Cash and securities owned by U.S.-based insurance subsidiaries, having a carrying value of approximately $1.04 billion at December 31, 2019, were on deposit as required by regulatory authorities. In addition, $217 million was on deposit in support of AFG’s underwriting activities at Lloyd’s. At December 31, 2019, AFG and its subsidiaries had $414 million in undrawn letters of credit (none of which was collateralized) and similar agreements supporting the underwriting capacity of its U.K.-based Lloyd’s insurer, Neon.

Property and Casualty Insurance Reserves Estimating the liability for unpaid losses and loss adjustment expenses (“LAE”) is inherently judgmental and is influenced by factors that are subject to significant variation. Determining the liability is a complex process incorporating input from many areas of the Company including actuarial, underwriting, pricing, claims and operations management.

The process used to determine the total reserve for liabilities involves estimating the ultimate incurred losses and LAE, adjusted for amounts already paid on the claims. The IBNR reserve is derived by first estimating the ultimate unpaid reserve liability and subtracting case reserves for loss and LAE.

In determining management’s best estimate of the ultimate liability, management (with the assistance of Company actuaries) considers items such as the effect of inflation on medical, hospitalization, material, repair and replacement costs, the nature and maturity of lines of insurance, general economic trends and the legal environment. In addition, historical trends adjusted for changes in underwriting standards, policy provisions, product mix and other factors are analyzed using actuarial reserve development techniques. Weighing all of the factors, the management team determines a single or “point” estimate that it records as its best estimate of the ultimate liability. Ranges of loss reserves are not developed by Company actuaries. This reserve analysis and review is completed each quarter and for almost every business within AFG’s property and casualty insurance sub-segments.

Each review includes in-depth analysis of several hundred subdivisions of the business, employing multiple actuarial techniques. For each subdivision, actuaries use informed, professional judgment to adjust these techniques as necessary to respond to specific conditions in the data or within the business.

Management believes that each method has particular strengths and weaknesses and that no single estimation method is most accurate in all situations. When applied to a particular group of claims, the relative strengths and weaknesses of each method can change over time based on the facts and circumstances. Ultimately, the estimation methods chosen are those which management believes produce the most reliable indication for the particular liabilities under review.

The period of time from the occurrence of a loss through the settlement of the liability is referred to as the “tail”. Generally, the same actuarial methods are considered for both short-tail and long-tail lines of business because most of them work properly for both. The methods are designed to incorporate the effects of the differing length of time to settle particular claims. For short-tail lines, management tends to give more weight to the Case Incurred and Paid Development methods, although the various methods tend to produce similar results. For long-tail lines, more judgment is involved, and more weight may be given to the Bornhuetter-Ferguson method. Liability claims for long-tail lines are more susceptible to litigation and can be significantly affected by changing contract interpretation and the legal environment. Therefore, the estimation of loss reserves for these classes is more complex and subject to a higher degree of variability.

The level of detail in which data is analyzed varies among the different lines of business. Data is generally analyzed by major product or by coverage within product, using countrywide data; however, in some situations, data may be reviewed by state or region. Appropriate segmentation of the data is determined based on data credibility, homogeneity of development patterns, mix of business, and other actuarial considerations.

Within each business, results of individual methods are reviewed, supplementary statistical information is analyzed, and data from underwriting, operating and claim management are considered in deriving management’s best estimate of the ultimate liability. This estimate may be the result of one method, a weighted average of several methods, or a judgmental selection as the management team determines is appropriate.

The liability for losses and LAE for a very limited number of claims with long-term scheduled payments under certain workers’ compensation policies has been discounted at 4.5% at both December 31, 2019 and 2018, which represents an approximation of long-term investment yields. Because of the limited amount of claims involved, the net impact of

The following table provides an analysis of changes in the liability for losses and loss adjustment expenses over the past three years (in millions):



