated severity in New York contractor claims (all within the Specialty casualty sub-segment) and (iv) a charge to adjust to the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of businesses in 1998 (included in Other specialty sub-segment). In December 2017, the Neon Lloyd’s syndicate entered into a reinsurance to close transaction for the 2015 and prior years of account with StarStone Underwriting Limited, a subsidiary of Enstar Group Limited, which was effective as of December 31, 2017 and settled in early 2018. In the Lloyd’s market, a reinsurance to close transaction transfers the responsibility for discharging all of the liabilities that attach to the transferred year of account plus the right to any income due to the closing year of account in return for a premium. This transaction provided Neon with finality on its legacy business. As a result of the reinsurance to close agreement, Neon was able to better estimate its ultimate liability for the 2015 and prior years of account as of December 31, 2017, resulting in favorable development of $42 million, of which $24 million related to its ongoing lines of business (included in Specialty casualty) and $18 million related to its exited lines of business. A reconciliation of incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid losses and LAE, with separate disclosure of reinsurance recoverables on unpaid claims is shown below (in millions):
| 2019
Unpaid losses and allocated LAE, net of reinsurance: |
Specialty |
Property and transportation | $ | 1,171 |
Specialty casualty | 4,056 |
Specialty financial | 221 |
Other specialty | 313 |
Total Specialty (excluding foreign reserves) | 5,761 |
Other reserves |
Reserves for foreign operations: |
Neon Lloyd’s business | 357 |
Other subsidiaries | 289 |
A&E reserves | 383 |
Unallocated LAE | 361 |
Other | 57 |
Total other reserves | 1,447 |
Total reserves, net of reinsurance | 7,208 |
Add back reinsurance recoverables, net of allowance | 3,024 |
Gross unpaid losses and LAE included in the balance sheet | $ | 10,232 |
The following claims development tables and associated disclosures related to short-duration insurance contracts are prepared by sub-segment within the property and casualty insurance business for the most recent 10 accident years. AFG determines its claim counts at the claimant or policy feature level depending on the particular facts and circumstances of the underlying claim. While the methodology is generally consistent within each sub-segment, there are minor differences between and within the sub-segments. The methods used to summarize claim counts have not changed significantly over the time periods reported in the tables below.
Property and transportation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in Millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Incurred Claims and Allocated LAE, Net of Reinsurance |  | As of December 31, 2019
|  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  | Total IBNR Plus Expected Development on Reported Claims |  | Cumulative Number of Reported Claims
Accident Year |  | 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2010 |  | $ | 679 |  |  | $ | 639 |  |  | $ | 645 |  |  | $ | 652 |  |  | $ | 655 |  |  | $ | 655 |  |  | $ | 660 |  |  | $ | 657 |  |  | $ | 655 |  |  | $ | 655 |  |  | $ | 3 |  |  | 138,105 |
2011 |  |  |  | 811 |  |  | 799 |  |  | 813 |  |  | 827 |  |  | 837 |  |  | 850 |  |  | 846 |  |  | 844 |  |  | 843 |  |  | 5 |  |  | 138,309 |
2012 |  |  |  |  |  | 864 |  |  | 857 |  |  | 871 |  |  | 883 |  |  | 894 |  |  | 890 |  |  | 886 |  |  | 881 |  |  | 8 |  |  | 143,122 |
2013 |  |  |  |  |  |  |  | 882 |  |  | 870 |  |  | 872 |  |  | 878 |  |  | 878 |  |  | 877 |  |  | 873 |  |  | 10 |  |  | 138,864 |
