Cash and securities owned by U.S.-based insurance subsidiaries, having a carrying value of approximately $1.12 billion at December 31, 2020, were on deposit as required by regulatory authorities. AFG and its subsidiaries had $308 million in undrawn letters of credit (none of which was collateralized) and similar agreements supporting Neon’s underwriting capacity, which were terminated in connection with the December 2020 sale of 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 quarterly 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.

Each method has particular strengths and weaknesses and 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 the actuary believes produce the most reliable indication for the particular liabilities under review.

The period of time from the event triggering a claim 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 nearly all lines of business, the actuaries rely heavily on the Bornhuetter-Ferguson method for more recent accident periods. As accident years mature and the underlying claim data becomes more credible, more weight is given to the Case Incurred and Paid Development methods. This transition occurs relatively quickly for short-tailed lines, and over a number of years for long-tail lines. 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 3.5% at December 31, 2020 and 4.5% at December 31, 2019, which represents an approximation of long-term investment yields. Because of the limited amount of claims involved, the net impact of discounting did not materially impact AFG’s total liability for unpaid losses and loss adjustment expenses (net reductions from discounting of $9 million and $12 million at December 31, 2020 and 2019, respectively).


	2020		2019		2018
Balance at beginning of period	$	10,232	$	9,741	$	9,678
Less reinsurance recoverables, net of allowance	3,024		2,942		2,957
Net liability at beginning of period	7,208		6,799		6,721
Provision for losses and LAE occurring in the current year	3,398		3,414		3,195
Net increase (decrease) in the provision for claims of prior years:
Special A&E charges	47		18		18
Neon exited lines	19		7		—
Other	(193)		(168)		(210)
Total losses and LAE incurred	3,271		3,271		3,003
Payments for losses and LAE of:
Current year	(990)		(1,076)		(963)
Prior years	(1,766)		(1,790)		(1,639)
Total payments	(2,756)		(2,866)		(2,602)
Reserves of businesses disposed (*)	(449)		—		(319)
Foreign currency translation and other	1		4		(4)
Net liability at end of period	7,275		7,208		6,799
Add back reinsurance recoverables, net of allowance	3,117		3,024		2,942
Gross unpaid losses and LAE included in the balance sheet	$	10,392	$	10,232	$	9,741

The net decrease in the provision for claims of prior years in 2020 reflects (i) lower than expected claim frequency and severity in the aviation, transportation and agricultural businesses (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses and lower than anticipated claim frequency in the executive liability business (within the Specialty casualty sub-segment) and (iii) lower than anticipated claim frequency in the trade credit business and lower than anticipated claim frequency and severity in the financial institutions, fidelity and surety businesses (within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $47 million special charge to increase asbestos and environmental reserves and adverse reserve development of $19 million on Neon’s exited lines of business, (ii) higher than expected claim frequency and severity in general liability contractor claims and the excess and surplus and excess liability businesses and higher than anticipated claim severity in the targeted markets businesses (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 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).


	2020
Unpaid losses and allocated LAE, net of reinsurance:
Specialty
Property and transportation	$	1,196
Specialty casualty	4,302
Specialty financial	247
Other specialty	377
Total Specialty (excluding foreign reserves)	6,122

Other reserves
Reserves for foreign operations	314
A&E reserves	422
Unallocated LAE	361
Other	56
Total other reserves	1,153
Total reserves, net of reinsurance	7,275

Add back reinsurance recoverables, net of allowance	3,117
Gross unpaid losses and LAE included in the balance sheet	$	10,392

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, 2020
	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	811	$	799	$	813	$	827	$	837	$	850	$	846	$	844	$	843	$	843	$	4	138,334
2012			864		857		871		883		894		890		886		881		879		4		143,151
2013					882		870		872		878		878		877		873		871		7		138,925
2014							844		828		817		820		815		808		804		8		133,182
2015									818		784		779		777		777		772		15		134,875
2016											746		716		714		706		694		25		121,116
2017													889		847		843		823		39		140,549
2018															932		902		886		69		129,891
2019																	1,111		1,058		125		152,304
2020																			1,043		349		109,446
																	Total		$	8,673


	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)
	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		% (a)
2011	$	365	$	667	$	727	$	771	$	803	$	821	$	829	$	833	$	834	$	835	99.1	%
2012			572		708		772		816		842		856		882		869		872		99.2	%
2013					438		702		760		804		831		847		858		860		98.7	%
2014							329		632		693		744		770		783		789		98.1	%
2015									359		582		667		707		736		744		96.4	%
2016											294		521		577		618		640		92.2	%
2017													379		640		696		735		89.3	%
2018															396		676		738		83.3	%
2019																	527		823		77.8	%
2020																			461		44.2	%
																	Total		$	7,497
							Unpaid losses and LAE — years 2011 through 2020												1,176
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																20
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	1,196


