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Investments
 3 Months Ended
Mar. 31, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at March 31, 2016 and December 31, 2015, consisted of the following (in millions): 
 
March 31, 2016
 
December 31, 2015
Amortized
Cost
 
Gross Unrealized
 
Net
Unrealized
 
Fair
Value
 
Amortized
Cost
 
Gross Unrealized
 
Net
Unrealized
 
Fair
Value
Gains
 
Losses
 
Gains
 
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
333

 
$
7

 
$
(2
)
 
$
5

 
$
338

 
$
305

 
$
5

 
$
(3
)
 
$
2

 
$
307

States, municipalities and political subdivisions
6,691

 
369

 
(8
)
 
361

 
7,052

 
6,642

 
249

 
(35
)
 
214

 
6,856

Foreign government
139

 
8

 
—

 
8

 
147

 
147

 
7

 
—

 
7

 
154

Residential MBS
3,508

 
290

 
(26
)
 
264

 
3,772

 
3,236

 
308

 
(15
)
 
293

 
3,529

Commercial MBS
2,046

 
91

 
(1
)
 
90

 
2,136

 
2,111

 
77

 
(1
)
 
76

 
2,187

Asset-backed securities
5,172

 
29

 
(71
)
 
(42
)
 
5,130

 
4,961

 
25

 
(52
)
 
(27
)
 
4,934

Corporate and other
14,860

 
658

 
(172
)
 
486

 
15,346

 
14,163

 
422

 
(268
)
 
154

 
14,317

Total fixed maturities
$
32,749

 
$
1,452

 
$
(280
)
 
$
1,172

 
$
33,921

 
$
31,565

 
$
1,093

 
$
(374
)
 
$
719

 
$
32,284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
1,041

 
$
129

 
$
(81
)
 
$
48

 
$
1,089

 
$
1,051

 
$
146

 
$
(79
)
 
$
67

 
$
1,118

Perpetual preferred stocks
434

 
22

 
(9
)
 
13

 
447

 
418

 
23

 
(6
)
 
17

 
435

Total equity securities
$
1,475

 
$
151

 
$
(90
)
 
$
61

 
$
1,536

 
$
1,469

 
$
169

 
$
(85
)
 
$
84

 
$
1,553



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 March 31, 2016 and December 31, 2015, respectively, were $201 million and $205 million. Gross unrealized gains on such securities at March 31, 2016 and December 31, 2015 were $126 million and $134 million, respectively. Gross unrealized losses on such securities at March 31, 2016 and December 31, 2015 were $9 million and $6 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 March 31, 2016 and December 31, 2015. 
  
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
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
12

 
100
%
 
$
(2
)
 
$
15

 
88
%
States, municipalities and political subdivisions
(3
)
 
213

 
99
%
 
(5
)
 
141

 
97
%
Residential MBS
(14
)
 
748

 
98
%
 
(12
)
 
243

 
95
%
Commercial MBS
—

 
50

 
100
%
 
(1
)
 
15

 
94
%
Asset-backed securities
(60
)
 
2,377

 
98
%
 
(11
)
 
449

 
98
%
Corporate and other
(130
)
 
2,026

 
94
%
 
(42
)
 
324

 
89
%
Total fixed maturities
$
(207
)
 
$
5,426

 
96
%
 
$
(73
)
 
$
1,187

 
94
%
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(81
)
 
$
498

 
86
%
 
$
—

 
$
2

 
100
%
Perpetual preferred stocks
(5
)
 
117

 
96
%
 
(4
)
 
22

 
85
%
Total equity securities
$
(86
)
 
$
615

 
88
%
 
$
(4
)
 
$
24

 
86
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
(1
)
 
$
112

 
99
%
 
$
(2
)
 
$
15

 
88
%
States, municipalities and political subdivisions
(33
)
 
1,419

 
98
%
 
(2
)
 
50

 
96
%
Residential MBS
(7
)
 
438

 
98
%
 
(8
)
 
201

 
96
%
Commercial MBS
—

 
95

 
100
%
 
(1
)
 
28

 
97
%
Asset-backed securities
(42
)
 
2,706

 
98
%
 
(10
)
 
455

 
98
%
Corporate and other
(229
)
 
4,661

 
95
%
 
(39
)
 
165

 
81
%
Total fixed maturities
$
(312
)
 
$
9,431

 
97
%
 
$
(62
)
 
$
914

 
94
%
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(79
)
 
$
509

 
87
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
(3
)
 
91

 
97
%
 
(3
)
 
22

 
88
%
Total equity securities
$
(82
)
 
$
600

 
88
%
 
$
(3
)
 
$
22

 
88
%


At March 31, 2016, the gross unrealized losses on fixed maturities of $280 million relate to approximately 868 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 57% of the gross unrealized loss and 79% 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 three months of 2016, AFG recorded $2 million in other-than-temporary impairment charges related to its residential MBS.