2014 |  |  |  |  |  |  |  |  |  | 844 |  |  | 828 |  |  | 817 |  |  | 820 |  |  | 815 |  |  | 808 |  |  | 15 |  |  | 132,971 |
2015 |  |  |  |  |  |  |  |  |  |  |  | 818 |  |  | 784 |  |  | 779 |  |  | 777 |  |  | 777 |  |  | 23 |  |  | 134,618 |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 746 |  |  | 716 |  |  | 714 |  |  | 706 |  |  | 46 |  |  | 120,884 |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 889 |  |  | 847 |  |  | 843 |  |  | 80 |  |  | 140,067 |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 932 |  |  | 902 |  |  | 119 |  |  | 128,428 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,111 |  |  | 288 |  |  | 138,508 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 8,399 |  |  |  |  |
|  | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance |  |  |  |
Accident Year |  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  |  |  |
| 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | % (a) |  |
2010 |  | $ | 316 |  |  | $ | 486 |  |  | $ | 535 |  |  | $ | 596 |  |  | $ | 626 |  |  | $ | 637 |  |  | $ | 642 |  |  | $ | 647 |  |  | $ | 649 |  |  | $ | 650 |  |  | 99.2 | % |  |
2011 |  |  |  | 365 |  |  | 667 |  |  | 727 |  |  | 771 |  |  | 803 |  |  | 821 |  |  | 829 |  |  | 833 |  |  | 834 |  |  | 98.9 | % |  |
2012 |  |  |  |  |  | 572 |  |  | 708 |  |  | 772 |  |  | 816 |  |  | 842 |  |  | 856 |  |  | 882 |  |  | 869 |  |  | 98.6 | % |  |
2013 |  |  |  |  |  |  |  | 438 |  |  | 702 |  |  | 760 |  |  | 804 |  |  | 831 |  |  | 847 |  |  | 858 |  |  | 98.3 | % |  |
2014 |  |  |  |  |  |  |  |  |  | 329 |  |  | 632 |  |  | 693 |  |  | 744 |  |  | 770 |  |  | 783 |  |  | 96.9 | % |  |
2015 |  |  |  |  |  |  |  |  |  |  |  | 359 |  |  | 582 |  |  | 667 |  |  | 707 |  |  | 736 |  |  | 94.7 | % |  |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 294 |  |  | 521 |  |  | 577 |  |  | 618 |  |  | 87.5 | % |  |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 379 |  |  | 640 |  |  | 696 |  |  | 82.6 | % |  |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 396 |  |  | 676 |  |  | 74.9 | % |  |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 527 |  |  | 47.4 | % |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 7,247 |  |  |  |  |
|  |  |  |  |  |  |  | Unpaid losses and LAE — years 2010 through 2019 |  |  | 1,152 |  |  |  |  |
|  |  |  | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) |  |  | 19 |  |  |  |  |
|  |  |  | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) |  |  | $ | 1,171 |  |  |  |  |
|  | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited) |  |  |  |
|  | Year 1 |  | Year 2 |  | Year 3 |  | Year 4 |  | Year 5 |  | Year 6 |  | Year 7 |  | Year 8 |  | Year 9 |  | Year 10 |  |  |  |
Annual |  | 47.1 | % |  | 29.8 | % |  | 7.7 | % |  | 6.0 | % |  | 3.6 | % |  | 1.8 | % |  | 1.5 | % |  | (0.1 | %) |  | 0.2 | % |  | 0.2 | % |  |  |  |
Cumulative |  | 47.1 | % |  | 76.9 | % |  | 84.6 | % |  | 90.6 | % |  | 94.2 | % |  | 96.0 | % |  | 97.5 | % |  | 97.4 | % |  | 97.6 | % |  | 97.8 | % |  |  |  |
(a) | Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2019).
Specialty casualty |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in Millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Incurred Claims and Allocated LAE, Net of Reinsurance |  | As of December 31, 2019
|  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  | Total IBNR Plus Expected Development on Reported Claims |  | Cumulative Number of Reported Claims
Accident Year |  | 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2010 |  | $ | 871 |  |  | $ | 887 |  |  | $ | 888 |  |  | $ | 867 |  |  | $ | 880 |  |  | $ | 870 |  |  | $ | 868 |  |  | $ | 866 |  |  | $ | 855 |  |  | $ | 846 |  |  | $ | 28 |  |  | 56,716 |
2011 |  |  |  | 852 |  |  | 849 |  |  | 839 |  |  | 848 |  |  | 834 |  |  | 828 |  |  | 826 |  |  | 817 |  |  | 810 |  |  | 37 |  |  | 54,755 |
