Fair Value Measurements

12 Months Ended

Dec. 31, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Accounting standards for measuring fair value are based on inputs used in estimating fair value. The three levels of the hierarchy are as follows:

Level 1 — Quoted prices for identical assets or liabilities in active markets (markets in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis). AFG’s Level 1 financial instruments consist primarily of publicly traded equity securities, highly liquid government bonds for which quoted market prices in active markets are available and short-term investments of managed investment entities.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar assets or liabilities in inactive markets (markets in which there are few transactions, the prices are not current, price quotations vary substantially over time or among market makers, or in which little information is released publicly); and valuations based on other significant inputs that are observable in active markets. AFG’s Level 2 financial instruments consist primarily of fixed maturity securities and investments of managed investment entities priced using observable inputs. Level 2 inputs include benchmark yields, reported trades, corroborated broker/dealer quotes, issuer spreads and benchmark securities. When non-binding broker quotes can be corroborated by comparison to similar securities priced using observable inputs, they are classified as Level 2.

Level 3 — Valuations derived from market valuation techniques generally consistent with those used to estimate the fair values of Level 2 financial instruments in which one or more significant inputs are unobservable or when the market for a security exhibits significantly less liquidity relative to markets supporting Level 2 fair value measurements. The unobservable inputs may include management’s own assumptions about the assumptions market participants would use based on the best information available at the valuation date. Financial instruments whose fair value is estimated based on non-binding broker quotes or internally developed using significant inputs not based on, or corroborated by, observable market information are classified as Level 3.

The contingent consideration liability related to the 2021 acquisition of Verikai, was measured using a weighted probability-based income approach which includes significant unobservable inputs and is classified as Level 3 and represented the fair value of the up to $50 million in potential acquisition-related contingent consideration. Due to slower than anticipated growth in the business supported by the Verikai technology, the fair value of this liability was reduced to zero in the third quarter of 2023. The $22 million gain from this change in fair value and a goodwill impairment charge of $26 million related to Verikai (see Note H — “Goodwill and Other Intangibles”) is included in realized gain (loss) on subsidiaries in AFG’s Statement of Earnings.

As discussed in Note A — “Accounting Policies — Managed Investment Entities,” AFG has set the carrying value of its CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at separately measured fair values. As a result, the CLO liabilities are categorized within the fair value hierarchy on the same basis (proportionally) as the related CLO assets. Since the portion of the CLO liabilities allocated to Level 3 is derived from the fair value of the CLO assets, these amounts are excluded from the progression of Level 3 financial instruments.

AFG’s management is responsible for the valuation process and uses data from outside sources (including nationally recognized pricing services and broker/dealers) in establishing fair value. AFG’s internal investment professionals are a group of approximately 20 investment professionals whose primary responsibility is to manage AFG’s investment portfolio. These professionals monitor individual investments as well as overall industries and are active in the financial markets on a daily basis. The group is led by AFG’s chief investment officer, who reports directly to one of AFG’s Co-CEOs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with the pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities.

Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
December 31, 2024
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	173	$	—	$	—	$	173
States, municipalities and political subdivisions	—		858		1		859
Foreign government	—		237		—		237
Residential MBS	—		1,988		1		1,989
Commercial MBS	—		51		—		51
Collateralized loan obligations	—		1,237		—		1,237
Other asset-backed securities	—		2,060		296		2,356
Corporate and other	12		3,014		470		3,496
Total AFS fixed maturities	185		9,445		768		10,398
Trading fixed maturities	—		50		26		76
Equity securities	419		40		292		751
Assets of managed investment entities (“MIE”)	419		3,711		10		4,140
Other assets — derivatives	—		1		—		1
Total assets accounted for at fair value	$	1,023	$	13,247	$	1,096	$	15,366
Liabilities:
Contingent consideration — acquisitions	$	—	$	—	$	2	$	2
Liabilities of managed investment entities	402		3,553		10		3,965
Other liabilities — derivatives	—		18		—		18
Total liabilities accounted for at fair value	$	402	$	3,571	$	12	$	3,985
December 31, 2023
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	235	$	1	$	—	$	236
States, municipalities and political subdivisions	—		982		2		984
Foreign government	—		230		—		230
Residential MBS	—		1,656		2		1,658
Commercial MBS	—		74		—		74
Collateralized loan obligations	—		1,686		1		1,687
Other asset-backed securities	—		2,011		351		2,362
Corporate and other	9		2,757		380		3,146
Total AFS fixed maturities	244		9,397		736		10,377
Trading fixed maturities	—		57		—		57
Equity securities	500		33		485		1,018
Assets of managed investment entities	335		4,140		9		4,484
Other assets — derivatives	—		6		—		6
Total assets accounted for at fair value	$	1,079	$	13,633	$	1,230	$	15,942
Liabilities:
Contingent consideration — acquisitions	$	—	$	—	$	2	$	2
Liabilities of managed investment entities	322		3,976		9		4,307
Other liabilities — derivatives	—		22		—		22
Total liabilities accounted for at fair value	$	322	$	3,998	$	11	$	4,331

Approximately 7% of the total assets carried at fair value at December 31, 2024, were Level 3 assets. Internally developed prices for fixed maturities are estimated using a variety of inputs, including appropriate credit spreads over the treasury yield (of a similar duration), trade information and prices of comparable securities and other security specific features (such as optional early redemption). Internally developed Level 3 asset fair values represent approximately $932 million (85%) of the total fair value of Level 3 assets at December 31, 2024. Approximately 69% ($647 million) of these internally developed Level 3 assets are priced using a pricing model that uses a discounted cash flow approach to estimate the fair

value of fixed maturity securities. The credit spread applied by management is the significant unobservable input of the pricing model. In instances where the security is currently callable at par value and the pricing model suggests a higher price, management caps the fair value at par value. The remainder of the internally developed Level 3 investments ($285 million) are priced using internal models or inputs from third parties that are not market observable. Management believes that any justifiable changes in unobservable inputs used to determine internally developed fair values would not have resulted in a material change in AFG’s financial position.

Approximately 11% ($118 million) of the Level 3 assets were investments whose prices were determined based on financial information provided by third party asset managers. Approximately 4% ($46 million) of Level 3 assets were priced using non-binding broker quotes or pricing services, for which there is a lack of transparency as to the inputs used to determine fair value.

Changes in balances of Level 3 financial assets and liabilities carried at fair value during 2024, 2023 and 2022 are presented below (in millions). The transfers into and out of Level 3 were generally due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.

			Total realized/unrealized gains (losses) included in
	Balance at December 31, 2023		Net earnings (loss)		Other comprehensive income (loss)		Purchases and issuances		Sales and settlements		Transfer into Level 3		Transfer out of Level 3		Balance at December 31, 2024
AFS fixed maturities:
U.S. government agency	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal	2		—		—		—		(1)		—		—		1
Residential MBS	2		—		—		—		—		—		(1)		1
Commercial MBS	—		—		—		—		—		—		—		—
Collateralized loan obligations	1		(1)		—		—		—		—		—		—
Other asset-backed securities	351		(1)		8		59		(100)		5		(26)		296
Corporate and other	380		16		6		105		(31)		4		(10)		470
Total AFS fixed maturities	736		14		14		164		(132)		9		(37)		768
Trading fixed maturities	—		2		—		24		—		—		—		26
Equity securities (*)	485		60		—		174		(57)		—		(370)		292
Assets of MIE	9		—		(5)		6		—		—		—		10
Total Level 3 assets	$	1,230	$	76	$	9	$	368	$	(189)	$	9	$	(407)	$	1,096
Contingent consideration — acquisitions	$	(2)	$	(1)	$	—	$	(1)	$	2	$	—	$	—	$	(2)
Total Level 3 liabilities	$	(2)	$	(1)	$	—	$	(1)	$	2	$	—	$	—	$	(2)

(*)Transfers out primarily relate to investments now accounted for using the equity method.

