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Investments
 3 Months Ended
Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

Available for sale fixed maturities at March 31, 2019 and December 31, 2018, consisted of the following (in millions):
 
March 31, 2019
 
December 31, 2018
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
$
233

 
$
2

 
$
(2
)
 
$
—

 
$
233

 
$
235

 
$
1

 
$
(3
)
 
$
(2
)
 
$
233

States, municipalities and political subdivisions
6,744

 
253

 
(20
)
 
233

 
6,977

 
6,825

 
169

 
(55
)
 
114

 
6,939

Foreign government
146

 
2

 
—

 
2

 
148

 
140

 
2

 
—

 
2

 
142

Residential MBS
2,477

 
287

 
(8
)
 
279

 
2,756

 
2,476

 
277

 
(9
)
 
268

 
2,744

Commercial MBS
900

 
24

 
—

 
24

 
924

 
905

 
17

 
(2
)
 
15

 
920

Asset-backed securities
9,909

 
163

 
(54
)
 
109

 
10,018

 
9,781

 
130

 
(100
)
 
30

 
9,811

Corporate and other
22,009

 
471

 
(105
)
 
366

 
22,375

 
21,475

 
167

 
(434
)
 
(267
)
 
21,208

Total fixed maturities
$
42,418

 
$
1,202

 
$
(189
)
 
$
1,013

 
$
43,431

 
$
41,837

 
$
763

 
$
(603
)
 
$
160

 
$
41,997

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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 March 31, 2019 and December 31, 2018 were $135 million and $140 million, respectively. Gross unrealized gains on such securities at March 31, 2019 and December 31, 2018 were $123 million and $119 million, respectively. Gross unrealized losses on such securities at both March 31, 2019 and December 31, 2018 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.

Equity securities, which are reported at fair value with holding gains and losses recognized in net earnings, consisted of the following at March 31, 2019 and December 31, 2018 (in millions):
 
March 31, 2019
 
December 31, 2018
 
 
 
 
 
Fair Value
 over (under)
Cost
 
 
 
 
 
Fair Value
over (under)
Cost
 
Actual Cost
 
 
 
 
Actual Cost
 
 
 
 
 
Fair Value
 
 
 
Fair Value
 
Common stocks
$
1,162

 
$
1,218

 
$
56

 
$
1,241

 
$
1,148

 
$
(93
)
Perpetual preferred stocks
719

 
712

 
(7
)
 
705

 
666

 
(39
)
Total equity securities carried at fair value
$
1,881

 
$
1,930

 
$
49

 
$
1,946

 
$
1,814

 
$
(132
)


The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities 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
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
3

 
100
%
 
$
(2
)
 
$
118

 
98
%
States, municipalities and political subdivisions
(4
)
 
240

 
98
%
 
(16
)
 
869

 
98
%
Foreign government
—

 
63

 
100
%
 
—

 
7

 
100
%
Residential MBS
(4
)
 
240

 
98
%
 
(4
)
 
136

 
97
%
Commercial MBS
—

 
12

 
100
%
 
—

 
10

 
100
%
Asset-backed securities
(35
)
 
3,370

 
99
%
 
(19
)
 
981

 
98
%
Corporate and other
(13
)
 
1,280

 
99
%
 
(92
)
 
3,949

 
98
%
Total fixed maturities
$
(56
)
 
$
5,208

 
99
%
 
$
(133
)
 
$
6,070

 
98
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
41

 
100
%
 
$
(3
)
 
$
120

 
98
%
States, municipalities and political subdivisions
(23
)
 
1,497

 
98
%
 
(32
)
 
902

 
97
%
Foreign government
—

 
18

 
100
%
 
—

 
4

 
100
%
Residential MBS
(4
)
 
279

 
99
%
 
(5
)
 
139

 
97
%
Commercial MBS
(1
)
 
147

 
99
%
 
(1
)
 
30

 
97
%
Asset-backed securities
(77
)
 
5,406

 
99
%
 
(23
)
 
629

 
96
%
Corporate and other
(306
)
 
10,378

 
97
%
 
(128
)
 
2,078

 
94
%
Total fixed maturities
$
(411
)
 
$
17,766

 
98
%
 
$
(192
)
 
$
3,902

 
95
%


At March 31, 2019, the gross unrealized losses on fixed maturities of $189 million relate to 1,274 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 85% of the gross unrealized loss and 93% 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 three months of both 2019 and 2018, AFG recorded less than $1 million in other-than-temporary impairment charges related to its residential MBS.

