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Investments
 6 Months Ended
Jun. 30, 2017
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at June 30, 2017 and December 31, 2016, consisted of the following (in millions): 
 
June 30, 2017
 
December 31, 2016
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
$
276

 
$
2

 
$
(2
)
 
$
—

 
$
276

 
$
315

 
$
3

 
$
(3
)
 
$
—

 
$
315

States, municipalities and political subdivisions
6,811

 
248

 
(29
)
 
219

 
7,030

 
6,650

 
200

 
(69
)
 
131

 
6,781

Foreign government
136

 
4

 
—

 
4

 
140

 
131

 
5

 
—

 
5

 
136

Residential MBS
3,251

 
323

 
(10
)
 
313

 
3,564

 
3,367

 
281

 
(13
)
 
268

 
3,635

Commercial MBS
1,041

 
44

 
—

 
44

 
1,085

 
1,446

 
49

 
(2
)
 
47

 
1,493

Asset-backed securities
7,107

 
101

 
(18
)
 
83

 
7,190

 
5,962

 
43

 
(46
)
 
(3
)
 
5,959

Corporate and other
17,609

 
658

 
(48
)
 
610

 
18,219

 
15,864

 
473

 
(112
)
 
361

 
16,225

Total fixed maturities
$
36,231

 
$
1,380

 
$
(107
)
 
$
1,273

 
$
37,504

 
$
33,735

 
$
1,054

 
$
(245
)
 
$
809

 
$
34,544

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
860

 
$
227

 
$
(27
)
 
$
200

 
$
1,060

 
$
879

 
$
160

 
$
(23
)
 
$
137

 
$
1,016

Perpetual preferred stocks
478

 
44

 
(1
)
 
43

 
521

 
472

 
21

 
(7
)
 
14

 
486

Total equity securities
$
1,338

 
$
271

 
$
(28
)
 
$
243

 
$
1,581

 
$
1,351

 
$
181

 
$
(30
)
 
$
151

 
$
1,502



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 June 30, 2017 and December 31, 2016 were $169 million and $189 million, respectively. Gross unrealized gains on such securities at June 30, 2017 and December 31, 2016 were $138 million and $130 million, respectively. Gross unrealized losses on such securities were $3 million at both June 30, 2017 and December 31, 2016. These amounts represent the non-credit other-than-temporary impairment charges recorded in AOCI adjusted for subsequent changes in fair values and nearly all 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 June 30, 2017 and December 31, 2016. 
  
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
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
150

 
100
%
 
$
(2
)
 
$
8

 
80
%
States, municipalities and political subdivisions
(26
)
 
1,345

 
98
%
 
(3
)
 
46

 
94
%
Residential MBS
(5
)
 
308

 
98
%
 
(5
)
 
173

 
97
%
Commercial MBS
—

 
74

 
100
%
 
—

 
—

 
—
%
Asset-backed securities
(8
)
 
953

 
99
%
 
(10
)
 
388

 
97
%
Corporate and other
(33
)
 
1,777

 
98
%
 
(15
)
 
256

 
94
%
Total fixed maturities
$
(72
)
 
$
4,607

 
98
%
 
$
(35
)
 
$
871

 
96
%
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(27
)
 
$
204

 
88
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
—

 
28

 
100
%
 
(1
)
 
8

 
89
%
Total equity securities
$
(27
)
 
$
232

 
90
%
 
$
(1
)
 
$
8

 
89
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 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
%


At June 30, 2017, the gross unrealized losses on fixed maturities of $107 million relate to 799 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 74% of the gross unrealized loss and 89% of the 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. In the first six months of 2017, AFG recorded less than $1 million in other-than-temporary impairment charges related to its residential MBS.

In the first six months of 2017, AFG recorded $1 million in other-than-temporary impairment charges related to corporate bonds and other fixed maturities.

AFG recorded $14 million in other-than-temporary impairment charges on common stocks in the first six months of 2017. At June 30, 2017, the gross unrealized losses on common stocks of $27 million relate to 23 securities, none of which has been in an unrealized loss position for more than 12 months.

AFG recorded $6 million in other-than-temporary impairment charges on preferred stocks in the first six months of 2017. At June 30, 2017, the gross unrealized losses on preferred stocks of $1 million relate to 5 securities. The two preferred stocks that have been in an unrealized loss position for 12 months or more are rated investment grade.

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 June 30, 2017.

