10-Q

______________________________________________________________________________________________________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2018

Commission File No. 1-13653 

AMERICAN FINANCIAL GROUP, INC.

Incorporated under the Laws of Ohio IRS Employer I.D. No. 31-1544320

301 East Fourth Street, Cincinnati, Ohio 45202

(513) 579-2121

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes þ No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ                        Accelerated filer  ¨                        Non-accelerated filer  ¨

Smaller reporting company  ¨                        Emerging growth company  ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of November 1, 2018, there were 89,253,183 shares of the Registrant’s Common Stock outstanding, excluding 14.9 million shares owned by subsidiaries.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

TABLE OF CONTENTS

	Page
Part I — Financial Information
Item 1 — Financial Statements:
Consolidated Balance Sheet	2
Consolidated Statement of Earnings	3
Consolidated Statement of Comprehensive Income	4
Consolidated Statement of Changes in Equity	5
Consolidated Statement of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3 — Quantitative and Qualitative Disclosure about Market Risk	92
Item 4 — Controls and Procedures	92
Part II — Other Information
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	92
Item 5 — Other Information	92
Item 6 — Exhibits	93
Signature	93

AMERICAN FINANCIAL GROUP, INC. 10-Q

PART I

ITEM I — FINANCIAL STATEMENTS

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

(Dollars in Millions)

	September 30, 2018		December 31, 2017
Assets:
Cash and cash equivalents	$	2,009	$	2,338
Investments:
Fixed maturities, available for sale at fair value (amortized cost — $40,053 and $37,038)	40,244		38,379
Fixed maturities, trading at fair value	103		348
Equity securities, at fair value	1,827		1,662
Investments accounted for using the equity method	1,289		999
Mortgage loans	1,152		1,125
Policy loans	176		184
Equity index call options	759		701
Real estate and other investments	282		312
Total cash and investments	47,841		46,048
Recoverables from reinsurers	3,352		3,369
Prepaid reinsurance premiums	717		600
Agents’ balances and premiums receivable	1,299		1,146
Deferred policy acquisition costs	1,669		1,216
Assets of managed investment entities	4,998		4,902
Other receivables	1,633		1,030
Variable annuity assets (separate accounts)	650		644
Other assets	1,832		1,504
Goodwill	199		199
Total assets	$	64,190	$	60,658
Liabilities and Equity:
Unpaid losses and loss adjustment expenses	$	9,670	$	9,678
Unearned premiums	2,740		2,410
Annuity benefits accumulated	35,958		33,316
Life, accident and health reserves	643		658
Payable to reinsurers	932		743
Liabilities of managed investment entities	4,807		4,687
Long-term debt	1,302		1,301
Variable annuity liabilities (separate accounts)	650		644
Other liabilities	2,324		1,887
Total liabilities	59,026		55,324
Redeemable noncontrolling interests	—		3
Shareholders’ equity:
Common Stock, no par value        — 200,000,000 shares authorized        — 89,188,708 and 88,275,460 shares outstanding	89		88
Capital surplus	1,231		1,181
Retained earnings	3,800		3,248
Accumulated other comprehensive income, net of tax	44		813
Total shareholders’ equity	5,164		5,330
Noncontrolling interests	—		1
Total equity	5,164		5,331
Total liabilities and equity	$	64,190	$	60,658

2

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

(In Millions, Except Per Share Data)

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Revenues:
Property and casualty insurance net earned premiums	$	1,327		$	1,267		$	3,595		$	3,354
Life, accident and health net earned premiums	6			6			18			17
Net investment income	527			471			1,552			1,366
Realized gains (losses) on securities (*)	34			(12		)	(28		)	(1		)
Income (loss) of managed investment entities:
Investment income	65			54			187			155
Gain (loss) on change in fair value of assets/liabilities	(5		)	1			(10		)	12
Other income	54			48			146			154
Total revenues	2,008			1,835			5,460			5,057
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses	872			995			2,206			2,239
Commissions and other underwriting expenses	424			357			1,205			1,062
Annuity benefits	222			215			664			635
Life, accident and health benefits	10			6			32			21
Annuity and supplemental insurance acquisition expenses	71			55			203			156
Interest charges on borrowed money	15			21			46			65
Expenses of managed investment entities	52			45			154			137
Other expenses	98			112			272			285
Total costs and expenses	1,764			1,806			4,782			4,600
Earnings before income taxes	244			29			678			457
Provision for income taxes	41			18			126			146
Net earnings, including noncontrolling interests	203			11			552			311
Less: Net earnings (losses) attributable to noncontrolling interests	(1		)	—			(7		)	2
Net Earnings Attributable to Shareholders	$	204		$	11		$	559		$	309
Earnings Attributable to Shareholders per Common Share:
Basic	$	2.30		$	0.13		$	6.29		$	3.52
Diluted	$	2.26		$	0.13		$	6.17		$	3.44
Average number of Common Shares:
Basic	89.1			88.1			88.9			87.7
Diluted	90.7			90.0			90.6			89.7
Cash dividends per Common Share	$	0.35		$	0.3125		$	2.55		$	2.4375
________________________________________
(*) Consists of the following:
Realized gains (losses) before impairments	$	36		$	26		$	(25	)	$	52
Losses on securities with impairment	(2		)	(38		)	(3		)	(54		)
Non-credit portion recognized in other comprehensive income (loss)	—			—			—			1
Impairment charges recognized in earnings	(2		)	(38		)	(3		)	(53		)
Total realized gains (losses) on securities	$	34		$	(12	)	$	(28	)	$	(1	)

3

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Millions)

	Three months ended September 30,					Nine months ended September 30,
	2018			2017		2018			2017
Net earnings, including noncontrolling interests	$	203		$	11	$	552		$	311
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities arising during the period	(96		)	59		(523		)	299
Reclassification adjustment for realized (gains) losses included in net earnings	(2		)	8		(3		)	3
Total net unrealized gains (losses) on securities	(98		)	67		(526		)	302
Net unrealized gains (losses) on cash flow hedges	(5		)	—		(19		)	1
Foreign currency translation adjustments	—			7		(3		)	11
Other comprehensive income (loss), net of tax	(103		)	74		(548		)	314
Total comprehensive income, net of tax	100			85		4			625
Less: Comprehensive income (loss) attributable to noncontrolling interests	(1		)	—		(7		)	2
Comprehensive income attributable to shareholders	$	101		$	85	$	11		$	623

4

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(Dollars in Millions)

			Shareholders’ Equity																		Redeemable
	Common Shares		Common Stock and Capital Surplus			Retained Earnings			Accumulated Other Comp. Income (Loss)			Total			Noncon- trolling Interests			Total Equity			Noncon- trolling Interests
Balance at December 31, 2017	88,275,460		$	1,269		$	3,248		$	813		$	5,330		$	1		$	5,331		$	3
Cumulative effect of accounting change	—		—			225			(221		)	4			—			4			—
Net earnings (losses)	—		—			559			—			559			(1		)	558			(6		)
Other comprehensive loss	—		—			—			(548		)	(548		)	—			(548		)	—
Dividends on Common Stock	—		—			(227		)	—			(227		)	—			(227		)	—
Shares issued:
Exercise of stock options	635,364		23			—			—			23			—			23			—
Restricted stock awards	200,625		—			—			—			—			—			—			—
Other benefit plans	86,229		10			—			—			10			—			10			—
Dividend reinvestment plan	21,072		2			—			—			2			—			2			—
Stock-based compensation expense	—		17			—			—			17			—			17			—
Shares exchanged — benefit plans	(26,520	)	(1		)	(2		)	—			(3		)	—			(3		)	—
Forfeitures of restricted stock	(3,522	)	—			—			—			—			—			—			—
Other	—		—			(3		)	—			(3		)	—			(3		)	3
Balance at September 30, 2018	89,188,708		$	1,320		$	3,800		$	44		$	5,164		$	—		$	5,164		$	—
Balance at December 31, 2016	86,924,399		$	1,198		$	3,343		$	375		$	4,916		$	3		$	4,919		$	—
Net earnings	—		—			309			—			309			2			311			—
Other comprehensive income	—		—			—			314			314			—			314			—
Dividends on Common Stock	—		—			(214		)	—			(214		)	—			(214		)	—
Shares issued:
Exercise of stock options	870,022		29			—			—			29			—			29			—
Restricted stock awards	232,250		—			—			—			—			—			—			—
Other benefit plans	85,190		8			—			—			8			—			8			—
Dividend reinvestment plan	22,243		2			—			—			2			—			2			—
Stock-based compensation expense	—		18			—			—			18			—			18			—
Shares exchanged — benefit plans	(34,922	)	—			(3		)	—			(3		)	—			(3		)	—
Forfeitures of restricted stock	(6,388	)	—			—			—			—			—			—			—
Other	—		—			—			—			—			(5		)	(5		)	—
Balance at September 30, 2017	88,092,794		$	1,255		$	3,435		$	689		$	5,379		$	—		$	5,379		$	—

5

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(In Millions)

	Nine months ended September 30,
	2018			2017
Operating Activities:
Net earnings, including noncontrolling interests	$	552		$	311
Adjustments:
Depreciation and amortization	163			105
Annuity benefits	664			635
Realized (gains) losses on investing activities	28			(18		)
Net sales of trading securities	116			5
Deferred annuity and life policy acquisition costs	(192		)	(177		)
Change in:
Reinsurance and other receivables	(868		)	(1,467		)
Other assets	(257		)	(59		)
Insurance claims and reserves	507			1,372
Payable to reinsurers	189			272
Other liabilities	346			—
Managed investment entities’ assets/liabilities	104			14
Other operating activities, net	(75		)	—
Net cash provided by operating activities	1,277			993
Investing Activities:
Purchases of:
Fixed maturities	(6,700		)	(7,163		)
Equity securities	(342		)	(73		)
Mortgage loans	(112		)	(149		)
Equity index options and other investments	(695		)	(594		)
Real estate, property and equipment	(60		)	(46		)
Proceeds from:
Maturities and redemptions of fixed maturities	3,516			4,690
Repayments of mortgage loans	87			191
Sales of fixed maturities	275			179
Sales of equity securities	150			97
Sales and settlements of equity index options and other investments	688			565
Sales of real estate, property and equipment	3			54
Managed investment entities:
Purchases of investments	(1,674		)	(2,330		)
Proceeds from sales and redemptions of investments	1,485			2,343
Other investing activities, net	4			6
Net cash used in investing activities	(3,375		)	(2,230		)
Financing Activities:
Annuity receipts	3,925			3,432
Annuity surrenders, benefits and withdrawals	(2,101		)	(1,725		)
Net transfers from variable annuity assets	35			43
Additional long-term borrowings	—			345
Reductions of long-term debt	—			(355		)
Issuances of managed investment entities’ liabilities	1,572			1,926
Retirements of managed investment entities’ liabilities	(1,463		)	(1,998		)
Issuances of Common Stock	26			30
Cash dividends paid on Common Stock	(225		)	(212		)
Other financing activities, net	—			(7		)
Net cash provided by financing activities	1,769			1,479
Net Change in Cash and Cash Equivalents	(329		)	242
Cash and cash equivalents at beginning of period	2,338			2,107
Cash and cash equivalents at end of period	$	2,009		$	2,349

6

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO NOTES
A.	Accounting Policies	H.	Goodwill and Other Intangibles
B.	Segments of Operations	I.	Long-Term Debt
C.	Fair Value Measurements	J.	Redeemable Noncontrolling Interests
D.	Investments	K.	Shareholders’ Equity
E.	Derivatives	L.	Income Taxes
F.	Deferred Policy Acquisition Costs	M.	Contingencies
G.	Managed Investment Entities	N.	Insurance

A.     Accounting Policies

Basis of Presentation   The accompanying consolidated financial statements for American Financial Group, Inc. and its subsidiaries (“AFG”) are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles (“GAAP”).

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to September 30, 2018, and prior to the filing of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Fair Value Measurements   Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. AFG did not have any significant nonrecurring fair value measurements in the first nine months of 2018.

Investments On January 1, 2018, AFG adopted Accounting Standards Update (“ASU”) 2016-01, which requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At December 31, 2017, AFG had $1.60 billion in equity securities classified as “available for sale” under the prior guidance with holding gains and losses included in accumulated other comprehensive income (“AOCI”) instead of net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities included in AOCI was reclassified to retained earnings as the cumulative effect of an accounting change. The cumulative effect of the accounting change also includes the net unrealized gain on AFG’s small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under the new guidance ($4 million net of tax at the date of adoption).

Holding gains and losses on equity securities carried at fair value under ASU 2016-01 are generally recorded in realized gains (losses) on securities. However, prior to the adoption of the new guidance, AFG classified a small portion of its equity securities as “trading” and reported those investments at fair value with holding gains and losses recognized in net investment income. These investments consisted primarily of equity securities held to offset the impact of changes in the stock market on employee benefit plans that are impacted by stock market performance and totaled $62 million at December 31, 2017. Following the adoption of the new guidance, AFG continues to record holding gains and losses on these securities, as well as its small portfolio of limited partnerships and similar investments carried at fair value under the new guidance and certain other securities classified at purchase as “fair value through net investment income” in net investment income.

7

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Under the new guidance, AFG recorded holding losses of $35 million on equity securities in net earnings during the first nine months of 2018 on securities that were still owned at September 30, 2018. Under the prior guidance, these holding losses would have been recorded in AOCI (with the exception of any impairment charge that may have been recorded). Because almost all of the equity securities impacted by the new guidance were carried at fair value through AOCI under the prior guidance, the adoption of the new guidance did not have a material impact on AFG’s financial position.

Fixed maturity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in AOCI in AFG’s Balance Sheet. Fixed maturity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in net investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the effective interest method. Mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Limited partnerships and similar investments are generally accounted for using the equity method of accounting. Under the equity method, AFG records its share of the earnings or losses of the investee based on when they are reported by the investee in its financial statements rather than in the period in which the investee declares a dividend. AFG’s share of the earnings or losses from equity method investments is generally recorded on a quarter lag due to the timing of the receipt of the investee’s financial statements. AFG’s equity in the earnings (losses) of limited partnerships and similar investments is included in net investment income.

Gains or losses on fixed maturity securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses) on securities) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in other comprehensive income). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the statement of earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value. Changes in fair value of derivatives are included in earnings, unless the derivatives are designated and qualify as highly effective cash flow hedges. Derivatives that do not qualify for hedge accounting under GAAP consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related equity index options designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products.

To qualify for hedge accounting, at the inception of a derivative contract, AFG formally documents the relationship between the terms of the hedge and the hedged items and its risk management objective. This documentation includes defining how hedge effectiveness and ineffectiveness will be measured on a retrospective and prospective basis.

Changes in the fair value of derivatives that are designated and qualify as highly effective cash flow hedges are recorded in AOCI and are reclassified into earnings when the variability of the cash flows from the hedged items impacts earnings. Any hedge ineffectiveness is immediately recorded in current period earnings. When the change in the fair value of a qualifying cash flow hedge is included in earnings, it is included in the same line item in the statement of earnings as the cash flows from the hedged item. AFG uses interest rate swaps that are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities included in AFG’s portfolio of fixed maturity securities.

For derivatives that are designated and qualify as highly effective fair value hedges, changes in the fair value of the derivative, along with changes in the fair value of the hedged item attributable to the hedged risk, are recognized in current period earnings.

8

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Goodwill   Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually. An entity is not required to complete the quantitative annual goodwill impairment test on a reporting unit if the entity elects to perform a qualitative analysis and determines that it is more likely than not that the reporting unit’s fair value exceeds its carrying amount.

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (i) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (ii) amounts paid or due to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers, as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

An AFG subsidiary cedes life insurance policies to a third party on a funds withheld basis whereby the subsidiary retains the assets (securities) associated with the reinsurance contract. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. This reinsurance contract is considered to contain an embedded derivative (that must be adjusted to fair value) because the yield on the payable is based on a specific block of the ceding company’s assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolio of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to this contract are classified as “trading.” The adjustment to fair value on the embedded derivative offsets the investment income recorded on the adjustment to fair value of the related trading portfolio.

Deferred Policy Acquisition Costs (“DPAC”)   Policy acquisition costs (principally commissions, premium taxes and certain underwriting and policy issuance costs) directly related to the successful acquisition or renewal of an insurance contract are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses and unamortized acquisition costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and annuity policy charges, less death, annuitization and guaranteed withdrawal benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses) on securities.

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. See “Life, Accident and Health Reserves” below for details on the impact of loss recognition on the accounting for traditional life and health insurance contracts.

DPAC includes the present value of future profits on business in force of annuity and life, accident and health insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

DPAC and certain other balance sheet amounts related to annuity and life businesses are also adjusted, net of tax, for the change in expense that would have been recorded if the unrealized gains (losses) from securities had actually been realized. These adjustments are included in unrealized gains (losses) on marketable securities, a component of AOCI in AFG’s Balance Sheet.

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Managed Investment EntitiesA company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, collateralized loan obligations (“CLOs”) that are VIEs (see Note G — “Managed Investment Entities”). AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) through its investment in the CLO debt tranches, it has exposure to CLO losses (limited to the amount AFG invested) and the right to receive CLO benefits that could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The net gain or loss from accounting for the CLO assets and liabilities at fair value is presented separately in AFG’s Statement of Earnings.

The fair values of a CLO’s assets may differ from the separately measured fair values of its liabilities even though the CLO liabilities only have recourse to the CLO assets. AFG has set the carrying value of the CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at a separately measured fair value. CLO earnings attributable to AFG’s shareholders are measured by the change in the fair value of AFG’s investments in the CLOs and management fees earned.

Unpaid Losses and Loss Adjustment Expenses   The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims represent management’s best estimate and are based upon (i) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of unreported losses (including possible development on known claims) based on past experience; (iv) estimates based on experience of expenses for investigating and adjusting claims; and (v) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the statement of earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated   Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to annuity benefits expense and decreases for annuity policy charges are recorded in other income. For traditional fixed annuities, the liability for annuity benefits accumulated represents the account value that has accrued to the benefit of the policyholder as of the balance sheet date. For fixed-indexed annuities, the liability or annuity benefits accumulated includes an embedded derivative that represents the estimated fair value of the index participation with the remaining component representing the discounted value of the guaranteed minimum contract benefits.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses, guaranteed withdrawals and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liabilities for EDAR and guaranteed withdrawals are accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and annuity policy charges, and unearned revenues once they are recognized as income.

Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati.

Unearned Revenue   Certain upfront policy charges on annuities are deferred as unearned revenue (included in other liabilities) and recognized in net earnings (included in other income) using the same assumptions and estimated gross profits used to amortize DPAC.

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Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations unless a loss recognition event (premium deficiency) occurs. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

For long-duration contracts (such as traditional life and long-term care policies), loss recognition occurs when, based on current expectations as of the measurement date, existing contract liabilities plus the present value of future premiums (including reasonably expected rate increases) are not expected to cover the present value of future claims payments and related settlement and maintenance costs (excluding overhead) as well as unamortized acquisition costs. If a block of business is determined to be in loss recognition, a charge is recorded in earnings in an amount equal to the excess of the present value of expected future claims costs and unamortized acquisition costs over existing reserves plus the present value of expected future premiums (with no provision for adverse deviation). The charge is recorded first to reduce unamortized acquisition costs and then as an additional reserve (if unamortized acquisition costs have been reduced to zero).

In addition, reserves for traditional life and long-term care policies are subject to adjustment for loss recognition charges that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains (losses) on marketable securities, a component of AOCI in AFG’s Balance Sheet.

Debt Issuance CostsDebt issuance costs related to AFG’s outstanding debt are presented in its Balance Sheet as a direct reduction in the carrying value of long-term debt and are amortized over the life of the related debt using the effective interest method as a component of interest expense. Debt issuance costs related to AFG’s revolving credit facilities are included in other assets in AFG’s Balance Sheet.

Variable Annuity Assets and Liabilities   Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition   Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written, which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests   For balance sheet purposes, noncontrolling interests represent the interests of shareholders other than AFG in consolidated entities. In the statement of earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities. Noncontrolling interests that are redeemable at the option of the holder are presented separately in the mezzanine section of the balance sheet (between liabilities and equity).

Income Taxes   Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. A valuation allowance is established to reduce total deferred tax assets to an amount that will more likely than not be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recorded in net earnings in the period that includes the enactment date.

AFG recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained under examination by the appropriate taxing authority. Interest and penalties on AFG’s reserve for uncertain tax positions are recognized as a component of tax expense.

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Stock-Based Compensation   All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated fair value at the date of grant. AFG uses the Black Scholes pricing model to measure the fair value of employee stock options. See Note K — “Shareholders’ Equity” for further information.

AFG records excess tax benefits or deficiencies for share-based payments through income tax expense in the statement of earnings. In addition, AFG accounts for forfeitures of awards when they occur.

Benefit Plans   AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings Per Share   Although basic earnings per share only considers shares of common stock outstanding during the period, the calculation of diluted earnings per share includes the following adjustments to weighted average common shares related to stock-based compensation plans: third quarter of 2018 and 2017 — 1.6 million and 1.9 million; first nine months of 2018 and 2017 — 1.7 million and 2.0 million, respectively.

There were no anti-dilutive potential common shares in the third quarter or first nine months of 2018 or 2017.

Statement of Cash Flows   For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, surrenders, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

Revenue Recognition Guidance Effective in 2018 On January 1, 2018, AFG adopted ASU 2014-09, which provides guidance on recognizing revenue when (or as) performance obligations under the contract are satisfied. The new guidance also updates the accounting for certain costs associated with obtaining and fulfilling contracts with customers and requires certain new disclosures. Because revenue recognition for insurance contracts and financial instruments (AFG’s primary sources of revenue) were excluded from the scope of the new guidance, the adoption of ASU 2014-09 did not have a material impact on AFG’s results of operations or financial position.

B.    Segments of Operations

AFG manages its business as three segments: (i) Property and casualty insurance, (ii) Annuity and (iii) Other, which includes holding company costs, revenues and costs of AFG’s limited insurance operations outside of property and casualty insurance and annuities, and operations attributable to the noncontrolling interests of the managed investment entities.

AFG reports its property and casualty insurance business in the following Specialty sub-segments: (i) Property and transportation, which includes physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages, (ii) Specialty casualty, which includes primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, specialty coverage in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance, and (iii) Specialty financial, which includes risk management insurance programs for leasing and financing institutions (including equipment leasing and collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance. Premiums and underwriting profit included under Other specialty represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments and amortization of deferred gains on retroactive reinsurance transactions related to the sales of businesses in prior years. AFG’s annuity business markets traditional fixed, fixed-indexed and variable-indexed annuities in the retail, financial institutions, registered investment advisor and education markets. AFG’s reportable segments and their components were determined based primarily upon similar economic characteristics, products and services. Effective January 1, 2018, the results of AFG’s run-off long-term care and life

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businesses are included in the “Other” segment instead of as a separate reportable segment based on the immaterial size of the remaining operations. Prior period amounts were reclassified for consistent presentation.

The following tables (in millions) show AFG’s revenues and earnings before income taxes by segment and sub-segment.

	Three months ended September 30,					Nine months ended September 30,
	2018		2017			2018			2017
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	526	$	527		$	1,250		$	1,226
Specialty casualty	616		568			1,790			1,613
Specialty financial	149		142			457			435
Other specialty	36		30			98			80
Total premiums earned	1,327		1,267			3,595			3,354
Net investment income	108		94			323			276
Other income (a)	4		1			8			21
Total property and casualty insurance	1,439		1,362			3,926			3,651
Annuity:
Net investment income	413		375			1,219			1,082
Other income	27		26			80			79
Total annuity	440		401			1,299			1,161
Other	95		84			263			246
Total revenues before realized gains (losses)	1,974		1,847			5,488			5,058
Realized gains (losses) on securities	34		(12		)	(28		)	(1		)
Total revenues	$	2,008	$	1,835		$	5,460		$	5,057

Earnings Before Income Taxes
Property and casualty insurance:
Underwriting:
Specialty
Property and transportation	$	—		$	6		$	56		$	70
Specialty casualty	49			2			119			46
Specialty financial	9			(3		)	46			42
Other specialty	(3		)	4			(1		)	3
Other lines (b)	(17		)	(90		)	(19		)	(92		)
Total underwriting	38			(81		)	201			69
Investment and other income, net (a)	101			87			300			271
Total property and casualty insurance	139			6			501			340
Annuity	117			102			341			283
Other (c)	(46		)	(67		)	(136		)	(165		)
Total earnings before realized gains (losses) and income taxes	210			41			706			458
Realized gains (losses) on securities	34			(12		)	(28		)	(1		)
Total earnings before income taxes	$	244		$	29		$	678		$	457

(a) Includes income of $13 million (before noncontrolling interest) from the sale of a hotel in the first quarter of 2017.

(b) Includes special charges of $18 million and $89 million in the third quarter of 2018 and 2017, respectively, to increase asbestos and environmental (“A&E”) reserves.

(c) Includes holding company interest and expenses, including losses on retirement of debt of $4 million in the third quarter of 2017 and $7 million in the second quarter of 2017, and special charges of $9 million and $24 million in the third quarter of 2018 and 2017, respectively, to increase A&E reserves related to AFG’s former railroad and manufacturing operations.

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C.    Fair Value Measurements

Accounting standards for measuring fair value are based on inputs used in estimating fair value. The three levels of the hierarchy are as follows:

Level 1 — Quoted prices for identical assets or liabilities in active markets (markets in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis). AFG’s Level 1 financial instruments consist primarily of publicly traded equity securities, highly liquid government bonds for which quoted market prices in active markets are available and short-term investments of managed investment entities.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar assets or liabilities in inactive markets (markets in which there are few transactions, the prices are not current, price quotations vary substantially over time or among market makers, or in which little information is released publicly); and valuations based on other significant inputs that are observable in active markets. AFG’s Level 2 financial instruments include separate account assets, corporate and municipal fixed maturity securities, asset-backed securities (“ABS”), mortgage-backed securities (“MBS”), non-affiliated common stocks, equity index call options and investments of managed investment entities priced using observable inputs. Level 2 inputs include benchmark yields, reported trades, corroborated broker/dealer quotes, issuer spreads and benchmark securities. When non-binding broker quotes can be corroborated by comparison to similar securities priced using observable inputs, they are classified as Level 2.

Level 3 — Valuations derived from market valuation techniques generally consistent with those used to estimate the fair values of Level 2 financial instruments in which one or more significant inputs are unobservable or when the market for a security exhibits significantly less liquidity relative to markets supporting Level 2 fair value measurements. The unobservable inputs may include management’s own assumptions about the assumptions market participants would use based on the best information available at the valuation date. AFG’s Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker quotes or internally developed using significant inputs not based on, or corroborated by, observable market information.

As discussed in Note A — “Accounting Policies — Managed Investment Entities,” AFG has set the carrying value of its CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at separately measured fair values. As a result, the CLO liabilities are categorized within the fair value hierarchy on the same basis (proportionally) as the related CLO assets. Since the portion of the CLO liabilities allocated to Level 3 is derived from the fair value of the CLO assets, these amounts are excluded from the progression of Level 3 financial instruments.

AFG’s management is responsible for the valuation process and uses data from outside sources (including nationally recognized pricing services and broker/dealers) in establishing fair value. AFG’s internal investment professionals are a group of approximately 25 analysts whose primary responsibility is to manage AFG’s investment portfolio. These professionals monitor individual investments as well as overall industries and are active in the financial markets on a daily basis. The group is led by AFG’s chief investment officer, who reports directly to one of AFG’s Co-CEOs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, the Company communicates directly with the pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
September 30, 2018
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	142	$	84	$	8	$	234
States, municipalities and political subdivisions	—		6,715		60		6,775
Foreign government	—		139		—		139
Residential MBS	—		2,564		145		2,709
Commercial MBS	—		866		57		923
Asset-backed securities	—		8,316		991		9,307
Corporate and other	29		18,482		1,646		20,157
Total AFS fixed maturities	171		37,166		2,907		40,244
Trading fixed maturities	9		94		—		103
Equity securities	1,462		76		289		1,827
Equity index call options	—		759		—		759
Assets of managed investment entities (“MIE”)	258		4,718		22		4,998
Variable annuity assets (separate accounts) (*)	—		650		—		650
Total assets accounted for at fair value	$	1,900	$	43,463	$	3,218	$	48,581
Liabilities:
Liabilities of managed investment entities	$	248	$	4,537	$	22	$	4,807
Derivatives in annuity benefits accumulated	—		—		3,105		3,105
Other liabilities — derivatives	—		83		—		83
Total liabilities accounted for at fair value	$	248	$	4,620	$	3,127	$	7,995
December 31, 2017
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	122	$	112	$	8	$	242
States, municipalities and political subdivisions	—		6,975		148		7,123
Foreign government	—		127		—		127
Residential MBS	—		3,105		122		3,227
Commercial MBS	—		926		36		962
Asset-backed securities	—		7,218		744		7,962
Corporate and other	30		17,662		1,044		18,736
Total AFS fixed maturities	152		36,125		2,102		38,379
Trading fixed maturities	44		304		—		348
Equity securities	1,411		86		165		1,662
Equity index call options	—		701		—		701
Assets of managed investment entities	307		4,572		23		4,902
Variable annuity assets (separate accounts) (*)	—		644		—		644
Total assets accounted for at fair value	$	1,914	$	42,432	$	2,290	$	46,636
Liabilities:
Liabilities of managed investment entities	$	293	$	4,372	$	22	$	4,687
Derivatives in annuity benefits accumulated	—		—		2,542		2,542
Other liabilities — derivatives	—		35		—		35
Total liabilities accounted for at fair value	$	293	$	4,407	$	2,564	$	7,264

(*) Variable annuity liabilities equal the fair value of variable annuity assets.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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Transfers between Level 1 and Level 2 for all periods presented were a result of increases or decreases in observable trade activity.

During the third quarter there were no transfers between Level 1 and Level 2. During the first nine months of 2018, there were two preferred stocks with an aggregate fair value of $6 million that transferred from Level 1 to Level 2. During the third quarter of 2017, there was one preferred stock with an aggregate fair value of $1 million that transferred from Level 2 to Level 1. During the first nine months of 2017, there were three preferred stocks with an aggregate fair value of $17 million that transferred from Level 2 to Level 1.

Approximately 7% of the total assets carried at fair value at September 30, 2018, were Level 3 assets. Approximately 68% ($2.18 billion) of the Level 3 assets were priced using non-binding broker quotes, for which there is a lack of transparency as to the inputs used to determine fair value. Details as to the quantitative inputs are neither provided by the brokers nor otherwise reasonably obtainable by AFG. Since internally developed Level 3 asset fair values represent approximately 18% of AFG’s Shareholders’ Equity, any justifiable changes in unobservable inputs used to determine internally developed fair values would not be expected to have a material impact on AFG’s financial position.

The only significant Level 3 assets or liabilities carried at fair value in the financial statements that were not measured using broker quotes are the derivatives embedded in AFG’s fixed-indexed and variable-indexed annuity liabilities, which are measured using a discounted cash flow approach and had a fair value of $3.11 billion at September 30, 2018. The following table presents information about the unobservable inputs used by management in determining fair value of these embedded derivatives. See Note E — “Derivatives.”

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	0.4% – 1.6% over the risk free rate
Risk margin for uncertainty in cash flows	0.70% reduction in the discount rate
Surrenders	3% – 23% of indexed account value
Partial surrenders	2% – 9% of indexed account value
Annuitizations	0.1% – 1% of indexed account value
Deaths	1.6% – 8.0% of indexed account value
Budgeted option costs	2.4% – 3.6% of indexed account value

The range of adjustments for insurance subsidiary’s credit risk reflects credit spread variations across the yield curve. The range of projected surrender rates reflects the specific surrender charges and other features of AFG’s individual fixed-indexed and variable-indexed annuity products with an expected range of 7% to 11% in the majority of future calendar years (3% to 23% over all periods). Increasing the budgeted option cost or risk margin for uncertainty in cash flow assumptions in the table above would increase the fair value of the fixed-indexed and variable-indexed annuity embedded derivatives, while increasing any of the other unobservable inputs in the table above would decrease the fair value of the embedded derivatives.

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Changes in balances of Level 3 financial assets and liabilities carried at fair value during the third quarter and first nine months of 2018 and 2017 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs and $29 million of equity securities transferred into Level 3 in the first quarter of 2018 related to a small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under new guidance adopted on January 1, 2018, as discussed in Note A — “Accounting Policies — Investments.” All transfers are reflected in the table at fair value as of the end of the reporting period.

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	61			—			—			—			(1		)	—		—			60
Residential MBS	147			(2		)	(2		)	—			(6		)	13		(5		)	145
Commercial MBS	56			2			—			(1		)	—			—		—			57
Asset-backed securities	1,004			—			(3		)	13			(23		)	—		—			991
Corporate and other	1,408			—			(3		)	312			(59		)	—		(12		)	1,646
Total AFS fixed maturities	2,684			—			(8		)	324			(89		)	13		(17		)	2,907
Equity securities	230			(5		)	—			81			—			—		(17		)	289
Assets of MIE	23			(1		)	—			—			—			—		—			22
Total Level 3 assets	$	2,937		$	(6	)	$	(8	)	$	405		$	(89	)	$	13	$	(34	)	$	3,218
Embedded derivatives	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (*)	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	143			—			—			—			(1		)	10		—			152
Residential MBS	153			2			1			—			(6		)	15		(21		)	144
Commercial MBS	45			1			—			—			(10		)	—		—			36
Asset-backed securities	498			(2		)	1			13			(26		)	163		(111		)	536
Corporate and other	953			(9		)	—			172			(59		)	—		(7		)	1,050
Total AFS fixed maturities	1,800			(8		)	2			185			(102		)	188		(139		)	1,926
Equity securities	168			(3		)	(4		)	2			—			—		—			163
Assets of MIE	23			(4		)	—			2			—			—		—			21
Total Level 3 assets	$	1,991		$	(15	)	$	(2	)	$	189		$	(102	)	$	188	$	(139	)	$	2,110
Embedded derivatives	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (*)	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)

(*) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(2		)	—		(84		)	60
Residential MBS	122			(9		)	(2		)	—			(17		)	70		(19		)	145
Commercial MBS	36			1			—			20			—			—		—			57
Asset-backed securities	744			(2		)	(6		)	353			(80		)	—		(18		)	991
Corporate and other	1,044			2			(21		)	784			(138		)	—		(25		)	1,646
Total AFS fixed maturities	2,102			(8		)	(31		)	1,157			(237		)	70		(146		)	2,907
Equity securities	165			9			—			106			(4		)	30		(17		)	289
Assets of MIE	23			(6		)	—			5			—			—		—			22
Total Level 3 assets	$	2,290		$	(5	)	$	(31	)	$	1,268		$	(241	)	$	100	$	(163	)	$	3,218
Embedded derivatives (a)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2016			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			4		—			(2		)	10		—			152
Residential MBS	190			—			3		1			(37		)	35		(48		)	144
Commercial MBS	25			2			—		15			(10		)	4		—			36
Asset-backed securities	484			(2		)	3		117			(62		)	199		(203		)	536
Corporate and other	712			(4		)	8		460			(124		)	29		(31		)	1,050
Total AFS fixed maturities	1,559			(4		)	18		593			(235		)	277		(282		)	1,926
Equity securities	174			(19		)	9		22			(3		)	—		(20		)	163
Assets of MIE	29			(10		)	—		6			—			—		(4		)	21
Total Level 3 assets	$	1,762		$	(33	)	$	27	$	621		$	(238	)	$	277	$	(306	)	$	2,110
Embedded derivatives	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (b)	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)

(a) Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the first nine months of 2018.

(b) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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Fair Value of Financial Instruments   The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):

	Carrying		Fair Value
	Value		Total		Level 1		Level 2		Level 3
September 30, 2018
Financial assets:
Cash and cash equivalents	$	2,009	$	2,009	$	2,009	$	—	$	—
Mortgage loans	1,152		1,130		—		—		1,130
Policy loans	176		176		—		—		176
Total financial assets not accounted for at fair value	$	3,337	$	3,315	$	2,009	$	—	$	1,306
Financial liabilities:
Annuity benefits accumulated (*)	$	35,729	$	33,923	$	—	$	—	$	33,923
Long-term debt	1,302		1,260		—		1,257		3
Total financial liabilities not accounted for at fair value	$	37,031	$	35,183	$	—	$	1,257	$	33,926
December 31, 2017
Financial assets:
Cash and cash equivalents	$	2,338	$	2,338	$	2,338	$	—	$	—
Mortgage loans	1,125		1,119		—		—		1,119
Policy loans	184		184		—		—		184
Total financial assets not accounted for at fair value	$	3,647	$	3,641	$	2,338	$	—	$	1,303
Financial liabilities:
Annuity benefits accumulated (*)	$	33,110	$	32,461	$	—	$	—	$	32,461
Long-term debt	1,301		1,354		—		1,351		3
Total financial liabilities not accounted for at fair value	$	34,411	$	33,815	$	—	$	1,351	$	32,464

(*) Excludes $229 million and $206 million of life contingent annuities in the payout phase at September 30, 2018 and December 31, 2017, respectively.

The carrying amount of cash and cash equivalents approximates fair value. Fair values for mortgage loans are estimated by discounting the future contractual cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. The fair value of policy loans is estimated to approximate carrying value; policy loans have no defined maturity dates and are inseparable from insurance contracts. The fair value of annuity benefits was estimated based on expected cash flows discounted using forward interest rates adjusted for the Company’s credit risk and includes the impact of maintenance expenses and capital costs. Fair values of long-term debt are based primarily on quoted market prices.

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D.    Investments

Available for sale fixed maturities at September 30, 2018 and December 31, 2017, consisted of the following (in millions):

	September 30, 2018												December 31, 2017
	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	$	238	$	—	$	(4	)	$	(4	)	$	234	$	244	$	1	$	(3	)	$	(2	)	$	242
States, municipalities and political subdivisions	6,756		117		(98		)	19			6,775		6,887		254		(18		)	236			7,123
Foreign government	137		2		—			2			139		124		3		—			3			127
Residential MBS	2,408		310		(9		)	301			2,709		2,884		349		(6		)	343			3,227
Commercial MBS	913		14		(4		)	10			923		927		36		(1		)	35			962
Asset-backed securities	9,249		122		(64		)	58			9,307		7,836		142		(16		)	126			7,962
Corporate and other	20,352		169		(364		)	(195		)	20,157		18,136		638		(38		)	600			18,736
Total fixed maturities	$	40,053	$	734	$	(543	)	$	191		$	40,244	$	37,038	$	1,423	$	(82	)	$	1,341		$	38,379

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, 2018 and December 31, 2017 were $144 million and $158 million, respectively. Gross unrealized gains on such securities at September 30, 2018 and December 31, 2017 were $130 million and $137 million, respectively. Gross unrealized losses on such securities at both September 30, 2018 and December 31, 2017 were $4 million. These amounts represent the non-credit other-than-temporary impairment charges recorded in AOCI adjusted for subsequent changes in fair values and relate primarily to residential MBS.

As discussed in Note A — “Accounting Policies — Investments,” beginning on January 1, 2018, AFG implemented new accounting guidance, which required all equity securities previously classified as “available for sale” to be reported at fair value, with holding gains and losses recognized in net earnings. Equity securities reported at fair value consisted of the following at September 30, 2018 (in millions):

					Fair Value in
	Actual Cost		Fair Value		excess of Cost
Common stocks	$	1,040	$	1,151	$	111
Perpetual preferred stocks	683		676		(7		)
Total equity securities carried at fair value	$	1,723	$	1,827	$	104

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at the following balance sheet dates.

	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, 2018
Fixed maturities:
U.S. Government and government agencies	$	(1	)	$	113	99	%	$	(3	)	$	100	97	%
States, municipalities and political subdivisions	(63		)	2,729		98	%	(35		)	721		95	%
Foreign government	—			105		100	%	—			—		—	%
Residential MBS	(3		)	200		99	%	(6		)	132		96	%
Commercial MBS	(3		)	178		98	%	(1		)	51		98	%
Asset-backed securities	(47		)	4,775		99	%	(17		)	353		95	%
Corporate and other	(283		)	10,984		97	%	(81		)	1,346		94	%
Total fixed maturities	$	(400	)	$	19,084	98	%	$	(143	)	$	2,703	95	%
December 31, 2017
Fixed maturities:
U.S. Government and government agencies	$	—		$	55	100	%	$	(3	)	$	123	98	%
States, municipalities and political subdivisions	(8		)	825		99	%	(10		)	431		98	%
Foreign government	—			4		100	%	—			—		—	%
Residential MBS	(1		)	118		99	%	(5		)	118		96	%
Commercial MBS	(1		)	67		99	%	—			—		—	%
Asset-backed securities	(7		)	1,195		99	%	(9		)	299		97	%
Corporate and other	(20		)	2,031		99	%	(18		)	603		97	%
Total fixed maturities	$	(37	)	$	4,295	99	%	$	(45	)	$	1,574	97	%
Equity securities:
Common stocks	$	(22	)	$	117	84	%	$	—		$	—	—	%
Perpetual preferred stocks	—			41		100	%	(1		)	13		93	%
Total equity securities	$	(22	)	$	158	88	%	$	(1	)	$	13	93	%

At September 30, 2018, the gross unrealized losses on fixed maturities of $543 million relate to 2,392 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 95% of the gross unrealized loss and 96% 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 2018, AFG recorded $1 million in other-than-temporary impairment charges related to its residential MBS.

In the first nine months of 2018, AFG recorded $2 million in other-than-temporary impairment charges related to corporate bonds and other fixed maturities.

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, 2018. As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities previously classified as “available for sale” are required to be carried at fair value through net earnings instead of accumulated other comprehensive income and therefore are no longer evaluated for other-than-temporary impairment.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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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):

	2018			2017
Balance at June 30	$	144		$	145
Additional credit impairments on:
Previously impaired securities	—			—
Securities without prior impairments	—			3
Reductions due to sales or redemptions	(1		)	(1		)
Balance at September 30	$	143		$	147
Balance at January 1	$	145		$	153
Additional credit impairments on:
Previously impaired securities	—			1
Securities without prior impairments	1			3
Reductions due to sales or redemptions	(3		)	(10		)
Balance at September 30	$	143		$	147

The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2018 (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	$	1,212	$	1,223	3	%
After one year through five years	8,150		8,184		20	%
After five years through ten years	13,372		13,211		33	%
After ten years	4,749		4,687		12	%
	27,483		27,305		68	%
ABS (average life of approximately 4-1/2 years)	9,249		9,307		23	%
MBS (average life of approximately 4-1/2 years)	3,321		3,632		9	%
Total	$	40,053	$	40,244	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 September 30, 2018 or December 31, 2017.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

Net Unrealized Gain on Marketable Securities   In addition to adjusting fixed maturity securities and equity 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			Net
September 30, 2018
Net unrealized gain on:
Fixed maturities — annuity segment (a)	$	143		$	(30	)	$	113
Fixed maturities — all other	48			(10		)	38
Total fixed maturities	191			(40		)	151
Deferred policy acquisition costs — annuity segment	(56		)	12			(44		)
Annuity benefits accumulated	(18		)	3			(15		)
Unearned revenue	1			—			1
Total net unrealized gain on marketable securities	$	118		$	(25	)	$	93
December 31, 2017
Net unrealized gain on:
Fixed maturities — annuity segment (a)	$	1,082		$	(227	)	$	855
Fixed maturities — all other	259			(55		)	204
Total fixed maturities	1,341			(282		)	1,059
Equity securities (b)	279			(58		)	221
Total investments	1,620			(340		)	1,280
Deferred policy acquisition costs — annuity segment	(433		)	91			(342		)
Annuity benefits accumulated	(137		)	29			(108		)
Unearned revenue	13			(3		)	10
Total net unrealized gain on marketable securities	$	1,063		$	(223	)	$	840

(a) Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.

(b) As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings.

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,
	2018			2017			2018			2017
Investment income:
Fixed maturities	$	440		$	405		$	1,283		$	1,191
Equity securities:
Dividends	19			17			59			53
Change in fair value (*)	2			—			16			4
Equity in earnings of partnerships and similar investments	41			20			128			51
Other	31			33			82			80
Gross investment income	533			475			1,568			1,379
Investment expenses	(6		)	(4		)	(16		)	(13		)
Net investment income	$	527		$	471		$	1,552		$	1,366

(*) As discussed in Note A — “Accounting Policies — Investments,” AFG adopted guidance in January 2018 that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on equity

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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securities classified as “trading” under the previous guidance and on a small portfolio of limited partnership and similar investments that do not qualify for the equity method of accounting.

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 September 30, 2018												Three months ended September 30, 2017
	Realized gains (losses)												Realized gains (losses)
	Before Impairments			Impairments			Total			Change in Unrealized			Before Impairments			Impairments			Total			Change in Unrealized
Fixed maturities	$	—		$	(2	)	$	(2	)	$	(213	)	$	9		$	(15	)	$	(6	)	$	133
Equity securities	33			—			33			—			19			(29		)	(10		)	24
Mortgage loans and other investments	—			—			—			—			—			—			—			—
Other (*)	3			—			3			89			(2		)	6			4			(53		)
Total pretax	36			(2		)	34			(124		)	26			(38		)	(12		)	104
Tax effects	(8		)	1			(7		)	26			(9		)	13			4			(37		)
Net of tax	$	28		$	(1	)	$	27		$	(98	)	$	17		$	(25	)	$	(8	)	$	67
	Nine months ended September 30, 2018												Nine months ended September 30, 2017
	Realized gains (losses)												Realized gains (losses)
	Before Impairments			Impairments			Total			Change in Unrealized			Before Impairments			Impairments			Total			Change in Unrealized
Fixed maturities	$	3		$	(3	)	$	—		$	(1,150	)	$	25		$	(16	)	$	9		$	597
Equity securities	(39		)	—			(39		)	—			29			(49		)	(20		)	116
Mortgage loans and other investments	—			—			—			—			3			—			3			—
Other (*)	11			—			11			484			(5		)	12			7			(248		)
Total pretax	(25		)	(3		)	(28		)	(666		)	52			(53		)	(1		)	465
Tax effects	5			1			6			140			(18		)	18			—			(163		)
Net of tax	$	(20	)	$	(2	)	$	(22	)	$	(526	)	$	34		$	(35	)	$	(1	)	$	302

(*) Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.

As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings. AFG recorded net holding gains (losses) on equity securities during the third quarter and first nine months of 2018 on securities that were still owned at September 30, 2018 as follows (in millions):

	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
Included in realized gains (losses)	$	25	$	(51	)
Included in net investment income	2		16
	$	27	$	(35	)

Gross realized gains and losses (excluding impairment write-downs and mark-to-market of derivatives) on available for sale fixed maturity investment transactions consisted of the following (in millions):

	Nine months ended September 30,
	2018			2017
Fixed maturities:
Gross gains	$	19		$	32
Gross losses	(8		)	(4		)

In the first nine months of 2017, AFG recorded gross gains of $36 million and gross losses of $6 million on available for sale equity securities.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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E.    Derivatives

As discussed under “Derivatives” in Note A — “Accounting Policies,” AFG uses derivatives in certain areas of its operations.

Derivatives That Do Not Qualify for Hedge Accounting   The following derivatives that do not qualify for hedge accounting under GAAP are included in AFG’s Balance Sheet at fair value (in millions):

		September 30, 2018				December 31, 2017
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	110	$	—	$	105	$	—
Public company warrants	Equity securities	3		—		4		—
Fixed-indexed and variable-indexed annuities (embedded derivative)	Annuity benefits accumulated	—		3,105		—		2,542
Equity index call options	Equity index call options	759		—		701		—
Equity index put options	Other liabilities	—		—		—		—
Reinsurance contracts (embedded derivative)	Other liabilities	—		2		—		4
		$	872	$	3,107	$	810	$	2,546

The MBS with embedded derivatives consist of interest-only and principal-only MBS. AFG records the entire change in the fair value of these securities in earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.

Warrants to purchase shares of publicly traded companies, which represent a small component of AFG’s overall investment portfolio, are considered to be derivatives that are required to be carried at fair value through earnings.

AFG’s fixed-indexed and variable-indexed annuities provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market or other financial index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase and sale of call and put options on the appropriate index. AFG receives collateral from certain counterparties to support its purchased call option assets (net of collateral required under put option contracts with the same counterparties). This collateral ($545 million at September 30, 2018 and $389 million at December 31, 2017) is included in other assets in AFG’s Balance Sheet with an offsetting liability to return the collateral, which is included in other liabilities. AFG’s strategy is designed so that the change in the fair value of the call and put options will generally offset the economic change in the liabilities from the index participation. Both the index-based component of the annuities and the related call and put options are considered derivatives. Fluctuations in interest rates and the stock market, among other factors, can cause volatility in the periodic measurement of fair value of the embedded derivative that management believes can be inconsistent with the long-term economics of these products.

As discussed under “Reinsurance” in Note A, AFG has a reinsurance contract that is considered to contain an embedded derivative.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

The following table summarizes the gains (losses) included in AFG’s Statement of Earnings for changes in the fair value of derivatives that do not qualify for hedge accounting for the third quarter and first nine months of 2018 and 2017 (in millions):

		Three months ended September 30,						Nine months ended September 30,
Derivative	Statement of Earnings Line	2018			2017			2018			2017
MBS with embedded derivatives	Realized gains (losses) on securities	$	(3	)	$	—		$	(8	)	$	(3	)
Public company warrants	Realized gains (losses) on securities	1			(1		)	—			(1		)
Fixed-indexed and variable-indexed annuities (embedded derivative) (*)	Annuity benefits	(223		)	(127		)	(286		)	(386		)
Equity index call options	Annuity benefits	219			116			271			338
Equity index put options	Annuity benefits	—			—			—			—
Reinsurance contract (embedded derivative)	Net investment income	—			—			2			(2		)
		$	(6	)	$	(12	)	$	(21	)	$	(54	)

(*) The change in fair value of the embedded derivative for the nine months ended September 30, 2018 includes a $44 million charge in the second quarter of 2018 related to the unlocking of actuarial assumptions.

Derivatives Designated and Qualifying as Cash Flow Hedges   As of September 30, 2018, AFG has entered into fourteen interest rate swaps that are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities included in AFG’s portfolio of fixed maturity securities. The purpose of each of these swaps is to effectively convert a portion of AFG’s floating-rate fixed maturity securities to fixed rates by offsetting the variability in cash flows attributable to changes in short-term LIBOR.

