10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2011

Commission File No. 1-13653

AMERICAN FINANCIAL GROUP, INC.

Incorporated under	IRS Employer I.D.
the Laws of Ohio	No. 31-1544320

One East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2121

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company o

Indicate by check mark whether the Registrant is a shell company. Yes o No þ

As of November 1, 2011, there were 98,728,074 shares of the Registrant’s Common Stock outstanding, excluding 14.9 million shares owned by subsidiaries.

AMERICAN FINANCIAL GROUP, INC.

TABLE OF CONTENTS

	Page
Part I — Financial Information
Item 1 — Financial Statements:
Consolidated Balance Sheet		2
Consolidated Statement of Earnings		3
Consolidated Statement of Changes in Equity		4
Consolidated Statement of Cash Flows		5
Notes to Consolidated Financial Statements		6
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3 — Quantitative and Qualitative Disclosure of Market Risk		52
Item 4 — Controls and Procedures		52
Part II — Other Information
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 6 — Exhibits		53
Signatures		54
Exhibit 12
Exhibit 31(a)
Exhibit 31(b)
Exhibit 31(c)
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

AMERICAN FINANCIAL GROUP, INC. 10-Q

PART I

ITEM I — FINANCIAL STATEMENTS

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

(Dollars In Millions)

	September 30,		December 31,
	2011		2010
Assets:
Cash and cash equivalents	$	991	$	1,099
Investments:
Fixed maturities, available for sale at fair value (amortized cost — $20,297 and $18,490)		21,552		19,328
Fixed maturities, trading at fair value		441		393
Equity securities, at fair value (cost — $775 and $458)		930		690
Mortgage loans		384		468
Policy loans		253		264
Real estate and other investments		403		428
Total cash and investments		24,954		22,670
Recoverables from reinsurers		2,908		2,964
Prepaid reinsurance premiums		570		422
Agents’ balances and premiums receivable		866		535
Deferred policy acquisition costs		1,127		1,244
Assets of managed investment entities		2,439		2,537
Other receivables		797		674
Variable annuity assets (separate accounts)		515		616
Other assets		768		606
Goodwill		186		186
Total assets	$	35,130	$	32,454
Liabilities and Equity:
Unpaid losses and loss adjustment expenses	$	6,485	$	6,413
Unearned premiums		1,764		1,534
Annuity benefits accumulated		14,788		12,905
Life, accident and health reserves		1,695		1,650
Payable to reinsurers		651		320
Liabilities of managed investment entities		2,229		2,323
Long-term debt		937		952
Variable annuity liabilities (separate accounts)		515		616
Other liabilities		1,446		1,121
Total liabilities		30,510		27,834
Shareholders’ equity:
Common Stock, no par value
- 200,000,000 shares authorized
- 98,506,233 and 105,168,366 shares outstanding		99		105
Capital surplus		1,114		1,166
Retained earnings:
Appropriated — managed investment entities		150		197
Unappropriated		2,539		2,523
Accumulated other comprehensive income, net of tax		563		479
Total shareholders’ equity		4,465		4,470
Noncontrolling interests		155		150
Total equity		4,620		4,620
Total liabilities and equity	$	35,130	$	32,454

2

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

(In Millions, Except Per Share Data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues:
Property and casualty insurance premiums	$	835		$	736		$	2,043		$	1,887
Life, accident and health premiums		107			112			324			340
Investment income		310			296			916			885
Realized gains (losses) on:
Securities (*)		8			57			27			72
Subsidiaries		—			(22	)		(3	)		(22	)
Income (loss) of managed investment entities:
Investment income		27			23			78			68
Gain (loss) on change in fair value of assets/liabilities		1			(4	)		(54	)		(44	)
Other income		47			57			136			155
Total revenues		1,335			1,255			3,467			3,341
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses		549			446			1,303			1,052
Commissions and other underwriting expenses		230			222			649			633
Annuity benefits		142			114			383			340
Life, accident and health benefits		90			90			275			279
Annuity and supplemental insurance acquisition expenses		48			47			153			150
Interest charges on borrowed money		21			21			63			57
Expenses of managed investment entities		17			15			53			38
Other operating and general expenses		83			92			269			279
Total costs and expenses		1,180			1,047			3,148			2,828
Operating earnings before income taxes		155			208			319			513
Provision for income taxes		48			82			126			199
Net earnings, including noncontrolling interests		107			126			193			314
Less: Net earnings (loss) attributable to noncontrolling interests		11			(6	)		(41	)		(32	)
Net Earnings Attributable to Shareholders	$	96		$	132		$	234		$	346
Earnings Attributable to Shareholders per Common Share:
Basic	$	.96		$	1.22		$	2.28		$	3.14
Diluted	$	.94		$	1.21		$	2.24		$	3.11
Average number of Common Shares:
Basic		99.7			108.2			102.3			110.1
Diluted		101.3			109.5			104.1			111.4
Cash dividends per Common Share	$	.1625		$	.1375		$	.4875		$	.4125
(*) Consists of the following:
Realized gains before impairments	$	18		$	68		$	68		$	120
Losses on securities with impairment		(6	)		(8	)		(23	)		(42	)
Non-credit portion recognized in other comprehensive income (loss)		(4	)		(3	)		(18	)		(6	)
Impairment charges recognized in earnings		(10	)		(11	)		(41	)		(48	)
Total realized gains (losses) on securities	$	8		$	57		$	27		$	72

3

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(Dollars in Millions)

				Shareholders’ Equity
				Common Stock									Accum.						Noncon-
	Common			and Capital			Retained Earnings						Other Comp						trolling			Total
	Shares			Surplus			Appro.			Unappro.			Inc.(Loss)			Total			Interests			Equity
Balance at December 31, 2010		105,168,366		$	1,271		$	197		$	2,523		$	479		$	4,470		$	150		$	4,620
Net earnings		—			—			—			234			—			234			(41	)		193
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on securities		—			—			—			—			91			91			4			95
Change in foreign currency translation		—			—			—			—			(8	)		(8	)		(1	)		(9	)
Change in unrealized pension and other postretirement benefits		—			—			—			—			1			1			—			1
Total comprehensive income (loss)																	318			(38	)		280
Allocation of losses of managed investment entities		—			—			(47	)		—			—			(47	)		47			—
Dividends on Common Stock		—			—			—			(50	)		—			(50	)		—			(50	)
Shares issued:
Exercise of stock options		758,075			19			—			—			—			19			—			19
Other benefit plans		371,392			8			—			—			—			8			—			8
Dividend reinvestment plan		11,686			—			—			—			—			—			—			—
Stock-based compensation expense		—			10			—			—			—			10			—			10
Shares acquired and retired		(7,803,286	)		(95	)		—			(168	)		—			(263	)		—			(263	)
Other		—			—			—			—			—			—			(4	)		(4	)
Balance at September 30, 2011		98,506,233		$	1,213		$	150		$	2,539		$	563		$	4,465		$	155		$	4,620
Balance at December 31, 2009		113,386,343		$	1,344		$	—		$	2,274		$	163		$	3,781		$	138		$	3,919
Cumulative effect of accounting change		—			—			261			4			(4	)		261			—			261
Net earnings		—			—			—			346			—			346			(32	)		314
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on securities		—			—			—			—			440			440			6			446
Change in foreign currency translation		—			—			—			—			7			7			2			9
Change in unrealized pension and other postretirement benefits		—			—			—			—			1			1			—			1
Total comprehensive income (loss)																	794			(24	)		770
Allocation of losses of managed investment entities		—			—			(37	)		—			—			(37	)		37			—
Dividends on Common Stock		—			—			—			(46	)		—			(46	)		—			(46	)
Shares issued:
Exercise of stock options		1,312,149			27			—			—			—			27			—			27
Other benefit plans		388,094			6			—			—			—			6			—			6
Dividend reinvestment plan		12,652			—			—			—			—			—			—			—
Stock-based compensation expense		—			9			—			—			—			9			—			9
Shares acquired and retired		(7,360,110	)		(87	)		—			(114	)		—			(201	)		—			(201	)
Other		—			(1	)		—			—			—			(1	)		1			—
Balance at September 30, 2010		107,739,128		$	1,298		$	224		$	2,464		$	607		$	4,593		$	152		$	4,745

4

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(In Millions)

	Nine months ended
	September 30,
	2011			2010
Operating Activities:
Net earnings, including noncontrolling interests	$	193		$	314
Adjustments:
Depreciation and amortization		139			141
Annuity benefits		383			340
Realized gains on investing activities		(23	)		(57	)
Net purchases of trading securities		(44	)		(2	)
Deferred annuity and life policy acquisition costs		(197	)		(157	)
Change in:
Reinsurance and other receivables		(519	)		256
Other assets		(99	)		13
Insurance claims and reserves		347			(195	)
Payable to reinsurers		331			(24	)
Other liabilities		154			101
Other operating activities, net		(4	)		51
Net cash provided by operating activities		661			781
Investing Activities:
Purchases of:
Fixed maturities		(4,062	)		(3,737	)
Equity securities		(365	)		(183	)
Mortgage loans		(132	)		(143	)
Real estate, property and equipment		(82	)		(62	)
Subsidiaries		—			(128	)
Proceeds from:
Maturities and redemptions of fixed maturities		1,455			1,474
Repayments of mortgage loans		227			35
Sales of fixed maturities		865			1,215
Sales of equity securities		88			10
Sales of real estate, property and equipment		4			3
Managed investment entities:
Purchases of investments		(1,085	)		(617	)
Proceeds from sales and redemptions of investments		1,170			658
Cash and cash equivalents of businesses acquired		—			95
Other investing activities, net		(14	)		6
Net cash used in investing activities		(1,931	)		(1,374	)
Financing Activities:
Annuity receipts		2,468			1,661
Annuity surrenders, benefits and withdrawals		(971	)		(914	)
Additional long-term borrowings		2			158
Reductions of long-term debt		(17	)		(36	)
Retirement of managed investment entities’ liabilities		(60	)		(42	)
Issuances of Common Stock		19			27
Repurchases of Common Stock		(263	)		(201	)
Cash dividends paid on Common Stock		(50	)		(46	)
Other financing activities, net		34			6
Net cash provided by financing activities		1,162			613
Net Change in Cash and Cash Equivalents		(108	)		20
Cash and cash equivalents at beginning of period		1,099			1,120
Cash and cash equivalents at end of period	$	991		$	1,140

5

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO NOTES

A. Accounting Policies

B. Acquisition

C. Segments of Operations

D. Fair Value Measurements

E. Investments

F. Derivatives

G. Deferred Policy Acquisition Costs

H. Managed Investment Entities

I. Goodwill and Other Intangibles

J. Long-Term Debt

K. Shareholders’ Equity

L. Income Taxes

M. Contingencies

N. Condensed Consolidating Information

A. Accounting Policies

Basis of Presentation The accompanying consolidated financial statements for American Financial Group, Inc. (“AFG”) and subsidiaries are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles.

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to September 30, 2011, and prior to the filing date of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Recent Accounting Standards In October 2010, the FASB issued Accounting Standards Update 2010-26 to address diversity in practice regarding which costs related to issuing or renewing insurance contracts qualify for deferral. To qualify for deferral, the guidance specifies that a cost must be directly related to the successful acquisition of an insurance contract. The guidance is effective January 1, 2012, with retrospective application permitted, but not required. Management expects to adopt the new standard retrospectively and currently estimates that adoption will reduce AFG’s deferred policy acquisition costs balance at September 30, 2011, and December 31, 2010, by 15% to 20% and shareholders’ equity at those dates by approximately 3%.

In June 2011, the FASB issued Accounting Standards Update 2011-05, which eliminates the option to report other comprehensive income in the statement of changes in equity. Instead, the guidance requires that all other comprehensive income (non-owner changes in shareholders’ equity) be presented either in a single continuous statement of comprehensive income, which would contain net income and other comprehensive income sections and replace the statement of earnings, or in a separate statement of other comprehensive income immediately following the statement of earnings. The guidance is effective January 1, 2012, with retrospective application required. The guidance relates solely to the presentation of other comprehensive income and therefore does not change the measurement of net income, other comprehensive income or earnings per share. Accordingly, the adoption of this guidance will have no impact on AFG’s results of operations or financial position.

6

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. In the first nine months of 2011, AFG did not have any significant nonrecurring fair value measurements of nonfinancial assets and liabilities.

Investments Fixed maturity and equity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in AFG’s Balance Sheet. Fixed maturity and equity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the interest method; mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Gains or losses on securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses)) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: 1) the amount related to credit losses (recorded in earnings) and 2) the amount related to all other factors (recorded in other comprehensive income (loss)). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the Statement of Earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value and consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related call options (included in other investments) designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products. Changes in the fair value of derivatives are included in earnings.

Goodwill Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually.

7

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (a) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (b) amounts paid to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

Certain annuity and supplemental insurance subsidiaries cede life insurance policies to a third party on a funds withheld basis whereby the subsidiaries retain the assets (securities) associated with the reinsurance contracts. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. These reinsurance contracts are considered to contain embedded derivatives (that must be adjusted to fair value) because the yield on the payables is based on specific blocks of the ceding companies’ assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolios of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to these transactions are classified as “trading.” The adjustment to fair value on the embedded derivatives offsets the investment income recorded on the adjustment to fair value of the related trading portfolios.

Deferred Policy Acquisition Costs (“DPAC”) Policy acquisition costs (principally commissions, premium taxes and other marketing and underwriting expenses) related to the production of new business are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses, unamortized acquisition costs and policy maintenance costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and variable annuity policy charges, less death and annuitization benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses).

8

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.

DPAC related to annuities is also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains on marketable securities, a component of accumulated other comprehensive income in AFG’s Balance Sheet.

DPAC includes the present value of future profits on business in force of annuity and supplemental insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

Managed Investment Entities A company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, six collateralized loan obligations (“CLOs”) that are VIEs (see Note H — “Managed Investment Entities”). Both the management fees (payment of which are subordinate to other obligations of the CLOs) and the investments in the CLOs are considered variable interests. AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) it has exposure to CLO losses (through its investments in the CLO debt tranches) and the right to receive benefits (through its subordinated management fees and returns on its investments), both of which could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. As permitted under accounting guidance adopted on January 1, 2010, the assets and liabilities of the CLOs are included in AFG’s Balance Sheet at fair value. Prior to adoption of this guidance, the CLOs were not consolidated. Upon adoption of the guidance, the $261 million excess of fair value of the CLOs’ assets over the fair value of the liabilities was recorded in AFG’s Balance Sheet as appropriated retained earnings — managed investment entities, representing the cumulative effect of adopting the new guidance that ultimately will inure to the benefit of the CLO debt holders.

AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The net gain or loss from accounting for the CLO assets and liabilities at fair value subsequent to January 1, 2010, is separately presented in AFG’s Statement of Earnings. CLO earnings attributable to AFG’s shareholders represent the change in fair value of AFG’s investments in the CLOs and management fees earned. All other CLO earnings (losses) are not attributable to AFG’s shareholders and will ultimately inure to the benefit of the other CLO debt holders. As a result, such CLO earnings (losses) are included in net earnings (loss) attributable to noncontrolling interests in AFG’s Statement of Earnings and in appropriated retained earnings — managed investment entities in the Balance Sheet. As the CLOs approach maturity (2016 to 2022), it is expected that losses attributable to noncontrolling interests will reduce appropriated retained earnings towards zero as the fair values of the assets and liabilities converge and the CLO assets are used to pay the CLO debt.

9

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Unpaid Losses and Loss Adjustment Expenses The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon (a) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (b) estimates received from ceding reinsurers and insurance pools and associations; (c) estimates of unreported losses (including possible development on known claims) based on past experience; (d) estimates based on experience of expenses for investigating and adjusting claims; and (e) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the Statement of Earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to expense and decreases for surrender charges are credited to other income.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liability for EDAR is accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and variable annuity policy charges, and unearned revenues once they are recognized as income.

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

Variable Annuity Assets and Liabilities Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

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AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests For Balance Sheet purposes, noncontrolling interests represents the interests of shareholders other than AFG in consolidated entities. In the Statement of Earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities.

Income Taxes Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. Deferred tax assets are recognized if it is more likely than not that a benefit will be realized.

AFG records a liability for the inherent uncertainty in quantifying its income tax provisions. Related interest and penalties are recognized as a component of tax expense.

Stock-Based Compensation All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated “fair value” at the date of grant. AFG uses the Black-Scholes pricing model to measure the fair value of employee stock options. See Note K - “Shareholders’ Equity” for further information.

Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

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Earnings Per Share Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted earnings per share includes adjustments to weighted average common shares related to stock-based compensation plans: third quarter 2011 and 2010 — 1.6 million and 1.3 million; first nine months of 2011 and 2010 — 1.8 million and 1.3 million, respectively.

AFG’s weighted average diluted shares outstanding excludes the following anti-dilutive potential common shares related to stock compensation plans: third quarter 2011 and 2010 — 2.6 million and 3.1 million; first nine months of 2011 and 2010 — 2.3 million and 4.0 million, respectively. Adjustments to net earnings attributable to shareholders in the calculation of diluted earnings per share were nominal in the 2011 and 2010 periods.

Statement of Cash Flows For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

B. Acquisition

Vanliner Group, Inc. (“Vanliner”) In July 2010, National Interstate (“NATL”), a 52%-owned subsidiary of AFG, completed the acquisition of Vanliner, a market leader in providing insurance for the moving and storage industry, for $114 million (including post-closing adjustments). Vanliner’s moving and storage insurance premiums associated with policies in force as of December 31, 2010, totaled approximately $90 million, representing approximately 78% of its total business.

C. Segments of Operations

AFG manages its business as three segments: (i) property and casualty insurance, (ii) annuity and supplemental insurance and (iii) other, which includes holding company costs and operations of the managed investment entities.

AFG reports its property and casualty insurance business in the following Specialty sub-segments: (i) Property and transportation, which includes physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages, (ii) Specialty casualty, which includes primarily excess and surplus, general liability, executive liability, umbrella and excess liability, customized programs for small to mid-sized businesses and California workers’ compensation, and (iii) Specialty financial, which includes risk management insurance programs for lending and leasing institutions (including collateral and mortgage protection insurance), surety and fidelity products and trade credit insurance. AFG’s annuity and supplemental insurance business markets traditional fixed and indexed annuities and a variety of supplemental insurance products such as Medicare supplement. AFG’s reportable segments and their components were determined based primarily upon similar economic characteristics, products and services.

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The following tables (in millions) show AFG’s revenues and operating earnings before income taxes by significant business segment and sub-segment.

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	500		$	407		$	1,029		$	832
Specialty casualty		216			224			651			661
Specialty financial		101			92			313			347
Other		18			13			50			47
Total premiums earned		835			736			2,043			1,887
Investment income		73			80			221			257
Realized gains (losses)		15			46			47			69
Other income		20			13			55			49
Total property and casualty insurance		943			875			2,366			2,262
Annuity and supplemental insurance:
Investment income		236			215			692			625
Life, accident and health premiums		107			112			324			340
Realized gains (losses)		(8	)		(11	)		(24	)		(19	)
Other income		28			23			78			81
Total annuity and supplemental insurance		363			339			1,070			1,027
Other		29			41			31			52
Total revenues	$	1,335		$	1,255		$	3,467		$	3,341
Operating Earnings Before Income Taxes
Property and casualty insurance:
Underwriting income (loss):
Specialty
Property and transportation	$	5		$	41		$	38		$	81
Specialty casualty		20			(13	)		43			29
Specialty financial		23			36			46			91
Other		8			4			14			13
Other lines (a)		—			—			(50	)		(12	)
Total underwriting		56			68			91			202
Investment and other income, net		66			67			204			229
Realized gains (losses)		15			46			47			69
Total property and casualty insurance		137			181			342			500
Annuity and supplemental insurance:
Operations		49			58			157			148
Realized gains (losses)		(8	)		(11	)		(24	)		(19	)
Total annuity and supplemental insurance		41			47			133			129
Other (b)		(23	)		(20	)		(156	)		(116	)
Total operating earnings before income taxes	$	155		$	208		$	319		$	513

(a)	Includes a second quarter 2011 special charge of $50 million to increase asbestos and environmental reserves.
(b)	Includes a second quarter 2011 special charge of $9 million to increase asbestos and environmental reserves and the following earnings (losses) of managed investment entities for the third quarter and first nine months of 2011 and 2010 (in millions):

Attributable to:
AFG shareholders, including management fees	$	3	$	8		$	18		$	23
Noncontrolling interests	$	8	$	(4	)	$	(47	)	$	(37	)

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D. 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 and 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 include separate account assets, corporate and municipal fixed maturity securities, mortgage-backed securities (“MBS”) 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. The unobservable inputs may include management’s own assumptions about the assumptions market participants would use based on the best information available in the circumstances. AFG’s Level 3 is comprised of financial instruments, including liabilities of managed investment entities, 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.

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. 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.

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Assets and liabilities measured at fair value are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
September 30, 2011
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	234	$	188	$	—	$	422
States, municipalities and political subdivisions		—		3,697		72		3,769
Foreign government		—		267		—		267
Residential MBS		—		3,540		284		3,824
Commercial MBS		—		2,774		28		2,802
All other corporate		9		10,023		436		10,468
Total AFS fixed maturities		243		20,489		820		21,552
Trading fixed maturities		—		440		1		441
Equity securities		777		129		24		930
Assets of managed investment entities (“MIE”)		132		2,267		40		2,439
Variable annuity assets (separate accounts) (a)		—		515		—		515
Other investments		—		47		—		47
Total assets accounted for at fair value	$	1,152	$	23,887	$	885	$	25,924
Liabilities:
Liabilities of managed investment entities	$	47	$	—	$	2,182	$	2,229
Derivatives in annuity benefits accumulated		—		—		332		332
Total liabilities accounted for at fair value	$	47	$	—	$	2,514	$	2,561
December 31, 2010
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	249	$	218	$	—	$	467
States, municipalities and political subdivisions		—		2,919		20		2,939
Foreign government		—		278		—		278
Residential MBS		—		3,563		312		3,875
Commercial MBS		—		2,117		6		2,123
All other corporate		9		9,201		436		9,646
Total AFS fixed maturities		258		18,296		774		19,328
Trading fixed maturities		—		390		3		393
Equity securities		461		208		21		690
Assets of managed investment entities (“MIE”)		96		2,393		48		2,537
Variable annuity assets (separate accounts) (a)		—		616		—		616
Other investments		—		98		—		98
Total assets accounted for at fair value	$	815	$	22,001	$	846	$	23,662
Liabilities:
Liabilities of managed investment entities	$	65	$	—	$	2,258	$	2,323
Derivatives in annuity benefits accumulated		—		—		190		190
Total liabilities accounted for at fair value	$	65	$	—	$	2,448	$	2,513

(a) Variable annuity liabilities equal the fair value of variable annuity assets.

During the third quarter of 2011, there were no significant transfers between Level 1 and Level 2. Approximately 3% of the total assets measured at fair value on September 30, 2011, were Level 3 assets. Approximately 95% of these assets were priced using non-binding broker quotes. The fair values of the liabilities of managed investment entities were determined using non-binding broker quotes, which were reviewed by AFG’s investment professionals.

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Changes in balances of Level 3 financial assets and liabilities during the third quarter and first nine months of 2011 and 2010 are presented below (in millions). The transfers into and out of Level 3 were 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
							Other
	Balance at						comp.			Purchases						Transfer		Transfer			Balance at
	June 30,			Net			income			and			Sales and			into		out of			September 30,
	2011			income			(loss)			issuances			Settlements			Level 3		Level 3			2011
AFS fixed maturities:
State and municipal	$	84		$	—		$	4		$	—		$	(3	)	$	—	$	(13	)	$	72
Residential MBS		255			1			(4	)		25			(9	)		24		(8	)		284
Commercial MBS		10			—			—			9			—			9		—			28
All other corporate		382			2			11			32			(14	)		46		(23	)		436
Trading fixed maturities		1			—			—			—			—			—		—			1
Equity securities		21			—			(1	)		2			—			2		—			24
Assets of MIE		53			(6	)		—			5			(7	)		—		(5	)		40
Liabilities of MIE (*)		(2,322	)		89			—			—			51			—		—			(2,182	)
Embedded derivatives		(299	)		31			—			(71	)		7			—		—			(332	)

(*) Total realized/unrealized loss included in net income includes losses of $89 million related to liabilities outstanding as of September 30, 2011. See Note H — “Managed Investment Entities.”

				Total
				realized/unrealized
				gains (losses)
				included in
							Other		Purchases,
	Balance at						comp.		sales,			Transfer		Transfer			Balance at
	June 30,			Net			income		issuances and			into		out of			September 30,
	2010			income			(loss)		settlements			Level 3		Level 3			2010
AFS fixed maturities:
State and municipal	$	21		$	—		$	—	$	—		$	—	$	—		$	21
Residential MBS		326			4			11		5			7		(61	)		292
Commercial MBS		6			(1	)		—		—			—		—			5
All other corporate		426			—			7		14			27		(22	)		452
Trading fixed maturities		1			—			—		—			—		—			1
Equity securities		24			—			—		—			—		(3	)		21
Assets of MIE		46			—			—		(4	)		—		—			42
Liabilities of MIE		(2,152	)		(51	)		—		4			—		—			(2,199	)
Embedded derivatives		(128	)		(26	)		—		(16	)		—		—			(170	)

				Total
				realized/unrealized
				gains (losses)
				included in
							Other
	Balance at						comp.			Purchases						Transfer		Transfer			Balance at
	Dec. 31,			Net			income			and			Sales and			into		out of			September 30,
	2010			income			(loss)			issuances			Settlements			Level 3		Level 3			2011
AFS fixed maturities:
State and municipal	$	20		$	—		$	5		$	53		$	(3	)	$	10	$	(13	)	$	72
Residential MBS		312			2			(6	)		42			(29	)		31		(68	)		284
Commercial MBS		6			—			—			9			—			13		—			28
All other corporate		436			1			17			123			(51	)		70		(160	)		436
Trading fixed maturities		3			—			—			—			—			—		(2	)		1
Equity securities		21			—			1			2			(2	)		2		—			24
Assets of MIE		48			(7	)		—			21			(13	)		8		(17	)		40
Liabilities of MIE (*)		(2,258	)		17			—			—			59			—		—			(2,182	)
Embedded derivatives		(190	)		2			—			(161	)		17			—		—			(332	)

(*) Total realized/unrealized loss included in net income includes losses of $19 million related to liabilities outstanding as of September 30, 2011. See Note H — “Managed Investment Entities.”

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							Total
							realized/unrealized
							gains (losses)
							included in
				Consolidate						Other			Purchases,
	Balance at			Managed						comp.			sales,			Transfer		Transfer			Balance at
	Dec. 31,			Inv.			Net			income			issuances and			into		out of			September 30,
	2009			Entities			income			(loss)			settlements			Level 3		Level 3			2010
AFS fixed maturities:
State and municipal	$	23		$	—		$	—		$	1		$	(3	)	$	17	$	(17	)	$	21
Residential MBS		435			—			6			22			11			9		(191	)		292
Commercial MBS		—			—			(1	)		—			6			—		—			5
All other corporate		311			(6	)		(12	)		15			101			96		(53	)		452
Trading fixed maturities		1			—			—			—			4			—		(4	)		1
Equity securities		25			—			—			(1	)		—			—		(3	)		21
Assets of MIE		—			90			5			—			(8	)		7		(52	)		42
Liabilities of MIE		—			(2,100	)		(141	)		—			42			—		—			(2,199	)
Embedded derivatives		(113	)		—			(25	)		—			(32	)		—		—			(170	)

Fair Value of Financial Instruments The following table presents (in millions) the carrying value and estimated fair value of AFG’s financial instruments at September 30, 2011 and December 31, 2010.

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:
Cash and cash equivalents	$	991	$	991	$	1,099	$	1,099
Fixed maturities		21,993		21,993		19,721		19,721
Equity securities		930		930		690		690
Mortgage loans		384		387		468		469
Policy loans		253		253		264		264
Other investments — derivatives		47		47		98		98
Assets of managed investment entities		2,439		2,439		2,537		2,537
Variable annuity assets (separate accounts)		515		515		616		616
Liabilities:
Annuity benefits accumulated(*)	$	14,582	$	14,437	$	12,696	$	12,233
Long-term debt		937		1,023		952		1,023
Liabilities of managed investment entities		2,229		2,229		2,323		2,323
Variable annuity liabilities (separate accounts)		515		515		616		616
Other liabilities — derivatives		24		24		14		14

(*) Excludes life contingent annuities in the payout phase.

The carrying amount of cash and cash equivalents approximates fair value. Fair values for mortgage loans are estimated by discounting the future contractual cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. The fair value of policy loans is estimated to approximate carrying value; policy loans have no defined maturity dates and are inseparable from insurance contracts. The fair value of annuity benefits was estimated based on expected cash flows discounted using forward interest rates adjusted for the Company’s credit risk and includes the impact of maintenance expenses and capital costs. Fair values of long-term debt are based primarily on quoted market prices.

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E. Investments

Available for sale fixed maturities and equity securities at September 30, 2011, and December 31, 2010, consisted of the following (in millions):

	September 30, 2011									December 31, 2010
	Amortized		Fair		Gross Unrealized					Amortized		Fair		Gross Unrealized
	Cost		Value		Gains		Losses			Cost		Value		Gains		Losses
Fixed maturities:
U.S. Government and government agencies	$	401	$	422	$	21	$	—		$	453	$	467	$	15	$	(1	)
States, municipalities and political subdivisions		3,521		3,769		252		(4	)		2,927		2,939		53		(41	)
Foreign government		249		267		18		—			269		278		9		—
Residential MBS		3,771		3,824		198		(145	)		3,781		3,875		222		(128	)
Commercial MBS		2,635		2,802		178		(11	)		1,972		2,123		153		(2	)
All other corporate		9,720		10,468		810		(62	)		9,088		9,646		602		(44	)
Total fixed maturities	$	20,297	$	21,552	$	1,477	$	(222	)	$	18,490	$	19,328	$	1,054	$	(216	)
Common stocks	$	629	$	788	$	198	$	(39	)	$	312	$	543	$	232	$	(1	)
Perpetual preferred stocks	$	146	$	142	$	5	$	(9	)	$	146	$	147	$	6	$	(5	)

The non-credit related portion of other-than-temporary impairment charges are included in other comprehensive income (loss). Such charges taken for residential MBS still owned at September 30, 2011 and December 31, 2010, respectively were $231 million and $258 million.

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The following tables show gross unrealized losses (in millions) on fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2011 and December 31, 2010.

	Less Than Twelve Months								Twelve Months or More
	Unrealized			Fair		Fair Value as			Unrealized			Fair		Fair Value as
	Loss			Value		% of Cost			Loss			Value		% of Cost
September 30, 2011
Fixed maturities:
U.S. Government and government agencies	$	—		$	31		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(2	)		162		99	%		(2	)		48		96	%
Foreign government		—			—		—	%		—			—		—	%
Residential MBS		(40	)		942		96	%		(105	)		444		81	%
Commercial MBS		(11	)		285		96	%		—			7		100	%
All other corporate		(48	)		1,146		96	%		(14	)		81		85	%
Total fixed maturities	$	(101	)	$	2,566		96	%	$	(121	)	$	580		83	%
Common Stocks	$	(39	)	$	260		87	%	$	—		$	—		—	%
Perpetual Preferred Stocks	$	(3	)	$	43		93	%	$	(6	)	$	34		85	%
December 31, 2010
Fixed maturities:
U.S. Government and government agencies	$	(1	)	$	86		99	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(38	)		1,180		97	%		(3	)		40		93	%
Foreign government		—			37		99	%		—			—		—	%
Residential MBS		(11	)		412		97	%		(117	)		551		82	%
Commercial MBS		(2	)		83		98	%		—			15		97	%
All other corporate		(24	)		1,020		98	%		(20	)		275		93	%
Total fixed maturities	$	(76	)	$	2,818		97	%	$	(140	)	$	881		86	%
Common Stocks	$	—		$	21		99	%	$	(1	)	$	4		88	%
Perpetual Preferred Stocks	$	—		$	22		98	%	$	(5	)	$	37		88	%

At September 30, 2011 the gross unrealized losses on fixed maturities of $222 million relate to approximately 950 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 44% of the gross unrealized loss and 66% of the fair value.

Gross Unrealized Losses on MBS At September 30, 2011, gross unrealized losses on AFG’s residential MBS represented 65% of the total gross unrealized loss on fixed maturity securities (and 87% of the “twelve months or more”). Of the residential MBS that have been in an unrealized loss position (“impaired”) for 12 months or more (234 securities), approximately 26% of the unrealized losses and 44% of the fair value relate to investment grade rated securities. AFG analyzes its MBS securities for other-than-temporary impairment each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan to collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data. For the first nine months of 2011, AFG recorded in earnings $45 million in other-than-temporary impairment charges related to its residential MBS.

