Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

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% to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):



	2016					2015					2014
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	787				$	565				$	626

Income taxes at statutory rate	$	275		35	%	$	198		35	%	$	219		35	%
Effect of:
Tax exempt interest	(24		)	(3	%)	(27		)	(5	%)	(25		)	(4	%)
Change in valuation allowance	52			7	%	23			4	%	7			1	%
Stock-based compensation	(9		)	(1	%)	1			—	%	1			—	%
Subsidiaries not in AFG’s tax return	3			—	%	2			1	%	1			—	%
Acquisition of noncontrolling interest in NATL	(66		)	(8	%)	—			—	%	—			—	%
Neon restructuring	(111		)	(14	%)	—			—	%	—			—	%
Losses of managed investment entities	—			—	%	—			—	%	18			3	%
Other	(1		)	(1	%)	(2		)	—	%	(1		)	—	%
Provision for income taxes as shown in the statement of earnings	$	119		15	%	$	195		35	%	$	220		35	%

Components of income tax provision (credit)

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



	2016			2015			2014
Current taxes:
Federal	$	299		$	216		$	265
State	12			8			8
Deferred taxes:
Federal	(192		)	(29		)	(53		)
Provision for income taxes	$	119		$	195		$	220

Summary of operating loss carryforwards

For income tax purposes, AFG and its subsidiaries had the following carryforwards available at December 31, 2016 (in millions):



	Expiring	Amount
Operating Loss – U.S.	2017 - 2022	$	143
Operating Loss – United Kingdom	indefinite	139		(*)
Capital Loss – U.S.	2021	237


(*)	£112 million

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 AFG’s Balance Sheet at December 31 were as follows (in millions):



	2016									2015
	Excluding Unrealized Gains			Impact of Unrealized Gains			Total			Excluding Unrealized Gains			Impact of Unrealized Gains			Total
Deferred tax assets:
Federal net operating loss carryforwards	$	50		$	—		$	50		$	50		$	—		$	50
Foreign underwriting losses	120			—			120			77			—			77
Capital loss carryforwards	83			—			83			32			—			32
Insurance claims and reserves	774			27			801			691			22			713
Employee benefits	131			—			131			115			—			115
Other, net	40			(5		)	35			33			(4		)	29
Total deferred tax assets before valuation allowance	1,198			22			1,220			998			18			1,016
Valuation allowance against deferred tax assets	(173		)	—			(173		)	(130		)	—			(130		)
Total deferred tax assets	1,025			22			1,047			868			18			886
Deferred tax liabilities:
Subsidiaries not in AFG’s tax return	—			—			—			(63		)	—			(63		)
Investment securities	29			(336		)	(307		)	23			(281		)	(258		)
Deferred policy acquisition costs	(448		)	96			(352		)	(418		)	82			(336		)
Total deferred tax liabilities	(419		)	(240		)	(659		)	(458		)	(199		)	(657		)
Net deferred tax asset (liability)	$	606		$	(218	)	$	388		$	410		$	(181	)	$	229

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):



	2016		2015		2014
Balance at January 1	$	1	$	—	$	19
Additions for tax positions of prior years	—		1		—
Reductions for tax positions of prior years	—		—		(8		)
Additions for tax positions of current year	—		—		—
Settlements	—		—		(11		)
Balance at December 31	$	1	$	1	$	—