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Investments
 6 Months Ended
Jun. 30, 2013
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at June 30, 2013, and December 31, 2012, consisted of the following (in millions): 

June 30, 2013
 
December 31, 2012
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
 
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
Gains
 
Losses
 
Gains
 
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
302

 
$
312

 
$
10

 
$
—

 
$
373

 
$
388

 
$
15

 
$
—

States, municipalities and political subdivisions
4,705

 
4,816

 
190

 
(79
)
 
4,144

 
4,468

 
329

 
(5
)
Foreign government
230

 
242

 
12

 
—

 
242

 
260

 
18

 
—

Residential MBS
3,849

 
4,153

 
349

 
(45
)
 
3,921

 
4,204

 
337

 
(54
)
Commercial MBS
2,619

 
2,846

 
232

 
(5
)
 
2,583

 
2,918

 
335

 
—

Asset-backed securities
2,205

 
2,234

 
41

 
(12
)
 
1,590

 
1,640

 
52

 
(2
)
Corporate and other
9,830

 
10,432

 
676

 
(74
)
 
9,230

 
10,240

 
1,015

 
(5
)
Total fixed maturities
$
23,740

 
$
25,035

 
$
1,510

 
$
(215
)
 
$
22,083

 
$
24,118

 
$
2,101

 
$
(66
)
Common stocks
$
759

 
$
966

 
$
219

 
$
(12
)
 
$
600

 
$
749

 
$
157

 
$
(8
)
Perpetual preferred stocks
$
225

 
$
233

 
$
12

 
$
(4
)
 
$
178

 
$
190

 
$
13

 
$
(1
)

The non-credit related portion of other-than-temporary impairment charges is included in other comprehensive income. Cumulative non-credit charges taken for securities still owned at June 30, 2013 and December 31, 2012 were $227 million and related to residential MBS.

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 June 30, 2013 and December 31, 2012. 
  
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
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
84

 
100
%
 
$
—

 
$
—

 
—
%
States, municipalities and political subdivisions
(78
)
 
1,581

 
95
%
 
(1
)
 
15

 
94
%
Foreign government
—

 
—

 
—
%
 
—

 
—

 
—
%
Residential MBS
(10
)
 
618

 
98
%
 
(35
)
 
263

 
88
%
Commercial MBS
(5
)
 
150

 
97
%
 
—

 
—

 
—
%
Asset-backed securities
(11
)
 
749

 
99
%
 
(1
)
 
24

 
96
%
Corporate and other
(73
)
 
1,970

 
96
%
 
(1
)
 
24

 
96
%
Total fixed maturities
$
(177
)
 
$
5,152

 
97
%
 
$
(38
)
 
$
326

 
90
%
Common stocks
$
(12
)
 
$
138

 
92
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
$
(3
)
 
$
78

 
96
%
 
$
(1
)
 
$
24

 
96
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
22

 
100
%
 
$
—

 
$
—

 
—
%
States, municipalities and political subdivisions
(5
)
 
285

 
98
%
 
—

 
24

 
100
%
Foreign government
—

 
—

 
—
%
 
—

 
—

 
—
%
Residential MBS
(3
)
 
146

 
98
%
 
(51
)
 
411

 
89
%
Commercial MBS
—

 
16

 
100
%
 
—

 
—

 
—
%
Asset-backed securities
—

 
146

 
100
%
 
(2
)
 
57

 
97
%
Corporate and other
(3
)
 
237

 
99
%
 
(2
)
 
51

 
96
%
Total fixed maturities
$
(11
)
 
$
852

 
99
%
 
$
(55
)
 
$
543

 
91
%
Common stocks
$
(8
)
 
$
88

 
92
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
$
—

 
$
7

 
100
%
 
$
(1
)
 
$
25

 
96
%


At June 30, 2013, the gross unrealized losses on fixed maturities of $215 million relate to approximately 1,000 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 79% of the gross unrealized loss and 85% 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. In the first six months of 2013, AFG did not record any other-than-temporary impairment charges related to its residential MBS.

Management believes AFG will recover its cost basis in the securities with unrealized losses and that AFG has the ability to hold the securities until they recover in value and had no intent to sell them at June 30, 2013.
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).