Gross Unrealized Losses on All Other Corporates For the first nine months of 2011, AFG recorded in earnings $4 million in other-than-temporary charges on “all other corporate” securities. Management concluded that no additional charges for other-than-temporary impairments were required based on many factors, including AFG’s ability and intent to hold the investments for a period of time sufficient to allow for anticipated recovery of its amortized cost, the length of time and the extent to which fair value has been below cost, analysis of historical and projected company-specific financial data, the outlook for industry sectors, and credit ratings.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

The following tables progress the credit portion of other-than-temporary impairments on fixed maturity securities for which the non-credit portion of an impairment has been recognized in other comprehensive income (loss) (in millions).

	2011			2010
Balance at June 30	$	171		$	121
Additional credit impairments on:
Previously impaired securities		8			11
Securities without prior impairments		2			1
Reductions — disposals		(1	)		—
Balance at September 30	$	180		$	133
Balance at January 1	$	143		$	99
Additional credit impairments on:
Previously impaired securities		37			34
Securities without prior impairments		7			8
Reductions — disposals		(7	)		(8	)
Balance at September 30	$	180		$	133

The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2011 (in millions). Asset-backed securities and other 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. MBS had an average life of approximately 4 years at September 30, 2011.

	Amortized		Fair Value
	Cost		Amount		%
Maturity
One year or less	$	544	$	558		2	%
After one year through five years		5,076		5,367		25
After five years through ten years		6,326		6,859		32
After ten years		1,945		2,142		10
		13,891		14,926		69
MBS		6,406		6,626		31
Total	$	20,297	$	21,552		100	%

Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.

There were no investments in individual issuers that exceeded 10% of Shareholders’ Equity at September 30, 2011 or December 31, 2010.

20

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Net Unrealized Gain on Marketable Securities In addition to adjusting equity securities and fixed maturity securities classified as “available for sale” to fair value, GAAP requires that deferred policy acquisition costs related to annuities and certain other balance sheet amounts be adjusted to the extent that unrealized gains and losses from securities would result in adjustments to those balances had the unrealized gains or losses actually been realized. The following table shows the components of the net unrealized gain on securities that is included in Accumulated Other Comprehensive Income in AFG’s Balance Sheet.

				Deferred Tax and
				Amounts Attributable
				to Noncontrolling
	Pre-tax			Interests			Net
September 30, 2011
Unrealized gain on:
Fixed maturity securities	$	1,255		$	(447	)	$	808
Equity securities		155			(54	)		101
Deferred policy acquisition costs		(535	)		187			(348	)
Annuity benefits and other liabilities		7			(2	)		5
	$	882		$	(316	)	$	566
December 31, 2010
Unrealized gain on:
Fixed maturity securities	$	838		$	(295	)	$	543
Equity securities		232			(82	)		150
Deferred policy acquisition costs		(340	)		118			(222	)
Annuity benefits and other liabilities		6			(2	)		4
	$	736		$	(261	)	$	475

Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):

							Mortgage
							Loans									Noncon-
	Fixed			Equity			and Other						Tax			trolling
	Maturities			Securities			Investments			Other(a)			Effects			Interests			Total
Quarter ended September 30, 2011
Realized before impairments	$	27		$	6		$	(15	)	$	—		$	(6	)	$	—		$	12
Realized — impairments		(12	)		(2	)		—			4			3			—			(7	)
Change in Unrealized		172			(75	)		—			(100	)		2			(2	)		(3	)
Quarter ended September 30, 2010
Realized before impairments	$	46		$	27		$	(1	)	$	(4	)	$	(23	)	$	(1	)	$	44
Realized — impairments		(12	)		(1	)		(2	)		4			4			—			(7	)
Change in Unrealized		498			(8	)		—			(177	)		(109	)		(4	)		200
Nine months ended September 30, 2011
Realized before impairments	$	51		$	41		$	(22	)	$	(2	)	$	(24	)	$	(1	)	$	43
Realized — impairments		(49	)		(2	)		(4	)		14			14			—			(27	)
Change in Unrealized		417			(77	)		—			(194	)		(51	)		(4	)		91
Nine months ended September 30, 2010
Realized before impairments	$	115		$	29		$	(15	)	$	(9	)	$	(41	)	$	(2	)	$	77
Realized — impairments		(62	)		(1	)		(5	)		20			17			—			(31	)
Change in Unrealized		1,131			(11	)		—			(434	)		(240	)		(6	)		440

(a) Primarily adjustments to deferred policy acquisition costs related to annuities.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Realized gains (losses) on securities includes net gains of $3 million in the third quarter and net losses of less than $1 million in the first nine months of 2011 compared to net gains of $25 million and $51 million in the third quarter and first nine months of 2010 from the mark-to-market of certain MBS, primarily interest-only securities with interest rates that float inversely with short-term rates. Gross realized gains and losses (excluding impairment writedowns and mark-to-market of derivatives) on available for sale fixed maturity and equity security investment transactions included in the Statement of Cash Flows consisted of the following (in millions):

	Nine months ended
	September 30,
	2011			2010
Fixed maturities:
Gross gains	$	57		$	74
Gross losses		(5	)		(10	)
Equity securities:
Gross gains		42			29
Gross losses		(1	)		—

F. Derivatives

As discussed under “Derivatives” in Note A, AFG uses derivatives in certain areas of its operations. AFG’s derivatives do not qualify for hedge accounting under GAAP; changes in the fair value of derivatives are included in earnings.

The following derivatives are included in AFG’s Balance Sheet at fair value (in millions):

		September 30, 2011				December 31, 2010
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	98	$	—	$	101	$	—
Interest rate swaptions	Other investments		7				21		—
Indexed annuities (embedded derivative)	Annuity benefits accumulated		—		332		—		190
Equity index call options	Other investments		40		—		77		—
Reinsurance contracts (embedded derivative)	Other liabilities		—		24		—		14
		$	145	$	356	$	199	$	204

The MBS with embedded derivatives consist primarily of interest-only MBS with interest rates that float inversely with short-term rates. AFG records the entire change in the fair value of these securities in earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.

AFG has entered into $1 billion notional amount of pay-fixed interest rate swaptions (options to enter into pay-fixed/receive floating interest rate swaps at future dates expiring between 2012 and 2015) to mitigate interest rate risk in its annuity operations. AFG paid $29 million to purchase these swaptions, which represents its maximum potential economic loss over the life of the contracts.

AFG’s indexed annuities, which represented approximately one-third of annuity benefits accumulated at September 30, 2011, provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase of call options on the appropriate index. AFG’s strategy is designed so that an increase in the liabilities, due to an increase in the market index, will be generally offset by unrealized and realized gains on the call options purchased by AFG. Both the index-based component of the annuities and the related call options are considered derivatives.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

As discussed under “Reinsurance” in Note A, certain reinsurance contracts in AFG’s annuity and supplemental insurance business are considered to contain embedded derivatives.

The following table summarizes the gain (loss) included in the Statement of Earnings for changes in the fair value of these derivatives for the third quarter and first nine months of 2011 and 2010 (in millions):

		Three months ended						Nine months ended
		September 30,						September 30,
Derivative	Statement of Earnings Line	2011			2010			2011			2010
MBS with embedded derivatives	Realized gains	$	3		$	25		$	—		$	51
Interest rate swaptions	Realized gains		(15	)		(2	)		(22	)		(16	)
Indexed annuities (embedded derivative)	Annuity benefits		31			(26	)		2			(25	)
Equity index call options	Annuity benefits		(50	)		23			(30	)		11
Reinsurance contracts (embedded derivative)	Investment income		(6	)		(6	)		(10	)		(16	)
		$	(37	)	$	14		$	(60	)	$	5

G. Deferred Policy Acquisition Costs

Deferred policy acquisition costs consisted of the following (in millions):

	September 30,			December 31,
	2011			2010
Property and casualty insurance	$	330		$	324
Annuity and supplemental insurance:
Policy acquisition costs		979			892
Policyholder sales inducements		205			204
Present value of future profits (“PVFP”)		148			164
Impact of unrealized gains and losses on securities		(535	)		(340	)
Total annuity and supplemental		797			920
	$	1,127		$	1,244

The PVFP amounts in the table above are net of $190 million and $174 million of accumulated amortization at September 30, 2011 and December 31, 2010, respectively. Amortization of the PVFP was $5 million in the third quarter and $16 million during the first nine months of 2011 and $6 million in the third quarter and $22 million during the first nine months of 2010, respectively.

H. Managed Investment Entities

AFG is the investment manager and has investments ranging from 7.5% to 24.4% of the most subordinate debt tranche of six collateralized loan obligation entities or “CLOs,” which are considered variable interest entities. In addition, AFG purchased $49 million face amount of the most senior debt tranche of one of the CLOs for $46 million in August 2011. Upon formation between 2004 and 2007, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each particular CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay operating expenses (including management fees to AFG), interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities. As permitted by the CLO indentures, the holder of the majority of the most subordinate debt tranche of one of AFG’s CLOs notified AFG in July 2011 of its decision to liquidate the CLO in August 2011. Prior to liquidation, this notice was rescinded and liquidation did not occur. In October 2011, AFG began marketing a new CLO with a similar structure to the existing CLOs, which is expected to initially have both assets and liabilities of approximately $400 million.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

AFG’s maximum ultimate exposure to economic loss on its CLOs is limited to its investment in the CLOs, which had an aggregate fair value of $60 million at September 30, 2011.

The revenues and expenses of the CLOs are separately identified in AFG’s Statement of Earnings after the elimination of management fees and earnings attributable to shareholders of AFG as measured by the change in the fair value of AFG’s investments in the CLOs. Selected financial information related to the CLOs is shown below (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$	(88	)	$	47		$	(71	)	$	97
Liabilities		89			(51	)		17			(141	)
Management fees paid to AFG		5			5			13			13
CLO earnings (losses) attributable to:
AFG shareholders (b)		(2	)		3			5			10
Noncontrolling interests (b)		8			(4	)		(47	)		(37	)

(a)	Included in AFG’s “Revenues.”
(b)	Included in AFG’s “Operating earnings before income taxes.”

The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $143 million and $69 million at September 30, 2011 and December 31, 2010. The aggregate unpaid principal balance of the CLOs’ debt exceeded its fair value by $316 million and $301 million at those dates. The CLO assets include $2 million and $6 million in loans at September 30, 2011 and December 31, 2010, (aggregate unpaid principal balance of $7 million and $12 million, respectively) for which the CLOs are not accruing interest because the loans are in default.

I. Goodwill and Other Intangibles

There were no changes in the goodwill balance of $186 million during the nine months ended September 30, 2011.

In the third quarter of 2010, management reached a decision to de-emphasize the sale of supplemental health insurance products through career agents, including the sale of a marketing subsidiary. As a result of this decision, AFG performed an interim impairment test of the goodwill associated with the reporting unit using an income valuation method based on discounted cash flows. Based on the results of this test, AFG recorded a goodwill impairment charge of $22 million (included in realized gains (losses) on subsidiaries) to write off all of the goodwill related to this reporting unit.

Included in other assets in AFG’s Balance Sheet is $40 million at September 30, 2011 and $49 million at December 31, 2010, in amortizable intangible assets related to property and casualty insurance acquisitions. These amounts are net of accumulated amortization of $44 million and $35 million, respectively. Amortization of these intangibles was $3 million in the third quarter and $9 million during the first nine months of both 2011 and 2010. Other assets also include $8 million in non-amortizable intangible assets related to insurance licenses acquired in the acquisition of Vanliner in 2010.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

J. Long-Term Debt

The carrying value of long-term debt consisted of the following (in millions):

	September 30,		December 31,
	2011		2010
Direct obligations of AFG:
9-7/8% Senior Notes due June 2019	$	350	$	350
7% Senior Notes due September 2050		132		132
7-1/8% Senior Debentures due February 2034		115		115
Other		3		3
		600		600
Subsidiaries:
Obligations of AAG Holding (guaranteed by AFG):
7-1/2% Senior Debentures due November 2033		112		112
7-1/4% Senior Debentures due January 2034		86		86
Notes payable secured by real estate due 2011 through 2016		64		65
Secured borrowings ($17 and $18 guaranteed by AFG)		33		41
National Interstate bank credit facility		22		20
American Premier 10-7/8% Subordinated Notes		—		8
		317		332
Payable to Subsidiary Trusts:
AAG Holding Variable Rate Subordinated Debentures due May 2033		20		20
	$	937	$	952

Scheduled principal payments on debt for the balance of 2011 and the subsequent five years were as follows: 2011 — $3 million; 2012 — $34 million; 2013 — $20 million; 2014 — $2 million; 2015 — $14 million and 2016 — $45 million.

As shown below (in millions), the majority of AFG’s long-term debt is unsecured obligations of the holding company and its subsidiaries:

	September 30,		December 31,
	2011		2010
Unsecured obligations	$	840	$	846
Obligations secured by real estate		64		65
Other secured borrowings		33		41
	$	937	$	952

AFG can borrow up to $500 million under its revolving credit facility which expires in August 2013. Amounts borrowed under this agreement bear interest at rates ranging from 1.75% to 3.00% (currently 2%) over LIBOR based on AFG’s credit rating. No amounts were borrowed under this facility at September 30, 2011.

In May 2011, American Premier paid $8 million to redeem its outstanding 10-7/8% Subordinated Notes at maturity.

In June 2010, National Interstate borrowed $30 million under its bank credit facility in connection with the July acquisition of Vanliner. In September 2010, AFG issued $132 million of 7% Senior Notes due in 2050.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

K. Shareholders’ Equity

AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.

Accumulated Other Comprehensive Income (Loss), Net of Tax Comprehensive income (loss) is defined as all changes in Shareholders’ Equity except those arising from transactions with shareholders. Comprehensive income (loss) includes net earnings and other comprehensive income (loss), which consists primarily of changes in net unrealized gains or losses on available for sale securities. The progression of the components of accumulated other comprehensive income (loss) follows (in millions):

							Pension and
	Pretax			Foreign			Other									Accumulated
	Net Unrealized			Currency			Postretirement						Noncon-			Other
	Gains (Losses)			Translation			Plans			Tax			trolling			Comprehensive
	on Securities			Adjustment			Adjustment			Effects			Interests			Income (Loss)
Balance at December 31, 2010	$	736	(a)	$	9		$	(13	)	$	(253	)	$	—		$	479	(a)
Unrealized holding gains on securities arising during the period		199			—			—			(70	)		(5	)		124
Realized gains included in net income		(53	)		—			—			19			1			(33	)
Foreign currency translation gains		—			(9	)		—			—			1			(8	)
Other		—			—			1			—			—			1
Balance at September 30, 2011	$	882	(a)	$	—		$	(12	)	$	(304	)	$	(3	)	$	563	(a)
Balance at December 31, 2009	$	258		$	1		$	(13	)	$	(86	)	$	3		$	163
Unrealized holding gains on securities arising during the period		778			—			—			(272	)		(7	)		499
Realized gains included in net income		(92	)		—			—			32			1			(59	)
Foreign currency translation losses		—			9			—			—			(2	)		7
Other		(6	)		—			1			2			—			(3	)
Balance at September 30, 2010	$	938		$	10		$	(12	)	$	(324	)	$	(5	)	$	607

(a) Includes net pretax unrealized losses of $14 million ($9 million net of tax) at September 30, 2011 and $17 million ($11 million net of tax) at December 31, 2010 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

Stock Based Compensation Under AFG’s Stock Incentive Plan, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first nine months of 2011, AFG issued 131,955 shares of restricted Common Stock (fair value of $34.34 per share) and granted stock options for 1.1 million shares of Common Stock (at an average exercise price of $34.34) under the Stock Incentive Plan. In addition, AFG issued 188,302 shares of Common Stock (fair value of $33.99 per share) in the first quarter of 2011 under its Annual Co-CEO Equity Bonus Plan.

AFG uses the Black-Scholes option pricing model to calculate the “fair value” of its option grants. Expected volatility is based on historical volatility over a period equal to the expected term. The expected term was estimated based on historical exercise patterns and post vesting cancellations. The weighted average fair value of options granted during 2011 was $12.49 per share based on the following assumptions: expected dividend yield — 1.9%; expected volatility — 38%; expected term — 7.3 years; risk-free rate — 3.04%.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $5 million in the third quarter of 2011 and 2010 and $16 million and $15 million during the first nine months of 2011 and 2010, respectively.

26

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

L. Income Taxes

Income (losses) attributable to noncontrolling interests related to AFG’s managed investment entities are non-taxable (non-deductible). For the first nine months of 2011 and 2010, respectively, AFG’s operating earnings before income taxes included $47 million and $37 million of such non-deductible losses, thereby increasing AFG’s effective tax rate. For the third quarter of 2011 and 2010, respectively, operating earnings before income taxes included $8 million of non-taxable income and $4 million of non-deductible losses related to the managed investment entities.

There have been no material changes to AFG’s liability for uncertain tax positions, which is discussed in Note L — “Income Taxes,” to AFG’s 2010 Form 10-K.

M. Contingencies

Except as discussed in Management’s Discussion and Analysis — “Special Asbestos and Environmental Reserve Charge,” there have been no significant changes to the matters discussed and referred to in Note M — “Contingencies” of AFG’s 2010 Form 10-K covering property and casualty insurance reserves for claims related to environmental exposures, asbestos and other mass tort claims as well as environmental and occupational injury and disease claims of former subsidiary railroad and manufacturing operations.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

N. Condensed Consolidating Information

AFG has guaranteed all of the outstanding debt of Great American Financial Resources, Inc. (“GAFRI”) and GAFRI’s wholly-owned subsidiary, AAG Holding Company, Inc. In addition, GAFRI guarantees AAG Holding’s public debt. The AFG and GAFRI guarantees are full and unconditional and joint and several. Condensed consolidating financial statements for AFG are as follows:

CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)

					AAG		All Other		Consol.
	AFG		GAFRI		Holding		Subs		Entries			Consolidated
SEPTEMBER 30, 2011
Assets:
Cash and investments	$	353	$	41	$	—	$	24,561	$	(1	)	$	24,954
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,478		—			3,478
Agents’ balances and premiums receivable		—		—		—		866		—			866
Deferred policy acquisition costs		—		—		—		1,127		—			1,127
Assets of managed investment entities		—		—		—		2,439		—			2,439
Other assets		97		8		8		2,193		(40	)		2,266
Investment in subsidiaries and affiliates		4,867		2,061		2,149		651		(9,728	)		—
Total assets	$	5,317	$	2,110	$	2,157	$	35,315	$	(9,769	)	$	35,130
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	8,249	$	—		$	8,249
Annuity, life, accident and health benefits and reserves		—		—		—		16,484		(1	)		16,483
Liabilities of managed investment entities		—		—		—		2,229		—			2,229
Long-term debt		600		1		219		118		(1	)		937
Other liabilities		252		19		113		2,410		(182	)		2,612
Total liabilities		852		20		332		29,490		(184	)		30,510
Total shareholders’ equity		4,465		2,090		1,825		5,670		(9,585	)		4,465
Noncontrolling interests		—		—		—		155		—			155
Total liabilities and equity	$	5,317	$	2,110	$	2,157	$	35,315	$	(9,769	)	$	35,130
DECEMBER 31, 2010
Assets:
Cash and investments	$	412	$	33	$	—	$	22,228	$	(3	)	$	22,670
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,386		—			3,386
Agents’ balances and premiums receivable		—		—		—		535		—			535
Deferred policy acquisition costs		—		—		—		1,244		—			1,244
Assets of managed investment entities		—		—		—		2,537		—			2,537
Other assets		36		6		5		2,050		(15	)		2,082
Investment in subsidiaries and affiliates		4,816		1,899		1,996		671		(9,382	)		—
Total assets	$	5,264	$	1,938	$	2,001	$	32,651	$	(9,400	)	$	32,454
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	7,947	$	—		$	7,947
Annuity, life, accident and health benefits and reserves		—		—		—		14,556		(1	)		14,555
Liabilities of managed investment entities		—		—		—		2,323		—			2,323
Long-term debt		600		1		219		133		(1	)		952
Other liabilities		194		19		110		1,888		(154	)		2,057
Total liabilities		794		20		329		26,847		(156	)		27,834
Total shareholders’ equity		4,470		1,918		1,672		5,654		(9,244	)		4,470
Noncontrolling interests		—		—		—		150		—			150
Total liabilities and equity	$	5,264	$	1,938	$	2,001	$	32,651	$	(9,400	)	$	32,454

28

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(In millions)

						AAG		All Other		Consol.
	AFG			GAFRI		Holding		Subs		Entries			Consolidated
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011
Revenues:
Property and casualty insurance premiums	$	—		$	—	$	—	$	835	$	—		$	835
Life, accident and health premiums		—			—		—		107		—			107
Realized gains (losses)		—			—		—		8		—			8
Income of managed investment entities		—			—		—		28		—			28
Investment and other income		(2	)		3		—		364		(8	)		357
Equity in earnings of subsidiaries		169			37		39		—		(245	)		—
Total revenues		167			40		39		1,342		(253	)		1,335
Costs and Expenses:
Insurance benefits and expenses		—			—		—		1,059		—			1,059
Interest charges on borrowed money		16			—		6		4		(5	)		21
Expenses of managed investment entities		—			—		—		17		—			17
Other operating and general expenses		7			3		2		72		(1	)		83
Total costs and expenses		23			3		8		1,152		(6	)		1,180
Operating earnings before income taxes		144			37		31		190		(247	)		155
Provision (credit) for income taxes		48			12		9		59		(80	)		48
Net earnings, including noncontrolling interests		96			25		22		131		(167	)		107
Less: Net earnings (loss) attributable to noncontrolling interests		—			—		—		11		—			11
Net Earnings Attributable to Shareholders	$	96		$	25	$	22	$	120	$	(167	)	$	96

						AAG		All Other			Consol.
	AFG		GAFRI			Holding		Subs			Entries			Consolidated
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
Revenues:
Property and casualty insurance premiums	$	—	$	—		$	—	$	736		$	—		$	736
Life, accident and health premiums		—		—			—		112			—			112
Realized gains (losses)		—		(2	)		—		37			—			35
Income of managed investment entities		—		—			—		19			—			19
Investment and other income		3		3			—		352			(5	)		353
Equity in earnings of subsidiaries		242		48			76		—			(366	)		—
Total revenues		245		49			76		1,256			(371	)		1,255
Costs and Expenses:
Insurance benefits and expenses		—		—			—		919			—			919
Interest charges on borrowed money		15		—			6		6			(6	)		21
Expenses of managed investment entities		—		—			—		15			—			15
Other operating and general expenses		16		6			2		68			—			92
Total costs and expenses		31		6			8		1,008			(6	)		1,047
Operating earnings before income taxes		214		43			68		248			(365	)		208
Provision (credit) for income taxes		82		21			22		97			(140	)		82
Net earnings, including noncontrolling interests		132		22			46		151			(225	)		126
Less: Net earnings (loss) attributable to noncontrolling interests		—		—			—		(6	)		—			(6	)
Net Earnings Attributable to Shareholders	$	132	$	22		$	46	$	157		$	(225	)	$	132

29

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(In millions)

					AAG		All Other			Consol.
	AFG		GAFRI		Holding		Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	2,043		$	—		$	2,043
Life, accident and health premiums		—		—		—		324			—			324
Realized gains (losses)		—		—		—		25			(1	)		24
Income of managed investment entities		—		—		—		24			—			24
Investment and other income		—		8		—		1,066			(22	)		1,052
Equity in earnings of subsidiaries		447		126		144		—			(717	)		—
Total revenues		447		134		144		3,482			(740	)		3,467
Costs and Expenses:
Insurance benefits and expenses		—		—		—		2,763			—			2,763
Interest charges on borrowed money		48		—		19		12			(16	)		63
Expenses of managed investment entities		—		—		—		53			—			53
Other operating and general expenses		39		12		4		218			(4	)		269
Total costs and expenses		87		12		23		3,046			(20	)		3,148
Operating earnings before income taxes		360		122		121		436			(720	)		319
Provision (credit) for income taxes		126		42		41		163			(246	)		126
Net earnings, including noncontrolling interests		234		80		80		273			(474	)		193
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(41	)		—			(41	)
Net Earnings Attributable to Shareholders	$	234	$	80	$	80	$	314		$	(474	)	$	234

						AAG		All Other			Consol.
	AFG		GAFRI			Holding		Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Revenues:
Property and casualty insurance premiums	$	—	$	—		$	—	$	1,887		$	—		$	1,887
Life, accident and health premiums		—		—			—		340			—			340
Realized gains (losses)		—		(2	)		—		52			—			50
Income of managed investment entities		—		—			—		24			—			24
Investment and other income		3		8			—		1,045			(16	)		1,040
Equity in earnings of subsidiaries		621		129			172		—			(922	)		—
Total revenues		624		135			172		3,348			(938	)		3,341
Costs and Expenses:
Insurance benefits and expenses		—		—			—		2,454			—			2,454
Interest charges on borrowed money		42		—			19		13			(17	)		57
Expenses of managed investment entities		—		—			—		38			—			38
Other operating and general expenses		37		13			5		224			—			279
Total costs and expenses		79		13			24		2,729			(17	)		2,828
Operating earnings before income taxes		545		122			148		619			(921	)		513
Provision (credit) for income taxes		199		49			50		236			(335	)		199
Net earnings, including noncontrolling interests		346		73			98		383			(586	)		314
Less: Net earnings (loss) attributable to noncontrolling interests		—		—			—		(32	)		—			(32	)
Net Earnings Attributable to Shareholders	$	346	$	73		$	98	$	415		$	(586	)	$	346

30

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)

							AAG			All Other			Consol.
	AFG			GAFRI			Holding			Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$	234		$	80		$	80		$	273		$	(474	)	$	193
Adjustments:
Equity in net earnings of subsidiaries		(295	)		(83	)		(95	)		—			473			—
Dividends from subsidiaries		275			3			8			—			(286	)		—
Other operating activities, net		13			(2	)		2			454			1			468
Net cash provided by (used in) operating activities		227			(2	)		(5	)		727			(286	)		661
Investing Activities:
Purchases of investments, property and equipment		(42	)		—			—			(4,599	)		—			(4,641	)
Returns of capital from (capital contributions to) subsidiaries		45			(12	)		(1	)		—			(32	)		—
Proceeds from maturities and redemptions of investments		4			9			—			1,669			—			1,682
Proceeds from sales of investments, property and equipment		5			—			—			952			—			957
Managed investment entities:
Purchases of investments		—			—			—			(1,085	)		—			(1,085	)
Proceeds from sales and redemptions of investments		—			—			—			1,170			—			1,170
Other investing activities, net		—			—			—			(14	)		—			(14	)
Net cash provided by (used in) investing activities		12			(3	)		(1	)		(1,907	)		(32	)		(1,931	)
Financing Activities:
Annuity receipts		—			—			—			2,468			—			2,468
Annuity surrenders, benefits and withdrawals		—			—			—			(971	)		—			(971	)
Additional long-term borrowings		—			—			—			2			—			2
Reductions of long-term debt		—			—			—			(17	)		—			(17	)
Retirement of managed investment entities’ liabilities		—			—			—			(60	)		—			(60	)
Issuances of Common Stock		19			—			—			—			—			19
Capital contributions from (returns of capital to) parent		—			12			6			(50	)		32			—
Repurchases of Common Stock		(263	)		—			—			—			—			(263	)
Cash dividends paid		(50	)		—			—			(286	)		286			(50	)
Other financing activities, net		—			—			—			34			—			34
Net cash provided by (used in) financing activities		(294	)		12			6			1,120			318			1,162
Net change in cash and cash equivalents		(55	)		7			—			(60	)		—			(108	)
Cash and cash equivalents at beginning of period		370			20			—			709			—			1,099
Cash and cash equivalents at end of period	$	315		$	27		$	—		$	649		$	—		$	991

31

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)

							AAG			All Other			Consol.
	AFG			GAFRI			Holding			Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Operating Activities:
Net earnings, including noncontrolling interests	$	346		$	73		$	98		$	383		$	(586	)	$	314
Adjustments:
Equity in net earnings of subsidiaries		(395	)		(78	)		(114	)		—			587			—
Dividends from subsidiaries		359			—			16			—			(375	)		—
Other operating activities, net		(52	)		(2	)		4			518			(1	)		467
Net cash provided by (used in) operating activities		258			(7	)		4			901			(375	)		781
Investing Activities:
Purchases of investments, property and equipment		(6	)		—			—			(4,119	)		—			(4,125	)
Purchase of subsidiaries		—			—			—			(128	)		—			(128	)
Capital contributions to subsidiaries		(12	)		(2	)		(5	)		—			19			—
Proceeds from maturities and redemptions of investments		—			6			—			1,503			—			1,509
Proceeds from sales of investments, property and equipment		—			—			—			1,228			—			1,228
Managed investment entities:
Purchases of investments		—			—			—			(617	)		—			(617	)
Proceeds from sales and redemptions of investments		—			—			—			658			—			658
Other investing activities, net		—			—			—			101			—			101
Net cash provided by (used in) investing activities		(18	)		4			(5	)		(1,374	)		19			(1,374	)
Financing Activities:
Annuity receipts		—			—			—			1,661			—			1,661
Annuity surrenders, benefits and withdrawals		—			—			—			(914	)		—			(914	)
Additional long-term borrowings		128			—			—			30			—			158
Reductions of long-term debt		—			—			—			(36	)		—			(36	)
Retirement of managed investment entities’ liabilities		—			—			—			(42	)		—			(42	)
Issuances of Common Stock		26			—			—			1			—			27
Capital contributions from parent		—			12			1			6			(19	)		—
Repurchases of Common Stock		(201	)		—			—			—			—			(201	)
Cash dividends paid		(46	)		—			—			(375	)		375			(46	)
Other financing activities, net		(1	)		—			—			7			—			6
Net cash provided by (used in) financing activities		(94	)		12			1			338			356			613
Net change in cash and cash equivalents		146			9			—			(135	)		—			20
Cash and cash equivalents at beginning of period		197			12			—			911			—			1,120
Cash and cash equivalents at end of period	$	343		$	21		$	—		$	776		$	—		$	1,140

32

AMERICAN FINANCIAL GROUP, INC. 10-Q

ITEM 2

Management’s Discussion and Analysis
of Financial Condition and Results of Operations

INDEX TO MD&A

	Page
Forward-Looking Statements		33
Overview		34
Critical Accounting Policies		34
Liquidity and Capital Resources		35
Ratios		35
Parent and Subsidiary Liquidity		35
Investments		36
Uncertainties		41
Managed Investment Entities		42
Results of Operations		44
General		44
Income Items		44
Expense Items		50

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Some of the forward-looking statements can be identified by the use of words such as “anticipates”, “believes”, “expects”, “projects”, “estimates”, “intends”, “plans”, “seeks”, “could”, “may”, “should”, “will” or the negative version of those words or other comparable terminology. Such forward-looking statements include statements relating to: expectations concerning market and other conditions and their effect on future premiums, revenues, earnings and investment activities; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.

Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to:

• changes in financial, political and economic conditions, including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions;

• performance of securities markets;

• AFG’s ability to estimate accurately the likelihood, magnitude and timing of any losses in connection with investments in the non-agency residential mortgage market;

• new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio;

• the availability of capital;

• regulatory actions (including changes in statutory accounting rules);

• changes in the legal environment affecting AFG or its customers;

• tax law and accounting changes;

• levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from civil unrest and other major losses;

• development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims;

• availability of reinsurance and ability of reinsurers to pay their obligations;

• the unpredictability of possible future litigation if certain settlements of current litigation do not become effective;

• trends in persistency, mortality and morbidity;

• competitive pressures, including the ability to obtain adequate rates and policy terms; and

• changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries.

The forward-looking statements herein are made only as of the date of this report. The Company assumes no obligation to publicly update any forward-looking statements.

33

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

OVERVIEW

Financial Condition

AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Therefore, certain analyses are best done on a parent only basis while others are best done on a total enterprise basis. In addition, because most of its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.

Results of Operations

Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses and in the sale of traditional fixed and indexed annuities and a variety of supplemental insurance products such as Medicare supplement.

Net earnings attributable to AFG’s shareholders for the third quarter and first nine months of 2011 were $96 million ($.94 per share, diluted) and $234 million ($2.24 per share diluted), respectively, compared to $132 million ($1.21 per share, diluted) and $346 million ($3.11 per share, diluted) reported in the same periods of 2010. For the first nine months of 2011 compared to the 2010 period, improved operating results in the annuity and supplemental insurance group were more than offset by a second quarter 2011 special charge to strengthen reserves for asbestos and other environmental exposures, primarily within the property and casualty run-off operations, lower underwriting profit and investment income in AFG’s on-going property and casualty insurance operations, and lower realized gains.