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):

 
2017
 
2016
Balance at March 31
$
146

 
$
160

Additional credit impairments on:
 
 
 
Previously impaired securities
1

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(2
)
 
(3
)
Balance at June 30
$
145

 
$
157

 
 
 
 
Balance at January 1
$
153

 
$
160

Additional credit impairments on:
 
 
 
Previously impaired securities
1

 
2

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(9
)
 
(5
)
Balance at June 30
$
145

 
$
157



The table below sets forth the scheduled maturities of available for sale fixed maturities as of June 30, 2017 (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
$
1,029

 
$
1,041

 
3
%
After one year through five years
6,297

 
6,565

 
18
%
After five years through ten years
12,910

 
13,305

 
35
%
After ten years
4,596

 
4,754

 
13
%
 
24,832

 
25,665

 
69
%
ABS (average life of approximately 5 years)
7,107

 
7,190

 
19
%
MBS (average life of approximately 4-1/2 years)
4,292

 
4,649

 
12
%
Total
$
36,231

 
$
37,504

 
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 June 30, 2017 or December 31, 2016.

Net Unrealized Gain on Marketable Securities   In addition to adjusting fixed maturity securities and equity 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
 
Net
June 30, 2017
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
1,018

 
$
(356
)
 
$
662

Fixed maturities — all other
255

 
(90
)
 
165

Total fixed maturities
1,273

 
(446
)
 
827

Equity securities
243

 
(85
)
 
158

Total investments
1,516

 
(531
)
 
985

Deferred policy acquisition costs — annuity segment
(421
)
 
147

 
(274
)
Annuity benefits accumulated
(130
)
 
46

 
(84
)
Unearned revenue
18

 
(6
)
 
12

Total net unrealized gain on marketable securities
$
983

 
$
(344
)
 
$
639

 
 
 
 
 
 
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



(*)
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.
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Investment income:
 
 
 
 
 
 
 
Fixed maturities
$
397

 
$
381

 
$
786

 
$
748

Equity securities
19

 
20

 
40

 
39

Equity in earnings of partnerships and similar investments
21

 
4

 
31

 
15

Other
27

 
22

 
47

 
41

Gross investment income
464

 
427

 
904

 
843

Investment expenses
(4
)
 
(4
)
 
(9
)
 
(9
)
Net investment income
$
460

 
$
423

 
$
895

 
$
834



Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions): 
 
Three months ended June 30, 2017
 
Three months ended June 30, 2016
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
11

 
$
(1
)
 
$
10

 
$
262

 
$
17

 
$
(19
)
 
$
(2
)
 
$
584

Equity securities
8

 
(11
)
 
(3
)
 
20

 
9

 
(26
)
 
(17
)
 
11

Mortgage loans and other investments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other (*)
(2
)
 
3

 
1

 
(112
)
 
(3
)
 
6

 
3

 
(253
)
Total pretax
17


(9
)

8


170


23


(39
)

(16
)

342

Tax effects
(6
)
 
3

 
(3
)
 
(60
)
 
(8
)
 
14

 
6

 
(119
)
Noncontrolling interests
—

 
—

 
—

 
—

 
(1
)
 
1

 
—

 
(4
)
Net of tax and noncontrolling interests
$
11


$
(6
)

$
5


$
110


$
14


$
(24
)

$
(10
)

$
219

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017
 
Six months ended June 30, 2016
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
16

 
$
(1
)
 
$
15

 
$
464

 
$
31

 
$
(35
)
 
$
(4
)
 
$
1,037

Equity securities
10

 
(20
)
 
(10
)
 
92

 
32

 
(67
)
 
(35
)
 
(12
)
Mortgage loans and other investments
3

 
—

 
3

 
—

 
—

 
—

 
—

 
—

Other (*)
(3
)
 
6

 
3

 
(195
)
 
(6
)
 
11

 
5

 
(473
)
Total pretax
26

 
(15
)
 
11

 
361

 
57

 
(91
)
 
(34
)
 
552

Tax effects
(9
)
 
5

 
(4
)
 
(126
)
 
(20
)
 
33

 
13

 
(193
)
Noncontrolling interests
—

 
—

 
—

 
—

 
(1
)
 
2

 
1

 
(6
)
Net of tax and noncontrolling interests
$
17

 
$
(10
)
 
$
7

 
$
235

 
$
36

 
$
(56
)
 
$
(20
)
 
$
353



(*)
Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity 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 consisted of the following (in millions): 
  
Six months ended June 30,
2017
 
2016
Fixed maturities:
 
 
 
Gross gains
$
21

 
$
33

Gross losses
(2
)
 
(6
)
Equity securities:
 
 
 
Gross gains
15

 
36

Gross losses
(5
)
 
(3
)