2012 |  |  |  |  |  | 901 |  |  | 892 |  |  | 885 |  |  | 885 |  |  | 883 |  |  | 877 |  |  | 849 |  |  | 842 |  |  | 53 |  |  | 54,682 |
2013 |  |  |  |  |  |  |  | 968 |  |  | 949 |  |  | 945 |  |  | 940 |  |  | 945 |  |  | 926 |  |  | 916 |  |  | 77 |  |  | 54,929 |
2014 |  |  |  |  |  |  |  |  |  | 1,035 |  |  | 1,008 |  |  | 1,008 |  |  | 1,006 |  |  | 982 |  |  | 967 |  |  | 98 |  |  | 56,445 |
2015 |  |  |  |  |  |  |  |  |  |  |  | 1,081 |  |  | 1,043 |  |  | 1,041 |  |  | 1,042 |  |  | 1,024 |  |  | 126 |  |  | 57,427 |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,131 |  |  | 1,122 |  |  | 1,116 |  |  | 1,101 |  |  | 236 |  |  | 56,000 |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,211 |  |  | 1,221 |  |  | 1,204 |  |  | 372 |  |  | 56,073 |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,277 |  |  | 1,307 |  |  | 548 |  |  | 57,081 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,308 |  |  | 773 |  |  | 51,198 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 10,325 |  |  |  |  |
|  | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance |  |  |  |
Accident Year |  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  |  |  |
| 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | % (a) |  |
2010 |  | $ | 191 |  |  | $ | 412 |  |  | $ | 560 |  |  | $ | 645 |  |  | $ | 700 |  |  | $ | 736 |  |  | $ | 757 |  |  | $ | 771 |  |  | $ | 783 |  |  | $ | 798 |  |  | 94.3 | % |  |
2011 |  |  |  | 174 |  |  | 383 |  |  | 522 |  |  | 612 |  |  | 662 |  |  | 694 |  |  | 714 |  |  | 731 |  |  | 745 |  |  | 92.0 | % |  |
2012 |  |  |  |  |  | 173 |  |  | 385 |  |  | 516 |  |  | 621 |  |  | 684 |  |  | 723 |  |  | 745 |  |  | 761 |  |  | 90.4 | % |  |
2013 |  |  |  |  |  |  |  | 182 |  |  | 396 |  |  | 554 |  |  | 666 |  |  | 729 |  |  | 766 |  |  | 797 |  |  | 87.0 | % |  |
2014 |  |  |  |  |  |  |  |  |  | 190 |  |  | 412 |  |  | 574 |  |  | 680 |  |  | 755 |  |  | 801 |  |  | 82.8 | % |  |
2015 |  |  |  |  |  |  |  |  |  |  |  | 178 |  |  | 411 |  |  | 577 |  |  | 702 |  |  | 792 |  |  | 77.3 | % |  |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 186 |  |  | 418 |  |  | 584 |  |  | 713 |  |  | 64.8 | % |  |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 200 |  |  | 422 |  |  | 612 |  |  | 50.8 | % |  |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 210 |  |  | 475 |  |  | 36.3 | % |  |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 212 |  |  | 16.2 | % |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 6,706 |  |  |  |  |
|  |  |  |  |  |  |  | Unpaid losses and LAE — years 2010 through 2019 |  |  | 3,619 |  |  |  |  |
|  |  |  | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) |  |  | 437 |  |  |  |  |
|  |  |  | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) |  |  | $ | 4,056 |  |  |  |  |
|  | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited) |  |  |  |
|  | Year 1 |  | Year 2 |  | Year 3 |  | Year 4 |  | Year 5 |  | Year 6 |  | Year 7 |  | Year 8 |  | Year 9 |  | Year 10 |  |  |  |
Annual |  | 18.7 | % |  | 22.9 | % |  | 16.4 | % |  | 11.5 | % |  | 7.3 | % |  | 4.3 | % |  | 2.7 | % |  | 1.9 | % |  | 1.6 | % |  | 1.8 | % |  |  |  |
Cumulative |  | 18.7 | % |  | 41.6 | % |  | 58.0 | % |  | 69.5 | % |  | 76.8 | % |  | 81.1 | % |  | 83.8 | % |  | 85.7 | % |  | 87.3 | % |  | 89.1 | % |  |  |  |
(a) | Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2019).
Specialty financial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in Millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Incurred Claims and Allocated LAE, Net of Reinsurance |  | As of December 31, 2019
|  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  | Total IBNR Plus Expected Development on Reported Claims |  | Cumulative Number of Reported Claims
