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Investments
 9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
Investments Investments

Available for sale fixed maturities at September 30, 2019 and December 31, 2018, consisted of the following (in millions):
 
September 30, 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
$
225

 
$
5

 
$
(1
)
 
$
4

 
$
229

 
$
235

 
$
1

 
$
(3
)
 
$
(2
)
 
$
233

States, municipalities and political subdivisions
6,519

 
446

 
(1
)
 
445

 
6,964

 
6,825

 
169

 
(55
)
 
114

 
6,939

Foreign government
160

 
4

 
—

 
4

 
164

 
140

 
2

 
—

 
2

 
142

Residential MBS
2,274

 
292

 
(4
)
 
288

 
2,562

 
2,476

 
277

 
(9
)
 
268

 
2,744

Commercial MBS
928

 
38

 
—

 
38

 
966

 
905

 
17

 
(2
)
 
15

 
920

Collateralized loan obligations
4,319

 
13

 
(18
)
 
(5
)
 
4,314

 
4,350

 
1

 
(73
)
 
(72
)
 
4,278

Other asset-backed securities
5,540

 
201

 
(10
)
 
191

 
5,731

 
5,431

 
129

 
(27
)
 
102

 
5,533

Corporate and other
23,369

 
1,234

 
(30
)
 
1,204

 
24,573

 
21,475

 
167

 
(434
)
 
(267
)
 
21,208

Total fixed maturities
$
43,334

 
$
2,233

 
$
(64
)
 
$
2,169

 
$
45,503

 
$
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 September 30, 2019 and December 31, 2018 were $124 million and $140 million, respectively. Gross unrealized gains on such securities at September 30, 2019 and December 31, 2018 were $114 million and $119 million, respectively. Gross unrealized losses on such securities at September 30, 2019 and December 31, 2018 were $3 million and $4 million, respectively. 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 September 30, 2019 and December 31, 2018 (in millions):
 
September 30, 2019
 
December 31, 2018
 
 
 
 
 
Fair Value
 over (under)
Cost
 
 
 
 
 
Fair Value
over (under)
Cost
 
Actual Cost
 
 
 
 
Actual Cost
 
 
 
 
 
Fair Value
 
 
 
Fair Value
 
Common stocks
$
1,166

 
$
1,261

 
$
95

 
$
1,241

 
$
1,148

 
$
(93
)
Perpetual preferred stocks
732

 
743

 
11

 
705

 
666

 
(39
)
Total equity securities carried at fair value
$
1,898

 
$
2,004

 
$
106

 
$
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
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and government agencies
$
—

 
$
—

 
—
%
 
$
(1
)
 
$
49

 
98
%
States, municipalities and political subdivisions
—

 
54

 
100
%
 
(1
)
 
74

 
99
%
Foreign government
—

 
47

 
100
%
 
—

 
—

 
—
%
Residential MBS
(3
)
 
144

 
98
%
 
(1
)
 
69

 
99
%
Commercial MBS
—

 
13

 
100
%
 
—

 
—

 
—
%
Collateralized loan obligations
(6
)
 
1,063

 
99
%
 
(12
)
 
1,255

 
99
%
Other asset-backed securities
(4
)
 
518

 
99
%
 
(6
)
 
83

 
93
%
Corporate and other
(16
)
 
1,118

 
99
%
 
(14
)
 
370

 
96
%
Total fixed maturities
$
(29
)
 
$
2,957

 
99
%
 
$
(35
)
 
$
1,900

 
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
%
Collateralized loan obligations
(61
)
 
3,540

 
98
%
 
(12
)
 
197

 
94
%
Asset-backed securities
(16
)
 
1,866

 
99
%
 
(11
)
 
432

 
98
%
Corporate and other
(306
)
 
10,378

 
97
%
 
(128
)
 
2,078

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

 
98
%
 
$
(192
)
 
$
3,902

 
95
%


At September 30, 2019, the gross unrealized losses on fixed maturities of $64 million relate to 602 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 63% of the gross unrealized loss and 88% 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 2019 and 2018, AFG recorded less than $1 million and $1 million, respectively, in other-than-temporary impairment charges related to its residential MBS.

In the first nine months of 2019, AFG recorded $15 million in other-than-temporary impairment charges on third-party collateralized loan obligations.

In the first nine months of 2019 and 2018, AFG recorded $4 million and $2 million, respectively, in other-than-temporary impairment charges related to corporate bonds.

