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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2023
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission File No. 1-13653
AMERICAN FINANCIAL GROUP, INC.
Incorporated under the Laws of Ohio IRS Employer I.D. No. 31-1544320
301 East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2121

Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class |  | Trading Symbol(s) |  | Name of Each Exchange on Which Registered
| Common Stock |  | AFG |  | New York Stock Exchange
| 5.875% Subordinated Debentures due March 30, 2059 |  | AFGB |  | New York Stock Exchange
| 5.625% Subordinated Debentures due June 1, 2060 |  | AFGD |  | New York Stock Exchange
| 5.125% Subordinated Debentures due December 15, 2059 |  | AFGC |  | New York Stock Exchange
| 4.50% Subordinated Debentures due September 15, 2060 |  | AFGE |  | New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes ☑ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of November 1, 2023, there were 83,777,809 shares of the Registrant’s Common Stock outstanding, excluding 14.9 million shares owned by subsidiaries.

Table of Contents
AMERICAN FINANCIAL GROUP, INC. 10-Q
TABLE OF CONTENTS

| Page
Part I — Financial Information |
Item 1 — Financial Statements: |
Consolidated Balance Sheet | 2
Consolidated Statement of Earnings | 3
Consolidated Statement of Comprehensive Income | 4
Consolidated Statement of Changes in Equity | 6
Consolidated Statement of Cash Flows | 7
Notes to Consolidated Financial Statements | 8
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33
Item 3 — Quantitative and Qualitative Disclosure about Market Risk | 73
Item 4 — Controls and Procedures | 73
Part II — Other Information |
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds | 74
Item 5 — Other Information | 74
Item 6 — Exhibits | 75
Signature | 75

Table of Contents
AMERICAN FINANCIAL GROUP, INC. 10-Q
PART I
ITEM 1. — FINANCIAL STATEMENTS
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in Millions)

| September 30, 2023 |  | December 31, 2022
Assets: |  |  |
Cash and cash equivalents | $ | 1,221 |  |  | $ | 872 |
Investments: |  |  |
Fixed maturities, available for sale at fair value (amortized cost — $10,610 and $10,736; allowance for expected credit losses of $20 and $11) | 9,931 |  |  | 10,095 |
Fixed maturities, trading at fair value | 51 |  |  | 32 |
Equity securities, at fair value | 1,007 |  |  | 1,010 |
Investments accounted for using the equity method | 1,807 |  |  | 1,700 |
Mortgage loans | 644 |  |  | 676 |
Real estate and other investments | 133 |  |  | 127 |
Total cash and investments | 14,794 |  |  | 14,512 |
Recoverables from reinsurers | 4,421 |  |  | 3,977 |
Prepaid reinsurance premiums | 1,223 |  |  | 917 |
Agents’ balances and premiums receivable | 2,088 |  |  | 1,339 |
Deferred policy acquisition costs | 324 |  |  | 288 |
Assets of managed investment entities | 4,871 |  |  | 5,447 |
Other receivables | 1,377 |  |  | 886 |
Other assets | 1,422 |  |  | 1,219 |
Goodwill | 305 |  |  | 246 |
Total assets | $ | 30,825 |  |  | $ | 28,831 |
Liabilities and Equity: |  |  |
Unpaid losses and loss adjustment expenses | $ | 12,891 |  |  | $ | 11,974 |
Unearned premiums | 3,997 |  |  | 3,246 |
Payable to reinsurers | 1,398 |  |  | 1,035 |
Liabilities of managed investment entities | 4,728 |  |  | 5,332 |
Long-term debt | 1,474 |  |  | 1,496 |
Other liabilities | 2,356 |  |  | 1,696 |
Total liabilities | 26,844 |  |  | 24,779 |
Shareholders’ equity: |  |  |
Common Stock, no par value — 200,000,000 shares authorized — 84,135,710 and 85,204,006 shares outstanding | 84 |  |  | 85 |
Capital surplus | 1,372 |  |  | 1,368 |
Retained earnings | 3,095 |  |  | 3,142 |
Accumulated other comprehensive income (loss), net of tax | (570) |  |  | (543) |
Total shareholders’ equity | 3,981 |  |  | 4,052 |
Total liabilities and shareholders’ equity | $ | 30,825 |  |  | $ | 28,831 |

2

Table of Contents
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(In Millions, Except Per Share Data)

| Three months ended September 30, |  | Nine months ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues: |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 1,855 |  |  | $ | 1,767 |  |  | $ | 4,799 |  |  | $ | 4,462 |
Net investment income | 168 |  |  | 151 |  |  | 583 |  |  | 549 |
Realized gains (losses) on: |  |  |  |  |  |  |
Securities | (19) |  |  | (35) |  |  | (67) |  |  | (143) |
Subsidiary | (4) |  |  | — |  |  | (4) |  |  | — |
Income of managed investment entities: |  |  |  |  |  |  |
Investment income | 105 |  |  | 75 |  |  | 321 |  |  | 175 |
Gain (loss) on change in fair value of assets/liabilities | 16 |  |  | (5) |  |  | 12 |  |  | (25) |
Other income | 43 |  |  | 31 |  |  | 100 |  |  | 93 |
Total revenues | 2,164 |  |  | 1,984 |  |  | 5,744 |  |  | 5,111 |
Costs and Expenses: |  |  |  |  |  |  |
Property and casualty insurance: |  |  |  |  |  |  |
Losses and loss adjustment expenses | 1,239 |  |  | 1,176 |  |  | 2,964 |  |  | 2,643 |
Commissions and other underwriting expenses | 497 |  |  | 445 |  |  | 1,455 |  |  | 1,291 |
Interest charges on borrowed money | 19 |  |  | 19 |  |  | 57 |  |  | 65 |
Expenses of managed investment entities | 105 |  |  | 62 |  |  | 303 |  |  | 148 |
Other expenses | 85 |  |  | 72 |  |  | 227 |  |  | 187 |
Total costs and expenses | 1,945 |  |  | 1,774 |  |  | 5,006 |  |  | 4,334 |
Earnings before income taxes | 219 |  |  | 210 |  |  | 738 |  |  | 777 |
Provision for income taxes | 42 |  |  | 45 |  |  | 149 |  |  | 155 |
Net Earnings | $ | 177 |  |  | $ | 165 |  |  | $ | 589 |  |  | $ | 622 |
Earnings per Common Share: |  |  |  |  |  |  |
Total basic earnings | $ | 2.10 |  |  | $ | 1.93 |  |  | $ | 6.93 |  |  | $ | 7.30 |
Total diluted earnings | $ | 2.09 |  |  | $ | 1.93 |  |  | $ | 6.93 |  |  | $ | 7.29 |
Average number of Common Shares: |  |  |  |  |  |  |
Basic | 84.6 |  |  | 85.2 |  |  | 85.0 |  |  | 85.1 |
Diluted | 84.7 |  |  | 85.4 |  |  | 85.1 |  |  | 85.3 |

3

Table of Contents
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(In Millions)

| Three months ended September 30, |  | Nine months ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net earnings | $ | 177 |  |  | $ | 165 |  |  | $ | 589 |  |  | $ | 622 |
Other comprehensive loss, net of tax: |  |  |  |  |  |  |
Net unrealized gains (losses) on securities: |  |  |  |  |  |  |
Unrealized holding gains (losses) on securities arising during the period | (64) |  |  | (231) |  |  | (55) |  |  | (698) |
Reclassification adjustment for realized (gains) losses included in net earnings | 7 |  |  | 3 |  |  | 31 |  |  | 8 |
Total net unrealized gains (losses) on securities | (57) |  |  | (228) |  |  | (24) |  |  | (690) |
Net unrealized gains (losses) on cash flow hedges: |  |  |  |  |  |  |
Unrealized holding gains (losses) on cash flow hedges arising during the period | (7) |  |  | (21) |  |  | (20) |  |  | (27) |
Reclassification adjustment for investment income included in net earnings | 6 |  |  | — |  |  | 15 |  |  | (2) |
Total net unrealized gains (losses) on cash flow hedges | (1) |  |  | (21) |  |  | (5) |  |  | (29) |
Foreign currency translation adjustments | (1) |  |  | (5) |  |  | 2 |  |  | (2) |
Other comprehensive loss, net of tax | (59) |  |  | (254) |  |  | (27) |  |  | (721) |
Comprehensive income (loss) | $ | 118 |  |  | $ | (89) |  |  | $ | 562 |  |  | $ | (99) |

4

Table of Contents
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(Dollars in Millions)

|  |  |  | Shareholders’ Equity |  |  |  |
Common Shares |  |  | Common Stock and Capital Surplus |  | Retained Earnings |  | Accumulated Other Comp. Income (Loss) |  | Total |  |  |  |
Balance at June 30, 2023 | 84,858,528 |  |  |  | $ | 1,462 |  |  | $ | 3,042 |  |  | $ | (511) |  |  | $ | 3,993 |  |  |  |  |
Net earnings | — |  |  |  | — |  |  | 177 |  |  | — |  |  | 177 |  |  |  |  |
Other comprehensive loss | — |  |  |  | — |  |  | — |  |  | (59) |  |  | (59) |  |  |  |  |
Dividends ($0.63 per share) | — |  |  |  | — |  |  | (52) |  |  | — |  |  | (52) |  |  |  |  |
Shares issued: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options | 6,230 |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Restricted stock awards | — |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Other benefit plans | 25,212 |  |  |  | 3 |  |  | — |  |  | — |  |  | 3 |  |  |  |  |
Dividend reinvestment plan | 1,696 |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Stock-based compensation expense | — |  |  |  | 5 |  |  | — |  |  | — |  |  | 5 |  |  |  |  |
Shares acquired and retired | (755,111) |  |  |  | (14) |  |  | (72) |  |  | — |  |  | (86) |  |  |  |  |
Shares exchanged — benefit plans | (193) |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Forfeitures of restricted stock | (652) |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Balance at September 30, 2023 | 84,135,710 |  |  |  | $ | 1,456 |  |  | $ | 3,095 |  |  | $ | (570) |  |  | $ | 3,981 |  |  |  |  |
Balance at June 30, 2022 | 85,154,263 |  |  |  | $ | 1,436 |  |  | $ | 2,979 |  |  | $ | (348) |  |  | $ | 4,067 |  |  |  |  |
Net earnings | — |  |  |  | — |  |  | 165 |  |  | — |  |  | 165 |  |  |  |  |
Other comprehensive loss | — |  |  |  | — |  |  | — |  |  | (254) |  |  | (254) |  |  |  |  |
Dividends ($0.56 per share) | — |  |  |  | — |  |  | (48) |  |  | — |  |  | (48) |  |  |  |  |
Shares issued: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options | 14,553 |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Restricted stock awards | — |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Other benefit plans | 19,220 |  |  |  | 2 |  |  | — |  |  | — |  |  | 2 |  |  |  |  |
Dividend reinvestment plan | 1,328 |  |  |  | 1 |  |  | — |  |  | — |  |  | 1 |  |  |  |  |
Stock-based compensation expense | — |  |  |  | 4 |  |  | — |  |  | — |  |  | 4 |  |  |  |  |
Shares acquired and retired | (45,500) |  |  |  | — |  |  | (5) |  |  | — |  |  | (5) |  |  |  |  |
Shares exchanged — benefit plans | (886) |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Forfeitures of restricted stock | (2,457) |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Balance at September 30, 2022 | 85,140,521 |  |  |  | $ | 1,443 |  |  | $ | 3,091 |  |  | $ | (602) |  |  | $ | 3,932 |  |  |  |  |

5

Table of Contents
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) — CONTINUED
(Dollars in Millions)

|  |  |  | Shareholders’ Equity |  |  |  |
Common Shares |  |  | Common Stock and Capital Surplus |  | Retained Earnings |  | Accumulated Other Comp. Income (Loss) |  | Total |  |  |  |
Balance at December 31, 2022 | 85,204,006 |  |  |  | $ | 1,453 |  |  | $ | 3,142 |  |  | $ | (543) |  |  | $ | 4,052 |  |  |  |  |
Net earnings | — |  |  |  | — |  |  | 589 |  |  | — |  |  | 589 |  |  |  |  |
Other comprehensive loss | — |  |  |  | — |  |  | — |  |  | (27) |  |  | (27) |  |  |  |  |
Dividends ($5.89 per share) | — |  |  |  | — |  |  | (500) |  |  | — |  |  | (500) |  |  |  |  |
Shares issued: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options | 83,631 |  |  |  | 3 |  |  | — |  |  | — |  |  | 3 |  |  |  |  |
Restricted stock awards | 165,513 |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Other benefit plans | 71,499 |  |  |  | 9 |  |  | — |  |  | — |  |  | 9 |  |  |  |  |
Dividend reinvestment plan | 14,159 |  |  |  | 2 |  |  | — |  |  | — |  |  | 2 |  |  |  |  |
Stock-based compensation expense | — |  |  |  | 14 |  |  | — |  |  | — |  |  | 14 |  |  |  |  |
Shares acquired and retired | (1,329,831) |  |  |  | (24) |  |  | (129) |  |  | — |  |  | (153) |  |  |  |  |
Shares exchanged — benefit plans | (56,629) |  |  |  | (1) |  |  | (7) |  |  | — |  |  | (8) |  |  |  |  |
Forfeitures of restricted stock | (16,638) |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Balance at September 30, 2023 | 84,135,710 |  |  |  | $ | 1,456 |  |  | $ | 3,095 |  |  | $ | (570) |  |  | $ | 3,981 |  |  |  |  |
Balance at December 31, 2021 | 84,920,965 |  |  |  | $ | 1,415 |  |  | $ | 3,478 |  |  | $ | 119 |  |  | $ | 5,012 |  |  |  |  |
Net earnings | — |  |  |  | — |  |  | 622 |  |  | — |  |  | 622 |  |  |  |  |
Other comprehensive loss | — |  |  |  | — |  |  | — |  |  | (721) |  |  | (721) |  |  |  |  |
Dividends ($11.68 per share) | — |  |  |  | — |  |  | (993) |  |  | — |  |  | (993) |  |  |  |  |
Shares issued: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options | 138,498 |  |  |  | 5 |  |  | — |  |  | — |  |  | 5 |  |  |  |  |
Restricted stock awards | 151,080 |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Other benefit plans | 54,171 |  |  |  | 7 |  |  | — |  |  | — |  |  | 7 |  |  |  |  |
Dividend reinvestment plan | 27,518 |  |  |  | 4 |  |  | — |  |  | — |  |  | 4 |  |  |  |  |
Stock-based compensation expense | — |  |  |  | 14 |  |  | — |  |  | — |  |  | 14 |  |  |  |  |
Shares acquired and retired | (80,701) |  |  |  | (1) |  |  | (9) |  |  | — |  |  | (10) |  |  |  |  |
Shares exchanged — benefit plans | (57,195) |  |  |  | (1) |  |  | (7) |  |  | — |  |  | (8) |  |  |  |  |
Forfeitures of restricted stock | (13,815) |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Balance at September 30, 2022 | 85,140,521 |  |  |  | $ | 1,443 |  |  | $ | 3,091 |  |  | $ | (602) |  |  | $ | 3,932 |  |  |  |  |

6

Table of Contents
AMERICAN FINANCIAL GROUP, INC. 10-Q
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Millions)

| Nine months ended September 30,
| 2023 |  | 2022
Operating Activities: |  |  |
Net earnings | $ | 589 |  |  | $ | 622 |
Adjustments: |  |  |
Depreciation and amortization | 60 |  |  | 78 |
Realized (gains) losses on investing activities | 69 |  |  | 136 |
Net purchases of trading securities | (3) |  |  | (2) |
Change in: |  |  |
Reinsurance and other receivables | (1,799) |  |  | (1,830) |
Other assets | (63) |  |  | (163) |
Insurance claims and reserves | 1,668 |  |  | 1,737 |
Payable to reinsurers | 363 |  |  | 446 |
Other liabilities | 357 |  |  | 16 |
Managed investment entities’ assets/liabilities | 26 |  |  | 133 |
Other operating activities, net | (53) |  |  | (130) |
Net cash provided by operating activities | 1,214 |  |  | 1,043 |
Investing Activities: |  |  |
Purchases of: |  |  |
Fixed maturities | (1,463) |  |  | (3,733) |
Equity securities | (101) |  |  | (194) |
Mortgage loans | — |  |  | (273) |
Other investments | (109) |  |  | (96) |
Real estate, property and equipment | (40) |  |  | (72) |
Businesses | (234) |  |  | (10) |
Proceeds from: |  |  |
Maturities and redemptions of fixed maturities | 1,047 |  |  | 2,126 |
Repayments of mortgage loans | 33 |  |  | 117 |
Sales of fixed maturities | 551 |  |  | 1,068 |
Sales of equity securities | 95 |  |  | 112 |
Sales of other investments | 49 |  |  | 128 |
Sales of real estate, property and equipment | 2 |  |  | 31 |
Cash and cash equivalents of businesses acquired | 26 |  |  | — |
Managed investment entities: |  |  |
Purchases of investments | (1,223) |  |  | (1,061) |
Proceeds from sales and redemptions of investments | 1,832 |  |  | 801 |
Other investing activities, net | (6) |  |  | (6) |
Net cash provided by (used in) investing activities | 459 |  |  | (1,062) |
Financing Activities: |  |  |
Reductions of long-term debt | (21) |  |  | (436) |
Issuances of Common Stock | 11 |  |  | 12 |
Repurchases of Common Stock | (153) |  |  | (10) |
Cash dividends paid on Common Stock | (498) |  |  | (989) |
Issuances of managed investment entities’ liabilities | 621 |  |  | 666 |
Retirements of managed investment entities’ liabilities | (1,284) |  |  | (561) |
Net cash used in financing activities | (1,324) |  |  | (1,318) |
Net Change in Cash and Cash Equivalents | 349 |  |  | (1,337) |
Cash and cash equivalents at beginning of period | 872 |  |  | 2,131 |
Cash and cash equivalents at end of period | $ | 1,221 |  |  | $ | 794 |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO NOTES
A. | Accounting Policies |  | H. | Goodwill and Other Intangibles |
B. | Acquisition of Businesses |  | I. | Long-Term Debt |
C. | Segments of Operations |  | J. | Shareholders’ Equity |
D. | Fair Value Measurements |  | K. | Income Taxes |
E. | Investments |  | L. | Contingencies |
F. | Derivatives |  | M. | Insurance |
G. | Managed Investment Entities |  |  |  |

A. Accounting Policies
Basis of Presentation The accompanying consolidated financial statements for American Financial Group, Inc. and its subsidiaries (“AFG”) are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles (“GAAP”).
Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to September 30, 2023, and prior to the filing of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.
The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.
Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability.
In the third quarter of 2023, AFG had nonrecurring fair value measurements for the preliminary purchase price allocation related to its acquisition of Crop Risk Services (see Note B — “Acquisition of Businesses”) and the write-off of a portion of goodwill related to AFG’s investment in Verikai (see Note H — “Goodwill and Other Intangibles”). These fair value measurements were based on significant inputs that are unobservable (Level 3).There were no other material nonrecurring fair value measurements in the first nine months of 2023.
Investments Equity securities other than those accounted for under the equity method are reported at fair value with holding gains and losses generally recorded in realized gains (losses) on securities. However, AFG records holding gains and losses on limited partnerships and similar investments that do not qualify for equity method accounting (and are therefore carried at fair value), and certain other securities classified at purchase as “fair value through net investment income” in net investment income.
Fixed maturity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (“AOCI”) in AFG’s Balance Sheet. Fixed maturity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in net investment income. Mortgage loans (net of any allowance) are carried primarily at the aggregate unpaid balance.
Realized gains or losses on the disposal of fixed maturity securities are determined on the specific identification basis. Premiums and discounts on fixed maturity securities are amortized using the effective interest method. Mortgage-backed
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.
Limited partnerships and similar investments are generally accounted for using the equity method of accounting. Under the equity method, AFG records its share of the earnings or losses of the investee based on when it is reported by the investee in its financial statements rather than in the period in which the investee declares a dividend. AFG’s share of the earnings or losses from equity method investments is generally recorded on a quarter lag due to the timing of the receipt of the investee’s financial statements. AFG’s equity in the earnings (losses) of limited partnerships and similar investments is included in net investment income.
Credit Losses on Fixed Maturity Investments When a decline in the value of an available for sale fixed maturity is considered to be other-than-temporary at the balance sheet date, an allowance for credit losses (impairment), including any write-off of accrued interest, is charged to earnings (included in realized gains (losses) on securities). If management can assert that it does not intend to sell the security and it is not more likely than not that it will have to sell it before recovery of its amortized cost basis (net of allowance), then the impairment is separated into two components: (i) the allowance related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in other comprehensive income). The credit-related portion is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the charge. The allowance is limited to the difference between a security’s amortized cost basis and its fair value. Subsequent increases or decreases in expected credit losses are recorded immediately in net earnings through realized gains (losses). If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment is recorded in earnings to reduce the amortized cost (net of allowance) of that security to fair value.
Credit Losses on Financial Instruments Measured at Amortized Cost Credit-related impairments for financial instruments measured at amortized cost (mortgage loans, premiums receivable and reinsurance recoverables) reflect estimated credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses considers historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. Expected credit losses, and subsequent increases or decreases in such expected losses, are recorded immediately through net earnings as an allowance that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the balance sheet at the amount expected to be collected.
Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value. Changes in fair value of derivatives are included in earnings unless the derivatives are designated and qualify as highly effective cash flow hedges. AFG’s derivatives that do not qualify for hedge accounting under GAAP consist primarily of components of certain fixed maturity securities (convertible fixed maturities and interest-only and principal-only MBS) and a total return swap related to its deferred compensation obligations to employees.
To qualify for hedge accounting, at the inception of a derivative contract, AFG formally documents the relationship between the terms of the hedge and the hedged items and its risk management objective. This documentation includes defining how hedge effectiveness is evaluated at the inception date and over the life of the derivative.
Changes in the fair value of derivatives that are designated and qualify as highly effective cash flow hedges are recorded in AOCI and are reclassified into earnings when the variability of the cash flows from the hedged items impacts earnings. When the change in the fair value of a qualifying cash flow hedge is included in earnings, it is included in the same line item in the statement of earnings as the cash flows from the hedged item. AFG uses interest rate swaps that are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities.
Goodwill Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets at the date of acquisition. Goodwill is not amortized, but is subject to an impairment test at least annually. An entity is not required to complete the quantitative annual goodwill impairment test on a reporting unit if the entity elects to perform a qualitative analysis and determines that it is more likely than not that the reporting unit’s fair value exceeds its carrying amount.
Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG reports as assets (i) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (ii) amounts paid or due to reinsurers
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers, as well as ceded premiums retained by AFG under contracts to fund ceded losses as they become due. AFG also assumes reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.
Deferred Policy Acquisition Costs (“DPAC”) Policy acquisition costs (principally commissions, premium taxes and certain underwriting and policy issuance costs) directly related to the successful acquisition or renewal of an insurance contract are deferred. DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses and unamortized acquisition costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.
Managed Investment Entities A company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.
AFG manages, and has investments in, collateralized loan obligations (“CLOs”) that are VIEs (see Note G — “Managed Investment Entities”). AFG has determined that it is the primary beneficiary of these CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) through its investment in the CLO debt tranches, it has exposure to CLO losses (limited to the amount AFG invested) and the right to receive CLO benefits that could potentially be significant to the CLOs.
Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The net gain or loss from accounting for the CLO assets and liabilities at fair value is presented separately in AFG’s Statement of Earnings.
The fair values of a CLO’s assets may differ from the separately measured fair values of its liabilities even though the CLO liabilities only have recourse to the CLO assets. AFG has set the carrying value of the CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at a separately measured fair value. CLO earnings attributable to AFG’s shareholders are measured by the change in the fair value of AFG’s investments in the CLOs and management fees earned.
At September 30, 2023, assets and liabilities of managed investment entities included $120 million in assets and $97 million in liabilities of a temporary warehousing entity that was established to provide AFG the ability to form a new CLO. At closing, all warehoused assets will be transferred to the new CLO and the liabilities will be repaid.
Unpaid Losses and Loss Adjustment Expenses The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims represent management’s best estimate and are based upon (i) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of unreported losses (including possible development on known claims) based on past experience; (iv) estimates based on experience of expenses for investigating and adjusting claims; and (v) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.
Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the statement of earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate and reasonable.
Debt Issuance Costs Debt issuance costs related to AFG’s outstanding debt are presented in its Balance Sheet as a direct reduction in the carrying value of long-term debt and are amortized over the life of the related debt using the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
effective interest method as a component of interest expense. Debt issuance costs related to AFG’s revolving credit facilities are included in other assets in AFG’s Balance Sheet.
Leases Leases for terms of longer than one year are recognized as assets and liabilities for the rights and obligations created by those leases on the balance sheet based on the present value of contractual cash flows.
At September 30, 2023 AFG has a $189 million lease liability included in other liabilities and a lease right-of-use asset of $167 million included in other assets compared to $116 million and $103 million, respectively, at December 31, 2022. The increase in the lease liability and right-of-use asset is due primarily to the renewal of AFG’s largest office lease in the second quarter of 2023, which extended the term for an additional 10 years.
Premium Recognition Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written, which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations.
Income Taxes Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. A valuation allowance is established to reduce total deferred tax assets to an amount that will more likely than not be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recorded in net earnings in the period that includes the enactment date.
AFG recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained under examination by the appropriate taxing authority. Interest and penalties on AFG’s reserve for uncertain tax positions are recognized as a component of tax expense.
Stock-Based Compensation All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated fair value at the date of grant.
AFG records excess tax benefits or deficiencies for share-based payments through income tax expense in the statement of earnings. In addition, AFG accounts for forfeitures of awards when they occur.
Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.
Earnings Per Share Although basic earnings per share only considers shares of common stock outstanding during the period, the calculation of diluted earnings per share includes the following adjustments to weighted average common shares related to stock-based compensation plans: third quarter 2023 and 2022 — 0.1 million and 0.2 million; first nine months of 2023 and 2022 — 0.1 million and 0.2 million.
There were no anti-dilutive potential common shares for the third quarter or the first nine months of 2023 or 2022.
Statement of Cash Flows For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments, property and equipment and businesses. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.
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B. Acquisition of Businesses
Crop Risk Services On July 3, 2023, AFG completed the acquisition of Crop Risk Services (“CRS”) from American International Group (“AIG”). CRS is a primary crop insurance general agent based in Decatur, Illinois, with crop year 2022 gross written premiums of approximately $1.2 billion and was the seventh largest provider of multi-peril crop insurance in the United States based on 2022 premiums. At closing, AFG paid AIG $234 million (based on an estimated $24 million in net tangible assets) using cash on hand. The purchase is subject to post closing adjustments, which are not expected to be material and will be finalized in the fourth quarter of 2023.
AFG expensed the $3 million in acquisition expenses incurred. The purchase price was allocated to the acquired assets and liabilities of CRS based on management’s best estimate of fair value as of the acquisition date. The preliminary purchase price allocation is shown below (in millions).

