10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2012

Commission File No. 1-13653

AMERICAN FINANCIAL GROUP, INC.

Incorporated under the Laws of Ohio IRS Employer I.D. No. 31-1544320

301 East Fourth Street, Cincinnati, Ohio 45202

(513) 579-2121

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:

Large Accelerated Filer	x	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	¨

Indicate by check mark whether the Registrant is a shell company.    Yes  ¨    No  x

As of May 1, 2012, there were 96,887,372 shares of the Registrant’s Common Stock outstanding, excluding 14.9 million shares owned by subsidiaries.

AMERICAN FINANCIAL GROUP, INC.

TABLE OF CONTENTS

	Page
Part I – Financial Information
Item 1 – Financial Statements:
Consolidated Balance Sheet		2
Consolidated Statement of Earnings		3
Consolidated Statement of Comprehensive Income		4
Consolidated Statement of Changes in Equity		5
Consolidated Statement of Cash Flows		6
Notes to Consolidated Financial Statements		7
Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3 – Quantitative and Qualitative Disclosure of Market Risk		49
Item 4 – Controls and Procedures		49
Part II – Other Information
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 6 – Exhibits		50
Signatures		51

AMERICAN FINANCIAL GROUP, INC. 10-Q

PART I

ITEM I – FINANCIAL STATEMENTS

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

(Dollars In Millions)

	March 31, 2012		December 31, 2011 (as adjusted)
Assets:
Cash and cash equivalents	$	1,422	$	1,324
Investments:
Fixed maturities, available for sale at fair value (amortized cost – $20,994 and $20,562)		22,371		21,807
Fixed maturities, trading at fair value		457		440
Equity securities, at fair value (cost – $800 and $744)		1,054		928
Mortgage loans		438		401
Policy loans		249		252
Real estate and other investments		487		425
Total cash and investments		26,478		25,577
Recoverables from reinsurers		2,678		2,942
Prepaid reinsurance premiums		415		409
Agents’ balances and premiums receivable		550		565
Deferred policy acquisition costs		916		901
Assets of managed investment entities		2,952		3,058
Other receivables		625		895
Variable annuity assets (separate accounts)		601		548
Other assets		810		757
Goodwill		186		186
Total assets	$	36,211	$	35,838
Liabilities and Equity:
Unpaid losses and loss adjustment expenses	$	6,117	$	6,520
Unearned premiums		1,496		1,484
Annuity benefits accumulated		16,064		15,420
Life, accident and health reserves		1,739		1,727
Payable to reinsurers		292		475
Liabilities of managed investment entities		2,672		2,787
Long-term debt		931		934
Variable annuity liabilities (separate accounts)		601		548
Other liabilities		1,567		1,386
Total liabilities		31,479		31,281
Shareholders’ equity:
Common Stock, no par value
- 200,000,000 shares authorized
- 97,177,820 and 97,846,402 shares outstanding		97		98
Capital surplus		1,126		1,121
Retained earnings:
Appropriated – managed investment entities		145		173
Unappropriated		2,498		2,439
Accumulated other comprehensive income, net of tax		714		580
Total shareholders’ equity		4,580		4,411
Noncontrolling interests		152		146
Total equity		4,732		4,557
Total liabilities and equity	$	36,211	$	35,838

2

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

(In Millions, Except Per Share Data)

	Three months ended March  31,
	2012			2011 (as adjusted)
Revenues:
Property and casualty insurance premiums	$	603		$	599
Life, accident and health premiums		105			110
Investment income		322			300
Realized gains (losses) on:
Securities (*)		44			—
Subsidiaries		—			(3	)
Income (loss) of managed investment entities:
Investment income		29			25
Loss on change in fair value of assets/liabilities		(29	)		(33	)
Other income		39			41
Total revenues		1,113			1,039
Costs and Expenses:
Property and casualty insurance:
Losses and loss adjustment expenses		344			341
Commissions and other underwriting expenses		211			203
Annuity benefits		130			116
Life, accident and health benefits		92			96
Annuity and supplemental insurance acquisition expenses		47			50
Interest charges on borrowed money		21			21
Expenses of managed investment entities		19			18
Other operating and general expenses		103			92
Total costs and expenses		967			937
Operating earnings before income taxes		146			102
Provision for income taxes		58			48
Net earnings, including noncontrolling interests		88			54
Less: Net earnings (loss) attributable to noncontrolling interests		(25	)		(34	)
Net Earnings Attributable to Shareholders	$	113		$	88
Earnings Attributable to Shareholders per Common Share:
Basic	$	1.16		$	.84
Diluted	$	1.14		$	.83
Average number of Common Shares:
Basic		97.7			104.6
Diluted		99.4			106.2
Cash dividends per Common Share	$	.175		$	.1625
(*)    Consists of the following:
Realized gains before impairments	$	48		$	10
Losses on securities with impairment		(5	)		(7	)
Non-credit portion recognized in other comprehensive income (loss)		1			(3	)
Impairment charges recognized in earnings		(4	)		(10	)
Total realized gains on securities	$	44		$	—

3

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(In Millions)

	Three months ended March  31,
	2012			2011
Net earnings, including noncontrolling interests	$	88		$	54
Other comprehensive income, net of tax:
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period		158			18
Reclassification adjustment for realized gains included in net earnings		(28	)		—
Total net unrealized gains on securities		130			18
Foreign currency translation adjustments		7			7
Pension and other postretirement plans adjustments		1			—
Other comprehensive income, net of tax		138			25
Total comprehensive income, net of tax		226			79
Less: Comprehensive income (loss) attributable to noncontrolling interests		(21	)		(34	)
Comprehensive income attributable to shareholders	$	247		$	113

4

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(Dollars in Millions)

				Shareholders’ Equity
	Common Shares			Common Stock and  Capital Surplus			Retained Earnings						Accum. Other Comp Inc.(Loss)		Total			Noncon- trolling Interests			Total Equity
							Appro.			Unappro.
Balance at December 31, 2011, as adjusted		97,846,402		$	1,219		$	173		$	2,439		$	580	$	4,411		$	146		$	4,557
Net earnings		—			—			—			113			—		113			(25	)		88
Other comprehensive income		—			—			—			—			134		134			4			138
Allocation of losses of managed investment entities		—			—			(28	)		—			—		(28	)		28			—
Dividends on Common Stock		—			—			—			(17	)		—		(17	)		—			(17	)
Shares issued:
Exercise of stock options		551,219			14			—			—			—		14			—			14
Other benefit plans		250,072			5			—			—			—		5			—			5
Dividend reinvestment plan		3,916			—			—			—			—		—			—			—
Stock-based compensation expense		—			4			—			—			—		4			—			4
Shares acquired and retired		(1,473,789	)		(19	)		—			(37	)		—		(56	)		—			(56	)
Other		—			—			—			—			—		—			(1	)		(1	)
Balance at March 31, 2012		97,177,820		$	1,223		$	145		$	2,498		$	714	$	4,580		$	152		$	4,732
Balance at December 31, 2010		105,168,366		$	1,271		$	197		$	2,523		$	479	$	4,470		$	150		$	4,620
Cumulative effect of accounting change		—			—			—			(155	)		16		(139	)		—			(139	)
Balance at December 31, 2010, as adjusted		105,168,366			1,271			197			2,368			495		4,331			150			4,481
Net earnings		—			—			—			88			—		88			(34	)		54
Other comprehensive income		—			—			—			—			25		25			—			25
Allocation of losses of managed investment entities		—			—			(35	)		—			—		(35	)		35			—
Dividends on Common Stock		—			—			—			(17	)		—		(17	)		—			(17	)
Shares issued:
Exercise of stock options		436,127			11			—			—			—		11			—			11
Other benefit plans		332,337			7			—			—			—		7			—			7
Dividend reinvestment plan		4,043			—			—			—			—		—			—			—
Stock-based compensation expense		—			3			—			—			—		3			—			3
Shares acquired and retired		(2,457,721	)		(30	)		—			(54	)		—		(84	)		—			(84	)
Other		—			—			—			—			—		—			(2	)		(2	)
Balance at March 31, 2011		103,483,152		$	1,262		$	162		$	2,385		$	520	$	4,329		$	149		$	4,478

5

AMERICAN FINANCIAL GROUP, INC. 10-Q

AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(In Millions)

	Three months ended March  31,
	2012			2011 (as adjusted)
Operating Activities:
Net earnings, including noncontrolling interests	$	88		$	54
Adjustments:
Depreciation and amortization		46			49
Annuity benefits		130			116
Realized (gains) losses on investing activities		(44	)		3
Net purchases of trading securities		(13	)		(5	)
Deferred annuity and life policy acquisition costs		(60	)		(51	)
Change in:
Reinsurance and other receivables		535			446
Other assets		(30	)		15
Insurance claims and reserves		(373	)		(202	)
Payable to reinsurers		(183	)		(92	)
Other liabilities		(3	)		59
Managed investment entities’ assets/liabilities		(86	)		(12	)
Other operating activities, net		3			9
Net cash provided by operating activities		10			389
Investing Activities:
Purchases of:
Fixed maturities		(951	)		(1,044	)
Equity securities		(59	)		(34	)
Mortgage loans		(39	)		(91	)
Real estate, property and equipment		(44	)		(20	)
Proceeds from:
Maturities and redemptions of fixed maturities		514			590
Repayments of mortgage loans		2			10
Sales of fixed maturities		131			291
Sales of equity securities		65			6
Managed investment entities:
Purchases of investments		(566	)		(352	)
Proceeds from sales and redemptions of investments		774			400
Other investing activities, net		(10	)		(13	)
Net cash used in investing activities		(183	)		(257	)
Financing Activities:
Annuity receipts		804			672
Annuity surrenders, benefits and withdrawals		(348	)		(311	)
Reductions of long-term debt		(3	)		(3	)
Issuances of managed investment entities’ liabilities		359			—
Retirement of managed investment entities’ liabilities		(489	)		(4	)
Issuances of Common Stock		14			11
Repurchases of Common Stock		(56	)		(84	)
Cash dividends paid on Common Stock		(17	)		(16	)
Other financing activities, net		7			3
Net cash provided by financing activities		271			268
Net Change in Cash and Cash Equivalents		98			400
Cash and cash equivalents at beginning of period		1,324			1,099
Cash and cash equivalents at end of period	$	1,422		$	1,499

6

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO NOTES

A.	Accounting  Policies	H.	Goodwill  and Other Intangibles
B.	Segments  of Operations	I.	Long-Term  Debt
C.	Fair Value Measurements	J.	Shareholders’   Equity
D.	Investments	K.	Income  Taxes
E.	Derivatives	L.	Contingencies
F.	Deferred  Policy Acquisition Costs	M.	Condensed  Consolidating Information
G.	Managed  Investment Entities	N.	Subsequent  Event

A. Accounting Policies

Basis of Presentation The accompanying consolidated financial statements for American Financial Group, Inc. (“AFG”) and its subsidiaries are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles.

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to March 31, 2012, and prior to the filing date of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Accounting Standards Adopted in 2012 Effective January 1, 2012, AFG retrospectively adopted Accounting Standards Update (“ASU”) 2010-26 that addresses which costs related to issuing or renewing insurance contracts qualify for deferral. To qualify for deferral, the guidance specifies that a cost must be directly related to the successful acquisition of an insurance contract. The financial statements for prior periods have been adjusted to reflect the adoption of the new standard.

The impact of adoption on amounts previously reported is shown in the table below (in millions, except per share data):

	December 31, 2011
Deferred policy acquisition costs
As previously reported	$	1,105
As adjusted		901
Net deferred tax liability (included in other liabilities)
As previously reported	$	203
As adjusted		133
Shareholders’ equity
As previously reported	$	4,545
As adjusted		4,411

7

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

	2011
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total Year
Net earnings attributable to shareholders
As previously reported	$	83	$	55	$	96	$	109	$	343
As adjusted		88		48		97		109		342
Diluted earnings per Common Share
As previously reported	$	.79	$	.52	$	.94	$	1.10	$	3.33
As adjusted		.83		.46		.95		1.09		3.32

Effective January 1, 2012, AFG retrospectively adopted ASU 2011-05, which eliminates the option to report other comprehensive income in the Statement of Changes in Equity. As permitted by the standard, comprehensive income is presented herein in a separate statement immediately following the Statement of Earnings. This new presentation does not change the measurement of net earnings, other comprehensive income or earnings per share, and accordingly, had no impact on AFG’s results of operations or financial position.

Effective January 1, 2012, AFG adopted ASU 2011-04, which clarifies the application of existing fair value measurement and amends certain disclosure requirements. Disclosures required by the guidance are included in Note C. The impact of adoption was not material to AFG’s results of operations or financial position.

Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. AFG did not have any significant nonrecurring fair value measurements of nonfinancial assets and liabilities in the first quarter of 2012 or 2011.

Investments Fixed maturity and equity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income in AFG’s Balance Sheet. Fixed maturity and equity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the interest method; mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

8

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Gains or losses on securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses)) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: 1) the amount related to credit losses (recorded in earnings) and 2) the amount related to all other factors (recorded in other comprehensive income). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the Statement of Earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value and consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related call options (included in other investments) designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products. Changes in the fair value of derivatives are included in earnings.

Goodwill Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually. Under guidance adopted in 2011, an entity is only required to complete the quantitative annual goodwill impairment test on a reporting unit if the entity determines (through qualitative analysis) that it is more likely than not that the reporting unit’s fair value is less than its carrying amount.

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (a) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (b) amounts paid to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

Certain annuity and supplemental insurance subsidiaries cede life insurance policies to a third party on a funds withheld basis whereby the subsidiaries retain the assets (securities) associated with the reinsurance contracts. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. These reinsurance contracts are considered to contain embedded derivatives (that must be adjusted to fair value) because the yield on the payables is based on specific blocks of the ceding companies’ assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolios of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to these transactions are classified as “trading.” The adjustment to fair value on the embedded derivatives offsets the investment income recorded on the adjustment to fair value of the related trading portfolios.

9

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Deferred Policy Acquisition Costs (“DPAC”) Policy acquisition costs (principally commissions, premium taxes and certain policy issuance costs) directly related to the successful acquisition of an insurance contract are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses. As discussed above under “Accounting Standards Adopted in 2012,” AFG’s accounting for DPAC changed effective January 1, 2012, and amounts previously reported have been adjusted retrospectively.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses and unamortized acquisition costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and variable annuity policy charges, less death and annuitization benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses).

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.

DPAC related to annuities is also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains (losses) on marketable securities, a component of accumulated other comprehensive income in AFG’s Balance Sheet.

DPAC includes the present value of future profits on business in force of annuity and supplemental insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

Managed Investment Entities A company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

10

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

AFG manages, and has investments in, collateralized loan obligations (“CLOs”) that are VIEs (see Note G – “Managed Investment Entities”). Both the management fees (payment of which are subordinate to other obligations of the CLOs) and the investments in the CLOs are considered variable interests. AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) it has exposure to CLO losses (through its investments in the CLO debt tranches) and the right to receive benefits (through its subordinated management fees and returns on its investments), both of which could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The excess of fair value of the CLOs’ assets over the fair value of the liabilities is recorded in AFG’s Balance Sheet as appropriated retained earnings – managed investment entities, representing amounts that ultimately will inure to the benefit of the CLO debt holders.

The net gain or loss from accounting for the CLO assets and liabilities at fair value is separately presented in AFG’s Statement of Earnings. CLO earnings attributable to AFG’s shareholders represent the change in fair value of AFG’s investments in the CLOs (including distributions) and management fees earned. All other CLO earnings (losses) are not attributable to AFG’s shareholders and will ultimately inure to the benefit of the other CLO debt holders. As a result, such CLO earnings (losses) are included in net earnings (loss) attributable to noncontrolling interests in AFG’s Statement of Earnings and in appropriated retained earnings – managed investment entities in the Balance Sheet. As the CLOs approach maturity (2016 to 2022), it is expected that losses attributable to noncontrolling interests will reduce appropriated retained earnings towards zero as the fair values of the assets and liabilities converge and the CLO assets are used to pay the CLO debt.