CRITICAL ACCOUNTING POLICIES

Significant accounting policies are summarized in Note A to the financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions change and thus impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements make accounting policies critical are as follows:

• the establishment of insurance reserves, especially asbestos and environmental-related reserves,

• the recoverability of reinsurance,

• the recoverability of deferred acquisition costs,

• the establishment of asbestos and environmental reserves of former railroad and manufacturing operations, and

• the valuation of investments, including the determination of “other-than-temporary” impairments.

For a discussion of these policies, see Management’s Discussion and Analysis — “Critical Accounting Policies” in AFG’s 2010 Form 10-K.

34

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

LIQUIDITY AND CAPITAL RESOURCES

Ratios AFG’s debt to total capital ratio on a consolidated basis is shown below (dollars in millions).

	September 30,			December 31,
	2011			2010			2009
Long-term debt	$	937		$	952		$	828
Total capital		4,943			5,050			4,698
Ratio of debt to total capital:
Including debt secured by real estate		19.0	%		18.9	%		17.6	%
Excluding debt secured by real estate		17.9	%		17.8	%		16.4	%

The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and independent ratings agencies to evaluate AFG’s financial strength and liquidity and to provide insight into how AFG finances its operations. It is calculated by dividing AFG’s long-term debt by its total capital, which includes long-term debt, noncontrolling interests and shareholders’ equity (excluding unrealized gains (losses) related to fixed maturity investments and appropriated retained earnings related to managed investment entities).

AFG’s ratio of earnings to fixed charges, including annuity benefits as a fixed charge, was 1.80 for the nine months ended September 30, 2011 and 2.41 for the entire year of 2010. Excluding annuity benefits, this ratio was 5.87 and 9.09, respectively. Although the ratio excluding annuity benefits is not required or encouraged to be disclosed under Securities and Exchange Commission rules, it is presented because interest credited to annuity policyholder accounts is not always considered a borrowing cost for an insurance company.

Parent and Subsidiary Liquidity

Parent Holding Company Liquidity Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and marketable securities or to generate cash through borrowings, sales of other assets, or similar transactions.

AFG can borrow up to $500 million under its revolving credit facility which expires in August 2013. There were no borrowings under this agreement, or under any other parent company short-term borrowing arrangements, during 2011. In September 2010, AFG issued $132 million of 7% Senior Notes due 2050.

During the first nine months of 2011, AFG repurchased 7.8 million shares of its Common Stock for $263 million. During 2010, AFG repurchased 10.3 million shares of its Common Stock for $292 million.

Under tax allocation agreements with AFG, its 80%-owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary’s contribution to amounts due under AFG’s consolidated tax return.

35

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Subsidiary Liquidity Great American Life Insurance Company (“GALIC”), a wholly-owned annuity and supplemental insurance subsidiary, became a member of the Federal Home Loan Bank of Cincinnati (“FHLB”) in 2009. 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 $17 million investment in FHLB capital stock at September 30, 2011 is included in other investments at cost. Membership in the FHLB provides the annuity and supplemental insurance operations with a substantial additional source of liquidity. In October 2011, GALIC purchased an additional $2 million in FHLB stock and the FHLB advanced GALIC $100 million for up to five years at LIBOR + .02% (currently .26%). GALIC has invested the proceeds from the advance in fixed maturity securities for the purpose of earning a spread over the interest payments due to the FHLB.

National Interstate, a 52%-owned property and casualty insurance subsidiary, can borrow up to $75 million, subject to certain conditions, under an unsecured credit agreement expiring in December 2012. Amounts borrowed bear interest at rates ranging from .45% to .9% (currently ..65%) over LIBOR based on National Interstate’s credit rating. There was $22 million outstanding under this agreement at September 30, 2011.

The liquidity requirements of AFG’s insurance subsidiaries relate primarily to the liabilities associated with their products as well as operating costs and expenses, payments of dividends and taxes to AFG and contributions of capital to their subsidiaries. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements without requiring a sale of investments or contributions from AFG. Funds received in excess of cash requirements are generally invested in additional marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short-term investments.

The excess cash flow of AFG’s property and casualty group allows it to extend the duration of its investment portfolio somewhat beyond that of its claim reserves.

In the annuity business, where profitability is largely dependent on earning a “spread” between invested assets and annuity liabilities, the duration of investments is generally maintained close to that of liabilities. In a rising interest rate environment, significant protection from withdrawals exists in the form of temporary and permanent surrender charges on AFG’s annuity products. With declining rates, AFG receives some protection (from spread compression) due to the ability to lower crediting rates, subject to contractually guaranteed minimum interest rates (“GMIRs”). AFG began selling new policies with GMIRs below 2% in 2003; almost all new business since late 2010 has been issued with a 1% GMIR. At September 30, 2011, the average crediting rate of all AFG annuities was approximately 3.2%, while the average GMIR was approximately 2.6%. This margin provides AFG the flexibility to lower its crediting rates by up to 60 basis points on average in the future should market interest rates continue to remain low for a long period of time.

AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and benefits and operating expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Nonetheless, changes in statutory accounting rules, significant declines in the fair value of the insurance subsidiaries’ investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital.

Investments AFG’s investment portfolio at September 30, 2011, contained $21.6 billion in “Fixed maturities” classified as available for sale and $930 million in “Equity securities,” all carried at fair value with unrealized gains and losses included in a separate component of shareholders’ equity on an after-tax basis. In addition, $441 million in fixed maturities were classified as trading with changes in unrealized holding gains or losses included in investment income.

36

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services as well as non-binding broker quotes. Fair values of equity securities are generally based on closing prices obtained from the pricing services. For mortgage-backed securities (“MBS”), which comprise approximately 31% of AFG’s fixed maturities, prices for each security are generally obtained from both pricing services and broker quotes. For the remainder of AFG’s fixed maturity portfolio, approximately 94% are priced using pricing services and the balance is priced internally or by using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.

The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of MBS are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers’ prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs.

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. Prices obtained from a broker or pricing service are adjusted only in cases where they are deemed not to be representative of an appropriate exit price (fewer than 1% of the securities).

In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have at September 30, 2011 (dollars in millions). Increases or decreases from the 100 basis points illustrated would be approximately proportional.

Fair value of fixed maturity portfolio	$	21,993
Pretax impact on fair value of 100 bps increase in interest rates	$	(1,056	)
Pretax impact as % of total fixed maturity portfolio		(4.8	%)

Approximately 90% of the fixed maturities held by AFG at September 30, 2011, were rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and noninvestment grade. Management believes that the high quality investment portfolio should generate a stable and predictable investment return.

37

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

MBS are subject to significant prepayment risk due to the fact that, in periods of declining interest rates, mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of lower rates.

Summarized information for AFG’s MBS (including those classified as trading) at September 30, 2011, is shown (in millions) in the table below. Agency-backed securities are those issued by a U.S. government-backed agency; Alt-A mortgages are those with risk profiles between prime and subprime. The majority of the Alt-A securities and substantially all of the subprime securities are backed by fixed-rate mortgages. The average life of the residential and commercial MBS is approximately 4 and 5 years, respectively.

											% Rated
	Amortized				Fair Value as			Unrealized			Investment
Collateral type	Cost		Fair Value		% of Cost			Gain (Loss)			Grade
Residential:
Agency-backed	$	324	$	339		105	%	$	15			100	%
Non-agency prime		2,081		2,168		104			87			71
Alt-A		745		717		96			(28	)		47
Subprime		635		611		96			(24	)		28
Commercial		2,673		2,840		106			167			100
Other		23		26		113			3			50
	$	6,481	$	6,701		103	%	$	220			78	%

The National Association of Insurance Commissioners (“NAIC”) assigns creditworthiness designations on a scale of 1 to 6 with 1 being the highest quality and 6 being the lowest quality. The NAIC retained a third-party investment management firm to assist in the determination of appropriate NAIC designations for mortgage-backed securities based not only on the probability of loss (which is the primary basis of ratings by the major ratings firms), but also on the severity of loss and statutory carrying value. At September 30, 2011, 98% (based on statutory carrying value of $6.4 billion) of AFG’s MBS securities had an NAIC designation of 1 or 2.

Municipal bonds represented approximately 17% of AFG’s fixed maturity portfolio at September 30, 2011. AFG’s municipal bond portfolio is high quality, with 99% of the securities rated investment grade at that date. The portfolio is well diversified across the states of issuance and individual issuers. At September 30, 2011, approximately 75% of the municipal bond portfolio was held in revenue bonds, with the remaining 25% held in general obligation bonds. State general obligation securities of California, Illinois, New Jersey and New York collectively represented only 2% of this portfolio.

38

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Summarized information for the unrealized gains and losses recorded in AFG’s Balance Sheet at September 30, 2011, is shown in the following table (dollars in millions). Approximately $154 million of available for sale “Fixed maturities” and $34 million of “Equity securities” had no unrealized gains or losses at September 30, 2011.

	Securities			Securities
	With			With
	Unrealized			Unrealized
	Gains			Losses
Available for Sale Fixed Maturities
Fair value of securities	$	18,252		$	3,146
Amortized cost of securities	$	16,775		$	3,368
Gross unrealized gain (loss)	$	1,477		$	(222	)
Fair value as % of amortized cost		109	%		93	%
Number of security positions		3,628			950
Number individually exceeding $2 million gain or loss		143			6
Concentration of gains (losses) by type or industry (exceeding 5% of unrealized):
Mortgage-backed securities	$	376		$	(156	)
States and municipalities		252			(4	)
Banks, savings and credit institutions		93			(32	)
Gas and electric services		173			(2	)
Percentage rated investment grade		95	%		66	%
Equity Securities
Fair value of securities	$	559		$	337
Cost of securities	$	356		$	385
Gross unrealized gain (loss)	$	203	(*)	$	(48	)
Fair value as % of cost		157	%		88	%
Number of security positions		95			125
Number individually exceeding $2 million gain or loss		6			7

(*) Includes $138 million on AFG’s investment in Verisk Analytics, Inc.

The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at September 30, 2011, based on their fair values. Asset-backed securities and other 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.

	Securities			Securities
	With			With
	Unrealized			Unrealized
	Gains			Losses
Maturity
One year or less		3	%		2	%
After one year through five years		26			17
After five years through ten years		34			22
After ten years		11			6
		74			47
Mortgage-backed securities (average life of approximately four years)		26			53
		100	%		100	%

39

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount.

						Fair
	Aggregate		Aggregate			Value as
	Fair		Unrealized			% of Cost
	Value		Gain (Loss)			Basis
Fixed Maturities at September 30, 2011
Securities with unrealized gains:
Exceeding $500,000 (870 issues)	$	10,255	$	1,099			112	%
$500,000 or less (2,758 issues)		7,997		378			105
	$	18,252	$	1,477			109	%
Securities with unrealized losses:
Exceeding $500,000 (135 issues)	$	870	$	(135	)		87	%
$500,000 or less (815 issues)		2,276		(87	)		96
	$	3,146	$	(222	)		93	%

The following table summarizes (dollars in millions) the unrealized loss for all securities with unrealized losses by issuer quality and length of time those securities have been in an unrealized loss position.

						Fair
	Aggregate		Aggregate			Value as
	Fair		Unrealized			% of Cost
	Value		Loss			Basis
Securities with Unrealized Losses at September 30, 2011
Investment grade fixed maturities with losses for:
Less than one year (355 issues)	$	1,786	$	(62	)		97	%
One year or longer (118 issues)		289		(35	)		89
	$	2,075	$	(97	)		96	%
Non-investment grade fixed maturities with losses for:
Less than one year (308 issues)	$	780	$	(39	)		95	%
One year or longer (169 issues)		291		(86	)		77
	$	1,071	$	(125	)		90	%
Common equity securities with losses for:
Less than one year (98 issues)	$	260	$	(39	)		87	%
One year or longer (5 issues)		—		—			—
	$	260	$	(39	)		87	%
Perpetual preferred equity securities with losses for:
Less than one year (12 issues)	$	43	$	(3	)		93	%
One year or longer (10 issues)		34		(6	)		85
	$	77	$	(9	)		90	%

When a decline in the value of a specific investment is considered to be “other-than-temporary,” a provision for impairment is charged to earnings (accounted for as a realized loss) and the cost basis of that investment is reduced by the amount of the charge. The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors as detailed in AFG’s 2010 Form 10-K under Management’s Discussion and Analysis — “Investments.”

40

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Based on its analysis, management believes (i) AFG will recover its cost basis in the securities with unrealized losses and (ii) that AFG has the ability and intent to hold the securities until they recover in value and, at September 30, 2011, had no intent to sell them. Although AFG has the ability to continue holding its investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers’ creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG’s ability or intent change with regard to a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, charges for other-than-temporary impairment could be material to results of operations in future periods. Significant declines in the fair value of AFG’s investment portfolio could have a significant adverse effect on AFG’s liquidity.

Uncertainties Management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations. AFG has conducted comprehensive studies of its asbestos and environmental reserves with the aid of outside actuarial and engineering firms and specialty outside counsel every two years with an in-depth internal review during the intervening years. The outcome of the 2011 study with the assistance of outside firms is included in AFG’s nine month results. See “Results of Operations” — “Special Asbestos and Environmental Reserve Charge” below and Management’s Discussion and Analysis — “Uncertainties” in AFG’s 2010 Form 10-K.

41

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

MANAGED INVESTMENT ENTITIES

Accounting standards require AFG to consolidate its investments in six collateralized loan obligation (“CLO”) entities that it manages and owns an interest in (in the form of debt). See Note A - “Accounting Policies - Managed Investment Entities” and Note H - “Managed Investment Entities.” The effect of consolidating these entities is shown in the tables below (in millions). The “Before CLO Consolidation” columns include AFG’s investment and earnings in the CLOs on an unconsolidated basis.

CONDENSED CONSOLIDATING BALANCE SHEET

			Managed
	Before CLO		Investment		Consol.			Consolidated
	Consolidation		Entities		Entries			As Reported
September 30, 2011
Assets:
Cash and other investments	$	25,014	$	—	$	(60	)(a)	$	24,954
Assets of managed investment entities		—		2,439		—			2,439
Other assets		7,737		—		—			7,737
Total assets	$	32,751	$	2,439	$	(60	)	$	35,130
Liabilities:
Unpaid losses, loss adjustment expenses and unearned premiums	$	8,249	$	—	$	—		$	8,249
Annuity, life, accident and health benefits and reserves		16,483		—		—			16,483
Liabilities of managed investment entities		—		2,289		(60	)(a)		2,229
Long-term debt and other liabilities		3,549		—		—			3,549
Total liabilities		28,281		2,289		(60	)		30,510
Shareholders’ Equity:
Common Stock and Capital surplus		1,213		—		—			1,213
Retained earnings:
Appropriated — managed investment entities		—		150		—			150
Unappropriated		2,539		—		—			2,539
Accumulated other comprehensive income		563		—		—			563
Total shareholders’equity		4,315		150		—			4,465
Noncontrolling interests		155		—		—			155
Total equity		4,470		150		—			4,620
Total liabilities and equity	$	32,751	$	2,439	$	(60	)	$	35,130
December 31, 2010
Assets:
Cash and other investments	$	22,687	$	—	$	(17	)(a)	$	22,670
Assets of managed investment entities		—		2,537		—			2,537
Other assets		7,247		—		—			7,247
Total assets	$	29,934	$	2,537	$	(17	)	$	32,454
Liabilities:
Unpaid losses, loss adjustment expenses and unearned premiums	$	7,947	$	—	$	—		$	7,947
Annuity, life, accident and health benefits and reserves		14,555		—		—			14,555
Liabilities of managed investment entities		—		2,340		(17	)(a)		2,323
Long-term debt and other liabilities		3,009		—		—			3,009
Total liabilities		25,511		2,340		(17	)		27,834
Shareholders’ equity:
Common Stock and Capital surplus		1,271		—		—			1,271
Retained earnings:
Appropriated — managed investment entities		—		197		—			197
Unappropriated		2,523		—		—			2,523
Accumulated other comprehensive income		479		—		—			479
Total shareholders’ equity		4,273		197		—			4,470
Noncontrolling interests		150		—		—			150
Total equity		4,423		197		—			4,620
Total liabilities and equity	$	29,934	$	2,537	$	(17	)	$	32,454

(a) Elimination of the fair value of AFG’s investment in CLOs.

42

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

				Managed
	Before CLO			Investment			Consol.			Consolidated
	Consolidation(a)			Entities			Entries			As Reported
Nine months ended September 30, 2011
Revenues:
Insurance premiums	$	2,367		$	—		$	—		$	2,367
Investment income		916			—			—			916
Realized gains (losses) on securities		32			—			(5	)(b)		27
Realized gains (losses) on subsidiaries		(3	)		—			—			(3	)
Income (loss) of managed investment entities:
Investment income		—			78			—			78
Loss on change in fair value of assets/liabilities		—			(51	)		(3	)(b)		(54	)
Other income		149			—			(13	)(c)		136
Total revenues		3,461			27			(21	)		3,467
Costs and Expenses:
Insurance benefits and expenses		2,763			—			—			2,763
Expenses of managed investment entities		—			74			(21	)(b)(c)		53
Interest on borrowed money and other expenses		332			—			—			332
Total costs and expenses		3,095			74			(21	)		3,148
Operating earnings before income taxes		366			(47	)		—			319
Provision for income taxes		126			—			—			126
Net earnings, including noncontrolling interests		240			(47	)		—			193
Less: Net earnings (loss) attributable to noncontrolling interests		6			—			(47	)(d)		(41	)
Net Earnings Attributable to Shareholders	$	234		$	(47	)	$	47		$	234
Nine months ended September 30, 2010
Revenues:
Insurance premiums	$	2,227		$	—		$	—		$	2,227
Investment income		885			—			—			885
Realized gains (losses) on securities		82			—			(10	)(b)		72
Realized gains (losses) on subsidiaries		(22	)		—			—			(22	)
Income (loss) of managed investment entities:
Investment income		—			68			—			68
Loss on change in fair value of assets/liabilities		—			(49	)		5	(b)		(44	)
Other income		168			—			(13	)(c)		155
Total revenues		3,340			19			(18	)		3,341
Costs and Expenses:
Insurance benefits and expenses		2,454			—			—			2,454
Expenses of managed investment entities		—			56			(18	)(b)(c)		38
Interest on borrowed money and other expenses		336			—			—			336
Total costs and expenses		2,790			56			(18	)		2,828
Operating earnings before income taxes		550			(37	)		—			513
Provision for income taxes		199			—			—			199
Net earnings, including noncontrolling interests		351			(37	)		—			314
Less: Net earnings (loss) attributable to noncontrolling interests		5			—			(37	)(d)		(32	)
Net Earnings Attributable to Shareholders	$	346		$	(37	)	$	37		$	346

(a)	Includes $5 million and $10 million for the first nine months of 2011 and 2010, respectively, in realized gains representing the change in fair value of AFG’s CLO investments plus $13 million for each of the same periods in CLO management fees earned.
(b)	Elimination of the change in fair value of AFG’s investments in the CLOs, including $8 million and $5 million for the first nine months of 2011 and 2010, respectively, in distributions recorded as interest expense by the CLOs.
(c)	Elimination of management fees earned by AFG.
(d)	Allocate losses of CLOs attributable to other debt holders to noncontrolling interests.

43

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

RESULTS OF OPERATIONS

General Results of operations as shown in the accompanying financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following table identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions, except per share amounts):

	Three months ended				Nine months ended
	September 30,				September 30,
	2011		2010		2011			2010
Core net operating earnings	$	91	$	117	$	258		$	322
Special asbestos and environmental (“A&E”) charge(*)		—		—		(38	)		—
Realized gains (*)		5		15		14			24
Net earnings attributable to shareholders	$	96	$	132	$	234		$	346
Diluted per share amounts:
Core net operating earnings	$	.90	$	1.07		2.48		$	2.89
Special asbestos and environmental charge		—		—		(.37	)		—
Realized gains		.04		.14		.13			.22
Net earnings attributable to shareholders	$	.94	$	1.21	$	2.24		$	3.11

(*) The tax effects of reconciling items are shown below (in millions):

Special A&E charge	$	—		$	—		$	21		$	—
Realized gains		(3	)		(20	)		(10	)		(25	)

In addition, realized gains(losses) are shown net of noncontrolling interests of $1 million for the first nine months of 2010.

Net earnings attributable to shareholders and core net operating earnings decreased in the third quarter and first nine months of 2011 compared to the same periods in 2010. Lower underwriting profit and lower investment income in the Specialty property and casualty insurance operations, partially offset by increased earnings in the annuity and supplemental operations in the first nine months of 2011, contributed to these results. Net earnings attributable to shareholders in 2011 was also impacted by lower realized gains and the second quarter special A&E charge.

Property and Casualty Insurance — Underwriting AFG reports its Specialty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.

Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. See Note C — “Segments of Operations” for the detail of AFG’s operating profit by significant business segment.

Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses, loss adjustment expenses, underwriting expenses and policyholder dividends to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect investment income, other income or federal income taxes.

44

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Premiums, combined ratios and prior year development for AFG’s property and casualty insurance operations were as follows (dollars in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Gross Written Premiums
Property and transportation	$	1,104		$	809		$	1,918		$	1,450
Specialty casualty		325			335			967			998
Specialty financial		146			129			391			379
Other		—			—			1			1
	$	1,575		$	1,273		$	3,277		$	2,828
Net Written Premiums
Property and transportation	$	575		$	450		$	1,175		$	912
Specialty casualty		220			227			645			676
Specialty financial		103			10			297			212
Other		17			16			51			44
	$	915		$	703		$	2,168		$	1,844
Combined Ratios
Property and transportation		99.1	%		89.9	%		96.3	%		90.3	%
Specialty casualty		90.7			105.6			93.4			95.7
Specialty financial		77.2			60.4			85.3			73.8
Total Specialty		93.2			90.7			93.0			88.8
Aggregate (including discontinued lines)		93.2	%		90.7	%		95.5	%		89.4	%
Favorable (Unfavorable) Prior Year
Development
Property and transportation	$	(3	)	$	(2	)	$	23		$	22
Specialty casualty		23			(3	)		50			47
Specialty financial		9			16			9			39
Other specialty		5			4			10			14
		34			15			92			122
Other (primarily asbestos and environmental charges)		—			(1	)		(50	)		(12	)
Aggregate (including discontinued lines)	$	34		$	14		$	42		$	110

Gross and net written premiums increased in the third quarter and first nine months of 2011 compared to the same 2010 periods due primarily to higher premiums in the property and transportation segment. In addition, higher net written premiums in 2011 reflect the impact of a third quarter 2010 reinsurance transaction in the specialty financial group. Overall average renewal rates for the third quarter and first nine months of 2011 were flat when compared to the same 2010 periods.

The Specialty insurance operations generated an underwriting profit of $56 million in the 2011 third quarter compared to $68 million in the third quarter of 2010. Higher favorable reserve development was more than offset by lower underwriting profits in the crop business, underwriting losses in a block of program business and higher catastrophe losses. Catastrophe losses were $13 million compared to $6 million in the 2010 third quarter. Underwriting profit for the Specialty insurance operations for the first nine months of 2011 was $141 million compared to $214 million in the comparable 2010 period. This difference was primarily the result of lower crop profits, lower favorable reserve development and underwriting losses in a block of program business.

45

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Property and transportation gross and net written premiums for the third quarter and first nine months of 2011 were higher than the comparable 2010 periods as a result of the impact of higher spring agricultural commodity prices on crop premiums. Nine month gross and net written premiums were also impacted by additional premiums from the Vanliner acquisition. This group reported an underwriting profit of $5 million in the 2011 third quarter, $36 million lower than the 2010 third quarter. Lower crop profits, higher catastrophe losses and lower underwriting profits in the transportation businesses contributed to these results. Underwriting profit in the first nine months of 2011 decreased approximately $43 million from the comparable 2010 period.

Specialty casualty gross and net written premiums for the third quarter and first nine months of 2011 were down from the comparable 2010 periods. The non-renewal of two major programs that did not meet return thresholds and a decision to exit the excess workers’ compensation business resulted in lower premiums in both 2011 periods. This group reported an underwriting profit of $20 million in the 2011 third quarter compared to an underwriting loss of $13 million in the third quarter of 2010. The increase in underwriting profit was primarily attributable to a significant reduction in prior year adverse reserve development. Improved results in the general liability, excess and surplus, and California workers’ compensation businesses were offset somewhat by lower underwriting profits in the targeted markets operations. Specialty casualty underwriting profit in the first nine months of 2011 was $43 million, approximately $14 million higher than the comparable 2010 period. Higher underwriting profit in the excess and surplus lines and improved prior year favorable reserve development more than offset underwriting losses in a block of program business.

Specialty financial net written premiums increased in the third quarter and the first nine months of 2011 as a result of a third quarter 2010 reinsurance transaction that involved the sale of unearned premiums related to the automotive lines of business. These increased premiums were offset to some extent by lower premiums in the financial institutions business, as a result of the reduction in coastal and near-coastal exposures. This group reported underwriting profit of $23 million for the third quarter of 2011 compared to $36 million for the same period a year ago. Higher catastrophe losses in the financial institutions business and lower favorable reserve development in the run-off automotive residual value insurance (“RVI”) business impacted 2011 results. Additionally, third quarter 2010 results reflect pre-tax income of approximately $8 million in connection with a reinsurance transaction involving the sale of unearned premiums related to the automotive lines of business. Specialty financial underwriting profit was $46 million for the nine month period, compared to $91 million in the same 2010 period, primarily the result of lower favorable RVI reserve development and the 2010 reinsurance transaction.

Special Asbestos and Environmental Reserve Charge In the second quarter of 2011, AFG completed a comprehensive study of its asbestos and environmental exposures relating to the run-off operations of its property and casualty group and its exposures related to former railroad and manufacturing operations and sites.

46

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

As a result of the study, AFG recorded a $50 million special charge (net of reinsurance) to increase the property and casualty group’s asbestos reserves by $28 million and its environmental reserves by $22 million. At September 30, 2011, the property and casualty group’s A&E reserves were $375 million, net of reinsurance recoverables. At that date, AFG’s three year survival ratio was 17.8 times paid losses for the asbestos reserves and 12.0 times paid losses for the total A&E reserves. Excluding amounts associated with the settlements of asbestos related coverage litigation for A.P. Green Industries (see “Legal Proceedings” in AFG’s 2010 Form 10-K) and another large claim, AFG’s three year survival ratio was 11.3 and 8.5 times paid losses for the asbestos reserves and total A&E reserves, respectively. These ratios compare favorably with A.M. Best’s most recent report on A&E survival ratios (February 2011) which were 8.3 for asbestos and 7.7 for total industry A&E reserves.

The property and casualty group’s asbestos reserve increase related primarily to exposures on business assumed from other insurers resulting from an increase in anticipated aggregate exposures in several large settlements involving several insurers in which AFG has a small proportionate share. Some insurers have settled long-standing asbestos exposures with their insureds and are seeking payment from reinsurers. Asbestos reserves related to the property and casualty group’s direct asbestos exposures were increased to reflect higher frequency and severity of mesothelioma and other cancer claims as well as increased defense costs on many of these claims. These trends were partially offset by a decline in the number of claims without serious injury and fewer new claims that required payment being reported to AFG. The increase in the property and casualty group’s environmental reserves was attributed primarily to a small number of increases on specific environmental claims at several sites.

In addition to the property and casualty group, the study encompassed reserves for asbestos and environmental exposures of AFG’s former railroad and manufacturing operations. As a result of the study, AFG recorded a $9 million special charge (included in other expenses) to increase its (i) asbestos reserves by $3 million in recognition of a higher number of expected mesothelioma and lung cancer cases than had previously been estimated, partially offset by a decrease in the number of claims without serious injury and (ii) environmental reserves by $6 million due primarily to higher estimated costs with respect to several existing sites. At September 30, 2011, AFG had liabilities totaling $99 million for environmental and personal injury claims associated with its former railroad and manufacturing operations.

The study relied on a ground-up exposure analysis. With respect to asbestos, it considered products and non-products exposures, paid claims history, the pattern of new claims, settlements and projected development. The asbestos legal climate remains very difficult to predict. While some progress has been made in state asbestos tort reform and judicial rulings, that progress has been somewhat offset by increased claims costs, increased defense costs, the assertion of non-products theories and an expanding pool of plaintiffs and defendants.

Annuity and Supplemental Insurance Operations Operating earnings before income taxes for the annuity and supplemental insurance segment decreased $9 million (16%) in the third quarter as higher earnings from growth in the annuity business and lower operating and general expenses were more than offset by the impact of the third quarter 2011 decrease in the stock market and, to a lesser extent, the accounting impact of lower interest rates on fixed indexed annuity (“FIA”) results. The $9 million (6%) increase in this segment’s pretax operating earnings for the first nine months of 2011 compared to the 2010 period was due primarily to higher earnings in the fixed annuity operations, especially the bank distribution channels, as well as higher earnings in the supplemental health insurance operations.

47

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

A 14% decline in the S&P 500 Index during the third quarter of 2011 had a negative impact on variable and FIA results of approximately $8 million. FIA results for the 2011 third quarter were also adversely impacted by approximately $4 million due to the effect of the decline in interest rates on the fair value of FIA embedded derivatives. AFG expects that much of this negative impact will reverse over time. During the third quarter of 2010, the positive impact of an 11% increase in the S&P 500 Index was offset by the impact of a decline in interest rates on the fair value of the embedded derivatives.

AFG performs a review (“unlocking”) of its major actuarial assumptions throughout the year, with a more comprehensive review in the fourth quarter. These actuarial assumptions include management’s expectation of long-term reinvestment rates. No unlockings were recorded during the first nine months of 2011 and 2010. Given current market conditions, the effect of any such fourth quarter 2011 unlocking is not expected to be material to AFG.

Statutory Annuity Premiums The following table summarizes AFG’s annuity sales (in millions):

	Three months ended				Nine months ended
	September 30,				September 30,
	2011		2010		2011		2010
403(b) Fixed and Indexed Annuities:
First Year	$	3	$	6	$	14	$	26
Renewal		34		35		122		122
Single Sum		23		35		58		86
Subtotal		60		76		194		234
Non-403(b) Indexed Annuities		495		221		1,206		504
Non-403(b) Fixed Annuities		74		106		196		365
Bank Annuities — Direct		63		165		278		361
Bank Annuities — Indirect		181		131		542		141
Variable Annuities		17		17		52		56
Total Annuity Premiums	$	890	$	716	$	2,468	$	1,661

“Bank Annuities — Direct” represent premiums generated by financial institutions appointed and serviced directly by AFG. “Bank Annuities — Indirect” represent premiums generated through banks by independent agents or brokers.

The increase in annuity premiums for the third quarter and first nine months of 2011 compared to the same periods in 2010 is attributable to increased sales of indexed annuities in the non-403(b) single premium market and higher sales through the indirect bank distribution channel.

Increased sales of indexed annuities reflects the industry trend towards indexed annuities and away from traditional fixed annuities, as well as AFG’s introduction of new indexed products and features. Management believes the decrease in “Bank Annuities — Direct” premiums in 2011 reflects AFG’s reduction in crediting rates, making certificates of deposit, competitors’ bank annuities and other investment options more competitive. AFG started selling through its indirect bank distribution channel in the second quarter of 2010. The increase in “Bank Annuities — Indirect” premiums for the 2011 third quarter reflects the addition of several new banks.

48

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Life, Accident and Health Premiums and Benefits The following table summarizes AFG’s life, accident and health premiums and benefits as shown in the Consolidated Statement of Earnings (in millions):

	Three months ended				Nine months ended
	September 30,				September 30,
	2011		2010		2011		2010
Premiums
Supplemental insurance operations
First year	$	9	$	14	$	30	$	52
Renewal		91		91		275		268
Life operations (in run-off)		7		7		19		20
	$	107	$	112	$	324	$	340
Benefits
Supplemental insurance operations	$	81	$	81	$	245	$	250
Life operations (in run-off)		9		9		30		29
	$	90	$	90	$	275	$	279

Investment Income The $14 million and $31 million increases in investment income for the third quarter and first nine months of 2011, respectively, compared to the same periods in 2010 reflect higher average invested assets, primarily related to growth in the annuity business, partially offset by lower yields on fixed maturity investments. Investment income includes $6 million and $21 million in the third quarter and first nine months of 2011 and $14 million and $58 million in the third quarter and first nine months of 2010 of interest income earned on interest-only and similar MBS, primarily non-agency interest-only securities with interest rates that float inversely with short-term rates.

Over the past couple of years, yields available in the financial markets on fixed maturity securities have generally declined, placing downward pressure on AFG’s investment portfolio yield.

