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.