Unpaid Losses and Loss Adjustment Expenses The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon (a) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (b) estimates received from ceding reinsurers and insurance pools and associations; (c) estimates of unreported losses (including possible development on known claims) based on past experience; (d) estimates based on experience of expenses for investigating and adjusting claims; and (e) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the Statement of Earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to expense and decreases for surrender charges are credited to other income.

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For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liability for EDAR is accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and variable annuity policy charges, and unearned revenues once they are recognized as income.

Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati.

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

Variable Annuity Assets and Liabilities Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests For Balance Sheet purposes, noncontrolling interests represents the interests of shareholders other than AFG in consolidated entities. In the Statement of Earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities.

Income Taxes Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. A valuation allowance is established to reduce total deferred tax assets to an amount that will more likely than not be realized.

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AFG records a liability for the inherent uncertainty in quantifying its income tax provisions. Related interest and penalties are recognized as a component of tax expense.

Stock-Based Compensation All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated fair value at the date of grant. AFG uses the Black-Scholes pricing model to measure the fair value of employee stock options. See Note J - “Shareholders’ Equity” for further information.

Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings Per Share Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted earnings per share includes adjustments to weighted average common shares of 1.7 million for the first quarter of 2012 and 1.6 million for the first quarter of 2011 related to stock-based compensation plans.

AFG’s weighted average diluted shares outstanding excludes 1.5 million for the first quarter of 2012 and 1.8 million for the first quarter of 2011 in anti-dilutive potential common shares related to stock compensation plans. Adjustments to net earnings attributable to shareholders in the calculation of diluted earnings per share were nominal in the 2012 and 2011 periods.

Statement of Cash Flows For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

B. Segments of Operations

AFG manages its business as three segments: (i) property and casualty insurance, (ii) annuity and supplemental insurance and (iii) other, which includes holding company costs and amounts attributable to the noncontrolling interests of the managed investment entities.

AFG reports its property and casualty insurance business in the following Specialty sub-segments: (i) Property and transportation, which includes physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages, (ii) Specialty casualty, which includes primarily excess and surplus, general liability, executive liability, umbrella and excess liability, customized programs for small to mid-sized businesses and workers’ compensation, and (iii) Specialty financial, which includes risk management insurance programs for lending and leasing institutions (including collateral and mortgage protection insurance), surety and fidelity products and trade credit insurance. AFG’s annuity and supplemental insurance business markets traditional fixed and indexed annuities and a variety of supplemental insurance products such as Medicare supplement.

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AFG’s reportable segments and their components were determined based primarily upon similar economic characteristics, products and services.

The following tables (in millions) show AFG’s revenues and operating earnings before income taxes by significant business segment and sub-segment.

	Three months ended March  31,
	2012			2011
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	263		$	255
Specialty casualty		220			216
Specialty financial		103			112
Other		17			16
Total premiums earned		603			599
Investment income		71			75
Realized gains		31			—
Other income		13			15
Total property and casualty insurance		718			689
Annuity and supplemental insurance:
Investment income		252			228
Life, accident and health premiums		105			110
Realized gains (losses)		13			(3	)
Other income		26			24
Total annuity and supplemental insurance		396			359
Other		(1	)		(9	)
Total revenues	$	1,113		$	1,039
Operating Earnings Before Income Taxes
Property and casualty insurance:
Underwriting:
Specialty
Property and transportation	$	27		$	36
Specialty casualty		4			1
Specialty financial		16			16
Other		1			2
Total underwriting		48			55
Investment and other income, net		55			69
Realized gains		31			—
Total property and casualty insurance		134			124
Annuity and supplemental insurance:
Operations		67			54
Realized gains (losses)		13			(3	)
Total annuity and supplemental insurance		80			51
Other (*)		(68	)		(73	)
Total operating earnings before income taxes	$	146		$	102

(*) Includes holding company expenses and $28 million and $35 million in losses of managed investment entities attributable to noncontrolling interests for the first quarter of 2012 and 2011, respectively.

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C. Fair Value Measurements

Accounting standards for measuring fair value are based on inputs used in estimating fair value. The three levels of the hierarchy are as follows:

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

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

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

AFG’s management is responsible for the valuation process and uses data from outside sources (including nationally recognized pricing services and broker/dealers) in establishing fair value. AFG’s internal investment professionals are a group of approximately 20 analysts whose primary responsibility is to manage AFG’s investment portfolio. These professionals monitor individual investments as well as overall industries and are active in the financial markets on a daily basis. The group is led by AFG’s chief investment officer, who reports directly to one of the Co-CEOs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, the Company communicates directly with the pricing service regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities.

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Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
March 31, 2012
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	235	$	155	$	—	$	390
States, municipalities and political subdivisions		—		3,844		72		3,916
Foreign government		—		260		—		260
Residential MBS		—		3,804		314		4,118
Commercial MBS		—		2,880		20		2,900
All other corporate		8		10,264		515		10,787
Total AFS fixed maturities		243		21,207		921		22,371
Trading fixed maturities		—		456		1		457
Equity securities		955		75		24		1,054
Assets of managed investment entities (“MIE”)		245		2,643		64		2,952
Variable annuity assets (separate accounts) (a)		—		601		—		601
Other investments		—		142		—		142
Total assets accounted for at fair value	$	1,443	$	25,124	$	1,010	$	27,577
Liabilities:
Liabilities of managed investment entities	$	118	$	—	$	2,554	$	2,672
Derivatives in annuity benefits accumulated		—		—		483		483
Other liabilities – derivatives		—		22		—		22
Total liabilities accounted for at fair value	$	118	$	22	$	3,037	$	3,177
December 31, 2011
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	248	$	134	$	—	$	382
States, municipalities and political subdivisions		—		3,794		83		3,877
Foreign government		—		254		—		254
Residential MBS		—		3,487		361		3,848
Commercial MBS		—		2,821		19		2,840
All other corporate		9		10,078		519		10,606
Total AFS fixed maturities		257		20,568		982		21,807
Trading fixed maturities		—		439		1		440
Equity securities		888		29		11		928
Assets of managed investment entities (“MIE”)		290		2,724		44		3,058
Variable annuity assets (separate accounts) (a)		—		548		—		548
Other investments		—		71		—		71
Total assets accounted for at fair value	$	1,435	$	24,379	$	1,038	$	26,852
Liabilities:
Liabilities of managed investment entities	$	194	$	—	$	2,593	$	2,787
Derivatives in annuity benefits accumulated		—		—		395		395
Other liabilities – derivatives		—		23		—		23
Total liabilities accounted for at fair value	$	194	$	23	$	2,988	$	3,205

(a) Variable annuity liabilities equal the fair value of variable annuity assets.

At March 31, 2012, six preferred stocks with an aggregate fair value of $35 million were transferred from Level 1 to Level 2. The transfers were due to decreases in trade frequency, resulting in lack of available trade data sufficient to warrant classification in Level 1. Approximately 4% of the total assets measured at fair value on March 31, 2012, were Level 3 assets. Approximately 94% ($949 million) of the Level 3 assets were priced using non-binding broker quotes, for which there is a lack of transparency as to the inputs used to determine fair value. Details as to the quantitative inputs are neither provided by the brokers nor otherwise reasonably obtainable by AFG. Since internally developed Level 3 asset fair values represent less than one-half of 1% of the total assets measured at fair value and less than 2% of AFG’s shareholders’ equity, changes in unobservable inputs used to determine internally developed fair values would not have a material impact on AFG’s financial position.

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The fair values of the liabilities of managed investment entities were determined using primarily non-binding broker quotes, which were reviewed by AFG’s investment professionals. AFG’s investment professionals are familiar with the cash flow models used by the brokers to determine the fair value of these liabilities and review the broker quotes based on their knowledge of the CLO market and the market for the underlying assets. Their review includes consideration of expected reinvestment, default and recovery rates on the assets supporting the CLO liabilities, as well as surveying general CLO liability fair values and analysis provided by third parties.

The only significant Level 3 assets or liabilities carried at fair value in the financial statements that were not measured using broker quotes are the derivatives embedded in AFG’s indexed annuity liabilities, which are measured using a discounted cash flow approach and had a fair value of $483 million at March 31, 2012. The following table presents information about the unobservable inputs used by management in determining fair value of these embedded derivatives. See Note E – “Derivatives.”

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	0.5% - 2.1% over the risk free rate
Risk margin for uncertainty in cash flows	0.3% reduction in the discount rate
Surrenders	4% - 25% of indexed account value
Partial surrenders	3% - 5% of indexed account value
Annuitizations	1% - 2% of indexed account value
Deaths	1% - 2.5% of indexed account value
Budgeted option costs	2.5% - 4.0% of indexed account value

Increasing the budgeted option cost or risk margin for uncertainty in cash flows assumptions in the table above would increase the fair value of the indexed annuity embedded derivatives, while increasing any of the other unobservable inputs in the table above would decrease the fair value of the embedded derivatives.

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the first quarter of 2012 and 2011 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.

				Total realized/unrealized gains  (losses) included in
	Balance at December  31, 2011			Net income			Other comp. income (loss)		Purchases and issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March 31, 2012
AFS fixed maturities:
State and municipal	$	83		$	—		$	—	$	10		$	—		$	—	($	21	)	$	72
Residential MBS		361			1			—		8			(10	)		60		(106	)		314
Commercial MBS		19			—			1		—			—			—		—			20
All other corporate		519			2			3		26			(16	)		21		(40	)		515
Trading fixed maturities		1			—			—		—			—			—		—			1
Equity securities		11			—			—		9			—			4		—			24
Assets of MIE		44			—			—		12			(3	)		14		(3	)		64
Liabilities of MIE (*)		(2,593	)		(84	)		—		(366	)		489			—		—			(2,554	)
Embedded derivatives		(395	)		(62	)		—		(34	)		8			—		—			(483	)

(*) Total realized/unrealized loss included in net income includes losses of $39 million related to liabilities outstanding as of March 31, 2012. See Note G – “Managed Investment Entities.”

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				Total realized/unrealized gains (losses) included in
	Balance at December  31, 2010			Net income			Other comp. income (loss)		Purchases and Issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March  31, 2011
AFS fixed maturities:
State and municipal	$	20		$	—		$	1	$	—		$	—		$	—	$	—		$	21
Residential MBS		312			1			—		—			(13	)		7		(36	)		271
Commercial MBS		6			—			—		—			—			3		—			9
All other corporate		436			(2	)		—		45			(11	)		22		(66	)		424
Trading fixed maturities		3			—			—		—			—			—		(2	)		1
Equity securities		21			—			2		—			(2	)		—		—			21
Assets of MIE		48			(1	)		—		7			(4	)		6		(2	)		54
Liabilities of MIE (*)		(2,258	)		(62	)		—		—			4			—		—			(2,316	)
Embedded derivatives		(190	)		(19	)		—		(30	)		5			—		—			(234	)

(*) Total realized/unrealized loss included in net income includes losses of $61 million related to liabilities outstanding as of March 31, 2011. See Note G – “Managed Investment Entities.”

The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):

March 31, 2012	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	1,422	$	1,422	$	1,422	$	—	$	—
Mortgage loans		438		441		—		—		441
Policy loans		249		249		—		—		249
Total financial assets not accounted for at fair value	$	2,109	$	2,112	$	1,422	$	—	$	690
Financial liabilities:
Annuity benefits accumulated (*)	$	15,864	$	15,788	$	—	$	—	$	15,788
Long-term debt		931		1,033		—		918		115
Total financial liabilities not accounted for at fair value	$	16,795	$	16,821	$	—	$	918	$	15,903

(*) Excludes life contingent annuities in the payout phase.

The carrying amount of cash and cash equivalents approximates fair value. Fair values for mortgage loans are estimated by discounting the future contractual cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. The fair value of policy loans is estimated to approximate carrying value; policy loans have no defined maturity dates and are inseparable from insurance contracts. The fair value of annuity benefits was estimated based on expected cash flows discounted using forward interest rates adjusted for the Company’s credit risk and includes the impact of maintenance expenses and capital costs. Fair values of long-term debt are based primarily on quoted market prices.

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D. Investments

Available for sale fixed maturities and equity securities at March 31, 2012, and December 31, 2011, consisted of the following (in millions):

	March 31, 2012									December 31, 2011
	Amortized Cost		Fair Value		Gross Unrealized					Amortized Cost		Fair Value		Gross Unrealized
					Gains		Losses							Gains		Losses
Fixed maturities:
U.S. Government and government agencies	$	374	$	390	$	16	$	—		$	363	$	382	$	19	$	—
States, municipalities and political subdivisions		3,683		3,916		239		(6	)		3,613		3,877		267		(3	)
Foreign government		243		260		17		—			236		254		18		—
Residential MBS		4,069		4,118		192		(143	)		3,858		3,848		170		(180	)
Commercial MBS		2,651		2,900		250		(1	)		2,628		2,840		218		(6	)
All other corporate		9,974		10,787		836		(23	)		9,864		10,606		802		(60	)
Total fixed maturities	$	20,994	$	22,371	$	1,550	($	173	)	$	20,562	$	21,807	$	1,494	($	249	)
Common stocks	$	643	$	892	$	258	($	9	)	$	610	$	797	$	207	($	20	)
Perpetual preferred stocks	$	157	$	162	$	8	($	3	)	$	134	$	131	$	5	($	8	)

The non-credit related portion of other-than-temporary impairment charges are included in other comprehensive income. Cumulative charges taken for residential MBS still owned at March 31, 2012 and December 31, 2011, respectively were $229 million and $227 million.

The following tables show gross unrealized losses (in millions) on fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2012 and December 31, 2011.

	Less Than Twelve Months								Twelve Months or More
	Unrealized Loss			Fair Value		Fair Value as % of  Cost			Unrealized Loss			Fair Value		Fair Value as % of  Cost
March 31, 2012
Fixed maturities:
U.S. Government and government agencies	$	—		$	27		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(5	)		250		98	%		(1	)		22		96	%
Foreign government		—			—		—	%		—			—		—	%
Residential MBS		(36	)		846		96	%		(107	)		502		82	%
Commercial MBS		(1	)		38		97	%		—			2		100	%
All other corporate		(12	)		602		98	%		(11	)		112		91	%
Total fixed maturities	($	54	)	$	1,763		97	%	($	119	)	$	638		84	%
Common stocks	($	8	)	$	70		90	%	($	1	)	$	4		80	%
Perpetual preferred stocks	$	—		$	2		100	%	($	3	)	$	22		88	%
December 31, 2011
Fixed maturities:
U.S. Government and government agencies	$	—		$	2		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(2	)		120		98	%		(1	)		59		98	%
Foreign government		—			1		100	%		—			—		—	%
Residential MBS		(59	)		1,141		95	%		(121	)		473		80	%
Commercial MBS		(6	)		183		97	%		—			18		100	%
All other corporate		(43	)		940		96	%		(17	)		114		87	%
Total fixed maturities	($	110	)	$	2,387		96	%	($	139	)	$	664		83	%
Common stocks	($	19	)	$	169		90	%	($	1	)	$	4		80	%
Perpetual preferred stocks	($	1	)	$	23		96	%	($	7	)	$	31		82	%

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AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

At March 31, 2012, the gross unrealized losses on fixed maturities of $173 million relate to approximately 725 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 28% of the gross unrealized loss and 55% of the fair value.

AFG analyzes its MBS securities for other-than-temporary impairment each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan to collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data. For the first three months of 2012, AFG recorded in earnings $4 million in other-than-temporary impairment charges related to its residential MBS.

A progression of the credit portion of other-than-temporary impairments on fixed maturity securities for which the non-credit portion of an impairment has been recognized in other comprehensive income is shown below (in millions).