| July 3, 2023
Cash paid at purchase | $ | 234 |
Tangible assets acquired: |
Cash and cash equivalents | $ | 26 |
Agents’ balances and premiums receivable | 164 |
Other assets | 3 |
Total tangible assets acquired | $ | 193 |
Liabilities acquired: |
Other liabilities | $ | 169 |
Total liabilities acquired | 169 |
Net tangible assets acquired, at fair value | 24 |
Excess purchase price over net tangible assets acquired | $ | 210 |
Allocation of excess purchase price: |
Intangible assets acquired (*) | $ | 124 |
Deferred tax asset (*) | 1 |
Goodwill | 85 |
| $ | 210 |

(*)Included in Other assets in AFG’s Balance Sheet.
In the preliminary purchase price allocation, $124 million of the purchase price was recognized as finite lived intangible assets primarily related to existing agency relationships, which will be amortized over an average estimated life of approximately 14 years. The acquisition resulted in the recognition of $85 million in GAAP basis goodwill based on the excess of the purchase price over the fair value of the net assets acquired. The acquisition resulted in $79 million of tax basis goodwill which is deductible for tax purposes.
In the third quarter of 2022, AFG acquired an insurance agency business for $12 million, including $10 million in cash. Virtually all of the purchase price was recorded as an amortizing intangible asset representing the fair value of the agency’s customer base at acquisition.
C. Segments of Operations
AFG manages its business as two segments: Property and casualty insurance and Other, which includes holding company costs and operations attributable to the noncontrolling interests of the managed investment entities.
AFG reports its property and casualty insurance business in the following Specialty sub-segments: (i) Property and transportation, which includes physical damage and liability coverage for buses and trucks and other specialty transportation niches, inland and ocean marine, agricultural-related products and other commercial property coverages, (ii) Specialty casualty, which includes primarily excess and surplus, executive and professional liability, general liability, umbrella and excess liability, specialty coverages in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance, and (iii) Specialty financial, which includes risk management insurance programs for lending and leasing institutions (including equipment leasing and collateral and lender-placed mortgage
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property insurance), fidelity and surety products and trade credit insurance. Premiums and underwriting profit included under Other specialty represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments and amortization of a deferred gain on a retroactive reinsurance transaction related to the sale of a business. AFG’s reportable segments and their components were determined based primarily upon similar economic characteristics, products and services.
The following tables (in millions) show AFG’s revenues and earnings before income taxes by segment and sub-segment.

| Three months ended September 30, |  | Nine months ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues |  |  |  |  |  |  |
Property and casualty insurance: |  |  |  |  |  |  |
Premiums earned: |  |  |  |  |  |  |
Specialty |  |  |  |  |  |  |
Property and transportation | $ | 828 |  |  | $ | 857 |  |  | $ | 1,837 |  |  | $ | 1,805 |
Specialty casualty | 734 |  |  | 677 |  |  | 2,149 |  |  | 1,973 |
Specialty financial | 232 |  |  | 171 |  |  | 623 |  |  | 505 |
Other specialty | 61 |  |  | 62 |  |  | 190 |  |  | 179 |
Total premiums earned | 1,855 |  |  | 1,767 |  |  | 4,799 |  |  | 4,462 |
Net investment income | 170 |  |  | 145 |  |  | 568 |  |  | 524 |
Other income | 5 |  |  | 2 |  |  | 13 |  |  | 12 |
Total property and casualty insurance | 2,030 |  |  | 1,914 |  |  | 5,380 |  |  | 4,998 |
Other | 157 |  |  | 105 |  |  | 435 |  |  | 256 |
Total revenues before realized gains (losses) | 2,187 |  |  | 2,019 |  |  | 5,815 |  |  | 5,254 |
Realized gains (losses) on securities | (19) |  |  | (35) |  |  | (67) |  |  | (143) |
Realized loss on subsidiary | (4) |  |  | — |  |  | (4) |  |  | — |
Total revenues | $ | 2,164 |  |  | $ | 1,984 |  |  | $ | 5,744 |  |  | $ | 5,111 |
Earnings Before Income Taxes |  |  |  |  |  |  |
Property and casualty insurance: |  |  |  |  |  |  |
Underwriting: |  |  |  |  |  |  |
Specialty |  |  |  |  |  |  |
Property and transportation | $ | 42 |  |  | $ | 39 |  |  | $ | 117 |  |  | $ | 140 |
Specialty casualty | 78 |  |  | 118 |  |  | 261 |  |  | 372 |
Specialty financial | 29 |  |  | 15 |  |  | 65 |  |  | 81 |
Other specialty | (6) |  |  | (14) |  |  | (22) |  |  | (30) |
Other lines | (1) |  |  | (3) |  |  | (1) |  |  | (5) |
Total underwriting | 142 |  |  | 155 |  |  | 420 |  |  | 558 |
Investment and other income, net | 156 |  |  | 134 |  |  | 527 |  |  | 498 |
Total property and casualty insurance | 298 |  |  | 289 |  |  | 947 |  |  | 1,056 |
Other (*) | (56) |  |  | (44) |  |  | (138) |  |  | (136) |
Total earnings (loss) before realized gains (losses) and income taxes | 242 |  |  | 245 |  |  | 809 |  |  | 920 |
Realized gains (losses) on securities | (19) |  |  | (35) |  |  | (67) |  |  | (143) |
Realized loss on subsidiary | (4) |  |  | — |  |  | (4) |  |  | — |
Total earnings before income taxes | $ | 219 |  |  | $ | 210 |  |  | $ | 738 |  |  | $ | 777 |

(*)Includes holding company interest and expenses, which includes gains/(losses) on retirement of debt as follows: zero and $1 million in the third quarters of 2023 and 2022, respectively; $1 million and ($10) million in the first nine months of 2023 and 2022, respectively. Also includes a special charge of $15 million in the third quarter of 2023 to increase A&E reserves related to AFG’s former railroad and manufacturing operations.
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D. Fair Value Measurements
Accounting standards for measuring fair value are based on inputs used in estimating fair value. The three levels of the hierarchy are as follows:
Level 1 — Quoted prices for identical assets or liabilities in active markets (markets in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis). AFG’s Level 1 financial instruments consist primarily of publicly traded equity securities, highly liquid government bonds for which quoted market prices in active markets are available and short-term investments of managed investment entities.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar assets or liabilities in inactive markets (markets in which there are few transactions, the prices are not current, price quotations vary substantially over time or among market makers, or in which little information is released publicly); and valuations based on other significant inputs that are observable in active markets. AFG’s Level 2 financial instruments include corporate and municipal fixed maturity securities, asset-backed securities (“ABS”), mortgage-backed securities (“MBS”), certain non-affiliated common stocks and investments of managed investment entities priced using observable inputs. Level 2 inputs include benchmark yields, reported trades, corroborated broker/dealer quotes, issuer spreads and benchmark securities. When non-binding broker quotes can be corroborated by comparison to similar securities priced using observable inputs, they are classified as Level 2.
Level 3 — Valuations derived from market valuation techniques generally consistent with those used to estimate the fair values of Level 2 financial instruments in which one or more significant inputs are unobservable or when the market for a security exhibits significantly less liquidity relative to markets supporting Level 2 fair value measurements. The unobservable inputs may include management’s own assumptions about the assumptions market participants would use based on the best information available at the valuation date. Financial instruments whose fair value is estimated based on non-binding broker quotes or internally developed using significant inputs not based on, or corroborated by, observable market information are classified as Level 3.
The contingent consideration liability related to the 2021 acquisition of Verikai ($22 million at December 31, 2022) was measured using a weighted probability-based income approach, which includes significant unobservable inputs and is classified as Level 3, and represents the fair value of the up to $50 million in potential acquisition-related contingent consideration tied to performance measures over a specific time period. Due to slower than anticipated growth in the business supported by the Verikai technology, the fair value of this liability was reduced to zero in the third quarter of 2023. The $22 million gain from this change in fair value and a goodwill impairment charge of $26 million related to Verikai (see Note H — “Goodwill and Other Intangibles”) is included in realized loss on subsidiary in AFG’s Statement of Earnings.
As discussed in Note A — “Accounting Policies — Managed Investment Entities,” AFG has set the carrying value of its CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at separately measured fair values. As a result, the CLO liabilities are categorized within the fair value hierarchy on the same basis (proportionally) as the related CLO assets. Since the portion of the CLO liabilities allocated to Level 3 is derived from the fair value of the CLO assets, these amounts are excluded from the progression of Level 3 financial instruments.
AFG’s management is responsible for the valuation process and uses data from outside sources (including nationally recognized pricing services and broker/dealers) in establishing fair value. AFG’s internal investment professionals are a group of approximately 20 investment professionals whose primary responsibility is to manage AFG’s investment portfolio. These professionals monitor individual investments as well as overall industries and are active in the financial markets on a daily basis. The group is led by AFG’s chief investment officer, who reports directly to one of AFG’s Co-CEOs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with the pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

| Level 1 |  | Level 2 |  | Level 3 |  | Total
September 30, 2023 |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |
Available for sale (“AFS”) fixed maturities: |  |  |  |  |  |  |
U.S. government and government agencies | $ | 228 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 229 |
States, municipalities and political subdivisions | — |  |  | 909 |  |  | 2 |  |  | 911 |
Foreign government | — |  |  | 218 |  |  | — |  |  | 218 |
Residential MBS | — |  |  | 1,614 |  |  | 5 |  |  | 1,619 |
Commercial MBS | — |  |  | 76 |  |  | — |  |  | 76 |
Collateralized loan obligations | — |  |  | 1,722 |  |  | 1 |  |  | 1,723 |
Other asset-backed securities | — |  |  | 1,947 |  |  | 330 |  |  | 2,277 |
Corporate and other | 9 |  |  | 2,517 |  |  | 352 |  |  | 2,878 |
Total AFS fixed maturities | 237 |  |  | 9,004 |  |  | 690 |  |  | 9,931 |
Trading fixed maturities | — |  |  | 51 |  |  | — |  |  | 51 |
Equity securities | 521 |  |  | 32 |  |  | 454 |  |  | 1,007 |
Assets of managed investment entities (“MIE”) | 674 |  |  | 4,187 |  |  | 10 |  |  | 4,871 |
Total assets accounted for at fair value | $ | 1,432 |  |  | $ | 13,274 |  |  | $ | 1,154 |  |  | $ | 15,860 |
Liabilities: |  |  |  |  |  |  |
Contingent consideration — acquisitions | $ | — |  |  | $ | — |  |  | $ | 2 |  |  | $ | 2 |
Liabilities of managed investment entities | 654 |  |  | 4,064 |  |  | 10 |  |  | 4,728 |
Other liabilities — derivatives | — |  |  | 48 |  |  | — |  |  | 48 |
Total liabilities accounted for at fair value | $ | 654 |  |  | $ | 4,112 |  |  | $ | 12 |  |  | $ | 4,778 |
December 31, 2022 |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |
Available for sale fixed maturities: |  |  |  |  |  |  |
U.S. government and government agencies | $ | 219 |  |  | $ | — |  |  | $ | — |  |  | $ | 219 |
States, municipalities and political subdivisions | — |  |  | 1,181 |  |  | 5 |  |  | 1,186 |
Foreign government | — |  |  | 226 |  |  | — |  |  | 226 |
Residential MBS | — |  |  | 1,589 |  |  | 9 |  |  | 1,598 |
Commercial MBS | — |  |  | 85 |  |  | — |  |  | 85 |
Collateralized loan obligations | — |  |  | 1,919 |  |  | 2 |  |  | 1,921 |
Other asset-backed securities | — |  |  | 1,916 |  |  | 329 |  |  | 2,245 |
Corporate and other | 8 |  |  | 2,288 |  |  | 319 |  |  | 2,615 |
Total AFS fixed maturities | 227 |  |  | 9,204 |  |  | 664 |  |  | 10,095 |
Trading fixed maturities | — |  |  | 32 |  |  | — |  |  | 32 |
Equity securities | 556 |  |  | 27 |  |  | 427 |  |  | 1,010 |
Assets of managed investment entities | 659 |  |  | 4,777 |  |  | 11 |  |  | 5,447 |
Total assets accounted for at fair value | $ | 1,442 |  |  | $ | 14,040 |  |  | $ | 1,102 |  |  | $ | 16,584 |
Liabilities: |  |  |  |  |  |  |
Contingent consideration — acquisitions | $ | — |  |  | $ | — |  |  | $ | 25 |  |  | $ | 25 |
Liabilities of managed investment entities | 645 |  |  | 4,676 |  |  | 11 |  |  | 5,332 |
Other liabilities — derivatives | — |  |  | 42 |  |  | — |  |  | 42 |
Total liabilities accounted for at fair value | $ | 645 |  |  | $ | 4,718 |  |  | $ | 36 |  |  | $ | 5,399 |

Approximately 7% of the total assets carried at fair value at September 30, 2023, were Level 3 assets. Approximately 10% ($113 million) of those Level 3 assets were priced using non-binding broker quotes, for which there is a lack of transparency as to the inputs used to determine fair value. Details as to the quantitative inputs are neither provided by the brokers nor otherwise reasonably obtainable by AFG. Approximately 1% ($13 million) of the Level 3 assets were priced by pricing services where either a single price was not corroborated, prices varied enough among the providers, or other market factors led management to determine these securities be classified as Level 3 assets. Approximately 28% ($322 million) of the Level 3 assets were equity investments in limited partnerships and similar investments that do not
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
qualify for equity method accounting whose prices were determined based on financial information provided by the limited partnerships.
Internally developed prices for fixed maturities are estimated using a variety of inputs, including appropriate credit spreads over the treasury yield (of a similar duration), trade information and prices of comparable securities and other security specific features (such as optional early redemption). Internally developed Level 3 asset fair values represent approximately 61% ($706 million) of the total fair value of Level 3 assets at September 30, 2023. Approximately 68% ($481 million) of these internally developed Level 3 assets are priced using a pricing model that uses a discounted cash flow approach to estimate the fair value of fixed maturity securities. The credit spread applied by management is the significant unobservable input of the pricing model. In instances where the security is currently callable at par value and the pricing model suggests a higher price, management caps the fair value at par value. Approximately 18% ($124 million) of the internally developed Level 3 assets are equity securities which are priced primarily using internal models with some inputs that are not market observable. Management believes that any justifiable changes in unobservable inputs used to determine internally developed fair values would not have resulted in a material change in AFG’s financial position.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Changes in balances of Level 3 financial assets and liabilities carried at fair value during the third quarter and first nine months of 2023 and 2022 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.

|  |  | Total realized/unrealized gains (losses) included in |  |  |  |  |  |  |  |  |  |
Balance at June 30, 2023 |  | Net earnings (loss) |  | Other comprehensive income (loss) |  | Purchases and issuances |  | Sales and settlements |  | Transfer into Level 3 |  | Transfer out of Level 3 |  | Balance at September 30, 2023
AFS fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
State and municipal | 5 |  |  | — |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | (2) |  |  | 2 |
Residential MBS | 5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5 |
Commercial MBS | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Collateralized loan obligations | 1 |  |  | (1) |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |
Other asset-backed securities | 321 |  |  | — |  |  | (4) |  |  | 28 |  |  | (3) |  |  | — |  |  | (12) |  |  | 330 |
Corporate and other | 369 |  |  | (14) |  |  | — |  |  | 11 |  |  | (12) |  |  | 5 |  |  | (7) |  |  | 352 |
Total AFS fixed maturities | 701 |  |  | (15) |  |  | (3) |  |  | 39 |  |  | (16) |  |  | 5 |  |  | (21) |  |  | 690 |
Equity securities | 448 |  |  | 4 |  |  | — |  |  | 23 |  |  | (4) |  |  | — |  |  | (17) |  |  | 454 |
Assets of MIE | 11 |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 10 |
Total Level 3 assets | $ | 1,160 |  |  | $ | (12) |  |  | $ | (3) |  |  | $ | 62 |  |  | $ | (20) |  |  | $ | 5 |  |  | $ | (38) |  |  | $ | 1,154 |
Contingent consideration — acquisitions | $ | (25) |  |  | $ | 23 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |
Total Level 3 liabilities | $ | (25) |  |  | $ | 23 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |

|  |  | Total realized/unrealized gains (losses) included in |  |  |  |  |  |  |  |  |  |
Balance at June 30, 2022 |  | Net earnings (loss) |  | Other comprehensive income (loss) |  | Purchases and issuances |  | Sales and settlements |  | Transfer into Level 3 |  | Transfer out of Level 3 |  | Balance at September 30, 2022
AFS fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
State and municipal | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |
Residential MBS | 8 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4 |  |  | (4) |  |  | 8 |
Commercial MBS | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Collateralized loan obligations | 2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2 |
Other asset-backed securities | 313 |  |  | — |  |  | (8) |  |  | 5 |  |  | (9) |  |  | — |  |  | — |  |  | 301 |
Corporate and other | 269 |  |  | (1) |  |  | (12) |  |  | 45 |  |  | (5) |  |  | — |  |  | (1) |  |  | 295 |
Total AFS fixed maturities | 593 |  |  | (1) |  |  | (20) |  |  | 50 |  |  | (14) |  |  | 4 |  |  | (5) |  |  | 607 |
Equity securities | 378 |  |  | (2) |  |  | — |  |  | 24 |  |  | (15) |  |  | — |  |  | (1) |  |  | 384 |
Assets of MIE | 12 |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 11 |
Total Level 3 assets | $ | 983 |  |  | $ | (4) |  |  | $ | (20) |  |  | $ | 74 |  |  | $ | (29) |  |  | $ | 4 |  |  | $ | (6) |  |  | $ | 1,002 |
Contingent consideration — acquisitions | $ | (23) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (25) |
Total Level 3 liabilities | $ | (23) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (25) |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

|  |  | Total realized/unrealized gains (losses) included in |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2022 |  | Net earnings (loss) |  | Other comprehensive income (loss) |  | Purchases and issuances |  | Sales and settlements |  | Transfer into Level 3 |  | Transfer out of Level 3 |  | Balance at September 30, 2023
AFS fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
State and municipal | 5 |  |  | — |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | (2) |  |  | 2 |
Residential MBS | 9 |  |  | — |  |  | — |  |  | — |  |  | (3) |  |  | 4 |  |  | (5) |  |  | 5 |
Commercial MBS | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Collateralized loan obligations | 2 |  |  | (1) |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | (1) |  |  | 1 |
Other asset-backed securities | 329 |  |  | (2) |  |  | — |  |  | 38 |  |  | (34) |  |  | 31 |  |  | (32) |  |  | 330 |
Corporate and other | 319 |  |  | (13) |  |  | 10 |  |  | 67 |  |  | (25) |  |  | 7 |  |  | (13) |  |  | 352 |
Total AFS fixed maturities | 664 |  |  | (16) |  |  | 11 |  |  | 105 |  |  | (63) |  |  | 42 |  |  | (53) |  |  | 690 |
Equity securities | 427 |  |  | 11 |  |  | — |  |  | 84 |  |  | (29) |  |  | — |  |  | (39) |  |  | 454 |
Assets of MIE | 11 |  |  | (3) |  |  | — |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | 10 |
Total Level 3 assets | $ | 1,102 |  |  | $ | (8) |  |  | $ | 11 |  |  | $ | 191 |  |  | $ | (92) |  |  | $ | 42 |  |  | $ | (92) |  |  | $ | 1,154 |
Contingent consideration — acquisitions | $ | (25) |  |  | $ | 23 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |
Total Level 3 liabilities | $ | (25) |  |  | $ | 23 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |

|  |  | Total realized/unrealized gains (losses) included in |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2021 |  | Net earnings (loss) |  | Other comprehensive income (loss) |  | Purchases and issuances |  | Sales and settlements |  | Transfer into Level 3 |  | Transfer out of Level 3 |  | Balance at September 30, 2022
AFS fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
State and municipal | 41 |  |  | — |  |  | (3) |  |  | — |  |  | (1) |  |  | — |  |  | (36) |  |  | 1 |
Residential MBS | 14 |  |  | — |  |  | — |  |  | — |  |  | (1) |  |  | 4 |  |  | (9) |  |  | 8 |
Commercial MBS | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Collateralized loan obligations | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2 |  |  | — |  |  | 2 |
Other asset-backed securities | 278 |  |  | 2 |  |  | (24) |  |  | 62 |  |  | (51) |  |  | 34 |  |  | — |  |  | 301 |
Corporate and other | 267 |  |  | (1) |  |  | (26) |  |  | 105 |  |  | (15) |  |  | — |  |  | (35) |  |  | 295 |
Total AFS fixed maturities | 600 |  |  | 1 |  |  | (53) |  |  | 167 |  |  | (68) |  |  | 40 |  |  | (80) |  |  | 607 |
Equity securities | 313 |  |  | 20 |  |  | — |  |  | 75 |  |  | (20) |  |  | 3 |  |  | (7) |  |  | 384 |
Assets of MIE | 13 |  |  | (3) |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | 11 |
Total Level 3 assets | $ | 926 |  |  | $ | 18 |  |  | $ | (53) |  |  | $ | 243 |  |  | $ | (88) |  |  | $ | 43 |  |  | $ | (87) |  |  | $ | 1,002 |
Contingent consideration — acquisitions | $ | (23) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (25) |
Total Level 3 liabilities | $ | (23) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (25) |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Fair Value of Financial Instruments The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):

| Carrying Value |  | Fair Value
|  | Total |  | Level 1 |  | Level 2 |  | Level 3
September 30, 2023 |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 1,221 |  |  | $ | 1,221 |  |  | $ | 1,221 |  |  | $ | — |  |  | $ | — |
Mortgage loans | 644 |  |  | 590 |  |  | — |  |  | — |  |  | 590 |
Total financial assets not accounted for at fair value | $ | 1,865 |  |  | $ | 1,811 |  |  | $ | 1,221 |  |  | $ | — |  |  | $ | 590 |
Long-term debt | $ | 1,474 |  |  | $ | 1,213 |  |  | $ | — |  |  | $ | 1,210 |  |  | $ | 3 |
Total financial liabilities not accounted for at fair value | $ | 1,474 |  |  | $ | 1,213 |  |  | $ | — |  |  | $ | 1,210 |  |  | $ | 3 |
December 31, 2022 |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 872 |  |  | $ | 872 |  |  | $ | 872 |  |  | $ | — |  |  | $ | — |
Mortgage loans | 676 |  |  | 626 |  |  | — |  |  | — |  |  | 626 |
Total financial assets not accounted for at fair value | $ | 1,548 |  |  | $ | 1,498 |  |  | $ | 872 |  |  | $ | — |  |  | $ | 626 |
Long-term debt | $ | 1,496 |  |  | $ | 1,302 |  |  | $ | — |  |  | $ | 1,299 |  |  | $ | 3 |
Total financial liabilities not accounted for at fair value | $ | 1,496 |  |  | $ | 1,302 |  |  | $ | — |  |  | $ | 1,299 |  |  | $ | 3 |

E. Investments
Available for sale fixed maturities at September 30, 2023 and December 31, 2022, consisted of the following (in millions):

| Amortized Cost |  | Allowance for Expected Credit Losses |  | Gross Unrealized |  | Net Unrealized |  | Fair Value
Gains |  | Losses
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies | $ | 240 |  |  | $ | — |  |  | $ | — |  |  | $ | (11) |  |  | $ | (11) |  |  | $ | 229 |
States, municipalities and political subdivisions | 986 |  |  | — |  |  | 1 |  |  | (76) |  |  | (75) |  |  | 911 |
Foreign government | 228 |  |  | — |  |  | — |  |  | (10) |  |  | (10) |  |  | 218 |
Residential MBS | 1,816 |  |  | 3 |  |  | 18 |  |  | (212) |  |  | (194) |  |  | 1,619 |
Commercial MBS | 78 |  |  | — |  |  | — |  |  | (2) |  |  | (2) |  |  | 76 |
Collateralized loan obligations | 1,756 |  |  | 2 |  |  | 8 |  |  | (39) |  |  | (31) |  |  | 1,723 |
Other asset-backed securities | 2,443 |  |  | 7 |  |  | 2 |  |  | (161) |  |  | (159) |  |  | 2,277 |
Corporate and other | 3,063 |  |  | 8 |  |  | 3 |  |  | (180) |  |  | (177) |  |  | 2,878 |
Total fixed maturities | $ | 10,610 |  |  | $ | 20 |  |  | $ | 32 |  |  | $ | (691) |  |  | $ | (659) |  |  | $ | 9,931 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies | $ | 233 |  |  | $ | — |  |  | $ | — |  |  | $ | (14) |  |  | $ | (14) |  |  | $ | 219 |
States, municipalities and political subdivisions | 1,234 |  |  | — |  |  | 3 |  |  | (51) |  |  | (48) |  |  | 1,186 |
Foreign government | 240 |  |  | — |  |  | — |  |  | (14) |  |  | (14) |  |  | 226 |
Residential MBS | 1,757 |  |  | 2 |  |  | 23 |  |  | (180) |  |  | (157) |  |  | 1,598 |
Commercial MBS | 88 |  |  | — |  |  | — |  |  | (3) |  |  | (3) |  |  | 85 |
Collateralized loan obligations | 1,988 |  |  | 1 |  |  | 1 |  |  | (67) |  |  | (66) |  |  | 1,921 |
Other asset-backed securities | 2,435 |  |  | 7 |  |  | 1 |  |  | (184) |  |  | (183) |  |  | 2,245 |
Corporate and other | 2,761 |  |  | 1 |  |  | 11 |  |  | (156) |  |  | (145) |  |  | 2,615 |
Total fixed maturities | $ | 10,736 |  |  | $ | 11 |  |  | $ | 39 |  |  | $ | (669) |  |  | $ | (630) |  |  | $ | 10,095 |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Equity securities which are reported at fair value with holding gains and losses recognized in net earnings, consisted of the following at September 30, 2023 and December 31, 2022 (in millions):

| September 30, 2023 |  | December 31, 2022
| Actual Cost |  | Fair Value |  | Fair Value Over (Under) Cost |  | Actual Cost |  | Fair Value |  | Fair Value Over (Under) Cost
Common stocks | $ | 562 |  |  | $ | 588 |  |  | $ | 26 |  |  | $ | 556 |  |  | $ | 553 |  |  | $ | (3) |
Perpetual preferred stocks | 419 |  |  | 419 |  |  | — |  |  | 436 |  |  | 457 |  |  | 21 |
Total equity securities carried at fair value | $ | 981 |  |  | $ | 1,007 |  |  | $ | 26 |  |  | $ | 992 |  |  | $ | 1,010 |  |  | $ | 18 |

