Income Taxes

The following is a reconciliation of income taxes at the statutory rate of 35% to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):



	Three months ended September 30,										Nine months ended September 30,
	2016					2015					2016					2015
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	178				$	99				$	470				$	355

Income taxes at statutory rate	$	63		35	%	$	34		35	%	$	165		35	%	$	124		35	%
Effect of:
Tax exempt interest	(5		)	(3	%)	(6		)	(6	%)	(18		)	(4	%)	(20		)	(6	%)
Change in valuation allowance	7			4	%	8			8	%	40			9	%	8			2	%
Subsidiaries not in AFG’s tax return	2			1	%	—			—	%	4			1	%	2			1	%
Other	(2		)	—	%	(3		)	(4	%)	(1		)	(1	%)	1			—	%
Provision for income taxes as shown in the statement of earnings	$	65		37	%	$	33		33	%	$	190		40	%	$	115		32	%

Excluding the $65 million charge related to the exit of certain lines of business within Neon, AFG’s Lloyd’s-based insurer, AFG’s effective tax rate for the nine months ended September 30, 2016, was 36%. AFG maintains a full valuation allowance against the deferred tax benefits associated with losses related to Neon.

During the first nine months of 2016, there were no material changes to AFG’s liability for uncertain tax positions.