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Investments (Tables)

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Available for sale fixed maturities at June 30, 2020 and December 31, 2019, consisted of the following (in millions):


	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized						Net Unrealized		Fair Value
														Gains	Losses
June 30, 2020
Fixed maturities:
U.S. Government and government agencies	$	196	$	—	$	14	$	—	$	14	$	210
States, municipalities and political subdivisions	6,373		—		581		(3)		578		6,951
Foreign government	176		—		8		—		8		184
Residential MBS	3,000		5		239		(12)		227		3,222
Commercial MBS	852		—		39		(2)		37		889
Collateralized loan obligations	4,625		20		16		(114)		(98)		4,507
Other asset-backed securities	7,400		14		118		(189)		(71)		7,315
Corporate and other	23,048		22		1,879		(137)		1,742		24,768
Total fixed maturities	$	45,670	$	61	$	2,894	$	(457)	$	2,437	$	48,046

December 31, 2019
Fixed maturities:
U.S. Government and government agencies	$	199	$	—	$	10	$	—	$	10	$	209
States, municipalities and political subdivisions	6,604		—		363		(4)		359		6,963
Foreign government	170		—		3		(1)		2		172
Residential MBS	2,900		—		265		(5)		260		3,160
Commercial MBS	896		—		31		—		31		927
Collateralized loan obligations	4,307		—		10		(37)		(27)		4,280
Other asset-backed securities	6,992		—		156		(20)		136		7,128
Corporate and other	22,456		—		1,231		(21)		1,210		23,666
Total fixed maturities	$	44,524	$	—	$	2,069	$	(88)	$	1,981	$	46,505

Equity securities reported at fair value

Equity securities, which are reported at fair value with holding gains and losses recognized in net earnings, consisted of the following at June 30, 2020 and December 31, 2019 (in millions):


	June 30, 2020												December 31, 2019
						Fair Value							Fair Value
	Actual Cost					over (under)			Actual Cost				over (under)
					Fair Value			Cost					Fair Value		Cost
Common stocks	$	1,178	$	885		$	(293)		$	1,164	$	1,283	$	119
Perpetual preferred stocks	730		717			(13)			640		654		14
Total equity securities carried at fair value	$	1,908	$	1,602		$	(306)		$	1,804	$	1,937	$	133

Available for sale securities in a continuous unrealized loss position

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
June 30, 2020
Fixed maturities:
U.S. Government and government agencies	$	—		$	4		100	%		$	—		$	—		—	%
States, municipalities and political subdivisions	(3)			112			97	%		—			18			100	%
Foreign government	—			2			100	%		—			—			—	%
Residential MBS	(10)			328			97	%		(2)			34			94	%
Commercial MBS	(2)			57			97	%		—			—			—	%
Collateralized loan obligations	(44)			1,732			98	%		(70)			1,510			96	%
Other asset-backed securities	(176)			2,918			94	%		(13)			133			91	%
Corporate and other	(121)			2,826			96	%		(16)			204			93	%
Total fixed maturities	$	(356)		$	7,979		96	%		$	(101)		$	1,899		95	%

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	%

Roll forward of allowance for credit losses on fixed maturity securities

A progression of the allowance for expected credit losses on fixed maturity securities is shown below (in millions):


	Structured Securities (*)		Corporate and Other		Total
Balance at March 31	$	37	$	24	$	61

Initial allowance for purchased securities with credit deterioration	1		—		1
Provision for expected credit losses on securities with no previous allowance	2		4		6
Additions (reductions) to previously recognized expected credit losses	(1)		(6)		(7)
Reductions due to sales or redemptions	—		—		—
Balance at June 30	$	39	$	22	$	61

Balance at January 1	$	—	$	—	$	—
Impact of adoption of new accounting policy	—		—		—
Initial allowance for purchased securities with credit deterioration	1		—		1
Provision for expected credit losses on securities with no previous allowance	39		28		67
Additions (reductions) to previously recognized expected credit losses	(1)		(6)		(7)
Reductions due to sales or redemptions	—		—		—
Balance at June 30	$	39	$	22	$	61

(*)Includes mortgage-backed securities, collateralized loan obligations and other asset-backed securities.