	2012		2011
Balance at January 1	$	187	$	143
Additional credit impairments on:
Previously impaired securities		3		7
Securities without prior impairments		—		1
Balance at March 31	$	190	$	151

The table below sets forth the scheduled maturities of available for sale fixed maturities as of March 31, 2012 (in millions). Asset-backed securities and other securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers. MBS had an average life of approximately 4 years at March 31, 2012.

	Amortized Cost		Fair Value
			Amount		%
Maturity
One year or less	$	634	$	648		3	%
After one year through five years		5,265		5,599		25
After five years through ten years		6,425		7,001		31
After ten years		1,950		2,105		10
		14,274		15,353		69
MBS		6,720		7,018		31
Total	$	20,994	$	22,371		100	%

Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.

There were no investments in individual issuers that exceeded 10% of Shareholders’ Equity at March 31, 2012 or December 31, 2011.

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Net Unrealized Gain on Marketable Securities In addition to adjusting equity securities and fixed maturity securities classified as “available for sale” to fair value, GAAP requires that deferred policy acquisition costs related to annuities and certain other balance sheet amounts be adjusted to the extent that unrealized gains and losses from securities would result in adjustments to those balances had the unrealized gains or losses actually been realized. The following table shows (in millions) the components of the net unrealized gain on securities that is included in Accumulated Other Comprehensive Income in AFG’s Balance Sheet.

	Pre-tax			Deferred Tax and Amounts  Attributable to Noncontrolling Interests			Net
March 31, 2012
Unrealized gain on:
Fixed maturity securities	$	1,377		($	492	)	$	885
Equity securities		254			(90	)		164
Deferred policy acquisition costs		(539	)		189			(350	)
Annuity benefits and other liabilities		10			(4	)		6
	$	1,102		($	397	)	$	705
December 31, 2011
Unrealized gain on:
Fixed maturity securities	$	1,245		($	444	)	$	801
Equity securities		184			(65	)		119
Deferred policy acquisition costs		(537	)		188			(349	)
Annuity benefits and other liabilities		10			(3	)		7
	$	902		($	324	)	$	578

Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):

	Fixed Maturities			Equity Securities			Mortgage Loans and Other Investments			Other (a)			Tax Effects			Noncon- trolling Interests			Total
Quarter ended March 31, 2012
Realized before impairments	$	14		$	35		$	1		($	2	)	($	17	)	$	—		$	31
Realized – impairments		(4	)		(2	)		—			2			1			—			(3	)
Change in unrealized		132			70			—			(2	)		(70	)		(3	)		127
Quarter ended March 31, 2011
Realized before impairments	$	13		$	1		($	2	)	($	2	)	($	3	)	$	—		$	7
Realized – impairments		(11	)		—			(3	)		4			3			—			(7	)
Change in unrealized		37			13			—			(22	)		(10	)		—			18

(a) Primarily adjustments to deferred policy acquisition costs related to annuities.

Realized gains (losses) on securities includes net gains of $4 million in the first quarter of 2012 compared to net losses of $3 million in the first quarter of 2011 from the mark-to-market of certain MBS, primarily interest-only securities with interest rates that float inversely with short-term rates. Gross realized gains and losses (excluding impairment writedowns and mark-to-market of derivatives) on available for sale fixed maturity and equity security investment transactions included in the Statement of Cash Flows consisted of the following (in millions):

	Three months ended March  31,
	2012		2011
Fixed maturities:
Gross gains	$	10	$	17
Gross losses		—		(1	)
Equity securities:
Gross gains		35		1
Gross losses		—		—

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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E. Derivatives

As discussed under “Derivatives” in Note A, AFG uses derivatives in certain areas of its operations. AFG’s derivatives do not qualify for hedge accounting under GAAP; changes in the fair value of derivatives are included in earnings.

The following derivatives are included in AFG’s Balance Sheet at fair value (in millions):

		March 31, 2012				December 31, 2011
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	102	$	—	$	99	$	—
Interest rate swaptions	Other investments		5		—		5		—
Indexed annuities     (embedded derivative)	Annuity benefits accumulated		—		483		—		395
Equity index call options	Other investments		137		—		66		—
Reinsurance contracts     (embedded derivative)	Other liabilities		—		22		—		23
		$	244	$	505	$	170	$	418

The MBS with embedded derivatives consist primarily of interest-only MBS with interest rates that float inversely with short-term rates. AFG records the entire change in the fair value of these securities in earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.

AFG has entered into $1 billion notional amount of pay-fixed interest rate swaptions (options to enter into pay-fixed/receive floating interest rate swaps at future dates expiring between 2012 and 2015) to mitigate interest rate risk in its annuity operations. AFG paid $29 million to purchase these swaptions, which represents its maximum potential economic loss over the life of the contracts.

AFG’s indexed annuities, which represented approximately one-third of annuity benefits accumulated at March 31, 2012, provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase of call options on the appropriate index. AFG’s strategy is designed so that an increase in the liabilities, due to an increase in the market index, will be generally offset by unrealized and realized gains on the call options purchased by AFG. Both the index-based component of the annuities and the related call options are considered derivatives.

As discussed under “Reinsurance” in Note A, certain reinsurance contracts in AFG’s annuity and supplemental insurance business are considered to contain embedded derivatives.

The following table summarizes the gain (loss) included in the Statement of Earnings for changes in the fair value of these derivatives for the first quarter of 2012 and 2011 (in millions):

Derivative	Statement of Earnings Line	2012			2011
MBS with embedded derivatives	Realized gains	$	4		($	3	)
Interest rate swaptions	Realized gains		—			(2	)
Indexed annuities     (embedded derivative)	Annuity benefits		(62	)		(19	)
Equity index call options	Annuity benefits		57			18
Reinsurance contracts     (embedded derivative)	Investment income		1			—
		$	—		($	6	)

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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F. Deferred Policy Acquisition Costs

Deferred policy acquisition costs consisted of the following (in millions):

	March 31, 2012			December 31, 2011
Property and casualty insurance	$	191		$	189
Annuity and supplemental insurance:
Policy acquisition costs		922			898
Policyholder sales inducements		203			207
Present value of future profits (“PVFP”)		139			144
Impact of unrealized gains and losses on securities		(539	)		(537	)
Total annuity and supplemental		725			712
	$	916		$	901

See Accounting Standards Adopted in 2012 under Note A – “Accounting Policies.” The PVFP amounts in the table above are net of $200 million and $195 million of accumulated amortization at March 31, 2012 and December 31, 2011, respectively. Amortization of the PVFP was $5 million in the first quarter of 2012 and $6 million in the first quarter of 2011.

G. Managed Investment Entities

AFG is the investment manager and has investments ranging from 7.5% to 51.2% of the most subordinate debt tranche of eight collateralized loan obligation entities or “CLOs,” which are considered variable interest entities. Upon formation between 2004 and 2012, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each particular CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay operating expenses (including management fees to AFG), interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities.

AFG’s maximum ultimate exposure to economic loss on its CLOs is limited to its investment in the CLOs, which had an aggregate fair value of $135 million at March 31, 2012, and $98 million at December 31, 2011.

In February 2012, one of the AFG CLOs was substantially liquidated at the instruction of the holder of the majority of the most subordinate debt tranche, as permitted by the CLO indentures. In March 2012, AFG formed a new CLO, which issued $410 million face amount of liabilities (including $39 million face amount purchased by subsidiaries of AFG).

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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

	Three months ended March  31,
	2012			2011
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$	55		$	29
Liabilities		(84	)		(62	)
Management fees paid to AFG		4			3
CLO earnings (losses) attributable to:
AFG shareholders (b)		5			6
Noncontrolling interests (b)		(28	)		(35	)

(a) Included in AFG’s “Revenues.”

(b) Included in AFG’s “Operating earnings before income taxes.”

The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $65 million and $120 million at March 31, 2012 and December 31, 2011. The aggregate unpaid principal balance of the CLOs’ debt exceeded its fair value by $227 million and $306 million at those dates. The CLO assets include $6 million and $2 million in loans (aggregate unpaid principal balance of $17 million and $7 million, respectively) at March 31, 2012 and December 31, 2011, for which the CLOs are not accruing interest because the loans are in default.

H. Goodwill and Other Intangibles

There were no changes in the goodwill balance of $186 million during the three months ended March 31, 2012. Included in other assets in AFG’s Balance Sheet is $38 million at March 31, 2012 and $41 million at December 31, 2011, in amortizable intangible assets related to property and casualty insurance acquisitions. These amounts are net of accumulated amortization of $51 million and $47 million, respectively. Amortization of these intangibles was $4 million and $3 million for the first three months of 2012 and 2011, respectively. Other assets also include $8 million in non-amortizable intangible assets related to property and casualty insurance acquisitions.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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I. Long-Term Debt

The carrying value of long-term debt consisted of the following (in millions):

	March 31, 2012		December 31, 2011
Direct obligations of AFG:
9-7/8% Senior Notes due June 2019	$	350	$	350
7% Senior Notes due September 2050		132		132
7-1/8% Senior Debentures due February 2034		115		115
Other		3		3
		600		600
Subsidiaries:
Obligations of AAG Holding (guaranteed by AFG):
7-1/2% Senior Debentures due November 2033		112		112
7-1/4% Senior Debentures due January 2034		86		86
Notes payable secured by real estate due 2012 through 2016		64		64
Secured borrowings ($16 and $17 guaranteed by AFG)		27		30
National Interstate bank credit facility		22		22
		311		314
Payable to Subsidiary Trusts:
AAG Holding Variable Rate Subordinated Debentures due May 2033		20		20
	$	931	$	934

Scheduled principal payments on debt for the balance of 2012 and the subsequent five years were as follows: 2012 – $31 million; 2013 – $20 million; 2014 – $2 million; 2015 – $14 million; 2016 – $45 million and 2017 – none.

As shown below (in millions), the majority of AFG’s long-term debt is unsecured obligations of the holding company and its subsidiaries:

	March 31, 2012		December 31, 2011
Unsecured obligations	$	840	$	840
Obligations secured by real estate		64		64
Other secured borrowings		27		30
	$	931	$	934

AFG can borrow up to $500 million under its revolving credit facility which expires in August 2013. Amounts borrowed under this agreement bear interest at rates ranging from 1.75% to 3.00% (currently 2%) over LIBOR based on AFG’s credit rating. No amounts were borrowed under this facility at March 31, 2012.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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J. Shareholders’ Equity

AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.

Accumulated Other Comprehensive Income, Net of Tax (“AOCI”) Comprehensive income is defined as all changes in Shareholders’ Equity except those arising from transactions with shareholders. Comprehensive income includes net earnings and other comprehensive income (“OCI”), which consists primarily of changes in net unrealized gains or losses on available for sale securities. The progression of the components of accumulated other comprehensive income follows (in millions):

				OCI
	AOCI Beginning Balance			Pre- tax		Tax			Non- controlling interests			Net		AOCI Ending Balance
Three Months ended March 31, 2012
Net unrealized gains on securities	$	578	(a)	$	200	($	70	)	($	3	)	$	127	$	705	(a)
Foreign currency translation adjustments		10			7		—			(1	)		6		16
Pension and other postretirement plans adjustments		(8	)		1		—			—			1		(7	)
Total	$	580		$	208	($	70	)	($	4	)	$	134	$	714
Three Months ended March 31, 2011
Net unrealized gains on securities	$	491		$	28	($	10	)	$	—		$	18	$	509
Foreign currency translation adjustments		12			7		—			—			7		19
Pension and other postretirement plans adjustments		(8	)		—		—			—			—		(8	)
Total	$	495		$	35	($	10	)	$	—		$	25	$	520

(a) Includes net unrealized losses of $8 million at March 31, 2012 and $15 million at December 31, 2011 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

Stock Based Compensation Under AFG’s Stock Incentive Plan, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first three months of 2012, AFG issued 131,731 shares of restricted Common Stock (fair value of $38.11 per share) and granted stock options for 1.1 million shares of Common Stock (at an average exercise price of $38.11) under the Stock Incentive Plan. In addition, AFG issued 111,270 shares of Common Stock (fair value of $38.38 per share) in the first quarter of 2012 under its Annual Co-CEO Equity Bonus Plan.

AFG uses the Black-Scholes option pricing model to calculate the “fair value” of its option grants. Expected volatility is based on historical volatility over a period equal to the expected term. The expected term was estimated based on historical exercise patterns and post vesting cancellations. The weighted average fair value of options granted during 2012 was $13.03 per share based on the following assumptions: expected dividend yield – 1.8%; expected volatility – 39%; expected term – 7.3 years; risk-free rate – 1.4%.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $6 and $5 million, respectively, in the first quarter of 2012 and 2011.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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K. Income Taxes

Income (losses) attributable to noncontrolling interests related to AFG’s managed investment entities are non-taxable (non-deductible). For the first three months of 2012 and 2011, respectively, AFG’s operating earnings before income taxes included $28 million and $35 million of such non-deductible losses, thereby increasing AFG’s effective tax rate.

AFG is involved in litigation with the IRS regarding the calculation of tax reserves for certain annuity reserves pursuant to Actuarial Guideline 33. In 2010, the U.S. District Court in Southern Ohio issued a final summary judgment in favor of AFG. The IRS appealed the District Court decision to the Sixth Circuit Court of Appeals, which heard oral arguments on March 7, 2012. Ultimate resolution may require revised tax calculations for the years 1996-2005, possibly requiring a revised application of tax attribute carryovers or carrybacks, both capital and ordinary, to the affected years, and is contingent upon formal review and acceptance by the IRS. Resolution of the case could result in a decrease in the liability for unrecognized tax benefits by up to $36 million and a decrease in related accrued interest of $15 million. These amounts do not include tax and interest paid to the IRS in 2005 and 2006, for which the suit was filed, totaling $17 million. See Note N – “Subsequent Event.”

During the first quarter of 2012, there were no material changes to AFG’s liability for uncertain tax positions, which is discussed in Note L – “Income Taxes,” to AFG’s 2011 Form 10-K.

L. Contingencies

There have been no significant changes to the matters discussed and referred to in Note M – “Contingencies” of AFG’s 2011 Form 10-K covering property and casualty insurance reserves for claims related to environmental exposures, asbestos and other mass tort claims as well as environmental and occupational injury and disease claims of former subsidiary railroad and manufacturing operations.