	2019			2018			2017
Balance at beginning of period	$	9,741		$	9,678		$	8,563
Less reinsurance recoverables, net of allowance	2,942			2,957			2,302
Net liability at beginning of period	6,799			6,721			6,261
Provision for losses and LAE occurring in the current year	3,414			3,195			3,019
Net increase (decrease) in the provision for claims of prior years:
Special A&E charges	18			18			89
Neon exited lines charge	7			—			(18		)
Other	(168		)	(210		)	(135		)
Total losses and LAE incurred	3,271			3,003			2,955
Payments for losses and LAE of:
Current year	(1,076		)	(963		)	(942		)
Prior years	(1,790		)	(1,639		)	(1,586		)
Total payments	(2,866		)	(2,602		)	(2,528		)
Reserves of businesses disposed (*)	—			(319		)	—
Foreign currency translation and other	4			(4		)	33
Net liability at end of period	7,208			6,799			6,721
Add back reinsurance recoverables, net of allowance	3,024			2,942			2,957
Gross unpaid losses and LAE included in the balance sheet	$	10,232		$	9,741		$	9,678

The net decrease in the provision for claims of prior years in 2019 reflects (i) lower than expected claim frequency and severity at National Interstate and lower than expected losses in the crop business (all within the Property and transportation sub-segment), (ii) lower than anticipated claim frequency and severity in the workers’ compensation businesses (within the Specialty casualty sub-segment), and (iii) lower than expected claim frequency and severity in the surety and financial institutions businesses and lower than anticipated claim severity in the foreign credit business (all within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $18 million special charge to increase asbestos and environmental reserves and adverse reserve development of $7 million on Neon’s exited lines of business, (ii) higher than expected claim severity in the excess and surplus lines businesses and higher than expected claim frequency in product liability contractor claims (all within the Specialty casualty sub-segment), and (iii) net adverse reserve development related to business outside the Specialty group that AFG no longer writes.

The net decrease in the provision for claims of prior years in 2018 reflects (i) lower than expected losses in the crop business and lower than expected claim severity at National Interstate (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses, lower than expected emergence in assumed 2017 property catastrophe losses at Neon and lower than expected claim severity in the executive liability business (within the Specialty casualty sub-segment) and (iii) lower than expected claim frequency and severity in the surety business, lower than expected claim severity in the fidelity business and lower than expected claim frequency in run-off businesses (within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $18 million special charge to increase asbestos and environmental reserves and (ii) higher than expected claim frequency and severity in the Singapore branch and aviation operations (within the Property and transportation sub-segment).

The net decrease in the provision for claims of prior years in 2017 reflects (i) lower than expected losses in the crop and equine businesses and lower than expected claim severity in the property and inland marine and transportation businesses (all within the Property and transportation sub-segment), (ii) favorable reserve development of $18 million on Neon’s exited lines, as well as additional favorable development on ongoing lines of business within Neon, recorded in connection with the reinsurance to close agreement entered into in December 2017 for the 2015 and prior years of account, lower than anticipated claim severity in the workers’ compensation businesses and lower than expected losses in the executive liability business (all within the Specialty casualty sub-segment) and (iii) lower than anticipated claim severity in the fidelity business and lower than expected claim frequency and severity in the surety business (both within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $89 million special charge

to increase asbestos and environmental reserves, (ii) higher than expected claim frequency and severity in the ocean marine business (within the Property and transportation sub-segment), (iii) higher than anticipated claim severity in the targeted markets and general liability businesses and higher than anticipated severity in New York contractor claims (all within the Specialty casualty sub-segment) and (iv) a charge to adjust to the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of businesses in 1998 (included in Other specialty sub-segment).

In December 2017, the Neon Lloyd’s syndicate entered into a reinsurance to close transaction for the 2015 and prior years of account with StarStone Underwriting Limited, a subsidiary of Enstar Group Limited, which was effective as of December 31, 2017 and settled in early 2018. In the Lloyd’s market, a reinsurance to close transaction transfers the responsibility for discharging all of the liabilities that attach to the transferred year of account plus the right to any income due to the closing year of account in return for a premium. This transaction provided Neon with finality on its legacy business. As a result of the reinsurance to close agreement, Neon was able to better estimate its ultimate liability for the 2015 and prior years of account as of December 31, 2017, resulting in favorable development of $42 million, of which $24 million related to its ongoing lines of business (included in Specialty casualty) and $18 million related to its exited lines of business.