The following table shows the carrying value and net investment income from investments accounted for using the equity method (in millions):

|  |  |  |  | Net Investment Income
| Carrying Value |  | Three months ended September 30, |  | Nine months ended September 30,
| September 30, 2023 |  | December 31, 2022 |  | 2023 |  | 2022 |  | 2023 |  | 2022
Real estate-related investments (*) | $ | 1,321 |  |  | $ | 1,229 |  |  | $ | 11 |  |  | $ | 40 |  |  | $ | 86 |  |  | $ | 209 |
Private equity | 451 |  |  | 438 |  |  | 5 |  |  | (2) |  |  | 12 |  |  | 36 |
Private debt | 35 |  |  | 33 |  |  | 1 |  |  | (1) |  |  | 4 |  |  | 1 |
Total investments accounted for using the equity method | $ | 1,807 |  |  | $ | 1,700 |  |  | $ | 17 |  |  | $ | 37 |  |  | $ | 102 |  |  | $ | 246 |

(*)92% of the carrying value relates to underlying investments in multi-family properties at both September 30, 2023 and December 31, 2022.
The earnings (losses) from these investments are generally reported on a quarter lag due to the timing required to obtain the necessary information from the funds. AFG regularly reviews and discusses fund performance with the fund managers to corroborate the reasonableness of the underlying reported asset values and to assess whether any events have occurred within the lag period that may materially affect the valuation of these investments.
With respect to partnerships and similar investments, AFG had unfunded commitments of $437 million and $396 million as of September 30, 2023 and December 31, 2022, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table shows 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
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies | $ | — |  |  | $ | 36 |  |  | 100 | % |  | $ | (11) |  |  | $ | 192 |  |  | 95 | %
States, municipalities and political subdivisions | (12) |  |  | 232 |  |  | 95 | % |  | (64) |  |  | 565 |  |  | 90 | %
Foreign government | — |  |  | 7 |  |  | 100 | % |  | (10) |  |  | 211 |  |  | 95 | %
Residential MBS | (7) |  |  | 318 |  |  | 98 | % |  | (205) |  |  | 1,121 |  |  | 85 | %
Commercial MBS | — |  |  | — |  |  | — | % |  | (2) |  |  | 63 |  |  | 97 | %
Collateralized loan obligations | — |  |  | 39 |  |  | 100 | % |  | (39) |  |  | 1,026 |  |  | 96 | %
Other asset-backed securities | (6) |  |  | 402 |  |  | 99 | % |  | (155) |  |  | 1,677 |  |  | 92 | %
Corporate and other | (34) |  |  | 1,085 |  |  | 97 | % |  | (146) |  |  | 1,473 |  |  | 91 | %
Total fixed maturities | $ | (59) |  |  | $ | 2,119 |  |  | 97 | % |  | $ | (632) |  |  | $ | 6,328 |  |  | 91 | %
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies | $ | (4) |  |  | $ | 111 |  |  | 97 | % |  | $ | (10) |  |  | $ | 107 |  |  | 91 | %
States, municipalities and political subdivisions | (50) |  |  | 967 |  |  | 95 | % |  | (1) |  |  | 15 |  |  | 94 | %
Foreign government | (5) |  |  | 90 |  |  | 95 | % |  | (9) |  |  | 134 |  |  | 94 | %
Residential MBS | (115) |  |  | 1,078 |  |  | 90 | % |  | (65) |  |  | 315 |  |  | 83 | %
Commercial MBS | (2) |  |  | 44 |  |  | 96 | % |  | (1) |  |  | 33 |  |  | 97 | %
Collateralized loan obligations | (44) |  |  | 1,224 |  |  | 97 | % |  | (23) |  |  | 587 |  |  | 96 | %
Other asset-backed securities | (100) |  |  | 1,361 |  |  | 93 | % |  | (84) |  |  | 740 |  |  | 90 | %
Corporate and other | (105) |  |  | 1,665 |  |  | 94 | % |  | (51) |  |  | 413 |  |  | 89 | %
Total fixed maturities | $ | (425) |  |  | $ | 6,540 |  |  | 94 | % |  | $ | (244) |  |  | $ | 2,344 |  |  | 91 | %

At September 30, 2023, the gross unrealized losses on fixed maturities of $691 million relate to approximately 1,900 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 95% of the gross unrealized loss and 95% of the fair value of securities with unrealized losses.
To evaluate fixed maturities for expected credit losses (impairment), management considers whether the unrealized loss is credit-driven or a result of changes in market interest rates, the extent to which fair value is less than cost basis, historical operating, balance sheet and cash flow data from the issuer, third party research and communications with industry specialists and discussions with issuer management.
AFG analyzes its MBS for expected credit losses (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.
Management believes AFG will recover its cost basis (net of any allowance) 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 September 30, 2023.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
A progression of the allowance for expected credit losses on available for sale fixed maturity securities is shown below (in millions):

| Structured Securities (*) |  | Corporate and Other |  | Total
Balance at June 30, 2023 | $ | 11 |  |  | $ | 5 |  |  | $ | 16 |
Provision for expected credit losses on securities with no previous allowance | — |  |  | 3 |  |  | 3 |
Additions (reductions) to previously recognized expected credit losses | 1 |  |  | — |  |  | 1 |
Reductions due to sales or redemptions | — |  |  | — |  |  | — |
Balance at September 30, 2023 | $ | 12 |  |  | $ | 8 |  |  | $ | 20 |
Balance at June 30, 2022 | $ | 7 |  |  | $ | — |  |  | $ | 7 |
Provision for expected credit losses on securities with no previous allowance | 2 |  |  | — |  |  | 2 |
Additions (reductions) to previously recognized expected credit losses | — |  |  | — |  |  | — |
Reductions due to sales or redemptions | — |  |  | — |  |  | — |
Balance at September 30, 2022 | $ | 9 |  |  | $ | — |  |  | $ | 9 |
Balance at January 1, 2023 | $ | 10 |  |  | $ | 1 |  |  | $ | 11 |
Provision for expected credit losses on securities with no previous allowance | 1 |  |  | 8 |  |  | 9 |
Additions (reductions) to previously recognized expected credit losses | 1 |  |  | (1) |  |  | — |
Reductions due to sales or redemptions | — |  |  | — |  |  | — |
Balance at September 30, 2023 | $ | 12 |  |  | $ | 8 |  |  | $ | 20 |
Balance at January 1, 2022 | $ | 8 |  |  | $ | 1 |  |  | $ | 9 |
Provision for expected credit losses on securities with no previous allowance | 3 |  |  | — |  |  | 3 |
Additions (reductions) to previously recognized expected credit losses | (2) |  |  | — |  |  | (2) |
Reductions due to sales or redemptions | — |  |  | (1) |  |  | (1) |
Balance at September 30, 2022 | $ | 9 |  |  | $ | — |  |  | $ | 9 |

(*)Includes mortgage-backed securities, collateralized loan obligations and other asset-backed securities.
In the first nine months of 2023 and 2022, AFG did not purchase any securities with expected credit losses.
The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturities as of September 30, 2023 (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 | $ | 413 |  |  | $ | 404 |  |  | 4 | %
After one year through five years | 2,649 |  |  | 2,495 |  |  | 25 | %
After five years through ten years | 1,099 |  |  | 1,022 |  |  | 11 | %
After ten years | 348 |  |  | 315 |  |  | 3 | %
| 4,509 |  |  | 4,236 |  |  | 43 | %
Collateralized loan obligations and other ABS (average life of approximately 3 years) | 4,190 |  |  | 4,000 |  |  | 40 | %
MBS (average life of approximately 6.5 years) | 1,891 |  |  | 1,695 |  |  | 17 | %
Total | $ | 10,590 |  |  | $ | 9,931 |  |  | 100 | %

(*)Amortized cost, net of allowance for expected credit losses.
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 September 30, 2023 or December 31, 2022.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Net Investment Income The following table shows (in millions) investment income earned and investment expenses incurred.

| Three months ended September 30, |  | Nine months ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Investment income: |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |
Interest and amortization | $ | 126 |  |  | $ | 98 |  |  | $ | 369 |  |  | $ | 263 |
Change in fair value (a) | (11) |  |  | — |  |  | (1) |  |  | — |
Equity securities: |  |  |  |  |  |  |
Dividends | 8 |  |  | 9 |  |  | 26 |  |  | 24 |
Change in fair value (b) | 7 |  |  | (6) |  |  | 36 |  |  | (8) |
Equity in earnings of partnerships and similar investments | 17 |  |  | 37 |  |  | 102 |  |  | 246 |
Other | 24 |  |  | 17 |  |  | 64 |  |  | 37 |
Gross investment income | 171 |  |  | 155 |  |  | 596 |  |  | 562 |
Investment expenses | (3) |  |  | (4) |  |  | (13) |  |  | (13) |
Net investment income | $ | 168 |  |  | $ | 151 |  |  | $ | 583 |  |  | $ | 549 |

(a)The change in the fair value of fixed maturities classified as trading and derivatives embedded in convertible fixed maturities related to limited partnerships and similar investments.
(b)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 limited partnerships and similar investments that do not qualify for equity method accounting and related investments.
Realized gains (losses) and changes in unrealized appreciation (depreciation) included in AOCI related to fixed maturity securities are summarized as follows (in millions):

| Three months ended September 30, 2023 |  | Three months ended September 30, 2022
| Realized gains (losses) |  |  |  | Realized gains (losses) |  |
| Before Impairments |  | Impairment Allowance |  | Total |  | Change in Unrealized |  | Before Impairments |  | Impairment Allowance |  | Total |  | Change in Unrealized
Fixed maturities | $ | (7) |  |  | $ | (4) |  |  | $ | (11) |  |  | $ | (72) |  |  | $ | (6) |  |  | $ | (2) |  |  | $ | (8) |  |  | $ | (288) |
Equity securities | (8) |  |  | — |  |  | (8) |  |  | — |  |  | (27) |  |  | — |  |  | (27) |  |  | — |
Mortgage loans and other investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total pretax | (15) |  |  | (4) |  |  | (19) |  |  | (72) |  |  | (33) |  |  | (2) |  |  | (35) |  |  | (288) |
Tax effects | 3 |  |  | 1 |  |  | 4 |  |  | 15 |  |  | 7 |  |  | — |  |  | 7 |  |  | 60 |
Net of tax | $ | (12) |  |  | $ | (3) |  |  | $ | (15) |  |  | $ | (57) |  |  | $ | (26) |  |  | $ | (2) |  |  | $ | (28) |  |  | $ | (228) |
| Nine months ended September 30, 2023 |  | Nine months ended September 30, 2022
| Realized gains (losses) |  |  |  | Realized gains (losses) |  |
| Before Impairments |  | Impairment Allowance |  | Total |  | Change in Unrealized |  | Before Impairments |  | Impairment Allowance |  | Total |  | Change in Unrealized
Fixed maturities | $ | (35) |  |  | $ | (9) |  |  | $ | (44) |  |  | $ | (29) |  |  | $ | (20) |  |  | $ | (1) |  |  | $ | (21) |  |  | $ | (874) |
Equity securities | (23) |  |  | — |  |  | (23) |  |  | — |  |  | (122) |  |  | — |  |  | (122) |  |  | — |
Mortgage loans and other investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total pretax | (58) |  |  | (9) |  |  | (67) |  |  | (29) |  |  | (142) |  |  | (1) |  |  | (143) |  |  | (874) |
Tax effects | 12 |  |  | 2 |  |  | 14 |  |  | 5 |  |  | 30 |  |  | — |  |  | 30 |  |  | 184 |
Net of tax | $ | (46) |  |  | $ | (7) |  |  | $ | (53) |  |  | $ | (24) |  |  | $ | (112) |  |  | $ | (1) |  |  | $ | (113) |  |  | $ | (690) |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
All equity securities other than those accounted for under the equity method are carried at fair value through net earnings. AFG recorded net holding gains (losses) on equity securities during the third quarter and first nine months of 2023 and 2022 on securities that were still owned at September 30, 2023 and September 30, 2022 as follows (in millions):

| Three months ended September 30, |  | Nine months ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Included in realized gains (losses) | $ | (8) |  |  | $ | (26) |  |  | $ | (31) |  |  | $ | (119) |
Included in net investment income | 7 |  |  | (7) |  |  | 36 |  |  | (4) |
| $ | (1) |  |  | $ | (33) |  |  | $ | 5 |  |  | $ | (123) |

Gross realized gains and losses (excluding changes in impairment allowance and mark-to-market of derivatives) on available for sale fixed maturity investment transactions consisted of the following (in millions):

| Nine months ended September 30,
2023 |  | 2022
Gross gains | $ | 2 |  |  | $ | 2 |
Gross losses | (33) |  |  | (11) |

F. Derivatives
As discussed under “Derivatives” in Note A — “Accounting Policies,” AFG uses derivatives to mitigate certain market risks related to its investment portfolio and deferred compensation obligations to employees.
The following table presents the classification of derivative assets and liabilities included in AFG’s Balance Sheet at fair value (in millions):

|  |  | September 30, 2023 |  | December 31, 2022
| Balance Sheet Line |  | Asset |  | Liability |  | Asset |  | Liability
Derivatives designated and qualifying as cash flow hedges: |  |  |  |  |  |  |  |  |
Interest rate swaps | Other assets/Other liabilities |  | $ | — |  |  | $ | 43 |  |  | $ | — |  |  | $ | 37 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Fixed maturities with embedded derivatives | Fixed maturities |  | 80 |  |  | — |  |  | 40 |  |  | — |
Total return swap | Other assets/Other liabilities |  | — |  |  | 5 |  |  | — |  |  | 5 |
|  |  | $ | 80 |  |  | $ | 48 |  |  | $ | 40 |  |  | $ | 42 |

AFG’s interest rate swaps are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities included in AFG’s portfolio of fixed maturity securities. The purpose of each of these swaps is to effectively convert a portion of AFG’s floating-rate fixed maturity securities to fixed rates by offsetting the variability in cash flows attributable to changes in the applicable Secured Overnight Financing Rate (“SOFR”).
Under the terms of the swaps, AFG receives fixed-rate interest payments in exchange for variable interest payments based on SOFR (previously based on LIBOR). The notional amounts of the interest rate swaps generally decline over each swap’s respective life (the swaps expire between July 2024 and July 2028) in anticipation of the expected decline in AFG’s portfolio of fixed maturity securities with floating interest rates based on SOFR. The total outstanding notional amount of AFG’s interest rate swaps was $1.33 billion at September 30, 2023 compared to $1.25 billion at December 31, 2022, reflecting the issuance of five new swaps with a total notional amount of $200 million in the first nine months of 2023, partially offset by scheduled amortization. In the third quarter of 2023 and 2022, a loss of $7 million and income of $1 million, respectively, and in the first nine months of 2023 and 2022, a loss of $19 million and income of $3 million, respectively, were reclassified from AOCI to net earnings. Based on forward interest rate curves at September 30, 2023, management estimates that it will reclassify approximately $27 million of pre-tax net losses on interest rate swaps in AOCI to net investment income over the next twelve months. The actual amount will vary based on changes in SOFR. A collateral receivable supporting these swaps of $69 million and $62 million at September 30, 2023 and December 31, 2022, respectively, is included in other assets in AFG’s Balance Sheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The fixed maturities with embedded derivatives consist of convertible fixed maturity securities and interest-only and principal-only MBS. AFG records the change in the fair value of these securities in net earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.
AFG is exposed to fair value changes from certain equity and fixed maturity market-based exposures related to its deferred compensation obligations to certain employees. To mitigate this risk, AFG entered into a total return swap in 2022. A collateral receivable of $5 million and $7 million supporting this swap is included in other assets in AFG’s Balance Sheet at September 30, 2023 and December 31, 2022, respectively.
The following table summarizes the gains (losses) included in AFG’s Statement of Earnings for changes in the fair value of derivatives for the third quarter and nine months ended September 30, 2023 and 2022 (in millions):

|  |  |  | Three months ended September 30, |  | Nine months ended September 30,
|  | Statement of Earnings Line |  | 2023 |  | 2022 |  | 2023 |  | 2022
Qualifying cash flow hedges - gains (losses) reclassified from AOCI to net earnings: |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Net investment income |  | $ | (7) |  |  | $ | 1 |  |  | $ | (19) |  |  | $ | 3 |
Non-designated hedges - gains (losses) included in net earnings: |  |  |  |  |  |  |  |  |  |
Fixed maturities with embedded derivatives |  | Realized gains (losses) on securities |  | (1) |  |  | (3) |  |  | (4) |  |  | (11) |
Fixed maturities with embedded derivatives |  | Net investment income |  | (11) |  |  | — |  |  | (1) |  |  | — |
Total return swap |  | Other expenses |  | (6) |  |  | (6) |  |  | 3 |  |  | (10) |
Earnings (losses) on non-designated hedges |  |  |  | (18) |  |  | (9) |  |  | (2) |  |  | (21) |
Total earnings (losses) on derivatives |  |  |  | $ | (25) |  |  | $ | (8) |  |  | $ | (21) |  |  | $ | (18) |

G. Managed Investment Entities
AFG is the investment manager and it has investments ranging from 7.4% to 100% of the most subordinate debt tranche of sixteen active collateralized loan obligation entities (“CLOs”), which are considered variable interest entities. AFG also owns portions of the senior debt tranches of certain of these CLOs. Upon formation between 2012 and 2023, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay expenses (including management fees to AFG) and interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities.
AFG’s maximum exposure to economic loss on the CLOs that it manages is limited to its investment in those CLOs, which had an aggregate fair value of $143 million (including $88 million invested in the most subordinate tranches and $23 million invested in a temporary warehousing entity) at September 30, 2023, and $115 million at December 31, 2022.
In March 2023, AFG formed one new CLO, which issued $407 million face amount of liabilities (including $16 million face amount purchased by AFG). In May 2022, AFG formed one new CLO, which issued $404 million face amount of liabilities (including $13 million face amount purchased by AFG).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table shows a progression of the fair value of AFG's investment in CLO tranches (in millions):

| Three months ended September 30, |  | Nine months ended September 30,
2023 |  | 2022 |  | 2023 |  | 2022
Balance at beginning of period | $ | 117 |  |  | $ | 85 |  |  | $ | 112 |  |  | $ | 76 |
Purchases | — |  |  | — |  |  | 11 |  |  | 33 |
Sales | — |  |  | — |  |  | — |  |  | — |
Distributions | (9) |  |  | (4) |  |  | (21) |  |  | (13) |
Change in fair value | 12 |  |  | 4 |  |  | 18 |  |  | (11) |
Balance at end of period (*) | $ | 120 |  |  | $ | 85 |  |  | $ | 120 |  |  | $ | 85 |

(*)Excludes $23 million and $12 million invested in temporary warehousing entities at September 30, 2023 and September 30, 2022, respectively, that were established to provide AFG the ability to form new CLOs.
The revenues and expenses of the CLOs are separately identified in AFG’s Statement of Earnings, after the elimination of management fees and earnings attributable to AFG as measured by the change in the fair value of AFG’s investments in the CLOs. Selected financial information related to the CLOs is shown below (in millions):

| Three months ended September 30, |  | Nine months ended September 30,
2023 |  | 2022 |  | 2023 |  | 2022
Gains (losses) on change in fair value of assets/liabilities (*): |  |  |  |  |  |
Assets | $ | 50 |  |  | $ | 7 |  |  | $ | 116 |  |  | $ | (297) |
Liabilities | (34) |  |  | (12) |  |  | (104) |  |  | 272 |
Management fees paid to AFG | 4 |  |  | 4 |  |  | 12 |  |  | 12 |
CLO earnings (losses) attributable to AFG | 12 |  |  | 4 |  |  | 18 |  |  | (10) |

(*)Included in revenues in AFG’s Statement of Earnings.
The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $143 million and $339 million at September 30, 2023 and December 31, 2022, respectively. The aggregate unpaid principal balance of the CLOs’ debt exceeded its carrying value by $319 million and $413 million at those dates. The CLO assets include loans with an aggregate fair value of $5 million at September 30, 2023 and $4 million at December 31, 2022, for which the CLOs are not accruing interest because the loans are in default (aggregate unpaid principal balance of $13 million at September 30, 2023 and $17 million at December 31, 2022).
In addition to the CLOs that it manages, AFG had investments in CLOs that are managed by third parties (therefore not consolidated), which are included in available for sale fixed maturity securities and had a fair value of $1.72 billion at September 30, 2023 and $1.92 billion at December 31, 2022.
H. Goodwill and Other Intangibles
The carrying value of goodwill was $305 million at September 30, 2023 and $246 million at December 31, 2022, an increase of $59 million due primarily to the July 3, 2023 acquisition of CRS (see Note B — “Acquisition of Businesses”). Additionally, during the third quarter of 2023, AFG recorded a goodwill impairment charge of $26 million related to its investment in Verikai. The impairment indicator was slower than anticipated growth in the business supported by the Verikai technology relative to what was projected at acquisition. Management utilized the discounted cash flow method of the income approach to calculate the impairment charge. This charge and the impact of reducing the fair value of the contingent consideration related to the Verikai acquisition (see Note D — “Fair Value Measurements”) are included in realized loss on subsidiary in AFG’s Statement of Earnings.
Included in other assets in AFG’s Balance Sheet is $217 million at September 30, 2023 and $108 million at December 31, 2022 in amortizable intangible assets related to acquisitions. These amounts are net of accumulated amortization of $35 million and $24 million, respectively. The increase in amortizable intangible assets in the first nine months of 2023 reflects the acquisition of CRS in July 2023 (see Note B — “Acquisition of Businesses”). Amortization of intangibles was $5 million and $2 million in the third quarter of 2023 and 2022, respectively, and $11 million and $7 million in the first nine months of 2023 and 2022, respectively.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
I. Long-Term Debt
Long-term debt consisted of the following (in millions):

| September 30, 2023 |  | December 31, 2022
| Principal |  | Discount and Issue Costs |  | Carrying Value |  | Principal |  | Discount and Issue Costs |  | Carrying Value
Direct Senior Obligations of AFG: |  |  |  |  |  |  |  |  |  |  |
4.50% Senior Notes due June 2047 | $ | 567 |  |  | $ | (1) |  |  | $ | 566 |  |  | $ | 582 |  |  | $ | (1) |  |  | $ | 581 |
5.25% Senior Notes due April 2030 | 253 |  |  | (4) |  |  | 249 |  |  | 261 |  |  | (5) |  |  | 256 |
Other | 3 |  |  | — |  |  | 3 |  |  | 3 |  |  | — |  |  | 3 |
| 823 |  |  | (5) |  |  | 818 |  |  | 846 |  |  | (6) |  |  | 840 |
Direct Subordinated Obligations of AFG: |  |  |  |  |  |  |  |  |  |  |
4.50% Subordinated Debentures due September 2060 | 200 |  |  | (5) |  |  | 195 |  |  | 200 |  |  | (5) |  |  | 195 |
5.125% Subordinated Debentures due December 2059 | 200 |  |  | (6) |  |  | 194 |  |  | 200 |  |  | (6) |  |  | 194 |
5.625% Subordinated Debentures due June 2060 | 150 |  |  | (4) |  |  | 146 |  |  | 150 |  |  | (4) |  |  | 146 |
5.875% Subordinated Debentures due March 2059 | 125 |  |  | (4) |  |  | 121 |  |  | 125 |  |  | (4) |  |  | 121 |
| 675 |  |  | (19) |  |  | 656 |  |  | 675 |  |  | (19) |  |  | 656 |
| $ | 1,498 |  |  | $ | (24) |  |  | $ | 1,474 |  |  | $ | 1,521 |  |  | $ | (25) |  |  | $ | 1,496 |