Accident Year |  | 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2010 |  | $ | 138 |  |  | $ | 145 |  |  | $ | 132 |  |  | $ | 132 |  |  | $ | 135 |  |  | $ | 133 |  |  | $ | 130 |  |  | $ | 127 |  |  | $ | 126 |  |  | $ | 126 |  |  | $ | 1 |  |  | 21,925 |
2011 |  |  |  | 138 |  |  | 157 |  |  | 155 |  |  | 153 |  |  | 147 |  |  | 144 |  |  | 143 |  |  | 139 |  |  | 137 |  |  | — |  |  | 16,369 |
2012 |  |  |  |  |  | 163 |  |  | 163 |  |  | 151 |  |  | 139 |  |  | 137 |  |  | 135 |  |  | 132 |  |  | 127 |  |  | 1 |  |  | 21,076 |
2013 |  |  |  |  |  |  |  | 140 |  |  | 145 |  |  | 137 |  |  | 131 |  |  | 127 |  |  | 126 |  |  | 122 |  |  | 4 |  |  | 28,460 |
2014 |  |  |  |  |  |  |  |  |  | 146 |  |  | 157 |  |  | 156 |  |  | 153 |  |  | 147 |  |  | 142 |  |  | 5 |  |  | 29,436 |
2015 |  |  |  |  |  |  |  |  |  |  |  | 156 |  |  | 160 |  |  | 158 |  |  | 153 |  |  | 145 |  |  | 10 |  |  | 37,562 |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 179 |  |  | 184 |  |  | 187 |  |  | 182 |  |  | 18 |  |  | 45,054 |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 212 |  |  | 215 |  |  | 212 |  |  | 27 |  |  | 48,421 |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 212 |  |  | 217 |  |  | 30 |  |  | 46,198 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 194 |  |  | 77 |  |  | 35,369 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 1,604 |  |  |  |  |
|  | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance |  |  |  |
Accident Year |  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  |  |  |
| 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | % (a) |  |
2010 |  | $ | 61 |  |  | $ | 93 |  |  | $ | 104 |  |  | $ | 122 |  |  | $ | 132 |  |  | $ | 130 |  |  | $ | 128 |  |  | $ | 126 |  |  | $ | 126 |  |  | $ | 126 |  |  | 100.0 | % |  |
2011 |  |  |  | 58 |  |  | 111 |  |  | 115 |  |  | 123 |  |  | 130 |  |  | 131 |  |  | 131 |  |  | 132 |  |  | 132 |  |  | 96.4 | % |  |
2012 |  |  |  |  |  | 71 |  |  | 104 |  |  | 109 |  |  | 117 |  |  | 121 |  |  | 126 |  |  | 128 |  |  | 126 |  |  | 99.2 | % |  |
2013 |  |  |  |  |  |  |  | 70 |  |  | 100 |  |  | 107 |  |  | 113 |  |  | 117 |  |  | 117 |  |  | 118 |  |  | 96.7 | % |  |
2014 |  |  |  |  |  |  |  |  |  | 62 |  |  | 109 |  |  | 125 |  |  | 128 |  |  | 137 |  |  | 139 |  |  | 97.9 | % |  |
2015 |  |  |  |  |  |  |  |  |  |  |  | 72 |  |  | 110 |  |  | 129 |  |  | 133 |  |  | 132 |  |  | 91.0 | % |  |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 88 |  |  | 141 |  |  | 158 |  |  | 161 |  |  | 88.5 | % |  |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 120 |  |  | 169 |  |  | 186 |  |  | 87.7 | % |  |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 112 |  |  | 163 |  |  | 75.1 | % |  |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 99 |  |  | 51.0 | % |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 1,382 |  |  |  |  |
|  |  |  |  |  |  |  | Unpaid losses and LAE — years 2010 through 2019 |  |  | 222 |  |  |  |  |
|  |  |  | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) |  |  | (1 | ) |  |  |  |
|  |  |  | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) |  |  | $ | 221 |  |  |  |  |
|  | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited) |  |  |  |
|  | Year 1 |  | Year 2 |  | Year 3 |  | Year 4 |  | Year 5 |  | Year 6 |  | Year 7 |  | Year 8 |  | Year 9 |  | Year 10 |  |  |  |
Annual |  | 50.5 | % |  | 27.7 | % |  | 7.9 | % |  | 5.4 | % |  | 4.2 | % |  | 0.9 | % |  | 0.2 | % |  | (0.8 | %) |  | — | % |  | — | % |  |  |  |
Cumulative |  | 50.5 | % |  | 78.2 | % |  | 86.1 | % |  | 91.5 | % |  | 95.7 | % |  | 96.6 | % |  | 96.8 | % |  | 96.0 | % |  | 96.0 | % |  | 96.0 | % |  |  |  |
(a) | Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2019).