In the first three months of 2019 and 2018, AFG recorded $3 million and $1 million, respectively, 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 March 31, 2019.

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):
 
2019
 
2018
Balance at January 1
$
142

 
$
145

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(1
)
 
(1
)
Balance at March 31
$
141

 
$
144



The table below sets forth the scheduled maturities of available for sale fixed maturities as of March 31, 2019 (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
$
1,549

 
$
1,561

 
4
%
After one year through five years
9,016

 
9,177

 
21
%
After five years through ten years
14,097

 
14,384

 
33
%
After ten years
4,470

 
4,611

 
11
%
 
29,132

 
29,733

 
69
%
ABS (average life of approximately 4.5 years)
9,909

 
10,018

 
23
%
MBS (average life of approximately 4.5 years)
3,377

 
3,680

 
8
%
Total
$
42,418

 
$
43,431

 
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 March 31, 2019 or December 31, 2018.

Net Unrealized Gain on Marketable Securities   In addition to adjusting fixed maturity securities classified as “available for sale” to fair value, GAAP requires that deferred policy acquisition costs and certain other balance sheet amounts related to annuity, long-term care and life businesses be adjusted to the extent that unrealized gains and losses from securities would result in adjustments to those balances had the unrealized gains or losses actually been realized. The following table shows (in millions) the components of the net unrealized gain on securities that is included in AOCI in AFG’s Balance Sheet.
 
Pretax
 
Deferred Tax
 
Net
March 31, 2019
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
792

 
$
(166
)
 
$
626

Fixed maturities — all other
221

 
(47
)
 
174

Total fixed maturities
1,013

 
(213
)
 
800

Deferred policy acquisition costs — annuity segment
(325
)
 
68

 
(257
)
Annuity benefits accumulated
(108
)
 
23

 
(85
)
Unearned revenue
8

 
(2
)
 
6

Total net unrealized gain on marketable securities
$
588

 
$
(124
)
 
$
464

 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
101

 
$
(21
)
 
$
80

Fixed maturities — all other
59

 
(13
)
 
46

Total fixed maturities
160

 
(34
)
 
126

Deferred policy acquisition costs — annuity segment
(42
)
 
9

 
(33
)
Annuity benefits accumulated
(14
)
 
3

 
(11
)
Unearned revenue
1

 
—

 
1

Total net unrealized gain on marketable securities
$
105

 
$
(22
)
 
$
83


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

Net Investment Income   The following table shows (in millions) investment income earned and investment expenses incurred.
 
Three months ended March 31,
 
2019
 
2018
Investment income:
 
 
 
Fixed maturities
$
469

 
$
412

Equity securities:
 
 
 
Dividends
22

 
20

Change in fair value (*)
11

 
(1
)
Equity in earnings of partnerships and similar investments
21

 
46

Other
25

 
23

Gross investment income
548

 
500

Investment expenses
(6
)
 
(5
)
Net investment income
$
542

 
$
495


(*)
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 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) included in AOCI related to fixed maturity and equity security investments are summarized as follows (in millions): 
 
Three months ended March 31, 2019
 
Three months ended March 31, 2018
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
3

 
$
(3
)
 
$
—

 
$
853

 
$
(1
)
 
$
(1
)
 
$
(2
)
 
$
(599
)
Equity securities
182

 
—

 
182

 
—

 
(95
)
 
—

 
(95
)
 
—

Other (*)
1

 
1

 
2

 
(370
)
 
4

 
—

 
4

 
248

Total pretax
186

 
(2
)
 
184

 
483

 
(92
)
 
(1
)
 
(93
)
 
(351
)
Tax effects
(39
)
 
—

 
(39
)
 
(102
)
 
20

 
—

 
20

 
74

Net of tax
$
147

 
$
(2
)
 
$
145

 
$
381

 
$
(72
)
 
$
(1
)
 
$
(73
)
 
$
(277
)

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

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 first three months of 2019 and 2018 on securities that were still owned at March 31, 2019 and March 31, 2018 as follows (in millions):
 
Three months ended March 31,
 
2019
 
2018
Included in realized gains (losses)
$
163

 
$
(94
)
Included in net investment income
11

 
(1
)
 
$
174

 
$
(95
)


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): 
  
Three months ended March 31,
2019
 
2018
Gross gains
$
6

 
$
6

Gross losses
(9
)
 
(3
)