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Investments
 9 Months Ended
Sep. 30, 2015
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at September 30, 2015 and December 31, 2014, consisted of the following (in millions): 
 
September 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
$
329

 
$
335

 
$
8

 
$
(2
)
 
$
347

 
$
353

 
$
8

 
$
(2
)
States, municipalities and political subdivisions
6,874

 
7,166

 
321

 
(29
)
 
6,393

 
6,747

 
364

 
(10
)
Foreign government
157

 
166

 
9

 
—

 
184

 
194

 
10

 
—

Residential MBS
3,540

 
3,879

 
354

 
(15
)
 
4,046

 
4,442

 
411

 
(15
)
Commercial MBS
2,185

 
2,297

 
112

 
—

 
2,294

 
2,451

 
158

 
(1
)
Asset-backed securities
4,673

 
4,701

 
47

 
(19
)
 
3,872

 
3,887

 
37

 
(22
)
Corporate and other
14,110

 
14,570

 
606

 
(146
)
 
11,938

 
12,660

 
751

 
(29
)
Total fixed maturities
$
31,868

 
$
33,114

 
$
1,457

 
$
(211
)
 
$
29,074

 
$
30,734

 
$
1,739

 
$
(79
)
Common stocks
$
1,147

 
$
1,204

 
$
151

 
$
(94
)
 
$
885

 
$
1,087

 
$
227

 
$
(25
)
Perpetual preferred stocks
$
443

 
$
454

 
$
18

 
$
(7
)
 
$
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 September 30, 2015 and December 31, 2014, respectively, were $213 million and $220 million. Gross unrealized gains on such securities at September 30, 2015 and December 31, 2014 were $143 million and $151 million, respectively. Gross unrealized losses on such securities at both September 30, 2015 and December 31, 2014 were $8 million. 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 September 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
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
2

 
100
%
 
$
(2
)
 
$
15

 
88
%
States, municipalities and political subdivisions
(27
)
 
1,197

 
98
%
 
(2
)
 
58

 
97
%
Residential MBS
(6
)
 
347

 
98
%
 
(9
)
 
223

 
96
%
Commercial MBS
—

 
23

 
100
%
 
—

 
31

 
100
%
Asset-backed securities
(12
)
 
1,315

 
99
%
 
(7
)
 
414

 
98
%
Corporate and other
(124
)
 
3,197

 
96
%
 
(22
)
 
132

 
86
%
Total fixed maturities
$
(169
)
 
$
6,081

 
97
%
 
$
(42
)
 
$
873

 
95
%
Common stocks
$
(94
)
 
$
590

 
86
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
$
(4
)
 
$
127

 
97
%
 
$
(3
)
 
$
26

 
90
%
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2015, the gross unrealized losses on fixed maturities of $211 million relate to approximately 950 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 76% of the gross unrealized loss and 85% 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 nine months of 2015, AFG recorded approximately $3 million in other-than-temporary impairment charges related to its residential MBS.

In the first nine months of 2015, AFG recorded approximately $25 million and $4 million in other-than-temporary impairment charges related to corporate bonds and municipal bonds, respectively.

AFG recorded $48 million other-than-temporary impairment charges on common stocks in the first nine months of 2015. At September 30, 2015, the gross unrealized losses on common stocks of $94 million relate to 76 securities, none of which has been in an unrealized loss position for more than 12 months.

At September 30, 2015, the gross unrealized losses on preferred stocks of $7 million relate to 25 securities. Of the preferred stocks that have been in an unrealized loss position for 12 months or more (4 securities), 93% of the unrealized loss relates to investment grade securities.

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 September 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 June 30
$
166

 
$
175

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
2

 
—

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

 
$
173

 
 
 
 
Balance at January 1
$
170

 
$
194

Additional credit impairments on:
 
 
 
Previously impaired securities
1

 
—

Securities without prior impairments
2

 
—

Reductions due to sales or redemptions
(7
)
 
(21
)
Balance at September 30
$
166

 
$
173



The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 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
$
1,016

 
$
1,032

 
3
%
After one year through five years
5,300

 
5,604

 
17
%
After five years through ten years
10,439

 
10,679

 
32
%
After ten years
4,715

 
4,922

 
15
%
 
21,470

 
22,237

 
67
%
ABS (average life of approximately 5 years)
4,673

 
4,701

 
14
%
MBS (average life of approximately 4-1/2 years)
5,725

 
6,176

 
19
%
Total
$
31,868

 
$
33,114

 
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 September 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
September 30, 2015
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
868

 
$
(304
)
 
$
564

Fixed maturities — all other
378

 
(140
)
 
238

Equity securities
68

 
(24
)
 
44

Deferred policy acquisition costs — annuity segment
(391
)
 
137

 
(254
)
Annuity benefits accumulated
(112
)
 
39

 
(73
)
Life, accident and health reserves
(67
)
 
24

 
(43
)
Unearned revenue
20

 
(7
)
 
13

 
$
764

 
$
(275
)
 
$
489

 
 
 
 
 
 
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 September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Investment income:
 
 
 
 
 
 
 
Fixed maturities
$
370

 
$
342

 
$
1,082

 
$
1,007

Equity securities
20

 
16

 
54

 
48

Equity in earnings of partnerships and similar investments
18

 
2

 
26

 
15

Other
22

 
20

 
69

 
56

Gross investment income
430

 
380

 
1,231

 
1,126

Investment expenses
(5
)
 
(3
)
 
(14
)
 
(9
)
Net investment income
$
425

 
$
377

 
$
1,217

 
$
1,117



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 September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
7

 
$
13

 
$
—

 
$
(1
)
 
$
19

 
$
(7
)
 
$
(1
)
 
$
11

Realized — impairments
(17
)
 
(23
)
 
—

 
5

 
(35
)
 
13

 
1

 
(21
)
Change in unrealized
(9
)
 
(135
)
 
—

 
(11
)
 
(155
)
 
55

 
2

 
(98
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
10

 
$
16

 
$
(1
)
 
$
(1
)
 
$
24

 
$
(10
)
 
$
—

 
$
14

Realized — impairments
(9
)
 
(5
)
 
—

 
3

 
(11
)
 
5

 
—

 
(6
)
Change in unrealized
(145
)
 
(40
)
 
—

 
60

 
(125
)
 
44

 
2

 
(79
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
17

 
$
59

 
$
(2
)
 
$
(3
)
 
$
71

 
$
(25
)
 
$
(1
)
 
$
45

Realized — impairments
(32
)
 
(48
)
 
—

 
11

 
(69
)
 
25

 
1

 
(43
)
Change in unrealized
(414
)
 
(150
)
 
—

 
166

 
(398
)
 
140

 
4

 
(254
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized before impairments
$
32

 
$
26

 
$
—

 
$
(1
)
 
$
57

 
$
(21
)
 
$
(1
)
 
$
35

Realized — impairments
(10
)
 
(6
)
 
—

 
3

 
(13
)
 
5

 
—

 
(8
)
Change in unrealized
466

 
3

 
—

 
(213
)
 
256

 
(90
)
 
(3
)
 
163

 
(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): 
  
Nine months ended September 30,
2015
 
2014
Fixed maturities:
 
 
 
Gross gains
$
24

 
$
28

Gross losses
—

 
(2
)
Equity securities:
 
 
 
Gross gains
59

 
27

Gross losses
—

 
—