	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	47.3	%	30.2	%	7.7	%	5.3	%	3.3	%	1.6	%	1.5	%	(0.3	%)	0.2	%	0.1	%
Cumulative	47.3	%	77.5	%	85.2	%	90.5	%	93.8	%	95.4	%	96.9	%	96.6	%	96.8	%	96.9	%


Specialty casualty
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2020
	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	852	$	849	$	839	$	848	$	834	$	828	$	826	$	817	$	810	$	808	$	29	54,961
2012			901		892		885		885		883		877		849		842		833		35		54,752
2013					968		949		945		940		945		926		916		905		53		55,063
2014							1,035		1,008		1,008		1,006		982		967		952		71		56,669
2015									1,081		1,043		1,041		1,042		1,024		1,021		99		57,745
2016											1,131		1,122		1,116		1,101		1,090		164		56,169
2017													1,211		1,221		1,204		1,189		275		56,558
2018															1,277		1,307		1,302		416		58,079
2019																	1,308		1,311		571		56,950
2020																			1,352		844		48,294
																	Total		$	10,763


	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)
	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		% (a)
2011	$	174	$	383	$	522	$	612	$	662	$	694	$	714	$	731	$	745	$	755	93.4	%
2012			173		385		516		621		684		723		745		761		775		93.0	%
2013					182		396		554		666		729		766		797		820		90.6	%
2014							190		412		574		680		755		801		829		87.1	%
2015									178		411		577		702		792		844		82.7	%
2016											186		418		584		713		806		73.9	%
2017													200		422		612		755		63.5	%
2018															210		475		649		49.8	%
2019																	212		455		34.7	%
2020																			188		13.9	%
																	Total		$	6,876
							Unpaid losses and LAE — years 2011 through 2020												3,887
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																415
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	4,302


	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	18.0	%	22.2	%	16.0	%	11.9	%	7.7	%	4.5	%	2.9	%	2.2	%	1.7	%	1.2	%
Cumulative	18.0	%	40.2	%	56.2	%	68.1	%	75.8	%	80.3	%	83.2	%	85.4	%	87.1	%	88.3	%


Specialty financial
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2020
	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	138	$	157	$	155	$	153	$	147	$	144	$	143	$	139	$	137	$	137	$	—	16,371
2012			163		163		151		139		137		135		132		127		126		2		21,092
2013					140		145		137		131		127		126		122		122		4		28,475
2014							146		157		156		153		147		142		137		2		29,458
2015									156		160		158		153		145		138		4		37,615
2016											179		184		187		182		174		8		45,125
2017													212		215		212		208		15		48,692
2018															212		217		219		27		46,487
2019																	194		198		37		41,175
2020																			231		115		24,479
																	Total		$	1,690


	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)
	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		% (a)
2011	$	58	$	111	$	115	$	123	$	130	$	131	$	131	$	132	$	132	$	133	97.1	%
2012			71		104		109		117		121		126		128		126		125		99.2	%
2013					70		100		107		113		117		117		118		118		96.7	%
2014							62		109		125		128		137		139		141		102.9	%
2015									72		110		129		133		132		134		97.1	%
2016											88		141		158		161		163		93.7	%
2017													120		169		186		194		93.3	%
2018															112		163		187		85.4	%
2019																	99		146		73.7	%
2020																			100		43.3	%
																	Total		$	1,441
							Unpaid losses and LAE — years 2011 through 2020												249
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																(2)
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	247


	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	50.6	%	28.0	%	8.4	%	4.0	%	3.1	%	1.5	%	1.0	%	(0.3	%)	(0.4	%)	0.7	%
Cumulative	50.6	%	78.6	%	87.0	%	91.0	%	94.1	%	95.6	%	96.6	%	96.3	%	95.9	%	96.6	%


Other specialty
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2020
	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims (a)
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	39	$	43	$	42	$	43	$	43	$	44	$	44	$	43	$	42	$	41	$	2	—
2012			42		40		39		40		41		39		39		36		37		2		—
2013					46		47		46		47		50		53		58		58		1		—
2014							58		57		59		59		60		61		64		7		—
2015									59		60		63		66		76		82		7		—
2016											61		61		65		71		76		16		—
2017													63		65		70		81		13		—
2018															86		90		92		40		—
2019																	108		107		64		—
2020																			122		102		—
																	Total		$	760


