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Investments
 12 Months Ended
Dec. 31, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at December 31 consisted of the following (in millions): 
 
2016
 
2015
Amortized
Cost
 
Gross Unrealized
 
Net
Unrealized
 
Fair
Value
 
Amortized
Cost
 
Gross Unrealized
 
Net
Unrealized
 
Fair
Value
Gains
 
Losses
 
 
 
Gains
 
Losses
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
315

 
$
3

 
$
(3
)
 
$
—

 
$
315

 
$
305

 
$
5

 
$
(3
)
 
$
2

 
$
307

States, municipalities and political subdivisions
6,650

 
200

 
(69
)
 
131

 
6,781

 
6,642

 
249

 
(35
)
 
214

 
6,856

Foreign government
131

 
5

 
—

 
5

 
136

 
147

 
7

 
—

 
7

 
154

Residential MBS
3,367

 
281

 
(13
)
 
268

 
3,635

 
3,236

 
308

 
(15
)
 
293

 
3,529

Commercial MBS
1,446

 
49

 
(2
)
 
47

 
1,493

 
2,111

 
77

 
(1
)
 
76

 
2,187

Asset-backed securities
5,962

 
43

 
(46
)
 
(3
)
 
5,959

 
4,961

 
25

 
(52
)
 
(27
)
 
4,934

Corporate and other
15,864

 
473

 
(112
)
 
361

 
16,225

 
14,163

 
422

 
(268
)
 
154

 
14,317

Total fixed maturities
$
33,735

 
$
1,054

 
$
(245
)
 
$
809

 
$
34,544

 
$
31,565

 
$
1,093

 
$
(374
)
 
$
719

 
$
32,284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
879

 
$
160

 
$
(23
)
 
$
137

 
$
1,016

 
$
1,051

 
$
146

 
$
(79
)
 
$
67

 
$
1,118

Perpetual preferred stocks
472

 
21

 
(7
)
 
14

 
486

 
418

 
23

 
(6
)
 
17

 
435

Total equity securities
$
1,351

 
$
181

 
$
(30
)
 
$
151

 
$
1,502

 
$
1,469

 
$
169

 
$
(85
)
 
$
84

 
$
1,553



The non-credit related portion of other-than-temporary impairment charges is included in other comprehensive income. Cumulative non-credit charges taken for securities still owned at December 31, 2016 and December 31, 2015, respectively, were $189 million and $205 million. Gross unrealized gains on such securities at December 31, 2016 and December 31, 2015 were $130 million and $134 million, respectively. Gross unrealized losses on such securities at December 31, 2016 and December 31, 2015 were $3 million and $6 million, respectively. These amounts represent the non-credit other-than-temporary impairment charges recorded in AOCI adjusted for subsequent changes in fair values and relate to residential MBS.
The following tables show gross unrealized losses (dollars 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, 2016 and 2015.
 
  
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
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
(1
)
 
$
153

 
99
%
 
$
(2
)
 
$
8

 
80
%
 
States, municipalities and political subdivisions
(64
)
 
2,289

 
97
%
 
(5
)
 
44

 
90
%
 
Residential MBS
(7
)
 
502

 
99
%
 
(6
)
 
162

 
96
%
 
Commercial MBS
(2
)
 
121

 
98
%
 
—

 
—

 
—
%
 
Asset-backed securities
(29
)
 
1,737

 
98
%
 
(17
)
 
634

 
97
%
 
Corporate and other
(93
)
 
3,849

 
98
%
 
(19
)
 
312

 
94
%
 
Total fixed maturities
$
(196
)
 
$
8,651

 
98
%
 
$
(49
)
 
$
1,160

 
96
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(23
)
 
$
215

 
90
%
 
$
—

 
$
—

 
—
%
 
Perpetual preferred stocks
(6
)
 
135

 
96
%
 
(1
)
 
6

 
86
%
 
Total equity securities
$
(29
)
 
$
350

 
92
%
 
$
(1
)
 
$
6

 
86
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
(1
)
 
$
112

 
99
%
 
$
(2
)
 
$
15

 
88
%
 
States, municipalities and political subdivisions
(33
)
 
1,419

 
98
%
 
(2
)
 
50

 
96
%
 
Residential MBS
(7
)
 
438

 
98
%
 
(8
)
 
201

 
96
%
 
Commercial MBS
—

 
95

 
100
%
 
(1
)
 
28

 
97
%
 
Asset-backed securities
(42
)
 
2,706

 
98
%
 
(10
)
 
455

 
98
%
 
Corporate and other
(229
)
 
4,661

 
95
%
 
(39
)
 
165

 
81
%
 
Total fixed maturities
$
(312
)
 
$
9,431

 
97
%
 
$
(62
)
 
$
914

 
94
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(79
)
 
$
509

 
87
%
 
$
—

 
$
—

 
—
%
 
Perpetual preferred stocks
(3
)
 
91

 
97
%
 
(3
)
 
22

 
88
%
 
Total equity securities
$
(82
)
 
$
600

 
88
%
 
$
(3
)
 
$
22

 
88
%


At December 31, 2016, the gross unrealized losses on fixed maturities of $245 million relate to 1,242 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 84% of the gross unrealized loss and 91% 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. During 2016, AFG recorded $3 million in other-than-temporary impairment charges related to its residential MBS.

In 2016, AFG recorded approximately $23 million and $12 million in other-than-temporary impairment charges related to corporate bonds and other fixed maturities, respectively.

AFG recorded $89 million in other-than-temporary impairment charges on common stocks in 2016. At December 31, 2016, the gross unrealized losses on common stocks of $23 million relate to 23 securities, none of which has been in an unrealized loss position for more than 12 months.