Scheduled principal payments on debt for the balance of 2023, the subsequent five years and thereafter are as follows: 2023 — none; 2024 — none; 2025 — none; 2026 — none; 2027 — none; 2028 — none and thereafter — $1.50 billion.
In the first six months of 2023, AFG repurchased $15 million principal amount of its 4.50% Senior Notes due in June 2047 for $13 million and $8 million principal amount of its 5.25% Senior Notes due in April 2030 for $8 million in open market transactions.
In the first six months of 2022, AFG repurchased $49 million principal amount of its 3.50% Senior Notes due in August 2026 in open market transactions for $51 million. In June 2022, AFG redeemed the remaining $376 million of outstanding 3.50% Senior Notes due August 2026 for $382 million (including a $6 million make-whole call premium).
In the third quarter of 2022, AFG repurchased $4 million principal amount of its 4.50% Senior Notes due in June 2047 for $3 million and repurchased $5 million principal amount of its 5.25% Senior Notes due in April 2030 for $5 million in open market transactions (a portion of these repurchases settled in the first few days of October 2022).
In June 2023, AFG replaced its existing credit facility with a new five-year, $450 million revolving credit facility, which expires in June 2028. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.75% (based on AFG’s credit rating, currently 1.25%) over a SOFR-based floating rate. No amounts were borrowed under this facility at September 30, 2023 or under AFG’s previous credit facility at December 31, 2022.
J. Shareholders’ Equity
AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.
Accumulated Other Comprehensive Income (Loss), Net of Tax (“AOCI”) Comprehensive income is defined as all changes in shareholders’ equity except those arising from transactions with shareholders. Comprehensive income includes net earnings and other comprehensive income (loss), which consists primarily of changes in net unrealized gains or losses on available for sale fixed maturity securities.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The progression of the components of accumulated other comprehensive income (loss) follows (in millions):

|  |  | Other Comprehensive Income (Loss) |  |  |  |
| AOCI Beginning Balance |  | Pretax |  | Tax |  | Net of tax |  |  |  |  |  |  |  | AOCI Ending Balance
Quarter ended September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) on securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on securities arising during the period |  |  | $ | (81) |  |  | $ | 17 |  |  | $ | (64) |  |  |  |  |  |  |  |  |
Reclassification adjustment for realized (gains) losses included in net earnings (*) |  |  | 9 |  |  | (2) |  |  | 7 |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on securities | $ | (464) |  |  | (72) |  |  | 15 |  |  | (57) |  |  |  |  |  |  |  |  | $ | (521) |
Net unrealized gains (losses) on cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on cash flow hedges arising during the period |  |  | (9) |  |  | 2 |  |  | (7) |  |  |  |  |  |  |  |  |
Reclassification adjustment for investment income included in net earnings (*) |  |  | 8 |  |  | (2) |  |  | 6 |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on cash flow hedges | (33) |  |  | (1) |  |  | — |  |  | (1) |  |  |  |  |  |  |  |  | (34) |
Foreign currency translation adjustments | (17) |  |  | — |  |  | (1) |  |  | (1) |  |  |  |  |  |  |  |  | (18) |
Pension and other postretirement plan adjustments | 3 |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |  |  | 3 |
Total | $ | (511) |  |  | $ | (73) |  |  | $ | 14 |  |  | $ | (59) |  |  |  |  |  |  |  |  | $ | (570) |
Quarter ended September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) on securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on securities arising during the period |  |  | $ | (292) |  |  | $ | 61 |  |  | $ | (231) |  |  |  |  |  |  |  |  |
Reclassification adjustment for realized (gains) losses included in net earnings (*) |  |  | 4 |  |  | (1) |  |  | 3 |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on securities | $ | (326) |  |  | (288) |  |  | 60 |  |  | (228) |  |  |  |  |  |  |  |  | $ | (554) |
Net unrealized gains (losses) on cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on cash flow hedges arising during the period |  |  | (26) |  |  | 5 |  |  | (21) |  |  |  |  |  |  |  |  |
Reclassification adjustment for investment income included in net earnings (*) |  |  | (1) |  |  | 1 |  |  | — |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on cash flow hedges | (8) |  |  | (27) |  |  | 6 |  |  | (21) |  |  |  |  |  |  |  |  | (29) |
Foreign currency translation adjustments | (15) |  |  | (4) |  |  | (1) |  |  | (5) |  |  |  |  |  |  |  |  | (20) |
Pension and other postretirement plan adjustments | 1 |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |  |  | 1 |
Total | $ | (348) |  |  | $ | (319) |  |  | $ | 65 |  |  | $ | (254) |  |  |  |  |  |  |  |  | $ | (602) |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

|  |  | Other Comprehensive Income (Loss) |  |  |  |
| AOCI Beginning Balance |  | Pretax |  | Tax |  | Net of tax |  |  |  |  |  |  |  | AOCI Ending Balance
Nine months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) on securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on securities arising during the period |  |  | $ | (69) |  |  | $ | 14 |  |  | $ | (55) |  |  |  |  |  |  |  |  |
Reclassification adjustment for realized (gains) losses included in net earnings (*) |  |  | 40 |  |  | (9) |  |  | 31 |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on securities | $ | (497) |  |  | (29) |  |  | 5 |  |  | (24) |  |  |  |  |  |  |  |  | $ | (521) |
Net unrealized gains (losses) on cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on cash flow hedges arising during the period |  |  | (25) |  |  | 5 |  |  | (20) |  |  |  |  |  |  |  |  |
Reclassification adjustment for investment income included in net earnings (*) |  |  | 19 |  |  | (4) |  |  | 15 |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on cash flow hedges | (29) |  |  | (6) |  |  | 1 |  |  | (5) |  |  |  |  |  |  |  |  | (34) |
Foreign currency translation adjustments | (20) |  |  | 2 |  |  | — |  |  | 2 |  |  |  |  |  |  |  |  | (18) |
Pension and other postretirement plan adjustments | 3 |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |  |  | 3 |
Total | $ | (543) |  |  | $ | (33) |  |  | $ | 6 |  |  | $ | (27) |  |  |  |  |  |  |  |  | $ | (570) |
Nine months ended September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gains (losses) on securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on securities arising during the period |  |  | $ | (884) |  |  | $ | 186 |  |  | $ | (698) |  |  |  |  |  |  |  |  |
Reclassification adjustment for realized (gains) losses included in net earnings (*) |  |  | 10 |  |  | (2) |  |  | 8 |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on securities | $ | 136 |  |  | (874) |  |  | 184 |  |  | (690) |  |  |  |  |  |  |  |  | $ | (554) |
Net unrealized gains (losses) on cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) on cash flow hedges arising during the period |  |  | (34) |  |  | 7 |  |  | (27) |  |  |  |  |  |  |  |  |
Reclassification adjustment for investment income included in net earnings (*) |  |  | (3) |  |  | 1 |  |  | (2) |  |  |  |  |  |  |  |  |
Total net unrealized gains (losses) on cash flow hedges | — |  |  | (37) |  |  | 8 |  |  | (29) |  |  |  |  |  |  |  |  | (29) |
Foreign currency translation adjustments | (18) |  |  | (1) |  |  | (1) |  |  | (2) |  |  |  |  |  |  |  |  | (20) |
Pension and other postretirement plan adjustments | 1 |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |  |  | 1 |
Total | $ | 119 |  |  | $ | (912) |  |  | $ | 191 |  |  | $ | (721) |  |  |  |  |  |  |  |  | $ | (602) |

(*)The reclassification adjustments affected the following lines in AFG’s Statement of Earnings:

| OCI component |  | Affected line in the statement of earnings |
| Pretax - Net unrealized gains (losses) on securities |  | Realized gains (losses) on securities |
| Pretax - Net unrealized gains (losses) on cash flow hedges |  | Net investment income |
| Tax |  | Provision for income taxes |

Stock Incentive Plans Under AFG’s stock incentive plans, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first nine months of 2023, AFG issued 165,513 shares of restricted Common Stock (fair value of $130.52 per share) under the Stock Incentive Plan.
Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $5 million and $4 million in the third quarter of 2023 and 2022, respectively, and $14 million in the first nine months of 2023 and 2022.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
K. Income Taxes
The following is a reconciliation of income taxes at the statutory rate of 21% to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):

| Three months ended September 30, |  | Nine months ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| Amount |  | % of EBT |  | Amount |  | % of EBT |  | Amount |  | % of EBT |  | Amount |  | % of EBT
Earnings before income taxes (“EBT”) | $ | 219 |  |  |  |  | $ | 210 |  |  |  |  | $ | 738 |  |  |  |  | $ | 777 |  |  |
Income taxes at statutory rate | $ | 46 |  |  | 21 | % |  | $ | 44 |  |  | 21 | % |  | $ | 155 |  |  | 21 | % |  | $ | 163 |  |  | 21 | %
Effect of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Adjustment to prior year taxes | (5) |  |  | (2 | %) |  | (3) |  |  | (2 | %) |  | (5) |  |  | (1 | %) |  | (3) |  |  | — | %
Tax exempt interest | (2) |  |  | (1 | %) |  | (1) |  |  | — | % |  | (4) |  |  | (1 | %) |  | (5) |  |  | (1 | %)
Employee stock ownership plan dividend paid deduction | — |  |  | — | % |  | (1) |  |  | — | % |  | (3) |  |  | — | % |  | (7) |  |  | (1 | %)
Stock-based compensation | — |  |  | — | % |  | — |  |  | — | % |  | (2) |  |  | — | % |  | (4) |  |  | (1 | %)
Change in valuation allowance | (2) |  |  | (1 | %) |  | 2 |  |  | 1 | % |  | (2) |  |  | — | % |  | 1 |  |  | — | %
Dividends received deduction | — |  |  | — | % |  | — |  |  | — | % |  | (1) |  |  | — | % |  | (1) |  |  | — | %
Nondeductible expenses | 3 |  |  | 1 | % |  | 2 |  |  | 1 | % |  | 8 |  |  | 1 | % |  | 5 |  |  | 1 | %
Foreign operations | 2 |  |  | 1 | % |  | 1 |  |  | — | % |  | 6 |  |  | 1 | % |  | 6 |  |  | 1 | %
Other | — |  |  | — | % |  | 1 |  |  | — | % |  | (3) |  |  | (1 | %) |  | — |  |  | — | %
Provision for income taxes as shown in the statement of earnings | $ | 42 |  |  | 19 | % |  | $ | 45 |  |  | 21 | % |  | $ | 149 |  |  | 20 | % |  | $ | 155 |  |  | 20 | %

On January 1, 2023, the two major tax provisions of the Inflation Reduction Act (“IRA”) became effective. The IRA created a new corporate alternative minimum tax (“AMT”) based on the earnings that a company reports in its financial statements and imposes a 1% excise tax on corporate stock repurchases. Due to the lack of specific guidance at this time, AFG cannot determine whether it will be subject to the new AMT. Any AMT incurred would be available to offset AFG’s taxes payable under the standard calculation in future periods. Accordingly, the AMT is a timing difference and would result in the recording of an offsetting deferred tax asset with no impact on overall income tax expense. The excise tax on stock repurchases in excess of any issuances is recorded as part of the cost of the repurchases directly in shareholders’ equity.
L. Contingencies
There have been no significant changes to the matters discussed and referred to in Note N — “Contingencies” of AFG’s 2022 Form 10-K, which covers property and casualty insurance reserves for claims related to environmental exposures, asbestos and other mass tort claims and environmental and occupational injury and disease claims of subsidiaries’ former railroad and manufacturing operations.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
M. Insurance
Property and Casualty Insurance Reserves The following table provides an analysis of changes in the liability for losses and loss adjustment expenses during the first nine months of 2023 and 2022 (in millions):

| Nine months ended September 30,
| 2023 |  | 2022
Balance at beginning of year | $ | 11,974 |  |  | $ | 11,074 |
Less reinsurance recoverables, net of allowance | 3,767 |  |  | 3,419 |
Net liability at beginning of year | 8,207 |  |  | 7,655 |
Provision for losses and LAE occurring in the current period | 3,132 |  |  | 2,869 |
Net decrease in the provision for claims of prior years | (168) |  |  | (226) |
Total losses and LAE incurred | 2,964 |  |  | 2,643 |
Payments for losses and LAE of: |  |  |
Current year | (743) |  |  | (667) |
Prior years | (1,745) |  |  | (1,501) |
Total payments | (2,488) |  |  | (2,168) |
Foreign currency translation and other | 1 |  |  | 1 |
Net liability at end of period | 8,684 |  |  | 8,131 |
Add back reinsurance recoverables, net of allowance | 4,207 |  |  | 3,936 |
Gross unpaid losses and LAE included in the balance sheet at end of period | $ | 12,891 |  |  | $ | 12,067 |

The net decrease in the provision for claims of prior years during the first nine months of 2023 reflects (i) lower than anticipated losses in the crop business, lower than expected claim frequency and severity across the transportation businesses and lower than anticipated claim frequency in the property and inland marine business (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability and environmental businesses and favorable reserve development related to COVID-19 losses across several businesses (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the trade credit and financial institutions businesses and lower than expected claim frequency and severity in the surety business (within the Specialty financial sub-segment). This favorable development was partially offset by higher than anticipated claim severity in the public sector and excess liability businesses (within the Specialty casualty sub-segment).
The net decrease in the provision for claims of prior years during the first nine months of 2022 reflects (i) lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability business and lower than anticipated claim frequency and severity in the excess and surplus business (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the surety, trade credit and financial institutions businesses (within the Specialty financial sub-segment). This favorable development was partially offset by (i) higher than anticipated claim severity in the targeted markets and excess liability businesses (within the Specialty casualty sub-segment) and (ii) net adverse development associated with AFG’s internal reinsurance program (within Other specialty).
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AMERICAN FINANCIAL GROUP, INC. 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Recoverables from Reinsurers and Premiums Receivable Progressions of the 2023 and 2022 allowance for expected credit losses on recoverables from reinsurers and premiums receivable are shown below (in millions):

| Recoverables from Reinsurers |  | Premiums Receivable
| 2023 |  | 2022 |  | 2023 |  | 2022
Balance at June 30 | $ | 9 |  |  | $ | 7 |  |  | $ | 9 |  |  | $ | 9 |
Increase in allowance from acquisition of CRS | — |  |  | — |  |  | 4 |  |  | — |
Provision (credit) for expected credit losses | 2 |  |  | 1 |  |  | — |  |  | (1) |
Write-offs charged against the allowance | — |  |  | — |  |  | — |  |  | — |
Balance at September 30 | $ | 11 |  |  | $ | 8 |  |  | $ | 13 |  |  | $ | 8 |
Balance at January 1 | $ | 8 |  |  | $ | 8 |  |  | $ | 8 |  |  | $ | 8 |
Increase in allowance from acquisition of CRS | — |  |  | — |  |  | 4 |  |  | — |
Provision (credit) for expected credit losses | 3 |  |  | — |  |  | 1 |  |  | — |
Write-offs charged against the allowance | — |  |  | — |  |  | — |  |  | — |
Balance at September 30 | $ | 11 |  |  | $ | 8 |  |  | $ | 13 |  |  | $ | 8 |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INDEX TO MD&A
| Page |  |  | Page
Forward-Looking Statements | 33 |  | Results of Operations | 44
Overview | 34 |  | General | 44
Critical Accounting Policies | 35 |  | Results of Operations — Third Quarter | 45
Liquidity and Capital Resources | 35 |  | Segmented Statement of Earnings | 45
Ratios | 35 |  | Property and Casualty Insurance | 47
Condensed Consolidated Cash Flows | 35 |  | Holding Company, Other and Unallocated | 57
Parent and Subsidiary Liquidity | 36 |  | Results of Operations — First Nine Months | 60
Investments | 37 |  | Segmented Statement of Earnings | 60
Uncertainties | 40 |  | Property and Casualty Insurance | 61
Managed Investment Entities | 41 |  | Holding Company, Other and Unallocated | 70

FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Some of the forward-looking statements can be identified by the use of words such as “anticipates”, “believes”, “expects”, “projects”, “estimates”, “intends”, “plans”, “seeks”, “could”, “may”, “should”, “will” or the negative version of those words or other comparable terminology. Such forward-looking statements include statements relating to: expectations concerning market and other conditions and their effect on future premiums, revenues, earnings, investment activities, and the amount and timing of share repurchases or special dividends; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.
Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to the following and the risks and uncertainties AFG describes in the “Risk Factors” section of its most recent Annual Report on Form 10-K, as updated by its other reports filed with the Securities and Exchange Commission.
•changes in financial, political and economic conditions, including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions in the U.S. and/or abroad;
•performance of securities markets;
•new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio;
•the availability of capital;
•changes in insurance law or regulation, including changes in statutory accounting rules, including modifications to capital requirements;
•changes in the legal environment affecting AFG or its customers;
•tax law and accounting changes;
•levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from pandemics, civil unrest and other major losses;
•disruption caused by cyber-attacks or other technology breaches or failures by AFG or its business partners and service providers, which could negatively impact AFG’s business and/or expose AFG to litigation;
•development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims;
•availability of reinsurance and ability of reinsurers to pay their obligations;
•competitive pressures;
•the ability to obtain adequate rates and policy terms;
•changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries;
•the impact of the conditions in the international financial markets and the global economy relating to AFG’s international operations; and
•effects on AFG’s reputation, including as a result of environmental, social and governance matters.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
The forward-looking statements herein are made only as of the date of this report. The Company assumes no obligation to publicly update any forward-looking statements.
OBJECTIVE
The objective of Management’s Discussion and Analysis is to provide a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of AFG’s financial condition, changes in financial condition and results of operations. The tables and narrative that follow are presented in a manner that is consistent with the information that AFG’s management uses to make operational decisions and allocate capital resources. They are provided to demonstrate the nature of the transactions and events that could impact AFG’s financial results. This discussion should be read in conjunction with the financial statements beginning on page 2.
OVERVIEW
Financial Condition
AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Therefore, certain analyses are most meaningfully presented on a parent only basis while others are best done on a total enterprise basis. In addition, because its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.
Results of Operations
Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses.
AFG reported net earnings of $177 million ($2.09 per share, diluted) for the third quarter of 2023 compared to $165 million ($1.93 per share, diluted) for the third quarter of 2022. The year-over-year increase was due primarily to the impact of higher yields on fixed maturity investments and higher balances of invested assets coupled with lower net realized losses on securities. These items were partially offset by lower underwriting profit in the Specialty casualty sub-segment and lower returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs).
AFG reported net earnings of $589 million ($6.93 per share, diluted) for the first nine months of 2023 compared to $622 million ($7.29 per share, diluted) for the first nine months of 2022. The year-over-year decrease was due primarily to lower underwriting profit and lower returns on AFG’s alternative investment portfolio (partnerships and similar investments and AFG-managed CLOs) when compared to the strong performance of this portfolio in the prior year period. These items were partially offset by the impact of higher yields on fixed maturity investments and higher balances of invested assets coupled with lower net realized losses on securities.
Outlook
AFG’s financial condition, results of operations and cash flows are impacted by the economic, legal and regulatory environment. Economic inflation, social inflation, supply chain disruption, labor shortages, banking system instability and other economic conditions may impact premium levels, loss cost trends and investment returns. Management believes that AFG’s strong financial position and current liquidity and capital at its subsidiaries will give AFG the flexibility to continue to effectively address and respond to the ongoing uncertainties presented by the macro-economic environment, the conflicts in Ukraine and Israel and any lingering effects of the COVID-19 pandemic. AFG’s insurance subsidiaries continue to have capital at or in excess of the levels required by ratings agencies in order to maintain their current ratings, and the parent company does not have any near-term debt maturities.
Management expects continued premium growth and strong underwriting results in the ongoing favorable property and casualty insurance market. In addition, the deployment of cash during the elevated interest rate environment (since early 2022) will continue to have a positive impact on investment income on fixed maturity investments throughout 2023 and into 2024.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
CRITICAL ACCOUNTING POLICIES
Significant accounting policies are summarized in Note A — “Accounting Policies” to the financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions change and, thus, impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements is most significant are as follows:
•the valuation of investments, including the determination of impairment allowances,
•the establishment of insurance reserves, especially asbestos and environmental-related reserves,
•the recoverability of reinsurance, and
•the establishment of asbestos and environmental liabilities of former railroad and manufacturing operations.
For a discussion of these policies, see Management’s Discussion and Analysis — “Critical Accounting Policies” in AFG’s 2022 Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Ratios
AFG’s debt to total capital ratio on a consolidated basis is shown below (dollars in millions):

|  |  |  |  | December 31,
| September 30, 2023 |  | 2022 |  | 2021
Principal amount of long-term debt | $ | 1,498 |  |  |  |  | $ | 1,521 |  |  | $ | 1,993 |
Total capital | 6,034 |  |  |  |  | 6,099 |  |  | 6,869 |
Ratio of debt to total capital: |  |  |  |  |  |  |
Including subordinated debt | 24.8 | % |  |  |  | 24.9 | % |  | 29.0 | %
Excluding subordinated debt | 13.6 | % |  |  |  | 13.9 | % |  | 19.2 | %

The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and ratings agencies to evaluate AFG’s financial strength and liquidity and to provide insight into how AFG finances its operations. In addition, maintaining a ratio of debt, excluding subordinated debt and debt secured by real estate (if any), to total capital of 35% or lower is a financial covenant in AFG’s bank credit facility. The ratio is calculated by dividing the principal amount of AFG’s long-term debt by its total capital, which includes long-term debt and shareholders’ equity (excluding unrealized gains (losses) related to fixed maturity investments).
Condensed Consolidated Cash Flows
AFG’s principal sources of cash include insurance premiums, income from its investment portfolio and proceeds from the maturities, redemptions and sales of investments. Insurance premiums in excess of acquisition expenses and operating costs are invested until they are needed to meet policyholder obligations or made available to the parent company through dividends to cover debt obligations and corporate expenses, and to provide returns to shareholders through share repurchases and dividends. Cash flows from operating, investing and financing activities as detailed in AFG’s Consolidated Statement of Cash Flows are shown below (in millions):

| Nine months ended September 30,
| 2023 |  | 2022
Net cash provided by operating activities | $ | 1,214 |  |  | $ | 1,043 |
Net cash provided by (used in) investing activities | 459 |  |  | (1,062) |
Net cash used in financing activities | (1,324) |  |  | (1,318) |
Net change in cash and cash equivalents | $ | 349 |  |  | $ | (1,337) |

Net Cash Provided by Operating Activities AFG’s property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses. AFG’s net cash provided by operating activities is impacted by the level and timing of property and casualty premiums, claim and expense payments and recoveries from reinsurers. Cash flows provided by
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
operating activities also include the activity of AFG’s managed investment entities (collateralized loan obligations (“CLO”)) other than those activities included in investing or financing activities. The changes in the assets and liabilities of the managed investment entities included in operating activities increased cash flows from operating activities by $26 million during the first nine months of 2023 and $133 million in the first nine months of 2022, accounting for a $107 million decrease in cash flows from operating activities in the 2023 period compared to the 2022 period. As discussed in Note A — “Accounting Policies — Managed Investment Entities” to the financial statements, AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities and such assets and liabilities are shown separately in AFG’s Balance Sheet. Excluding the impact of the managed investment entities, net cash provided by operating activities was $1.19 billion and $910 million in the first nine months of 2023 and 2022, respectively.
Net Cash Provided by (Used in) Investing Activities AFG’s investing activities consist primarily of the investment of funds provided by its property and casualty businesses. Investing activities also include the purchase and disposal of managed investment entity investments, which are presented separately in AFG’s Balance Sheet. Net investment activity in the managed investment entities was a $609 million source of cash in the first nine months of 2023 compared to a $260 million use of cash in the comparable 2022 period, accounting for a $869 million increase in net cash provided by investing activities in the first nine months of 2023 compared to the same 2022 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements. Investing activities for the first nine months of 2023 included the July 2023 acquisition of Crop Risk Services (“CRS”) for $234 million in cash. Excluding the acquisition of CRS and the activity of the managed investment entities, investing activities were an $84 million source of cash in the first nine months of 2023 compared to an $802 million use of cash in the first nine months of 2022, reflecting the opportunistic investment of cash on hand in the property and casualty operations during the rising interest rate environment in the first nine months of 2022.
Net Cash Used in Financing Activities AFG’s financing activities consist primarily of issuances and retirements of long-term debt, issuances and repurchases of common stock and dividend payments. Net cash used in financing activities was $1.32 billion for the first nine months of 2023 compared to $1.32 billion in the first nine months of 2022, an increase of $6 million. AFG paid cash dividends totaling $498 million in the first nine months of 2023 compared to $989 million in the first nine months of 2022, a decrease in cash used by financing activities of $491 million. Debt retirements were a $21 million use of cash in the first nine months of 2023 compared to $436 million in the first nine months of 2022, a decrease in cash used in financing activities of $415 million. During the first nine months of 2023, AFG repurchased $153 million of its Common Stock compared to $10 million in the comparable 2022 period, resulting in a $143 million increase in net cash used in financing activities in the first nine months of 2023 compared to the first nine months of 2022. Financing activities also include issuances and retirements of managed investment entity liabilities, which are nonrecourse to AFG and presented separately in AFG’s Balance Sheet. Retirements of managed investment entity liabilities exceeded issuances by $663 million in the first nine months of 2023 compared to issuances exceeding retirements by $105 million in the first nine months of 2022, accounting for a $768 million increase in net cash used in financing activities in the 2023 period compared to the 2022 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements.
Parent and Subsidiary Liquidity
Parent Holding Company Liquidity Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and investments or to generate cash through borrowings, sales of other assets or similar transactions.
AFG's operations continue to generate significant excess capital for returns of capital to shareholders in the form of regular and special cash dividends and through opportunistic share repurchases or to be deployed into its property and casualty businesses as management identifies the potential for profitable organic growth and opportunities to expand through acquisitions of established businesses, such as the July 2023 acquisition of CRS, and acquisitions of or investments in start-ups that meet target return thresholds.
During the first nine months of 2023, AFG repurchased 1,329,831 shares of its Common Stock for $153 million and paid a special cash dividend totaling $341 million ($4.00 per share) in February. In addition, on November 1, 2023, AFG declared a special cash dividend of $1.50 per share, payable on November 22, 2023. The aggregate amount of this special dividend will be approximately $126 million.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
AFG may, at any time and from time to time, seek to retire or purchase its outstanding debt through cash purchases or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, AFG’s liquidity requirements, contractual restrictions and other factors. During the first six months of 2023, AFG repurchased $23 million principal amount of its senior notes for $21 million cash.
During 2022, AFG repurchased 89,368 shares of its Common Stock for $11 million and paid special cash dividends totaling $1.02 billion ($2.00 per share in March, $8.00 per share in May and $2.00 per share in November). In 2022, AFG repurchased $472 million principal amount of its senior notes for $477 million cash.
At September 30, 2023, AFG (parent) held $364 million in cash and investments. Management believes that AFG’s cash balances are held at stable banking institutions, although the amounts of many of these deposits are in excess of federally insured balances. In June 2023, AFG replaced its existing credit facility with a new five-year, $450 million revolving credit facility, which expires in June 2028. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.75% (based on AFG’s credit rating, currently 1.25%) over a SOFR-based floating rate. There were no borrowings under AFG’s credit facilities, or under any other parent company short-term borrowing arrangements, during 2022 or the first nine months of 2023.
Under a tax allocation agreement with AFG, all 80% (or more) owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary’s contribution to amounts due under AFG’s consolidated tax return.
Subsidiary Liquidity The liquidity requirements of AFG’s insurance subsidiaries relate primarily to the policyholder claims and underwriting expenses and payments of dividends and taxes to AFG. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements. Funds received in excess of cash requirements are generally invested in marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short duration investments.
AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and underwriting expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Even in the current uncertain economic environment, management believes that the capital levels in AFG’s insurance subsidiaries are adequate to maintain its business and rating agency ratings. Nonetheless, changes in statutory accounting rules, significant declines in the fair value of the insurance subsidiaries’ investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital.
Investments
AFG’s investment portfolio at September 30, 2023, contained $9.93 billion in fixed maturity securities classified as available for sale and carried at fair value with unrealized gains and losses included in accumulated other comprehensive income and $51 million in fixed maturities classified as trading with holding gains and losses included in net investment income. In addition, AFG’s investment portfolio includes $589 million in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $418 million in equity securities carried at fair value with holding gains and losses included in net investment income.
Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services, non-binding broker quotes and other market information. Fair values of equity securities are generally based on published closing prices. For AFG’s fixed maturity portfolio, approximately 90% was priced using pricing services at September 30, 2023 and 4% was priced using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.
The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers’ prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs.
Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the services to value specific securities.
In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have had at September 30, 2023 (dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.