Available for sale fixed maturity securities by contractual maturity date

The table below sets forth the scheduled maturities of available for sale fixed maturities as of June 30, 2020 (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, net (*)			Amount			%
Maturity
One year or less	$	1,851		$	1,874		4	%
After one year through five years	10,604			11,212			23	%
After five years through ten years	14,125			15,485			32	%
After ten years	3,191			3,542			7	%
	29,771			32,113			66	%
Collateralized loan obligations and other ABS (average life of approximately 4 years)	11,991			11,822			25	%
MBS (average life of approximately 3-1/2 years)	3,847			4,111			9	%
Total	$	45,609		$	48,046		100	%

(*)Amortized cost, net of allowance for expected credit losses.

Components of the net unrealized gain on securities, included in Accumulated Other Comprehensive Income

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, 2020
Net unrealized gain on:
Fixed maturities — annuity segment (*)	$	2,031	$	(427)	$	1,604
Fixed maturities — all other	406		(85)		321
Total fixed maturities	2,437		(512)		1,925
Deferred policy acquisition costs — annuity segment	(877)		184		(693)
Annuity benefits accumulated	(269)		57		(212)
Life, accident and health reserves	(1)		—		(1)
Unearned revenue	14		(3)		11
Total net unrealized gain on marketable securities	$	1,304	$	(274)	$	1,030

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

(*)Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.

Net investment income earned and investment expenses incurred

The following table shows (in millions) investment income earned and investment expenses incurred.


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Investment income:
Fixed maturities	$	485	$	478	$	976	$	947
Equity securities:
Dividends	16		22		33		44
Change in fair value (a) (b)	9		7		(3)		18
Equity in earnings of partnerships and similar investments	(54)		45		(29)		66
Other	18		34		46		59
Gross investment income	474		586		1,023		1,134
Investment expenses	(6)		(6)		(11)		(12)
Net investment income (b)	$	468	$	580	$	1,012	$	1,122

(a)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.

(b)Net investment income in the second quarter and first six months of 2020 includes income of less than $1 million and losses of $6 million, respectively, on investments held by the companies that comprise the Neon exited lines due primarily to the $7 million loss in first quarter of 2020 recorded on equity securities that are carried at fair value through net investment income.

Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments

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):


	Three months ended June 30, 2020														Three months ended June 30, 2019
	Realized gains (losses)												Realized gains (losses)
	Before Impairments		Impairment Allowance		Total		Change in Unrealized		Before Impairments		Impairments		Total		Change in Unrealized
Fixed maturities	$	3	$	1	$	4	$	2,343	$	11	$	(3)	$	8	$	789
Equity securities	202		—		202		—		44		—		44		—
Mortgage loans and other investments	—		—		—		—		3		—		3		—
Other (*)	(2)		—		(2)		(1,059)		—		1		1		(349)
Total pretax	203		1		204		1,284		58		(2)		56		440
Tax effects	(43)		—		(43)		(270)		(12)		1		(11)		(92)

Net of tax	$	160	$	1	$	161	$	1,014	$	46	$	(1)	$	45	$	348

	Six months ended June 30, 2020														Six months ended June 30, 2019
	Realized gains (losses)												Realized gains (losses)
	Before Impairments		Impairment Allowance		Total		Change in Unrealized		Before Impairments		Impairments		Total		Change in Unrealized
Fixed maturities	$	32	$	(60)	$	(28)	$	456	$	14	$	(6)	$	8	$	1,642
Equity securities	(333)		—		(333)		—		226		—		226		—
Mortgage loans and other investments	4		—		4		—		3		—		3		—
Other (*)	(5)		15		10		(243)		1		2		3		(719)
Total pretax	(302)		(45)		(347)		213		244		(4)		240		923
Tax effects	63		10		73		(45)		(51)		1		(50)		(194)

Net of tax	$	(239)	$	(35)	$	(274)	$	168	$	193	$	(3)	$	190	$	729

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

Holding gains (losses) on equity securities still held

AFG recorded net holding gains (losses) on equity securities during the second quarter and first six months of 2020 and 2019 on securities that were still owned at June 30, 2020 and June 30, 2019 as follows (in millions):


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Included in realized gains (losses)	$	161	$	38	$	(340)	$	193
Included in net investment income	10		7		4		18
	$	171	$	45	$	(336)	$	211

Gross realized gains and losses on available for sale fixed maturity and equity security investments

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):


	Six months ended June 30,
			2020			2019
Gross gains	$	56		$	11
Gross losses	(31)			(9)