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Acquisitions and Sale of Businesses | 12 Months Ended
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Dec. 31, 2021
Business Combinations [Abstract] |
Acquisitions and Sale of Businesses | Acquisitions and Sale of Businesses Verikai In December 2021, AFG acquired Verikai, Inc., a machine learning and artificial intelligence company that utilizes a predictive risk tool for assessing insurance risk for $120 million using cash on hand at the parent. Verikai will continue to operate as a stand-alone company to service its insurance clients. AFG expects to benefit from Verikai’s predictive risk tool and unique Marketplace solution as it enters the medical stop loss insurance business, with a primary focus on small and underserved risks. AFG may pay up to $50 million in contingent consideration based on performance measures over a multiple year period. Expenses related to the acquisition were approximately $1 million and were expensed as incurred. The purchase price was allocated to the acquired assets and liabilities of Verikai based on management’s best estimate of fair value as of the acquisition date. The preliminary purchase price allocation shown below (in millions) is subject to refinement during 2022.
| December 6, 2021
Purchase price: |
Cash | $ | 120 |
Fair value of contingent consideration | 23 |
Total purchase price | 143 |
Tangible assets acquired | 16 |
Liabilities acquired | 3 |
Net tangible assets acquired, at fair value | 13 |
Excess purchase price over net tangible assets acquired | $ | 130 |
Allocation of excess purchase price: |
Intangible assets acquired (*) | $ | 76 |
Deferred tax on intangible assets acquired (*) | (16) |
Goodwill | 70 |
| $ | 130 |
(*)Included in Other assets in AFG’s Balance Sheet. In the preliminary purchase price allocation, $76 million of the purchase price was recognized as finite lived intangible assets related to acquired technology and customer relationships, which will be amortized over an average estimated life of approximately 10 years. The acquisition resulted in the recognition of $70 million in non-deductible goodwill based on the excess of the purchase price over the fair value of the net assets acquired. The goodwill represents the fair value of acquired intangible assets that do not qualify for separate recognition, including the value of Verikai’s future technology and opportunities and assembled workforce. Annuity Operations See Note B — Discontinued Operations,” for information on the sale of AFG’s annuity operations. Neon In December 2019, AFG initiated actions to exit the Lloyd’s of London insurance market, which included placing Neon Underwriting Ltd. and its other Lloyd’s subsidiaries in run-off. Neon and its predecessor, Marketform, failed to achieve AFG’s profitability objectives since AFG’s purchase of Marketform in 2008. On June 30, 2020, AFG acquired 100% of the indirect noncontrolling interest in Neon from certain former and current Neon executives for cash based on the nominal fair value of the interest acquired as determined by a third-party valuation firm. On December 31, 2020, AFG completed the sale of GAI Holding Bermuda and its subsidiaries, comprising the legal entities that own Neon, to RiverStone Holdings Limited for proceeds of $6 million. The sale completed AFG’s exit from the Lloyd’s of London insurance market. On the sale date, the carrying value of the assets and liabilities disposed represented approximately 1% of both AFG’s assets and liabilities and are detailed in the table below. Under GAAP accounting guidance, 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. Because AFG’s primary business continues to be commercial property and casualty insurance, as well as the immaterial expected impact on AFG’s ongoing results of operations, the sale of Neon was not reported as a discontinued operation. The gain on the sale of Neon, which was recorded in AFG’s financial statements as of December 31, 2020, is shown below (in millions):
Sale proceeds, net of expenses | $ | 3 |
Assets of businesses to be sold: |
Cash and investments | $ | 453 |
Recoverables from reinsurers | 224 |
Prepaid reinsurance premiums | 8 |
Agents’ balances and premiums receivable | 42 |
Other assets | 60 |
Total assets | 787 |
Liabilities of businesses to be sold: |
Unpaid losses and loss adjustment expenses | 640 |
Unearned premiums | 49 |
Payable to reinsurers | 19 |
Other liabilities | 92 |
Total liabilities | 800 |
Reclassify accumulated other comprehensive income | (7) |
Net liabilities of businesses sold | $ | (20) |
Pretax gain on subsidiaries recorded in 2020 | $ | 23 |
In the second quarter of 2021, AFG received an additional $10 million of cash proceeds and recognized a pretax gain of $4 million related to contingent consideration received on the sale of Neon. Revenues, costs and expenses, and earnings before income taxes for the subsidiaries sold were (in millions):
| Year ended December 31,
| 2020 |  | 2019
Net earned premiums | $ | 200 |  |  | $ | 384 |
Loss and loss adjustment expenses | 218 |  |  | 225 |
Commissions and other underwriting expenses | 117 |  |  | 195 |
Underwriting loss | (135) |  |  | (36) |
Net investment income (loss) | (5) |  |  | 6 |
Other income and expenses, net | (5) |  |  | (10) |
Loss before income taxes and noncontrolling interests | $ | (145) |  |  | $ | (40) |
The impact of Neon exited lines on AFG’s net earnings for the year ended December 31, 2020 is shown below (in millions):
Underwriting loss | $ | (135) |
Net investment income (loss) | (5) |
Other income and expenses, net | (5) |
Loss before income taxes and noncontrolling interests | (145) |
Pretax gain on sale of subsidiaries | 23 |
Total pretax loss from Neon exited lines | (122) |
Tax benefit related to sale of subsidiaries | 72
Less: Net loss attributable to noncontrolling interests | (11) |
Net loss from Neon exited lines attributable to shareholders | $ | (39) |
As discussed in Note L — “Income Taxes,” the sale of Neon allowed AFG to recognize a $72 million tax benefit. Paratransit Book of Business In 2019, National Interstate, a property and casualty insurance subsidiary of AFG, entered into an agreement with Atlas Financial Holdings, Inc. (“AFH”) to become the exclusive underwriter of AFH’s paratransit book of business. In November 2021, National Interstate acquired the renewal rights for fleets with seven or fewer vehicles from AFH for approximately $3 million and in November 2020, acquired the renewal rights for fleets with eight or more vehicles from AFH for approximately $3 million. The purchase price was recognized as an intangible renewal rights asset and is being amortized over the estimated life of the business acquired.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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