			Total realized/unrealized gains (losses) included in
	Balance at December 31, 2022		Net earnings (loss)		Other comprehensive income (loss)		Purchases and issuances		Sales and settlements		Transfer into Level 3		Transfer out of Level 3		Balance at December 31, 2023
AFS fixed maturities:
U.S. government agency	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal	5		—		—		—		(1)		1		(3)		2
Residential MBS	9		1		(1)		—		(3)		5		(9)		2
Commercial MBS	—		—		—		—		—		—		—		—
Collateralized loan obligations	2		(2)		1		—		—		1		(1)		1
Other asset-backed securities	329		1		6		55		(39)		31		(32)		351
Corporate and other	319		(4)		5		92		(27)		8		(13)		380
Total AFS fixed maturities	664		(4)		11		147		(70)		46		(58)		736
Equity securities	427		15		—		121		(39)		—		(39)		485
Assets of MIE	11		(4)		—		2		—		—		—		9
Total Level 3 assets	$	1,102	$	7	$	11	$	270	$	(109)	$	46	$	(97)	$	1,230
Contingent consideration — acquisitions	$	(25)	$	23	$	—	$	—	$	—	$	—	$	—	$	(2)
Total Level 3 liabilities	$	(25)	$	23	$	—	$	—	$	—	$	—	$	—	$	(2)

			Total realized/unrealized gains (losses) included in
	Balance at December 31, 2021		Net earnings (loss)		Other comprehensive income (loss)		Purchases and issuances		Sales and settlements		Transfer into Level 3		Transfer out of Level 3		Balance at December 31, 2022
AFS fixed maturities:
U.S. government agency	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal	41		—		(3)		—		(1)		4		(36)		5
Residential MBS	14		—		(1)		—		(1)		7		(10)		9
Commercial MBS	—		—		—		—		—		—		—		—
Collateralized loan obligations	—		—		—		—		—		2		—		2
Other asset-backed securities	278		1		(27)		94		(52)		35		—		329
Corporate and other	267		(1)		(22)		129		(39)		20		(35)		319
Total AFS fixed maturities	600		—		(53)		223		(93)		68		(81)		664
Equity securities	313		29		—		112		(24)		4		(7)		427
Assets of MIE	13		(5)		—		3		—		—		—		11
Total Level 3 assets	$	926	$	24	$	(53)	$	338	$	(117)	$	72	$	(88)	$	1,102
Contingent consideration — acquisitions	$	(23)	$	—	$	—	$	(2)	$	—	$	—	$	—	$	(25)
Total Level 3 liabilities	$	(23)	$	—	$	—	$	(2)	$	—	$	—	$	—	$	(25)

Fair Value of Financial Instruments   The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements at December 31 are summarized below (in millions):

	Carrying		Fair Value
	Value		Total		Level 1		Level 2		Level 3
2024
Financial assets:
Cash and cash equivalents	$	1,406	$	1,406	$	1,406	$	—	$	—
Mortgage loans	791		754		—		—		754
Total financial assets not accounted for at fair value	$	2,197	$	2,160	$	1,406	$	—	$	754
Long-term debt	$	1,475	$	1,276	$	—	$	1,273	$	3
Total financial liabilities not accounted for at fair value	$	1,475	$	1,276	$	—	$	1,273	$	3
2023
Financial assets:
Cash and cash equivalents	$	1,225	$	1,225	$	1,225	$	—	$	—
Mortgage loans	643		596		—		—		596
Total financial assets not accounted for at fair value	$	1,868	$	1,821	$	1,225	$	—	$	596
Long-term debt	$	1,475	$	1,345	$	—	$	1,342	$	3
Total financial liabilities not accounted for at fair value	$	1,475	$	1,345	$	—	$	1,342	$	3