Shareholders' Equity

12 Months Ended

Dec. 31, 2016

Stockholders' Equity Note [Abstract]

Shareholders' Equity

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, 2016, there were 9.3 million shares of AFG Common Stock reserved for issuance under AFG’s stock incentive plans.

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, 2016	505,698		$	51.43
Granted	318,940		$	67.00
Vested	(141,598	)	$	40.73
Forfeited	(4,165	)	$	64.08
Outstanding at December 31, 2016	678,875		$	60.90

AFG issued 40,336 shares of Common Stock (fair value of $71.05 per share) in the first quarter of 2016 and 54,732 shares (fair value of $62.55 per share) in the first quarter of 2015 under its Equity Bonus Plan.

AFG did not grant any stock options in 2016. Options granted in years prior to 2016 have 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, 2016	5,516,090		$	41.46
Exercised	(958,344	)	$	33.56
Forfeited/Cancelled	(52,645	)	$	51.91
Outstanding at December 31, 2016	4,505,101		$	43.02	5.4 years	$	203
Options exercisable at December 31, 2016	2,908,200		$	36.95	4.4 years	$	149

The total intrinsic value of options exercised during 2016, 2015 and 2014 was $38 million, $52 million and $38 million, respectively. During 2016, 2015 and 2014, AFG received $32 million, $47 million and $35 million, respectively, in cash from the exercise of stock options. The total tax benefit related to the exercises was $11 million, $16 million and $12 million(including $12 million and $9 million credited directly to capital surplus in 2015 and 2014, respectively) during those years, respectively.

AFG used the Black-Scholes option pricing model to calculate the fair value of its option grants issued during 2015 and 2014 (no options were granted in 2016). The expected dividend yield is based on AFG’s current dividend rate. To determine expected volatility, AFG considers its daily historical volatility as well as implied volatility on traded options. The expected term was estimated based on historical exercise patterns and post vesting cancellations. The risk-free rate for periods associated with the expected term is based upon the U.S. Treasury yield curve in effect on the grant date.

	2015			2014
Exercise price	$	63.15		$	56.47
Expected dividend yield	1.6		%	1.6		%
Expected volatility	25		%	26		%
Expected term (in years)	7.25			7.25
Risk-free rate	1.88		%	2.20		%
Grant date fair value	$	15.29		$	14.66

Total compensation expense related to stock incentive plans of AFG and its subsidiaries for 2016, 2015 and 2014 was $28 million, $27 million and $25 million, respectively. AFG’s provision for income tax includes tax benefits of $19 million in 2016 and $8 million in 2015 and 2014 related to AFG’s stock incentive plans. The $19 million tax benefit in 2016 includes $9 million that under previous guidance would have been credited to capital surplus. At December 31, 2016, there was $16 million and $24 million of unrecognized compensation expense related to nonvested stock options and restricted stock awards, respectively. Both of these amounts are expected to be recognized over a weighted average of 2.3 years.

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			Net of tax			Attributable to noncontrolling interests			Attributable to shareholders			Other (c)		AOCI Ending Balance
Year ended December 31, 2016
Net unrealized gains on securities:
Unrealized holding gains (losses) on securities arising during the period				$	124		$	(44	)	$	80		$	(4	)	$	76
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(19		)	7			(12		)	(1		)	(13		)
Total net unrealized gains on securities (b)	$	332		105			(37		)	68			(5		)	63			$	9	$	404
Net unrealized gains (losses) on cash flow hedges	1			(12		)	4			(8		)	—			(8		)	—		(7		)
Foreign currency translation adjustments	(22		)	6			1			7			—			7			—		(15		)
Pension and other postretirement plans adjustments	(7		)	—			—			—			—			—			—		(7		)
Total	$	304		$	99		$	(32	)	$	67		$	(5	)	$	62		$	9	$	375
Year ended December 31, 2015
Net unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities arising during the period				$	(625	)	$	219		$	(406	)	$	9		$	(397	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				14			(5		)	9			(1		)	8
Reclassification for unrealized gains of subsidiaries sold				(34		)	12			(22		)	—			(22		)
Total net unrealized gains (losses) on securities (b)	$	743		(645		)	226			(419		)	8			(411		)	$	—	$	332
Net unrealized gains on cash flow hedges	—			1			—			1			—			1			—		1
Foreign currency translation adjustments	(8		)	(9		)	(5		)	(14		)	—			(14		)	—		(22		)
Pension and other postretirement plans adjustments	(8		)	1			—			1			—			1			—		(7		)
Total	$	727		$	(652	)	$	221		$	(431	)	$	8		$	(423	)	$	—	$	304
Year ended December 31, 2014
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period				$	334		$	(118	)	$	216		$	(4	)	$	212
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(52		)	19			(33		)	1			(32		)
Total net unrealized gains on securities (b)	$	563		282			(99		)	183			(3		)	180			$	—	$	743
Foreign currency translation adjustments	1			(8		)	(1		)	(9		)	—			(9		)	—		(8		)
Pension and other postretirement plans adjustments	(4		)	(6		)	2			(4		)	—			(4		)	—		(8		)
Total	$	560		$	268		$	(98	)	$	170		$	(3	)	$	167		$	—	$	727

(a) The reclassification adjustment out of net unrealized gains on securities affected the following lines in AFG’s Statement of Earnings:

OCI component	Affected line in the statement of earnings
Pretax	Realized gains (losses) on securities
Tax	Provision for income taxes
Attributable to noncontrolling interests	Net earnings (loss) attributable to noncontrolling interests

(b) Includes net unrealized gains of $52 million at December 31, 2016 compared to net unrealized gains of $51 million and $58 million at December 31, 2015 and 2014, related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

(c) Other represents the impact on AOCI of the November 2016 acquisition of the noncontrolling interest in NATL (see Note B — “Acquisitions and Sale of Businesses”).