A reconciliation of incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid losses and LAE, with separate disclosure of reinsurance recoverables on unpaid claims is shown below (in millions):



	2019
Unpaid losses and allocated LAE, net of reinsurance:
Specialty
Property and transportation	$	1,171
Specialty casualty	4,056
Specialty financial	221
Other specialty	313
Total Specialty (excluding foreign reserves)	5,761

Other reserves
Reserves for foreign operations:
Neon Lloyd’s business	357
Other subsidiaries	289
A&E reserves	383
Unallocated LAE	361
Other	57
Total other reserves	1,447
Total reserves, net of reinsurance	7,208

Add back reinsurance recoverables, net of allowance	3,024
Gross unpaid losses and LAE included in the balance sheet	$	10,232

The following claims development tables and associated disclosures related to short-duration insurance contracts are prepared by sub-segment within the property and casualty insurance business for the most recent 10 accident years. AFG determines its claim counts at the claimant or policy feature level depending on the particular facts and circumstances of the underlying claim. While the methodology is generally consistent within each sub-segment, there are minor differences between and within the sub-segments. The methods used to summarize claim counts have not changed significantly over the time periods reported in the tables below.



Property and transportation
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2019
	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	679	$	639	$	645	$	652	$	655	$	655	$	660	$	657	$	655	$	655	$	3	138,105
2011			811		799		813		827		837		850		846		844		843		5		138,309
2012					864		857		871		883		894		890		886		881		8		143,122
2013							882		870		872		878		878		877		873		10		138,864
2014									844		828		817		820		815		808		15		132,971
2015											818		784		779		777		777		23		134,618
2016													746		716		714		706		46		120,884
2017															889		847		843		80		140,067
2018																	932		902		119		128,428
2019																			1,111		288		138,508
																	Total		$	8,399



	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		% (a)
2010	$	316	$	486	$	535	$	596	$	626	$	637	$	642	$	647	$	649	$	650	99.2	%
2011			365		667		727		771		803		821		829		833		834		98.9	%
2012					572		708		772		816		842		856		882		869		98.6	%
2013							438		702		760		804		831		847		858		98.3	%
2014									329		632		693		744		770		783		96.9	%
2015											359		582		667		707		736		94.7	%
2016													294		521		577		618		87.5	%
2017															379		640		696		82.6	%
2018																	396		676		74.9	%
2019																			527		47.4	%
																	Total		$	7,247
							Unpaid losses and LAE — years 2010 through 2019												1,152
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																19
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	1,171



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited)
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Annual	47.1	%	29.8	%	7.7	%	6.0	%	3.6	%	1.8	%	1.5	%	(0.1	%)	0.2	%	0.2	%
Cumulative	47.1	%	76.9	%	84.6	%	90.6	%	94.2	%	96.0	%	97.5	%	97.4	%	97.6	%	97.8	%



Specialty casualty
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2019
	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	871	$	887	$	888	$	867	$	880	$	870	$	868	$	866	$	855	$	846	$	28	56,716
2011			852		849		839		848		834		828		826		817		810		37		54,755
2012					901		892		885		885		883		877		849		842		53		54,682
2013							968		949		945		940		945		926		916		77		54,929
2014									1,035		1,008		1,008		1,006		982		967		98		56,445
2015											1,081		1,043		1,041		1,042		1,024		126		57,427
2016													1,131		1,122		1,116		1,101		236		56,000
2017															1,211		1,221		1,204		372		56,073
2018																	1,277		1,307		548		57,081
2019																			1,308		773		51,198
																	Total		$	10,325



	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		% (a)
2010	$	191	$	412	$	560	$	645	$	700	$	736	$	757	$	771	$	783	$	798	94.3	%
2011			174		383		522		612		662		694		714		731		745		92.0	%
2012					173		385		516		621		684		723		745		761		90.4	%
2013							182		396		554		666		729		766		797		87.0	%
2014									190		412		574		680		755		801		82.8	%
2015											178		411		577		702		792		77.3	%
2016													186		418		584		713		64.8	%
2017															200		422		612		50.8	%
2018																	210		475		36.3	%
2019																			212		16.2	%
																	Total		$	6,706
							Unpaid losses and LAE — years 2010 through 2019												3,619
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																437
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	4,056



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited)
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Annual	18.7	%	22.9	%	16.4	%	11.5	%	7.3	%	4.3	%	2.7	%	1.9	%	1.6	%	1.8	%
Cumulative	18.7	%	41.6	%	58.0	%	69.5	%	76.8	%	81.1	%	83.8	%	85.7	%	87.3	%	89.1	%