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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M. Condensed Consolidating Information AFG has guaranteed all of the outstanding public debt of Great American Financial Resources, Inc. (“GAFRI”) and GAFRI’s wholly-owned subsidiary, AAG Holding Company, Inc. In addition, GAFRI guarantees AAG Holding’s public debt. The AFG and GAFRI guarantees are full and unconditional and joint and several. Condensed consolidating financial statements for AFG are as follows:

CONDENSED CONSOLIDATING BALANCE SHEET

(In millions)

	AFG		GAFRI		AAG Holding		All Other Subs		Consol. Entries			Consolidated
MARCH 31, 2012
Assets:
Cash and investments	$	419	$	25	$	—	$	26,035	($	1	)	$	26,478
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,093		—			3,093
Agents’ balances and premiums receivable		—		—		—		550		—			550
Deferred policy acquisition costs		—		—		—		916		—			916
Assets of managed investment entities		—		—		—		2,952		—			2,952
Other assets		120		8		8		2,121		(35	)		2,222
Investment in subsidiaries and affiliates		4,931		2,169		2,254		640		(9,994	)		—
Total assets	$	5,470	$	2,202	$	2,262	$	36,307	($	10,030	)	$	36,211
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	7,613	$	—		$	7,613
Annuity, life, accident and health benefits and reserves		—		—		—		17,815		(12	)		17,803
Liabilities of managed investment entities		—		—		—		2,672		—			2,672
Long-term debt		600		—		219		112		—			931
Other liabilities		290		20		109		2,247		(206	)		2,460
Total liabilities		890		20		328		30,459		(218	)		31,479
Total shareholders’ equity		4,580		2,182		1,934		5,696		(9,812	)		4,580
Noncontrolling interests		—		—		—		152		—			152
Total liabilities and equity	$	5,470	$	2,202	$	2,262	$	36,307	($	10,030	)	$	36,211
DECEMBER 31, 2011
Assets:
Cash and investments	$	456	$	32	$	—	$	25,090	($	1	)	$	25,577
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,351		—			3,351
Agents’ balances and premiums receivable		—		—		—		565		—			565
Deferred policy acquisition costs		—		—		—		901		—			901
Assets of managed investment entities		—		—		—		3,058		—			3,058
Other assets		105		5		5		2,309		(38	)		2,386
Investment in subsidiaries and affiliates		4,732		2,015		2,107		643		(9,497	)		—
Total assets	$	5,293	$	2,052	$	2,112	$	35,917	($	9,536	)	$	35,838
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	8,004	$	—		$	8,004
Annuity, life, accident and health benefits and reserves		—		—		—		17,148		(1	)		17,147
Liabilities of managed investment entities		—		—		—		2,787		—			2,787
Long-term debt		600		—		220		115		(1	)		934
Other liabilities		282		20		109		2,196		(198	)		2,409
Total liabilities		882		20		329		30,250		(200	)		31,281
Total shareholders’ equity		4,411		2,032		1,783		5,521		(9,336	)		4,411
Noncontrolling interests		—		—		—		146		—			146
Total liabilities and equity	$	5,293	$	2,052	$	2,112	$	35,917	($	9,536	)	$	35,838

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AMERICAN FINANCIAL GROUP, INC. 10-Q

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CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

(In millions)

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	603		$	—		$	603
Life, accident and health premiums		—		—		—		105			—			105
Realized gains (losses)		—		—		—		45			(1	)		44
Income of managed investment entities		—		—		—		—			—			—
Investment and other income		2		2		—		362			(5	)		361
Equity in earnings of subsidiaries		203		78		84		—			(365	)		—
Total revenues		205		80		84		1,115			(371	)		1,113
Costs and Expenses:
Insurance benefits and expenses		—		—		—		824			—			824
Interest charges on borrowed money		16		—		6		4			(5	)		21
Expenses of managed investment entities		—		—		—		19			—			19
Other operating and general expenses		18		4		2		80			(1	)		103
Total costs and expenses		34		4		8		927			(6	)		967
Operating earnings before income taxes		171		76		76		188			(365	)		146
Provision (credit) for income taxes		58		27		27		72			(126	)		58
Net earnings, including noncontrolling interests		113		49		49		116			(239	)		88
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(25	)		—			(25	)
Net Earnings Attributable to Shareholders	$	113	$	49	$	49	$	141		($	239	)	$	113
	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	599		$	—		$	599
Life, accident and health premiums		—		—		—		110			—			110
Realized gains (losses)		—		—		—		(3	)		—			(3	)
Income of managed investment entities		—		—		—		(8	)		—			(8	)
Investment and other income		2		3		—		343			(7	)		341
Equity in earnings of subsidiaries		167		47		55		—			(269	)		—
Total revenues		169		50		55		1,041			(276	)		1,039
Costs and Expenses:
Insurance benefits and expenses		—		—		—		806			—			806
Interest charges on borrowed money		16		—		6		4			(5	)		21
Expenses of managed investment entities		—		—		—		18			—			18
Other operating and general expenses		17		3		1		72			(1	)		92
Total costs and expenses		33		3		7		900			(6	)		937
Operating earnings before income taxes		136		47		48		141			(270	)		102
Provision (credit) for income taxes		48		17		17		60			(94	)		48
Net earnings, including noncontrolling interests		88		30		31		81			(176	)		54
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(34	)		—			(34	)
Net Earnings Attributable to Shareholders	$	88	$	30	$	31	$	115		($	176	)	$	88

29

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(In millions)

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Net earnings, including noncontrolling interests	$	113	$	49	$	49	$	116		($	239	)	$	88
Other comprehensive income, net of tax		134		119		117		138			(370	)		138
Total comprehensive income, net of tax		247		168		166		254			(609	)		226
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		—		—		(21	)		—			(21	)
Comprehensive income attributable to shareholders	$	247	$	168	$	166	$	275		($	609	)	$	247

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Net earnings, including noncontrolling interests	$	88	$	30	$	31	$	81		($	176	)	$	54
Other comprehensive income, net of tax		25		18		18		24			(60	)		25
Total comprehensive income, net of tax		113		48		49		105			(236	)		79
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		—		—		(34	)		—			(34	)
Comprehensive income attributable to shareholders	$	113	$	48	$	49	$	139		($	236	)	$	113

30

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)

	AFG			GAFRI			AAG Holding			All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Operating Activities:
Net earnings, including noncontrolling interests	$	113		$	49		$	49		$	116		($	239	)	$	88
Adjustments:
Equity in net earnings of subsidiaries		(134	)		(51	)		(54	)		—			239			—
Dividends from subsidiaries		55			—			—			—			(55	)		—
Other operating activities, net		—			(2	)		(3	)		(73	)		—			(78	)
Net cash provided by (used in) operating activities		34			(4	)		(8	)		43			(55	)		10
Investing Activities:
Purchases of investments, property and equipment		(8	)		—			—			(1,085	)		—			(1,093	)
Capital contributions to subsidiaries		(4	)		(8	)		—			—			12			—
Proceeds from maturities and redemptions of investments		—			—			—			516			—			516
Proceeds from sales of investments, property and equipment		—			—			—			196			—			196
Managed investment entities:
Purchases of investments		—			—			—			(566	)		—			(566	)
Proceeds from sales and redemptions of investments		—			—			—			774			—			774
Other investing activities, net		—			—			—			(10	)		—			(10	)
Net cash provided by (used in) investing activities		(12	)		(8	)		—			(175	)		12			(183	)
Financing Activities:
Annuity receipts		—			—			—			804			—			804
Annuity surrenders, benefits and withdrawals		—			—			—			(348	)		—			(348	)
Issuances of managed investment entities’ liabilities		—			—			—			359			—			359
Retirement of managed investment entities’ liabilities		—			—			—			(489	)		—			(489	)
Issuances of Common Stock		14			—			—			—			—			14
Capital contributions from parent		—			4			8			—			(12	)		—
Repurchases of Common Stock		(56	)		—			—			—			—			(56	)
Cash dividends paid		(17	)		—			—			(55	)		55			(17	)
Other financing activities, net		—			—			—			4			—			4
Net cash provided by (used in) financing activities		(59	)		4			8			275			43			271
Net change in cash and cash equivalents		(37	)		(8	)		—			143			—			98
Cash and cash equivalents at beginning of period		415			19			—			890			—			1,324
Cash and cash equivalents at end of period	$	378		$	11		$	—		$	1,033		$	—		$	1,422

31

AMERICAN FINANCIAL GROUP, INC. 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)

	AFG			GAFRI			AAG Holding			All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$	88		$	30		$	31		$	81		($	176	)	$	54
Adjustments:
Equity in net earnings of subsidiaries		(110	)		(30	)		(36	)		—			176			—
Dividends from subsidiaries		105			—			—			—			(105	)		—
Other operating activities, net		(23	)		(2	)		(2	)		362			—			335
Net cash provided by (used in) operating activities		60			(2	)		(7	)		443			(105	)		389
Investing Activities:
Purchases of investments, property and equipment		(7	)		—			—			(1,182	)		—			(1,189	)
Capital contributions to subsidiaries		(5	)		(8	)		(1	)		—			14			—
Proceeds from maturities and redemptions of investments		2			2			—			596			—			600
Proceeds from sales of investments, property and equipment		—			—			—			297			—			297
Managed investment entities:
Purchases of investments		—			—			—			(352	)		—			(352	)
Proceeds from sales and redemptions of investments		—			—			—			400			—			400
Other investing activities, net		—			—			—			(13	)		—			(13	)
Net cash provided by (used in) investing activities		(10	)		(6	)		(1	)		(254	)		14			(257	)
Financing Activities:
Annuity receipts		—			—			—			672			—			672
Annuity surrenders, benefits and withdrawals		—			—			—			(311	)		—			(311	)
Retirement of managed investment entities’ liabilities		—			—			—			(4	)		—			(4	)
Issuances of Common Stock		10			—			—			1			—			11
Capital contributions from parent		—			4			8			2			(14	)		—
Repurchases of Common Stock		(84	)		—			—			—			—			(84	)
Cash dividends paid		(16	)		—			—			(105	)		105			(16	)
Net cash provided by (used in) financing activities		(90	)		4			8			255			91			268
Net change in cash and cash equivalents		(40	)		(4	)		—			444			—			400
Cash and cash equivalents at beginning of period		370			20			—			709			—			1,099
Cash and cash equivalents at end of period	$	330		$	16		$	—		$	1,153		$	—		$	1,499

N. Subsequent Event As discussed in Note K – “Income Taxes,” AFG has been involved in litigation with the IRS regarding the calculation of tax reserves for certain annuity reserves for the years 1996 through 2001. On May 4, 2012, the Sixth Circuit Court of Appeals affirmed the Summary Judgment of the District Court in favor of AFG. As a result, unless the IRS determines to seek a discretionary appeal of this decision within 90 days, the decision will become final, and AFG will record net earnings of approximately $27 million. As discussed in Note K, AFG continues to hold discussions with the IRS involving subsequent tax years.

32

AMERICAN FINANCIAL GROUP, INC. 10-Q

ITEM 2

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

INDEX TO MD&A
	Page			Page
Forward-Looking Statements		33	Uncertainties		41
Overview		34	Managed Investment Entities		42
Critical Accounting Policies		34	Results of Operations		44
Liquidity and Capital Resources		35	General		44
Ratios		35	Income Items		44
Parent and Subsidiary Liquidity		35	Expense Items		48
Investments		36

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Some of the forward-looking statements can be identified by the use of words such as “anticipates”, “believes”, “expects”, “projects”, “estimates”, “intends”, “plans”, “seeks”, “could”, “may”, “should”, “will” or the negative version of those words or other comparable terminology. Such forward-looking statements include statements relating to: expectations concerning market and other conditions and their effect on future premiums, revenues, earnings and investment activities; recoverability of asset values; expected losses and the adequacy of reserves for asbestos, environmental pollution and mass tort claims; rate changes; and improved loss experience.

Actual results and/or financial condition could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons including but not limited to:

• changes in financial, political and economic conditions, including changes in interest and inflation rates, currency fluctuations and extended economic recessions or expansions in the U.S. and abroad;

• performance of securities markets;

• AFG’s ability to estimate accurately the likelihood, magnitude and timing of any losses in connection with investments in the non-agency residential mortgage market;

• new legislation or declines in credit quality or credit ratings that could have a material impact on the valuation of securities in AFG’s investment portfolio;

• the availability of capital;

• regulatory actions (including changes in statutory accounting rules);

• changes in the legal environment affecting AFG or its customers;

• tax law and accounting changes;

• levels of natural catastrophes and severe weather, terrorist activities (including any nuclear, biological, chemical or radiological events), incidents of war or losses resulting from civil unrest and other major losses;

• development of insurance loss reserves and establishment of other reserves, particularly with respect to amounts associated with asbestos and environmental claims;

• availability of reinsurance and ability of reinsurers to pay their obligations;

• the unpredictability of possible future litigation if certain settlements of current litigation do not become effective;

• trends in persistency, mortality and morbidity;

• competitive pressures, including those in the bank annuity distribution channels, the ability to obtain adequate rates and policy terms; and

• changes in AFG’s credit ratings or the financial strength ratings assigned by major ratings agencies to AFG’s operating subsidiaries.

The forward-looking statements herein are made only as of the date of this report. The Company assumes no obligation to publicly update any forward-looking statements.

33

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

OVERVIEW

Financial Condition

AFG is organized as a holding company with almost all of its operations being conducted by subsidiaries. AFG, however, has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, and taxes. Therefore, certain analyses are best done on a parent only basis while others are best done on a total enterprise basis. In addition, because most of its businesses are financial in nature, AFG does not prepare its consolidated financial statements using a current-noncurrent format. Consequently, certain traditional ratios and financial analysis tests are not meaningful.

Results of Operations

Through the operations of its subsidiaries, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses and in the sale of traditional fixed and indexed annuities and a variety of supplemental insurance products such as Medicare supplement.

Net earnings attributable to AFG’s shareholders for the first three months of 2012 were $113 million ($1.14 per share, diluted) compared to $88 million ($.83 per share, diluted) reported in the same period of 2011. Improved operating results in the annuity and supplemental insurance group and realized gains in 2012 compared to realized losses in 2011 more than offset lower underwriting profit and lower investment income in AFG’s property and casualty insurance operations.

CRITICAL ACCOUNTING POLICIES

Significant accounting policies are summarized in Note A to the financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions change and thus impact amounts reported in the future. The areas where management believes the degree of judgment required to determine amounts recorded in the financial statements make accounting policies critical are as follows:

• the establishment of insurance reserves, especially asbestos and environmental-related reserves and reserves for AFG’s closed block of long-term care business,

• the recoverability of reinsurance,

• the recoverability of deferred acquisition costs,

• the establishment of asbestos and environmental reserves of former railroad and manufacturing operations, and

• the valuation of investments, including the determination of “other-than-temporary” impairments.

For a discussion of these policies, see Management’s Discussion and Analysis – “Critical Accounting Policies” in AFG’s 2011 Form 10-K.

34

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

LIQUIDITY AND CAPITAL RESOURCES

Ratios AFG’s debt to total capital ratio on a consolidated basis is shown below (dollars in millions).

	March 31, 2012			December 31,
				2011			2010
Long-term debt	$	931		$	934		$	952
Total capital		4,977			4,860			4,894
Ratio of debt to total capital:
Including debt secured by real estate		18.7	%		19.2	%		19.5	%
Excluding debt secured by real estate		17.7	%		18.2	%		18.4	%

The ratio of debt to total capital is a non-GAAP measure that management believes is useful for investors, analysts and independent ratings agencies to evaluate AFG’s financial strength and liquidity and to provide insight into how AFG finances its operations. It is calculated by dividing AFG’s long-term debt by its total capital, which includes long-term debt, noncontrolling interests and shareholders’ equity (excluding unrealized gains (losses) related to fixed maturity investments and appropriated retained earnings related to managed investment entities).

AFG’s ratio of earnings to fixed charges, including annuity benefits as a fixed charge, was 2.12 for the three months ended March 31, 2012 and 1.95 for the entire year of 2011. Excluding annuity benefits, this ratio was 7.80 and 6.59, respectively. Although the ratio excluding annuity benefits is not required or encouraged to be disclosed under Securities and Exchange Commission rules, it is presented because interest credited to annuity policyholder accounts is not always considered a borrowing cost for an insurance company.

Parent and Subsidiary Liquidity

Parent Holding Company Liquidity Management believes AFG has sufficient resources to meet its liquidity requirements. If funds generated from operations, including dividends, tax payments and borrowings from subsidiaries, are insufficient to meet fixed charges in any period, AFG would be required to utilize parent company cash and marketable securities or to generate cash through borrowings, sales of other assets, or similar transactions.

AFG can borrow up to $500 million under its revolving credit facility which expires in August 2013. There were no borrowings under this agreement, or under any other parent company short-term borrowing arrangements, during 2012.

During the first three months of 2012, AFG repurchased 1.5 million shares of its Common Stock for $56 million. In April 2012, AFG repurchased approximately 357,000 additional shares of its Common Stock for $14 million. During 2011, AFG repurchased 9.3 million shares of its Common Stock for $315 million.

Under tax allocation agreements with AFG, its 80%-owned U.S. subsidiaries generally pay taxes to (or recover taxes from) AFG based on each subsidiary’s contribution to amounts due under AFG’s consolidated tax return.

