UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No.   )

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Definitive Proxy Statement

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Soliciting Material Pursuant to Section 240.14a-12

AMERICAN FINANCIAL GROUP, INC.

(Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement if other than the Registrant)

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2017

American Financial Group, Inc.
Annual Meeting of Shareholders

Meeting Notice
Proxy Statement

 

 

 

Notice of 2017 Annual
Meeting of Shareholders

Cincinnati, Ohio
April 7, 2017

Dear Shareholder:

We invite you to attend our annual meeting of shareholders on Tuesday, May 23, 2017, in Cincinnati, Ohio for the following purposes:

1.

To elect 11 directors;

2.

To ratify our independent registered public accounting firm;

3.

To approve on an advisory basis our named executive officer compensation; and

4.

To conduct an advisory vote on the frequency of holding future advisory votes on named executive officer compensation.

Shareholders will also transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

This year we are again providing access to our proxy materials over the Internet under the U.S. Securities and Exchange Commission “notice and access” rules. As a result, we are mailing to most of our shareholders a notice instead of a paper copy of this proxy statement and our 2016 Annual Report. The notice contains instructions on how to access those documents over the Internet. The notice also instructs you on how to submit your proxy over the Internet. We believe that continuing to employ this distribution process allows us to provide our shareholders with the information they need in a more timely manner, while reducing the environmental impact and lowering the costs of printing and distributing our proxy materials. If you received a notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the notice.

We want your shares to be represented at the meeting and urge you to vote using our Internet or telephone voting systems or by promptly returning a properly completed proxy card.

 

Karl J. Grafe
Vice President and Secretary

 

 

 

ANNUAL MEETING OF SHAREHOLDERS

AMERICAN FINANCIAL GROUP, INC.
Great American Insurance Group Tower
301 East Fourth Street
Cincinnati, Ohio 45202

  
  
  
  

In connection with the annual meeting, we will report on our operations and you will have an opportunity to meet your Company’s directors and senior executives.

This booklet includes the formal notice of the annual meeting and the proxy statement. The proxy statement tells you more about the agenda and procedures for the annual meeting. It also describes how your Board of Directors operates and provides information about the director candidates.

The approximate availability date of the proxy statement and the proxy card is April 7, 2017. Your vote is important. Whether or not you plan to attend the annual meeting, the Board of Directors urges you to vote via the Internet, by telephone or by returning a proxy card. If you vote via the Internet or by telephone, do not return your proxy card. You may revoke your proxy at any time before the vote is taken at the annual meeting provided that you comply with the procedures set forth in the proxy statement which accompanies this notice of annual meeting of shareholders. If you attend the annual meeting, you may either vote by proxy or vote in person.

Without instructions from the beneficial owner, a broker, bank or other nominee is not permitted to vote on the election of directors, the advisory resolution to approve named executive officer compensation or the advisory vote on the frequency of holding future advisory votes on named executive officer compensation. Therefore, if your shares are held in the name of your broker, bank or other nominee, unless you vote your shares, your shares will not be voted regarding these proposals.

We encourage you to read the proxy statement and vote your shares as soon as possible.

 

 

AMERICAN FINANCIAL GROUP, INC.

2017 Proxy Statement — Summary

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider. You should read the entire proxy statement carefully before voting.

i

 

 

Proxy Statement

Table of Contents

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Information about the Annual Meeting and Voting

 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on
Tuesday, May 23, 2017. The Proxy Statement and Annual Report to Shareholders and Form 10-K
(the “Proxy Materials”) are available at www.AFGinc.com.

  

Why did I receive these proxy materials?

You received these proxy materials because you are a shareholder of the Company. The Board is providing these proxy materials to you in connection with our annual meeting to be held on May 23, 2017. As a shareholder of the Company, you are entitled to vote on the important proposals described in this proxy statement. Since it is not practical for all shareholders to attend the annual meeting and vote in person, the Board is seeking your proxy to vote on these matters.

What is a proxy?

A proxy is your legal designation of another person (“proxy”) to vote the common shares you own at the annual meeting in the manner that you direct. By completing and returning the proxy card(s), which identifies the individuals authorized to act as your proxy, you are giving each of those individuals the authority to vote your common shares as you have instructed. By voting via proxy, each shareholder is able to cast his or her vote without having to attend the annual meeting in person.

Why did I receive more than one proxy card?

You will receive multiple proxy cards if you hold your common shares in different ways (e.g., trusts, custodial accounts, joint tenancy) or in multiple accounts. If your common shares are held by a broker or bank (i.e., in “street name”), you will receive your proxy card and other voting information from your broker, bank, trust, or other nominee. It is important that you complete, sign, date, and return each proxy card you receive, or vote using the telephone, or by using the Internet (as described in the instructions included with your proxy card(s) or in the notice).

Why didn’t I receive paper copies of the proxy materials?

As permitted by the Securities and Exchange Commission, we are making this proxy statement and our annual report available to our shareholders electronically via the Internet. We believe this delivery method expedites your receipt of materials, while also lowering costs and reducing the environmental impact of our annual meeting. The notice of electronic availability contains instructions on how to access this proxy statement and our annual report and how to vote online.

If you received a notice by mail, you will not receive a printed copy of the proxy materials unless you request one in accordance with the instructions provided in the notice. The notice has been mailed to shareholders on or about April 7, 2017, and provides instructions on how you may access the proxy materials on the Internet.

What is the record date and what does it mean?

The Board established March 27, 2017 as the record date for the annual meeting of shareholders to be held on May 23, 2017. Shareholders who own common shares of the Company at the close of business on the record date are entitled to notice of and to vote at the annual meeting.

What is the difference between a “registered shareholder” and a “street name shareholder”?

These terms describe how your common shares are held. If your common shares are registered directly in your name with American Stock Transfer & Trust Company, our transfer agent, you are a “registered shareholder.” If your common shares are held in the name of a broker, bank or other nominee as a custodian, you are a “street name shareholder.”

How many common shares are entitled to vote at the annual meeting?

As of the record date, there were 87,587,664 common shares outstanding and eligible to vote. This number does not include 14,940,627 common shares held by subsidiaries of AFG which, under Ohio law, are not entitled to vote and are not considered to be outstanding for purposes of the meeting.

How many votes must be present to hold the annual meeting?

A majority of the Company’s outstanding common shares as of the record date must be present in order for us to hold the annual meeting. This is called a quorum. Broker “non-votes” and abstentions are counted as present for purposes of determining whether a quorum exists. A broker “non-vote” occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker, bank or other nominee does not have discretionary voting power for the particular item and has not received instructions from the beneficial owner. Proposal 2 (Ratification of Independent Registered Public Accounting Firm) is the

2017 Proxy Statement | General Information

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only routine matter on this year’s ballot that may be voted on by brokers, banks or other nominees without instructions from beneficial owners.

What vote is required to approve each proposal?

Shareholders are entitled to one vote per common share on all matters submitted for consideration at the annual meeting. The affirmative vote of a majority of the common shares represented in person or by proxy at the annual meeting is required for the election of directors, approval of the advisory resolution to approve named executive officers’ compensation and the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2017.

Abstentions and broker non-votes will not count as a vote for or against any of these proposals.

The advisory vote on the frequency of say-on-pay votes (every one year, every two years or every three years) is a plurality vote, and we will consider shareholders to have expressed a non-binding preference for the frequency option that receives the most favorable votes. Abstentions will have the same effect as not expressing a preference.

What if a nominee for director fails to receive more votes in favor of election than votes against election?

Nominees for director in uncontested elections must receive more votes in favor of election than votes against election. If a nominee fails to receive more votes in favor than votes against election, our Regulations require the nominee to promptly tender his or her resignation to the Board. Our Corporate Governance Committee will then make a recommendation to the full Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. Our Board of Directors will then decide whether to accept or reject the resignation, taking into account the Corporate Governance Committee’s recommendation. The determination of our Board of Directors and the rationale behind the decision will be publicly disclosed (by a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means of communication) within 90 days from the date of the certification of the election results of our meeting. If the incumbent director’s resignation is not accepted by our Board of Directors, the director will continue to serve until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by our Board of Directors, then our Board of Directors may fill any resulting vacancy or decrease the size of the Board of Directors.

Where will I be able to find voting results of the annual meeting?

We will announce preliminary voting results at the annual meeting. We will also publish final voting results in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission (“SEC”) within four business days after the annual meeting.

How do I vote my common shares?

(1) Via Internet:  Go to www.proxyvote.com to vote via the Internet. You will need to follow the instructions on your notice or proxy card and the website. If you vote via the Internet, you may incur telephone and Internet access charges.

(2) By Telephone:  Call the toll-free telephone number on the proxy card or the website to vote by telephone. You will need to follow the instructions and the voice prompts.

(3) By Mail:  Request, complete and return a paper proxy card, following the instructions on your notice.

(4) In Person:  Attend the annual meeting, or send a personal representative with an appropriate proxy, to vote by ballot.

If you vote via the Internet or by telephone, your electronic vote authorizes the named proxies in the same manner as if you signed, dated and returned your proxy card. If you vote via the Internet or by telephone, do not return your proxy card.

If your shares are held in “street name” (that is, in the name of a bank, broker or other holder of record), you will receive instructions from the holder of record that you must follow in order for your shares to be voted, or you may request the record holder to issue you a proxy covering your shares.

Can I change my vote after I have mailed in my proxy card(s) or submitted my vote using the Internet or telephone?

Yes, whether you vote by mail, via the Internet or by telephone, you may revoke your proxy at any time before it is voted by submitting a new proxy with a later date, voting via the Internet or by telephone at a later time, delivering a written notice of revocation to the Company’s Secretary, at the address set forth above under “2017 Proxy Statement — Summary — Company Communications” or by voting in person at the meeting.

What if I hold shares through the Company’s 401(k) Retirement and Savings Plan?

If you are a participant in the Company’s 401(k) Retirement and Savings Plan (RASP) with a balance in the AFG Common Stock Fund, the accompanying proxy card

2017 Proxy Statement | General Information

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shows the number of common shares attributed to your RASP account balance, calculated as of the record date. In order for your RASP shares to be voted in your discretion, you must vote at least two business days prior to the day of the meeting (by the end of the day on May 19, 2017) either by Internet, telephone, or returned properly signed proxy card. If you choose not to vote or if you return an invalid or unvoted proxy card, the Administrative Plan Committee, consisting of three current or former senior officers of the Company, will vote your RASP shares in the Committee’s sole discretion. Plan participants’ votes will be processed by the plan trustee and will not be disclosed to the Company.

How will my proxy be voted?

If you complete, sign, date, and return your proxy card(s) or vote by telephone or by using the Internet, your proxy will be voted in accordance with your instructions. If you sign and date your proxy card(s) but do not indicate how you want to vote, your common shares will be voted for each of the proposals as the Board recommends.

What if my common shares are held in “street name” through a broker, bank or other nominee?

If your common shares are held in “street name” through a broker, bank or other nominee, you must instruct the broker, bank or other nominee how you would like to vote your shares by using the written instruction form and envelope provided by such entity. If you do not provide instructions, under the rules of the New York Stock Exchange (“NYSE”), your broker, bank or other nominee may, but is not required to, vote your common shares with respect to certain “routine” matters. However, on other matters, when the broker, bank or other nominee has not received voting instructions from its customers, the shares cannot be voted on the matter and a “broker non-vote” occurs. Proposal 2 (Ratification of Independent Registered Public Accounting Firm) is the only routine matter on this year’s ballot to be voted on by the shareholders. Proposals 1, 3 and 4 are not considered routine matters under the NYSE rules. This means that brokers, banks or other nominees may not vote your common shares on such proposals if you have not given specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker, bank or other nominee so that your votes can be counted. If you hold your common shares in the name of your broker, bank or other nominee and wish to vote in person at the annual meeting, you must request from such entity a document called a “legal proxy.” You must bring this legal proxy to the annual meeting in order to vote in person.

What are the Board’s recommendations on how I should vote my common shares?

The Board recommends that you vote your common shares as follows:

•

“FOR” the election of the 11 nominees proposed for the Board of Directors;

•

“FOR” the ratification of the Company’s independent registered public accounting firm;

•

“FOR” the approval, on an advisory basis, of compensation of our named executive officers as disclosed in this proxy statement; and

•

“FOR” the approval, on an advisory basis, of holding future advisory votes on named executive officer compensation “EVERY ONE YEAR.”

Do I have an opportunity to cumulate my votes for director nominees?

Cumulative voting allows a shareholder to multiply the number of shares owned on the record date by the number of directors to be elected and to cast the total for one nominee or distribute the votes among the nominees as the shareholder desires. Shareholders of the Company have cumulative voting rights in the election of directors if certain conditions are met. In order for cumulative voting to apply, notice of cumulative voting must be given in writing to the Company’s Corporate Secretary not less than 48 hours before the time fixed for the holding of the meeting. As of the date of this proxy statement, the Company has not received a notice from any shareholder requesting cumulative voting. If proper notice of cumulative voting is received by the Company, the 11 nominees who receive the greatest number of votes will be elected, subject to the tender of resignation and related procedures set forth above with respect to incumbent directors who fail to receive more votes in favor than votes withheld. The authority solicited by this proxy statement includes discretionary authority to cumulate votes in the election of directors. If cumulative voting is in effect with respect to the election of directors, the named proxies reserve the right to cumulate the votes represented by the proxies they receive and distribute such votes in accordance with their sole discretion, except that shareholders’ votes will not be cast for a nominee as to whom such shareholder instructs that such votes be cast “AGAINST” or “ABSTAIN.”

