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Investments
 12 Months Ended
Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]  
Investments
E.    Investments

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

2012
 
2011
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
 
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
Gains
 
Losses
 
Gains
 
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
373

 
$
388

 
$
15

 
$
—

 
$
363

 
$
382

 
$
19

 
$
—

States, municipalities and political subdivisions
4,144

 
4,468

 
329

 
(5
)
 
3,613

 
3,877

 
267

 
(3
)
Foreign government
242

 
260

 
18

 
—

 
236

 
254

 
18

 
—

Residential MBS
3,921

 
4,204

 
337

 
(54
)
 
3,858

 
3,848

 
170

 
(180
)
Commercial MBS
2,583

 
2,918

 
335

 
—

 
2,628

 
2,840

 
218

 
(6
)
Corporate and other
10,820

 
11,880

 
1,067

 
(7
)
 
9,864

 
10,606

 
802

 
(60
)
Total fixed maturities
$
22,083

 
$
24,118

 
$
2,101

 
$
(66
)
 
$
20,562

 
$
21,807

 
$
1,494

 
$
(249
)
Common stocks
$
600

 
$
749

 
$
157

 
$
(8
)
 
$
610

 
$
797

 
$
207

 
$
(20
)
Perpetual preferred stocks
$
178

 
$
190

 
$
13

 
$
(1
)
 
$
134

 
$
131

 
$
5

 
$
(8
)


The non-credit related portion of other-than-temporary impairment charges is included in other comprehensive income. Cumulative charges taken for residential MBS still owned at both December 31, 2012 and December 31, 2011 were $227 million.

The following tables show gross unrealized losses (in millions) on fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2012 and 2011.

 
  
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
 
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
22

 
100
%
 
$
—

 
$
—

 
—
%
 
States, municipalities and political subdivisions
(5
)
 
285

 
98
%
 
—

 
24

 
100
%
 
Foreign government
—

 
—

 
—
%
 
—

 
—

 
—
%
 
Residential MBS
(3
)
 
146

 
98
%
 
(51
)
 
411

 
89
%
 
Commercial MBS
—

 
16

 
100
%
 
—

 
—

 
—
%
 
Corporate and other
(3
)
 
383

 
99
%
 
(4
)
 
108

 
96
%
 
Total fixed maturities
$
(11
)
 
$
852

 
99
%
 
$
(55
)
 
$
543

 
91
%
 
Common stocks
$
(8
)
 
$
88

 
92
%
 
$
—

 
$
—

 
—
%
 
Perpetual preferred stocks
$
—

 
$
7

 
100
%
 
$
(1
)
 
$
25

 
96
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
2

 
100
%
 
$
—

 
$
—

 
—
%
 
States, municipalities and political subdivisions
(2
)
 
120

 
98
%
 
(1
)
 
59

 
98
%
 
Foreign government
—

 
1

 
100
%
 
—

 
—

 
—
%
 
Residential MBS
(59
)
 
1,141

 
95
%
 
(121
)
 
473

 
80
%
 
Commercial MBS
(6
)
 
183

 
97
%
 
—

 
18

 
100
%
 
Corporate and other
(43
)
 
940

 
96
%
 
(17
)
 
114

 
87
%
 
Total fixed maturities
$
(110
)
 
$
2,387

 
96
%
 
$
(139
)
 
$
664

 
83
%
 
Common stocks
$
(19
)
 
$
169

 
90
%
 
$
(1
)
 
$
4

 
80
%
 
Perpetual preferred stocks
$
(1
)
 
$
23

 
96
%
 
$
(7
)
 
$
31

 
82
%


At December 31, 2012, the gross unrealized losses on fixed maturities of $66 million relate to approximately 365 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 23% of the gross unrealized loss and 63% of the fair value.

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

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

AFG analyzes its MBS securities for other-than-temporary impairment each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan to collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data. For 2012, AFG recorded in earnings $7 million in other-than-temporary impairment charges related to its residential MBS.

Management believes AFG will recover its cost basis in the securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at December 31, 2012.

A progression of the credit portion of other-than-temporary impairments on fixed maturity securities for which the non-credit portion of an impairment has been recognized in other comprehensive income is shown below (in millions).
 
2012
 
2011
 
2010
Balance at January 1
$
187

 
$
143

 
$
99

Additional credit impairments on:
 
 
 
 
 
Previously impaired securities
5

 
44

 
44

Securities without prior impairments
2

 
8

 
9

Reductions — disposals
(2
)
 
(8
)
 
(9
)
Balance at December 31
$
192

 
$
187

 
$
143



The table below sets forth the scheduled maturities of available for sale fixed maturities as of December 31, 2012 (in millions). Asset-backed securities and other 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. MBS had an average life of approximately 4 years at December 31, 2012.
  