Subsidiary Liquidity Great American Life Insurance Company (“GALIC”), a wholly-owned annuity and supplemental insurance subsidiary, is a member of the Federal Home Loan Bank of Cincinnati (“FHLB”). The FHLB makes advances and provides other banking services to member institutions, which provides the annuity and supplemental insurance operations with a substantial additional source of liquidity. In the fourth quarter of 2011 the FHLB advanced GALIC $240 million at interest rates ranging from .02% to .03% over LIBOR (average rate of .26% at March 31, 2012). These advances must be repaid within 5 to 7 years but GALIC has the option to prepay all or a portion of the advances on a monthly basis. GALIC has invested the proceeds from the advances in fixed maturity securities for the purpose of earning a spread over the interest payments due to the FHLB.

35

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

National Interstate Corporation, a 52%-owned property and casualty insurance subsidiary, can borrow up to $75 million, subject to certain conditions, under an unsecured credit agreement expiring in December 2012. Amounts borrowed bear interest at rates ranging from .45% to .9% (currently .65%) over LIBOR based on National Interstate’s credit rating. There was $22 million outstanding under this agreement at March 31, 2012. National Interstate expects to successfully replace this credit agreement prior to its expiration, although potentially at a higher cost.

The liquidity requirements of AFG’s insurance subsidiaries relate primarily to the liabilities associated with their products as well as operating costs and expenses, payments of dividends and taxes to AFG and contributions of capital to their subsidiaries. Historically, cash flows from premiums and investment income have generally provided more than sufficient funds to meet these requirements without requiring a sale of investments or contributions from AFG. Funds received in excess of cash requirements are generally invested in additional marketable securities. In addition, the insurance subsidiaries generally hold a significant amount of highly liquid, short-term investments.

The excess cash flow of AFG’s property and casualty group allows it to extend the duration of its investment portfolio somewhat beyond that of its claim reserves.

In the annuity business, where profitability is largely dependent on earning a “spread” between invested assets and annuity liabilities, the duration of investments is generally maintained close to that of liabilities. In a rising interest rate environment, significant protection from withdrawals exists in the form of temporary and permanent surrender charges on AFG’s annuity products. With declining rates, AFG receives some protection (from spread compression) due to the ability to lower crediting rates, subject to contractually guaranteed minimum interest rates (“GMIRs”). AFG began selling new policies with GMIRs below 2% in 2003; almost all new business since late 2010 has been issued with a 1% GMIR. At March 31, 2012, the average crediting rate on AFG’s annuities was approximately 3.0%, while the average GMIR was approximately 2.4%. This margin provides AFG the flexibility to lower its crediting rates by up to 60 basis points on average in the future should market interest rates continue to remain low for a long period of time.

AFG believes its insurance subsidiaries maintain sufficient liquidity to pay claims and benefits and operating expenses. In addition, these subsidiaries have sufficient capital to meet commitments in the event of unforeseen events such as reserve deficiencies, inadequate premium rates or reinsurer insolvencies. Nonetheless, changes in statutory accounting rules, significant declines in the fair value of the insurance subsidiaries’ investment portfolios or significant ratings downgrades on these investments, could create a need for additional capital.

36

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Investments AFG’s investment portfolio at March 31, 2012, contained $22.4 billion in “Fixed maturities” classified as available for sale and $1.1 billion in “Equity securities,” all carried at fair value with unrealized gains and losses included in a separate component of shareholders’ equity on an after-tax basis. In addition, $457 million in fixed maturities were classified as trading with changes in unrealized holding gains or losses included in investment income.

Fair values for AFG’s portfolio are determined by AFG’s internal investment professionals using data from nationally recognized pricing services as well as non-binding broker quotes. Fair values of equity securities are generally based on closing prices obtained from the pricing services. For mortgage-backed securities (“MBS”), which comprise approximately 31% of AFG’s fixed maturities, prices for each security are generally obtained from both pricing services and broker quotes. For the remainder of AFG’s fixed maturity portfolio, approximately 92% are priced using pricing services and the balance is priced primarily by using non-binding broker quotes. When prices obtained for the same security vary, AFG’s internal investment professionals select the price they believe is most indicative of an exit price.

The pricing services use a variety of observable inputs to estimate fair value of fixed maturities that do not trade on a daily basis. Based upon information provided by the pricing services, these inputs include, but are not limited to, recent reported trades, benchmark yields, issuer spreads, bids or offers, reference data, and measures of volatility. Included in the pricing of MBS are estimates of the rate of future prepayments and defaults of principal over the remaining life of the underlying collateral. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers’ prices are classified as Level 3 in the GAAP hierarchy unless the price can be corroborated, for example, by comparison to similar securities priced using observable inputs.

Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, AFG communicates directly with the pricing service regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities. Prices obtained from a broker or pricing service are adjusted only in cases where they are deemed not to be representative of an appropriate exit price (fewer than 1% of the securities).

In general, the fair value of AFG’s fixed maturity investments is inversely correlated to changes in interest rates. The following table demonstrates the sensitivity of such fair values to reasonably likely changes in interest rates by illustrating the estimated effect on AFG’s fixed maturity portfolio that an immediate increase of 100 basis points in the interest rate yield curve would have at March 31, 2012 (dollars in millions). Increases or decreases from the 100 basis points illustrated would be approximately proportional.

Fair value of fixed maturity portfolio	$	22,828
Pretax impact on fair value of 100 bps increase in interest rates	($	1,027	)
Pretax impact as % of total fixed maturity portfolio		(4.5%	)

37

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Approximately 88% of the fixed maturities held by AFG at March 31, 2012, were rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and noninvestment grade. Management believes that the high quality investment portfolio should generate a stable and predictable investment return.

MBS are subject to significant prepayment risk due to the fact that, in periods of declining interest rates, mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of lower rates. Although interest rates have been low for the last few years, a weak housing market and uncertain economic conditions have led to tighter lending standards, which have resulted in fewer buyers being able to refinance the mortgages underlying much of AFG’s non-agency residential MBS portfolio.

Summarized information for AFG’s MBS (including those classified as trading) at March 31, 2012, is shown (in millions) in the table below. Agency-backed securities are those issued by a U.S. government-backed agency; Alt-A mortgages are those with risk profiles between prime and subprime. The majority of the Alt-A securities and substantially all of the subprime securities are backed by fixed-rate mortgages. The average life of the residential and commercial MBS is approximately 4 and 5 years, respectively.

Collateral type	Amortized Cost		Fair Value		Fair Value as % of Cost			Unrealized Gain (Loss)			% Rated Investment Grade
Residential:
Agency-backed	$	298	$	311		104	%	$	13			100	%
Non-agency prime		2,248		2,328		104			80			57
Alt-A		820		790		96			(30	)		41
Subprime		716		699		98			(17	)		26
Commercial		2,684		2,933		109			249			99
Other		21		24		114			3			50
	$	6,787	$	7,085		104	%	$	298			71	%

The National Association of Insurance Commissioners (“NAIC”) assigns creditworthiness designations on a scale of 1 to 6 with 1 being the highest quality and 6 being the lowest quality. The NAIC retained a third-party investment management firm to assist in the determination of appropriate NAIC designations for mortgage-backed securities based not only on the probability of loss (which is the primary basis of ratings by the major ratings firms), but also on the severity of loss and statutory carrying value. At March 31, 2012, 97% (based on statutory carrying value of $6.7 billion) of AFG’s MBS securities had an NAIC designation of 1 or 2.

Municipal bonds represented approximately 17% of AFG’s fixed maturity portfolio at March 31, 2012. AFG’s municipal bond portfolio is high quality, with 99% of the securities rated investment grade at that date. The portfolio is well diversified across the states of issuance and individual issuers. At March 31, 2012, approximately 80% of the municipal bond portfolio was held in revenue bonds, with the remaining 20% held in general obligation bonds. State general obligation securities of California, Illinois, New Jersey and New York collectively represented only 2% of this portfolio.

38

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Summarized information for the unrealized gains and losses recorded in AFG’s Balance Sheet at March 31, 2012, is shown in the following table (dollars in millions). Approximately $141 million of available for sale “Fixed maturities” and $74 million of “Equity securities” had no unrealized gains or losses at March 31, 2012.

	Securities With Unrealized Gains			Securities With Unrealized Losses
Available for Sale Fixed Maturities
Fair value of securities	$	19,829		$	2,401
Amortized cost of securities	$	18,279		$	2,574
Gross unrealized gain (loss)	$	1,550		($	173	)
Fair value as % of amortized cost		108	%		93	%
Number of security positions		3,948			725
Number individually exceeding $2 million gain or loss		142			3
Concentration of gains (losses) by type or industry (exceeding 5% of unrealized):
Mortgage-backed securities	$	442		($	144	)
States and municipalities		239			(6	)
Gas and electric services		160			(1	)
Banks, savings and credit institutions		104			(6	)
Percentage rated investment grade		91	%		55	%
Equity Securities
Fair value of securities	$	882		$	98
Cost of securities	$	616		$	110
Gross unrealized gain (loss)	$	266	(*)	($	12	)
Fair value as % of cost		143	%		89	%
Number of security positions		188			48
Number individually exceeding $2 million gain or loss		20			2

(*) Includes $113 million on AFG’s investment in Verisk Analytics, Inc.

The table below sets forth the scheduled maturities of AFG’s available for sale fixed maturity securities at March 31, 2012, based on their fair values. Asset-backed securities and other securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

	Securities With Unrealized Gains			Securities With Unrealized Losses
Maturity
One year or less		3	%		1	%
After one year through five years		27			14
After five years through ten years		33			16
After ten years		9			11
		72			42
Mortgage-backed securities (average life of approximately four years)		28			58
		100	%		100	%

39

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

The table below (dollars in millions) summarizes the unrealized gains and losses on fixed maturity securities by dollar amount.

	Aggregate Fair Value		Aggregate Unrealized Gain (Loss)			Fair Value as % of Cost Basis
Fixed Maturities at March 31, 2012
Securities with unrealized gains:
Exceeding $500,000 (888 issues)	$	10,808	$	1,127			112	%
$500,000 or less (3,060 issues)		9,021		423			105
	$	19,829	$	1,550			108	%
Securities with unrealized losses:
Exceeding $500,000 (104 issues)	$	553	($	112	)		83	%
$500,000 or less (621 issues)		1,848		(61	)		97
	$	2,401	($	173	)		93	%

The following table summarizes (dollars in millions) the unrealized loss for all securities with unrealized losses by issuer quality and length of time those securities have been in an unrealized loss position.

	Aggregate Fair Value		Aggregate Unrealized Loss			Fair Value as % of Cost Basis
Securities with Unrealized Losses at March 31, 2012
Investment grade fixed maturities with losses for:
Less than one year (243 issues)	$	1,027	($	21	)		98	%
One year or longer (112 issues)		284		(27	)		91
	$	1,311	($	48	)		96	%
Non-investment grade fixed maturities with losses for:
Less than one year (192 issues)	$	736	($	33	)		96	%
One year or longer (178 issues)		354		(92	)		79
	$	1,090	($	125	)		90	%
Common equity securities with losses for:
Less than one year (31 issues)	$	70	($	8	)		90	%
One year or longer (4 issues)		4		(1	)		80
	$	74	($	9	)		89	%
Perpetual preferred equity securities with losses for:
Less than one year (8 issues)	$	2	$	—			100	%
One year or longer (5 issues)		22		(3	)		88
	$	24	($	3	)		89	%

When a decline in the value of a specific investment is considered to be “other-than-temporary,” a provision for impairment is charged to earnings (accounted for as a realized loss) and the cost basis of that investment is reduced by the amount of the charge. The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors as detailed in AFG’s 2011 Form 10-K under Management’s Discussion and Analysis – “Investments.”

40

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Based on its analysis, management believes (i) AFG will recover its cost basis in the securities with unrealized losses and (ii) that AFG has the ability and intent to hold the securities until they recover in value and had no intent to sell them at March 31, 2012. Although AFG has the ability to continue holding its investments with unrealized losses, its intent to hold them may change due to deterioration in the issuers’ creditworthiness, decisions to lessen exposure to a particular issuer or industry, asset/liability management decisions, market movements, changes in views about appropriate asset allocation or the desire to offset taxable realized gains. Should AFG’s ability or intent change with regard to a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, charges for other-than-temporary impairment could be material to results of operations in future periods. Significant declines in the fair value of AFG’s investment portfolio could have a significant adverse effect on AFG’s liquidity.

Uncertainties Management believes that the areas posing the greatest risk of material loss are the adequacy of its insurance reserves and contingencies arising out of its former railroad and manufacturing operations. See Management’s Discussion and Analysis – “Uncertainties” in AFG’s 2011 Form 10-K. AFG conducts comprehensive studies of its asbestos and environmental reserves with the aid of outside actuarial and engineering firms and specialty outside counsel every two years with an in-depth internal review during the intervening years. See Management’s Discussion and Analysis – “Results of Operations” – “Asbestos and Environmental Reserve Charges” in AFG’s 2011 Form 10-K.

41

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

MANAGED INVESTMENT ENTITIES

Accounting standards require AFG to consolidate its investments in collateralized loan obligation (“CLO”) entities that it manages and owns an interest in (in the form of debt). See Note A – “Accounting Policies – Managed Investment Entities” and Note G – “Managed Investment Entities.” The effect of consolidating these entities is shown in the tables below (in millions). The “Before CLO Consolidation” columns include AFG’s investment and earnings in the CLOs on an unconsolidated basis.

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2012	Before CLO Consolidation		Managed Investment Entities		Consol. Entries			Consolidated As Reported
Assets:
Cash and investments	$	26,613	$	—	($	135	)(a)	$	26,478
Assets of managed investment entities		—		2,952		—			2,952
Other assets		6,781		—		—			6,781
Total assets	$	33,394	$	2,952	($	135	)	$	36,211
Liabilities:
Unpaid losses and loss adjustment expenses and unearned premiums	$	7,613	$	—	$	—		$	7,613
Annuity, life, accident and health benefits and reserves		17,803		—		—			17,803
Liabilities of managed investment entities		—		2,807	($	135	)(a)		2,672
Long-term debt and other liabilities		3,391		—		—			3,391
Total liabilities		28,807		2,807	($	135	)		31,479
Shareholders’ Equity:
Common Stock and Capital surplus		1,223		—		—			1,223
Retained earnings:
Appropriated - managed investment entities		—		145		—			145
Unappropriated		2,498		—		—			2,498
Accumulated other comprehensive income		714		—		—			714
Total shareholders’ equity		4,435		145		—			4,580
Noncontrolling interests		152		—		—			152
Total equity		4,587		145		—			4,732
Total liabilities and equity	$	33,394	$	2,952	($	135	)	$	36,211
December 31, 2011
Assets:
Cash and investments	$	25,675	$	—	($	98	)(a)	$	25,577
Assets of managed investment entities		—		3,058		—			3,058
Other assets		7,203		—		—			7,203
Total assets	$	32,878	$	3,058	($	98	)	$	35,838
Liabilities:
Unpaid losses and loss adjustment expenses and unearned premiums	$	8,004	$	—	$	—		$	8,004
Annuity, life, accident and health benefits and reserves		17,147		—		—			17,147
Liabilities of managed investment entities		—		2,885		(98	)(a)		2,787
Long-term debt and other liabilities		3,343		—		—			3,343
Total liabilities		28,494		2,885		(98	)		31,281
Shareholders’ equity:
Common Stock and Capital surplus		1,219		—		—			1,219
Retained earnings:
Appropriated - managed investment entities		—		173		—			173
Unappropriated		2,439		—		—			2,439
Accumulated other comprehensive income		580		—		—			580
Total shareholders’ equity		4,238		173		—			4,411
Noncontrolling interests		146		—		—			146
Total equity		4,384		173		—			4,557
Total liabilities and equity	$	32,878	$	3,058	($	98	)	$	35,838

(a) Elimination of the fair value of AFG’s investment in CLOs.