Who may attend the annual meeting?

All shareholders are eligible to attend the annual meeting. However, only those shareholders of record at the close of business on March 27, 2017 are entitled to vote at the annual meeting.

2017 Proxy Statement | General Information

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Proposals

Proposal No. 1 — Election of 11 Directors

The Board of Directors oversees the management of the Company on your behalf. The Board reviews AFG’s long-term strategic plans and exercises direct decision-making authority in key areas such as choosing the Co-Chief Executive Officers, setting the scope of their authority to manage the Company’s business day-to-day, and evaluating senior management performance.

Upon the recommendation of the Corporate Governance Committee, the Board of Directors has nominated 11 individuals to hold office until the next annual meeting of shareholders and until their successors are elected and qualified. If any of the nominees should become unable to

serve as a director, the proxies will be voted for any substitute nominee designated by the Board of Directors but, in any event, no proxy may be voted for more than 11 nominees. Each nominee brings a strong and unique background and set of qualifications to the Board, giving the Board as a whole competence and experience in a wide variety of areas central to the Company’s businesses, including corporate governance and board service, executive management and entrepreneurial experience and insurance, finance, legal and accounting expertise.

The nominees for election to the Board of Directors are as follows:

2017 Proxy Statement | Proposal

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2017 Proxy Statement | Proposal

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2017 Proxy Statement | Proposal

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2017 Proxy Statement | Proposal

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2017 Proxy Statement | Proposal

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The Board of Directors recommends that shareholders vote FOR the election of these 11 nominees as directors.

2017 Proxy Statement | Proposal

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Proposal No. 2 — Ratification of Independent Registered Public Accounting Firm

The Company’s Audit Committee Charter requires that the Audit Committee appoint annually an independent registered public accounting firm to serve as auditors. In February 2017, the Audit Committee appointed Ernst & Young LLP to serve as the Company’s independent registered public accounting firm for 2017.

Although the Audit Committee has the sole authority to appoint auditors, shareholders are being asked to ratify this appointment. If the shareholders do not ratify the appointment, the Audit Committee will take that fact into consideration but may, nevertheless, continue to retain Ernst & Young. However, the Audit Committee in its discretion may engage a different independent registered public accounting firm at any time during the year if the

Audit Committee determines that such a change would be in the best interests of the Company whether or not the shareholders ratify the appointment.

Representatives of Ernst & Young are expected to be at the meeting and will be given the opportunity to make a statement if they so desire. They will also be available to respond to appropriate questions from shareholders.

The Board of Directors recommends that shareholders vote FOR the ratification of the Audit Committee’s appointment of Ernst & Young as our independent registered public accounting firm for 2017.

Audit Fees and Non-Audit Fees

The following table presents fees for professional services performed by Ernst & Young for the years ended December 31, 2016 and December 31, 2015.

(1)

These aggregate fees were for audits of the financial statements (including services incurred to render an opinion under Section 404 of the Sarbanes-Oxley Act of 2002), subsidiary insurance company audits, reviews of SEC filings, and quarterly reviews. For 2015, includes $328,000 in fees incurred in connection with the Company’s sale of substantially all of its run-off long-term care insurance business in December, 2015 which were reimbursed by the buyer.

(2)

These fees relate primarily to tax compliance engagements for preparation and review of foreign tax returns and certain collateralized loan obligations, in addition to other tax advisory services.

(3)

These fees relate primarily to agreed-upon procedure engagements for certain collateralized loan obligation structures managed by AFG.

Proposal No. 3 — Advisory Vote on Compensation of our Named Executive Officers

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that we provide our shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC (commonly referred to as “Say-on-Pay”). Our practice, which was approved by our shareholders at the 2011 annual meeting, is to conduct this non-binding vote on an annual basis. In Proposal No. 4 below, we are requesting that our shareholders vote on an advisory basis to continue the practice of conducting the Say-on-Pay vote annually.

As described in detail below under the heading “Compensation Discussion and Analysis” beginning on page 22 of this proxy statement, we seek to closely align the interests of our named executive officers with the interests of our shareholders. We structure our programs to

discourage excessive risk-taking through a balanced use of compensation vehicles and metrics with an overall goal of delivering sustained long-term shareholder value while aligning our executives’ interests with those of our shareholders. Further, our programs require that a substantial portion of each named executive officer’s compensation be contingent on delivering performance results that benefit our shareholders. Our compensation programs are designed to reward our named executive officers for the achievement of short-term and long-term strategic and operational goals and the achievement of increased total shareholder return. Shareholders should note that, because the advisory vote on executive compensation occurs well after the beginning of the compensation year and because the different elements of our executive compensation programs are designed to operate in an integrated manner and to complement one

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another, in many cases it may not be appropriate or feasible to change our executive compensation programs in consideration of any one year’s advisory vote on executive compensation by the time of the following year’s annual meeting of shareholders.

The vote on this matter is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. The vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or the Compensation Committee. The Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program.

Accordingly, we ask our shareholders to approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure.

The Board of Directors recommends that shareholders vote FOR the approval of the compensation of our named executive officers as disclosed in this proxy statement.

Proposal No. 4 — Advisory Vote on the Frequency of Future Advisory Votes on Compensation of our Named Executive Officers

The Dodd-Frank Wall Street Reform and Consumer Protection Act also requires that shareholders be given the opportunity to vote, on a non-binding, advisory basis, for their preference as to how frequently we should seek advisory votes on the compensation of our named executive officers. This proposal is commonly known as a “say-on-frequency” vote. In voting on this Proposal No. 4, shareholders are provided with four choices: shareholders may indicate their preference as to whether the future say-on-pay advisory vote should occur every one year, every two years, every three years or abstain.

Companies are required to hold the “say-on-frequency” vote at least every six years. Our shareholders first voted on the proposal at our 2011 annual meeting of shareholders. At that time, our Board of Directors recommended that shareholders vote for annual advisory votes on executive compensation. Over 92% of the shares voted for annual advisory votes on the non-binding proposal at the 2011 annual meeting.

As in 2011, our Board of Directors continues to recommend that an advisory vote on executive compensation occur each year. The Board of Directors has determined that an annual advisory vote on executive compensation promotes transparency and allows our shareholders to provide timely, direct input on the Company’s executive compensation philosophy, policies

and practices as disclosed in the proxy statement each year. In addition, since the advisory vote on named executive officer compensation became required, it has become customary for most companies, including peers of the Company, to hold the vote annually.

This vote is advisory and not binding on the Company or our Board of Directors in any way. The Board and the Compensation Committee will carefully review the voting results. Notwithstanding the Board’s recommendation and the outcome of the shareholder vote, the Board may in the future decide to conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with shareholders and the adoption of material changes to compensation programs.

Shareholders may cast a vote on the preferred voting frequency by selecting the option of every one year, every two years or every three years (or abstain) when voting in response to this proposal and, therefore, shareholders will not be voting to approve or disapprove the recommendation of the Board of Directors.

The Board of Directors unanimously recommends that you vote FOR the option of “EVERY ONE YEAR” as the preferred frequency for future advisory votes on named executive officer compensation.

2017 Proxy Statement | Proposal

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Company Information

Management

The directors, nominees for director and executive officers of the Company are as follows. Ages and positions are provided as of March 31, 2017.

Michelle A. Gillis was elected Senior Vice President of the Company in March 2013 and serves in such role in addition to serving as Chief Administrative Officer with responsibilities for Human Resources, Corporate Communications, Real Estate and various shared service areas. Since joining the Company in 2004, Ms. Gillis has held various senior human resource management positions with Great American Insurance Company and AFG. Previously, Ms. Gillis spent several years in senior human resources roles in the financial services sector. Ms. Gillis holds an active accreditation as Senior Professional in Human Resources (SPHR) from the Human Resources Certification Institute.

Vito C. Peraino was elected Senior Vice President and General Counsel of the Company in March 2012. He previously served as Senior Vice President of Great American Insurance Company since 2002 and Assistant General Counsel of Great American Insurance Company since 2004. Through September 2014, he also served on the Board of Directors of the Company’s subsidiary, National Interstate Corporation. Since joining Great American Insurance Company in 1999, Mr. Peraino has held various executive claims management positions. Previously, Mr. Peraino spent several years in private practice and has represented various insurance industry entities as an attorney since 1981.

Information regarding all nominees for director and directors is set forth beginning on page 4 under “Proposals — Proposal No. 1 — Elect 11 Directors.”

Board of Directors and Committees

There are 11 members on the Board of Directors. The Board met 11 times during 2016. No director of the Company attended fewer than 75% of the Board meetings and the committee meetings to which he or she was appointed and served during 2016. The members of the Board are expected to be present at the annual meeting. All of the Directors attended last year’s annual meeting.

Committees of the Board

The committees of the Board consist of the Audit Committee, Compensation Committee and Governance Committee. Each committee is governed by a charter that defines its role and responsibilities and are available on the Company’s website at www.AFGinc.com under “Company — Board Committees.” A printed copy of these charters may be obtained by shareholders upon written request addressed to the Company’s Secretary, at the address set forth under “2017 Proxy Statement —  Summary — Company Communications.”

The Compensation Committee acts on behalf of the Board of Directors and, by extension, the shareholders to monitor adherence to the Company’s compensation philosophy. The Committee ensures that the total compensation paid to the named executive officers is fair, reasonable and competitive. The Compensation Committee also acts as the oversight committee with respect to the Company’s stock incentive plans, bonus plans covering senior executive officers and deferred compensation plans.

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In overseeing those plans, the Committee may delegate certain ministerial duties to the Company’s officers including, for example, the maintenance of records of the awards. In addition, the 2015 Stock Incentive Plan permits the Committee to delegate to the Co-CEOs the ability to select participants and determine award levels, within parameters approved by the Committee, except with respect to awards to themselves or to any other senior executive officers, including the named executive officers. Additional information regarding the processes and procedures for establishing and overseeing executive compensation is provided in the “Compensation Discussion and Analysis.”

The Corporate Governance Committee is responsible for, among other things, establishing criteria for selecting new directors, identifying individuals qualified to be Board members, as needed, and recommending to the Board director nominees for the next annual meeting of shareholders. The Corporate Governance Committee also facilitates participation by directors in continuing education programs, including accredited director education programs and structured internal programs presented by management.

Our Corporate Governance Guidelines identify some of the criteria used to evaluate prospective nominees for director. Our Corporate Governance Guidelines are available on the Company’s website at www.AFGinc.com.

Nominees for director will be recommended by the Corporate Governance Committee in accordance with the principles in its charter and the Corporate Governance Guidelines. When considering an individual candidate’s suitability for membership on the Board, the Corporate Governance Committee will evaluate each individual on a case-by-case basis. Although the Committee does not prescribe minimum qualifications or standards for directors, candidates for Board membership should have the highest personal and professional integrity, demonstrated exceptional ability and judgment, and availability and willingness to take the time necessary to properly discharge the duties of a director. Additionally, we consider it desirable for director candidates to have management experience, especially with public companies, and that a portion of such candidates have experience in the insurance and financial services industries. The Board seeks candidates with diverse experiences, qualifications, backgrounds and skills that the Board believes enable each candidate to make a significant contribution to the Board. The Board will also consider diverse Board candidates, including women and minorities, and individuals from both corporate positions and non-traditional environments such as government, academia, and nonprofit organizations.

The Corporate Governance Committee does not have a policy with regard to the consideration of director candidates recommended by shareholders because Ohio law and the Company’s Regulations afford shareholders certain rights related to such matters. The Regulations provide that only candidates nominated by or at the direction of the Board of Directors and candidates nominated at the meeting by a shareholder who has complied with the procedures set forth in the Regulations will be eligible for election at a meeting of shareholders. The Regulations require a shareholder wishing to nominate a director candidate to give the Secretary of the Company at least 90 and not more than 120 days prior written notice setting forth or accompanied by: (1) certain biographical, stock ownership and investment intent disclosures about the proposed nominee; (2) certain biographical, stock ownership and hedging or similar activity disclosures about the shareholder giving the notice and specified persons associated with such shareholder; (3) verification of the accuracy or completeness of any nomination information at the Company’s request; (4) a statement that a nomination that is inaccurate or incomplete in any manner shall be disregarded; (5) a representation that the shareholder was a record holder of the Company’s voting stock and intended to appear, in person or by proxy, at the meeting to make the nomination; and (6) the consent of each such nominee to serve as director if elected.

The Committee will make its determinations on whether to nominate an individual in the context of the Board as a whole based on the Board’s then-current needs, the merits of each such candidate and the qualifications of other available candidates. The Committee has no obligation to respond to shareholders who propose candidates that it has determined not to nominate for election to the Board, but the Committee may do so in its sole discretion. All director candidates are evaluated similarly, whether nominated by the Board or by a shareholder.

The Corporate Governance Committee did not seek, nor did it receive the recommendation of, any of the director candidates named in this proxy statement from any shareholder, independent director, executive officer or third-party search firm in connection with its own approval of such candidates. The Company has not paid any fee to a third party to assist it in identifying or evaluating nominees.

The Audit Committee oversees the Company’s accounting and financial reporting processes, audits of the financial statements, and internal controls over financial reporting. The Committee is governed by a charter. A copy of the charter is available on the Company’s website at www.AFGinc.com under “Company — Board Committees.”