49

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

Realized Gains (Losses) on Securities Net realized gains (losses) on securities consisted of the following (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Realized gains (losses) before impairments:
Disposals	$	30		$	50		$	93		$	95
Change in the fair value of derivatives		(12	)		22			(23	)		34
Adjustments to annuity deferred policy acquisition costs and related items		—			(4	)		(2	)		(9	)
		18			68			68			120
Impairment charges:
Securities		(14	)		(15	)		(55	)		(68	)
Adjustments to annuity deferred policy acquisition costs and related items		4			4			14			20
		(10	)		(11	)		(41	)		(48	)
	$	8		$	57		$	27		$	72

The change in fair value of derivatives includes net gains of $3 million in the third quarter and net losses of less than $1 million in the first nine months of 2011 and net gains of $25 million and $51 million in the third quarter and first nine months of 2010 from the mark-to-market of MBS, primarily interest-only securities with interest rates that float inversely with short-term rates. See Note F — “Derivatives.”

Realized Losses on Subsidiaries In the third quarter of 2010, AFG recorded an impairment charge of $22 million resulting from management’s decision to de-emphasize the sale of supplemental health insurance products through career agents, including the sale of a marketing subsidiary. See Note I — “Goodwill and Other Intangibles.”

Other Income The decrease in other income for the third quarter and first nine months of 2011 compared to the 2010 periods reflects $16 million in income recorded in the third quarter of 2010 from the sale of real estate and the termination of leases by a tenant.

Annuity Benefits Annuity benefits reflect amounts accrued on annuity policyholders’ funds accumulated. On deferred annuities (annuities in the accumulation phase), interest is generally credited to policyholders’ accounts at their current stated interest rates. Furthermore, for “two-tier” deferred annuities (annuities under which a higher interest amount can be earned if a policy is annuitized rather than surrendered), additional reserves are accrued for (i) persistency and premium bonuses and (ii) excess benefits expected to be paid for future deaths and annuitizations. Changes in investment yields, crediting rates, actual surrender, death and annuitization experience or modifications in actuarial assumptions can affect these additional reserves and could result in charges (or credits) to earnings in the period the projections are modified.

50

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Continued

The $28 million and $43 million increases in annuity benefits for the third quarter and first nine months of 2011 compared to the 2010 periods reflect growth in the annuity business as well as the impact of the third quarter 2011 decline in interest rates and poor stock market performance on the fair value of derivatives related to the fixed index annuity business, partially offset by the impact of lower average crediting rates.

Annuity and Supplemental Insurance Acquisition Expenses Annuity and supplemental insurance acquisition expenses include amortization of annuity, supplemental insurance and life business deferred policy acquisition costs (“DPAC”) as well as a portion of commissions on sales of insurance products. Annuity and supplemental insurance acquisition expenses also include amortization of the present value of future profits of businesses acquired (“PVFP”).

The vast majority of the annuity and supplemental insurance group’s DPAC asset relates to its annuity and life insurance lines of business. Unanticipated spread compression, decreases in the stock market, adverse mortality experience, and higher than expected lapse rates could lead to write-offs of DPAC or PVFP in the future. If the current interest rate environment persists through the end of the year, AFG may be required to write-off DPAC related to its fixed annuity business. Any such write-off is not expected to have a material impact on AFG’s net earnings for the year.

Interest Charges on Borrowed Money Interest expense increased $6 million (11%) during the first nine months of 2011 compared to the same period of 2010 reflecting AFG’s issuance of $132 million of 7% Senior Notes in September 2010.

Other Operating and General Expenses Other operating and general expenses for 2011 include a $9 million second quarter special charge to increase liabilities related to asbestos and environmental exposures of AFG’s former railroad and manufacturing operations. For a discussion of the study that resulted in the A&E charge, see “Special Asbestos and Environmental Reserve Charge” under Results of Operations — “Property and Casualty Insurance - Underwriting.” The A&E charge was offset by the impact of a $10 million recovery in the first quarter of 2011 on a prior property and casualty extracontractual obligation claim.

51

AMERICAN FINANCIAL GROUP, INC. 10-Q

ITEM 3

Quantitative and Qualitative Disclosure of Market Risk

As of September 30, 2011, there were no material changes to the information provided in Item 7A — “Quantitative and Qualitative Disclosure of Market Risk” of AFG’s 2010 Form 10-K.

ITEM 4

Controls and Procedures

AFG’s management, with participation of its Co-Chief Executive Officers and its principal financial officer, has evaluated AFG’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report. Based on that evaluation, AFG’s Co-CEOs and principal financial officer concluded that the controls and procedures are effective. There have been no changes in AFG’s internal control over financial reporting during the third fiscal quarter of 2011 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

In the ordinary course of business, AFG and its subsidiaries routinely enhance their information systems by either upgrading current systems or implementing new systems. There has been no change in AFG’s business processes and procedures during the third fiscal quarter of 2011 that has materially affected, or is reasonably likely to materially affect, AFG’s internal controls over financial reporting.

52

AMERICAN FINANCIAL GROUP, INC. 10-Q

PART II
OTHER INFORMATION

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities AFG repurchased shares of its Common Stock during the first nine months of 2011 as follows:

					Total Number		Maximum Number
					of Shares		of Shares
	Total				Purchased as		that May
	Number			Average		Part of Publicly		Yet be Purchased
	of Shares		Price Paid		Announced Plans		Under the Plans
	Purchased		Per Share		or Programs		or Programs (a)
First Quarter		2,457,721	$	34.04		2,457,721		10,250,706
Second Quarter		2,710,121	$	34.79		2,710,121		7,540,585
July		534,800	$	34.33		534,800		7,005,785
August		1,550,269	$	31.76		1,550,269		5,455,516
September		550,375	$	31.60		550,375		4,905,141

(a) Represents the remaining shares that may be repurchased under the Plans authorized by AFG’s Board of Directors in August 2010 and February 2011.

ITEM 6

Exhibits

Number		Exhibit Description
	12	Computation of ratios of earnings to fixed charges.
	31(a)	Certification of the Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification of the Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
	31(c)	Certification of the Chief Financial Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
	32	Certification of the Co-Chief Executive Officers and Chief Financial Officer pursuant to section 906 of the Sarbanes- Oxley Act of 2002.
	101	The following financial information from American Financial Group’s Form 10-Q for the quarter ended September 30, 2011 formatted in XBRL (Extensible Business Reporting Language):

(i)	Consolidated Balance Sheet
(ii)	Consolidated Statement of Earnings
(iii)	Consolidated Statement of Changes in Equity
(iv)	Consolidated Statement of Changes in Cash Flows
(v)	Notes to Consolidated Financial Statements

53

AMERICAN FINANCIAL GROUP, INC. 10-Q

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, American Financial Group, Inc. has duly caused this Report to be signed on its behalf by the undersigned duly authorized.

	American Financial Group, Inc.
November 7, 2011	BY:	s/ Keith A. Jensen
		Keith A. Jensen
		Senior Vice President (principal financial and accounting officer)

54

EX-12

AMERCIAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

EXHIBIT 12 — COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)

	Nine Months Ended		Year Ended
	September 30, 2011		December 31, 2010
Operating earnings before income taxes	$	319	$	689
Undistributed equity in losses of investee		1		3
Losses of managed investment entities attributable to noncontrolling interest		47		64
Fixed charges:
Interest on annuities		383		444
Interest expense		63		78
Debt discount and expense		2		2
Portion of rentals representing interest		11		14
EARNINGS	$	826	$	1,294
Fixed charges:
Interest on annuities	$	383	$	444
Interest expense		63		78
Debt discount and expense		2		2
Portion of rentals representing interest		11		14
FIXED CHARGES	$	459	$	538
Ratio of Earnings to Fixed Charges		1.80		2.41
Earnings in Excess of Fixed Charges	$	367	$	756

EX-31.(A)

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 31(a)

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

I, Carl H. Lindner III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 7, 2011	BY:	s/ Carl H. Lindner III
		Carl H. Lindner III
		Co-Chief Executive Officer (principal executive officer)

EX-31.(B)

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 31(b)

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

I, S. Craig Lindner, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 7, 2011	BY:	s/ S. Craig Lindner
		S. Craig Lindner
		Co-Chief Executive Officer (principal executive officer)

EX-31.(C)

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 31(c)

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS — CONTINUED

I, Keith A. Jensen, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 7, 2011	BY:	s/ Keith A. Jensen
		Keith A. Jensen
		Senior Vice President (principal financial and accounting officer)

EX-32

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of American Financial Group, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2011 (the “Report”), the undersigned officers of the Company, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 7, 2011	BY:	s/ S. Craig Lindner
Date		S. Craig Lindner
		Co-Chief Executive Officer
November 7, 2011	BY:	s/ Carl H. Lindner III
Date		Carl H. Lindner III
		Co-Chief Executive Officer
November 7, 2011	BY:	s/ Keith A. Jensen
Date		Keith A. Jensen
		Senior Vice President (principal financial and accounting officer)

A signed original of this written statement will be retained by the Registrant and
furnished to the Securities and Exchange Commission or its staff upon request.

XML

Derivatives (Details Textuals) (USD $)	9 Months Ended
	Sep. 30, 2011
Derivatives (Textuals) [Abstract]
Notional amount of pay-fixed interest rate swaptions	$ 1,000,000,000
Payments to purchase swaptions	$ 29,000,000
Indexed annuities as a fraction of annuity benefits	approximately one-third

XML

Consolidated Balance Sheet (Unaudited) (Parenthetical) (USD $) In Millions, except Share data	Sep. 30, 2011	Dec. 31, 2010
Investments:
Fixed maturities, available for sale at amortized cost	$ 20,297	$ 18,490
Equity securities, at cost	$ 775	$ 458
Shareholders' equity:
Common Stock, par value
Common Stock, shares authorized	200,000,000	200,000,000
Common Stock, shares outstanding	98,506,233	105,168,366

XML

Consolidated Statement of Earnings (Unaudited) (USD $) In Millions, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Property and casualty insurance premiums	$ 835	$ 736	$ 2,043	$ 1,887
Life, accident and health premiums	107	112	324	340
Investment income	310	296	916	885
Realized gains (losses) on:
Securities	8	57	27	72
Subsidiaries		(22)	(3)	(22)
Income (loss) of managed investment entities:
Investment income	27	23	78	68
Gain (loss) on change in fair value of assets/liabilities	1	(4)	(54)	(44)
Other income	47	57	136	155
Total revenues	1,335	1,255	3,467	3,341
Costs and Expenses:
Property and casualty insurance losses and loss adjustment expenses	549	446	1,303	1,052
Property and casualty insurance commissions and other underwriting expenses	230	222	649	633
Annuity benefits	142	114	383	340
Life, accident and health benefits	90	90	275	279
Annuity and supplemental insurance acquisition expenses	48	47	153	150
Interest charges on borrowed money	21	21	63	57
Expenses of managed investment entities	17	15	53	38
Other operating and general expenses	83	92	269	279
Total costs and expenses	1,180	1,047	3,148	2,828
Operating earnings before income taxes	155	208	319	513
Provision for income taxes	48	82	126	199
Net earnings, including noncontrolling interests	107	126	193	314
Less: Net earnings (loss) attributable to noncontrolling interests	11	(6)	(41)	(32)
Net Earnings Attributable to Shareholders	96	132	234	346
Earnings Attributable to Shareholders per Common Share:
Basic	$ 0.96	$ 1.22	$ 2.28	$ 3.14
Diluted	$ 0.94	$ 1.21	$ 2.24	$ 3.11
Average number of Common Shares:
Basic	99.7	108.2	102.3	110.1
Diluted	101.3	109.5	104.1	111.4
Cash dividends per Common Share	$ 0.1625	$ 0.1375	$ 0.4875	$ 0.4125
Supplemental disclosure of Realized gains (losses) on securities:
Realized gains before impairments	18	68	68	120
Losses on securities with impairment	(6)	(8)	(23)	(42)
Non-credit portion recognized in other comprehensive income (loss)	(4)	(3)	(18)	(6)
Impairment charges recognized in earnings	(10)	(11)	(41)	(48)
Total realized gains (losses) on securities	$ 8	$ 57	$ 27	$ 72

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Managed Investment Entities (Details Textuals) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2011 Securities CollateralizedLoanObligations Year	Dec. 31, 2010	Sep. 30, 2011 Variable Interest Entity, Primary Beneficiary [Member]	Oct. 31, 2011 CLO Currently Being Marketed [Member]	Sep. 30, 2011 Senior Debt of Collateralized Loan Obligations [Member]
Variable Interest Entity [Line Items]
Aggregate fair value of investment in collateralized loan obligations			$ 60
Purchased senior debt, face amount					49
Purchased CLO senior debt purchase price					46
Assets of managed investment entities	2,439	2,537		400
Liabilities of managed investment entities	2,229	2,323		400
Managed Investment Entities (Textuals) [Abstract]
Percentage of investment of most subordinate debt tranche, Minimum	7.50%
Percentage of investment of most subordinate debt tranche, Maximum	24.40%
Number of collateralized loan obligation entities	6
Difference between aggregate unpaid principal balance and fair value of CLOs' fixed maturity investments	143	69
Difference between aggregate unpaid principal balance and fair value of CLOs' debt	316	301
Aggregate unpaid principal balance of CLO loans in default	7	12
Carrying amount of CLO loans in default	$ 2	$ 6

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Assets and liabilities measured at fair value

	Level 1		Level 2		Level 3		Total
September 30, 2011
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	234	$	188	$	—	$	422
States, municipalities and political subdivisions		—		3,697		72		3,769
Foreign government		—		267		—		267
Residential MBS		—		3,540		284		3,824
Commercial MBS		—		2,774		28		2,802
All other corporate		9		10,023		436		10,468
Total AFS fixed maturities		243		20,489		820		21,552
Trading fixed maturities		—		440		1		441
Equity securities		777		129		24		930
Assets of managed investment entities (“MIE”)		132		2,267		40		2,439
Variable annuity assets (separate accounts) (a)		—		515		—		515
Other investments		—		47		—		47
Total assets accounted for at fair value	$	1,152	$	23,887	$	885	$	25,924
Liabilities:
Liabilities of managed investment entities	$	47	$	—	$	2,182	$	2,229
Derivatives in annuity benefits accumulated		—		—		332		332
Total liabilities accounted for at fair value	$	47	$	—	$	2,514	$	2,561
December 31, 2010
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	249	$	218	$	—	$	467
States, municipalities and political subdivisions		—		2,919		20		2,939
Foreign government		—		278		—		278
Residential MBS		—		3,563		312		3,875
Commercial MBS		—		2,117		6		2,123
All other corporate		9		9,201		436		9,646
Total AFS fixed maturities		258		18,296		774		19,328
Trading fixed maturities		—		390		3		393
Equity securities		461		208		21		690
Assets of managed investment entities (“MIE”)		96		2,393		48		2,537
Variable annuity assets (separate accounts) (a)		—		616		—		616
Other investments		—		98		—		98
Total assets accounted for at fair value	$	815	$	22,001	$	846	$	23,662
Liabilities:
Liabilities of managed investment entities	$	65	$	—	$	2,258	$	2,323
Derivatives in annuity benefits accumulated		—		—		190		190
Total liabilities accounted for at fair value	$	65	$	—	$	2,448	$	2,513

(a) Variable annuity liabilities equal the fair value of variable annuity assets.

Changes in balances of Level 3 financial assets and liabilities

				Total
				realized/unrealized
				gains (losses)
				included in
							Other
	Balance at						comp.			Purchases						Transfer		Transfer			Balance at
	June 30,			Net			income			and			Sales and			into		out of			September 30,
	2011			income			(loss)			issuances			Settlements			Level 3		Level 3			2011
AFS fixed maturities:
State and municipal	$	84		$	—		$	4		$	—		$	(3	)	$	—	$	(13	)	$	72
Residential MBS		255			1			(4	)		25			(9	)		24		(8	)		284
Commercial MBS		10			—			—			9			—			9		—			28
All other corporate		382			2			11			32			(14	)		46		(23	)		436
Trading fixed maturities		1			—			—			—			—			—		—			1
Equity securities		21			—			(1	)		2			—			2		—			24
Assets of MIE		53			(6	)		—			5			(7	)		—		(5	)		40
Liabilities of MIE (*)		(2,322	)		89			—			—			51			—		—			(2,182	)
Embedded derivatives		(299	)		31			—			(71	)		7			—		—			(332	)

(*) Total realized/unrealized loss included in net income includes losses of $89 million related to liabilities outstanding as of September 30, 2011. See Note H — “Managed Investment Entities.”

				Total
				realized/unrealized
				gains (losses)
				included in
							Other		Purchases,
	Balance at						comp.		sales,			Transfer		Transfer			Balance at
	June 30,			Net			income		issuances and			into		out of			September 30,
	2010			income			(loss)		settlements			Level 3		Level 3			2010
AFS fixed maturities:
State and municipal	$	21		$	—		$	—	$	—		$	—	$	—		$	21
Residential MBS		326			4			11		5			7		(61	)		292
Commercial MBS		6			(1	)		—		—			—		—			5
All other corporate		426			—			7		14			27		(22	)		452
Trading fixed maturities		1			—			—		—			—		—			1
Equity securities		24			—			—		—			—		(3	)		21
Assets of MIE		46			—			—		(4	)		—		—			42
Liabilities of MIE		(2,152	)		(51	)		—		4			—		—			(2,199	)
Embedded derivatives		(128	)		(26	)		—		(16	)		—		—			(170	)

				Total
				realized/unrealized
				gains (losses)
				included in
							Other
	Balance at						comp.			Purchases						Transfer		Transfer			Balance at
	Dec. 31,			Net			income			and			Sales and			into		out of			September 30,
	2010			income			(loss)			issuances			Settlements			Level 3		Level 3			2011
AFS fixed maturities:
State and municipal	$	20		$	—		$	5		$	53		$	(3	)	$	10	$	(13	)	$	72
Residential MBS		312			2			(6	)		42			(29	)		31		(68	)		284
Commercial MBS		6			—			—			9			—			13		—			28
All other corporate		436			1			17			123			(51	)		70		(160	)		436
Trading fixed maturities		3			—			—			—			—			—		(2	)		1
Equity securities		21			—			1			2			(2	)		2		—			24
Assets of MIE		48			(7	)		—			21			(13	)		8		(17	)		40
Liabilities of MIE (*)		(2,258	)		17			—			—			59			—		—			(2,182	)
Embedded derivatives		(190	)		2			—			(161	)		17			—		—			(332	)

(*) Total realized/unrealized loss included in net income includes losses of $19 million related to liabilities outstanding as of September 30, 2011. See Note H — “Managed Investment Entities.”

							Total
							realized/unrealized
							gains (losses)
							included in
				Consolidate						Other			Purchases,
	Balance at			Managed						comp.			sales,			Transfer		Transfer			Balance at
	Dec. 31,			Inv.			Net			income			issuances and			into		out of			September 30,
	2009			Entities			income			(loss)			settlements			Level 3		Level 3			2010
AFS fixed maturities:
State and municipal	$	23		$	—		$	—		$	1		$	(3	)	$	17	$	(17	)	$	21
Residential MBS		435			—			6			22			11			9		(191	)		292
Commercial MBS		—			—			(1	)		—			6			—		—			5
All other corporate		311			(6	)		(12	)		15			101			96		(53	)		452
Trading fixed maturities		1			—			—			—			4			—		(4	)		1
Equity securities		25			—			—			(1	)		—			—		(3	)		21
Assets of MIE		—			90			5			—			(8	)		7		(52	)		42
Liabilities of MIE		—			(2,100	)		(141	)		—			42			—		—			(2,199	)
Embedded derivatives		(113	)		—			(25	)		—			(32	)		—		—			(170	)

Fair value of financial instruments

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:
Cash and cash equivalents	$	991	$	991	$	1,099	$	1,099
Fixed maturities		21,993		21,993		19,721		19,721
Equity securities		930		930		690		690
Mortgage loans		384		387		468		469
Policy loans		253		253		264		264
Other investments — derivatives		47		47		98		98
Assets of managed investment entities		2,439		2,439		2,537		2,537
Variable annuity assets (separate accounts)		515		515		616		616
Liabilities:
Annuity benefits accumulated(*)	$	14,582	$	14,437	$	12,696	$	12,233
Long-term debt		937		1,023		952		1,023
Liabilities of managed investment entities		2,229		2,229		2,323		2,323
Variable annuity liabilities (separate accounts)		515		515		616		616
Other liabilities — derivatives		24		24		14		14

(*) Excludes life contingent annuities in the payout phase.

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Document and Entity Information (USD $) In Billions, except Share data	9 Months Ended
	Sep. 30, 2011	Nov. 01, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	AMERICAN FINANCIAL GROUP INC
Entity Central Index Key	0001042046
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 2.2
Entity Common Stock, Shares Outstanding		98,728,074

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Derivatives (Details) (Not Designated as Hedging Instrument [Member], USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	$ 145	$ 199
Derivative liability, at fair value	356	204
MBS with embedded derivatives [Member] | Fixed Maturities [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	98	101
Interest rate swaptions [Member] | Other Investments [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	7	21
Indexed annuities embedded derivative [Member] | Annuity benefits accumulated [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative liability, at fair value	332	190
Equity index call options [Member] | Other Investments [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	40	77
Reinsurance contracts embedded derivative [Member] | Other Liabilities [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative liability, at fair value	$ 24	$ 14

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Deferred Policy Acquisition Costs (Tables)

9 Months Ended

Sep. 30, 2011

Deferred Policy Acquisition Costs [Abstract]

Deferred Policy Acquisition Costs

	September 30,			December 31,
	2011			2010
Property and casualty insurance	$	330		$	324
Annuity and supplemental insurance:
Policy acquisition costs		979			892
Policyholder sales inducements		205			204
Present value of future profits (“PVFP”)		148			164
Impact of unrealized gains and losses on securities		(535	)		(340	)
Total annuity and supplemental		797			920
	$	1,127		$	1,244

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Investments (Details Textuals) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Investments (Textuals) [Abstract]
Number of available for sale securities in an unrealized loss position			950
Percentage (based on amount of unrealized loss) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade			44.00%
Percentage (based on fair value) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade			66.00%
Number of Residential MBS that have been in an unrealized loss position for 12 months or more			234
RMBS unrealized losses for 12 months or more as a percentage of total AFS fixed maturity unrealized losses for 12 months or more			87.00%
Other than temporary impairment charges	$ 10	$ 11	$ 41	$ 48
Average life of MBS			4 years
Realized gain (loss) from the mark-to-market of certain MBS	3	25	(1)	51
Residential Mortgage Backed Securities [Member]
Investments (Textuals) [Abstract]
Non-credit related portion of other-than-temporary impairment charges taken for securities still owned	231		231		258
Gross unrealized losses on fixed maturities	145		145		128
Percentage (based on amount of unrealized loss) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade			26.00%
Percentage (based on fair value) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade			44.00%
Percentage of gross unrealized losses on the available for sale fixed maturity portfolio			65.00%
Other than temporary impairment charges			45
Commercial Mortgage Backed Securities [Member]
Investments (Textuals) [Abstract]
Gross unrealized losses on fixed maturities	11		11		2
Fixed Maturity Securities [Member]
Investments (Textuals) [Abstract]
Gross unrealized losses on fixed maturities	222		222		216
Other than temporary impairment charges	12	12	49	62
All other corporate [Member]
Investments (Textuals) [Abstract]
Other than temporary impairment charges			$ 4

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Derivatives

9 Months Ended

Sep. 30, 2011

Derivatives [Abstract]

Derivatives

F. Derivatives

As discussed under “Derivatives” in Note A, AFG uses derivatives in certain areas of its operations. AFG’s derivatives do not qualify for hedge accounting under GAAP; changes in the fair value of derivatives are included in earnings.

The following derivatives are included in AFG’s Balance Sheet at fair value (in millions):

		September 30, 2011				December 31, 2010
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	98	$	—	$	101	$	—
Interest rate swaptions	Other investments		7				21		—
Indexed annuities (embedded derivative)	Annuity benefits accumulated		—		332		—		190
Equity index call options	Other investments		40		—		77		—
Reinsurance contracts (embedded derivative)	Other liabilities		—		24		—		14
		$	145	$	356	$	199	$	204

The MBS with embedded derivatives consist primarily of interest-only MBS with interest rates that float inversely with short-term rates. AFG records the entire change in the fair value of these securities in earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.

AFG has entered into $1 billion notional amount of pay-fixed interest rate swaptions (options to enter into pay-fixed/receive floating interest rate swaps at future dates expiring between 2012 and 2015) to mitigate interest rate risk in its annuity operations. AFG paid $29 million to purchase these swaptions, which represents its maximum potential economic loss over the life of the contracts.

AFG’s indexed annuities, which represented approximately one-third of annuity benefits accumulated at September 30, 2011, provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase of call options on the appropriate index. AFG’s strategy is designed so that an increase in the liabilities, due to an increase in the market index, will be generally offset by unrealized and realized gains on the call options purchased by AFG. Both the index-based component of the annuities and the related call options are considered derivatives.

As discussed under “Reinsurance” in Note A, certain reinsurance contracts in AFG’s annuity and supplemental insurance business are considered to contain embedded derivatives.

The following table summarizes the gain (loss) included in the Statement of Earnings for changes in the fair value of these derivatives for the third quarter and first nine months of 2011 and 2010 (in millions):

		Three months ended						Nine months ended
		September 30,						September 30,
Derivative	Statement of Earnings Line	2011			2010			2011			2010
MBS with embedded derivatives	Realized gains	$	3		$	25		$	—		$	51
Interest rate swaptions	Realized gains		(15	)		(2	)		(22	)		(16	)
Indexed annuities (embedded derivative)	Annuity benefits		31			(26	)		2			(25	)
Equity index call options	Annuity benefits		(50	)		23			(30	)		11
Reinsurance contracts (embedded derivative)	Investment income		(6	)		(6	)		(10	)		(16	)
		$	(37	)	$	14		$	(60	)	$	5

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Managed Investment Entities (Tables)

9 Months Ended

Sep. 30, 2011

Managed Investment Entities [Abstract]

Selected financial information related to collateralized loan obligations

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$	(88	)	$	47		$	(71	)	$	97
Liabilities		89			(51	)		17			(141	)
Management fees paid to AFG		5			5			13			13
CLO earnings (losses) attributable to:
AFG shareholders (b)		(2	)		3			5			10
Noncontrolling interests (b)		8			(4	)		(47	)		(37	)

(a)	Included in AFG’s “Revenues.”
(b)	Included in AFG’s “Operating earnings before income taxes.”

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Investments (Details 3) (USD $) In Millions, unless otherwise specified	Sep. 30, 2011	Dec. 31, 2010
The scheduled maturities of available for sale fixed maturities
Fixed maturities amortized cost, One year or less	$ 544
Fixed maturities fair value, One year or less	558
Fixed maturities fair value, One year or less, Percent	2.00%
Fixed maturities amortized cost, After one year through five years	5,076
Fixed maturities fair value, After one year through five years	5,367
Fixed maturities fair value, After one year through five years, Percent	25.00%
Fixed maturities amortized cost, After five years through ten years	6,326
Fixed maturities fair value, After five years through ten years	6,859
Fixed maturities fair value, After five years through ten years, Percent	32.00%
Fixed maturities amortized cost, After ten years	1,945
Fixed maturities fair value, After ten years	2,142
Fixed maturities fair value, After ten years, Percent	10.00%
Fixed maturities amortized cost, Subtotal	13,891
Fixed maturities fair value, Subtotal	14,926
Fixed maturities fair value, Subtotal, Percent	69.00%
Fixed maturities amortized cost, MBS	6,406
Fixed maturities fair value, MBS	6,626
Fixed maturities fair value, MBS, Percent	31.00%
Fixed Maturity Securities [Member]
The scheduled maturities of available for sale fixed maturities
Amortized Cost	20,297	18,490
Fair Value	$ 21,552	$ 19,328
Fair value, Total, Percent	100.00%

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Fair Value Measurements (Details 2) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2010	Dec. 31, 2009
Assets:
Cash and cash equivalents	$ 991	$ 1,099	$ 1,140	$ 1,120
Equity securities	930	690
Mortgage loans	384	468
Policy loans	253	264
Assets of managed investment entities	2,439	2,537
Variable annuity assets (separate accounts)	515	616
Liabilities:
Long-term debt	937	952
Liabilities of managed investment entities	2,229	2,323
Variable annuity liabilities (separate accounts)	515	616
Carrying Value [Member]
Assets:
Cash and cash equivalents	991	1,099
Fixed maturities	21,993	19,721
Equity securities	930	690
Mortgage loans	384	468
Policy loans	253	264
Other investments - derivatives	47	98
Assets of managed investment entities	2,439	2,537
Variable annuity assets (separate accounts)	515	616
Liabilities:
Annuity benefits accumulated	14,582	12,696
Long-term debt	937	952
Liabilities of managed investment entities	2,229	2,323
Variable annuity liabilities (separate accounts)	515	616
Other liabilities - derivatives	24	14
Fair Value [Member]
Assets:
Cash and cash equivalents	991	1,099
Fixed maturities	21,993	19,721
Equity securities	930	690
Mortgage loans	387	469
Policy loans	253	264
Other investments - derivatives	47	98
Assets of managed investment entities	2,439	2,537
Variable annuity assets (separate accounts)	515	616
Liabilities:
Annuity benefits accumulated	14,437	12,233
Long-term debt	1,023	1,023
Liabilities of managed investment entities	2,229	2,323
Variable annuity liabilities (separate accounts)	515	616
Other liabilities - derivatives	$ 24	$ 14

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Derivatives (Tables)

9 Months Ended

Sep. 30, 2011

Derivatives [Abstract]

Derivatives included in Balance Sheet at fair value

		September 30, 2011				December 31, 2010
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	98	$	—	$	101	$	—
Interest rate swaptions	Other investments		7				21		—
Indexed annuities (embedded derivative)	Annuity benefits accumulated		—		332		—		190
Equity index call options	Other investments		40		—		77		—
Reinsurance contracts (embedded derivative)	Other liabilities		—		24		—		14
		$	145	$	356	$	199	$	204

Summary of gain (loss) included in the Statement of Earnings for changes in the fair value of derivatives

		Three months ended						Nine months ended
		September 30,						September 30,
Derivative	Statement of Earnings Line	2011			2010			2011			2010
MBS with embedded derivatives	Realized gains	$	3		$	25		$	—		$	51
Interest rate swaptions	Realized gains		(15	)		(2	)		(22	)		(16	)
Indexed annuities (embedded derivative)	Annuity benefits		31			(26	)		2			(25	)
Equity index call options	Annuity benefits		(50	)		23			(30	)		11
Reinsurance contracts (embedded derivative)	Investment income		(6	)		(6	)		(10	)		(16	)
		$	(37	)	$	14		$	(60	)	$	5

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Shareholders' Equity

9 Months Ended

Sep. 30, 2011

Shareholders' Equity [Abstract]

Shareholders' Equity

K. Shareholders’ Equity

AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.

Accumulated Other Comprehensive Income (Loss), Net of Tax Comprehensive income (loss) is defined as all changes in Shareholders’ Equity except those arising from transactions with shareholders. Comprehensive income (loss) includes net earnings and other comprehensive income (loss), which consists primarily of changes in net unrealized gains or losses on available for sale securities. The progression of the components of accumulated other comprehensive income (loss) follows (in millions):

							Pension and
	Pretax			Foreign			Other									Accumulated
	Net Unrealized			Currency			Postretirement						Noncon-			Other
	Gains (Losses)			Translation			Plans			Tax			trolling			Comprehensive
	on Securities			Adjustment			Adjustment			Effects			Interests			Income (Loss)
Balance at December 31, 2010	$	736	(a)	$	9		$	(13	)	$	(253	)	$	—		$	479	(a)
Unrealized holding gains on securities arising during the period		199			—			—			(70	)		(5	)		124
Realized gains included in net income		(53	)		—			—			19			1			(33	)
Foreign currency translation gains		—			(9	)		—			—			1			(8	)
Other		—			—			1			—			—			1
Balance at September 30, 2011	$	882	(a)	$	—		$	(12	)	$	(304	)	$	(3	)	$	563	(a)
Balance at December 31, 2009	$	258		$	1		$	(13	)	$	(86	)	$	3		$	163
Unrealized holding gains on securities arising during the period		778			—			—			(272	)		(7	)		499
Realized gains included in net income		(92	)		—			—			32			1			(59	)
Foreign currency translation losses		—			9			—			—			(2	)		7
Other		(6	)		—			1			2			—			(3	)
Balance at September 30, 2010	$	938		$	10		$	(12	)	$	(324	)	$	(5	)	$	607

(a) Includes net pretax unrealized losses of $14 million ($9 million net of tax) at September 30, 2011 and $17 million ($11 million net of tax) at December 31, 2010 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

Stock Based Compensation Under AFG’s Stock Incentive Plan, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first nine months of 2011, AFG issued 131,955 shares of restricted Common Stock (fair value of $34.34 per share) and granted stock options for 1.1 million shares of Common Stock (at an average exercise price of $34.34) under the Stock Incentive Plan. In addition, AFG issued 188,302 shares of Common Stock (fair value of $33.99 per share) in the first quarter of 2011 under its Annual Co-CEO Equity Bonus Plan.

