Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

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 (21% in 2019 and 2018 and 35% in 2017) to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):



	2019					2018					2017
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	1,108				$	639				$	724

Income taxes at statutory rate	$	233		21	%	$	134		21	%	$	253		35	%
Effect of:
Tax exempt interest	(14		)	(1	%)	(13		)	(2	%)	(23		)	(3	%)
Stock-based compensation	(8		)	(1	%)	(8		)	(1	%)	(16		)	(2	%)
Dividend received deduction	(4		)	—	%	(4		)	(1	%)	(8		)	(1	%)
Adjustment to prior year taxes	(3		)	—	%	(8		)	(1	%)	(4		)	(1	%)
Employee stock ownership plan dividend paid deduction	(2		)	—	%	(3		)	(1	%)	(5		)	(1	%)
Change in valuation allowance (excluding change in tax rate)	17			2	%	11			2	%	(7		)	(1	%)
Nondeductible expenses	8			1	%	7			1	%	6			1	%
Foreign operations	4			—	%	(2		)	—	%	21			3	%
Neon restructuring	—			—	%	—			—	%	(56		)	(8	%)
Change in U.S corporate tax rate	—			—	%	—			—	%	83			11	%
Other	8			—	%	8			1	%	3			1	%
Provision for income taxes as shown in the statement of earnings	$	239		22	%	$	122		19	%	$	247		34	%

Components of income tax provision (credit)

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



	2019			2018			2017
Current taxes:
Federal	$	250		$	196		$	153
State	10			8			6
Foreign	2			—			—
Deferred taxes:
Federal	(23		)	(82		)	5
Impact of change in U.S. corporate tax rate	—			—			83
Total Federal deferred taxes	(23		)	(82		)	88
Provision for income taxes	$	239		$	122		$	247

Summary of operating loss carryforwards

For income tax purposes, AFG and its subsidiaries had the following carryforwards available at December 31, 2019 (in millions):

(*)

£231 million

Components of deferred tax assets and liabilities

The significant components of deferred tax assets and liabilities included in AFG’s Balance Sheet at December 31 were as follows (in millions):



	2019									2018
	Excluding Unrealized Gains			Impact of Unrealized Gains			Total			Excluding Unrealized Gains			Impact of Unrealized Gains			Total
Deferred tax assets:
Federal net operating loss carryforwards	$	19		$	—		$	19		$	23		$	—		$	23
Foreign underwriting losses	118			—			118			93			—			93
Insurance claims and reserves	829			46			875			740			3			743
Employee benefits	93			—			93			88			—			88
Other, net	45			(2		)	43			44			—			44
Total deferred tax assets before valuation allowance	1,104			44			1,148			988			3			991
Valuation allowance against deferred tax assets	(140		)	—			(140		)	(119		)	—			(119		)
Total deferred tax assets	964			44			1,008			869			3			872
Deferred tax liabilities:
Investment securities	(140		)	(416		)	(556		)	(36		)	(34		)	(70		)
Deferred policy acquisition costs	(293		)	143			(150		)	(300		)	9			(291		)
Insurance claims and reserves transition liability	(93		)	—			(93		)	(110		)	—			(110		)
Real estate, property and equipment	(35		)	—			(35		)	(36		)	—			(36		)
Total deferred tax liabilities	(561		)	(273		)	(834		)	(482		)	(25		)	(507		)
Net deferred tax asset (liability)	$	403		$	(229	)	$	174		$	387		$	(22	)	$	365

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):



	2019		2018		2017
Balance at January 1	$	—	$	—	$	1
Additions for tax positions of prior years	—		—		—
Reductions for tax positions of prior years	—		—		—
Additions for tax positions of current year	—		—		—
Settlements	—		—		(1		)
Balance at December 31	$	—	$	—	$	—

Operating Loss – U.S.

Operating Loss – United Kingdom

indefinite