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As more fully described in its charter, the primary responsibilities of the Audit Committee are to:

•

appoint the Company’s independent registered public accounting firm and oversee the relationship; including monitoring the auditor’s independence, establishing the auditor’s compensation and reviewing the scope of the auditor’s work, including pre-approval of audit and non-audit services;

•

review and discuss with our management and independent registered public accounting firm, the Company’s interim and audited annual financial statements, and recommend to the board whether the audited annual financial statements should be included in the Company’s annual report on Form 10-K;

•

review management’s report on its assessment of the effectiveness of internal control over financial reporting and the independent public accounting firm’s report on the effectiveness of internal control over financial reporting;

•

review the adequacy and implementation of the Company’s internal audit function, including a review of the scope and results of its program;

•

review and approve or ratify all transactions with related persons that are required to be disclosed in the proxy statement; and

•

discuss with management the Company’s guidelines and policies related to enterprise risk assessment and risk management.

Audit Committee Report

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. The Company’s management has the primary responsibility for the financial statements, for maintaining effective internal control over financial reporting, and for assessing the effectiveness of internal control over financial reporting. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited consolidated financial statements and the related schedules in the Annual Report with Company management, including a discussion of the quality, not just the acceptability, of the accounting principles; the reasonableness of significant judgments; and the clarity of disclosures in the financial statements.

The Committee is comprised solely of independent directors as defined by the NYSE listing standards and Rule 10A-3 of the Securities Exchange Act of 1934.

The members of the Committee are Gregory G. Joseph (Chairman), Terry S. Jacobs, Virginia “Gina” C. Drosos and John I. Von Lehman. Each of the members of the Audit Committee is independent as defined by the NYSE

listing standards. The Board has determined that two of the Audit Committee’s members, Mr. Jacobs, and Mr. Von Lehman, are each considered to be an “audit committee financial expert” as defined under SEC Regulation S-K Item 407(d).

The meetings of the Committee are designed to facilitate and encourage communication among the Committee, the Company, the Company’s internal audit function and the Company’s independent auditor. The Audit Committee schedules its meetings with a view to ensuring that it devotes appropriate attention to all of its tasks. These meetings include, whenever appropriate, executive sessions in which the Audit Committee meets separately with the independent auditors, internal auditors and management personnel.

In addition, the Audit Committee reviews key initiatives and programs aimed at maintaining the effectiveness of the Company’s internal control over financial reporting. Together with senior members of the Company’s management team, the Audit Committee reviews the plans of the internal auditors, the results of internal audit examinations and evaluations by management and the Company’s independent auditors of the Company’s internal control over financial reporting and the quality of the Company’s financial reporting. As part of this process, the Audit Committee monitors the scope and adequacy of the Company’s internal auditing program, including reviewing internal audit department staffing levels and steps taken to maintain the effectiveness of internal procedures and controls.

The Audit Committee recognizes the importance of maintaining the independence of the Company’s independent auditor, both in fact and appearance. Each year, the Committee evaluates the qualifications, performance and independence of the Company’s independent auditor and determines whether to re-engage the current independent auditor. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors’ capabilities and the auditors’ technical expertise. In addition, the Committee has discussed with the independent auditor the firm’s independence from Company management and the Company, including the matters in the letter from the firm required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, and considered the compatibility of non-audit services with the independent auditor’s independence.

The Committee reviewed and discussed together with management and the independent auditor the Company’s audited consolidated financial statements for the year ended December 31, 2016, and the results of

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management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the independent auditor’s audit of internal control over financial reporting.

The Committee also reviewed with the independent auditor, which is responsible for expressing an opinion on the conformity of the audited consolidated financial statements and related schedules with US generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Committee by the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), including PCAOB Auditing Standard No. 16, Communications With Audit Committees, the rules of the Securities and Exchange Commission, and other applicable regulations.

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board has approved, that the audited consolidated financial statements and related schedules and management’s assessment of the effectiveness of the Company’s internal control over financial reporting be included in the Annual Report on Form 10-K for the year ended December 31, 2016, filed by the Company with the Securities and Exchange Commission.

Members of the Audit Committee:

Gregory G. Joseph, Chairman
Virginia “Gina” C. Drosos
Terry S. Jacobs
John I. Von Lehman

The following table identifies membership and the Chairman of each of the current committees of the Board, as well as the number of times each committee met during 2016.

Director Compensation and Stock Ownership Guidelines

The Corporate Governance Committee reviews the structure and philosophy of our director compensation program annually during the second quarter. In May 2016, upon recommendation of management, the Company engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”) to review the compensation paid to our non-employee directors. Pearl Meyer referred to the same compensation peer group companies utilized by the Compensation Committee in assessing compensation for named executive officers in performing its review to evaluate the competitiveness of non-employee director compensation.

Following Pearl Meyer’s review, effective July 1, 2016, the Board, upon the recommendation of the Corporate Governance Committee, approved changes to the compensation paid to non-employee directors. In order to align the director compensation elements with its peers, the Board determined to eliminate meeting fees as an element of non-employee director compensation and

increased the annual retainer paid to all Board members from $50,000 to $90,000. Prior to the elimination of meeting fees, non-employee directors were paid $1,750 and $1,250 per Board meeting and Board committee meeting attended, respectively. The Board retained a per-day offsite meeting fee, reasoning that offsite meetings generally require out of town travel and the entirety of the director’s time for each day of meetings.

The Board also revised the share ownership target for non-employee directors. Following such revision, all non-employee directors have the objective to own, within five years after the later of receiving his or her first annual restricted stock award or the implementation of any increase in the share ownership target, at least five (down from six) times the annual Board retainer. Due to the increase in the annual Board retainer, the share ownership target for non-employee directors increased from $300,000 to $450,000 in shares. Following a deadline for share ownership compliance, each non-employee director must endeavor to meet or exceed the share ownership target.

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After giving effect to modifications, effective July 1, 2016, non-employee director compensation is as follows:

(1)

Non-employee directors who become directors during the year receive a pro rata portion of these annual retainers. The Company reimburses non-employee directors for travel and lodging expenses incurred in connection with meeting attendance. Committee chairs do not receive member retainers in addition to retainers for Chair.

The following table sets forth information concerning director compensation paid, or in the case of restricted stock awards earned, during 2016.

(1)

Calculated as the compensation cost for financial statement reporting purposes with respect to the annual stock grant under the Non-Employee Director Compensation Plan. See “Security Ownership of Certain Beneficial Owners and Management” on page 20 for detail on beneficial ownership of AFG common shares by directors.

(2)

All Other Compensation consists of amounts paid to Mr. Evans under a consulting arrangement, as amended, entered into between the Company and Mr. Evans in connection with his transition, effective January 1, 2014, from executive officer and employee of the Company to executive consultant. The consulting arrangement terminates December 31, 2017. Under the arrangement, Mr. Evans receives a consulting fee of $350,000 annually, parking and related expenses and compensation for his continued service as a director in accordance with the Company’s compensation policies for non-employee directors.

Corporate Governance

Director Independence

In accordance with NYSE rules, the Board affirmatively determines the independence of each director and nominee for election as a director in accordance with guidelines it has adopted, which guidelines comply with the listing standards set forth by the NYSE. For a director to be considered independent, the Board must determine affirmatively that a director does not have any material relationship with the Company directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. A material relationship can include, but is not limited to, commercial, industrial, banking, consulting, legal, accounting, charitable and family relationships. Based on these standards, the Board determined for 2016 that each of the following non-employee directors, namely Ms. Drosos and

Messrs. Ambrecht, Jacobs, Joseph, Verity and Von Lehman, is independent and has no material relationship with the Company, except as a director and shareholder of the Company.

In reaching its independence determinations for 2016, the Committee considered the Company’s ownership at December 31, 2015, of approximately 5.1% of the outstanding equity of Assurex Health, Inc., for which Virginia “Gina” C. Drosos, a director of the Company, serves as Chief Executive Officer and President. The Board of Directors determined that the ownership was immaterial, and Assurex Health was sold in August 2016 which terminated any ownership by the Company. The Board also considered that the Company has purchased vehicles from, and had vehicles serviced by, automobile dealerships affiliated with a company of which Mr. Joseph is an executive and part owner. The small amounts involved in these transactions, which were approved by

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the Audit Committee as transactions with a related party despite not requiring disclosure pursuant to SEC Regulation S-K Item 404, were deemed by AFG’s Board of Directors not to be material.

Leadership Structure

The Board does not currently have a Chairman. Additionally, the Board does not have a formal policy as to whether the same person may serve as both the principal executive officer of the Company and Chairman. At the present time, the Board does not believe that such a policy is necessary because of its determination that the current Board membership, together with the Company’s management, possesses the requisite leadership and industry skills, expertise and experiences to effectively oversee the business and affairs of the Company. Moreover, the Board prefers to retain the flexibility to select the appropriate leadership structure for the Company based upon the existence of various conditions, including, but not limited to, business, financial or other market conditions, affecting the Company at any given time.

The Company has two principal executive officers, Carl H. Lindner III and S. Craig Lindner. Each has been designated as a Co-Chief Executive Officer and Co-President of the Company, and each also serves on the Board of Directors.

The Board recognizes that having two principal executive officers is not customary for public companies, including the Company’s peers, but the Board has determined for the reasons set forth below, that the executive leadership structure is both appropriate for the Company and optimal for achieving corporate objectives. The Company does not have a separate, non-principal executive officer president or chief operating officer, and the Company also does not have numerous additional senior officer designations seen at other public companies. The Board has noted that these positions are not needed at the Company because the Co-CEOs have assumed responsibility for each such role.

Carl H. Lindner III also serves as Chairman of Great American Insurance Company and is primarily responsible for AFG’s property and casualty insurance operations and investor relations. S. Craig Lindner also serves as President of Great American Financial Resources, Inc. and is primarily responsible for AFG’s annuity operations and investment portfolio.

Each Co-CEO functions within a clearly defined role with respect to the day-to-day operations of the Company, and both Co-CEOs work closely with one another and are significantly involved in all aspects of Company management. The Co-CEOs work together with regard to overall corporate strategy and planning, as well as in assessing and managing enterprise risks. Because of their

close working relationship, either Co-CEO could assume the additional responsibilities of the other for some period of time in the event such a need arose.

The Board of Directors believes that the Company’s leadership structure aids in succession planning and provides the Company with significant executive depth and leadership experience. The Board has determined that the Company’s leadership structure is currently the most appropriate for the Company. To the extent it deems necessary, the Board will review the leadership structure of the Company from time to time.

Risk Oversight

The Company believes a role of management, including the named executive officers, is to identify and manage risks confronting the Company. The Board of Directors plays an integral part in the Company’s risk oversight, particularly in reviewing the processes used by management to identify and report risk, and also in monitoring corporate actions so as to minimize inappropriate levels of risk.

The Company’s current Enterprise Risk Management (ERM) process was initially formalized in 2009. The process is overseen by a risk officer with the input of senior leaders representing significant areas from throughout the organization including operational, financial, accounting and information technology.

The risk officer annually, following interviews with the Co-CEOs and senior management, reviews the top organizational risks and determines whether to add any new significant risks or to prioritize any identified risks. The risk officer, through regular meetings with senior leaders of the Company, monitors these risks, as well as any other significant risks that may arise during the year, and provides an ERM report to the Audit Committee on a quarterly basis.

The Company’s leadership structure and overall corporate governance framework is designed to aid the Board in its oversight of management responsibility for risk. The Audit Committee serves a key risk oversight function in carrying out its review of the Company’s financial reporting and internal reporting processes, as required by the Sarbanes-Oxley Act of 2002. Inherently, part of this review involves an evaluation of whether our financial reporting and internal reporting systems are adequately reporting the Company’s exposure to certain risks. In connection with this evaluation, the Audit Committee has, from time to time, considered whether any changes to these processes are necessary or desirable. While it has concluded that no such changes are warranted at this time, the Audit Committee will continue to monitor the Company’s financial reporting and internal reporting processes. In addition, pursuant to its charter, the Audit Committee is responsible for discussing with management

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the guidelines and policies related to enterprise risk assessment and risk management.

As more fully described under “Compensation Discussion and Analysis” in this proxy statement, the Compensation Committee takes an active role in overseeing risks relating to AFG’s executive compensation programs, plans and practices. Specifically, the Compensation Committee reviews the risk profile of the components of the executive compensation program, including the performance objectives and target levels used in connection with incentive awards, and considers the risks an executive officer might be incentivized to take with respect to such components with special attention given to establishing a mix among these components that does not encourage excessive risk taking.

The Corporate Governance Committee contributes to the Company’s risk oversight process by reviewing the Company’s Corporate Governance Guidelines and Board committee charters at least annually to ensure that they continue to comply with any applicable laws, regulations, and stock exchange or other listing standards, as each are subject to change from time to time. The Corporate Governance Committee also oversees the director nomination process, the overall Board reporting structure and the operations of the individual committees.

Code of Ethics, Code of Conduct and Corporate Governance Principles

The Company has adopted a Code of Ethics applicable to all employees. The Company has also adopted Corporate Governance Guidelines. The Code and Guidelines are available on the Company’s website at www.AFGinc.com, under “Company.” A printed copy of the Code and Guidelines may be obtained by shareholders upon written request to the Corporate Secretary at the address set forth under “2017 Proxy Statement — Summary — Company Communications.” We intend to satisfy any disclosure requirements regarding any amendments to, or waivers from, provisions of the Code by posting such information on our website as promptly as practicable, as may be required by applicable SEC and NYSE rules.