AFG uses the Black-Scholes option pricing model to calculate the “fair value” of its option grants. Expected volatility is based on historical volatility over a period equal to the expected term. The expected term was estimated based on historical exercise patterns and post vesting cancellations. The weighted average fair value of options granted during 2011 was $12.49 per share based on the following assumptions: expected dividend yield — 1.9%; expected volatility — 38%; expected term — 7.3 years; risk-free rate — 3.04%.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $5 million in the third quarter of 2011 and 2010 and $16 million and $15 million during the first nine months of 2011 and 2010, respectively.

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Acquisition

9 Months Ended

Sep. 30, 2011

Acquisition [Abstract]

Acquisition

B. Acquisition

Vanliner Group, Inc. (“Vanliner”) In July 2010, National Interstate (“NATL”), a 52%-owned subsidiary of AFG, completed the acquisition of Vanliner, a market leader in providing insurance for the moving and storage industry, for $114 million (including post-closing adjustments). Vanliner’s moving and storage insurance premiums associated with policies in force as of December 31, 2010, totaled approximately $90 million, representing approximately 78% of its total business.

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Segments of Operations (Details Textuals) (USD $) In Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2011	Jun. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Segments of Operations (Textuals) [Abstract]
Earnings (losses) of managed investment entities attributable to noncontrolling interests	$ 8		$ (4)	$ (47)	$ (37)
Other Lines [Member]
Segments of Operations (Textuals) [Abstract]
Special charges to increase asbestos and environmental reserves		50		50
Other Segment [Member]
Segments of Operations (Textuals) [Abstract]
Earnings (losses) of managed investment entities attributable to AFG shareholders, including management fees	3		8	18	23
Earnings (losses) of managed investment entities attributable to noncontrolling interests	8		(4)	(47)	(37)
Special charges to increase asbestos and environmental reserves		$ 9		$ 9

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Managed Investment Entities

9 Months Ended

Sep. 30, 2011

Managed Investment Entities [Abstract]

Managed Investment Entities

H. Managed Investment Entities

AFG is the investment manager and has investments ranging from 7.5% to 24.4% of the most subordinate debt tranche of six collateralized loan obligation entities or “CLOs,” which are considered variable interest entities. In addition, AFG purchased $49 million face amount of the most senior debt tranche of one of the CLOs for $46 million in August 2011. Upon formation between 2004 and 2007, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each particular CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay operating expenses (including management fees to AFG), interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities. As permitted by the CLO indentures, the holder of the majority of the most subordinate debt tranche of one of AFG’s CLOs notified AFG in July 2011 of its decision to liquidate the CLO in August 2011. Prior to liquidation, this notice was rescinded and liquidation did not occur. In October 2011, AFG began marketing a new CLO with a similar structure to the existing CLOs, which is expected to initially have both assets and liabilities of approximately $400 million.

AFG’s maximum ultimate exposure to economic loss on its CLOs is limited to its investment in the CLOs, which had an aggregate fair value of $60 million at September 30, 2011.

The revenues and expenses of the CLOs are separately identified in AFG’s Statement of Earnings after the elimination of management fees and earnings attributable to shareholders of AFG as measured by the change in the fair value of AFG’s investments in the CLOs. Selected financial information related to the CLOs is shown below (in millions):

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$	(88	)	$	47		$	(71	)	$	97
Liabilities		89			(51	)		17			(141	)
Management fees paid to AFG		5			5			13			13
CLO earnings (losses) attributable to:
AFG shareholders (b)		(2	)		3			5			10
Noncontrolling interests (b)		8			(4	)		(47	)		(37	)

(a)	Included in AFG’s “Revenues.”
(b)	Included in AFG’s “Operating earnings before income taxes.”

The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $143 million and $69 million at September 30, 2011 and December 31, 2010. The aggregate unpaid principal balance of the CLOs’ debt exceeded its fair value by $316 million and $301 million at those dates. The CLO assets include $2 million and $6 million in loans at September 30, 2011 and December 31, 2010, (aggregate unpaid principal balance of $7 million and $12 million, respectively) for which the CLOs are not accruing interest because the loans are in default.

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Contingencies

9 Months Ended

Sep. 30, 2011

Contingencies [Abstract]

Contingencies

M. Contingencies

Except as discussed in Management’s Discussion and Analysis — “Special Asbestos and Environmental Reserve Charge,” there have been no significant changes to the matters discussed and referred to in Note M — “Contingencies” of AFG’s 2010 Form 10-K covering property and casualty insurance reserves for claims related to environmental exposures, asbestos and other mass tort claims as well as environmental and occupational injury and disease claims of former subsidiary railroad and manufacturing operations.

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Goodwill and Other Intangibles

9 Months Ended

Sep. 30, 2011

Goodwill and Other Intangibles [Abstract]

Goodwill and Other Intangibles

I. Goodwill and Other Intangibles

There were no changes in the goodwill balance of $186 million during the nine months ended September 30, 2011.

In the third quarter of 2010, management reached a decision to de-emphasize the sale of supplemental health insurance products through career agents, including the sale of a marketing subsidiary. As a result of this decision, AFG performed an interim impairment test of the goodwill associated with the reporting unit using an income valuation method based on discounted cash flows. Based on the results of this test, AFG recorded a goodwill impairment charge of $22 million (included in realized gains (losses) on subsidiaries) to write off all of the goodwill related to this reporting unit.

Included in other assets in AFG’s Balance Sheet is $40 million at September 30, 2011 and $49 million at December 31, 2010, in amortizable intangible assets related to property and casualty insurance acquisitions. These amounts are net of accumulated amortization of $44 million and $35 million, respectively. Amortization of these intangibles was $3 million in the third quarter and $9 million during the first nine months of both 2011 and 2010. Other assets also include $8 million in non-amortizable intangible assets related to insurance licenses acquired in the acquisition of Vanliner in 2010.

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Acquisition (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended		12 Months Ended
	Mar. 31, 2011 National Interstate (NATL) [Member]	Jul. 31, 2010 National Interstate (NATL) [Member]	Dec. 31, 2010 Vanliner Group, Inc. Moving and Storage Insurance Business [Member]
Acquisition (Textuals) [Abstract]
Percentage ownership of National Interstate		52.00%
Purchase of subsidiaries including post-closing adjustments	$ 114
Gross written premiums			$ 90
Percentage of total gross written premiums of Vanliner Group, Inc.			78.00%

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Deferred Policy Acquisition Costs

9 Months Ended

Sep. 30, 2011

Deferred Policy Acquisition Costs [Abstract]

Deferred Policy Acquisition Costs

G. Deferred Policy Acquisition Costs

Deferred policy acquisition costs consisted of the following (in millions):

	September 30,			December 31,
	2011			2010
Property and casualty insurance	$	330		$	324
Annuity and supplemental insurance:
Policy acquisition costs		979			892
Policyholder sales inducements		205			204
Present value of future profits (“PVFP”)		148			164
Impact of unrealized gains and losses on securities		(535	)		(340	)
Total annuity and supplemental		797			920
	$	1,127		$	1,244

The PVFP amounts in the table above are net of $190 million and $174 million of accumulated amortization at September 30, 2011 and December 31, 2010, respectively. Amortization of the PVFP was $5 million in the third quarter and $16 million during the first nine months of 2011 and $6 million in the third quarter and $22 million during the first nine months of 2010, respectively.

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Managed Investment Entities (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$ (88)	$ 47	$ (71)	$ 97
Liabilities	89	(51)	17	(141)
Management fees paid to AFG	5	5	13	13
Collateralized loan obligations' earnings (losses) attributable to:
AFG shareholders	(2)	3	5	10
Noncontrolling interests	$ 8	$ (4)	$ (47)	$ (37)

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Consolidated Statement of Cash Flows (Unaudited) (USD $) In Millions	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Operating Activities:
Net earnings, including noncontrolling interests	$ 193	$ 314
Adjustments:
Depreciation and amortization	139	141
Annuity benefits	383	340
Realized gains on investing activities	(23)	(57)
Net purchases of trading securities	(44)	(2)
Deferred annuity and life policy acquisition costs	(197)	(157)
Change in:
Reinsurance and other receivables	(519)	256
Other assets	(99)	13
Insurance claims and reserves	347	(195)
Payable to reinsurers	331	(24)
Other liabilities	154	101
Other operating activities, net	(4)	51
Net cash provided by (used in) operating activities	661	781
Investing Activities:
Purchases of fixed maturities	(4,062)	(3,737)
Purchases of equity securities	(365)	(183)
Purchases of mortgage loans	(132)	(143)
Purchases of real estate, property and equipment	(82)	(62)
Purchases of subsidiaries		(128)
Proceeds from maturities and redemptions of fixed maturities	1,455	1,474
Proceeds from repayments of mortgage loans	227	35
Proceeds from sales of fixed maturities	865	1,215
Proceeds from sales of equity securities	88	10
Proceeds from sales of real estate, property and equipment	4	3
Managed investment entities:
Purchases of investments	(1,085)	(617)
Proceeds from sales and redemptions of investments	1,170	658
Cash and cash equivalents of businesses acquired		95
Other investing activities, net	(14)	6
Net cash provided by (used in) investing activities	(1,931)	(1,374)
Financing Activities:
Annuity receipts	2,468	1,661
Annuity surrenders, benefits and withdrawals	(971)	(914)
Additional long-term borrowings	2	158
Reductions of long-term debt	(17)	(36)
Retirement of managed investment entities' liabilities	(60)	(42)
Issuances of Common Stock	19	27
Repurchases of Common Stock	(263)	(201)
Cash dividends paid on Common Stock	(50)	(46)
Other financing activities, net	34	6
Net cash provided by (used in) financing activities	1,162	613
Net Change in Cash and Cash Equivalents	(108)	20
Cash and cash equivalents at beginning of period	1,099	1,120
Cash and cash equivalents at end of period	$ 991	$ 1,140

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Segments of Operations

9 Months Ended

Sep. 30, 2011

Segments of Operations [Abstract]

Segments of Operations

C. Segments of Operations

AFG manages its business as three segments: (i) property and casualty insurance, (ii) annuity and supplemental insurance and (iii) other, which includes holding company costs and operations of the managed investment entities.

AFG reports its property and casualty insurance business in the following Specialty sub-segments: (i) Property and transportation, which includes physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages, (ii) Specialty casualty, which includes primarily excess and surplus, general liability, executive liability, umbrella and excess liability, customized programs for small to mid-sized businesses and California workers’ compensation, and (iii) Specialty financial, which includes risk management insurance programs for lending and leasing institutions (including collateral and mortgage protection insurance), surety and fidelity products and trade credit insurance. AFG’s annuity and supplemental insurance business markets traditional fixed and indexed annuities and a variety of supplemental insurance products such as Medicare supplement. AFG’s reportable segments and their components were determined based primarily upon similar economic characteristics, products and services.

The following tables (in millions) show AFG’s revenues and operating earnings before income taxes by significant business segment and sub-segment.

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	500		$	407		$	1,029		$	832
Specialty casualty		216			224			651			661
Specialty financial		101			92			313			347
Other		18			13			50			47
Total premiums earned		835			736			2,043			1,887
Investment income		73			80			221			257
Realized gains (losses)		15			46			47			69
Other income		20			13			55			49
Total property and casualty insurance		943			875			2,366			2,262
Annuity and supplemental insurance:
Investment income		236			215			692			625
Life, accident and health premiums		107			112			324			340
Realized gains (losses)		(8	)		(11	)		(24	)		(19	)
Other income		28			23			78			81
Total annuity and supplemental insurance		363			339			1,070			1,027
Other		29			41			31			52
Total revenues	$	1,335		$	1,255		$	3,467		$	3,341
Operating Earnings Before Income Taxes
Property and casualty insurance:
Underwriting income (loss):
Specialty
Property and transportation	$	5		$	41		$	38		$	81
Specialty casualty		20			(13	)		43			29
Specialty financial		23			36			46			91
Other		8			4			14			13
Other lines (a)		—			—			(50	)		(12	)
Total underwriting		56			68			91			202
Investment and other income, net		66			67			204			229
Realized gains (losses)		15			46			47			69
Total property and casualty insurance		137			181			342			500
Annuity and supplemental insurance:
Operations		49			58			157			148
Realized gains (losses)		(8	)		(11	)		(24	)		(19	)
Total annuity and supplemental insurance		41			47			133			129
Other (b)		(23	)		(20	)		(156	)		(116	)
Total operating earnings before income taxes	$	155		$	208		$	319		$	513

(a)	Includes a second quarter 2011 special charge of $50 million to increase asbestos and environmental reserves.
(b)	Includes a second quarter 2011 special charge of $9 million to increase asbestos and environmental reserves and the following earnings (losses) of managed investment entities for the third quarter and first nine months of 2011 and 2010 (in millions):

Attributable to:
AFG shareholders, including management fees	$	3	$	8		$	18		$	23
Noncontrolling interests	$	8	$	(4	)	$	(47	)	$	(37	)

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Investments (Details) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
U.S. Government and government agencies [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	$ 401	$ 453
Fair Value	422	467
Gross Unrealized, Gains	21	15
Gross Unrealized, Losses	0	(1)
States, municipalities and political subdivisions [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	3,521	2,927
Fair Value	3,769	2,939
Gross Unrealized, Gains	252	53
Gross Unrealized, Losses	(4)	(41)
Foreign government [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	249	269
Fair Value	267	278
Gross Unrealized, Gains	18	9
Gross Unrealized, Losses	0	0
Residential Mortgage Backed Securities [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	3,771	3,781
Fair Value	3,824	3,875
Gross Unrealized, Gains	198	222
Gross Unrealized, Losses	(145)	(128)
Commercial Mortgage Backed Securities [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	2,635	1,972
Fair Value	2,802	2,123
Gross Unrealized, Gains	178	153
Gross Unrealized, Losses	(11)	(2)
All Other Corporate [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	9,720	9,088
Fair Value	10,468	9,646
Gross Unrealized, Gains	810	602
Gross Unrealized, Losses	(62)	(44)
Fixed Maturity Securities [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	20,297	18,490
Fair Value	21,552	19,328
Gross Unrealized, Gains	1,477	1,054
Gross Unrealized, Losses	(222)	(216)
Common Stocks [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	629	312
Fair Value	788	543
Gross Unrealized, Gains	198	232
Gross Unrealized, Losses	(39)	(1)
Perpetual preferred stocks [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	146	146
Fair Value	142	147
Gross Unrealized, Gains	5	6
Gross Unrealized, Losses	$ (9)	$ (5)

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Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011 Securities CollateralizedLoanObligations Year	Sep. 30, 2010	Dec. 31, 2010	Dec. 31, 2009
Accounting Policies (Textuals) [Abstract]
Number of collateralized loan obligation entities			6
Excess of fair value of assets over liabilities of managed investment entities						$ 261
Weighted average common shares adjustment related to stock-based compensation	1.6	1.3	1.8	1.3
Anti-dilutive potential common shares related to stock-based compensation plans	2.6	3.1	2.3	4.0
Estimated percentage reduction in shareholders' equity from adopting new accounting guidance			3.00%		3.00%
Maximum [Member]
Change in Accounting Estimate [Line Items]
Estimated percentage reduction in deferred policy acquisition costs from adopting new accounting guidance			20.00%		20.00%
Minimum [Member]
Change in Accounting Estimate [Line Items]
Estimated percentage reduction in deferred policy acquisition costs from adopting new accounting guidance			15.00%		15.00%

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Shareholders' Equity (Details) (USD $) In Millions	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Accumulated other comprehensive income (loss), net of tax
Pretax Net Unrealized Gains (Losses) on Securities, Beginning Balance	$ 736	$ 258
Foreign Currency Translation Adjustment, Beginning Balance	9	1
Pension and Other Postretirement Plans Adjustment, Beginning Balance	(13)	(13)
Tax Effects, Beginning Balance	(253)	(86)
Non-controlling Interest, Beginning Balance	0	3
Accumulated Other Comprehensive Income (Loss), Beginning Balance	479	163
Unrealized holding gains (losses) on securities arising during the period, before tax	199	778
Unrealized holding gains (losses) on securities arising during the period, tax	(70)	(272)
Unrealized holding gains (losses) on securities arising during the period, net of tax, attributable to non-controlling interests	(5)	(7)
Unrealized holding gains (losses) on securities arising during the period, net of tax	124	499
Realized gains included in net income, before tax	(53)	(92)
Realized gains included in net income, tax	19	32
Realized gains included in net income, net of tax, attributable to non-controlling interests	1	1
Realized gains included in net income, net of tax	(33)	(59)
Foreign currency translation gains (losses), before tax	(9)	9
Foreign currency translation gains (losses), net of tax, attributable to non-controlling interests	1	(2)
Foreign currency translation gains (losses), net of tax	(8)	7
Other changes in net unrealized gains (losses) on securities, before tax		(6)
Other changes in pension and other postretirement plans, before tax	1	1
Other, tax		2
Other, net of tax	1	(3)
Pretax Net Unrealized Gains (Losses) on Securities, Ending Balance	882	938
Foreign Currency Translation Adjustment, Ending Balance	0	10
Pension and Other Postretirement Plans Adjustment, Ending Balance	(12)	(12)
Tax Effects, Ending Balance	(304)	(324)
Non-controlling Interest, Ending Balance	(3)	(5)
Accumulated Other Comprehensive Income (Loss), Ending Balance	$ 563	$ 607

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Income Taxes (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Income Taxes (Textuals) [Abstract]
Change in AFG's liability for uncertain tax positions			$ 0
Variable Interest Entity, Primary Beneficiary [Member]
Income Tax Reconciliation [Line Items]
Non-deductible losses related to managed investment entities		4	47	37
Tax exempt income related to managed investment entities	$ 8

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Deferred Policy Acquisition Costs (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Summary of deferred policy acquisition costs
Deferred policy acquisition costs	$ 1,127		$ 1,127		$ 1,244
Deferred Policy Acquisition Costs (Textuals) [Abstract]
Accumulated amortization of present value of future profits	190		190		174
Amortization of present value of future profits	5	6	16	22
Property and Casualty Insurance [Member]
Summary of deferred policy acquisition costs
Policy acquisition costs	330		330		324
Annuity and Supplemental Insurance [Member]
Summary of deferred policy acquisition costs
Policy acquisition costs	979		979		892
Policyholder sales inducements	205		205		204
Present value of future profits	148		148		164
Impact of unrealized gains and losses on securities	(535)		(535)		(340)
Deferred policy acquisition costs	$ 797		$ 797		$ 920

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Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

D. 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 and 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 include separate account assets, corporate and municipal fixed maturity securities, mortgage-backed securities (“MBS”) 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. The unobservable inputs may include management’s own assumptions about the assumptions market participants would use based on the best information available in the circumstances. AFG’s Level 3 is comprised of financial instruments, including liabilities of managed investment entities, 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.

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. 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.

Assets and liabilities measured at fair value are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
September 30, 2011
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	234	$	188	$	—	$	422
States, municipalities and political subdivisions		—		3,697		72		3,769
Foreign government		—		267		—		267
Residential MBS		—		3,540		284		3,824
Commercial MBS		—		2,774		28		2,802
All other corporate		9		10,023		436		10,468
Total AFS fixed maturities		243		20,489		820		21,552
Trading fixed maturities		—		440		1		441
Equity securities		777		129		24		930
Assets of managed investment entities (“MIE”)		132		2,267		40		2,439
Variable annuity assets (separate accounts) (a)		—		515		—		515
Other investments		—		47		—		47
Total assets accounted for at fair value	$	1,152	$	23,887	$	885	$	25,924
Liabilities:
Liabilities of managed investment entities	$	47	$	—	$	2,182	$	2,229
Derivatives in annuity benefits accumulated		—		—		332		332
Total liabilities accounted for at fair value	$	47	$	—	$	2,514	$	2,561
December 31, 2010
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	249	$	218	$	—	$	467
States, municipalities and political subdivisions		—		2,919		20		2,939
Foreign government		—		278		—		278
Residential MBS		—		3,563		312		3,875
Commercial MBS		—		2,117		6		2,123
All other corporate		9		9,201		436		9,646
Total AFS fixed maturities		258		18,296		774		19,328
Trading fixed maturities		—		390		3		393
Equity securities		461		208		21		690
Assets of managed investment entities (“MIE”)		96		2,393		48		2,537
Variable annuity assets (separate accounts) (a)		—		616		—		616
Other investments		—		98		—		98
Total assets accounted for at fair value	$	815	$	22,001	$	846	$	23,662
Liabilities:
Liabilities of managed investment entities	$	65	$	—	$	2,258	$	2,323
Derivatives in annuity benefits accumulated		—		—		190		190
Total liabilities accounted for at fair value	$	65	$	—	$	2,448	$	2,513

(a) Variable annuity liabilities equal the fair value of variable annuity assets.

During the third quarter of 2011, there were no significant transfers between Level 1 and Level 2. Approximately 3% of the total assets measured at fair value on September 30, 2011, were Level 3 assets. Approximately 95% of these assets were priced using non-binding broker quotes. The fair values of the liabilities of managed investment entities were determined using non-binding broker quotes, which were reviewed by AFG’s investment professionals.

Changes in balances of Level 3 financial assets and liabilities during the third quarter and first nine months of 2011 and 2010 are presented below (in millions). The transfers into and out of Level 3 were 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
							Other
	Balance at						comp.			Purchases						Transfer		Transfer			Balance at
	June 30,			Net			income			and			Sales and			into		out of			September 30,
	2011			income			(loss)			issuances			Settlements			Level 3		Level 3			2011
AFS fixed maturities:
State and municipal	$	84		$	—		$	4		$	—		$	(3	)	$	—	$	(13	)	$	72
Residential MBS		255			1			(4	)		25			(9	)		24		(8	)		284
Commercial MBS		10			—			—			9			—			9		—			28
All other corporate		382			2			11			32			(14	)		46		(23	)		436
Trading fixed maturities		1			—			—			—			—			—		—			1
Equity securities		21			—			(1	)		2			—			2		—			24
Assets of MIE		53			(6	)		—			5			(7	)		—		(5	)		40
Liabilities of MIE (*)		(2,322	)		89			—			—			51			—		—			(2,182	)
Embedded derivatives		(299	)		31			—			(71	)		7			—		—			(332	)

(*) Total realized/unrealized loss included in net income includes losses of $89 million related to liabilities outstanding as of September 30, 2011. See Note H — “Managed Investment Entities.”

				Total
				realized/unrealized
				gains (losses)
				included in
							Other		Purchases,
	Balance at						comp.		sales,			Transfer		Transfer			Balance at
	June 30,			Net			income		issuances and			into		out of			September 30,
	2010			income			(loss)		settlements			Level 3		Level 3			2010
AFS fixed maturities:
State and municipal	$	21		$	—		$	—	$	—		$	—	$	—		$	21
Residential MBS		326			4			11		5			7		(61	)		292
Commercial MBS		6			(1	)		—		—			—		—			5
All other corporate		426			—			7		14			27		(22	)		452
Trading fixed maturities		1			—			—		—			—		—			1
Equity securities		24			—			—		—			—		(3	)		21
Assets of MIE		46			—			—		(4	)		—		—			42
Liabilities of MIE		(2,152	)		(51	)		—		4			—		—			(2,199	)
Embedded derivatives		(128	)		(26	)		—		(16	)		—		—			(170	)

				Total
				realized/unrealized
				gains (losses)
				included in
							Other
	Balance at						comp.			Purchases						Transfer		Transfer			Balance at
	Dec. 31,			Net			income			and			Sales and			into		out of			September 30,
	2010			income			(loss)			issuances			Settlements			Level 3		Level 3			2011
AFS fixed maturities:
State and municipal	$	20		$	—		$	5		$	53		$	(3	)	$	10	$	(13	)	$	72
Residential MBS		312			2			(6	)		42			(29	)		31		(68	)		284
Commercial MBS		6			—			—			9			—			13		—			28
All other corporate		436			1			17			123			(51	)		70		(160	)		436
Trading fixed maturities		3			—			—			—			—			—		(2	)		1
Equity securities		21			—			1			2			(2	)		2		—			24
Assets of MIE		48			(7	)		—			21			(13	)		8		(17	)		40
Liabilities of MIE (*)		(2,258	)		17			—			—			59			—		—			(2,182	)
Embedded derivatives		(190	)		2			—			(161	)		17			—		—			(332	)

(*) Total realized/unrealized loss included in net income includes losses of $19 million related to liabilities outstanding as of September 30, 2011. See Note H — “Managed Investment Entities.”

							Total
							realized/unrealized
							gains (losses)
							included in
				Consolidate						Other			Purchases,
	Balance at			Managed						comp.			sales,			Transfer		Transfer			Balance at
	Dec. 31,			Inv.			Net			income			issuances and			into		out of			September 30,
	2009			Entities			income			(loss)			settlements			Level 3		Level 3			2010
AFS fixed maturities:
State and municipal	$	23		$	—		$	—		$	1		$	(3	)	$	17	$	(17	)	$	21
Residential MBS		435			—			6			22			11			9		(191	)		292
Commercial MBS		—			—			(1	)		—			6			—		—			5
All other corporate		311			(6	)		(12	)		15			101			96		(53	)		452
Trading fixed maturities		1			—			—			—			4			—		(4	)		1
Equity securities		25			—			—			(1	)		—			—		(3	)		21
Assets of MIE		—			90			5			—			(8	)		7		(52	)		42
Liabilities of MIE		—			(2,100	)		(141	)		—			42			—		—			(2,199	)
Embedded derivatives		(113	)		—			(25	)		—			(32	)		—		—			(170	)

Fair Value of Financial Instruments The following table presents (in millions) the carrying value and estimated fair value of AFG’s financial instruments at September 30, 2011 and December 31, 2010.

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:
Cash and cash equivalents	$	991	$	991	$	1,099	$	1,099
Fixed maturities		21,993		21,993		19,721		19,721
Equity securities		930		930		690		690
Mortgage loans		384		387		468		469
Policy loans		253		253		264		264
Other investments — derivatives		47		47		98		98
Assets of managed investment entities		2,439		2,439		2,537		2,537
Variable annuity assets (separate accounts)		515		515		616		616
Liabilities:
Annuity benefits accumulated(*)	$	14,582	$	14,437	$	12,696	$	12,233
Long-term debt		937		1,023		952		1,023
Liabilities of managed investment entities		2,229		2,229		2,323		2,323
Variable annuity liabilities (separate accounts)		515		515		616		616
Other liabilities — derivatives		24		24		14		14

(*) Excludes life contingent annuities in the payout phase.

The carrying amount of cash and cash equivalents approximates fair value. Fair values for mortgage loans are estimated by discounting the future contractual cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. The fair value of policy loans is estimated to approximate carrying value; policy loans have no defined maturity dates and are inseparable from insurance contracts. The fair value of annuity benefits was estimated based on expected cash flows discounted using forward interest rates adjusted for the Company’s credit risk and includes the impact of maintenance expenses and capital costs. Fair values of long-term debt are based primarily on quoted market prices.

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Investments (Details 2) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
The credit portion of other-than-temporary impairments on fixed maturity securities, non-credit portion of an impairment has been recognized in other comprehensive income (loss)
Beginning Balance	$ 171	$ 121	$ 143	$ 99
Additional credit impairments on:
Previously impaired securities	8	11	37	34
Securities without prior impairments	2	1	7	8
Reductions - disposals	(1)		(7)	(8)
Ending Balance	$ 180	$ 133	$ 180	$ 133

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Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2011

Long-Term Debt [Abstract]

Schedule of long-term debt instruments

	September 30,		December 31,
	2011		2010
Direct obligations of AFG:
9-7/8% Senior Notes due June 2019	$	350	$	350
7% Senior Notes due September 2050		132		132
7-1/8% Senior Debentures due February 2034		115		115
Other		3		3
		600		600
Subsidiaries:
Obligations of AAG Holding (guaranteed by AFG):
7-1/2% Senior Debentures due November 2033		112		112
7-1/4% Senior Debentures due January 2034		86		86
Notes payable secured by real estate due 2011 through 2016		64		65
Secured borrowings ($17 and $18 guaranteed by AFG)		33		41
National Interstate bank credit facility		22		20
American Premier 10-7/8% Subordinated Notes		—		8
		317		332
Payable to Subsidiary Trusts:
AAG Holding Variable Rate Subordinated Debentures due May 2033		20		20
	$	937	$	952

Summary of secured and unsecured long-term debt

	September 30,		December 31,
	2011		2010
Unsecured obligations	$	840	$	846
Obligations secured by real estate		64		65
Other secured borrowings		33		41
	$	937	$	952

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Condensed Consolidating Information (Details 1) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Property and casualty insurance premiums	$ 835	$ 736	$ 2,043	$ 1,887
Life, accident and health premiums	107	112	324	340
Realized gains (losses)	8	35	24	50
Income (loss) of managed investment entities	28	19	24	24
Investment and other income	357	353	1,052	1,040
Total revenues	1,335	1,255	3,467	3,341
Costs and Expenses:
Insurance benefits and expenses	1,059	919	2,763	2,454
Interest charges on borrowed money	21	21	63	57
Expenses of managed investment entities	17	15	53	38
Other operating and general expenses	83	92	269	279
Total costs and expenses	1,180	1,047	3,148	2,828
Operating earnings before income taxes	155	208	319	513
Provision (credit) for income taxes	48	82	126	199
Net earnings, including noncontrolling interests	107	126	193	314
Less: Net earnings (loss) attributable to noncontrolling interests	11	(6)	(41)	(32)
Net Earnings Attributable to Shareholders	96	132	234	346
AFG [Member]
Revenues:
Investment and other income	(2)	3		3
Equity in earnings of subsidiaries	169	242	447	621
Total revenues	167	245	447	624
Costs and Expenses:
Interest charges on borrowed money	16	15	48	42
Other operating and general expenses	7	16	39	37
Total costs and expenses	23	31	87	79
Operating earnings before income taxes	144	214	360	545
Provision (credit) for income taxes	48	82	126	199
Net earnings, including noncontrolling interests	96	132	234	346
Net Earnings Attributable to Shareholders	96	132	234	346
GAFRI [Member]
Revenues:
Realized gains (losses)		(2)		(2)
Investment and other income	3	3	8	8
Equity in earnings of subsidiaries	37	48	126	129
Total revenues	40	49	134	135
Costs and Expenses:
Other operating and general expenses	3	6	12	13
Total costs and expenses	3	6	12	13
Operating earnings before income taxes	37	43	122	122
Provision (credit) for income taxes	12	21	42	49
Net earnings, including noncontrolling interests	25	22	80	73
Net Earnings Attributable to Shareholders	25	22	80	73
AAG Holding [Member]
Revenues:
Equity in earnings of subsidiaries	39	76	144	172
Total revenues	39	76	144	172
Costs and Expenses:
Interest charges on borrowed money	6	6	19	19
Other operating and general expenses	2	2	4	5
Total costs and expenses	8	8	23	24
Operating earnings before income taxes	31	68	121	148
Provision (credit) for income taxes	9	22	41	50
Net earnings, including noncontrolling interests	22	46	80	98
Net Earnings Attributable to Shareholders	22	46	80	98
All Other Subs [Member]
Revenues:
Property and casualty insurance premiums	835	736	2,043	1,887
Life, accident and health premiums	107	112	324	340
Realized gains (losses)	8	37	25	52
Income (loss) of managed investment entities	28	19	24	24
Investment and other income	364	352	1,066	1,045
Total revenues	1,342	1,256	3,482	3,348
Costs and Expenses:
Insurance benefits and expenses	1,059	919	2,763	2,454
Interest charges on borrowed money	4	6	12	13
Expenses of managed investment entities	17	15	53	38
Other operating and general expenses	72	68	218	224
Total costs and expenses	1,152	1,008	3,046	2,729
Operating earnings before income taxes	190	248	436	619
Provision (credit) for income taxes	59	97	163	236
Net earnings, including noncontrolling interests	131	151	273	383
Less: Net earnings (loss) attributable to noncontrolling interests	11	(6)	(41)	(32)
Net Earnings Attributable to Shareholders	120	157	314	415
Consol. Entries [Member]
Revenues:
Realized gains (losses)			(1)
Investment and other income	(8)	(5)	(22)	(16)
Equity in earnings of subsidiaries	(245)	(366)	(717)	(922)
Total revenues	(253)	(371)	(740)	(938)
Costs and Expenses:
Interest charges on borrowed money	(5)	(6)	(16)	(17)
Other operating and general expenses	(1)		(4)
Total costs and expenses	(6)	(6)	(20)	(17)
Operating earnings before income taxes	(247)	(365)	(720)	(921)
Provision (credit) for income taxes	(80)	(140)	(246)	(335)
Net earnings, including noncontrolling interests	(167)	(225)	(474)	(586)
Net Earnings Attributable to Shareholders	$ (167)	$ (225)	$ (474)	$ (586)