In the first three months of 2016, AFG recorded approximately $14 million in other-than-temporary impairment charges related to corporate bonds.

AFG recorded $38 million other-than-temporary impairment charges on common stocks in the first three months of 2016. At March 31, 2016, the gross unrealized losses on common stocks of $81 million relate to 63 securities, one of which has been in an unrealized loss position for more than 12 months.

AFG recorded $3 million in other-than-temporary impairment charges on preferred stocks in the first three months of 2016. At March 31, 2016, the gross unrealized losses on preferred stocks of $9 million relate to 24 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 March 31, 2016.

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):

 
2016
 
2015
Balance at January 1
$
160

 
$
170

Additional credit impairments on:
 
 
 
Previously impaired securities
2

 
1

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(2
)
 
(3
)
Balance at March 31
$
160

 
$
168



The table below sets forth the scheduled maturities of available for sale fixed maturities as of March 31, 2016 (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
$
999

 
$
1,014

 
3
%
After one year through five years
5,348

 
5,612

 
17
%
After five years through ten years
11,678

 
12,025

 
35
%
After ten years
3,998

 
4,232

 
13
%
 
22,023

 
22,883

 
68
%
ABS (average life of approximately 5 years)
5,172

 
5,130

 
15
%
MBS (average life of approximately 4-1/2 years)
5,554

 
5,908

 
17
%
Total
$
32,749

 
$
33,921

 
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 March 31, 2016 or December 31, 2015.

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
March 31, 2016
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
910

 
$
(319
)
 
$
591

Fixed maturities — all other
262

 
(98
)
 
164

Total fixed maturities
1,172

 
(417
)
 
755

Equity securities
61

 
(21
)
 
40

Total investments
1,233

 
(438
)
 
795

Deferred policy acquisition costs — annuity segment
(400
)
 
140

 
(260
)
Annuity benefits accumulated
(125
)
 
44

 
(81
)
Life, accident and health reserves
(1
)
 
—

 
(1
)
Unearned revenue
20

 
(7
)
 
13

Total net unrealized gain on marketable securities
$
727

 
$
(261
)
 
$
466

 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
523

 
$
(183
)
 
$
340

Fixed maturities — all other
196

 
(72
)
 
124

Total fixed maturities
719

 
(255
)
 
464

Equity securities
84

 
(30
)
 
54

Total investments
803

 
(285
)
 
518

Deferred policy acquisition costs — annuity segment
(233
)
 
82

 
(151
)
Annuity benefits accumulated
(64
)
 
22

 
(42
)
Unearned revenue
11

 
(4
)
 
7

Total net unrealized gain on marketable securities
$
517

 
$
(185
)
 
$
332



(*)
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 March 31,
 
2016
 
2015
Investment income:
 
 
 
Fixed maturities
$
367

 
$
352

Equity securities
19

 
17

Equity in earnings of partnerships and similar investments
11

 
3

Other
19

 
21

Gross investment income
416

 
393

Investment expenses
(5
)
 
(5
)
Net investment income
$
411

 
$
388



Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions): 

 
Three months ended March 31, 2016
 
Three months ended March 31, 2015
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
14

 
$
(16
)
 
$
(2
)
 
$
453

 
$
3

 
$
(5
)
 
$
(2
)
 
$
218

Equity securities
23

 
(41
)
 
(18
)
 
(23
)
 
21

 
(2
)
 
19

 
6

Other (*)
(3
)
 
5

 
2

 
(220
)
 
(1
)
 
3

 
2

 
(137
)
Total pretax
34


(52
)

(18
)

210


23


(4
)

19


87

Tax effects
(12
)
 
19

 
7

 
(74
)
 
(8
)
 
1

 
(7
)
 
(30
)
Noncontrolling interests
—

 
1

 
1

 
(2
)
 
—

 
—

 
—

 
(1
)
Net of tax noncontrolling interests
$
22


$
(32
)

$
(10
)

$
134


$
15


$
(3
)

$
12


$
56


(*)
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): 
  
Three months ended March 31,
2016
 
2015
Fixed maturities:
 
 
 
Gross gains
$
14

 
$
5

Gross losses
(1
)
 
—

Equity securities:
 
 
 
Gross gains
25

 
21

Gross losses
—

 
—