
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized				Net Unrealized		Fair Value
					Gains		Losses
September 30, 2020
Fixed maturities:
U.S. Government and government agencies	$	211	$	—	$	13	$	—	$	13	$	224
States, municipalities and political subdivisions	6,150		—		575		(3)		572		6,722
Foreign government	187		—		8		—		8		195
Residential MBS	2,882		3		264		(6)		258		3,137
Commercial MBS	814		—		44		(2)		42		856
Collateralized loan obligations	4,643		20		25		(41)		(16)		4,607
Other asset-backed securities	7,405		16		154		(124)		30		7,419
Corporate and other	23,005		15		2,121		(78)		2,043		25,033
Total fixed maturities	$	45,297	$	54	$	3,204	$	(254)	$	2,950	$	48,193

December 31, 2019
Fixed maturities:
U.S. Government and government agencies	$	199	$	—	$	10	$	—	$	10	$	209
States, municipalities and political subdivisions	6,604		—		363		(4)		359		6,963
Foreign government	170		—		3		(1)		2		172
Residential MBS	2,900		—		265		(5)		260		3,160
Commercial MBS	896		—		31		—		31		927
Collateralized loan obligations	4,307		—		10		(37)		(27)		4,280
Other asset-backed securities	6,992		—		156		(20)		136		7,128
Corporate and other	22,456		—		1,231		(21)		1,210		23,666
Total fixed maturities	$	44,524	$	—	$	2,069	$	(88)	$	1,981	$	46,505


	September 30, 2020						December 31, 2019
					Fair Value						Fair Value
	Actual Cost				over (under)		Actual Cost				over (under)
			Fair Value		Cost				Fair Value		Cost
Common stocks	$	1,145	$	874	$	(271)	$	1,164	$	1,283	$	119
Perpetual preferred stocks	724		732		8		640		654		14
Total equity securities carried at fair value	$	1,869	$	1,606	$	(263)	$	1,804	$	1,937	$	133

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, 2020
Fixed maturities:
U.S. Government and government agencies	$	—	$	19	100	%	$	—	$	—	—	%
States, municipalities and political subdivisions	(3)		120		98	%	—		15		100	%
Foreign government	—		5		100	%	—		—		—	%
Residential MBS	(4)		144		97	%	(2)		35		95	%
Commercial MBS	(2)		47		96	%	—		—		—	%
Collateralized loan obligations	(11)		1,248		99	%	(30)		1,393		98	%
Other asset-backed securities	(107)		2,164		95	%	(17)		245		94	%
Corporate and other	(67)		1,791		96	%	(11)		196		95	%
Total fixed maturities	$	(194)	$	5,538	97	%	$	(60)	$	1,884	97	%

December 31, 2019
Fixed maturities:
U.S. Government and government agencies	$	—	$	16	100	%	$	—	$	11	100	%
States, municipalities and political subdivisions	(3)		254		99	%	(1)		82		99	%
Foreign government	(1)		70		99	%	—		—		—	%
Residential MBS	(4)		509		99	%	(1)		69		99	%
Commercial MBS	—		17		100	%	—		—		—	%
Collateralized loan obligations	(11)		1,284		99	%	(26)		1,728		99	%
Other asset-backed securities	(12)		1,211		99	%	(8)		123		94	%
Corporate and other	(13)		1,100		99	%	(8)		211		96	%
Total fixed maturities	$	(44)	$	4,461	99	%	$	(44)	$	2,224	98	%

At September 30, 2020, the gross unrealized losses on fixed maturities of $254 million relate to 759 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 77% of the gross unrealized loss and 84% of the fair value.

To evaluate fixed maturities for expected credit losses (impairment), management considers whether the unrealized loss is credit-driven or a result of changes in market interest rates, the extent to which fair value is less than cost basis, historical operating, balance sheet and cash flow data from the issuer, third party research and communications with industry specialists and discussions with issuer management.

AFG analyzes its MBS securities for expected credit losses (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.

See Note A — “Accounting Policies — Credit Losses on Financial Instruments,” for a discussion of new guidance effective January 1, 2020, which impacts the accounting for expected credit losses (impairments) of fixed maturity securities. Under the new guidance, credit losses on available for sale fixed maturities continue to be measured based on the present value of expected future cash flows compared to amortized cost; however, impairment losses are now recognized through an allowance instead of directly writing down the amortized cost. Under the new guidance, recoveries of previously impaired amounts are recorded as an immediate reversal of all or a portion of the allowance instead of accreted as investment income through a yield adjustment. In addition, the allowance on available for sale fixed maturities cannot cause the amortized cost net of the allowance to be below fair value. Accordingly, future changes in the fair value of an impaired security (when the allowance was limited by the fair value) due to reasons other than issuer credit (e.g. changes in market interest rates) result in increases or decreases in the allowance, which are recorded through realized gains (losses) on securities. A progression of the allowance for expected credit losses on fixed maturity securities is shown below (in millions):


	Structured Securities (*)		Corporate and Other		Total
Balance at June 30	$	39	$	22	$	61

