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Investments (Tables) | 3 Months Ended
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Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract] |
Available for sale fixed maturities | Available for sale fixed maturities at March 31, 2020 and December 31, 2019, consisted of the following (in millions):
| Amortized Cost |  | Allowance for Expected Credit Losses |  | Gross Unrealized |  | Net Unrealized |  | Fair Value
Gains |  | Losses
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | 190 |  |  | $ | — |  |  | $ | 15 |  |  | $ | — |  |  | $ | 15 |  |  | $ | 205 |
States, municipalities and political subdivisions | 6,526 |  |  | — |  |  | 388 |  |  | (8 | ) |  | 380 |  |  | 6,906 |
Foreign government | 164 |  |  | — |  |  | 6 |  |  | — |  |  | 6 |  |  | 170 |
Residential MBS | 3,078 |  |  | 6 |  |  | 133 |  |  | (74 | ) |  | 59 |  |  | 3,131 |
Commercial MBS | 892 |  |  | — |  |  | 20 |  |  | (5 | ) |  | 15 |  |  | 907 |
Collateralized loan obligations | 4,456 |  |  | 17 |  |  | 5 |  |  | (306 | ) |  | (301 | ) |  | 4,138 |
Other asset-backed securities | 7,069 |  |  | 14 |  |  | 65 |  |  | (362 | ) |  | (297 | ) |  | 6,758 |
Corporate and other | 23,726 |  |  | 24 |  |  | 786 |  |  | (569 | ) |  | 217 |  |  | 23,919 |
Total fixed maturities | $ | 46,101 |  |  | $ | 61 |  |  | $ | 1,418 |  |  | $ | (1,324 | ) |  | $ | 94 |  |  | $ | 46,134 |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | 199 |  |  | $ | — |  |  | $ | 10 |  |  | $ | — |  |  | $ | 10 |  |  | $ | 209 |
States, municipalities and political subdivisions | 6,604 |  |  | — |  |  | 363 |  |  | (4 | ) |  | 359 |  |  | 6,963 |
Foreign government | 170 |  |  | — |  |  | 3 |  |  | (1 | ) |  | 2 |  |  | 172 |
Residential MBS | 2,900 |  |  | — |  |  | 265 |  |  | (5 | ) |  | 260 |  |  | 3,160 |
Commercial MBS | 896 |  |  | — |  |  | 31 |  |  | — |  |  | 31 |  |  | 927 |
Collateralized loan obligations | 4,307 |  |  | — |  |  | 10 |  |  | (37 | ) |  | (27 | ) |  | 4,280 |
Other asset-backed securities | 6,992 |  |  | — |  |  | 156 |  |  | (20 | ) |  | 136 |  |  | 7,128 |
Corporate and other | 22,456 |  |  | — |  |  | 1,231 |  |  | (21 | ) |  | 1,210 |  |  | 23,666 |
Total fixed maturities | $ | 44,524 |  |  | $ | — |  |  | $ | 2,069 |  |  | $ | (88 | ) |  | $ | 1,981 |  |  | $ | 46,505 |
Equity securities reported at fair value | Equity securities, which are reported at fair value with holding gains and losses recognized in net earnings, consisted of the following at March 31, 2020 and December 31, 2019 (in millions):
| March 31, 2020 |  | December 31, 2019
|  |  |  |  | Fair Value |  |  |  |  |  | Fair Value
| Actual Cost |  |  |  | over (under) |  | Actual Cost |  |  |  | over (under)
|  | Fair Value |  | Cost |  |  | Fair Value |  | Cost
Common stocks | $ | 1,315 |  |  | $ | 919 |  |  | $ | (396 | ) |  | $ | 1,164 |  |  | $ | 1,283 |  |  | $ | 119 |
Perpetual preferred stocks | 685 |  |  | 640 |  |  | (45 | ) |  | 640 |  |  | 654 |  |  | 14 |
Total equity securities carried at fair value | $ | 2,000 |  |  | $ | 1,559 |  |  | $ | (441 | ) |  | $ | 1,804 |  |  | $ | 1,937 |  |  | $ | 133 |
Available for sale securities in a continuous unrealized loss position | The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities by investment category and length of time that individual securities have been in a continuous unrealized loss position at the following balance sheet dates.