	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)
	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		% (b)
2011	$	12	$	20	$	25	$	28	$	34	$	36	$	37	$	38	$	39	$	39	95.1	%
2012			8		17		21		25		28		30		30		32		33		89.2	%
2013					7		16		22		34		37		44		51		53		91.4	%
2014							13		21		30		36		43		50		53		82.8	%
2015									10		26		31		50		62		69		84.1	%
2016											9		19		31		47		53		69.7	%
2017													10		19		30		52		64.2	%
2018															12		23		32		34.8	%
2019																	9		24		22.4	%
2020																			9		7.4	%
																	Total		$	417
							Unpaid losses and LAE — years 2011 through 2020												343
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																34
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	377


	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	14.8	%	15.7	%	11.6	%	17.1	%	10.2	%	8.4	%	4.8	%	3.8	%	2.6	%	—	%
Cumulative	14.8	%	30.5	%	42.1	%	59.2	%	69.4	%	77.8	%	82.6	%	86.4	%	89.0	%	89.0	%

(a)The amounts shown in Other specialty represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Accordingly, the liability for incurred claims and allocated LAE represents additional reserves held on claims counted in the tables provided for the other sub-segments (above).


Total Specialty Group
(Dollars in Millions)

	Incurred Claims and Allocated LAE, Net of Reinsurance																				As of December 31, 2020
	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)																				Total IBNR Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	1,840	$	1,848	$	1,849	$	1,871	$	1,861	$	1,866	$	1,859	$	1,843	$	1,832	$	1,829	$	35	209,666
2012			1,970		1,952		1,946		1,947		1,955		1,941		1,906		1,886		1,875		43		218,995
2013					2,036		2,011		2,000		1,996		2,000		1,982		1,969		1,956		65		222,463
2014							2,083		2,050		2,040		2,038		2,004		1,978		1,957		88		219,309
2015									2,114		2,047		2,041		2,038		2,022		2,013		125		230,235
2016											2,117		2,083		2,082		2,060		2,034		213		222,410
2017													2,375		2,348		2,329		2,301		342		245,799
2018															2,507		2,516		2,499		552		234,457
2019																	2,721		2,674		797		250,429
2020																			2,748		1,410		182,219
																	Total		$	21,886


	Cumulative Paid Claims and Allocated LAE, Net of Reinsurance
Accident Year	For the Years Ended (2011–2019 is Supplementary Information and Unaudited)
	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		% (a)
2011	$	609	$	1,181	$	1,389	$	1,534	$	1,629	$	1,682	$	1,711	$	1,734	$	1,750	$	1,762	96.3	%
2012			824		1,214		1,418		1,579		1,675		1,735		1,785		1,788		1,805		96.3	%
2013					697		1,214		1,443		1,617		1,714		1,774		1,824		1,851		94.6	%
2014							594		1,174		1,422		1,588		1,705		1,773		1,812		92.6	%
2015									619		1,129		1,404		1,592		1,722		1,791		89.0	%
2016											577		1,099		1,350		1,539		1,662		81.7	%
2017													709		1,250		1,524		1,736		75.4	%
2018															730		1,337		1,606		64.3	%
2019																	847		1,448		54.2	%
2020																			758		27.6	%
																	Total		$	16,231
							Unpaid losses and LAE — years 2011 through 2020												5,655
			Unpaid losses and LAE — 11th year and prior (excluding unallocated LAE)																467
			Unpaid losses and LAE, net of reinsurance (excluding unallocated LAE)																$	6,122


	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	32.2	%	25.5	%	11.9	%	8.8	%	5.6	%	3.2	%	2.2	%	0.9	%	0.9	%	0.7	%
Cumulative	32.2	%	57.7	%	69.6	%	78.4	%	84.0	%	87.2	%	89.4	%	90.3	%	91.2	%	91.9	%

Closed Block of Long-Term Care Insurance Reserves for AFG’s closed block of long-term care insurance were $52 million at December 31, 2020 and $46 million at December 31, 2019, 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 GALIC 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 $56 million

investment in FHLB capital stock at December 31, 2020 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 2020, the FHLB advanced GALIC $200 million and GALIC repaid $165 million to the FHLB. In 2019, GALIC refinanced the terms on advances totaling $610 million. At December 31, 2020 and December 31, 2019, GALIC had $1.13 billion and $1.10 billion, respectively, in outstanding advances from the FHLB (included in annuity benefits accumulated), bearing interest at rates ranging from 0.31% to 1.35% (average rate of 0.53% at December 31, 2020). While these advances must be repaid between 2021 and 2025 ($931 million in 2021 and $200 million in 2025), GALIC has the option to prepay all or a portion on the majority 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 $1.37 billion (included in available for sale fixed maturity securities) at December 31, 2020. Interest credited on the funding agreements, which is included in annuity benefits, was $11 million in 2020, $27 million in 2019 and $20 million in 2018.

