Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Reconciliation of income taxes at the statutory rate and income taxes shown in the Statement of Earnings

The following is a reconciliation of income taxes at the statutory rate of 35% and income taxes as shown in the Statement of Earnings (in millions):



	2012			2011			2010
Earnings before income taxes	$	537		$	558		$	694

Income taxes at statutory rate	$	188		$	195		$	243
Effect of:
Tax case and settlement of open tax years	(67		)	—			—
Change in valuation allowance	3			44			(1		)
Losses of managed investment entities	34			9			23
Goodwill impairment charge	—			—			8
Subsidiaries not in AFG’s tax return	(3		)	5			6
Tax exempt interest	(23		)	(23		)	(16		)
Other	3			9			5
Provision for income taxes as shown on the Statement of Earnings	$	135		$	239		$	268

Components of income tax provision (credit)

The total income tax provision (credit) consists of (in millions):



	2012			2011		2010
Current taxes:
Federal	$	146		$	186	$	214
State	6			4		4
Foreign	—			—		(1		)
Deferred taxes:
Federal	(17		)	22		65
Foreign	—			27		(14		)
Provision for income taxes	$	135		$	239	$	268

Summary of operating loss carryforwards

For income tax purposes, AFG and its subsidiaries had the following carryforwards available at December 31, 2012 (in millions):



	Expiring	Amount
Operating Loss – U.S.	2013 — 2020	$	74
	2021 — 2025	72
Operating Loss – United Kingdom	indefinite	116

Components of deferred tax assets and liabilities

Deferred income tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The significant components of deferred tax assets and liabilities included in the Balance Sheet at December 31 were as follows (in millions):



	2012			2011
Deferred tax assets:
Federal net operating loss carryforwards	$	51		$	51
Foreign underwriting losses	46			42
Insurance claims and reserves	528			431
Employee benefits	91			94
Other, net	36			52
Total deferred tax assets before valuation allowance	752			670
Valuation allowance against deferred tax assets	(101		)	(97		)
Total deferred tax assets	651			573
Deferred tax liabilities:
Subsidiaries not in AFG’s tax return	(58		)	(61		)
Investment securities	(753		)	(441		)
Deferred policy acquisition costs	(91		)	(204		)
Total deferred tax liabilities	(902		)	(706		)
Net deferred tax liability	$	(251	)	$	(133	)

Progression of the liability for uncertain tax positions, excluding interest and penalties

A progression of the liability for uncertain tax positions, excluding interest and penalties, follows (in millions):



	2012			2011		2010
Balance at January 1	$	59		$	52	$	36
Reductions for tax positions of prior years	(46		)	—		—
Additions for tax positions of current year	5			7		16
Balance at December 31	$	18		$	59	$	52

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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