| 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, 2020 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | — |  |  | $ | — |  |  | — | % |  | $ | — |  |  | $ | 1 |  |  | 100 | %
States, municipalities and political subdivisions | (8 | ) |  | 235 |  |  | 97 | % |  | — |  |  | 26 |  |  | 100 | %
Foreign government | — |  |  | 3 |  |  | 100 | % |  | — |  |  | — |  |  | — | %
Residential MBS | (70 | ) |  | 1,562 |  |  | 96 | % |  | (4 | ) |  | 31 |  |  | 89 | %
Commercial MBS | (5 | ) |  | 117 |  |  | 96 | % |  | — |  |  | — |  |  | — | %
Collateralized loan obligations | (141 | ) |  | 2,234 |  |  | 94 | % |  | (165 | ) |  | 1,691 |  |  | 91 | %
Other asset-backed securities | (352 | ) |  | 4,597 |  |  | 93 | % |  | (10 | ) |  | 94 |  |  | 90 | %
Corporate and other | (554 | ) |  | 7,738 |  |  | 93 | % |  | (15 | ) |  | 98 |  |  | 87 | %
Total fixed maturities | $ | (1,130 | ) |  | $ | 16,486 |  |  | 94 | % |  | $ | (194 | ) |  | $ | 1,941 |  |  | 91 | %
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | — |  |  | $ | 16 |  |  | 100 | % |  | $ | — |  |  | $ | 11 |  |  | 100 | %
States, municipalities and political subdivisions | (3 | ) |  | 254 |  |  | 99 | % |  | (1 | ) |  | 82 |  |  | 99 | %
Foreign government | (1 | ) |  | 70 |  |  | 99 | % |  | — |  |  | — |  |  | — | %
Residential MBS | (4 | ) |  | 509 |  |  | 99 | % |  | (1 | ) |  | 69 |  |  | 99 | %
Commercial MBS | — |  |  | 17 |  |  | 100 | % |  | — |  |  | — |  |  | — | %
Collateralized loan obligations | (11 | ) |  | 1,284 |  |  | 99 | % |  | (26 | ) |  | 1,728 |  |  | 99 | %
Other asset-backed securities | (12 | ) |  | 1,211 |  |  | 99 | % |  | (8 | ) |  | 123 |  |  | 94 | %
Corporate and other | (13 | ) |  | 1,100 |  |  | 99 | % |  | (8 | ) |  | 211 |  |  | 96 | %
Total fixed maturities | $ | (44 | ) |  | $ | 4,461 |  |  | 99 | % |  | $ | (44 | ) |  | $ | 2,224 |  |  | 98 | %
Roll forward of allowance for credit losses on fixed maturity securities | A progression of the allowance for expected credit losses on fixed maturity securities is shown below (in millions):
| 2020
Balance at January 1 | $ | — |
Impact of adoption of new accounting policy | — |
Provision for expected credit losses | 61 |
Reductions due to sales or redemptions | — |
Balance at March 31 | $ | 61 |
Available for sale fixed maturity securities by contractual maturity date | The table below sets forth the scheduled maturities of available for sale fixed maturities as of March 31, 2020 (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, net (*) |  | Amount |  | %
Maturity |  |  |  |  |
One year or less | $ | 2,018 |  |  | $ | 2,027 |  |  | 4 | %
After one year through five years | 10,563 |  |  | 10,710 |  |  | 23 | %
After five years through ten years | 14,450 |  |  | 14,722 |  |  | 32 | %
After ten years | 3,551 |  |  | 3,741 |  |  | 8 | %
| 30,582 |  |  | 31,200 |  |  | 67 | %
Collateralized loan obligations and other ABS (average life of approximately 4-1/2 years) | 11,494 |  |  | 10,896 |  |  | 24 | %
MBS (average life of approximately 3-1/2 years) | 3,964 |  |  | 4,038 |  |  | 9 | %
Total | $ | 46,040 |  |  | $ | 46,134 |  |  | 100 | %
(*) Amortized cost, net of allowance for expected credit losses.
