Managed Investment Entities

9 Months Ended

Sep. 30, 2023

Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract]

AFG is the investment manager and it has investments ranging from 7.4% to 100% of the most subordinate debt tranche of sixteen active collateralized loan obligation entities (“CLOs”), which are considered variable interest entities. AFG also owns portions of the senior debt tranches of certain of these CLOs. Upon formation between 2012 and 2023, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay expenses (including management fees to AFG) and interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities.

AFG’s maximum exposure to economic loss on the CLOs that it manages is limited to its investment in those CLOs, which had an aggregate fair value of $143 million (including $88 million invested in the most subordinate tranches and $23 million invested in a temporary warehousing entity) at September 30, 2023, and $115 million at December 31, 2022.

In March 2023, AFG formed one new CLO, which issued $407 million face amount of liabilities (including $16 million face amount purchased by AFG). In May 2022, AFG formed one new CLO, which issued $404 million face amount of liabilities (including $13 million face amount purchased by AFG).

The following table shows a progression of the fair value of AFG's investment in CLO tranches (in millions):


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Balance at beginning of period	$	117	$	85	$	112	$	76
Purchases	—		—		11		33
Sales	—		—		—		—
Distributions	(9)		(4)		(21)		(13)
Change in fair value	12		4		18		(11)
Balance at end of period (*)	$	120	$	85	$	120	$	85

(*)Excludes $23 million and $12 million invested in temporary warehousing entities at September 30, 2023 and September 30, 2022, respectively, that were established to provide AFG the ability to form new CLOs.

The revenues and expenses of the CLOs are separately identified in AFG’s Statement of Earnings, after the elimination of management fees and earnings attributable to AFG as measured by the change in the fair value of AFG’s investments in the CLOs. Selected financial information related to the CLOs is shown below (in millions):


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Gains (losses) on change in fair value of assets/liabilities (*):
Assets	$	50	$	7	$	116	$	(297)
Liabilities	(34)		(12)		(104)		272
Management fees paid to AFG	4		4		12		12
CLO earnings (losses) attributable to AFG	12		4		18		(10)

(*)Included in revenues in AFG’s Statement of Earnings.

The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $143 million and $339 million at September 30, 2023 and December 31, 2022, respectively. The aggregate unpaid principal balance of the CLOs’ debt exceeded its carrying value by $319 million and $413 million at those dates. The CLO assets include loans with an aggregate fair value of $5 million at September 30, 2023 and $4 million at December 31, 2022, for which the CLOs are not accruing interest because the loans are in default (aggregate unpaid principal balance of $13 million at September 30, 2023 and $17 million at December 31, 2022).

In addition to the CLOs that it manages, AFG had investments in CLOs that are managed by third parties (therefore not consolidated), which are included in available for sale fixed maturity securities and had a fair value of $1.72 billion at September 30, 2023 and $1.92 billion at December 31, 2022.