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Investments (Tables)

9 Months Ended

Sep. 30, 2022

Investments, Debt and Equity Securities [Abstract]

Available for sale fixed maturities at September 30, 2022 and December 31, 2021, consisted of the following (in millions):


	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized				Net Unrealized		Fair Value
					Gains		Losses
September 30, 2022
Fixed maturities:
U.S. government and government agencies	$	229	$	—	$	—	$	(15)	$	(15)	$	214
States, municipalities and political subdivisions	1,356		—		2		(100)		(98)		1,258
Foreign government	235		—		—		(12)		(12)		223
Residential MBS	1,759		1		22		(176)		(154)		1,604
Commercial MBS	88		—		—		(3)		(3)		85
Collateralized loan obligations	1,879		1		—		(72)		(72)		1,806
Other asset-backed securities	2,449		7		—		(171)		(171)		2,271
Corporate and other	2,749		—		3		(179)		(176)		2,573
Total fixed maturities	$	10,744	$	9	$	27	$	(728)	$	(701)	$	10,034

December 31, 2021
Fixed maturities:
U.S. government and government agencies	$	216	$	—	$	2	$	(2)	$	—	$	216
States, municipalities and political subdivisions	1,758		—		74		—		74		1,832
Foreign government	248		—		—		(2)		(2)		246
Residential MBS	915		—		48		(3)		45		960
Commercial MBS	102		—		2		—		2		104
Collateralized loan obligations	1,643		1		3		(2)		1		1,643
Other asset-backed securities	2,677		7		17		(11)		6		2,676
Corporate and other	2,634		1		55		(8)		47		2,680
Total fixed maturities	$	10,193	$	9	$	201	$	(28)	$	173	$	10,357

Equity securities reported at fair value

Equity securities which are reported at fair value with holding gains and losses recognized in net earnings, consisted of the following at September 30, 2022 and December 31, 2021 (in millions):


	September 30, 2022						December 31, 2021

	Actual Cost				Fair Value		Actual Cost
			Fair Value		over (under) Cost				Fair Value		Fair Value over Cost
Common stocks	$	549	$	530	$	(19)	$	491	$	586	$	95
Perpetual preferred stocks	462		466		4		403		456		53
Total equity securities carried at fair value	$	1,011	$	996	$	(15)	$	894	$	1,042	$	148

Investments accounted for using the equity method

Investments accounted for using the equity method held by AFG’s continuing operations, by category, carrying value and net investment income are as follows (in millions):


					Net Investment Income
	Carrying Value				Three months ended September 30,				Nine months ended September 30,
	September 30, 2022		December 31, 2021		2022		2021		2022		2021
Real estate-related investments (*)	$	1,218	$	1,130	$	40	$	52	$	209	$	151
Private equity	413		352		(2)		21		36		66
Private debt	30		35		(1)		—		1		5
Total investments accounted for using the equity method	$	1,661	$	1,517	$	37	$	73	$	246	$	222

(*)Includes 92% with underlying investments in multi-family properties, 1% in single family properties and 7% in other property types as of September 30, 2022 and 88% with underlying investments in multi-family properties, 1% in single family properties and 11% in other property types as of December 31, 2021.

Available for sale securities in a continuous unrealized loss position

The following table shows gross unrealized losses (dollars in millions) on available for sale fixed maturities by investment category and length of time that individual securities have been in a continuous unrealized loss position at the following balance sheet dates.


	Less Than Twelve Months						Twelve Months or More
	Unrealized Loss		Fair Value		Fair Value as % of Cost		Unrealized Loss		Fair Value		Fair Value as % of Cost
September 30, 2022
Fixed maturities:
U.S. government and government agencies	$	(4)	$	108	96	%	$	(11)	$	106	91	%
States, municipalities and political subdivisions	(98)		1,124		92	%	(2)		14		88	%
Foreign government	(7)		145		95	%	(5)		61		92	%
Residential MBS	(174)		1,421		89	%	(2)		19		90	%
Commercial MBS	(3)		68		96	%	—		10		100	%
Collateralized loan obligations	(61)		1,465		96	%	(11)		329		97	%
Other asset-backed securities	(137)		1,806		93	%	(34)		326		91	%
Corporate and other	(151)		2,174		94	%	(28)		208		88	%
Total fixed maturities	$	(635)	$	8,311	93	%	$	(93)	$	1,073	92	%

December 31, 2021
Fixed maturities:
U.S. government and government agencies	$	(1)	$	92	99	%	$	(1)	$	22	96	%
States, municipalities and political subdivisions	—		9		100	%	—		13		100	%
Foreign government	(2)		160		99	%	—		—		—	%
Residential MBS	(3)		419		99	%	—		7		100	%
Commercial MBS	—		34		100	%	—		—		—	%
Collateralized loan obligations	(1)		806		100	%	(1)		77		99	%
Other asset-backed securities	(8)		1,250		99	%	(3)		81		96	%
Corporate and other	(8)		500		98	%	—		26		100	%
Total fixed maturities	$	(23)	$	3,270	99	%	$	(5)	$	226	98	%

Roll forward of allowance for credit losses on fixed maturity securities

A progression of the allowance for expected credit losses on fixed maturity securities held by AFG’s continuing operations is shown below (in millions):


	Structured Securities (*)		Corporate and Other		Total
Balance at June 30, 2022	$	7	$	—	$	7
Initial allowance for purchased securities with credit deterioration	—		—		—
Provision for expected credit losses on securities with no previous allowance	2		—		2
Additions (reductions) to previously recognized expected credit losses	—		—		—
Reductions due to sales or redemptions	—		—		—
Balance at September 30, 2022	$	9	$	—	$	9

