Discontinued Operations

12 Months Ended

Dec. 31, 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 $34 million in post-closing adjustments). AFG realized a $656 million net gain on the sale. The sale continues to be subject to tax-related post-closing adjustments, which are not expected to be material and are expected to be settled in 2022. 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	38,323		38,011
Recoverables from reinsurers	6,748		6,804
Other assets	2,152		1,925
Total assets of discontinued annuity operations	49,283		47,885
Liabilities of businesses sold:
Annuity benefits accumulated	43,690		42,573
Other liabilities	1,813		1,885
Total liabilities of discontinued annuity operations	45,503		44,458
Receivable from AFG for real estate-related investments	—		537
Reclassify AOCI	(913)		(1,071)
Net investment in annuity businesses sold, excluding AOCI	$	2,867	$	2,893

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


	Year Ended December 31,
	2021 (*)		2020		2019
Net investment income	$	746	$	1,670	$	1,774
Realized gains on securities	112		365		132
Other income	52		123		137
Total revenues	910		2,158		2,043
Annuity benefits	377		1,192		1,151
Annuity and supplemental insurance acquisition expenses	136		306		253
Other expenses	73		151		165
Total costs and expenses	586		1,649		1,569
Earnings before income taxes from discontinued operations	324		509		474
Provision for income taxes on discontinued operations	66		102		96
Net earnings from discontinued operations, net of tax	258		407		378
Gain on sale of discontinued operations, net of tax	656		—		—
Net earnings from discontinued operations	$	914	$	407	$	378

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

Net investment income in the table above excludes $51 million, $49 million and $37 million in 2021, 2020 and 2019, 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):


Cash proceeds	$	3,571
Sale related expenses	(8)
Total net proceeds	3,563

Net investment in annuity businesses sold, excluding AOCI	2,867
Reclassify net deferred tax asset	(199)
Pretax gain on sale	895
Income tax expense:
Reclassify net deferred tax asset	199
Tax liabilities triggered by the sale	41
Other	(1)
Total income tax expense	239
Net gain on sale	$	656

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


	Year ended December 31,
	2021 (*)		2020		2019
Net cash provided by operating activities	$	67	$	898	$	1,131
Net cash used in investing activities	(1,689)		(285)		(2,384)
Net cash provided by (used in) financing activities	477		(203)		1,662

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

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 from discontinued operations for changes in the fair value of derivatives that did not qualify for hedge accounting for 2021, 2020 and 2019 (in millions):


Derivative	2021 (*)		2020		2019
MBS with embedded derivatives	$	(1)	$	(2)	$	5

Fixed-indexed and variable-indexed annuities (embedded derivative)	(222)		(283)		(919)
Equity index call options	237		223		804
Equity index put options	5		3		2
Reinsurance contract (embedded derivative)	1		(1)		(2)
	$	20	$	(60)	$	(110)

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