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Segments of Operations (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues by significant business segment and sub-segment
Total premiums earned	$ 835	$ 736	$ 2,043	$ 1,887
Investment income	310	296	916	885
Life, accident and health premiums	107	112	324	340
Realized gains (losses)	8	35	24	50
Other income	47	57	136	155
Total revenues	1,335	1,255	3,467	3,341
Specialty Property and Transportation [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	500	407	1,029	832
Specialty Casualty [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	216	224	651	661
Specialty Financial [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	101	92	313	347
Specialty Other [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	18	13	50	47
Property and Casualty Insurance [Member]
Revenues by significant business segment and sub-segment
Investment income	73	80	221	257
Realized gains (losses)	15	46	47	69
Other income	20	13	55	49
Total revenues	943	875	2,366	2,262
Annuity and Supplemental Insurance [Member]
Revenues by significant business segment and sub-segment
Investment income	236	215	692	625
Life, accident and health premiums	107	112	324	340
Realized gains (losses)	(8)	(11)	(24)	(19)
Other income	28	23	78	81
Total revenues	363	339	1,070	1,027
Other Segment [Member]
Revenues by significant business segment and sub-segment
Total revenues	$ 29	$ 41	$ 31	$ 52

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Investments (Details 1) (USD $) In Millions, unless otherwise specified	Sep. 30, 2011	Dec. 31, 2010
U.S. Government and government agencies [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ 0	$ (1)
Fair Value - Less than twelve months	31	86
Fair Value as % of Cost - Less than twelve months	100.00%	99.00%
Unrealized Loss - Twelve months or more	0	0
Fair Value - Twelve months or more	0	0
Fair Value as % of Cost - Twelve months or more	0.00%	0.00%
States, municipalities and political subdivisions [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(2)	(38)
Fair Value - Less than twelve months	162	1,180
Fair Value as % of Cost - Less than twelve months	99.00%	97.00%
Unrealized Loss - Twelve months or more	(2)	(3)
Fair Value - Twelve months or more	48	40
Fair Value as % of Cost - Twelve months or more	96.00%	93.00%
Foreign government [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	0	0
Fair Value - Less than twelve months	0	37
Fair Value as % of Cost - Less than twelve months	0.00%	99.00%
Unrealized Loss - Twelve months or more	0	0
Fair Value - Twelve months or more	0	0
Fair Value as % of Cost - Twelve months or more	0.00%	0.00%
Residential Mortgage Backed Securities [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(40)	(11)
Fair Value - Less than twelve months	942	412
Fair Value as % of Cost - Less than twelve months	96.00%	97.00%
Unrealized Loss - Twelve months or more	(105)	(117)
Fair Value - Twelve months or more	444	551
Fair Value as % of Cost - Twelve months or more	81.00%	82.00%
Commercial Mortgage Backed Securities [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(11)	(2)
Fair Value - Less than twelve months	285	83
Fair Value as % of Cost - Less than twelve months	96.00%	98.00%
Unrealized Loss - Twelve months or more	0	0
Fair Value - Twelve months or more	7	15
Fair Value as % of Cost - Twelve months or more	100.00%	97.00%
All Other Corporate [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(48)	(24)
Fair Value - Less than twelve months	1,146	1,020
Fair Value as % of Cost - Less than twelve months	96.00%	98.00%
Unrealized Loss - Twelve months or more	(14)	(20)
Fair Value - Twelve months or more	81	275
Fair Value as % of Cost - Twelve months or more	85.00%	93.00%
Fixed Maturity Securities [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(101)	(76)
Fair Value - Less than twelve months	2,566	2,818
Fair Value as % of Cost - Less than twelve months	96.00%	97.00%
Unrealized Loss - Twelve months or more	(121)	(140)
Fair Value - Twelve months or more	580	881
Fair Value as % of Cost - Twelve months or more	83.00%	86.00%
Common Stocks [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(39)	0
Fair Value - Less than twelve months	260	21
Fair Value as % of Cost - Less than twelve months	87.00%	99.00%
Unrealized Loss - Twelve months or more	0	(1)
Fair Value - Twelve months or more	0	4
Fair Value as % of Cost - Twelve months or more	0.00%	88.00%
Perpetual preferred stocks [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(3)	0
Fair Value - Less than twelve months	43	22
Fair Value as % of Cost - Less than twelve months	93.00%	98.00%
Unrealized Loss - Twelve months or more	(6)	(5)
Fair Value - Twelve months or more	$ 34	$ 37
Fair Value as % of Cost - Twelve months or more	85.00%	88.00%

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Condensed Consolidating Information (Tables)

9 Months Ended

Sep. 30, 2011

Condensed Consolidating Information [Abstract]

Condensed Consolidating Balance Sheet

CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)

					AAG		All Other		Consol.
	AFG		GAFRI		Holding		Subs		Entries			Consolidated
SEPTEMBER 30, 2011
Assets:
Cash and investments	$	353	$	41	$	—	$	24,561	$	(1	)	$	24,954
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,478		—			3,478
Agents’ balances and premiums receivable		—		—		—		866		—			866
Deferred policy acquisition costs		—		—		—		1,127		—			1,127
Assets of managed investment entities		—		—		—		2,439		—			2,439
Other assets		97		8		8		2,193		(40	)		2,266
Investment in subsidiaries and affiliates		4,867		2,061		2,149		651		(9,728	)		—
Total assets	$	5,317	$	2,110	$	2,157	$	35,315	$	(9,769	)	$	35,130
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	8,249	$	—		$	8,249
Annuity, life, accident and health benefits and reserves		—		—		—		16,484		(1	)		16,483
Liabilities of managed investment entities		—		—		—		2,229		—			2,229
Long-term debt		600		1		219		118		(1	)		937
Other liabilities		252		19		113		2,410		(182	)		2,612
Total liabilities		852		20		332		29,490		(184	)		30,510
Total shareholders’ equity		4,465		2,090		1,825		5,670		(9,585	)		4,465
Noncontrolling interests		—		—		—		155		—			155
Total liabilities and equity	$	5,317	$	2,110	$	2,157	$	35,315	$	(9,769	)	$	35,130
DECEMBER 31, 2010
Assets:
Cash and investments	$	412	$	33	$	—	$	22,228	$	(3	)	$	22,670
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,386		—			3,386
Agents’ balances and premiums receivable		—		—		—		535		—			535
Deferred policy acquisition costs		—		—		—		1,244		—			1,244
Assets of managed investment entities		—		—		—		2,537		—			2,537
Other assets		36		6		5		2,050		(15	)		2,082
Investment in subsidiaries and affiliates		4,816		1,899		1,996		671		(9,382	)		—
Total assets	$	5,264	$	1,938	$	2,001	$	32,651	$	(9,400	)	$	32,454
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	7,947	$	—		$	7,947
Annuity, life, accident and health benefits and reserves		—		—		—		14,556		(1	)		14,555
Liabilities of managed investment entities		—		—		—		2,323		—			2,323
Long-term debt		600		1		219		133		(1	)		952
Other liabilities		194		19		110		1,888		(154	)		2,057
Total liabilities		794		20		329		26,847		(156	)		27,834
Total shareholders’ equity		4,470		1,918		1,672		5,654		(9,244	)		4,470
Noncontrolling interests		—		—		—		150		—			150
Total liabilities and equity	$	5,264	$	1,938	$	2,001	$	32,651	$	(9,400	)	$	32,454

Condensed Consolidating Statement of Earnings

						AAG		All Other		Consol.
	AFG			GAFRI		Holding		Subs		Entries			Consolidated
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011
Revenues:
Property and casualty insurance premiums	$	—		$	—	$	—	$	835	$	—		$	835
Life, accident and health premiums		—			—		—		107		—			107
Realized gains (losses)		—			—		—		8		—			8
Income of managed investment entities		—			—		—		28		—			28
Investment and other income		(2	)		3		—		364		(8	)		357
Equity in earnings of subsidiaries		169			37		39		—		(245	)		—
Total revenues		167			40		39		1,342		(253	)		1,335
Costs and Expenses:
Insurance benefits and expenses		—			—		—		1,059		—			1,059
Interest charges on borrowed money		16			—		6		4		(5	)		21
Expenses of managed investment entities		—			—		—		17		—			17
Other operating and general expenses		7			3		2		72		(1	)		83
Total costs and expenses		23			3		8		1,152		(6	)		1,180
Operating earnings before income taxes		144			37		31		190		(247	)		155
Provision (credit) for income taxes		48			12		9		59		(80	)		48
Net earnings, including noncontrolling interests		96			25		22		131		(167	)		107
Less: Net earnings (loss) attributable to noncontrolling interests		—			—		—		11		—			11
Net Earnings Attributable to Shareholders	$	96		$	25	$	22	$	120	$	(167	)	$	96

						AAG		All Other			Consol.
	AFG		GAFRI			Holding		Subs			Entries			Consolidated
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
Revenues:
Property and casualty insurance premiums	$	—	$	—		$	—	$	736		$	—		$	736
Life, accident and health premiums		—		—			—		112			—			112
Realized gains (losses)		—		(2	)		—		37			—			35
Income of managed investment entities		—		—			—		19			—			19
Investment and other income		3		3			—		352			(5	)		353
Equity in earnings of subsidiaries		242		48			76		—			(366	)		—
Total revenues		245		49			76		1,256			(371	)		1,255
Costs and Expenses:
Insurance benefits and expenses		—		—			—		919			—			919
Interest charges on borrowed money		15		—			6		6			(6	)		21
Expenses of managed investment entities		—		—			—		15			—			15
Other operating and general expenses		16		6			2		68			—			92
Total costs and expenses		31		6			8		1,008			(6	)		1,047
Operating earnings before income taxes		214		43			68		248			(365	)		208
Provision (credit) for income taxes		82		21			22		97			(140	)		82
Net earnings, including noncontrolling interests		132		22			46		151			(225	)		126
Less: Net earnings (loss) attributable to noncontrolling interests		—		—			—		(6	)		—			(6	)
Net Earnings Attributable to Shareholders	$	132	$	22		$	46	$	157		$	(225	)	$	132

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(In millions)

					AAG		All Other			Consol.
	AFG		GAFRI		Holding		Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	2,043		$	—		$	2,043
Life, accident and health premiums		—		—		—		324			—			324
Realized gains (losses)		—		—		—		25			(1	)		24
Income of managed investment entities		—		—		—		24			—			24
Investment and other income		—		8		—		1,066			(22	)		1,052
Equity in earnings of subsidiaries		447		126		144		—			(717	)		—
Total revenues		447		134		144		3,482			(740	)		3,467
Costs and Expenses:
Insurance benefits and expenses		—		—		—		2,763			—			2,763
Interest charges on borrowed money		48		—		19		12			(16	)		63
Expenses of managed investment entities		—		—		—		53			—			53
Other operating and general expenses		39		12		4		218			(4	)		269
Total costs and expenses		87		12		23		3,046			(20	)		3,148
Operating earnings before income taxes		360		122		121		436			(720	)		319
Provision (credit) for income taxes		126		42		41		163			(246	)		126
Net earnings, including noncontrolling interests		234		80		80		273			(474	)		193
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(41	)		—			(41	)
Net Earnings Attributable to Shareholders	$	234	$	80	$	80	$	314		$	(474	)	$	234

						AAG		All Other			Consol.
	AFG		GAFRI			Holding		Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Revenues:
Property and casualty insurance premiums	$	—	$	—		$	—	$	1,887		$	—		$	1,887
Life, accident and health premiums		—		—			—		340			—			340
Realized gains (losses)		—		(2	)		—		52			—			50
Income of managed investment entities		—		—			—		24			—			24
Investment and other income		3		8			—		1,045			(16	)		1,040
Equity in earnings of subsidiaries		621		129			172		—			(922	)		—
Total revenues		624		135			172		3,348			(938	)		3,341
Costs and Expenses:
Insurance benefits and expenses		—		—			—		2,454			—			2,454
Interest charges on borrowed money		42		—			19		13			(17	)		57
Expenses of managed investment entities		—		—			—		38			—			38
Other operating and general expenses		37		13			5		224			—			279
Total costs and expenses		79		13			24		2,729			(17	)		2,828
Operating earnings before income taxes		545		122			148		619			(921	)		513
Provision (credit) for income taxes		199		49			50		236			(335	)		199
Net earnings, including noncontrolling interests		346		73			98		383			(586	)		314
Less: Net earnings (loss) attributable to noncontrolling interests		—		—			—		(32	)		—			(32	)
Net Earnings Attributable to Shareholders	$	346	$	73		$	98	$	415		$	(586	)	$	346

Condensed Consolidating Statement of Cash Flows

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)

							AAG			All Other			Consol.
	AFG			GAFRI			Holding			Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$	234		$	80		$	80		$	273		$	(474	)	$	193
Adjustments:
Equity in net earnings of subsidiaries		(295	)		(83	)		(95	)		—			473			—
Dividends from subsidiaries		275			3			8			—			(286	)		—
Other operating activities, net		13			(2	)		2			454			1			468
Net cash provided by (used in) operating activities		227			(2	)		(5	)		727			(286	)		661
Investing Activities:
Purchases of investments, property and equipment		(42	)		—			—			(4,599	)		—			(4,641	)
Returns of capital from (capital contributions to) subsidiaries		45			(12	)		(1	)		—			(32	)		—
Proceeds from maturities and redemptions of investments		4			9			—			1,669			—			1,682
Proceeds from sales of investments, property and equipment		5			—			—			952			—			957
Managed investment entities:
Purchases of investments		—			—			—			(1,085	)		—			(1,085	)
Proceeds from sales and redemptions of investments		—			—			—			1,170			—			1,170
Other investing activities, net		—			—			—			(14	)		—			(14	)
Net cash provided by (used in) investing activities		12			(3	)		(1	)		(1,907	)		(32	)		(1,931	)
Financing Activities:
Annuity receipts		—			—			—			2,468			—			2,468
Annuity surrenders, benefits and withdrawals		—			—			—			(971	)		—			(971	)
Additional long-term borrowings		—			—			—			2			—			2
Reductions of long-term debt		—			—			—			(17	)		—			(17	)
Retirement of managed investment entities’ liabilities		—			—			—			(60	)		—			(60	)
Issuances of Common Stock		19			—			—			—			—			19
Capital contributions from (returns of capital to) parent		—			12			6			(50	)		32			—
Repurchases of Common Stock		(263	)		—			—			—			—			(263	)
Cash dividends paid		(50	)		—			—			(286	)		286			(50	)
Other financing activities, net		—			—			—			34			—			34
Net cash provided by (used in) financing activities		(294	)		12			6			1,120			318			1,162
Net change in cash and cash equivalents		(55	)		7			—			(60	)		—			(108	)
Cash and cash equivalents at beginning of period		370			20			—			709			—			1,099
Cash and cash equivalents at end of period	$	315		$	27		$	—		$	649		$	—		$	991

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)

							AAG			All Other			Consol.
	AFG			GAFRI			Holding			Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Operating Activities:
Net earnings, including noncontrolling interests	$	346		$	73		$	98		$	383		$	(586	)	$	314
Adjustments:
Equity in net earnings of subsidiaries		(395	)		(78	)		(114	)		—			587			—
Dividends from subsidiaries		359			—			16			—			(375	)		—
Other operating activities, net		(52	)		(2	)		4			518			(1	)		467
Net cash provided by (used in) operating activities		258			(7	)		4			901			(375	)		781
Investing Activities:
Purchases of investments, property and equipment		(6	)		—			—			(4,119	)		—			(4,125	)
Purchase of subsidiaries		—			—			—			(128	)		—			(128	)
Capital contributions to subsidiaries		(12	)		(2	)		(5	)		—			19			—
Proceeds from maturities and redemptions of investments		—			6			—			1,503			—			1,509
Proceeds from sales of investments, property and equipment		—			—			—			1,228			—			1,228
Managed investment entities:
Purchases of investments		—			—			—			(617	)		—			(617	)
Proceeds from sales and redemptions of investments		—			—			—			658			—			658
Other investing activities, net		—			—			—			101			—			101
Net cash provided by (used in) investing activities		(18	)		4			(5	)		(1,374	)		19			(1,374	)
Financing Activities:
Annuity receipts		—			—			—			1,661			—			1,661
Annuity surrenders, benefits and withdrawals		—			—			—			(914	)		—			(914	)
Additional long-term borrowings		128			—			—			30			—			158
Reductions of long-term debt		—			—			—			(36	)		—			(36	)
Retirement of managed investment entities’ liabilities		—			—			—			(42	)		—			(42	)
Issuances of Common Stock		26			—			—			1			—			27
Capital contributions from parent		—			12			1			6			(19	)		—
Repurchases of Common Stock		(201	)		—			—			—			—			(201	)
Cash dividends paid		(46	)		—			—			(375	)		375			(46	)
Other financing activities, net		(1	)		—			—			7			—			6
Net cash provided by (used in) financing activities		(94	)		12			1			338			356			613
Net change in cash and cash equivalents		146			9			—			(135	)		—			20
Cash and cash equivalents at beginning of period		197			12			—			911			—			1,120
Cash and cash equivalents at end of period	$	343		$	21		$	—		$	776		$	—		$	1,140

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Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

L. Income Taxes

Income (losses) attributable to noncontrolling interests related to AFG’s managed investment entities are non-taxable (non-deductible). For the first nine months of 2011 and 2010, respectively, AFG’s operating earnings before income taxes included $47 million and $37 million of such non-deductible losses, thereby increasing AFG’s effective tax rate. For the third quarter of 2011 and 2010, respectively, operating earnings before income taxes included $8 million of non-taxable income and $4 million of non-deductible losses related to the managed investment entities.

There have been no material changes to AFG’s liability for uncertain tax positions, which is discussed in Note L — “Income Taxes,” to AFG’s 2010 Form 10-K.

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Long-Term Debt (Details 1) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Summary showing division of total long term debt
Unsecured obligations	$ 840	$ 846
Obligations secured by real estate	64	65
Other secured borrowings	33	41
Long-term Debt	$ 937	$ 952

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Condensed Consolidating Information (Details) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Assets:
Cash and investments	$ 24,954	$ 22,670
Recoverables from reinsurers and prepaid reinsurance premiums	3,478	3,386
Agents' balances and premiums receivable	866	535
Deferred policy acquisition costs	1,127	1,244
Assets of managed investment entities	2,439	2,537
Other assets	2,266	2,082
Investment in subsidiaries and affiliates	0	0
Total assets	35,130	32,454
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	8,249	7,947
Annuity, life, accident and health benefits and reserves	16,483	14,555
Liabilities of managed investment entities	2,229	2,323
Long-term debt	937	952
Other liabilities	2,612	2,057
Total liabilities	30,510	27,834
Total shareholders' equity	4,465	4,470
Noncontrolling interests	155	150
Total liabilities and equity	35,130	32,454
AFG [Member]
Assets:
Cash and investments	353	412
Recoverables from reinsurers and prepaid reinsurance premiums	0	0
Agents' balances and premiums receivable	0	0
Deferred policy acquisition costs	0	0
Assets of managed investment entities	0	0
Other assets	97	36
Investment in subsidiaries and affiliates	4,867	4,816
Total assets	5,317	5,264
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	0	0
Annuity, life, accident and health benefits and reserves	0	0
Liabilities of managed investment entities	0	0
Long-term debt	600	600
Other liabilities	252	194
Total liabilities	852	794
Total shareholders' equity	4,465	4,470
Noncontrolling interests	0	0
Total liabilities and equity	5,317	5,264
GAFRI [Member]
Assets:
Cash and investments	41	33
Recoverables from reinsurers and prepaid reinsurance premiums	0	0
Agents' balances and premiums receivable	0	0
Deferred policy acquisition costs	0	0
Assets of managed investment entities	0	0
Other assets	8	6
Investment in subsidiaries and affiliates	2,061	1,899
Total assets	2,110	1,938
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	0	0
Annuity, life, accident and health benefits and reserves	0	0
Liabilities of managed investment entities	0	0
Long-term debt	1	1
Other liabilities	19	19
Total liabilities	20	20
Total shareholders' equity	2,090	1,918
Noncontrolling interests	0	0
Total liabilities and equity	2,110	1,938
AAG Holding [Member]
Assets:
Cash and investments	0	0
Recoverables from reinsurers and prepaid reinsurance premiums	0	0
Agents' balances and premiums receivable	0	0
Deferred policy acquisition costs	0	0
Assets of managed investment entities	0	0
Other assets	8	5
Investment in subsidiaries and affiliates	2,149	1,996
Total assets	2,157	2,001
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	0	0
Annuity, life, accident and health benefits and reserves	0	0
Liabilities of managed investment entities	0	0
Long-term debt	219	219
Other liabilities	113	110
Total liabilities	332	329
Total shareholders' equity	1,825	1,672
Noncontrolling interests	0	0
Total liabilities and equity	2,157	2,001
All Other Subs [Member]
Assets:
Cash and investments	24,561	22,228
Recoverables from reinsurers and prepaid reinsurance premiums	3,478	3,386
Agents' balances and premiums receivable	866	535
Deferred policy acquisition costs	1,127	1,244
Assets of managed investment entities	2,439	2,537
Other assets	2,193	2,050
Investment in subsidiaries and affiliates	651	671
Total assets	35,315	32,651
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	8,249	7,947
Annuity, life, accident and health benefits and reserves	16,484	14,556
Liabilities of managed investment entities	2,229	2,323
Long-term debt	118	133
Other liabilities	2,410	1,888
Total liabilities	29,490	26,847
Total shareholders' equity	5,670	5,654
Noncontrolling interests	155	150
Total liabilities and equity	35,315	32,651
Consol. Entries [Member]
Assets:
Cash and investments	(1)	(3)
Recoverables from reinsurers and prepaid reinsurance premiums	0	0
Agents' balances and premiums receivable	0	0
Deferred policy acquisition costs	0	0
Assets of managed investment entities	0	0
Other assets	(40)	(15)
Investment in subsidiaries and affiliates	(9,728)	(9,382)
Total assets	(9,769)	(9,400)
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	0	0
Annuity, life, accident and health benefits and reserves	(1)	(1)
Liabilities of managed investment entities	0	0
Long-term debt	(1)	(1)
Other liabilities	(182)	(154)
Total liabilities	(184)	(156)
Total shareholders' equity	(9,585)	(9,244)
Noncontrolling interests	0	0
Total liabilities and equity	$ (9,769)	$ (9,400)

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Investments

9 Months Ended

Sep. 30, 2011

Investments [Abstract]

Investments

E. Investments

Available for sale fixed maturities and equity securities at September 30, 2011, and December 31, 2010, consisted of the following (in millions):

	September 30, 2011									December 31, 2010
	Amortized		Fair		Gross Unrealized					Amortized		Fair		Gross Unrealized
	Cost		Value		Gains		Losses			Cost		Value		Gains		Losses
Fixed maturities:
U.S. Government and government agencies	$	401	$	422	$	21	$	—		$	453	$	467	$	15	$	(1	)
States, municipalities and political subdivisions		3,521		3,769		252		(4	)		2,927		2,939		53		(41	)
Foreign government		249		267		18		—			269		278		9		—
Residential MBS		3,771		3,824		198		(145	)		3,781		3,875		222		(128	)
Commercial MBS		2,635		2,802		178		(11	)		1,972		2,123		153		(2	)
All other corporate		9,720		10,468		810		(62	)		9,088		9,646		602		(44	)
Total fixed maturities	$	20,297	$	21,552	$	1,477	$	(222	)	$	18,490	$	19,328	$	1,054	$	(216	)
Common stocks	$	629	$	788	$	198	$	(39	)	$	312	$	543	$	232	$	(1	)
Perpetual preferred stocks	$	146	$	142	$	5	$	(9	)	$	146	$	147	$	6	$	(5	)

The non-credit related portion of other-than-temporary impairment charges are included in other comprehensive income (loss). Such charges taken for residential MBS still owned at September 30, 2011 and December 31, 2010, respectively were $231 million and $258 million.

The following tables show gross unrealized losses (in millions) on fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2011 and December 31, 2010.

	Less Than Twelve Months								Twelve Months or More
	Unrealized			Fair		Fair Value as			Unrealized			Fair		Fair Value as
	Loss			Value		% of Cost			Loss			Value		% of Cost
September 30, 2011
Fixed maturities:
U.S. Government and government agencies	$	—		$	31		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(2	)		162		99	%		(2	)		48		96	%
Foreign government		—			—		—	%		—			—		—	%
Residential MBS		(40	)		942		96	%		(105	)		444		81	%
Commercial MBS		(11	)		285		96	%		—			7		100	%
All other corporate		(48	)		1,146		96	%		(14	)		81		85	%
Total fixed maturities	$	(101	)	$	2,566		96	%	$	(121	)	$	580		83	%
Common Stocks	$	(39	)	$	260		87	%	$	—		$	—		—	%
Perpetual Preferred Stocks	$	(3	)	$	43		93	%	$	(6	)	$	34		85	%
December 31, 2010
Fixed maturities:
U.S. Government and government agencies	$	(1	)	$	86		99	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(38	)		1,180		97	%		(3	)		40		93	%
Foreign government		—			37		99	%		—			—		—	%
Residential MBS		(11	)		412		97	%		(117	)		551		82	%
Commercial MBS		(2	)		83		98	%		—			15		97	%
All other corporate		(24	)		1,020		98	%		(20	)		275		93	%
Total fixed maturities	$	(76	)	$	2,818		97	%	$	(140	)	$	881		86	%
Common Stocks	$	—		$	21		99	%	$	(1	)	$	4		88	%
Perpetual Preferred Stocks	$	—		$	22		98	%	$	(5	)	$	37		88	%

At September 30, 2011 the gross unrealized losses on fixed maturities of $222 million relate to approximately 950 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 44% of the gross unrealized loss and 66% of the fair value.

Gross Unrealized Losses on MBS At September 30, 2011, gross unrealized losses on AFG’s residential MBS represented 65% of the total gross unrealized loss on fixed maturity securities (and 87% of the “twelve months or more”). Of the residential MBS that have been in an unrealized loss position (“impaired”) for 12 months or more (234 securities), approximately 26% of the unrealized losses and 44% of the fair value relate to investment grade rated securities. AFG analyzes its MBS securities for other-than-temporary impairment each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan to collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data. For the first nine months of 2011, AFG recorded in earnings $45 million in other-than-temporary impairment charges related to its residential MBS.

Gross Unrealized Losses on All Other Corporates For the first nine months of 2011, AFG recorded in earnings $4 million in other-than-temporary charges on “all other corporate” securities. Management concluded that no additional charges for other-than-temporary impairments were required based on many factors, including AFG’s ability and intent to hold the investments for a period of time sufficient to allow for anticipated recovery of its amortized cost, the length of time and the extent to which fair value has been below cost, analysis of historical and projected company-specific financial data, the outlook for industry sectors, and credit ratings.

The following tables progress the credit portion of other-than-temporary impairments on fixed maturity securities for which the non-credit portion of an impairment has been recognized in other comprehensive income (loss) (in millions).

	2011			2010
Balance at June 30	$	171		$	121
Additional credit impairments on:
Previously impaired securities		8			11
Securities without prior impairments		2			1
Reductions — disposals		(1	)		—
Balance at September 30	$	180		$	133
Balance at January 1	$	143		$	99
Additional credit impairments on:
Previously impaired securities		37			34
Securities without prior impairments		7			8
Reductions — disposals		(7	)		(8	)
Balance at September 30	$	180		$	133

The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2011 (in millions). Asset-backed securities and other 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. MBS had an average life of approximately 4 years at September 30, 2011.

	Amortized		Fair Value
	Cost		Amount		%
Maturity
One year or less	$	544	$	558		2	%
After one year through five years		5,076		5,367		25
After five years through ten years		6,326		6,859		32
After ten years		1,945		2,142		10
		13,891		14,926		69
MBS		6,406		6,626		31
Total	$	20,297	$	21,552		100	%

Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.

There were no investments in individual issuers that exceeded 10% of Shareholders’ Equity at September 30, 2011 or December 31, 2010.

Net Unrealized Gain on Marketable Securities In addition to adjusting equity securities and fixed maturity securities classified as “available for sale” to fair value, GAAP requires that deferred policy acquisition costs related to annuities and certain other balance sheet amounts be adjusted to the extent that unrealized gains and losses from securities would result in adjustments to those balances had the unrealized gains or losses actually been realized. The following table shows the components of the net unrealized gain on securities that is included in Accumulated Other Comprehensive Income in AFG’s Balance Sheet.

				Deferred Tax and
				Amounts Attributable
				to Noncontrolling
	Pre-tax			Interests			Net
September 30, 2011
Unrealized gain on:
Fixed maturity securities	$	1,255		$	(447	)	$	808
Equity securities		155			(54	)		101
Deferred policy acquisition costs		(535	)		187			(348	)
Annuity benefits and other liabilities		7			(2	)		5
	$	882		$	(316	)	$	566
December 31, 2010
Unrealized gain on:
Fixed maturity securities	$	838		$	(295	)	$	543
Equity securities		232			(82	)		150
Deferred policy acquisition costs		(340	)		118			(222	)
Annuity benefits and other liabilities		6			(2	)		4
	$	736		$	(261	)	$	475

Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):

							Mortgage
							Loans									Noncon-
	Fixed			Equity			and Other						Tax			trolling
	Maturities			Securities			Investments			Other(a)			Effects			Interests			Total
Quarter ended September 30, 2011
Realized before impairments	$	27		$	6		$	(15	)	$	—		$	(6	)	$	—		$	12
Realized — impairments		(12	)		(2	)		—			4			3			—			(7	)
Change in Unrealized		172			(75	)		—			(100	)		2			(2	)		(3	)
Quarter ended September 30, 2010
Realized before impairments	$	46		$	27		$	(1	)	$	(4	)	$	(23	)	$	(1	)	$	44
Realized — impairments		(12	)		(1	)		(2	)		4			4			—			(7	)
Change in Unrealized		498			(8	)		—			(177	)		(109	)		(4	)		200
Nine months ended September 30, 2011
Realized before impairments	$	51		$	41		$	(22	)	$	(2	)	$	(24	)	$	(1	)	$	43
Realized — impairments		(49	)		(2	)		(4	)		14			14			—			(27	)
Change in Unrealized		417			(77	)		—			(194	)		(51	)		(4	)		91
Nine months ended September 30, 2010
Realized before impairments	$	115		$	29		$	(15	)	$	(9	)	$	(41	)	$	(2	)	$	77
Realized — impairments		(62	)		(1	)		(5	)		20			17			—			(31	)
Change in Unrealized		1,131			(11	)		—			(434	)		(240	)		(6	)		440

(a) Primarily adjustments to deferred policy acquisition costs related to annuities.

Realized gains (losses) on securities includes net gains of $3 million in the third quarter and net losses of less than $1 million in the first nine months of 2011 compared to net gains of $25 million and $51 million in the third quarter and first nine months of 2010 from the mark-to-market of certain MBS, primarily interest-only securities with interest rates that float inversely with short-term rates. Gross realized gains and losses (excluding impairment writedowns and mark-to-market of derivatives) on available for sale fixed maturity and equity security investment transactions included in the Statement of Cash Flows consisted of the following (in millions):

	Nine months ended
	September 30,
	2011			2010
Fixed maturities:
Gross gains	$	57		$	74
Gross losses		(5	)		(10	)
Equity securities:
Gross gains		42			29
Gross losses		(1	)		—

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Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2011

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation The accompanying consolidated financial statements for American Financial Group, Inc. (“AFG”) and subsidiaries are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles.

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to September 30, 2011, and prior to the filing date of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Recent accounting standards

Recent Accounting Standards In October 2010, the FASB issued Accounting Standards Update 2010-26 to address diversity in practice regarding which costs related to issuing or renewing insurance contracts qualify for deferral. To qualify for deferral, the guidance specifies that a cost must be directly related to the successful acquisition of an insurance contract. The guidance is effective January 1, 2012, with retrospective application permitted, but not required. Management expects to adopt the new standard retrospectively and currently estimates that adoption will reduce AFG’s deferred policy acquisition costs balance at September 30, 2011, and December 31, 2010, by 15% to 20% and shareholders’ equity at those dates by approximately 3%.

In June 2011, the FASB issued Accounting Standards Update 2011-05, which eliminates the option to report other comprehensive income in the statement of changes in equity. Instead, the guidance requires that all other comprehensive income (non-owner changes in shareholders’ equity) be presented either in a single continuous statement of comprehensive income, which would contain net income and other comprehensive income sections and replace the statement of earnings, or in a separate statement of other comprehensive income immediately following the statement of earnings. The guidance is effective January 1, 2012, with retrospective application required. The guidance relates solely to the presentation of other comprehensive income and therefore does not change the measurement of net income, other comprehensive income or earnings per share. Accordingly, the adoption of this guidance will have no impact on AFG’s results of operations or financial position.

Fair Value Measurements

Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. In the first nine months of 2011, AFG did not have any significant nonrecurring fair value measurements of nonfinancial assets and liabilities.