Director Education

The Corporate Governance Committee facilitates participation by directors in continuing education programs, including accredited director education programs paid by the Company and structured internal programs presented by management.

Executive Sessions

NYSE rules require independent directors to meet regularly in executive sessions. Four of these sessions were held during 2016. The independent director presiding over each session rotates.

Communications with Directors

The Board of Directors has adopted procedures for shareholders to send written communications to the Board as a group. Communications must be clearly addressed either to the Board of Directors, a committee of the Board or any or all of the independent directors, and sent to either of the persons listed under “2017 Proxy Statement — Summary — Company Communications”, who will forward any communications except for spam, junk mail, mass mailings, resumes, job inquiries, surveys, business solicitations or advertisements, or patently offensive, hostile, threatening or otherwise unsuitable or inappropriate material.

Compensation Committee Interlocks and Insider Participation

No member of AFG’s Compensation Committee was at any time during 2016 or at any other time an officer or employee of the Company, and none had any relationship with the Company requiring disclosure as a related-person transaction. None of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity that has, or had during any time during 2016, an executive officer who served as a member of our board of directors or our Compensation Committee.

Review, Approval or Ratification of Transactions with Related Persons

Stock exchange rules require the Company to conduct an appropriate review of all related party transactions (including those required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404) for potential conflict of interest situations on an ongoing basis and that all such transactions must be reviewed and evaluated by the Audit Committee or another committee comprised of independent directors. The Audit Committee reviews and evaluates all transactions with related parties. In addition, our Audit Committee Charter provides that the Audit Committee review and approve all related party transactions involving directors, executive officers and significant shareholders of the Company that require disclosure pursuant to SEC Regulation S-K Item 404. In considering any transaction, the Committee may consider all relevant factors, including as applicable: the Company’s business rationale for entering into the transaction; the alternatives to entering into a related person transaction; whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and the overall fairness of the transaction to the Company.

While the Company adheres to this policy for potential related person transactions, the policy is not in written

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form except as a part of listing agreements with the NYSE. However, approval of such related person transactions is evidenced by Audit Committee resolutions in accordance with our practice of reviewing and approving transactions in this manner.

Other than as follows, there were no such transactions in 2016 requiring disclosure under applicable rules. Subsidiaries of the Company employed a son of one of the Co-CEOs and a son-in-law of the other Co-CEO in executive positions during 2016, with such persons receiving salary and bonus of approximately $400,000 and $425,000 during 2016. Each individual also participates in employee benefit plans, including equity incentive plans, and is eligible to receive perquisites commensurate with his position and tenure with the Company.

A brother-in-law of S. Craig Lindner is a Senior Vice President with Raymond James Financial, Inc. During 2016, Raymond James received approximately $64,000 in commissions for equity transactions made by the Company and its subsidiaries, and the Company traded approximately $230 million par amount of debt securities through Raymond James.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires AFG’s executive officers, directors and persons

who own more than ten percent of AFG’s common shares to file reports of ownership with the SEC and to furnish AFG with copies of these reports. Like many companies, AFG assists its directors and officers by monitoring transactions and completing and filing Section 16 reports on their behalf. Based on the Company’s involvement in the preparation and review of these reports, the Company believes that all filing requirements were met in 2016.

Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm

The Audit Committee has adopted policies that require its pre-approval for any audit and non-audit services to be provided to AFG by Ernst & Young LLP. The Audit Committee delegated authority to the Committee Chairman to pre-approve certain non-audit services which arise between meetings of the Audit Committee. Pursuant to these procedures and delegation of authority, the Audit Committee was informed of and pre-approved all of the audit and other services described above. No services were provided with respect to the de minimis waiver process provided by rules of the SEC.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding beneficial ownership of common shares by each of the Company’s directors, board nominees and the named executive officers and by all directors and named executive officers of the Company as a group. The table also includes those who are known by the Company to own beneficially more than 5% of the issued and outstanding common shares. Except as otherwise provided below, information in the table is as of March 15, 2017 and, to the Company’s knowledge all common shares are beneficially owned, and investment and voting power is held solely by the persons named as owners. The addresses of Carl H. Lindner III, S. Craig Lindner and Edyth B. Lindner are 301 East Fourth Street, Cincinnati, Ohio, 45202.

(1)

Includes the following numbers of shares that may be acquired within 60 days of March 15, 2017 through the exercise of options held by such person: Carl H. Lindner III — 240,000; S. Craig Lindner — 240,000; John B. Berding — 161,500; Joseph E. (Jeff) Consolino — 45,000; James E. Evans — 28,623; Michelle A. Gillis — 43,750 and Vito C. Peraino — 50,400. Shares held in the Company’s 401(k) Retirement and Savings Plan (RASP) are provided as of February 28, 2017. For each of Mr. Berding and Mr. Evans, shares owned excludes shares held in the RASP, for which each serves on the Administrative Plan Committee, other than those shares allocated to his personal RASP account.

(2)

Includes 3,693,187 shares held in his trust over which he holds voting and dispositive power; 37,835 shares held by a trust over which his spouse has voting and dispositive power; 1,248,500 shares held in a limited liability company over which shares he holds dispositive power; 2,324,600 shares owned by a limited liability company and 10,032 shares held in a trust over which he shares voting and dispositive power with S. Craig Lindner; and 131,898 shares held in a charitable foundation over which he shares voting and dispositive power with his spouse.

(3)

Includes 2,569,800 shares held in his trust over which he has voting and dispositive power; 31,560 shares held in the RASP; 113,096 shares held by a trust over which his spouse has voting and dispositive power; 2,324,600 shares owned by a limited liability company and 10,032 shares held in a trust over which he shares voting and dispositive power with Carl H. Lindner III; 331,104 shares held by a charitable foundation over which he shares voting and dispositive power with Edyth B. Lindner; and 177,891 shares held by a charitable foundation over which he shares voting and dispositive power with his spouse.

(4)

Common shares include 1,295 shares held in the RASP and 233 shares held by a family trust.

(5)

Includes 63,428 shares held by companies in which he is a shareholder and for which he serves as an executive officer or director and 3,000 shares held by a family partnership in which he holds a 25% interest.

(6)

Includes 19,558 shares held by spouse.

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(7)

Shares held by all directors, nominees and executive officers as a group is calculated by counting shares over which Carl H. Lindner III and S. Craig Lindner share voting and dispositive power only once.

(8)

Includes 5,584,221 shares held in her trust over which she has voting and dispositive power. Also includes 331,104 shares held in a charitable foundation over which she shares voting and dispositive power with S. Craig Lindner.

(9)

Based solely on information contained in a Schedule 13G amendment filed with the SEC on January 19, 2017 by BlackRock, Inc. reporting sole voting power of 5,216,823 shares and sole dispositive power of 5,481,046 shares.

(10)

Based solely on information contained in a Schedule 13G amendment filed with the SEC on February 9, 2017 by The Vanguard Group reporting sole voting power of 42,654 shares, shared voting power of 7,291 shares, sole dispositive power of 6,040,135 shares and shared dispositive power of 46,122 shares.

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Compensation Discussion and Analysis

Named Executive Officers

In this section, we describe the material components of our executive compensation program for our named executive officers whose compensation is displayed in the 2016 Summary Compensation Table and the other compensation tables contained in this proxy statement. We also provide an overview of our executive compensation philosophy and we explain how and why the Compensation Committee arrives at specific compensation policies and decisions.

Our 2016 named executive officers are our Co-Chief Executive Officers (“Co-CEOs”), principal financial officer and the three other most highly compensated executive officers employed at the end of 2016. These persons include:

•

Carl H. Lindner III Co-Chief Executive Officer and Co-President (Co-Principal Executive Officer)

•

S. Craig Lindner Co-Chief Executive Officer and Co-President (Co-Principal Executive Officer)

•

Joseph E. (Jeff) Consolino Executive Vice President and Chief Financial Officer (Principal Financial Officer)

•

John B. Berding President of American Money Management

•

Michelle A. Gillis Senior Vice President and Chief Administrative Officer

•

Vito C. Peraino Senior Vice President and General Counsel

Compensation and Corporate Policy Updates For 2016

•

Double-Trigger Vesting:  The Company implemented a double-trigger-vesting provision upon a change in control effective for all award grants beginning with 2016 awards.

•

Discontinue Stock Options:  Beginning with the 2016 customary broad-based annual grant of equity awards to employees, including executive officers, the Compensation Committee discontinued awarding stock options and began awarding solely restricted shares that cliff-vest after four years.

•

No New Awards under Senior Executive Equity Bonus Plan:  The Company ceased granting new equity awards under the Senior Executive Equity Bonus Plan. The plan will terminate following payment, if any, for the three-year performance period ending December 31, 2017 related to the final awards under the plan made in 2015.

•

Cash-Based Senior Executive Long Term Incentive Compensation Plan:  The Company adopted, and the shareholders approved, the Senior Executive Long Term Incentive Compensation Plan which is designed to approximate award amounts and criteria under the Senior Executive Equity Bonus Plan with awards payable in cash as opposed to common stock.

•

Limit on Co-CEO Perquisites:  The Compensation Committee adopted a policy limiting Company perquisites to the Co-CEOs, excluding aircraft, retirement plan and health savings account company match, to $500,000.

•

Simplification of Performance Metrics:  The Compensation Committee decreased the number of performance metrics under the performance component of the Annual Senior Executive Bonus Plan from the historical six to eight metrics to two key metrics which drive annual shareholder value — property and casualty insurance earnings and annuity earnings.

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Overview of Compensation Program

The Compensation Committee of the Board of Directors has responsibility for reviewing and approving the compensation paid to the Company’s Co-CEOs and reviewing the compensation of the other Company senior executive officers and overseeing the executive compensation policies of the Company. The Compensation Committee also acts as the oversight committee with respect to the Company’s cash and equity incentive plans. The Compensation Committee ensures that the total compensation paid to the named executive officers is fair, reasonable and competitive.

AFG’s philosophy regarding executive compensation programs focuses on the balance of attracting, motivating, retaining and rewarding executives with a compensation package competitive among its peers and maximizing shareholder value by designing and implementing programs that tie compensation earned to the short-term and long-term performance of the Company. In linking pay to performance, the Compensation Committee compares the Company to a group of publicly-held insurance holding companies (collectively, the “Compensation Peer Group”).

Guided by principles that reinforce the Company’s pay-for-performance philosophy for the past several years, named executive officer compensation has included base salary; annual performance-based cash bonuses; long-term incentives such as stock options and restricted stock; stock or cash awards based on long-term performance; and other compensation, including certain perquisites. A significant portion of each named executive officer’s compensation is dependent upon the Company achieving business and financial goals.

At our 2015 and 2016 annual meetings, AFG held advisory votes on the compensation of its named executive officers, commonly referred to as a Say-on-Pay vote. Our shareholders approved the compensation of our named executive officers, with 84% and 83%, respectively, of votes cast in favor of our 2015 and 2016 Say-on-Pay resolution.

The Compensation Committee during 2016 considered the vote on our Say-on-Pay resolution. The Compensation Committee evaluated the Company’s 2015 performance and determined that the Co-CEOs and other named executive officers were rewarded, largely in the form of bonuses and awards based on Company performance, consistent with the Company’s pay-for-performance philosophy.

Also, during 2015, the Company engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”) to provide an assessment of AFG’s executive compensation programs and practices. Pearl Meyer conducted a competitive pay analysis and provided pay survey data, reviewed the design of incentive

plans and evaluated Compensation Committee processes and procedures, among other things. The Compensation Committee considered the information and advice provided to the Company by Pearl Meyer in connection with its review and approval of compensation paid to the Co-CEOs and its oversight of the executive compensation policies of AFG.

In evaluating the Say-on-Pay vote results and as part of the Compensation Committee’s annual discussions, the Compensation Committee also took note that the Company has Co-CEOs serving as principal executive officers. The Company does not have a separate, non-principal executive officer president or chief operating officer, and the Company also does not have numerous additional senior officer designations seen at other public companies because the Co-CEOs have assumed responsibility for each such role. The Co-CEOs work together with regard to overall corporate strategy and planning, as well as in assessing and managing enterprise risks. Key factors affecting the Compensation Committee’s judgment with respect to the Co-CEOs include the nature and scope of their responsibilities and their effectiveness in leading initiatives to effectively manage capital and increase shareholder value, productivity, profitability and growth.

With respect to the Co-CEOs, as in prior years, the Compensation Committee determined that the quantifiable measurements for each Co-CEO should be identical because the Compensation Committee believes that the Co-CEOs are ultimately jointly responsible for the achievement of the Company’s objectives. The Compensation Committee views the roles of the Co-CEOs as collaborative, as opposed to competitive, and thus does not seek to distinguish the performance of one from the other. Rather, the Compensation Committee scrutinized the Co-CEOs’ collective role in AFG’s achievement of operating targets, the development of management personnel, the performance of the investment portfolio and the development and implementation of strategic transactions and initiatives to enhance shareholder value.

As a result of having Co-CEOs, the Compensation Committee believes that the evaluation by certain institutional investors and proxy advisory firms of the Company’s pay for performance alignment is distorted by combining the compensation of the two Co-CEOs and representing that the combined compensation reflects “CEO” compensation. The Company’s leadership structure is discussed in more detail above under “Company Information — Corporate Governance — Leadership Structure” beginning on page 17.

