Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

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 both 2017 and 2016) to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):



	2018					2017					2016
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	639				$	724				$	787

Income taxes at statutory rate	$	134		21	%	$	253		35	%	$	275		35	%
Effect of:
Tax exempt interest	(13		)	(2	%)	(23		)	(3	%)	(24		)	(3	%)
Adjustment to prior year taxes	(8		)	(1	%)	(4		)	(1	%)	(2		)	—	%
Stock-based compensation	(8		)	(1	%)	(16		)	(2	%)	(9		)	(1	%)
Dividend received deduction	(4		)	(1	%)	(8		)	(1	%)	(7		)	(1	%)
Employee stock ownership plan dividend paid deduction	(3		)	(1	%)	(5		)	(1	%)	(2		)	—	%
Foreign operations	(2		)	—	%	21			3	%	5			—	%
Change in valuation allowance (excluding change in tax rate)	11			2	%	(7		)	(1	%)	52			7	%
Nondeductible expenses	7			1	%	6			1	%	7			1	%
Neon restructuring	—			—	%	(56		)	(8	%)	(111		)	(14	%)
Change in U.S corporate tax rate	—			—	%	83			11	%	—			—	%
Acquisition of noncontrolling interest in NATL	—			—	%	—			—	%	(66		)	(8	%)
Subsidiaries not in AFG’s tax return	—			—	%	—			—	%	3			—	%
Other	8			1	%	3			1	%	(2		)	(1	%)
Provision for income taxes as shown in the statement of earnings	$	122		19	%	$	247		34	%	$	119		15	%

Components of income tax provision (credit)

The total income tax provision (credit) consists of (in millions):



	2018			2017		2016
Current taxes:
Federal	$	196		$	153	$	299
State	8			6		12
Deferred taxes:
Federal	(82		)	5		(192		)
Impact of change in U.S. corporate tax rate	—			83		—
Total Federal deferred taxes	(82		)	88		(192		)
Provision for income taxes	$	122		$	247	$	119

Summary of operating loss carryforwards

For income tax purposes, AFG and its subsidiaries had the following carryforwards available at December 31, 2018 (in millions):


(*)	£168 million

Components of deferred tax assets and liabilities

Deferred income tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The significant components of deferred tax assets and liabilities included in AFG’s Balance Sheet at December 31 were as follows (in millions):



	2018									2017
	Excluding Unrealized Gains			Impact of Unrealized Gains			Total			Excluding Unrealized Gains			Impact of Unrealized Gains			Total
Deferred tax assets:
Federal net operating loss carryforwards	$	23		$	—		$	23		$	27		$	—		$	27
Foreign underwriting losses	93			—			93			80			—			80
Capital loss carryforwards	—			—			—			32			—			32
Insurance claims and reserves	740			3			743			665			29			694
Employee benefits	88			—			88			84			—			84
Other, net	44			—			44			48			(3		)	45
Total deferred tax assets before valuation allowance	988			3			991			936			26			962
Valuation allowance against deferred tax assets	(119		)	—			(119		)	(109		)	—			(109		)
Total deferred tax assets	869			3			872			827			26			853
Deferred tax liabilities:
Investment securities	(36		)	(34		)	(70		)	(1		)	(340		)	(341		)
Deferred policy acquisition costs	(300		)	9			(291		)	(293		)	91			(202		)
Insurance claims and reserves transition liability	(110		)	—			(110		)	(128		)	—			(128		)
Real estate, property and equipment	(36		)	—			(36		)	(35		)	—			(35		)
Total deferred tax liabilities	(482		)	(25		)	(507		)	(457		)	(249		)	(706		)
Net deferred tax asset (liability)	$	387		$	(22	)	$	365		$	370		$	(223	)	$	147

Progression of the liability for uncertain tax positions, excluding interest and penalties

A progression of the liability for uncertain tax positions, excluding interest and penalties, follows (in millions):



	2018		2017			2016
Balance at January 1	$	—	$	1		$	1
Additions for tax positions of prior years	—		—			—
Reductions for tax positions of prior years	—		—			—
Additions for tax positions of current year	—		—			—
Settlements	—		(1		)	—
Balance at December 31	$	—	$	—		$	1

Operating Loss – U.S.

Operating Loss – United Kingdom

indefinite