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Investments
 9 Months Ended
Sep. 30, 2014
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at September 30, 2014 and December 31, 2013, consisted of the following (in millions): 
 
September 30, 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
$
360

 
$
365

 
$
7

 
$
(2
)
 
$
310

 
$
314

 
$
7

 
$
(3
)
States, municipalities and political subdivisions
6,103

 
6,370

 
294

 
(27
)
 
5,360

 
5,372

 
156

 
(144
)
Foreign government
195

 
204

 
9

 
—

 
198

 
208

 
10

 
—

Residential MBS
4,189

 
4,589

 
416

 
(16
)
 
3,947

 
4,310

 
391

 
(28
)
Commercial MBS
2,328

 
2,491

 
163

 
—

 
2,535

 
2,724

 
192

 
(3
)
Asset-backed securities
3,601

 
3,619

 
37

 
(19
)
 
2,477

 
2,493

 
35

 
(19
)
Corporate and other
11,633

 
12,327

 
725

 
(31
)
 
10,539

 
11,035

 
604

 
(108
)
Total fixed maturities
$
28,409

 
$
29,965

 
$
1,651

 
$
(95
)
 
$
25,366

 
$
26,456

 
$
1,395

 
$
(305
)
Common stocks
$
908

 
$
1,088

 
$
216

 
$
(36
)
 
$
721

 
$
914

 
$
209

 
$
(16
)
Perpetual preferred stocks
$
371

 
$
386

 
$
19

 
$
(4
)
 
$
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 September 30, 2014 and December 31, 2013, respectively, were $222 million and $229 million. Gross unrealized gains on such securities at September 30, 2014 and December 31, 2013 were $154 million and $150 million, respectively. Gross unrealized losses on such securities at September 30, 2014 and December 31, 2013 were $7 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 September 30, 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
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
22

 
100
%
 
$
(2
)
 
$
15

 
88
%
States, municipalities and political subdivisions
(7
)
 
617

 
99
%
 
(20
)
 
566

 
97
%
Foreign government
—

 
84

 
100
%
 
—

 
—

 
—
%
Residential MBS
(4
)
 
330

 
99
%
 
(12
)
 
225

 
95
%
Commercial MBS
—

 
44

 
100
%
 
—

 
11

 
100
%
Asset-backed securities
(10
)
 
1,490

 
99
%
 
(9
)
 
485

 
98
%
Corporate and other
(13
)
 
1,277

 
99
%
 
(18
)
 
580

 
97
%
Total fixed maturities
$
(34
)
 
$
3,864

 
99
%
 
$
(61
)
 
$
1,882

 
97
%
Common stocks
$
(36
)
 
$
278

 
89
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
$
(1
)
 
$
61

 
98
%
 
$
(3
)
 
$
57

 
95
%
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2014, the gross unrealized losses on fixed maturities of $95 million relate to 824 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 80% of the gross unrealized loss and 89% 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 nine 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 September 30, 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 June 30
$
175

 
$
191

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(2
)
 
—

Balance at September 30
$
173

 
$
191

 
 
 
 
Balance at January 1
$
194

 
$
192

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(21
)
 
(1
)
Balance at September 30
$
173

 
$
191



The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 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
$
812

 
$
826

 
3
%
After one year through five years
4,144

 
4,483

 
15
%
After five years through ten years
7,910

 
8,277

 
27
%
After ten years
5,425

 
5,680

 
19
%
 
18,291

 
19,266

 
64
%
ABS (average life of approximately 3-1/2 years)
3,601

 
3,619

 
12
%
MBS (average life of approximately 4-1/2 years)
6,517

 
7,080

 
24
%
Total
$
28,409

 
$
29,965

 
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, 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
September 30, 2014
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
1,077

 
$
(377
)
 
$
700

Fixed maturities — all other
479

 
(177
)
 
302

Equity securities
195

 
(71
)
 
124

Deferred policy acquisition costs — annuity segment
(496
)
 
174

 
(322
)
Annuity benefits accumulated
(108
)
 
38

 
(70
)
Life, accident and health reserves
(41
)
 
13

 
(28
)
Unearned revenue
30

 
(10
)
 
20

 
$
1,136

 
$
(410
)
 
$
726

 
 
 
 
 
 
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 September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Investment income:
 
 
 
 
 
 
 
Fixed maturities
$
342

 
$
310

 
$
1,007

 
$
920

Equity securities
16

 
15

 
48

 
36

Equity in earnings of partnerships and similar investments
2

 
—

 
15

 
—

Other
20

 
17

 
56

 
52

Gross investment income
380

 
342

 
1,126

 
1,008

Investment expenses
(3
)
 
(4
)
 
(9
)
 
(12
)
Net investment income
$
377

 
$
338

 
$
1,117

 
$
996



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
Quarter ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
10

 
$
16

 
$
(1
)
 
$
(1
)
 
$
(10
)
 
$
—

 
$
14

Realized — impairments
(9
)
 
(5
)
 
—

 
3

 
5

 
—

 
(6
)
Change in unrealized
(145
)
 
(40
)
 
—

 
60

 
44

 
2

 
(79
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
6

 
$
54

 
$
—

 
$
1

 
$
(22
)
 
$
(1
)
 
$
38

Realized — impairments
—

 
(5
)
 
—

 
—

 
2

 
—

 
(3
)
Change in unrealized
(57
)
 
(28
)
 
—

 
37

 
16

 
—

 
(32
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
32

 
$
26

 
$
—

 
$
(1
)
 
$
(21
)
 
$
(1
)
 
$
35

Realized — impairments
(10
)
 
(6
)
 
—

 
3

 
5

 
—

 
(8
)
Change in unrealized
466

 
3

 
—

 
(213
)
 
(90
)
 
(3
)
 
163

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
33

 
$
125

 
$
2

 
$
—

 
$
(57
)
 
$
(2
)
 
$
101

Realized — impairments
—

 
(5
)
 
(1
)
 
—

 
2

 
—

 
(4
)
Change in unrealized
(797
)
 
26

 
—

 
370

 
140

 
6

 
(255
)
 
(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): 
  
Nine months ended September 30,
2014
 
2013
Fixed maturities:
 
 
 
Gross gains
$
28

 
$
36

Gross losses
(2
)
 
(4
)
Equity securities:
 
 
 
Gross gains
27

 
126

Gross losses
—

 
(6
)