42

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

	Before CLO Consolidation(a)			Managed Investment Entities			Consol. Entries			Consolidated As Reported
Three months ended March 31, 2012
Revenues:
Insurance premiums	$	708		$	—		$	—		$	708
Investment income		327			—			(5	)(b)		322
Realized gains (losses) on securities		44			—			—			44
Income (loss) of managed investment entities:
Investment income		—			29			—			29
Loss on change in fair value of assets/liabilities		—			(31	)		2	(b)		(29	)
Other income		43			—			(4	)(c)		39
Total revenues		1,122			(2	)		(7	)		1,113
Costs and Expenses:
Insurance benefits and expenses		824			—			—			824
Expenses of managed investment entities		—			26			(7	)(b)(c)		19
Interest on borrowed money and other expenses		124			—			—			124
Total costs and expenses		948			26			(7	)		967
Operating earnings before income taxes		174			(28	)		—			146
Provision for income taxes		58			—			—			58
Net earnings, including noncontrolling interests		116			(28	)		—			88
Less: Net earnings (loss) attributable to noncontrolling interests		3			—			(28	)(d)		(25	)
Net Earnings Attributable to Shareholders	$	113		($	28	)	$	28		$	113
Three months ended March 31, 2011
Revenues:
Insurance premiums	$	709		$	—		$	—		$	709
Investment income		306			—			(6	)(b)		300
Realized gains (losses) on subsidiaries		(3	)		—			—			(3	)
Income (loss) of managed investment entities:
Investment income		—			25			—			25
Loss on change in fair value of assets/liabilities		—			(36	)		3	(b)		(33	)
Other income		44			—			(3	)(c)		41
Total revenues		1,056			(11	)		(6	)		1,039
Costs and Expenses:
Insurance benefits and expenses		806			—			—			806
Expenses of managed investment entities		—			24			(6	)(b)(c)		18
Interest on borrowed money and other expenses		113			—			—			113
Total costs and expenses		919			24			(6	)		937
Operating earnings before income taxes		137			(35	)		—			102
Provision for income taxes		48			—			—			48
Net earnings, including noncontrolling interests		89			(35	)		—			54
Less: Net earnings (loss) attributable to noncontrolling interests		1			—			(35	)(d)		(34	)
Net Earnings Attributable to Shareholders	$	88		($	35	)	$	35		$	88

(a) Includes $5 million and $6 million for the first three months of 2012 and 2011, respectively, in investment income representing the change in fair value of AFG’s CLO investments plus $4 million and $3 million for each of the same periods in CLO management fees earned.

(b) Elimination of the change in fair value of AFG’s investments in the CLOs, including $3 million in both the first three months of 2012 and 2011 in distributions recorded as interest expense by the CLOs.

(c) Elimination of management fees earned by AFG.

(d) Allocate losses of CLOs attributable to other debt holders to noncontrolling interests.

43

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

RESULTS OF OPERATIONS

General Results of operations as shown in the accompanying financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

AFG’s net earnings attributable to shareholders, determined in accordance with GAAP, include certain items that may not be indicative of its ongoing core operations. The following table identifies such items and reconciles net earnings attributable to shareholders to core net operating earnings, a non-GAAP financial measure that AFG believes is a useful tool for investors and analysts in analyzing ongoing operating trends (in millions, except per share amounts):

	Three months ended March 31,
	2012		2011
Core net operating earnings	$	85	$	91
Realized gains (losses)(*)		28		(3	)
Net earnings attributable to shareholders	$	113	$	88
Diluted per share amounts:
Core net operating earnings	$	.86	$	.85
Realized gains (losses)		.28		(.02	)
Net earnings attributable to shareholders	$	1.14	$	.83

(*) Realized gains (losses) are shown net of taxes of $16 million in the first quarter of 2012.

Core net operating earnings decreased in the first quarter of 2012 compared to the same period in 2011. Increased earnings in the annuity and supplemental insurance operations were more than offset by lower underwriting profit and lower investment income in the Specialty property and casualty insurance operations. Net earnings attributable to shareholders increased due to realized gains recorded in the first quarter of 2012 compared to realized losses in the comparable 2011 period. Both periods reflect the effect of share repurchases.

Property and Casualty Insurance – Underwriting AFG reports its Specialty insurance business in the following sub-segments: (i) Property and transportation, (ii) Specialty casualty and (iii) Specialty financial.

Performance measures such as underwriting profit or loss and related combined ratios are often used by property and casualty insurers to help users of their financial statements better understand the company’s performance. See Note B — “Segments of Operations” for detail of AFG’s operating profit by significant business segment.

Underwriting profitability is measured by the combined ratio, which is a sum of the ratios of losses, loss adjustment expenses, underwriting expenses and policyholder dividends to premiums. A combined ratio under 100% indicates an underwriting profit. The combined ratio does not reflect investment income, other income or federal income taxes.

44

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Premiums, combined ratios and prior year development for AFG’s property and casualty insurance operations were as follows (dollars in millions):

	Three months ended March  31,
	2012			2011
Gross Written Premiums
Property and transportation	$	328		$	318
Specialty casualty		366			319
Specialty financial		129			116
Other		—			—
	$	823		$	753
Net Written Premiums
Property and transportation	$	250		$	254
Specialty casualty		247			214
Specialty financial		93			98
Other		17			18
	$	607		$	584
Combined Ratios
Property and transportation		89.7	%		85.8	%
Specialty casualty		98.1			99.4
Specialty financial		85.0			85.7
Total Specialty		91.9			90.9
Aggregate (including discontinued lines)		92.1	%		90.9	%
Favorable (Unfavorable) Prior Year Development
Property and transportation	$	10		$	22
Specialty casualty		1			—
Specialty financial		7			(4	)
Other specialty		1			3
		19			21
Other (primarily asbestos and environmental charges)		—			—
Aggregate (including discontinued lines)	$	19		$	21

Gross and net written premiums increased in the first quarter of 2012 compared to the same 2011 period due primarily to higher premiums in the Specialty casualty segment. Overall average renewal rates increased approximately 3% during the first quarter of 2012.

The Specialty insurance operations generated an underwriting profit of $48 million in the 2012 first quarter compared to $55 million in the first quarter of 2011. Lower profits in the Property and transportation segment were partially offset by improved results in the Specialty casualty segment. Catastrophe losses were $4 million for the first quarter of 2012 compared to $8 million in the first quarter of 2011.

45

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Property and transportation gross written premiums increased during the first quarter of 2012 compared to 2011 due primarily to higher winter wheat commodity prices and market firming in the property and inland marine businesses, which were partially offset by lower gross written premiums in the transportation businesses. Increased cessions of the winter wheat business contributed to lower net written premiums for the 2012 first quarter. This group reported an underwriting profit of $27 million in the first quarter of 2012, compared to $36 million in the first quarter of 2011. Improved results in the crop insurance operations were more than offset by lower underwriting profits in the property and inland marine and transportation businesses, primarily the result of lower favorable prior year reserve development. Average renewal rates for this group were up approximately 2% for the quarter.

Specialty casualty gross and net written premiums increased during the first quarter of 2012 when compared to 2011 due primarily to higher premiums in the workers’ compensation and excess and surplus businesses. Increased business opportunities and general market hardening contributed to the growth in premiums. This group reported an underwriting profit of $4 million in the first quarter of 2012, compared to $1 million in the first quarter of 2011. Higher profitability in the international, general liability and workers’ compensation businesses was largely offset by lower favorable reserve development in the excess and surplus and executive liability businesses. Average renewal rates for this group were up approximately 4% for the quarter.

Specialty financial gross written premiums increased during the first quarter of 2012 when compared to 2011 primarily as a result of a service contracts business initiated in the second quarter of 2011 where all of the premiums were ceded under a reinsurance agreement. Additionally, planned reductions in coastal and near-coastal property exposures in the financial institutions business contributed to decreases in both gross and net written premiums for the quarter. This group reported an underwriting profit of $16 million in both the first quarter of 2012 and the first quarter of 2011.

Annuity and Supplemental Insurance Operations Operating earnings before income taxes for the annuity and supplemental insurance segment increased $13 million (24%) in the first quarter due to higher earnings in the fixed annuity operations as well as improved results in the supplemental insurance lines. The higher profitability in the fixed annuity operations was due primarily to higher invested assets resulting from growth in the business. In the supplemental insurance lines, Medicare supplement results were significantly higher than the 2011 first quarter due primarily to improved loss experience and lower policy lapses. In addition, the significant stock market increase in the first quarter of 2012 had a positive impact on results in the variable and fixed indexed annuity businesses.

46

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Statutory Annuity Premiums The following table summarizes AFG’s annuity sales (in millions):

	Three months ended March  31,
	2012		2011
403(b) Fixed and Indexed Annuities:
First Year	$	3	$	6
Renewal		40		42
Single Sum		19		17
Subtotal		62		65
Non-403(b) Indexed Annuities		409		257
Non-403(b) Fixed Annuities		42		60
Bank Annuities		275		271
Variable Annuities		15		19
Total Annuity Premiums	$	803	$	672

Bank annuities represent annuity premiums generated through banks by independent agents and brokers, as well as through direct relationships with certain financial institutions.

The increase in annuity premiums for the first quarter of 2012 compared to the same period in 2011 is attributable to increased sales of indexed annuities in the non-403(b) single premium market. This increase reflects the industry trend towards indexed annuities and away from traditional fixed annuities, as well as AFG’s introduction of new indexed products and features.

Life, Accident and Health Premiums and Benefits The following table summarizes AFG’s life, accident and health premiums and benefits as shown in the Consolidated Statement of Earnings (in millions):

	Three months ended March  31,
	2012		2011
Premiums
Supplemental insurance operations
First year	$	8	$	11
Renewal		92		92
Life operations (in run-off)		5		7
	$	105	$	110
Benefits
Supplemental insurance operations	$	82	$	85
Life operations (in run-off)		10		11
	$	92	$	96

Investment Income In recent years, yields available in the financial markets on fixed maturity securities have generally declined, placing downward pressure on AFG’s investment portfolio yield. The $22 million increase in investment income for the first quarter of 2012 compared to the same period in 2011 reflects higher average invested assets, primarily related to growth in the annuity business.

47

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

Realized Gains (Losses) on Securities Net realized gains (losses) on securities consisted of the following (in millions):

	Three months ended March  31,
	2012			2011
Realized gains (losses) before impairments:
Disposals	$	46		$	17
Change in the fair value of derivatives		4			(5	)
Adjustments to annuity deferred policy acquisition costs and related items		(2	)		(2	)
		48			10
Impairment charges:
Securities		(6	)		(14	)
Adjustments to annuity deferred policy acquisition costs and related items		2			4
		(4	)		(10	)
	$	44		$	—

Realized gains on disposals for the first quarter of 2012 includes $27 million in gains on sales of shares of Verisk Analytics, Inc.

The change in fair value of derivatives includes net gains of $4 million in the 2012 quarter and net losses of $3 million in the 2011 quarter from the mark-to-market of MBS, primarily interest-only securities with interest rates that float inversely with short-term rates. See Note E – “Derivatives.”

Annuity Benefits Annuity benefits reflect amounts accrued on annuity policyholders’ funds accumulated. On deferred annuities (annuities in the accumulation phase), interest is generally credited to policyholders’ accounts at their current stated interest rates. Furthermore, for “two-tier” deferred annuities (annuities under which a higher interest amount can be earned if a policy is annuitized rather than surrendered), additional reserves are accrued for (i) persistency and premium bonuses and (ii) excess benefits expected to be paid for future deaths and annuitizations. Changes in investment yields, crediting rates, actual surrender, death and annuitization experience or modifications in actuarial assumptions can affect these additional reserves and could result in charges (or credits) to earnings in the period the projections are modified.

The $14 million increase in annuity benefits in the first quarter of 2012 compared to the first quarter of 2011 reflects growth in the annuity business.

Annuity and Supplemental Insurance Acquisition Expenses Annuity and supplemental insurance acquisition expenses include amortization of annuity, supplemental insurance and life business deferred policy acquisition costs (“DPAC”) as well as a portion of commissions on sales of insurance products. Annuity and supplemental insurance acquisition expenses also include amortization of the present value of future profits of businesses acquired (“PVFP”).

48

AMERICAN FINANCIAL GROUP, INC. 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Continued

The vast majority of this group’s DPAC asset relates to its annuity and life insurance lines of business. Unanticipated spread compression, decreases in the stock market, adverse mortality experience, and higher than expected lapse rates could lead to write-offs of DPAC or PVFP in the future.

Other Operating and General Expenses The $11 million (12%) increase in other operating and general expenses for the first quarter of 2012 compared to the first quarter of 2011 reflects the impact of a $10 million recovery in the first quarter of 2011 on a prior property and casualty extracontractual obligation claim.

ITEM 3

Quantitative and Qualitative Disclosure of Market Risk

As of March 31, 2012, there were no material changes to the information provided in Item 7A – “Quantitative and Qualitative Disclosure of Market Risk” of AFG’s 2011 Form 10-K.

ITEM 4

Controls and Procedures

AFG’s management, with participation of its Co-Chief Executive Officers and its principal financial officer, has evaluated AFG’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of the end of the period covered by this report. Based on that evaluation, AFG’s Co-CEOs and principal financial officer concluded that the controls and procedures are effective. There have been no changes in AFG’s internal control over financial reporting during the first fiscal quarter of 2012 that materially affected, or are reasonably likely to materially affect, AFG’s internal control over financial reporting.

In the ordinary course of business, AFG and its subsidiaries routinely enhance their information systems by either upgrading current systems or implementing new systems such as the new investment accounting software system implemented in the first quarter of 2012. There has been no change in AFG’s business processes and procedures during the first fiscal quarter of 2012 that has materially affected, or is reasonably likely to materially affect, AFG’s internal controls over financial reporting.

49

AMERICAN FINANCIAL GROUP, INC. 10-Q

PART II

OTHER INFORMATION

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities AFG repurchased shares of its Common Stock during the first three months of 2012 as follows:

	Total Number of Shares Purchased		Average Price  Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (a)
January		7,000	$	36.42		7,000		3,420,041
February		521,500	$	37.74		521,500		7,898,541
March		945,289	$	38.01		945,289		6,953,252

(a) Represents the remaining shares that may be repurchased under the Plans authorized by AFG’s Board of Directors in August 2011 and February 2012. In February 2012, AFG’s Board of Directors authorized the repurchase of five million additional shares.

ITEM 6

Exhibits

Number	Exhibit Description
12	Computation of ratios of earnings to fixed charges.
31(a)	Certification of the Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(b)	Certification of the Co-Chief Executive Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
31(c)	Certification of the Chief Financial Officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002.
32	Certification of the Co-Chief Executive Officers and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from American Financial Group’s Form 10-Q for the quarter ended March 31, 2012 formatted in XBRL (Extensible Business Reporting Language):
	(i) Consolidated Balance Sheet
	(ii) Consolidated Statement of Earnings
	(iii) Consolidated Statement of Comprehensive Income
	(iv) Consolidated Statement of Changes in Equity
	(v) Consolidated Statement of Changes in Cash Flows
	(vi) Notes to Consolidated Financial Statements

50

AMERICAN FINANCIAL GROUP, INC. 10-Q

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, American Financial Group, Inc. has duly caused this Report to be signed on its behalf by the undersigned duly authorized.