Initial allowance for purchased securities with credit deterioration	—		—		—
Provision for expected credit losses on securities with no previous allowance	—		—		—
Additions (reductions) to previously recognized expected credit losses	1		(4)		(3)
Reductions due to sales or redemptions	(1)		(3)		(4)
Balance at September 30	$	39	$	15	$	54

Balance at January 1	$	—	$	—	$	—
Impact of adoption of new accounting policy	—		—		—
Initial allowance for purchased securities with credit deterioration	1		—		1
Provision for expected credit losses on securities with no previous allowance	39		28		67
Additions (reductions) to previously recognized expected credit losses	—		(10)		(10)
Reductions due to sales or redemptions	(1)		(3)		(4)
Balance at September 30	$	39	$	15	$	54

In the first nine months of 2020, AFG purchased two residential mortgage-backed securities with expected credit losses. In aggregate at the time of purchase, the par value was $8 million, the purchase price was $6 million and the allowance for credit losses and the discount were each $1 million. No such securities were purchased during the third quarter of 2020.

The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2020 (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, net (*)		Amount		%
Maturity
One year or less	$	2,218	$	2,250	5	%
After one year through five years	11,434		12,224		25	%
After five years through ten years	12,737		14,199		30	%
After ten years	3,149		3,501		7	%
	29,538		32,174		67	%
Collateralized loan obligations and other ABS (average life of approximately 4 years)	12,012		12,026		25	%
MBS (average life of approximately 3-1/2 years)	3,693		3,993		8	%
Total	$	45,243	$	48,193	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.

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.


	Pretax		Deferred Tax		Net
September 30, 2020
Net unrealized gain on:
Fixed maturities — annuity segment (*)	$	2,473	$	(519)	$	1,954
Fixed maturities — all other	477		(100)		377
Total fixed maturities	2,950		(619)		2,331
Deferred policy acquisition costs — annuity segment	(1,049)		220		(829)
Annuity benefits accumulated	(377)		79		(298)
Life, accident and health reserves	(3)		1		(2)
Unearned revenue	13		(3)		10
Total net unrealized gain on marketable securities	$	1,534	$	(322)	$	1,212

December 31, 2019
Net unrealized gain on:
Fixed maturities — annuity segment (*)	$	1,611	$	(338)	$	1,273
Fixed maturities — all other	370		(78)		292
Total fixed maturities	1,981		(416)		1,565
Deferred policy acquisition costs — annuity segment	(681)		143		(538)
Annuity benefits accumulated	(219)		46		(173)
Life, accident and health reserves	(1)		—		(1)
Unearned revenue	11		(2)		9
Total net unrealized gain on marketable securities	$	1,091	$	(229)	$	862


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Investment income:
Fixed maturities	$	473	$	475	$	1,449	$	1,422
Equity securities:
Dividends	16		22		49		66
Change in fair value (a) (b)	(3)		17		(6)		35
Equity in earnings of partnerships and similar investments	66		43		37		109
Other	26		36		72		95
Gross investment income	578		593		1,601		1,727
Investment expenses	(6)		(5)		(17)		(17)
Net investment income (b)	$	572	$	588	$	1,584	$	1,710

(b)Net investment income in the third quarter and first nine months of 2020 includes income of $1 million and losses of $5 million, respectively, on investments held by the companies that comprise the Neon exited lines due primarily to the $7 million loss recorded in first quarter of 2020 on equity securities that are carried at fair value through net investment income.


	Three months ended September 30, 2020								Three months ended September 30, 2019
	Realized gains (losses)								Realized gains (losses)
	Before Impairments		Impairment Allowance		Total		Change in Unrealized		Before Impairments		Impairments		Total		Change in Unrealized
Fixed maturities	$	14	$	3	$	17	$	513	$	9	$	(14)	$	(5)	$	367
Equity securities	30		—		30		—		(16)		—		(16)		—
Mortgage loans and other investments	—		—		—		—		—		—		—		—
Other (*)	(1)		(1)		(2)		(283)		(2)		5		3		(230)
Total pretax	43		2		45		230		(9)		(9)		(18)		137
Tax effects	(9)		(1)		(10)		(48)		2		2		4		(29)
Net of tax	$	34	$	1	$	35	$	182	$	(7)	$	(7)	$	(14)	$	108

	Nine months ended September 30, 2020								Nine months ended September 30, 2019
	Realized gains (losses)								Realized gains (losses)
	Before Impairments		Impairment Allowance		Total		Change in Unrealized		Before Impairments		Impairments		Total		Change in Unrealized
Fixed maturities	$	46	$	(57)	$	(11)	$	969	$	23	$	(20)	$	3	$	2,009
Equity securities	(303)		—		(303)		—		210		—		210		—
Mortgage loans and other investments	4		—		4		—		3		—		3		—
Other (*)	(6)		14		8		(526)		(1)		7		6		(949)
Total pretax	(259)		(43)		(302)		443		235		(13)		222		1,060
Tax effects	54		9		63		(93)		(49)		3		(46)		(223)
Net of tax	$	(205)	$	(34)	$	(239)	$	350	$	186	$	(10)	$	176	$	837

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 2020 and 2019 on securities that were still owned at September 30, 2020 and September 30, 2019 as follows (in millions):