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Investments
 3 Months Ended
Mar. 31, 2014
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at March 31, 2014, and December 31, 2013, consisted of the following (in millions): 
 
March 31, 2014
 
December 31, 2013
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
 
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
Gains
 
Losses
 
Gains
 
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
316

 
$
321

 
$
8

 
$
(3
)
 
$
310

 
$
314

 
$
7

 
$
(3
)
States, municipalities and political subdivisions
5,579

 
5,723

 
214

 
(70
)
 
5,360

 
5,372

 
156

 
(144
)
Foreign government
184

 
193

 
9

 
—

 
198

 
208

 
10

 
—

Residential MBS
4,193

 
4,581

 
412

 
(24
)
 
3,947

 
4,310

 
391

 
(28
)
Commercial MBS
2,435

 
2,619

 
185

 
(1
)
 
2,535

 
2,724

 
192

 
(3
)
Asset-backed securities
2,737

 
2,760

 
39

 
(16
)
 
2,477

 
2,493

 
35

 
(19
)
Corporate and other
10,540

 
11,193

 
702

 
(49
)
 
10,539

 
11,035

 
604

 
(108
)
Total fixed maturities
$
25,984

 
$
27,390

 
$
1,569

 
$
(163
)
 
$
25,366

 
$
26,456

 
$
1,395

 
$
(305
)
Common stocks
$
801

 
$
996

 
$
207

 
$
(12
)
 
$
721

 
$
914

 
$
209

 
$
(16
)
Perpetual preferred stocks
$
291

 
$
301

 
$
15

 
$
(5
)
 
$
266

 
$
265

 
$
9

 
$
(10
)

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 March 31, 2014 and December 31, 2013, respectively, were $224 million and $229 million. Gross unrealized gains on such securities at March 31, 2014 and December 31, 2013 were $153 million and $150 million, respectively. Gross unrealized losses on such securities at March 31, 2014 and December 31, 2013 were $11 million and $13 million, respectively. These amounts represent the non-credit other-than-temporary impairment charges recorded in AOCI adjusted for subsequent changes in fair values and nearly all 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 March 31, 2014 and December 31, 2013. 
  
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
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
(3
)
 
$
38

 
93
%
 
$
—

 
$
—

 
—
%
States, municipalities and political subdivisions
(64
)
 
1,523

 
96
%
 
(6
)
 
90

 
94
%
Residential MBS
(8
)
 
494

 
98
%
 
(16
)
 
214

 
93
%
Commercial MBS
(1
)
 
48

 
98
%
 
—

 
2

 
100
%
Asset-backed securities
(14
)
 
1,101

 
99
%
 
(2
)
 
44

 
96
%
Corporate and other
(44
)
 
1,506

 
97
%
 
(5
)
 
86

 
95
%
Total fixed maturities
$
(134
)
 
$
4,710

 
97
%
 
$
(29
)
 
$
436

 
94
%
Common stocks
$
(12
)
 
$
166

 
93
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
$
(4
)
 
$
90

 
96
%
 
$
(1
)
 
$
6

 
86
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 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
%


At March 31, 2014, the gross unrealized losses on fixed maturities of $163 million relate to approximately 825 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 83% of the gross unrealized loss and 88% 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 three months of 2014, 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 March 31, 2014.
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).

 
2014
 
2013
Balance at January 1
$
194

 
$
192

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(17
)
 
(1
)
Balance at March 31
$
177

 
$
191



The table below sets forth the scheduled maturities of available for sale fixed maturities as of March 31, 2014 (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
$
904

 
$
922

 
3
%
After one year through five years
4,672

 
5,037

 
19
%
After five years through ten years
7,383

 
7,714

 
28
%
After ten years
3,660

 
3,757

 
14
%
 
16,619

 
17,430

 
64
%
ABS (average life of approximately 5 years)
2,737

 
2,760

 
10
%
MBS (average life of approximately 4-1/2 years)
6,628

 
7,200

 
26
%
Total
$
25,984

 
$
27,390

 
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 March 31, 2014 or December 31, 2013.
 
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
March 31, 2014
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities - annuity segment (*)
$
963

 
$
(337
)
 
$
626

Fixed maturities - all other
443

 
(163
)
 
280

Equity securities
205

 
(76
)
 
129

Deferred policy acquisition costs - annuity segment
(450
)
 
157

 
(293
)
Annuity benefits accumulated
(97
)
 
34

 
(63
)
Life, accident and health reserves
(20
)
 
7

 
(13
)
Unearned revenue
29

 
(10
)
 
19

 
$
1,073

 
$
(388
)
 
$
685

 
 
 
 
 
 
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



(*)
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.
 
Three months ended March 31,
 
2014
 
2013
Investment income:
 
 
 
Fixed maturities
$
327

 
$
302

Equity securities
16

 
12

Equity in earnings of partnerships and similar investments
6

 
—

Other
17

 
16

Gross investment income
366

 
330

Investment expenses
(5
)
 
(4
)
Net investment income
$
361

 
$
326



Equity in the earnings of partnerships has not been material and was included in realized gains (losses) on securities prior to 2014.
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
Three months ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
13

 
$
6

 
$
1

 
$
—

 
$
(7
)
 
$
—

 
$
13

Realized — impairments
(1
)
 
—

 
—

 
—

 
—

 
—

 
(1
)
Change in unrealized
316

 
13

 
—

 
(136
)
 
(68
)
 
(3
)
 
122

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
19

 
$
38

 
$
1

 
$
(1
)
 
$
(20
)
 
$
(1
)
 
$
36

Realized — impairments
—

 
—

 
—

 
—

 
—

 
—

 
—

Change in unrealized
(15
)
 
67

 
—

 
14

 
(23
)
 
(1
)
 
42

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

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): 
  
Three months ended March 31,
2014
 
2013
Fixed maturities:
 
 
 
Gross gains
$
11

 
$
17

Gross losses
(1
)
 
—

Equity securities:
 
 
 
Gross gains
8

 
37

Gross losses
—

 
—