Specialty financial
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2019
	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	138	$	145	$	132	$	132	$	135	$	133	$	130	$	127	$	126	$	126	$	1	21,925
2011			138		157		155		153		147		144		143		139		137		—		16,369
2012					163		163		151		139		137		135		132		127		1		21,076
2013							140		145		137		131		127		126		122		4		28,460
2014									146		157		156		153		147		142		5		29,436
2015											156		160		158		153		145		10		37,562
2016													179		184		187		182		18		45,054
2017															212		215		212		27		48,421
2018																	212		217		30		46,198
2019																			194		77		35,369
																	Total		$	1,604



	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019			% (a)
2010	$	61	$	93	$	104	$	122	$	132	$	130	$	128	$	126	$	126	$	126		100.0	%
2011			58		111		115		123		130		131		131		132		132			96.4	%
2012					71		104		109		117		121		126		128		126			99.2	%
2013							70		100		107		113		117		117		118			96.7	%
2014									62		109		125		128		137		139			97.9	%
2015											72		110		129		133		132			91.0	%
2016													88		141		158		161			88.5	%
2017															120		169		186			87.7	%
2018																	112		163			75.1	%
2019																			99			51.0	%
																	Total		$	1,382
							Unpaid losses and LAE — years 2010 through 2019												222
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																(1		)
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	221



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited)
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Annual	50.5	%	27.7	%	7.9	%	5.4	%	4.2	%	0.9	%	0.2	%	(0.8	%)	—	%	—	%
Cumulative	50.5	%	78.2	%	86.1	%	91.5	%	95.7	%	96.6	%	96.8	%	96.0	%	96.0	%	96.0	%



Other specialty
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2019
	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims (a)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	36	$	39	$	40	$	39	$	40	$	40	$	40	$	40	$	40	$	39	$	1	—
2011			39		43		42		43		43		44		44		43		42		1		—
2012					42		40		39		40		41		39		39		36		2		—
2013							46		47		46		47		50		53		58		3		—
2014									58		57		59		59		60		61		6		—
2015											59		60		63		66		76		3		—
2016													61		61		65		71		15		—
2017															63		65		70		23		—
2018																	86		90		53		—
2019																			108		87		—
																	Total		$	651



	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		% (b)
2010	$	8	$	14	$	21	$	24	$	27	$	33	$	35	$	36	$	37	$	37	94.9	%
2011			12		20		25		28		34		36		37		38		39		92.9	%
2012					8		17		21		25		28		30		30		32		88.9	%
2013							7		16		22		34		37		44		51		87.9	%
2014									13		21		30		36		43		50		82.0	%
2015											10		26		31		50		62		81.6	%
2016													9		19		31		47		66.2	%
2017															10		19		30		42.9	%
2018																	12		23		25.6	%
2019																			9		8.3	%
																	Total		$	380
							Unpaid losses and LAE — years 2010 through 2019												271
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																42
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	313



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited)
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Annual	16.6	%	16.5	%	13.2	%	14.9	%	10.5	%	9.8	%	4.9	%	3.5	%	2.5	%	—	%
Cumulative	16.6	%	33.1	%	46.3	%	61.2	%	71.7	%	81.5	%	86.4	%	89.9	%	92.4	%	92.4	%



Total Specialty Group
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2019
	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	1,724	$	1,710	$	1,705	$	1,690	$	1,710	$	1,698	$	1,698	$	1,690	$	1,676	$	1,666	$	33	216,746
2011			1,840		1,848		1,849		1,871		1,861		1,866		1,859		1,843		1,832		43		209,433
2012					1,970		1,952		1,946		1,947		1,955		1,941		1,906		1,886		64		218,880
2013							2,036		2,011		2,000		1,996		2,000		1,982		1,969		94		222,253
2014									2,083		2,050		2,040		2,038		2,004		1,978		124		218,852
2015											2,114		2,047		2,041		2,038		2,022		162		229,607
2016													2,117		2,083		2,082		2,060		315		221,938
2017															2,375		2,348		2,329		502		244,561
2018																	2,507		2,516		750		231,707
2019																			2,721		1,225		225,075
																	Total		$	20,979



