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Fair Value Measurements
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Accounting standards for measuring fair value are based on inputs used in estimating fair value. The three levels of the hierarchy are as follows:

Level 1 — Quoted prices for identical assets or liabilities in active markets (markets in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis). AFG’s Level 1 financial instruments consist primarily of publicly traded equity securities, highly liquid government bonds for which quoted market prices in active markets are available and short-term investments of managed investment entities.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar assets or liabilities in inactive markets (markets in which there are few transactions, the prices are not current, price quotations vary substantially over time or among market makers, or in which little information is released publicly); and valuations based on other significant inputs that are observable in active markets. AFG’s Level 2 financial instruments include corporate and municipal fixed maturity securities, asset-backed securities (“ABS”), mortgage-backed securities (“MBS”), certain non-affiliated common stocks and investments of managed investment entities priced using observable inputs. Level 2 inputs include benchmark yields, reported trades, corroborated broker/dealer quotes, issuer spreads and benchmark securities. When non-binding broker quotes can be corroborated by comparison to similar securities priced using observable inputs, they are classified as Level 2.

Level 3 — Valuations derived from market valuation techniques generally consistent with those used to estimate the fair values of Level 2 financial instruments in which one or more significant inputs are unobservable or when the market for a security exhibits significantly less liquidity relative to markets supporting Level 2 fair value measurements. The unobservable inputs may include management’s own assumptions about the assumptions market participants would use based on the best information available at the valuation date. Financial instruments whose fair value is estimated based on non-binding broker quotes or internally developed using significant inputs not based on, or corroborated by, observable market information are classified as Level 3.

The contingent consideration liability (included in other liabilities in AFG’s Balance Sheet) relates primarily to AFG’s acquisition of Verikai in December 2021. This estimated fair value of this liability is evaluated at each balance sheet date with changes in fair value recognized in net earnings. To estimate the fair value of the contingent consideration liability related to the Verikai acquisition ($23 million at June 30, 2023), AFG uses a weighted probability-based income approach which includes significant unobservable inputs and is classified as Level 3. There was no change to the estimated fair value of this liability during the first six months of 2023.

As discussed in Note A — “Accounting Policies — Managed Investment Entities,” AFG has set the carrying value of its CLO liabilities equal to the fair value of the CLO assets (which have more observable fair values) as an alternative to reporting those liabilities at separately measured fair values. As a result, the CLO liabilities are categorized within the fair value hierarchy on the same basis (proportionally) as the related CLO assets. Since the portion of the CLO liabilities allocated to Level 3 is derived from the fair value of the CLO assets, these amounts are excluded from the progression of Level 3 financial instruments.

AFG’s management is responsible for the valuation process and uses data from outside sources (including nationally recognized pricing services and broker/dealers) in establishing fair value. AFG’s internal investment professionals are a group of approximately 20 investment professionals whose primary responsibility is to manage AFG’s investment portfolio. These professionals monitor individual investments as well as overall industries and are active in the financial markets on a daily basis. The group is led by AFG’s chief investment officer, who reports directly to one of AFG’s Co-CEOs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with the pricing services regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities.
Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):
Level 1Level 2Level 3Total
June 30, 2023
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. government and government agencies$228 $1 $— $229 
States, municipalities and political subdivisions— 963 5 968 
Foreign government— 228 — 228 
Residential MBS— 1,541 5 1,546 
Commercial MBS— 79 — 79 
Collateralized loan obligations— 1,858 1 1,859 
Other asset-backed securities— 1,848 321 2,169 
Corporate and other9 2,429 369 2,807 
Total AFS fixed maturities237 8,947 701 9,885 
Trading fixed maturities— 38 — 38 
Equity securities566 34 448 1,048 
Assets of managed investment entities (“MIE”)593 4,631 11 5,235 
Other assets — derivatives— 4 — 4 
Total assets accounted for at fair value$1,396 $13,654 $1,160 $16,210 
Liabilities:
Contingent consideration — acquisitions$— $— $25 $25 
Liabilities of managed investment entities577 4,510 11 5,098 
Other liabilities — derivatives— 41 — 41 
Total liabilities accounted for at fair value$577 $4,551 $36 $5,164 
December 31, 2022
Assets:
Available for sale fixed maturities:
U.S. government and government agencies$219 $— $— $219 
States, municipalities and political subdivisions— 1,181 5 1,186 
Foreign government— 226 — 226 
Residential MBS— 1,589 9 1,598 
Commercial MBS— 85 — 85 
Collateralized loan obligations— 1,919 2 1,921 
Other asset-backed securities— 1,916 329 2,245 
Corporate and other8 2,288 319 2,615 
Total AFS fixed maturities227 9,204 664 10,095 
Trading fixed maturities— 32 — 32 
Equity securities556 27 427 1,010 
Assets of managed investment entities659 4,777 11 5,447 
Total assets accounted for at fair value$1,442 $14,040 $1,102 $16,584 
Liabilities:
Contingent consideration — acquisitions$— $— $25 $25 
Liabilities of managed investment entities645 4,676 11 5,332 
Other liabilities — derivatives— 42 — 42 
Total liabilities accounted for at fair value$645 $4,718 $36 $5,399 