The Compensation Committee has determined that evaluation of named executive officer compensation should not be skewed by, in its view, unfairly penalizing the Company due to the leadership structure that the Company has determined is in the best interests of shareholders.

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As a result, when evaluating annual overall compensation to named executive officers, consistent with the approach of certain institutional investors and proxy advisory firms, the Compensation Committee considers the compensation of the highest-paid Co-CEO as “CEO compensation” and includes the other Co-CEO in its analysis as one of the three highest-paid, non-Chief Financial Officer officers.

Establishing Compensation Levels

As in prior years, compensation levels for the Co-CEOs were based primarily upon the Compensation Committee’s assessment of their leadership performance and potential to enhance long-term shareholder value. The Compensation Committee relies upon a combination of judgment and guidelines in determining the amount and mix of compensation elements for the Co-CEOs. The compensation levels for the other named executive officers are similarly determined by the Co-CEOs, and reviewed by the Compensation Committee, again based primarily upon the assessment of each named executive officer’s leadership performance and potential to enhance long-term shareholder value.

The Compensation Committee and the Co-CEOs analyze peer groups, including the Compensation Peer Group, and industry pay rates at least annually in reviewing the appropriateness and competitiveness of the Company’s compensation programs. In analyzing market pay levels among the Compensation Peer Group, the Compensation Committee factors into its analysis the variance in size (both in terms of revenues and market capitalization) among the companies.

The Compensation Committee utilizes the peer and industry review as a point of reference for measurement and not as a determinative factor. Although the Company seeks to offer a level of total compensation to named executive officers that is competitive with the compensation paid by companies in the Compensation Peer Group, the Company does not target or benchmark a particular percentile with respect to our executives’ total pay packages or any individual components of pay. Rather, the compensation levels and performance of the companies in the Compensation Peer Group constitute one of the many factors considered by the Compensation Committee and described in this Compensation Discussion and Analysis.

The Compensation Peer Group is annually reviewed and periodically updated by the Compensation Committee. The Compensation Peer Group is designed to consist of companies against which the Compensation Committee believes AFG competes for talent and for shareholder investment and in the marketplace for business.

During 2016, the Compensation Committee evaluated the companies included in the Compensation Peer Group utilized for 2015 compensation. Specifically, the

Compensation Committee noted that neither the number of, nor the composition of, the Compensation Peer Group had changed significantly in recent years. The Compensation Committee also noted that, without modifications, as a result of business combinations, the number of companies included in the Compensation Peer Group would decrease and, prior to such decrease, the size of the Compensation Peer Group was small when compared to peer companies. After discussing the Compensation Peer Group with Pearl Meyer and management, the Compensation Committee modified and increased the number of companies in the Compensation Peer Group to be more consistent with Company peers.

The companies comprising the Compensation Peer Group during 2016 were as follows:

1.  Alleghany Corporation
2.  Arch Capital Group Ltd.
3.  Assurant Inc.
4.  Chubb Limited
5.  Cincinnati Financial Corporation
6.  CNA Financial Corp.
7.  Endurance Specialty Holdings Ltd.
8.  The Hartford Financial Services Group, Inc.
9.  Lincoln National Corporation
10. Markel Corporation
11. RLI Corp.
12. Voya Financial, Inc.
13. W. R. Berkley Corporation
14. XL Group plc

Based upon all these factors, the Compensation Committee believes it is in AFG shareholders’ best long-term interest for the Compensation Committee to ensure that the overall level of compensation, especially the aggregate total of salary, bonus and equity-based awards, is competitive with companies in the Compensation Peer Group. The Compensation Committee continues to believe that the quality, skills and dedication of executive leaders are critical factors that drive the long-term value of the Company. Therefore, the Compensation Committee and the Co-CEOs continue to try to maintain an executive compensation program that will attract, motivate, retain and reward the highest level of executive leadership possible and align the interests of AFG’s executives with those of AFG’s shareholders.

The Compensation Committee’s decisions concerning the specific 2016 compensation elements for the Co-CEOs were made within this framework. The Compensation Committee also considered each Co-CEO’s performance and prior-year salary, bonus and other compensation. In all cases, specific decisions involving 2016 compensation were ultimately based upon the Compensation Committee’s judgment about the Co-CEOs’ performance, potential future contributions and about whether each particular payment or award would provide an appropriate

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incentive and reward for performance that sustains and enhances long-term shareholder value without subjecting the Company to inappropriate or unreasonable risk.

Based on its review, the Compensation Committee found the named executive officers’ total compensation in the aggregate to be reasonable and consistent with the objectives of the Company’s compensation programs and generally aligned performance versus peers.

Change in Control

The Compensation Committee recognizes that no named executive officer is a party to an employment or other agreement providing for severance or change in control payments.

Awards under the Senior Executive Equity Bonus Plan (final awards, payable in shares of Company stock to the extent earned, to be paid in 2018 for the 2015 – 2017 performance period), the Senior Executive Long Term Incentive Compensation Plan (first awards, payable in cash to the extent earned, to be paid in 2019 for the 2016 – 2018 performance period) and the Company’s shareholder-approved equity incentive plans in effect through 2015 contain provisions for an acceleration of vesting, applicable to all participants, of awards upon a change in control.

Awards under the Company’s 2015 Stock Incentive Plan (first awards granted in 2016) do not provide for automatic acceleration of awards for any participant, including the named executive officers. Awards under this plan include a “double trigger,” which means that, if the awards are assumed by the surviving entity in the change of control, vesting of the awards will not accelerate unless the participant also has a qualifying termination of employment (by the Company without cause or by the participant for good reason). In contrast, if the surviving entity does not assume the equity awards upon the change in control, unvested awards will become vested upon the occurrence of the change in control.

Tally Sheets

The Compensation Committee reviews a comprehensive tally sheet compiled internally to review all elements of the named executive officers’ compensation. The tally sheet includes all of the information that is reflected in the Summary Compensation Table as well as amounts and descriptions of perquisites not required to be specifically identified by SEC regulations, generally because the amount of such items is not deemed material under applicable SEC regulations. The review by the Compensation Committee analyzes how changes in any element of compensation would impact other elements. Such analysis has become an important component in the Compensation Committee’s review of named executive officer compensation as various components, including

perquisites, are deemed by the Compensation Committee to be important elements of an executive’s overall compensation. This also allows the Compensation Committee to make compensation decisions and evaluate management recommendations based upon a complete analysis of a named executive’s total compensation.

With regard to perquisites paid to the Co-CEOs, the Compensation Committee noted the annual limitations described under “Perquisites and Other Personal Benefits” on page 36.

Wealth Accumulation

As part of its analysis and approval of long-term equity incentive compensation available to the named executive officers, the Compensation Committee reviewed information relative to equity wealth accumulation of the named executive officers based on previous awards. The purpose of this analysis was to determine whether prior and proposed awards are likely to be effective for retention and as performance incentives to the named executive officers. The Compensation Committee was mindful of the substantial ownership of the Company’s common shares by executive officers, particularly the Co-CEOs, and the effect of such ownership in aligning their interests with those of all of the Company’s shareholders.

Internal Pay Equity

The Compensation Committee does not apply fixed ratios when conducting an analysis of the relative difference between the Co-CEOs’ compensation and the compensation of the Company’s other senior executives. However, the Compensation Committee believes that the Company’s internal pay equity structure is appropriate based upon the contributions to the success of the Company and as a means of motivation to other executives and employees.

Share Ownership Requirements

The named executive officers and other senior executives of the Company and its subsidiaries (approximately 40 persons) are subject to the Company’s share ownership requirements. Pursuant to the requirements, each Co-CEO must own five times his base salary in Company common shares while other executives must own one times his or her base salary in Company common shares.

Hedging and Pledging Policy

The Company prohibits transactions involving hedging of Company shares by directors and executive officers. The Company’s pledging policy discourages any pledging of the Company’s common stock, including holding common stock in a margin account. In addition, directors and the Company’s executive officers are required to obtain

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pre-approval from the Chair of the Corporate Governance Committee before pledging shares of common stock. Such approval will be granted only if the individual can clearly demonstrate the financial capacity to repay the loan without resorting to the pledged securities and/or after a determination that the number of shares that the individual proposes to pledge is unlikely to affect the market for the common stock when viewed in relation to the market value or trading volume. No named executive officer or director has pledged any Company shares.

Outside Consultants

The Compensation Committee has the authority to retain and from time to time has considered the use of outside consultants to assist in evaluating the Company’s executive compensation programs and practices.

As discussed above, in 2015, at the recommendation of the Company’s management, the Company engaged Pearl Meyer to review and analyze aspects of the Company’s compensation program. The Chairman of the Compensation Committee participated in the process with Pearl Meyer, and the final Pearl Meyer report was presented to the Compensation Committee and discussed at meetings of the Compensation Committee.

Tax Deductibility of Pay

Section 162(m) of the Internal Revenue Code limits the deductibility of compensation in excess of $1 million paid to certain named executive officers. An exception to the limitations is provided for “performance-based compensation.” Certain compensation that the Company pays to the named executive officers qualifies as “performance-based compensation” for purposes of Section 162(m) and is, therefore, eligible to be fully deducted by the Company for federal income tax purposes. Examples of compensation paid to named executive officers not qualifying as “performance based compensation” and thus subject to the deduction limits of Section 162(m) include non-performance-based

discretionary awards paid under the Senior Executive Annual Bonus Plan for certain named executive officers, which is qualitative in nature, and awards of restricted shares that have vesting based only on continued service.

The Company views preserving tax deductibility as an important objective, but not the sole objective, in establishing executive compensation. Although the Company has compensation plans that are intended to permit the award of deductible compensation under Section 162(m) of the Internal Revenue Code, the Compensation Committee does not necessarily limit executive compensation to the amount deductible under that provision. Rather, it considers the available alternatives and acts with the intention of preserving the deductibility of compensation to the extent reasonably practicable and consistent with its other compensation objectives, including the attraction and retention of key executives.

While certain awards may be intended to qualify for the “performance-based compensation” exception under Section 162(m), the determination of whether compensation actually qualifies for the exception is complex and is based on the facts and circumstances of each case. Consequently, the Company cannot guarantee that compensation that is intended to qualify for the “performance-based compensation” exception under Section 162(m) will in fact so qualify.

Section 409A

Section 409A of the Internal Revenue Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the law with respect to the timing of deferral elections, timing of payments and certain other matters. In general, it is AFG’s intention to design and administer its compensation and benefits plans and arrangements for all of its employees so that they are either exempt from, or satisfy the requirements of, Section 409A.

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2016 Compensation Components

The Compensation Committee continues to monitor and evaluate on an ongoing basis the mix of direct cash and equity compensation awarded to the named executive officers, and the extent to which such compensation aligns the interests of the named executive officers with those of AFG’s shareholders. In connection with this practice, the Compensation Committee annually considers and discusses the structure of the Company’s executive compensation program and the relative weighting of various compensation elements.

For the fiscal year ended December 31, 2016, the principal components of compensation for named executive officers were:

•

base salary;

•

annual performance-based cash bonuses;

•

long-term incentive compensation;

•

retirement and deferred compensation benefits; and

•

perquisites and other personal benefits.

Each of these components plays a different strategic role in the Company’s compensation program:

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Compensation Risk Analysis

The Compensation Committee has reviewed the risk profile of the components of AFG’s executive compensation programs, including the performance objectives and target and maximum levels used in connection with incentive awards. The Company analyzes and structures its overall compensation program to discourage excessive risk-taking through a balanced use of compensation vehicles and metrics with an overall goal of delivering sustained long-term shareholder value while aligning executives’ interests with those of shareholders. Further, our program makes a substantial portion of each named executive officer’s compensation contingent on delivering performance results that benefit our shareholders. The Compensation Committee believes that AFG’s executive compensation programs incentivize the appropriate level of risk-taking behavior by its named executive officers needed to grow the business, while encouraging prudent decision-making that focuses on both short-term and long-term results.

Compensation Committee Discussions with Co-CEOs

Our Co-CEOs determine the compensation for the named executive officers other than themselves. The Compensation Committee annually reviews the components of compensation for the named executive officers other than the Co-CEOs, the levels of compensation determined by the Co-CEOs and the performance of the other named executive officers with the Co-CEOs. The Compensation Committee makes recommendations to the Board and the Co-CEOs with respect to general non-Co-CEO compensation, incentive-compensation plans and equity-based plans.

Our Co-CEOs discuss with the Compensation Committee their evaluation of the Company’s performance, their performance, their current and future compensation levels, and the reported compensation of named executive officers at the Compensation Peer Group companies prior to the time that the Compensation Committee takes any action with respect to setting the compensation of the Co-CEOs. The Co-CEOs also make recommendations to the

Compensation Committee with respect to annual and long-term incentive compensation arrangements applicable to them. Specifically, the Co-CEOs recommend that AFG’s business plan be considered in connection with 2016 compensation objectives and targets. The Compensation Committee considers this input in connection with its review and approval of corporate goals and objectives relevant to Co-CEO compensation, deliberation of Co-CEO performance in light of those goals and objectives, and determination of Co-CEO compensation levels based on this evaluation.

The Co-CEOs believe that Mr. Consolino and Mr. Berding each plays a collaborative role with the Co-CEOs in the achievement of AFG’s business plan and budgeted targets. In recognition of these roles, the compensation components for Mr. Consolino and Mr. Berding are identical to those of the Co-CEOs, and each also participates in all compensation plans in which the Co-CEOs participate.