Under the terms of the swaps, AFG receives fixed-rate interest payments in exchange for variable interest payments based on short-term LIBOR. The notional amounts of the interest rate swaps generally decline over each swap’s respective life (the swaps expire between August 2019 and June 2030) in anticipation of the expected decline in AFG’s portfolio of fixed maturity securities with floating interest rates based on short-term LIBOR. The total outstanding notional amount of AFG’s interest rate swaps was $2.17 billion at September 30, 2018 compared to $1.58 billion at December 31, 2017, reflecting four new swaps with an aggregate notional amount at issuance of $697 million entered into in the first nine months of 2018, partially offset by the scheduled amortization discussed above. The fair value of the effective portion of the interest rate swaps in an asset position and included in other assets was zero at September 30, 2018 and less than $1 million at December 31, 2017. The fair value of the effective portion of the interest rate swaps in a liability position and included in other liabilities was $81 million at September 30, 2018 and $31 million at December 31, 2017. The net unrealized gain or loss on cash flow hedges is included in AOCI, net of DPAC and deferred taxes. Amounts reclassified from AOCI (before DPAC and taxes) to net investment income were losses of $1 million and $2 million during the third quarter and first nine months of 2018 as compared to income of $1 million and $4 million in the third quarter and first nine months of 2017, respectively. There was no ineffectiveness recorded in net earnings during these periods. A collateral receivable supporting these swaps of $126 million at September 30, 2018 and $70 million at December 31, 2017 is included in other assets in AFG’s Balance Sheet.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

F.    Deferred Policy Acquisition Costs

A progression of deferred policy acquisition costs is presented below (in millions):

	P&C			Annuity and Other
	Deferred			Deferred			Sales															Consolidated
	Costs			Costs			Inducements			PVFP			Subtotal			Unrealized (*)			Total			Total
Balance at June 30, 2018	$	298		$	1,243		$	94		$	45		$	1,382		$	(98	)	$	1,284		$	1,582
Additions	181			65			1			—			66			—			66			247
Amortization:
Periodic amortization	(171		)	(58		)	(5		)	(2		)	(65		)	—			(65		)	(236		)
Included in realized gains	—			3			—			—			3			—			3			3
Foreign currency translation	—			—			—			—			—			—			—			—
Change in unrealized	—			—			—			—			—			73			73			73
Balance at September 30, 2018	$	308		$	1,253		$	90		$	43		$	1,386		$	(25	)	$	1,361		$	1,669
Balance at June 30, 2017	$	258		$	1,167		$	103		$	42		$	1,312		$	(414	)	$	898		$	1,156
Additions	149			44			1			—			45			—			45			194
Amortization:
Periodic amortization	(142		)	(44		)	(4		)	(2		)	(50		)	—			(50		)	(192		)
Included in realized gains	—			4			—			—			4			—			4			4
Foreign currency translation	1			—			—			—			—			—			—			1
Change in unrealized	—			—			—			—			—			(44		)	(44		)	(44		)
Balance at September 30, 2017	$	266		$	1,171		$	100		$	40		$	1,311		$	(458	)	$	853		$	1,119
Balance at December 31, 2017	$	270		$	1,217		$	102		$	49		$	1,368		$	(422	)	$	946		$	1,216
Additions	524			192			2			—			194			—			194			718
Amortization:
Periodic amortization	(485		)	(193		)	(15		)	(6		)	(214		)	—			(214		)	(699		)
Annuity unlocking	—			28			1			—			29			—			29			29
Included in realized gains	—			9			—			—			9			—			9			9
Foreign currency translation	(1		)	—			—			—			—			—			—			(1		)
Change in unrealized	—			—			—			—			—			397			397			397
Balance at September 30, 2018	$	308		$	1,253		$	90		$	43		$	1,386		$	(25	)	$	1,361		$	1,669
Balance at December 31, 2016	$	238		$	1,110		$	110		$	46		$	1,266		$	(265	)	$	1,001		$	1,239
Additions	439			177			3			—			180			—			180			619
Amortization:
Periodic amortization	(413		)	(122		)	(14		)	(6		)	(142		)	—			(142		)	(555		)
Included in realized gains	—			6			1			—			7			—			7			7
Foreign currency translation	2			—			—			—			—			—			—			2
Change in unrealized	—			—			—			—			—			(193		)	(193		)	(193		)
Balance at September 30, 2017	$	266		$	1,171		$	100		$	40		$	1,311		$	(458	)	$	853		$	1,119

(*) Unrealized adjustments to DPAC includes net unrealized gains/losses on securities and net unrealized gains/losses on cash flow hedges.

The present value of future profits (“PVFP”) amounts in the table above are net of $147 million and $141 million of accumulated amortization at September 30, 2018 and December 31, 2017, respectively.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

G.    Managed Investment Entities

AFG is the investment manager and its subsidiaries have investments ranging from 15.0% to 60.9% of the most subordinate debt tranche of fifteen 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 2018, 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 $191 million (including $133 million invested in the most subordinate tranches) at September 30, 2018, and $215 million at December 31, 2017.

In March 2018 and March 2017, AFG formed new CLOs, which issued $463 million and $408 million face amount of liabilities, respectively (including $31 million and $24 million face amount purchased by subsidiaries of AFG). During the first nine months of 2017, AFG subsidiaries also purchased $58 million face amount of senior debt and subordinate tranches of existing CLOs for $58 million. During the first nine months of 2018 and 2017, AFG subsidiaries received $45 million and $86 million, respectively, in sale and redemption proceeds from its CLO investments. During the first nine months of 2018 and 2017, one and two AFG CLOs, respectively, were substantially liquidated, as permitted by the CLO indentures.

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. Selected financial information related to the CLOs is shown below (in millions):

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Investment in CLO tranches at end of period	$	191		$	261		$	191		$	261
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	20			(8		)	5			(12		)
Liabilities	(25		)	9			(15		)	24
Management fees paid to AFG	4			5			12			14
CLO earnings (losses) attributable to AFG shareholders (b)	4			5			11			16

(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 $45 million and $55 million at September 30, 2018 and December 31, 2017, respectively. The aggregate unpaid principal balance of the CLOs’ debt exceeded its carrying value by $160 million and $118 million at those dates. The CLO assets include loans with an aggregate fair value of $1 million at both September 30, 2018 and December 31, 2017, for which the CLOs are not accruing interest because the loans are in default (aggregate unpaid principal balance of $8 million at both those dates).

H.    Goodwill and Other Intangibles

There were no changes in the goodwill balance of $199 million during the first nine months of 2018. Included in other assets in AFG’s Balance Sheet is $31 million at September 30, 2018 and $26 million at December 31, 2017 in amortizable intangible assets related to property and casualty insurance acquisitions. These amounts are net of accumulated amortization of $37 million and $30 million, respectively. Amortization of intangibles was $3 million and $2 million in the third quarter of 2018 and 2017, respectively, and $7 million and $6 million in the first nine months of 2018 and 2017.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

I.    Long-Term Debt

Long-term debt consisted of the following (in millions):

	September 30, 2018							December 31, 2017
	Principal		Discount and Issue Costs			Carrying Value		Principal		Discount and Issue Costs			Carrying Value
Direct Senior Obligations of AFG:
4.50% Senior Notes due June 2047	$	590	$	(2	)	$	588	$	590	$	(2	)	$	588
3.50% Senior Notes due August 2026	425		(4		)	421		425		(5		)	420
Other	3		—			3		3		—			3
	1,018		(6		)	1,012		1,018		(7		)	1,011
Direct Subordinated Obligations of AFG:
6-1/4% Subordinated Debentures due September 2054	150		(5		)	145		150		(5		)	145
6% Subordinated Debentures due November 2055	150		(5		)	145		150		(5		)	145
	300		(10		)	290		300		(10		)	290
	$	1,318	$	(16	)	$	1,302	$	1,318	$	(17	)	$	1,301

AFG has no scheduled principal payments on its long-term debt for the balance of 2018 or in the subsequent five years.

AFG can borrow up to $500 million under its revolving credit facility, which expires in June 2021. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.875% (currently 1.375%) over LIBOR based on AFG’s credit rating. No amounts were borrowed under this facility at September 30, 2018 or December 31, 2017.

J.     Redeemable Noncontrolling Interests

Neon Lloyd’s Business   On December 29, 2017, AFG completed the sale of an indirect noncontrolling interest in Neon, its United Kingdom-based Lloyd’s insurer, to certain Neon executives for cash equal to the fair value of the interest sold as determined by a third-party valuation firm. This noncontrolling interest is redeemable at the option of the holder and is presented separately in the mezzanine section of the balance sheet, as discussed in Note A — “Accounting Policies — Noncontrolling Interests.”

K.    Shareholders’ Equity

AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.

Accumulated Other Comprehensive Income, Net of Tax (“AOCI”)   Comprehensive income is defined as all changes in shareholders’ equity except those arising from transactions with shareholders. Comprehensive income includes net earnings and other comprehensive income, which consists primarily of changes in net unrealized gains or losses on available for sale securities.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

The progression of the components of accumulated other comprehensive income follows (in millions):

				Other Comprehensive Income (Loss)
	AOCI Beginning Balance			Pretax			Tax			Net of tax			Attributable to noncontrolling interests		Attributable to shareholders			Other (c)			AOCI Ending Balance
Quarter ended September 30, 2018
Net unrealized gains (losses) on securities:
Unrealized holding losses on securities arising during the period				$	(122	)	$	26		$	(96	)	$	—	$	(96	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(2		)	—			(2		)	—		(2		)
Total net unrealized gains (losses) on securities (b)	$	191		(124		)	26			(98		)	—		(98		)	$	—		$	93
Net unrealized losses on cash flow hedges	(27		)	(6		)	1			(5		)	—		(5		)	—			(32		)
Foreign currency translation adjustments	(9		)	—			—			—			—		—			—			(9		)
Pension and other postretirement plans adjustments	(8		)	—			—			—			—		—			—			(8		)
Total	$	147		$	(130	)	$	27		$	(103	)	$	—	$	(103	)	$	—		$	44
Quarter ended September 30, 2017
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period				$	92		$	(33	)	$	59		$	—	$	59
Reclassification adjustment for realized (gains) losses included in net earnings (a)				12			(4		)	8			—		8
Total net unrealized gains on securities	$	639		104			(37		)	67			—		67			$	—		$	706
Net unrealized losses on cash flow hedges	(6		)	(1		)	1			—			—		—			—			(6		)
Foreign currency translation adjustments	(11		)	5			2			7			—		7			—			(4		)
Pension and other postretirement plans adjustments	(7		)	—			—			—			—		—			—			(7		)
Total	$	615		$	108		$	(34	)	$	74		$	—	$	74		$	—		$	689
Nine months ended September 30, 2018
Net unrealized gains (losses) on securities:
Unrealized holding losses on securities arising during the period				$	(662	)	$	139		$	(523	)	$	—	$	(523	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(4		)	1			(3		)	—		(3		)
Total net unrealized gains (losses) on securities (b)	$	840		(666		)	140			(526		)	—		(526		)	$	(221	)	$	93
Net unrealized losses on cash flow hedges	(13		)	(24		)	5			(19		)	—		(19		)	—			(32		)
Foreign currency translation adjustments	(6		)	(2		)	(1		)	(3		)	—		(3		)	—			(9		)
Pension and other postretirement plans adjustments	(8		)	—			—			—			—		—			—			(8		)
Total	$	813		$	(692	)	$	144		$	(548	)	$	—	$	(548	)	$	(221	)	$	44
Nine months ended September 30, 2017
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period				$	461		$	(162	)	$	299		$	—	$	299
Reclassification adjustment for realized (gains) losses included in net earnings (a)				4			(1		)	3			—		3
Total net unrealized gains on securities	$	404		465			(163		)	302			—		302			$	—		$	706
Net unrealized gains (losses) on cash flow hedges	(7		)	1			—			1			—		1			—			(6		)
Foreign currency translation adjustments	(15		)	8			3			11			—		11			—			(4		)
Pension and other postretirement plans adjustments	(7		)	—			—			—			—		—			—			(7		)
Total	$	375		$	474		$	(160	)	$	314		$	—	$	314		$	—		$	689

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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(a)The reclassification adjustment out of net unrealized gains (losses) on securities affected the following lines in AFG’s Statement of Earnings:

OCI component	Affected line in the statement of earnings
Pretax	Realized gains (losses) on securities
Tax	Provision for income taxes

(b) Includes net unrealized gains of $64 million at September 30, 2018 compared to $67 million at June 30, 2018 and $68 million at December 31, 2017 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

(c) On January 1, 2018, AFG adopted new guidance that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities classified as available for sale (with unrealized holding gains and losses reported in AOCI) under the prior guidance was reclassified from AOCI to retained earnings as the cumulative effect of an accounting change.

Stock Incentive Plans   Under AFG’s stock incentive plans, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first nine months of 2018, AFG issued 200,625 shares of restricted Common Stock (fair value of $112.86 per share) under the Stock Incentive Plan. In addition, AFG issued 45,804 shares of Common Stock (fair value of $115.49 per share) in the first quarter of 2018 under the Equity Bonus Plan. AFG did not grant any stock options in the first nine months of 2018.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $6 million and $7 million in the third quarters of 2018 and 2017 and $17 million and $24 million in the first nine months of 2018 and 2017, respectively.

L.    Income Taxes

The following is a reconciliation of income taxes at the statutory rate (21% in 2018 and 35% in 2017) 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,
	2018					2017					2018					2017
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	244				$	29				$	678				$	457
Income taxes at statutory rate	$	51		21	%	$	10		35	%	$	142		21	%	$	160		35	%
Effect of:
Adjustment to prior year taxes	(9		)	(4	%)	(2		)	(7	%)	(9		)	(1	%)	(2		)	(1	%)
Tax exempt interest	(3		)	(1	%)	(5		)	(17	%)	(10		)	(1	%)	(17		)	(4	%)
Dividends received deduction	(1		)	—	%	(2		)	(7	%)	(3		)	—	%	(6		)	(1	%)
Employee Stock Ownership Plan dividends paid deduction	(1		)	—	%	—			—	%	(2		)	—	%	(2		)	—	%
Stock-based compensation	—			—	%	(1		)	(3	%)	(7		)	(1	%)	(14		)	(3	%)
Foreign operations	—			—	%	1			3	%	3			—	%	7			2	%
Nondeductible expenses	1			—	%	2			7	%	5			1	%	5			1	%
Change in valuation allowance	1			—	%	16			55	%	3			—	%	16			4	%
Other	2			1	%	(1		)	(4	%)	4			—	%	(1		)	(1	%)
Provision for income taxes as shown in the statement of earnings	$	41		17	%	$	18		62	%	$	126		19	%	$	146		32	%

AFG’s effective tax rate for the three months ended September 30, 2017 reflects the impact of catastrophe losses in the Neon Lloyd’s insurance business for which no tax benefit is recognized. AFG maintains a full valuation allowance against the deferred tax benefits associated with losses related to Neon. Excluding the $53 million in catastrophe losses at Neon, AFG’s effective tax rate for the three months ended September 30, 2017 was 22%, which reflects the impact of a typical level of tax-favored investment income on lower earnings before income taxes.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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The favorable impact of stock-based compensation on AFG’s effective tax rate in the first nine months of 2018 and 2017 reflects the high volume of employee stock option exercises during that period and the increase in the market price of AFG Common Stock.

The Tax Cuts and Jobs Act of 2017 (“TCJA”), which was enacted on December 22, 2017, lowered the U.S corporate tax rate to 21% and made other widespread changes to the U.S. tax code effective in 2018. Because the TCJA was enacted in December 2017, AFG recorded the $83 million decrease in its net deferred tax asset resulting from the changes in the tax code (primarily the lower corporate tax rate applicable to 2018 and future years) in the fourth quarter of 2017.

The TCJA is subject to further clarification and interpretation by the U.S. Treasury Department and the Internal Revenue Service. For example, the TCJA changes the way that companies calculate their insurance claims and reserves for tax purposes, including revaluing those tax basis liabilities as of January 1, 2018, based on a methodology and discount factors that have not been published. The resulting transitional deferred tax liability (taxes payable over eight years under the TCJA) and offsetting increase in AFG’s insurance claims and reserves deferred tax assets, were recorded at December 31, 2017 using reasonable estimates based on available information and should be considered provisional in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”). Because the established transition liability was completely offset by an increase in related deferred tax assets, any adjustment to the provisional amount will not impact AFG’s effective tax rate. In accordance with SAB 118, the insurance claims and reserves transitional deferred tax liability (and offsetting adjustment to the related deferred tax assets) and any other changes in deferred taxes resulting from clarification and interpretation of the TCJA provided during 2018 will be recorded in the period in which the guidance is published (none through September 30, 2018).

Approximately $19 million of AFG’s net operating loss carryforwards (“NOL”) subject to separate return limitation year (“SRLY”) tax rules will expire unutilized at December 31, 2018. Since AFG maintains a full valuation allowance against its SRLY NOLs, the expiration of these loss carryforwards will be offset by a corresponding reduction in the valuation allowance and will have no overall impact on AFG’s income tax expense or results of operations.

M.     Contingencies

There have been no significant changes to the matters discussed and referred to in Note M — “Contingencies” of AFG’s 2017 Form 10-K, which covers property and casualty insurance reserves for claims related to environmental exposures, asbestos and other mass tort claims and environmental and occupational injury and disease claims of former subsidiary railroad and manufacturing operations, as well as contingencies related to the sale of substantially all of AFG’s run-off long-term care insurance business.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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N.    Insurance

Property and Casualty Insurance Reserves The following table provides an analysis of changes in the liability for losses and loss adjustment expenses during the first nine months of 2018 and 2017 (in millions):

	Nine months ended September 30,
	2018			2017
Balance at beginning of year	$	9,678		$	8,563
Less reinsurance recoverables, net of allowance	2,957			2,302
Net liability at beginning of year	6,721			6,261
Provision for losses and LAE occurring in the current period	2,337			2,237
Net increase (decrease) in the provision for claims of prior years:
Special A&E charges	18			89
Other	(149		)	(87		)
Total losses and LAE incurred	2,206			2,239
Payments for losses and LAE of:
Current year	(569		)	(530		)
Prior years	(1,313		)	(1,272		)
Total payments	(1,882		)	(1,802		)
Reserves of business disposed (*)	(319		)	—
Foreign currency translation and other	(4		)	32
Net liability at end of period	6,722			6,730
Add back reinsurance recoverables, net of allowance	2,948			2,833
Gross unpaid losses and LAE included in the balance sheet at end of period	$	9,670		$	9,563

(*) Reflects the reinsurance to close transaction at Neon discussed below.

The net decrease in the provision for claims of prior years during the first nine months of 2018 reflects (i) lower than expected losses in the crop business and lower than expected severity in claims at National Interstate (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation and executive liability businesses (within the Specialty casualty sub-segment), and (iii) lower than expected claim frequency and severity in the surety business and lower than expected claim severity in the fidelity business (within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $18 million special charge to increase asbestos and environmental reserves and (ii) higher than expected claim severity in the Singapore branch and aviation operations (within the Property and transportation sub-segment).

The net increase in the provision for claims of prior years during the first nine months of 2017 reflects (i) the $89 million special charge to increase asbestos and environmental reserves, (ii) higher than expected claim severity in the ocean marine business (within the Property and transportation sub-segment), (iii) higher than anticipated claim severity in the targeted markets and general liability businesses (all within the Specialty casualty sub-segment) and (iv) an adjustment to the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of businesses in 1998 (included in Other specialty sub-segment). This adverse development was partially offset by (i) lower than expected losses in the crop and equine businesses and lower than expected claim severity in the property and inland marine and transportation businesses (all within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses and at Neon (all within the Specialty casualty sub-segment) and (iii) lower than anticipated claim severity in the fidelity business and lower than expected claim frequency and severity in the surety business (both within the Specialty financial sub-segment).

In December 2017, the Neon Lloyd’s syndicate entered into a reinsurance to close transaction for the 2015 and prior years of account with StarStone Underwriting Limited, a subsidiary of Enstar Group Limited, which was effective as of December 31, 2017 (the transaction settled in early 2018). In the Lloyd’s market, a reinsurance to close transaction transfers the responsibility for discharging all of the liabilities that attach to the transferred year of account plus the right to any income due to the closing year of account in return for a premium. This transaction provided Neon with finality on its legacy business.

33

AMERICAN FINANCIAL GROUP, INC. 10-Q

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

INDEX TO MD&A
	Page		Page
Forward-Looking Statements	34	Results of Operations — Third Quarter	48
Overview	35	Segmented Statement of Earnings	48
Critical Accounting Policies	35	Property and Casualty Insurance	49
Liquidity and Capital Resources	36	Annuity	60
Ratios	36	Holding Company, Other and Unallocated	67
Condensed Consolidated Cash Flows	36	Results of Operations — First Nine Months	70
Parent and Subsidiary Liquidity	37	Segmented Statement of Earnings	70
Investments	38	Property and Casualty Insurance	71
Uncertainties	42	Annuity	80
Managed Investment Entities	42	Holding Company, Other and Unallocated	88
Results of Operations	46	Recent and Pending Accounting Standards	90
General	46

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Some of the forward-looking statements can be identified by the use of words such as “anticipates”, “believes”, “expects”, “projects”, “estimates”, “intends”, “plans”, “seeks”, “could”, “may”, “should”, “will” or the negative version of those words or other comparable terminology. Such forward-looking statements include statements relating to: expectations concerning market and other conditions and their effect on future premiums, revenues, earnings, investment activities, and the amount and timing of share repurchases; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.

Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to:

• changes in financial, political and economic conditions, including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions in the U.S. and/or abroad;

• performance of securities markets, including the cost of equity index options;

• new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio;

• the availability of capital;

• changes in insurance law or regulation, including changes in statutory accounting rules and changes in regulation of the Lloyd’s market, including modifications to the establishment of capital requirements for and approval of business plans for syndicate participation;

• changes in the legal environment affecting AFG or its customers;

• tax law and accounting changes, including the impact of recent changes in U.S. corporate tax law;

• levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from civil unrest and other major losses;

• disruption caused by cyber-attacks or other technology breaches or failures by AFG or its business partners and service providers, which could negatively impact AFG’s business and/or expose AFG to litigation;

• development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims;

• availability of reinsurance and ability of reinsurers to pay their obligations;

• trends in persistency and mortality;

• competitive pressures;

• the ability to obtain adequate rates and policy terms;

• changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries; and

• the impact of the conditions in the international financial markets and the global economy (including those associated with the United Kingdom’s expected withdrawal from the European Union, or “Brexit”) relating to AFG’s international operations.

34

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The forward-looking statements herein are made only as of the date of this report. The Company assumes no obligation to publicly update any forward-looking statements.

OVERVIEW

Financial Condition

AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Therefore, certain analyses are most meaningfully presented on a parent only basis while others are best done on a total enterprise basis. In addition, because most of its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.

Results of Operations

Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of traditional fixed, fixed-indexed and variable-indexed annuities in the retail, financial institutions, broker-dealer, registered investment advisor and education markets.

Net earnings attributable to AFG’s shareholders for the third quarter and first nine months of 2018 were $204 million ($2.26 per share, diluted) and $559 million ($6.17 per share, diluted), respectively, compared to $11 million ($0.13 per share, diluted) and $309 million ($3.44 per share, diluted) reported in the same periods of 2017, reflecting:

• higher earnings in the annuity segment,

• higher underwriting profit in the property and casualty insurance segment due primarily to lower catastrophe losses and lower special charges to increase asbestos and environmental reserves,

• higher net investment income in the property and casualty insurance segment,

• lower interest charges on borrowed money,

• a lower corporate income tax rate,

• realized gains on securities in the third quarter of 2018 compared to realized losses in the third quarter of 2017 and higher realized losses on securities in the first nine months of 2018 compared to the first nine months of 2017. Both periods in 2018 reflect the change in the fair value of equity securities that are required to be carried at fair value through net earnings under new accounting guidance adopted on January 1, 2018,

• lower income from the sale of real estate in the first nine months of 2018 compared to the first nine months of 2017, and

• a loss on the retirement of debt in the third quarter and first nine months of 2017.

CRITICAL ACCOUNTING POLICIES

Significant accounting policies are summarized in Note A— “Accounting Policies” to the financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions change and, thus, impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements is most significant are as follows:

• the establishment of insurance reserves, especially asbestos and environmental-related reserves,

• the recoverability of reinsurance,

• the recoverability of deferred acquisition costs,

• the establishment of asbestos and environmental reserves of former railroad and manufacturing operations, and

• the valuation of investments, including the determination of other-than-temporary impairments.

For a discussion of these policies, see Management’s Discussion and Analysis — “Critical Accounting Policies” in AFG’s 2017 Form 10-K.

35

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

LIQUIDITY AND CAPITAL RESOURCES

Ratios   AFG’s debt to total capital ratio on a consolidated basis is shown below (dollars in millions):

	September 30, 2018			December 31,
				2017			2016
Principal amount of long-term debt	$	1,318		$	1,318		$	1,308
Total capital	6,389			6,033			5,921
Ratio of debt to total capital:
Including subordinated debt	20.6		%	21.8		%	22.1		%
Excluding subordinated debt	15.9		%	16.9		%	17.0		%

The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and independent ratings agencies to evaluate AFG’s financial strength and liquidity and to provide insight into how AFG finances its operations. In addition, maintaining a ratio of debt, excluding subordinated debt and debt secured by real estate (if any), to total capital of 35% or lower is a financial covenant in AFG’s bank credit facility. The ratio is calculated by dividing the principal amount of AFG’s long-term debt by its total capital, which includes long-term debt, noncontrolling interests and shareholders’ equity (excluding unrealized gains (losses) on fixed maturity investments).

AFG’s ratio of earnings to fixed charges, including annuity benefits as a fixed charge, was 1.86 for the nine months ended September 30, 2018 and 1.72 for the year ended December 31, 2017. Excluding annuity benefits, this ratio was 10.87 and 7.67, respectively. Although the ratio excluding annuity benefits is not required or encouraged to be disclosed under Securities and Exchange Commission rules, it is presented because interest credited to annuity policyholder accounts is not always considered a borrowing cost for an insurance company.

Condensed Consolidated Cash FlowsAFG’s principal sources of cash include insurance premiums, income from its investment portfolio and proceeds from the maturities, redemptions and sales of investments. Insurance premiums in excess of acquisition expenses and operating costs are invested until they are needed to meet policyholder obligations or made available to the parent company through dividends to cover debt obligations and corporate expenses, and to provide returns to shareholders through share repurchases and dividends. Cash flows from operating, investing and financing activities as detailed in AFG’s Consolidated Statement of Cash Flows are shown below (in millions):

	Nine months ended September 30,
	2018			2017
Net cash provided by operating activities	$	1,277		$	993
Net cash used in investing activities	(3,375		)	(2,230		)
Net cash provided by financing activities	1,769			1,479
Net change in cash and cash equivalents	$	(329	)	$	242

Net Cash Provided by Operating Activities   AFG’s property and casualty insurance operations typically produce positive net operating cash flows as premiums collected and investment income exceed policy acquisition costs, claims payments and operating expenses. AFG’s net cash provided by operating activities is impacted by the level and timing of property and casualty premiums, claim and expense payments and recoveries from reinsurers. AFG’s annuity operations typically produce positive net operating cash flows as investment income exceeds acquisition costs and operating expenses. Interest credited on annuity policyholder funds is a non-cash increase in AFG’s annuity benefits accumulated liability and annuity premiums, benefits and withdrawals are considered financing activities due to the deposit-type nature of annuities. Cash flows provided by operating activities also include the activity of AFG’s managed investment entities (collateralized loan obligations) other than those activities included in investing or financing activities. The changes in the assets and liabilities of the managed investment entities included in operating activities increased cash flows from operating activities by $104 million during the first nine months of 2018 and $14 million in the first nine months of 2017, accounting for a $90 millionincrease in cash flows from operating activities in the 2018 period compared to the 2017 period. As discussed in Note A — “Accounting Policies — Managed Investment Entities” to the financial statements, AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities and such assets and liabilities are shown separately in AFG’s Balance Sheet. Excluding the impact of the managed investment entities, net cash provided by operating activities was $1.17 billion in the first nine months of 2018 compared to $979 million in the first nine months of 2017, an increase of $194 million.

36

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Net Cash Used in Investing Activities   AFG’s investing activities consist primarily of the investment of funds provided by its property and casualty and annuity businesses. Net cash used in investing activities was $3.38 billion for the first nine months of 2018 compared to $2.23 billion in the first nine months of 2017, an increase of $1.15 billion. As discussed below (under net cash provided by financing activities), AFG’s annuity group had net cash flows from annuity policyholders of $1.86 billion in the first nine months of 2018 and $1.75 billion in the first nine months of 2017, which is the primary source of AFG’s cash used in investing activities. During the first nine months of 2018, AFG also invested a portion of its overall cash held at December 31, 2017. In addition to the investment of funds provided by the insurance operations, investing activities also include the purchase and disposal of managed investment entity investments, which are presented separately in AFG’s Balance Sheet. Net investment activity in the managed investment entities was a $189 millionuse of cash in the first nine months of 2018 compared to a $13 millionsource of cash in the 2017 period, accounting for a $202 millionincrease in net cash used in investing activities in the first nine months of 2018 compared to the same 2017 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements.

Net Cash Provided by Financing Activities   AFG’s financing activities consist primarily of transactions with annuity policyholders, issuances and retirements of long-term debt, repurchases of common stock and dividend payments. Net cash provided by financing activities was $1.77 billion for the first nine months of 2018 compared to $1.48 billion in the first nine months of 2017, an increase of $290 million. Annuity receipts exceeded annuity surrenders, benefits, withdrawals and transfers by $1.86 billion in the first nine months of 2018 compared to $1.75 billion in the first nine months of 2017, accounting for a $109 millionincrease in net cash provided by financing activities in the 2018 period compared to the 2017 period. In June 2017, AFG issued $350 million of 4.50% Senior Notes due 2047, the net proceeds of which contributed $345 million to net cash provided by financing activities in the first nine months of 2017. Redemptions of long-term debt were a $355 million use of cash in the first nine months of 2017. Financing activities also include issuances and retirements of managed investment entity liabilities, which are nonrecourse to AFG and presented separately in AFG’s Balance Sheet. Issuances of managed investment entity liabilities exceeded retirements by $109 million in the first nine months of 2018 compared to retirements of managed investment liabilities exceeding issuances by $72 million in the first nine months of 2017, accounting for a $181 millionincrease in net cash provided by financing activities in the 2018 period compared to the 2017 period. See Note A — “Accounting Policies — Managed Investment Entities” and Note G — “Managed Investment Entities” to the financial statements.

Parent and Subsidiary Liquidity

Parent Holding Company Liquidity   Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and marketable securities or to generate cash through borrowings, sales of other assets, or similar transactions.

AFG can borrow up to $500 million under its revolving credit facility which expires in June 2021. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.875% (currently 1.375%) over LIBOR based on AFG’s credit rating. There were no borrowings under this agreement, or under any other parent company short-term borrowing arrangements, during 2017 or the first nine months of 2018.

In November 2018, AFG declared a special cash dividend of $1.50 per share of AFG Common Stock. The dividend is payable on November 26, 2018 to shareholders of record on November 16, 2018. The aggregate amount of this special dividend will be approximately $134 million. In May 2018, AFG paid a special cash dividend of $1.50 per share of AFG Common Stock totaling $134 million. In 2017, AFG paid special cash dividends of $3.50 per share of AFG Common Stock ($1.50 per share in May and $2.00 per share in November) totaling approximately $308 million.

In June 2017, AFG issued $350 million of 4.50% Senior Notes due June 2047. Net proceeds from the offering were used to redeem AFG’s $230 million outstanding principal amount of 6-3/8% Senior Notes due June 2042, at par value in June 2017 and AFG’s $125 million outstanding principal amount of 5-3/4% Senior Notes due August 2042 at par value in August 2017.

In November 2017, AFG issued an additional $240 million of 4.50% Senior Notes due in 2047 and $125 million of 3.50% Senior Notes due in 2026. The net proceeds of the offering were used to redeem AFG’s $350 million outstanding principal amount of 9-7/8% Senior Notes due in June 2019 for $388 million (including a make-whole premium of $38 million) in December 2017.

37

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Under a tax allocation agreement with AFG, its 80%-owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary’s contribution to amounts due under AFG’s consolidated tax return.

Subsidiary Liquidity   Great American Life Insurance Company (“GALIC”), a wholly-owned annuity subsidiary, is a member of the Federal Home Loan Bank of Cincinnati (“FHLB”). The FHLB makes advances and provides other banking services to member institutions, which provides the annuity operations with an additional source of liquidity. At September 30, 2018, GALIC had $871 million in outstanding advances from the FHLB (included in annuity benefits accumulated), bearing interest at rates ranging from 0.03% to 0.21% over LIBOR (average rate of 2.33% at September 30, 2018). While these advances must be repaid between 2018 and 2021 ($40 million in 2018, $345 million in 2019 and $486 million in 2021), GALIC has the option to prepay all or a portion of the advances. GALIC has invested the proceeds from the advances in fixed maturity securities with similar expected lives as the advances for the purpose of earning a spread over the interest payments due to the FHLB. At September 30, 2018, GALIC estimated that it had additional borrowing capacity of approximately $300 million from the FHLB.

The liquidity requirements of AFG’s insurance subsidiaries relate primarily to the liabilities associated with their products as well as operating costs and expenses, payments of dividends and taxes to AFG and contributions of capital to their subsidiaries. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements. Funds received in excess of cash requirements are generally invested in additional marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short-term investments.

The excess cash flow of AFG’s property and casualty group allows it to extend the duration of its investment portfolio somewhat beyond that of its claim reserves.

In the annuity business, where profitability is largely dependent on earning a spread between invested assets and annuity liabilities, the duration of investments is generally maintained close to that of liabilities. In a rising interest rate environment, significant protection from withdrawals exists in the form of temporary and permanent surrender charges on AFG’s annuity products. With declining rates, AFG receives some protection (from spread compression) due to the ability to lower crediting rates, subject to contractually guaranteed minimum interest rates (“GMIRs”). AFG began selling policies with GMIRs below 2% in 2003; almost all new business since late 2010 has been issued with a 1% GMIR. At September 30, 2018, AFG could reduce the average crediting rate on approximately $27 billion of traditional fixed annuities and fixed-indexed and variable-indexed annuities without guaranteed withdrawal benefits by approximately 116 basis points (on a weighted average basis). Annuity policies are subject to GMIRs at policy issuance. The table below shows the breakdown of annuity reserves by GMIR. The current interest crediting rates on substantially all of AFG’s annuities with a GMIR of 3% or higher are at their minimum.

	% of Reserves
	September 30,	December 31,
GMIR	2018	2017	2016
1 — 1.99%	78%	76%	72%
2 — 2.99%	4%	5%	6%
3 — 3.99%	9%	10%	12%
4.00% and above	9%	9%	10%
Annuity benefits accumulated (in millions)	$35,958	$33,316	$29,907

AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and benefits and operating expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Nonetheless, changes in statutory accounting rules, significant declines in the fair value of the insurance subsidiaries’ investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital.

Investments   AFG’s investment portfolio at September 30, 2018, includes $40.24 billion in fixed maturity securities classified as available for sale and carried at fair value with unrealized gains and losses included in a separate component of shareholders’ equity on an after-tax basis and $103 million in fixed maturities classified as trading with changes in unrealized holding gains or losses included in net investment income. In addition, AFG’s investment portfolio includes $1.65 billion in equity securities carried at fair value with holding gains and losses included in realized gains (losses) on securities and $176 million in equity securities carried at fair value with unrealized holding gains and losses included in net investment income.

38

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services as well as non-binding broker quotes. Fair values of equity securities are generally based on published closing prices. For mortgage-backed securities (“MBS”), which comprise approximately 9% of AFG’s fixed maturities, prices for each security are generally obtained from both pricing services and broker quotes. For the remainder of AFG’s fixed maturity portfolio, approximately 72% are priced using pricing services and the balance is priced primarily by using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.

The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of MBS are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers’ prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs.

Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the services to value specific securities.

In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio and accumulated other comprehensive income that an immediate increase of 100 basis points in the interest rate yield curve would have at September 30, 2018 (dollars in millions). Effects of increases or decreases from the 100 basis points illustrated would be approximately proportional.

Fair value of fixed maturity portfolio	$	40,347
Percentage impact on fair value of 100 bps increase in interest rates	(4.5		%)
Pretax impact on fair value of fixed maturity portfolio	$	(1,816	)
Offsetting adjustments to deferred policy acquisition costs and other balance sheet amounts	750
Estimated pretax impact on accumulated other comprehensive income	(1,066		)
Deferred income tax	224
Estimated after-tax impact on accumulated other comprehensive income	$	(842	)

Approximately 90% of the fixed maturities held by AFG at September 30, 2018, were rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high quality investment portfolio should generate a stable and predictable investment return.

MBS are subject to significant prepayment risk due to the fact that, in periods of declining interest rates, mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of lower rates. Although interest rates have been low in recent years, tighter lending standards have resulted in fewer buyers being able to refinance the mortgages underlying much of AFG’s non-agency residential MBS portfolio.

39

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Summarized information for AFG’s MBS (including those classified as trading) at September 30, 2018, is shown in the table below (dollars in millions). Agency-backed securities are those issued by a U.S. government-backed agency; Alt-A mortgages are those with risk profiles between prime and subprime. The average life of the residential and commercial MBS is approximately 4-1/2 years and 5 years, respectively.

	Amortized Cost		Fair Value		Fair Value as % of Cost		Unrealized Gain (Loss)			% Rated Investment Grade
Collateral type
Residential:
Agency-backed	$	177	$	173	98	%	$	(4	)	100	%
Non-agency prime	1,009		1,154		114	%	145			27	%
Alt-A	837		953		114	%	116			15	%
Subprime	387		431		111	%	44			28	%
Commercial	913		923		101	%	10			94	%
	$	3,323	$	3,634	109	%	$	311		44	%

The National Association of Insurance Commissioners (“NAIC”) assigns creditworthiness designations on a scale of 1 to 6 with 1 being the highest quality and 6 being the lowest quality. The NAIC retains third-party investment management firms to assist in the determination of appropriate NAIC designations for MBS based not only on the probability of loss (which is the primary basis of ratings by the major ratings firms), but also on the severity of loss and statutory carrying value. At September 30, 2018, 97% (based on statutory carrying value of $3.28 billion) of AFG’s MBS had an NAIC designation of 1.

Municipal bonds represented approximately 17% of AFG’s fixed maturity portfolio at September 30, 2018. AFG’s municipal bond portfolio is high quality, with 99% of the securities rated investment grade at that date. The portfolio is well diversified across the states of issuance and individual issuers. At September 30, 2018, approximately 77% of the municipal bond portfolio was held in revenue bonds, with the remaining 23% held in general obligation bonds. AFG does not own general obligation bonds issued by Puerto Rico.

Summarized information for the unrealized gains and losses recorded in AFG’s Balance Sheet at September 30, 2018, is shown in the following table (dollars in millions). Approximately $563 million of available for sale fixed maturity securities had no unrealized gains or losses at September 30, 2018.

	Securities With Unrealized Gains			Securities With Unrealized Losses
Available for Sale Fixed Maturities
Fair value of securities	$	17,894		$	21,787
Amortized cost of securities	$	17,160		$	22,330
Gross unrealized gain (loss)	$	734		$	(543	)
Fair value as % of amortized cost	104		%	98		%
Number of security positions	2,876			2,392
Number individually exceeding $2 million gain or loss	50			10
Concentration of gains (losses) by type or industry (exceeding 5% of unrealized):
Mortgage-backed securities	$	324		$	(13	)
Asset-backed securities	122			(64		)
States and municipalities	117			(98		)
Banks, savings and credit institutions	32			(100		)
Manufacturing	29			(57		)
Insurance companies	15			(47		)
Percentage rated investment grade	84		%	96		%

40

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at September 30, 2018, based on their fair values. 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.

	Securities With Unrealized Gains		Securities With Unrealized Losses
Maturity
One year or less	5	%	1	%
After one year through five years	25	%	17	%
After five years through ten years	24	%	41	%
After ten years	9	%	14	%
	63	%	73	%
Asset-backed securities (average life of approximately 4-1/2 years)	21	%	24	%
Mortgage-backed securities (average life of approximately 4-1/2 years)	16	%	3	%
	100	%	100	%

The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount:

	Aggregate Fair Value		Aggregate Unrealized Gain (Loss)			Fair Value as % of Cost
Fixed Maturities at September 30, 2018
Securities with unrealized gains:
Exceeding $500,000 (376 securities)	$	4,334	$	460		112	%
$500,000 or less (2,500 securities)	13,560		274			102	%
	$	17,894	$	734		104	%
Securities with unrealized losses:
Exceeding $500,000 (307 securities)	$	6,001	$	(275	)	96	%
$500,000 or less (2,085 securities)	15,786		(268		)	98	%
	$	21,787	$	(543	)	98	%

The following table (dollars in millions) summarizes the unrealized losses for all securities with unrealized losses by issuer quality and the length of time those securities have been in an unrealized loss position: 

	Aggregate Fair Value		Aggregate Unrealized Loss			Fair Value as % of Cost
Securities with Unrealized Losses at September 30, 2018
Investment grade fixed maturities with losses for:
Less than one year (1,865 securities)	$	18,458	$	(388	)	98	%
One year or longer (392 securities)	2,427		(125		)	95	%
	$	20,885	$	(513	)	98	%
Non-investment grade fixed maturities with losses for:
Less than one year (81 securities)	$	626	$	(12	)	98	%
One year or longer (54 securities)	276		(18		)	94	%
	$	902	$	(30	)	97	%

When a decline in the value of a specific investment is considered to be other-than-temporary, a provision for impairment is charged to earnings (accounted for as a realized loss) and the cost basis of that investment is reduced by the amount of the charge. The determination of whether unrealized losses are other-than-temporary requires judgment based on subjective as well as objective factors as detailed in AFG’s 2017 Form 10-K under Management’s Discussion and Analysis — “Investments.”

41

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Based on its analysis, management believes AFG will recover its cost basis in the fixed maturity 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, 2018. Although AFG has the ability to continue holding its fixed maturity investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers’ creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG’s ability or intent change with regard to a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, charges for other-than-temporary impairment could be material to results of operations in future periods. Significant declines in the fair value of AFG’s investment portfolio could have a significant adverse effect on AFG’s liquidity. For information on AFG’s realized gains (losses) on securities, including charges for other-than-temporary impairment, see “Results of Operations — Consolidated Realized Gains (Losses) on Securities.”

Uncertainties   Management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations. See “Special asbestos and environmental reserve charges” under “Results of Operations — Property and Casualty Insurance Segment — Net prior year reserve development” for the quarters ended September 30, 2018 and 2017 and Management’s Discussion and Analysis — “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves” in AFG’s 2017 Form 10-K.

MANAGED INVESTMENT ENTITIES

Accounting standards require AFG to consolidate its investments in collateralized loan obligation (“CLO”) entities that it manages and owns an interest in (in the form of debt). See Note A — “Accounting Policies— Managed Investment Entities” and Note G— “Managed Investment Entities” to the financial statements. The effect of consolidating these entities is shown in the tables below (in millions). The “Before CLO Consolidation” columns include AFG’s investment and earnings in the CLOs on an unconsolidated basis.

42

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

CONDENSED CONSOLIDATING BALANCE SHEET

	Before CLO Consolidation		Managed Investment Entities		Consol. Entries				Consolidated As Reported
September 30, 2018
Assets:
Cash and investments	$	48,031	$	—	$	(190	)	(a)	$	47,841
Assets of managed investment entities	—		4,998		—				4,998
Other assets	11,352		—		(1		)	(a)	11,351
Total assets	$	59,383	$	4,998	$	(191	)		$	64,190
Liabilities:
Unpaid losses and loss adjustment expenses and unearned premiums	$	12,410	$	—	$	—			$	12,410
Annuity, life, accident and health benefits and reserves	36,601		—		—				36,601
Liabilities of managed investment entities	—		4,998		(191		)	(a)	4,807
Long-term debt and other liabilities	5,208		—		—				5,208
Total liabilities	54,219		4,998		(191		)		59,026
Redeemable noncontrolling interests	—		—		—				—
Shareholders’ equity:
Common Stock and Capital surplus	1,320		—		—				1,320
Retained earnings	3,800		—		—				3,800
Accumulated other comprehensive income, net of tax	44		—		—				44
Total shareholders’ equity	5,164		—		—				5,164
Noncontrolling interests	—		—		—				—
Total equity	5,164		—		—				5,164
Total liabilities and equity	$	59,383	$	4,998	$	(191	)		$	64,190
December 31, 2017
Assets:
Cash and investments	$	46,262	$	—	$	(214	)	(a)	$	46,048
Assets of managed investment entities	—		4,902		—				4,902
Other assets	9,709		—		(1		)	(a)	9,708
Total assets	$	55,971	$	4,902	$	(215	)		$	60,658
Liabilities:
Unpaid losses and loss adjustment expenses and unearned premiums	$	12,088	$	—	$	—			$	12,088
Annuity, life, accident and health benefits and reserves	33,974		—		—				33,974
Liabilities of managed investment entities	—		4,902		(215		)	(a)	4,687
Long-term debt and other liabilities	4,575		—		—				4,575
Total liabilities	50,637		4,902		(215		)		55,324
Redeemable noncontrolling interests	3		—		—				3
Shareholders’ equity:
Common Stock and Capital surplus	1,269		—		—				1,269
Retained earnings	3,248		—		—				3,248
Accumulated other comprehensive income, net of tax	813		—		—				813
Total shareholders’ equity	5,330		—		—				5,330
Noncontrolling interests	1		—		—				1
Total equity	5,331		—		—				5,331
Total liabilities and equity	$	55,971	$	4,902	$	(215	)		$	60,658

(a) Elimination of the fair value of AFG’s investment in CLOs and related accrued interest.

43

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

	Before CLO Consolidation (a)			Managed Investment Entities			Consol. Entries				Consolidated As Reported
Three months ended September 30, 2018
Revenues:
Insurance net earned premiums	$	1,333		$	—		$	—			$	1,333
Net investment income	531			—			(4		)	(b)	527
Realized gains on securities	34			—			—				34
Income (loss) of managed investment entities:
Investment income	—			65			—				65
Gain (loss) on change in fair value of assets/liabilities	—			(5		)	—			(b)	(5		)
Other income	58			—			(4		)	(c)	54
Total revenues	1,956			60			(8		)		2,008
Costs and Expenses:
Insurance benefits and expenses	1,599			—			—				1,599
Expenses of managed investment entities	—			60			(8		)	(b)(c)	52
Interest charges on borrowed money and other expenses	113			—			—				113
Total costs and expenses	1,712			60			(8		)		1,764
Earnings before income taxes	244			—			—				244
Provision for income taxes	41			—			—				41
Net earnings, including noncontrolling interests	203			—			—				203
Less: Net earnings (loss) attributable to noncontrolling interests	(1		)	—			—				(1		)
Net earnings attributable to shareholders	$	204		$	—		$	—			$	204
Three months ended September 30, 2017
Revenues:
Insurance net earned premiums	$	1,273		$	—		$	—			$	1,273
Net investment income	476			—			(5		)	(b)	471
Realized losses on securities	(12		)	—			—				(12		)
Income (loss) of managed investment entities:
Investment income	—			54			—				54
Gain (loss) on change in fair value of assets/liabilities	—			1			—			(b)	1
Other income	53			—			(5		)	(c)	48
Total revenues	1,790			55			(10		)		1,835
Costs and Expenses:
Insurance benefits and expenses	1,628			—			—				1,628
Expenses of managed investment entities	—			55			(10		)	(b)(c)	45
Interest charges on borrowed money and other expenses	133			—			—				133
Total costs and expenses	1,761			55			(10		)		1,806
Earnings before income taxes	29			—			—				29
Provision for income taxes	18			—			—				18
Net earnings, including noncontrolling interests	11			—			—				11
Less: Net earnings (loss) attributable to noncontrolling interests	—			—			—				—
Net earnings attributable to shareholders	$	11		$	—		$	—			$	11

(a) Includes income of $4 million and $5 million in the thirdquarter of 2018 and 2017, respectively, representing the change in fair value of AFG’s CLO investments plus $4 million and $5 million in the thirdquarter of 2018 and 2017, respectively, in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $4 million and $5 million in the thirdquarter of 2018 and 2017, respectively, in distributions recorded as interest expense by the CLOs.

(c) Elimination of management fees earned by AFG.

44

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

	Before CLO Consolidation (a)			Managed Investment Entities			Consol. Entries				Consolidated As Reported
Nine months ended September 30, 2018
Revenues:
Insurance net earned premiums	$	3,613		$	—		$	—			$	3,613
Net investment income	1,563			—			(11		)	(b)	1,552
Realized losses on securities	(28		)	—			—				(28		)
Income (loss) of managed investment entities:
Investment income	—			187			—				187
Gain (loss) on change in fair value of assets/liabilities	—			(6		)	(4		)	(b)	(10		)
Other income	158			—			(12		)	(c)	146
Total revenues	5,306			181			(27		)		5,460
Costs and Expenses:
Insurance benefits and expenses	4,310			—			—				4,310
Expenses of managed investment entities	—			181			(27		)	(b)(c)	154
Interest charges on borrowed money and other expenses	318			—			—				318
Total costs and expenses	4,628			181			(27		)		4,782
Earnings before income taxes	678			—			—				678
Provision for income taxes	126			—			—				126
Net earnings, including noncontrolling interests	552			—			—				552
Less: Net earnings (loss) attributable to noncontrolling interests	(7		)	—			—				(7		)
Net earnings attributable to shareholders	$	559		$	—		$	—			$	559
Nine months ended September 30, 2017
Revenues:
Insurance net earned premiums	$	3,371		$	—		$	—			$	3,371
Net investment income	1,382			—			(16		)	(b)	1,366
Realized losses on securities	(1		)	—			—				(1		)
Income (loss) of managed investment entities:
Investment income	—			155			—				155
Gain (loss) on change in fair value of assets/liabilities	—			22			(10		)	(b)	12
Other income	168			—			(14		)	(c)	154
Total revenues	4,920			177			(40		)		5,057
Costs and Expenses:
Insurance benefits and expenses	4,113			—			—				4,113
Expenses of managed investment entities	—			177			(40		)	(b)(c)	137
Interest charges on borrowed money and other expenses	350			—			—				350
Total costs and expenses	4,463			177			(40		)		4,600
Earnings before income taxes	457			—			—				457
Provision for income taxes	146			—			—				146
Net earnings, including noncontrolling interests	311			—			—				311
Less: Net earnings (loss) attributable to noncontrolling interests	2			—			—				2
Net earnings attributable to shareholders	$	309		$	—		$	—			$	309

(a) Includes income of $11 million and $16 million in the first nine months of 2018 and 2017, respectively, representing the change in fair value of AFG’s CLO investments plus $12 million and $14 million in the first nine months of 2018 and 2017, respectively, in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $15 million and $26 million in the first nine months of 2018 and 2017, respectively, in distributions recorded as interest expense by the CLOs.

(c) Elimination of management fees earned by AFG.

45

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

RESULTS OF OPERATIONS

General AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. For example, core net operating earnings excludes realized gains (losses) on securities because such gains and losses are influenced significantly by financial markets, interest rates and the timing of sales. Similarly, significant gains and losses from the sale of real estate are excluded from core earnings as they are influenced by the timing of sales and realized gains (losses) on subsidiaries are excluded because such gains and losses are largely the result of the changing business strategy and market opportunities. In addition, special charges related to coverage that AFG no longer writes for asbestos and environmental exposures are excluded from core earnings. The following table (in millions, except per share amounts) identifies non-core items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure. AFG believes core net operating earnings is a useful tool for investors and analysts in analyzing ongoing operating trends and for management to evaluate financial performance against historical results because it believes this provides a more comparable measure of its continuing business.