Balance at June 30, 2021	$	8	$	1	$	9
Initial allowance for purchased securities with credit deterioration	—		—		—
Provision for expected credit losses on securities with no previous allowance	—		—		—
Additions (reductions) to previously recognized expected credit losses	—		—		—
Reductions due to sales or redemptions	—		—		—
Balance at September 30, 2021	$	8	$	1	$	9

Balance at January 1, 2022	$	8	$	1	$	9
Initial allowance for purchased securities with credit deterioration	—		—		—
Provision for expected credit losses on securities with no previous allowance	3		—		3
Additions (reductions) to previously recognized expected credit losses	(2)		—		(2)
Reductions due to sales or redemptions	—		(1)		(1)
Balance at September 30, 2022	$	9	$	—	$	9

Balance at January 1, 2021	$	10	$	2	$	12
Initial allowance for purchased securities with credit deterioration	—		—		—
Provision for expected credit losses on securities with no previous allowance	—		—		—
Additions (reductions) to previously recognized expected credit losses	(2)		1		(1)
Reductions due to sales or redemptions	—		(2)		(2)
Balance at September 30, 2021	$	8	$	1	$	9

(*)Includes mortgage-backed securities, collateralized loan obligations and other asset-backed securities.

Available for sale fixed maturity securities by contractual maturity date

The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturities as of September 30, 2022 (dollars in millions). Securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.


	Amortized		Fair Value
	Cost, net (*)		Amount		%
Maturity
One year or less	$	578	$	575	6	%
After one year through five years	2,693		2,511		25	%
After five years through ten years	1,018		932		9	%
After ten years	280		250		2	%
	4,569		4,268		42	%
Collateralized loan obligations and other ABS (average life of approximately 3.5 years)	4,320		4,077		41	%
MBS (average life of approximately 5.5 years)	1,846		1,689		17	%
Total	$	10,735	$	10,034	100	%

(*)Amortized cost, net of allowance for expected credit losses.

Net investment income earned and investment expenses incurred

The following table shows (in millions) investment income earned and investment expenses incurred in AFG’s continuing operations.


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Investment income:
Fixed maturities	$	98	$	73	$	263	$	217
Equity securities:
Dividends	9		6		24		21
Change in fair value (*)	(6)		7		(8)		41
Equity in earnings of partnerships and similar investments	37		73		246		222
Other	17		14		37		28
Gross investment income	155		173		562		529
Investment expenses	(4)		(4)		(13)		(8)
Net investment income	$	151	$	169	$	549	$	521

(*)Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on its portfolio of limited partnerships and similar investments that do not qualify for equity method accounting and certain other securities classified at purchase as “fair value through net investment income.”

Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments

Realized gains (losses) and changes in unrealized appreciation (depreciation) from continuing operations included in AOCI related to fixed maturity securities are summarized as follows (in millions):


	Three months ended September 30, 2022								Three months ended September 30, 2021
	Realized gains (losses)								Realized gains (losses)
	Before Impairments		Impairment Allowance		Total		Change in Unrealized		Before Impairments		Impairment Allowance		Total		Change in Unrealized
Fixed maturities	$	(6)	$	(2)	$	(8)	$	(288)	$	(2)	$	—	$	(2)	$	(35)
Equity securities	(27)		—		(27)		—		(15)		—		(15)		—
Mortgage loans and other investments	—		—		—		—		—		—		—		—
Total pretax	(33)		(2)		(35)		(288)		(17)		—		(17)		(35)
Tax effects	7		—		7		60		5		—		5		8
Net of tax	$	(26)	$	(2)	$	(28)	$	(228)	$	(12)	$	—	$	(12)	$	(27)

	Nine months ended September 30, 2022								Nine months ended September 30, 2021
	Realized gains (losses)								Realized gains (losses)
	Before Impairments		Impairment Allowance		Total		Change in Unrealized		Before Impairments		Impairment Allowance		Total		Change in Unrealized
Fixed maturities	$	(20)	$	(1)	$	(21)	$	(874)	$	(2)	$	1	$	(1)	$	(59)
Equity securities	(122)		—		(122)		—		104		—		104		—
Mortgage loans and other investments	—		—		—		—		—		—		—		—
Total pretax	(142)		(1)		(143)		(874)		102		1		103		(59)
Tax effects	30		—		30		184		(20)		—		(20)		13
Net of tax	$	(112)	$	(1)	$	(113)	$	(690)	$	82	$	1	$	83	$	(46)

Holding gains (losses) on equity securities still held

AFG recorded net holding gains (losses) on equity securities from continuing operations during the third quarter and first nine months of 2022 and 2021 on securities that were still owned at September 30, 2022 and September 30, 2021 as follows (in millions):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Included in realized gains (losses)	$	(26)	$	(16)	$	(119)	$	82
Included in net investment income	(7)		7		(4)		41
	$	(33)	$	(9)	$	(123)	$	123

Gross realized gains and losses on available for sale fixed maturity and equity security investments

Gross realized gains and losses (excluding changes in impairment allowance and mark-to-market of derivatives) on available for sale fixed maturity investment transactions from continuing operations consisted of the following (in millions):


	Nine months ended September 30,
	2022		2021
Gross gains	$	2	$	4
Gross losses	(11)		(2)