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Investments
 6 Months Ended
Jun. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities and equity securities at June 30, 2016 and December 31, 2015, consisted of the following (in millions): 
 
June 30, 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
$
332

 
$
8

 
$
(2
)
 
$
6

 
$
338

 
$
305

 
$
5

 
$
(3
)
 
$
2

 
$
307

States, municipalities and political subdivisions
6,627

 
516

 
(4
)
 
512

 
7,139

 
6,642

 
249

 
(35
)
 
214

 
6,856

Foreign government
135

 
8

 
—

 
8

 
143

 
147

 
7

 
—

 
7

 
154

Residential MBS
3,478

 
290

 
(21
)
 
269

 
3,747

 
3,236

 
308

 
(15
)
 
293

 
3,529

Commercial MBS
1,949

 
94

 
(1
)
 
93

 
2,042

 
2,111

 
77

 
(1
)
 
76

 
2,187

Asset-backed securities
5,490

 
56

 
(46
)
 
10

 
5,500

 
4,961

 
25

 
(52
)
 
(27
)
 
4,934

Corporate and other
14,871

 
918

 
(60
)
 
858

 
15,729

 
14,163

 
422

 
(268
)
 
154

 
14,317

Total fixed maturities
$
32,882

 
$
1,890

 
$
(134
)
 
$
1,756

 
$
34,638

 
$
31,565

 
$
1,093

 
$
(374
)
 
$
719

 
$
32,284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
962

 
$
115

 
$
(69
)
 
$
46

 
$
1,008

 
$
1,051

 
$
146

 
$
(79
)
 
$
67

 
$
1,118

Perpetual preferred stocks
438

 
31

 
(5
)
 
26

 
464

 
418

 
23

 
(6
)
 
17

 
435

Total equity securities
$
1,400

 
$
146

 
$
(74
)
 
$
72

 
$
1,472

 
$
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 June 30, 2016 and December 31, 2015, respectively, were $195 million and $205 million. Gross unrealized gains on such securities at June 30, 2016 and December 31, 2015 were $127 million and $134 million, respectively. Gross unrealized losses on such securities at June 30, 2016 and December 31, 2015 were $6 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 June 30, 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
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
2

 
100
%
 
$
(2
)
 
$
8

 
80
%
States, municipalities and political subdivisions
—

 
33

 
100
%
 
(4
)
 
50

 
93
%
Residential MBS
(11
)
 
627

 
98
%
 
(10
)
 
248

 
96
%
Commercial MBS
(1
)
 
58

 
98
%
 
—

 
18

 
100
%
Asset-backed securities
(32
)
 
1,456

 
98
%
 
(14
)
 
630

 
98
%
Corporate and other
(23
)
 
603

 
96
%
 
(37
)
 
421

 
92
%
Total fixed maturities
$
(67
)
 
$
2,779

 
98
%
 
$
(67
)
 
$
1,375

 
95
%
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
(69
)
 
$
373

 
84
%
 
$
—

 
$
—

 
—
%
Perpetual preferred stocks
(3
)
 
90

 
97
%
 
(2
)
 
28

 
93
%
Total equity securities
$
(72
)
 
$
463

 
87
%
 
$
(2
)
 
$
28

 
93
%
 
 
 
 
 
 
 
 
 
 
 
 
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 June 30, 2016, the gross unrealized losses on fixed maturities of $134 million relate to approximately 572 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 55% of the gross unrealized loss and 73% 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 2016, AFG recorded $2 million in other-than-temporary impairment charges related to its residential MBS.

In the first six months of 2016, AFG recorded approximately $33 million in other-than-temporary impairment charges related to corporate bonds and other fixed maturities.

AFG recorded $63 million in other-than-temporary impairment charges on common stocks in the first six months of 2016. At June 30, 2016, the gross unrealized losses on common stocks of $69 million relate to 46 securities, none of which has been in an unrealized loss position for more than 12 months.