Approximately 7% of the total assets carried at fair value at June 30, 2023, were Level 3 assets. Approximately 10% ($117 million) of those Level 3 assets were priced using non-binding broker quotes, for which there is a lack of transparency as to the inputs used to determine fair value. Details as to the quantitative inputs are neither provided by the brokers nor otherwise reasonably obtainable by AFG. Approximately 3% ($37 million) of the Level 3 assets were priced by pricing services where either a single price was not corroborated, prices varied enough among the providers, or other market factors led management to determine these securities be classified as Level 3 assets. Approximately 27% ($316 million) of the Level 3 assets were equity investments in limited partnerships and similar investments that do not
qualify for equity method accounting whose prices were determined based on financial information provided by the limited partnerships.

Internally developed prices for fixed maturities are estimated using a variety of inputs, including appropriate credit spreads over the treasury yield (of a similar duration), trade information and prices of comparable securities and other security specific features (such as optional early redemption). Internally developed Level 3 asset fair values represent approximately 60% ($690 million) of the total fair value of Level 3 assets at June 30, 2023. Approximately 67% ($462 million) of these internally developed Level 3 assets are priced using a pricing model that uses a discounted cash flow approach to estimate the fair value of fixed maturity securities. The credit spread applied by management is the significant unobservable input of the pricing model. In instances where the security is currently callable at par value and the pricing model suggests a higher price, management caps the fair value at par value. Approximately 18% ($123 million) of the internally developed Level 3 assets are equity securities which are priced primarily using internal models with some inputs that are not market observable. Management believes that any justifiable changes in unobservable inputs used to determine internally developed fair values would not have resulted in a material change in AFG’s financial position.
Changes in balances of Level 3 financial assets and liabilities carried at fair value during the second quarter and first six months of 2023 and 2022 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.
Total realized/unrealized
gains (losses) included in
Balance at March 31, 2023Net
earnings (loss)		Other comprehensive income (loss)Purchases
and
issuances		Sales and
settlements		Transfer
into
Level 3		Transfer
out of
Level 3		Balance at June 30, 2023
AFS fixed maturities:
U.S. government agency
$— $— $— $— $— $— $— $— 
State and municipal5 — — — — — — 5 
Residential MBS5 — — — — — — 5 
Commercial MBS— — — — — — — — 
Collateralized loan obligations1 — — — — — — 1 
Other asset-backed securities
335 (2)— 3 (26)31 (20)321 
Corporate and other359 (4)8 12 (2)2 (6)369 
Total AFS fixed maturities705 (6)8 15 (28)33 (26)701 
Equity securities411 10 — 30 (3)— — 448 
Assets of MIE12 (1)— — — — — 11 
Total Level 3 assets$1,128 $3 $8 $45 $(31)$33 $(26)$1,160 
Contingent consideration — acquisitions$(25)$— $— $— $— $— $— $(25)
Total Level 3 liabilities$(25)$— $— $— $— $— $— $(25)
Total realized/unrealized
gains (losses) included in