Base Salary

The Company pays salaries that are designed to attract and retain superior leaders. After reviewing compiled data and materials as discussed above, the Compensation Committee determines annual base salaries for the Co-CEOs that are appropriate, in its subjective judgment, based on each Co-CEO’s responsibilities and performance and input from the Co-CEOs themselves. The Co-CEOs set salaries for the other named executive officers, which are reviewed by the Compensation Committee. The Co-CEOs believe that such salaries are appropriate in light of the levels of responsibility of such officers and their individual contributions to the Company’s success. The base salaries for the Co-CEOs for 2016 remained the same as in 2010 – 2015.

Senior Executive Annual Bonus Plan

Annual performance-based cash bonuses are awarded under the Company’s Senior Executive Annual Bonus Plan and are designed to reward the current year performance of AFG. The Company believes that the overall performance of AFG is substantially related to the

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performance of its executives. If earned, cash bonuses are generally paid in the first quarter for the prior year’s performance.

In connection with the Company’s engagement of Pearl Meyer during 2015, the Compensation Committee analyzed and discussed the annual performance-based components of cash compensation.

For over 10 years, one-half of the annual cash maximum bonus amounts that could be earned by each named executive officer has been based on Operating EPS (which is discussed in more detail below). For 2015 and recent years, the remaining one-half of the annual cash maximum bonus for the Co-CEOs, Mr. Consolino and Mr. Berding, was based on company performance components, and for Ms. Gillis and Mr. Peraino, one-half of the annual bonus was based on the Co-CEOs’ subjective determinations of their performance. The Compensation Committee’s consideration of total compensation reflected an equal weighting of the Operating EPS and company performance components or subjective determinations.

For 2015 and recent years, the company performance components under the Senior Executive Annual Bonus Plan were generally comprised of six to eight performance goals. Most of the applicable performance goals were identical to each participant, and except with respect to the Co-CEOs, the Co-CEOs determined the weight assigned to certain performance goals based on each executive’s areas of responsibility. If a performance goal was satisfied, each executive would receive the amount assigned to the performance goal. This component of the annual cash bonus program did not provide for partial payments in the event that a goal was not satisfied nor did it provide for additional amounts to be paid in the event of significant outperformance. Because performance goals were either satisfied or not, the Compensation Committee did not annually determine a target amount for the company performance components but generally weighted the potential bonus amounts under the company performance components equally with potential bonus amounts for Operating EPS achievement.

During 2016, the Compensation Committee considered the report by Pearl Meyer and discussed the composition of the performance metrics under the Senior Executive Annual Bonus Plan. Specifically, the Compensation Committee evaluated the number of company performance components as well as the effect of each component on shareholder value. Following this review and analysis, the Compensation Committee determined to restructure the composition of the annual performance-based cash awards to named executive officers.

The Compensation Committee continues to believe that Operating EPS is the most significant shareholder value metric, and as such, the achievement of annual Operating EPS goals for 2016 continued to comprise the largest portion of the annual cash bonus targets for named executive officers. The Compensation Committee replaced the other performance metrics and award methodology under the Senior Executive Annual Bonus Plan discussed below.

For 2016, the Senior Executive Annual Bonus Plan consisted of four components — Operating EPS, Specialty Property and Casualty Earnings (Specialty P&C Earnings), Annuity Earnings and Discretionary. The Compensation Committee determined that the Operating EPS, Specialty P&C Earnings and Annuity Earnings, taken together, are primary drivers of annual shareholder value and that, as a result, these metrics should be weighted heavily in determining bonus amounts.

In determining performance levels and target bonuses for the Co-CEOs, the Compensation Committee utilized the components as follows. For each, as discussed above, the Operating EPS component would continue to comprise the largest portion of the annual bonus target. The Specialty P&C Earnings component comprised a larger portion than the Annuity Earnings component of the target bonus amounts not attributable to the Operating EPS component. The Compensation Committee determined that weighing the two segment earnings components differently, at a 60% to 40% proportion to one another, was appropriate and approximated the Company’s segment business mix. Performance levels and target bonuses for Mr. Consolino and Mr. Berding were determined similarly and in similar proportion, except with respect to the addition of a separate amount allocated to a Discretionary component.

The Discretionary component applied to all named executive officers except for the Co-CEOs. Awards under the Discretionary component were based on the Co-CEOs’ subjective performance determinations of Mr. Consolino, Mr. Berding, Ms. Gillis and Mr. Peraino. In the case of Ms. Gillis, the Co-CEOs considered the recommendation of Mr. Consolino. For Ms. Gillis and Mr. Peraino, as in 2015, 50% of the annual bonus was based on the Discretionary component. A portion of Mr. Consolino’s and Mr. Berding’s annual cash bonus amount ($100,000 each for 2016) was based on the Discretionary component.

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The Co-CEOs believe that Mr. Consolino and Mr. Berding each plays a collaborative role with the Co-CEOs in the achievement of AFG’s business plan and budgeted targets. In allocating a discretionary bonus amount determinable by the Co-CEOs, the Compensation Committee recognized that the Co-CEOs work daily with Mr. Consolino and Mr. Berding, putting the Co-CEOs in a unique position to evaluate the subjective achievements of each.

Under the new structure, achievement of target levels for each of the Specialty P&C Earnings and Annuity Earnings components collectively equated to payment of bonuses approximately equivalent to maximum bonus (excluding the bonus attributable to Operating EPS) that would have been payable for the achievement of all performance goals under the plan as in effect for 2015.

Unlike the non-Operating EPS performance metrics that applied through 2015, where the metric was either satisfied (with a corresponding bonus amount paid) or not satisfied (with no bonus amount paid), the Compensation Committee delineated four levels of achievement under the Specialty P&C Earnings and Annuity Earnings components. For results below a defined threshold, no bonus would be earned for the relevant component. Thresholds were also established for a minimum bonus, target bonus and maximum bonus for each component.

The Compensation Committee considered that payment of the maximum bonus would reflect significant outperformance by the applicable operating segment and merited a corresponding increased bonus for the Co-CEOs, Mr. Consolino and Mr. Berding.

Company results to be applied to each of the Operating EPS component, Specialty P&C Earnings component and the Annuity Earnings component are derived from the Company’s results reported consistent with past practice. The Senior Executive Annual Bonus Plan includes provisions for adjustments to performance thresholds in the event of a modification of the methodology of Company reporting for any measure. Any modification would result in an adjustment, as determined by the Compensation Committee, in a manner that provides for an identical bonus payment for the affected component based on identical (as adjusted to give effect to the modification to the calculation of the component) results.

The targets, thresholds and maximums for 2016 were established by the Compensation Committee after reviewing the Company’s 2016 business plan prepared by management, approved by the Co-CEOs and reviewed with the Board of Directors.

For illustrative purposes, below is a comparison of total bonus targets and maximums for the named executive officers under the Senior Executive Annual Bonus Plan for 2015 and 2016. Because the Compensation Committee’s consideration of total compensation reflected an equal

weighting of the Operating EPS and company performance components or subjective determinations, targets for 2015 reflect a target equal to the Operating EPS target for purposes of the company performance components. For 2016, target amounts assume payment in full of the Discretionary component for Messrs. Consolino and Berding.

Senior Executive Annual Bonus Plan — Operating EPS Component

For 2016, for all named executive officers, the largest portion of the annual cash bonus was payable based on the Company’s 2016 Operating EPS calculated consistent with prior years. The Operating EPS goals for all named executive officers were identical.

Operating EPS differs from AFG’s reported net earnings per share (determined in accordance with generally accepted accounting principles) by excluding realized gains and losses in the investment portfolio and certain other items that may not be indicative of AFG’s ongoing core operations. Further, any special charge taken as a result of an internal review of asbestos and environmental reserves is to be considered a non-core item.

Operating EPS bonuses are awarded based on ranges where named executive officers can receive between $0 and the maximum bonus. Prior to 2016, a participant would receive 100% of the target bonus allocated to the Operating EPS component for achievement of target Operating EPS, and an increase or decrease of 8%, respectively, from the Operating EPS target resulted in the payment of the maximum bonus or no bonus. Beginning in 2016, after discussions with Pearl Meyer, the Compensation Committee widened the ranges for bonus calculations under the Operating EPS component to approximately 10% so that Operating EPS would have to exceed target by approximately 10% to receive the

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maximum bonus, but some percentage of the target bonus would be paid for Operating EPS that fell short of target by almost 10%. The Compensation Committee noted that, while named executive officers would be entitled to a portion of the bonus amount attributable to the Operating EPS component for results that, on a percentage basis, varied from target by a greater amount than in prior years, the Compensation Committee determined that significant outperformance (over 11% for 2016 vs. outperformance of 6.6% for 2015) would be required for the named executive officers to receive the maximum bonus for this component. The Committee also noted that the target bonus amounts for Operating EPS for all participants except Ms. Gillis, who received an increase in target bonus, were unchanged from 2015. Finally, the 2016 target of $5.55 per share represented an increase of approximately 5% over the Operating EPS target for 2015.

The Compensation Committee determined that achieving the 2016 Operating EPS target would require substantial efforts on behalf of the entire organization, including the named executive officers and other Company senior management, and gave consideration to factors which might impact ongoing earnings, including, but not limited to, competition, market influences, governmental regulation and the Board of Directors’ desire to devote resources to other internal corporate objectives, such as acquisitions or start-ups.

For 2016, the following Operating EPS ranges determined the percentage of the corresponding bonus amount, if any, for the Operating EPS component:

For each named executive officer, 100% of the bonus target for the Operating EPS component was to be paid if Operating EPS were $5.55 per share. If Operating EPS was at least $5.00 but less than $5.55 or above $5.55 but less than $6.10, the Operating EPS component of the bonus was to be determined by straight-line interpolation. If Operating EPS was $6.10 or more, the maximum amount was to be paid. For the Co-CEOs, the maximum was 175% of the target bonus; for Mr. Consolino and Mr. Berding, the maximum amount was 150% of the

target bonus; and for Ms. Gillis and Mr. Peraino, the maximum amount was 125% of the target bonus. Each named executive officer’s Operating EPS bonus target is set forth below:

For 2016, AFG reported Operating EPS of $6.03. As a result, the Compensation Committee authorized the payment of bonuses for 2016 as follows under the Operating EPS component: $1,240,909 (165% of bonus target) to each Co-CEO; $790,000 (144% of bonus target) to each of Mr. Consolino and Mr. Berding; $365,455 and $152,273, respectively, (122% of bonus target) to Ms. Gillis and Mr. Peraino.

Senior Executive Annual Bonus Plan — Specialty P&C Earnings Component

For the Co-CEOs, Mr. Consolino and Mr. Berding, approximately one-third of the target annual cash bonus was payable based on the Company’s Specialty P&C Earnings for 2016.

Specialty P&C Earnings is defined as core operating earnings before income taxes from the Specialty Property and Casualty Insurance operations as reported in the Company’s quarterly earnings releases, which excludes certain items that may not be indicative of its ongoing core operations such as realized gains and losses and special charges resulting from the recurring periodic review of the Company’s asbestos and environmental exposures. Consistent with the Company’s reporting, the calculation of earnings excludes certain items that may not be indicative of the Company’s core operations such as realized gains and losses and special charges resulting from the Company’s routine review of asbestos and environmental exposures.

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For 2016, the following Specialty P&C Earnings ranges determined the percentage of the corresponding bonus amount, if any, for the Specialty P&C Earnings component:

As with the Operating EPS component, bonuses awarded based on Specialty P&C Earnings above $528 million but less than $574 million or above $574 million but less than $620 million would be determined by straight-line interpolation. The target bonuses for the Co-CEOs, Mr. Consolino and Mr. Berding under the Specialty E&S Earnings Component were as follows:

For 2016, AFG reported Specialty P&C Earnings of $630 million. As a result, the Compensation Committee authorized the payment of the maximum bonus, representing 115% of the target bonus, for 2016 under the Specialty P&C Earnings component. Each Co-CEO received $905,625 and each of Mr. Consolino and Mr. Berding received $500,250.

Senior Executive Annual Bonus Plan — Annuity Earnings Component

For the Co-CEOs, Mr. Consolino and Mr. Berding, approximately one-fourth of the annual cash target bonus was payable based on the Company’s Annuity Earnings for 2016.

Annuity Earnings is defined as core operating earnings before income taxes from the Annuity segment as reported in the Company’s quarterly earnings releases, which excludes certain items that may not be indicative of its ongoing core operations such as realized gains and losses, adjusted to exclude the impact of fair value accounting for fixed-indexed annuities. As with Specialty P&C Earnings, the determination of Annuity Earnings is consistent with the Company’s reporting and excludes certain items that may not be indicative of the Company’s core operations such as realized gains and losses and adjustments resulting from the impact of fair value accounting for derivatives related to fixed-indexed annuities.

For 2016, the following Annuity Earnings ranges determined the percentage of the corresponding bonus amount, if any, for the Annuity Earnings component:

As with the Operating EPS component and Specialty P&C Earning component, bonuses awarded based on Annuity Earnings above $331 million but less than $360 million or above $360 million but less than $389 million would be determined by straight-line interpolation.

The target bonuses for the Co-CEOs, Mr. Consolino and Mr. Berding under the Annuity Earnings Component were as follows:

For 2016, AFG reported Annuity Earnings of $395 million. As a result, the Compensation Committee authorized the payment of the maximum bonus, representing 115% of the target bonus, for 2016 under the Annuity Earnings component. Each Co-CEO received $603,750 and each of Mr. Consolino and Mr. Berding received $333,500.

