Managed Investment Entities

AFG is the investment manager and its subsidiaries have investments ranging from 15.0% to 51.2% of the most subordinate debt tranche of thirteen collateralized loan obligation entities or “CLOs,” which are considered variable interest entities. AFG’s subsidiaries also own portions of the senior debt tranches of certain of these CLOs. Upon formation between 2004 and 2015, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each particular CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay expenses (including management fees to AFG), and interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities.

AFG’s maximum exposure to economic loss on its CLOs is limited to its investment in the CLOs, which had an aggregate fair value of $319 million (including $87 million invested in the most subordinate debt tranches) at June 30, 2015, and $289 million at December 31, 2014.

In May 2015, AFG formed a new CLO, which issued $511 million face amount of liabilities (including $45 million face amount purchased by subsidiaries of AFG). During the first six months of 2014, AFG subsidiaries purchased $6 million face amount of senior debt tranches of existing CLOs for $6 million. During the first six months of 2015 and 2014, AFG subsidiaries received redemption proceeds of $1 million and $54 million, respectively, from its CLO investments.

The revenues and expenses of the CLOs are separately identified in AFG’s Statement of Earnings, after the elimination of management fees and earnings attributable to shareholders of AFG as measured by the change in the fair value of AFG’s investments in the CLOs. See Note A — “Accounting Policies — Managed Investment Entities,” for a discussion of accounting guidance adopted on January 1, 2015 that impacts the measurement of the fair value of CLO liabilities. Selected financial information related to the CLOs is shown below (in millions):



	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$	(7	)	$	(1	)	$	26		$	(2	)
Liabilities	5			(9		)	(31		)	(8		)
Management fees paid to AFG	3			8			7			11
CLO earnings (losses) attributable to (b):
AFG shareholders	5			6			8			11
Noncontrolling interests	—			(18		)	—			(18		)


(a)	Included in Revenues in AFG’s Statement of Earnings.


(b)	Included in Earnings before income taxes in AFG’s Statement of Earnings.

The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $63 million and $83 million at June 30, 2015 and December 31, 2014. The aggregate unpaid principal balance of the CLOs’ debt exceeded its carrying value by $134 million and $131 million at those dates. The CLO assets include $2 million in loans at both June 30, 2015 and December 31, 2014 for which the CLOs are not accruing interest because the loans are in default (aggregate unpaid principal balance of $10 million and $6 million at those dates, respectively).