Balance at March 31, 2022Net
earnings (loss)		Other comprehensive income (loss)Purchases
and
issuances		Sales and
settlements		Transfer
into
Level 3		Transfer
out of
Level 3		Balance at June 30, 2022
AFS fixed maturities:
U.S. government agency
$— $— $— $— $— $— $— $— 
State and municipal33 — (1)— — — (31)1 
Residential MBS11 — — — — — (3)8 
Commercial MBS— — — — — — — — 
Collateralized loan obligations— — — — — 2 — 2 
Other asset-backed securities
337 — (7)10 (27)— — 313 
Corporate and other244 — (4)32 (3)— — 269 
Total AFS fixed maturities625 — (12)42 (30)2 (34)593 
Equity securities361 — — 21 (2)— (2)378 
Assets of MIE12 (1)— 1 — — — 12 
Total Level 3 assets$998 $(1)$(12)$64 $(32)$2 $(36)$983 
Contingent consideration — acquisitions$(23)$— $— $— $— $— $— $(23)
Total Level 3 liabilities$(23)$— $— $— $— $— $— $(23)
Total realized/unrealized
gains (losses) included in
Balance at December 31, 2022Net
earnings (loss)		Other comprehensive income (loss)Purchases
and
issuances		Sales and
settlements		Transfer
into
Level 3		Transfer
out of
Level 3		Balance at June 30, 2023
AFS fixed maturities:
U.S. government agency
$— $— $— $— $— $— $— $— 
State and municipal5 — — — — — — 5 
Residential MBS9 — — — (3)4 (5)5 
Commercial MBS— — — — — — — — 
Collateralized loan obligations2 — — — — — (1)1 
Other asset-backed securities
329 (2)4 10 (31)31 (20)321 
Corporate and other319 1 10 56 (13)2 (6)369 
Total AFS fixed maturities664 (1)14 66 (47)37 (32)701 
Equity securities427 7 — 61 (25)— (22)448 
Assets of MIE11 (2)— 2 — — — 11 
Total Level 3 assets$1,102 $4 $14 $129 $(72)$37 $(54)$1,160 
Contingent consideration — acquisitions$(25)$— $— $— $— $— $— $(25)
Total Level 3 liabilities$(25)$— $— $— $— $— $— $(25)
Total realized/unrealized
gains (losses) included in
Balance at December 31, 2021Net
earnings (loss)		Other comprehensive income (loss)Purchases
and
issuances		Sales and
settlements		Transfer
into
Level 3		Transfer
out of
Level 3		Balance at June 30, 2022
AFS fixed maturities:
U.S. government agency
$— $— $— $— $— $— $— $— 
State and municipal41 — (3)— (1)— (36)1 
Residential MBS14 — — — (1)— (5)8 
Commercial MBS— — — — — — — — 
Collateralized loan obligations— — — — — 2 — 2 
Other asset-backed securities
278 2 (16)57 (42)34 — 313 
Corporate and other267 — (14)60 (10)— (34)269 
Total AFS fixed maturities
600 2 (33)117 (54)36 (75)593 
Equity securities313 22 — 51 (5)3 (6)378 
Assets of MIE13 (2)— 1 — — — 12 
Total Level 3 assets$926 $22 $(33)$169 $(59)$39 $(81)$983 
Contingent consideration — acquisitions$(23)$— $— $— $— $— $— $(23)
Total Level 3 liabilities$(23)$— $— $— $— $— $— $(23)
Fair Value of Financial Instruments   The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):
CarryingFair Value
ValueTotalLevel 1Level 2Level 3
June 30, 2023
Financial assets:
Cash and cash equivalents$988 $988 $988 $— $— 
Mortgage loans645 592 — — 592 
Total financial assets not accounted for at fair value
$1,633 $1,580 $988 $— $592 
Long-term debt$1,474 $1,303 $— $1,300 $3 
Total financial liabilities not accounted for at fair value
$1,474 $1,303 $— $1,300 $3 
December 31, 2022
Financial assets:
Cash and cash equivalents$872 $872 $872 $— $— 
Mortgage loans676 626 — — 626 
Total financial assets not accounted for at fair value
$1,548 $1,498 $872 $— $626 
Long-term debt$1,496 $1,302 $— $1,299 $3 
Total financial liabilities not accounted for at fair value
$1,496 $1,302 $— $1,299 $3