Investments

Investments Fixed maturity and equity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in AFG’s Balance Sheet. Fixed maturity and equity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the interest method; mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Gains or losses on securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses)) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: 1) the amount related to credit losses (recorded in earnings) and 2) the amount related to all other factors (recorded in other comprehensive income (loss)). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the Statement of Earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value and consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related call options (included in other investments) designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products. Changes in the fair value of derivatives are included in earnings.

Goodwill

Goodwill Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually.

Reinsurance

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (a) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (b) amounts paid to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

Certain annuity and supplemental insurance subsidiaries cede life insurance policies to a third party on a funds withheld basis whereby the subsidiaries retain the assets (securities) associated with the reinsurance contracts. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. These reinsurance contracts are considered to contain embedded derivatives (that must be adjusted to fair value) because the yield on the payables is based on specific blocks of the ceding companies’ assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolios of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to these transactions are classified as “trading.” The adjustment to fair value on the embedded derivatives offsets the investment income recorded on the adjustment to fair value of the related trading portfolios.

Deferred Policy Acquisition Costs ("DPAC")

Deferred Policy Acquisition Costs (“DPAC”) Policy acquisition costs (principally commissions, premium taxes and other marketing and underwriting expenses) related to the production of new business are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses, unamortized acquisition costs and policy maintenance costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and variable annuity policy charges, less death and annuitization benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses).

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.

DPAC related to annuities is also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains on marketable securities, a component of accumulated other comprehensive income in AFG’s Balance Sheet.

DPAC includes the present value of future profits on business in force of annuity and supplemental insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

Managed Investment Entities

Managed Investment Entities A company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, six collateralized loan obligations (“CLOs”) that are VIEs (see Note H — “Managed Investment Entities”). Both the management fees (payment of which are subordinate to other obligations of the CLOs) and the investments in the CLOs are considered variable interests. AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) it has exposure to CLO losses (through its investments in the CLO debt tranches) and the right to receive benefits (through its subordinated management fees and returns on its investments), both of which could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. As permitted under accounting guidance adopted on January 1, 2010, the assets and liabilities of the CLOs are included in AFG’s Balance Sheet at fair value. Prior to adoption of this guidance, the CLOs were not consolidated. Upon adoption of the guidance, the $261 million excess of fair value of the CLOs’ assets over the fair value of the liabilities was recorded in AFG’s Balance Sheet as appropriated retained earnings — managed investment entities, representing the cumulative effect of adopting the new guidance that ultimately will inure to the benefit of the CLO debt holders.

AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The net gain or loss from accounting for the CLO assets and liabilities at fair value subsequent to January 1, 2010, is separately presented in AFG’s Statement of Earnings. CLO earnings attributable to AFG’s shareholders represent the change in fair value of AFG’s investments in the CLOs and management fees earned. All other CLO earnings (losses) are not attributable to AFG’s shareholders and will ultimately inure to the benefit of the other CLO debt holders. As a result, such CLO earnings (losses) are included in net earnings (loss) attributable to noncontrolling interests in AFG’s Statement of Earnings and in appropriated retained earnings — managed investment entities in the Balance Sheet. As the CLOs approach maturity (2016 to 2022), it is expected that losses attributable to noncontrolling interests will reduce appropriated retained earnings towards zero as the fair values of the assets and liabilities converge and the CLO assets are used to pay the CLO debt.

Unpaid Losses and Loss Adjustment Expenses

Unpaid Losses and Loss Adjustment Expenses The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon (a) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (b) estimates received from ceding reinsurers and insurance pools and associations; (c) estimates of unreported losses (including possible development on known claims) based on past experience; (d) estimates based on experience of expenses for investigating and adjusting claims; and (e) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the Statement of Earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated

Annuity Benefits Accumulated Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to expense and decreases for surrender charges are credited to other income.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liability for EDAR is accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and variable annuity policy charges, and unearned revenues once they are recognized as income.

Life, Accident and Health Reserves

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

Variable Annuity Assets and Liabilities

Variable Annuity Assets and Liabilities Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition

Premium Recognition Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests

Noncontrolling Interests For Balance Sheet purposes, noncontrolling interests represents the interests of shareholders other than AFG in consolidated entities. In the Statement of Earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities.

Income Taxes

Income Taxes Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. Deferred tax assets are recognized if it is more likely than not that a benefit will be realized.

AFG records a liability for the inherent uncertainty in quantifying its income tax provisions. Related interest and penalties are recognized as a component of tax expense.

Stock-Based Compensation

Stock-Based Compensation All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated “fair value” at the date of grant. AFG uses the Black-Scholes pricing model to measure the fair value of employee stock options. See Note K - “Shareholders’ Equity” for further information.

Benefit Plans

Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings Per Share

Earnings Per Share Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted earnings per share includes adjustments to weighted average common shares related to stock-based compensation plans: third quarter 2011 and 2010 — 1.6 million and 1.3 million; first nine months of 2011 and 2010 — 1.8 million and 1.3 million, respectively.

AFG’s weighted average diluted shares outstanding excludes the following anti-dilutive potential common shares related to stock compensation plans: third quarter 2011 and 2010 — 2.6 million and 3.1 million; first nine months of 2011 and 2010 — 2.3 million and 4.0 million, respectively. Adjustments to net earnings attributable to shareholders in the calculation of diluted earnings per share were nominal in the 2011 and 2010 periods.

Statement of Cash Flows

Statement of Cash Flows For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

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Condensed Consolidating Information (Details 2) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Operating Activities:
Net earnings, including noncontrolling interests	$ 107	$ 126	$ 193	$ 314
Adjustments:
Other operating activities, net			468	467
Net cash provided by (used in) operating activities			661	781
Investing Activities:
Purchases of investments, property and equipment			(4,641)	(4,125)
Purchases of subsidiaries				(128)
Proceeds from maturities and redemptions of investments			1,682	1,509
Proceeds from sales of investments, property and equipment			957	1,228
Managed investment entities:
Purchases of investments			(1,085)	(617)
Proceeds from sales and redemptions of investments			1,170	658
Other investing activities, net			(14)	101
Net cash provided by (used in) investing activities			(1,931)	(1,374)
Financing Activities:
Annuity receipts			2,468	1,661
Annuity surrenders, benefits and withdrawals			(971)	(914)
Additional long-term borrowings			2	158
Reductions of long-term debt			(17)	(36)
Retirement of managed investment entities' liabilities			(60)	(42)
Issuances of Common Stock			19	27
Repurchases of Common Stock			(263)	(201)
Cash dividends paid on Common Stock			(50)	(46)
Other financing activities, net			34	6
Net cash provided by (used in) financing activities			1,162	613
Net Change in Cash and Cash Equivalents			(108)	20
Cash and cash equivalents at beginning of period			1,099	1,120
Cash and cash equivalents at end of period	991	1,140	991	1,140
AFG [Member]
Operating Activities:
Net earnings, including noncontrolling interests	96	132	234	346
Adjustments:
Equity in net earnings of subsidiaries			(295)	(395)
Dividends from subsidiaries			275	359
Other operating activities, net			13	(52)
Net cash provided by (used in) operating activities			227	258
Investing Activities:
Purchases of investments, property and equipment			(42)	(6)
Returns of capital from (capital contributions to) subsidiaries			45	(12)
Proceeds from maturities and redemptions of investments			4
Proceeds from sales of investments, property and equipment			5
Managed investment entities:
Net cash provided by (used in) investing activities			12	(18)
Financing Activities:
Additional long-term borrowings				128
Issuances of Common Stock			19	26
Repurchases of Common Stock			(263)	(201)
Cash dividends paid on Common Stock			(50)	(46)
Other financing activities, net				(1)
Net cash provided by (used in) financing activities			(294)	(94)
Net Change in Cash and Cash Equivalents			(55)	146
Cash and cash equivalents at beginning of period			370	197
Cash and cash equivalents at end of period	315	343	315	343
GAFRI [Member]
Operating Activities:
Net earnings, including noncontrolling interests	25	22	80	73
Adjustments:
Equity in net earnings of subsidiaries			(83)	(78)
Dividends from subsidiaries			3
Other operating activities, net			(2)	(2)
Net cash provided by (used in) operating activities			(2)	(7)
Investing Activities:
Returns of capital from (capital contributions to) subsidiaries			(12)	(2)
Proceeds from maturities and redemptions of investments			9	6
Managed investment entities:
Net cash provided by (used in) investing activities			(3)	4
Financing Activities:
Capital contributions from (returns of capital to) parent			12	12
Net cash provided by (used in) financing activities			12	12
Net Change in Cash and Cash Equivalents			7	9
Cash and cash equivalents at beginning of period			20	12
Cash and cash equivalents at end of period	27	21	27	21
AAG Holding [Member]
Operating Activities:
Net earnings, including noncontrolling interests	22	46	80	98
Adjustments:
Equity in net earnings of subsidiaries			(95)	(114)
Dividends from subsidiaries			8	16
Other operating activities, net			2	4
Net cash provided by (used in) operating activities			(5)	4
Investing Activities:
Returns of capital from (capital contributions to) subsidiaries			(1)	(5)
Managed investment entities:
Net cash provided by (used in) investing activities			(1)	(5)
Financing Activities:
Capital contributions from (returns of capital to) parent			6	1
Net cash provided by (used in) financing activities			6	1
Cash and cash equivalents at beginning of period			0	0
Cash and cash equivalents at end of period	0	0	0	0
All Other Subs [Member]
Operating Activities:
Net earnings, including noncontrolling interests	131	151	273	383
Adjustments:
Other operating activities, net			454	518
Net cash provided by (used in) operating activities			727	901
Investing Activities:
Purchases of investments, property and equipment			(4,599)	(4,119)
Purchases of subsidiaries				(128)
Proceeds from maturities and redemptions of investments			1,669	1,503
Proceeds from sales of investments, property and equipment			952	1,228
Managed investment entities:
Purchases of investments			(1,085)	(617)
Proceeds from sales and redemptions of investments			1,170	658
Other investing activities, net			(14)	101
Net cash provided by (used in) investing activities			(1,907)	(1,374)
Financing Activities:
Annuity receipts			2,468	1,661
Annuity surrenders, benefits and withdrawals			(971)	(914)
Additional long-term borrowings			2	30
Reductions of long-term debt			(17)	(36)
Retirement of managed investment entities' liabilities			(60)	(42)
Issuances of Common Stock				1
Capital contributions from (returns of capital to) parent			(50)	6
Cash dividends paid on Common Stock			(286)	(375)
Other financing activities, net			34	7
Net cash provided by (used in) financing activities			1,120	338
Net Change in Cash and Cash Equivalents			(60)	(135)
Cash and cash equivalents at beginning of period			709	911
Cash and cash equivalents at end of period	649	776	649	776
Consol. Entries [Member]
Operating Activities:
Net earnings, including noncontrolling interests	(167)	(225)	(474)	(586)
Adjustments:
Equity in net earnings of subsidiaries			473	587
Dividends from subsidiaries			(286)	(375)
Other operating activities, net			1	(1)
Net cash provided by (used in) operating activities			(286)	(375)
Investing Activities:
Returns of capital from (capital contributions to) subsidiaries			(32)	19
Managed investment entities:
Net cash provided by (used in) investing activities			(32)	19
Financing Activities:
Capital contributions from (returns of capital to) parent			32	(19)
Cash dividends paid on Common Stock			286	375
Net cash provided by (used in) financing activities			318	356
Cash and cash equivalents at beginning of period			0	0
Cash and cash equivalents at end of period	$ 0	$ 0	$ 0	$ 0

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Fair Value Measurements (Details Textuals) (USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2011
Fair Value Measurements (Textuals) [Abstract]
Level 3 assets as a percentage of total asset measured at fair value		3.00%
Percentage of level 3 assets that were priced using non-binding broker quotes		95.00%
Total realized/unrealized losses included in net income on liabilities still outstanding	$ 89	$ 19

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Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2011

Shareholders' Equity [Abstract]

Accumulated other comprehensive income (loss), net of tax

							Pension and
	Pretax			Foreign			Other									Accumulated
	Net Unrealized			Currency			Postretirement						Noncon-			Other
	Gains (Losses)			Translation			Plans			Tax			trolling			Comprehensive
	on Securities			Adjustment			Adjustment			Effects			Interests			Income (Loss)
Balance at December 31, 2010	$	736	(a)	$	9		$	(13	)	$	(253	)	$	—		$	479	(a)
Unrealized holding gains on securities arising during the period		199			—			—			(70	)		(5	)		124
Realized gains included in net income		(53	)		—			—			19			1			(33	)
Foreign currency translation gains		—			(9	)		—			—			1			(8	)
Other		—			—			1			—			—			1
Balance at September 30, 2011	$	882	(a)	$	—		$	(12	)	$	(304	)	$	(3	)	$	563	(a)
Balance at December 31, 2009	$	258		$	1		$	(13	)	$	(86	)	$	3		$	163
Unrealized holding gains on securities arising during the period		778			—			—			(272	)		(7	)		499
Realized gains included in net income		(92	)		—			—			32			1			(59	)
Foreign currency translation losses		—			9			—			—			(2	)		7
Other		(6	)		—			1			2			—			(3	)
Balance at September 30, 2010	$	938		$	10		$	(12	)	$	(324	)	$	(5	)	$	607

(a) Includes net pretax unrealized losses of $14 million ($9 million net of tax) at September 30, 2011 and $17 million ($11 million net of tax) at December 31, 2010 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

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Consolidated Statement of Changes in Equity (Unaudited) (USD $) In Millions, except Share data	Total USD ($)	Common Shares	Common Stock and Capital Surplus USD ($)	Retained Earnings Appro. USD ($)	Retained Earnings Unappro. USD ($)	Accum.Other Comprehensive Inc. (Loss) USD ($)	Total Equity USD ($)	Noncontrolling Interests USD ($)
Beginning Balance at Dec. 31, 2009	$ 3,919		$ 1,344	$ 0	$ 2,274	$ 163	$ 3,781	$ 138
Beginning Balance, shares at Dec. 31, 2009		113,386,343
Cumulative effect of accounting change	261			261	4	(4)	261
Net earnings	314				346		346	(32)
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on securities	446					440	440	6
Change in foreign currency translation	9					7	7	2
Change in unrealized pension and other postretirement benefits	1					1	1
Total comprehensive income (loss)	770						794	(24)
Allocation of losses of managed investment entities				(37)			(37)	37
Dividends on Common Stock	(46)				(46)		(46)
Shares issued:
Exercise of stock options	27		27				27
Exercise of stock options, shares		1,312,149
Other benefit plans	6		6				6
Other benefit plans, shares		388,094
Dividend reinvestment plan, shares		12,652
Stock-based compensation expense	9		9				9
Shares acquired and retired	(201)		(87)		(114)		(201)
Shares acquired and retired, shares		(7,360,110)
Other			(1)				(1)	1
Ending Balance at Sep. 30, 2010	4,745		1,298	224	2,464	607	4,593	152
Ending Balance, shares at Sep. 30, 2010		107,739,128
Beginning Balance at Dec. 31, 2010	4,620		1,271	197	2,523	479	4,470	150
Beginning Balance, shares at Dec. 31, 2010	105,168,366	105,168,366
Net earnings	193				234		234	(41)
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on securities	95					91	91	4
Change in foreign currency translation	(9)					(8)	(8)	(1)
Change in unrealized pension and other postretirement benefits	1					1	1
Total comprehensive income (loss)	280						318	(38)
Allocation of losses of managed investment entities				(47)			(47)	47
Dividends on Common Stock	(50)				(50)		(50)
Shares issued:
Exercise of stock options	19		19				19
Exercise of stock options, shares		758,075
Other benefit plans	8		8				8
Other benefit plans, shares		371,392
Dividend reinvestment plan, shares		11,686
Stock-based compensation expense	10		10				10
Shares acquired and retired	(263)		(95)		(168)		(263)
Shares acquired and retired, shares		(7,803,286)
Other	(4)							(4)
Ending Balance at Sep. 30, 2011	$ 4,620		$ 1,213	$ 150	$ 2,539	$ 563	$ 4,465	$ 155
Ending Balance, shares at Sep. 30, 2011	98,506,233	98,506,233

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Segments of Operations (Tables)

9 Months Ended

Sep. 30, 2011

Segments of Operations [Abstract]

Segment Reporting Information, by Segment

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	500		$	407		$	1,029		$	832
Specialty casualty		216			224			651			661
Specialty financial		101			92			313			347
Other		18			13			50			47
Total premiums earned		835			736			2,043			1,887
Investment income		73			80			221			257
Realized gains (losses)		15			46			47			69
Other income		20			13			55			49
Total property and casualty insurance		943			875			2,366			2,262
Annuity and supplemental insurance:
Investment income		236			215			692			625
Life, accident and health premiums		107			112			324			340
Realized gains (losses)		(8	)		(11	)		(24	)		(19	)
Other income		28			23			78			81
Total annuity and supplemental insurance		363			339			1,070			1,027
Other		29			41			31			52
Total revenues	$	1,335		$	1,255		$	3,467		$	3,341
Operating Earnings Before Income Taxes
Property and casualty insurance:
Underwriting income (loss):
Specialty
Property and transportation	$	5		$	41		$	38		$	81
Specialty casualty		20			(13	)		43			29
Specialty financial		23			36			46			91
Other		8			4			14			13
Other lines (a)		—			—			(50	)		(12	)
Total underwriting		56			68			91			202
Investment and other income, net		66			67			204			229
Realized gains (losses)		15			46			47			69
Total property and casualty insurance		137			181			342			500
Annuity and supplemental insurance:
Operations		49			58			157			148
Realized gains (losses)		(8	)		(11	)		(24	)		(19	)
Total annuity and supplemental insurance		41			47			133			129
Other (b)		(23	)		(20	)		(156	)		(116	)
Total operating earnings before income taxes	$	155		$	208		$	319		$	513

(a)	Includes a second quarter 2011 special charge of $50 million to increase asbestos and environmental reserves.
(b)	Includes a second quarter 2011 special charge of $9 million to increase asbestos and environmental reserves and the following earnings (losses) of managed investment entities for the third quarter and first nine months of 2011 and 2010 (in millions):

Attributable to:
AFG shareholders, including management fees	$	3	$	8		$	18		$	23
Noncontrolling interests	$	8	$	(4	)	$	(47	)	$	(37	)

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Investments (Details 4) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Unrealized gain on:
Pre-tax	$ 882	$ 736
Deferred Tax Amounts Attributable to Noncontrolling Interests	(316)	(261)
Net	566	475
Fixed Maturity Securities [Member]
Unrealized gain on:
Pre-tax	1,255	838
Deferred Tax Amounts Attributable to Noncontrolling Interests	(447)	(295)
Net	808	543
Equity Securities [Member]
Unrealized gain on:
Pre-tax	155	232
Deferred Tax Amounts Attributable to Noncontrolling Interests	(54)	(82)
Net	101	150
Deferred Policy Acquisition Costs [Member]
Unrealized gain on:
Pre-tax	(535)	(340)
Deferred Tax Amounts Attributable to Noncontrolling Interests	187	118
Net	(348)	(222)
Annuity Benefits And Other Liabilities [Member]
Unrealized gain on:
Pre-tax	7	6
Deferred Tax Amounts Attributable to Noncontrolling Interests	(2)	(2)
Net	$ 5	$ 4

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Investments (Tables)

9 Months Ended

Sep. 30, 2011

Investments [Abstract]

Available for sale fixed maturities and equity securities

	September 30, 2011									December 31, 2010
	Amortized		Fair		Gross Unrealized					Amortized		Fair		Gross Unrealized
	Cost		Value		Gains		Losses			Cost		Value		Gains		Losses
Fixed maturities:
U.S. Government and government agencies	$	401	$	422	$	21	$	—		$	453	$	467	$	15	$	(1	)
States, municipalities and political subdivisions		3,521		3,769		252		(4	)		2,927		2,939		53		(41	)
Foreign government		249		267		18		—			269		278		9		—
Residential MBS		3,771		3,824		198		(145	)		3,781		3,875		222		(128	)
Commercial MBS		2,635		2,802		178		(11	)		1,972		2,123		153		(2	)
All other corporate		9,720		10,468		810		(62	)		9,088		9,646		602		(44	)
Total fixed maturities	$	20,297	$	21,552	$	1,477	$	(222	)	$	18,490	$	19,328	$	1,054	$	(216	)
Common stocks	$	629	$	788	$	198	$	(39	)	$	312	$	543	$	232	$	(1	)
Perpetual preferred stocks	$	146	$	142	$	5	$	(9	)	$	146	$	147	$	6	$	(5	)

Available for sale securities in a continuous unrealized loss position

	Less Than Twelve Months								Twelve Months or More
	Unrealized			Fair		Fair Value as			Unrealized			Fair		Fair Value as
	Loss			Value		% of Cost			Loss			Value		% of Cost
September 30, 2011
Fixed maturities:
U.S. Government and government agencies	$	—		$	31		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(2	)		162		99	%		(2	)		48		96	%
Foreign government		—			—		—	%		—			—		—	%
Residential MBS		(40	)		942		96	%		(105	)		444		81	%
Commercial MBS		(11	)		285		96	%		—			7		100	%
All other corporate		(48	)		1,146		96	%		(14	)		81		85	%
Total fixed maturities	$	(101	)	$	2,566		96	%	$	(121	)	$	580		83	%
Common Stocks	$	(39	)	$	260		87	%	$	—		$	—		—	%
Perpetual Preferred Stocks	$	(3	)	$	43		93	%	$	(6	)	$	34		85	%
December 31, 2010
Fixed maturities:
U.S. Government and government agencies	$	(1	)	$	86		99	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(38	)		1,180		97	%		(3	)		40		93	%
Foreign government		—			37		99	%		—			—		—	%
Residential MBS		(11	)		412		97	%		(117	)		551		82	%
Commercial MBS		(2	)		83		98	%		—			15		97	%
All other corporate		(24	)		1,020		98	%		(20	)		275		93	%
Total fixed maturities	$	(76	)	$	2,818		97	%	$	(140	)	$	881		86	%
Common Stocks	$	—		$	21		99	%	$	(1	)	$	4		88	%
Perpetual Preferred Stocks	$	—		$	22		98	%	$	(5	)	$	37		88	%

Rollforward of cumulative credit portion of other-than-temporary impairments on fixed maturity securities

	2011			2010
Balance at June 30	$	171		$	121
Additional credit impairments on:
Previously impaired securities		8			11
Securities without prior impairments		2			1
Reductions — disposals		(1	)		—
Balance at September 30	$	180		$	133
Balance at January 1	$	143		$	99
Additional credit impairments on:
Previously impaired securities		37			34
Securities without prior impairments		7			8
Reductions — disposals		(7	)		(8	)
Balance at September 30	$	180		$	133

Available for sale fixed maturity securities by contractual maturity date

	Amortized		Fair Value
	Cost		Amount		%
Maturity
One year or less	$	544	$	558		2	%
After one year through five years		5,076		5,367		25
After five years through ten years		6,326		6,859		32
After ten years		1,945		2,142		10
		13,891		14,926		69
MBS		6,406		6,626		31
Total	$	20,297	$	21,552		100	%

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

				Deferred Tax and
				Amounts Attributable
				to Noncontrolling
	Pre-tax			Interests			Net
September 30, 2011
Unrealized gain on:
Fixed maturity securities	$	1,255		$	(447	)	$	808
Equity securities		155			(54	)		101
Deferred policy acquisition costs		(535	)		187			(348	)
Annuity benefits and other liabilities		7			(2	)		5
	$	882		$	(316	)	$	566
December 31, 2010
Unrealized gain on:
Fixed maturity securities	$	838		$	(295	)	$	543
Equity securities		232			(82	)		150
Deferred policy acquisition costs		(340	)		118			(222	)
Annuity benefits and other liabilities		6			(2	)		4
	$	736		$	(261	)	$	475

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

							Mortgage
							Loans									Noncon-
	Fixed			Equity			and Other						Tax			trolling
	Maturities			Securities			Investments			Other(a)			Effects			Interests			Total
Quarter ended September 30, 2011
Realized before impairments	$	27		$	6		$	(15	)	$	—		$	(6	)	$	—		$	12
Realized — impairments		(12	)		(2	)		—			4			3			—			(7	)
Change in Unrealized		172			(75	)		—			(100	)		2			(2	)		(3	)
Quarter ended September 30, 2010
Realized before impairments	$	46		$	27		$	(1	)	$	(4	)	$	(23	)	$	(1	)	$	44
Realized — impairments		(12	)		(1	)		(2	)		4			4			—			(7	)
Change in Unrealized		498			(8	)		—			(177	)		(109	)		(4	)		200
Nine months ended September 30, 2011
Realized before impairments	$	51		$	41		$	(22	)	$	(2	)	$	(24	)	$	(1	)	$	43
Realized — impairments		(49	)		(2	)		(4	)		14			14			—			(27	)
Change in Unrealized		417			(77	)		—			(194	)		(51	)		(4	)		91
Nine months ended September 30, 2010
Realized before impairments	$	115		$	29		$	(15	)	$	(9	)	$	(41	)	$	(2	)	$	77
Realized — impairments		(62	)		(1	)		(5	)		20			17			—			(31	)
Change in Unrealized		1,131			(11	)		—			(434	)		(240	)		(6	)		440

(a) Primarily adjustments to deferred policy acquisition costs related to annuities.

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

	Nine months ended
	September 30,
	2011			2010
Fixed maturities:
Gross gains	$	57		$	74
Gross losses		(5	)		(10	)
Equity securities:
Gross gains		42			29
Gross losses		(1	)		—

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Accounting Policies

9 Months Ended

Sep. 30, 2011

Accounting Policies [Abstract]

Accounting Policies

A. Accounting Policies

Basis of Presentation The accompanying consolidated financial statements for American Financial Group, Inc. (“AFG”) and subsidiaries are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles.

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to September 30, 2011, and prior to the filing date of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Recent Accounting Standards In October 2010, the FASB issued Accounting Standards Update 2010-26 to address diversity in practice regarding which costs related to issuing or renewing insurance contracts qualify for deferral. To qualify for deferral, the guidance specifies that a cost must be directly related to the successful acquisition of an insurance contract. The guidance is effective January 1, 2012, with retrospective application permitted, but not required. Management expects to adopt the new standard retrospectively and currently estimates that adoption will reduce AFG’s deferred policy acquisition costs balance at September 30, 2011, and December 31, 2010, by 15% to 20% and shareholders’ equity at those dates by approximately 3%.

In June 2011, the FASB issued Accounting Standards Update 2011-05, which eliminates the option to report other comprehensive income in the statement of changes in equity. Instead, the guidance requires that all other comprehensive income (non-owner changes in shareholders’ equity) be presented either in a single continuous statement of comprehensive income, which would contain net income and other comprehensive income sections and replace the statement of earnings, or in a separate statement of other comprehensive income immediately following the statement of earnings. The guidance is effective January 1, 2012, with retrospective application required. The guidance relates solely to the presentation of other comprehensive income and therefore does not change the measurement of net income, other comprehensive income or earnings per share. Accordingly, the adoption of this guidance will have no impact on AFG’s results of operations or financial position.

Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. In the first nine months of 2011, AFG did not have any significant nonrecurring fair value measurements of nonfinancial assets and liabilities.

Investments Fixed maturity and equity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in AFG’s Balance Sheet. Fixed maturity and equity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the interest method; mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Gains or losses on securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses)) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: 1) the amount related to credit losses (recorded in earnings) and 2) the amount related to all other factors (recorded in other comprehensive income (loss)). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the Statement of Earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value and consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related call options (included in other investments) designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products. Changes in the fair value of derivatives are included in earnings.

Goodwill Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually.

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (a) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (b) amounts paid to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

Certain annuity and supplemental insurance subsidiaries cede life insurance policies to a third party on a funds withheld basis whereby the subsidiaries retain the assets (securities) associated with the reinsurance contracts. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. These reinsurance contracts are considered to contain embedded derivatives (that must be adjusted to fair value) because the yield on the payables is based on specific blocks of the ceding companies’ assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolios of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to these transactions are classified as “trading.” The adjustment to fair value on the embedded derivatives offsets the investment income recorded on the adjustment to fair value of the related trading portfolios.

Deferred Policy Acquisition Costs (“DPAC”) Policy acquisition costs (principally commissions, premium taxes and other marketing and underwriting expenses) related to the production of new business are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses, unamortized acquisition costs and policy maintenance costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and variable annuity policy charges, less death and annuitization benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses).

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.

DPAC related to annuities is also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains on marketable securities, a component of accumulated other comprehensive income in AFG’s Balance Sheet.

DPAC includes the present value of future profits on business in force of annuity and supplemental insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

Managed Investment Entities A company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, six collateralized loan obligations (“CLOs”) that are VIEs (see Note H — “Managed Investment Entities”). Both the management fees (payment of which are subordinate to other obligations of the CLOs) and the investments in the CLOs are considered variable interests. AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) it has exposure to CLO losses (through its investments in the CLO debt tranches) and the right to receive benefits (through its subordinated management fees and returns on its investments), both of which could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. As permitted under accounting guidance adopted on January 1, 2010, the assets and liabilities of the CLOs are included in AFG’s Balance Sheet at fair value. Prior to adoption of this guidance, the CLOs were not consolidated. Upon adoption of the guidance, the $261 million excess of fair value of the CLOs’ assets over the fair value of the liabilities was recorded in AFG’s Balance Sheet as appropriated retained earnings — managed investment entities, representing the cumulative effect of adopting the new guidance that ultimately will inure to the benefit of the CLO debt holders.

AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The net gain or loss from accounting for the CLO assets and liabilities at fair value subsequent to January 1, 2010, is separately presented in AFG’s Statement of Earnings. CLO earnings attributable to AFG’s shareholders represent the change in fair value of AFG’s investments in the CLOs and management fees earned. All other CLO earnings (losses) are not attributable to AFG’s shareholders and will ultimately inure to the benefit of the other CLO debt holders. As a result, such CLO earnings (losses) are included in net earnings (loss) attributable to noncontrolling interests in AFG’s Statement of Earnings and in appropriated retained earnings — managed investment entities in the Balance Sheet. As the CLOs approach maturity (2016 to 2022), it is expected that losses attributable to noncontrolling interests will reduce appropriated retained earnings towards zero as the fair values of the assets and liabilities converge and the CLO assets are used to pay the CLO debt.

Unpaid Losses and Loss Adjustment Expenses The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon (a) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (b) estimates received from ceding reinsurers and insurance pools and associations; (c) estimates of unreported losses (including possible development on known claims) based on past experience; (d) estimates based on experience of expenses for investigating and adjusting claims; and (e) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the Statement of Earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to expense and decreases for surrender charges are credited to other income.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liability for EDAR is accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and variable annuity policy charges, and unearned revenues once they are recognized as income.

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

Variable Annuity Assets and Liabilities Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests For Balance Sheet purposes, noncontrolling interests represents the interests of shareholders other than AFG in consolidated entities. In the Statement of Earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities.

Income Taxes Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. Deferred tax assets are recognized if it is more likely than not that a benefit will be realized.

AFG records a liability for the inherent uncertainty in quantifying its income tax provisions. Related interest and penalties are recognized as a component of tax expense.

Stock-Based Compensation All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated “fair value” at the date of grant. AFG uses the Black-Scholes pricing model to measure the fair value of employee stock options. See Note K - “Shareholders’ Equity” for further information.

Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings Per Share Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted earnings per share includes adjustments to weighted average common shares related to stock-based compensation plans: third quarter 2011 and 2010 — 1.6 million and 1.3 million; first nine months of 2011 and 2010 — 1.8 million and 1.3 million, respectively.

AFG’s weighted average diluted shares outstanding excludes the following anti-dilutive potential common shares related to stock compensation plans: third quarter 2011 and 2010 — 2.6 million and 3.1 million; first nine months of 2011 and 2010 — 2.3 million and 4.0 million, respectively. Adjustments to net earnings attributable to shareholders in the calculation of diluted earnings per share were nominal in the 2011 and 2010 periods.

Statement of Cash Flows For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

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Long-Term Debt

9 Months Ended

Sep. 30, 2011

Long-Term Debt [Abstract]

Long-Term Debt

J. Long-Term Debt

The carrying value of long-term debt consisted of the following (in millions):

	September 30,		December 31,
	2011		2010
Direct obligations of AFG:
9-7/8% Senior Notes due June 2019	$	350	$	350
7% Senior Notes due September 2050		132		132
7-1/8% Senior Debentures due February 2034		115		115
Other		3		3
		600		600
Subsidiaries:
Obligations of AAG Holding (guaranteed by AFG):
7-1/2% Senior Debentures due November 2033		112		112
7-1/4% Senior Debentures due January 2034		86		86
Notes payable secured by real estate due 2011 through 2016		64		65
Secured borrowings ($17 and $18 guaranteed by AFG)		33		41
National Interstate bank credit facility		22		20
American Premier 10-7/8% Subordinated Notes		—		8
		317		332
Payable to Subsidiary Trusts:
AAG Holding Variable Rate Subordinated Debentures due May 2033		20		20
	$	937	$	952

Scheduled principal payments on debt for the balance of 2011 and the subsequent five years were as follows: 2011 — $3 million; 2012 — $34 million; 2013 — $20 million; 2014 — $2 million; 2015 — $14 million and 2016 — $45 million.

