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Investments
 6 Months Ended
Jun. 30, 2015
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at June 30, 2015 and December 31, 2014, consisted of the following (in millions): 
 
June 30, 2015
 
December 31, 2014
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
 
Amortized
Cost
 
Fair
Value
 
Gross Unrealized
Gains
 
Losses
 
Gains
 
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
356

 
$
361

 
$
7

 
$
(2
)
 
$
347

 
$
353

 
$
8

 
$
(2
)
States, municipalities and political subdivisions
6,869

 
7,080

 
265

 
(54
)
 
6,393

 
6,747

 
364

 
(10
)
Foreign government
167

 
177

 
10

 
—

 
184

 
194

 
10

 
—

Residential MBS
3,756

 
4,114

 
371

 
(13
)
 
4,046

 
4,442

 
411

 
(15
)
Commercial MBS
2,204

 
2,323

 
120

 
(1
)
 
2,294

 
2,451

 
158

 
(1
)
Asset-backed securities
4,355

 
4,383

 
42

 
(14
)
 
3,872

 
3,887

 
37

 
(22
)
Corporate and other
13,298

 
13,822

 
609

 
(85
)
 
11,938

 
12,660

 
751

 
(29
)
Total fixed maturities
$
31,005

 
$
32,260

 
$
1,424

 
$
(169
)
 
$
29,074

 
$
30,734

 
$
1,739

 
$
(79
)
Common stocks
$
889

 
$
1,076

 
$
217

 
$
(30
)
 
$
885

 
$
1,087

 
$
227

 
$
(25
)
Perpetual preferred stocks
$
443

 
$
459

 
$
21

 
$
(5
)
 
$
398

 
$
414

 
$
21

 
$
(5
)

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 June 30, 2015 and December 31, 2014, respectively, were $216 million and $220 million. Gross unrealized gains on such securities at June 30, 2015 and December 31, 2014 were $148 million and $151 million, respectively. Gross unrealized losses on such securities at June 30, 2015 and December 31, 2014 were $7 million and $8 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 June 30, 2015 and December 31, 2014. 
  
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
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
55

 
100
%
 
$
(2
)
 
$
15

 
88
%
States, municipalities and political subdivisions
(50
)
 
2,059

 
98
%
 
(4
)
 
55

 
93
%
Residential MBS
(5
)
 
338

 
99
%
 
(8
)
 
208

 
96
%
Commercial MBS
(1
)
 
43

 
98
%
 
—

 
19

 
100
%
Asset-backed securities
(10
)
 
1,144

 
99
%
 
(4
)
 
361

 
99
%
Corporate and other
(80
)
 
3,335

 
98
%
 
(5
)
 
78

 
94
%
Total fixed maturities
$
(146
)
 
$
6,974

 
98
%
 
$
(23
)
 
$
736

 
97
%
Common stocks
$
(30
)
 
$
291

 
91
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
$
(2
)
 
$
105

 
98
%
 
$
(3
)
 
$
23

 
88
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 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
%


At June 30, 2015, the gross unrealized losses on fixed maturities of $169 million relate to approximately 1,040 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 83% of the gross unrealized loss and 90% 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 six months of 2015, AFG recorded less than $1 million in other-than-temporary impairment charges related to its residential MBS.

In the first six months of 2015, AFG recorded approximately $10 million and $4 million in other-than-temporary impairment charges related to corporate bonds and municipal bonds, respectively.

AFG recorded $25 million other-than-temporary impairment charges on common stocks in the first six months of 2015. At June 30, 2015, the gross unrealized losses on common stocks of $30 million relate to 47 securities, none of which has been in an unrealized loss position for more than 12 months.