Other specialty |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in Millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Incurred Claims and Allocated LAE, Net of Reinsurance |  | As of December 31, 2019
|  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  | Total IBNR Plus Expected Development on Reported Claims |  | Cumulative Number of Reported Claims (a)
Accident Year |  | 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2010 |  | $ | 36 |  |  | $ | 39 |  |  | $ | 40 |  |  | $ | 39 |  |  | $ | 40 |  |  | $ | 40 |  |  | $ | 40 |  |  | $ | 40 |  |  | $ | 40 |  |  | $ | 39 |  |  | $ | 1 |  |  | — |
2011 |  |  |  | 39 |  |  | 43 |  |  | 42 |  |  | 43 |  |  | 43 |  |  | 44 |  |  | 44 |  |  | 43 |  |  | 42 |  |  | 1 |  |  | — |
2012 |  |  |  |  |  | 42 |  |  | 40 |  |  | 39 |  |  | 40 |  |  | 41 |  |  | 39 |  |  | 39 |  |  | 36 |  |  | 2 |  |  | — |
2013 |  |  |  |  |  |  |  | 46 |  |  | 47 |  |  | 46 |  |  | 47 |  |  | 50 |  |  | 53 |  |  | 58 |  |  | 3 |  |  | — |
2014 |  |  |  |  |  |  |  |  |  | 58 |  |  | 57 |  |  | 59 |  |  | 59 |  |  | 60 |  |  | 61 |  |  | 6 |  |  | — |
2015 |  |  |  |  |  |  |  |  |  |  |  | 59 |  |  | 60 |  |  | 63 |  |  | 66 |  |  | 76 |  |  | 3 |  |  | — |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 61 |  |  | 61 |  |  | 65 |  |  | 71 |  |  | 15 |  |  | — |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 63 |  |  | 65 |  |  | 70 |  |  | 23 |  |  | — |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 86 |  |  | 90 |  |  | 53 |  |  | — |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 108 |  |  | 87 |  |  | — |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 651 |  |  |  |  |
|  | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance |  |  |  |
Accident Year |  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  |  |  |
| 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | % (b) |  |
2010 |  | $ | 8 |  |  | $ | 14 |  |  | $ | 21 |  |  | $ | 24 |  |  | $ | 27 |  |  | $ | 33 |  |  | $ | 35 |  |  | $ | 36 |  |  | $ | 37 |  |  | $ | 37 |  |  | 94.9 | % |  |
2011 |  |  |  | 12 |  |  | 20 |  |  | 25 |  |  | 28 |  |  | 34 |  |  | 36 |  |  | 37 |  |  | 38 |  |  | 39 |  |  | 92.9 | % |  |
2012 |  |  |  |  |  | 8 |  |  | 17 |  |  | 21 |  |  | 25 |  |  | 28 |  |  | 30 |  |  | 30 |  |  | 32 |  |  | 88.9 | % |  |
2013 |  |  |  |  |  |  |  | 7 |  |  | 16 |  |  | 22 |  |  | 34 |  |  | 37 |  |  | 44 |  |  | 51 |  |  | 87.9 | % |  |
2014 |  |  |  |  |  |  |  |  |  | 13 |  |  | 21 |  |  | 30 |  |  | 36 |  |  | 43 |  |  | 50 |  |  | 82.0 | % |  |
2015 |  |  |  |  |  |  |  |  |  |  |  | 10 |  |  | 26 |  |  | 31 |  |  | 50 |  |  | 62 |  |  | 81.6 | % |  |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 9 |  |  | 19 |  |  | 31 |  |  | 47 |  |  | 66.2 | % |  |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 10 |  |  | 19 |  |  | 30 |  |  | 42.9 | % |  |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 12 |  |  | 23 |  |  | 25.6 | % |  |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 9 |  |  | 8.3 | % |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 380 |  |  |  |  |
|  |  |  |  |  |  |  | Unpaid losses and LAE — years 2010 through 2019 |  |  | 271 |  |  |  |  |
|  |  |  | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) |  |  | 42 |  |  |  |  |
|  |  |  | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) |  |  | $ | 313 |  |  |  |  |
|  | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited) |  |  |  |
|  | Year 1 |  | Year 2 |  | Year 3 |  | Year 4 |  | Year 5 |  | Year 6 |  | Year 7 |  | Year 8 |  | Year 9 |  | Year 10 |  |  |  |
Annual |  | 16.6 | % |  | 16.5 | % |  | 13.2 | % |  | 14.9 | % |  | 10.5 | % |  | 9.8 | % |  | 4.9 | % |  | 3.5 | % |  | 2.5 | % |  | — | % |  |  |  |
Cumulative |  | 16.6 | % |  | 33.1 | % |  | 46.3 | % |  | 61.2 | % |  | 71.7 | % |  | 81.5 | % |  | 86.4 | % |  | 89.9 | % |  | 92.4 | % |  | 92.4 | % |  |  |  |
(a) | The amounts shown in Other specialty represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Accordingly, the liability for incurred claims and allocated LAE represents additional reserves held on claims counted in the tables provided for the other sub-segments (above).
(b) | Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2019).