As shown below (in millions), the majority of AFG’s long-term debt is unsecured obligations of the holding company and its subsidiaries:

	September 30,		December 31,
	2011		2010
Unsecured obligations	$	840	$	846
Obligations secured by real estate		64		65
Other secured borrowings		33		41
	$	937	$	952

AFG can borrow up to $500 million under its revolving credit facility which expires in August 2013. Amounts borrowed under this agreement bear interest at rates ranging from 1.75% to 3.00% (currently 2%) over LIBOR based on AFG’s credit rating. No amounts were borrowed under this facility at September 30, 2011.

In May 2011, American Premier paid $8 million to redeem its outstanding 10-7/8% Subordinated Notes at maturity.

In June 2010, National Interstate borrowed $30 million under its bank credit facility in connection with the July acquisition of Vanliner. In September 2010, AFG issued $132 million of 7% Senior Notes due in 2050.

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Long-Term Debt (Details) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Summary of Carrying value of long-term debt
Long-term debt	$ 937	$ 952
Notes payable secured by real estate due 2011 through 2016	64	65
Secured borrowings ($17 and $18 guaranteed by AFG)	33	41
Payable To Subsidiary Trusts [Member]
Summary of Carrying value of long-term debt
AAG Holding Variable Rate Subordinated Debentures due May 2033	20	20
9-7/8% Senior Notes due June 2019 [Member] | AFG [Member]
Summary of Carrying value of long-term debt
Senior Notes	350	350
7% Senior Notes due September 2050 [Member] | AFG [Member]
Summary of Carrying value of long-term debt
Senior Notes	132	132
7-1/2% Senior Debentures due November 2033 [Member] | Subsidiaries [Member]
Summary of Carrying value of long-term debt
Senior Notes	112	112
7-1/4% Senior Debentures due January 2034 [Member] | Subsidiaries [Member]
Summary of Carrying value of long-term debt
Senior Notes	86	86
7-1/8% Senior Debentures due February 2034 [Member] | AFG [Member]
Summary of Carrying value of long-term debt
Senior Notes	115	115
10-7/8% Subordinated Notes due May 2011 [Member] | Subsidiaries [Member]
Summary of Carrying value of long-term debt
American Premier Underwriters 10-7/8% Subordinated Notes due May 2011	0	8
AFG [Member]
Summary of Carrying value of long-term debt
Other long-term debt	3	3
Long-term debt	600	600
Subsidiaries [Member]
Summary of Carrying value of long-term debt
Long-term debt	317	332
Notes payable secured by real estate due 2011 through 2016	64	65
Secured borrowings ($17 and $18 guaranteed by AFG)	33	41
National Interstate bank credit facility	$ 22	$ 20

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Shareholders' Equity (Details Textuals) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended					9 Months Ended	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011 Securities CollateralizedLoanObligations Year	Sep. 30, 2010	Dec. 31, 2010	Sep. 30, 2011 Voting Preferred Stock [Member]	Sep. 30, 2011 Nonvoting Preferred Stock [Member]	Sep. 30, 2011 Stock incentive plan [Member]	Mar. 31, 2011 Annual Co-CEO Equity Bonus Plan [Member]
Class of Stock [Line Items]
Preferred Stock, shares authorized						12,500,000	12,500,000
Preferred Stock, par value
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Other benefit plans, shares									188,302
Common Stock options issued under stock incentive plan, average exercise price								$ 34.34
Common Stock options issued under stock incentive plan								1,100,000
Common Stock issued, fair value per share									$ 33.99
Stockholders' Equity (Textuals) [Abstract]
Pretax unrealized gains (losses) related to credit-only impaired securities	$ 14		$ 14		$ 17
Net of tax unrealized gains (losses) related to credit-only impaired securities	9		9		11
Restricted Common Stock, shares issued			131,955
Restricted Common Stock, fair value per share			$ 34.34
Fair value per share of options granted			$ 12.49
Expected dividend yield			1.90%
Expected volatility			38.00%
Expected term			7.3
Risk-free rate			3.04%
Total share based compensation	$ 5	$ 5	$ 16	$ 15

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Segments of Operations (Details 1) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Operating earnings before income taxes by significant business segment and sub-segment
Realized gains (losses)	$ 8	$ 35	$ 24	$ 50
Operating earnings before income taxes	155	208	319	513
Specialty Property and Transportation [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	5	41	38	81
Specialty Casualty [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	20	(13)	43	29
Specialty Financial [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	23	36	46	91
Specialty Other [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	8	4	14	13
Other Lines [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)			(50)	(12)
Property and Casualty Insurance [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	56	68	91	202
Investment and other income, net	66	67	204	229
Realized gains (losses)	15	46	47	69
Operating earnings before income taxes	137	181	342	500
Annuity and Supplemental Insurance [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Operations	49	58	157	148
Realized gains (losses)	(8)	(11)	(24)	(19)
Operating earnings before income taxes	41	47	133	129
Other Segment [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Operating earnings before income taxes	$ (23)	$ (20)	$ (156)	$ (116)

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Condensed Consolidating Information

9 Months Ended

Sep. 30, 2011

Condensed Consolidating Information [Abstract]

Condensed Consolidating Information

N. Condensed Consolidating Information

AFG has guaranteed all of the outstanding debt of Great American Financial Resources, Inc. (“GAFRI”) and GAFRI’s wholly-owned subsidiary, AAG Holding Company, Inc. In addition, GAFRI guarantees AAG Holding’s public debt. The AFG and GAFRI guarantees are full and unconditional and joint and several. Condensed consolidating financial statements for AFG are as follows:

CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)

					AAG		All Other		Consol.
	AFG		GAFRI		Holding		Subs		Entries			Consolidated
SEPTEMBER 30, 2011
Assets:
Cash and investments	$	353	$	41	$	—	$	24,561	$	(1	)	$	24,954
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,478		—			3,478
Agents’ balances and premiums receivable		—		—		—		866		—			866
Deferred policy acquisition costs		—		—		—		1,127		—			1,127
Assets of managed investment entities		—		—		—		2,439		—			2,439
Other assets		97		8		8		2,193		(40	)		2,266
Investment in subsidiaries and affiliates		4,867		2,061		2,149		651		(9,728	)		—
Total assets	$	5,317	$	2,110	$	2,157	$	35,315	$	(9,769	)	$	35,130
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	8,249	$	—		$	8,249
Annuity, life, accident and health benefits and reserves		—		—		—		16,484		(1	)		16,483
Liabilities of managed investment entities		—		—		—		2,229		—			2,229
Long-term debt		600		1		219		118		(1	)		937
Other liabilities		252		19		113		2,410		(182	)		2,612
Total liabilities		852		20		332		29,490		(184	)		30,510
Total shareholders’ equity		4,465		2,090		1,825		5,670		(9,585	)		4,465
Noncontrolling interests		—		—		—		155		—			155
Total liabilities and equity	$	5,317	$	2,110	$	2,157	$	35,315	$	(9,769	)	$	35,130
DECEMBER 31, 2010
Assets:
Cash and investments	$	412	$	33	$	—	$	22,228	$	(3	)	$	22,670
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,386		—			3,386
Agents’ balances and premiums receivable		—		—		—		535		—			535
Deferred policy acquisition costs		—		—		—		1,244		—			1,244
Assets of managed investment entities		—		—		—		2,537		—			2,537
Other assets		36		6		5		2,050		(15	)		2,082
Investment in subsidiaries and affiliates		4,816		1,899		1,996		671		(9,382	)		—
Total assets	$	5,264	$	1,938	$	2,001	$	32,651	$	(9,400	)	$	32,454
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	7,947	$	—		$	7,947
Annuity, life, accident and health benefits and reserves		—		—		—		14,556		(1	)		14,555
Liabilities of managed investment entities		—		—		—		2,323		—			2,323
Long-term debt		600		1		219		133		(1	)		952
Other liabilities		194		19		110		1,888		(154	)		2,057
Total liabilities		794		20		329		26,847		(156	)		27,834
Total shareholders’ equity		4,470		1,918		1,672		5,654		(9,244	)		4,470
Noncontrolling interests		—		—		—		150		—			150
Total liabilities and equity	$	5,264	$	1,938	$	2,001	$	32,651	$	(9,400	)	$	32,454

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(In millions)

						AAG		All Other		Consol.
	AFG			GAFRI		Holding		Subs		Entries			Consolidated
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011
Revenues:
Property and casualty insurance premiums	$	—		$	—	$	—	$	835	$	—		$	835
Life, accident and health premiums		—			—		—		107		—			107
Realized gains (losses)		—			—		—		8		—			8
Income of managed investment entities		—			—		—		28		—			28
Investment and other income		(2	)		3		—		364		(8	)		357
Equity in earnings of subsidiaries		169			37		39		—		(245	)		—
Total revenues		167			40		39		1,342		(253	)		1,335
Costs and Expenses:
Insurance benefits and expenses		—			—		—		1,059		—			1,059
Interest charges on borrowed money		16			—		6		4		(5	)		21
Expenses of managed investment entities		—			—		—		17		—			17
Other operating and general expenses		7			3		2		72		(1	)		83
Total costs and expenses		23			3		8		1,152		(6	)		1,180
Operating earnings before income taxes		144			37		31		190		(247	)		155
Provision (credit) for income taxes		48			12		9		59		(80	)		48
Net earnings, including noncontrolling interests		96			25		22		131		(167	)		107
Less: Net earnings (loss) attributable to noncontrolling interests		—			—		—		11		—			11
Net Earnings Attributable to Shareholders	$	96		$	25	$	22	$	120	$	(167	)	$	96

						AAG		All Other			Consol.
	AFG		GAFRI			Holding		Subs			Entries			Consolidated
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
Revenues:
Property and casualty insurance premiums	$	—	$	—		$	—	$	736		$	—		$	736
Life, accident and health premiums		—		—			—		112			—			112
Realized gains (losses)		—		(2	)		—		37			—			35
Income of managed investment entities		—		—			—		19			—			19
Investment and other income		3		3			—		352			(5	)		353
Equity in earnings of subsidiaries		242		48			76		—			(366	)		—
Total revenues		245		49			76		1,256			(371	)		1,255
Costs and Expenses:
Insurance benefits and expenses		—		—			—		919			—			919
Interest charges on borrowed money		15		—			6		6			(6	)		21
Expenses of managed investment entities		—		—			—		15			—			15
Other operating and general expenses		16		6			2		68			—			92
Total costs and expenses		31		6			8		1,008			(6	)		1,047
Operating earnings before income taxes		214		43			68		248			(365	)		208
Provision (credit) for income taxes		82		21			22		97			(140	)		82
Net earnings, including noncontrolling interests		132		22			46		151			(225	)		126
Less: Net earnings (loss) attributable to noncontrolling interests		—		—			—		(6	)		—			(6	)
Net Earnings Attributable to Shareholders	$	132	$	22		$	46	$	157		$	(225	)	$	132

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(In millions)

					AAG		All Other			Consol.
	AFG		GAFRI		Holding		Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	2,043		$	—		$	2,043
Life, accident and health premiums		—		—		—		324			—			324
Realized gains (losses)		—		—		—		25			(1	)		24
Income of managed investment entities		—		—		—		24			—			24
Investment and other income		—		8		—		1,066			(22	)		1,052
Equity in earnings of subsidiaries		447		126		144		—			(717	)		—
Total revenues		447		134		144		3,482			(740	)		3,467
Costs and Expenses:
Insurance benefits and expenses		—		—		—		2,763			—			2,763
Interest charges on borrowed money		48		—		19		12			(16	)		63
Expenses of managed investment entities		—		—		—		53			—			53
Other operating and general expenses		39		12		4		218			(4	)		269
Total costs and expenses		87		12		23		3,046			(20	)		3,148
Operating earnings before income taxes		360		122		121		436			(720	)		319
Provision (credit) for income taxes		126		42		41		163			(246	)		126
Net earnings, including noncontrolling interests		234		80		80		273			(474	)		193
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(41	)		—			(41	)
Net Earnings Attributable to Shareholders	$	234	$	80	$	80	$	314		$	(474	)	$	234

						AAG		All Other			Consol.
	AFG		GAFRI			Holding		Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Revenues:
Property and casualty insurance premiums	$	—	$	—		$	—	$	1,887		$	—		$	1,887
Life, accident and health premiums		—		—			—		340			—			340
Realized gains (losses)		—		(2	)		—		52			—			50
Income of managed investment entities		—		—			—		24			—			24
Investment and other income		3		8			—		1,045			(16	)		1,040
Equity in earnings of subsidiaries		621		129			172		—			(922	)		—
Total revenues		624		135			172		3,348			(938	)		3,341
Costs and Expenses:
Insurance benefits and expenses		—		—			—		2,454			—			2,454
Interest charges on borrowed money		42		—			19		13			(17	)		57
Expenses of managed investment entities		—		—			—		38			—			38
Other operating and general expenses		37		13			5		224			—			279
Total costs and expenses		79		13			24		2,729			(17	)		2,828
Operating earnings before income taxes		545		122			148		619			(921	)		513
Provision (credit) for income taxes		199		49			50		236			(335	)		199
Net earnings, including noncontrolling interests		346		73			98		383			(586	)		314
Less: Net earnings (loss) attributable to noncontrolling interests		—		—			—		(32	)		—			(32	)
Net Earnings Attributable to Shareholders	$	346	$	73		$	98	$	415		$	(586	)	$	346

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)

							AAG			All Other			Consol.
	AFG			GAFRI			Holding			Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$	234		$	80		$	80		$	273		$	(474	)	$	193
Adjustments:
Equity in net earnings of subsidiaries		(295	)		(83	)		(95	)		—			473			—
Dividends from subsidiaries		275			3			8			—			(286	)		—
Other operating activities, net		13			(2	)		2			454			1			468
Net cash provided by (used in) operating activities		227			(2	)		(5	)		727			(286	)		661
Investing Activities:
Purchases of investments, property and equipment		(42	)		—			—			(4,599	)		—			(4,641	)
Returns of capital from (capital contributions to) subsidiaries		45			(12	)		(1	)		—			(32	)		—
Proceeds from maturities and redemptions of investments		4			9			—			1,669			—			1,682
Proceeds from sales of investments, property and equipment		5			—			—			952			—			957
Managed investment entities:
Purchases of investments		—			—			—			(1,085	)		—			(1,085	)
Proceeds from sales and redemptions of investments		—			—			—			1,170			—			1,170
Other investing activities, net		—			—			—			(14	)		—			(14	)
Net cash provided by (used in) investing activities		12			(3	)		(1	)		(1,907	)		(32	)		(1,931	)
Financing Activities:
Annuity receipts		—			—			—			2,468			—			2,468
Annuity surrenders, benefits and withdrawals		—			—			—			(971	)		—			(971	)
Additional long-term borrowings		—			—			—			2			—			2
Reductions of long-term debt		—			—			—			(17	)		—			(17	)
Retirement of managed investment entities’ liabilities		—			—			—			(60	)		—			(60	)
Issuances of Common Stock		19			—			—			—			—			19
Capital contributions from (returns of capital to) parent		—			12			6			(50	)		32			—
Repurchases of Common Stock		(263	)		—			—			—			—			(263	)
Cash dividends paid		(50	)		—			—			(286	)		286			(50	)
Other financing activities, net		—			—			—			34			—			34
Net cash provided by (used in) financing activities		(294	)		12			6			1,120			318			1,162
Net change in cash and cash equivalents		(55	)		7			—			(60	)		—			(108	)
Cash and cash equivalents at beginning of period		370			20			—			709			—			1,099
Cash and cash equivalents at end of period	$	315		$	27		$	—		$	649		$	—		$	991

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)

							AAG			All Other			Consol.
	AFG			GAFRI			Holding			Subs			Entries			Consolidated
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Operating Activities:
Net earnings, including noncontrolling interests	$	346		$	73		$	98		$	383		$	(586	)	$	314
Adjustments:
Equity in net earnings of subsidiaries		(395	)		(78	)		(114	)		—			587			—
Dividends from subsidiaries		359			—			16			—			(375	)		—
Other operating activities, net		(52	)		(2	)		4			518			(1	)		467
Net cash provided by (used in) operating activities		258			(7	)		4			901			(375	)		781
Investing Activities:
Purchases of investments, property and equipment		(6	)		—			—			(4,119	)		—			(4,125	)
Purchase of subsidiaries		—			—			—			(128	)		—			(128	)
Capital contributions to subsidiaries		(12	)		(2	)		(5	)		—			19			—
Proceeds from maturities and redemptions of investments		—			6			—			1,503			—			1,509
Proceeds from sales of investments, property and equipment		—			—			—			1,228			—			1,228
Managed investment entities:
Purchases of investments		—			—			—			(617	)		—			(617	)
Proceeds from sales and redemptions of investments		—			—			—			658			—			658
Other investing activities, net		—			—			—			101			—			101
Net cash provided by (used in) investing activities		(18	)		4			(5	)		(1,374	)		19			(1,374	)
Financing Activities:
Annuity receipts		—			—			—			1,661			—			1,661
Annuity surrenders, benefits and withdrawals		—			—			—			(914	)		—			(914	)
Additional long-term borrowings		128			—			—			30			—			158
Reductions of long-term debt		—			—			—			(36	)		—			(36	)
Retirement of managed investment entities’ liabilities		—			—			—			(42	)		—			(42	)
Issuances of Common Stock		26			—			—			1			—			27
Capital contributions from parent		—			12			1			6			(19	)		—
Repurchases of Common Stock		(201	)		—			—			—			—			(201	)
Cash dividends paid		(46	)		—			—			(375	)		375			(46	)
Other financing activities, net		(1	)		—			—			7			—			6
Net cash provided by (used in) financing activities		(94	)		12			1			338			356			613
Net change in cash and cash equivalents		146			9			—			(135	)		—			20
Cash and cash equivalents at beginning of period		197			12			—			911			—			1,120
Cash and cash equivalents at end of period	$	343		$	21		$	—		$	776		$	—		$	1,140

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Consolidated Balance Sheet (Unaudited) (USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Assets:
Cash and cash equivalents	$ 991	$ 1,099
Investments:
Fixed maturities, available for sale at fair value (amortized cost - $20,297 and $18,490)	21,552	19,328
Fixed maturities, trading at fair value	441	393
Equity securities, at fair value (cost - $775 and $458)	930	690
Mortgage loans	384	468
Policy loans	253	264
Real estate and other investments	403	428
Total cash and investments	24,954	22,670
Recoverables from reinsurers	2,908	2,964
Prepaid reinsurance premiums	570	422
Agents' balances and premiums receivable	866	535
Deferred policy acquisition costs	1,127	1,244
Assets of managed investment entities	2,439	2,537
Other receivables	797	674
Variable annuity assets (separate accounts)	515	616
Other assets	768	606
Goodwill	186	186
Total assets	35,130	32,454
Liabilities and Equity:
Unpaid losses and loss adjustment expenses	6,485	6,413
Unearned premiums	1,764	1,534
Annuity benefits accumulated	14,788	12,905
Life, accident and health reserves	1,695	1,650
Payable to reinsurers	651	320
Liabilities of managed investment entities	2,229	2,323
Long-term debt	937	952
Variable annuity liabilities (separate accounts)	515	616
Other liabilities	1,446	1,121
Total liabilities	30,510	27,834
Shareholders' equity:
Common Stock, no par value - 200,000,000 shares authorized - 98,506,233 and 105,168,366 shares outstanding	99	105
Capital surplus	1,114	1,166
Retained earnings:
Appropriated - managed investment entities	150	197
Unappropriated	2,539	2,523
Accumulated other comprehensive income, net of tax	563	479
Total shareholders' equity	4,465	4,470
Noncontrolling interests	155	150
Total equity	4,620	4,620
Total liabilities and equity	$ 35,130	$ 32,454

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Fair Value Measurements (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Millions	Sep. 30, 2011	Dec. 31, 2010
Assets:
Total AFS securities	$ 21,552	$ 19,328
Trading fixed maturities	441	393
Assets of managed investment entities (MIE)	2,439	2,537
Total assets accounted for at fair value	25,924	23,662
Liabilities:
Liabilities of managed investment entities	2,229	2,323
Derivatives in annuity benefits accumulated	332	190
Total liabilities accounted for at fair value	2,561	2,513
Variable Annuity Assets (separate accounts) [Member]
Assets:
Variable annuity assets	515	616
Variable Annuity Assets (separate accounts) [Member] | Level 1 [Member]
Assets:
Variable annuity assets	0	0
Variable Annuity Assets (separate accounts) [Member] | Level 2 [Member]
Assets:
Variable annuity assets	515	616
Variable Annuity Assets (separate accounts) [Member] | Level 3 [Member]
Assets:
Variable annuity assets	0	0
Other Investments [Member]
Assets:
Other Investments	47	98
Other Investments [Member] | Level 1 [Member]
Assets:
Other Investments	0	0
Other Investments [Member] | Level 2 [Member]
Assets:
Other Investments	47	98
Other Investments [Member] | Level 3 [Member]
Assets:
Other Investments	0	0
U.S. Government and government agencies [Member]
Assets:
Total AFS securities	422	467
U.S. Government and government agencies [Member] | Level 1 [Member]
Assets:
Total AFS securities	234	249
U.S. Government and government agencies [Member] | Level 2 [Member]
Assets:
Total AFS securities	188	218
U.S. Government and government agencies [Member] | Level 3 [Member]
Assets:
Total AFS securities	0	0
States, municipalities and political subdivisions [Member]
Assets:
Total AFS securities	3,769	2,939
States, municipalities and political subdivisions [Member] | Level 1 [Member]
Assets:
Total AFS securities	0	0
States, municipalities and political subdivisions [Member] | Level 2 [Member]
Assets:
Total AFS securities	3,697	2,919
States, municipalities and political subdivisions [Member] | Level 3 [Member]
Assets:
Total AFS securities	72	20
Foreign government [Member]
Assets:
Total AFS securities	267	278
Foreign government [Member] | Level 1 [Member]
Assets:
Total AFS securities	0	0
Foreign government [Member] | Level 2 [Member]
Assets:
Total AFS securities	267	278
Foreign government [Member] | Level 3 [Member]
Assets:
Total AFS securities	0	0
Residential Mortgage Backed Securities [Member]
Assets:
Total AFS securities	3,824	3,875
Residential Mortgage Backed Securities [Member] | Level 1 [Member]
Assets:
Total AFS securities	0	0
Residential Mortgage Backed Securities [Member] | Level 2 [Member]
Assets:
Total AFS securities	3,540	3,563
Residential Mortgage Backed Securities [Member] | Level 3 [Member]
Assets:
Total AFS securities	284	312
Commercial Mortgage Backed Securities [Member]
Assets:
Total AFS securities	2,802	2,123
Commercial Mortgage Backed Securities [Member] | Level 1 [Member]
Assets:
Total AFS securities	0	0
Commercial Mortgage Backed Securities [Member] | Level 2 [Member]
Assets:
Total AFS securities	2,774	2,117
Commercial Mortgage Backed Securities [Member] | Level 3 [Member]
Assets:
Total AFS securities	28	6
All other corporate [Member]
Assets:
Total AFS securities	10,468	9,646
All other corporate [Member] | Level 1 [Member]
Assets:
Total AFS securities	9	9
All other corporate [Member] | Level 2 [Member]
Assets:
Total AFS securities	10,023	9,201
All other corporate [Member] | Level 3 [Member]
Assets:
Total AFS securities	436	436
Equity Securities [Member]
Assets:
Total AFS securities	930	690
Equity Securities [Member] | Level 1 [Member]
Assets:
Total AFS securities	777	461
Equity Securities [Member] | Level 2 [Member]
Assets:
Total AFS securities	129	208
Equity Securities [Member] | Level 3 [Member]
Assets:
Total AFS securities	24	21
Level 1 [Member]
Assets:
Total AFS securities	243	258
Trading fixed maturities	0	0
Assets of managed investment entities (MIE)	132	96
Total assets accounted for at fair value	1,152	815
Liabilities:
Liabilities of managed investment entities	47	65
Derivatives in annuity benefits accumulated	0	0
Total liabilities accounted for at fair value	47	65
Level 2 [Member]
Assets:
Total AFS securities	20,489	18,296
Trading fixed maturities	440	390
Assets of managed investment entities (MIE)	2,267	2,393
Total assets accounted for at fair value	23,887	22,001
Liabilities:
Liabilities of managed investment entities	0	0
Derivatives in annuity benefits accumulated	0	0
Total liabilities accounted for at fair value	0	0
Level 3 [Member]
Assets:
Total AFS securities	820	774
Trading fixed maturities	1	3
Assets of managed investment entities (MIE)	40	48
Total assets accounted for at fair value	885	846
Liabilities:
Liabilities of managed investment entities	2,182	2,258
Derivatives in annuity benefits accumulated	332	190
Total liabilities accounted for at fair value	$ 2,514	$ 2,448

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Derivatives (Details 1) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	$ (37)	$ 14	$ (60)	$ 5
MBS with embedded derivatives [Member] | Realized gains [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	3	25		51
Interest rate swaptions [Member] | Realized gains [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	(15)	(2)	(22)	(16)
Indexed annuities embedded derivative [Member] | Annuity benefits [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	31	(26)	2	(25)
Equity index call options [Member] | Annuity benefits [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	(50)	23	(30)	11
Reinsurance contracts embedded derivative [Member] | Investment Income [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	$ (6)	$ (6)	$ (10)	$ (16)

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Long-Term Debt (Details Textuals) (USD $) In Millions, unless otherwise specified	6 Months Ended	9 Months Ended								1 Months Ended
	Jun. 30, 2010	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2011 9-7/8% Senior Notes due June 2019 [Member]	Sep. 30, 2011 7% Senior Notes due September 2050 [Member]	Sep. 30, 2011 7-1/2% Senior Debentures due November 2033 [Member]	Sep. 30, 2011 7-1/4% Senior Debentures due January 2034 [Member]	Sep. 30, 2011 7-1/8% Senior Debentures due February 2034 [Member]	Sep. 30, 2011 10-7/8% Subordinated Notes due May 2011 [Member]	May 31, 2011 10-7/8% Subordinated Notes due May 2011 [Member] Subsidiaries [Member]
Debt Instrument [Line Items]
American Premier 10-7/8% Subordinated Notes due May 2011										$ 8
Interest rate on debt instruments				9.875%	7.00%	7.50%	7.25%	7.125%	10.875%
Long-Term Debt (Textuals) [Abstract]
Secured Borrowings guaranteed by AFG		17	18
Scheduled principal payments on debt in 2011		3
Scheduled principal payments on debt in 2012		34
Scheduled principal payments on debt in 2013		20
Scheduled principal payments on debt in 2014		2
Scheduled principal payments on debt in 2015		14
Scheduled principal payments on debt in 2016		45
AFG's revolving credit line		500
Interest rate range for revolving credit facility		1.75% to 3.00% (currently 2%) over LIBOR
Amount borrowed under AFG revolving credit facility		0
Amount borrowed under National Interstate bank credit facility	$ 30

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Investments (Details 5) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	$ 18	$ 68	$ 68	$ 120
Realized - impairments	(10)	(11)	(41)	(48)
Fixed Maturity Securities [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	27	46	51	115
Realized - impairments	(12)	(12)	(49)	(62)
Change in unrealized	172	498	417	1,131
Equity Securities [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	6	27	41	29
Realized - impairments	(2)	(1)	(2)	(1)
Change in unrealized	(75)	(8)	(77)	(11)
Mortgage Loans and other investments [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	(15)	(1)	(22)	(15)
Realized - impairments		(2)	(4)	(5)
Other [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		(4)	(2)	(9)
Realized - impairments	4	4	14	20
Change in unrealized	(100)	(177)	(194)	(434)
Tax Effects [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	(6)	(23)	(24)	(41)
Realized - impairments	3	4	14	17
Change in unrealized	2	(109)	(51)	(240)
Noncontrolling Interests [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		(1)	(1)	(2)
Change in unrealized	(2)	(4)	(4)	(6)
Marketable Securities [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	12	44	43	77
Realized - impairments	(7)	(7)	(27)	(31)
Change in unrealized	$ (3)	$ 200	$ 91	$ 440

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Investments (Details 6) (USD $) In Millions	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Fixed Maturity Securities [Member]
Gross realized gains and losses on the sale of available for sale fixed maturity and equity security investments
Gross gains	$ 57	$ 74
Gross losses	(5)	(10)
Equity Securities [Member]
Gross realized gains and losses on the sale of available for sale fixed maturity and equity security investments
Gross gains	42	29
Gross losses	$ (1)

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Goodwill and Other Intangibles (Details) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Goodwill and other intangibles (Textuals) [Abstract]
Goodwill	$ 186		$ 186		$ 186
Impairment charges of Goodwill		22
Amortizable intangible assets related to property and casualty insurance acquisitions	40		40		49
Amortization of intangible assets	3	3	9	9
Accumulated amortization	44		44		35
Non-amortizable intangible assets related to insurance licenses	$ 8		$ 8

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Fair Value Measurements (Details 1) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
States, municipalities and political subdivisions [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	$ 84	$ 21	$ 20	$ 23
Total realized/unrealized gains (losses) included in Other comprehensive income loss	4		5	1
Purchases, sales, issuances and settlements				(3)
Purchases and issuances			53
Sales and settlements	(3)		(3)
Transfer into Level 3		0	10	17
Transfer out of Level 3	(13)		(13)	(17)
Financial assets, Ending Balance	72	21	72	21
Residential Mortgage Backed Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	255	326	312	435
Total realized/unrealized gains (losses) included in Net income	1	4	2	6
Total realized/unrealized gains (losses) included in Other comprehensive income loss	(4)	11	(6)	22
Purchases, sales, issuances and settlements		5		11
Purchases and issuances	25		42
Sales and settlements	(9)		(29)
Transfer into Level 3	24	7	31	9
Transfer out of Level 3	(8)	(61)	(68)	(191)
Financial assets, Ending Balance	284	292	284	292
Commercial Mortgage Backed Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	10	6	6
Total realized/unrealized gains (losses) included in Net income		(1)		(1)
Purchases, sales, issuances and settlements				6
Purchases and issuances	9		9
Transfer into Level 3	9		13
Financial assets, Ending Balance	28	5	28	5
Assets of Managed Investment Entities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	53	46	48
Consolidate Managed Investment Entities				90
Total realized/unrealized gains (losses) included in Net income	(6)		(7)	5
Purchases, sales, issuances and settlements		(4)		(8)
Purchases and issuances	5		21
Sales and settlements	(7)		(13)
Transfer into Level 3			8	7
Transfer out of Level 3	(5)		(17)	(52)
Financial assets, Ending Balance	40	42	40	42
All other corporate [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	382	426	436	311
Consolidate Managed Investment Entities				(6)
Total realized/unrealized gains (losses) included in Net income	2		1	(12)
Total realized/unrealized gains (losses) included in Other comprehensive income loss	11	7	17	15
Purchases, sales, issuances and settlements		14		101
Purchases and issuances	32		123
Sales and settlements	(14)		(51)
Transfer into Level 3	46	27	70	96
Transfer out of Level 3	(23)	(22)	(160)	(53)
Financial assets, Ending Balance	436	452	436	452
Equity Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	21	24	21	25
Total realized/unrealized gains (losses) included in Other comprehensive income loss	(1)		1	(1)
Purchases and issuances	2		2
Sales and settlements			(2)
Transfer into Level 3	2		2
Transfer out of Level 3		(3)		(3)
Financial assets, Ending Balance	24	21	24	21
Trading fixed maturities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	1	1	3	1
Purchases, sales, issuances and settlements				4
Transfer into Level 3	0	0
Transfer out of Level 3			(2)	(4)
Financial assets, Ending Balance	1	1	1	1
Liabilities of Managed Investment Entities [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial liabilities, Beginning Balance	(2,322)	(2,152)	(2,258)
Consolidate Managed Investment Entities				(2,100)
Total realized/unrealized Gains (losses) included in Net income	89	(51)	17	(141)
Purchases, sales, issuances and settlements		4		42
Sales and settlements	51		59
Financial liabilities, Ending Balance	(2,182)	(2,199)	(2,182)	(2,199)
Embedded derivatives [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial liabilities, Beginning Balance	(299)	(128)	(190)	(113)
Total realized/unrealized Gains (losses) included in Net income	31	(26)	2	(25)
Purchases, sales, issuances and settlements		(16)		(32)
Purchases and issuances	(71)		(161)
Sales and settlements	7		17
Financial liabilities, Ending Balance	$ (332)	$ (170)	$ (332)	$ (170)