Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following is a reconciliation of income taxes on continuing operations at the statutory rate of 21% to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):

	Three months ended September 30,								Nine months ended September 30,
	2021				2020				2021				2020
	Amount		% of EBT		Amount		% of EBT		Amount		% of EBT		Amount		% of EBT
Earnings (loss) from continuing operations before income taxes (“EBT”)	$	267			$	40			$	890			$	(5)
Income taxes at statutory rate	$	56	21	%	$	8	21	%	$	187	21	%	$	(1)	21	%
Effect of:
Pending sale of Neon	—		—	%	(73)		(183	%)	—		—	%	(73)		1,460	%
Stock-based compensation	(2)		(1	%)	—		—	%	(12)		(1	%)	(3)		60	%
Employee stock ownership plan dividend paid deduction	(2)		(1	%)	(1)		(3	%)	(10)		(1	%)	(1)		20	%
Tax exempt interest	(2)		(1	%)	(2)		(5	%)	(6)		(1	%)	(7)		140	%
Dividends received deduction	—		—	%	(1)		(3	%)	(1)		—	%	(2)		40	%
Foreign operations	2		1	%	(4)		(10	%)	—		—	%	(3)		60	%
Adjustment to prior year taxes	(1)		—	%	1		3	%	(1)		—	%	1		(20	%)
Nondeductible expenses	2		1	%	1		3	%	6		1	%	3		(60	%)
Change in valuation allowance	(2)		(1	%)	20		50	%	1		—	%	31		(620	%)
Other	(3)		(1	%)	3		7	%	—		(1	%)	3		(61	%)
Provision (credit) for income taxes as shown in the statement of earnings	$	48	18	%	$	(48)	(120	%)	$	164	18	%	$	(52)	1,040	%

In September 2020, AFG reached a definitive agreement to sell the legal entities that own Neon (see Note C — “Sales of Businesses,” which resulted in a loss on sale for U.S. tax purposes. In accordance with accounting guidance for transactions that meet the GAAP “held for sale” criteria, AFG recorded a $73 million tax benefit associated with this loss in the third quarter of 2020. The changes in valuation allowance in the table above are primarily increases in the valuation allowance on tax benefits related to losses in the Neon Lloyd’s insurance business.

Approximately $27 million of AFG’s net operating loss carryforwards (“NOL”) subject to separate return limitation year (“SRLY”) tax rules will expire unutilized at December 31, 2021. Since AFG maintains a full valuation allowance against its SRLY NOLs, the expiration of these loss carryforwards will be offset by a corresponding reduction in the valuation allowance and will have no overall impact on AFG’s income tax expense or results of operations.