	American Financial Group, Inc.
May 9, 2012	BY:	/s/ Keith A. Jensen
		Keith A. Jensen Senior Vice President (principal financial and accounting officer)

51

EX-12

Exhibit 12

AMERCIAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

EXHIBIT 12 – COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

(Dollars in Millions)

	Three Months Ended  March 31, 2012		Year Ended December  31, 2011 (as adjusted)
Operating earnings before income taxes	$	146	$	558
Undistributed equity in losses of investee		—		1
Losses of managed investment entities attributable to noncontrolling interest		28		24
Fixed charges:
Interest on annuities		130		510
Interest expense		21		85
Debt discount and expense		1		2
Portion of rentals representing interest		4		18
EARNINGS	$	330	$	1,198
Fixed charges:
Interest on annuities	$	130	$	510
Interest expense		21		85
Debt discount and expense		1		2
Portion of rentals representing interest		4		18
FIXED CHARGES	$	156	$	615
Ratio of Earnings to Fixed Charges		2.12		1.95
Earnings in Excess of Fixed Charges	$	174	$	583

EX-31.A

Exhibit 31(a)

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 31(a)

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

I, Carl H. Lindner III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 9, 2012	BY:	/s/ Carl H. Lindner III
		Carl H. Lindner III
		Co-Chief Executive Officer
		(principal executive officer)

EX-31.B

Exhibit 31(b)

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 31(b)

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS

I, S. Craig Lindner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 9, 2012	BY:	/s/ S. Craig Lindner
		S. Craig Lindner
		Co-Chief Executive Officer
		(principal executive officer)

EX-31.C

Exhibit 31(c)

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 31(c)

SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS - CONTINUED

I, Keith A. Jensen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Financial Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 9, 2012	BY:	/s/ Keith A. Jensen
		Keith A. Jensen
		Senior Vice President
		(principal financial and accounting officer)

EX-32

Exhibit 32

AMERICAN FINANCIAL GROUP, INC. 10-Q

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of American Financial Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2012 (the “Report”), the undersigned officers of the Company, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 9, 2012	BY:	/s/ S. Craig Lindner
Date		S. Craig Lindner
		Co-Chief Executive Officer
May 9, 2012	BY:	/s/ Carl H. Lindner III
Date		Carl H. Lindner III
		Co-Chief Executive Officer
May 9, 2012	BY:	/s/ Keith A. Jensen
Date		Keith A. Jensen
		Senior Vice President
		(principal financial and accounting officer)

A signed original of this written statement will be retained by the Registrant and

furnished to the Securities and Exchange Commission or its staff upon request.

XML

Fair Value Measurements (Details 1) (Embedded derivatives [Member])	3 Months Ended
	Mar. 31, 2012
Fair Value Inputs Liabilities Quantitative Information [Line Items]
Risk margin for uncertainty in cash flows	0.30%
Minimum [Member]
Fair Value Inputs Liabilities Quantitative Information [Line Items]
Adjustment for insurance subsidiary's credit risk	0.50%
Surrenders	4.00%
Partial surrenders	3.00%
Annuitizations	1.00%
Deaths	1.00%
Budgeted option costs	2.50%
Maximum [Member]
Fair Value Inputs Liabilities Quantitative Information [Line Items]
Adjustment for insurance subsidiary's credit risk	2.10%
Surrenders	25.00%
Partial surrenders	5.00%
Annuitizations	2.00%
Deaths	2.50%
Budgeted option costs	4.00%

XML

Deferred Policy Acquisition Costs (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Summary of deferred policy acquisition costs
Deferred policy acquisition costs	$ 916	$ 901
Property and Casualty Insurance [Member]
Summary of deferred policy acquisition costs
Policy acquisition costs	191	189
Annuity and Supplemental Insurance [Member]
Summary of deferred policy acquisition costs
Policy acquisition costs	922	898
Policyholder sales inducements	203	207
Present value of future profits ("PVFP")	139	144
Impact of unrealized gains and losses on securities	(539)	(537)
Deferred policy acquisition costs	$ 725	$ 712

XML

Investments (Details 5) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	$ 48	$ 10
Realized - impairments	(4)	(10)
Fixed maturity securities [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	14	13
Realized - impairments	(4)	(11)
Change in unrealized	132	37
Equity Securities [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	35	1
Realized - impairments	(2)
Change in unrealized	70	13
Mortgage Loans and Other Investments [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	1	(2)
Realized - impairments		(3)
Other [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	(2)	(2)
Realized - impairments	2	4
Change in unrealized	(2)	(22)
Tax Effects [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	(17)	(3)
Realized - impairments	1	3
Change in unrealized	(70)	(10)
Noncontrolling Interests [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Change in unrealized	(3)
Marketable Securities [Member]
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments
Realized before impairments	31	7
Realized - impairments	(3)	(7)
Change in unrealized	$ 127	$ 18

XML

Deferred Policy Acquisition Costs (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011
Deferred Policy Acquisition Costs (Textual) [Abstract]
Accumulated amortization of present value of future profits	$ 200		$ 195
Amortization of present value of future profits	$ 5	$ 6

XML

Investments (Details 3) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
The scheduled maturities of available for sale fixed maturities
Fixed maturities amortized cost, One year or less	$ 634
Fixed maturities fair value, One year or less	648
Fixed maturities fair value, One year or less, Percent	3.00%
Fixed maturities amortized cost, After one year through five years	5,265
Fixed maturities fair value, After one year through five years	5,599
Fixed maturities fair value, After one year through five years, Percent	25.00%
Fixed maturities amortized cost, After five years through ten years	6,425
Fixed maturities fair value, After five years through ten years	7,001
Fixed maturities fair value, After five years through ten years, Percent	31.00%
Fixed maturities amortized cost, After ten years	1,950
Fixed maturities fair value, After ten years	2,105
Fixed maturities fair value, After ten years, Percent	10.00%
Fixed maturities amortized cost, Subtotal	14,274
Fixed maturities fair value, Subtotal	15,353
Fixed maturities fair value, Subtotal, Percent	69.00%
Fixed maturities amortized cost, MBS	6,720
Fixed maturities fair value, MBS	7,018
Fixed maturities fair value, MBS, Percent	31.00%
Fixed maturity securities [Member]
The scheduled maturities of available for sale fixed maturities
Amortized Cost	20,994	20,562
Fair Value	$ 22,371	$ 21,807
Fair value, Total, Percent	100.00%

XML

Accounting Policies (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended			3 Months Ended				12 Months Ended	3 Months Ended				12 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011	Dec. 31, 2011 As previously reported [Member]	Sep. 30, 2011 As previously reported [Member]	Jun. 30, 2011 As previously reported [Member]	Mar. 31, 2011 As previously reported [Member]	Dec. 31, 2011 As previously reported [Member]	Dec. 31, 2011 As adjusted [Member]	Sep. 30, 2011 As adjusted [Member]	Jun. 30, 2011 As adjusted [Member]	Mar. 31, 2011 As adjusted [Member]	Dec. 31, 2011 As adjusted [Member]
Accounting Standards Adopted in 2012
Deferred policy acquisition costs	$ 916		$ 901	$ 1,105				$ 1,105	$ 901				$ 901
Net deferred tax liability (included in other liabilities)				203				203	133				133
Shareholders' equity	4,580		4,411	4,545				4,545	4,411				4,411
Net earnings attributable to shareholders	$ 113	$ 88		$ 109	$ 96	$ 55	$ 83	$ 343	$ 109	$ 97	$ 48	$ 88	$ 342
Diluted earnings per Common Share	$ 1.14	$ 0.83		$ 1.10	$ 0.94	$ 0.52	$ 0.79	$ 3.33	$ 1.09	$ 0.95	$ 0.46	$ 0.83	$ 3.32

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Managed Investment Entities (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012 CollateralizedLoanObligations	Dec. 31, 2011
Managed Investment Entities (Textual) [Abstract]
Percentage of investment of most subordinate debt tranche, Minimum	7.50%
Percentage of investment of most subordinate debt tranche, Maximum	51.20%
Number of collateralized loan obligation entities	8
Difference between aggregate unpaid principal balance and fair value of CLOs' fixed maturity investments	$ 65	$ 120
Difference between aggregate unpaid principal balance and fair value of CLOs' debt	227	306
Aggregate unpaid principal balance of CLO loans in default	17	7
Carrying amount of CLO loans in default	6	2
Variable Interest Entity, Primary Beneficiary [Member]
Variable Interest Entity [Line Items]
Aggregate fair value of investment in collateralized loan obligations	135	98
New CLO Formed in March 2012 [Member]
Variable Interest Entity [Line Items]
Face amount of liabilities	410
Face amount of liabilities purchased by subsidiaries of AFG	$ 39

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Assets and liabilities measured at fair value

	Level 1		Level 2		Level 3		Total
March 31, 2012
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	235	$	155	$	—	$	390
States, municipalities and political subdivisions		—		3,844		72		3,916
Foreign government		—		260		—		260
Residential MBS		—		3,804		314		4,118
Commercial MBS		—		2,880		20		2,900
All other corporate		8		10,264		515		10,787
Total AFS fixed maturities		243		21,207		921		22,371
Trading fixed maturities		—		456		1		457
Equity securities		955		75		24		1,054
Assets of managed investment entities (“MIE”)		245		2,643		64		2,952
Variable annuity assets (separate accounts) (a)		—		601		—		601
Other investments		—		142		—		142
Total assets accounted for at fair value	$	1,443	$	25,124	$	1,010	$	27,577
Liabilities:
Liabilities of managed investment entities	$	118	$	—	$	2,554	$	2,672
Derivatives in annuity benefits accumulated		—		—		483		483
Other liabilities – derivatives		—		22		—		22
Total liabilities accounted for at fair value	$	118	$	22	$	3,037	$	3,177
December 31, 2011
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	248	$	134	$	—	$	382
States, municipalities and political subdivisions		—		3,794		83		3,877
Foreign government		—		254		—		254
Residential MBS		—		3,487		361		3,848
Commercial MBS		—		2,821		19		2,840
All other corporate		9		10,078		519		10,606
Total AFS fixed maturities		257		20,568		982		21,807
Trading fixed maturities		—		439		1		440
Equity securities		888		29		11		928
Assets of managed investment entities (“MIE”)		290		2,724		44		3,058
Variable annuity assets (separate accounts) (a)		—		548		—		548
Other investments		—		71		—		71
Total assets accounted for at fair value	$	1,435	$	24,379	$	1,038	$	26,852
Liabilities:
Liabilities of managed investment entities	$	194	$	—	$	2,593	$	2,787
Derivatives in annuity benefits accumulated		—		—		395		395
Other liabilities – derivatives		—		23		—		23
Total liabilities accounted for at fair value	$	194	$	23	$	2,988	$	3,205

(a) Variable annuity liabilities equal the fair value of variable annuity assets.

Unobservable inputs used by management in determining fair value of embedded derivatives

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	0.5% - 2.1% over the risk free rate
Risk margin for uncertainty in cash flows	0.3% reduction in the discount rate
Surrenders	4% - 25% of indexed account value
Partial surrenders	3% - 5% of indexed account value
Annuitizations	1% - 2% of indexed account value
Deaths	1% - 2.5% of indexed account value
Budgeted option costs	2.5% - 4.0% of indexed account value

Changes in balances of Level 3 financial assets and liabilities

				Total realized/unrealized gains  (losses) included in
	Balance at December  31, 2011			Net income			Other comp. income (loss)		Purchases and issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March 31, 2012
AFS fixed maturities:
State and municipal	$	83		$	—		$	—	$	10		$	—		$	—	($	21	)	$	72
Residential MBS		361			1			—		8			(10	)		60		(106	)		314
Commercial MBS		19			—			1		—			—			—		—			20
All other corporate		519			2			3		26			(16	)		21		(40	)		515
Trading fixed maturities		1			—			—		—			—			—		—			1
Equity securities		11			—			—		9			—			4		—			24
Assets of MIE		44			—			—		12			(3	)		14		(3	)		64
Liabilities of MIE (*)		(2,593	)		(84	)		—		(366	)		489			—		—			(2,554	)
Embedded derivatives		(395	)		(62	)		—		(34	)		8			—		—			(483	)

(*) Total realized/unrealized loss included in net income includes losses of $39 million related to liabilities outstanding as of March 31, 2012. See Note G – “Managed Investment Entities.”

				Total realized/unrealized gains (losses) included in
	Balance at December  31, 2010			Net income			Other comp. income (loss)		Purchases and Issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March  31, 2011
AFS fixed maturities:
State and municipal	$	20		$	—		$	1	$	—		$	—		$	—	$	—		$	21
Residential MBS		312			1			—		—			(13	)		7		(36	)		271
Commercial MBS		6			—			—		—			—			3		—			9
All other corporate		436			(2	)		—		45			(11	)		22		(66	)		424
Trading fixed maturities		3			—			—		—			—			—		(2	)		1
Equity securities		21			—			2		—			(2	)		—		—			21
Assets of MIE		48			(1	)		—		7			(4	)		6		(2	)		54
Liabilities of MIE (*)		(2,258	)		(62	)		—		—			4			—		—			(2,316	)
Embedded derivatives		(190	)		(19	)		—		(30	)		5			—		—			(234	)

(*) Total realized/unrealized loss included in net income includes losses of $61 million related to liabilities outstanding as of March 31, 2011. See Note G – “Managed Investment Entities.”

Fair value of financial instruments

March 31, 2012	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	1,422	$	1,422	$	1,422	$	—	$	—
Mortgage loans		438		441		—		—		441
Policy loans		249		249		—		—		249
Total financial assets not accounted for at fair value	$	2,109	$	2,112	$	1,422	$	—	$	690
Financial liabilities:
Annuity benefits accumulated (*)	$	15,864	$	15,788	$	—	$	—	$	15,788
Long-term debt		931		1,033		—		918		115
Total financial liabilities not accounted for at fair value	$	16,795	$	16,821	$	—	$	918	$	15,903

(*) Excludes life contingent annuities in the payout phase.

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Investments (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012 Securities	Mar. 31, 2011	Mar. 31, 2012 Residential Mortgage Backed Securities [Member]	Dec. 31, 2011 Residential Mortgage Backed Securities [Member]
Schedule of Available for Sale Securities [Line Items]
Non-credit related portion of other-than-temporary impairment charges taken for securities still owned			$ 229	$ 227
Other than temporary impairment charges	4	10	4
Investments (Textual) [Abstract]
Number of available for sale fixed maturities in an unrealized loss position	725
Gross unrealized losses on fixed maturities	173		143	180
Percentage (based on amount of unrealized loss) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade	28.00%
Percentage (based on fair value) of available for sale fixed maturities that are in an unrealized loss position and rated investment grade	55.00%
Realized gain (loss) from the mark-to-market of certain MBS	$ 4	$ (3)
Average life of MBS	4 years

XML

Fair Value Measurements (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012 Stock	Mar. 31, 2011
Fair Value Measurements (Textual) [Abstract]
Fair value of assets transferred from Level 1 to Level 2	$ 35
Number of preferred stocks transferred from Level 1 to Level 2	6
Level 3 assets as a percentage of total assets measured at fair value	4.00%
Percentage of level 3 assets that were priced using non-binding broker quotes	94.00%
Percentage of internally developed Level 3 assets to total assets	0.50%
Total realized/unrealized losses included in net income on liabilities still outstanding	(39)	(61)
AFG's internal investment professionals	20
Level 3 assets that were priced using non-binding broker quotes	$ 949
Percentage of internally developed Level 3 assets to Shareholders' equity	2.00%

XML

Segments of Operations (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Segments of Operations (Textual) [Abstract]
Earnings (losses) of managed investment entities attributable to noncontrolling interests	$ (28)	$ (35)
Other Segment [Member]
Segments of Operations (Textual) [Abstract]
Earnings (losses) of managed investment entities attributable to noncontrolling interests	$ (28)	$ (35)

XML

Derivatives (Details 1) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net		$ (6)
MBS with embedded derivatives [Member] | Realized gains [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	4	(3)
Interest rate swaptions [Member] | Realized gains [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net		(2)
Indexed annuities embedded derivative [Member] | Annuity benefits [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	(62)	(19)
Equity index call options [Member] | Annuity benefits [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	57	18
Reinsurance contracts embedded derivative [Member] | Investment Income [Member]
Summary of gain (loss) included in earnings for changes in the fair value of derivatives
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	$ 1

