Shareholders' Equity

9 Months Ended

Sep. 30, 2014

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Shareholders’ Equity

AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.

Accumulated Other Comprehensive Income, Net of Tax (“AOCI”)   Comprehensive income is defined as all changes in Shareholders’ Equity except those arising from transactions with shareholders. Comprehensive income includes net earnings and other comprehensive income, which consists primarily of changes in net unrealized gains or losses on available for sale securities.

The progression of the components of accumulated other comprehensive income follows (in millions):

				Other Comprehensive Income
	AOCI Beginning Balance			Pretax			Tax			Net of tax			Attributable to noncontrolling interests			Attributable to shareholders			AOCI Ending Balance
Quarter ended September 30, 2014
Net unrealized gains on securities:
Unrealized holding gains (losses) on securities arising during the period				$	(111	)	$	38		$	(73	)	$	2		$	(71	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(14		)	6			(8		)	—			(8		)
Total net unrealized gains on securities (b)	$	805		(125		)	44			(81		)	2			(79		)	$	726
Foreign currency translation adjustments	(2		)	(2		)	—			(2		)	—			(2		)	(4		)
Pension and other postretirement plans adjustments	(4		)	—			—			—			—			—			(4		)
Total	$	799		$	(127	)	$	44		$	(83	)	$	2		$	(81	)	$	718
Quarter ended September 30, 2013
Net unrealized gains on securities:
Unrealized holding gains (losses) on securities arising during the period				$	8		$	(4	)	$	4		$	(1	)	$	3
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(56		)	20			(36		)	1			(35		)
Total net unrealized gains on securities	$	600		(48		)	16			(32		)	—			(32		)	$	568
Foreign currency translation adjustments	5			3			—			3			—			3			8
Pension and other postretirement plans adjustments	(6		)	—			—			—			—			—			(6		)
Total	$	599		$	(45	)	$	16		$	(29	)	$	—		$	(29	)	$	570
Nine months ended September 30, 2014
Net unrealized gains on securities:
Unrealized holding gains (losses) on securities arising during the period				$	300		$	(106	)	$	194		$	(4	)	$	190
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(44		)	16			(28		)	1			(27		)
Total net unrealized gains on securities (b)	$	563		256			(90		)	166			(3		)	163			$	726
Foreign currency translation adjustments	1			(5		)	—			(5		)	—			(5		)	(4		)
Pension and other postretirement plans adjustments	(4		)	—			—			—			—			—			(4		)
Total	$	560		$	251		$	(90	)	$	161		$	(3	)	$	158		$	718
Nine months ended September 30, 2013
Net unrealized gains on securities:
Unrealized holding gains (losses) on securities arising during the period				$	(248	)	$	86		$	(162	)	$	4		$	(158	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(153		)	54			(99		)	2			(97		)
Total net unrealized gains on securities	$	823		(401		)	140			(261		)	6			(255		)	$	568
Foreign currency translation adjustments	14			(6		)	—			(6		)	—			(6		)	8
Pension and other postretirement plans adjustments	(6		)	—			—			—			—			—			(6		)
Total	$	831		$	(407	)	$	140		$	(267	)	$	6		$	(261	)	$	570

(a) The reclassification adjustment out of net unrealized gains on securities affected the following lines in AFG’s Consolidated Statement of Earnings:

OCI component	Affected line in the Consolidated Statement of Earnings
Pretax	Realized gains on securities
Tax	Provision for income taxes
Attributable to noncontrolling interests	Net earnings (loss) attributable to noncontrolling interests

(b) Includes net unrealized gains of $60 million at both September 30, 2014 and June 30, 2014 and $54 million at December 31, 2013 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

Stock Incentive Plans   Under AFG’s stock incentive plans, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first nine months of 2014, AFG issued 102,330 shares of restricted Common Stock (fair value of $56.44 per share) and granted stock options for 1.0 million shares of Common Stock (at an average exercise price of $56.47) under the Stock Incentive Plan. In addition, AFG issued 84,036 shares of Common Stock (fair value of $57.16 per share) in the first quarter of 2014 under the Equity Bonus Plan.

AFG uses the Black-Scholes option pricing model to calculate the fair value of its option grants. The expected dividend yield is based on AFG’s current dividend rate. To determine expected volatility, AFG considers its daily historical volatility as well as implied volatility on traded options. The expected term was estimated based on historical exercise patterns and post vesting cancellations. The risk-free rate for periods associated with the expected term is based upon the U.S. Treasury yield curve in effect on the grant date.

	Nine months ended September 30,
	2014			2013
Exercise price	$	56.47		$	44.01
Expected dividend yield	1.6		%	1.8		%
Expected volatility	26		%	39		%
Expected term (in years)	7.25			7.25
Risk-free rate	2.20		%	1.36		%
Grant date fair value	$	14.66		$	15.10

Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $4 million and $10 million in the third quarter and $18 million and $30 million in the first nine months of 2014 and 2013, respectively.