Fair value of fixed maturity portfolio | $ | 9,982 |
Percentage impact on fair value of 100 bps increase in interest rates | (3.0 | %)
Pretax impact on fair value of fixed maturity portfolio | $ | (299) |

Approximately 93% of the fixed maturities held by AFG at September 30, 2023, were rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies, 4% were rated “non-investment grade” and 3% were not rated. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high-quality investment portfolio should generate a stable and predictable investment return.
Municipal bonds represented approximately 9% of AFG’s fixed maturity portfolio at September 30, 2023. AFG’s municipal bond portfolio is high quality, with over 99% of the securities rated investment grade at that date. The portfolio is well diversified across the states of issuance and individual issuers. At September 30, 2023, approximately 93% of the municipal bond portfolio was held in revenue bonds, with the remaining 7% held in general obligation bonds.
AFG has less than $100 million of direct exposure to office commercial real estate through property ownership, mortgages or equity method investments. AFG’s fixed maturity portfolio includes securities (the majority of which are AAA-rated) with a carrying value of approximately $630 million that have minimal exposure to office commercial real estate.
Summarized information for the unrealized gains and losses recorded in AFG’s Balance Sheet at September 30, 2023, is shown in the following table (dollars in millions). Approximately $165 million of available for sale fixed maturity securities had no unrealized gains or losses at September 30, 2023.

| Securities With Unrealized Gains |  | Securities With Unrealized Losses
Available for Sale Fixed Maturities |  |  |
Fair value of securities | $ | 1,319 |  |  | $ | 8,447 |
Amortized cost of securities, net of allowance for expected credit losses | $ | 1,287 |  |  | $ | 9,138 |
Gross unrealized gain (loss) | $ | 32 |  |  | $ | (691) |
Fair value as % of amortized cost | 102 | % |  | 92 | %
Number of security positions | 328 |  |  | 1,886 |
Number individually exceeding $2 million gain or loss | 1 |  |  | 64 |
Concentration of gains (losses) by type or industry (exceeding 5% of unrealized): |  |  |
Mortgage-backed securities | $ | 18 |  |  | $ | (214) |
Collateralized loan obligations | 8 |  |  | (39) |
Other asset-backed securities | 2 |  |  | (161) |
States and municipalities | 1 |  |  | (76) |
Asset managers | — |  |  | (45) |
Percentage rated investment grade | 87 | % |  | 95 | %

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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at September 30, 2023, based on their fair values. 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.

| Securities With Unrealized Gains |  | Securities With Unrealized Losses
Maturity |  |  |
One year or less | 3 | % |  | 4 | %
After one year through five years | 10 | % |  | 27 | %
After five years through ten years | 8 | % |  | 11 | %
After ten years | 4 | % |  | 3 | %
| 25 | % |  | 45 | %
Collateralized loan obligations and other asset-backed securities (average life of approximately 3 years) | 63 | % |  | 37 | %
Mortgage-backed securities (average life of approximately 6.5 years) | 12 | % |  | 18 | %
| 100 | % |  | 100 | %

The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount:

| Aggregate Fair Value |  | Aggregate Unrealized Gain (Loss) |  | Fair Value as % of Cost
Fixed Maturities at September 30, 2023 |  |  |  |  |
Securities with unrealized gains: |  |  |  |  |
Exceeding $500,000 (9 securities) | $ | 75 |  |  | $ | 8 |  |  | 112 | %
$500,000 or less (319 securities) | 1,244 |  |  | 24 |  |  | 102 | %
| $ | 1,319 |  |  | $ | 32 |  |  | 102 | %
Securities with unrealized losses: |  |  |  |  |
Exceeding $500,000 (355 securities) | $ | 3,641 |  |  | $ | (514) |  |  | 88 | %
$500,000 or less (1,531 securities) | 4,806 |  |  | (177) |  |  | 96 | %
| $ | 8,447 |  |  | $ | (691) |  |  | 92 | %

The following table (dollars in millions) summarizes the unrealized losses for all securities with unrealized losses by issuer quality and the length of time those securities have been in an unrealized loss position:

| Aggregate Fair Value |  | Aggregate Unrealized Loss |  | Fair Value as % of Cost
Securities with Unrealized Losses at September 30, 2023 |  |  |  |  |
Investment grade fixed maturities with losses for: |  |  |  |  |
Less than one year (401 securities) | $ | 2,022 |  |  | $ | (55) |  |  | 97 | %
One year or longer (1,218 securities) | 6,023 |  |  | (604) |  |  | 91 | %
| $ | 8,045 |  |  | $ | (659) |  |  | 92 | %
Non-investment grade fixed maturities with losses for: |  |  |  |  |
Less than one year (65 securities) | $ | 97 |  |  | $ | (4) |  |  | 96 | %
One year or longer (202 securities) | 305 |  |  | (28) |  |  | 92 | %
| $ | 402 |  |  | $ | (32) |  |  | 93 | %

When a decline in the value of a specific investment is considered to be other-than-temporary, an allowance for credit losses (impairment) is charged to earnings (accounted for as a realized loss). The determination of whether unrealized losses are other-than-temporary requires judgment based on subjective as well as objective factors as detailed in AFG’s 2022 Form 10-K under Management’s Discussion and Analysis — “Investments.”
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Based on its analysis, management believes AFG will recover its cost basis (net of any allowance) in the fixed maturity 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 September 30, 2023. Although AFG has the ability to continue holding its fixed maturity investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers’ creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG’s ability or intent change regarding a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, increases in the allowance for credit losses could be material to results of operations in future periods. Significant declines in the fair value of AFG’s investment portfolio could have a significant adverse effect on AFG’s liquidity. For information on AFG’s realized gains (losses) on securities, see “Results of Operations — Realized Gains (Losses) on Securities.”
Uncertainties
Management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations. See “Results of Operations — Holding Company and Other — Special A&E Charge” for the three months ended September 30, 2023 and 2022 and Management’s Discussion and Analysis — “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves” in AFG’s 2022 Form 10–K.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
MANAGED INVESTMENT ENTITIES
Accounting standards require AFG to consolidate its investments in collateralized loan obligation (“CLO”) entities that it manages and owns an interest in (in the form of debt). See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements. The effect of consolidating these entities is shown in the tables below (in millions). The “Before CLO Consolidation” columns include AFG’s investment and earnings in the CLOs on an unconsolidated basis.
CONDENSED CONSOLIDATING BALANCE SHEET

| Before CLO Consolidation |  | Managed Investment Entities |  | Consol. Entries |  |  |  | Consolidated As Reported
September 30, 2023 |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Cash and investments | $ | 14,937 |  |  | $ | — |  |  | $ | (143) |  |  | (*) |  | $ | 14,794 |
Assets of managed investment entities | — |  |  | 4,871 |  |  | — |  |  |  |  | 4,871 |
Other assets | 11,160 |  |  | — |  |  | — |  |  | (*) |  | 11,160 |
Total assets | $ | 26,097 |  |  | $ | 4,871 |  |  | $ | (143) |  |  |  |  | $ | 30,825 |
Liabilities: |  |  |  |  |  |  |  |  |
Unpaid losses and loss adjustment expenses and unearned premiums | $ | 16,888 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 16,888 |
Liabilities of managed investment entities | — |  |  | 4,848 |  |  | (120) |  |  | (*) |  | 4,728 |
Long-term debt and other liabilities | 5,228 |  |  | — |  |  | — |  |  |  |  | 5,228 |
Total liabilities | 22,116 |  |  | 4,848 |  |  | (120) |  |  |  |  | 26,844 |
Shareholders’ equity: |  |  |  |  |  |  |  |  |
Common Stock and Capital surplus | 1,456 |  |  | 23 |  |  | (23) |  |  |  |  | 1,456 |
Retained earnings | 3,095 |  |  | — |  |  | — |  |  |  |  | 3,095 |
Accumulated other comprehensive income (loss), net of tax | (570) |  |  | — |  |  | — |  |  |  |  | (570) |
Total shareholders’ equity | 3,981 |  |  | 23 |  |  | (23) |  |  |  |  | 3,981 |
Total liabilities and shareholders’ equity | $ | 26,097 |  |  | $ | 4,871 |  |  | $ | (143) |  |  |  |  | $ | 30,825 |
December 31, 2022 |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Cash and investments | $ | 14,627 |  |  | $ | — |  |  | $ | (115) |  |  | (*) |  | $ | 14,512 |
Assets of managed investment entities | — |  |  | 5,447 |  |  | — |  |  |  |  | 5,447 |
Other assets | 8,872 |  |  | — |  |  | — |  |  | (*) |  | 8,872 |
Total assets | $ | 23,499 |  |  | $ | 5,447 |  |  | $ | (115) |  |  |  |  | $ | 28,831 |
Liabilities: |  |  |  |  |  |  |  |  |
Unpaid losses and loss adjustment expenses and unearned premiums | $ | 15,220 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 15,220 |
Liabilities of managed investment entities | — |  |  | 5,444 |  |  | (112) |  |  | (*) |  | 5,332 |
Long-term debt and other liabilities | 4,227 |  |  | — |  |  | — |  |  |  |  | 4,227 |
Total liabilities | 19,447 |  |  | 5,444 |  |  | (112) |  |  |  |  | 24,779 |
Shareholders’ equity: |  |  |  |  |  |  |  |  |
Common Stock and Capital surplus | 1,453 |  |  | 3 |  |  | (3) |  |  |  |  | 1,453 |
Retained earnings | 3,142 |  |  | — |  |  | — |  |  |  |  | 3,142 |
Accumulated other comprehensive income (loss), net of tax | (543) |  |  | — |  |  | — |  |  |  |  | (543) |
Total shareholders’ equity | 4,052 |  |  | 3 |  |  | (3) |  |  |  |  | 4,052 |
Total liabilities and shareholders’ equity | $ | 23,499 |  |  | $ | 5,447 |  |  | $ | (115) |  |  |  |  | $ | 28,831 |

(*)Elimination of the fair value of AFG’s investment in CLOs and related accrued interest.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

| Before CLO Consol. (a) |  | Managed Investment Entities |  | Consol. Entries |  |  |  | Consolidated As Reported
Three months ended September 30, 2023 |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 1,855 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 1,855 |
Net investment income | 180 |  |  | — |  |  | (12) |  |  | (b) |  | 168 |
Realized gains (losses) on: |  |  |  |  |  |  |  |  |
Securities | (19) |  |  | — |  |  | — |  |  |  |  | (19) |
Subsidiary | (4) |  |  | — |  |  | — |  |  |  |  | (4) |
Income of managed investment entities: |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 105 |  |  | — |  |  |  |  | 105 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | 11 |  |  | 5 |  |  | (b) |  | 16 |
Other income | 47 |  |  | — |  |  | (4) |  |  | (c) |  | 43 |
Total revenues | 2,059 |  |  | 116 |  |  | (11) |  |  |  |  | 2,164 |
Costs and Expenses: |  |  |  |  |  |  |  |  |
Insurance benefits and expenses | 1,736 |  |  | — |  |  | — |  |  |  |  | 1,736 |
Expenses of managed investment entities | — |  |  | 116 |  |  | (11) |  |  | (b)(c) |  | 105 |
Interest charges on borrowed money and other expenses | 104 |  |  | — |  |  | — |  |  |  |  | 104 |
Total costs and expenses | 1,840 |  |  | 116 |  |  | (11) |  |  |  |  | 1,945 |
Earnings before income taxes | 219 |  |  | — |  |  | — |  |  |  |  | 219 |
Provision for income taxes | 42 |  |  | — |  |  | — |  |  |  |  | 42 |
Net earnings | $ | 177 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 177 |
Three months ended September 30, 2022 |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 1,767 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 1,767 |
Net investment income | 155 |  |  | — |  |  | (4) |  |  | (b) |  | 151 |
Realized gains (losses) on securities | (35) |  |  | — |  |  | — |  |  |  |  | (35) |
Income of managed investment entities: |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 75 |  |  | — |  |  |  |  | 75 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | (5) |  |  | — |  |  | (b) |  | (5) |
Other income | 35 |  |  | — |  |  | (4) |  |  | (c) |  | 31 |
Total revenues | 1,922 |  |  | 70 |  |  | (8) |  |  |  |  | 1,984 |
Costs and Expenses: |  |  |  |  |  |  |  |  |
Insurance benefits and expenses | 1,621 |  |  | — |  |  | — |  |  |  |  | 1,621 |
Expenses of managed investment entities | — |  |  | 70 |  |  | (8) |  |  | (b)(c) |  | 62 |
Interest charges on borrowed money and other expenses | 91 |  |  | — |  |  | — |  |  |  |  | 91 |
Total costs and expenses | 1,712 |  |  | 70 |  |  | (8) |  |  |  |  | 1,774 |
Earnings before income taxes | 210 |  |  | — |  |  | — |  |  |  |  | 210 |
Provision for income taxes | 45 |  |  | — |  |  | — |  |  |  |  | 45 |
Net earnings | $ | 165 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 165 |

(a)Includes income of $12 million in the third quarter of 2023 and $4 million in the third quarter of 2022, representing the change in fair value of AFG’s CLO investments and $4 million of income in both the third quarter of 2023 and 2022, in CLO management fees earned.
(b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $7 million and $4 million in the third quarter of 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs.
(c)Elimination of management fees earned by AFG.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

| Before CLO Consol. (a) |  | Managed Investment Entities |  | Consol. Entries |  |  |  | Consolidated As Reported
Nine months ended September 30, 2023 |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 4,799 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 4,799 |
Net investment income | 601 |  |  | — |  |  | (18) |  |  | (b) |  | 583 |
Realized gains (losses) on: |  |  |  |  |  |  |  |  |
Securities | (67) |  |  | — |  |  | — |  |  |  |  | (67) |
Subsidiary | (4) |  |  | — |  |  | — |  |  |  |  | (4) |
Income of managed investment entities: |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 321 |  |  | — |  |  |  |  | 321 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | 12 |  |  | — |  |  | (b) |  | 12 |
Other income | 112 |  |  | — |  |  | (12) |  |  | (c) |  | 100 |
Total revenues | 5,441 |  |  | 333 |  |  | (30) |  |  |  |  | 5,744 |
Costs and Expenses: |  |  |  |  |  |  |  |  |
Insurance benefits and expenses | 4,419 |  |  | — |  |  | — |  |  |  |  | 4,419 |
Expenses of managed investment entities | — |  |  | 333 |  |  | (30) |  |  | (b)(c) |  | 303 |
Interest charges on borrowed money and other expenses | 284 |  |  | — |  |  | — |  |  |  |  | 284 |
Total costs and expenses | 4,703 |  |  | 333 |  |  | (30) |  |  |  |  | 5,006 |
Earnings before income taxes | 738 |  |  | — |  |  | — |  |  |  |  | 738 |
Provision for income taxes | 149 |  |  | — |  |  | — |  |  |  |  | 149 |
Net earnings | $ | 589 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 589 |
Nine months ended September 30, 2022 |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 4,462 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 4,462 |
Net investment income | 539 |  |  | — |  |  | 10 |  |  | (b) |  | 549 |
Realized gains (losses) on securities | (143) |  |  | — |  |  | — |  |  |  |  | (143) |
Income of managed investment entities: |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 175 |  |  | — |  |  |  |  | 175 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | (1) |  |  | (24) |  |  | (b) |  | (25) |
Other income | 105 |  |  | — |  |  | (12) |  |  | (c) |  | 93 |
Total revenues | 4,963 |  |  | 174 |  |  | (26) |  |  |  |  | 5,111 |
Costs and Expenses: |  |  |  |  |  |  |  |  |
Insurance benefits and expenses | 3,934 |  |  | — |  |  | — |  |  |  |  | 3,934 |
Expenses of managed investment entities | — |  |  | 173 |  |  | (25) |  |  | (b)(c) |  | 148 |
Interest charges on borrowed money and other expenses | 252 |  |  | — |  |  | — |  |  |  |  | 252 |
Total costs and expenses | 4,186 |  |  | 173 |  |  | (25) |  |  |  |  | 4,334 |
Earnings before income taxes | 777 |  |  | 1 |  |  | (1) |  |  |  |  | 777 |
Provision for income taxes | 155 |  |  | — |  |  | — |  |  |  |  | 155 |
Net earnings | $ | 622 |  |  | $ | 1 |  |  | $ | (1) |  |  |  |  | $ | 622 |

(a)Includes income of $18 million in the first nine months of 2023 and a loss of $10 million in the first nine months of 2022, representing the change in fair value of AFG’s CLO investments and $12 million of income in both the first nine months of 2023 and 2022, in CLO management fees earned.
(b)Elimination of the change in fair value of AFG’s investments in the CLOs, including $18 million and $13 million in the first nine months of 2023 and 2022, respectively, in distributions recorded as interest expense by the CLOs.
(c)Elimination of management fees earned by AFG.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
RESULTS OF OPERATIONS
General
AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. Core net operating earnings excludes realized gains (losses) on securities because such gains and losses are influenced significantly by financial markets, interest rates and the timing of sales. In addition, special charges related to coverage that AFG no longer writes, such as asbestos and environmental exposures, are excluded from core earnings.
The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings to core net operating earnings, a non-GAAP financial measure. AFG believes core net operating earnings is a useful tool for investors and analysts in analyzing ongoing operating trends and for management to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business.

| Three months ended September 30, |  | Nine months ended September 30,
2023 |  | 2022 |  | 2023 |  | 2022
Components of net earnings: |  |  |  |  |  |  |
Core operating earnings before income taxes | $ | 257 |  |  | $ | 244 |  |  | $ | 823 |  |  | $ | 930 |
Pretax non-core items: |  |  |  |  |  |  |
Realized gains (losses) on securities | (19) |  |  | (35) |  |  | (67) |  |  | (143) |
Realized loss on subsidiary | (4) |  |  | — |  |  | (4) |  |  | — |
Special A&E charge | (15) |  |  | — |  |  | (15) |  |  | — |
Gain (loss) on retirement of debt | — |  |  | 1 |  |  | 1 |  |  | (10) |
Earnings before income taxes | 219 |  |  | 210 |  |  | 738 |  |  | 777 |
Provision for income taxes: |  |  |  |  |  |  |
Core operating earnings | 49 |  |  | 52 |  |  | 166 |  |  | 192 |
Non-core items: |  |  |  |  |  |  |
Realized gains (losses) on securities | (4) |  |  | (7) |  |  | (14) |  |  | (30) |
Realized loss on subsidiary | — |  |  | — |  |  | — |  |  | — |
Special A&E charge | (3) |  |  | — |  |  | (3) |  |  | — |
Gain (loss) on retirement of debt | — |  |  | — |  |  | — |  |  | (3) |
Other | — |  |  | — |  |  | — |  |  | (4) |
Total provision for income taxes | 42 |  |  | 45 |  |  | 149 |  |  | 155 |
Net earnings | $ | 177 |  |  | $ | 165 |  |  | $ | 589 |  |  | $ | 622 |
Net earnings: |  |  |  |  |  |  |
Core net operating earnings | $ | 208 |  |  | $ | 192 |  |  | $ | 657 |  |  | $ | 738 |
Realized gains (losses) on securities | (15) |  |  | (28) |  |  | (53) |  |  | (113) |
Realized loss on subsidiary | (4) |  |  | — |  |  | (4) |  |  | — |
Special A&E charge | (12) |  |  | — |  |  | (12) |  |  | — |
Gain (loss) on retirement of debt | — |  |  | 1 |  |  | 1 |  |  | (7) |
Other | — |  |  | — |  |  | — |  |  | 4 |
Net earnings | $ | 177 |  |  | $ | 165 |  |  | $ | 589 |  |  | $ | 622 |
Diluted per share amounts: |  |  |  |  |  |  |
Core net operating earnings | $ | 2.45 |  |  | $ | 2.24 |  |  | $ | 7.72 |  |  | $ | 8.65 |
Realized gains (losses) on securities | (0.17) |  |  | (0.32) |  |  | (0.61) |  |  | (1.32) |
Realized loss on subsidiary | (0.04) |  |  | — |  |  | (0.04) |  |  | — |
Special A&E charge | (0.15) |  |  | — |  |  | (0.15) |  |  | — |
Gain (loss) on retirement of debt | — |  |  | 0.01 |  |  | 0.01 |  |  | (0.09) |
Other | — |  |  | — |  |  | — |  |  | 0.05 |
Net earnings | $ | 2.09 |  |  | $ | 1.93 |  |  | $ | 6.93 |  |  | $ | 7.29 |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Net earnings were $177 million in the third quarter of 2023 compared to $165 million in the third quarter of 2022 reflecting higher core net operating earnings and lower net realized losses on securities in the third quarter of 2023 compared to the third quarter of 2022, partially offset by a special non-core A&E charge recorded in the third quarter of 2023. Core net operating earnings for the third quarter of 2023 increased $16 million compared to the third quarter of 2022 reflecting the impact of higher yields on fixed maturity investments and higher balances of invested assets, partially offset by lower underwriting profit in the Specialty casualty sub-segment and lower returns on AFG’s alternative investment portfolio. Net realized losses on securities in the third quarter of 2023 and 2022 include after-tax losses of $6 million and $21 million, respectively, resulting from the change in fair value of equity securities that were still held at the balance sheet date.
Net earnings were $589 million in the first nine months of 2023 compared to $622 million in the first nine months of 2022 reflecting lower core net operating earnings and a special A&E charge recorded in the third quarter of 2023, partially offset by lower net realized losses on securities in the first nine months of 2023 compared to the first nine months of 2022. Core net operating earnings for the first nine months of 2023 decreased $81 million compared to the first nine months of 2022 reflecting lower underwriting profit and lower returns on AFG’s alternative investment portfolio when compared to the strong performance of this portfolio in the prior year period, partially offset by the impact of higher yields on fixed maturity investments and higher balances of invested assets. Net realized losses on securities in the first nine months of 2023 and 2022 include after-tax losses of $25 million and $94 million, respectively, resulting from the change in fair value of equity securities that were still held at the balance sheet date.
RESULTS OF OPERATIONS — THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
Segmented Statement of Earnings
AFG reports its operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”).
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the three months ended September 30, 2023 and 2022 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions):

|  |  | Other |  |  |  |  |  |
| P&C |  | Consol. MIEs |  | Holding Co., other and unallocated |  | Total |  | Non-core reclass |  | GAAP Total
Three months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 1,855 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,855 |  |  | $ | — |  |  | $ | 1,855 |
Net investment income | 170 |  |  | (12) |  |  | 10 |  |  | 168 |  |  | — |  |  | 168 |
Realized gains (losses) on: |  |  |  |  |  |  |  |  |  |  |
Securities | — |  |  | — |  |  | — |  |  | — |  |  | (19) |  |  | (19) |
Subsidiary | — |  |  | — |  |  | — |  |  | — |  |  | (4) |  |  | (4) |
Income of MIEs: |  |  |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 105 |  |  | — |  |  | 105 |  |  | — |  |  | 105 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | 16 |  |  | — |  |  | 16 |  |  | — |  |  | 16 |
Other income | 5 |  |  | (4) |  |  | 42 |  |  | 43 |  |  | — |  |  | 43 |
Total revenues | 2,030 |  |  | 105 |  |  | 52 |  |  | 2,187 |  |  | (23) |  |  | 2,164 |
Costs and Expenses: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance: |  |  |  |  |  |  |  |  |  |  |
Losses and loss adjustment expenses | 1,239 |  |  | — |  |  | — |  |  | 1,239 |  |  | — |  |  | 1,239 |
Commissions and other underwriting expenses | 474 |  |  | — |  |  | 23 |  |  | 497 |  |  | — |  |  | 497 |
Interest charges on borrowed money | — |  |  | — |  |  | 19 |  |  | 19 |  |  | — |  |  | 19 |
Expenses of MIEs | — |  |  | 105 |  |  | — |  |  | 105 |  |  | — |  |  | 105 |
Other expenses | 19 |  |  | — |  |  | 51 |  |  | 70 |  |  | 15 |  |  | 85 |
Total costs and expenses | 1,732 |  |  | 105 |  |  | 93 |  |  | 1,930 |  |  | 15 |  |  | 1,945 |
Earnings before income taxes | 298 |  |  | — |  |  | (41) |  |  | 257 |  |  | (38) |  |  | 219 |
Provision for income taxes | 57 |  |  | — |  |  | (8) |  |  | 49 |  |  | (7) |  |  | 42 |
Core Net Operating Earnings | 241 |  |  | — |  |  | (33) |  |  | 208 |  |  |  |  |
Non-core earnings (loss) (*): |  |  |  |  |  |  |  |  |  |  |
Realized gains (losses) on securities, net of tax | — |  |  | — |  |  | (15) |  |  | (15) |  |  | 15 |  |  | — |
Realized loss on subsidiary | (4) |  |  | — |  |  | — |  |  | (4) |  |  | 4 |  |  | — |
Special A&E charge, net of tax | — |  |  | — |  |  | (12) |  |  | (12) |  |  | 12 |  |  | — |
Net Earnings | $ | 237 |  |  | $ | — |  |  | $ | (60) |  |  | $ | 177 |  |  | $ | — |  |  | $ | 177 |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

|  |  | Other |  |  |  |  |  |
| P&C |  | Consol. MIEs |  | Holding Co., other and unallocated |  | Total |  | Non-core reclass |  | GAAP Total
Three months ended September 30, 2022 |  |  |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 1,767 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,767 |  |  | $ | — |  |  | $ | 1,767 |
Net investment income | 145 |  |  | (4) |  |  | 10 |  |  | 151 |  |  | — |  |  | 151 |
Realized gains (losses) on securities | — |  |  | — |  |  | — |  |  | — |  |  | (35) |  |  | (35) |
Income of MIEs: |  |  |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 75 |  |  | — |  |  | 75 |  |  | — |  |  | 75 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | (5) |  |  | — |  |  | (5) |  |  | — |  |  | (5) |
Other income | 2 |  |  | (4) |  |  | 33 |  |  | 31 |  |  | — |  |  | 31 |
Total revenues | 1,914 |  |  | 62 |  |  | 43 |  |  | 2,019 |  |  | (35) |  |  | 1,984 |
Costs and Expenses: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance: |  |  |  |  |  |  |  |  |  |  |
Losses and loss adjustment expenses | 1,176 |  |  | — |  |  | — |  |  | 1,176 |  |  | — |  |  | 1,176 |
Commissions and other underwriting expenses | 436 |  |  | — |  |  | 9 |  |  | 445 |  |  | — |  |  | 445 |
Interest charges on borrowed money | — |  |  | — |  |  | 19 |  |  | 19 |  |  | — |  |  | 19 |
Expenses of MIEs | — |  |  | 62 |  |  | — |  |  | 62 |  |  | — |  |  | 62 |
Other expenses | 13 |  |  | — |  |  | 60 |  |  | 73 |  |  | (1) |  |  | 72 |
Total costs and expenses | 1,625 |  |  | 62 |  |  | 88 |  |  | 1,775 |  |  | (1) |  |  | 1,774 |
Earnings before income taxes | 289 |  |  | — |  |  | (45) |  |  | 244 |  |  | (34) |  |  | 210 |
Provision for income taxes | 62 |  |  | — |  |  | (10) |  |  | 52 |  |  | (7) |  |  | 45 |
Core Net Operating Earnings | 227 |  |  | — |  |  | (35) |  |  | 192 |  |  |  |  |
Non-core earnings (loss) (*): |  |  |  |  |  |  |  |  |  |  |
Realized gains (losses) on securities, net of tax | — |  |  | — |  |  | (28) |  |  | (28) |  |  | 28 |  |  | — |
Gain on retirement of debt, net of tax | — |  |  | — |  |  | 1 |  |  | 1 |  |  | (1) |  |  | — |
Net Earnings | $ | 227 |  |  | $ | — |  |  | $ | (62) |  |  | $ | 165 |  |  | $ | — |  |  | $ | 165 |

