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Investments
 9 Months Ended
Sep. 30, 2012
Investments, Debt and Equity Securities [Abstract]  
Investments
E.    Investments

Available for sale fixed maturities and equity securities at September 30, 2012, and December 31, 2011, consisted of the following (in millions): 

September 30, 2012
 
December 31, 2011
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
 
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
Gains
 
Losses
 
Gains
 
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
345

 
$
361

 
$
16

 
$
—

 
$
363

 
$
382

 
$
19

 
$
—

States, municipalities and political subdivisions
3,976

 
4,326

 
352

 
(2
)
 
3,613

 
3,877

 
267

 
(3
)
Foreign government
245

 
264

 
19

 
—

 
236

 
254

 
18

 
—

Residential MBS
4,100

 
4,320

 
294

 
(74
)
 
3,858

 
3,848

 
170

 
(180
)
Commercial MBS
2,629

 
2,945

 
316

 
—

 
2,628

 
2,840

 
218

 
(6
)
All other corporate
10,465

 
11,530

 
1,076

 
(11
)
 
9,864

 
10,606

 
802

 
(60
)
Total fixed maturities
$
21,760

 
$
23,746

 
$
2,073

 
$
(87
)
 
$
20,562

 
$
21,807

 
$
1,494

 
$
(249
)
Common stocks
$
633

 
$
828

 
$
200

 
$
(5
)
 
$
610

 
$
797

 
$
207

 
$
(20
)
Perpetual preferred stocks
$
192

 
$
203

 
$
13

 
$
(2
)
 
$
134

 
$
131

 
$
5

 
$
(8
)

The non-credit related portion of other-than-temporary impairment charges are included in other comprehensive income. Cumulative charges taken for residential MBS still owned at September 30, 2012 and December 31, 2011, respectively were $228 million and $227 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, 2012 and December 31, 2011. 
 
  
Less Than Twelve Months
 
Twelve Months or More
 
Unrealized
Loss
 
Fair
Value
 
Fair Value as
% of  Cost
 
Unrealized
Loss
 
Fair
Value
 
Fair Value as
% of  Cost
 
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
6

 
100
%
 
$
—

 
$
—

 
—
%
 
States, municipalities and political subdivisions
(2
)
 
126

 
98
%
 
—

 
13

 
100
%
 
Foreign government
—

 
—

 
—
%
 
—

 
—

 
—
%
 
Residential MBS
(9
)
 
314

 
97
%
 
(65
)
 
473

 
88
%
 
Commercial MBS
—

 
5

 
100
%
 
—

 
—

 
—
%
 
All other corporate
(4
)
 
204

 
98
%
 
(7
)
 
133

 
95
%
 
Total fixed maturities
$
(15
)
 
$
655

 
98
%
 
$
(72
)
 
$
619

 
90
%
 
Common stocks
$
(5
)
 
$
50

 
91
%
 
$
—

 
$
—

 
—
%
 
Perpetual preferred stocks
$
—

 
$
—

 
—
%
 
$
(2
)
 
$
25

 
93
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
2

 
100
%
 
$
—

 
$
—

 
—
%
 
States, municipalities and political subdivisions
(2
)
 
120

 
98
%
 
(1
)
 
59

 
98
%
 
Foreign government
—

 
1

 
100
%
 
—

 
—

 
—
%
 
Residential MBS
(59
)
 
1,141

 
95
%
 
(121
)
 
473

 
80
%
 
Commercial MBS
(6
)
 
183

 
97
%
 
—

 
18

 
100
%
 
All other corporate
(43
)
 
940

 
96
%
 
(17
)
 
114

 
87
%
 
Total fixed maturities
$
(110
)
 
$
2,387

 
96
%
 
$
(139
)
 
$
664

 
83
%
 
Common stocks
$
(19
)
 
$
169

 
90
%
 
$
(1
)
 
$
4

 
80
%
 
Perpetual preferred stocks
$
(1
)
 
$
23

 
96
%
 
$
(7
)
 
$
31

 
82
%


At September 30, 2012, the gross unrealized losses on fixed maturities of $87 million relate to approximately 420 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 22% of the gross unrealized loss and 50% of the fair value.