	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2010–2018 is Supplementary Information and Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		% (a)
2010	$	576	$	1,005	$	1,220	$	1,387	$	1,485	$	1,536	$	1,562	$	1,580	$	1,595	$	1,611	96.7	%
2011			609		1,181		1,389		1,534		1,629		1,682		1,711		1,734		1,750		95.5	%
2012					824		1,214		1,418		1,579		1,675		1,735		1,785		1,788		94.8	%
2013							697		1,214		1,443		1,617		1,714		1,774		1,824		92.6	%
2014									594		1,174		1,422		1,588		1,705		1,773		89.6	%
2015											619		1,129		1,404		1,592		1,722		85.2	%
2016													577		1,099		1,350		1,539		74.7	%
2017															709		1,250		1,524		65.4	%
2018																	730		1,337		53.1	%
2019																			847		31.1	%
																	Total		$	15,715
							Unpaid losses and LAE — years 2010 through 2019												5,264
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																497
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	5,761



	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited)
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Annual	32.6	%	25.7	%	12.1	%	8.9	%	5.6	%	3.1	%	2.1	%	0.8	%	0.9	%	1.0	%
Cumulative	32.6	%	58.3	%	70.4	%	79.3	%	84.9	%	88.0	%	90.1	%	90.9	%	91.8	%	92.8	%

Closed Block of Long-Term Care Insurance Reserves for AFG’s closed block of long-term care insurance were $46 million at December 31, 2019 and $45 million at December 31, 2018, net of reinsurance recoverables and excluding the impact of unrealized gains on securities. AFG’s remaining outstanding long-term care policies have level premiums and are guaranteed renewable. Premium rates can potentially be increased in reaction to adverse experience; however, any rate increases would require regulatory approval.

FHLB Funding Agreements Great American Life Insurance Company (“GALIC”), a wholly-owned annuity subsidiary, is a member of the Federal Home Loan Bank of Cincinnati (“FHLB”). The FHLB makes advances and provides other banking services to member institutions. Members are required to purchase stock in the FHLB in addition to maintaining collateral deposits that back any funds advanced. GALIC’s $52 million investment in FHLB capital stock at December 31, 2019 is included in other investments at cost. Membership in the FHLB provides the annuity operations with an additional source of liquidity. These advances further the FHLB’s mission of improving access to housing by increasing liquidity in the residential mortgage-backed securities market.

In 2019, GALIC refinanced the terms on advances totaling $610 million. In the fourth quarter of 2018, GALIC refinanced the terms on a $40 million advance and the FHLB advanced GALIC $225 million. At both December 31, 2019 and December 31, 2018, GALIC had $1.10 billion in outstanding advances from the FHLB (included in annuity benefits accumulated), bearing interest at rates ranging from 0.13% to 0.21% over LIBOR (average rate of 1.95% at December 31, 2019). While these advances must be repaid between 2020 and 2021 ($310 million in 2020 and $786 million in 2021), GALIC has the option to prepay all or a portion of the advances. GALIC has invested the proceeds from the advances in fixed maturity securities with similar expected lives as the advances for the purpose of earning a spread over the interest payments due to the FHLB. The advances on these agreements are collateralized by fixed maturity investments, which have a total fair value of $1.27 billion (included in available for sale fixed maturity securities) at December 31, 2019. Interest credited on the funding agreements, which is included in annuity benefits, was $27 million in 2019, $20 million in 2018 and $14 million in 2017.

Statutory Information AFG’s U.S.-based insurance subsidiaries are required to file financial statements with state insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). Net earnings and capital and surplus on a statutory basis for the insurance subsidiaries were as follows (in millions):

In the fourth quarter of 2018, GALIC, AFG’s primary annuity subsidiary, entered into a reinsurance treaty with Hannover Life Reassurance Company of America that transfers the risk of certain surrender activity in GALIC’s fixed-indexed annuity business. This treaty meets the statutory risk transfer rules and resulted in a $510 million increase in statutory surplus (through an after-tax reserve credit), which is reflected in the life insurance companies capital and surplus in the table above. Under GAAP, this transaction does not meet the GAAP insurance risk transfer criteria and did not have a material impact on AFG’s financial statements.

The National Association of Insurance Commissioners’ (“NAIC”) model law for risk-based capital (“RBC”) applies to both life and property and casualty insurance companies. RBC formulas determine the amount of capital that an insurance company needs so that it has an acceptable expectation of not becoming financially impaired. Companies below specific trigger points or ratios are subject to regulatory action. At December 31, 2019 and 2018, the capital ratios of all AFG insurance companies substantially exceeded the RBC requirements. AFG’s insurance companies did not use any prescribed or permitted statutory accounting practices that differed from the NAIC statutory accounting practices at December 31, 2019 or 2018.