Components of the net unrealized gain on securities, included in Accumulated Other Comprehensive Income | 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, 2020 |  |  |  |  |
Net unrealized gain on: |  |  |  |  |
Fixed maturities — annuity segment (*) | $ | 124 |  |  | $ | (26 | ) |  | $ | 98 |
Fixed maturities — all other | (30 | ) |  | 7 |  |  | (23 | )
Total fixed maturities | 94 |  |  | (19 | ) |  | 75 |
Deferred policy acquisition costs — annuity segment | (57 | ) |  | 12 |  |  | (45 | )
Annuity benefits accumulated | (18 | ) |  | 3 |  |  | (15 | )
Unearned revenue | 1 |  |  | — |  |  | 1 |
Total net unrealized gain on marketable securities | $ | 20 |  |  | $ | (4 | ) |  | $ | 16 |
December 31, 2019 |  |  |  |  |
Net unrealized gain on: |  |  |  |  |
Fixed maturities — annuity segment (*) | $ | 1,611 |  |  | $ | (338 | ) |  | $ | 1,273 |
Fixed maturities — all other | 370 |  |  | (78 | ) |  | 292 |
Total fixed maturities | 1,981 |  |  | (416 | ) |  | 1,565 |
Deferred policy acquisition costs — annuity segment | (681 | ) |  | 143 |  |  | (538 | )
Annuity benefits accumulated | (219 | ) |  | 46 |  |  | (173 | )
Life, accident and health reserves | (1 | ) |  | — |  |  | (1 | )
Unearned revenue | 11 |  |  | (2 | ) |  | 9 |
Total net unrealized gain on marketable securities | $ | 1,091 |  |  | $ | (229 | ) |  | $ | 862 |
(*) Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.
Net investment income earned and investment expenses incurred | The following table shows (in millions) investment income earned and investment expenses incurred.
| Three months ended March 31,
| 2020 |  | 2019
Investment income: |  |  |
Fixed maturities | $ | 491 |  |  | $ | 469 |
Equity securities: |  |  |
Dividends | 17 |  |  | 22 |
Change in fair value (a) (b) | (12 | ) |  | 11 |
Equity in earnings of partnerships and similar investments | 25 |  |  | 21 |
Other | 28 |  |  | 25 |
Gross investment income | 549 |  |  | 548 |
Investment expenses | (5 | ) |  | (6 | )
Net investment income (b) | $ | 544 |  |  | $ | 542 |
(a) | Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on equity securities classified as “trading” under previous guidance and on a small portfolio of limited partnership and similar investments that do not qualify for the equity method of accounting.
(b) Net investment income in the first three months of 2020 includes a loss of $6 million on investments held by the companies that comprise the Neon exited lines due primarily to the $7 million loss recorded on equity securities that are carried at fair value through net investment income.
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments | Realized gains (losses) and changes in unrealized appreciation (depreciation) included in AOCI related to fixed maturity and equity security investments are summarized as follows (in millions):
| Three months ended March 31, 2020 |  | Three months ended March 31, 2019
| Realized gains (losses) |  |  |  | Realized gains (losses) |  |
| Before Impairments |  | Impairment Allowance |  | Total |  | Change in Unrealized |  | Before Impairments |  | Impairments |  | Total |  | Change in Unrealized
Fixed maturities | $ | 29 |  |  | $ | (61 | ) |  | $ | (32 | ) |  | $ | (1,887 | ) |  | $ | 3 |  |  | $ | (3 | ) |  | $ | — |  |  | $ | 853 |
Equity securities | (535 | ) |  | — |  |  | (535 | ) |  | — |  |  | 182 |  |  | — |  |  | 182 |  |  | — |
Mortgage loans and other investments | 4 |  |  | — |  |  | 4 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other (*) | (3 | ) |  | 15 |  |  | 12 |  |  | 816 |  |  | 1 |  |  | 1 |  |  | 2 |  |  | (370 | )
Total pretax | (505 | ) |  | (46 | ) |  | (551 | ) |  | (1,071 | ) |  | 186 |  |  | (2 | ) |  | 184 |  |  | 483 |
Tax effects | 106 |  |  | 10 |  |  | 116 |  |  | 225 |  |  | (39 | ) |  | — |  |  | (39 | ) |  | (102 | )
Net of tax | $ | (399 | ) |  | $ | (36 | ) |  | $ | (435 | ) |  | $ | (846 | ) |  | $ | 147 |  |  | $ | (2 | ) |  | $ | 145 |  |  | $ | 381 |
(*) Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.
Holding gains (losses) on equity securities still held | AFG recorded net holding gains (losses) on equity securities during the first three months of 2020 and 2019 on securities that were still owned at March 31, 2020 and March 31, 2019 as follows (in millions):
| Three months ended March 31,
| 2020 |  | 2019
Included in realized gains (losses) | $ | (540 | ) |  | $ | 163 |
Included in net investment income | (5 | ) |  | 11 |
| $ | (545 | ) |  | $ | 174 |
Gross realized gains and losses on available for sale fixed maturity and equity security investments | Gross realized gains and losses (excluding impairment write-downs and mark-to-market of derivatives) on available for sale fixed maturity investment transactions consisted of the following (in millions):
| Three months ended March 31,
2020 |  | 2019
Gross gains | $ | 29 |  |  | $ | 6 |
Gross losses | (4 | ) |  | (9 | )

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