(*)See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax impacts of these reconciling items.
Property and Casualty Insurance Segment — Results of Operations
Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses and loss adjustment expenses, and commissions and other underwriting expenses to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect net investment income, other income, other expenses or federal income taxes.
AFG’s property and casualty insurance operations contributed $294 million in GAAP pretax earnings in the third quarter of 2023 compared to $289 million in the third quarter of 2022, an increase of $5 million (2%). Property and casualty core pretax earnings were $298 million in the third quarter of 2023 compared to $289 million in the third quarter of 2022, an increase of $9 million (3%).The increase in GAAP and core pretax earnings reflects higher net investment income, partially offset by lower underwriting profit in the Specialty casualty sub-segment in the third quarter of 2023 compared to the third quarter of 2022.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
The following table details AFG’s GAAP and core earnings before income taxes from its property and casualty insurance operations for the three months ended September 30, 2023 and 2022 (dollars in millions):

| Three months ended September 30, |  |
| 2023 |  | 2022 |  | % Change
Gross written premiums | $ | 3,140 |  |  | $ | 3,153 |  |  | — | %
Reinsurance premiums ceded | (1,079) |  |  | (1,169) |  |  | (8 | %)
Net written premiums | 2,061 |  |  | 1,984 |  |  | 4 | %
Change in unearned premiums | (206) |  |  | (217) |  |  | (5 | %)
Net earned premiums | 1,855 |  |  | 1,767 |  |  | 5 | %
Loss and loss adjustment expenses | 1,239 |  |  | 1,176 |  |  | 5 | %
Commissions and other underwriting expenses | 474 |  |  | 436 |  |  | 9 | %
Underwriting gain | 142 |  |  | 155 |  |  | (8 | %)
Net investment income | 170 |  |  | 145 |  |  | 17 | %
Other income and expenses, net | (14) |  |  | (11) |  |  | 27 | %
Core earnings before income taxes | 298 |  |  | 289 |  |  | 3 | %
Realized loss on subsidiary | (4) |  |  | — |  |  | — | %
GAAP earnings before income taxes | $ | 294 |  |  | $ | 289 |  |  | 2 | %
| Three months ended September 30, |  |
| 2023 |  | 2022 |  | Change
Combined Ratios: |  |  |  |  |
Specialty lines |  |  |  |  |
Loss and LAE ratio | 66.7 | % |  | 66.4 | % |  | 0.3 | %
Underwriting expense ratio | 25.5 | % |  | 24.7 | % |  | 0.8 | %
Combined ratio | 92.2 | % |  | 91.1 | % |  | 1.1 | %
Aggregate — including exited lines |  |  |  |  |
Loss and LAE ratio | 66.8 | % |  | 66.5 | % |  | 0.3 | %
Underwriting expense ratio | 25.5 | % |  | 24.7 | % |  | 0.8 | %
Combined ratio | 92.3 | % |  | 91.2 | % |  | 1.1 | %

AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.
To understand the overall profitability of particular lines, the timing of claims payments and the related impact of investment income must be considered. Certain “short-tail” lines of business (primarily property coverages) generally have quick loss payouts, which reduce the time funds are held, thereby limiting investment income earned thereon. In contrast, “long-tail” lines of business (primarily liability coverages and workers’ compensation) generally have payouts that are either structured over many years or take many years to settle, thereby significantly increasing investment income earned on related premiums received.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Gross Written Premiums
Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $3.14 billion for the third quarter of 2023 compared to $3.15 billion for the third quarter of 2022, a decrease of $13 million (less than 1%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):

| Three months ended September 30, |  |
| 2023 |  | 2022 |  |
| GWP |  | % |  | GWP |  | % |  | % Change
Property and transportation | $ | 1,592 |  |  | 51 | % |  | $ | 1,737 |  |  | 55 | % |  | (8 | %)
Specialty casualty | 1,226 |  |  | 39 | % |  | 1,184 |  |  | 38 | % |  | 4 | %
Specialty financial | 322 |  |  | 10 | % |  | 232 |  |  | 7 | % |  | 39 | %
| $ | 3,140 |  |  | 100 | % |  | $ | 3,153 |  |  | 100 | % |  | — | %

Reinsurance Premiums Ceded
Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 34% of gross written premiums for the third quarter of 2023 compared to 37% of gross written premiums for the third quarter of 2022, a decrease of 3 percentage points. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):

| Three months ended September 30, |  |
| 2023 |  | 2022 |  | Change in
| Ceded |  | % of GWP |  | Ceded |  | % of GWP |  | % of GWP
Property and transportation | $ | (687) |  |  | 43 | % |  | $ | (778) |  |  | 45 | % |  | (2 | %)
Specialty casualty | (397) |  |  | 32 | % |  | (407) |  |  | 34 | % |  | (2 | %)
Specialty financial | (61) |  |  | 19 | % |  | (56) |  |  | 24 | % |  | (5 | %)
Other specialty | 66 |  |  |  |  | 72 |  |  |  |  |
| $ | (1,079) |  |  | 34 | % |  | $ | (1,169) |  |  | 37 | % |  | (3 | %)

Net Written Premiums
Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $2.06 billion for the third quarter of 2023 compared to $1.98 billion for the third quarter of 2022, an increase of $77 million (4%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):

| Three months ended September 30, |  |
| 2023 |  | 2022 |  |
| NWP |  | % |  | NWP |  | % |  | % Change
Property and transportation | $ | 905 |  |  | 44 | % |  | $ | 959 |  |  | 48 | % |  | (6 | %)
Specialty casualty | 829 |  |  | 40 | % |  | 777 |  |  | 39 | % |  | 7 | %
Specialty financial | 261 |  |  | 13 | % |  | 176 |  |  | 9 | % |  | 48 | %
Other specialty | 66 |  |  | 3 | % |  | 72 |  |  | 4 | % |  | (8 | %)
| $ | 2,061 |  |  | 100 | % |  | $ | 1,984 |  |  | 100 | % |  | 4 | %

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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Net Earned Premiums
Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $1.86 billion for the third quarter of 2023 compared to $1.77 billion for the third quarter of 2022, an increase of $88 million (5%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

| Three months ended September 30, |  |
| 2023 |  | 2022 |  |
| NEP |  | % |  | NEP |  | % |  | % Change
Property and transportation | $ | 828 |  |  | 45 | % |  | $ | 857 |  |  | 49 | % |  | (3 | %)
Specialty casualty | 734 |  |  | 40 | % |  | 677 |  |  | 38 | % |  | 8 | %
Specialty financial | 232 |  |  | 12 | % |  | 171 |  |  | 10 | % |  | 36 | %
Other specialty | 61 |  |  | 3 | % |  | 62 |  |  | 3 | % |  | (2 | %)
| $ | 1,855 |  |  | 100 | % |  | $ | 1,767 |  |  | 100 | % |  | 5 | %

Gross written premiums for the third quarter of 2023 decreased $13 million (less than 1%) compared to the third quarter of 2022, reflecting the timing of premiums and the impact of commodity pricing in the crop insurance operations. Excluding the crop business, gross written premiums grew by 7% when compared to the prior year period as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment. Overall average renewal rates increased approximately 5% in the third quarter of 2023. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates increased approximately 7%.
Property and transportation Gross written premiums decreased $145 million (8%) in the third quarter of 2023 compared to the third quarter of 2022. The year-over-year decrease reflects a larger percentage of crop insurance premium written in the second quarter of 2023 (rather than the third quarter of 2023 when compared to the 2022 period) due to the earlier planting of corn and soybeans, as well as the impact of lower 2023 spring commodity futures pricing and related volatility. Excluding the crop business, gross written premiums grew by 2% when compared to the 2022 third quarter reflecting the impact of higher rates, new business opportunities and organic growth in the other businesses in the Property and transportation sub-segment. Average renewal rates increased approximately 6% for this group in the third quarter of 2023. Reinsurance premiums ceded as a percentage of gross written premiums decreased 2 percentage points in the third quarter of 2023 compared to the third quarter of 2022 reflecting the impact of lower premiums in the crop business, which cedes a larger percentage of premiums than some of the other businesses in the Property and transportation sub-segment and the impact of reinstatement premiums paid in the 2022 period related to Hurricane Ian.
Specialty casualty Gross written premiums increased $42 million (4%) in the third quarter of 2023 compared to the third quarter of 2022. Factors contributing to the year-over-year growth include payroll growth in the workers’ compensation businesses, strong policy retention and rate increases in several of the targeted markets businesses and new business opportunities and higher policy renewals in the excess and surplus business. This growth was partially offset by lower year-over-year premiums in the mergers and acquisitions liability and executive liability businesses. Average renewal rates increased approximately 5% for this group in the third quarter of 2023. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 8%. Reinsurance premiums ceded as a percentage of gross written premiums decreased 2 percentage points in the third quarter of 2023 compared to the third quarter of 2022 reflecting lower gross written premiums in the mergers and acquisitions liability business (which cedes a larger percentage of premiums than some of the other businesses in the Specialty casualty sub-segment) and higher premiums in the workers’ compensation businesses (which cede a lower percentage of premiums than some of the other businesses in the Specialty casualty sub-segment).
Specialty financial Gross written premiums increased $90 million (39%) in the third quarter of 2023 compared to the third quarter of 2022 due primarily to growth in the financial institutions business. Average renewal rates increased approximately 5% for this group in the third quarter of 2023. Reinsurance premiums ceded as a percentage of gross written premiums decreased 5 percentage points in the third quarter of 2023 compared to the third quarter of 2022 reflecting the impact of reinstatement premiums paid in the 2022 period related to Hurricane Ian.
Other specialty The amounts shown as reinsurance premiums ceded 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. Reinsurance premiums assumed decreased $6 million in the third quarter of 2023 compared to the third quarter of 2022 reflecting a decrease in premiums retained, primarily from businesses in the Specialty casualty sub-segment.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Combined Ratio
The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment:

| Three months ended September 30, |  |  |  | Three months ended September 30,
| 2023 |  | 2022 |  | Change |  | 2023 |  | 2022
Property and transportation |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 76.8 | % |  | 77.3 | % |  | (0.5 | %) |  |  |  |
Underwriting expense ratio | 18.0 | % |  | 18.1 | % |  | (0.1 | %) |  |  |  |
Combined ratio | 94.8 | % |  | 95.4 | % |  | (0.6 | %) |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 42 |  |  | $ | 39 |
Specialty casualty |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 63.1 | % |  | 55.3 | % |  | 7.8 | % |  |  |  |
Underwriting expense ratio | 26.3 | % |  | 27.3 | % |  | (1.0 | %) |  |  |  |
Combined ratio | 89.4 | % |  | 82.6 | % |  | 6.8 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 78 |  |  | $ | 118 |
Specialty financial |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 39.8 | % |  | 47.2 | % |  | (7.4 | %) |  |  |  |
Underwriting expense ratio | 47.8 | % |  | 44.1 | % |  | 3.7 | % |  |  |  |
Combined ratio | 87.6 | % |  | 91.3 | % |  | (3.7 | %) |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 29 |  |  | $ | 15 |
Total Specialty |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 66.7 | % |  | 66.4 | % |  | 0.3 | % |  |  |  |
Underwriting expense ratio | 25.5 | % |  | 24.7 | % |  | 0.8 | % |  |  |  |
Combined ratio | 92.2 | % |  | 91.1 | % |  | 1.1 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 143 |  |  | $ | 158 |
Aggregate — including exited lines |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 66.8 | % |  | 66.5 | % |  | 0.3 | % |  |  |  |
Underwriting expense ratio | 25.5 | % |  | 24.7 | % |  | 0.8 | % |  |  |  |
Combined ratio | 92.3 | % |  | 91.2 | % |  | 1.1 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 142 |  |  | $ | 155 |

The Specialty property and casualty insurance operations generated an underwriting profit of $143 million in the third quarter of 2023 compared to $158 million in the third quarter of 2022, a decrease of $15 million (9%). Higher underwriting profits in the Property and transportation and Specialty financial sub-segments were more than offset by lower underwriting profit in the Specialty casualty sub-segment. Overall catastrophe losses were $56 million (3.0 points on the combined ratio) in the third quarter of 2023 compared to $51 million (2.5 points), including $18 million in net reinstatement premiums in the third quarter of 2022. As a result of catastrophe losses incurred in the third quarter of 2022, AFG reduced certain previously accrued profit-based commissions payable to agents, which had a favorable impact on the combined ratio.
Property and transportation Underwriting profit for this group was $42 million for the third quarter of 2023 compared to $39 million for the third quarter of 2022, an increase of $3 million (8%). Higher underwriting profits in the transportation, property and inland marine and ocean marine businesses were partially offset by lower profitability in the agricultural businesses. Catastrophe losses were $14 million (1.7 points on the combined ratio) in the third quarter of 2023 compared to $13 million (1.4 points), including $4 million in net reinstatement premiums in the third quarter of 2022.
Specialty casualty Underwriting profit for this group was $78 million for the third quarter of 2023 compared to $118 million for the third quarter of 2022, a decrease of $40 million (34%). This decrease reflects lower levels of favorable prior year reserve development in the workers’ compensation businesses and lower underwriting profit in the targeted
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
markets businesses. Catastrophe losses were $17 million (2.3 points on the combined ratio) in the third quarter of 2023 compared to $3 million (0.4 points), including $1 million in net reinstatement premiums in the third quarter of 2022.
Specialty financial Underwriting profit for this group was $29 million for the third quarter of 2023 compared to $15 million in the third quarter of 2022, an increase of $14 million (93%). This increase reflects lower year-over-year catastrophe losses in the financial institutions business. Catastrophe losses were $22 million (9.3 points on the combined ratio) compared to $34 million (15.2 points), including $13 million in net reinstatement premiums in the third quarter of 2022. As a result of catastrophe losses incurred in the third quarter of 2022, the Specialty financial sub-segment reduced certain previously accrued profit-based commissions payable to agents, which had a favorable impact on the combined ratio.
Other specialty This group reported an underwriting loss of $6 million in the third quarter of 2023 compared to $14 million in the third quarter of 2022, a decrease of $8 million (57%), reflecting lower losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments in the third quarter of 2023 compared to the third quarter of 2022. Catastrophe losses were $3 million in the third quarter of 2023 compared to $1 million in the third quarter of 2022.
Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment includes adverse prior year reserve development of $1 million in the third quarter of 2023 and $3 million in the third quarter of 2022 related to business outside of the Specialty group that AFG no longer writes.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Losses and Loss Adjustment Expenses
AFG’s overall loss and LAE ratio was 66.8% for the third quarter of 2023 compared to 66.5% for the third quarter of 2022, an increase of 0.3 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):

| Three months ended September 30, |  |
| Amount |  | Ratio |  | Change in
| 2023 |  | 2022 |  | 2023 |  | 2022 |  | Ratio
Property and transportation |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 636 |  |  | $ | 669 |  |  | 76.8 | % |  | 77.7 | % |  | (0.9 | %)
Prior accident years development | (14) |  |  | (15) |  |  | (1.7 | %) |  | (1.8 | %) |  | 0.1 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 14 |  |  | 9 |  |  | 1.7 | % |  | 1.4 | % |  | 0.3 | %
Property and transportation losses and LAE and ratio | $ | 636 |  |  | $ | 663 |  |  | 76.8 | % |  | 77.3 | % |  | (0.5 | %)
Specialty casualty |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 468 |  |  | $ | 414 |  |  | 63.7 | % |  | 61.2 | % |  | 2.5 | %
Prior accident years development | (22) |  |  | (42) |  |  | (2.9 | %) |  | (6.3 | %) |  | 3.4 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 17 |  |  | 2 |  |  | 2.3 | % |  | 0.4 | % |  | 1.9 | %
Specialty casualty losses and LAE and ratio | $ | 463 |  |  | $ | 374 |  |  | 63.1 | % |  | 55.3 | % |  | 7.8 | %
Specialty financial |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 81 |  |  | $ | 70 |  |  | 34.7 | % |  | 38.3 | % |  | (3.6 | %)
Prior accident years development | (10) |  |  | (11) |  |  | (4.2 | %) |  | (6.3 | %) |  | 2.1 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 22 |  |  | 21 |  |  | 9.3 | % |  | 15.2 | % |  | (5.9 | %)
Specialty financial losses and LAE and ratio | $ | 93 |  |  | $ | 80 |  |  | 39.8 | % |  | 47.2 | % |  | (7.4 | %)
Total Specialty |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 1,226 |  |  | $ | 1,196 |  |  | 66.0 | % |  | 67.0 | % |  | (1.0 | %)
Prior accident years development | (44) |  |  | (56) |  |  | (2.3 | %) |  | (3.1 | %) |  | 0.8 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 56 |  |  | 33 |  |  | 3.0 | % |  | 2.5 | % |  | 0.5 | %
Total Specialty losses and LAE and ratio | $ | 1,238 |  |  | $ | 1,173 |  |  | 66.7 | % |  | 66.4 | % |  | 0.3 | %
Aggregate — including exited lines |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 1,226 |  |  | $ | 1,196 |  |  | 66.0 | % |  | 67.0 | % |  | (1.0 | %)
Prior accident years development | (43) |  |  | (53) |  |  | (2.3 | %) |  | (3.0 | %) |  | 0.7 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 56 |  |  | 33 |  |  | 3.1 | % |  | 2.5 | % |  | 0.6 | %
Aggregate losses and LAE and ratio | $ | 1,239 |  |  | $ | 1,176 |  |  | 66.8 | % |  | 66.5 | % |  | 0.3 | %

Current accident year losses and LAE, excluding catastrophe losses
The current accident year loss and LAE ratio, excluding catastrophe losses, for AFG’s Specialty property and casualty insurance operations was 66.0% for the third quarter of 2023 compared to 67.0% for the third quarter of 2022, a decrease of 1.0 percentage points.
Property and transportation The 0.9 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, is due primarily to the impact of elevated large loss activity in the property and inland marine business in the third quarter of 2022 and improved results in certain transportation businesses, partially offset by lower profits in the crop business.
Specialty casualty The 2.5 percentage point increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects anticipated medical cost inflation and the impact of pressure on rates in the workers’ compensation businesses and an isolated larger property loss related to the program business.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Specialty financial The 3.6 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects improved results in the financial institutions business and AFG’s European operations.
Net prior year reserve development
AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $44 million in the third quarter of 2023 compared to $56 million in the third quarter of 2022, a decrease of $12 million (21%).
Property and transportation Net favorable reserve development of $14 million in the third quarter of 2023 reflects lower than expected claim frequency in the property and inland marine business and lower than anticipated claim frequency and severity across the transportation businesses. Net favorable reserve development of $15 million in the third quarter of 2022 reflects lower than expected claim frequency and severity in the trucking business, lower than anticipated claim frequency in the aviation and ocean marine businesses and in the Singapore operations and lower than expected claim severity in the property and inland marine business.
Specialty casualty Net favorable reserve development of $22 million in the third quarter of 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability and environmental businesses, partially offset by higher than anticipated claim severity in certain targeted markets businesses. Net favorable reserve development of $42 million in the third quarter of 2022 reflects lower than anticipated claim severity in the workers’ compensation businesses, partially offset by higher than anticipated claim severity in the targeted markets and excess and surplus businesses.
Specialty financial Net favorable reserve development of $10 million in the third quarter of 2023 reflects lower than anticipated claim frequency and severity in the fidelity and surety businesses and lower than expected claim frequency in the trade credit business. Net favorable reserve development of $11 million in the third quarter of 2022 reflects lower than anticipated claim frequency in the surety and trade credit businesses.
Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net adverse reserve development of $2 million in the third quarter of 2023 and $12 million in the third quarter of 2022 associated with AFG’s internal reinsurance program and the amortization of the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of a business in 1998.
Asbestos and environmental reserves During the third quarter of 2023, AFG completed an in-depth internal review of its asbestos and environmental exposures relating to the run-off operations of its property and casualty insurance segment and its exposures related to former railroad and manufacturing operations and sites. In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has historically conducted periodic comprehensive external studies of its asbestos and environmental reserves with the aid of specialty actuarial, engineering and consulting firms and outside counsel, with an in-depth internal review during all other years.
During the 2023 internal review, no new trends were identified and recent claims activity was generally consistent with AFG’s expectations resulting from its in-depth internal reviews in 2022 and 2021 and most recent external study in 2020. As a result, and consistent with the internal review in the third quarter of 2022, the 2023 review resulted in no net change to AFG’s property and casualty insurance segment’s asbestos and environmental reserves. See Management’s Discussion and Analysis — “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves” and Management’s Discussion and Analysis — “Results of Operations — Holding Company, Other and Unallocated” in AFG’s 2022 Form 10-K.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
At September 30, 2023, the property and casualty insurance segment’s insurance reserves include A&E reserves of $374 million, net of reinsurance recoverables. At September 30, 2023, the property and casualty insurance segment’s three-year survival ratios compare favorably with industry survival ratios published by S&P Global Market Intelligence (as of December 31, 2022, and adjusted for several large industry portfolio transfers) as detailed in the following table:

| Property and Casualty Insurance Reserves
| Three-Year Survival Ratio (Times Paid Losses)
| Asbestos |  | Environmental |  | Total A&E
AFG (9/30/2023) | 22.7 |  | 18.9 |  | 20.8
Industry (12/31/2022) | 8.6 |  | 7.3 |  | 8.3

In addition, the 2023 and 2022 internal reviews encompassed reserves for asbestos and environmental exposures of AFG’s former railroad and manufacturing operations. For a discussion of the $15 million pretax non-core special charge recorded in the third quarter of 2023 and the minor increase in AFG’s liabilities recorded in the third quarter of 2022 for those operations, see “Special A&E Charge” under “Results of Operations — Holding Company, Other and Unallocated,” for the quarters ended September 30, 2023 and 2022.
Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $1 million in the third quarter of 2023 and $3 million in the third quarter of 2022 related to business outside of the Specialty group that AFG no longer writes.
COVID-19 related losses
AFG’s Specialty property and casualty insurance operations released prior accident year COVID-19 reserves of $6 million in the third quarter of 2023 and $8 million in the third quarter of 2022 based on improved loss experience across several businesses. Given the uncertainties surrounding the ultimate number and scope of claims relating to the pandemic, approximately 37% of the $60 million in cumulative COVID-19 related losses are held as incurred but not reported reserves at September 30, 2023.
Catastrophe losses
AFG generally seeks to reduce its exposure to catastrophes (whether resulting from climate change or otherwise) through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. Based on data available at December 31, 2022, AFG’s exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 100, 250 or 500 years as a percentage of AFG’s Shareholders’ Equity is shown below:

|  |  | Approximate impact of modeled loss |
| Industry Model |  | on AFG’s Shareholders’ Equity |
| 100-year event |  | 2% |
| 250-year event |  | 2% |
| 500-year event |  | 2% |

AFG maintains comprehensive property catastrophe reinsurance coverage for its property and casualty insurance operations, including a $50 million per occurrence net retention, for losses up to $125 million in the vast majority of circumstances. In certain unlikely events, AFG’s ultimate loss under this coverage could be as high as $84 million for a single occurrence. AFG further maintains supplemental fully collateralized reinsurance coverage up to 95% of $323 million for catastrophe losses in excess of $127 million of traditional catastrophe reinsurance through a catastrophe bond.
Catastrophe losses of $56 million in the third quarter of 2023 resulted from a higher frequency of lower severity convective storms in multiple regions of the United States. Catastrophe losses of $33 million in the third quarter of 2022 (before $18 million in net reinstatement premiums) resulted primarily from Hurricane Ian.
Commissions and Other Underwriting Expenses
AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $474 million in the third quarter of 2023 compared to $436 million for the third quarter of 2022, an increase of $38 million (9%). AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 25.5% for the third quarter of 2023 compared to 24.7% for the third quarter of 2022, an increase of 0.8 percentage points. Detail
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):

| Three months ended September 30, |  |
| 2023 |  | 2022 |  | Change in
| U/W Exp |  | % of NEP |  | U/W Exp |  | % of NEP |  | % of NEP
Property and transportation | $ | 150 |  |  | 18.0 | % |  | $ | 155 |  |  | 18.1 | % |  | (0.1 | %)
Specialty casualty | 193 |  |  | 26.3 | % |  | 185 |  |  | 27.3 | % |  | (1.0 | %)
Specialty financial | 110 |  |  | 47.8 | % |  | 76 |  |  | 44.1 | % |  | 3.7 | %
Other specialty | 21 |  |  | 33.6 | % |  | 20 |  |  | 33.4 | % |  | 0.2 | %
| $ | 474 |  |  | 25.5 | % |  | $ | 436 |  |  | 24.7 | % |  | 0.8 | %

Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums decreased 0.1 percentage points in the third quarter of 2023 compared to the third quarter of 2022 as higher expenses related to certain technology initiatives were offset by the impact of a change in the mix of business.
Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums decreased 1.0 percentage points in the third quarter of 2023 compared to the third quarter of 2022 reflecting the impact on the ratio of growth in earned premiums in the workers’ compensation and programs businesses, partially offset by slightly higher expenses related to certain technology initiatives.
Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums increased 3.7 percentage points in the third quarter of 2023 compared to the third quarter of 2022 due to the impact of the reduction in previously accrued profit-based commissions to agents recorded in the third quarter of 2022 as a result of losses from Hurricane Ian and, to a lesser extent, higher expenses associated with certain technology initiatives, partially offset by the impact on the ratio of growth in earned premium in the financial institutions business and the impact on the ratio of reinsurance reinstatement premiums recorded in the third quarter of 2022. Due partially to elevated catastrophe losses over the second half of 2022 and the first half of 2023, there was not a similar adjustment to accrued profit-based commissions in the third quarter of 2023.
Property and Casualty Net Investment Income
Net investment income in AFG’s property and casualty insurance operations was $170 million in the third quarter of 2023 compared to $145 million in the third quarter of 2022, an increase of $25 million (17%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):

| Three months ended September 30, |  |  |  |
| 2023 |  | 2022 |  | Change |  | % Change
Net investment income: |  |  |  |  |  |  |
Net investment income, excluding alternative investments | $ | 145 |  |  | $ | 109 |  |  | $ | 36 |  |  | 33 | %
Alternative investments | 25 |  |  | 36 |  |  | (11) |  |  | (31 | %)
Total net investment income | $ | 170 |  |  | $ | 145 |  |  | $ | 25 |  |  | 17 | %
Average invested assets (at amortized cost) | $ | 14,899 |  |  | $ | 14,105 |  |  | $ | 794 |  |  | 6 | %
Yield (net investment income as a % of average invested assets) | 4.56 | % |  | 4.11 | % |  | 0.45 | % |  |
Tax equivalent yield (*) | 4.63 | % |  | 4.21 | % |  | 0.42 | % |  |

(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.
The increase in the property and casualty insurance segment’s net investment income for the third quarter of 2023 compared to the third quarter of 2022 reflects the impact of higher yields on fixed maturity investments and higher balances of invested assets, partially offset by lower returns on AFG’s alternative investments portfolio (partnerships and similar investments and AFG-managed CLOs). The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.56% for the third quarter of 2023 compared to 4.11% for the third quarter of 2022, an increase of 0.45 percentage points reflecting higher returns on fixed
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
maturity investments, partially offset by lower yields on alternative investments. The annualized return earned on alternative investments was 4.2% in the third quarter of 2023 compared to 7.1% in the comparable prior year period.
Property and Casualty Other Income and Expenses, Net
Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $14 million for the third quarter of 2023 compared to $11 million for the third quarter of 2022, an increase of $3 million (27%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

| Three months ended September 30,
| 2023 |  | 2022
Other income | $ | 5 |  |  | $ | 2 |
Other expenses: |  |  |
Amortization of intangibles | 5 |  |  | 2 |
Interest expense on funds withheld | 9 |  |  | 8 |
Other | 5 |  |  | 3 |
Total other expenses | 19 |  |  | 13 |
Other income and expenses, net | $ | (14) |  |  | $ | (11) |

The increase in other income in the third quarter of 2023 compared to the third quarter of 2022 is due primarily to death benefits received on a company-owned life insurance policy. The higher amortization of intangibles in the third quarter of 2023 compared to the third quarter of 2022 reflects the impact of the CRS acquisition in July 2023.
Holding Company, Other and Unallocated — Results of Operations
AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $56 million in the third quarter of 2023 compared to $44 million in the third quarter of 2022, an increase of $12 million (27%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $41 million in the third quarter of 2023 compared to $45 million in the third quarter of 2022, a decrease of $4 million (9%).
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance segment for the three months ended September 30, 2023 and 2022 (dollars in millions):

| Three months ended September 30, |  |
| 2023 |  | 2022 |  | % Change
Revenues: |  |  |  |  |
Net investment income | $ | 10 |  |  | $ | 10 |  |  | — | %
Other income — P&C fees | 37 |  |  | 22 |  |  | 68 | %
Other income | 5 |  |  | 11 |  |  | (55 | %)
Total revenues | 52 |  |  | 43 |  |  | 21 | %
Costs and Expenses: |  |  |  |  |
Property and casualty insurance — loss adjustment and underwriting expenses | 23 |  |  | 9 |  |  | 156 | %
Other expense — expenses associated with P&C fees | 14 |  |  | 13 |  |  | 8 | %
Other expenses (*) | 37 |  |  | 47 |  |  | (21 | %)
Costs and expenses, excluding interest charges on borrowed money | 74 |  |  | 69 |  |  | 7 | %
Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money | (22) |  |  | (26) |  |  | (15 | %)
Interest charges on borrowed money | 19 |  |  | 19 |  |  | — | %
Core loss before income taxes, excluding realized gains and losses | (41) |  |  | (45) |  |  | (9 | %)
Pretax non-core special A&E charge | (15) |  |  | — |  |  | — | %
Pretax non-core gain (loss) on retirement of debt | — |  |  | 1 |  |  | (100 | %)
GAAP loss before income taxes, excluding realized gains and losses | $ | (56) |  |  | $ | (44) |  |  | 27 | %

(*)Excludes a pretax non-core special A&E charge of $15 million in the third quarter of 2023 and a pretax non-core gain on retirement of debt of $1 million in the third quarter of 2022.
Holding Company and Other — Net Investment Income
AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $10 million in both the third quarter of 2023 and the third quarter of 2022, reflecting the impact of higher interest rates on cash and fixed maturity investments, offset by lower average balances.
Holding Company and Other — P&C Fees and Related Expenses
Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In the third quarter of 2023, AFG collected $22 million in fees for these services compared to $20 million in the third quarter of 2022. Management views this fee income, net of the $14 million in the third quarter of 2023 and $13 million in the third quarter of 2022 in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. In addition, AFG’s property and casualty insurance businesses earned $15 million in fees as compensation for providing services related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date during the third quarter of 2023 and $2 million in fees from AFG’s disposed annuity operations during the third quarter of 2022 as compensation for certain services provided under a transition services agreement. The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses in AFG’s segmented results.
Holding Company and Other — Other Income
Other income in the table above includes $4 million in both the third quarter of 2023 and the third quarter of 2022 in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $1 million in the third quarter of 2023 and $7 million the third quarter of 2022, a decrease of $6 million (86%), due primarily to income from the sale of real estate in the third quarter of 2022.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Holding Company and Other — Other Expenses
Excluding the non-core special A&E charge recorded in the third quarter of 2023 and the non-core gain on retirement of debt in the third quarter of 2022 discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $37 million in the third quarter of 2023 compared to $47 million in the third quarter of 2022, a decrease of $10 million (21%).
Holding Company and Other — Special A&E Charge
During the third quarters of 2023 and 2022, AFG performed in-depth internal reviews of A&E exposures as discussed under “A sbestos and environmental reserves” under “Results of Operations — Property and Casualty Insurance Segment — Net prior year reserve development.” As a result of the 2023 review, AFG’s holding companies and other operations outside of its property and casualty insurance operations recorded a special non-core A&E charge of $15 million in the third quarter of 2023 to increase liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations. The charge reflects changes in the scope and costs of investigation and an increase in estimated remediation costs at a limited number of sites.
Holding Company and Other — Interest Charges on Borrowed Money
AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $19 million in both the third quarter of 2023 and the third quarter of 2022.
Holding Company and Other — Gain on Retirement of Debt
During the third quarter of 2022, AFG repurchased $9 million principal amount of its senior notes which resulted in a $1 million pretax non-core gain.
Realized Gains (Losses) on Securities
AFG’s realized gains (losses) on securities were net losses of $19 million in the third quarter of 2023 compared to $35 million in the third quarter of 2022, a decrease of $16 million (46%). Realized gains (losses) on securities consisted of the following (in millions):

| Three months ended September 30,
2023 |  | 2022
Realized gains (losses) before impairment allowances: |  |  |
Disposals | $ | (6) |  |  | $ | (3) |
Change in the fair value of equity securities | (8) |  |  | (27) |
Change in the fair value of derivatives | (1) |  |  | (3) |
| (15) |  |  | (33) |
Change in allowance for impairments on securities | (4) |  |  | (2) |
Realized gains (losses) on securities | $ | (19) |  |  | $ | (35) |

The $8 million net realized loss from the change in the fair value of equity securities in the third quarter of 2023 includes losses of $10 million on investments in media companies and $2 million on investments in banks and financing companies, partially offset by gains of $4 million on investments in energy companies. The $27 million net realized loss from the change in the fair value of equity securities in the third quarter of 2022 includes losses of $8 million on investments in banks and financing companies, $6 million on investments in media companies, $4 million on investments in retail companies and $2 million on investments in healthcare companies.
Realized Loss on Subsidiary
During the third quarter of 2023, AFG recorded a realized loss on subsidiary of $4 million, consisting of a $26 million goodwill impairment charge, partially offset by a $22 million reduction in the fair value of a contingent consideration liability, both related to AFG’s investment in Verikai. See Note D — “Fair Value Measurements” and Note H — “Goodwill and Other Intangibles” to the financial statements.
Consolidated Income Taxes
AFG’s consolidated provision for income taxes was $42 million for the third quarter of 2023 compared to $45 million for the third quarter of 2022, a decrease of $3 million (7%). See Note K — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
RESULTS OF OPERATIONS — NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
Segmented Statement of Earnings
AFG reports its operations as two segments: (i) Property and casualty insurance (“P&C”) and (ii) Other, which includes holding company costs and income and expenses related to the managed investment entities (“MIEs”).
AFG’s net earnings, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the nine months ended September 30, 2023 and 2022 identify such items by segment and reconcile net earnings to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions):

|  |  | Other |  |  |  |  |  |
| P&C |  | Consol. MIEs |  | Holding Co., other and unallocated |  | Total |  | Non-core reclass |  | GAAP Total
Nine months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 4,799 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,799 |  |  | $ | — |  |  | $ | 4,799 |
Net investment income | 568 |  |  | (18) |  |  | 33 |  |  | 583 |  |  | — |  |  | 583 |
Realized gains (losses) on: |  |  |  |  |  |  |  |  |  |  |
Securities | — |  |  | — |  |  | — |  |  | — |  |  | (67) |  |  | (67) |
Subsidiary | — |  |  | — |  |  | — |  |  | — |  |  | (4) |  |  | (4) |
Income of MIEs: |  |  |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 321 |  |  | — |  |  | 321 |  |  | — |  |  | 321 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | 12 |  |  | — |  |  | 12 |  |  | — |  |  | 12 |
Other income | 13 |  |  | (12) |  |  | 99 |  |  | 100 |  |  | — |  |  | 100 |
Total revenues | 5,380 |  |  | 303 |  |  | 132 |  |  | 5,815 |  |  | (71) |  |  | 5,744 |
Costs and Expenses: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance: |  |  |  |  |  |  |  |  |  |  |
Losses and loss adjustment expenses | 2,964 |  |  | — |  |  | — |  |  | 2,964 |  |  | — |  |  | 2,964 |
Commissions and other underwriting expenses | 1,415 |  |  | — |  |  | 40 |  |  | 1,455 |  |  | — |  |  | 1,455 |
Interest charges on borrowed money | — |  |  | — |  |  | 57 |  |  | 57 |  |  | — |  |  | 57 |
Expenses of MIEs | — |  |  | 303 |  |  | — |  |  | 303 |  |  | — |  |  | 303 |
Other expenses | 54 |  |  | — |  |  | 159 |  |  | 213 |  |  | 14 |  |  | 227 |
Total costs and expenses | 4,433 |  |  | 303 |  |  | 256 |  |  | 4,992 |  |  | 14 |  |  | 5,006 |
Earnings before income taxes | 947 |  |  | — |  |  | (124) |  |  | 823 |  |  | (85) |  |  | 738 |
Provision for income taxes | 191 |  |  | — |  |  | (25) |  |  | 166 |  |  | (17) |  |  | 149 |
Core Net Operating Earnings | 756 |  |  | — |  |  | (99) |  |  | 657 |  |  |  |  |
Non-core earnings (loss) (*): |  |  |  |  |  |  |  |  |  |  |
Realized gains (losses) on securities, net of tax | — |  |  | — |  |  | (53) |  |  | (53) |  |  | 53 |  |  | — |
Realized loss on subsidiary | (4) |  |  | — |  |  | — |  |  | (4) |  |  | 4 |  |  | — |
Special A&E charge, net of tax | — |  |  | — |  |  | (12) |  |  | (12) |  |  | 12 |  |  | — |
Gain on retirement of debt, net of tax | — |  |  | — |  |  | 1 |  |  | 1 |  |  | (1) |  |  | — |
Net Earnings | $ | 752 |  |  | $ | — |  |  | $ | (163) |  |  | $ | 589 |  |  | $ | — |  |  | $ | 589 |

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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

|  |  | Other |  |  |  |  |  |
| P&C |  | Consol. MIEs |  | Holding Co., other and unallocated |  | Total |  | Non-core reclass |  | GAAP Total
Nine months ended September 30, 2022 |  |  |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance net earned premiums | $ | 4,462 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,462 |  |  | $ | — |  |  | $ | 4,462 |
Net investment income | 524 |  |  | 10 |  |  | 15 |  |  | 549 |  |  | — |  |  | 549 |
Realized gains (losses) on securities | — |  |  | — |  |  | — |  |  | — |  |  | (143) |  |  | (143) |
Income of MIEs: |  |  |  |  |  |  |  |  |  |  |
Investment income | — |  |  | 175 |  |  | — |  |  | 175 |  |  | — |  |  | 175 |
Gain (loss) on change in fair value of assets/liabilities | — |  |  | (25) |  |  | — |  |  | (25) |  |  | — |  |  | (25) |
Other income | 12 |  |  | (12) |  |  | 93 |  |  | 93 |  |  | — |  |  | 93 |
Total revenues | 4,998 |  |  | 148 |  |  | 108 |  |  | 5,254 |  |  | (143) |  |  | 5,111 |
Costs and Expenses: |  |  |  |  |  |  |  |  |  |  |
Property and casualty insurance: |  |  |  |  |  |  |  |  |  |  |
Losses and loss adjustment expenses | 2,643 |  |  | — |  |  | — |  |  | 2,643 |  |  | — |  |  | 2,643 |
Commissions and other underwriting expenses | 1,261 |  |  | — |  |  | 30 |  |  | 1,291 |  |  | — |  |  | 1,291 |
Interest charges on borrowed money | — |  |  | — |  |  | 65 |  |  | 65 |  |  | — |  |  | 65 |
Expenses of MIEs | — |  |  | 148 |  |  | — |  |  | 148 |  |  | — |  |  | 148 |
Other expenses | 38 |  |  | — |  |  | 139 |  |  | 177 |  |  | 10 |  |  | 187 |
Total costs and expenses | 3,942 |  |  | 148 |  |  | 234 |  |  | 4,324 |  |  | 10 |  |  | 4,334 |
Earnings before income taxes | 1,056 |  |  | — |  |  | (126) |  |  | 930 |  |  | (153) |  |  | 777 |
Provision for income taxes | 222 |  |  | — |  |  | (30) |  |  | 192 |  |  | (37) |  |  | 155 |
Core Net Operating Earnings | 834 |  |  | — |  |  | (96) |  |  | 738 |  |  |  |  |
Non-core earnings (loss) (*): |  |  |  |  |  |  |  |  |  |  |
Realized gains (losses) on securities, net of tax | — |  |  | — |  |  | (113) |  |  | (113) |  |  | 113 |  |  | — |
Loss on retirement of debt, net of tax | — |  |  | — |  |  | (7) |  |  | (7) |  |  | 7 |  |  | — |
Other, net of tax | — |  |  | — |  |  | 4 |  |  | 4 |  |  | (4) |  |  | — |
Net Earnings | $ | 834 |  |  | $ | — |  |  | $ | (212) |  |  | $ | 622 |  |  | $ | — |  |  | $ | 622 |

(*)See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax impacts of these reconciling items.
Property and Casualty Insurance Segment — Results of Operations
AFG’s property and casualty insurance operations contributed $943 million in GAAP pretax earnings in the first nine months of 2023 compared to $1.06 billion in the first nine months of 2022, a decrease of $113 million (11%). Property and casualty core pretax earnings were $947 million in the first nine months of 2023 compared to $1.06 billion in the first nine months of 2022, a decrease of $109 million (10%).The decrease in GAAP and core pretax earnings reflects lower underwriting profit, partially offset by higher net investment income in the first nine months of 2023 compared to the first nine months of 2022.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
The following table details AFG’s GAAP and core earnings before income taxes from its property and casualty insurance operations for the nine months ended September 30, 2023 and 2022 (dollars in millions):

| Nine months ended September 30, |  |
| 2023 |  | 2022 |  | % Change
Gross written premiums | $ | 7,664 |  |  | $ | 7,212 |  |  | 6 | %
Reinsurance premiums ceded | (2,417) |  |  | (2,344) |  |  | 3 | %
Net written premiums | 5,247 |  |  | 4,868 |  |  | 8 | %
Change in unearned premiums | (448) |  |  | (406) |  |  | 10 | %
Net earned premiums | 4,799 |  |  | 4,462 |  |  | 8 | %
Loss and loss adjustment expenses | 2,964 |  |  | 2,643 |  |  | 12 | %
Commissions and other underwriting expenses | 1,415 |  |  | 1,261 |  |  | 12 | %
Underwriting gain | 420 |  |  | 558 |  |  | (25 | %)
Net investment income | 568 |  |  | 524 |  |  | 8 | %
Other income and expenses, net | (41) |  |  | (26) |  |  | 58 | %
Core earnings before income taxes | 947 |  |  | 1,056 |  |  | (10 | %)
Realized loss on subsidiary | (4) |  |  | — |  |  | — | %
GAAP earnings before income taxes | $ | 943 |  |  | $ | 1,056 |  |  | (11 | %)
| Nine months ended September 30, |  |
| 2023 |  | 2022 |  | Change
Combined Ratios: |  |  |  |  |
Specialty lines |  |  |  |  |
Loss and LAE ratio | 61.8 | % |  | 59.1 | % |  | 2.7 | %
Underwriting expense ratio | 29.5 | % |  | 28.3 | % |  | 1.2 | %
Combined ratio | 91.3 | % |  | 87.4 | % |  | 3.9 | %
Aggregate — including exited lines |  |  |  |  |
Loss and LAE ratio | 61.8 | % |  | 59.2 | % |  | 2.6 | %
Underwriting expense ratio | 29.5 | % |  | 28.3 | % |  | 1.2 | %
Combined ratio | 91.3 | % |  | 87.5 | % |  | 3.8 | %

AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.
Gross Written Premiums
Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $7.66 billion for the first nine months of 2023 compared to $7.21 billion for the first nine months of 2022, an increase of $452 million (6%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):

| Nine months ended September 30, |  |
| 2023 |  | 2022 |  |
| GWP |  | % |  | GWP |  | % |  | % Change
Property and transportation | $ | 3,523 |  |  | 46 | % |  | $ | 3,459 |  |  | 48 | % |  | 2 | %
Specialty casualty | 3,299 |  |  | 43 | % |  | 3,108 |  |  | 43 | % |  | 6 | %
Specialty financial | 842 |  |  | 11 | % |  | 645 |  |  | 9 | % |  | 31 | %
| $ | 7,664 |  |  | 100 | % |  | $ | 7,212 |  |  | 100 | % |  | 6 | %

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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Reinsurance Premiums Ceded
Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 32% of gross written premiums for the first nine months of 2023 compared to 33% of gross written premiums for the first nine months of 2022, a decrease of 1 percentage point. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):

| Nine months ended September 30, |  |
| 2023 |  | 2022 |  | Change in
| Ceded |  | % of GWP |  | Ceded |  | % of GWP |  | % of GWP
Property and transportation | $ | (1,398) |  |  | 40 | % |  | $ | (1,367) |  |  | 40 | % |  | — | %
Specialty casualty | (1,055) |  |  | 32 | % |  | (1,035) |  |  | 33 | % |  | (1 | %)
Specialty financial | (157) |  |  | 19 | % |  | (133) |  |  | 21 | % |  | (2 | %)
Other specialty | 193 |  |  |  |  | 191 |  |  |  |  |
| $ | (2,417) |  |  | 32 | % |  | $ | (2,344) |  |  | 33 | % |  | (1 | %)

Net Written Premiums
Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $5.25 billion for the first nine months of 2023 compared to $4.87 billion for the first nine months of 2022, an increase of $379 million (8%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):

| Nine months ended September 30, |  |
| 2023 |  | 2022 |  |
| NWP |  | % |  | NWP |  | % |  | % Change
Property and transportation | $ | 2,125 |  |  | 40 | % |  | $ | 2,092 |  |  | 43 | % |  | 2 | %
Specialty casualty | 2,244 |  |  | 43 | % |  | 2,073 |  |  | 43 | % |  | 8 | %
Specialty financial | 685 |  |  | 13 | % |  | 512 |  |  | 10 | % |  | 34 | %
Other specialty | 193 |  |  | 4 | % |  | 191 |  |  | 4 | % |  | 1 | %
| $ | 5,247 |  |  | 100 | % |  | $ | 4,868 |  |  | 100 | % |  | 8 | %

Net Earned Premiums
Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $4.80 billion for the first nine months of 2023 compared to $4.46 billion for the first nine months of 2022, an increase of $337 million (8%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

| Nine months ended September 30, |  |
| 2023 |  | 2022 |  |
| NEP |  | % |  | NEP |  | % |  | % Change
Property and transportation | $ | 1,837 |  |  | 38 | % |  | $ | 1,805 |  |  | 40 | % |  | 2 | %
Specialty casualty | 2,149 |  |  | 45 | % |  | 1,973 |  |  | 44 | % |  | 9 | %
Specialty financial | 623 |  |  | 13 | % |  | 505 |  |  | 11 | % |  | 23 | %
Other specialty | 190 |  |  | 4 | % |  | 179 |  |  | 5 | % |  | 6 | %
| $ | 4,799 |  |  | 100 | % |  | $ | 4,462 |  |  | 100 | % |  | 8 | %

Gross written premiums for the first nine months of 2023 increased $452 million (6%) compared to the first nine months of 2022. Year-over-year premium growth was reported within each of the Specialty property and casualty sub-segments as a result of a combination of new business opportunities, increased exposures and a good renewal rate environment. Overall average renewal rates increased approximately 4% in the first nine months of 2023. Excluding the workers’ compensation businesses, renewal pricing increased approximately 6%.
Property and transportation Gross written premiums increased $64 million (2%) in the first nine months of 2023 compared to the first nine months of 2022. The year-over-year growth reflects the impact of increased rates and exposures in the transportation businesses, partially offset by the impact of 2023 spring commodity futures pricing and related volatility on premiums in the crop insurance business. Average renewal rates increased approximately 6% for this group in the first nine months of 2023. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the first nine months of 2023 and the first nine months of 2022 reflecting growth in alternative risk transfer products in the transportation businesses, offset by the impact of lower premiums in the crop business. Both of these
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
businesses cede a larger percentage of premiums than some of the other businesses in the Property and transportation sub-segment.
Specialty casualty Gross written premiums increased $191 million (6%) in the first nine months of 2023 compared to the first nine months of 2022. Factors contributing to the year-over-year growth include increased exposures from payroll growth and new business in the workers’ compensation businesses, new business opportunities, strong policy retention and rate increases in several of the targeted markets businesses and increased exposures and higher renewal rates in the excess and surplus business. This growth was partially offset by lower premiums in the mergers and acquisitions liability and executive liability businesses. Average renewal rates increased approximately 4% for this group in the first nine months of 2023. Excluding overall rate decreases in the workers’ compensation businesses, renewal rates for this group increased approximately 6%. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point in the first nine months of 2023 compared to the first nine months of 2022 reflecting higher premiums in the workers’ compensation businesses (which cede a lower percentage of premiums than some of the other businesses in the Specialty casualty sub-segment) and lower cessions in the environmental and mergers and acquisitions businesses and at ABA Insurance Services.
Specialty financial Gross written premiums increased $197 million (31%) in the first nine months of 2023 compared to the first nine months of 2022 due primarily to growth in the financial institutions, innovative markets, surety and commercial equipment leasing businesses. Average renewal rates increased approximately 4% for this group in the first nine months of 2023. Reinsurance premiums ceded as a percentage of gross written premiums decreased 2 percentage points in the first nine months of 2023 compared to the first nine months of 2022 reflecting the impact of reinstatement premiums paid in the 2022 period related to Hurricane Ian.
Other specialty The amounts shown as reinsurance premiums ceded 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. Reinsurance premiums assumed increased $2 million (1%) in the first nine months of 2023 compared to the first nine months of 2022, reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Combined Ratio
The table below (dollars in millions) details the components of the combined ratio and underwriting profit for AFG’s property and casualty insurance segment:

| Nine months ended September 30, |  |  |  | Nine months ended September 30,
| 2023 |  | 2022 |  | Change |  | 2023 |  | 2022
Property and transportation |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 69.2 | % |  | 69.0 | % |  | 0.2 | % |  |  |  |
Underwriting expense ratio | 24.4 | % |  | 23.2 | % |  | 1.2 | % |  |  |  |
Combined ratio | 93.6 | % |  | 92.2 | % |  | 1.4 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 117 |  |  | $ | 140 |
Specialty casualty |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 60.5 | % |  | 54.3 | % |  | 6.2 | % |  |  |  |
Underwriting expense ratio | 27.3 | % |  | 26.8 | % |  | 0.5 | % |  |  |  |
Combined ratio | 87.8 | % |  | 81.1 | % |  | 6.7 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 261 |  |  | $ | 372 |
Specialty financial |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 39.0 | % |  | 34.1 | % |  | 4.9 | % |  |  |  |
Underwriting expense ratio | 50.6 | % |  | 49.8 | % |  | 0.8 | % |  |  |  |
Combined ratio | 89.6 | % |  | 83.9 | % |  | 5.7 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 65 |  |  | $ | 81 |
Total Specialty |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 61.8 | % |  | 59.1 | % |  | 2.7 | % |  |  |  |
Underwriting expense ratio | 29.5 | % |  | 28.3 | % |  | 1.2 | % |  |  |  |
Combined ratio | 91.3 | % |  | 87.4 | % |  | 3.9 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 421 |  |  | $ | 563 |
Aggregate — including exited lines |  |  |  |  |  |  |  |  |
Loss and LAE ratio | 61.8 | % |  | 59.2 | % |  | 2.6 | % |  |  |  |
Underwriting expense ratio | 29.5 | % |  | 28.3 | % |  | 1.2 | % |  |  |  |
Combined ratio | 91.3 | % |  | 87.5 | % |  | 3.8 | % |  |  |  |
Underwriting profit |  |  |  |  |  |  | $ | 420 |  |  | $ | 558 |