Payments of dividends by AFG’s insurance companies are subject to various state laws that limit the amount of dividends that can be paid. Under applicable restrictions, the maximum amount of dividends available to AFG in 2020 from its insurance subsidiaries without seeking regulatory approval is $852 million. Additional amounts of dividends require regulatory approval.

Holding Company Dividends AFG declared and paid common stock dividends to shareholders totaling $446 million, $397 million and $421 million in 2019, 2018 and 2017, respectively. Currently, there are no regulatory restrictions on AFG’s retained earnings or net earnings that materially impact its ability to pay dividends. Based on shareholders’ equity at December 31, 2019, AFG could pay dividends in excess of $2.5 billion without violating its most restrictive debt covenant. However, the payment of future dividends will be at the discretion of AFG’s Board of Directors and will be dependent on many factors including AFG’s financial condition and results of operations, the capital requirements of its insurance subsidiaries, and rating agency commitments.

Reinsurance In the normal course of business, AFG’s insurance subsidiaries cede reinsurance to other companies to diversify risk and limit maximum loss arising from large claims. However, AFG remains liable to its insureds regardless of whether a reinsurer is able to meet its obligations. The following table shows (in millions) (i) amounts deducted from property and casualty written and earned premiums in connection with reinsurance ceded, (ii) written and earned premiums included in income for reinsurance assumed and (iii) reinsurance recoveries, which represent ceded losses and loss adjustment expenses.



	2019			2018			2017
Direct premiums written	$	7,044		$	6,626		$	6,310
Reinsurance assumed	255			214			192
Reinsurance ceded	(1,957		)	(1,817		)	(1,751		)
Net written premiums	$	5,342		$	5,023		$	4,751

Direct premiums earned	$	6,848		$	6,472		$	6,112
Reinsurance assumed	226			204			157
Reinsurance ceded	(1,889		)	(1,811		)	(1,690		)
Net earned premiums	$	5,185		$	4,865		$	4,579

Reinsurance recoveries	$	1,404		$	1,249		$	1,379

In June 2017, AFG’s property and casualty insurance subsidiaries entered into a reinsurance agreement to obtain supplemental catastrophe protection through a catastrophe bond structure with Riverfront Re Ltd. (“Riverfront”). The reinsurance agreement provides supplemental reinsurance coverage up to 95% of $200 million (fully collateralized) for catastrophe losses in excess of $134 million of traditional catastrophe reinsurance (per occurrence and annual aggregate) occurring until December 31, 2020. In connection with the reinsurance agreement, Riverfront issued notes to unrelated investors for the full amount of coverage provided under the reinsurance agreement. Through December 31, 2019, AFG’s incurred catastrophe losses have not reached the level of attachment for the catastrophe bond structure. Riverfront is a variable interest entity in which AFG does not have a variable interest because the variability in Riverfront’s results will be absorbed entirely by the investors in Riverfront. Accordingly, Riverfront is not consolidated in AFG’s financial statements and the reinsurance agreement is accounted for as ceded reinsurance. AFG’s cost for this coverage is approximately $11 million per year.

AFG has reinsured approximately $6.23 billion of its $9.53 billion in face amount of life insurance at December 31, 2019 compared to $7.69 billion of its $10.82 billion in face amount of life insurance at December 31, 2018. Life written premiums ceded were $20 million, $22 million and $28 million for 2019, 2018 and 2017, respectively. Reinsurance recoveries on ceded life policies were $32 million, $38 million and $35 million for 2019, 2018 and 2017, respectively.

Fixed Annuities For certain products, the liability for “annuity benefits accumulated” includes reserves for excess benefits expected to be paid on future deaths and annuitizations guaranteed withdrawal benefits and accrued persistency and premium bonuses. The liabilities included in AFG’s Balance Sheet for these benefits, excluding the impact of unrealized gains on securities, were as follows at December 31 (in millions):

Variable Annuities At December 31, 2019, the aggregate guaranteed minimum death benefit value (assuming every variable annuity policyholder died on that date) on AFG’s variable annuity policies exceeded the fair value of the underlying variable annuities by $13 million, compared to $35 million at December 31, 2018. Death benefits paid in excess of the variable annuity account balances were less than $1 million in each of the last three years ended December 31, 2019, 2018 and 2017.