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, 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 June 30
$
140

 
$
144

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
—

Reductions due to sales or redemptions
(3
)
 
(1
)
Balance at September 30
$
137

 
$
143

 
 
 
 
Balance at January 1
$
142

 
$
145

Additional credit impairments on:
 
 
 
Previously impaired securities
—

 
—

Securities without prior impairments
—

 
1

Reductions due to sales or redemptions
(5
)
 
(3
)
Balance at September 30
$
137

 
$
143



The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 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
$
2,223

 
$
2,249

 
5
%
After one year through five years
10,338

 
10,742

 
24
%
After five years through ten years
13,997

 
14,927

 
33
%
After ten years
3,715

 
4,012

 
8
%
 
30,273

 
31,930

 
70
%
Collateralized loan obligations and other ABS (average life of approximately 4.5 years)
9,859

 
10,045

 
22
%
MBS (average life of approximately 4.5 years)
3,202

 
3,528

 
8
%
Total
$
43,334

 
$
45,503

 
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, 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
September 30, 2019
 
 
 
 
 
Net unrealized gain on:
 
 
 
 
 
Fixed maturities — annuity segment (*)
$
1,777

 
$
(373
)
 
$
1,404

Fixed maturities — all other
392

 
(83
)
 
309

Total fixed maturities
2,169

 
(456
)
 
1,713

Deferred policy acquisition costs — annuity segment
(760
)
 
160

 
(600
)
Annuity benefits accumulated
(259
)
 
54

 
(205
)
Unearned revenue
15

 
(3
)
 
12

Total net unrealized gain on marketable securities
$
1,165

 
$
(245
)
 
$
920

 
 
 
 
 
 
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 September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Investment income:
 
 
 
 
 
 
 
Fixed maturities
$
475

 
$
440

 
$
1,422

 
$
1,283

Equity securities:
 
 
 
 
 
 
 
Dividends
22

 
19

 
66

 
59

Change in fair value (*)
17

 
2

 
35

 
16

Equity in earnings of partnerships and similar investments
43

 
41

 
109

 
128

Other
36

 
31

 
95

 
82

Gross investment income
593

 
533

 
1,727

 
1,568

Investment expenses
(5
)
 
(6
)
 
(17
)
 
(16
)
Net investment income
$
588

 
$
527

 
$
1,710

 
$
1,552


(*)
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 September 30, 2019
 
Three months ended September 30, 2018
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
9

 
$
(14
)
 
$
(5
)
 
$
367

 
$
—

 
$
(2
)
 
$
(2
)
 
$
(213
)
Equity securities
(16
)
 
—

 
(16
)
 
—

 
33

 
—

 
33

 
—

Mortgage loans and other investments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other (*)
(2
)
 
5

 
3

 
(230
)
 
3

 
—

 
3

 
89

Total pretax
(9
)

(9
)

(18
)

137


36


(2
)

34


(124
)
Tax effects
2

 
2

 
4

 
(29
)
 
(8
)
 
1

 
(7
)
 
26

Net of tax
$
(7
)

$
(7
)

$
(14
)

$
108


$
28


$
(1
)

$
27


$
(98
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2019
 
Nine months ended September 30, 2018
 
Realized gains (losses)
 
 
 
Realized gains (losses)
 
 
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
 
Before Impairments
 
Impairments
 
Total
 
Change in Unrealized
Fixed maturities
$
23

 
$
(20
)
 
$
3

 
$
2,009

 
$
3

 
$
(3
)
 
$
—

 
$
(1,150
)
Equity securities
210

 
—

 
210

 
—

 
(39
)
 
—

 
(39
)
 
—

Mortgage loans and other investments
3

 
—

 
3

 
—

 
—

 
—

 
—

 
—

Other (*)
(1
)
 
7

 
6

 
(949
)
 
11

 
—

 
11

 
484

Total pretax
235

 
(13
)
 
222

 
1,060

 
(25
)
 
(3
)
 
(28
)
 
(666
)
Tax effects
(49
)
 
3

 
(46
)
 
(223
)
 
5

 
1

 
6

 
140

Net of tax
$
186

 
$
(10
)
 
$
176

 
$
837

 
$
(20
)
 
$
(2
)
 
$
(22
)
 
$
(526
)

(*)
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 nine months of 2019 and 2018 on securities that were still owned at September 30, 2019 and September 30, 2018 as follows (in millions):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Included in realized gains (losses)
$
(24
)
 
$
25

 
$
146

 
$
(51
)
Included in net investment income
17

 
2

 
34

 
16

 
$
(7
)
 
$
27

 
$
180

 
$
(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,
2019
 
2018
Gross gains
$
20

 
$
19

Gross losses
(12
)
 
(8
)