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Investments
 9 Months Ended
Sep. 30, 2017
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at September 30, 2017 and December 31, 2016, consisted of the following (in millions): 
 
September 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
$
257

 
$
2

 
$
(2
)
 
$
—

 
$
257

 
$
315

 
$
3

 
$
(3
)
 
$
—

 
$
315

States, municipalities and political subdivisions
6,761

 
259

 
(23
)
 
236

 
6,997

 
6,650

 
200

 
(69
)
 
131

 
6,781

Foreign government
141

 
3

 
—

 
3

 
144

 
131

 
5

 
—

 
5

 
136

Residential MBS
3,062

 
341

 
(7
)
 
334

 
3,396

 
3,367

 
281

 
(13
)
 
268

 
3,635

Commercial MBS
967

 
44

 
(1
)
 
43

 
1,010

 
1,446

 
49

 
(2
)
 
47

 
1,493

Asset-backed securities
7,268

 
143

 
(15
)
 
128

 
7,396

 
5,962

 
43

 
(46
)
 
(3
)
 
5,959

Corporate and other
17,956

 
699

 
(37
)
 
662

 
18,618

 
15,864

 
473

 
(112
)
 
361

 
16,225

Total fixed maturities
$
36,412

 
$
1,491

 
$
(85
)
 
$
1,406

 
$
37,818

 
$
33,735

 
$
1,054

 
$
(245
)
 
$
809

 
$
34,544

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
830

 
$
251

 
$
(27
)
 
$
224

 
$
1,054

 
$
879

 
$
160

 
$
(23
)
 
$
137

 
$
1,016

Perpetual preferred stocks
482

 
44

 
(1
)
 
43

 
525

 
472

 
21

 
(7
)
 
14

 
486

Total equity securities
$
1,312

 
$
295

 
$
(28
)
 
$
267

 
$
1,579

 
$
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 September 30, 2017 and December 31, 2016 were $165 million and $189 million, respectively. Gross unrealized gains on such securities at September 30, 2017 and December 31, 2016 were $141 million and $130 million, respectively. Gross unrealized losses on such securities at September 30, 2017 and December 31, 2016 were $4 million and $3 million, respectively. 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 September 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
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
97

 
100
%
 
$
(2
)
 
$
57

 
97
%
States, municipalities and political subdivisions
(18
)
 
1,099

 
98
%
 
(5
)
 
160

 
97
%
Residential MBS
(2
)
 
163

 
99
%
 
(5
)
 
189

 
97
%
Commercial MBS
(1
)
 
69

 
99
%
 
—

 
—

 
—
%
Asset-backed securities
(7
)
 
828

 
99
%
 
(8
)
 
245

 
97
%
Corporate and other
(24
)
 
1,744

 
99
%
 
(13
)
 
310

 
96
%
Total fixed maturities
$
(52
)
 
$
4,000

 
99
%
 
$
(33
)
 
$
961

 
97
%
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(27
)
 
$
141

 
84
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
—

 
23

 
100
%
 
(1
)
 
13

 
93
%
Total equity securities
$
(27
)
 
$
164

 
86
%
 
$
(1
)
 
$
13

 
93
%
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2017, the gross unrealized losses on fixed maturities of $85 million relate to 735 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 73% of the gross unrealized loss and 88% 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 nine months of 2017, AFG recorded $1 million in other-than-temporary impairment charges related to its residential MBS.

In the first nine months of 2017, AFG recorded $15 million in other-than-temporary impairment charges related to corporate bonds and other fixed maturities.

AFG recorded $42 million in other-than-temporary impairment charges on common stocks in the first nine months of 2017. At September 30, 2017, the gross unrealized losses on common stocks of $27 million relate to 19 securities, none of which has been in an unrealized loss position for more than 12 months.

