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Investments
 12 Months Ended
Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at December 31 consisted of the following (in millions): 
 
2013
 
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
$
310

 
$
314

 
$
7

 
$
(3
)
 
$
373

 
$
388

 
$
15

 
$
—

States, municipalities and political subdivisions
5,360

 
5,372

 
156

 
(144
)
 
4,144

 
4,468

 
329

 
(5
)
Foreign government
198

 
208

 
10

 
—

 
242

 
260

 
18

 
—

Residential MBS
3,947

 
4,310

 
391

 
(28
)
 
3,921

 
4,204

 
337

 
(54
)
Commercial MBS
2,535

 
2,724

 
192

 
(3
)
 
2,583

 
2,918

 
335

 
—

Asset-backed securities
2,477

 
2,493

 
35

 
(19
)
 
1,590

 
1,640

 
52

 
(2
)
Corporate and other
10,539

 
11,035

 
604

 
(108
)
 
9,230

 
10,240

 
1,015

 
(5
)
Total fixed maturities
$
25,366

 
$
26,456

 
$
1,395

 
$
(305
)
 
$
22,083

 
$
24,118

 
$
2,101

 
$
(66
)
Common stocks
$
721

 
$
914

 
$
209

 
$
(16
)
 
$
600

 
$
749

 
$
157

 
$
(8
)
Perpetual preferred stocks
$
266

 
$
265

 
$
9

 
$
(10
)
 
$
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 December 31, 2013 and December 31, 2012, respectively, were $229 million and $227 million; nearly all of these charges relate 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 December 31, 2013 and 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
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
(3
)
 
$
60

 
95
%
 
$
—

 
$
—

 
—
%
 
States, municipalities and political subdivisions
(135
)
 
2,219

 
94
%
 
(9
)
 
73

 
89
%
 
Residential MBS
(9
)
 
553

 
98
%
 
(19
)
 
212

 
92
%
 
Commercial MBS
(3
)
 
106

 
97
%
 
—

 
2

 
100
%
 
Asset-backed securities
(18
)
 
1,310

 
99
%
 
(1
)
 
28

 
97
%
 
Corporate and other
(101
)
 
2,634

 
96
%
 
(7
)
 
85

 
92
%
 
Total fixed maturities
$
(269
)
 
$
6,882

 
96
%
 
$
(36
)
 
$
400

 
92
%
 
Common stocks
$
(16
)
 
$
158

 
91
%
 
$
—

 
$
—

 
—
%
 
Perpetual preferred stocks
$
(6
)
 
$
91

 
94
%
 
$
(4
)
 
$
20

 
83
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
22

 
100
%
 
$
—

 
$
—

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

 
98
%
 
—

 
24

 
100
%
 
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 December 31, 2013, the gross unrealized losses on fixed maturities of $305 million relate to approximately 1,200 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 89% of the gross unrealized loss and 90% of the fair value.

The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. Factors considered and resources used by management include:

a)
whether the unrealized loss is credit-driven or a result of changes in market interest rates,
b)
the extent to which fair value is less than cost basis,
c)
cash flow projections received from independent sources,
d)
historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases,
e)
near-term prospects for improvement in the issuer and/or its industry,
f)
third party research and communications with industry specialists,
g)
financial models and forecasts,
h)
the continuity of dividend payments, maintenance of investment grade ratings and hybrid nature of certain investments,
i)
discussions with issuer management, and
j)
ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery in 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 2013, AFG recorded less than $1 million in 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 December 31, 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
 
2011
Balance at January 1
$
192

 
$
187

 
$
143

Additional credit impairments on:
 
 
 
 
 
Previously impaired securities
—

 
5

 
44

Securities without prior impairments
3

 
2

 
8

Reductions — disposals
(1
)
 
(2
)
 
(8
)
Balance at December 31
$
194

 
$
192

 
$
187



The table below sets forth the scheduled maturities of available for sale fixed maturities as of December 31, 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
$
886

 
$
904

 
3
%
After one year through five years
4,631

 
4,966

 
19
%
After five years through ten years
7,287

 
7,497

 
28
%
After ten years
3,603

 
3,562

 
14
%
 
16,407

 
16,929

 
64
%
ABS (average life of approximately 5 years)
2,477

 
2,493

 
9
%
MBS (average life of approximately 4 1/2 years)
6,482

 
7,034

 
27
%
Total
$
25,366

 
$
26,456

 
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 December 31, 2013 or 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
December 31, 2013
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities - annuity segment (*)
$
729

 
$
(255
)
 
$
474

Fixed maturities - all other
361

 
(133
)
 
228

Equity securities
192

 
(70
)
 
122

Deferred policy acquisition costs - annuity segment
(345
)
 
121

 
(224
)
Annuity benefits accumulated
(71
)
 
25

 
(46
)
Life, accident and health reserves
(8
)
 
3

 
(5
)
Unearned revenue
22

 
(8
)
 
14

 
$
880

 
$
(317
)
 
$
563

December 31, 2012
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities - annuity segment (*)
$
1,401

 
$
(490
)
 
$
911

Fixed maturities - all other
634

 
(236
)
 
398

Equity securities
161

 
(57
)
 
104

Deferred policy acquisition costs - annuity segment
(710
)
 
247

 
(463
)
Annuity benefits accumulated
(136
)
 
48

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

 
(76
)
Unearned revenue
57

 
(20
)
 
37

 
$
1,290

 
$
(467
)
 
$
823



(*)    Unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.

Net Investment Income   The following table shows (in millions) investment income earned and investment expenses incurred.
 
2013
 
2012
 
2011
Investment income:
 
 
 
 
 
Fixed maturities
$
1,241

 
$
1,216

 
$
1,142

Equity securities
50

 
36

 
29

Other
72

 
66

 
71

Gross investment income
1,363

 
1,318

 
1,242

Investment expenses
(17
)
 
(17
)
 
(17
)
Net investment income
$
1,346

 
$
1,301

 
$
1,225



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
Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
36

 
$
196

 
$
2

 
$
(1
)
 
$
(82
)
 
$
(2
)
 
$
149

Realized — impairments
(5
)
 
(5
)
 
(5
)
 
3

 
4

 
—

 
(8
)
Change in unrealized
(945
)
 
31

 
—

 
504

 
144

 
6

 
(260
)
Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
55

 
$
192

 
$
(3
)
 
$
(8
)
 
$
(83
)
 
$
(2
)
 
$
151

Realized — impairments
(9
)
 
(24
)
 
—

 
7

 
9

 
—

 
(17
)
Change in unrealized
790

 
(23
)
 
—

 
(379
)
 
(136
)
 
(7
)
 
245

Year ended December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
68

 
$
88

 
$
(24
)
 
$
(4
)
 
$
(45
)
 
$
(2
)
 
$
81

Realized — impairments
(57
)
 
(6
)
 
(5
)
 
16

 
18

 
1

 
(33
)
Change in unrealized
407

 
(48
)
 
—

 
(218
)
 
(49
)
 
(5
)
 
87


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

Realized gains (losses) on securities include net losses of $3 million in 2013 compared to net gains of $5 million in 2012 and net losses of less than $1 million in 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):
 
2013
 
2012
 
2011
Fixed maturities:
 
 
 
 
 
Gross gains
$
44

 
$
55

 
$
77

Gross losses
(5
)
 
(4
)
 
(9
)
Equity securities:
 
 
 
 
 
Gross gains
193

 
196

 
90

Gross losses
—

 
(4
)
 
(1
)