Amortized
 
Fair Value
Cost
 
Amount
 
%
Maturity
 
 
 
 
 
One year or less
$
867

 
$
887

 
4
%
After one year through five years
5,526

 
5,963

 
25

After five years through ten years
6,675

 
7,394

 
31

After ten years
2,511

 
2,752

 
11

 
15,579

 
16,996

 
71

MBS
6,504

 
7,122

 
29

Total
$
22,083

 
$
24,118

 
100
%


Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.
There were no investments in individual issuers that exceeded 10% of Shareholders’ Equity at December 31, 2012 or 2011.

Net Unrealized Gain on Marketable Securities   In addition to adjusting equity securities and fixed maturity securities classified as “available for sale” to fair value, GAAP requires that deferred policy acquisition costs and certain other balance sheet amounts related to annuity, long-term care and life businesses be adjusted to the extent that unrealized gains and losses from securities would result in adjustments to those balances had the unrealized gains or losses actually been realized. The following table shows (in millions) the components of the net unrealized gain on securities that is included in Accumulated Other Comprehensive Income in AFG’s Balance Sheet.
 
Pretax
 
Deferred Tax and
Amounts  Attributable
to Noncontrolling
Interests
 
Net
December 31, 2012
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities
$
2,035

 
$
(726
)
 
$
1,309

Equity securities
161

 
(57
)
 
104

Deferred policy acquisition costs
(710
)
 
247

 
(463
)
Annuity benefits accumulated
(136
)
 
48

 
(88
)
Life, accident and health reserves
(117
)
 
41

 
(76
)
Other liabilities
57

 
(20
)
 
37

 
$
1,290

 
$
(467
)
 
$
823

December 31, 2011
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities
$
1,245

 
$
(444
)
 
$
801

Equity securities
184

 
(65
)
 
119

Deferred policy acquisition costs
(537
)
 
188

 
(349
)
Annuity benefits accumulated
(30
)
 
11

 
(19
)
Other liabilities
40

 
(14
)
 
26

 
$
902

 
$
(324
)
 
$
578



Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):
 
Fixed
Maturities
 
Equity
Securities
 
Mortgage
Loans
and Other
Investments
 
Other (a)
 
Tax
Effects
 
Noncon-
trolling
Interests
 
Total
Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
55

 
$
192

 
$
(3
)
 
$
(8
)
 
$
(83
)
 
$
(2
)
 
$
151

Realized — impairments
(9
)
 
(24
)
 
—

 
7

 
9

 
—

 
(17
)
Change in unrealized
790

 
(23
)
 
—

 
(379
)
 
(136
)
 
(7
)
 
245

Year ended December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
68

 
$
88

 
$
(24
)
 
$
(4
)
 
$
(45
)
 
$
(2
)
 
$
81

Realized — impairments
(57
)
 
(6
)
 
(5
)
 
16

 
18

 
1

 
(33
)
Change in unrealized
407

 
(48
)
 
—

 
(218
)
 
(49
)
 
(5
)
 
87

Year ended December 31, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
146

 
$
36

 
$
(5
)
 
$
(14
)
 
$
(57
)
 
$
(2
)
 
$
104

Realized — impairments
(79
)
 
(1
)
 
(6
)
 
24

 
22

 
—

 
(40
)
Change in unrealized
751

 
49

 
—

 
(293
)
 
(177
)
 
(2
)
 
328


(a)
Primarily adjustments to deferred policy acquisition costs and reserves related to annuities and long-term care business.

Realized gains (losses) on securities include net gains of $5 million in 2012 compared to net losses of less than $1 million in 2011 and net gains of $50 million in 2010 from the mark-to-market of certain MBS, primarily interest-only securities with interest rates that float inversely with short-term rates. Gross realized gains and losses (excluding impairment writedowns and mark-to-market of derivatives) on available for sale fixed maturity and equity security investment transactions included in the Statement of Cash Flows consisted of the following (in millions):
  
2012
 
2011
 
2010
Fixed maturities:
 
 
 
 
 
Gross gains
$
55

 
$
77

 
$
108

Gross losses
(4
)
 
(9
)
 
(11
)
Equity securities:
 
 
 
 
 
Gross gains
196

 
90

 
35

Gross losses
(4
)
 
(1
)
 
—