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Components of net earnings attributable to shareholders:
Core operating earnings before income taxes	$	237		$	158		$	733		$	582
Pretax non-core items:
Realized gains (losses) on securities	34			(12		)	(28		)	(1		)
Special A&E charges	(27		)	(113		)	(27		)	(113		)
Loss on retirement of debt	—			(4		)	—			(11		)
Earnings before income taxes	244			29			678			457
Provision (credit) for income taxes:
Core operating earnings	40			63			138			189
Non-core items	1			(45		)	(12		)	(43		)
Total provision for income taxes	41			18			126			146
Net earnings, including noncontrolling interests	203			11			552			311
Less net earnings (losses) attributable to noncontrolling interests:
Core operating earnings (losses)	(1		)	—			(7		)	2
Non-core items	—			—			—			—
Total net earnings (losses) attributable to noncontrolling interests	(1		)	—			(7		)	2
Net earnings attributable to shareholders	$	204		$	11		$	559		$	309
Net earnings:
Core net operating earnings	$	198		$	95		$	602		$	391
Non-core items	6			(84		)	(43		)	(82		)
Net earnings attributable to shareholders	$	204		$	11		$	559		$	309
Diluted per share amounts:
Core net operating earnings	$	2.19		$	1.06		$	6.65		$	4.35
Realized gains (losses) on securities	0.31			(0.08		)	(0.24		)	(0.01		)
Special A&E charges	(0.24		)	(0.82		)	(0.24		)	(0.82		)
Loss on retirement of debt	—			(0.03		)	—			(0.08		)
Net earnings attributable to shareholders	$	2.26		$	0.13		$	6.17		$	3.44

Net earnings attributable to shareholders increased$193 million in the thirdquarter of 2018 compared to the same period in 2017 due to higher core net operating earnings, lower special A&E charges recorded in the thirdquarter of 2018 compared to the thirdquarter of 2017, net realized gains on securities in the 2018 period compared to the net realized losses on securities in the 2017 period and a loss on retirement of debt in the thirdquarter of 2017. Core net operating earnings increased$103 million in the thirdquarter of 2018 compared to the same period in 2017, reflecting higher earnings in the annuity segment, higher underwriting profit in the property and casualty segment due primarily to lower catastrophe losses, higher net investment income in the property and casualty insurance segment, lower interest charges on borrowed money and a lower corporate

46

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

income tax rate. Realized gains on securities in the thirdquarter of 2018 includes the increase in fair value of equity securities that are required to be carried at fair value through net earnings under new accounting guidance adopted on January 1, 2018.

Net earnings attributable to shareholders increased$250 million in the first nine months of 2018 compared to the same period in 2017 due primarily to higher core net operating earnings, lower special A&E charges in the 2018 period compared to the 2017 period and a loss on retirement of debt in the 2017 period, partially offset by higher net realized losses on securities in the 2018 period compared to the 2017 period. Core net operating earnings increased$211 million in the first nine months of 2018 compared to the same period in 2017, reflecting higher earnings in the annuity segment, higher underwriting profit in the property and casualty insurance segment due primarily to lower catastrophe losses and higher favorable prior year reserve development, higher net investment income in the property and casualty insurance segment, lower interest charges on borrowed money, a lower corporate income tax rate and a loss on retirement of debt in the 2017 period. Realized losses on securities in the first nine months of 2018 includes the decline in fair value of equity securities that are required to be carried at fair value through net earnings under new accounting guidance adopted on January 1, 2018.

47

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

RESULTS OF OPERATIONS — QUARTERS ENDED SEPTEMBER 30, 2018 AND 2017

Segmented Statement of Earnings   AFG reports its business as three segments: (i) Property and casualty insurance (“P&C”), (ii) Annuity and (iii) Other, which includes run-off long-term care and life, holding company costs and income and expenses related to the managed investment entities (“MIEs”).

Effective January 1, 2018, the results of AFG’s run-off long-term care and life businesses are included in the “Other” segment instead of as a separate reportable segment based on the immaterial size of the remaining operations. Prior periods amounts were reclassified for consistent presentation.

AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the three months ended September 30, 2018 and 2017 identify such items by segment and reconcile net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions):

						Other
	P&C			Annuity		Consol. MIEs			Holding Co., other and unallocated			Total			Non-core reclass			GAAP Total
Three months ended September 30, 2018
Revenues:
Property and casualty insurance net earned premiums	$	1,327		$	—	$	—		$	—		$	1,327		$	—		$	1,327
Life, accident and health net earned premiums	—			—		—			6			6			—			6
Net investment income	108			413		(4		)	10			527			—			527
Realized gains on securities	—			—		—			—			—			34			34
Income (loss) of MIEs:
Investment income	—			—		65			—			65			—			65
Gain (loss) on change in fair value of assets/liabilities	—			—		(5		)	—			(5		)	—			(5		)
Other income	4			27		(4		)	27			54			—			54
Total revenues	1,439			440		52			43			1,974			34			2,008
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses	854			—		—			—			854			18			872
Commissions and other underwriting expenses	417			—		—			7			424			—			424
Annuity benefits	—			222		—			—			222			—			222
Life, accident and health benefits	—			—		—			10			10			—			10
Annuity and supplemental insurance acquisition expenses	—			69		—			2			71			—			71
Interest charges on borrowed money	—			—		—			15			15			—			15
Expenses of MIEs	—			—		52			—			52			—			52
Other expenses	11			32		—			46			89			9			98
Total costs and expenses	1,282			323		52			80			1,737			27			1,764
Earnings before income taxes	157			117		—			(37		)	237			7			244
Provision for income taxes	26			19		—			(5		)	40			1			41
Net earnings, including noncontrolling interests	131			98		—			(32		)	197			6			203
Less: Net loss attributable to noncontrolling interests	(1		)	—		—			—			(1		)	—			(1		)
Core Net Operating Earnings	132			98		—			(32		)	198
Non-core earnings attributable to shareholders (a):
Realized gains on securities, net of tax	—			—		—			27			27			(27		)	—
Special A&E charges, net of tax	(14		)	—		—			(7		)	(21		)	21			—
Net Earnings Attributable to Shareholders	$	118		$	98	$	—		$	(12	)	$	204		$	—		$	204

48

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

						Other
	P&C			Annuity		Consol. MIEs			Holding Co., other and unallocated			Total			Non-core reclass			GAAP Total
Three months ended September 30, 2017
Revenues:
Property and casualty insurance net earned premiums	$	1,267		$	—	$	—		$	—		$	1,267		$	—		$	1,267
Life, accident and health net earned premiums	—			—		—			6			6			—			6
Net investment income	94			375		(5		)	7			471			—			471
Realized losses on securities	—			—		—			—			—			(12		)	(12		)
Income (loss) of MIEs:
Investment income	—			—		54			—			54			—			54
Gain (loss) on change in fair value of assets/liabilities	—			—		1			—			1			—			1
Other income	1			26		(5		)	26			48			—			48
Total revenues	1,362			401		45			39			1,847			(12		)	1,835
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses	906			—		—			—			906			89			995
Commissions and other underwriting expenses	353			—		—			4			357			—			357
Annuity benefits	—			215		—			—			215			—			215
Life, accident and health benefits	—			—		—			6			6			—			6
Annuity and supplemental insurance acquisition expenses	—			54		—			1			55			—			55
Interest charges on borrowed money	—			—		—			21			21			—			21
Expenses of MIEs	—			—		45			—			45			—			45
Other expenses	8			30		—			46			84			28			112
Total costs and expenses	1,267			299		45			78			1,689			117			1,806
Earnings before income taxes	95			102		—			(39		)	158			(129		)	29
Provision for income taxes	43			34		—			(14		)	63			(45		)	18
Net earnings, including noncontrolling interests	52			68		—			(25		)	95			(84		)	11
Less: Net earnings attributable to noncontrolling interests	—			—		—			—			—			—			—
Core Net Operating Earnings	52			68		—			(25		)	95
Non-core earnings attributable to shareholders (a):
Realized losses on securities, net of tax	—			—		—			(8		)	(8		)	8			—
Special A&E charges, net of tax	(58		)	—		—			(16		)	(74		)	74			—
Loss on retirement of debt, net of tax	—			—		—			(2		)	(2		)	2			—
Net Earnings Attributable to Shareholders	$	(6	)	$	68	$	—		$	(51	)	$	11		$	—		$	11

(a) See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax and noncontrolling interest impacts of these reconciling items.

Property and Casualty Insurance Segment — Results of Operations   Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses and loss adjustment expenses, and commissions and other underwriting expenses to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect net investment income, other income, other expenses or federal income taxes.

AFG’s property and casualty insurance operations contributed $139 million in GAAP pretax earnings in the thirdquarter of 2018 compared to $6 million in the thirdquarter of 2017, an increase of $133 million (2,217%). Property and casualty core pretax earnings were $157 million in the thirdquarter of 2018 compared to $95 million in the thirdquarter of 2017, an increase of $62 million (65%). The increase in GAAP and core pretax earnings reflects higher underwriting profit due primarily to lower catastrophe losses in the thirdquarter of 2018 compared to the thirdquarter of 2017 and higher net investment income

49

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

reflecting higher earnings from limited partnerships and similar investments. The high returns from limited partnerships and similar investments should not necessarily be expected to repeat in future periods. The increase in GAAP pretax earnings also reflects lower special A&E charges in the thirdquarter of 2018 compared to the thirdquarter of 2017.

The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the three months ended September 30, 2018 and 2017 (dollars in millions):

	Three months ended September 30,
	2018			2017			% Change
Gross written premiums	$	2,104		$	2,104		—	%
Reinsurance premiums ceded	(648		)	(671		)	(3	%)
Net written premiums	1,456			1,433			2	%
Change in unearned premiums	(129		)	(166		)	(22	%)
Net earned premiums	1,327			1,267			5	%
Loss and loss adjustment expenses (*)	854			906			(6	%)
Commissions and other underwriting expenses	417			353			18	%
Core underwriting gain	56			8			600	%
Net investment income	108			94			15	%
Other income and expenses, net	(7		)	(7		)	—	%
Core earnings before income taxes	157			95			65	%
Pretax non-core special A&E charges	(18		)	(89		)	(80	%)
GAAP earnings before income taxes	$	139		$	6		2,217	%
(*)   Excludes pretax non-core special A&E charges of $18 million and $89 million in the third quarter of 2018 and 2017, respectively.
Combined Ratios:
Specialty lines							Change
Loss and LAE ratio	64.3		%	71.4		%	(7.1	%)
Underwriting expense ratio	31.4		%	27.9		%	3.5	%
Combined ratio	95.7		%	99.3		%	(3.6	%)
Aggregate — including exited lines
Loss and LAE ratio	65.8		%	78.5		%	(12.7	%)
Underwriting expense ratio	31.4		%	27.9		%	3.5	%
Combined ratio	97.2		%	106.4		%	(9.2	%)

AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.

To understand the overall profitability of particular lines, the timing of claims payments and the related impact of investment income must be considered. Certain “short-tail” lines of business (primarily property coverages) generally have quick loss payouts, which reduce the time funds are held, thereby limiting investment income earned thereon. In contrast, “long-tail” lines of business (primarily liability coverages and workers’ compensation) generally have payouts that are either structured over many years or take many years to settle, thereby significantly increasing investment income earned on related premiums received.

50

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Gross Written Premiums

Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $2.10 billion for both the thirdquarter of 2018 and the thirdquarter of 2017. Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):

	Three months ended September 30,
	2018				2017
	GWP		%		GWP		%		% Change
Property and transportation	$	953	45	%	$	1,073	51	%	(11	%)
Specialty casualty	956		46	%	850		40	%	12	%
Specialty financial	195		9	%	181		9	%	8	%
	$	2,104	100	%	$	2,104	100	%	—	%

Reinsurance Premiums Ceded

Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 31% of gross written premiums for the thirdquarter of 2018 compared to 32% of gross written premiums for the thirdquarter of 2017, a decrease of 1 percentage point. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):

	Three months ended September 30,
	2018					2017					Change in
	Ceded			% of GWP		Ceded			% of GWP		% of GWP
Property and transportation	$	(393	)	41	%	$	(449	)	42	%	(1	%)
Specialty casualty	(261		)	27	%	(226		)	27	%	—	%
Specialty financial	(42		)	22	%	(31		)	17	%	5	%
Other specialty	48					35
	$	(648	)	31	%	$	(671	)	32	%	(1	%)

Net Written Premiums

Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $1.46 billion for the thirdquarter of 2018 compared to $1.43 billion for the thirdquarter of 2017, an increase of $23 million (2%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):

	Three months ended September 30,
	2018				2017
	NWP		%		NWP		%		% Change
Property and transportation	$	560	38	%	$	624	44	%	(10	%)
Specialty casualty	695		48	%	624		44	%	11	%
Specialty financial	153		11	%	150		10	%	2	%
Other specialty	48		3	%	35		2	%	37	%
	$	1,456	100	%	$	1,433	100	%	2	%

51

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Net Earned Premiums

Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $1.33 billion for the thirdquarter of 2018 compared to $1.27 billion for the thirdquarter of 2017, an increase of $60 million (5%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

	Three months ended September 30,
	2018				2017
	NEP		%		NEP		%		% Change
Property and transportation	$	526	40	%	$	527	42	%	—	%
Specialty casualty	616		46	%	568		45	%	8	%
Specialty financial	149		11	%	142		11	%	5	%
Other specialty	36		3	%	30		2	%	20	%
	$	1,327	100	%	$	1,267	100	%	5	%

Gross written premiums were flat for the thirdquarter of 2018 compared to the thirdquarter of 2017 reflecting growth in the Specialty casualty and Specialty financial sub-segments, offset by lower gross written premiums in the Property and transportation sub-segment. Overall average renewal rates increased approximately 2% in the thirdquarter of 2018. Excluding the workers’ compensation business, renewal pricing increased approximately 3%.

Property and transportation Gross written premiums decreased$120 million (11%) in the thirdquarter of 2018 compared to the thirdquarter of 2017. This decrease was largely the result of a change in the timing of two large policy renewals in one of the transportation businesses from the third quarter to the fourth quarter, as well as lower year-over-year premiums in the crop insurance business. Gross written premiums in the other businesses in this group grew by 6% in the third quarter of 2018 compared to the third quarter of 2017. Average renewal rates increased approximately 3% for this group in the thirdquarter of 2018. Reinsurance premiums ceded as a percentage of gross written premiums decreased 1 percentage point for the thirdquarter of 2018 compared to the thirdquarter of 2017.

Specialty casualty Gross written premiums increased$106 million (12%) in the thirdquarter of 2018 compared to the thirdquarter of 2017 due primarily to growth at Neon. Higher gross written premiums in the workers’ compensation and excess and surplus lines businesses also contributed to the year-over-year growth. Average renewal rates increased approximately 1% for this group in the thirdquarter of 2018. Excluding the workers’ compensation businesses, renewal rates for this group increased approximately 2%. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the thirdquarter of 2018 compared to the thirdquarter of 2017 reflecting higher cessions to AFG’s internal reinsurance program, which is included in Other specialty and higher cessions in the workers’ compensation businesses, offset by lower reinstatement premiums resulting from reinsured hurricane losses in the 2018 period compared to the 2017 period.

Specialty financial Gross written premiums increased$14 million (8%) in the thirdquarter of 2018 compared to the thirdquarter of 2017 due primarily to higher premiums in the financial institutions business. Average renewal rates for this group increased approximately 6% in the thirdquarter of 2018. Reinsurance premiums ceded as a percentage of gross written premiums increased5 percentage points for the thirdquarter of 2018 compared to the thirdquarter of 2017, reflecting higher cessions in the financial institutions and equipment leasing businesses and the impact of reinstatement premiums in the thirdquarter of 2018 resulting from a reinsured loss in the fidelity business.

Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased$13 million (37%) in the thirdquarter of 2018 compared to the thirdquarter of 2017, reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment.

52

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Combined Ratio

The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty segment:

	Three months ended September 30,						Three months ended September 30,
	2018		2017		Change		2018		2017
Property and transportation
Loss and LAE ratio	77.1	%	77.3	%	(0.2	%)
Underwriting expense ratio	22.9	%	21.6	%	1.3	%
Combined ratio	100.0	%	98.9	%	1.1	%
Underwriting profit (loss)							$	—	$	6
Specialty casualty
Loss and LAE ratio	59.2	%	70.7	%	(11.5	%)
Underwriting expense ratio	32.9	%	28.8	%	4.1	%
Combined ratio	92.1	%	99.5	%	(7.4	%)
Underwriting profit							$	49	$	2
Specialty financial
Loss and LAE ratio	40.1	%	56.0	%	(15.9	%)
Underwriting expense ratio	54.3	%	46.2	%	8.1	%
Combined ratio	94.4	%	102.2	%	(7.8	%)
Underwriting profit (loss)							$	9	$	(3	)
Total Specialty
Loss and LAE ratio	64.3	%	71.4	%	(7.1	%)
Underwriting expense ratio	31.4	%	27.9	%	3.5	%
Combined ratio	95.7	%	99.3	%	(3.6	%)
Underwriting profit							$	55	$	9
Aggregate — including exited lines
Loss and LAE ratio	65.8	%	78.5	%	(12.7	%)
Underwriting expense ratio	31.4	%	27.9	%	3.5	%
Combined ratio	97.2	%	106.4	%	(9.2	%)
Underwriting profit (loss)							$	38	$	(81	)

The Specialty property and casualty insurance operations generated an underwriting profit of $55 million in the thirdquarter of 2018 compared to $9 million in the thirdquarter of 2017, an increase of $46 million (511%). The higher underwriting profit in the thirdquarter of 2018 reflects higher underwriting profits in the Specialty casualty and Specialty financial sub-segments due primarily to significantly lower catastrophe losses. Overall catastrophe losses were $35 million (2.6 points on the combined ratio) for the thirdquarter of 2018 compared to $107 million (8.4 points) for the thirdquarter of 2017. In connection with catastrophe losses incurred in the thirdquarter of 2018, AFG paid $3 million in net reinstatement premiums, resulting in a total pretax loss from catastrophes of $38 million for the quarter. In connection with catastrophe losses incurred in the thirdquarter of 2017, AFG reduced profit-based commissions payable to agents by $8 million in the Specialty financial sub-segment and paid $6 million in net reinstatement premiums, resulting in a total pretax loss from catastrophes of $105 million for the quarter.

Property and transportation This group reported an underwriting loss of less than $1 million for the thirdquarter of 2018 compared to an underwriting profit of $6 million in the thirdquarter of 2017, a decrease of $6 million (100%). Improved underwriting results in the ocean marine operations and higher underwriting profit at National Interstate were offset by lower profitability in several other businesses in this group. Catastrophe losses were $12 million (2.3 points on the combined ratio) and reinstatement premiums paid were $1 million for the thirdquarter of 2018 compared to catastrophe losses of $23 million (4.4 points) and related reinstatement premiums of $2 million for the thirdquarter of 2017.

Specialty casualty Underwriting profit for this group was $49 million for the thirdquarter of 2018 compared to $2 million for the thirdquarter of 2017, an increase of $47 million (2,350%), reflecting lower catastrophe losses at Neon and higher profitability in the executive liability business. Catastrophe losses were $11 million (1.7 points on the combined ratio) and

53

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

reinstatement premiums paid were $1 million for the thirdquarter of 2018 compared to catastrophe losses of $54 million (9.5 points) and related reinstatement premiums of $2 million for the thirdquarter of 2017.

Specialty financial This group reported an underwriting profit of $9 million for the thirdquarter of 2018 compared to an underwriting loss of $3 million in the thirdquarter of 2017, an improvement of $12 million (400%). Lower year-over-year catastrophe losses in the lender-placed mortgage property book within the financial institutions business and higher underwriting profit in the surety business contributed to these improved results. Catastrophe losses were $12 million (8.0 points on the combined ratio) for the thirdquarter of 2018 compared to $29 million (20.4 points) for the thirdquarter of 2017. In connection with catastrophe losses incurred in the thirdquarter of 2018, the Specialty financial sub-segment paid $1 million in reinstatement premiums compared to a reduction of profit-based commissions payable to agents of $8 million and reinstatement premiums of $2 million in the third quarter of 2017.

Other specialty This group reported an underwriting loss of $3 million in the thirdquarter of 2018 compared to an underwriting profit of $4 million in the thirdquarter of 2017. This decrease is due primarily to losses in the third quarter of 2018 in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments compared to earnings in the third quarter of 2017.

Aggregate As discussed below in more detail under “Net prior year reserve development,” AFG recorded special charges to increase property and casualty A&E reserves by $18 million in the thirdquarter of 2018 and $89 million in the thirdquarter of 2017.

54

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Losses and Loss Adjustment Expenses

AFG’s overall loss and LAE ratio was 65.8% for the thirdquarter of 2018 compared to 78.5% for the thirdquarter of 2017, a decrease of 12.7 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):

	Three months ended September 30,
	Amount						Ratio				Change in
	2018			2017			2018		2017		Ratio
Property and transportation
Current year, excluding catastrophe losses	$	398		$	392		75.6	%	74.4	%	1.2	%
Prior accident years development	(4		)	(8		)	(0.8	%)	(1.5	%)	0.7	%
Current year catastrophe losses	12			23			2.3	%	4.4	%	(2.1	%)
Property and transportation losses and LAE and ratio	$	406		$	407		77.1	%	77.3	%	(0.2	%)
Specialty casualty
Current year, excluding catastrophe losses	$	390		$	371		63.5	%	65.2	%	(1.7	%)
Prior accident years development	(37		)	(23		)	(6.0	%)	(4.0	%)	(2.0	%)
Current year catastrophe losses	11			54			1.7	%	9.5	%	(7.8	%)
Specialty casualty losses and LAE and ratio	$	364		$	402		59.2	%	70.7	%	(11.5	%)
Specialty financial
Current year, excluding catastrophe losses	$	56		$	55		37.2	%	38.7	%	(1.5	%)
Prior accident years development	(8		)	(5		)	(5.1	%)	(3.1	%)	(2.0	%)
Current year catastrophe losses	12			29			8.0	%	20.4	%	(12.4	%)
Specialty financial losses and LAE and ratio	$	60		$	79		40.1	%	56.0	%	(15.9	%)
Total Specialty
Current year, excluding catastrophe losses	$	869		$	836		65.4	%	65.9	%	(0.5	%)
Prior accident years development	(49		)	(38		)	(3.7	%)	(2.9	%)	(0.8	%)
Current year catastrophe losses	35			107			2.6	%	8.4	%	(5.8	%)
Total Specialty losses and LAE and ratio	$	855		$	905		64.3	%	71.4	%	(7.1	%)
Aggregate — including exited lines
Current year, excluding catastrophe losses	$	868		$	836		65.4	%	65.9	%	(0.5	%)
Prior accident years development	(31		)	52			(2.2	%)	4.2	%	(6.4	%)
Current year catastrophe losses	35			107			2.6	%	8.4	%	(5.8	%)
Aggregate losses and LAE and ratio	$	872		$	995		65.8	%	78.5	%	(12.7	%)

Current accident year losses and LAE, excluding catastrophe losses

The current accident year loss and LAE ratio, excluding catastrophe losses for AFG’s Specialty property and casualty insurance operations was 65.4% for the thirdquarter of 2018 compared to 65.9% for the thirdquarter of 2017, a decrease of 0.5 percentage points.

Property and transportation   The 1.2 percentage point increase in the loss and LAE ratio for the current year, excluding catastrophe losses reflects an increase in the loss and LAE ratio in the equine and aviation businesses and the Singapore branch in the thirdquarter of 2018 compared to the thirdquarter of 2017.

Specialty casualty   The 1.7 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses reflects a decrease in the loss and LAE ratio in the executive liability business and at Neon, partially offset by an increase in the loss and LAE ratio in the targeted markets business.

55

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Specialty financial The 1.5 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses reflects a decrease in the loss and LAE ratio of the financial institutions business.

Net prior year reserve development

AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $49 million in the thirdquarter of 2018 compared to $38 million in the thirdquarter of 2017, an increase of $11 million (29%).

Property and transportation Net favorable reserve development of $4 million in the thirdquarter of 2018 reflects lower than expected claims severity at National Interstate, lower than expected losses in the crop business and lower than expected claim frequency and severity in the property and inland marine business, partially offset by higher than expected losses in the Singapore branch and aviation operations. Net favorable reserve development of $8 million in the thirdquarter of 2017 reflects lower than anticipated claim severity in the transportation businesses and lower than expected losses in the crop and equine businesses.

Specialty casualty Net favorable reserve development of $37 million in the thirdquarter of 2018 reflects lower than anticipated claim severity in the workers’ compensation businesses, and to a lesser extent, lower than expected claim severity in the targeted markets and executive liability businesses. This was partially offset by higher than expected claim frequency and severity in the excess and surplus lines. Net favorable reserve development of $23 million in the thirdquarter of 2017 reflects lower than anticipated claim severity in the workers’ compensation businesses and at Neon, partially offset by higher than anticipated claim severity in the general liability business.

Specialty financial Net favorable reserve development of $8 million in the thirdquarter of 2018 reflects lower than expected claim frequency and severity in the surety business and lower than anticipated claim severity in the fidelity business. Net favorable reserve development of $5 million in the thirdquarter of 2017 reflects lower than anticipated claim severity in the fidelity and trade credit businesses.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net favorable reserve development of $2 million in the thirdquarter of 2018 and 2017, reflecting amortization of the deferred gains on the retroactive reinsurance transactions entered into in connection with the sale of businesses in 1998 and 2001. In addition, the third quarter of 2018 includes $2 million of adverse reserve development associated with AFG’s internal reinsurance program.

Special asbestos and environmental reserve charges During the third quarter of 2018, AFG completed an in-depth internal review of its asbestos and environmental exposures relating to the run-off operations of its property and casualty insurance segment and its exposures related to former railroad and manufacturing operations and sites. In addition to its ongoing internal monitoring of asbestos and environmental exposures, AFG has periodically conducted comprehensive external studies of its asbestos and environmental reserves with the aid of specialty actuarial, engineering and consulting firms and outside counsel, every two years in recent periods, with an in-depth internal review during the intervening years. AFG is currently evaluating the frequency of future external studies.

As a result of the 2018 internal review, AFG’s property and casualty insurance segment recorded an $18 million pretax special charge to increase its asbestos reserves by $6 million (net of reinsurance) and its environmental reserves by $12 million (net of reinsurance). Over the past few years, the focus of AFG’s asbestos claims litigation has shifted to smaller companies and companies with ancillary exposures. AFG’s insureds with these exposures have been the driver of the property and casualty segment’s asbestos reserve increases in recent years. AFG is seeing modestly increasing estimates for indemnity and defense compared to prior studies on certain specific open claims.

The increase in property and casualty environmental reserves was primarily associated with updated estimates of site investigation and remedial costs with respect to existing sites and newly identified sites. AFG has updated its view of legal defense costs on open environmental claims as well as a number of claims and sites where the estimated investigation and remediation costs have increased. As in past years, there were no new or emerging broad industry trends that were identified in this review.

56

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

At September 30, 2018, the property and casualty insurance segment’s insurance reserves include A&E reserves of $398 million, net of reinsurance recoverables. At September 30, 2018, the property and casualty insurance segment’s three-year survival ratios compare favorably with industry survival ratios published by S&P Global Market Intelligence (as of December 31, 2017) as detailed in the following table:

	Property and Casualty Insurance Reserves
	Three-Year Survival Ratio (% Times Paid Losses)
	Asbestos	Environmental	Total A&E
AFG (9/30/2018)	19.0	11.4	15.0
Industry (12/31/2017)	6.7	6.7	6.7

In addition, the 2018 internal review encompassed reserves for asbestos and environmental exposures of AFG’s former railroad and manufacturing operations. For a discussion of the $9 million pretax special charge recorded for those operations, see “Results of Operations — Holding Company, Other and Unallocated,” for the quarters ended September 30, 2018 and 2017.

A comprehensive external study of AFG’s A&E reserves was completed in the third quarter of 2017 with the aid of specialty actuarial, engineering and consulting firms and outside council. As a result of the study, AFG recorded an $89 million (net of reinsurance) pretax special charge to increase its property and casualty insurance segment’s A&E reserves and a $24 million special charge to increase the reserves of its former railroad and manufacturing operations. See Management’s Discussion and Analysis — “Uncertainties — Asbestos and Environmental-related (“A&E”) Insurance Reserves” and Management’s Discussion and Analysis — “Results of Operations — Holding Company, Other and Unallocated” in AFG’s 2017 Form 10-K.

Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes the special A&E charges mentioned above and net adverse reserve development of $1 million in the thirdquarter of 2017 related to business outside of the Specialty insurance group that AFG no longer writes.

Catastrophe losses

AFG generally seeks to reduce its exposure to catastrophes through individual risk selection, including minimizing coastal and known fault-line exposures, and the purchase of reinsurance. Based on data available at December 31, 2017, AFG’s exposure to a catastrophic earthquake or windstorm that industry models indicate should statistically occur once in every 100, 250 or 500 years as a percentage of AFG’s Shareholders’ Equity is shown below:

	Impact of modeled loss on AFG’s
Industry Model	Shareholders’ Equity
100-year event	Less than 1%
250-year event	Less than 2%
500-year event	Less than 4%

AFG maintains comprehensive catastrophe reinsurance coverage, including a $15 million per occurrence net retention for its U.S.-based property and casualty insurance operations for losses up to $100 million and a separate $15 million per occurrence retention for Neon for losses up to $200 million ($225 million for U.S. catastrophe events). AFG’s property and casualty insurance operations further maintain supplemental fully collateralized reinsurance coverage up to 95% of $200 million for catastrophe losses in excess of $104 million of traditional catastrophe reinsurance through a catastrophe bond.

Catastrophe losses of $35 million in the thirdquarter of 2018 resulted primarily from Hurricane Florence. Catastrophe losses of $107 million in the thirdquarter of 2017 resulted primarily from Hurricanes Harvey, Irma and Maria and two earthquakes in Mexico.

57

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $417 million in the thirdquarter of 2018 compared to $353 million for the thirdquarter of 2017, an increase of $64 million (18%). AFG’s underwriting expense ratio, calculated as commissions and other underwriting expenses divided by net premiums earned, was 31.4% for the thirdquarter of 2018 compared to 27.9% for the thirdquarter of 2017, an increase of 3.5 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):

	Three months ended September 30,
	2018				2017				Change in
	U/W Exp		% of NEP		U/W Exp		% of NEP		% of NEP
Property and transportation	$	120	22.9	%	$	114	21.6	%	1.3	%
Specialty casualty	203		32.9	%	164		28.8	%	4.1	%
Specialty financial	80		54.3	%	66		46.2	%	8.1	%
Other specialty	14		37.5	%	9		32.5	%	5.0	%
	$	417	31.4	%	$	353	27.9	%	3.5	%

Property and transportation   Commissions and other underwriting expenses as a percentage of net earned premiums increased1.3 percentage points in the thirdquarter of 2018 compared to the thirdquarter of 2017, reflecting lower premiums in the crop business, which has a lower expense ratio than AFG’s overall Property and transportation group and an increase in the expense ratio in the transportation businesses.

Specialty casualty   Commissions and other underwriting expenses as a percentage of net earned premiums increased4.1 percentage points in the thirdquarter of 2018 compared to the thirdquarter of 2017, reflecting growth at Neon, which has a higher expense ratio than AFG’s overall Specialty casualty group, higher dividends paid to policyholders in the workers’ compensation businesses and higher commissions in the targeted markets businesses.

Specialty financial   Commissions and other underwriting expenses as a percentage of net earned premiums increased8.1 percentage points in the thirdquarter of 2018 compared to the thirdquarter of 2017, reflecting higher ceding commissions and higher profitability-based commissions paid to agents in the financial institutions business compared to the third quarter of 2017, which included an $8 million commission expense reduction due to hurricane losses in the period.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $108 million in the thirdquarter of 2018 compared to $94 million in the thirdquarter of 2017, an increase of $14 million (15%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):

	Three months ended September 30,
	2018			2017			Change			% Change
Net investment income	$	108		$	94		$	14		15	%
Average invested assets (at amortized cost)	$	10,388		$	9,851		$	537		5	%
Yield (net investment income as a % of average invested assets)	4.16		%	3.82		%	0.34		%
Tax equivalent yield (*)	4.34		%	4.26		%	0.08		%

(*)   Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.

The property and casualty insurance segment’s increase in net investment income for the thirdquarter of 2018 compared to the thirdquarter of 2017 reflects growth in the property and casualty insurance segment and very strong earnings from limited partnerships and similar investments. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.16% for the thirdquarter of 2018 compared to 3.82% for the thirdquarter of 2017, an increase of 0.34 percentage points, due primarily to the higher earnings from limited partnerships and similar investments. The high returns from limited partnerships and similar investments should not necessarily be expected to repeat in future periods.

58

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Property and Casualty Other Income and Expenses, Net

Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $7 million for both the thirdquarter of 2018 and the thirdquarter of 2017. The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

	Three months ended September 30,
	2018			2017
Other income
Income from the sale of real estate	$	—		$	—
Other	4			1
Total other income	4			1
Other expenses
Amortization of intangibles	3			2
Other	8			6
Total other expenses	11			8
Other income and expenses, net	$	(7	)	$	(7	)

59

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Annuity Segment — Results of Operations

AFG’s annuity operations contributed $117 million in pretax earnings in the thirdquarter of 2018 compared to $102 million in the thirdquarter of 2017, an increase of $15 million (15%). AFG’s annuity segment results for the thirdquarter of 2018 as compared to the thirdquarter of 2017 reflect a 10% increase in average annuity investments (at amortized cost) and higher earnings from limited partnerships and similar investments, partially offset by the impact of lower investment yields due to the run-off of higher yielding investments. The high returns on limited partnerships and similar investments should not necessarily be expected to repeat in future periods. While both periods reflect the positive impact of strong stock market performance and the negative impact of lower than anticipated interest rates on the fair value of derivatives related to fixed-indexed annuities (“FIAs”), strong stock market performance in the third quarter of 2018 had a significantly higher favorable impact than the stock market increase in the 2017 period and the decrease in interest rates in the thirdquarter of 2017 had a significantly larger unfavorable impact in the 2017 period compared to the lower than anticipated interest rates on the 2018 period. The favorable impact of interest rates between periods was partially offset by the negative impact of higher interest on the embedded derivative (from growth in the FIA business and higher interest rates) in the 2018 period compared to the 2017 period.

The following table details AFG’s earnings before income taxes from its annuity operations for the three months ended September 30, 2018 and 2017 (dollars in millions):

	Three months ended September 30,
	2018		2017		% Change
Revenues:
Net investment income	$	413	$	375	10	%
Other income:
Guaranteed withdrawal benefit fees	16		15		7	%
Policy charges and other miscellaneous income	11		11		—	%
Total revenues	440		401		10	%
Costs and Expenses:
Annuity benefits (*)	222		215		3	%
Acquisition expenses	69		54		28	%
Other expenses	32		30		7	%
Total costs and expenses	323		299		8	%
Earnings before income taxes	$	117	$	102	15	%

Detail of annuity earnings before income taxes (dollars in millions):

	Three months ended September 30,
	2018			2017			% Change
Earnings before income taxes — before the impact of derivatives related to FIAs	$	119		$	106		12	%
Impact of derivatives related to FIAs	(2		)	(4		)	(50	%)
Earnings before income taxes	$	117		$	102		15	%

60

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

(*) Annuity benefits consisted of the following (dollars in millions):

	Three months ended September 30,
	2018			2017			% Change
Interest credited — fixed	$	179		$	160		12	%
Interest credited — fixed component of variable annuities	1			1			—	%
Other annuity benefits:
Change in expected death and annuitization reserve	5			5			—	%
Amortization of sales inducements	5			4			25	%
Change in guaranteed withdrawal benefit reserve	18			18			—	%
Change in other benefit reserves	10			16			(38	%)
Total other annuity benefits	38			43			(12	%)
Total before impact of derivatives related to FIAs	218			204			7	%
Derivatives related to fixed-indexed annuities:
Embedded derivative mark-to-market	223			127			76	%
Equity option mark-to-market	(219		)	(116		)	89	%
Impact of derivatives related to FIAs	4			11			(64	%)
Total annuity benefits	$	222		$	215		3	%

The profitability of a fixed annuity business is largely dependent on the ability of a company to earn income on the assets supporting the business in excess of the amounts credited to policyholder accounts plus expenses incurred (earning a “spread”). Performance measures such as net interest spread and net spread earned are often presented by annuity businesses to help users of their financial statements better understand the company’s performance.

Net Spread on Fixed Annuities (excludes variable annuity earnings)

The table below (dollars in millions) details the components of these spreads for AFG’s fixed annuity operations (including fixed-indexed and variable-indexed annuities):

	Three months ended September 30,
	2018			2017			% Change
Average fixed annuity investments (at amortized cost)	$	34,955		$	31,713		10	%
Average fixed annuity benefits accumulated	35,226			32,029			10	%
As % of fixed annuity benefits accumulated (except as noted):
Net investment income (as % of fixed annuity investments)	4.70		%	4.70		%
Interest credited — fixed	(2.03		%)	(2.01		%)
Net interest spread	2.67		%	2.69		%
Policy charges and other miscellaneous income	0.09		%	0.10		%
Other annuity benefit expenses, net of guaranteed withdrawal benefit fees	(0.24		%)	(0.33		%)
Acquisition expenses	(0.76		%)	(0.65		%)
Other expenses	(0.36		%)	(0.36		%)
Change in fair value of derivatives related to fixed-indexed annuities	(0.05		%)	(0.14		%)
Net spread earned on fixed annuities	1.35		%	1.31		%

61

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The table below illustrates the impact of fair value accounting for derivatives related to fixed-indexed annuities on the annuity segment’s net spread earned on fixed annuities:

	Three months ended September 30,
	2018		2017
Net spread earned on fixed annuities — before the impact of derivatives related to FIAs	1.37	%	1.36	%
Impact of derivatives related to fixed-indexed annuities:
Change in fair value of derivatives	(0.05	%)	(0.14	%)
Related impact on amortization of deferred policy acquisition costs (*)	0.03	%	0.09	%
Related impact on amortization of deferred sales inducements (*)	—	%	—	%
Net spread earned on fixed annuities	1.35	%	1.31	%

(*) An estimate of the related acceleration/deceleration of the amortization of deferred policy acquisition costs and deferred sales inducements.

Annuity Net Investment Income

Net investment income for the thirdquarter of 2018 was $413 million compared to $375 million for the thirdquarter of 2017, an increase of $38 million (10%). This increase reflects the growth in AFG’s annuity business and higher earnings from limited partnerships and similar investments, partially offset by the impact of lower investment yields. The overall yield earned on investments in AFG’s fixed annuity operations, calculated as net investment income divided by average investment balances (at amortized cost), was 4.70% in both the thirdquarter of 2018 and the thirdquarter of 2017. The net investment yield between periods reflects higher earnings from limited partnerships and similar investments, offset by the impact of the reinvestment of proceeds from maturity and redemption of higher yielding investments at the lower yields available in the financial markets. The high returns from limited partnerships and similar investments should not necessarily be expected to repeat in future periods. For the period from July 1, 2017, through September 30, 2018, $4.4 billion in annuity segment investments with an average yield of 5.01% were redeemed or sold while the investments purchased during that period (with new premium dollars and the redemption/sale proceeds) had an average yield at purchase of 4.26%.

Annuity Interest Credited — Fixed

Interest credited — fixed for the thirdquarter of 2018 was $179 million compared to $160 million for the thirdquarter of 2017, an increase of $19 million (12%). This increase reflects the impact of growth in the annuity business. The average interest rate credited to policyholders, calculated as interest credited divided by average fixed annuity benefits accumulated, increased0.02 percentage points to 2.03% in the thirdquarter of 2018 from 2.01% in the thirdquarter of 2017 due to higher crediting rates on new business.

Annuity Net Interest Spread

AFG’s net interest spread decreased0.02 percentage points to 2.67% from 2.69% in the thirdquarter of 2018 compared to the same period in 2017 due primarily to higher crediting rates on new business and lower investment yields, partially offset by higher earnings from limited partnerships and similar investments. Features included in current annuity product offerings allow AFG to achieve its desired profitability at a lower net interest spread than historical product offerings. As a result, AFG expects its net interest spread to narrow in the future.

Annuity Policy Charges and Other Miscellaneous Income

Annuity policy charges and other miscellaneous income, which consist primarily of surrender charges, amortization of deferred upfront policy charges (unearned revenue) and income from sales of real estate were $11 million for both the thirdquarter of 2018 and the thirdquarter of 2017. Annuity policy charges and other miscellaneous income as a percentage of average fixed annuity benefits accumulated, decreased0.01 percentage points to 0.09% from 0.10% in the thirdquarter of 2018 compared to the thirdquarter of 2017.

62

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Other Annuity Benefits, Net of Guaranteed Withdrawal Benefit Fees

Other annuity benefits, net of guaranteed withdrawal benefit fees, for the thirdquarter of 2018 were $22 million compared to $28 million for the thirdquarter of 2017, a decrease of $6 million (21%). As a percentage of average fixed annuity benefits accumulated, these net expenses decreased0.09 percentage points to 0.24% from 0.33% in the thirdquarter of 2018 compared to the thirdquarter of 2017. In addition to interest credited to policyholders’ accounts and the change in fair value of derivatives related to fixed-indexed annuities, annuity benefits expense also includes the following expenses (in millions, net of guaranteed withdrawal benefit fees):

	Three months ended September 30,
	2018			2017
Change in expected death and annuitization reserve	$	5		$	5
Amortization of sales inducements	5			4
Change in guaranteed withdrawal benefit reserve	18			18
Change in other benefit reserves	10			16
Other annuity benefits	38			43
Offset guaranteed withdrawal benefit fees	(16		)	(15		)
Other annuity benefits, net	$	22		$	28

As discussed under “Annuity Benefits Accumulated” in Note A — “Accounting Policies” to the financial statements, guaranteed withdrawal benefit reserves are accrued for and modified using assumptions similar to those used in establishing and amortizing deferred policy acquisition costs. The guaranteed withdrawal benefit reserve related to FIAs can be inversely impacted by the calculated FIA embedded derivative reserve as the value to policyholders of the guaranteed withdrawal benefits decreases when the benefit of stock market participation increases.

Annuity Acquisition Expenses

Annuity acquisition expenses for the thirdquarter of 2018 were $69 million compared to $54 million for the thirdquarter of 2017, an increase of $15 million (28%), reflecting growth in the business and the acceleration/deceleration of amortization of deferred policy acquisition costs (“DPAC”) as a result of changes in the fair value of derivatives related to FIAs. AFG’s amortization of DPAC and commission expenses as a percentage of average fixed annuity benefits accumulated was 0.76% for the thirdquarter of 2018 compared to 0.65% for the thirdquarter of 2017 and has generally ranged between 0.75% and 0.85%. Variances from the general range relate primarily to the impact of (i) material changes in interest rates or the stock market on AFG’s fixed-indexed annuity business, and (ii) differences in actual experience from actuarially projected estimates and assumptions. For example, the favorable impact of strong stock market performance during the thirdquarter of 2018 on the fair value of derivatives related to FIAs resulted in a partially offsetting acceleration of the amortization of DPAC.

The table below illustrates the estimated impact of fair value accounting for derivatives related to fixed-indexed annuities on annuity acquisition expenses as a percentage of average fixed annuity benefits accumulated (excluding the impact of unlocking):

	Three months ended September 30,
	2018		2017
Before the impact of changes in the fair value of derivatives related to FIAs on the amortization of DPAC	0.79	%	0.74	%
Impact of changes in fair value of derivatives related to FIAs on amortization of DPAC (*)	(0.03	%)	(0.09	%)
Annuity acquisition expenses as a % of fixed annuity benefits accumulated	0.76	%	0.65	%

(*) An estimate of the acceleration/deceleration of the amortization of deferred policy acquisition costs resulting from fair value accounting for derivatives related to fixed-indexed annuities.

Annuity Other Expenses

Annuity other expenses were $32 million for the thirdquarter of 2018 compared to $30 million for the thirdquarter of 2017, an increase of $2 million (7%). Annuity other expenses represent primarily general and administrative expenses, as well as selling and issuance expenses that are not deferred. As a percentage of average fixed annuity benefits accumulated, these expenses were 0.36% for both the thirdquarter of 2018 and the thirdquarter of 2017.

63

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Change in Fair Value of Derivatives Related to Fixed-Indexed (Including Variable-Indexed) Annuities

AFG’s fixed-indexed (including variable-indexed) annuities provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market or other financial index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase and sale of call and put options on the appropriate index. AFG’s strategy is designed so that the net change in the fair value of the call option assets and put option liabilities will generally offset the economic change in the net liability from the index participation. Both the index-based component of the annuities (an embedded derivative) and the related call and put options are considered derivatives that must be adjusted for changes in fair value through earnings each period. The change in the fair value of the embedded derivative includes an ongoing expense for interest accreted on the embedded derivative. The interest accreted in any period is generally based on the size of the embedded derivative and current interest rates. The fair values of these derivatives are impacted by actual and expected stock market performance and interest rates as well as other factors. For a list of other factors impacting the fair value of the embedded derivative component of AFG’s annuity benefits accumulated, see Note C — “Fair Value Measurements” to the financial statements.

The net change in fair value of derivatives related to fixed-indexed annuities increased annuity benefits by $4 million in the thirdquarter of 2018 compared to $11 million in the thirdquarter of 2017. The change in the fair value of these derivatives includes $18 million in the third quarter of 2018 and $8 million in the third quarter of 2017 in interest accreted on the embedded derivative (before DPAC amortization), an increase of $10 million (125%). AFG expects both the size of the embedded derivative and interest rates to rise, resulting in continued increases in interest on the embedded derivative. During the thirdquarter of 2018, the impact of higher interest on the embedded derivative was offset by the positive impact of strong stock market performance on the fair value of the derivatives. During the thirdquarter of 2017, the negative impact of lower than anticipated interest rates on the fair value of these derivatives was partially offset by the positive impact of strong stock market performance. As a percentage of average fixed annuity benefits accumulated, this net expense decreased 0.09 percentage points to 0.05% in the thirdquarter of 2018 from 0.14% in the thirdquarter of 2017.

Fluctuations in interest rates and the stock market, among other factors, can cause volatility in the periodic measurement of fair value of the embedded derivative that management believes can be inconsistent with the long-term economics of these products. The table below illustrates the impact of fair value accounting for derivatives related to fixed-indexed annuities on the annuity segment’s earnings before income taxes (dollars in millions):

	Three months ended September 30,
	2018			2017			% Change
Earnings before income taxes — before change in fair value of derivatives related to FIAs	$	119		$	106		12	%
Impact of derivatives related to fixed-indexed annuities:
Change in fair value of derivatives related to FIAs	(4		)	(11		)	(64	%)
Related impact on amortization of DPAC (*)	2			7			(71	%)
Earnings before income taxes	$	117		$	102		15	%

(*) An estimate of the related acceleration/deceleration of the amortization of deferred sales inducements and deferred policy acquisition costs.

As illustrated in the table above, the change in fair value of derivatives related to fixed-indexed annuities, including the related impact on amortization of DPAC, decreased the annuity segment’s earnings before income taxes by $2 million in the thirdquarter of 2018 and decreased the annuity segment’s earnings before income taxes by $4 million in the thirdquarter of 2017.

64

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The following table provides analysis of the primary factors impacting the change in the fair value of derivatives related to FIAs. Each factor is presented net of the estimated related impact on amortization of DPAC (dollars in millions).

	Three months ended September 30,
	2018			2017			% Change
Interest on the embedded derivative liability	$	(10	)	$	(4	)	150	%
Changes in interest rates higher (lower) than expected	(2		)	(10		)	(80	%)
Change in the stock market, including volatility	12			6			100	%
Renewal option costs lower (higher) than expected	—			1			(100	%)
Other, including the impact of actual versus expected lapses	(2		)	3			(167	%)
Impact of derivatives related to FIAs	$	(2	)	$	(4	)	(50	%)

Annuity Net Spread Earned on Fixed Annuities

AFG’s net spread earned on fixed annuities increased0.04 percentage points to 1.35% from 1.31% in the thirdquarter of 2018 compared to the same period in 2017 due primarily to the net impact of changes in the fair value of derivatives and related DPAC amortization offset discussed above, partially offset by the 0.02 percentage points decrease in AFG’s net interest spread.

Annuity Benefits Accumulated

Annuity premiums received and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited and other benefits are charged to expense and decreases for surrender and other policy charges are credited to other income.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses, excess benefits expected to be paid on future deaths and annuitizations (“EDAR”) and guaranteed withdrawal benefits. Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati. The following table is a progression of AFG’s annuity benefits accumulated liability for the three months ended September 30, 2018 and 2017 (in millions):

	Three months ended September 30,
	2018			2017
Beginning fixed annuity reserves	$	34,678		$	31,704
Fixed annuity premiums (receipts)	1,372			869
Surrenders, benefits and other withdrawals	(707		)	(540		)
Interest and other annuity benefit expenses:
Interest credited	179			160
Embedded derivative mark-to-market	223			127
Change in other benefit reserves	29			34
Ending fixed annuity reserves	$	35,774		$	32,354
Reconciliation to annuity benefits accumulated per balance sheet:
Ending fixed annuity reserves (from above)	$	35,774		$	32,354
Impact of unrealized investment related gains	8			138
Fixed component of variable annuities	176			179
Annuity benefits accumulated per balance sheet	$	35,958		$	32,671

65

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Statutory Annuity Premiums

AFG’s annuity operations generated statutory premiums of $1.38 billion in the thirdquarter of 2018 compared to $876 million in the thirdquarter of 2017, an increase of $502 million (57%). The following table summarizes AFG’s annuity sales (dollars in millions):

	Three months ended September 30,
	2018		2017		% Change
Financial institutions single premium annuities — indexed	$	460	$	360	28	%
Financial institutions single premium annuities — fixed	114		82		39	%
Retail single premium annuities — indexed	354		219		62	%
Retail single premium annuities — fixed	17		18		(6	%)
Broker dealer single premium annuities — indexed	322		148		118	%
Broker dealer single premium annuities — fixed	3		1		200	%
Pension risk transfer	56		—		—	%
Education market — fixed and indexed annuities	46		41		12	%
Total fixed annuity premiums	1,372		869		58	%
Variable annuities	6		7		(14	%)
Total annuity premiums	$	1,378	$	876	57	%

Management attributes the 57%increase in annuity premiums in the thirdquarter of 2018 compared to the thirdquarter of 2017 to the introduction of new products, efforts to expand in the retail and broker dealer markets and an improving interest rate environment during the first nine months of 2018.

Annuity Earnings before Income Taxes Reconciliation

The following table reconciles the net spread earned on AFG’s fixed annuities to overall annuity pretax earnings for the three months ended September 30, 2018 and 2017 (in millions):

	Three months ended September 30,
	2018			2017
Earnings on fixed annuity benefits accumulated	$	119		$	105
Earnings impact of investments in excess of fixed annuity benefits accumulated (*)	(3		)	(4		)
Variable annuity earnings	1			1
Earnings before income taxes	$	117		$	102

(*) Net investment income (as a % of investments) of 4.70% for both the three months ended September 30, 2018 and 2017, multiplied by the difference between average fixed annuity investments (at amortized cost) and average fixed annuity benefits accumulated in each period.

66

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Holding Company, Other and Unallocated — Results of Operations AFG’s net GAAP pretax loss outside of its property and casualty insurance and annuity operations (excluding realized gains and losses) totaled $46 million in the thirdquarter of 2018 compared to $67 million in the thirdquarter of 2017, a decrease of $21 million (31%). AFG’s net core pretax loss outside of its property and casualty insurance and annuity operations (excluding realized gains and losses) totaled $37 million in the thirdquarter of 2018 compared to $39 million in the thirdquarter of 2017, a decrease of $2 million (5%).

The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance and annuity operations for the three months ended September 30, 2018 and 2017 (dollars in millions):

	Three months ended September 30,
	2018			2017			% Change
Revenues:
Life, accident and health net earned premiums	$	6		$	6		—	%
Net investment income	10			7			43	%
Other income — P&C fees	18			17			6	%
Other income	9			9			—	%
Total revenues	43			39			10	%
Costs and Expenses, excluding interest charges on borrowed money
Property and casualty insurance — commissions and other underwriting expenses	7			4			75	%
Life, accident and health benefits	10			6			67	%
Life, accident and health acquisition expenses	2			1			100	%
Other expense — expenses associated with P&C fees	11			13			(15	%)
Other expenses (*)	35			33			6	%
Costs and expenses, excluding interest charges on borrowed money	65			57			14	%
Core loss before income taxes, excluding realized gains and losses and interest charges on borrowed money	(22		)	(18		)	22	%
Interest charges on borrowed money	15			21			(29	%)
Core loss before income taxes, excluding realized gains and losses	(37		)	(39		)	(5	%)
Pretax non-core special A&E charges	(9		)	(24		)	(63	%)
Pretax non-core loss on retirement of debt	—			(4		)	(100	%)
GAAP loss before income taxes, excluding realized gains and losses	$	(46	)	$	(67	)	(31	%)

(*) Excludes pretax non-core special A&E charges of $9 million and $24 million in the thirdquarter of 2018 and 2017, respectively, and a pretax non-core loss on retirement of debt of $4 million in the thirdquarter of 2017.

