Discontinued Operations

6 Months Ended

Jun. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

Annuity Business   Effective May 31, 2021, AFG completed the sale of its Annuity business to Massachusetts Mutual Life Insurance Company (“MassMutual”). MassMutual acquired Great American Life Insurance Company 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) and AFG realized a $656 million net gain on the sale in the first six months of 2021. The sale continues to be subject to tax-related post-closing adjustments, which are not expected to be material and are expected to be completed in 2022.

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

	May 31, 2021
Assets of businesses sold:
Cash and cash equivalents	$	2,060
Investments	38,323
Recoverables from reinsurers	6,748
Other assets	2,152
Total assets of discontinued annuity operations	49,283
Liabilities of businesses sold:
Annuity benefits accumulated	43,690
Other liabilities	1,813
Total liabilities of discontinued annuity operations	45,503
Reclassify AOCI	(913)
Net investment in annuity businesses sold, excluding AOCI	$	2,867

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

	Three months ended June 30, 2021 (*)		Six months ended June 30, 2021 (*)
Net investment income	$	299	$	746
Realized gains on securities	31		112
Other income	20		52
Total revenues	350		910
Annuity benefits	216		377
Annuity and supplemental insurance acquisition expenses	24		136
Other expenses	27		73
Total costs and expenses	267		586
Earnings before income taxes from discontinued operations	83		324
Provision for income taxes on discontinued operations	18		66
Net earnings from operations, net of tax	65		258
Gain on sale, net of tax	697		656
Net earnings from discontinued operations	$	762	$	914

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

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

	May 31, 2021
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):

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

Derivatives   The vast majority of AFG’s derivatives that do not qualify for hedge accounting 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 do not qualify for hedge accounting for the second quarter and first six months of 2021 (in millions):

Derivative	Three months ended June 30, 2021 (*)		Six months ended June 30, 2021 (*)
MBS with embedded derivatives	$	(1)	$	(1)
Fixed-indexed and variable-indexed annuities (embedded derivative)	(182)		(222)
Equity index call options	123		237
Equity index put options	3		5
Reinsurance contract (embedded derivative)	—		1
	$	(57)	$	20

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