 
2013
 
2012
Balance at March 31
$
191

 
$
190

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
1

Securities without prior impairments
—

 
—

Reductions — disposals
—

 
—

Balance at June 30
$
191

 
$
191

 
 
 
 
Balance at January 1
$
192

 
$
187

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
4

Securities without prior impairments
—

 
—

Reductions — disposals
(1
)
 
—

Balance at June 30
$
191

 
$
191



The table below sets forth the scheduled maturities of available for sale fixed maturities as of June 30, 2013 (in millions). 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.
  
Amortized
 
Fair Value
Cost
 
Amount
 
%
Maturity
 
 
 
 
 
One year or less
$
1,077

 
$
1,101

 
4
%
After one year through five years
4,674

 
5,014

 
20
%
After five years through ten years
6,588

 
6,915

 
28
%
After ten years
2,728

 
2,772

 
11
%
 
15,067

 
15,802

 
63
%
ABS (average life of approximately 4 1/2 years)
2,205

 
2,234

 
9
%
MBS (average life of approximately 3 1/2 years)
6,468

 
6,999

 
28
%
Total
$
23,740

 
$
25,035

 
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 June 30, 2013 or December 31, 2012.
 
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 and certain other balance sheet amounts related to annuity, long-term care and life businesses 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 AOCI in AFG’s Balance Sheet. 
 
Pretax
 
Deferred Tax and
Amounts  Attributable
to Noncontrolling
Interests
 
Net
June 30, 2013
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities
$
1,295

 
$
(461
)
 
$
834

Equity securities
215

 
(77
)
 
138

Deferred policy acquisition costs
(438
)
 
153

 
(285
)
Annuity benefits accumulated
(87
)
 
31

 
(56
)
Life, accident and health reserves
(81
)
 
28

 
(53
)
Other liabilities
33

 
(11
)
 
22

 
$
937

 
$
(337
)
 
$
600

December 31, 2012
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities
$
2,035

 
$
(726
)
 
$
1,309

Equity securities
161

 
(57
)
 
104

Deferred policy acquisition costs
(710
)
 
247

 
(463
)
Annuity benefits accumulated
(136
)
 
48

 
(88
)
Life, accident and health reserves
(117
)
 
41

 
(76
)
Other liabilities
57

 
(20
)
 
37

 
$
1,290

 
$
(467
)
 
$
823


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 June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
8

 
$
33

 
$
1

 
$
—

 
$
(15
)
 
$
—

 
$
27

Realized — impairments
—

 
—

 
(1
)
 
—

 
—

 
—

 
(1
)
Change in unrealized
(725
)
 
(13
)
 
—

 
319

 
147

 
7

 
(265
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
6

 
$
21

 
$
(4
)
 
$
—

 
$
(8
)
 
$
(1
)
 
$
14

Realized — impairments
—

 
(8
)
 
—

 
1

 
3

 
—

 
(4
)
Change in unrealized
231

 
(30
)
 
—

 
(100
)
 
(35
)
 
—

 
66

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
27

 
$
71

 
$
2

 
$
(1
)
 
$
(35
)
 
$
(1
)
 
$
63

Realized — impairments
—

 
—

 
(1
)
 
—

 
—

 
—

 
(1
)
Change in unrealized
(740
)
 
54

 
—

 
333

 
124

 
6

 
(223
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
20

 
$
56

 
$
(3
)
 
$
(2
)
 
$
(25
)
 
$
(1
)
 
$
45

Realized — impairments
(4
)
 
(10
)
 
—

 
3

 
4

 
—

 
(7
)
Change in unrealized
363

 
40

 
—

 
(102
)
 
(105
)
 
(3
)
 
193

 
(a)
Primarily adjustments to deferred policy acquisition costs and reserves related to annuities and long-term care business.

Realized gains (losses) on securities includes net losses of $3 million in the second quarter and $1 million in the first six months of 2013 compared to net losses of $1 million in the second quarter and net gains of $3 million in the first six months of 2012 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): 
  
 
Six months ended June 30,
 
2013
 
2012
Fixed maturities:
 
 
 
 
Gross gains
 
$
28

 
$
18

Gross losses
 
(1
)
 
(1
)
Equity securities:
 
 
 
 
Gross gains
 
71

 
57

Gross losses
 
—

 
(1
)