At June 30, 2015, the gross unrealized losses on preferred stocks of $5 million relate to 22 securities. All of the preferred stocks that have been in an unrealized loss position for 12 months or more (3 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 June 30, 2015.
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):

 
2015
 
2014
Balance at March 31
$
168

 
$
177

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(2
)
 
(2
)
Balance at June 30
$
166

 
$
175

 
 
 
 
Balance at January 1
$
170

 
$
194

Additional credit impairments on:
 
 
 
Previously impaired securities
1

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(5
)
 
(19
)
Balance at June 30
$
166

 
$
175



The table below sets forth the scheduled maturities of available for sale fixed maturities as of June 30, 2015 (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
$
957

 
$
978

 
3
%
After one year through five years
4,854

 
5,172

 
16
%
After five years through ten years
10,092

 
10,352

 
32
%
After ten years
4,787

 
4,938

 
15
%
 
20,690

 
21,440

 
66
%
ABS (average life of approximately 5 years)
4,355

 
4,383

 
14
%
MBS (average life of approximately 4-1/2 years)
5,960

 
6,437

 
20
%
Total
$
31,005

 
$
32,260

 
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 June 30, 2015 or December 31, 2014.
 
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
June 30, 2015
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
859

 
$
(301
)
 
$
558

Fixed maturities — all other
396

 
(146
)
 
250

Equity securities
203

 
(73
)
 
130

Deferred policy acquisition costs — annuity segment
(383
)
 
134

 
(249
)
Annuity benefits accumulated
(107
)
 
37

 
(70
)
Life, accident and health reserves
(70
)
 
24

 
(46
)
Unearned revenue
21

 
(7
)
 
14

 
$
919

 
$
(332
)
 
$
587

 
 
 
 
 
 
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



(*)
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 June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Investment income:
 
 
 
 
 
 
 
Fixed maturities
$
360

 
$
338

 
$
712

 
$
665

Equity securities
17

 
16

 
34

 
32

Equity in earnings of partnerships and similar investments
5

 
7

 
8

 
13

Other
26

 
19

 
47

 
36

Gross investment income
408

 
380

 
801

 
746

Investment expenses
(4
)
 
(1
)
 
(9
)
 
(6
)
Net investment income
$
404

 
$
379

 
$
792

 
$
740



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)
 
Total
Pretax
 
Tax
Effects
 
Noncon-
trolling
Interests
 
Total
Quarter ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
7

 
$
25

 
$
(2
)
 
$
(1
)
 
$
29

 
$
(10
)
 
$
—

 
$
19

Realized — impairments
(10
)
 
(23
)
 
—

 
3

 
(30
)
 
11

 
—

 
(19
)
Change in unrealized
(623
)
 
(21
)
 
—

 
314

 
(330
)
 
115

 
3

 
(212
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
9

 
$
4

 
$
—

 
$
—

 
$
13

 
$
(4
)
 
$
(1
)
 
$
8

Realized — impairments
—

 
(1
)
 
—

 
—

 
(1
)
 
—

 
—

 
(1
)
Change in unrealized
295

 
30

 
—

 
(137
)
 
188

 
(66
)
 
(2
)
 
120

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
10

 
$
46

 
$
(2
)
 
$
(2
)
 
$
52

 
$
(18
)
 
$
—

 
$
34

Realized — impairments
(15
)
 
(25
)
 
—

 
6

 
(34
)
 
12

 
—

 
(22
)
Change in unrealized
(405
)
 
(15
)
 
—

 
177

 
(243
)
 
85

 
2

 
(156
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
22

 
$
10

 
$
1

 
$
—

 
$
33

 
$
(11
)
 
$
(1
)
 
$
21

Realized — impairments
(1
)
 
(1
)
 
—

 
—

 
(2
)
 
—

 
—

 
(2
)
Change in unrealized
611

 
43

 
—

 
(273
)
 
381

 
(134
)
 
(5
)
 
242

 
(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 write-downs 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): 
  
Six months ended June 30,
2015
 
2014
Fixed maturities:
 
 
 
Gross gains
$
13

 
$
18

Gross losses
—

 
(2
)
Equity securities:
 
 
 
Gross gains
46

 
12

Gross losses
—

 
—