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 increases in statutory surplus (through an after-tax reserve credit) of $139 million at December 31, 2020 and $124 million at December 31, 2019, 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, 2020 and 2019, 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, 2020 or 2019.

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 2021 from its insurance subsidiaries without seeking regulatory approval is $705 million. Additional amounts of dividends require regulatory approval.

Holding Company Dividends AFG declared and paid common stock dividends to shareholders totaling $336 million, $446 million and $397 million in 2020, 2019 and 2018, 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, 2020, AFG could pay dividends of approximately $2.0 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.


	2020		2019		2018
Direct premiums written	$	6,862	$	7,044	$	6,626
Reinsurance assumed	225		255		214
Reinsurance ceded	(2,074)		(1,957)		(1,817)
Net written premiums	$	5,013	$	5,342	$	5,023

Direct premiums earned	$	6,846	$	6,848	$	6,472
Reinsurance assumed	237		226		204
Reinsurance ceded	(1,984)		(1,889)		(1,811)
Net earned premiums	$	5,099	$	5,185	$	4,865

Reinsurance recoveries	$	1,522	$	1,404	$	1,249

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 provided supplemental reinsurance coverage up to 95% of $200 million (fully collateralized) for catastrophe losses in excess of $109 million of traditional catastrophe reinsurance (per occurrence and annual aggregate) occurring until January 15, 2021. 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, 2020, 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. In July 2020, AFG purchased an additional $50 million of reinsurance coverage for losses in excess of $100 million. Recoveries from the catastrophe bond apply before calculating losses recoverable from this catastrophe excess of loss reinsurance.

In February 2020, GALIC entered into a flow reinsurance agreement with Commonwealth Annuity and Life Insurance Company (“Commonwealth”), a subsidiary of Global Atlantic Financial Group Limited. Under the terms of the agreement, GALIC cedes certain newly issued traditional fixed and indexed annuities on a quota share coinsurance basis with such quota share percentages being up to 50%. That agreement was effective for policies issued after May 6, 2020. Under reinsurance accounting guidance, this transaction will be accounted for using the deposit method.

In the fourth quarter of 2020, GALIC entered into a block reinsurance agreement with Commonwealth. Under the terms of the agreement, GALIC ceded $5.96 billion of in force traditional fixed and indexed annuities, representing approximately 15% of its in force business, and transferred related investments to Commonwealth. The transaction will be accounted for using the deposit method and the $180 million loss on the transaction was deferred and will be recognized over the expected life of the underlying annuity contracts (7-10 years). In the fourth quarter of 2020, $11 million of GALIC’s deferred loss was amortized (and included in annuity benefits expense).

Under both the flow and block reinsurance agreements, Commonwealth is required to maintain collateral in trusts in excess of amounts owed to GALIC. Under these agreements, $492 million of gross annuity receipts were ceded and there were $206 million of ceded annuity surrenders, benefits and withdrawals. GALIC received $39 million of commission and expense allowances in 2020 and annuity benefits expense was reduced by $46 million.

AFG has reinsured approximately $5.42 billion of its $8.33 billion in face amount of life insurance at December 31, 2020 compared to $6.23 billion of its $9.53 billion in face amount of life insurance at December 31, 2019. Life written premiums ceded were $19 million, $20 million and $22 million for 2020, 2019 and 2018, respectively. Reinsurance recoveries on ceded life policies were $28 million, $32 million and $38 million for 2020, 2019 and 2018, respectively.

Recoverables from Reinsurers and Premiums Receivable See Note A — “Accounting Policies — Credit Losses on Financial Instruments,” for a discussion of new guidance effective January 1, 2020, which impacts the accounting for expected credit losses of recoverables from reinsurers and premiums receivable. AFG reviews the allowance quarterly and makes adjustments as necessary to reflect changes in expected credit losses. Progressions of the 2020 allowance for expected credit losses are shown below (in millions):


	Recoverables from Reinsurers								Premiums Receivable
	Property and Casualty		Fixed & Indexed Annuities		Other		Total		Property and Casualty
Balance at January 1	$	18	$	—	$	—	$	18	$	13
Impact of adoption of new accounting policy	(11)		—		5		(6)		(3)
Provision for expected credit losses	—		—		2		2		1
Write-offs charged against the allowance	—		—		—		—		(1)
Businesses disposed	(1)		—		—		(1)		—
Balance at December 31	$	6	$	—	$	7	$	13	$	10

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, 2020, 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 $11 million, compared to $13 million at December 31, 2019. 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, 2020, 2019 and 2018.