Holding Company and Other — Life, Accident and Health Premiums, Benefits and Acquisition Expenses

AFG’s run-off long-term care and life insurance operations recorded net earned premiums of $6 million and related benefits and acquisition expenses of $12 million in the thirdquarter of 2018 compared to net earned premiums of $6 million and related benefits and acquisition expenses of $7 million in the thirdquarter of 2017. The $4 million (67%) increase in life, accident and health benefits reflects higher claims in both the run-off long-term care and run-off life insurance businesses.

Holding Company and Other — Net Investment Income

AFG recorded net investment income on investments held outside of its property and casualty insurance and annuity operations of $10 million in the thirdquarter of 2018 compared to $7 million in the thirdquarter of 2017, an increase of $3 million (43%). The parent company holds a small portfolio of securities that are carried at fair value through net investment income. These securities increased in value by $3 million in the thirdquarter of 2018 compared to an increase in value of less than $1 million in the thirdquarter of 2017.

Holding Company and Other — P&C Fees and Related Expenses

Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In the thirdquarter of 2018, AFG collected $18 million in fees for these services compared to $17 million in the thirdquarter of 2017. Management views this fee income, net of the $11 million in the thirdquarter of 2018 and $13 million in the thirdquarter of

67

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

2017, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses in AFG’s segmented results.

Holding Company and Other — Other Income

Other income in the table above includes $4 million in the thirdquarter of 2018 and $5 million in the thirdquarter of 2017, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance and annuity operations of $5 million in the thirdquarter of 2018 compared to $4 million in the thirdquarter of 2017.

Holding Company and Other — Other Expenses

Excluding the non-core special A&E charges and the non-core loss on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance and annuity operations recorded other expenses of $35 million in the thirdquarter of 2018 compared to $33 million in the thirdquarter of 2017, an increase of $2 million (6%).

Holding Company and Other — Interest Charges on Borrowed Money

AFG’s holding companies and other operations outside of its property and casualty insurance and annuity operations recorded interest expense of $15 million in the thirdquarter of 2018 compared to $21 million in the thirdquarter of 2017, a decrease of $6 million (29%) due primarily to a lower weighted average interest rate on AFG’s outstanding debt. The following table details the principal amount of AFG’s long-term debt balances as of July 1, 2018 compared to July 1, 2017 (dollars in millions):

	July 1, 2018			July 1, 2017
Direct obligations of AFG:
4.50% Senior Notes due June 2047	$	590		$	350
3.50% Senior Notes due August 2026	425			300
9-7/8% Senior Notes due June 2019	—			350
5-3/4% Senior Notes due August 2042	—			125
6-1/4% Subordinated Debentures due September 2054	150			150
6% Subordinated Debentures due November 2055	150			150
Other	3			3
Total principal amount of Holding Company Debt	$	1,318		$	1,428
Weighted Average Interest Rate	4.6		%	6.1		%

The decrease in the weighted average interest rate for the thirdquarter of 2018 as compared to the thirdquarter of 2017 reflects the following financing transactions completed by AFG between July 1, 2017 and December 31, 2017:

• Redeemed $125 million of 5-3/4% Senior Notes on August 25, 2017

• Issued an additional $125 million of 3.50% Senior Notes on November 9, 2017

• Issued an additional $240 million of 4.50% Senior Notes on November 9, 2017

• Redeemed $350 million of 9-7/8% Senior Notes on December 11, 2017

Holding Company and Other — Special A&E Charges

As a result of the 2018 in-depth internal review and the 2017 comprehensive external study of A&E exposures discussed under “Special asbestos and environmental reserve charges” under “Results of Operations — Property and Casualty Insurance Segment — Net prior year reserve development,” AFG’s holding companies and other operations outside of its insurance operations recorded pretax special charges of $9 million in the thirdquarter of 2018 and $24 million in the thirdquarter of 2017 to increase liabilities related to the A&E exposures of AFG’s former railroad and manufacturing operations. The charges in both periods were due primarily to relatively small movements across several sites that primarily reflect changes in the scope and costs of investigation. In addition, AFG has seen a small increase in claims arising from exposure to deleterious substances other than asbestos, which caused it to increase its estimated future liability in the 2017 quarter.

Holding Company and Other — Loss on Retirement of Debt

AFG wrote off unamortized debt issuance costs of $4 million related to the redemption of its $125 million outstanding 5-3/4% Senior Notes due 2042 at par value in August 2017.

68

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Consolidated Realized Gains (Losses) on Securities AFG’s consolidated realized gains (losses) on securities, which are not allocated to segments, were a net gain of $34 million in the thirdquarter of 2018 compared to losses of $12 million in the thirdquarter of 2017, an improvement of $46 million (383%). Realized gains (losses) on securities consisted of the following (in millions):

	Three months ended September 30,
	2018			2017
Realized gains (losses) before impairments:
Disposals	$	2		$	29
Change in the fair value of equity securities (*)	33			—
Change in the fair value of derivatives	(2		)	(1		)
Adjustments to annuity deferred policy acquisition costs and related items	3			(2		)
	36			26
Impairment charges:
Securities	(2		)	(44		)
Adjustments to annuity deferred policy acquisition costs and related items	—			6
	(2		)	(38		)
Realized gains (losses) on securities	$	34		$	(12	)

(*) As discussed in Note A — “Accounting Policies — Investments,” beginning in January 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings. This amount includes a $25 million net gain on securities that were still held at September 30, 2018.

The $33 million net realized gain from the change in the fair value of equity securities in the thirdquarter of 2018 includes gains of $11 million on investments in technology companies, $10 million from investments in communications companies and $8 million on health care-related investments. AFG’s $44 million in impairment charges for the thirdquarter of 2017 consisted of $29 million on equity securities and $15 million on fixed maturities. Approximately $14 million in impairment charges in the third quarter of 2017 related to investments in pharmaceutical companies, $10 million related to an investment in a media company and the remainder related primarily to investments in various industrial entities.

Consolidated Income Taxes   AFG’s consolidated provision for income taxes was $41 million for the thirdquarter of 2018 compared to $18 million for the thirdquarter of 2017, an increase of $23 million (128%). See NoteL — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.

Consolidated Noncontrolling Interests   AFG’s consolidated net earnings (losses) attributable to noncontrolling interests was a net loss of $1 million for the thirdquarter of 2018 related to losses at Neon, AFG’s United Kingdom-based Lloyd’s insurer.

69

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

RESULTS OF OPERATIONS — NINE MONTHS ENDEDSEPTEMBER 30, 2018 AND 2017

Segmented Statement of Earnings   AFG reports its business as three segments: (i) Property and casualty insurance (“P&C”), (ii) Annuity and (iii) Other, which includes run-off long-term care and life, holding company costs and income and expenses related to the managed investment entities (“MIEs”).

Effective January 1, 2018, the results of AFG’s run-off long-term care and life businesses are included in the “Other” segment instead of as a separate reportable segment based on the immaterial size of the remaining operations. Prior periods amounts were reclassified for consistent presentation.

AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following tables for the nine months ended September 30, 2018 and 2017 identify such items by segment and reconcile net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions):

						Other
	P&C			Annuity		Consol. MIEs			Holding Co., other and unallocated			Total			Non-core reclass			GAAP Total
Nine months ended September 30, 2018
Revenues:
Property and casualty insurance net earned premiums	$	3,595		$	—	$	—		$	—		$	3,595		$	—		$	3,595
Life, accident and health net earned premiums	—			—		—			18			18			—			18
Net investment income	323			1,219		(11		)	21			1,552			—			1,552
Realized losses on securities	—			—		—			—			—			(28		)	(28		)
Income (loss) of MIEs:
Investment income	—			—		187			—			187			—			187
Gain (loss) on change in fair value of assets/liabilities	—			—		(10		)	—			(10		)	—			(10		)
Other income	8			80		(12		)	70			146			—			146
Total revenues	3,926			1,299		154			109			5,488			(28		)	5,460
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses	2,188			—		—			—			2,188			18			2,206
Commissions and other underwriting expenses	1,188			—		—			17			1,205			—			1,205
Annuity benefits	—			664		—			—			664			—			664
Life, accident and health benefits	—			—		—			32			32			—			32
Annuity and supplemental insurance acquisition expenses	—			199		—			4			203			—			203
Interest charges on borrowed money	—			—		—			46			46			—			46
Expenses of MIEs	—			—		154			—			154			—			154
Other expenses	31			95		—			137			263			9			272
Total costs and expenses	3,407			958		154			236			4,755			27			4,782
Earnings before income taxes	519			341		—			(127		)	733			(55		)	678
Provision for income taxes	100			65		—			(27		)	138			(12		)	126
Net earnings, including noncontrolling interests	419			276		—			(100		)	595			(43		)	552
Less: Net loss attributable to noncontrolling interests	(7		)	—		—			—			(7		)	—			(7		)
Core Net Operating Earnings	426			276		—			(100		)	602
Non-core earnings attributable to shareholders (a):
Realized losses on securities, net of tax	—			—		—			(22		)	(22		)	22			—
Special A&E charges, net of tax	(14		)	—		—			(7		)	(21		)	21			—
Net Earnings Attributable to Shareholders	$	412		$	276	$	—		$	(129	)	$	559		$	—		$	559

70

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

						Other
	P&C			Annuity		Consol. MIEs			Holding Co., other and unallocated			Total			Non-core reclass			GAAP Total
Nine months ended September 30, 2017
Revenues:
Property and casualty insurance net earned premiums	$	3,354		$	—	$	—		$	—		$	3,354		$	—		$	3,354
Life, accident and health net earned premiums	—			—		—			17			17			—			17
Net investment income	276			1,082		(16		)	24			1,366			—			1,366
Realized losses on securities	—			—		—			—			—			(1		)	(1		)
Income of MIEs:
Investment income	—			—		155			—			155			—			155
Gain on change in fair value of assets/liabilities	—			—		12			—			12			—			12
Other income	21			79		(14		)	68			154			—			154
Total revenues	3,651			1,161		137			109			5,058			(1		)	5,057
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses	2,150			—		—			—			2,150			89			2,239
Commissions and other underwriting expenses	1,046			—		—			16			1,062			—			1,062
Annuity benefits	—			635		—			—			635			—			635
Life, accident and health benefits	—			—		—			21			21			—			21
Annuity and supplemental insurance acquisition expenses	—			153		—			3			156			—			156
Interest charges on borrowed money	—			—		—			65			65			—			65
Expenses of MIEs	—			—		137			—			137			—			137
Other expenses	26			90		—			134			250			35			285
Total costs and expenses	3,222			878		137			239			4,476			124			4,600
Earnings before income taxes	429			283		—			(130		)	582			(125		)	457
Provision for income taxes	150			96		—			(57		)	189			(43		)	146
Net earnings, including noncontrolling interests	279			187		—			(73		)	393			(82		)	311
Less: Net earnings attributable to noncontrolling interests	2			—		—			—			2			—			2
Core Net Operating Earnings	277			187		—			(73		)	391
Non-core earnings attributable to shareholders (a):
Realized losses on securities, net of tax	—			—		—			(1		)	(1		)	1			—
Special A&E charges, net of tax	(58		)	—		—			(16		)	(74		)	74			—
Loss on retirement of debt, net of tax	—			—		—			(7		)	(7		)	7			—
Net Earnings Attributable to Shareholders	$	219		$	187	$	—		$	(97	)	$	309		$	—		$	309

(a) See the reconciliation of core earnings to GAAP net earnings under “Results of Operations — General” for details on the tax and noncontrolling interest impacts of these reconciling items.

Property and Casualty Insurance Segment — Results of Operations   AFG’s property and casualty insurance operations contributed $501 million in GAAP pretax earnings in the first nine months of 2018 compared to $340 million in the first nine months of 2017, an increase of $161 million (47%). Property and casualty core pretax earnings were $519 million in the first nine months of 2018 compared to $429 million in the first nine months of 2017, an increase of $90 million (21%). The increase in GAAP and core operating earnings reflects higher underwriting profits in the first nine months of 2018 compared to the same period in 2017 due primarily to lower catastrophe losses and higher favorable prior year reserve development as well as higher net investment income, due primarily to higher earnings from limited partnerships and similar investments and growth in the business, partially offset by lower income from the sale of real estate in the first nine months of 2018 compared to the first nine months of 2017. The high returns on limited partnerships and similar investments should not necessarily be expected to repeat in future periods. The increase in GAAP pretax earnings also reflects lower special A&E charges in the first nine months of 2018 compared to the first nine months of 2017.

71

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The following table details AFG’s earnings before income taxes from its property and casualty insurance operations for the nine months ended September 30, 2018 and 2017 (dollars in millions):

	Nine months ended September 30,
	2018			2017			% Change
Gross written premiums	$	5,227		$	4,931		6	%
Reinsurance premiums ceded	(1,412		)	(1,341		)	5	%
Net written premiums	3,815			3,590			6	%
Change in unearned premiums	(220		)	(236		)	(7	%)
Net earned premiums	3,595			3,354			7	%
Loss and loss adjustment expenses (*)	2,188			2,150			2	%
Commissions and other underwriting expenses	1,188			1,046			14	%
Core underwriting gain	219			158			39	%
Net investment income	323			276			17	%
Other income and expenses, net	(23		)	(5		)	360	%
Core earnings before income taxes	519			429			21	%
Pretax non-core special A&E charges	(18		)	(89		)	(80	%)
GAAP earnings before income taxes	$	501		$	340		47	%
(*)   Excludes pretax non-core special A&E charges of $18 million and $89 million in the third quarter of 2018 and 2017, respectively.
Combined Ratios:
Specialty lines							Change
Loss and LAE ratio	60.8		%	64.0		%	(3.2	%)
Underwriting expense ratio	33.0		%	31.2		%	1.8	%
Combined ratio	93.8		%	95.2		%	(1.4	%)
Aggregate — including exited lines
Loss and LAE ratio	61.4		%	66.7		%	(5.3	%)
Underwriting expense ratio	33.0		%	31.2		%	1.8	%
Combined ratio	94.4		%	97.9		%	(3.5	%)

AFG reports the underwriting performance of its Specialty property and casualty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.

Gross Written Premiums

Gross written premiums (“GWP”) for AFG’s property and casualty insurance segment were $5.23 billion for the first nine months of 2018 compared to $4.93 billion for the first nine months of 2017, an increase of $296 million (6%). Detail of AFG’s property and casualty gross written premiums is shown below (dollars in millions):

	Nine months ended September 30,
	2018				2017
	GWP		%		GWP		%		% Change
Property and transportation	$	1,994	38	%	$	2,062	42	%	(3	%)
Specialty casualty	2,667		51	%	2,350		48	%	13	%
Specialty financial	566		11	%	519		10	%	9	%
	$	5,227	100	%	$	4,931	100	%	6	%

72

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Reinsurance Premiums Ceded

Reinsurance premiums ceded (“Ceded”) for AFG’s property and casualty insurance segment were 27% of gross written premiums for both the first nine months of 2018 and the first nine months of 2017. Detail of AFG’s property and casualty reinsurance premiums ceded is shown below (dollars in millions):

	Nine months ended September 30,
	2018					2017					Change in
	Ceded			% of GWP		Ceded			% of GWP		% of GWP
Property and transportation	$	(688	)	35	%	$	(721	)	35	%	—	%
Specialty casualty	(739		)	28	%	(625		)	27	%	1	%
Specialty financial	(106		)	19	%	(79		)	15	%	4	%
Other specialty	121					84
	$	(1,412	)	27	%	$	(1,341	)	27	%	—	%

Net Written Premiums

Net written premiums (“NWP”) for AFG’s property and casualty insurance segment were $3.82 billion for the first nine months of 2018 compared to $3.59 billion for the first nine months of 2017, an increase of $225 million (6%). Detail of AFG’s property and casualty net written premiums is shown below (dollars in millions):

	Nine months ended September 30,
	2018				2017
	NWP		%		NWP		%		% Change
Property and transportation	$	1,306	34	%	$	1,341	37	%	(3	%)
Specialty casualty	1,928		51	%	1,725		48	%	12	%
Specialty financial	460		12	%	440		12	%	5	%
Other specialty	121		3	%	84		3	%	44	%
	$	3,815	100	%	$	3,590	100	%	6	%

Net Earned Premiums

Net earned premiums (“NEP”) for AFG’s property and casualty insurance segment were $3.60 billion for the first nine months of 2018 compared to $3.35 billion for the first nine months of 2017, an increase of $241 million (7%). Detail of AFG’s property and casualty net earned premiums is shown below (dollars in millions):

	Nine months ended September 30,
	2018				2017
	NEP		%		NEP		%		% Change
Property and transportation	$	1,250	35	%	$	1,226	37	%	2	%
Specialty casualty	1,790		50	%	1,613		48	%	11	%
Specialty financial	457		12	%	435		13	%	5	%
Other specialty	98		3	%	80		2	%	23	%
	$	3,595	100	%	$	3,354	100	%	7	%

The $296 million (6%) increase in gross written premiums for the first nine months of 2018 compared to the first nine months of 2017 reflects growth in the Specialty casualty and Specialty financial sub-segments, partially offset by lower gross written premiums in the Property and transportation sub-segment. Overall average renewal rates increased approximately 1% in the first nine months of 2018. Excluding the workers’ compensation business, renewal pricing increased approximately 3%.

Property and transportation Gross written premiums decreased$68 million (3%) in the first nine months of 2018 compared to the first nine months of 2017. This decrease was largely the result of lower year-over-year premiums in the crop insurance business, as well as a change in the timing of two large policy renewals in one of the transportation businesses from the third quarter to the fourth quarter. Gross written premiums in the other businesses in this group grew by 6% in the first nine months of 2018 compared to the first nine months of 2017. Average renewal rates increased approximately 4% for this group in the first nine months of 2018. Reinsurance premiums ceded as a percentage of gross written premiums were comparable in the first nine months of 2018 and the first nine months of 2017.

73

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Specialty casualty Gross written premiums increased$317 million (13%) in the first nine months of 2018 compared to the first nine months of 2017 due primarily to growth at Neon. Higher gross written premiums in the general liability, executive liability and excess and surplus lines businesses also contributed to the year-over-year growth. Average renewal rates decreased less than 1% for this group in the first nine months of 2018. Excluding the workers’ compensation businesses, renewal rates for this group increased approximately 2%. Reinsurance premiums ceded as a percentage of gross written premiums increased1 percentage point for the first nine months of 2018 compared to the first nine months of 2017, reflecting higher cessions to AFG’s internal reinsurance program, which is included in Other specialty and higher cessions in the workers’ compensation businesses.

Specialty financial Gross written premiums increased$47 million (9%) in the first nine months of 2018 compared to the first nine months of 2017 due primarily to higher premiums in the financial institutions business. Average renewal rates for this group increased approximately 5% in the first nine months of 2018. Reinsurance premiums ceded as a percentage of gross written premiums increased4 percentage points for the first nine months of 2018 compared to the first nine months of 2017, reflecting higher cessions in the financial institutions and equipment leasing businesses and the impact of a reinstatement premium in the third quarter of 2018 resulting from a reinsured loss in the fidelity business.

Other specialty The amounts shown as reinsurance premiums ceded represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty property and casualty insurance sub-segments. Reinsurance premiums assumed increased$37 million (44%) in the first nine months of 2018 compared to the first nine months of 2017, reflecting an increase in premiums retained, primarily from businesses in the Specialty casualty sub-segment.

Combined Ratio

The table below (dollars in millions) details the components of the combined ratio for AFG’s property and casualty insurance segment:

	Nine months ended September 30,						Nine months ended September 30,
	2018		2017		Change		2018		2017
Property and transportation
Loss and LAE ratio	69.2	%	69.1	%	0.1	%
Underwriting expense ratio	26.3	%	25.2	%	1.1	%
Combined ratio	95.5	%	94.3	%	1.2	%
Underwriting profit							$	56	$	70
Specialty casualty
Loss and LAE ratio	60.7	%	66.4	%	(5.7	%)
Underwriting expense ratio	32.6	%	30.7	%	1.9	%
Combined ratio	93.3	%	97.1	%	(3.8	%)
Underwriting profit							$	119	$	46
Specialty financial
Loss and LAE ratio	38.0	%	41.4	%	(3.4	%)
Underwriting expense ratio	52.0	%	49.0	%	3.0	%
Combined ratio	90.0	%	90.4	%	(0.4	%)
Underwriting profit							$	46	$	42
Total Specialty
Loss and LAE ratio	60.8	%	64.0	%	(3.2	%)
Underwriting expense ratio	33.0	%	31.2	%	1.8	%
Combined ratio	93.8	%	95.2	%	(1.4	%)
Underwriting profit							$	220	$	161
Aggregate — including exited lines
Loss and LAE ratio	61.4	%	66.7	%	(5.3	%)
Underwriting expense ratio	33.0	%	31.2	%	1.8	%
Combined ratio	94.4	%	97.9	%	(3.5	%)
Underwriting profit							$	201	$	69

74

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The Specialty property and casualty insurance operations generated an underwriting profit of $220 million for the first nine months of 2018 compared to $161 million for the first nine months of 2017, an increase of $59 million (37%) with the Specialty casualty and Specialty financial sub-segments reporting higher year-over-year underwriting profit, due primarily to significantly lower catastrophe losses and higher favorable prior year reserve development in the Specialty casualty sub-segment. Overall catastrophe losses were $64 million (1.8 points on the combined ratio) for the first nine months of 2018 compared to $132 million (3.9 points) for the first nine months of 2017. In connection with catastrophe losses incurred in the first nine months of 2018, AFG paid $3 million in net reinstatement premiums, resulting in a total pretax loss from catastrophes of $67 million. In connection with catastrophe losses incurred in the first nine months of 2017, AFG reduced profit-based commissions payable to agents by $8 million in the Specialty financial sub-segment and paid $6 million in net reinstatement premiums, resulting in a total pretax loss from catastrophes of $130 million.

Property and transportation Underwriting profit for this group was $56 million for the first nine months of 2018 compared to $70 million for the first nine months of 2017, a decrease of $14 million (20%). Higher underwriting profit in the crop business and at National Interstate, and improved results in the ocean marine operations were more than offset by lower underwriting profits in the property and inland marine, aviation, trucking and equine businesses. Catastrophe losses were $27 million (2.2 points on the combined ratio) and reinstatement premiums paid were $1 million for the first nine months of 2018 compared to catastrophe losses of $39 million (3.2 points) and related reinstatement premiums of $2 million for the first nine months of 2017.

Specialty casualty Underwriting profit for this group was $119 million for the first nine months of 2018 compared to $46 million for the first nine months of 2017, an increase of $73 million (159%). These results reflect lower catastrophe losses at Neon, higher underwriting profits in the workers’ compensation businesses, due primarily to higher favorable prior year reserve development, and improved results in the executive liability business. Catastrophe losses were $17 million (0.9 points on the combined ratio) and reinstatement premiums paid were $1 million for the first nine months of 2018 compared to catastrophe losses of $57 million (3.5 points) and related reinstatement premiums of $2 million for the first nine months of 2017.

Specialty financial Underwriting profit for this group was $46 million for the first nine months of 2018 compared to $42 million for the first nine months of 2017, an increase of $4 million (10%) due primarily to lower catastrophe losses in the lender-placed mortgage property book within the financial institutions business. Catastrophe losses were $18 million (3.9 points on the combined ratio) for the first nine months of 2018 compared to $35 million (8.0 points) for the first nine months of 2017. In connection with catastrophe losses incurred in the third quarter of 2018, the Specialty financial sub-segment paid $1 million in reinstatement premiums compared to a reduction of profit-based commissions payable to agents of $8 million and reinstatement premiums of $2 million in the first nine months of 2017.

Other specialty This group reported an underwriting loss of $1 million for the first nine months of 2018 compared to an underwriting profit of $3 million in the first nine months of 2017, a decrease of $4 million (133%). This decrease is due primarily to losses in the business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments in the first nine months of 2018 compared to earnings in the first nine months of 2017, partially offset by the impact of a $6 million charge recorded in 2017 to adjust the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of businesses in 1998.

Aggregate See “Special asbestos and environmental reserve charges” under “Results of Operations — Property and Casualty Insurance Segment — Net prior year reserve development” for the quarters ended September 30, 2018 and 2017 for a discussion of the $18 million and $89 million pretax non-core special A&E charges recorded in the third quarter of 2018 and 2017, respectively.

75

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Losses and Loss Adjustment Expenses

AFG’s overall loss and LAE ratio was 61.4% for the first nine months of 2018 compared to 66.7% for the first nine months of 2017, a decrease of 5.3 percentage points. The components of AFG’s property and casualty losses and LAE amounts and ratio are detailed below (dollars in millions):

	Nine months ended September 30,
	Amount						Ratio				Change in
	2018			2017			2018		2017		Ratio
Property and transportation
Current year, excluding catastrophe losses	$	881		$	844		70.5	%	68.9	%	1.6	%
Prior accident years development	(43		)	(36		)	(3.5	%)	(3.0	%)	(0.5	%)
Current year catastrophe losses	27			39			2.2	%	3.2	%	(1.0	%)
Property and transportation losses and LAE and ratio	$	865		$	847		69.2	%	69.1	%	0.1	%
Specialty casualty
Current year, excluding catastrophe losses	$	1,157		$	1,049		64.6	%	65.0	%	(0.4	%)
Prior accident years development	(87		)	(34		)	(4.8	%)	(2.1	%)	(2.7	%)
Current year catastrophe losses	17			57			0.9	%	3.5	%	(2.6	%)
Specialty casualty losses and LAE and ratio	$	1,087		$	1,072		60.7	%	66.4	%	(5.7	%)
Specialty financial
Current year, excluding catastrophe losses	$	175		$	167		38.2	%	38.4	%	(0.2	%)
Prior accident years development	(19		)	(22		)	(4.1	%)	(5.0	%)	0.9	%
Current year catastrophe losses	18			35			3.9	%	8.0	%	(4.1	%)
Specialty financial losses and LAE and ratio	$	174		$	180		38.0	%	41.4	%	(3.4	%)
Total Specialty
Current year, excluding catastrophe losses	$	2,274		$	2,105		63.3	%	62.7	%	0.6	%
Prior accident years development	(151		)	(90		)	(4.3	%)	(2.6	%)	(1.7	%)
Current year catastrophe losses	64			132			1.8	%	3.9	%	(2.1	%)
Total Specialty losses and LAE and ratio	$	2,187		$	2,147		60.8	%	64.0	%	(3.2	%)
Aggregate — including exited lines
Current year, excluding catastrophe losses	$	2,273		$	2,105		63.3	%	62.7	%	0.6	%
Prior accident years development	(131		)	2			(3.7	%)	0.1	%	(3.8	%)
Current year catastrophe losses	64			132			1.8	%	3.9	%	(2.1	%)
Aggregate losses and LAE and ratio	$	2,206		$	2,239		61.4	%	66.7	%	(5.3	%)

Current accident year losses and LAE, excluding catastrophe losses

The current accident year loss and LAE ratio, excluding catastrophe losses for AFG’s Specialty property and casualty insurance operations was 63.3% for the first nine months of 2018 compared to 62.7% for the first nine months of 2017, an increase of 0.6 percentage points.

Property and transportation   The 1.6 percentage point increase in the loss and LAE ratio for the current year, excluding catastrophe losses reflects an increase in the loss and LAE ratio of the aviation, property and inland marine and equine businesses in the first nine months of 2018 compared to the first nine months of 2017.

Specialty casualty   The 0.4 percentage point decrease in the loss and LAE ratio for the current year, excluding catastrophe losses reflects a decrease in the loss and LAE ratio at Neon, due primarily to a change in the mix of business, partially offset by an increase in the loss and LAE ratio in the targeted markets businesses.

Specialty financial   The loss and LAE ratio for the current year, excluding catastrophe losses is comparable between periods.

Net prior year reserve development

AFG’s Specialty property and casualty insurance operations recorded net favorable reserve development related to prior accident years of $151 million in the first nine months of 2018 compared to $90 million in the first nine months of 2017, an increase of $61 million (68%).

76

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Property and transportation Net favorable reserve development of $43 million in the first nine months of 2018 reflects lower than expected losses in the crop business and lower than expected claim severity at National Interstate, partially offset by higher than expected claim severity in the Singapore branch and aviation operations. Net favorable reserve development of $36 million in the first nine months of 2017 reflects lower than expected losses in the crop and equine businesses and lower than expected claim severity in the property and inland marine and transportation businesses, partially offset by higher than expected claim severity in the ocean marine business.

Specialty casualty Net favorable reserve development of $87 million in the first nine months of 2018 reflects lower than anticipated claim severity in the workers’ compensation businesses, and to a lesser extent, lower than expected claim severity in the executive liability business. This was partially offset by higher than expected claim frequency and severity in the excess and surplus lines. Net favorable reserve development of $34 million in the first nine months of 2017 reflects lower than anticipated claim severity in the workers’ compensation businesses and at Neon, partially offset by higher than anticipated claim severity in the targeted markets and general liability businesses.

Specialty financial Net favorable reserve development of $19 million in the first nine months of 2018 reflects lower than expected claim frequency and severity in the surety business and lower than expected claim severity in the fidelity business. Net favorable reserve development of $22 million in the first nine months of 2017 reflects lower than anticipated claim severity in the fidelity business and lower than expected claim frequency and severity in the surety business.

Other specialty In addition to the development discussed above, total Specialty prior year reserve development includes net favorable reserve development of $2 million in the first nine months of 2018 and net adverse reserve development of $2 million in the first nine months of 2017. The favorable development in the first nine months of 2018 reflects amortization of the deferred gains on the retroactive reinsurance transactions entered into in connection with the sale of businesses in 1998 and 2001, partially offset by adverse reserve development associated with AFG’s internal reinsurance program. The adverse reserve development in the first nine months of 2017 reflects a $6 million charge to adjust the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of businesses in 1998, partially offset by the amortization of deferred gains on retroactive reinsurance and favorable reserve development associated with AFG’s internal reinsurance program.

Special asbestos and environmental reserve charges See “Special asbestos and environmental reserve charges” under “Results of Operations — Property and Casualty Insurance Segment — Net prior year reserve development” for the quarters ended September 30, 2018 and 2017 for a discussion of the $18 million and $89 million special A&E charges recorded in the third quarter of 2018 and 2017, respectively.

Aggregate Aggregate net prior accident years reserve development for AFG’s property and casualty insurance segment includes the special A&E charges mentioned above and net adverse reserve development of $2 million in the first nine months of 2018 and $3 million in the first nine months of 2017 related to business outside the Specialty group that AFG no longer writes.

Catastrophe losses

Catastrophe losses of $64 million in the first nine months of 2018 resulted primarily from Hurricane Florence, storms and flooding in several regions of the United States and mudslides in California. Catastrophe losses of $132 million in the first nine months of 2017 resulted primarily from Hurricanes Harvey, Irma and Maria, two earthquakes in Mexico and storms and tornadoes in several regions of the United States.

77

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Commissions and Other Underwriting Expenses

AFG’s property and casualty commissions and other underwriting expenses (“U/W Exp”) were $1.19 billion in the first nine months of 2018 compared to $1.05 billion for the first nine months of 2017, an increase of $142 million (14%). AFG’s underwriting expense ratio was 33.0% for the first nine months of 2018 compared to 31.2% for the first nine months of 2017, an increase of 1.8 percentage points. Detail of AFG’s property and casualty commissions and other underwriting expenses and underwriting expense ratios is shown below (dollars in millions):

	Nine months ended September 30,
	2018				2017				Change in
	U/W Exp		% of NEP		U/W Exp		% of NEP		% of NEP
Property and transportation	$	329	26.3	%	$	309	25.2	%	1.1	%
Specialty casualty	584		32.6	%	495		30.7	%	1.9	%
Specialty financial	237		52.0	%	213		49.0	%	3.0	%
Other specialty	38		37.8	%	29		35.4	%	2.4	%
Total Specialty	$	1,188	33.0	%	$	1,046	31.2	%	1.8	%

Property and transportation   Commissions and other underwriting expenses as a percentage of net earned premiums increased1.1 percentage points in the first nine months of 2018 compared to the first nine months of 2017, reflecting lower premiums in the crop business, which has a lower expense ratio than AFG’s overall Property and transportation group and an increase in the expense ratio in the transportation businesses.

Specialty casualty   Commissions and other underwriting expenses as a percentage of net earned premiums increased1.9 percentage points in the first nine months of 2018 compared to the first nine months of 2017, reflecting growth at Neon, which has a higher expense ratio than AFG’s overall Specialty casualty group and higher dividends paid to policyholders in the workers’ compensation businesses.

Specialty financial   Commissions and other underwriting expenses as a percentage of net earned premiums increased3.0 percentage points in the first nine months of 2018 compared to the first nine months of 2017, reflecting higher ceding commissions and higher profitability-based commissions paid to agents in the financial institutions business compared to the first nine months of 2017, which included an $8 million commission expense reduction due to hurricane losses in the period.

Property and Casualty Net Investment Income

Net investment income in AFG’s property and casualty insurance operations was $323 million in the first nine months of 2018 compared to $276 million in the first nine months of 2017, an increase of $47 million (17%). The average invested assets and overall yield earned on investments held by AFG’s property and casualty insurance operations are provided below (dollars in millions):

	Nine months ended September 30,
	2018			2017			Change			% Change
Net investment income	$	323		$	276		$	47		17	%
Average invested assets (at amortized cost)	$	10,405		$	9,853		$	552		6	%
Yield (net investment income as a % of average invested assets)	4.14		%	3.73		%	0.41		%
Tax equivalent yield (*)	4.32		%	4.20		%	0.12		%

(*) Adjusts the yield on equity securities and tax-exempt bonds to the fully taxable equivalent yield.

The property and casualty insurance segment’s increase in net investment income for the first nine months of 2018 as compared to the first nine months of 2017 reflects growth in the property and casualty insurance segment and very strong earnings from limited partnerships and similar investments. The property and casualty insurance segment’s overall yield on investments (net investment income as a percentage of average invested assets) was 4.14% for the first nine months of 2018 compared to 3.73% for the first nine months of 2017, an increase of 0.41 percentage points due primarily to the higher earnings from limited partnerships and similar investments. The high returns from limited partnerships and similar investments should not necessarily be expected to repeat in future periods.

78

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Property and Casualty Other Income and Expenses, Net

Other income and expenses, net for AFG’s property and casualty insurance operations was a net expense of $23 million for the first nine months of 2018 compared to $5 million for the first nine months of 2017, an increase of $18 million (360%). The table below details the items included in other income and expenses, net for AFG’s property and casualty insurance operations (in millions):

	Nine months ended September 30,
	2018			2017
Other income
Income from the sale of real estate	$	—		$	16
Other	8			5
Total other income	8			21
Other expenses
Amortization of intangibles	7			6
Other	24			20
Total other expense	31			26
Other income and expenses, net	$	(23	)	$	(5	)

Income from the sale of real estate includes $13 million related to the sale of a hotel property in 2017.

79

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Annuity Segment — Results of Operations

AFG’s annuity operations contributed $341 million in pretax earnings in the first nine months of 2018 compared to $283 million in the first nine months of 2017, an increase of $58 million (20%). AFG’s annuity segment results for the first nine months of 2018 compared to the first nine months of 2017 reflect a 10% increase in average annuity investments (at amortized cost), higher earnings from limited partnerships and similar investments and the favorable impact of fair value accounting for derivatives related to fixed-indexed annuities (“FIAs”), partially offset by an unlocking charge in the first nine months of 2018 and the impact of lower investment yields due to the run-off of higher yielding investments. The high returns on limited partnerships and similar investments should not necessarily be expected to repeat in future periods.

The fair value of derivatives related to FIAs was favorably impacted by higher than anticipated interest rates in the first nine months of 2018 compared to the negative impact of lower than anticipated interest rates in the first nine months of 2017. The favorable impact of interest rates between periods was partially offset by the negative impact of higher interest on the embedded derivative (from growth in the FIA business and higher interest rates) and higher than expected option costs in the 2018 period. AFG monitors the major actuarial assumptions underlying its annuity operations throughout the year and conducts detailed reviews (“unlocking”) of its assumptions in the fourth quarter of each year. If changes in the economic environment of actual experience would cause material revisions to future estimates, these assumptions are updated (unlocked) in an interim quarter. Due to continued higher FIA option costs (resulting primarily from higher than expected risk-free rates), AFG unlocked its assumptions for option costs and interest rates in the second quarter of 2018, resulting in a net charge to earnings of $27 million.

The following table details AFG’s earnings before income taxes from its annuity operations for the nine months ended September 30, 2018 and 2017 (dollars in millions).

	Nine months ended September 30,
	2018		2017		% Change
Revenues:
Net investment income	$	1,219	$	1,082	13	%
Other income:
Guaranteed withdrawal benefit fees	48		43		12	%
Policy charges and other miscellaneous income	32		36		(11	%)
Total revenues	1,299		1,161		12	%
Costs and Expenses:
Annuity benefits (*)	664		635		5	%
Acquisition expenses	199		153		30	%
Other expenses	95		90		6	%
Total costs and expenses	958		878		9	%
Earnings before income taxes	$	341	$	283	20	%

Detail of annuity earnings before income taxes (dollars in millions):

	Nine months ended September 30,
	2018			2017			% Change
Earnings before income taxes — before the impact of unlocking and derivatives related to FIAs	$	354		$	305		16	%
Unlocking	(27		)	—			—	%
Impact of derivatives related to FIAs	14			(22		)	(164	%)
Earnings before income taxes	$	341		$	283		20	%

80

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

(*) Annuity benefits consisted of the following (dollars in millions):

	Nine months ended September 30,
	2018			2017			% Change
Interest credited — fixed	$	518		$	469		10	%
Interest credited — fixed component of variable annuities	4			4			—	%
Other annuity benefits:
Change in expected death and annuitization reserve	13			13			—	%
Amortization of sales inducements	15			14			7	%
Change in guaranteed withdrawal benefit reserve	60			51			18	%
Change in other benefit reserves	29			36			(19	%)
Total other annuity benefits	117			114			3	%
Total before impact of derivatives related to FIAs and unlocking	639			587			9	%
Derivatives related to fixed-indexed annuities:
Embedded derivative mark-to-market	242			386			(37	%)
Equity option mark-to-market	(271		)	(338		)	(20	%)
Impact of derivatives related to FIAs	(29		)	48			(160	%)
Unlocking	54			—			—	%
Total annuity benefits	$	664		$	635		5	%

See “Annuity Unlocking” below for a discussion of the impact that the unlocking of actuarial assumptions had on annuity benefit expense in 2018.

Net Spread on Fixed Annuities (excludes variable annuity earnings)

The table below (dollars in millions) details the components of the spreads for AFG’s fixed annuity operations (including fixed-indexed and variable-indexed annuities):

	Nine months ended September 30,
	2018			2017			% Change
Average fixed annuity investments (at amortized cost)	$	33,964		$	30,919		10	%
Average fixed annuity benefits accumulated	34,240			31,141			10	%
As % of fixed annuity benefits accumulated (except as noted):
Net investment income (as % of fixed annuity investments)	4.76		%	4.64		%
Interest credited — fixed	(2.02		%)	(2.01		%)
Net interest spread	2.74		%	2.63		%
Policy charges and other miscellaneous income	0.10		%	0.12		%
Other annuity benefit expenses, net of guaranteed withdrawal benefit fees	(0.26		%)	(0.31		%)
Acquisition expenses	(0.86		%)	(0.63		%)
Other expenses	(0.37		%)	(0.38		%)
Change in fair value of derivatives related to fixed-indexed annuities	0.11		%	(0.20		%)
Unlocking	(0.11		%)	—		%
Net spread earned on fixed annuities	1.35		%	1.23		%

81

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The table below illustrates the impact of fair value accounting for derivatives related to fixed-indexed annuities on the annuity segment’s net spread earned on fixed annuities:

	Nine months ended September 30,
	2018		2017
Net spread earned on fixed annuities — before the impact of unlocking and derivatives related to FIAs	1.41	%	1.32	%
Unlocking	(0.11	%)	—	%
Impact of derivatives related to fixed-indexed annuities:
Change in fair value of derivatives	0.11	%	(0.20	%)
Related impact on amortization of deferred policy acquisition costs (*)	(0.06	%)	0.11	%
Related impact on amortization of deferred sales inducements (*)	—	%	—	%
Net spread earned on fixed annuities	1.35	%	1.23	%

(*) An estimate of the related acceleration/deceleration of the amortization of deferred policy acquisition costs and deferred sales inducements.

Annuity Net Investment Income

Net investment income for the first nine months of 2018 was $1.22 billion compared to $1.08 billion for the first nine months of 2017, an increase of $137 million (13%). This increase reflects the growth in AFG’s annuity business and higher earnings from limited partnerships and similar investments, partially offset by the impact of lower investment yields. The overall yield earned on investments in AFG’s fixed annuity operations, calculated as net investment income divided by average investment balances (at amortized cost), increased by 0.12 percentage points to 4.76% from 4.64% for the first nine months of 2018 compared to the first nine months of 2017. This increase in net investment yield reflects higher earnings from limited partnerships and similar investments, partially offset by (i) the investment of new premium dollars at lower yields as compared to the existing investment portfolio and (ii) the impact of the reinvestment of proceeds from maturity and redemption of higher yielding investments at the lower yields available in the financial markets. The high returns from limited partnerships and similar investments should not necessarily be expected to repeat in future periods. For the period from July 1, 2017, through September 30, 2018, $4.4 billion in annuity segment investments with an average yield of 5.01% were redeemed or sold while the investments purchased during that period (with new premium dollars and the redemption/sale proceeds) had an average yield at purchase of 4.26%.

Annuity Interest Credited — Fixed

Interest credited — fixed for the first nine months of 2018 was $518 million compared to $469 million for the first nine months of 2017, an increase of $49 million (10%). This increase reflects the impact of growth in the annuity business. The average interest rate credited to policyholders, calculated as interest credited divided by average fixed annuity benefits accumulated, increased 0.01% percentage points to 2.02% from 2.01% in the first nine months of 2018 compared to the first nine months of 2017 due to higher crediting rates on new business.

Annuity Net Interest Spread

AFG’s net interest spread increased0.11 percentage points to 2.74% from 2.63% in the first nine months of 2018 compared to the same period in 2017 due primarily to higher earnings from limited partnerships and similar investments, partially offset by lower investment yields. Features included in current annuity offerings allow AFG to achieve its desired profitability at a lower net interest spread than historical product offerings. As a result, AFG expects its net interest spread to narrow in the future.

Annuity Policy Charges and Other Miscellaneous Income

Annuity policy charges and other miscellaneous income, which consist primarily of surrender charges, amortization of deferred upfront policy charges (unearned revenue) and income from sales of real estate, were $32 million for the first nine months of 2018 compared to $36 million for the first nine months of 2017, a decrease of $4 million (11%). Excluding the impact of a $1 million unlocking charge related to unearned revenue in the second quarter of 2018, annuity policy charges and other miscellaneous income were $33 million in 2018 compared to $36 million in 2017, a decrease of $3 million (8%). The first nine months of 2017 includes $1 million from the sale of real estate. As a percentage of average fixed annuity benefits accumulated, excluding the impact of unlocking charges related to unearned revenue, annuity policy charges and other miscellaneous income decreased0.02 percentage points to 0.10% from 0.12% in the first nine months of 2018 compared to the first nine months of 2017.

82

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

See “Annuity Unlocking” below for a discussion of the impact that the unlocking of actuarial assumptions had on annuity policy charges and other miscellaneous income in 2018.

Other Annuity Benefits, Net of Guaranteed Withdrawal Benefit Fees

Other annuity benefits, net of guaranteed withdrawal benefit fees (excluding the impact of unlocking), for the first nine months of 2018 were $69 million compared to $71 million for the first nine months of 2017, a decrease of $2 million (3%). As a percentage of average fixed annuity benefits accumulated, these net expenses decreased0.05 percentage points to 0.26% from 0.31% in the first nine months of 2018 compared to the first nine months of 2017. In addition to interest credited to policyholders’ accounts and the change in fair value of derivatives related to fixed-indexed annuities, annuity benefits expense also includes the following expenses (in millions, net of guaranteed withdrawal benefit fees):

	Nine months ended September 30,
	2018			2017
Change in expected death and annuitization reserve	$	13		$	13
Amortization of sales inducements	15			14
Change in guaranteed withdrawal benefit reserve	60			51
Change in other benefit reserves	29			36
Other annuity benefits	117			114
Offset guaranteed withdrawal benefit fees	(48		)	(43		)
Other annuity benefits, net	$	69		$	71

As discussed under “Annuity Benefits Accumulated” in Note A — “Accounting Policies” to the financial statements, guaranteed withdrawal benefit reserves are accrued for and modified using assumptions similar to those used in establishing and amortizing deferred policy acquisition costs. The guaranteed withdrawal benefit reserve related to FIAs can be inversely impacted by the calculated FIA embedded derivative reserve as the value to policyholders of the guaranteed withdrawal benefits decreases when the benefit of stock market participation increases.

See “Annuity Unlocking” below for a discussion of the impact that the unlocking of actuarial assumptions had on annuity benefit expense in 2018.

Annuity Acquisition Expenses

Annuity acquisition expenses for the first nine months of 2018 were $199 million compared to $153 million for the first nine months of 2017, an increase of $46 million (30%). Excluding the $28 million favorable impact on amortization of DPAC from the unlocking recorded in the second quarter of 2018, annuity acquisition expenses were $227 million for the first nine months of 2018, an increase of $74 million (48%) compared to the first nine months of 2017, reflecting growth in the business and the acceleration (in 2018) and deceleration (in 2017) of DPAC amortization related to changes in the fair value of derivatives related to FIAs. Excluding the impact of the 2018 unlocking charge, AFG’s amortization of DPAC and commission expenses as a percentage of average fixed annuity benefits accumulated was 0.86% for the first nine months of 2018 compared to 0.63% for the first nine months of 2017 and has generally ranged between 0.75% and 0.85%. Variances from the general range relate primarily to the impact of (i) material changes in interest rates or the stock market on AFG’s fixed-indexed annuity business, and (ii) differences in actual experience from actuarially projected estimates and assumptions. For example, the positive impact of higher than anticipated interest rates during the first nine months of 2018 on the fair value of derivatives related to FIAs (discussed below) resulted in a partially offsetting acceleration of the amortization of DPAC. In contrast, the negative impact of lower than anticipated interest rates during the first nine months of 2017 on the fair value of derivatives related to FIAs resulted in a partially offsetting deceleration of the amortization of DPAC.

83

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

The table below illustrates the estimated impact of fair value accounting for derivatives related to fixed-indexed annuities on annuity acquisition expenses as a percentage of average fixed annuity benefits accumulated (excluding the impact of unlocking):

	Nine months ended September 30,
	2018		2017
Before the impact of changes in the fair value of derivatives related to FIAs on the amortization of DPAC	0.80	%	0.74	%
Impact of changes in fair value of derivatives related to FIAs on amortization of DPAC (*)	0.06	%	(0.11	%)
Annuity acquisition expenses as a % of fixed annuity benefits accumulated	0.86	%	0.63	%

(*) An estimate of the acceleration/deceleration of the amortization of deferred policy acquisition costs resulting from fair value accounting for derivatives related to fixed-indexed annuities.

See “Annuity Unlocking” below for a discussion of the impact that the unlocking of actuarial assumptions had on annuity and supplemental insurance acquisition expenses in 2018. Unanticipated spread compression, decreases in the stock market, adverse mortality experience, and higher than expected lapse rates could lead to write-offs of DPAC or PVFP in the future.

Annuity Other Expenses

Annuity other expenses were $95 million for the first nine months of 2018 compared to $90 million for the first nine months of 2017, an increase of $5 million (6%). Annuity other expenses represent primarily general and administrative expenses, as well as selling and issuance expenses that are not deferred. As a percentage of average fixed annuity benefits accumulated, these expenses decreased 0.01 percentage points to 0.37% from 0.38% for the first nine months of 2018 compared to the first nine months of 2017. The decrease in annuity other expenses as a percentage of average fixed annuity benefits accumulated is due primarily to growth in the business.

Change in Fair Value of Derivatives Related to Fixed-Indexed (Including Variable-Indexed) Annuities

AFG’s fixed-indexed (including variable-indexed) annuities provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market or other financial index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase and sale of call and put options on the appropriate index. AFG’s strategy is designed so that the net change in the fair value of the call option assets and put option liabilities will generally offset the economic change in the net liability from the index participation. Both the index-based component of the annuities (an embedded derivative) and the related call and put options are considered derivatives that must be adjusted for changes in fair value through earnings each period. The change in the fair value of the embedded derivative includes an ongoing expense for interest accreted on the embedded derivative. The interest accreted in any period is generally based on the size of the embedded derivative and current interest rates. The fair values of these derivatives are impacted by actual and expected stock market performance and interest rates as well as other factors. For a list of other factors impacting the fair value of the embedded derivative component of AFG’s annuity benefits accumulated, see Note C — “Fair Value Measurements” to the financial statements.

Excluding the impact of the 2018 unlocking charge, the net change in fair value of derivatives related to fixed-indexed annuities decreased annuity benefits by $29 million in the first nine months of 2018 and increased annuity benefits by $48 million in the first nine months of 2017. The change in the fair value of these derivatives includes $47 million in the first nine months of 2018 and $19 million in the first nine months of 2017 in interest accreted on the embedded derivative (before DPAC amortization), an increase of $28 million (147%). AFG expects both the size of the embedded derivative and interest rates to rise, resulting in continued increases in interest on the embedded derivative. During the first nine months of 2018, the positive impact of higher than expected interest rates and strong stock market performance on the fair value of these derivatives was partially offset by the higher interest on the embedded derivative and the negative impact of higher than expected option costs. During the first nine months of 2017, the negative impact of lower than expected interest rates on the fair value of these derivatives was partially offset by the positive impact of strong stock market performance. As a percentage of average fixed annuity benefits accumulated, this net expense improved 0.31 percentage points to a net expense reduction of 0.11% in the first nine months of 2018 from a net expense of 0.20% in the first nine months of 2017.

84

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Fluctuations in interest rates and the stock market, among other factors, can cause volatility in the periodic measurement of fair value of the embedded derivative that management believes can be inconsistent with the long-term economics of these products. The table below illustrates the impact of fair value accounting for derivatives related to fixed-indexed annuities on the annuity segment’s earnings before income taxes (dollars in millions):

	Nine months ended September 30,
	2018			2017			% Change
Earnings before income taxes — before unlocking and change in fair value of derivatives related to fixed-indexed annuities	$	354		$	305		16	%
Unlocking	(27		)	—			—	%
Impact of derivatives related to fixed-indexed annuities:
Change in fair value of derivatives related to fixed-indexed annuities	29			(48		)	(160	%)
Related impact on amortization of DPAC (*)	(15		)	26			(158	%)
Earnings before income taxes	$	341		$	283		20	%

(*) An estimate of the related acceleration/deceleration of amortization of deferred sales inducements and deferred policy acquisition costs.

As illustrated in the table above, the change in fair value of derivatives related to fixed-indexed annuities, including the related impact on amortization of DPAC increased the annuity segment’s earnings before income taxes by $14 million in the first nine months of 2018 and decreased the annuity segment’s earnings before income taxes by $22 million in the first nine months of 2017. The following table provides analysis of the primary factors impacting the change in the fair value of derivatives related to FIAs. Each factor is presented net of the estimated related impact on amortization of DPAC (dollars in millions).