Total Specialty Group |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in Millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Incurred Claims and Allocated LAE, Net of Reinsurance |  | As of December 31, 2019
|  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  | Total IBNR Plus Expected Development on Reported Claims |  | Cumulative Number of Reported Claims
Accident Year |  | 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2010 |  | $ | 1,724 |  |  | $ | 1,710 |  |  | $ | 1,705 |  |  | $ | 1,690 |  |  | $ | 1,710 |  |  | $ | 1,698 |  |  | $ | 1,698 |  |  | $ | 1,690 |  |  | $ | 1,676 |  |  | $ | 1,666 |  |  | $ | 33 |  |  | 216,746 |
2011 |  |  |  | 1,840 |  |  | 1,848 |  |  | 1,849 |  |  | 1,871 |  |  | 1,861 |  |  | 1,866 |  |  | 1,859 |  |  | 1,843 |  |  | 1,832 |  |  | 43 |  |  | 209,433 |
2012 |  |  |  |  |  | 1,970 |  |  | 1,952 |  |  | 1,946 |  |  | 1,947 |  |  | 1,955 |  |  | 1,941 |  |  | 1,906 |  |  | 1,886 |  |  | 64 |  |  | 218,880 |
2013 |  |  |  |  |  |  |  | 2,036 |  |  | 2,011 |  |  | 2,000 |  |  | 1,996 |  |  | 2,000 |  |  | 1,982 |  |  | 1,969 |  |  | 94 |  |  | 222,253 |
2014 |  |  |  |  |  |  |  |  |  | 2,083 |  |  | 2,050 |  |  | 2,040 |  |  | 2,038 |  |  | 2,004 |  |  | 1,978 |  |  | 124 |  |  | 218,852 |
2015 |  |  |  |  |  |  |  |  |  |  |  | 2,114 |  |  | 2,047 |  |  | 2,041 |  |  | 2,038 |  |  | 2,022 |  |  | 162 |  |  | 229,607 |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,117 |  |  | 2,083 |  |  | 2,082 |  |  | 2,060 |  |  | 315 |  |  | 221,938 |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,375 |  |  | 2,348 |  |  | 2,329 |  |  | 502 |  |  | 244,561 |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,507 |  |  | 2,516 |  |  | 750 |  |  | 231,707 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,721 |  |  | 1,225 |  |  | 225,075 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 20,979 |  |  |  |  |
|  | Cumulative Paid Claims and Allocated LAE, Net of Reinsurance |  |  |  |
Accident Year |  | For the Years Ended (2010–2018 is Supplementary Information and Unaudited) |  |  |  |
| 2010 |  | 2011 |  | 2012 |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | % (a) |  |
2010 |  | $ | 576 |  |  | $ | 1,005 |  |  | $ | 1,220 |  |  | $ | 1,387 |  |  | $ | 1,485 |  |  | $ | 1,536 |  |  | $ | 1,562 |  |  | $ | 1,580 |  |  | $ | 1,595 |  |  | $ | 1,611 |  |  | 96.7 | % |  |
2011 |  |  |  | 609 |  |  | 1,181 |  |  | 1,389 |  |  | 1,534 |  |  | 1,629 |  |  | 1,682 |  |  | 1,711 |  |  | 1,734 |  |  | 1,750 |  |  | 95.5 | % |  |
2012 |  |  |  |  |  | 824 |  |  | 1,214 |  |  | 1,418 |  |  | 1,579 |  |  | 1,675 |  |  | 1,735 |  |  | 1,785 |  |  | 1,788 |  |  | 94.8 | % |  |
2013 |  |  |  |  |  |  |  | 697 |  |  | 1,214 |  |  | 1,443 |  |  | 1,617 |  |  | 1,714 |  |  | 1,774 |  |  | 1,824 |  |  | 92.6 | % |  |
2014 |  |  |  |  |  |  |  |  |  | 594 |  |  | 1,174 |  |  | 1,422 |  |  | 1,588 |  |  | 1,705 |  |  | 1,773 |  |  | 89.6 | % |  |
2015 |  |  |  |  |  |  |  |  |  |  |  | 619 |  |  | 1,129 |  |  | 1,404 |  |  | 1,592 |  |  | 1,722 |  |  | 85.2 | % |  |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |  | 577 |  |  | 1,099 |  |  | 1,350 |  |  | 1,539 |  |  | 74.7 | % |  |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 709 |  |  | 1,250 |  |  | 1,524 |  |  | 65.4 | % |  |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 730 |  |  | 1,337 |  |  | 53.1 | % |  |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 847 |  |  | 31.1 | % |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Total |  |  | $ | 15,715 |  |  |  |  |
|  |  |  |  |  |  |  | Unpaid losses and LAE — years 2010 through 2019 |  |  | 5,264 |  |  |  |  |
|  |  |  | Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE) |  |  | 497 |  |  |  |  |
|  |  |  | Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE) |  |  | $ | 5,761 |  |  |  |  |
|  | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited) |  |  |  |
|  | Year 1 |  | Year 2 |  | Year 3 |  | Year 4 |  | Year 5 |  | Year 6 |  | Year 7 |  | Year 8 |  | Year 9 |  | Year 10 |  |  |  |
Annual |  | 32.6 | % |  | 25.7 | % |  | 12.1 | % |  | 8.9 | % |  | 5.6 | % |  | 3.1 | % |  | 2.1 | % |  | 0.8 | % |  | 0.9 | % |  | 1.0 | % |  |  |  |
Cumulative |  | 32.6 | % |  | 58.3 | % |  | 70.4 | % |  | 79.3 | % |  | 84.9 | % |  | 88.0 | % |  | 90.1 | % |  | 90.9 | % |  | 91.8 | % |  | 92.8 | % |  |  |  |
(a) | Represents the cumulative percentage paid of incurred claims and allocated LAE (net of reinsurance, as estimated at December 31, 2019).