Senior Executive Annual Bonus Plan — Discretionary Component

For Ms. Gillis and Mr. Peraino, 50% of the annual cash target bonus under the Senior Executive Annual Bonus Plan was determined by the Co-CEOs based on the Co-CEOs’ subjective rating of the named executive officers relative to overall performance for 2016. Each of Ms. Gillis and Mr. Peraino were eligible to receive a bonus ranging from 0% to 125% of the target amount allocated to the Discretionary component. The target bonuses were as follows:

The determination for Ms. Gillis and Mr. Peraino includes a consideration of all factors deemed relevant, including, but not limited to: operational, qualitative measurements relating

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to the development and implementation of strategic initiatives and annual objectives; responses to unexpected developments; the development of management personnel; the impact of any extraordinary transactions involving or affecting the Company and its subsidiaries; and, for Ms. Gillis, the recommendation of Mr. Consolino. The Co-CEOs considered these factors, together with the respective roles of the named executive officers with respect to the consistent improvement in the Company’s operating performance over the past several years, and determined that the named executive officers receive the following: $156,250 (125% of target) to Ms. Gillis; and $375,000 (125% of target) to Mr. Peraino.

The Discretionary portion of the annual bonus for Mr. Consolino and Mr. Berding ($100,000 apiece in total, representing less than 8% of the cumulative target bonus for the other three bonus components and less than 6% of their maximum bonus amounts) was determined by the Co-CEOs, and each of Mr. Consolino and Mr. Berding was awarded a bonus of $100,000.

Senior Executive Annual Bonus Plan — Total Bonus Amounts

The total bonus amounts payable to each named executive officer for 2016 under the Senior Executive Annual Bonus Plan, including all of the above components, were:

Long-Term Equity Incentive Compensation —
Broad-Based Equity Award

The Compensation Committee believes long-term equity incentive compensation encourages management to focus on long-term Company performance and provides an opportunity for executive officers and certain designated key employees to increase their stake in the Company through equity awards that vest over time. The Compensation Committee believes that equity awards represent an important part of AFG’s performance-based compensation system. The Compensation Committee further believes that AFG shareholders’ interests are well served by aligning AFG’s senior executives’ interests with those of its shareholders through the grant of equity awards.

Equity awards are generally granted at a regularly-scheduled Compensation Committee meeting in February shortly after AFG issues a press release

announcing results of the recently ended fiscal year. The Committee has determined to grant annual equity awards at such time because the investment market has had the opportunity to assess the Company’s prior year results and current year’s guidance and because Company results for the current quarter and year-to-date are not yet known.

Prior to the 2016 annual grants, the Compensation Committee granted stock options and restricted shares to executive officers and certain designated key employees. Beginning with the February 2016 customary broad-based annual grant of equity awards to employees, including executive officers, the Compensation Committee discontinued granting stock options and began awarding only restricted shares that cliff-vest after four years, partly in order to control share usage and reduce the potential dilution to shareholders from stock-based incentive compensation.

In determining the value of overall annual grants to all employees, the Compensation Committee takes into consideration the dilutive effect to shareholders of the additional shares which may be issued pursuant to stock-based awards as well as the expense to AFG as stock-based awards vest. The Compensation Committee believes that several features present in stock-based awards give recipients substantial incentive to maximize AFG’s long-term success. Specifically, the Compensation Committee believes that, because stock options (granted through 2015) vest at the rate of 20% per year and restricted stock awards “cliff” vests in four years, these awards promote executive retention due to the potential for forfeiture of options and restricted stock that have not fully vested upon departure from AFG.

Equity award levels for participants are determined based on award amounts from previous years, market and peer company data, expense to AFG, the relative benefits to participants of such expense and the overall compensation level of such participants. Equity grants vary among participants based on their positions within the Company, and AFG believes that the consideration of these factors results in reasonable grant levels to its named executive officers and other employees. Restricted shares granted in 2016 to the named executive officers are set forth in the Grants of Plan-Based Awards Table on page 39 of this proxy statement.

Long-Term Equity Incentive Compensation —  Senior Executive Equity Bonus Plan

Under the Senior Executive Equity Bonus Plan (“Equity Bonus Plan”), the Company may grant bonus awards payable in Company common shares to the Co-CEOs and other senior executive officers of the Company and its subsidiaries, including the named executive officers, based upon the achievement of the performance goals determined annually by the Compensation Committee.

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As discussed in more detail below under “— Senior Executive Long Term Incentive Compensation Plan,” the Compensation Committee discontinued making awards under the Equity Bonus Plan following grants made in 2015. In February 2016, the Board adopted, and at the Company’s 2016 annual shareholders meeting, the shareholders approved, the Senior Executive Long Term Incentive Compensation Plan which was established to replace the Equity Bonus Plan.

The Equity Bonus Plan was designed to reward long-term Company performance through an award of equity securities which would further align the interests of participants with those of shareholders. Awards under the Equity Bonus Plan reward multi-year Company performance through rolling three-year performance periods. In order to retain a performance equity compensation component for new participants in the two years preceding the end of a new participant’s initial three-year performance period, the Committee has, to date, approved performance goals based on one-year and two-year performance in addition to three-year performance. After the initial grants to each new participant, annual grants have been based on three-year performance.

Prior to awards paid in 2015, the Compensation Committee utilized one criterion — book value per share growth over a specified period versus the book value per share growth over the same period of the group of companies set forth below (the “plan companies”) — as the basis for awards.

The book value per share comparisons, for the Company and each plan company, were adjusted to negate the effects of accounting changes, accumulated other comprehensive income and the impact of dividends and other capital distributions made on common shares. The awards provided for such adjustments because the Committee determined that failing to adjust for accounting changes could result in artificially inflating or decreasing book value per share and failing to adjust for other comprehensive income and the impact of distributions could influence Company decisions, like, for example, the timing and amount of dividends to be paid, in a manner not consistent with a goal of continuing to increase shareholder value.

The group of companies utilized for purposes of determining satisfaction of the book value per share criterion is designed to approximate the Company’s business mix of property and casualty insurance and annuities.

Beginning with awards granted in 2014 (first paid in 2017 for the three-year period 2014 – 2016), the Compensation Committee modified awards by providing that one-half of the senior executive’s bonus amount would be based on

book value per share growth as compared to plan companies. The remaining one-half of the bonus amount would be based on annual return on equity growth, defined as the percentage equal to the Company’s core operating earnings divided by the Company’s shareholders’ equity (excluding appropriated retained earnings and accumulated other comprehensive income). The applicable percentage in determining bonus amounts, if any, would be the average return on equity for each of the three years in the performance period.

The participants under the Equity Bonus Plan for awards payable for the 2014 – 2016 performance period were the Co-CEOs, Mr. Berding and Mr. Consolino. The Compensation Committee set a target and a maximum for each award. The target amount for each Co-CEO was $2,500,000, and the target amount for each of Mr. Berding and Mr. Consolino was $750,000, with one-half of each target amount ($1,250,000 and $375,000, respectively) allocated to each of the two performance criteria. The maximum award was 200% of the target amount.

With regard to the book value per share component, for the 2014 – 2016 performance period, as in prior periods, if the Company’s growth in book value per share placed it in the fourth (lowest) quartile of the plan companies, no bonus for the book value per share growth metric would be payable to any participant. If the Company’s growth in book value per share exceeded all plan companies, each participant would receive the maximum amount payable for the metric (200% of the target amount). If the Company’s growth in book value per share exceeded the fourth (lowest) quartile of the plan companies but did not exceed that of all plan companies, each participant would be entitled to a bonus amount for the metric calculated by applying straight-line interpolation rounded to the nearest whole dollar amount for growth in book value per share between 0% (for being in the fourth (lowest) quartile of plan companies) and 200% (for growth in book value per share exceeding that of all other plan companies) of the target amount. Plan companies acquired during the three-year performance period are excluded when calculating awards under the plan. In order for a participant to receive the target amount, the Company’s growth in book value per share must be in the top 37.5% of the plan companies.

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The plan companies under the Equity Bonus Plan for awards paid with respect to book value per share growth for the three-year period ended December 31, 2016 were:

1.  Alleghany Corp.
2.  American Equity Investment Life Holding Co.
3.  American National Insurance Co.
4.  Arch Capital Group Ltd.
5.  Argo Group International Holdings, Ltd.
6.  Baldwin & Lyons Inc.
7.  Chubb Limited
8.  Cincinnati Financial Corp.
9.  CNA Financial Corporation
10. CNO Financial Group, Inc.
11. Hanover Insurance Group, Inc.
12. The Hartford Financial Services Group, Inc.
13. Horace Mann Educators Corp.
14. Lincoln National Corp.
15. Markel Corporation
16. Metlife, Inc.
17. National Western Life Group, Inc.
18. Protective Life Corp.
19. RLI Corp.
20. Symetra Financial Corporation
21. Travelers Companies, Inc.
22. W.R. Berkley Corporation
23. XL Group plc

The Company’s growth in book value per share for the period from January 1, 2014 through December 31, 2016 placed it ninth in comparison to the plan companies (entitling each participant to 51.5% of the target bonus for this component). As a result, each Co-CEO was entitled to a bonus in dollars of $1,287,879 for 2016, and each of Mr. Consolino and Mr. Berding was entitled to a bonus in dollars of $386,364 for 2016.

The remaining one-half of the bonus amount was based on annual return on equity growth as discussed above. With regard to the 2014 – 2016 performance period, if the return on equity percentage equaled or exceeded 12%, the participant would receive the maximum bonus amount attributed to this metric. If the return on equity percentage equals or is less than 9%, the participant would receive no bonus amount attributed to this metric. For a return on equity greater than 9% but less than 12%, the bonus amount will be calculated by applying straight-line interpolation rounded to the nearest whole dollar amount. Each participant’s target bonus of 50% of the maximum bonus for the return on equity component would be earned if the Company’s return on equity equaled 10.5% for the three-year period.

The Company’s annual average return on equity for 2014 – 2016 was 11.5% (entitling each participant to 166.67% of the target bonus for this component). As a

result, each Co-CEO was entitled to a bonus in dollars of $2,083,333 for 2016, and each of Mr. Consolino and Mr. Berding was entitled to a bonus in dollars of $625,000 for 2016.

After combining the two components, each Co-CEO received a bonus of $3,371,212 for 2016, payable (after taxes withheld) through the issuance of 18,394 Company common shares. Additionally, each of Mr. Consolino and Mr. Berding received a bonus of $1,011,364 for 2016, payable (after taxes withheld) through the issuance of 5,519 Company common shares. Each participant’s bonus amount represented 134.9% of his target and 67.4% of his maximum bonus under the plan.

Long-Term Incentive Compensation — Senior Executive Long Term Incentive Compensation Plan

In February 2016, the Board adopted, and at the Company’s 2016 annual shareholders meeting, the shareholders approved, the Senior Executive Long Term Incentive Compensation Plan. The Senior Executive Long Term Incentive Compensation Plan was established to replace the Equity Bonus Plan, and the Compensation Committee intends that awards under the Senior Executive Long Term Incentive Compensation Plan approximate award amount and criteria as provided in the Equity Bonus Plan.

Unlike the Equity Bonus Plan, which pays awards in Company shares, awards under the Senior Executive Long Term Incentive Compensation Plan will be payable in cash which will reduce the potential dilution to shareholders that may result from stock-based incentive compensation. Other than with respect to the method of payment of awards, the Senior Executive Long Term Incentive Compensation Plan is substantially identical to the Equity Bonus Plan. The current participants under the Senior Long Term Incentive Compensation Plan are the same as under the Equity Bonus Plan, namely the Co-CEOs, Mr. Consolino and Mr. Berding, and the performance criteria for the first awards granted in 2016 (for the 2016 – 2018 three-year performance period) remained relative book value per share growth and core return on equity with one-half of target allocated to each metric. Cash awards to the extent earned will be paid in early 2019.

Recovery of Prior Awards

AFG does not have a policy with respect to adjustment or recovery of awards or payments if relevant company performance measures upon which previous awards were based are restated or otherwise adjusted in a manner that would reduce the size of such award or payment. Under those circumstances, we expect that the Compensation Committee and the Board would evaluate whether

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compensation adjustments were appropriate based upon the facts and circumstances surrounding the applicable restatement or adjustment. Nevertheless, the Company is subject to the provisions of Section 304 of the Sarbanes-Oxley Act, with its recoupment requirements. In addition, each of the Senior Executive Equity Bonus Plan and the Senior Executive Annual Bonus Plan contain specific provisions regarding recovery of awards in the event of restatement of materially inaccurate financial results.

Retirement and Other Related Benefits

The Company provides retirement benefits to named executive officers through a combination of qualified (under the Internal Revenue Code) and nonqualified plans. AFG provides retirement benefits to qualified employees through the 401(k) Retirement and Savings Plan (“RASP”), a defined contribution plan. AFG makes discretionary contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. The amount of such contributions and matching payments are based on a percentage of the employee’s salary up to certain thresholds. AFG also makes available to certain employees benefits in its Nonqualified Auxiliary RASP (“Auxiliary RASP”). The purpose of the Auxiliary RASP is to enable employees whose contributions in the retirement contribution portion of the 401(k) RASP are limited by IRS regulations to have an additional benefit to the 401(k) RASP.

