Income Taxes (Tables)

12 Months Ended

Dec. 31, 2020

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


	2020				2019				2018
	Amount		% of EBT		Amount		% of EBT		Amount		% of EBT
Earnings before income taxes (“EBT”)	$	848			$	1,108			$	639

Income taxes at statutory rate	$	178	21	%	$	233	21	%	$	134	21	%
Effect of:
Tax exempt interest	(12)		(1	%)	(14)		(1	%)	(13)		(2	%)
Stock-based compensation	(4)		—	%	(8)		(1	%)	(8)		(1	%)
Dividend received deduction	(3)		—	%	(4)		—	%	(4)		(1	%)
Adjustment to prior year taxes	(1)		—	%	(3)		—	%	(8)		(1	%)
Employee stock ownership plan dividend paid deduction	(2)		—	%	(2)		—	%	(3)		(1	%)
Tax benefit related to sale of Neon	(72)		(8	%)	—		—	%	—		—	%
Change in valuation allowance	(117)		(14	%)	17		2	%	11		2	%
Foreign operations	149		18	%	4		—	%	(2)		—	%
Nondeductible expenses	5		1	%	8		1	%	7		1	%

Other	6		(2	%)	8		—	%	8		1	%
Provision for income taxes as shown in the statement of earnings	$	127	15	%	$	239	22	%	$	122	19	%

Components of income tax provision (credit)

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


	2020		2019		2018
Current taxes:
Federal	$	101	$	250	$	196
State	6		10		8
Foreign	3		2		—
Deferred taxes:
Federal	17		(23)		(82)
Provision for income taxes	$	127	$	239	$	122

Summary of operating loss carryforwards

For income tax purposes, AFG and its subsidiaries had the following carryforwards available at December 31, 2020 (in millions):


	Expiring	Amount
Operating Loss – U.S.	2021 - 2022	$	69
Operating Loss – United Kingdom	indefinite	34		(*)

(*)£25 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):


	2020						2019
	Excluding Unrealized Gains		Impact of Unrealized Gains		Total		Excluding Unrealized Gains		Impact of Unrealized Gains		Total
Deferred tax assets:
Federal net operating loss carryforwards	$	15	$	—	$	15	$	19	$	—	$	19
Foreign underwriting losses	6		—		6		118		—		118
Capital loss carryforwards	7		—		7		—		—		—
Insurance claims and reserves	772		68		840		829		46		875
Employee benefits	104		—		104		93		—		93
Other, net	50		(2)		48		45		(2)		43
Total deferred tax assets before valuation allowance	954		66		1,020		1,104		44		1,148
Valuation allowance against deferred tax assets	(29)		—		(29)		(140)		—		(140)
Total deferred tax assets	925		66		991		964		44		1,008
Deferred tax liabilities:
Investment securities	(167)		(596)		(763)		(140)		(416)		(556)
Deferred policy acquisition costs	(267)		196		(71)		(293)		143		(150)
Insurance claims and reserves transition liability	(77)		—		(77)		(93)		—		(93)
Real estate, property and equipment	(37)		—		(37)		(35)		—		(35)
Total deferred tax liabilities	(548)		(400)		(948)		(561)		(273)		(834)
Net deferred tax asset (liability)	$	377	$	(334)	$	43	$	403	$	(229)	$	174