Closed Block of Long-Term Care Insurance Reserves for AFG’s closed block of long-term care insurance were $46 million at December 31, 2019 and $45 million at December 31, 2018, net of reinsurance recoverables and excluding the impact of unrealized gains on securities. AFG’s remaining outstanding long-term care policies have level premiums and are guaranteed renewable. Premium rates can potentially be increased in reaction to adverse experience; however, any rate increases would require regulatory approval. FHLB Funding Agreements Great American Life Insurance Company (“GALIC”), a wholly-owned annuity subsidiary, is a member of the Federal Home Loan Bank of Cincinnati (“FHLB”). The FHLB makes advances and provides other banking services to member institutions. Members are required to purchase stock in the FHLB in addition to maintaining collateral deposits that back any funds advanced. GALIC’s $52 million investment in FHLB capital stock at December 31, 2019 is included in other investments at cost. Membership in the FHLB provides the annuity operations with an additional source of liquidity. These advances further the FHLB’s mission of improving access to housing by increasing liquidity in the residential mortgage-backed securities market. In 2019, GALIC refinanced the terms on advances totaling $610 million. In the fourth quarter of 2018, GALIC refinanced the terms on a $40 million advance and the FHLB advanced GALIC $225 million. At both December 31, 2019 and December 31, 2018, GALIC had $1.10 billion in outstanding advances from the FHLB (included in annuity benefits accumulated), bearing interest at rates ranging from 0.13% to 0.21% over LIBOR (average rate of 1.95% at December 31, 2019). While these advances must be repaid between 2020 and 2021 ($310 million in 2020 and $786 million in 2021), GALIC has the option to prepay all or a portion of the advances. GALIC has invested the proceeds from the advances in fixed maturity securities with similar expected lives as the advances for the purpose of earning a spread over the interest payments due to the FHLB. The advances on these agreements are collateralized by fixed maturity investments, which have a total fair value of $1.27 billion (included in available for sale fixed maturity securities) at December 31, 2019. Interest credited on the funding agreements, which is included in annuity benefits, was $27 million in 2019, $20 million in 2018 and $14 million in 2017. Statutory Information AFG’s U.S.-based insurance subsidiaries are required to file financial statements with state insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). Net earnings and capital and surplus on a statutory basis for the insurance subsidiaries were as follows (in millions):
| Net Earnings |  | Capital and Surplus
| 2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018
Property and casualty companies | $ | 584 |  |  | $ | 546 |  |  | $ | 484 |  |  | $ | 3,342 |  |  | $ | 2,867 |
Life (annuity) insurance companies | 34 |  |  | 802 |  |  | 286 |  |  | 2,868 |  |  | 2,701 |
In the fourth quarter of 2018, GALIC, AFG’s primary annuity subsidiary, entered into a reinsurance treaty with Hannover Life Reassurance Company of America that transfers the risk of certain surrender activity in GALIC’s fixed-indexed annuity business. This treaty meets the statutory risk transfer rules and resulted in a $510 million increase in statutory surplus (through an after-tax reserve credit), which is reflected in the life insurance companies capital and surplus in the table above. Under GAAP, this transaction does not meet the GAAP insurance risk transfer criteria and did not have a material impact on AFG’s financial statements. The National Association of Insurance Commissioners’ (“NAIC”) model law for risk-based capital (“RBC”) applies to both life and property and casualty insurance companies. RBC formulas determine the amount of capital that an insurance company needs so that it has an acceptable expectation of not becoming financially impaired. Companies below specific trigger points or ratios are subject to regulatory action. At December 31, 2019 and 2018, the capital ratios of all AFG insurance companies substantially exceeded the RBC requirements. AFG’s insurance companies did not use any prescribed or permitted statutory accounting practices that differed from the NAIC statutory accounting practices at December 31, 2019 or 2018. Payments of dividends by AFG’s insurance companies are subject to various state laws that limit the amount of dividends that can be paid. Under applicable restrictions, the maximum amount of dividends available to AFG in 2020 from its insurance subsidiaries without seeking regulatory approval is $852 million. Additional amounts of dividends require regulatory approval. Holding Company Dividends AFG declared and paid common stock dividends to shareholders totaling $446 million, $397 million and $421 million in 2019, 2018 and 2017, respectively. Currently, there are no regulatory restrictions on AFG’s retained earnings or net earnings that materially impact its ability to pay dividends. Based on shareholders’ equity at December 31, 2019, AFG could pay dividends in excess of $2.5 billion without violating its most restrictive debt covenant. However, the payment of future dividends will be at the discretion of AFG’s Board of Directors and will be dependent on many factors including AFG’s financial condition and results of operations, the capital requirements of its insurance subsidiaries, and rating agency commitments. Reinsurance In the normal course of business, AFG’s insurance subsidiaries cede reinsurance to other companies to diversify risk and limit maximum loss arising from large claims. However, AFG remains liable to its insureds regardless of whether a reinsurer is able to meet its obligations. The following table shows (in millions) (i) amounts deducted from property and casualty written and earned premiums in connection with reinsurance ceded, (ii) written and earned premiums included in income for reinsurance assumed and (iii) reinsurance recoveries, which represent ceded losses and loss adjustment expenses.
