Shareholders' Equity

12 Months Ended

Dec. 31, 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.

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.

At December 31, 2014, there were 10.2 million shares of AFG Common Stock reserved for issuance under AFG’s stock incentive plans. Options are granted with an exercise price equal to the market price of AFG Common Stock at the date of grant. Options generally become exercisable at the rate of 20% per year commencing one year after grant and expire ten years after the date of grant.

Data for stock options issued under AFG’s stock incentive plans is presented below:

	Shares		Average Exercise Price		Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2014	6,608,614		$	32.16
Granted	1,047,375		$	56.47
Exercised	(1,262,313	)	$	28.19
Forfeited/Cancelled	(9,877	)	$	42.22
Outstanding at December 31, 2014	6,383,799		$	36.92	5.8 years	$	152
Options exercisable at December 31, 2014	3,465,644		$	30.04	4.1 years	$	106

The total intrinsic value of options exercised during 2014, 2013 and 2012 was $38 million, $35 million and $25 million, respectively. During 2014, 2013 and 2012, AFG received $35 million, $44 million and $40 million, respectively, in cash from the exercise of stock options. The total tax benefit related to the exercises was $12 million, $11 million and $8 million, respectively.

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.

	2014			2013			2012
Exercise price	$	56.47		$	44.01		$	38.10
Expected dividend yield	1.6		%	1.8		%	1.8		%
Expected volatility	26		%	39		%	39		%
Expected term (in years)	7.25			7.25			7.25
Risk-free rate	2.20		%	1.36		%	1.40		%
Grant date fair value	$	14.66		$	15.10		$	13.02

The restricted Common Stock that AFG has granted generally vests over a three or four year period. Data relating to grants of restricted stock is presented below:

	Shares		Average Grant Date Fair Value
Outstanding at January 1, 2014	552,569		$	37.79
Granted	102,330		$	56.44
Vested	(139,449	)	$	31.05
Outstanding at December 31, 2014	515,450		$	43.32

AFG issued 84,036 shares of Common Stock (fair value of $57.16 per share) in the first quarter of 2014 and 88,602 shares (fair value of $47.12 per share) in the first quarter of 2013 under its Equity Bonus Plan.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries for 2014, 2013 and 2012 was $25 million, $36 million and $26 million, respectively. Related tax benefits totaled $8 million in 2014, $12 million in 2013 and $8 million in 2012. At December 31, 2014, there was $30 million and $11 million of unrecognized compensation expense related to nonvested stock options and restricted stock awards, respectively. These amounts are expected to be recognized over a weighted average of 3.2 and 2.3 years, respectively.

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			Other (c)			AOCI Ending Balance
Year ended December 31, 2014
Net unrealized gains on securities:
Unrealized holding gains (losses) on securities arising during the period				$	334		$	(118	)	$	216		$	(4	)	$	212
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(52		)	19			(33		)	1			(32		)
Total net unrealized gains on securities (b)	$	563		282			(99		)	183			(3		)	180			$	—		$	743
Foreign currency translation adjustments	1			(9		)	—			(9		)	—			(9		)	—			(8		)
Pension and other postretirement plans adjustments	(4		)	(6		)	2			(4		)	—			(4		)	—			(8		)
Total	$	560		$	267		$	(97	)	$	170		$	(3	)	$	167		$	—		$	727
Year ended December 31, 2013
Net unrealized gains on securities:
Unrealized holding gains (losses) on securities arising during the period				$	(188	)	$	66		$	(122	)	$	4		$	(118	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(222		)	78			(144		)	2			(142		)
Total net unrealized gains on securities (b)	$	823		(410		)	144			(266		)	6			(260		)	$	—		$	563
Foreign currency translation adjustments	14			(13		)	—			(13		)	—			(13		)	—			1
Pension and other postretirement plans adjustments	(6		)	3			(1		)	2			—			2			—			(4		)
Total	$	831		$	(420	)	$	143		$	(277	)	$	6		$	(271	)	$	—		$	560
Year ended December 31, 2012
Net unrealized gains on securities (b)	$	578		$	388		$	(136	)	$	252		$	(7	)	$	245		$	—		$	823
Foreign currency translation adjustments	10			6			—			6			(1		)	5			(1		)	14
Pension and other postretirement plans adjustments	(8		)	2			—			2			—			2			—			(6		)
Total	$	580		$	396		$	(136	)	$	260		$	(8	)	$	252		$	(1	)	$	831

(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 $58 million at December 31, 2014 compared to net unrealized gains of $54 million and $33 million at December 31, 2013 and 2012, related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

(c) Other relates to the 2012 acquisition of noncontrolling interest in a subsidiary.