Shareholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Shareholders' Equity

K.    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.

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.

At December 31, 2012, there were 13.7 million shares of AFG Common Stock reserved for issuance under AFG’s stock incentive plans. Options are granted with an exercise price equal to the market price of AFG Common Stock at the date of grant. Options generally become exercisable at the rate of 20% per year commencing one year after grant and expire ten years after the date of grant.

Data for stock options issued under AFG’s stock incentive plans is presented below:

	Shares		Average Exercise Price		Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2012	7,922,474		$	27.05
Granted	1,076,500		$	38.10
Exercised	(1,702,782	)	$	23.86
Forfeited/Cancelled	(76,450	)	$	31.22
Outstanding at December 31, 2012	7,219,742		$	29.40	5.5 years	$	73
Options exercisable at December 31, 2012	4,405,197		$	28.13	4.0 years	$	50

The total intrinsic value of options exercised during 2012, 2011 and 2010 was $25 million, $23 million and $19 million, respectively. During 2012, 2011 and 2010, AFG received $40 million, $33 million and $27 million, respectively, in cash from the exercise of stock options. The total tax benefit related to the exercises was $8 million, $7 million and $6 million, respectively.

AFG uses the Black-Scholes option pricing model to calculate the fair value of its option grants. Expected volatility is based on historical volatility over a period equal to the expected term. The expected term was estimated based on historical exercise patterns and post vesting cancellations. The weighted average fair value of options granted during 2012, 2011 and 2010 was$13.02 per share, $12.49 per share and $8.90 per share, respectively, based on the following assumptions:

	2012		2011		2010
Expected dividend yield	1.8	%	1.9	%	2.2	%
Expected volatility	39	%	38	%	39	%
Expected term (in years)	7.3		7.3		7.5
Risk-free rate	1.4	%	3.0	%	3.2	%

The restricted Common Stock that AFG has granted generally vests over a three or four year period. Data relating to grants of restricted stock is presented below:

	Shares		Average Grant Date Fair Value
Outstanding at January 1, 2012	415,122		$	27.85
Granted	133,931		$	38.09
Vested	(103,804	)	$	29.08
Outstanding at December 31, 2012	445,249		$	30.65

AFG issued 111,270 shares of Common Stock (fair value of $38.38 per share) in the first quarter of 2012 and 188,302 shares (fair value of $33.99 per share) in the first quarter of 2011 under its Equity Bonus Plan.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries for 2012, 2011 and 2010 was $26 million, $22 million and $20 million, respectively. Related tax benefits totaled $8 million in 2012, $7 million in 2011 and $6 million in 2010. At December 31, 2012, there was $23 million and $8 million of unrecognized compensation expense related to nonvested stock options and restricted stock awards, respectively. These amounts are expected to be recognized over a weighted average of 3.3 and 2.3 years, respectively.

Accumulated Other Comprehensive Income, 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, which consists primarily of changes in net unrealized gains or losses on available for sale securities. The progression of the components of accumulated other comprehensive income follows (in millions):

					Other Comprehensive Income
	AOCI Beginning Balance				Pretax			Tax			Noncontrolling interests			Net			Other (b)			AOCI Ending Balance
Year ended December 31, 2012
Net unrealized gains on securities	$	578		(a)	$	388		$	(136	)	$	(7	)	$	245		$	—		$	823		(a)
Foreign currency translation adjustments	10				6			—			(1		)	5			(1		)	14
Pension and other postretirement plans adjustments	(8		)		2			—			—			2			—			(6		)
Total	$	580			$	396		$	(136	)	$	(8	)	$	252		$	(1	)	$	831
Year ended December 31, 2011
Net unrealized gains on securities	$	491		(a)	$	141		$	(49	)	$	(5	)	$	87		$	—		$	578		(a)
Foreign currency translation adjustments	12				(1		)	—			(1		)	(2		)	—			10
Pension and other postretirement plans adjustments	(8		)		—			—			—			—			—			(8		)
Total	$	495			$	140		$	(49	)	$	(6	)	$	85		$	—		$	580
Year ended December 31, 2010
Net unrealized gains on securities	$	167			$	507		$	(177	)	$	(2	)	$	328		$	(4	)	$	491		(a)
Foreign currency translation adjustments	5				8			—			—			8			(1		)	12
Pension and other postretirement plans adjustments	(8		)		—			—			—			—			—			(8		)
Total	$	164			$	515		$	(177	)	$	(2	)	$	336		$	(5	)	$	495

(a) Includes net unrealized gains of $33 million at December 31, 2012 compared to net unrealized losses of $16 million and $11 million at December 31, 2011 and 2010, respectively, related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

(b) Other reflects the cumulative effect of accounting change in 2010 and the acquisition of noncontrolling interest in a subsidiary in 2012.