| 2019 |  | 2018 |  | 2017
Direct premiums written | $ | 7,044 |  |  | $ | 6,626 |  |  | $ | 6,310 |
Reinsurance assumed | 255 |  |  | 214 |  |  | 192 |
Reinsurance ceded | (1,957 | ) |  | (1,817 | ) |  | (1,751 | )
Net written premiums | $ | 5,342 |  |  | $ | 5,023 |  |  | $ | 4,751 |
Direct premiums earned | $ | 6,848 |  |  | $ | 6,472 |  |  | $ | 6,112 |
Reinsurance assumed | 226 |  |  | 204 |  |  | 157 |
Reinsurance ceded | (1,889 | ) |  | (1,811 | ) |  | (1,690 | )
Net earned premiums | $ | 5,185 |  |  | $ | 4,865 |  |  | $ | 4,579 |
Reinsurance recoveries | $ | 1,404 |  |  | $ | 1,249 |  |  | $ | 1,379 |
In June 2017, AFG’s property and casualty insurance subsidiaries entered into a reinsurance agreement to obtain supplemental catastrophe protection through a catastrophe bond structure with Riverfront Re Ltd. (“Riverfront”). The reinsurance agreement provides supplemental reinsurance coverage up to 95% of $200 million (fully collateralized) for catastrophe losses in excess of $134 million of traditional catastrophe reinsurance (per occurrence and annual aggregate) occurring until December 31, 2020. In connection with the reinsurance agreement, Riverfront issued notes to unrelated investors for the full amount of coverage provided under the reinsurance agreement. Through December 31, 2019, AFG’s incurred catastrophe losses have not reached the level of attachment for the catastrophe bond structure. Riverfront is a variable interest entity in which AFG does not have a variable interest because the variability in Riverfront’s results will be absorbed entirely by the investors in Riverfront. Accordingly, Riverfront is not consolidated in AFG’s financial statements and the reinsurance agreement is accounted for as ceded reinsurance. AFG’s cost for this coverage is approximately $11 million per year. AFG has reinsured approximately $6.23 billion of its $9.53 billion in face amount of life insurance at December 31, 2019 compared to $7.69 billion of its $10.82 billion in face amount of life insurance at December 31, 2018. Life written premiums ceded were $20 million, $22 million and $28 million for 2019, 2018 and 2017, respectively. Reinsurance recoveries on ceded life policies were $32 million, $38 million and $35 million for 2019, 2018 and 2017, respectively. Fixed Annuities For certain products, the liability for “annuity benefits accumulated” includes reserves for excess benefits expected to be paid on future deaths and annuitizations guaranteed withdrawal benefits and accrued persistency and premium bonuses. The liabilities included in AFG’s Balance Sheet for these benefits, excluding the impact of unrealized gains on securities, were as follows at December 31 (in millions):
| 2019 |  | 2018
Expected death and annuitization | $ | 232 |  |  | $ | 229 |
Guaranteed withdrawal benefits | 625 |  |  | 472 |
Accrued persistency and premium bonuses | 1 |  |  | 1 |
Variable Annuities At December 31, 2019, the aggregate guaranteed minimum death benefit value (assuming every variable annuity policyholder died on that date) on AFG’s variable annuity policies exceeded the fair value of the underlying variable annuities by $13 million, compared to $35 million at December 31, 2018. Death benefits paid in excess of the variable annuity account balances were less than $1 million in each of the last three years ended December 31, 2019, 2018 and 2017.

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- Definition The entire disclosure for the types of coverages and products sold, and the assets, obligations, recorded liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -URI http://asc.fasb.org/topic&trid=2303980 + Details
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