AFG recorded $7 million in other-than-temporary impairment charges on preferred stocks in the first nine months of 2017. At September 30, 2017, the gross unrealized losses on preferred stocks of $1 million relate to 5 securities, 3 of which have been in an unrealized loss position for 12 months or more and 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 September 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 June 30
$
145

 
$
157

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
3

 
—

Reductions due to sales or redemptions
(1
)
 
(2
)
Balance at September 30
$
147

 
$
155

 
 
 
 
Balance at January 1
$
153

 
$
160

Additional credit impairments on:
 
 
 
Previously impaired securities
1

 
2

Securities without prior impairments
3

 
—

Reductions due to sales or redemptions
(10
)
 
(7
)
Balance at September 30
$
147

 
$
155



The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 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
$
927

 
$
939

 
2
%
After one year through five years
6,521

 
6,787

 
18
%
After five years through ten years
13,074

 
13,527

 
36
%
After ten years
4,593

 
4,763

 
13
%
 
25,115

 
26,016

 
69
%
ABS (average life of approximately 5 years)
7,268

 
7,396

 
19
%
MBS (average life of approximately 4-1/2 years)
4,029

 
4,406

 
12
%
Total
$
36,412

 
$
37,818

 
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 September 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
September 30, 2017
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
1,131

 
$
(396
)
 
$
735

Fixed maturities — all other
275

 
(96
)
 
179

Total fixed maturities
1,406

 
(492
)
 
914

Equity securities
267

 
(94
)
 
173

Total investments
1,673

 
(586
)
 
1,087

Deferred policy acquisition costs — annuity segment
(465
)
 
163

 
(302
)
Annuity benefits accumulated
(141
)
 
49

 
(92
)
Unearned revenue
20

 
(7
)
 
13

Total net unrealized gain on marketable securities
$
1,087

 
$
(381
)
 
$
706

 
 
 
 
 
 
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 September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Investment income:
 
 
 
 
 
 
 
Fixed maturities
$
405

 
$
378

 
$
1,191

 
$
1,126

Equity securities
17

 
20

 
57

 
59

Equity in earnings of partnerships and similar investments
20

 
16

 
51

 
31

Other
33

 
23

 
80

 
64

Gross investment income
475

 
437

 
1,379

 
1,280

Investment expenses
(4
)
 
(4
)
 
(13
)
 
(13
)
Net investment income
$
471

 
$
433

 
$
1,366

 
$
1,267



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 September 30, 2017
 
Three months ended September 30, 2016
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
9

 
$
(15
)
 
$
(6
)
 
$
133

 
$
5

 
$
(2
)
 
$
3

 
$
52

Equity securities
19

 
(29
)
 
(10
)
 
24

 
14

 
(16
)
 
(2
)
 
89

Mortgage loans and other investments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other (*)
(2
)
 
6

 
4

 
(53
)
 
(1
)
 
2

 
1

 
(5
)
Total pretax
26


(38
)

(12
)

104


18


(16
)

2


136

Tax effects
(9
)
 
13

 
4

 
(37
)
 
(7
)
 
5

 
(2
)
 
(48
)
Noncontrolling interests
—

 
—

 
—

 
—

 
—

 
1

 
1

 
(1
)
Net of tax and noncontrolling interests
$
17


$
(25
)

$
(8
)

$
67


$
11


$
(10
)

$
1


$
87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2017
 
Nine months ended September 30, 2016
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
25

 
$
(16
)
 
$
9

 
$
597

 
$
36

 
$
(37
)
 
$
(1
)
 
$
1,089

Equity securities
29

 
(49
)
 
(20
)
 
116

 
46

 
(83
)
 
(37
)
 
77

Mortgage loans and other investments
3

 
—

 
3

 
—

 
—

 
—

 
—

 
—

Other (*)
(5
)
 
12

 
7

 
(248
)
 
(7
)
 
13

 
6

 
(478
)
Total pretax
52

 
(53
)
 
(1
)
 
465

 
75

 
(107
)
 
(32
)
 
688

Tax effects
(18
)
 
18

 
—

 
(163
)
 
(27
)
 
38

 
11

 
(241
)
Noncontrolling interests
—

 
—

 
—

 
—

 
(1
)
 
3

 
2

 
(7
)
Net of tax and noncontrolling interests
$
34

 
$
(35
)
 
$
(1
)
 
$
302

 
$
47

 
$
(66
)
 
$
(19
)
 
$
440



(*)
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): 
  
Nine months ended September 30,
2017
 
2016
Fixed maturities:
 
 
 
Gross gains
$
32

 
$
44

Gross losses
(4
)
 
(8
)
Equity securities:
 
 
 
Gross gains
36

 
49

Gross losses
(6
)
 
(3
)