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Investments
 12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Investments Investments

Available for sale fixed maturities at December 31 consisted of the following (in millions): 
 
2019
 
2018
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
$
199

 
$
10

 
$
—

 
$
10

 
$
209

 
$
235

 
$
1

 
$
(3
)
 
$
(2
)
 
$
233

States municipalities and political subdivisions
6,604

 
363

 
(4
)
 
359

 
6,963

 
6,825

 
169

 
(55
)
 
114

 
6,939

Foreign government
170

 
3

 
(1
)
 
2

 
172

 
140

 
2

 
—

 
2

 
142

Residential MBS
2,900

 
265

 
(5
)
 
260

 
3,160

 
2,476

 
277

 
(9
)
 
268

 
2,744

Commercial MBS
896

 
31

 
—

 
31

 
927

 
905

 
17

 
(2
)
 
15

 
920

Collateralized loan obligations
4,307

 
10

 
(37
)
 
(27
)
 
4,280

 
4,350

 
1

 
(73
)
 
(72
)
 
4,278

Other asset-backed securities
6,992

 
156

 
(20
)
 
136

 
7,128

 
5,431

 
129

 
(27
)
 
102

 
5,533

Corporate and other
22,456

 
1,231

 
(21
)
 
1,210

 
23,666

 
21,475

 
167

 
(434
)
 
(267
)
 
21,208

Total fixed maturities
$
44,524

 
$
2,069

 
$
(88
)
 
$
1,981

 
$
46,505

 
$
41,837

 
$
763

 
$
(603
)
 
$
160

 
$
41,997



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, 2019 and December 31, 2018 were $118 million and $140 million, respectively. Gross unrealized gains on such securities at December 31, 2019 and December 31, 2018 were $114 million and $119 million, respectively. Gross unrealized losses on such securities at December 31, 2019 and December 31, 2018 were $1 million and $4 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 primarily to residential MBS.

Equity securities, which are reported at fair value with holding gains and losses recognized in net earnings, consisted of the following at December 31 (in millions):
 
2019
 
2018
 
 
 
 
 
Fair Value
 
 
 
 
 
Fair Value
 
Actual
 
 
 
over (under)
 
Actual
 
 
 
over (under)
 
Cost
 
Fair Value
 
Cost
 
Cost
 
Fair Value
 
Cost
Common stocks
$
1,164

 
$
1,283

 
$
119

 
$
1,241

 
$
1,148

 
$
(93
)
Perpetual preferred stocks
640

 
654

 
14

 
705

 
666

 
(39
)
Total equity securities carried at fair value
$
1,804

 
$
1,937

 
$
133

 
$
1,946

 
$
1,814

 
$
(132
)


The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities by investment category and length of time that individual securities have been in a continuous unrealized loss position at the following balance sheet dates.
 
  
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
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
16

 
100
%
 
$
—

 
$
11

 
100
%
 
States, municipalities and political subdivisions
(3
)
 
254

 
99
%
 
(1
)
 
82

 
99
%
 
Foreign government
(1
)
 
70

 
99
%
 
—

 
—

 
—
%
 
Residential MBS
(4
)
 
509

 
99
%
 
(1
)
 
69

 
99
%
 
Commercial MBS
—

 
17

 
100
%
 
—

 
—

 
—
%
 
Collateralized loan obligations
(11
)
 
1,284

 
99
%
 
(26
)
 
1,728

 
99
%
 
Other asset-backed securities
(12
)
 
1,211

 
99
%
 
(8
)
 
123

 
94
%
 
Corporate and other
(13
)
 
1,100

 
99
%
 
(8
)
 
211

 
96
%
 
Total fixed maturities
$
(44
)
 
$
4,461

 
99
%
 
$
(44
)
 
$
2,224

 
98
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
41

 
100
%
 
$
(3
)
 
$
120

 
98
%
 
States, municipalities and political subdivisions
(23
)
 
1,497

 
98
%
 
(32
)
 
902

 
97
%
 
Foreign government
—

 
18

 
100
%
 
—

 
4

 
100
%
 
Residential MBS
(4
)
 
279

 
99
%
 
(5
)
 
139

 
97
%
 
Commercial MBS
(1
)
 
147

 
99
%
 
(1
)
 
30

 
97
%
 
Collateralized loan obligations
(61
)
 
3,540

 
98
%
 
(12
)
 
197

 
94
%
 
Other asset-backed securities
(16
)
 
1,866

 
99
%
 
(11
)
 
432

 
98
%
 
Corporate and other
(306
)
 
10,378

 
97
%
 
(128
)
 
2,078

 
94
%
 
Total fixed maturities
$
(411
)
 
$
17,766

 
98
%
 
$
(192
)
 
$
3,902

 
95
%


At December 31, 2019, the gross unrealized losses on fixed maturities of $88 million relate to 649 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 74% of the gross unrealized loss and 93% 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 interest 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 2019, 2018 and 2017, AFG recorded other-than-temporary impairment charges related to its residential MBS of $1 million, $6 million and $1 million, respectively.

In 2019, AFG recorded other-than-temporary impairment charges of $17 million on third-party collateralized loan obligations and $11 million on corporate bonds. Other-than-temporary impairment charges on fixed maturities other than residential MBS were $20 million in 2018 and $19 million in 2017. In addition, AFG recorded $4 million in other-than-temporary impairment charges in 2017 on investments that are included in other investments on the balance sheet.

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, 2019.

As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities previously classified as “available for sale” are required to be carried at fair value through net earnings instead of accumulated other comprehensive income and therefore are no longer evaluated for other-than-temporary impairment. In 2017, AFG recorded other-than-temporary impairment charges on equity securities classified as available for sale of $64 million.

