Deferred Policy Acquisition Costs

12 Months Ended

Dec. 31, 2011

Deferred Policy Acquisition Costs [Abstract]

Deferred Policy Acquisition Costs

G. Deferred Policy Acquisition Costs

Deferred policy acquisition costs consisted of the following at December 31 (in millions):

	2011			2010
Property and casualty insurance	$	331		$	324
Annuity and supplemental insurance:
Policy acquisition costs		995			888
Policyholder sales inducements		207			208
Present value of future profits (“PVFP”)		144			164
Impact of unrealized gains and losses on securities		(572	)		(340	)
Total annuity and supplemental		774			920
	$	1,105		$	1,244

During 2011, 2010 and 2009, AFG capitalized $20 million, $33 million and $32 million respectively, relating to sales inducements offered to annuity policyholders. Amortization of sales inducements was $21 million, $36 million and $20 million in these periods, respectively.

The PVFP amounts in the table above are net of $195 million and $174 million of accumulated amortization at December 31, 2011 and 2010, respectively. Amortization of the PVFP was $20 million in 2011, $26 million in 2010 and $29 million in 2009. During each of the next five years, the PVFP is expected to decrease at a rate of approximately one-sixth of the balance at the beginning of each respective year.

As discussed above under “Recent Accounting Standards,” AFG’s current accounting for DPAC will change effective in 2012 and amounts included herein will be adjusted retrospectively. Deferred policy acquisition costs on an adjusted basis at December 31, 2011, will be $901 million, consisting of $189 million for the property and casualty subsidiaries and $712 million for the annuity and supplemental subsidiaries.