AFG recorded $4 million in other-than-temporary impairment charges on preferred stocks in the first six months of 2016. At June 30, 2016, the gross unrealized losses on preferred stocks of $5 million relate to 20 securities. All of the preferred stocks that have been in an unrealized loss position for 12 months or more (4 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, 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 March 31
$
160

 
$
168

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(3
)
 
(2
)
Balance at June 30
$
157

 
$
166

 
 
 
 
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
(5
)
 
(5
)
Balance at June 30
$
157

 
$
166



The table below sets forth the scheduled maturities of available for sale fixed maturities as of June 30, 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
$
906

 
$
922

 
3
%
After one year through five years
5,500

 
5,853

 
17
%
After five years through ten years
11,689

 
12,335

 
35
%
After ten years
3,870

 
4,239

 
12
%
 
21,965

 
23,349

 
67
%
ABS (average life of approximately 5 years)
5,490

 
5,500

 
16
%
MBS (average life of approximately 4-1/2 years)
5,427

 
5,789

 
17
%
Total
$
32,882

 
$
34,638

 
100
%


Certain risks are inherent in 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, 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
June 30, 2016
 
 
 
 
 
Unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
1,416

 
$
(495
)
 
$
921

Fixed maturities — all other
340

 
(129
)
 
211

Total fixed maturities
1,756

 
(624
)
 
1,132

Equity securities
72

 
(26
)
 
46

Total investments
1,828

 
(650
)
 
1,178

Deferred policy acquisition costs — annuity segment
(602
)
 
211

 
(391
)
Annuity benefits accumulated
(185
)
 
65

 
(120
)
Life, accident and health reserves
(2
)
 
1

 
(1
)
Unearned revenue
30

 
(11
)
 
19

Total net unrealized gain on marketable securities
$
1,069

 
$
(384
)
 
$
685

 
 
 
 
 
 
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 June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Investment income:
 
 
 
 
 
 
 
Fixed maturities
$
381

 
$
360

 
$
748

 
$
712

Equity securities
20

 
17

 
39

 
34

Equity in earnings of partnerships and similar investments
4

 
5

 
15

 
8

Other
22

 
26

 
41

 
47

Gross investment income
427

 
408

 
843

 
801

Investment expenses
(4
)
 
(4
)
 
(9
)
 
(9
)
Net investment income
$
423

 
$
404

 
$
834

 
$
792



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 June 30, 2016
 
Three months ended June 30, 2015
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
17

 
$
(19
)
 
$
(2
)
 
$
584

 
$
7

 
$
(10
)
 
$
(3
)
 
$
(623
)
Equity securities
9

 
(26
)
 
(17
)
 
11

 
25

 
(23
)
 
2

 
(21
)
Mortgage loans and other investments
—

 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
 
—

Other (*)
(3
)
 
6

 
3

 
(253
)
 
(1
)
 
3

 
2

 
314

Total pretax
23


(39
)

(16
)

342


29


(30
)

(1
)

(330
)
Tax effects
(8
)
 
14

 
6

 
(119
)
 
(10
)
 
11

 
1

 
115

Noncontrolling interests
(1
)
 
1

 
—

 
(4
)
 
—

 
—

 
—

 
3

Net of tax noncontrolling interests
$
14


$
(24
)

$
(10
)

$
219


$
19


$
(19
)

$
—


$
(212
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2016
 
Six months ended June 30, 2015
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
31

 
$
(35
)
 
$
(4
)
 
$
1,037

 
$
10

 
$
(15
)
 
$
(5
)
 
$
(405
)
Equity securities
32

 
(67
)
 
(35
)
 
(12
)
 
46

 
(25
)
 
21

 
(15
)
Mortgage loans and other investments
—

 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
 
—

Other (*)
(6
)
 
11

 
5

 
(473
)
 
(2
)
 
6

 
4

 
177

Total pretax
57

 
(91
)
 
(34
)
 
552

 
52

 
(34
)
 
18

 
(243
)
Tax effects
(20
)
 
33

 
13

 
(193
)
 
(18
)
 
12

 
(6
)
 
85

Noncontrolling interests
(1
)
 
2

 
1

 
(6
)
 
—

 
—

 
—

 
2

Net of tax noncontrolling interests
$
36

 
$
(56
)
 
$
(20
)
 
$
353

 
$
34

 
$
(22
)
 
$
12

 
$
(156
)


(*)
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,
2016
 
2015
Fixed maturities:
 
 
 
Gross gains
$
33

 
$
13

Gross losses
(6
)
 
—

Equity securities:
 
 
 
Gross gains
36

 
46

Gross losses
(3
)
 
—