	Nine months ended September 30,
	2018			2017			% Change
Interest on the embedded derivative liability	$	(25	)	$	(11	)	127	%
Changes in interest rates higher (lower) than expected	37			(38		)	(197	%)
Change in the stock market, including volatility	16			20			(20	%)
Renewal option costs lower (higher) than expected	(7		)	4			(275	%)
Other, including the impact of actual versus expected lapses	(7		)	3			(333	%)
Impact of derivatives related to FIAs	$	14		$	(22	)	(164	%)

See “Annuity Unlocking” below for a discussion of the impact that the unlocking of actuarial assumptions had on the change in the fair value of the embedded derivative liability in 2018.

Annuity Net Spread Earned on Fixed Annuities

AFG’s net spread earned on fixed annuities increased0.12 percentage points to 1.35% from 1.23% in the first nine months of 2018 compared to the same period in 2017 due primarily to the net impact of changes in the fair value of derivatives and related DPAC amortization offset discussed above and the 0.11 percentage points increase in AFG’s net interest spread, partially offset by the impact of the unlocking of actuarial assumptions discussed below.

85

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Annuity Benefits Accumulated

Annuity premiums received and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited and other benefits are charged to expense and decreases for surrender and other policy charges are credited to other income.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses, excess benefits expected to be paid on future deaths and annuitizations (“EDAR”) and guaranteed withdrawal benefits. Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati. The following table is a progression of AFG’s annuity benefits accumulated liability for the nine months ended September 30, 2018 and 2017 (in millions):

	Nine months ended September 30,
	2018			2017
Beginning fixed annuity reserves	$	33,005		$	29,647
Fixed annuity premiums (receipts)	3,906			3,410
Surrenders, benefits and other withdrawals	(2,040		)	(1,650		)
Interest and other annuity benefit expenses:
Interest credited	518			469
Embedded derivative mark-to-market	242			386
Change in other benefit reserves	88			92
Unlocking	55			—
Ending fixed annuity reserves	$	35,774		$	32,354
Reconciliation to annuity benefits accumulated per balance sheet:
Ending fixed annuity reserves (from above)	$	35,774		$	32,354
Impact of unrealized investment gains	8			138
Fixed component of variable annuities	176			179
Annuity benefits accumulated per balance sheet	$	35,958		$	32,671

Statutory Annuity Premiums

AFG’s annuity operations generated statutory premiums of $3.93 billion in the first nine months of 2018 compared to $3.43 billion in the first nine months of 2017, an increase of $493 million (14%). The following table summarizes AFG’s annuity sales (dollars in millions):

	Nine months ended September 30,
	2018		2017		% Change
Financial institutions single premium annuities — indexed	$	1,321	$	1,347	(2	%)
Financial institutions single premium annuities — fixed	350		559		(37	%)
Retail single premium annuities — indexed	1,026		751		37	%
Retail single premium annuities — fixed	60		55		9	%
Broker dealer single premium annuities — indexed	936		559		67	%
Broker dealer single premium annuities — fixed	10		6		67	%
Pension risk transfer	57		—		—	%
Education market — fixed and indexed annuities	146		133		10	%
Total fixed annuity premiums	3,906		3,410		15	%
Variable annuities	19		22		(14	%)
Total annuity premiums	$	3,925	$	3,432	14	%

Management attributes the 14% increase in annuity premiums in the first nine months of 2018 compared to the first nine months of 2017 to the introduction of new products, efforts to expand in the retail and broker dealer markets and an improving interest rate environment in 2018.

86

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Annuity Unlocking

In the second quarter of 2018, AFG recorded a $27 million net charge related to its annuity business as a result of unlocking certain actuarial assumptions underlying its annuity operations, which impacted AFG’s financial statements as follows (in millions):

	Nine months ended September 30,
	2018			2017
Policy charges and other miscellaneous income:
Unearned revenue	$	(1	)	$	—
Total revenues	(1		)	—
Annuity benefits:
Fixed-indexed annuities embedded derivative	44			—
Sales inducements	(1		)	—
Other reserves	11			—
Total annuity benefits	54			—
Annuity and supplemental insurance acquisition expenses:
Deferred policy acquisition costs	(28		)	—
Total costs and expenses	26			—
Net charge	$	(27	)	$	—

The net charge from unlocking annuity assumptions in the second quarter of 2018 is due primarily to the unfavorable impact of higher projected option costs, partially offset by the favorable impact of an increase in projected net interest spreads on in-force business (due primarily to higher than previously anticipated reinvestment rates). Reinvestment rate assumptions are based primarily on 7-year and 10-year corporate bond yields. For the 2018 unlocking, AFG assumed a net reinvestment rate (net of default and expense assumptions) of 4.44% in the second half of 2018, grading up ratably to an ultimate net reinvestment rate of 5.55% in 2022 and beyond.

The table below compares the reinvestment rate assumed on assets purchased to directly support “fixed annuity benefits accumulated” in AFG’s fourth quarter unlockings for the next calendar year to the actual reinvestment rate achieved in that period (both net of investment expenses):

	First
Unlocking	Investment	Reinvestment Rate
Year	Period	Assumed (a)		Achieved
2014	2015	3.75	%	4.27	%
2015	2016	4.05	%	4.27	%
2016	2017	4.42	%	3.95	%
2017	2018 (b)	4.17	%	4.48	%
2018	July 2018 (c)	4.62	%	4.57	%

(a) Assumed reinvestment rates exclude default rates of 0.18% in each period.

(b) Reinvestment rate achieved is for the nine months ended September 30, 2018.

(c) Reinvestment rate achieved is for the three months ended September 30, 2018.

Management believes that these results over the last several years demonstrate that AFG’s investment rate assumptions are reasonable and prudent. During 2017, long-term interest rates were lower than anticipated and credit spreads narrowed, resulting in a lower achieved reinvestment rate than assumed in the 2016 unlocking. In addition to the reinvestment rates above, actual default rates in the first six months of 2018 and in 2017, 2016 and 2015 were lower than the long-term default rates of 0.18% assumed in the unlocking in each of the periods above.

87

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Annuity Earnings before Income Taxes Reconciliation

The following table reconciles the net spread earned on AFG’s fixed annuities to overall annuity pretax earnings for the nine months ended September 30, 2018 and 2017 (in millions):

	Nine months ended September 30,
	2018			2017
Earnings on fixed annuity benefits accumulated	$	348		$	288
Earnings impact of investments in excess of fixed annuity benefits accumulated (*)	(10		)	(8		)
Variable annuity earnings	3			3
Earnings before income taxes	$	341		$	283

(*) Net investment income (as a % of investments) of 4.76% and 4.64% for the nine months ended September 30, 2018 and 2017, respectively, multiplied by the difference between average fixed annuity investments (at amortized cost) and average fixed annuity benefits accumulated in each period.

Holding Company, Other and Unallocated — Results of Operations AFG’s net GAAP pretax loss outside of its property and casualty insurance and annuity operations (excluding realized gains and losses) totaled $136 million in the first nine months of 2018 compared to $165 million in the first nine months of 2017, a decrease of $29 million (18%). AFG’s net core pretax loss outside of its property and casualty insurance and annuity operations (excluding realized gain and losses) totaled $127 million in the first nine months of 2018 compared to $130 million in the first nine months of 2017, a decrease of $3 million (2%).

The following table details AFG’s GAAP and core loss before income taxes from operations outside of its property and casualty insurance and annuity operations for the nine months ended September 30, 2018 and 2017 (dollars in millions):

	Nine months ended September 30,
	2018			2017			% Change
Revenues:
Life, accident and health net earned premiums	$	18		$	17		6	%
Net investment income	21			24			(13	%)
Other income — P&C fees	50			46			9	%
Other income	20			22			(9	%)
Total revenues	109			109			—	%
Costs and Expenses, excluding interest charges on borrowed money:
Property and casualty insurance — commissions and other underwriting expenses	17			16			6	%
Life, accident and health benefits	32			21			52	%
Life, accident and health acquisition expenses	4			3			33	%
Other expense — expenses associated with P&C fees	33			30			10	%
Other expenses (*)	104			104			—	%
Costs and expenses, excluding interest charges on borrowed money	190			174			9	%
Core loss before income taxes, excluding realized gains and losses and interest charges on borrowed money	(81		)	(65		)	25	%
Interest charges on borrowed money	46			65			(29	%)
Core loss before income taxes, excluding realized gains and losses	(127		)	(130		)	(2	%)
Pretax non-core special A&E charges	(9		)	(24		)	(63	%)
Pretax non-core loss on retirement of debt	—			(11		)	(100	%)
GAAP loss before income taxes, excluding realized gains and losses	$	(136	)	$	(165	)	(18	%)

(*) Excludes pretax non-core special A&E charges of $9 million and $24 million in the third quarter of 2018 and 2017, respectively, and a pretax non-core loss on retirement of debt of $11 million in the 2017 period.

88

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Holding Company and Other — Life, Accident and Health Premiums, Benefits and Acquisition Expenses

AFG’s run-off long-term care and life insurance operations recorded net earned premiums of $18 million and related benefits and acquisition expenses of $36 million in the first nine months of 2018 compared to net earned premiums of $17 million and related benefits and acquisition expenses of $24 million in the first nine months of 2017. The $11 million (52%) increase in life, accident and health benefits reflects higher claims in both the run-off long-term care and run-off life insurance businesses.

Holding Company and Other — Net Investment Income

AFG recorded net investment income on investments held outside of its property and casualty insurance and annuity operations of $21 million in the first nine months of 2018 compared to $24 million in the first nine months of 2017, a decrease of $3 million (13%). The parent company holds a small portfolio of securities that are carried at fair value through net investment income. These securities increased in value by $1 million in the first nine months of 2018 compared to an increase in value by $4 million in the first nine months of 2017.

Holding Company and Other — P&C Fees and Related Expenses

Summit, a workers’ compensation insurance subsidiary, collects fees from a small group of unaffiliated insurers for providing underwriting, policy administration and claims services. In addition, certain of AFG’s property and casualty insurance businesses collect fees from customers for ancillary services such as workplace safety programs and premium financing. In the first nine months of 2018, AFG collected $50 million in fees for these services compared to $46 million in the first nine months of 2017. Management views this fee income, net of the $33 million in the first nine months of 2018 and $30 million in the first nine months of 2017, in expenses incurred to generate such fees, as a reduction in the cost of underwriting its property and casualty insurance policies. Consistent with internal management reporting, these fees and the related expenses are netted and recorded as a reduction of commissions and other underwriting expenses in AFG’s segmented results.

Holding Company and Other — Other Income

Other income in the table above includes $12 million and $14 million in the first nine months of 2018 and 2017, respectively, in management fees paid to AFG by the AFG-managed CLOs (AFG’s consolidated managed investment entities). The management fees are eliminated in consolidation — see the other income line in the Consolidate MIEs column under “Results of Operations — Segmented Statement of Earnings.” Excluding amounts eliminated in consolidation, AFG recorded other income outside of its property and casualty insurance and annuity operations of $8 million in both the first nine months of 2018 and the first nine months of 2017.

Holding Company and Other — Other Expenses

Excluding the non-core special A&E charges and the non-core loss on retirement of debt discussed below, AFG’s holding companies and other operations outside of its property and casualty insurance and annuity operations recorded other expenses of $104 million in both the first nine months of 2018 and the first nine months of 2017. The impact of lower holding company expenses related to employee benefit plans that are tied to stock market performance in the first nine months of 2018 compared to the first nine months of 2017 was offset by a $5 million charge to increase liabilities related to the environmental exposures of AFG’s former railroad and manufacturing operations in the second quarter of 2018.

Holding Company and Other — Interest Charges on Borrowed Money

AFG’s holding companies and other operations outside of its property and casualty insurance and annuity operations recorded interest expense of $46 million in the first nine months of 2018 compared to $65 million in the first nine months of 2017, a decrease of $19 million (29%), due primarily to a lower weighted average interest rate on AFG’s outstanding debt.

The decrease in the weighted average interest rate for the first nine months of 2018 as compared to the first nine months of 2017 reflects the following financing transactions completed by AFG between April 1, 2017 and December 31, 2017:

• Issued $350 million of 4.50% Senior Notes on June 2, 2017

• Redeemed $230 million of 6-3/8% Senior Notes on June 26, 2017

• Redeemed $125 million of 5-3/4% Senior Notes on August 25, 2017

• Issued an additional $125 million of 3.50% Senior Notes on November 9, 2017

• Issued an additional $240 million of 4.50% Senior Notes on November 9, 2017

• Redeemed $350 million of 9-7/8% Senior Notes on December 11, 2017

Holding Company and Other — Special A&E Charges

See “Holding Company and Other — Special A&E Charges” under “Results of Operations — Holding Company, Other and Unallocated” for the quarters ended September 30, 2018 and 2017 for a discussion of the $9 million and $24 million in non-core special A&E charges recorded in the third quarter of 2018 and 2017, respectively.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

Holding Company and Other — Loss on Retirement of Debt

AFG wrote off unamortized debt issuance costs of $7 million related to the redemption of its $230 million outstanding 6-3/8% Senior Notes due 2042 at par value in June 2017 and $4 million related to the redemption of its $125 million outstanding 5-3/4% Senior Notes due 2042 at par value in August 2017.

Consolidated Realized Gains (Losses) on Securities AFG’s consolidated realized gains (losses) on securities, which are not allocated to segments, were net losses of $28 million in the first nine months of 2018 compared to $1 million in the first nine months of 2017, an increase of $27 million (2,700%). Realized gains (losses) on securities consisted of the following (in millions):

	Nine months ended September 30,
	2018			2017
Realized gains (losses) before impairments:
Disposals	$	11		$	61
Change in the fair value of equity securities (*)	(39		)	—
Change in the fair value of derivatives	(8		)	(4		)
Adjustments to annuity deferred policy acquisition costs and related items	11			(5		)
	(25		)	52
Impairment charges:
Securities	(3		)	(65		)
Adjustments to annuity deferred policy acquisition costs and related items	—			12
	(3		)	(53		)
Realized gains (losses) on securities	$	(28	)	$	(1	)

(*) As discussed in Note A — “Accounting Policies — Investments,” beginning in January 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings. This amount includes a $51 million net loss on securities that were still held at September 30, 2018.

The $39 million net realized loss from the change in the fair value of equity securities in the first nine months of 2018 includes losses of $15 million on investments in real estate investment trusts, $27 million related to banks and financing companies and $14 million on investments in media companies and gains of $18 million on investments in technology companies. AFG’s $65 million in impairment charges for the first nine months of 2017 consists of $49 million on equity securities and $16 million on fixed maturities. Approximately $24 million in impairment charges in the first nine months of 2017 relate to investments in pharmaceutical companies, $10 million relates to an investment in a media company and the remainder relates primarily to investments in various industrial entities.

Consolidated Income Taxes   AFG’s consolidated provision for income taxes was $126 million for the first nine months of 2018 compared to $146 million for the first nine months of 2017, a decrease of $20 million (14%). See NoteL — “Income Taxes” to the financial statements for an analysis of items affecting AFG’s effective tax rate.

Consolidated Noncontrolling Interests   AFG’s consolidated net earnings (losses) attributable to noncontrolling interests was a net loss of $7 million for the first nine months of 2018 compared to net earnings of $2 million for the first nine months of 2017. Losses attributable to noncontrolling interests for the first nine months of 2018 are related to losses at Neon, AFG’s United Kingdom-based Lloyd’s insurer. Earnings attributable to noncontrolling interests in the first nine months of 2017 are related to the gain on the sale of a hotel property, which was owned by an 80%-owned subsidiary of Great American Insurance.

RECENTLY ADOPTED ACCOUNTING STANDARDS

Effective December 31, 2017, AFG adopted ASU 2018-02, which allowed the reclassification of amounts stranded in accumulated other comprehensive income from accounting for the Tax Cuts and Jobs Act of 2017 to retained earnings.

See Note A — “Accounting Policies — Investments” to the financial statements for a discussion of accounting guidance adopted on January 1, 2018, which, among other things, requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net earnings, clarifies that the need for a

90

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

valuation allowance on a deferred tax asset related to available for sale securities should be evaluated with other deferred tax assets and modifies disclosure requirements for financial instruments.

ACCOUNTING STANDARDS TO BE ADOPTED

In February 2016, the FASB issued ASU 2016-02, Leases, which requires entities that lease assets for terms longer than one year to recognize the assets and liabilities for the rights and obligations created by those leases on the balance sheet based on the present value of cash flows. Qualitative and quantitative disclosures of the amount, timing and uncertainty of cash flows arising from leases will also be required. AFG expects to adopt the updated guidance effective January 1, 2019 (when it is required). Although the guidance will result in higher assets and higher liabilities from the recognition of assets and liabilities related to operating leases, it does not change the manner in which lease expense is recognized in the statement of earnings. AFG does not expect the new guidance to have a material effect on its results of operations or financial position.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides a new credit loss model for determining credit-related impairments for financial instruments measured at amortized cost (e.g. mortgage loans or reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses considers historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent increases or decreases in such losses, will be recorded immediately through realized gains (losses) as an allowance that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the balance sheet at the amount expected to be collected. The updated guidance also amends the current other-than-temporary impairment model for available for sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. Subsequent increases or decreases in expected credit losses will be recorded immediately in the income statement through realized gains (losses). AFG will be required to adopt this guidance effective January 1, 2020. AFG cannot estimate the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.

In August 2018, the FASB issued ASU 2018-12, Financial Services – Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which changes the assumptions used to measure the liability for future policy benefits for traditional and limited pay contracts (e.g. life, accident and health benefits) from being locked in at inception to being updated at least annually and standardizes the liability discount rate to be used and updated each reporting period, requires the measurement of market risk benefits associated with deposit contracts (e.g. annuities) to be recorded at fair value, simplifies the amortization of deferred policy acquisition costs to a constant level basis over the expected life of the related contracts and requires enhanced disclosures. AFG will be required to adopt this guidance effective January 1, 2022. AFG cannot estimate the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.

91

AMERICAN FINANCIAL GROUP, INC. 10-Q

ITEM 3

Quantitative and Qualitative Disclosure about Market Risk

As of September 30, 2018, there were no material changes to the information provided in Item 7A — Quantitative and Qualitative Disclosures about Market Risk of AFG’s 2017 Form 10-K.

ITEM 4

Controls and Procedures

AFG’s management, with participation of its Co-Chief Executive Officers and its Chief Financial Officer, has evaluated AFG’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report. Based on that evaluation, AFG’s Co-CEOs and CFO concluded that the controls and procedures are effective. There have been no changes in AFG’s internal control over financial reporting during the third fiscal quarter of 2018 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

In the ordinary course of business, AFG and its subsidiaries routinely enhance their information systems by either upgrading current systems or implementing new systems. There has been no change in AFG’s business processes and procedures during the third fiscal quarter of 2018 that has materially affected, or is reasonably likely to materially affect, AFG’s internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities   AFG did not repurchase any shares of its Common Stock during the first nine months of 2018. As of September 30, 2018, there were 4,132,838 remaining shares that may be repurchased under the Plans authorized by AFG’s Board of Directors in December 2014 and February 2016. Between October 1, 2018 and November 6, 2018, AFG repurchased 12,500 shares of its Common Stock at an average price of $99.48 per share.

AFG acquired 2,210 shares of its Common Stock (at an average of $111.31 per share) in August 2018 and an additional 24,310 shares (at an average of $111.96 per share) in the first six months of 2018 in connection with its stock incentive plans.

ITEM 5

Other Information

Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934   Section 13(r) of the Securities Exchange Act of 1934, as amended (“Section 13(r)”), requires a registrant to disclose in its annual or quarterly reports whether it or an affiliate knowingly engaged in certain activities, transactions or dealings related to Iran during the period covered by the report. Many of the activities, transactions and dealings that are required to be reported under Section 13(r) were previously subject to U.S. sanctions or prohibited by applicable local law. On January 16, 2016, the United States and the European Union eased sanctions against Iran pursuant to the Joint Comprehensive Plan of Action, and many of the reportable activities, transactions and dealings under Section 13(r) are no longer subject to U.S. sanctions and no longer prohibited by applicable local law.

Certain of the Company’s subsidiaries located outside the United States subscribe to insurance policies that provide insurance coverage to vessels owned by international shipping and marine entities with vessels that travel worldwide. As a result, the insurance policies may be called upon to respond to claims involving or that have exposure to Iranian petroleum resources, refined petroleum, and petrochemical industries. For example, certain of the Company’s non-U.S. subsidiaries participate in global marine hull and war policies that provide coverage for damage to vessels navigating into and out of ports worldwide, which could include Iran.

For the nine months ended September 30, 2018, the Company is not aware of any additional premium with respect to underwriting insurance or reinsurance activities reportable under Section 13(r). Should any such risks have entered into the

92

AMERICAN FINANCIAL GROUP, INC. 10-Q

stream of commerce covered by these insurance or reinsurance activities, the Company believes that the premiums associated with such business would be immaterial.

ITEM 6

Exhibits

Number	Exhibit Description
12	Computation of ratios of earnings to fixed charges.
31(a)	Certification of Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(b)	Certification of Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(c)	Certification of Chief Financial Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
32	Certification of Co-Chief Executive Officers and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from American Financial Group’s Form 10-Q for the quarter ended September 30, 2018, formatted in XBRL (Extensible Business Reporting Language):
	(i) Consolidated Balance Sheet
	(ii) Consolidated Statement of Earnings
	(iii) Consolidated Statement of Comprehensive Income
	(iv) Consolidated Statement of Changes in Equity
	(v) Consolidated Statement of Cash Flows
	(vi) Notes to Consolidated Financial Statements

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	American Financial Group, Inc.
November 8, 2018	By:	/s/ Joseph E. (Jeff) Consolino
		Joseph E. (Jeff) Consolino
		Executive Vice President and Chief Financial Officer

93

EX-12

Exhibit 12

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

(Dollars in Millions)

	Nine months ended September 30, 2018			Year ended December 31, 2017
Earnings before income taxes	$	678		$	724
Undistributed equity in earnings of investees	(56		)	(4		)
Fixed charges:
Interest on annuities	664			892
Interest expense	45			84
Debt discount, expense and other fixed charges	1			1
Portion of rentals representing interest	17			23
EARNINGS	$	1,349		$	1,720
Fixed charges:
Interest on annuities	$	664		$	892
Interest expense	45			84
Debt discount, expense and other fixed charges	1			1
Portion of rentals representing interest	17			23
FIXED CHARGES	$	727		$	1,000
Ratio of Earnings to Fixed Charges	1.86			1.72
Earnings in Excess of Fixed Charges	$	622		$	720

E-1

EX-31.A

Exhibit 31(a)

AMERICAN FINANCIAL GROUP, INC. 10-Q

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

I, Carl H. Lindner III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 8, 2018	By:	/s/ Carl H. Lindner III
		Carl H. Lindner III
		Co-Chief Executive Officer

E-2

EX-31.B

Exhibit 31(b)

AMERICAN FINANCIAL GROUP, INC. 10-Q

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

I, S. Craig Lindner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 8, 2018	By:	/s/ S. Craig Lindner
		S. Craig Lindner
		Co-Chief Executive Officer

E-3

EX-31.C

Exhibit 31(c)

AMERICAN FINANCIAL GROUP, INC. 10-Q

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

I, Joseph E. (Jeff) Consolino, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 8, 2018	By:	/s/ Joseph E. (Jeff) Consolino
		Joseph E. (Jeff) Consolino
		Executive Vice President and Chief Financial Officer

E-4

EX-32

Exhibit 32

AMERICAN FINANCIAL GROUP, INC. 10-Q

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of American Financial Group, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2018 (the “Report”), the undersigned officers of the Company, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 8, 2018	By:	/s/ S. Craig Lindner
Date		S. Craig Lindner
		Co-Chief Executive Officer
November 8, 2018	By:	/s/ Carl H. Lindner III
Date		Carl H. Lindner III
		Co-Chief Executive Officer
November 8, 2018	By:	/s/ Joseph E. (Jeff) Consolino
Date		Joseph E. (Jeff) Consolino
		Executive Vice President and Chief Financial Officer

A signed original of this written statement will be retained by the Registrant and

furnished to the Securities and Exchange Commission or its staff upon request.

E-5

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 01, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	AMERICAN FINANCIAL GROUP INC
Entity Central Index Key	0001042046
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding		89,253,183

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Consolidated Balance Sheet (Unaudited) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Assets:
Cash and cash equivalents	$ 2,009	$ 2,338
Investments:
Fixed maturities, available for sale at fair value (amortized cost — $40,053 and $37,038)	40,244	38,379
Fixed maturities, trading at fair value	103	348
Equity securities, at fair value	1,827	1,662
Investments accounted for using the equity method	1,289	999
Mortgage loans	1,152	1,125
Policy loans	176	184
Equity index call options	759	701
Real estate and other investments	282	312
Total cash and investments	47,841	46,048
Recoverables from reinsurers	3,352	3,369
Prepaid reinsurance premiums	717	600
Agents’ balances and premiums receivable	1,299	1,146
Deferred policy acquisition costs	1,669	1,216
Assets of managed investment entities	4,998	4,902
Other receivables	1,633	1,030
Variable annuity assets (separate accounts)	650	644
Other assets	1,832	1,504
Goodwill	199	199
Total assets	64,190	60,658
Liabilities and Equity:
Unpaid losses and loss adjustment expenses	9,670	9,678
Unearned premiums	2,740	2,410
Annuity benefits accumulated	35,958	33,316
Life, accident and health reserves	643	658
Payable to reinsurers	932	743
Liabilities of managed investment entities	4,807	4,687
Long-term debt	1,302	1,301
Variable annuity liabilities (separate accounts)	650	644
Other liabilities	2,324	1,887
Total liabilities	59,026	55,324
Temporary equity
Redeemable noncontrolling interests	0	3
Shareholders’ equity:
Common Stock, no par value — 200,000,000 shares authorized — 89,188,708 and 88,275,460 shares outstanding	89	88
Capital surplus	1,231	1,181
Retained earnings	3,800	3,248
Accumulated other comprehensive income, net of tax	44	813
Total shareholders’ equity	5,164	5,330
Noncontrolling interests	0	1
Total equity	5,164	5,331
Total liabilities and equity	$ 64,190	$ 60,658

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Consolidated Balance Sheet (Unaudited) (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Fixed maturities, available for sale at amortized cost	$ 40,053	$ 37,038
Common Stock, par value (USD per share)	$ 0	$ 0
Common Stock, shares authorized	200,000,000	200,000,000
Common Stock, shares outstanding	89,188,708	88,275,460

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Consolidated Statement of Earnings (Unaudited) - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenues:
Property and casualty insurance net earned premiums	$ 1,327	$ 1,267	$ 3,595	$ 3,354
Life, accident and health net earned premiums	6	6	18	17
Net investment income	527	471	1,552	1,366
Realized gains (losses) on securities	34	(12)	(28)	(1)
Income (loss) of managed investment entities:
Investment income	65	54	187	155
Gain (loss) on change in fair value of assets/liabilities	(5)	1	(10)	12
Other income	54	48	146	154
Total revenues	2,008	1,835	5,460	5,057
Costs and Expenses:
Property and casualty insurance: Losses and loss adjustment expenses	872	995	2,206	2,239
Property and casualty insurance: Commissions and other underwriting expenses	424	357	1,205	1,062
Annuity benefits	222	215	664	635
Life, accident and health benefits	10	6	32	21
Annuity and supplemental insurance acquisition expenses	71	55	203	156
Interest charges on borrowed money	15	21	46	65
Expenses of managed investment entities	52	45	154	137
Other expenses	98	112	272	285
Total costs and expenses	1,764	1,806	4,782	4,600
Earnings before income taxes	244	29	678	457
Provision for income taxes	41	18	126	146
Net earnings, including noncontrolling interests	203	11	552	311
Less: Net earnings (losses) attributable to noncontrolling interests	(1)	0	(7)	2
Net Earnings Attributable to Shareholders	$ 204	$ 11	$ 559	$ 309
Earnings Attributable to Shareholders per Common Share:
Basic (USD per share)	$ 2.30	$ 0.13	$ 6.29	$ 3.52
Diluted (USD per share)	$ 2.26	$ 0.13	$ 6.17	$ 3.44
Average number of Common Shares:
Basic (shares)	89.1	88.1	88.9	87.7
Diluted (shares)	90.7	90.0	90.6	89.7
Cash dividends per Common Share (USD per share)	$ 0.35	$ 0.3125	$ 2.55	$ 2.4375
Supplemental disclosure of Realized gains on securities:
Realized gains (losses) before impairments	$ 36	$ 26	$ (25)	$ 52
Losses on securities with impairment	(2)	(38)	(3)	(54)
Non-credit portion recognized in other comprehensive income (loss)	0	0	0	1
Impairment charges recognized in earnings	(2)	(38)	(3)	(53)
Total realized gains (losses) on securities	$ 34	$ (12)	$ (28)	$ (1)

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Consolidated Statement of Comprehensive Income (Unaudited) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement of Comprehensive Income [Abstract]
Net earnings, including noncontrolling interests	$ 203	$ 11	$ 552	$ 311
Net unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities arising during the period	(96)	59	(523)	299
Reclassification adjustment for realized (gains) losses included in net earnings	(2)	8	(3)	3
Total net unrealized gains (losses) on securities	(98)	67	(526)	302
Net unrealized gains (losses) on cash flow hedges	(5)	0	(19)	1
Foreign currency translation adjustments	0	7	(3)	11
Other comprehensive income (loss), net of tax	(103)	74	(548)	314
Total comprehensive income, net of tax	100	85	4	625
Less: Comprehensive income (loss) attributable to noncontrolling interests	(1)	0	(7)	2
Comprehensive income attributable to shareholders	$ 101	$ 85	$ 11	$ 623

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Consolidated Statement of Changes in Equity (Unaudited) - USD ($) $ in Millions		Total	Total	Common Shares	Common Stock and Capital Surplus	Retained Earnings	Accumulated Other Comp. Income (Loss)	Noncontrolling interests
Beginning Balance, shares at Dec. 31, 2016				86,924,399
Beginning Balance at Dec. 31, 2016		$ 4,919	$ 4,916		$ 1,198	$ 3,343	$ 375	$ 3
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings (losses) attributable to parent		309	309			309
Net earnings (losses) including portion attributable to nonredeemable noncontrolling interest		311						2
Other comprehensive income (loss)		314	314				314
Dividends on Common Stock		(214)	(214)			(214)
Shares issued:
Exercise of stock options, shares				870,022
Exercise of stock options		29	29		29
Restricted stock awards, shares				232,250
Other benefit plans, shares				85,190
Other benefit plans		8	8		8
Dividend reinvestment plan, shares				22,243
Dividend reinvestment plan		2	2		2
Stock-based compensation expense		18	18		18
Shares exchanged — benefit plans, shares				(34,922)
Shares exchanged — benefit plans		(3)	(3)			(3)
Forfeitures of restricted stock, shares				(6,388)
Other		(5)						(5)
Ending Balance, shares at Sep. 30, 2017				88,092,794
Ending Balance at Sep. 30, 2017		5,379	5,379		1,255	3,435	689	0
Ending Balance, Redeemable Noncontrolling Interests at Sep. 30, 2017		0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of accounting change	[1]						0
Cumulative effect of accounting change		$ 4	4			225	(221)
Beginning Balance, shares at Dec. 31, 2017		88,275,460		88,275,460
Beginning Balance at Dec. 31, 2017		$ 5,331	5,330		1,269	3,248	813	1
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net earnings (losses) attributable to parent		559	559			559
Net earnings (losses) including portion attributable to nonredeemable noncontrolling interest		558						(1)
Other comprehensive income (loss)		(548)	(548)				(548)
Dividends on Common Stock		(227)	(227)			(227)
Shares issued:
Exercise of stock options, shares				635,364
Exercise of stock options		23	23		23
Restricted stock awards, shares				200,625
Other benefit plans, shares				86,229
Other benefit plans		10	10		10
Dividend reinvestment plan, shares				21,072
Dividend reinvestment plan		2	2		2
Stock-based compensation expense		17	17		17
Shares exchanged — benefit plans, shares				(26,520)
Shares exchanged — benefit plans		(3)	(3)		(1)	(2)
Forfeitures of restricted stock, shares				(3,522)
Other		$ (3)	(3)			(3)
Ending Balance, shares at Sep. 30, 2018		89,188,708		89,188,708
Ending Balance at Sep. 30, 2018		$ 5,164	$ 5,164		$ 1,320	$ 3,800	44	$ 0
Beginning Balance, Redeemable Noncontrolling Interests at Dec. 31, 2017		3
Redeemable Noncontrolling Interest, Equity, Carrying Amount [Abstract]
Net earnings attributable to redeemable noncontrolling interests		(6)
Other		3
Ending Balance, Redeemable Noncontrolling Interests at Sep. 30, 2018		$ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of accounting change	[1]						$ 0

[1] On January 1, 2018, AFG adopted new guidance that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities classified as available for sale (with unrealized holding gains and losses reported in AOCI) under the prior guidance was reclassified from AOCI to retained earnings as the cumulative effect of an accounting change.

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Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Operating Activities:
Net earnings, including noncontrolling interests	$ 552	$ 311
Adjustments:
Depreciation and amortization	163	105
Annuity benefits	664	635
Realized (gains) losses on investing activities	28	(18)
Net sales of trading securities	116	5
Deferred annuity and life policy acquisition costs	(192)	(177)
Change in:
Reinsurance and other receivables	(868)	(1,467)
Other assets	(257)	(59)
Insurance claims and reserves	507	1,372
Payable to reinsurers	189	272
Other liabilities	346	0
Managed investment entities’ assets/liabilities	104	14
Other operating activities, net	(75)	0
Net cash provided by operating activities	1,277	993
Investing Activities:
Purchases of fixed maturities	(6,700)	(7,163)
Purchases of equity securities	(342)	(73)
Purchases of mortgage loans	(112)	(149)
Purchases of equity index call options and other investments	(695)	(594)
Purchases of real estate, property and equipment	(60)	(46)
Proceeds from maturities and redemptions of fixed maturities	3,516	4,690
Proceeds from repayments of mortgage loans	87	191
Proceeds from sales of fixed maturities	275	179
Proceeds from sales of equity securities	150	97
Proceeds from sales and settlements of equity index call options and other investments	688	565
Proceeds from sales of real estate, property and equipment	3	54
Managed investment entities:
Purchases of investments	(1,674)	(2,330)
Proceeds from sales and redemptions of investments	1,485	2,343
Other investing activities, net	4	6
Net cash used in investing activities	(3,375)	(2,230)
Financing Activities:
Annuity receipts	3,925	3,432
Annuity surrenders, benefits and withdrawals	(2,101)	(1,725)
Net transfers from variable annuity assets	35	43
Additional long-term borrowings	0	345
Reductions of long-term debt	0	(355)
Issuances of managed investment entities’ liabilities	1,572	1,926
Retirements of managed investment entities’ liabilities	(1,463)	(1,998)
Issuances of Common Stock	26	30
Cash dividends paid on Common Stock	(225)	(212)
Other financing activities, net	0	(7)
Net cash provided by financing activities	1,769	1,479
Net Change in Cash and Cash Equivalents	(329)	242
Cash and cash equivalents at beginning of period	2,338	2,107
Cash and cash equivalents at end of period	$ 2,009	$ 2,349

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Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Accounting Policies

Accounting Policies

Basis of Presentation   The accompanying consolidated financial statements for American Financial Group, Inc. and its subsidiaries (“AFG”) are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles (“GAAP”).

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to September 30, 2018, and prior to the filing of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Fair Value Measurements   Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. AFG did not have any significant nonrecurring fair value measurements in the first nine months of 2018.

Investments On January 1, 2018, AFG adopted Accounting Standards Update (“ASU”) 2016-01, which requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At December 31, 2017, AFG had $1.60 billion in equity securities classified as “available for sale” under the prior guidance with holding gains and losses included in accumulated other comprehensive income (“AOCI”) instead of net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities included in AOCI was reclassified to retained earnings as the cumulative effect of an accounting change. The cumulative effect of the accounting change also includes the net unrealized gain on AFG’s small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under the new guidance ($4 million net of tax at the date of adoption).

Holding gains and losses on equity securities carried at fair value under ASU 2016-01 are generally recorded in realized gains (losses) on securities. However, prior to the adoption of the new guidance, AFG classified a small portion of its equity securities as “trading” and reported those investments at fair value with holding gains and losses recognized in net investment income. These investments consisted primarily of equity securities held to offset the impact of changes in the stock market on employee benefit plans that are impacted by stock market performance and totaled $62 million at December 31, 2017. Following the adoption of the new guidance, AFG continues to record holding gains and losses on these securities, as well as its small portfolio of limited partnerships and similar investments carried at fair value under the new guidance and certain other securities classified at purchase as “fair value through net investment income” in net investment income.

Under the new guidance, AFG recorded holding losses of $35 million on equity securities in net earnings during the first nine months of 2018 on securities that were still owned at September 30, 2018. Under the prior guidance, these holding losses would have been recorded in AOCI (with the exception of any impairment charge that may have been recorded). Because almost all of the equity securities impacted by the new guidance were carried at fair value through AOCI under the prior guidance, the adoption of the new guidance did not have a material impact on AFG’s financial position.

Fixed maturity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in AOCI in AFG’s Balance Sheet. Fixed maturity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in net investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the effective interest method. Mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Limited partnerships and similar investments are generally accounted for using the equity method of accounting. Under the equity method, AFG records its share of the earnings or losses of the investee based on when they are reported by the investee in its financial statements rather than in the period in which the investee declares a dividend. AFG’s share of the earnings or losses from equity method investments is generally recorded on a quarter lag due to the timing of the receipt of the investee’s financial statements. AFG’s equity in the earnings (losses) of limited partnerships and similar investments is included in net investment income.

Gains or losses on fixed maturity securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses) on securities) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in other comprehensive income). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the statement of earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value. Changes in fair value of derivatives are included in earnings, unless the derivatives are designated and qualify as highly effective cash flow hedges. Derivatives that do not qualify for hedge accounting under GAAP consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related equity index options designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products.

To qualify for hedge accounting, at the inception of a derivative contract, AFG formally documents the relationship between the terms of the hedge and the hedged items and its risk management objective. This documentation includes defining how hedge effectiveness and ineffectiveness will be measured on a retrospective and prospective basis.

Changes in the fair value of derivatives that are designated and qualify as highly effective cash flow hedges are recorded in AOCI and are reclassified into earnings when the variability of the cash flows from the hedged items impacts earnings. Any hedge ineffectiveness is immediately recorded in current period earnings. When the change in the fair value of a qualifying cash flow hedge is included in earnings, it is included in the same line item in the statement of earnings as the cash flows from the hedged item. AFG uses interest rate swaps that are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities included in AFG’s portfolio of fixed maturity securities.

For derivatives that are designated and qualify as highly effective fair value hedges, changes in the fair value of the derivative, along with changes in the fair value of the hedged item attributable to the hedged risk, are recognized in current period earnings.

Goodwill   Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually. An entity is not required to complete the quantitative annual goodwill impairment test on a reporting unit if the entity elects to perform a qualitative analysis and determines that it is more likely than not that the reporting unit’s fair value exceeds its carrying amount.

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (i) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (ii) amounts paid or due to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers, as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

An AFG subsidiary cedes life insurance policies to a third party on a funds withheld basis whereby the subsidiary retains the assets (securities) associated with the reinsurance contract. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. This reinsurance contract is considered to contain an embedded derivative (that must be adjusted to fair value) because the yield on the payable is based on a specific block of the ceding company’s assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolio of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to this contract are classified as “trading.” The adjustment to fair value on the embedded derivative offsets the investment income recorded on the adjustment to fair value of the related trading portfolio.

Deferred Policy Acquisition Costs (“DPAC”)   Policy acquisition costs (principally commissions, premium taxes and certain underwriting and policy issuance costs) directly related to the successful acquisition or renewal of an insurance contract are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses and unamortized acquisition costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and annuity policy charges, less death, annuitization and guaranteed withdrawal benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses) on securities.

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. See “Life, Accident and Health Reserves” below for details on the impact of loss recognition on the accounting for traditional life and health insurance contracts.

DPAC includes the present value of future profits on business in force of annuity and life, accident and health insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

DPAC and certain other balance sheet amounts related to annuity and life businesses are also adjusted, net of tax, for the change in expense that would have been recorded if the unrealized gains (losses) from securities had actually been realized. These adjustments are included in unrealized gains (losses) on marketable securities, a component of AOCI in AFG’s Balance Sheet.

Managed Investment EntitiesA company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, collateralized loan obligations (“CLOs”) that are VIEs (see Note G — “Managed Investment Entities”). AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) through its investment in the CLO debt tranches, it has exposure to CLO losses (limited to the amount AFG invested) and the right to receive CLO benefits that could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The net gain or loss from accounting for the CLO assets and liabilities at fair value is presented separately in AFG’s Statement of Earnings.

The fair values of a CLO’s assets may differ from the separately measured fair values of its liabilities even though the CLO liabilities only have recourse to the CLO assets. AFG has set the carrying value of the CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at a separately measured fair value. CLO earnings attributable to AFG’s shareholders are measured by the change in the fair value of AFG’s investments in the CLOs and management fees earned.

Unpaid Losses and Loss Adjustment Expenses   The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims represent management’s best estimate and are based upon (i) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of unreported losses (including possible development on known claims) based on past experience; (iv) estimates based on experience of expenses for investigating and adjusting claims; and (v) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the statement of earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated   Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to annuity benefits expense and decreases for annuity policy charges are recorded in other income. For traditional fixed annuities, the liability for annuity benefits accumulated represents the account value that has accrued to the benefit of the policyholder as of the balance sheet date. For fixed-indexed annuities, the liability or annuity benefits accumulated includes an embedded derivative that represents the estimated fair value of the index participation with the remaining component representing the discounted value of the guaranteed minimum contract benefits.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses, guaranteed withdrawals and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liabilities for EDAR and guaranteed withdrawals are accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and annuity policy charges, and unearned revenues once they are recognized as income.

Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati.

Unearned Revenue   Certain upfront policy charges on annuities are deferred as unearned revenue (included in other liabilities) and recognized in net earnings (included in other income) using the same assumptions and estimated gross profits used to amortize DPAC.

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations unless a loss recognition event (premium deficiency) occurs. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

For long-duration contracts (such as traditional life and long-term care policies), loss recognition occurs when, based on current expectations as of the measurement date, existing contract liabilities plus the present value of future premiums (including reasonably expected rate increases) are not expected to cover the present value of future claims payments and related settlement and maintenance costs (excluding overhead) as well as unamortized acquisition costs. If a block of business is determined to be in loss recognition, a charge is recorded in earnings in an amount equal to the excess of the present value of expected future claims costs and unamortized acquisition costs over existing reserves plus the present value of expected future premiums (with no provision for adverse deviation). The charge is recorded first to reduce unamortized acquisition costs and then as an additional reserve (if unamortized acquisition costs have been reduced to zero).

In addition, reserves for traditional life and long-term care policies are subject to adjustment for loss recognition charges that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains (losses) on marketable securities, a component of AOCI in AFG’s Balance Sheet.

Debt Issuance CostsDebt issuance costs related to AFG’s outstanding debt are presented in its Balance Sheet as a direct reduction in the carrying value of long-term debt and are amortized over the life of the related debt using the effective interest method as a component of interest expense. Debt issuance costs related to AFG’s revolving credit facilities are included in other assets in AFG’s Balance Sheet.

Variable Annuity Assets and Liabilities   Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition   Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written, which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests   For balance sheet purposes, noncontrolling interests represent the interests of shareholders other than AFG in consolidated entities. In the statement of earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities. Noncontrolling interests that are redeemable at the option of the holder are presented separately in the mezzanine section of the balance sheet (between liabilities and equity).

Income Taxes   Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. A valuation allowance is established to reduce total deferred tax assets to an amount that will more likely than not be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recorded in net earnings in the period that includes the enactment date.

AFG recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained under examination by the appropriate taxing authority. Interest and penalties on AFG’s reserve for uncertain tax positions are recognized as a component of tax expense.

Stock-Based Compensation   All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated fair value at the date of grant. AFG uses the Black Scholes pricing model to measure the fair value of employee stock options. See Note K — “Shareholders’ Equity” for further information.

AFG records excess tax benefits or deficiencies for share-based payments through income tax expense in the statement of earnings. In addition, AFG accounts for forfeitures of awards when they occur.

Benefit Plans   AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings Per Share   Although basic earnings per share only considers shares of common stock outstanding during the period, the calculation of diluted earnings per share includes the following adjustments to weighted average common shares related to stock-based compensation plans: third quarter of 2018 and 2017 — 1.6 million and 1.9 million; first nine months of 2018 and 2017 — 1.7 million and 2.0 million, respectively.

There were no anti-dilutive potential common shares in the third quarter or first nine months of 2018 or 2017.

Statement of Cash Flows   For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, surrenders, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

Revenue Recognition Guidance Effective in 2018 On January 1, 2018, AFG adopted ASU 2014-09, which provides guidance on recognizing revenue when (or as) performance obligations under the contract are satisfied. The new guidance also updates the accounting for certain costs associated with obtaining and fulfilling contracts with customers and requires certain new disclosures. Because revenue recognition for insurance contracts and financial instruments (AFG’s primary sources of revenue) were excluded from the scope of the new guidance, the adoption of ASU 2014-09 did not have a material impact on AFG’s results of operations or financial position.

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Segments of Operations

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Segments of Operations

Segments of Operations

AFG manages its business as three segments: (i) Property and casualty insurance, (ii) Annuity and (iii) Other, which includes holding company costs, revenues and costs of AFG’s limited insurance operations outside of property and casualty insurance and annuities, and operations attributable to the noncontrolling interests of the managed investment entities.

AFG reports its property and casualty insurance business in the following Specialty sub-segments: (i) Property and transportation, which includes physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages, (ii) Specialty casualty, which includes primarily excess and surplus, general liability, executive liability, professional liability, umbrella and excess liability, specialty coverage in targeted markets, customized programs for small to mid-sized businesses and workers’ compensation insurance, and (iii) Specialty financial, which includes risk management insurance programs for leasing and financing institutions (including equipment leasing and collateral and lender-placed mortgage property insurance), surety and fidelity products and trade credit insurance. Premiums and underwriting profit included under Other specialty represent business assumed by AFG’s internal reinsurance program from the operations that make up AFG’s other Specialty sub-segments and amortization of deferred gains on retroactive reinsurance transactions related to the sales of businesses in prior years. AFG’s annuity business markets traditional fixed, fixed-indexed and variable-indexed annuities in the retail, financial institutions, registered investment advisor and education markets. AFG’s reportable segments and their components were determined based primarily upon similar economic characteristics, products and services. Effective January 1, 2018, the results of AFG’s run-off long-term care and life businesses are included in the “Other” segment instead of as a separate reportable segment based on the immaterial size of the remaining operations. Prior period amounts were reclassified for consistent presentation.

The following tables (in millions) show AFG’s revenues and earnings before income taxes by segment and sub-segment.

	Three months ended September 30,					Nine months ended September 30,
	2018		2017			2018			2017
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	526	$	527		$	1,250		$	1,226
Specialty casualty	616		568			1,790			1,613
Specialty financial	149		142			457			435
Other specialty	36		30			98			80
Total premiums earned	1,327		1,267			3,595			3,354
Net investment income	108		94			323			276
Other income (a)	4		1			8			21
Total property and casualty insurance	1,439		1,362			3,926			3,651
Annuity:
Net investment income	413		375			1,219			1,082
Other income	27		26			80			79
Total annuity	440		401			1,299			1,161
Other	95		84			263			246
Total revenues before realized gains (losses)	1,974		1,847			5,488			5,058
Realized gains (losses) on securities	34		(12		)	(28		)	(1		)
Total revenues	$	2,008	$	1,835		$	5,460		$	5,057

Earnings Before Income Taxes
Property and casualty insurance:
Underwriting:
Specialty
Property and transportation	$	—		$	6		$	56		$	70
Specialty casualty	49			2			119			46
Specialty financial	9			(3		)	46			42
Other specialty	(3		)	4			(1		)	3
Other lines (b)	(17		)	(90		)	(19		)	(92		)
Total underwriting	38			(81		)	201			69
Investment and other income, net (a)	101			87			300			271
Total property and casualty insurance	139			6			501			340
Annuity	117			102			341			283
Other (c)	(46		)	(67		)	(136		)	(165		)
Total earnings before realized gains (losses) and income taxes	210			41			706			458
Realized gains (losses) on securities	34			(12		)	(28		)	(1		)
Total earnings before income taxes	$	244		$	29		$	678		$	457

(a) Includes income of $13 million (before noncontrolling interest) from the sale of a hotel in the first quarter of 2017.

(b) Includes special charges of $18 million and $89 million in the third quarter of 2018 and 2017, respectively, to increase asbestos and environmental (“A&E”) reserves.

(c) Includes holding company interest and expenses, including losses on retirement of debt of $4 million in the third quarter of 2017 and $7 million in the second quarter of 2017, and special charges of $9 million and $24 million in the third quarter of 2018 and 2017, respectively, to increase A&E reserves related to AFG’s former railroad and manufacturing operations.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Accounting standards for measuring fair value are based on inputs used in estimating fair value. The three levels of the hierarchy are as follows:

Level 1 — Quoted prices for identical assets or liabilities in active markets (markets in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis). AFG’s Level 1 financial instruments consist primarily of publicly traded equity securities, highly liquid government bonds for which quoted market prices in active markets are available and short-term investments of managed investment entities.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar assets or liabilities in inactive markets (markets in which there are few transactions, the prices are not current, price quotations vary substantially over time or among market makers, or in which little information is released publicly); and valuations based on other significant inputs that are observable in active markets. AFG’s Level 2 financial instruments include separate account assets, corporate and municipal fixed maturity securities, asset-backed securities (“ABS”), mortgage-backed securities (“MBS”), non-affiliated common stocks, equity index call options and investments of managed investment entities priced using observable inputs. Level 2 inputs include benchmark yields, reported trades, corroborated broker/dealer quotes, issuer spreads and benchmark securities. When non-binding broker quotes can be corroborated by comparison to similar securities priced using observable inputs, they are classified as Level 2.

Level 3 — Valuations derived from market valuation techniques generally consistent with those used to estimate the fair values of Level 2 financial instruments in which one or more significant inputs are unobservable or when the market for a security exhibits significantly less liquidity relative to markets supporting Level 2 fair value measurements. The unobservable inputs may include management’s own assumptions about the assumptions market participants would use based on the best information available at the valuation date. AFG’s Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker quotes or internally developed using significant inputs not based on, or corroborated by, observable market information.

As discussed in Note A — “Accounting Policies — Managed Investment Entities,” AFG has set the carrying value of its CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at separately measured fair values. As a result, the CLO liabilities are categorized within the fair value hierarchy on the same basis (proportionally) as the related CLO assets. Since the portion of the CLO liabilities allocated to Level 3 is derived from the fair value of the CLO assets, these amounts are excluded from the progression of Level 3 financial instruments.

AFG’s management is responsible for the valuation process and uses data from outside sources (including nationally recognized pricing services and broker/dealers) in establishing fair value. AFG’s internal investment professionals are a group of approximately 25 analysts whose primary responsibility is to manage AFG’s investment portfolio. These professionals monitor individual investments as well as overall industries and are active in the financial markets on a daily basis. The group is led by AFG’s chief investment officer, who reports directly to one of AFG’s Co-CEOs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, the Company communicates directly with the pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities.

Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
September 30, 2018
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	142	$	84	$	8	$	234
States, municipalities and political subdivisions	—		6,715		60		6,775
Foreign government	—		139		—		139
Residential MBS	—		2,564		145		2,709
Commercial MBS	—		866		57		923
Asset-backed securities	—		8,316		991		9,307
Corporate and other	29		18,482		1,646		20,157
Total AFS fixed maturities	171		37,166		2,907		40,244
Trading fixed maturities	9		94		—		103
Equity securities	1,462		76		289		1,827
Equity index call options	—		759		—		759
Assets of managed investment entities (“MIE”)	258		4,718		22		4,998
Variable annuity assets (separate accounts) (*)	—		650		—		650
Total assets accounted for at fair value	$	1,900	$	43,463	$	3,218	$	48,581
Liabilities:
Liabilities of managed investment entities	$	248	$	4,537	$	22	$	4,807
Derivatives in annuity benefits accumulated	—		—		3,105		3,105
Other liabilities — derivatives	—		83		—		83
Total liabilities accounted for at fair value	$	248	$	4,620	$	3,127	$	7,995
December 31, 2017
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	122	$	112	$	8	$	242
States, municipalities and political subdivisions	—		6,975		148		7,123
Foreign government	—		127		—		127
Residential MBS	—		3,105		122		3,227
Commercial MBS	—		926		36		962
Asset-backed securities	—		7,218		744		7,962
Corporate and other	30		17,662		1,044		18,736
Total AFS fixed maturities	152		36,125		2,102		38,379
Trading fixed maturities	44		304		—		348
Equity securities	1,411		86		165		1,662
Equity index call options	—		701		—		701
Assets of managed investment entities	307		4,572		23		4,902
Variable annuity assets (separate accounts) (*)	—		644		—		644
Total assets accounted for at fair value	$	1,914	$	42,432	$	2,290	$	46,636
Liabilities:
Liabilities of managed investment entities	$	293	$	4,372	$	22	$	4,687
Derivatives in annuity benefits accumulated	—		—		2,542		2,542
Other liabilities — derivatives	—		35		—		35
Total liabilities accounted for at fair value	$	293	$	4,407	$	2,564	$	7,264

(*) Variable annuity liabilities equal the fair value of variable annuity assets.

Transfers between Level 1 and Level 2 for all periods presented were a result of increases or decreases in observable trade activity.

During the third quarter there were no transfers between Level 1 and Level 2. During the first nine months of 2018, there were two preferred stocks with an aggregate fair value of $6 million that transferred from Level 1 to Level 2. During the third quarter of 2017, there was one preferred stock with an aggregate fair value of $1 million that transferred from Level 2 to Level 1. During the first nine months of 2017, there were three preferred stocks with an aggregate fair value of $17 million that transferred from Level 2 to Level 1.

Approximately 7% of the total assets carried at fair value at September 30, 2018, were Level 3 assets. Approximately 68% ($2.18 billion) of the Level 3 assets were priced using non-binding broker quotes, for which there is a lack of transparency as to the inputs used to determine fair value. Details as to the quantitative inputs are neither provided by the brokers nor otherwise reasonably obtainable by AFG. Since internally developed Level 3 asset fair values represent approximately 18% of AFG’s Shareholders’ Equity, any justifiable changes in unobservable inputs used to determine internally developed fair values would not be expected to have a material impact on AFG’s financial position.

The only significant Level 3 assets or liabilities carried at fair value in the financial statements that were not measured using broker quotes are the derivatives embedded in AFG’s fixed-indexed and variable-indexed annuity liabilities, which are measured using a discounted cash flow approach and had a fair value of $3.11 billion at September 30, 2018. The following table presents information about the unobservable inputs used by management in determining fair value of these embedded derivatives. See Note E — “Derivatives.”

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	0.4% – 1.6% over the risk free rate
Risk margin for uncertainty in cash flows	0.70% reduction in the discount rate
Surrenders	3% – 23% of indexed account value
Partial surrenders	2% – 9% of indexed account value
Annuitizations	0.1% – 1% of indexed account value
Deaths	1.6% – 8.0% of indexed account value
Budgeted option costs	2.4% – 3.6% of indexed account value

The range of adjustments for insurance subsidiary’s credit risk reflects credit spread variations across the yield curve. The range of projected surrender rates reflects the specific surrender charges and other features of AFG’s individual fixed-indexed and variable-indexed annuity products with an expected range of 7% to 11% in the majority of future calendar years (3% to 23% over all periods). Increasing the budgeted option cost or risk margin for uncertainty in cash flow assumptions in the table above would increase the fair value of the fixed-indexed and variable-indexed annuity embedded derivatives, while increasing any of the other unobservable inputs in the table above would decrease the fair value of the embedded derivatives.

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the third quarter and first nine months of 2018 and 2017 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs and $29 million of equity securities transferred into Level 3 in the first quarter of 2018 related to a small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under new guidance adopted on January 1, 2018, as discussed in Note A — “Accounting Policies — Investments.” All transfers are reflected in the table at fair value as of the end of the reporting period.

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	61			—			—			—			(1		)	—		—			60
Residential MBS	147			(2		)	(2		)	—			(6		)	13		(5		)	145
Commercial MBS	56			2			—			(1		)	—			—		—			57
Asset-backed securities	1,004			—			(3		)	13			(23		)	—		—			991
Corporate and other	1,408			—			(3		)	312			(59		)	—		(12		)	1,646
Total AFS fixed maturities	2,684			—			(8		)	324			(89		)	13		(17		)	2,907
Equity securities	230			(5		)	—			81			—			—		(17		)	289
Assets of MIE	23			(1		)	—			—			—			—		—			22
Total Level 3 assets	$	2,937		$	(6	)	$	(8	)	$	405		$	(89	)	$	13	$	(34	)	$	3,218
Embedded derivatives	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (*)	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	143			—			—			—			(1		)	10		—			152
Residential MBS	153			2			1			—			(6		)	15		(21		)	144
Commercial MBS	45			1			—			—			(10		)	—		—			36
Asset-backed securities	498			(2		)	1			13			(26		)	163		(111		)	536
Corporate and other	953			(9		)	—			172			(59		)	—		(7		)	1,050
Total AFS fixed maturities	1,800			(8		)	2			185			(102		)	188		(139		)	1,926
Equity securities	168			(3		)	(4		)	2			—			—		—			163
Assets of MIE	23			(4		)	—			2			—			—		—			21
Total Level 3 assets	$	1,991		$	(15	)	$	(2	)	$	189		$	(102	)	$	188	$	(139	)	$	2,110
Embedded derivatives	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (*)	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)

(*) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(2		)	—		(84		)	60
Residential MBS	122			(9		)	(2		)	—			(17		)	70		(19		)	145
Commercial MBS	36			1			—			20			—			—		—			57
Asset-backed securities	744			(2		)	(6		)	353			(80		)	—		(18		)	991
Corporate and other	1,044			2			(21		)	784			(138		)	—		(25		)	1,646
Total AFS fixed maturities	2,102			(8		)	(31		)	1,157			(237		)	70		(146		)	2,907
Equity securities	165			9			—			106			(4		)	30		(17		)	289
Assets of MIE	23			(6		)	—			5			—			—		—			22
Total Level 3 assets	$	2,290		$	(5	)	$	(31	)	$	1,268		$	(241	)	$	100	$	(163	)	$	3,218
Embedded derivatives (a)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2016			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			4		—			(2		)	10		—			152
Residential MBS	190			—			3		1			(37		)	35		(48		)	144
Commercial MBS	25			2			—		15			(10		)	4		—			36
Asset-backed securities	484			(2		)	3		117			(62		)	199		(203		)	536
Corporate and other	712			(4		)	8		460			(124		)	29		(31		)	1,050
Total AFS fixed maturities	1,559			(4		)	18		593			(235		)	277		(282		)	1,926
Equity securities	174			(19		)	9		22			(3		)	—		(20		)	163
Assets of MIE	29			(10		)	—		6			—			—		(4		)	21
Total Level 3 assets	$	1,762		$	(33	)	$	27	$	621		$	(238	)	$	277	$	(306	)	$	2,110
Embedded derivatives	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (b)	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)

(a) Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the first nine months of 2018.

(b) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

Fair Value of Financial Instruments   The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):

	Carrying		Fair Value
	Value		Total		Level 1		Level 2		Level 3
September 30, 2018
Financial assets:
Cash and cash equivalents	$	2,009	$	2,009	$	2,009	$	—	$	—
Mortgage loans	1,152		1,130		—		—		1,130
Policy loans	176		176		—		—		176
Total financial assets not accounted for at fair value	$	3,337	$	3,315	$	2,009	$	—	$	1,306
Financial liabilities:
Annuity benefits accumulated (*)	$	35,729	$	33,923	$	—	$	—	$	33,923
Long-term debt	1,302		1,260		—		1,257		3
Total financial liabilities not accounted for at fair value	$	37,031	$	35,183	$	—	$	1,257	$	33,926
December 31, 2017
Financial assets:
Cash and cash equivalents	$	2,338	$	2,338	$	2,338	$	—	$	—
Mortgage loans	1,125		1,119		—		—		1,119
Policy loans	184		184		—		—		184
Total financial assets not accounted for at fair value	$	3,647	$	3,641	$	2,338	$	—	$	1,303
Financial liabilities:
Annuity benefits accumulated (*)	$	33,110	$	32,461	$	—	$	—	$	32,461
Long-term debt	1,301		1,354		—		1,351		3
Total financial liabilities not accounted for at fair value	$	34,411	$	33,815	$	—	$	1,351	$	32,464

(*) Excludes $229 million and $206 million of life contingent annuities in the payout phase at September 30, 2018 and December 31, 2017, respectively.

The carrying amount of cash and cash equivalents approximates fair value. Fair values for mortgage loans are estimated by discounting the future contractual cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. The fair value of policy loans is estimated to approximate carrying value; policy loans have no defined maturity dates and are inseparable from insurance contracts. The fair value of annuity benefits was estimated based on expected cash flows discounted using forward interest rates adjusted for the Company’s credit risk and includes the impact of maintenance expenses and capital costs. Fair values of long-term debt are based primarily on quoted market prices.

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Investments

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Investments

Investments

Available for sale fixed maturities at September 30, 2018 and December 31, 2017, consisted of the following (in millions):

	September 30, 2018												December 31, 2017
	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	$	238	$	—	$	(4	)	$	(4	)	$	234	$	244	$	1	$	(3	)	$	(2	)	$	242
States, municipalities and political subdivisions	6,756		117		(98		)	19			6,775		6,887		254		(18		)	236			7,123
Foreign government	137		2		—			2			139		124		3		—			3			127
Residential MBS	2,408		310		(9		)	301			2,709		2,884		349		(6		)	343			3,227
Commercial MBS	913		14		(4		)	10			923		927		36		(1		)	35			962
Asset-backed securities	9,249		122		(64		)	58			9,307		7,836		142		(16		)	126			7,962
Corporate and other	20,352		169		(364		)	(195		)	20,157		18,136		638		(38		)	600			18,736
Total fixed maturities	$	40,053	$	734	$	(543	)	$	191		$	40,244	$	37,038	$	1,423	$	(82	)	$	1,341		$	38,379

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, 2018 and December 31, 2017 were $144 million and $158 million, respectively. Gross unrealized gains on such securities at September 30, 2018 and December 31, 2017 were $130 million and $137 million, respectively. Gross unrealized losses on such securities at both September 30, 2018 and December 31, 2017 were $4 million. These amounts represent the non-credit other-than-temporary impairment charges recorded in AOCI adjusted for subsequent changes in fair values and relate primarily to residential MBS.

As discussed in Note A — “Accounting Policies — Investments,” beginning on January 1, 2018, AFG implemented new accounting guidance, which required all equity securities previously classified as “available for sale” to be reported at fair value, with holding gains and losses recognized in net earnings. Equity securities reported at fair value consisted of the following at September 30, 2018 (in millions):

					Fair Value in
	Actual Cost		Fair Value		excess of Cost
Common stocks	$	1,040	$	1,151	$	111
Perpetual preferred stocks	683		676		(7		)
Total equity securities carried at fair value	$	1,723	$	1,827	$	104

The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at the following balance sheet dates.

	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, 2018
Fixed maturities:
U.S. Government and government agencies	$	(1	)	$	113	99	%	$	(3	)	$	100	97	%
States, municipalities and political subdivisions	(63		)	2,729		98	%	(35		)	721		95	%
Foreign government	—			105		100	%	—			—		—	%
Residential MBS	(3		)	200		99	%	(6		)	132		96	%
Commercial MBS	(3		)	178		98	%	(1		)	51		98	%
Asset-backed securities	(47		)	4,775		99	%	(17		)	353		95	%
Corporate and other	(283		)	10,984		97	%	(81		)	1,346		94	%
Total fixed maturities	$	(400	)	$	19,084	98	%	$	(143	)	$	2,703	95	%
December 31, 2017
Fixed maturities:
U.S. Government and government agencies	$	—		$	55	100	%	$	(3	)	$	123	98	%
States, municipalities and political subdivisions	(8		)	825		99	%	(10		)	431		98	%
Foreign government	—			4		100	%	—			—		—	%
Residential MBS	(1		)	118		99	%	(5		)	118		96	%
Commercial MBS	(1		)	67		99	%	—			—		—	%
Asset-backed securities	(7		)	1,195		99	%	(9		)	299		97	%
Corporate and other	(20		)	2,031		99	%	(18		)	603		97	%
Total fixed maturities	$	(37	)	$	4,295	99	%	$	(45	)	$	1,574	97	%
Equity securities:
Common stocks	$	(22	)	$	117	84	%	$	—		$	—	—	%
Perpetual preferred stocks	—			41		100	%	(1		)	13		93	%
Total equity securities	$	(22	)	$	158	88	%	$	(1	)	$	13	93	%

At September 30, 2018, the gross unrealized losses on fixed maturities of $543 million relate to 2,392 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 95% of the gross unrealized loss and 96% 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 2018, AFG recorded $1 million in other-than-temporary impairment charges related to its residential MBS.

In the first nine months of 2018, AFG recorded $2 million in other-than-temporary impairment charges related to corporate bonds and other fixed maturities.

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, 2018. As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities previously classified as “available for sale” are required to be carried at fair value through net earnings instead of accumulated other comprehensive income and therefore are no longer evaluated for other-than-temporary impairment.

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):

	2018			2017
Balance at June 30	$	144		$	145
Additional credit impairments on:
Previously impaired securities	—			—
Securities without prior impairments	—			3
Reductions due to sales or redemptions	(1		)	(1		)
Balance at September 30	$	143		$	147
Balance at January 1	$	145		$	153
Additional credit impairments on:
Previously impaired securities	—			1
Securities without prior impairments	1			3
Reductions due to sales or redemptions	(3		)	(10		)
Balance at September 30	$	143		$	147

The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2018 (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	$	1,212	$	1,223	3	%
After one year through five years	8,150		8,184		20	%
After five years through ten years	13,372		13,211		33	%
After ten years	4,749		4,687		12	%
	27,483		27,305		68	%
ABS (average life of approximately 4-1/2 years)	9,249		9,307		23	%
MBS (average life of approximately 4-1/2 years)	3,321		3,632		9	%
Total	$	40,053	$	40,244	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 September 30, 2018 or December 31, 2017.

Net Unrealized Gain on Marketable Securities   In addition to adjusting fixed maturity securities and equity 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			Net
September 30, 2018
Net unrealized gain on:
Fixed maturities — annuity segment (a)	$	143		$	(30	)	$	113
Fixed maturities — all other	48			(10		)	38
Total fixed maturities	191			(40		)	151
Deferred policy acquisition costs — annuity segment	(56		)	12			(44		)
Annuity benefits accumulated	(18		)	3			(15		)
Unearned revenue	1			—			1
Total net unrealized gain on marketable securities	$	118		$	(25	)	$	93
December 31, 2017
Net unrealized gain on:
Fixed maturities — annuity segment (a)	$	1,082		$	(227	)	$	855
Fixed maturities — all other	259			(55		)	204
Total fixed maturities	1,341			(282		)	1,059
Equity securities (b)	279			(58		)	221
Total investments	1,620			(340		)	1,280
Deferred policy acquisition costs — annuity segment	(433		)	91			(342		)
Annuity benefits accumulated	(137		)	29			(108		)
Unearned revenue	13			(3		)	10
Total net unrealized gain on marketable securities	$	1,063		$	(223	)	$	840

(a) Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.

(b) As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings.

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,
	2018			2017			2018			2017
Investment income:
Fixed maturities	$	440		$	405		$	1,283		$	1,191
Equity securities:
Dividends	19			17			59			53
Change in fair value (*)	2			—			16			4
Equity in earnings of partnerships and similar investments	41			20			128			51
Other	31			33			82			80
Gross investment income	533			475			1,568			1,379
Investment expenses	(6		)	(4		)	(16		)	(13		)
Net investment income	$	527		$	471		$	1,552		$	1,366

(*) As discussed in Note A — “Accounting Policies — Investments,” AFG adopted guidance in January 2018 that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on equity securities classified as “trading” under the previous guidance and on a small portfolio of limited partnership and similar investments that do not qualify for the equity method of accounting.

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 September 30, 2018												Three months ended September 30, 2017
	Realized gains (losses)												Realized gains (losses)
	Before Impairments			Impairments			Total			Change in Unrealized			Before Impairments			Impairments			Total			Change in Unrealized
Fixed maturities	$	—		$	(2	)	$	(2	)	$	(213	)	$	9		$	(15	)	$	(6	)	$	133
Equity securities	33			—			33			—			19			(29		)	(10		)	24
Mortgage loans and other investments	—			—			—			—			—			—			—			—
Other (*)	3			—			3			89			(2		)	6			4			(53		)
Total pretax	36			(2		)	34			(124		)	26			(38		)	(12		)	104
Tax effects	(8		)	1			(7		)	26			(9		)	13			4			(37		)
Net of tax	$	28		$	(1	)	$	27		$	(98	)	$	17		$	(25	)	$	(8	)	$	67
	Nine months ended September 30, 2018												Nine months ended September 30, 2017
	Realized gains (losses)												Realized gains (losses)
	Before Impairments			Impairments			Total			Change in Unrealized			Before Impairments			Impairments			Total			Change in Unrealized
Fixed maturities	$	3		$	(3	)	$	—		$	(1,150	)	$	25		$	(16	)	$	9		$	597
Equity securities	(39		)	—			(39		)	—			29			(49		)	(20		)	116
Mortgage loans and other investments	—			—			—			—			3			—			3			—
Other (*)	11			—			11			484			(5		)	12			7			(248		)
Total pretax	(25		)	(3		)	(28		)	(666		)	52			(53		)	(1		)	465
Tax effects	5			1			6			140			(18		)	18			—			(163		)
Net of tax	$	(20	)	$	(2	)	$	(22	)	$	(526	)	$	34		$	(35	)	$	(1	)	$	302

(*) Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.

As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings. AFG recorded net holding gains (losses) on equity securities during the third quarter and first nine months of 2018 on securities that were still owned at September 30, 2018 as follows (in millions):

	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
Included in realized gains (losses)	$	25	$	(51	)
Included in net investment income	2		16
	$	27	$	(35	)

Gross realized gains and losses (excluding impairment write-downs and mark-to-market of derivatives) on available for sale fixed maturity investment transactions consisted of the following (in millions):

	Nine months ended September 30,
	2018			2017
Fixed maturities:
Gross gains	$	19		$	32
Gross losses	(8		)	(4		)

In the first nine months of 2017, AFG recorded gross gains of $36 million and gross losses of $6 million on available for sale equity securities.

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Derivatives

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

As discussed under “Derivatives” in Note A — “Accounting Policies,” AFG uses derivatives in certain areas of its operations.

Derivatives That Do Not Qualify for Hedge Accounting   The following derivatives that do not qualify for hedge accounting under GAAP are included in AFG’s Balance Sheet at fair value (in millions):

		September 30, 2018				December 31, 2017
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	110	$	—	$	105	$	—
Public company warrants	Equity securities	3		—		4		—
Fixed-indexed and variable-indexed annuities (embedded derivative)	Annuity benefits accumulated	—		3,105		—		2,542
Equity index call options	Equity index call options	759		—		701		—
Equity index put options	Other liabilities	—		—		—		—
Reinsurance contracts (embedded derivative)	Other liabilities	—		2		—		4
		$	872	$	3,107	$	810	$	2,546

The MBS with embedded derivatives consist of interest-only and principal-only MBS. AFG records the entire change in the fair value of these securities in earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.

Warrants to purchase shares of publicly traded companies, which represent a small component of AFG’s overall investment portfolio, are considered to be derivatives that are required to be carried at fair value through earnings.

AFG’s fixed-indexed and variable-indexed annuities provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market or other financial index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase and sale of call and put options on the appropriate index. AFG receives collateral from certain counterparties to support its purchased call option assets (net of collateral required under put option contracts with the same counterparties). This collateral ($545 million at September 30, 2018 and $389 million at December 31, 2017) is included in other assets in AFG’s Balance Sheet with an offsetting liability to return the collateral, which is included in other liabilities. AFG’s strategy is designed so that the change in the fair value of the call and put options will generally offset the economic change in the liabilities from the index participation. Both the index-based component of the annuities and the related call and put options are considered derivatives. Fluctuations in interest rates and the stock market, among other factors, can cause volatility in the periodic measurement of fair value of the embedded derivative that management believes can be inconsistent with the long-term economics of these products.

As discussed under “Reinsurance” in Note A, AFG has a reinsurance contract that is considered to contain an embedded derivative.

The following table summarizes the gains (losses) included in AFG’s Statement of Earnings for changes in the fair value of derivatives that do not qualify for hedge accounting for the third quarter and first nine months of 2018 and 2017 (in millions):

		Three months ended September 30,						Nine months ended September 30,
Derivative	Statement of Earnings Line	2018			2017			2018			2017
MBS with embedded derivatives	Realized gains (losses) on securities	$	(3	)	$	—		$	(8	)	$	(3	)
Public company warrants	Realized gains (losses) on securities	1			(1		)	—			(1		)
Fixed-indexed and variable-indexed annuities (embedded derivative) (*)	Annuity benefits	(223		)	(127		)	(286		)	(386		)
Equity index call options	Annuity benefits	219			116			271			338
Equity index put options	Annuity benefits	—			—			—			—
Reinsurance contract (embedded derivative)	Net investment income	—			—			2			(2		)
		$	(6	)	$	(12	)	$	(21	)	$	(54	)

(*) The change in fair value of the embedded derivative for the nine months ended September 30, 2018 includes a $44 million charge in the second quarter of 2018 related to the unlocking of actuarial assumptions.

Derivatives Designated and Qualifying as Cash Flow Hedges   As of September 30, 2018, AFG has entered into fourteen interest rate swaps that are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities included in AFG’s portfolio of fixed maturity securities. The purpose of each of these swaps is to effectively convert a portion of AFG’s floating-rate fixed maturity securities to fixed rates by offsetting the variability in cash flows attributable to changes in short-term LIBOR.

Under the terms of the swaps, AFG receives fixed-rate interest payments in exchange for variable interest payments based on short-term LIBOR. The notional amounts of the interest rate swaps generally decline over each swap’s respective life (the swaps expire between August 2019 and June 2030) in anticipation of the expected decline in AFG’s portfolio of fixed maturity securities with floating interest rates based on short-term LIBOR. The total outstanding notional amount of AFG’s interest rate swaps was $2.17 billion at September 30, 2018 compared to $1.58 billion at December 31, 2017, reflecting four new swaps with an aggregate notional amount at issuance of $697 million entered into in the first nine months of 2018, partially offset by the scheduled amortization discussed above. The fair value of the effective portion of the interest rate swaps in an asset position and included in other assets was zero at September 30, 2018 and less than $1 million at December 31, 2017. The fair value of the effective portion of the interest rate swaps in a liability position and included in other liabilities was $81 million at September 30, 2018 and $31 million at December 31, 2017. The net unrealized gain or loss on cash flow hedges is included in AOCI, net of DPAC and deferred taxes. Amounts reclassified from AOCI (before DPAC and taxes) to net investment income were losses of $1 million and $2 million during the third quarter and first nine months of 2018 as compared to income of $1 million and $4 million in the third quarter and first nine months of 2017, respectively. There was no ineffectiveness recorded in net earnings during these periods. A collateral receivable supporting these swaps of $126 million at September 30, 2018 and $70 million at December 31, 2017 is included in other assets in AFG’s Balance Sheet.

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Deferred Policy Acquisition Costs

9 Months Ended

Sep. 30, 2018

Deferred Policy Acquisition Costs Disclosures [Abstract]

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs

A progression of deferred policy acquisition costs is presented below (in millions):

	P&C			Annuity and Other
	Deferred			Deferred			Sales															Consolidated
	Costs			Costs			Inducements			PVFP			Subtotal			Unrealized (*)			Total			Total
Balance at June 30, 2018	$	298		$	1,243		$	94		$	45		$	1,382		$	(98	)	$	1,284		$	1,582
Additions	181			65			1			—			66			—			66			247
Amortization:
Periodic amortization	(171		)	(58		)	(5		)	(2		)	(65		)	—			(65		)	(236		)
Included in realized gains	—			3			—			—			3			—			3			3
Foreign currency translation	—			—			—			—			—			—			—			—
Change in unrealized	—			—			—			—			—			73			73			73
Balance at September 30, 2018	$	308		$	1,253		$	90		$	43		$	1,386		$	(25	)	$	1,361		$	1,669
Balance at June 30, 2017	$	258		$	1,167		$	103		$	42		$	1,312		$	(414	)	$	898		$	1,156
Additions	149			44			1			—			45			—			45			194
Amortization:
Periodic amortization	(142		)	(44		)	(4		)	(2		)	(50		)	—			(50		)	(192		)
Included in realized gains	—			4			—			—			4			—			4			4
Foreign currency translation	1			—			—			—			—			—			—			1
Change in unrealized	—			—			—			—			—			(44		)	(44		)	(44		)
Balance at September 30, 2017	$	266		$	1,171		$	100		$	40		$	1,311		$	(458	)	$	853		$	1,119
Balance at December 31, 2017	$	270		$	1,217		$	102		$	49		$	1,368		$	(422	)	$	946		$	1,216
Additions	524			192			2			—			194			—			194			718
Amortization:
Periodic amortization	(485		)	(193		)	(15		)	(6		)	(214		)	—			(214		)	(699		)
Annuity unlocking	—			28			1			—			29			—			29			29
Included in realized gains	—			9			—			—			9			—			9			9
Foreign currency translation	(1		)	—			—			—			—			—			—			(1		)
Change in unrealized	—			—			—			—			—			397			397			397
Balance at September 30, 2018	$	308		$	1,253		$	90		$	43		$	1,386		$	(25	)	$	1,361		$	1,669
Balance at December 31, 2016	$	238		$	1,110		$	110		$	46		$	1,266		$	(265	)	$	1,001		$	1,239
Additions	439			177			3			—			180			—			180			619
Amortization:
Periodic amortization	(413		)	(122		)	(14		)	(6		)	(142		)	—			(142		)	(555		)
Included in realized gains	—			6			1			—			7			—			7			7
Foreign currency translation	2			—			—			—			—			—			—			2
Change in unrealized	—			—			—			—			—			(193		)	(193		)	(193		)
Balance at September 30, 2017	$	266		$	1,171		$	100		$	40		$	1,311		$	(458	)	$	853		$	1,119

(*) Unrealized adjustments to DPAC includes net unrealized gains/losses on securities and net unrealized gains/losses on cash flow hedges.

The present value of future profits (“PVFP”) amounts in the table above are net of $147 million and $141 million of accumulated amortization at September 30, 2018 and December 31, 2017, respectively.

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Managed Investment Entities

9 Months Ended

Sep. 30, 2018

Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract]

Managed Investment Entities

Managed Investment Entities

AFG is the investment manager and its subsidiaries have investments ranging from 15.0% to 60.9% of the most subordinate debt tranche of fifteen 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 2018, 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 $191 million (including $133 million invested in the most subordinate tranches) at September 30, 2018, and $215 million at December 31, 2017.

In March 2018 and March 2017, AFG formed new CLOs, which issued $463 million and $408 million face amount of liabilities, respectively (including $31 million and $24 million face amount purchased by subsidiaries of AFG). During the first nine months of 2017, AFG subsidiaries also purchased $58 million face amount of senior debt and subordinate tranches of existing CLOs for $58 million. During the first nine months of 2018 and 2017, AFG subsidiaries received $45 million and $86 million, respectively, in sale and redemption proceeds from its CLO investments. During the first nine months of 2018 and 2017, one and two AFG CLOs, respectively, were substantially liquidated, as permitted by the CLO indentures.

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. Selected financial information related to the CLOs is shown below (in millions):

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Investment in CLO tranches at end of period	$	191		$	261		$	191		$	261
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	20			(8		)	5			(12		)
Liabilities	(25		)	9			(15		)	24
Management fees paid to AFG	4			5			12			14
CLO earnings (losses) attributable to AFG shareholders (b)	4			5			11			16

(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 $45 million and $55 million at September 30, 2018 and December 31, 2017, respectively. The aggregate unpaid principal balance of the CLOs’ debt exceeded its carrying value by $160 million and $118 million at those dates. The CLO assets include loans with an aggregate fair value of $1 million at both September 30, 2018 and December 31, 2017, for which the CLOs are not accruing interest because the loans are in default (aggregate unpaid principal balance of $8 million at both those dates).

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Goodwill and Other Intangibles

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangibles

Goodwill and Other Intangibles

There were no changes in the goodwill balance of $199 million during the first nine months of 2018. Included in other assets in AFG’s Balance Sheet is $31 million at September 30, 2018 and $26 million at December 31, 2017 in amortizable intangible assets related to property and casualty insurance acquisitions. These amounts are net of accumulated amortization of $37 million and $30 million, respectively. Amortization of intangibles was $3 million and $2 million in the third quarter of 2018 and 2017, respectively, and $7 million and $6 million in the first nine months of 2018 and 2017.

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Long-Term Debt

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Long-Term Debt

Long-Term Debt

Long-term debt consisted of the following (in millions):

	September 30, 2018							December 31, 2017
	Principal		Discount and Issue Costs			Carrying Value		Principal		Discount and Issue Costs			Carrying Value
Direct Senior Obligations of AFG:
4.50% Senior Notes due June 2047	$	590	$	(2	)	$	588	$	590	$	(2	)	$	588
3.50% Senior Notes due August 2026	425		(4		)	421		425		(5		)	420
Other	3		—			3		3		—			3
	1,018		(6		)	1,012		1,018		(7		)	1,011
Direct Subordinated Obligations of AFG:
6-1/4% Subordinated Debentures due September 2054	150		(5		)	145		150		(5		)	145
6% Subordinated Debentures due November 2055	150		(5		)	145		150		(5		)	145
	300		(10		)	290		300		(10		)	290
	$	1,318	$	(16	)	$	1,302	$	1,318	$	(17	)	$	1,301

AFG has no scheduled principal payments on its long-term debt for the balance of 2018 or in the subsequent five years.

AFG can borrow up to $500 million under its revolving credit facility, which expires in June 2021. Amounts borrowed under this agreement bear interest at rates ranging from 1.00% to 1.875% (currently 1.375%) over LIBOR based on AFG’s credit rating. No amounts were borrowed under this facility at September 30, 2018 or December 31, 2017.

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Redeemable Noncontrolling Interests

9 Months Ended

Sep. 30, 2018

Noncontrolling Interest [Abstract]

Redeemable Noncontrolling Interests

Redeemable Noncontrolling Interests

Neon Lloyd’s Business   On December 29, 2017, AFG completed the sale of an indirect noncontrolling interest in Neon, its United Kingdom-based Lloyd’s insurer, to certain Neon executives for cash equal to the fair value of the interest sold as determined by a third-party valuation firm. This noncontrolling interest is redeemable at the option of the holder and is presented separately in the mezzanine section of the balance sheet, as discussed in Note A — “Accounting Policies — Noncontrolling Interests.”

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Shareholders' Equity

9 Months Ended

Sep. 30, 2018

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Shareholders’ Equity

AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.

Accumulated Other Comprehensive Income, Net of Tax (“AOCI”)   Comprehensive income is defined as all changes in shareholders’ equity except those arising from transactions with shareholders. Comprehensive income includes net earnings and other comprehensive income, which consists primarily of changes in net unrealized gains or losses on available for sale securities.

The progression of the components of accumulated other comprehensive income follows (in millions):

				Other Comprehensive Income (Loss)
	AOCI Beginning Balance			Pretax			Tax			Net of tax			Attributable to noncontrolling interests		Attributable to shareholders			Other (c)			AOCI Ending Balance
Quarter ended September 30, 2018
Net unrealized gains (losses) on securities:
Unrealized holding losses on securities arising during the period				$	(122	)	$	26		$	(96	)	$	—	$	(96	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(2		)	—			(2		)	—		(2		)
Total net unrealized gains (losses) on securities (b)	$	191		(124		)	26			(98		)	—		(98		)	$	—		$	93
Net unrealized losses on cash flow hedges	(27		)	(6		)	1			(5		)	—		(5		)	—			(32		)
Foreign currency translation adjustments	(9		)	—			—			—			—		—			—			(9		)
Pension and other postretirement plans adjustments	(8		)	—			—			—			—		—			—			(8		)
Total	$	147		$	(130	)	$	27		$	(103	)	$	—	$	(103	)	$	—		$	44
Quarter ended September 30, 2017
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period				$	92		$	(33	)	$	59		$	—	$	59
Reclassification adjustment for realized (gains) losses included in net earnings (a)				12			(4		)	8			—		8
Total net unrealized gains on securities	$	639		104			(37		)	67			—		67			$	—		$	706
Net unrealized losses on cash flow hedges	(6		)	(1		)	1			—			—		—			—			(6		)
Foreign currency translation adjustments	(11		)	5			2			7			—		7			—			(4		)
Pension and other postretirement plans adjustments	(7		)	—			—			—			—		—			—			(7		)
Total	$	615		$	108		$	(34	)	$	74		$	—	$	74		$	—		$	689
Nine months ended September 30, 2018
Net unrealized gains (losses) on securities:
Unrealized holding losses on securities arising during the period				$	(662	)	$	139		$	(523	)	$	—	$	(523	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(4		)	1			(3		)	—		(3		)
Total net unrealized gains (losses) on securities (b)	$	840		(666		)	140			(526		)	—		(526		)	$	(221	)	$	93
Net unrealized losses on cash flow hedges	(13		)	(24		)	5			(19		)	—		(19		)	—			(32		)
Foreign currency translation adjustments	(6		)	(2		)	(1		)	(3		)	—		(3		)	—			(9		)
Pension and other postretirement plans adjustments	(8		)	—			—			—			—		—			—			(8		)
Total	$	813		$	(692	)	$	144		$	(548	)	$	—	$	(548	)	$	(221	)	$	44
Nine months ended September 30, 2017
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period				$	461		$	(162	)	$	299		$	—	$	299
Reclassification adjustment for realized (gains) losses included in net earnings (a)				4			(1		)	3			—		3
Total net unrealized gains on securities	$	404		465			(163		)	302			—		302			$	—		$	706
Net unrealized gains (losses) on cash flow hedges	(7		)	1			—			1			—		1			—			(6		)
Foreign currency translation adjustments	(15		)	8			3			11			—		11			—			(4		)
Pension and other postretirement plans adjustments	(7		)	—			—			—			—		—			—			(7		)
Total	$	375		$	474		$	(160	)	$	314		$	—	$	314		$	—		$	689

(a)The reclassification adjustment out of net unrealized gains (losses) on securities affected the following lines in AFG’s Statement of Earnings:

OCI component	Affected line in the statement of earnings
Pretax	Realized gains (losses) on securities
Tax	Provision for income taxes

(b) Includes net unrealized gains of $64 million at September 30, 2018 compared to $67 million at June 30, 2018 and $68 million at December 31, 2017 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

(c) On January 1, 2018, AFG adopted new guidance that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities classified as available for sale (with unrealized holding gains and losses reported in AOCI) under the prior guidance was reclassified from AOCI to retained earnings as the cumulative effect of an accounting change.

Stock Incentive Plans   Under AFG’s stock incentive plans, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first nine months of 2018, AFG issued 200,625 shares of restricted Common Stock (fair value of $112.86 per share) under the Stock Incentive Plan. In addition, AFG issued 45,804 shares of Common Stock (fair value of $115.49 per share) in the first quarter of 2018 under the Equity Bonus Plan. AFG did not grant any stock options in the first nine months of 2018.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $6 million and $7 million in the third quarters of 2018 and 2017 and $17 million and $24 million in the first nine months of 2018 and 2017, respectively.

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following is a reconciliation of income taxes at the statutory rate (21% in 2018 and 35% in 2017) 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,
	2018					2017					2018					2017
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	244				$	29				$	678				$	457
Income taxes at statutory rate	$	51		21	%	$	10		35	%	$	142		21	%	$	160		35	%
Effect of:
Adjustment to prior year taxes	(9		)	(4	%)	(2		)	(7	%)	(9		)	(1	%)	(2		)	(1	%)
Tax exempt interest	(3		)	(1	%)	(5		)	(17	%)	(10		)	(1	%)	(17		)	(4	%)
Dividends received deduction	(1		)	—	%	(2		)	(7	%)	(3		)	—	%	(6		)	(1	%)
Employee Stock Ownership Plan dividends paid deduction	(1		)	—	%	—			—	%	(2		)	—	%	(2		)	—	%
Stock-based compensation	—			—	%	(1		)	(3	%)	(7		)	(1	%)	(14		)	(3	%)
Foreign operations	—			—	%	1			3	%	3			—	%	7			2	%
Nondeductible expenses	1			—	%	2			7	%	5			1	%	5			1	%
Change in valuation allowance	1			—	%	16			55	%	3			—	%	16			4	%
Other	2			1	%	(1		)	(4	%)	4			—	%	(1		)	(1	%)
Provision for income taxes as shown in the statement of earnings	$	41		17	%	$	18		62	%	$	126		19	%	$	146		32	%

AFG’s effective tax rate for the three months ended September 30, 2017 reflects the impact of catastrophe losses in the Neon Lloyd’s insurance business for which no tax benefit is recognized. AFG maintains a full valuation allowance against the deferred tax benefits associated with losses related to Neon. Excluding the $53 million in catastrophe losses at Neon, AFG’s effective tax rate for the three months ended September 30, 2017 was 22%, which reflects the impact of a typical level of tax-favored investment income on lower earnings before income taxes.

The favorable impact of stock-based compensation on AFG’s effective tax rate in the first nine months of 2018 and 2017 reflects the high volume of employee stock option exercises during that period and the increase in the market price of AFG Common Stock.

The Tax Cuts and Jobs Act of 2017 (“TCJA”), which was enacted on December 22, 2017, lowered the U.S corporate tax rate to 21% and made other widespread changes to the U.S. tax code effective in 2018. Because the TCJA was enacted in December 2017, AFG recorded the $83 million decrease in its net deferred tax asset resulting from the changes in the tax code (primarily the lower corporate tax rate applicable to 2018 and future years) in the fourth quarter of 2017.

The TCJA is subject to further clarification and interpretation by the U.S. Treasury Department and the Internal Revenue Service. For example, the TCJA changes the way that companies calculate their insurance claims and reserves for tax purposes, including revaluing those tax basis liabilities as of January 1, 2018, based on a methodology and discount factors that have not been published. The resulting transitional deferred tax liability (taxes payable over eight years under the TCJA) and offsetting increase in AFG’s insurance claims and reserves deferred tax assets, were recorded at December 31, 2017 using reasonable estimates based on available information and should be considered provisional in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”). Because the established transition liability was completely offset by an increase in related deferred tax assets, any adjustment to the provisional amount will not impact AFG’s effective tax rate. In accordance with SAB 118, the insurance claims and reserves transitional deferred tax liability (and offsetting adjustment to the related deferred tax assets) and any other changes in deferred taxes resulting from clarification and interpretation of the TCJA provided during 2018 will be recorded in the period in which the guidance is published (none through September 30, 2018).

Approximately $19 million of AFG’s net operating loss carryforwards (“NOL”) subject to separate return limitation year (“SRLY”) tax rules will expire unutilized at December 31, 2018. Since AFG maintains a full valuation allowance against its SRLY NOLs, the expiration of these loss carryforwards will be offset by a corresponding reduction in the valuation allowance and will have no overall impact on AFG’s income tax expense or results of operations.

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Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies

There have been no significant changes to the matters discussed and referred to in Note M — “Contingencies” of AFG’s 2017 Form 10-K, which covers property and casualty insurance reserves for claims related to environmental exposures, asbestos and other mass tort claims and environmental and occupational injury and disease claims of former subsidiary railroad and manufacturing operations, as well as contingencies related to the sale of substantially all of AFG’s run-off long-term care insurance business.

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Insurance

9 Months Ended

Sep. 30, 2018

Insurance [Abstract]

Insurance

Insurance

Property and Casualty Insurance Reserves The following table provides an analysis of changes in the liability for losses and loss adjustment expenses during the first nine months of 2018 and 2017 (in millions):

	Nine months ended September 30,
	2018			2017
Balance at beginning of year	$	9,678		$	8,563
Less reinsurance recoverables, net of allowance	2,957			2,302
Net liability at beginning of year	6,721			6,261
Provision for losses and LAE occurring in the current period	2,337			2,237
Net increase (decrease) in the provision for claims of prior years:
Special A&E charges	18			89
Other	(149		)	(87		)
Total losses and LAE incurred	2,206			2,239
Payments for losses and LAE of:
Current year	(569		)	(530		)
Prior years	(1,313		)	(1,272		)
Total payments	(1,882		)	(1,802		)
Reserves of business disposed (*)	(319		)	—
Foreign currency translation and other	(4		)	32
Net liability at end of period	6,722			6,730
Add back reinsurance recoverables, net of allowance	2,948			2,833
Gross unpaid losses and LAE included in the balance sheet at end of period	$	9,670		$	9,563

(*) Reflects the reinsurance to close transaction at Neon discussed below.

The net decrease in the provision for claims of prior years during the first nine months of 2018 reflects (i) lower than expected losses in the crop business and lower than expected severity in claims at National Interstate (within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation and executive liability businesses (within the Specialty casualty sub-segment), and (iii) lower than expected claim frequency and severity in the surety business and lower than expected claim severity in the fidelity business (within the Specialty financial sub-segment). This favorable development was partially offset by (i) the $18 million special charge to increase asbestos and environmental reserves and (ii) higher than expected claim severity in the Singapore branch and aviation operations (within the Property and transportation sub-segment).

The net increase in the provision for claims of prior years during the first nine months of 2017 reflects (i) the $89 million special charge to increase asbestos and environmental reserves, (ii) higher than expected claim severity in the ocean marine business (within the Property and transportation sub-segment), (iii) higher than anticipated claim severity in the targeted markets and general liability businesses (all within the Specialty casualty sub-segment) and (iv) an adjustment to the deferred gain on the retroactive reinsurance transaction entered into in connection with the sale of businesses in 1998 (included in Other specialty sub-segment). This adverse development was partially offset by (i) lower than expected losses in the crop and equine businesses and lower than expected claim severity in the property and inland marine and transportation businesses (all within the Property and transportation sub-segment), (ii) lower than anticipated claim severity in the workers’ compensation businesses and at Neon (all within the Specialty casualty sub-segment) and (iii) lower than anticipated claim severity in the fidelity business and lower than expected claim frequency and severity in the surety business (both within the Specialty financial sub-segment).

In December 2017, the Neon Lloyd’s syndicate entered into a reinsurance to close transaction for the 2015 and prior years of account with StarStone Underwriting Limited, a subsidiary of Enstar Group Limited, which was effective as of December 31, 2017 (the transaction settled in early 2018). In the Lloyd’s market, a reinsurance to close transaction transfers the responsibility for discharging all of the liabilities that attach to the transferred year of account plus the right to any income due to the closing year of account in return for a premium. This transaction provided Neon with finality on its legacy business.

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Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation   The accompanying consolidated financial statements for American Financial Group, Inc. and its subsidiaries (“AFG”) are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles (“GAAP”).

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to September 30, 2018, and prior to the filing of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Fair Value Measurements

Fair Value Measurements   Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. AFG did not have any significant nonrecurring fair value measurements in the first nine months of 2018.

Investments

Investments On January 1, 2018, AFG adopted Accounting Standards Update (“ASU”) 2016-01, which requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At December 31, 2017, AFG had $1.60 billion in equity securities classified as “available for sale” under the prior guidance with holding gains and losses included in accumulated other comprehensive income (“AOCI”) instead of net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities included in AOCI was reclassified to retained earnings as the cumulative effect of an accounting change. The cumulative effect of the accounting change also includes the net unrealized gain on AFG’s small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under the new guidance ($4 million net of tax at the date of adoption).

Holding gains and losses on equity securities carried at fair value under ASU 2016-01 are generally recorded in realized gains (losses) on securities. However, prior to the adoption of the new guidance, AFG classified a small portion of its equity securities as “trading” and reported those investments at fair value with holding gains and losses recognized in net investment income. These investments consisted primarily of equity securities held to offset the impact of changes in the stock market on employee benefit plans that are impacted by stock market performance and totaled $62 million at December 31, 2017. Following the adoption of the new guidance, AFG continues to record holding gains and losses on these securities, as well as its small portfolio of limited partnerships and similar investments carried at fair value under the new guidance and certain other securities classified at purchase as “fair value through net investment income” in net investment income.

Under the new guidance, AFG recorded holding losses of $35 million on equity securities in net earnings during the first nine months of 2018 on securities that were still owned at September 30, 2018. Under the prior guidance, these holding losses would have been recorded in AOCI (with the exception of any impairment charge that may have been recorded). Because almost all of the equity securities impacted by the new guidance were carried at fair value through AOCI under the prior guidance, the adoption of the new guidance did not have a material impact on AFG’s financial position.

Fixed maturity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in AOCI in AFG’s Balance Sheet. Fixed maturity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in net investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the effective interest method. Mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Limited partnerships and similar investments are generally accounted for using the equity method of accounting. Under the equity method, AFG records its share of the earnings or losses of the investee based on when they are reported by the investee in its financial statements rather than in the period in which the investee declares a dividend. AFG’s share of the earnings or losses from equity method investments is generally recorded on a quarter lag due to the timing of the receipt of the investee’s financial statements. AFG’s equity in the earnings (losses) of limited partnerships and similar investments is included in net investment income.

Gains or losses on fixed maturity securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses) on securities) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in other comprehensive income). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the statement of earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value. Changes in fair value of derivatives are included in earnings, unless the derivatives are designated and qualify as highly effective cash flow hedges. Derivatives that do not qualify for hedge accounting under GAAP consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related equity index options designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products.

To qualify for hedge accounting, at the inception of a derivative contract, AFG formally documents the relationship between the terms of the hedge and the hedged items and its risk management objective. This documentation includes defining how hedge effectiveness and ineffectiveness will be measured on a retrospective and prospective basis.

Changes in the fair value of derivatives that are designated and qualify as highly effective cash flow hedges are recorded in AOCI and are reclassified into earnings when the variability of the cash flows from the hedged items impacts earnings. Any hedge ineffectiveness is immediately recorded in current period earnings. When the change in the fair value of a qualifying cash flow hedge is included in earnings, it is included in the same line item in the statement of earnings as the cash flows from the hedged item. AFG uses interest rate swaps that are designated and qualify as highly effective cash flow hedges to mitigate interest rate risk related to certain floating-rate securities included in AFG’s portfolio of fixed maturity securities.

For derivatives that are designated and qualify as highly effective fair value hedges, changes in the fair value of the derivative, along with changes in the fair value of the hedged item attributable to the hedged risk, are recognized in current period earnings.

Goodwill

Goodwill   Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually. An entity is not required to complete the quantitative annual goodwill impairment test on a reporting unit if the entity elects to perform a qualitative analysis and determines that it is more likely than not that the reporting unit’s fair value exceeds its carrying amount.

Reinsurance

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (i) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (ii) amounts paid or due to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers, as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

An AFG subsidiary cedes life insurance policies to a third party on a funds withheld basis whereby the subsidiary retains the assets (securities) associated with the reinsurance contract. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. This reinsurance contract is considered to contain an embedded derivative (that must be adjusted to fair value) because the yield on the payable is based on a specific block of the ceding company’s assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolio of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to this contract are classified as “trading.” The adjustment to fair value on the embedded derivative offsets the investment income recorded on the adjustment to fair value of the related trading portfolio.

Deferred Policy Acquisition Costs (DPAC)

Deferred Policy Acquisition Costs (“DPAC”)   Policy acquisition costs (principally commissions, premium taxes and certain underwriting and policy issuance costs) directly related to the successful acquisition or renewal of an insurance contract are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses and unamortized acquisition costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and annuity policy charges, less death, annuitization and guaranteed withdrawal benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses) on securities.

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. See “Life, Accident and Health Reserves” below for details on the impact of loss recognition on the accounting for traditional life and health insurance contracts.

DPAC includes the present value of future profits on business in force of annuity and life, accident and health insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

DPAC and certain other balance sheet amounts related to annuity and life businesses are also adjusted, net of tax, for the change in expense that would have been recorded if the unrealized gains (losses) from securities had actually been realized. These adjustments are included in unrealized gains (losses) on marketable securities, a component of AOCI in AFG’s Balance Sheet.

Managed Investment Entities

Managed Investment EntitiesA company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, collateralized loan obligations (“CLOs”) that are VIEs (see Note G — “Managed Investment Entities”). AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) through its investment in the CLO debt tranches, it has exposure to CLO losses (limited to the amount AFG invested) and the right to receive CLO benefits that could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The net gain or loss from accounting for the CLO assets and liabilities at fair value is presented separately in AFG’s Statement of Earnings.

The fair values of a CLO’s assets may differ from the separately measured fair values of its liabilities even though the CLO liabilities only have recourse to the CLO assets. AFG has set the carrying value of the CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at a separately measured fair value. CLO earnings attributable to AFG’s shareholders are measured by the change in the fair value of AFG’s investments in the CLOs and management fees earned.

Unpaid Losses and Loss Adjustment Expenses

Unpaid Losses and Loss Adjustment Expenses   The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims represent management’s best estimate and are based upon (i) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of unreported losses (including possible development on known claims) based on past experience; (iv) estimates based on experience of expenses for investigating and adjusting claims; and (v) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the statement of earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated

Annuity Benefits Accumulated   Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to annuity benefits expense and decreases for annuity policy charges are recorded in other income. For traditional fixed annuities, the liability for annuity benefits accumulated represents the account value that has accrued to the benefit of the policyholder as of the balance sheet date. For fixed-indexed annuities, the liability or annuity benefits accumulated includes an embedded derivative that represents the estimated fair value of the index participation with the remaining component representing the discounted value of the guaranteed minimum contract benefits.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses, guaranteed withdrawals and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liabilities for EDAR and guaranteed withdrawals are accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and annuity policy charges, and unearned revenues once they are recognized as income.

Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati.

Unearned Revenue

Unearned Revenue   Certain upfront policy charges on annuities are deferred as unearned revenue (included in other liabilities) and recognized in net earnings (included in other income) using the same assumptions and estimated gross profits used to amortize DPAC.

Life, Accident and Health Reserves

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations unless a loss recognition event (premium deficiency) occurs. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

For long-duration contracts (such as traditional life and long-term care policies), loss recognition occurs when, based on current expectations as of the measurement date, existing contract liabilities plus the present value of future premiums (including reasonably expected rate increases) are not expected to cover the present value of future claims payments and related settlement and maintenance costs (excluding overhead) as well as unamortized acquisition costs. If a block of business is determined to be in loss recognition, a charge is recorded in earnings in an amount equal to the excess of the present value of expected future claims costs and unamortized acquisition costs over existing reserves plus the present value of expected future premiums (with no provision for adverse deviation). The charge is recorded first to reduce unamortized acquisition costs and then as an additional reserve (if unamortized acquisition costs have been reduced to zero).