The Specialty property and casualty insurance operations generated an underwriting profit of $421 million for the first nine months of 2023 compared to $563 million for the first nine months of 2022, a decrease of $142 million (25%). This decrease reflects lower underwriting profit in each of the Specialty property and casualty sub-segments. Overall catastrophe losses were $140 million (2.9 points on the combined ratio), including $2 million in net reinstatement premiums in the first nine months of 2023 compared to $82 million (1.7 points), including $18 million in net reinstatement premiums in the first nine months of 2022. As a result of catastrophe losses incurred in the third quarter of 2022, AFG reduced certain previously accrued profit-based commissions payable to agents, which had a favorable impact on the combined ratio.
Property and transportation Underwriting profit for this group was $117 million for the first nine months of 2023 compared to $140 million for the first nine months of 2022, a decrease of $23 million (16%), reflecting lower profitability in the agricultural businesses. Catastrophe losses were $48 million (2.7 points on the combined ratio) in the first nine months of 2023 compared to $38 million (2.0 points), including $4 million in net reinstatement premiums in the first nine months of 2022.
Specialty casualty Underwriting profit for this group was $261 million for the first nine months of 2023 compared to $372 million for the first nine months of 2022, a decrease of $111 million (30%). The lower year-over-year underwriting profit was due primarily to lower favorable prior year reserve development in the workers’ compensation businesses and adverse reserve development in the public sector business, partially offset by higher favorable prior year reserve development in the executive liability business. Catastrophe losses were $28 million (1.2 points on the combined ratio),
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
including $2 million in net reinstatement premiums in the first nine months of 2023 compared to $4 million (0.1 points), including $1 million in net reinstatement premiums in the first nine months of 2022.
Specialty financial Underwriting profit for this group was $65 million for the first nine months of 2023 compared to $81 million for the first nine months of 2022, a decrease of $16 million (20%). This decrease reflects higher year-over-year catastrophe losses in the financial institutions business and lower underwriting profits in the surety business. Catastrophe losses were $45 million (7.2 points on the combined ratio) in the first nine months of 2023 compared to $39 million (6.0 points), including $13 million in net reinstatement premiums in the first nine months of 2022. As a result of catastrophe losses incurred in the third quarter of 2022, the Specialty financial sub-segment reduced certain previously accrued profit-based commissions payable to agents, which had a favorable impact on the combined ratio.
Other specialty This group reported an underwriting loss of $22 million in the first nine months of 2023 compared to $30 million in the first nine months of 2022, a decrease of $8 million (27%), reflecting losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments. Catastrophe losses were $19 million in the first nine months of 2023 compared to $1 million in the first nine months of 2022.
Aggregate Aggregate underwriting results for AFG’s property and casualty insurance segment includes adverse prior year reserve development of $1 million in the first nine months of 2023 and $5 million in the first nine months of 2022 related to business outside of the Specialty group that AFG no longer writes.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Losses and Loss Adjustment Expenses
AFG’s overall loss and LAE ratio was 61.8% for the first nine months of 2023 compared to 59.2% for the first nine months of 2022, an increase of 2.6 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):

| Nine months ended September 30, |  |
| Amount |  | Ratio |  | Change in
| 2023 |  | 2022 |  | 2023 |  | 2022 |  | Ratio
Property and transportation |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 1,295 |  |  | $ | 1,291 |  |  | 70.4 | % |  | 71.4 | % |  | (1.0 | %)
Prior accident years development | (72) |  |  | (79) |  |  | (3.9 | %) |  | (4.4 | %) |  | 0.5 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 48 |  |  | 34 |  |  | 2.7 | % |  | 2.0 | % |  | 0.7 | %
Property and transportation losses and LAE and ratio | $ | 1,271 |  |  | $ | 1,246 |  |  | 69.2 | % |  | 69.0 | % |  | 0.2 | %
Specialty casualty |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 1,348 |  |  | $ | 1,209 |  |  | 62.7 | % |  | 61.3 | % |  | 1.4 | %
Prior accident years development | (73) |  |  | (140) |  |  | (3.4 | %) |  | (7.1 | %) |  | 3.7 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 26 |  |  | 3 |  |  | 1.2 | % |  | 0.1 | % |  | 1.1 | %
Specialty casualty losses and LAE and ratio | $ | 1,301 |  |  | $ | 1,072 |  |  | 60.5 | % |  | 54.3 | % |  | 6.2 | %
Specialty financial |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 222 |  |  | $ | 185 |  |  | 35.6 | % |  | 35.9 | % |  | (0.3 | %)
Prior accident years development | (24) |  |  | (39) |  |  | (3.8 | %) |  | (7.8 | %) |  | 4.0 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 45 |  |  | 26 |  |  | 7.2 | % |  | 6.0 | % |  | 1.2 | %
Specialty financial losses and LAE and ratio | $ | 243 |  |  | $ | 172 |  |  | 39.0 | % |  | 34.1 | % |  | 4.9 | %
Total Specialty |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 2,994 |  |  | $ | 2,805 |  |  | 62.4 | % |  | 62.6 | % |  | (0.2 | %)
Prior accident years development | (169) |  |  | (231) |  |  | (3.5 | %) |  | (5.2 | %) |  | 1.7 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 138 |  |  | 64 |  |  | 2.9 | % |  | 1.7 | % |  | 1.2 | %
Total Specialty losses and LAE and ratio | $ | 2,963 |  |  | $ | 2,638 |  |  | 61.8 | % |  | 59.1 | % |  | 2.7 | %
Aggregate — including exited lines |  |  |  |  |  |  |  |  |
Current year, excluding catastrophe losses | $ | 2,994 |  |  | $ | 2,805 |  |  | 62.4 | % |  | 62.6 | % |  | (0.2 | %)
Prior accident years development | (168) |  |  | (226) |  |  | (3.5 | %) |  | (5.1 | %) |  | 1.6 | %
Current year catastrophe losses including the impact of net reinstatement premiums | 138 |  |  | 64 |  |  | 2.9 | % |  | 1.7 | % |  | 1.2 | %
Aggregate losses and LAE and ratio | $ | 2,964 |  |  | $ | 2,643 |  |  | 61.8 | % |  | 59.2 | % |  | 2.6 | %

Current accident year losses and LAE, excluding catastrophe losses
The current accident year loss and LAE ratio, excluding catastrophe losses, for AFG’s Specialty property and casualty insurance operations was 62.4% for the first nine months of 2023 compared to 62.6% for the first nine months of 2022, a decrease of 0.2 percentage points.
Property and transportation The 1.0 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, is due primarily to the impact of elevated large loss activity in the property and inland marine business in the first nine months of 2022 and improved results in certain transportation businesses, partially offset by lower profits in the crop business.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Specialty casualty The 1.4 percentage point increase in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects anticipated medical cost inflation and the impact of pressure on rates in the workers’ compensation businesses and higher claim severity in certain liability coverages.
Specialty financial The 0.3 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses, reflects growth in the financial institutions business, which has a lower expected loss ratio compared to some of the other businesses in the Specialty financial sub-segment.
Net prior year reserve development
AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $169 million in the first nine months of 2023 compared to $231 million in the first nine months of 2022, a decrease of $62 million (27%).
Property and transportation Net favorable reserve development of $72 million in the first nine months of 2023 reflects lower than anticipated losses in the crop business, lower than expected claim frequency and severity across the transportation businesses and lower than anticipated claim frequency in the property and inland marine business. Net favorable reserve development of $79 million in the first nine months of 2022 reflects lower than anticipated losses in the crop business, lower than expected claim frequency in the trucking and ocean marine businesses and in the Singapore operations, lower than expected claim frequency and severity in the aviation business and lower than anticipated claim severity in the property and inland marine business.
Specialty casualty Net favorable reserve development of $73 million in the first nine months of 2023 reflects lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability and environmental businesses and favorable reserve development related to COVID-19 losses across several businesses, partially offset by higher than anticipated claim severity in the public sector and excess liability businesses. Net favorable reserve development of $140 million in the first nine months of 2022 reflects lower than anticipated claim severity in the workers’ compensation businesses, lower than expected claim frequency in the executive liability business and lower than anticipated claim frequency and severity in the excess and surplus business, partially offset by higher than anticipated claim severity in the targeted markets and excess liability businesses.
Specialty financial Net favorable reserve development of $24 million in the first nine months of 2023 reflects lower than anticipated claim frequency in the trade credit and financial institutions businesses and lower than expected claim frequency and severity in the surety business. Net favorable reserve development of $39 million in the first nine months of 2022 reflects lower than anticipated claim frequency in the surety, trade credit and financial institutions businesses.
Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net favorable reserve development of less than $1 million in the first nine months of 2023 and net adverse reserve development of $27 million in the first nine months of 2022 associated with AFG’s internal reinsurance program and the amortization of the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of a business in 1998. The 2022 period reflects net adverse reserve development primarily related to social inflation exposed business assumed from the Specialty casualty sub-segment.
Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes net adverse reserve development of $1 million in the first nine months of 2023 and $5 million in the first nine months of 2022 related to business outside the Specialty group that AFG no longer writes.
COVID-19 related losses
AFG’s Specialty property and casualty insurance operations released prior accident year COVID-19 reserves of $14 million in both the first nine months of 2023 and the first nine months of 2022 based on improved loss experience across several businesses. Given the uncertainties surrounding the ultimate number and scope of claims relating to the pandemic, approximately 37% of the $60 million in cumulative COVID-19 related losses are held as incurred but not reported reserves at September 30, 2023.
Catastrophe losses
Catastrophe losses of $138 million in the first nine months of 2023 (before $2 million in net reinstatement premiums) resulted primarily from several storms in multiple regions of the United States. Catastrophe losses of $64 million in the first nine months of 2022 (before $18 million in net reinstatement premiums) resulted primarily from Hurricane Ian and storms in multiple regions of the United States.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Commissions and Other Underwriting Expenses
AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $1.42 billion in the first nine months of 2023 compared to $1.26 billion for the first nine months of 2022, an increase of $154 million (12%). AFG’s underwriting expense ratio was 29.5% for the first nine months of 2023 compared to 28.3% for the first nine months of 2022, an increase of 1.2 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):

| Nine months ended September 30, |  |
| 2023 |  | 2022 |  | Change in
| U/W Exp |  | % of NEP |  | U/W Exp |  | % of NEP |  | % of NEP
Property and transportation | $ | 449 |  |  | 24.4 | % |  | $ | 419 |  |  | 23.2 | % |  | 1.2 | %
Specialty casualty | 587 |  |  | 27.3 | % |  | 529 |  |  | 26.8 | % |  | 0.5 | %
Specialty financial | 315 |  |  | 50.6 | % |  | 252 |  |  | 49.8 | % |  | 0.8 | %
Other specialty | 64 |  |  | 33.0 | % |  | 61 |  |  | 34.7 | % |  | (1.7 | %)
| $ | 1,415 |  |  | 29.5 | % |  | $ | 1,261 |  |  | 28.3 | % |  | 1.2 | %

Property and transportation Commissions and other underwriting expenses as a percentage of net earned premiums increased 1.2 percentage points in the first nine months of 2023 compared to the first nine months of 2022 reflecting higher expenses related to certain technology initiatives.
Specialty casualty Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.5 percentage points in the first nine months of 2023 compared to the first nine months of 2022 reflecting higher expenses related to certain technology initiatives, partially offset the impact on the ratio of growth in earned premiums in the workers’ compensation businesses.
Specialty financial Commissions and other underwriting expenses as a percentage of net earned premiums increased 0.8 percentage points in the first nine months of 2023 compared to the first nine months of 2022 reflecting higher expenses related to certain technology initiatives and the impact of the reduction in previously accrued profit-based commissions to agents recorded in the 2022 period as a result of losses from Hurricane Ian, partially offset by the impact on the ratio of growth in earned premiums in the financial institutions business and the impact on the ratio of reinsurance reinstatement premiums recorded in the third quarter of 2022.
Property and Casualty Net Investment Income
Net investment income in AFG’s property and casualty insurance operations was $568 million in the first nine months of 2023 compared to $524 million in the first nine months of 2022, an increase of $44 million (8%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):

| Nine months ended September 30, |  |  |  |
| 2023 |  | 2022 |  | Change |  | % Change
Net investment income: |  |  |  |  |  |  |
Net investment income, excluding alternative investments | $ | 410 |  |  | $ | 287 |  |  | $ | 123 |  |  | 43 | %
Alternative investments | 158 |  |  | 237 |  |  | (79) |  |  | (33 | %)
Total net investment income | $ | 568 |  |  | $ | 524 |  |  | $ | 44 |  |  | 8 | %
Average invested assets (at amortized cost) | $ | 14,624 |  |  | $ | 13,981 |  |  | $ | 643 |  |  | 5 | %
Yield (net investment income as a % of average invested assets) | 5.18 | % |  | 5.00 | % |  | 0.18 | % |  |
Tax equivalent yield (*) | 5.25 | % |  | 5.10 | % |  | 0.15 | % |  |

(*)Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.
The increase in the property and casualty insurance segment’s net investment income for the first nine months of 2023 compared to the first nine months of 2022 reflects the impact of higher yields on fixed maturity investments and higher balances of invested assets, partially offset by lower returns on AFG’s alternative investments portfolio (partnerships and
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
similar investments and AFG-managed CLOs) as compared to the very strong performance of this portfolio in the prior year period. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 5.18% for the first nine months of 2023 compared to 5.00% for the first nine months of 2022, an increase of 0.18 percentage points reflecting higher returns on fixed maturity investments, partially offset by lower yields on alternative investments. The annualized return earned on alternative investments (partnerships and similar investments and AFG-managed CLOs) was 9.2% in the first nine months of 2023 compared to 16.1% in the prior year period.
Property and Casualty Other Income and Expenses, Net
Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $41 million for the first nine months of 2023 compared to $26 million for the first nine months of 2022, an increase of $15 million (58%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

| Nine months ended September 30,
| 2023 |  | 2022
Other income: |  |  |
Income related to the sale of real estate | $ | — |  |  | $ | 1 |
Other | 13 |  |  | 11 |
Total other income | 13 |  |  | 12 |
Other expenses: |  |  |
Amortization of intangibles | 11 |  |  | 7 |
Interest expense on funds withheld | 29 |  |  | 21 |
Acquisition expenses related to CRS | 3 |  |  | — |
Other | 11 |  |  | 10 |
Total other expenses | 54 |  |  | 38 |
Other income and expenses, net | $ | (41) |  |  | $ | (26) |

The higher amortization of intangibles in the first nine months of 2023 compared to the first nine months of 2022 reflects the acquisition of CRS in July 2023. The $8 million (38%) increase in interest expense on funds withheld in the first nine months of 2023 compared to the first nine months of 2022 reflects the impact of higher interest rates on funds withheld.
Holding Company, Other and Unallocated — Results of Operations
AFG’s net GAAP pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $138 million in the first nine months of 2023 compared to $136 million in the first nine months of 2022, an increase of $2 million (1%). AFG’s net core pretax loss outside of its property and casualty insurance segment (excluding realized gains and losses) totaled $124 million in the first nine months of 2023 compared to $126 million in the first nine months of 2022, a decrease of $2 million (2%).
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance segment for the nine months ended September 30, 2023 and 2022 (dollars in millions):

| Nine months ended September 30, |  |
| 2023 |  | 2022 |  | % Change
Revenues: |  |  |  |  |
Net investment income | $ | 33 |  |  | $ | 15 |  |  | 120 | %
Other income — P&C fees | 83 |  |  | 67 |  |  | 24 | %
Other income | 16 |  |  | 26 |  |  | (38 | %)
Total revenues | 132 |  |  | 108 |  |  | 22 | %
Costs and Expenses: |  |  |  |  |
Property and casualty insurance — loss adjustment and underwriting expenses | 40 |  |  | 30 |  |  | 33 | %
Other expense — expenses associated with P&C fees | 43 |  |  | 37 |  |  | 16 | %
Other expenses (*) | 116 |  |  | 102 |  |  | 14 | %
Costs and expenses, excluding interest charges on borrowed money | 199 |  |  | 169 |  |  | 18 | %
Loss before income taxes, excluding realized gains and losses and interest charges on borrowed money | (67) |  |  | (61) |  |  | 10 | %
Interest charges on borrowed money | 57 |  |  | 65 |  |  | (12 | %)
Core loss before income taxes, excluding realized gains and losses | (124) |  |  | (126) |  |  | (2 | %)
Pretax non-core special A&E charge | (15) |  |  | — |  |  | — | %
Pretax non-core gain (loss) on retirement of debt | 1 |  |  | (10) |  |  | (110 | %)
GAAP loss before income taxes, excluding realized gains and losses | $ | (138) |  |  | $ | (136) |  |  | 1 | %

(*)Excludes a pretax non-core special A&E charge of $15 million and a pretax non-core gain on retirement of debt of $1 million in the first nine months of 2023 and a pretax non-core loss on retirement of debt of $10 million in the first nine months of 2022.
Holding Company and Other — Net Investment Income
AFG recorded net investment income on investments held outside of its property and casualty insurance segment of $33 million in the first nine months of 2023 compared to $15 million in the first nine months of 2022, an increase of $18 million (120%). A small portfolio of equity securities held during the 2022 period at the holding company that were carried at fair value through net investment income declined in value by $7 million. Excluding the change in fair value of these equity securities, net investment income outside of AFG’s property and casualty insurance segment increased $11 million reflecting the impact of higher interest rates on cash and fixed maturity investments, partially offset by lower average balances.
Holding Company and Other — P&C Fees and Related Expenses
Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In the first nine months of 2023, AFG collected $68 million in fees for these services compared to $60 million in the first nine months of 2022. Management views this fee income, net of the $43 million in the first nine months of 2023 and $37 million in the first nine months of 2022 in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. In addition, AFG’s property and casualty insurance businesses earned $15 million in fees as compensation for providing services related to the administration of crop insurance business generated by CRS for its former owner prior to the acquisition date during the third quarter of 2023 and $7 million in fees from AFG’s disposed annuity operations in the first nine months of 2022 as compensation for certain services provided under a transition services agreement. The expenses related to providing such services are embedded in property and casualty underwriting expenses. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses in AFG’s segmented results.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
Holding Company and Other — Other Income
Other income in the table above includes $12 million in both the first nine months of 2023 and the first nine months of 2022, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance segment of $4 million in the first nine months of 2023 compared to $14 million in the first nine months of 2022, a decrease of $10 million (71%) due primarily to income from the sale of real estate in 2022.
Holding Company and Other — Other Expenses
Excluding the non-core special A&E charge and the non-core gain (loss) on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded other expenses of $116 million in the first nine months of 2023 compared to $102 million the first nine months of 2022, an increase of $14 million (14%) reflecting the favorable impact of poor stock market performance in the first nine months of 2022 on expenses related to deferred compensation obligations to employees that are tied to stock market performance. To mitigate the impact of fair value changes related to the equity components of these obligations, AFG entered into a total return swap in the second half of 2022.
Holding Company and Other — Interest Charges on Borrowed Money
AFG’s holding companies and other operations outside of its property and casualty insurance segment recorded interest expense of $57 million in the first nine months of 2023 compared to $65 million in the first nine months of 2022, a decrease of $8 million (12%) reflecting the retirement of AFG’s $425 million principal amount of 3.50% Senior Notes during the first six months of 2022.
Holding Company and Other — Special A&E Charge
See “Holding Company and Other — Special A&E Charge” under “Results of Operations — Holding Company, Other and Unallocated” for the quarters ended September 30, 2023 and 2022 for a discussion of the $15 million pretax non-core special A&E charge recorded in the third quarter of 2023.
Holding Company and Other — Gain (Loss) on Retirement of Debt
During the first six months of 2023, AFG repurchased $23 million principal amount of its senior notes, which resulted in a $2 million pretax non-core gain and recorded a $1 million pretax non-core loss related to the write-off of debt issue costs associated with its previous revolving credit facility, which was replaced in June 2023. During the first nine months of 2022, AFG retired $434 million principal amount of its senior notes, which resulted in a $10 million pretax non-core loss.
Realized Gains (Losses) on Securities
AFG’s realized gains (losses) on securities were net losses of $67 million in the first nine months of 2023 compared to $143 million in the first nine months of 2022, a decrease of $76 million (53%). Realized gains (losses) on securities consisted of the following (in millions):

| Nine months ended September 30,
2023 |  | 2022
Realized gains (losses) before impairment allowances: |  |  |
Disposals | $ | (31) |  |  | $ | (9) |
Change in the fair value of equity securities | (23) |  |  | (122) |
Change in the fair value of derivatives | (4) |  |  | (11) |
| (58) |  |  | (142) |
Change in allowance for impairments on securities | (9) |  |  | (1) |
Realized gains (losses) on securities | $ | (67) |  |  | $ | (143) |

The $31 million net realized loss from disposals in the first nine months of 2023 includes losses of $15 million from the sale of investments in banks and $5 million from the sale of municipal housing bonds.
The $23 million net realized loss from the change in the fair value of equity securities in the first nine months of 2023 includes losses of $13 million on investments in media companies, $8 million on investments in banks and financing companies, $8 million on investments in healthcare companies and $3 million on investments in energy companies, partially offset by gains of $3 million on investments in capital goods companies and $3 million on investments in natural
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AMERICAN FINANCIAL GROUP, INC. 10-Q
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued
gas companies. The $122 million net realized loss from the change in the fair value of equity securities in the first nine months of 2022 includes losses of $58 million on investments in banks and financing companies, $15 million on investments in healthcare companies, $14 million on investments in media companies, $10 million on investments in retail companies and $6 million on investments in technology companies, partially offset by gains of $10 million on investments in energy and natural gas companies.
Realized Loss on Subsidiary
During the third quarter of 2023, AFG recorded a realized loss on subsidiary of $4 million, consisting of a $26 million goodwill impairment charge, partially offset by a $22 million reduction in the fair value contingent consideration liability, both related to AFG’s investment in Verikai. See Note D — “Fair Value Measurements” and Note H — “Goodwill and Other Intangibles” to the financial statements.
Consolidated Income Taxes
AFG’s consolidated provision for income taxes was $149 million for the first nine months of 2023 compared to $155 million for the first nine months of 2022, a decrease of $6 million (4%). See Note K — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
As of September 30, 2023, there were no material changes to the information provided in Item 7A — Quantitative and Qualitative Disclosures about Market Risk of AFG’s 2022 Form 10-K.
Consistent with the discussion in Item 2 — Management’s Discussion and Analysis — “Investments,” the following table demonstrates the sensitivity of the fair value of AFG’s fixed maturity portfolio to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have at September 30, 2023 (based on the duration of the portfolio, dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.

Fair value of fixed maturity portfolio | $ | 9,982 |
Percentage impact on fair value of 100 bps increase in interest rates | (3.0 | %)
Pretax impact on fair value of fixed maturity portfolio | $ | (299) |

ITEM 4. Controls and Procedures
AFG’s management, with participation of its Co-Chief Executive Officers and its Chief Financial Officer, has evaluated AFG’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report. Based on that evaluation, AFG’s Co-CEOs and CFO concluded that the controls and procedures are effective. There have been no changes in AFG’s internal control over financial reporting during the third fiscal quarter of 2023 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.
In the ordinary course of business, AFG and its subsidiaries routinely enhance their information systems by either upgrading current systems or implementing new systems. There have been no changes in AFG’s business processes and procedures during the third fiscal quarter of 2023 that have materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
PART II
OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities AFG repurchased shares of its Common Stock during 2023 as follows:

| Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (*)
First quarter | 199,762 |  |  | $ | 119.01 |  |  | 199,762 |  |  | 7,401,792 |
Second quarter | 374,958 |  |  | 115.17 |  |  | 374,958 |  |  | 7,026,834 |
Third quarter: |  |  |  |  |  |  |
July | 9,707 |  |  | $ | 115.34 |  |  | 9,707 |  |  | 7,017,127 |
August | 258,104 |  |  | 112.57 |  |  | 258,104 |  |  | 6,759,023 |
September | 487,300 |  |  | 112.07 |  |  | 487,300 |  |  | 6,271,723 |
Total | 1,329,831 |  |  | $ | 114.11 |  |  | 1,329,831 |  |  |

(*)Represents the remaining shares that may be repurchased until December 31, 2025 under the Plans authorized by AFG’s Board of Directors in October 2020 and May 2021.
In addition, AFG acquired 55,382 shares of its Common Stock (at an average of $132.27 per share) in the first quarter of 2023, 1,054 shares (at an average of $119.40 per share) in the second quarter of 2023 and 193 shares (at an average of $117.86 per share) in July 2023 in connection with its stock incentive plans.
ITEM 5. Other Information
During the three months ended September 30, 2023, none of the Company’s directors or officers adopted, terminated or modified a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
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AMERICAN FINANCIAL GROUP, INC. 10-Q
ITEM 6. Exhibits

Number |  | Exhibit Description
31(a) |  | Certification of Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(b) |  | Certification of Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(c) |  | Certification of Chief Financial Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
32 |  | Certification of Co-Chief Executive Officers and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| American Financial Group, Inc.
November 3, 2023 | By: |  | /s/ Brian S. Hertzman
|  |  | Brian S. Hertzman
|  |  | Senior Vice President and Chief Financial Officer

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