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.