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Investments
 12 Months Ended
Dec. 31, 2014
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): 
 
2014
 
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
$
347

 
$
353

 
$
8

 
$
(2
)
 
$
310

 
$
314

 
$
7

 
$
(3
)
States, municipalities and political subdivisions
6,393

 
6,747

 
364

 
(10
)
 
5,360

 
5,372

 
156

 
(144
)
Foreign government
184

 
194

 
10

 
—

 
198

 
208

 
10

 
—

Residential MBS
4,046

 
4,442

 
411

 
(15
)
 
3,947

 
4,310

 
391

 
(28
)
Commercial MBS
2,294

 
2,451

 
158

 
(1
)
 
2,535

 
2,724

 
192

 
(3
)
Asset-backed securities
3,872

 
3,887

 
37

 
(22
)
 
2,477

 
2,493

 
35

 
(19
)
Corporate and other
11,938

 
12,660

 
751

 
(29
)
 
10,539

 
11,035

 
604

 
(108
)
Total fixed maturities
$
29,074

 
$
30,734

 
$
1,739

 
$
(79
)
 
$
25,366

 
$
26,456

 
$
1,395

 
$
(305
)
Common stocks
$
885

 
$
1,087

 
$
227

 
$
(25
)
 
$
665

 
$
858

 
$
209

 
$
(16
)
Perpetual preferred stocks
$
398

 
$
414

 
$
21

 
$
(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 December 31, 2014 and December 31, 2013, respectively, were $220 million and $229 million. Gross unrealized gains on such securities at December 31, 2014 and December 31, 2013 were $151 million and $150 million, respectively. Gross unrealized losses on such securities at December 31, 2014 and December 31, 2013 were $8 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 (dollars 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, 2014 and 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
 
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
39

 
100
%
 
$
(2
)
 
$
15

 
88
%
 
States, municipalities and political subdivisions
(2
)
 
222

 
99
%
 
(8
)
 
408

 
98
%
 
Residential MBS
(4
)
 
298

 
99
%
 
(11
)
 
209

 
95
%
 
Commercial MBS
(1
)
 
38

 
97
%
 
—

 
11

 
100
%
 
Asset-backed securities
(11
)
 
1,389

 
99
%
 
(11
)
 
622

 
98
%
 
Corporate and other
(16
)
 
588

 
97
%
 
(13
)
 
433

 
97
%
 
Total fixed maturities
$
(34
)
 
$
2,574

 
99
%
 
$
(45
)
 
$
1,698

 
97
%
 
Common stocks
$
(25
)
 
$
260

 
91
%
 
$
—

 
$
—

 
—
%
 
Perpetual preferred stocks
$
(1
)
 
$
45

 
98
%
 
$
(4
)
 
$
55

 
93
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 December 31, 2014, the gross unrealized losses on fixed maturities of $79 million relate to approximately 650 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 70% of the gross unrealized loss and 85% 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 2014, AFG recorded less than $1 million in other-than-temporary impairment charges related to its residential MBS.

AFG recorded $26 million in other-than-temporary impairment charges on common stocks in 2014. At December 31, 2014, the gross unrealized losses on common stocks of $25 million relate to 34 securities, none of which has been in an unrealized loss position for more than 12 months.

AFG recorded less than $1 million in other-than-temporary charges on preferred stocks during 2014. At December 31, 2014, the gross unrealized losses on preferred stocks of $5 million relate to 19 securities. All of the preferred stocks that have been in an unrealized loss position for 12 months or more (8 securities) have investment grade ratings.

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, 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
 
2012
Balance at January 1
$
194

 
$
192

 
$
187

Additional credit impairments on:
 
 
 
 
 
Previously impaired securities
—

 
—

 
5

Securities without prior impairments
—

 
3

 
2

Reductions due to sales or redemptions
(24
)
 
(1
)
 
(2
)
Balance at December 31
$
170

 
$
194

 
$
192



The table below sets forth the scheduled maturities of available for sale fixed maturities as of December 31, 2014 (dollars 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
$
888

 
$
906

 
3
%
After one year through five years
4,803

 
5,142

 
17
%
After five years through ten years
8,797

 
9,211

 
30
%
After ten years
4,374

 
4,695

 
15
%
 
18,862

 
19,954

 
65
%
ABS (average life of approximately 4-1/2 years)
3,872

 
3,887

 
13
%
MBS (average life of approximately 4-1/2 years)
6,340

 
6,893

 
22
%
Total
$
29,074

 
$
30,734

 
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, 2014 or 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
December 31, 2014
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
1,157

 
$
(405
)
 
$
752

Fixed maturities — all other
503

 
(185
)
 
318

Equity securities
218

 
(79
)
 
139

Deferred policy acquisition costs — annuity segment
(531
)
 
186

 
(345
)
Annuity benefits accumulated
(112
)
 
39

 
(73
)
Life, accident and health reserves
(104
)
 
36

 
(68
)
Unearned revenue
31

 
(11
)
 
20

 
$
1,162

 
$
(419
)
 
$
743

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.
 
2014
 
2013
 
2012
Investment income:
 
 
 
 
 
Fixed maturities
$
1,352

 
$
1,241

 
$
1,216

Equity securities
66

 
50

 
36

Equity in earnings of partnerships and similar investments (*)
18

 
—

 
—

Other
77

 
72

 
66

Gross investment income
1,513

 
1,363

 
1,318

Investment expenses
(12
)
 
(17
)
 
(17
)
Net investment income
$
1,501

 
$
1,346

 
$
1,301



(*)
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
Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
36

 
$
53

 
$
1

 
$
(2
)
 
$
(32
)
 
$
(2
)
 
$
54

Realized — impairments
(15
)
 
(26
)
 
—

 
5

 
13

 
1

 
(22
)
Change in unrealized
570

 
26

 
—

 
(314
)
 
(99
)
 
(3
)
 
180

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


(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):
 
2014
 
2013
 
2012
Fixed maturities:
 
 
 
 
 
Gross gains
$
36

 
$
44

 
$
55

Gross losses
(2
)
 
(5
)
 
(4
)
Equity securities:
 
 
 
 
 
Gross gains
53

 
193

 
196

Gross losses
—

 
—

 
(4
)