Discontinued Operations

6 Months Ended

Jun. 30, 2021

Discontinued Operations and Disposal Groups [Abstract]

Annuity Business On May 28, 2021, AFG completed the sale of its Annuity business to Massachusetts Mutual Life Insurance Company (“MassMutual”) with an effective date of May 31, 2021. MassMutual acquired Great American Life Insurance Company (“GALIC”) and its two insurance subsidiaries, Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company. In addition to AFG’s annuity operations, these subsidiaries included AFG’s run-off life and long-term care operations. Proceeds from the sale were $3.57 billion (including $32 million in preliminary post-closing adjustments). AFG realized a $656 million net gain on the sale. The sale continues to be subject to post-closing adjustments which are expected to be final by the end of 2021. Beginning with the first quarter of 2021, the results of the Annuity business sold were reported as discontinued operations in accordance with generally accepted accounting principles, which included adjusting prior period results to reflect these operations as discontinued.

Prior to the sale, AFG acquired approximately $480 million in investments accounted for using the equity method and approximately $100 million of directly owned real estate from GALIC.

Details of the assets and liabilities of the Annuity subsidiaries sold were as follows (in millions):


	May 31, 2021		December 31, 2020
Assets of businesses sold:
Cash and cash equivalents	$	2,060	$	1,145
Investments	38,322		38,011
Recoverables from reinsurers	6,748		6,804
Other assets	2,139		1,925
Total assets of discontinued annuity operations	49,269		47,885
Liabilities of businesses sold:
Annuity benefits accumulated	43,690		42,573
Other liabilities	1,801		1,885
Total liabilities of discontinued annuity operations	45,491		44,458
Receivable from AFG for real estate-related investments	—		537
Reclassify AOCI	(913)		(1,071)
Net investment in annuity businesses sold, excluding AOCI	$	2,865	$	2,893

Details of the results of operations for the discontinued annuity operations were (in millions):


	Three months ended June 30,				Six months ended June 30,
	2021 (*)		2020		2021 (*)		2020
Net investment income	$	299	$	382	$	746	$	797
Realized gains (losses) on securities	31		96		112		(127)
Other income	20		32		52		65
Total revenues	350		510		910		735
Annuity benefits	216		426		377		702
Annuity and supplemental insurance acquisition expenses	24		(35)		136		78
Other expenses	27		41		73		80
Total costs and expenses	267		432		586		860
Earnings (loss) before income taxes from discontinued operations	83		78		324		(125)
Provision (credit) for income taxes on operations	18		14		66		(29)
Net earnings (loss) from operations, net of tax	65		64		258		(96)
Gain on sale, net of tax	697		—		656		—
Net earnings (loss) from discontinued operations	$	762	$	64	$	914	$	(96)

(*)Results through the May 31, 2021 effective date of the sale.

Net investment income in the table above excludes $22 million and $7 million in the second quarter of 2021 and 2020 and $51 million and $19 million in first six months of 2021 and 2020, respectively, related to the real estate-related entities that AFG acquired from the discontinued annuity operations prior to the completion of the sale.

The impact of the sale of the annuity business is shown below (in millions):


	May 31, 2021
Cash proceeds	$	3,537
Receivable from MassMutual	32
Sale related expenses	(8)
Total net proceeds	3,561

Net investment in annuity businesses sold, excluding AOCI	2,865
Reclassify net deferred tax asset	(210)
Pretax gain on sale	906
Income tax expense:
Reclassify net deferred tax asset	210
Tax liabilities triggered by pending sale in the first quarter of 2021	41
Other	(1)
Total income tax expense	250
Net gain on sale	$	656

Summarized cash flows for the discontinued annuity operations were (in millions):


	Six months ended June 30,
	2021		2020
Net cash provided by operating activities	$	87	$	605
Net cash used in investing activities	(1,709)		(1,008)
Net cash provided by financing activities	477		406

Derivatives The vast majority of AFG’s derivatives were held by the sold annuity subsidiaries. The following table summarizes the gains (losses) included in net earnings (loss) from discontinued operations for changes in the fair value of derivatives that do not qualify for hedge accounting for the first six months of 2021 and 2020 (in millions):


	Three months ended June 30,				Six months ended June 30,
Derivative	2021		2020		2021		2020
MBS with embedded derivatives	$	(1)	$	2	$	(1)	$	5

Fixed-indexed and variable-indexed annuities (embedded derivative)	(182)		(601)		(222)		46
Equity index call options	123		383		237		(245)
Equity index put options	3		5		5		(1)
Reinsurance contract (embedded derivative)	—		(3)		1		(1)
	$	(57)	$	(214)	$	20	$	(196)