In addition, reserves for traditional life and long-term care policies are subject to adjustment for loss recognition charges that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains (losses) on marketable securities, a component of AOCI in AFG’s Balance Sheet.

Debt Issuance Costs

Debt Issuance CostsDebt issuance costs related to AFG’s outstanding debt are presented in its Balance Sheet as a direct reduction in the carrying value of long-term debt and are amortized over the life of the related debt using the effective interest method as a component of interest expense. Debt issuance costs related to AFG’s revolving credit facilities are included in other assets in AFG’s Balance Sheet.

Variable Annuity Assets and Liabilities

Variable Annuity Assets and Liabilities   Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition

Premium Recognition   Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written, which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests

Noncontrolling Interests   For balance sheet purposes, noncontrolling interests represent the interests of shareholders other than AFG in consolidated entities. In the statement of earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities. Noncontrolling interests that are redeemable at the option of the holder are presented separately in the mezzanine section of the balance sheet (between liabilities and equity).

Income Taxes

Income Taxes   Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. A valuation allowance is established to reduce total deferred tax assets to an amount that will more likely than not be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recorded in net earnings in the period that includes the enactment date.

AFG recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained under examination by the appropriate taxing authority. Interest and penalties on AFG’s reserve for uncertain tax positions are recognized as a component of tax expense.

Stock-Based Compensation

Stock-Based Compensation   All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated fair value at the date of grant. AFG uses the Black Scholes pricing model to measure the fair value of employee stock options. See Note K — “Shareholders’ Equity” for further information.

AFG records excess tax benefits or deficiencies for share-based payments through income tax expense in the statement of earnings. In addition, AFG accounts for forfeitures of awards when they occur.

Benefit Plans

Benefit Plans   AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings Per Share

Earnings Per Share   Although basic earnings per share only considers shares of common stock outstanding during the period, the calculation of diluted earnings per share includes the following adjustments to weighted average common shares related to stock-based compensation plans: third quarter of 2018 and 2017 — 1.6 million and 1.9 million; first nine months of 2018 and 2017 — 1.7 million and 2.0 million, respectively.

There were no anti-dilutive potential common shares in the third quarter or first nine months of 2018 or 2017.

Statement of Cash Flows

Statement of Cash Flows   For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, surrenders, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

Revenue Recognition Guidance Effective in 2018

Revenue Recognition Guidance Effective in 2018 On January 1, 2018, AFG adopted ASU 2014-09, which provides guidance on recognizing revenue when (or as) performance obligations under the contract are satisfied. The new guidance also updates the accounting for certain costs associated with obtaining and fulfilling contracts with customers and requires certain new disclosures. Because revenue recognition for insurance contracts and financial instruments (AFG’s primary sources of revenue) were excluded from the scope of the new guidance, the adoption of ASU 2014-09 did not have a material impact on AFG’s results of operations or financial position.

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Segments of Operations (Tables)

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Segment Reporting Information, by Segment

The following tables (in millions) show AFG’s revenues and earnings before income taxes by segment and sub-segment.

	Three months ended September 30,					Nine months ended September 30,
	2018		2017			2018			2017
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	526	$	527		$	1,250		$	1,226
Specialty casualty	616		568			1,790			1,613
Specialty financial	149		142			457			435
Other specialty	36		30			98			80
Total premiums earned	1,327		1,267			3,595			3,354
Net investment income	108		94			323			276
Other income (a)	4		1			8			21
Total property and casualty insurance	1,439		1,362			3,926			3,651
Annuity:
Net investment income	413		375			1,219			1,082
Other income	27		26			80			79
Total annuity	440		401			1,299			1,161
Other	95		84			263			246
Total revenues before realized gains (losses)	1,974		1,847			5,488			5,058
Realized gains (losses) on securities	34		(12		)	(28		)	(1		)
Total revenues	$	2,008	$	1,835		$	5,460		$	5,057

Earnings Before Income Taxes
Property and casualty insurance:
Underwriting:
Specialty
Property and transportation	$	—		$	6		$	56		$	70
Specialty casualty	49			2			119			46
Specialty financial	9			(3		)	46			42
Other specialty	(3		)	4			(1		)	3
Other lines (b)	(17		)	(90		)	(19		)	(92		)
Total underwriting	38			(81		)	201			69
Investment and other income, net (a)	101			87			300			271
Total property and casualty insurance	139			6			501			340
Annuity	117			102			341			283
Other (c)	(46		)	(67		)	(136		)	(165		)
Total earnings before realized gains (losses) and income taxes	210			41			706			458
Realized gains (losses) on securities	34			(12		)	(28		)	(1		)
Total earnings before income taxes	$	244		$	29		$	678		$	457

(a) Includes income of $13 million (before noncontrolling interest) from the sale of a hotel in the first quarter of 2017.

(b) Includes special charges of $18 million and $89 million in the third quarter of 2018 and 2017, respectively, to increase asbestos and environmental (“A&E”) reserves.

(c) Includes holding company interest and expenses, including losses on retirement of debt of $4 million in the third quarter of 2017 and $7 million in the second quarter of 2017, and special charges of $9 million and $24 million in the third quarter of 2018 and 2017, respectively, to increase A&E reserves related to AFG’s former railroad and manufacturing operations.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value

Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
September 30, 2018
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	142	$	84	$	8	$	234
States, municipalities and political subdivisions	—		6,715		60		6,775
Foreign government	—		139		—		139
Residential MBS	—		2,564		145		2,709
Commercial MBS	—		866		57		923
Asset-backed securities	—		8,316		991		9,307
Corporate and other	29		18,482		1,646		20,157
Total AFS fixed maturities	171		37,166		2,907		40,244
Trading fixed maturities	9		94		—		103
Equity securities	1,462		76		289		1,827
Equity index call options	—		759		—		759
Assets of managed investment entities (“MIE”)	258		4,718		22		4,998
Variable annuity assets (separate accounts) (*)	—		650		—		650
Total assets accounted for at fair value	$	1,900	$	43,463	$	3,218	$	48,581
Liabilities:
Liabilities of managed investment entities	$	248	$	4,537	$	22	$	4,807
Derivatives in annuity benefits accumulated	—		—		3,105		3,105
Other liabilities — derivatives	—		83		—		83
Total liabilities accounted for at fair value	$	248	$	4,620	$	3,127	$	7,995
December 31, 2017
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	122	$	112	$	8	$	242
States, municipalities and political subdivisions	—		6,975		148		7,123
Foreign government	—		127		—		127
Residential MBS	—		3,105		122		3,227
Commercial MBS	—		926		36		962
Asset-backed securities	—		7,218		744		7,962
Corporate and other	30		17,662		1,044		18,736
Total AFS fixed maturities	152		36,125		2,102		38,379
Trading fixed maturities	44		304		—		348
Equity securities	1,411		86		165		1,662
Equity index call options	—		701		—		701
Assets of managed investment entities	307		4,572		23		4,902
Variable annuity assets (separate accounts) (*)	—		644		—		644
Total assets accounted for at fair value	$	1,914	$	42,432	$	2,290	$	46,636
Liabilities:
Liabilities of managed investment entities	$	293	$	4,372	$	22	$	4,687
Derivatives in annuity benefits accumulated	—		—		2,542		2,542
Other liabilities — derivatives	—		35		—		35
Total liabilities accounted for at fair value	$	293	$	4,407	$	2,564	$	7,264

(*) Variable annuity liabilities equal the fair value of variable annuity assets.

Unobservable inputs used by management in determining fair value of embedded derivatives

The following table presents information about the unobservable inputs used by management in determining fair value of these embedded derivatives. See Note E — “Derivatives.”

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	0.4% – 1.6% over the risk free rate
Risk margin for uncertainty in cash flows	0.70% reduction in the discount rate
Surrenders	3% – 23% of indexed account value
Partial surrenders	2% – 9% of indexed account value
Annuitizations	0.1% – 1% of indexed account value
Deaths	1.6% – 8.0% of indexed account value
Budgeted option costs	2.4% – 3.6% of indexed account value

Changes in balances of Level 3 financial assets

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the third quarter and first nine months of 2018 and 2017 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs and $29 million of equity securities transferred into Level 3 in the first quarter of 2018 related to a small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under new guidance adopted on January 1, 2018, as discussed in Note A — “Accounting Policies — Investments.” All transfers are reflected in the table at fair value as of the end of the reporting period.

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	61			—			—			—			(1		)	—		—			60
Residential MBS	147			(2		)	(2		)	—			(6		)	13		(5		)	145
Commercial MBS	56			2			—			(1		)	—			—		—			57
Asset-backed securities	1,004			—			(3		)	13			(23		)	—		—			991
Corporate and other	1,408			—			(3		)	312			(59		)	—		(12		)	1,646
Total AFS fixed maturities	2,684			—			(8		)	324			(89		)	13		(17		)	2,907
Equity securities	230			(5		)	—			81			—			—		(17		)	289
Assets of MIE	23			(1		)	—			—			—			—		—			22
Total Level 3 assets	$	2,937		$	(6	)	$	(8	)	$	405		$	(89	)	$	13	$	(34	)	$	3,218
Embedded derivatives	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (*)	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	143			—			—			—			(1		)	10		—			152
Residential MBS	153			2			1			—			(6		)	15		(21		)	144
Commercial MBS	45			1			—			—			(10		)	—		—			36
Asset-backed securities	498			(2		)	1			13			(26		)	163		(111		)	536
Corporate and other	953			(9		)	—			172			(59		)	—		(7		)	1,050
Total AFS fixed maturities	1,800			(8		)	2			185			(102		)	188		(139		)	1,926
Equity securities	168			(3		)	(4		)	2			—			—		—			163
Assets of MIE	23			(4		)	—			2			—			—		—			21
Total Level 3 assets	$	1,991		$	(15	)	$	(2	)	$	189		$	(102	)	$	188	$	(139	)	$	2,110
Embedded derivatives	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (*)	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)

(*) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(2		)	—		(84		)	60
Residential MBS	122			(9		)	(2		)	—			(17		)	70		(19		)	145
Commercial MBS	36			1			—			20			—			—		—			57
Asset-backed securities	744			(2		)	(6		)	353			(80		)	—		(18		)	991
Corporate and other	1,044			2			(21		)	784			(138		)	—		(25		)	1,646
Total AFS fixed maturities	2,102			(8		)	(31		)	1,157			(237		)	70		(146		)	2,907
Equity securities	165			9			—			106			(4		)	30		(17		)	289
Assets of MIE	23			(6		)	—			5			—			—		—			22
Total Level 3 assets	$	2,290		$	(5	)	$	(31	)	$	1,268		$	(241	)	$	100	$	(163	)	$	3,218
Embedded derivatives (a)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2016			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			4		—			(2		)	10		—			152
Residential MBS	190			—			3		1			(37		)	35		(48		)	144
Commercial MBS	25			2			—		15			(10		)	4		—			36
Asset-backed securities	484			(2		)	3		117			(62		)	199		(203		)	536
Corporate and other	712			(4		)	8		460			(124		)	29		(31		)	1,050
Total AFS fixed maturities	1,559			(4		)	18		593			(235		)	277		(282		)	1,926
Equity securities	174			(19		)	9		22			(3		)	—		(20		)	163
Assets of MIE	29			(10		)	—		6			—			—		(4		)	21
Total Level 3 assets	$	1,762		$	(33	)	$	27	$	621		$	(238	)	$	277	$	(306	)	$	2,110
Embedded derivatives	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (b)	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)

(a) Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the first nine months of 2018.

(b) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

Changes in balances of Level 3 financial liabilities

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the third quarter and first nine months of 2018 and 2017 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs and $29 million of equity securities transferred into Level 3 in the first quarter of 2018 related to a small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under new guidance adopted on January 1, 2018, as discussed in Note A — “Accounting Policies — Investments.” All transfers are reflected in the table at fair value as of the end of the reporting period.

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	61			—			—			—			(1		)	—		—			60
Residential MBS	147			(2		)	(2		)	—			(6		)	13		(5		)	145
Commercial MBS	56			2			—			(1		)	—			—		—			57
Asset-backed securities	1,004			—			(3		)	13			(23		)	—		—			991
Corporate and other	1,408			—			(3		)	312			(59		)	—		(12		)	1,646
Total AFS fixed maturities	2,684			—			(8		)	324			(89		)	13		(17		)	2,907
Equity securities	230			(5		)	—			81			—			—		(17		)	289
Assets of MIE	23			(1		)	—			—			—			—		—			22
Total Level 3 assets	$	2,937		$	(6	)	$	(8	)	$	405		$	(89	)	$	13	$	(34	)	$	3,218
Embedded derivatives	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (*)	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	143			—			—			—			(1		)	10		—			152
Residential MBS	153			2			1			—			(6		)	15		(21		)	144
Commercial MBS	45			1			—			—			(10		)	—		—			36
Asset-backed securities	498			(2		)	1			13			(26		)	163		(111		)	536
Corporate and other	953			(9		)	—			172			(59		)	—		(7		)	1,050
Total AFS fixed maturities	1,800			(8		)	2			185			(102		)	188		(139		)	1,926
Equity securities	168			(3		)	(4		)	2			—			—		—			163
Assets of MIE	23			(4		)	—			2			—			—		—			21
Total Level 3 assets	$	1,991		$	(15	)	$	(2	)	$	189		$	(102	)	$	188	$	(139	)	$	2,110
Embedded derivatives	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (*)	$	(2,129	)	$	(127	)	$	—		$	(65	)	$	28		$	—	$	—		$	(2,293	)

(*) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(2		)	—		(84		)	60
Residential MBS	122			(9		)	(2		)	—			(17		)	70		(19		)	145
Commercial MBS	36			1			—			20			—			—		—			57
Asset-backed securities	744			(2		)	(6		)	353			(80		)	—		(18		)	991
Corporate and other	1,044			2			(21		)	784			(138		)	—		(25		)	1,646
Total AFS fixed maturities	2,102			(8		)	(31		)	1,157			(237		)	70		(146		)	2,907
Equity securities	165			9			—			106			(4		)	30		(17		)	289
Assets of MIE	23			(6		)	—			5			—			—		—			22
Total Level 3 assets	$	2,290		$	(5	)	$	(31	)	$	1,268		$	(241	)	$	100	$	(163	)	$	3,218
Embedded derivatives (a)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2016			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			4		—			(2		)	10		—			152
Residential MBS	190			—			3		1			(37		)	35		(48		)	144
Commercial MBS	25			2			—		15			(10		)	4		—			36
Asset-backed securities	484			(2		)	3		117			(62		)	199		(203		)	536
Corporate and other	712			(4		)	8		460			(124		)	29		(31		)	1,050
Total AFS fixed maturities	1,559			(4		)	18		593			(235		)	277		(282		)	1,926
Equity securities	174			(19		)	9		22			(3		)	—		(20		)	163
Assets of MIE	29			(10		)	—		6			—			—		(4		)	21
Total Level 3 assets	$	1,762		$	(33	)	$	27	$	621		$	(238	)	$	277	$	(306	)	$	2,110
Embedded derivatives	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)
Total Level 3 liabilities (b)	$	(1,759	)	$	(386	)	$	—	$	(224	)	$	76		$	—	$	—		$	(2,293	)

(a) Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the first nine months of 2018.

(b) As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

Fair value of financial instruments

The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):

	Carrying		Fair Value
	Value		Total		Level 1		Level 2		Level 3
September 30, 2018
Financial assets:
Cash and cash equivalents	$	2,009	$	2,009	$	2,009	$	—	$	—
Mortgage loans	1,152		1,130		—		—		1,130
Policy loans	176		176		—		—		176
Total financial assets not accounted for at fair value	$	3,337	$	3,315	$	2,009	$	—	$	1,306
Financial liabilities:
Annuity benefits accumulated (*)	$	35,729	$	33,923	$	—	$	—	$	33,923
Long-term debt	1,302		1,260		—		1,257		3
Total financial liabilities not accounted for at fair value	$	37,031	$	35,183	$	—	$	1,257	$	33,926
December 31, 2017
Financial assets:
Cash and cash equivalents	$	2,338	$	2,338	$	2,338	$	—	$	—
Mortgage loans	1,125		1,119		—		—		1,119
Policy loans	184		184		—		—		184
Total financial assets not accounted for at fair value	$	3,647	$	3,641	$	2,338	$	—	$	1,303
Financial liabilities:
Annuity benefits accumulated (*)	$	33,110	$	32,461	$	—	$	—	$	32,461
Long-term debt	1,301		1,354		—		1,351		3
Total financial liabilities not accounted for at fair value	$	34,411	$	33,815	$	—	$	1,351	$	32,464

(*) Excludes $229 million and $206 million of life contingent annuities in the payout phase at September 30, 2018 and December 31, 2017, respectively.

XML

Investments (Tables)

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Available for sale fixed maturities

Available for sale fixed maturities at September 30, 2018 and December 31, 2017, consisted of the following (in millions):

	September 30, 2018												December 31, 2017
	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	$	238	$	—	$	(4	)	$	(4	)	$	234	$	244	$	1	$	(3	)	$	(2	)	$	242
States, municipalities and political subdivisions	6,756		117		(98		)	19			6,775		6,887		254		(18		)	236			7,123
Foreign government	137		2		—			2			139		124		3		—			3			127
Residential MBS	2,408		310		(9		)	301			2,709		2,884		349		(6		)	343			3,227
Commercial MBS	913		14		(4		)	10			923		927		36		(1		)	35			962
Asset-backed securities	9,249		122		(64		)	58			9,307		7,836		142		(16		)	126			7,962
Corporate and other	20,352		169		(364		)	(195		)	20,157		18,136		638		(38		)	600			18,736
Total fixed maturities	$	40,053	$	734	$	(543	)	$	191		$	40,244	$	37,038	$	1,423	$	(82	)	$	1,341		$	38,379

Equity securities reported at fair value

Equity securities reported at fair value consisted of the following at September 30, 2018 (in millions):

					Fair Value in
	Actual Cost		Fair Value		excess of Cost
Common stocks	$	1,040	$	1,151	$	111
Perpetual preferred stocks	683		676		(7		)
Total equity securities carried at fair value	$	1,723	$	1,827	$	104

Available for sale securities in a continuous unrealized loss position

The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at the following balance sheet dates.

	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, 2018
Fixed maturities:
U.S. Government and government agencies	$	(1	)	$	113	99	%	$	(3	)	$	100	97	%
States, municipalities and political subdivisions	(63		)	2,729		98	%	(35		)	721		95	%
Foreign government	—			105		100	%	—			—		—	%
Residential MBS	(3		)	200		99	%	(6		)	132		96	%
Commercial MBS	(3		)	178		98	%	(1		)	51		98	%
Asset-backed securities	(47		)	4,775		99	%	(17		)	353		95	%
Corporate and other	(283		)	10,984		97	%	(81		)	1,346		94	%
Total fixed maturities	$	(400	)	$	19,084	98	%	$	(143	)	$	2,703	95	%
December 31, 2017
Fixed maturities:
U.S. Government and government agencies	$	—		$	55	100	%	$	(3	)	$	123	98	%
States, municipalities and political subdivisions	(8		)	825		99	%	(10		)	431		98	%
Foreign government	—			4		100	%	—			—		—	%
Residential MBS	(1		)	118		99	%	(5		)	118		96	%
Commercial MBS	(1		)	67		99	%	—			—		—	%
Asset-backed securities	(7		)	1,195		99	%	(9		)	299		97	%
Corporate and other	(20		)	2,031		99	%	(18		)	603		97	%
Total fixed maturities	$	(37	)	$	4,295	99	%	$	(45	)	$	1,574	97	%
Equity securities:
Common stocks	$	(22	)	$	117	84	%	$	—		$	—	—	%
Perpetual preferred stocks	—			41		100	%	(1		)	13		93	%
Total equity securities	$	(22	)	$	158	88	%	$	(1	)	$	13	93	%

Roll forward of cumulative credit portion of other-than-temporary impairments on fixed maturity securities

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):

	2018			2017
Balance at June 30	$	144		$	145
Additional credit impairments on:
Previously impaired securities	—			—
Securities without prior impairments	—			3
Reductions due to sales or redemptions	(1		)	(1		)
Balance at September 30	$	143		$	147
Balance at January 1	$	145		$	153
Additional credit impairments on:
Previously impaired securities	—			1
Securities without prior impairments	1			3
Reductions due to sales or redemptions	(3		)	(10		)
Balance at September 30	$	143		$	147

Available for sale fixed maturity securities by contractual maturity date

The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2018 (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	$	1,212	$	1,223	3	%
After one year through five years	8,150		8,184		20	%
After five years through ten years	13,372		13,211		33	%
After ten years	4,749		4,687		12	%
	27,483		27,305		68	%
ABS (average life of approximately 4-1/2 years)	9,249		9,307		23	%
MBS (average life of approximately 4-1/2 years)	3,321		3,632		9	%
Total	$	40,053	$	40,244	100	%

Components of the net unrealized gain on securities, included in Accumulated Other Comprehensive Income

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			Net
September 30, 2018
Net unrealized gain on:
Fixed maturities — annuity segment (a)	$	143		$	(30	)	$	113
Fixed maturities — all other	48			(10		)	38
Total fixed maturities	191			(40		)	151
Deferred policy acquisition costs — annuity segment	(56		)	12			(44		)
Annuity benefits accumulated	(18		)	3			(15		)
Unearned revenue	1			—			1
Total net unrealized gain on marketable securities	$	118		$	(25	)	$	93
December 31, 2017
Net unrealized gain on:
Fixed maturities — annuity segment (a)	$	1,082		$	(227	)	$	855
Fixed maturities — all other	259			(55		)	204
Total fixed maturities	1,341			(282		)	1,059
Equity securities (b)	279			(58		)	221
Total investments	1,620			(340		)	1,280
Deferred policy acquisition costs — annuity segment	(433		)	91			(342		)
Annuity benefits accumulated	(137		)	29			(108		)
Unearned revenue	13			(3		)	10
Total net unrealized gain on marketable securities	$	1,063		$	(223	)	$	840

(a) Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.

(b) As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings.

Net investment income earned and investment expenses incurred

The following table shows (in millions) investment income earned and investment expenses incurred.

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Investment income:
Fixed maturities	$	440		$	405		$	1,283		$	1,191
Equity securities:
Dividends	19			17			59			53
Change in fair value (*)	2			—			16			4
Equity in earnings of partnerships and similar investments	41			20			128			51
Other	31			33			82			80
Gross investment income	533			475			1,568			1,379
Investment expenses	(6		)	(4		)	(16		)	(13		)
Net investment income	$	527		$	471		$	1,552		$	1,366

(*) As discussed in Note A — “Accounting Policies — Investments,” AFG adopted guidance in January 2018 that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on equity securities classified as “trading” under the previous guidance and on a small portfolio of limited partnership and similar investments that do not qualify for the equity method of accounting.

Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments

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 September 30, 2018												Three months ended September 30, 2017
	Realized gains (losses)												Realized gains (losses)
	Before Impairments			Impairments			Total			Change in Unrealized			Before Impairments			Impairments			Total			Change in Unrealized
Fixed maturities	$	—		$	(2	)	$	(2	)	$	(213	)	$	9		$	(15	)	$	(6	)	$	133
Equity securities	33			—			33			—			19			(29		)	(10		)	24
Mortgage loans and other investments	—			—			—			—			—			—			—			—
Other (*)	3			—			3			89			(2		)	6			4			(53		)
Total pretax	36			(2		)	34			(124		)	26			(38		)	(12		)	104
Tax effects	(8		)	1			(7		)	26			(9		)	13			4			(37		)
Net of tax	$	28		$	(1	)	$	27		$	(98	)	$	17		$	(25	)	$	(8	)	$	67
	Nine months ended September 30, 2018												Nine months ended September 30, 2017
	Realized gains (losses)												Realized gains (losses)
	Before Impairments			Impairments			Total			Change in Unrealized			Before Impairments			Impairments			Total			Change in Unrealized
Fixed maturities	$	3		$	(3	)	$	—		$	(1,150	)	$	25		$	(16	)	$	9		$	597
Equity securities	(39		)	—			(39		)	—			29			(49		)	(20		)	116
Mortgage loans and other investments	—			—			—			—			3			—			3			—
Other (*)	11			—			11			484			(5		)	12			7			(248		)
Total pretax	(25		)	(3		)	(28		)	(666		)	52			(53		)	(1		)	465
Tax effects	5			1			6			140			(18		)	18			—			(163		)
Net of tax	$	(20	)	$	(2	)	$	(22	)	$	(526	)	$	34		$	(35	)	$	(1	)	$	302

(*) Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.

Holding gains (losses) on equity securities still held

AFG recorded net holding gains (losses) on equity securities during the third quarter and first nine months of 2018 on securities that were still owned at September 30, 2018 as follows (in millions):

	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
Included in realized gains (losses)	$	25	$	(51	)
Included in net investment income	2		16
	$	27	$	(35	)

Gross realized gains and losses on available for sale fixed maturity and equity security investments

Gross realized gains and losses (excluding impairment write-downs and mark-to-market of derivatives) on available for sale fixed maturity investment transactions consisted of the following (in millions):

	Nine months ended September 30,
	2018			2017
Fixed maturities:
Gross gains	$	19		$	32
Gross losses	(8		)	(4		)

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Derivatives (Tables)

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives included in Balance Sheet at fair value

The following derivatives that do not qualify for hedge accounting under GAAP are included in AFG’s Balance Sheet at fair value (in millions):

		September 30, 2018				December 31, 2017
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	110	$	—	$	105	$	—
Public company warrants	Equity securities	3		—		4		—
Fixed-indexed and variable-indexed annuities (embedded derivative)	Annuity benefits accumulated	—		3,105		—		2,542
Equity index call options	Equity index call options	759		—		701		—
Equity index put options	Other liabilities	—		—		—		—
Reinsurance contracts (embedded derivative)	Other liabilities	—		2		—		4
		$	872	$	3,107	$	810	$	2,546

Summary of gain (loss) included in the Statement of Earnings for changes in the fair value of derivatives

The following table summarizes the gains (losses) included in AFG’s Statement of Earnings for changes in the fair value of derivatives that do not qualify for hedge accounting for the third quarter and first nine months of 2018 and 2017 (in millions):

		Three months ended September 30,						Nine months ended September 30,
Derivative	Statement of Earnings Line	2018			2017			2018			2017
MBS with embedded derivatives	Realized gains (losses) on securities	$	(3	)	$	—		$	(8	)	$	(3	)
Public company warrants	Realized gains (losses) on securities	1			(1		)	—			(1		)
Fixed-indexed and variable-indexed annuities (embedded derivative) (*)	Annuity benefits	(223		)	(127		)	(286		)	(386		)
Equity index call options	Annuity benefits	219			116			271			338
Equity index put options	Annuity benefits	—			—			—			—
Reinsurance contract (embedded derivative)	Net investment income	—			—			2			(2		)
		$	(6	)	$	(12	)	$	(21	)	$	(54	)

(*) The change in fair value of the embedded derivative for the nine months ended September 30, 2018 includes a $44 million charge in the second quarter of 2018 related to the unlocking of actuarial assumptions.

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Deferred Policy Acquisition Costs (Tables)

9 Months Ended

Sep. 30, 2018

Deferred Policy Acquisition Costs Disclosures [Abstract]

Deferred Policy Acquisition Costs Details

A progression of deferred policy acquisition costs is presented below (in millions):

	P&C			Annuity and Other
	Deferred			Deferred			Sales															Consolidated
	Costs			Costs			Inducements			PVFP			Subtotal			Unrealized (*)			Total			Total
Balance at June 30, 2018	$	298		$	1,243		$	94		$	45		$	1,382		$	(98	)	$	1,284		$	1,582
Additions	181			65			1			—			66			—			66			247
Amortization:
Periodic amortization	(171		)	(58		)	(5		)	(2		)	(65		)	—			(65		)	(236		)
Included in realized gains	—			3			—			—			3			—			3			3
Foreign currency translation	—			—			—			—			—			—			—			—
Change in unrealized	—			—			—			—			—			73			73			73
Balance at September 30, 2018	$	308		$	1,253		$	90		$	43		$	1,386		$	(25	)	$	1,361		$	1,669
Balance at June 30, 2017	$	258		$	1,167		$	103		$	42		$	1,312		$	(414	)	$	898		$	1,156
Additions	149			44			1			—			45			—			45			194
Amortization:
Periodic amortization	(142		)	(44		)	(4		)	(2		)	(50		)	—			(50		)	(192		)
Included in realized gains	—			4			—			—			4			—			4			4
Foreign currency translation	1			—			—			—			—			—			—			1
Change in unrealized	—			—			—			—			—			(44		)	(44		)	(44		)
Balance at September 30, 2017	$	266		$	1,171		$	100		$	40		$	1,311		$	(458	)	$	853		$	1,119
Balance at December 31, 2017	$	270		$	1,217		$	102		$	49		$	1,368		$	(422	)	$	946		$	1,216
Additions	524			192			2			—			194			—			194			718
Amortization:
Periodic amortization	(485		)	(193		)	(15		)	(6		)	(214		)	—			(214		)	(699		)
Annuity unlocking	—			28			1			—			29			—			29			29
Included in realized gains	—			9			—			—			9			—			9			9
Foreign currency translation	(1		)	—			—			—			—			—			—			(1		)
Change in unrealized	—			—			—			—			—			397			397			397
Balance at September 30, 2018	$	308		$	1,253		$	90		$	43		$	1,386		$	(25	)	$	1,361		$	1,669
Balance at December 31, 2016	$	238		$	1,110		$	110		$	46		$	1,266		$	(265	)	$	1,001		$	1,239
Additions	439			177			3			—			180			—			180			619
Amortization:
Periodic amortization	(413		)	(122		)	(14		)	(6		)	(142		)	—			(142		)	(555		)
Included in realized gains	—			6			1			—			7			—			7			7
Foreign currency translation	2			—			—			—			—			—			—			2
Change in unrealized	—			—			—			—			—			(193		)	(193		)	(193		)
Balance at September 30, 2017	$	266		$	1,171		$	100		$	40		$	1,311		$	(458	)	$	853		$	1,119

(*) Unrealized adjustments to DPAC includes net unrealized gains/losses on securities and net unrealized gains/losses on cash flow hedges.

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Managed Investment Entities (Tables)

9 Months Ended

Sep. 30, 2018

Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract]

Selected financial information related to collateralized loan obligations

Selected financial information related to the CLOs is shown below (in millions):

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Investment in CLO tranches at end of period	$	191		$	261		$	191		$	261
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	20			(8		)	5			(12		)
Liabilities	(25		)	9			(15		)	24
Management fees paid to AFG	4			5			12			14
CLO earnings (losses) attributable to AFG shareholders (b)	4			5			11			16

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

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

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Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of long-term debt instruments

Long-term debt consisted of the following (in millions):

	September 30, 2018							December 31, 2017
	Principal		Discount and Issue Costs			Carrying Value		Principal		Discount and Issue Costs			Carrying Value
Direct Senior Obligations of AFG:
4.50% Senior Notes due June 2047	$	590	$	(2	)	$	588	$	590	$	(2	)	$	588
3.50% Senior Notes due August 2026	425		(4		)	421		425		(5		)	420
Other	3		—			3		3		—			3
	1,018		(6		)	1,012		1,018		(7		)	1,011
Direct Subordinated Obligations of AFG:
6-1/4% Subordinated Debentures due September 2054	150		(5		)	145		150		(5		)	145
6% Subordinated Debentures due November 2055	150		(5		)	145		150		(5		)	145
	300		(10		)	290		300		(10		)	290
	$	1,318	$	(16	)	$	1,302	$	1,318	$	(17	)	$	1,301

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Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2018

Stockholders' Equity Note [Abstract]

Components of accumulated other comprehensive income (loss)

The progression of the components of accumulated other comprehensive income follows (in millions):

				Other Comprehensive Income (Loss)
	AOCI Beginning Balance			Pretax			Tax			Net of tax			Attributable to noncontrolling interests		Attributable to shareholders			Other (c)			AOCI Ending Balance
Quarter ended September 30, 2018
Net unrealized gains (losses) on securities:
Unrealized holding losses on securities arising during the period				$	(122	)	$	26		$	(96	)	$	—	$	(96	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(2		)	—			(2		)	—		(2		)
Total net unrealized gains (losses) on securities (b)	$	191		(124		)	26			(98		)	—		(98		)	$	—		$	93
Net unrealized losses on cash flow hedges	(27		)	(6		)	1			(5		)	—		(5		)	—			(32		)
Foreign currency translation adjustments	(9		)	—			—			—			—		—			—			(9		)
Pension and other postretirement plans adjustments	(8		)	—			—			—			—		—			—			(8		)
Total	$	147		$	(130	)	$	27		$	(103	)	$	—	$	(103	)	$	—		$	44
Quarter ended September 30, 2017
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period				$	92		$	(33	)	$	59		$	—	$	59
Reclassification adjustment for realized (gains) losses included in net earnings (a)				12			(4		)	8			—		8
Total net unrealized gains on securities	$	639		104			(37		)	67			—		67			$	—		$	706
Net unrealized losses on cash flow hedges	(6		)	(1		)	1			—			—		—			—			(6		)
Foreign currency translation adjustments	(11		)	5			2			7			—		7			—			(4		)
Pension and other postretirement plans adjustments	(7		)	—			—			—			—		—			—			(7		)
Total	$	615		$	108		$	(34	)	$	74		$	—	$	74		$	—		$	689
Nine months ended September 30, 2018
Net unrealized gains (losses) on securities:
Unrealized holding losses on securities arising during the period				$	(662	)	$	139		$	(523	)	$	—	$	(523	)
Reclassification adjustment for realized (gains) losses included in net earnings (a)				(4		)	1			(3		)	—		(3		)
Total net unrealized gains (losses) on securities (b)	$	840		(666		)	140			(526		)	—		(526		)	$	(221	)	$	93
Net unrealized losses on cash flow hedges	(13		)	(24		)	5			(19		)	—		(19		)	—			(32		)
Foreign currency translation adjustments	(6		)	(2		)	(1		)	(3		)	—		(3		)	—			(9		)
Pension and other postretirement plans adjustments	(8		)	—			—			—			—		—			—			(8		)
Total	$	813		$	(692	)	$	144		$	(548	)	$	—	$	(548	)	$	(221	)	$	44
Nine months ended September 30, 2017
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period				$	461		$	(162	)	$	299		$	—	$	299
Reclassification adjustment for realized (gains) losses included in net earnings (a)				4			(1		)	3			—		3
Total net unrealized gains on securities	$	404		465			(163		)	302			—		302			$	—		$	706
Net unrealized gains (losses) on cash flow hedges	(7		)	1			—			1			—		1			—			(6		)
Foreign currency translation adjustments	(15		)	8			3			11			—		11			—			(4		)
Pension and other postretirement plans adjustments	(7		)	—			—			—			—		—			—			(7		)
Total	$	375		$	474		$	(160	)	$	314		$	—	$	314		$	—		$	689

(a)The reclassification adjustment out of net unrealized gains (losses) on securities affected the following lines in AFG’s Statement of Earnings:

OCI component	Affected line in the statement of earnings
Pretax	Realized gains (losses) on securities
Tax	Provision for income taxes

(b) Includes net unrealized gains of $64 million at September 30, 2018 compared to $67 million at June 30, 2018 and $68 million at December 31, 2017 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

(c) On January 1, 2018, AFG adopted new guidance that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities classified as available for sale (with unrealized holding gains and losses reported in AOCI) under the prior guidance was reclassified from AOCI to retained earnings as the cumulative effect of an accounting change.

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Reconciliation of income taxes at the statutory rate and income taxes shown in the Statement of Earnings

The following is a reconciliation of income taxes at the statutory rate (21% in 2018 and 35% in 2017) 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,
	2018					2017					2018					2017
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	244				$	29				$	678				$	457
Income taxes at statutory rate	$	51		21	%	$	10		35	%	$	142		21	%	$	160		35	%
Effect of:
Adjustment to prior year taxes	(9		)	(4	%)	(2		)	(7	%)	(9		)	(1	%)	(2		)	(1	%)
Tax exempt interest	(3		)	(1	%)	(5		)	(17	%)	(10		)	(1	%)	(17		)	(4	%)
Dividends received deduction	(1		)	—	%	(2		)	(7	%)	(3		)	—	%	(6		)	(1	%)
Employee Stock Ownership Plan dividends paid deduction	(1		)	—	%	—			—	%	(2		)	—	%	(2		)	—	%
Stock-based compensation	—			—	%	(1		)	(3	%)	(7		)	(1	%)	(14		)	(3	%)
Foreign operations	—			—	%	1			3	%	3			—	%	7			2	%
Nondeductible expenses	1			—	%	2			7	%	5			1	%	5			1	%
Change in valuation allowance	1			—	%	16			55	%	3			—	%	16			4	%
Other	2			1	%	(1		)	(4	%)	4			—	%	(1		)	(1	%)
Provision for income taxes as shown in the statement of earnings	$	41		17	%	$	18		62	%	$	126		19	%	$	146		32	%

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Insurance (Tables)

9 Months Ended

Sep. 30, 2018

Insurance [Abstract]

Reconciliation of beginning and ending liability for unpaid losses and loss adjustment expenses

The following table provides an analysis of changes in the liability for losses and loss adjustment expenses during the first nine months of 2018 and 2017 (in millions):

	Nine months ended September 30,
	2018			2017
Balance at beginning of year	$	9,678		$	8,563
Less reinsurance recoverables, net of allowance	2,957			2,302
Net liability at beginning of year	6,721			6,261
Provision for losses and LAE occurring in the current period	2,337			2,237
Net increase (decrease) in the provision for claims of prior years:
Special A&E charges	18			89
Other	(149		)	(87		)
Total losses and LAE incurred	2,206			2,239
Payments for losses and LAE of:
Current year	(569		)	(530		)
Prior years	(1,313		)	(1,272		)
Total payments	(1,882		)	(1,802		)
Reserves of business disposed (*)	(319		)	—
Foreign currency translation and other	(4		)	32
Net liability at end of period	6,722			6,730
Add back reinsurance recoverables, net of allowance	2,948			2,833
Gross unpaid losses and LAE included in the balance sheet at end of period	$	9,670		$	9,563

(*) Reflects the reinsurance to close transaction at Neon discussed below.

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Accounting Policies - Narrative (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jan. 01, 2018	Dec. 31, 2017
Significant Accounting Policies [Line Items]
Net unrealized gain on equity securities included in AOCI		$ 93		$ 93			$ 840
Cumulative effect of accounting change							4
Weighted average common shares adjustment related to stock-based compensation (shares)		1,600,000	1,900,000	1,700,000	2,000,000
Anti-dilutive potential common shares related to stock-based compensation plans (shares)		0	0	0	0
Maturities of short term investments				3 months
Equity securities
Significant Accounting Policies [Line Items]
Available-for-sale securities, Equity securities							1,600
Net unrealized gain on equity securities included in AOCI	[1]						221
Equity securities, trading at fair value							62
Equity securities | Accounting Standards Update 2016-01
Significant Accounting Policies [Line Items]
Net unrealized gain on equity securities included in AOCI							$ 221
Cumulative effect of accounting change						$ (221)
Limited partnerships and similar investments | Accounting Standards Update 2016-01
Significant Accounting Policies [Line Items]
Cumulative effect of accounting change						$ (4)
Equity securities still owned | Equity securities | Accounting Standards Update 2016-01
Significant Accounting Policies [Line Items]
Net holding gains (losses) on equity securities		$ 27		$ (35)

[1] As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings.

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Segments of Operations - Narrative (Details) $ in Millions	3 Months Ended				9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Jun. 30, 2017 USD ($)	Mar. 31, 2017 USD ($)	Sep. 30, 2018 USD ($) segment	Sep. 30, 2017 USD ($)
Segment Reporting Information [Line Items]
Number of segments | segment					3
Property and Casualty Insurance | Real Estate Investment
Segment Reporting Information [Line Items]
Pretax income from the sale of real estate properties				$ 13
Other
Segment Reporting Information [Line Items]
Special charges to increase asbestos and environmental reserves	$ 9	$ 24
Write off of Deferred Debt Issuance Cost		4	$ 7
Other lines | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Special charges to increase asbestos and environmental reserves	$ 18	$ 89			$ 18	$ 89

XML

Segments of Operations - Revenues by segment and sub-segment (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Segment Reporting Information [Line Items]
Total premiums earned		$ 1,327	$ 1,267	$ 3,595	$ 3,354
Net investment income		527	471	1,552	1,366
Other income		54	48	146	154
Revenues before realized gains (losses)		1,974	1,847	5,488	5,058
Realized gains (losses) on securities		34	(12)	(28)	(1)
Total revenues		2,008	1,835	5,460	5,057
Property and Casualty Insurance
Segment Reporting Information [Line Items]
Total premiums earned		1,327	1,267	3,595	3,354
Net investment income		108	94	323	276
Other income	[1]	4	1	8	21
Revenues before realized gains (losses)		1,439	1,362	3,926	3,651
Annuity
Segment Reporting Information [Line Items]
Net investment income		413	375	1,219	1,082
Other income		27	26	80	79
Revenues before realized gains (losses)		440	401	1,299	1,161
Other
Segment Reporting Information [Line Items]
Revenues before realized gains (losses)		95	84	263	246
Specialty Property and transportation | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Total premiums earned		526	527	1,250	1,226
Specialty casualty | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Total premiums earned		616	568	1,790	1,613
Specialty financial | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Total premiums earned		149	142	457	435
Other specialty | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Total premiums earned		$ 36	$ 30	$ 98	$ 80

[1] Includes income of $13 million (before noncontrolling interest) from the sale of a hotel in the first quarter of 2017.

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Segments of Operations - Earnings before income taxes by segment and sub-segment (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Segment Reporting Information [Line Items]
Earnings before realized gains (losses) and income taxes		$ 210	$ 41	$ 706	$ 458
Realized gains (losses) on securities		34	(12)	(28)	(1)
Earnings before income taxes		244	29	678	457
Property and Casualty Insurance
Segment Reporting Information [Line Items]
Property and casualty insurance underwriting		38	(81)	201	69
Investment and other income, net	[1]	101	87	300	271
Earnings before realized gains (losses) and income taxes		139	6	501	340
Annuity
Segment Reporting Information [Line Items]
Earnings before realized gains (losses) and income taxes		117	102	341	283
Other
Segment Reporting Information [Line Items]
Earnings before realized gains (losses) and income taxes	[2]	(46)	(67)	(136)	(165)
Specialty Property and transportation | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Property and casualty insurance underwriting		0	6	56	70
Specialty casualty | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Property and casualty insurance underwriting		49	2	119	46
Specialty financial | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Property and casualty insurance underwriting		9	(3)	46	42
Other specialty | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Property and casualty insurance underwriting		(3)	4	(1)	3
Other lines | Property and Casualty Insurance
Segment Reporting Information [Line Items]
Property and casualty insurance underwriting	[3]	$ (17)	$ (90)	$ (19)	$ (92)

[1] Includes income of $13 million (before noncontrolling interest) from the sale of a hotel in the first quarter of 2017.

[2] Includes holding company interest and expenses, including losses on retirement of debt of $4 million in the third quarter of 2017 and $7 million in the second quarter of 2017, and special charges of $9 million and $24 million in the third quarter of 2018 and 2017, respectively, to increase A&E reserves related to AFG’s former railroad and manufacturing operations.

[3] Includes special charges of $18 million and $89 million in the third quarter of 2018 and 2017, respectively, to increase asbestos and environmental (“A&E”) reserves.

XML

Fair Value Measurements - Narrative (Details) $ in Millions	3 Months Ended				9 Months Ended
	Sep. 30, 2018 USD ($) stock	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Sep. 30, 2017 USD ($) stock	Sep. 30, 2018 USD ($) stock professional	Sep. 30, 2017 USD ($) stock	Dec. 31, 2017 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
AFG's internal investment professionals | professional					25
Number of stocks transferred from Level 1 to Level 2 | stock	0
Number of stocks transferred from Level 2 to Level 1 | stock	0
Level 3 assets as a percentage of total assets measured at fair value					7.00%
Percentage of level 3 assets that were priced using non-binding broker quotes					68.00%
Level 3 assets that were priced using non-binding broker quotes					$ 2,180
Fair value of equity securities transferred into Level 3	$ 13			$ 188	100	$ 277
Life contingent annuities	229				$ 229		$ 206
Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Percentage of internally developed Level 3 asset fair values to Shareholders' equity (are less than)					18.00%
Fixed-indexed and variable-indexed annuities (embedded derivative), majority of future years | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unobservable input surrenders used in Level 3 fair value determination					7.00%
Fixed-indexed and variable-indexed annuities (embedded derivative), majority of future years | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unobservable input surrenders used in Level 3 fair value determination					11.00%
Fixed-indexed and variable-indexed annuities (embedded derivative)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of derivatives in annuity benefits accumulated measured using a discounted cash flow approach	3,110				$ 3,110
Fixed-indexed and variable-indexed annuities (embedded derivative) | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unobservable input surrenders used in Level 3 fair value determination					3.00%
Fixed-indexed and variable-indexed annuities (embedded derivative) | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unobservable input surrenders used in Level 3 fair value determination					23.00%
Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of equity securities transferred into Level 3	0		$ 29	$ 0	$ 30	$ 0
Preferred stocks
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Number of stocks transferred from Level 1 to Level 2 | stock					2
Fair Value of assets transferred from Level 1 to Level 2, during the first nine months	$ 6				$ 6
Number of stocks transferred from Level 2 to Level 1 | stock				1		3
Fair Value of assets transferred from Level 2 to Level 1, during the third quarter				$ 1
Fair Value of assets transferred from Level 2 to Level 1, during the first nine months				$ 17		$ 17
Not Designated as Hedging Instrument | Annuity benefits | Fixed-indexed annuities (embedded derivative)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total realized/unrealized gains (losses) included in net income for the embedded derivatives related to the unlocking of actuarial assumptions		$ (44)			$ (44)

XML

Fair Value Measurements - Assets and liabilities measured and carried at fair value in the financial statements (Details) - USD ($) $ in Millions		Sep. 30, 2018	Dec. 31, 2017
Assets:
Available for sale (AFS) fixed maturities		$ 40,244	$ 38,379
Trading fixed maturities		103	348
Equity securities		1,827	1,662
Equity index call options		759	701
Assets of managed investment entities (“MIE”)		4,998	4,902
Variable annuity assets (separate accounts)	[1]	650	644
Total assets accounted for at fair value		48,581	46,636
Liabilities:
Liabilities of managed investment entities		4,807	4,687
Total liabilities accounted for at fair value		7,995	7,264
Annuity benefits accumulated
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		3,105	2,542
Other liabilities — derivatives
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		83	35
Fixed maturities
Assets:
Available for sale (AFS) fixed maturities		40,244	38,379
Trading fixed maturities		103	348
U.S. Government and government agencies
Assets:
Available for sale (AFS) fixed maturities		234	242
States, municipalities and political subdivisions
Assets:
Available for sale (AFS) fixed maturities		6,775	7,123
Foreign government
Assets:
Available for sale (AFS) fixed maturities		139	127
Residential MBS
Assets:
Available for sale (AFS) fixed maturities		2,709	3,227
Commercial MBS
Assets:
Available for sale (AFS) fixed maturities		923	962
Asset-backed securities
Assets:
Available for sale (AFS) fixed maturities		9,307	7,962
Corporate and other
Assets:
Available for sale (AFS) fixed maturities		20,157	18,736
Equity securities
Assets:
Equity securities		1,827	1,662
Level 1
Assets:
Assets of managed investment entities (“MIE”)		258	307
Variable annuity assets (separate accounts)	[1]	0	0
Total assets accounted for at fair value		1,900	1,914
Liabilities:
Liabilities of managed investment entities		248	293
Total liabilities accounted for at fair value		248	293
Level 1 | Annuity benefits accumulated
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		0	0
Level 1 | Other liabilities — derivatives
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		0	0
Level 1 | Fixed maturities
Assets:
Available for sale (AFS) fixed maturities		171	152
Trading fixed maturities		9	44
Level 1 | U.S. Government and government agencies
Assets:
Available for sale (AFS) fixed maturities		142	122
Level 1 | States, municipalities and political subdivisions
Assets:
Available for sale (AFS) fixed maturities		0	0
Level 1 | Foreign government
Assets:
Available for sale (AFS) fixed maturities		0	0
Level 1 | Residential MBS
Assets:
Available for sale (AFS) fixed maturities		0	0
Level 1 | Commercial MBS
Assets:
Available for sale (AFS) fixed maturities		0	0
Level 1 | Asset-backed securities
Assets:
Available for sale (AFS) fixed maturities		0	0
Level 1 | Corporate and other
Assets:
Available for sale (AFS) fixed maturities		29	30
Level 1 | Equity securities
Assets:
Equity securities		1,462	1,411
Level 2
Assets:
Assets of managed investment entities (“MIE”)		4,718	4,572
Variable annuity assets (separate accounts)	[1]	650	644
Total assets accounted for at fair value		43,463	42,432
Liabilities:
Liabilities of managed investment entities		4,537	4,372
Total liabilities accounted for at fair value		4,620	4,407
Level 2 | Annuity benefits accumulated
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		0	0
Level 2 | Other liabilities — derivatives
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		83	35
Level 2 | Fixed maturities
Assets:
Available for sale (AFS) fixed maturities		37,166	36,125
Trading fixed maturities		94	304
Level 2 | U.S. Government and government agencies
Assets:
Available for sale (AFS) fixed maturities		84	112
Level 2 | States, municipalities and political subdivisions
Assets:
Available for sale (AFS) fixed maturities		6,715	6,975
Level 2 | Foreign government
Assets:
Available for sale (AFS) fixed maturities		139	127
Level 2 | Residential MBS
Assets:
Available for sale (AFS) fixed maturities		2,564	3,105
Level 2 | Commercial MBS
Assets:
Available for sale (AFS) fixed maturities		866	926
Level 2 | Asset-backed securities
Assets:
Available for sale (AFS) fixed maturities		8,316	7,218
Level 2 | Corporate and other
Assets:
Available for sale (AFS) fixed maturities		18,482	17,662
Level 2 | Equity securities
Assets:
Equity securities		76	86
Level 3
Assets:
Assets of managed investment entities (“MIE”)		22	23
Variable annuity assets (separate accounts)	[1]	0	0
Total assets accounted for at fair value		3,218	2,290
Liabilities:
Liabilities of managed investment entities		22	22
Total liabilities accounted for at fair value		3,127	2,564
Level 3 | Annuity benefits accumulated
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		3,105	2,542
Level 3 | Other liabilities — derivatives
Liabilities:
Derivatives included in annuity benefits accumulated, long-term debt, and other liabilities		0	0
Level 3 | Fixed maturities
Assets:
Available for sale (AFS) fixed maturities		2,907	2,102
Trading fixed maturities		0	0
Level 3 | U.S. Government and government agencies
Assets:
Available for sale (AFS) fixed maturities		8	8
Level 3 | States, municipalities and political subdivisions
Assets:
Available for sale (AFS) fixed maturities		60	148
Level 3 | Foreign government
Assets:
Available for sale (AFS) fixed maturities		0	0
Level 3 | Residential MBS
Assets:
Available for sale (AFS) fixed maturities		145	122
Level 3 | Commercial MBS
Assets:
Available for sale (AFS) fixed maturities		57	36
Level 3 | Asset-backed securities
Assets:
Available for sale (AFS) fixed maturities		991	744
Level 3 | Corporate and other
Assets:
Available for sale (AFS) fixed maturities		1,646	1,044
Level 3 | Equity securities
Assets:
Equity securities		289	165
Equity index call options | Equity index call options
Assets:
Equity index call options		759	701
Equity index call options | Level 1 | Equity index call options
Assets:
Equity index call options		0	0
Equity index call options | Level 2 | Equity index call options
Assets:
Equity index call options		759	701
Equity index call options | Level 3 | Equity index call options
Assets:
Equity index call options		$ 0	$ 0

[1] Variable annuity liabilities equal the fair value of variable annuity assets.