The Company also maintains a Deferred Compensation Plan pursuant to which certain employees of AFG and its subsidiaries (currently those paid $110,000 or more annually) may defer up to 80% of their annual salary and/or bonus. For 2016, participants could elect to have the value of deferrals earn a fixed rate of interest, set annually by the Board of Directors (1.625% in 2016); fluctuate based on the market value of Company common shares, as adjusted to reflect stock splits, distributions, dividends; or earn interest as determined by one or more publicly traded mutual funds. A deferral term of either a fixed number of years or upon termination of employment must be elected at the time of deferral. Under the plan, no federal or state income taxes are paid on deferred compensation. Rather, such taxes will be due upon receipt at the end of the deferral period. The Nonqualified Deferred Compensation Table on page 41 of this proxy statement discloses 2016 compensation earned by the named executive officers in connection with the Deferred Compensation Plan.

Perquisites and Other Personal Benefits

Perquisites, such as insurance coverage, security services, certain entertainment expenses, administrative staff attending to occasional personal matters, and the personal use of corporate aircraft, are made available to AFG’s executive officers. These benefits and the estimated costs to the Company of such benefits are included in the All Other Compensation table below on page 38.

During 2016, as in prior years, the Company operated corporate aircraft used for the business travel of senior management of the Company and its subsidiaries. The Board has encouraged the use of corporate aircraft for the travel needs of the Company’s Co-CEOs, including personal travel, in order to minimize and more efficiently utilize their travel time, protect the confidentiality of their travel and the Company’s business, and enhance their personal security. Notwithstanding, the Compensation Committee and the Co-CEOs jointly acknowledge that such aircraft use is a personal benefit, and as such, the Compensation Committee considers the cost to the Company of such use to be an element of the total compensation paid to these individuals.

For each Co-CEO, the Compensation Committee limits personal use of corporate aircraft (120 occupied flight hours). Other perquisites, excluding aircraft, retirement plan and health savings account company match are limited to $500,000 for each Co-CEO. If exceeded, reimbursement is made based on the cost to the Company of providing the benefits. For taxable benefits, the dollar amounts are included as taxable income to the named executive officers, and the Company does not provide tax gross-up payments for any perquisites. See footnote one to the “All Other Compensation” table below on page 38 for a discussion of the tax treatment of aircraft benefits.

The Compensation Committee believes these perquisites to be reasonable, particularly as a part of total executive compensation, comparable with plan companies and consistent with the Company’s overall executive compensation programs.

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Executive Compensation

Summary Compensation Table

The following table summarizes the aggregate compensation paid to or earned by the named executive officers for each of the last three years. Such compensation includes amounts paid by AFG and its subsidiaries and certain affiliates for the years indicated. Amounts shown relate to the year indicated, regardless of when paid. AFG has no employment agreements with the named executive officers.

(1)

Amounts shown are not reduced to reflect the named executive officers’ elections, if any, to defer receipt of salary into the Deferred Compensation Plan

(2)

Amount represents the dollar amount which will be expensed for financial statement reporting purposes over the vesting period of the award for compensation expense incurred by the Company in connection with discretionary restricted stock awards made by the Compensation Committee under the Company’s equity incentive plan applicable to all employees. With respect to the Co-CEOs, Mr. Consolino and Mr. Berding, also includes awards under the Senior Executive Equity Bonus Plan paid in the form of Company common shares (as further described in the Compensation Discussion and Analysis section beginning on page 22 of this proxy statement) in each fiscal year. Amounts were determined in accordance with FASB ASC 718 (Compensation — Stock Compensation), rather than as an amount paid to or realized.

(3)

Amount represents the grant date fair value which will be expensed for financial statement reporting purposes over the vesting period of the options in accordance with ASC 718, rather than an amount paid to or realized by the named executive officer. There can be no assurance that the amounts recognized in accordance with ASC 718 will ever be realized.

(4)

These payments were made pursuant to the Annual Senior Executive Bonus Plan, a performance-based annual cash bonus plan and, therefore, do not appear in the bonus column. The Annual Senior Executive Bonus Plan is further described in the Compensation Discussion and Analysis section beginning on page 22 of this proxy statement. For Ms. Gillis (for all years) and Mr. Peraino (for 2014 and 2015), amounts in addition to those earned each year under the Annual Senior Executive Bonus Plan include distributions in such year under subsidiary long-term plans which terminated in 2011 and 2012 (prior to either Ms. Gillis or Mr. Peraino becoming an executive officer of the Company) for which payouts are made over multiple years following plan termination.

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(5)

See All Other Compensation chart below for amounts, which include perquisites, Company or subsidiary contributions or allocations under the defined contribution retirement plans and employee savings plan in which the named executive officers participate (and related accruals for their benefit under the Company’s benefit equalization plan which generally makes up certain reductions caused by Internal Revenue Code limitations in the Company’s contributions to certain of the Company’s retirement plans) and Company paid group life insurance.

All Other Compensation ($) — 2016

(1)

Personal use of corporate aircraft is limited to 120 occupied flight hours for each Co-CEO. The Board of Directors has encouraged the Company’s Co-CEOs to use corporate aircraft for all travel whenever practicable for productivity, security and confidentiality reasons. On certain occasions, an executive’s spouse, other family members or guests may fly on the corporate aircraft. The value of the use of corporate aircraft is calculated based on the aggregate incremental cost to the Company, including fuel costs, trip-related maintenance, universal weather-monitoring costs, on-board catering, landing/ramp fees and other miscellaneous variable costs. Fixed costs which do not change based on usage, such as pilot salaries, the amortized costs of the company aircraft, and the cost of maintenance not related to trips, are excluded. Amounts for personal use of company aircraft are included in the table. The amounts reported utilize a different valuation methodology than used for income tax purposes, where the value of the personal use of corporate aircraft has been calculated using the Standard Industry Fare Level (SIFL) formula found in the tax regulations.

(2)

All perquisites excluding aircraft, retirement plan and health savings account company match are limited to $500,000 for Mr. C.H. Lindner III and Mr. S.C. Lindner. For Mr. S.C. Lindner, such perquisites totaled $558,052 for 2016, and he reimbursed the Company for the excess. Amounts shown for all items except “Total” do not give effect to the repayment, but the “Total” for Mr. S.C. Lindner has been reduced from $1,039,273 to $981,221 to reflect the $58,052 repayment amount.

(3)

Aircraft usage for Mr. Consolino relates solely to travel related to attending meetings of Boards of Directors, other than the Company, on which he served during 2016.

(4)

Includes a Company match of 100% on the first 3% of contributions, an additional 50% match on the next 3% of contributions and a discretionary Company contribution.

(5)

Includes group life insurance; car, parking and related expenses; health savings account company match; meals and entertainment and administrative and secretarial services.

Potential Payments upon Termination or Change in Control

As described in the Compensation Discussion and Analysis section, the named executive officers do not have employment, severance or change in control agreements with the Company. Except for the acceleration of vesting of awards under the Senior Executive Equity Bonus Plan (final award grant in 2015), the Senior Executive Long Term Incentive Compensation Plan (beginning with awards granted in 2016) and the Company’s shareholder-approved equity incentive plans upon a change in control, which acceleration applies to all holders of awards under such plans, no amounts become payable to the named executive officers under severance or change in control arrangements. In addition, rights to acceleration under the Company’s 2015 Stock Incentive Plan had been modified through the addition of a double trigger.

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Grants of Plan-Based Awards

(1)

These restricted shares were granted pursuant to the Company’s stock incentive plan and generally cliff-vest four years after the grant date. Holders of restricted shares generally have full voting and dividend rights on all restricted shares during the vesting period.

(2)

These represent awards under the Senior Executive Annual Bonus Plan. These amounts, to the extent earned and paid in 2017, are shown in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation” because these awards were recognized in 2016 for financial statement reporting purposes.

(3)

These represent awards under the Senior Executive Long Term Incentive Compensation Plan. Grants in 2016 cover a three-year performance period 2016 – 2018. One-half of award payment based on the Company’s growth in book value per share over the three years compared to plan companies, and one-half of award payment based on meeting or exceeding average annual core return on equity goals over the three-year period. Payments of awards, if any, will be made in early 2019.

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Outstanding Equity Awards at Fiscal Year-End

(1)

Represents employee stock options that become exercisable for 20% of the shares initially granted on the first anniversary of the date of grant, with an additional 20% becoming exercisable on each subsequent anniversary. They are generally exercisable for ten years. The options become fully exercisable in the event of death or disability or upon a change in control of the Company.

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(2)

Represents restricted shares which generally vest four years following the award grant date.

(3)

Represents the target amount for grants made under the Senior Executive Equity Bonus Plan. Awards are denominated in dollars but are paid in Company common shares. The Senior Executive Equity Bonus Plan will terminate following payment, if any, for the three-year performance period ending December 31, 2017 related to the final awards under the plan made in 2015.

Option Exercises and Stock Vested

The table below shows the number of Company common shares acquired during 2016 upon the exercise of options and restricted share awards which vested in 2016.

(1)

The dollar value realized reflects the difference between the closing price of the Company common shares on the date of exercise and the stock option exercise price.

(2)

The dollar value realized reflects the market value of the vested shares based on the closing price of the Company common shares on the vesting date or, if not a business day, the next succeeding business day.

Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

The Company provides retirement benefits to named executive officers through a combination of qualified (under the Internal Revenue Code) and nonqualified plans. AFG makes available to certain employees, including its named executive officers, benefits in its Nonqualified Auxiliary RASP (“Auxiliary RASP”). The purpose of the Auxiliary RASP is to enable employees whose contributions are limited by IRS regulations in the retirement contribution portion of the AFG Retirement and Savings Plan (“RASP”) to have an additional benefit to the RASP.

The Company also maintains a Deferred Compensation Plan pursuant to which certain key employees of AFG and its subsidiaries may defer up to 80% of their annual salary and/or bonus. The deferral term of either a fixed number of years or upon termination of employment must be elected at the time of deferral. Under the plan, no federal, state or local income taxes are paid on deferred compensation. Rather, such taxes will be due upon receipt at the end of the deferral period.

The table below discloses information on the nonqualified deferred compensation of the named executives in 2016, including the Auxiliary RASP and the Deferred Compensation Plan.

(1)

Represents Company contributions credited to participants’ Auxiliary RASP accounts which are included in the supplemental All Other Compensation table to the Summary Compensation Table on page 37.

(2)

Earnings are calculated by reference to actual earnings or losses of mutual funds and securities, including Company common shares, held by the plans.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on these reviews and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement on Schedule 14A.

Equity Compensation Plan Information

The following reflects certain information about common shares authorized for issuance (at December 31, 2016) under compensation plans.

(1)

Includes 3.2 million shares issuable under the Company’s equity incentive plans, 1.0 million shares issuable under AFG’s Employee Stock Purchase Plan (as amended effective January 1, 2017), 1.6 million shares issuable under the Senior Executive Equity Bonus Plan and 64,135 shares issuable under AFG’s Non-Employee Directors Compensation Plan at December 31, 2016.

(2)

Represents shares issuable under AFG’s Deferred Compensation Plan. For a description of this plan, see “Compensation Discussion and Analysis — Retirement and Other Related Benefits” on page 36.

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Other Matters

Electronic Access to Proxy Materials and Annual Report

As we did last year, we are delivering a notice in lieu of a paper copy of the proxy statement and related materials and the Company’s Annual Report to Shareholders and Form 10-K. If you received a notice by mail, you will not receive a paper copy of the Proxy Materials unless you request one. Instead, the notice will instruct you as to how you may access the Proxy Materials and cast your vote. If you received a notice by mail and would like to receive a paper copy of our Proxy Materials, please follow the instructions included in the notice.

Shareholders also can elect to receive an email message that will provide a link to the Proxy Materials on the Internet. By opting to access your Proxy Materials via email, you will save the Company the cost of producing and mailing documents to you, reduce the amount of mail you receive and help preserve environmental resources. Shareholders who have enrolled previously in the electronic access service will receive their Proxy Materials via email this year. If you received a notice by mail and would like to receive your Proxy Materials via email, please follow the instructions included in the notice.

Copies of Annual Report on Form 10-K

The Company makes available on its website all of its filings that are made electronically with the Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and 8-K. To access these filings, go to the Company’s website (www.AFGinc.com), click on “Investor Relations” on the home page and select

“Financial Information & SEC Filings” from the menu. Copies of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, including financial statements and schedules, as filed with the SEC, are also available without charge to shareholders upon written request addressed to:

Investor Relations
American Financial Group, Inc.
Great American Insurance Group Tower
301 East Fourth Street
Cincinnati, Ohio 45202

Submitting Shareholder Proposals for the 2018 Annual Meeting of Shareholders

Under the rules and regulations of the SEC, any proposal which a shareholder of the Company intends to present at the annual meeting of shareholders to be held in 2018 and which such shareholder desires to have included in the Company’s proxy materials for such meeting must be received by the Secretary of the Company not less than 120 calendar days before the one-year anniversary date of this year’s proxy statement, or December 9, 2017. Our Regulations, as they may be amended from time to time, may contain additional requirements for matters to be properly presented at annual meetings of shareholders.

The proxy card used by AFG for the annual meeting typically grants authority to management to vote in its discretion on any matters that come before the meeting for which adequate notice has not been received. In order for a notice to be deemed adequate for the 2018 annual meeting, it must be received by February 22, 2018.

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