Managed Investment Entities

3 Months Ended

Mar. 31, 2021

Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract]

AFG is the investment manager and its subsidiaries have investments ranging from 15.0% to 100.0% (4.5% to 46.8% for AFG’s continuing operations) of the most subordinate debt tranche of twelve active collateralized loan obligation entities (“CLOs”), which are considered variable interest entities. AFG also owns portions of the senior debt tranches of certain of these CLOs. Upon formation between 2012 and 2020, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay expenses (including management fees to AFG) and interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities.

AFG’s maximum exposure to economic loss on the CLOs that it manages is limited to its investment in those CLOs, which had an aggregate fair value of $181 million (including $121 million invested in the most subordinate tranches) at March 31, 2021, and $200 million at December 31, 2020.

During the first three months of 2020, AFG subsidiaries purchased $57 million face amount of senior and subordinate tranches of existing CLOs for $39 million. During the first three months of 2021 and 2020, AFG subsidiaries received $29 million and less than $1 million, respectively, in sale and redemption proceeds from its CLO investments.

The revenues and expenses of the CLOs are separately identified in AFG’s Statement of Earnings, after the elimination of management fees and earnings attributable to shareholders of AFG as measured by the change in the fair value of AFG’s investments in the CLOs. Selected financial information related to the CLOs is shown below (in millions):


	Three months ended March 31,
		2021		2020
Investment in CLO tranches at end of period:
Held by continuing operations		$	57	$	40
Held by discontinued annuity operations		124		121
Total		$	181	$	161
Gains (losses) on change in fair value of assets/liabilities (a):
Assets		$	46	$	(679)
Liabilities		(44)		666
Management fees paid to AFG		4		4
CLO earnings (losses) attributable to AFG shareholders:
From continuing operations		$	5	$	(11)
From discontinued annuity operations		13		(25)
Total		$	18	$	(36)

(a)Included in revenues in AFG’s Statement of Earnings.

The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $100 million and $150 million at March 31, 2021 and December 31, 2020, respectively. The aggregate unpaid principal balance of the CLOs’ debt exceeded its carrying value by $104 million and $141 million at those dates. The CLO assets include loans with an aggregate fair value of $27 million at March 31, 2021 and $11 million at December 31, 2020, for which the CLOs are not accruing interest because the loans are in default (aggregate unpaid principal balance of $47 million at March 31, 2021 and $28 million at December 31, 2020).

In addition to the CLOs that it manages, AFG’s continuing operations had investments in CLOs that are managed by third parties (therefore not consolidated), which are included in available for sale fixed maturity securities and had a fair value of $1.13 billion at March 31, 2021 and $1.06 billion at December 31, 2020.