AFG recorded $4 million in other-than-temporary impairment charges on preferred stock in 2016. At December 31, 2016, the gross unrealized losses on preferred stocks of $7 million relate to 24 securities. Only one preferred stock has been in an unrealized loss position for 12 months or more and it has an investment grade rating.

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, 2016.

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):
 
2016
 
2015
 
2014
Balance at January 1
$
160

 
$
170

 
$
194

Additional credit impairments on:
 
 
 
 
 
Previously impaired securities
2

 
1

 
—

Securities without prior impairments
1

 
2

 
—

Reductions due to:
 
 
 
 
 
Sales or redemptions
(10
)
 
(9
)
 
(24
)
Sale of subsidiaries
—

 
(4
)
 
—

Balance at December 31
$
153

 
$
160

 
$
170



The table below sets forth the scheduled maturities of available for sale fixed maturities as of December 31, 2016 (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
 
Amount
 
%
Maturity
 
 
 
 
 
One year or less
$
1,120

 
$
1,136

 
3
%
After one year through five years
5,609

 
5,866

 
17
%
After five years through ten years
11,744

 
11,921

 
35
%
After ten years
4,487

 
4,534

 
13
%
 
22,960

 
23,457

 
68
%
ABS (average life of approximately 5 years)
5,962

 
5,959

 
17
%
MBS (average life of approximately 4.5 years)
4,813

 
5,128

 
15
%
Total
$
33,735

 
$
34,544

 
100
%


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 December 31, 2016 or 2015.

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 AOCI in AFG’s Balance Sheet.
 
Pretax
 
Deferred Tax and
Amounts  Attributable
to Noncontrolling
Interests
 
Net
December 31, 2016
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
640

 
$
(224
)
 
$
416

Fixed maturities — all other
169

 
(59
)
 
110

Total fixed maturities
809

 
(283
)
 
526

Equity securities
151

 
(53
)
 
98

Total investments
960

 
(336
)
 
624

Deferred policy acquisition costs — annuity segment
(273
)
 
96

 
(177
)
Annuity benefits accumulated
(78
)
 
27

 
(51
)
Unearned revenue
13

 
(5
)
 
8

Total net unrealized gain on marketable securities
$
622

 
$
(218
)
 
$
404

 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
523

 
$
(183
)
 
$
340

Fixed maturities — all other
196

 
(72
)
 
124

Total fixed maturities
719

 
(255
)
 
464

Equity securities
84

 
(30
)
 
54

Total investments
803

 
(285
)
 
518

Deferred policy acquisition costs — annuity segment
(233
)
 
82

 
(151
)
Annuity benefits accumulated
(64
)
 
22

 
(42
)
Unearned revenue
11

 
(4
)
 
7

Total net unrealized gain on marketable securities
$
517

 
$
(185
)
 
$
332



(*)    Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.

Net Investment Income   The following table shows (in millions) investment income earned and investment expenses incurred.
 
2016
 
2015
 
2014
Investment income:
 
 
 
 
 
Fixed maturities
$
1,510

 
$
1,461

 
$
1,352

Equity securities
81

 
76

 
66

Equity in earnings of partnerships and similar investments
44

 
27

 
18

Other
81

 
87

 
77

Gross investment income
1,716

 
1,651

 
1,513

Investment expenses
(20
)
 
(18
)
 
(12
)
Net investment income
$
1,696

 
$
1,633

 
$
1,501



Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):

 
2016
 
2015
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
36

 
$
(38
)
 
$
(2
)
 
$
90

 
$
19

 
$
(43
)
 
$
(24
)
 
$
(941
)
Equity securities
106

 
(93
)
 
13

 
67

 
94

 
(94
)
 
—

 
(134
)
Mortgage loans and other investments
—

 
—

 
—

 
—

 
(2
)
 
(3
)
 
(5
)
 
—

Other (*)
(7
)
 
15

 
8

 
(52
)
 
(5
)
 
15

 
10

 
430

Total pretax
135

 
(116
)
 
19

 
105

 
106

 
(125
)
 
(19
)
 
(645
)
Tax effects
(48
)
 
41

 
(7
)
 
(37
)
 
(38
)
 
45

 
7

 
226

Noncontrolling interests
(2
)
 
3

 
1

 
4

 
(2
)
 
2

 
—

 
8

Net of tax and noncontrolling interests
$
85

 
$
(72
)
 
$
13

 
$
72

 
$
66

 
$
(78
)
 
$
(12
)
 
$
(411
)

 
 
 
2014
 
 
 
 
 
Realized gains (losses)
 
 
 
 
 
 
 
 
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
 
 
 
 
 
 
 
 
$
36

 
$
(15
)
 
$
21

 
$
570

Equity securities
 
 
 
 
 
 
 
 
53

 
(26
)
 
27

 
26

Mortgage loans and other investments
 
 
 
 
 
 
 
 
1

 
—

 
1

 
—

Other (*)
 
 
 
 
 
 
 
 
(2
)
 
5

 
3

 
(314
)
Total pretax
 
 
 
 
 
 
 
 
88

 
(36
)
 
52

 
282

Tax effects
 
 
 
 
 
 
 
 
(32
)
 
13

 
(19
)
 
(99
)
Noncontrolling interests
 
 
 
 
 
 
 
 
(2
)
 
1

 
(1
)
 
(3
)
Net of tax and noncontrolling interests
 
 
 
 
 
 
 
 
$
54

 
$
(22
)
 
$
32

 
$
180


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

Gross realized gains and losses (excluding impairment write-downs 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):
 
2016
 
2015
 
2014
Fixed maturities:
 
 
 
 
 
Gross gains
$
55

 
$
38

 
$
36

Gross losses
(10
)
 
(7
)
 
(2
)
Equity securities:
 
 
 
 
 
Gross gains
110

 
99

 
53

Gross losses
(4
)
 
(5
)
 
—