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Fair Value Measurements - Unobservable inputs used in determining fair value of embedded derivatives (Details) - Embedded derivatives	9 Months Ended
	Sep. 30, 2018
Unobservable inputs used by management in determining fair value of embedded derivatives
Risk margin for uncertainty in cash flows	0.70%
Minimum
Unobservable inputs used by management in determining fair value of embedded derivatives
Adjustment for insurance subsidiary’s credit risk	0.40%
Surrenders	3.00%
Partial surrenders	2.00%
Annuitizations	0.10%
Deaths	1.60%
Budgeted option costs	2.40%
Maximum
Unobservable inputs used by management in determining fair value of embedded derivatives
Adjustment for insurance subsidiary’s credit risk	1.60%
Surrenders	23.00%
Partial surrenders	9.00%
Annuitizations	1.00%
Deaths	8.00%
Budgeted option costs	3.60%

XML

Fair Value Measurements - Changes in balances of Level 3 financial assets carried at fair value (Details) - USD ($) $ in Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	$ 2,937	$ 2,290	$ 1,991	$ 2,290	$ 1,762
Total realized/unrealized gains (losses) included in Net income	(6)		(15)	(5)	(33)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	(8)		(2)	(31)	27
Purchases and issuances	405		189	1,268	621
Sales and settlements	(89)		(102)	(241)	(238)
Transfer into Level 3	13		188	100	277
Transfer out of Level 3	(34)		(139)	(163)	(306)
Financial assets, Ending Balance	3,218		2,110	3,218	2,110
Fixed maturities
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	2,684	2,102	1,800	2,102	1,559
Total realized/unrealized gains (losses) included in Net income	0		(8)	(8)	(4)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	(8)		2	(31)	18
Purchases and issuances	324		185	1,157	593
Sales and settlements	(89)		(102)	(237)	(235)
Transfer into Level 3	13		188	70	277
Transfer out of Level 3	(17)		(139)	(146)	(282)
Financial assets, Ending Balance	2,907		1,926	2,907	1,926
U.S. government agency
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	8	8	8	8	8
Total realized/unrealized gains (losses) included in Net income	0		0	0	0
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	0		0	0	0
Purchases and issuances	0		0	0	0
Sales and settlements	0		0	0	0
Transfer into Level 3	0		0	0	0
Transfer out of Level 3	0		0	0	0
Financial assets, Ending Balance	8		8	8	8
State and municipal
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	61	148	143	148	140
Total realized/unrealized gains (losses) included in Net income	0		0	0	0
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	0		0	(2)	4
Purchases and issuances	0		0	0	0
Sales and settlements	(1)		(1)	(2)	(2)
Transfer into Level 3	0		10	0	10
Transfer out of Level 3	0		0	(84)	0
Financial assets, Ending Balance	60		152	60	152
Residential MBS
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	147	122	153	122	190
Total realized/unrealized gains (losses) included in Net income	(2)		2	(9)	0
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	(2)		1	(2)	3
Purchases and issuances	0		0	0	1
Sales and settlements	(6)		(6)	(17)	(37)
Transfer into Level 3	13		15	70	35
Transfer out of Level 3	(5)		(21)	(19)	(48)
Financial assets, Ending Balance	145		144	145	144
Commercial MBS
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	56	36	45	36	25
Total realized/unrealized gains (losses) included in Net income	2		1	1	2
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	0		0	0	0
Purchases and issuances	(1)		0	20	15
Sales and settlements	0		(10)	0	(10)
Transfer into Level 3	0		0	0	4
Transfer out of Level 3	0		0	0	0
Financial assets, Ending Balance	57		36	57	36
Asset-backed securities
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	1,004	744	498	744	484
Total realized/unrealized gains (losses) included in Net income	0		(2)	(2)	(2)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	(3)		1	(6)	3
Purchases and issuances	13		13	353	117
Sales and settlements	(23)		(26)	(80)	(62)
Transfer into Level 3	0		163	0	199
Transfer out of Level 3	0		(111)	(18)	(203)
Financial assets, Ending Balance	991		536	991	536
Corporate and other
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	1,408	1,044	953	1,044	712
Total realized/unrealized gains (losses) included in Net income	0		(9)	2	(4)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	(3)		0	(21)	8
Purchases and issuances	312		172	784	460
Sales and settlements	(59)		(59)	(138)	(124)
Transfer into Level 3	0		0	0	29
Transfer out of Level 3	(12)		(7)	(25)	(31)
Financial assets, Ending Balance	1,646		1,050	1,646	1,050
Equity securities
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	230	165	168	165	174
Total realized/unrealized gains (losses) included in Net income	(5)		(3)	9	(19)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	0		(4)	0	9
Purchases and issuances	81		2	106	22
Sales and settlements	0		0	(4)	(3)
Transfer into Level 3	0	29	0	30	0
Transfer out of Level 3	(17)		0	(17)	(20)
Financial assets, Ending Balance	289		163	289	163
Assets of MIE
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Financial assets, Beginning Balance	23	$ 23	23	23	29
Total realized/unrealized gains (losses) included in Net income	(1)		(4)	(6)	(10)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)	0		0	0	0
Purchases and issuances	0		2	5	6
Sales and settlements	0		0	0	0
Transfer into Level 3	0		0	0	0
Transfer out of Level 3	0		0	0	(4)
Financial assets, Ending Balance	$ 22		$ 21	$ 22	$ 21

XML

Fair Value Measurements - Changes in balances of Level 3 financial liabilities carried at fair value (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018		Sep. 30, 2017
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial liabilities, Beginning Balance		$ (2,776)	$ (2,129)	$ (2,542)		$ (1,759)
Total realized/unrealized gains (losses) included in Net income		(223)	(127)	(286)		(386)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)		0	0	0		0
Purchases and issuances		(151)	(65)	(395)		(224)
Sales and settlements		45	28	118		76
Transfer into Level 3		0	0	0		0
Transfer out of Level 3		0	0	0		0
Financial liabilities, Ending Balance	[1],[2]	(3,105)	(2,293)	(3,105)		(2,293)
Embedded derivatives
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial liabilities, Beginning Balance		(2,776)	(2,129)	(2,542)		(1,759)
Total realized/unrealized gains (losses) included in Net income		(223)	(127)	(286)	[3]	(386)
Total realized/unrealized gains (losses) included in other comprehensive income (loss)		0	0	0		0
Purchases and issuances		(151)	(65)	(395)		(224)
Sales and settlements		45	28	118		76
Transfer into Level 3		0	0	0		0
Transfer out of Level 3		0	0	0		0
Financial liabilities, Ending Balance		$ (3,105)	$ (2,293)	$ (3,105)		$ (2,293)

[1] As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

[2] As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

[3] Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the first nine months of 2018.

XML

Fair Value Measurements - The carrying value and fair value of financial instruments (Details) - USD ($) $ in Millions		Sep. 30, 2018	Dec. 31, 2017
Financial assets:
Mortgage loans		$ 1,152	$ 1,125
Policy loans		176	184
Financial liabilities:
Long-term debt		1,302	1,301
Level 1
Financial assets:
Cash and cash equivalents		2,009	2,338
Mortgage loans		0	0
Policy loans		0	0
Total financial assets not accounted for at fair value		2,009	2,338
Financial liabilities:
Annuity benefits accumulated	[1]	0	0
Long-term debt		0	0
Total financial liabilities not accounted for at fair value		0	0
Level 2
Financial assets:
Cash and cash equivalents		0	0
Mortgage loans		0	0
Policy loans		0	0
Total financial assets not accounted for at fair value		0	0
Financial liabilities:
Annuity benefits accumulated	[1]	0	0
Long-term debt		1,257	1,351
Total financial liabilities not accounted for at fair value		1,257	1,351
Level 3
Financial assets:
Cash and cash equivalents		0	0
Mortgage loans		1,130	1,119
Policy loans		176	184
Total financial assets not accounted for at fair value		1,306	1,303
Financial liabilities:
Annuity benefits accumulated	[1]	33,923	32,461
Long-term debt		3	3
Total financial liabilities not accounted for at fair value		33,926	32,464
Carrying Value
Financial assets:
Cash and cash equivalents		2,009	2,338
Mortgage loans		1,152	1,125
Policy loans		176	184
Total financial assets not accounted for at fair value		3,337	3,647
Financial liabilities:
Annuity benefits accumulated	[1]	35,729	33,110
Long-term debt		1,302	1,301
Total financial liabilities not accounted for at fair value		37,031	34,411
Fair Value
Financial assets:
Cash and cash equivalents		2,009	2,338
Mortgage loans		1,130	1,119
Policy loans		176	184
Total financial assets not accounted for at fair value		3,315	3,641
Financial liabilities:
Annuity benefits accumulated	[1]	33,923	32,461
Long-term debt		1,260	1,354
Total financial liabilities not accounted for at fair value		$ 35,183	$ 33,815

[1] Excludes $229 million and $206 million of life contingent annuities in the payout phase at September 30, 2018 and December 31, 2017, respectively.

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Investments - Narrative (Details) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) security	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Investment [Line Items]
Percentage (based on amount of unrealized loss) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade			95.00%
Percentage (based on fair value) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade			96.00%
Other than temporary impairment charges	$ 2	$ 38	$ 3	$ 53
Residential MBS
Investment [Line Items]
Non-credit related portion of other-than-temporary impairment charges taken for securities still owned	144		144		$ 158
Gross unrealized losses on fixed maturities	(9)		(9)		(6)
Other than temporary impairment charges			1
Securities with non-credit other-than-temporary impairment charges
Investment [Line Items]
Gross unrealized gains	130		130		137
Gross unrealized losses	(4)		(4)		(4)
Fixed maturities
Investment [Line Items]
Gross unrealized losses on fixed maturities	(543)		$ (543)		$ (82)
Number of available for sale securities in an unrealized loss position | security			2,392
Other than temporary impairment charges	2	15	$ 3	16
Gross gains			19	32
Gross losses			(8)	(4)
Corporate bonds
Investment [Line Items]
Other than temporary impairment charges			2
Equity securities
Investment [Line Items]
Other than temporary impairment charges	$ 0	$ 29	$ 0	49
Gross gains				36
Gross losses				$ (6)

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Investments - Available for sale fixed maturities (Details) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	$ 40,053	$ 37,038
Available for sale (AFS) fixed maturities	40,244	38,379
Total fixed maturities
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	40,053	37,038
Fixed maturities, Available for sale, Gross Unrealized, Gains	734	1,423
Fixed maturities, Available for sale, Gross Unrealized, Losses	(543)	(82)
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	191	1,341
Available for sale (AFS) fixed maturities	40,244	38,379
U.S. Government and government agencies
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	238	244
Fixed maturities, Available for sale, Gross Unrealized, Gains	0	1
Fixed maturities, Available for sale, Gross Unrealized, Losses	(4)	(3)
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	(4)	(2)
Available for sale (AFS) fixed maturities	234	242
States, municipalities and political subdivisions
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	6,756	6,887
Fixed maturities, Available for sale, Gross Unrealized, Gains	117	254
Fixed maturities, Available for sale, Gross Unrealized, Losses	(98)	(18)
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	19	236
Available for sale (AFS) fixed maturities	6,775	7,123
Foreign government
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	137	124
Fixed maturities, Available for sale, Gross Unrealized, Gains	2	3
Fixed maturities, Available for sale, Gross Unrealized, Losses	0	0
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	2	3
Available for sale (AFS) fixed maturities	139	127
Residential MBS
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	2,408	2,884
Fixed maturities, Available for sale, Gross Unrealized, Gains	310	349
Fixed maturities, Available for sale, Gross Unrealized, Losses	(9)	(6)
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	301	343
Available for sale (AFS) fixed maturities	2,709	3,227
Commercial MBS
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	913	927
Fixed maturities, Available for sale, Gross Unrealized, Gains	14	36
Fixed maturities, Available for sale, Gross Unrealized, Losses	(4)	(1)
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	10	35
Available for sale (AFS) fixed maturities	923	962
Asset-backed securities
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	9,249	7,836
Fixed maturities, Available for sale, Gross Unrealized, Gains	122	142
Fixed maturities, Available for sale, Gross Unrealized, Losses	(64)	(16)
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	58	126
Available for sale (AFS) fixed maturities	9,307	7,962
Corporate and other
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Available for sale, Amortized Cost	20,352	18,136
Fixed maturities, Available for sale, Gross Unrealized, Gains	169	638
Fixed maturities, Available for sale, Gross Unrealized, Losses	(364)	(38)
Fixed maturities, Available for sale, Net Unrealized, Gains (Losses)	(195)	600
Available for sale (AFS) fixed maturities	$ 20,157	$ 18,736

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Investments - Equity securities reported at fair value (Details) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Debt and Equity Securities, FV-NI [Line Items]
Equity securities	$ 1,827	$ 1,662
Common stocks
Debt and Equity Securities, FV-NI [Line Items]
Equity securities, at cost	1,040
Equity securities	1,151
Equity securities, fair value in excess of cost	111
Perpetual preferred stocks
Debt and Equity Securities, FV-NI [Line Items]
Equity securities, at cost	683
Equity securities	676
Equity securities, fair value in excess of cost	(7)
Equity securities
Debt and Equity Securities, FV-NI [Line Items]
Equity securities, at cost	1,723
Equity securities	1,827
Equity securities, fair value in excess of cost	$ 104

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Investments - Gross unrealized losses on securities by investment category and length of time that have been in a continuous unrealized loss position (Details) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Total fixed maturities
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ (400)	$ (37)
Fair Value - Less than twelve months	$ 19,084	$ 4,295
Fair Value as % of Cost - Less than twelve months	98.00%	99.00%
Unrealized Loss - Twelve months or more	$ (143)	$ (45)
Fair Value - Twelve months or more	$ 2,703	$ 1,574
Fair Value as % of Cost - Twelve months or more	95.00%	97.00%
U.S. Government and government agencies
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ (1)	$ 0
Fair Value - Less than twelve months	$ 113	$ 55
Fair Value as % of Cost - Less than twelve months	99.00%	100.00%
Unrealized Loss - Twelve months or more	$ (3)	$ (3)
Fair Value - Twelve months or more	$ 100	$ 123
Fair Value as % of Cost - Twelve months or more	97.00%	98.00%
States, municipalities and political subdivisions
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ (63)	$ (8)
Fair Value - Less than twelve months	$ 2,729	$ 825
Fair Value as % of Cost - Less than twelve months	98.00%	99.00%
Unrealized Loss - Twelve months or more	$ (35)	$ (10)
Fair Value - Twelve months or more	$ 721	$ 431
Fair Value as % of Cost - Twelve months or more	95.00%	98.00%
Foreign government
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ 0	$ 0
Fair Value - Less than twelve months	$ 105	$ 4
Fair Value as % of Cost - Less than twelve months	100.00%	100.00%
Unrealized Loss - Twelve months or more	$ 0	$ 0
Fair Value - Twelve months or more	$ 0	$ 0
Fair Value as % of Cost - Twelve months or more	0.00%	0.00%
Residential MBS
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ (3)	$ (1)
Fair Value - Less than twelve months	$ 200	$ 118
Fair Value as % of Cost - Less than twelve months	99.00%	99.00%
Unrealized Loss - Twelve months or more	$ (6)	$ (5)
Fair Value - Twelve months or more	$ 132	$ 118
Fair Value as % of Cost - Twelve months or more	96.00%	96.00%
Commercial MBS
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ (3)	$ (1)
Fair Value - Less than twelve months	$ 178	$ 67
Fair Value as % of Cost - Less than twelve months	98.00%	99.00%
Unrealized Loss - Twelve months or more	$ (1)	$ 0
Fair Value - Twelve months or more	$ 51	$ 0
Fair Value as % of Cost - Twelve months or more	98.00%	0.00%
Asset-backed securities
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ (47)	$ (7)
Fair Value - Less than twelve months	$ 4,775	$ 1,195
Fair Value as % of Cost - Less than twelve months	99.00%	99.00%
Unrealized Loss - Twelve months or more	$ (17)	$ (9)
Fair Value - Twelve months or more	$ 353	$ 299
Fair Value as % of Cost - Twelve months or more	95.00%	97.00%
Corporate and other
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	$ (283)	$ (20)
Fair Value - Less than twelve months	$ 10,984	$ 2,031
Fair Value as % of Cost - Less than twelve months	97.00%	99.00%
Unrealized Loss - Twelve months or more	$ (81)	$ (18)
Fair Value - Twelve months or more	$ 1,346	$ 603
Fair Value as % of Cost - Twelve months or more	94.00%	97.00%
Total equity securities
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months		$ (22)
Fair Value - Less than twelve months		$ 158
Fair Value as % of Cost - Less than twelve months		88.00%
Unrealized Loss - Twelve months or more		$ (1)
Fair Value - Twelve months or more		$ 13
Fair Value as % of Cost - Twelve months or more		93.00%
Common stocks
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months		$ (22)
Fair Value - Less than twelve months		$ 117
Fair Value as % of Cost - Less than twelve months		84.00%
Unrealized Loss - Twelve months or more		$ 0
Fair Value - Twelve months or more		$ 0
Fair Value as % of Cost - Twelve months or more		0.00%
Perpetual preferred stocks
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months		$ 0
Fair Value - Less than twelve months		$ 41
Fair Value as % of Cost - Less than twelve months		100.00%
Unrealized Loss - Twelve months or more		$ (1)
Fair Value - Twelve months or more		$ 13
Fair Value as % of Cost - Twelve months or more		93.00%

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Investments - Credit portion of other-than-temporary impairments on fixed maturities for which the non-credit portion of an impairment has been recognized in OCI (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Roll Forward]
Beginning Balance	$ 144	$ 145	$ 145	$ 153
Additional credit impairments on:
Previously impaired securities	0	0	0	1
Securities without prior impairments	0	3	1	3
Reductions due to sales or redemptions	(1)	(1)	(3)	(10)
Ending Balance	$ 143	$ 147	$ 143	$ 147

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Investments - Scheduled maturities of available for sale fixed maturities (Details) $ in Millions	9 Months Ended
	Sep. 30, 2018 USD ($)
Fair Value Percent, Fiscal Year Maturity [Abstract]
Average life of ABS	4 years 6 months
Average life of MBS	4 years 6 months
Fixed maturities
Amortized Cost Basis, Fiscal Year Maturity [Abstract]
One year or less	$ 1,212
After one year through five years	8,150
After five years through ten years	13,372
After ten years	4,749
Fixed maturities amortized cost, Subtotal	27,483
ABS (average life of approximately 4-1/2 years)	9,249
MBS (average life of approximately 4-1/2 years)	3,321
Amortized Cost	40,053
Fair Value, Fiscal Year Maturity [Abstract]
One year or less	1,223
After one year through five years	8,184
After five years through ten years	13,211
After ten years	4,687
Fixed maturities fair value, Subtotal	27,305
ABS (average life of approximately 4-1/2 years)	9,307
MBS (average life of approximately 4-1/2 years)	3,632
Fair Value	$ 40,244
Fair Value Percent, Fiscal Year Maturity [Abstract]
One year or less	3.00%
After one year through five years	20.00%
After five years through ten years	33.00%
After ten years	12.00%
Fixed maturities fair value, Subtotal, Percent	68.00%
ABS (average life of approximately 4-1/2 years)	23.00%
MBS (average life of approximately 4-1/2 years)	9.00%
Fair value, Total, Percent	100.00%

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Investments - Components of the net unrealized gain on securities that is included in AOCI in the Balance Sheet (Details) - USD ($) $ in Millions		Sep. 30, 2018	Dec. 31, 2017
Unrealized gain on:
Pretax		$ 118	$ 1,063
Deferred Tax		(25)	(223)
Net		93	840
Total investments
Unrealized gain on:
Pretax			1,620
Deferred Tax			(340)
Net			1,280
Total fixed maturities
Unrealized gain on:
Pretax		191	1,341
Deferred Tax		(40)	(282)
Net		151	1,059
Fixed maturities — annuity segment
Unrealized gain on:
Pretax	[1]	143	1,082
Deferred Tax	[1]	(30)	(227)
Net	[1]	113	855
Fixed maturities — all other
Unrealized gain on:
Pretax		48	259
Deferred Tax		(10)	(55)
Net		38	204
Equity securities
Unrealized gain on:
Pretax	[2]		279
Deferred Tax	[2]		(58)
Net	[2]		221
Deferred policy acquisition costs — annuity segment
Unrealized gain on:
Pretax		(56)	(433)
Deferred Tax		12	91
Net		(44)	(342)
Annuity benefits accumulated
Unrealized gain on:
Pretax		(18)	(137)
Deferred Tax		3	29
Net		(15)	(108)
Unearned revenue
Unrealized gain on:
Pretax		1	13
Deferred Tax		0	(3)
Net		$ 1	$ 10

[1] Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.

[2] As discussed in Note A — “Accounting Policies — Investments,” effective January 1, 2018, all equity securities other than those accounted for under the equity method are carried at fair value through net earnings.

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Investments - Schedule of sources of net investment income (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net Investment Income [Line Items]
Investment income		$ 533	$ 475	$ 1,568	$ 1,379
Investment expenses		(6)	(4)	(16)	(13)
Net investment income		527	471	1,552	1,366
Fixed maturities
Net Investment Income [Line Items]
Investment income		440	405	1,283	1,191
Equity in earnings of partnerships and similar investments
Net Investment Income [Line Items]
Investment income		41	20	128	51
Other
Net Investment Income [Line Items]
Investment income		31	33	82	80
Accounting Standards Update 2016-01 | Equity securities
Net Investment Income [Line Items]
Investment income	[1]	2	0	16	4
Investment income | Equity securities
Net Investment Income [Line Items]
Investment income		$ 19	$ 17	$ 59	$ 53

[1] As discussed in Note A — “Accounting Policies — Investments,” AFG adopted guidance in January 2018 that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on equity securities classified as “trading” under the previous guidance and on a small portfolio of limited partnership and similar investments that do not qualify for the equity method of accounting.

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Investments - Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		$ 36	$ 26	$ (25)	$ 52
Realized — impairments		(2)	(38)	(3)	(53)
Realized gains (losses) on securities		34	(12)	(28)	(1)
Net of tax
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		28	17	(20)	34
Realized — impairments		(1)	(25)	(2)	(35)
Realized gains (losses) on securities		27	(8)	(22)	(1)
Change in unrealized		(98)	67	(526)	302
Total pretax
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		36	26	(25)	52
Realized — impairments		(2)	(38)	(3)	(53)
Realized gains (losses) on securities		34	(12)	(28)	(1)
Change in unrealized		(124)	104	(666)	465
Fixed maturities
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		0	9	3	25
Realized — impairments		(2)	(15)	(3)	(16)
Realized gains (losses) on securities		(2)	(6)	0	9
Change in unrealized		(213)	133	(1,150)	597
Equity securities
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		33	19	(39)	29
Realized — impairments		0	(29)	0	(49)
Realized gains (losses) on securities		33	(10)	(39)	(20)
Change in unrealized		0	24	0	116
Mortgage loans and other investments
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		0	0	0	3
Realized — impairments		0	0	0	0
Realized gains (losses) on securities		0	0	0	3
Change in unrealized		0	0	0	0
Other, Including DPAC and reserves related to the annuity business
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	[1]	3	(2)	11	(5)
Realized — impairments	[1]	0	6	0	12
Realized gains (losses) on securities	[1]	3	4	11	7
Change in unrealized	[1]	89	(53)	484	(248)
Tax effects
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments		(8)	(9)	5	(18)
Realized — impairments		1	13	1	18
Realized gains (losses) on securities		(7)	4	6	0
Change in unrealized		$ 26	$ (37)	$ 140	$ (163)

[1] Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.

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Investments - Holding gains (losses) on equity securities still held (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Holding Gains (Losses) on Equity Securities Still Held [Line Items]
Realized gains (losses) on securities still owned	$ 34	$ (12)	$ (28)	$ (1)
Included in net investment income	533	475	1,568	1,379
Equity securities
Holding Gains (Losses) on Equity Securities Still Held [Line Items]
Realized gains (losses) on securities still owned	33	$ (10)	(39)	$ (20)
Equity securities still owned | Equity securities | Accounting Standards Update 2016-01
Holding Gains (Losses) on Equity Securities Still Held [Line Items]
Net holding gains (losses) on equity securities	27		(35)
Equity securities still owned | Realized gains (losses) on securities | Equity securities | Accounting Standards Update 2016-01
Holding Gains (Losses) on Equity Securities Still Held [Line Items]
Realized gains (losses) on securities still owned	25		(51)
Equity securities still owned | Investment income | Equity securities | Accounting Standards Update 2016-01
Holding Gains (Losses) on Equity Securities Still Held [Line Items]
Included in net investment income	$ 2		$ 16

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Investments - Gross realized gains and losses on available for sale fixed maturity investment transactions (Details) - Fixed maturities - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Gross realized gains and losses on the sale of available for sale fixed maturity and equity security investments
Gross gains	$ 19	$ 32
Gross losses	$ (8)	$ (4)

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Derivatives - Narrative (Details)	3 Months Ended			9 Months Ended
	Sep. 30, 2018 USD ($) swap	Jun. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) swap	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Derivative Instruments, Gain (Loss) [Line Items]
Carrying value of collateral received to support purchased call options	$ 545,000,000			$ 545,000,000		$ 389,000,000
Cash Flow Hedges | Designated as Hedging Instrument | Interest rate swaps
Derivative Instruments, Gain (Loss) [Line Items]
Number of interest rate swaps designated and qualifying as a cash flow hedges | swap	14			14
Notional amount of derivative instrument outstanding	$ 2,170,000,000			$ 2,170,000,000		1,580,000,000
Gain (loss) reclassified from AOCI into net investment income	(1,000,000)		$ 1,000,000	(2,000,000)	$ 4,000,000
Gain (loss) on cash flow hedge ineffectiveness recorded in Net Earnings	0		$ 0	0	$ 0
Collateral receivable supporting interest rate swaps	126,000,000			126,000,000		70,000,000
Other assets | Cash Flow Hedges | Designated as Hedging Instrument | Interest rate swaps
Derivative Instruments, Gain (Loss) [Line Items]
Net derivatives, at fair value	0			0
Other assets | Maximum | Cash Flow Hedges | Designated as Hedging Instrument | Interest rate swaps
Derivative Instruments, Gain (Loss) [Line Items]
Net derivatives, at fair value						1,000,000
Other liabilities | Cash Flow Hedges | Designated as Hedging Instrument | Interest rate swaps
Derivative Instruments, Gain (Loss) [Line Items]
Net derivatives, at fair value	(81,000,000)			(81,000,000)		$ (31,000,000)
New interest rate swaps entered into during the period | Cash Flow Hedges | Designated as Hedging Instrument | Interest rate swaps
Derivative Instruments, Gain (Loss) [Line Items]
Notional amount of derivative instrument outstanding	$ 697,000,000			$ 697,000,000
Number of interest rate swaps entered into during the period | swap				4
Annuity benefits | Not Designated as Hedging Instrument | Fixed-indexed annuities (embedded derivative)
Derivative Instruments, Gain (Loss) [Line Items]
Total realized/unrealized gains (losses) included in net income for the embedded derivatives related to the unlocking of actuarial assumptions		$ (44,000,000)		$ (44,000,000)

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Derivatives - Derivatives that do not qualify for hedge accounting under GAAP included in the Balance Sheet at fair value (Details) - Not Designated as Hedging Instrument - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	$ 872	$ 810
Derivative liability, at fair value	3,107	2,546
MBS with embedded derivatives | Fixed maturities
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	110	105
Public company warrants | Equity securities
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	3	4
Fixed-indexed and variable-indexed annuities (embedded derivative) | Annuity benefits accumulated
Derivatives included in AFG' s Balance Sheet at fair value
Derivative liability, at fair value	3,105	2,542
Equity index call options | Equity index call options
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	759	701
Equity index put options | Other liabilities
Derivatives included in AFG' s Balance Sheet at fair value
Derivative liability, at fair value	0	0
Reinsurance contracts (embedded derivative) | Other liabilities
Derivatives included in AFG' s Balance Sheet at fair value
Derivative liability, at fair value	$ 2	$ 4

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Derivatives - Gain (loss) included in the Statement of Earnings for changes in the fair value of derivatives that do not qualify for hedge accounting (Details) - Not Designated as Hedging Instrument - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Derivative		$ (6)	$ (12)	$ (21)	$ (54)
MBS with embedded derivatives | Realized gains (losses) on securities
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Derivative		(3)	0	(8)	(3)
Public company warrants | Realized gains (losses) on securities
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Derivative		1	(1)	0	(1)
Fixed-indexed and variable-indexed annuities (embedded derivative) | Annuity benefits
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Derivative	[1]	(223)	(127)	(286)	(386)
Equity index call options | Annuity benefits
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Derivative		219	116	271	338
Equity index put options | Annuity benefits
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Derivative		0	0	0	0
Reinsurance contracts (embedded derivative) | Net investment income
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Derivative		$ 0	$ 0	$ 2	$ (2)

[1] The change in fair value of the embedded derivative for the nine months ended September 30, 2018 includes a $44 million charge in the second quarter of 2018 related to the unlocking of actuarial assumptions.

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Deferred Policy Acquisition Costs - Narrative (Details) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Deferred Policy Acquisition Costs Disclosures [Abstract]
Accumulated amortization of present value of future profits	$ 147	$ 141

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Deferred Policy Acquisition Costs - Progression of deferred policy acquisition costs (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Movement Analysis of Deferred Policy Acquisition Costs and Present Value of Future Profits [Roll Forward]
Deferred policy acquisition costs and present value of future profits, beginning balance		$ 1,582	$ 1,156	$ 1,216	$ 1,239
Deferred policy acquisition costs and present value of future profits, additions		247	194	718	619
Deferred policy acquisition costs and present value of future profits, periodic amortization		(236)	(192)	(699)	(555)
Deferred policy acquisition costs and present value of future profits, annuity unlocking				29
Deferred policy acquisition costs and present value of future profits, change included in realized gains		3	4	9	7
Deferred policy acquisition costs and present value of future profits, foreign currency translation		0	1	(1)	2
Deferred policy acquisition costs and present value of future profits, change in unrealized		73	(44)	397	(193)
Deferred policy acquisition costs and present value of future profits, ending balance		1,669	1,119	1,669	1,119
P&C
Movement Analysis of Deferred Policy Acquisition Costs [Roll Forward]
Deferred policy acquisition costs, beginning balance		298	258	270	238
Deferred policy acquisition costs, additions		181	149	524	439
Deferred policy acquisition costs, periodic amortization		(171)	(142)	(485)	(413)
Deferred policy acquisition costs, foreign currency translation		0	1	(1)	2
Deferred policy acquisition costs, ending balance		308	266	308	266
Annuity and Other
Movement Analysis of Deferred Policy Acquisition Costs [Roll Forward]
Deferred policy acquisition costs, beginning balance		1,243	1,167	1,217	1,110
Deferred policy acquisition costs, additions		65	44	192	177
Deferred policy acquisition costs, periodic amortization		(58)	(44)	(193)	(122)
Deferred policy acquisition costs, annuity unlocking				28
Deferred policy acquisition costs, change included in realized gains		3	4	9	6
Deferred policy acquisition costs, ending balance		1,253	1,171	1,253	1,171
Movement in Deferred Sales Inducements [Roll Forward]
Deferred sales inducements, beginning balance		94	103	102	110
Deferred sales inducements, additions		1	1	2	3
Deferred sales inducements, periodic amortization		(5)	(4)	(15)	(14)
Deferred sales inducements, annuity unlocking				1
Deferred sales inducements, change included in realized gains		0	0	0	1
Deferred sales inducements, ending balance		90	100	90	100
Movement in Present Value of Future Insurance Profits [Roll Forward]
Present value of future profits, beginning balance		45	42	49	46
Present value of future profits, periodic amortization		(2)	(2)	(6)	(6)
Present value of future profits, annuity unlocking				0
Present value of future profits, ending balance		43	40	43	40
Movement in Unrealized Gains (Losses) Related to Deferred Policy Acquisition Costs and Present Value of Future Profits [Roll Forward]
Unrealized investment gains (losses), beginning balance	[1]	(98)	(414)	(422)	(265)
Unrealized investment gains (losses), change in unrealized	[1]	73	(44)	397	(193)
Unrealized investment gains (losses), ending balance	[1]	(25)	(458)	(25)	(458)
Movement Analysis of Deferred Policy Acquisition Costs and Present Value of Future Profits [Roll Forward]
Deferred policy acquisition costs and present value of future profits, beginning balance		1,284	898	946	1,001
Deferred policy acquisition costs and present value of future profits, additions		66	45	194	180
Deferred policy acquisition costs and present value of future profits, periodic amortization		(65)	(50)	(214)	(142)
Deferred policy acquisition costs and present value of future profits, annuity unlocking				29
Deferred policy acquisition costs and present value of future profits, change included in realized gains		3	4	9	7
Deferred policy acquisition costs and present value of future profits, change in unrealized		73	(44)	397	(193)
Deferred policy acquisition costs and present value of future profits, ending balance		1,361	853	1,361	853
Excluding Unrealized Gains | Annuity and Other
Movement Analysis of Deferred Policy Acquisition Costs and Present Value of Future Profits [Roll Forward]
Deferred policy acquisition costs and present value of future profits, beginning balance		1,382	1,312	1,368	1,266
Deferred policy acquisition costs and present value of future profits, change in unrealized		0	0	0	0
Deferred policy acquisition costs and present value of future profits, ending balance		$ 1,386	$ 1,311	$ 1,386	$ 1,311

[1] Unrealized adjustments to DPAC includes net unrealized gains/losses on securities and net unrealized gains/losses on cash flow hedges.

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Managed Investment Entities - Narrative (Details) $ in Millions	1 Months Ended		9 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Sep. 30, 2018 USD ($) collateralizedloanobligation	Sep. 30, 2017 USD ($) collateralizedloanobligation	Dec. 31, 2017 USD ($)
Variable Interest Entity [Line Items]
Percentage of investment of most subordinate debt tranche, Minimum			15.00%
Percentage of investment of most subordinate debt tranche, Maximum			60.90%
Number of collateralized loan obligation entities | collateralizedloanobligation			15
Face amount of managed investment entities liabilities purchased by subsidiaries after issuance date				$ 58
Amount paid by subsidiaries to purchase managed investment entities liabilities after issuance date				58
Proceeds received by subsidiaries related to sales and redemptions of managed investment entities liabilities			$ 45	$ 86
Number of collateralized loan obligation entities substantially liquidated, during the period | collateralizedloanobligation			1	2
Difference between aggregate unpaid principal balance and fair value of CLOs' fixed maturity investments			$ 45		$ 55
Difference between aggregate unpaid principal balance and carrying value of CLOs' debt			160		118
Carrying amount of CLO loans in default			1		1
Aggregate unpaid principal balance of CLO loans in default			8		8
Variable interest entity, primary beneficiary
Variable Interest Entity [Line Items]
Aggregate fair value of investment in collateralized loan obligations			191	$ 261	$ 215
New Collateralized Loan Obligation Entities
Variable Interest Entity [Line Items]
Face value of liabilities issued by managed investment entities on issuance date	$ 463	$ 408
Face amount of managed investment entities liabilities purchased by subsidiaries at issuance date	$ 31	$ 24
Subordinated Debt Obligations | Variable interest entity, primary beneficiary
Variable Interest Entity [Line Items]
Aggregate fair value of investment in collateralized loan obligations			$ 133

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Managed Investment Entities - Selected financial information related to CLOs (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Gains (losses) on change in fair value of assets/liabilities:
Assets	[1]	$ 20	$ (8)	$ 5	$ (12)
Liabilities	[1]	(25)	9	(15)	24
Management fees paid to AFG		4	5	12	14
CLO earnings (losses) attributable to AFG shareholders	[2]	4	5	11	16
Variable interest entity, primary beneficiary
Variable Interest Entity [Line Items]
Investment in CLO tranches at end of period		$ 191	$ 261	$ 191	$ 261	$ 215

[1] Included in revenues in AFG’s Statement of Earnings.

[2] Included in earnings before income taxes in AFG’s Statement of Earnings.

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Goodwill and Other Intangibles - Narrative (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Changes in the goodwill balance during the period			$ 0
Goodwill	$ 199,000,000		199,000,000		$ 199,000,000
Amortizable intangible assets related to property and casualty insurance acquisitions	31,000,000		31,000,000		26,000,000
Accumulated amortization	37,000,000		37,000,000		$ 30,000,000
Amortization of intangible assets	$ 3,000,000	$ 2,000,000	$ 7,000,000	$ 6,000,000

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Long-Term Debt - Narrative (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Long-term Debt, Fiscal Year Maturity [Abstract]
Scheduled principal payments on debt in next year	$ 0
Scheduled principal payments on debt in year two	0
Scheduled principal payments on debt in year three	0
Scheduled principal payments on debt in year four	0
Scheduled principal payments on debt in year five	0
Scheduled principal payments on debt in year six	0
AFG
Long-term Debt, Fiscal Year Maturity [Abstract]
Revolving credit line	500,000,000
Amount borrowed under revolving credit facility	$ 0	$ 0
Interest rate description for revolving credit facility	1.00% to 1.875% (currently 1.375%) over LIBOR
LIBOR | AFG
Long-term Debt, Fiscal Year Maturity [Abstract]
Interest rate on revolving debt facility	1.375%
LIBOR | AFG | Minimum
Long-term Debt, Fiscal Year Maturity [Abstract]
Interest rate on revolving debt facility	1.00%
LIBOR | AFG | Maximum
Long-term Debt, Fiscal Year Maturity [Abstract]
Interest rate on revolving debt facility	1.875%
Senior Notes | 4.50% Senior Notes due June 2047 | AFG
Long-term Debt, Fiscal Year Maturity [Abstract]
Interest rate on debt instruments	4.50%
Senior Notes | 3.50% Senior Notes due August 2026 | AFG
Long-term Debt, Fiscal Year Maturity [Abstract]
Interest rate on debt instruments	3.50%
Subordinated Debentures | 6-1/4% Subordinated Debentures due September 2054 | AFG
Long-term Debt, Fiscal Year Maturity [Abstract]
Interest rate on debt instruments	6.25%
Subordinated Debentures | 6% Subordinated Debentures due November 2055 | AFG
Long-term Debt, Fiscal Year Maturity [Abstract]
Interest rate on debt instruments	6.00%

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Long-Term Debt - Schedule of long-term debt (Details) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Summary of Carrying value of long-term debt
Principal	$ 1,318	$ 1,318
Discount and Issue Costs	(16)	(17)
Carrying Value	1,302	1,301
Senior Notes | AFG
Summary of Carrying value of long-term debt
Principal	1,018	1,018
Discount and Issue Costs	(6)	(7)
Carrying Value	1,012	1,011
Senior Notes | 4.50% Senior Notes due June 2047 | AFG
Summary of Carrying value of long-term debt
Principal	590	590
Discount and Issue Costs	(2)	(2)
Carrying Value	588	588
Senior Notes | 3.50% Senior Notes due August 2026 | AFG
Summary of Carrying value of long-term debt
Principal	425	425
Discount and Issue Costs	(4)	(5)
Carrying Value	421	420
Senior Notes | Other | AFG
Summary of Carrying value of long-term debt
Principal	3	3
Discount and Issue Costs	0	0
Carrying Value	3	3
Subordinated Debentures | AFG
Summary of Carrying value of long-term debt
Principal	300	300
Discount and Issue Costs	(10)	(10)
Carrying Value	290	290
Subordinated Debentures | 6-1/4% Subordinated Debentures due September 2054 | AFG
Summary of Carrying value of long-term debt
Principal	150	150
Discount and Issue Costs	(5)	(5)
Carrying Value	145	145
Subordinated Debentures | 6% Subordinated Debentures due November 2055 | AFG
Summary of Carrying value of long-term debt
Principal	150	150
Discount and Issue Costs	(5)	(5)
Carrying Value	$ 145	$ 145

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Shareholders' Equity - Preferred stock authorized for issuance (Details)	Sep. 30, 2018 $ / shares shares
Voting Preferred Stock
Class of Stock [Line Items]
Preferred Stock, shares authorized | shares	12,500,000.0
Preferred Stock, par value (in USD per share) | $ / shares	$ 0
Nonvoting Preferred Stock
Class of Stock [Line Items]
Preferred Stock, shares authorized | shares	12,500,000.0
Preferred Stock, par value (in USD per share) | $ / shares	$ 0

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Shareholders' Equity - Narrative (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Net of tax unrealized gains (losses) related to credit-only impaired securities	$ 64			$ 64		$ 67		$ 68
Cumulative effect of accounting change								$ 4
Compensation expense related to stock incentive plans	$ 6		$ 7	$ 17	$ 24
Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted Common Stock, shares issued (shares)				200,625
Restricted Common Stock, fair value per share (USD per share)				$ 112.86
Common Stock options issued under stock incentive plan (shares)				0
Annual Equity Bonus Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Other benefit plans, shares issued (shares)		45,804
Common Stock issued, fair value per share (USD per share)		$ 115.49
Accounting Standards Update 2016-01 | Equity securities
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cumulative effect of accounting change							$ (221)

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Shareholders' Equity - Progression of the components of accumulated other comprehensive income (Details) - USD ($) $ in Millions		3 Months Ended				9 Months Ended
		Sep. 30, 2018		Sep. 30, 2017		Sep. 30, 2018		Sep. 30, 2017		Jan. 01, 2018		Dec. 31, 2017
Accumulated Other Comprehensive Income [Roll Forward]
AOCI beginning balance						$ 813
Other comprehensive income (loss), net of tax		$ (103)		$ 74		(548)		$ 314
Cumulative effect of accounting change												$ 4
AOCI ending balance		44				44
Accumulated Net Investment Gain (Loss) Including Portion Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other comprehensive income (loss), unrealized holding gains on securities arising during the period, Pretax		(122)		92		(662)		461
Other comprehensive income (loss), unrealized holding gains on securities arising during the period, tax		26		(33)		139		(162)
Other comprehensive income (loss), unrealized holding gains on securities arising during the period, net of tax		(96)		59		(523)		299
Reclassification from accumulated other comprehensive income, pretax	[1]	(2)		12		(4)		4
Reclassification from accumulated other comprehensive income, tax	[1]	0		(4)		1		(1)
Reclassification from accumulated other comprehensive income, net of tax		(2)		8		(3)		3
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), pretax		(124)		104		(666)		465
Other comprehensive income (loss), tax		26		(37)		140		(163)
Other comprehensive income (loss), net of tax		(98)		67		(526)		302
Accumulated Net Investment Gain (Loss) Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other comprehensive income (loss), unrealized holding gains on securities arising during the period, net of tax		0		0		0		0
Reclassification from accumulated other comprehensive income, net of tax	[1]	0		0		0		0
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), net of tax		0		0		0		0
Accumulated Net Investment Gain (Loss) Attributable to Parent
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other comprehensive income (loss), unrealized holding gains on securities arising during the period, net of tax		(96)		59		(523)		299
Reclassification from accumulated other comprehensive income, net of tax		(2)		8		(3)		3
Accumulated Other Comprehensive Income [Roll Forward]
AOCI beginning balance		191	[2]	639		840	[2]	404
Other comprehensive income (loss), net of tax		(98)		67		(526)		302
Cumulative effect of accounting change	[3]	0		0		0		0		$ (221)
AOCI ending balance		93	[2]	706		93	[2]	706
Accumulated Net Gain (Loss) from Cash Flow Hedges Including Portion Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), pretax		(6)		(1)		(24)		1
Other comprehensive income (loss), tax		1		1		5		0
Other comprehensive income (loss), net of tax		(5)		0		(19)		1
Accumulated Net Gain (Loss) from Cash Flow Hedges Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), net of tax		0		0		0		0
Accumulated Net Gain (Loss) from Cash Flow Hedges Attributable to Parent
Accumulated Other Comprehensive Income [Roll Forward]
AOCI beginning balance		(27)		(6)		(13)		(7)
Other comprehensive income (loss), net of tax		(5)		0		(19)		1
Cumulative effect of accounting change	[3]	0		0		0		0		0
AOCI ending balance		(32)		(6)		(32)		(6)
Accumulated Foreign Currency Adjustment Including Portion Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), pretax		0		5		(2)		8
Other comprehensive income (loss), tax		0		2		(1)		3
Other comprehensive income (loss), net of tax		0		7		(3)		11
Accumulated Foreign Currency Adjustment Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), net of tax		0		0		0		0
Accumulated Foreign Currency Adjustment Attributable to Parent
Accumulated Other Comprehensive Income [Roll Forward]
AOCI beginning balance		(9)		(11)		(6)		(15)
Other comprehensive income (loss), net of tax		0		7		(3)		11
Cumulative effect of accounting change	[3]	0		0		0		0		0
AOCI ending balance		(9)		(4)		(9)		(4)
Accumulated Defined Benefit Plans Adjustment Including Portion Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), pretax		0		0		0		0
Other comprehensive income (loss), tax		0		0		0		0
Other comprehensive income (loss), net of tax		0		0		0		0
Accumulated Defined Benefit Plans Adjustment Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), net of tax		0		0		0		0
Accumulated Defined Benefit Plans Adjustment Attributable to Parent
Accumulated Other Comprehensive Income [Roll Forward]
AOCI beginning balance		(8)		(7)		(8)		(7)
Other comprehensive income (loss), net of tax		0		0		0		0
Cumulative effect of accounting change	[3]	0		0		0		0		0
AOCI ending balance		(8)		(7)		(8)		(7)
AOCI Including Portion Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), pretax		(130)		108		(692)		474
Other comprehensive income (loss), tax		27		(34)		144		(160)
Other comprehensive income (loss), net of tax		(103)		74		(548)		314
AOCI Attributable to Noncontrolling Interest
Accumulated Other Comprehensive Income [Roll Forward]
Other comprehensive income (loss), net of tax		0		0		0		0
AOCI Attributable to Parent
Accumulated Other Comprehensive Income [Roll Forward]
AOCI beginning balance		147		615		813		375
Other comprehensive income (loss), net of tax		(103)		74		(548)		314
Cumulative effect of accounting change		0	[3]	0	[3]	0	[3]	0	[3]	$ (221)	[3]	$ (221)
AOCI ending balance		$ 44		$ 689		$ 44		$ 689

[1] The reclassification adjustment out of net unrealized gains (losses) on securities affected the following lines in AFG’s Statement of Earnings: OCI component Affected line in the statement of earnings Pretax Realized gains (losses) on securities Tax Provision for income taxes

[2] Includes net unrealized gains of $64 million at September 30, 2018 compared to $67 million at June 30, 2018 and $68 million at December 31, 2017 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

[3] On January 1, 2018, AFG adopted new guidance that requires all equity securities other than those accounted for under the equity method to be reported at fair value with holding gains and losses recognized in net earnings. At the date of adoption, the $221 million net unrealized gain on equity securities classified as available for sale (with unrealized holding gains and losses reported in AOCI) under the prior guidance was reclassified from AOCI to retained earnings as the cumulative effect of an accounting change.

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Income Taxes - Narrative (Details) - USD ($) $ in Millions		3 Months Ended			9 Months Ended
	Jan. 01, 2018	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Tax Reconciliation [Line Items]
Statutory rate of income taxes		21.00%		35.00%	21.00%	35.00%
Provision for losses and LAE occurring in the current period					$ 2,337	$ 2,237
Effective tax rate excluding the catastrophe losses within subsidiaries				22.00%
Operating loss carryforwards subject to SRLY tax rules will expire unutilized at December 31, 2018		$ 19			$ 19
Tax Cuts and Jobs Act of 2017
Income Tax Reconciliation [Line Items]
Statutory rate of income taxes	21.00%
Decrease in net deferred tax asset resulting from the changes in the Tax Cuts and Jobs Act of 2017			$ 83
Hurricane | Neon Capital Limited
Income Tax Reconciliation [Line Items]
Provision for losses and LAE occurring in the current period				$ 53

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Income Taxes - Reconciliation of income taxes at the statutory rate to the provision for income taxes (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Effective Income Tax Rate Reconciliation, Amount [Abstract]
Earnings before income taxes (“EBT”)	$ 244	$ 29	$ 678	$ 457
Income taxes at statutory rate	51	10	142	160
Effect of adjustment to prior year taxes	(9)	(2)	(9)	(2)
Effect of tax exempt interest	(3)	(5)	(10)	(17)
Effect of dividends received deduction	(1)	(2)	(3)	(6)
Effect of employee stock ownership plan dividends paid deduction	(1)	0	(2)	(2)
Effect of stock-based compensation	0	(1)	(7)	(14)
Effect of foreign operations	0	1	3	7
Effect of nondeductible expenses	1	2	5	5
Effect of change in valuation allowance	1	16	3	16
Effect of other income tax reconciliation	2	(1)	4	(1)
Provision for income taxes as shown on the Statement of Earnings	$ 41	$ 18	$ 126	$ 146
Effective Income Tax Rate Reconciliation, Percent [Abstract]
Income taxes at statutory rate as a percentage of EBT	21.00%	35.00%	21.00%	35.00%
Effect of adjustment to prior year taxes as a percentage of EBT	(4.00%)	(7.00%)	(1.00%)	(1.00%)
Effect of tax exempt interest as a percentage of EBT	(1.00%)	(17.00%)	(1.00%)	(4.00%)
Effect of dividends received deduction as a percentage of EBT	(0.00%)	(7.00%)	(0.00%)	(1.00%)
Effect of employee stock ownership plan dividends paid deduction as a percentage of EBT	(0.00%)	(0.00%)	(0.00%)	(0.00%)
Effect of stock-based compensation as a percentage of EBT	0.00%	(3.00%)	(1.00%)	(3.00%)
Effect of foreign operations as a percentage of EBT	0.00%	3.00%	0.00%	2.00%
Effect of nondeductible expenses as a percentage of EBT	0.00%	7.00%	1.00%	1.00%
Effect of change in valuation allowance as a percentage of EBT	0.00%	55.00%	0.00%	4.00%
Effect of other income tax reconciliation as a percentage of EBT	1.00%	(4.00%)	0.00%	(1.00%)
Provision for income taxes as shown on the Statement of Earnings as a percentage of EBT	17.00%	62.00%	19.00%	32.00%

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Insurance - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Other lines | Property and Casualty Insurance
Insurance [Line Items]
Special charges to increase asbestos and environmental reserves	$ 18	$ 89	$ 18	$ 89

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Insurance - Analysis of changes in the liability for losses and loss adjustment expenses, net of reinsurance (Details) - USD ($) $ in Millions		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017
Analysis of changes in the liability for losses and loss adjustment expenses, net of reinsurance
Balance at beginning of year		$ 9,678	$ 8,563
Less reinsurance recoverables, net of allowance		2,957	2,302
Net liability at beginning of year		6,721	6,261
Liability for losses and loss adjustment expenses, period increase (decrease) [Abstract]
Provision for losses and LAE occurring in the current period		2,337	2,237
Total losses and LAE incurred		2,206	2,239
Payments for losses and LAE of:
Current year		(569)	(530)
Prior years		(1,313)	(1,272)
Total payments		(1,882)	(1,802)
Reserves of business disposed	[1]	(319)	0
Foreign currency translation and other		(4)	32
Net liability at end of period		6,722	6,730
Add back reinsurance recoverables, net of allowance		2,948	2,833
Gross unpaid losses and LAE included in the balance sheet at end of period		9,670	9,563
Special asbestos and environmental reserve charges
Liability for losses and loss adjustment expenses, period increase (decrease) [Abstract]
Net increase (decrease) in the provision for claims of prior years		18	89
Other
Liability for losses and loss adjustment expenses, period increase (decrease) [Abstract]
Net increase (decrease) in the provision for claims of prior years		$ (149)	$ (87)

[1] Reflects the reinsurance to close transaction at Neon discussed below.