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):
 
2019
 
2018
 
2017
Balance at January 1
$
142

 
$
145

 
$
153

Additional credit impairments on:
 
 
 
 
 
Previously impaired securities
1

 
1

 
1

Securities without prior impairments
—

 
1

 
3

Reductions due to sales or redemptions
(9
)
 
(5
)
 
(12
)
Balance at December 31
$
134

 
$
142

 
$
145



The table below sets forth the scheduled maturities of available for sale fixed maturities as of December 31, 2019 (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
$
1,764

 
$
1,793

 
4
%
After one year through five years
10,613

 
11,044

 
24
%
After five years through ten years
13,513

 
14,419

 
31
%
After ten years
3,539

 
3,754

 
8
%
 
29,429

 
31,010

 
67
%
Collateralized loan obligations and other ABS (average life of approximately 4 years)
11,299

 
11,408

 
24
%
MBS (average life of approximately 4-1/2 years)
3,796

 
4,087

 
9
%
Total
$
44,524

 
$
46,505

 
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, 2019 or 2018.

Net Unrealized Gain on Marketable Securities   In addition to adjusting 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
 
Net
December 31, 2019
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
1,611

 
$
(338
)
 
$
1,273

Fixed maturities — all other
370

 
(78
)
 
292

Total fixed maturities
1,981

 
(416
)
 
1,565

Deferred policy acquisition costs — annuity segment
(681
)
 
143

 
(538
)
Annuity benefits accumulated
(219
)
 
46

 
(173
)
Life, accident and health reserves
(1
)
 
—

 
(1
)
Unearned revenue
11

 
(2
)
 
9

Total net unrealized gain on marketable securities
$
1,091

 
$
(229
)
 
$
862

 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
101

 
$
(21
)
 
$
80

Fixed maturities — all other
59

 
(13
)
 
46

Total fixed maturities
160

 
(34
)
 
126

Deferred policy acquisition costs — annuity segment
(42
)
 
9

 
(33
)
Annuity benefits accumulated
(14
)
 
3

 
(11
)
Unearned revenue
1

 
—

 
1

Total net unrealized gain on marketable securities
$
105

 
$
(22
)
 
$
83



(*)
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.
 
2019
 
2018
 
2017
Investment income:
 
 
 
 
 
Fixed maturities
$
1,915

 
$
1,742

 
$
1,607

Equity securities:
 
 
 
 
 
Dividends
85

 
79

 
73

Change in fair value (*)
39

 
22

 
6

Equity in earnings of partnerships and similar investments
154

 
161

 
64

Other
132

 
112

 
102

Gross investment income
2,325

 
2,116

 
1,852

Investment expenses
(22
)
 
(22
)
 
(21
)
Net investment income
$
2,303

 
$
2,094

 
$
1,831


(*)
Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on equity securities classified as “trading” under previous guidance and on a small portfolio of limited partnership and similar investments that do not qualify for the equity method of accounting.
Realized gains (losses) and changes in unrealized appreciation (depreciation) included in AOCI related to fixed maturity and equity security investments are summarized as follows (in millions):

 
2019
 
2018
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
26

 
$
(29
)
 
$
(3
)
 
$
1,821

 
$
6

 
$
(26
)
 
$
(20
)
 
$
(1,181
)
Equity securities
277

 
—

 
277

 
—

 
(265
)
 
—

 
(265
)
 
—

Mortgage loans and other investments
3

 
—

 
3

 
—

 
1

 
—

 
1

 
—

Other (*)
—

 
10

 
10

 
(835
)
 
11

 
7

 
18

 
502

Total pretax
306

 
(19
)
 
287

 
986

 
(247
)
 
(19
)
 
(266
)
 
(679
)
Tax effects
(64
)
 
4

 
(60
)
 
(207
)
 
52

 
4

 
56

 
143

Net of tax
$
242

 
$
(15
)
 
$
227

 
$
779

 
$
(195
)
 
$
(15
)
 
$
(210
)
 
$
(536
)

 
 
 
2017
 
 
 
 
 
Realized gains (losses)
 
 
 
 
 
 
 
 
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
 
 
 
 
 
 
 
 
$
17

 
$
(20
)
 
$
(3
)
 
$
532

Equity securities
 
 
 
 
 
 
 
 
70

 
(64
)
 
6

 
128

Mortgage loans and other investments
 
 
 
 
 
 
 
 
(6
)
 
(4
)
 
(10
)
 
—

Other (*)
 
 
 
 
 
 
 
 
(3
)
 
15

 
12

 
(219
)
Total pretax
 
 
 
 
 
 
 
 
78

 
(73
)
 
5

 
441

Tax effects:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reclassify impact of U.S. corporate tax rate change
 
 
 
 
 
 
 
 
—

 
—

 
—

 
149

Other
 
 
 
 
 
 
 
 
(27
)
 
25

 
(2
)
 
(154
)
Total tax effects
 
 
 
 
 
 
 
 
(27
)
 
25

 
(2
)
 
(5
)
Net of tax
 
 
 
 
 
 
 
 
$
51

 
$
(48
)
 
$
3

 
$
436

(*)
Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.

As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings. AFG recorded net holding gains (losses) on equity securities during 2019 and 2018 on securities that were still owned at December 31 as follows (in millions):
 
2019
 
2018
Included in realized gains (losses)
$
169

 
$
(279
)
Included in net investment income
38

 
22

 
$
207

 
$
(257
)


Gross realized gains and losses (excluding impairment write-downs and mark-to-market of derivatives) on available for sale fixed maturity investment transactions consisted of the following (in millions):
 
2019
 
2018
 
2017
Gross gains
$
35

 
$
22

 
$
43

Gross losses
(19
)
 
(14
)
 
(20
)


During 2017, AFG recorded gross gains of $87 million and gross losses of $17 million on available for sale equity securities.