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 2012, AFG recorded in earnings $5 million in other-than-temporary impairment charges related to its residential MBS.

A progression of 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 is shown below (in millions).

 
2012
 
2011
Balance at June 30
$
191

 
$
171

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
8

Securities without prior impairments
—

 
2

Reductions — disposals
—

 
(1
)
Balance at September 30
$
191

 
$
180

 
 
 
 
Balance at January 1
$
187

 
$
143

Additional credit impairments on:
 
 
 
Previously impaired securities
4

 
37

Securities without prior impairments
—

 
7

Reductions — disposals
—

 
(7
)
Balance at September 30
$
191

 
$
180


The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2012 (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, 2012. 
  
Amortized
 
Fair Value
Cost
 
Amount
 
%
Maturity
 
 
 
 
 
One year or less
$
838

 
$
857

 
4
%
After one year through five years
5,320

 
5,735

 
24

After five years through ten years
6,529

 
7,285

 
31

After ten years
2,344

 
2,604

 
11

 
15,031

 
16,481

 
70

MBS
6,729

 
7,265

 
30

Total
$
21,760

 
$
23,746

 
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, 2012 or December 31, 2011.
 
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 (in millions) the components of the net unrealized gain on securities that is included in Accumulated Other Comprehensive Income in AFG’s Balance Sheet. 
 
Pretax
 
Deferred Tax and
Amounts  Attributable
to Noncontrolling
Interests
 
Net
September 30, 2012
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities
$
1,986

 
$
(709
)
 
$
1,277

Equity securities
206

 
(74
)
 
132

Deferred policy acquisition costs
(764
)
 
267

 
(497
)
Annuity benefits and other liabilities
13

 
(4
)
 
9

 
$
1,441

 
$
(520
)
 
$
921

December 31, 2011
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities
$
1,245

 
$
(444
)
 
$
801

Equity securities
184

 
(65
)
 
119

Deferred policy acquisition costs
(537
)
 
188

 
(349
)
Annuity benefits and other liabilities
10

 
(3
)
 
7

 
$
902

 
$
(324
)
 
$
578


Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions): 
 
Fixed
Maturities
 
Equity
Securities
 
Mortgage
Loans
and Other
Investments
 
Other (a)
 
Tax
Effects
 
Noncon-
trolling
Interests
 
Total
Quarter ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
20

 
$
77

 
$
—

 
$
(4
)
 
$
(33
)
 
$
—

 
$
60

Realized — impairments
(1
)
 
(9
)
 
—

 
2

 
3

 
—

 
(5
)
Change in unrealized
378

 
(18
)
 
—

 
(122
)
 
(84
)
 
(4
)
 
150

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
)
 
—

 
(121
)
 
9

 
(2
)
 
(17
)
Nine months ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
40

 
$
133

 
$
(3
)
 
$
(6
)
 
$
(58
)
 
$
(1
)
 
$
105

Realized — impairments
(5
)
 
(19
)
 
—

 
5

 
7

 
—

 
(12
)
Change in unrealized
741

 
22

 
—

 
(224
)
 
(189
)
 
(7
)
 
343

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
)
 
—

 
(185
)
 
(54
)
 
(4
)
 
97

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

Realized gains (losses) on securities includes net gains of $1 million in the third quarter and $4 million in the first nine months of 2012 compared to net gains of $3 million in the third quarter and net losses of less than $1 million in the first nine months of 2011 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,
2012
 
2011
Fixed maturities:
 
 
 
Gross gains
$
37

 
$
57

Gross losses
(2
)
 
(5
)
Equity securities:
 
 
 
Gross gains
136

 
42

Gross losses
(3
)
 
(1
)