XML

Condensed Consolidating Information (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Condensed Consolidated Statement of Comprehensive Income
Net earnings, including noncontrolling interests	$ 88	$ 54
Other comprehensive income, net of tax	138	25
Total comprehensive income, net of tax	226	79
Less: Comprehensive income (loss) attributable to noncontrolling interests	(21)	(34)
Comprehensive income attributable to shareholders	247	113
AFG [Member]
Condensed Consolidated Statement of Comprehensive Income
Net earnings, including noncontrolling interests	113	88
Other comprehensive income, net of tax	134	25
Total comprehensive income, net of tax	247	113
Less: Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income attributable to shareholders	247	113
GAFRI [Member]
Condensed Consolidated Statement of Comprehensive Income
Net earnings, including noncontrolling interests	49	30
Other comprehensive income, net of tax	119	18
Total comprehensive income, net of tax	168	48
Less: Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income attributable to shareholders	168	48
AAG Holding [Member]
Condensed Consolidated Statement of Comprehensive Income
Net earnings, including noncontrolling interests	49	31
Other comprehensive income, net of tax	117	18
Total comprehensive income, net of tax	166	49
Less: Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income attributable to shareholders	166	49
All Other Subs [Member]
Condensed Consolidated Statement of Comprehensive Income
Net earnings, including noncontrolling interests	116	81
Other comprehensive income, net of tax	138	24
Total comprehensive income, net of tax	254	105
Less: Comprehensive income (loss) attributable to noncontrolling interests	(21)	(34)
Comprehensive income attributable to shareholders	275	139
Consol. Entries [Member]
Condensed Consolidated Statement of Comprehensive Income
Net earnings, including noncontrolling interests	(239)	(176)
Other comprehensive income, net of tax	(370)	(60)
Total comprehensive income, net of tax	(609)	(236)
Less: Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income attributable to shareholders	$ (609)	$ (236)

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Long-Term Debt (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Interest rate on revolving debt facility	2.00%
Long-Term Debt (Textual) [Abstract]
Secured Borrowings guaranteed by AFG	$ 16	$ 17
Scheduled principal payments on debt in 2012	31
Scheduled principal payments on debt in 2013	20
Scheduled principal payments on debt in 2014	2
Scheduled principal payments on debt in 2015	14
Scheduled principal payments on debt in 2016	45
Scheduled principal payments on debt in 2017
AFG's revolving credit line	500
Interest rate range for revolving credit facility	1.75% to 3.00% (currently 2%) over LIBOR
Amount borrowed under AFG revolving credit facility
Minimum [Member]
Debt Instrument [Line Items]
Interest rate on revolving debt facility	1.75%
Maximum [Member]
Debt Instrument [Line Items]
Interest rate on revolving debt facility	3.00%
9-7/8% Senior Notes due June 2019 [Member]
Debt Instrument [Line Items]
Interest rate on debt instruments	9.875%
7% Senior Notes due September 2050 [Member]
Debt Instrument [Line Items]
Interest rate on debt instruments	7.00%
7-1/2% Senior Debentures due November 2033 [Member]
Debt Instrument [Line Items]
Interest rate on debt instruments	7.50%
7-1/4% Senior Debentures due January 2034 [Member]
Debt Instrument [Line Items]
Interest rate on debt instruments	7.25%
7-1/8% Senior Debentures due February 2034 [Member]
Debt Instrument [Line Items]
Interest rate on debt instruments	7.125%

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Investments (Details 4) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2011	Dec. 31, 2010
Unrealized gain on:
Pre-tax	$ 1,102	$ 902
Deferred Tax Amounts Attributable to Noncontrolling Interests	(397)	(324)
Net	705	578	509	491
Fixed maturity securities [Member]
Unrealized gain on:
Pre-tax	1,377	1,245
Deferred Tax Amounts Attributable to Noncontrolling Interests	(492)	(444)
Net	885	801
Equity Securities [Member]
Unrealized gain on:
Pre-tax	254	184
Deferred Tax Amounts Attributable to Noncontrolling Interests	(90)	(65)
Net	164	119
Deferred Policy Acquisition Costs [Member]
Unrealized gain on:
Pre-tax	(539)	(537)
Deferred Tax Amounts Attributable to Noncontrolling Interests	189	188
Net	(350)	(349)
Annuity Benefits And Other Liabilities [Member]
Unrealized gain on:
Pre-tax	10	10
Deferred Tax Amounts Attributable to Noncontrolling Interests	(4)	(3)
Net	$ 6	$ 7

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Segments of Operations

3 Months Ended

Mar. 31, 2012

Segments of Operations [Abstract]

Segments of Operations

B. Segments of Operations

AFG manages its business as three segments: (i) property and casualty insurance, (ii) annuity and supplemental insurance and (iii) other, which includes holding company costs and amounts attributable to the noncontrolling interests of the managed investment entities.

AFG reports its property and casualty insurance business in the following Specialty sub-segments: (i) Property and transportation, which includes physical damage and liability coverage for buses, trucks and recreational vehicles, inland and ocean marine, agricultural-related products and other property coverages, (ii) Specialty casualty, which includes primarily excess and surplus, general liability, executive liability, umbrella and excess liability, customized programs for small to mid-sized businesses and workers’ compensation, and (iii) Specialty financial, which includes risk management insurance programs for lending and leasing institutions (including collateral and mortgage protection insurance), surety and fidelity products and trade credit insurance. AFG’s annuity and supplemental insurance business markets traditional fixed and indexed annuities and a variety of supplemental insurance products such as Medicare supplement.

AFG’s reportable segments and their components were determined based primarily upon similar economic characteristics, products and services.

The following tables (in millions) show AFG’s revenues and operating earnings before income taxes by significant business segment and sub-segment.

	Three months ended March  31,
	2012			2011
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	263		$	255
Specialty casualty		220			216
Specialty financial		103			112
Other		17			16
Total premiums earned		603			599
Investment income		71			75
Realized gains		31			—
Other income		13			15
Total property and casualty insurance		718			689
Annuity and supplemental insurance:
Investment income		252			228
Life, accident and health premiums		105			110
Realized gains (losses)		13			(3	)
Other income		26			24
Total annuity and supplemental insurance		396			359
Other		(1	)		(9	)
Total revenues	$	1,113		$	1,039
Operating Earnings Before Income Taxes
Property and casualty insurance:
Underwriting:
Specialty
Property and transportation	$	27		$	36
Specialty casualty		4			1
Specialty financial		16			16
Other		1			2
Total underwriting		48			55
Investment and other income, net		55			69
Realized gains		31			—
Total property and casualty insurance		134			124
Annuity and supplemental insurance:
Operations		67			54
Realized gains (losses)		13			(3	)
Total annuity and supplemental insurance		80			51
Other (*)		(68	)		(73	)
Total operating earnings before income taxes	$	146		$	102

(*) Includes holding company expenses and $28 million and $35 million in losses of managed investment entities attributable to noncontrolling interests for the first quarter of 2012 and 2011, respectively.

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Shareholders' Equity (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Components of accumulated other comprehensive income
Accumulated other comprehensive income, net unrealized gains on securities, beginning balance	$ 578	$ 491
Other comprehensive income, net unrealized gains on securities, pre-tax	200	28
Other comprehensive income, net unrealized gains on securities, tax	(70)	(10)
Other comprehensive income, net unrealized gains on securities, noncontrolling interests	(3)
Other comprehensive income, net unrealized gains on securities, net of tax	127	18
Accumulated other comprehensive income, net unrealized gains on securities, ending balance	705	509
Accumulated other comprehensive income, foreign currency translation adjustments, beginning balance	10	12
Other comprehensive income, foreign currency translation adjustments, pre-tax	7	7
Other comprehensive income, foreign currency translation adjustments, noncontrolling interests	(1)
Other comprehensive income, foreign currency translation adjustments, net of tax	6	7
Accumulated other comprehensive income, foreign currency translation adjustments, ending balance	16	19
Accumulated other comprehensive income, pension and other postretirement plans adjustments, beginning balance	(8)	(8)
Other comprehensive income, pension and other postretirement plans adjustments, pre-tax	1
Other comprehensive income, pension and other postretirement plans adjustments, net of tax	1
Accumulated other comprehensive income, pension and other postretirement plans adjustments, ending balance	(7)	(8)
Accumulated other comprehensive income, total, Beginning balance	580	495
Other comprehensive income, total, pre-tax	208	35
Other comprehensive income, total, tax	(70)	(10)
Other comprehensive income, total, noncontrolling interests	(4)
Other comprehensive income, net of tax	138	25
Other comprehensive income, total, net of tax	134	25
Accumulated other comprehensive income, total, ending balance	$ 714	$ 520

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Investments (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Available for sale fixed maturities and equity securities
Gross Unrealized, Losses	$ (173)
U.S. Government and government agencies [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	374	363
Fair Value	390	382
Gross Unrealized, Gains	16	19
States, municipalities and political subdivisions [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	3,683	3,613
Fair Value	3,916	3,877
Gross Unrealized, Gains	239	267
Gross Unrealized, Losses	(6)	(3)
Foreign government [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	243	236
Fair Value	260	254
Gross Unrealized, Gains	17	18
Gross Unrealized, Losses
Residential Mortgage Backed Securities [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	4,069	3,858
Fair Value	4,118	3,848
Gross Unrealized, Gains	192	170
Gross Unrealized, Losses	(143)	(180)
Commercial Mortgage Backed Securities [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	2,651	2,628
Fair Value	2,900	2,840
Gross Unrealized, Gains	250	218
Gross Unrealized, Losses	(1)	(6)
All other corporate [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	9,974	9,864
Fair Value	10,787	10,606
Gross Unrealized, Gains	836	802
Gross Unrealized, Losses	(23)	(60)
Fixed maturity securities [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	20,994	20,562
Fair Value	22,371	21,807
Gross Unrealized, Gains	1,550	1,494
Gross Unrealized, Losses	(173)	(249)
Common stocks [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	643	610
Fair Value	892	797
Gross Unrealized, Gains	258	207
Gross Unrealized, Losses	(9)	(20)
Perpetual preferred stocks [Member]
Available for sale fixed maturities and equity securities
Amortized Cost	157	134
Fair Value	162	131
Gross Unrealized, Gains	8	5
Gross Unrealized, Losses	$ (3)	$ (8)

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Managed Investment Entities (Tables)

3 Months Ended

Mar. 31, 2012

Managed Investment Entities [Abstract]

Selected financial information related to collateralized loan obligations

	Three months ended March  31,
	2012			2011
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$	55		$	29
Liabilities		(84	)		(62	)
Management fees paid to AFG		4			3
CLO earnings (losses) attributable to:
AFG shareholders (b)		5			6
Noncontrolling interests (b)		(28	)		(35	)

(a) Included in AFG’s “Revenues.”

(b) Included in AFG’s “Operating earnings before income taxes.”

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Deferred Policy Acquisition Costs (Tables)

3 Months Ended

Mar. 31, 2012

Deferred Policy Acquisition Costs [Abstract]

Deferred Policy Acquisition Costs

	March 31, 2012			December 31, 2011
Property and casualty insurance	$	191		$	189
Annuity and supplemental insurance:
Policy acquisition costs		922			898
Policyholder sales inducements		203			207
Present value of future profits (“PVFP”)		139			144
Impact of unrealized gains and losses on securities		(539	)		(537	)
Total annuity and supplemental		725			712
	$	916		$	901

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Managed Investment Entities (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$ 55	$ 29
Liabilities	(84)	(62)
Management fees paid to AFG	4	3
Collateralized loan obligations' earnings (losses) attributable to:
AFG shareholders	5	6
Noncontrolling interests	$ (28)	$ (35)

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Investments (Details 1) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
U.S. Government and government agencies [Member]
Available for sale securities in a continuous unrealized loss position
Fair Value - Less than twelve months	$ 27	$ 2
Fair Value as % of Cost - Less than twelve months	100.00%	100.00%
Fair Value - Twelve months or more
Fair Value as % of Cost - Twelve months or more
States, municipalities and political subdivisions [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(5)	(2)
Fair Value - Less than twelve months	250	120
Fair Value as % of Cost - Less than twelve months	98.00%	98.00%
Unrealized Loss - Twelve months or more	(1)	(1)
Fair Value - Twelve months or more	22	59
Fair Value as % of Cost - Twelve months or more	96.00%	98.00%
Foreign government [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months
Fair Value - Less than twelve months		1
Fair Value as % of Cost - Less than twelve months		100.00%
Fair Value - Twelve months or more
Fair Value as % of Cost - Twelve months or more
Residential Mortgage Backed Securities [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(36)	(59)
Fair Value - Less than twelve months	846	1,141
Fair Value as % of Cost - Less than twelve months	96.00%	95.00%
Unrealized Loss - Twelve months or more	(107)	(121)
Fair Value - Twelve months or more	502	473
Fair Value as % of Cost - Twelve months or more	82.00%	80.00%
Commercial Mortgage Backed Securities [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(1)	(6)
Fair Value - Less than twelve months	38	183
Fair Value as % of Cost - Less than twelve months	97.00%	97.00%
Fair Value - Twelve months or more	2	18
Fair Value as % of Cost - Twelve months or more	100.00%	100.00%
All other corporate [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(12)	(43)
Fair Value - Less than twelve months	602	940
Fair Value as % of Cost - Less than twelve months	98.00%	96.00%
Unrealized Loss - Twelve months or more	(11)	(17)
Fair Value - Twelve months or more	112	114
Fair Value as % of Cost - Twelve months or more	91.00%	87.00%
Fixed maturity securities [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(54)	(110)
Fair Value - Less than twelve months	1,763	2,387
Fair Value as % of Cost - Less than twelve months	97.00%	96.00%
Unrealized Loss - Twelve months or more	(119)	(139)
Fair Value - Twelve months or more	638	664
Fair Value as % of Cost - Twelve months or more	84.00%	83.00%
Common stocks [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months	(8)	(19)
Fair Value - Less than twelve months	70	169
Fair Value as % of Cost - Less than twelve months	90.00%	90.00%
Unrealized Loss - Twelve months or more	(1)	(1)
Fair Value - Twelve months or more	4	4
Fair Value as % of Cost - Twelve months or more	80.00%	80.00%
Perpetual preferred stocks [Member]
Available for sale securities in a continuous unrealized loss position
Unrealized Loss - Less than twelve months		(1)
Fair Value - Less than twelve months	2	23
Fair Value as % of Cost - Less than twelve months	100.00%	96.00%
Unrealized Loss - Twelve months or more	(3)	(7)
Fair Value - Twelve months or more	$ 22	$ 31
Fair Value as % of Cost - Twelve months or more	88.00%	82.00%

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2012

Long-Term Debt [Abstract]

Schedule of long-term debt instruments

	March 31, 2012		December 31, 2011
Direct obligations of AFG:
9-7/8% Senior Notes due June 2019	$	350	$	350
7% Senior Notes due September 2050		132		132
7-1/8% Senior Debentures due February 2034		115		115
Other		3		3
		600		600
Subsidiaries:
Obligations of AAG Holding (guaranteed by AFG):
7-1/2% Senior Debentures due November 2033		112		112
7-1/4% Senior Debentures due January 2034		86		86
Notes payable secured by real estate due 2012 through 2016		64		64
Secured borrowings ($16 and $17 guaranteed by AFG)		27		30
National Interstate bank credit facility		22		22
		311		314
Payable to Subsidiary Trusts:
AAG Holding Variable Rate Subordinated Debentures due May 2033		20		20
	$	931	$	934

Summary of secured and unsecured long-term debt

	March 31, 2012		December 31, 2011
Unsecured obligations	$	840	$	840
Obligations secured by real estate		64		64
Other secured borrowings		27		30
	$	931	$	934

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Shareholders' Equity (Tables)

3 Months Ended

Mar. 31, 2012

Shareholders' Equity [Abstract]

Components of accumulated other comprehensive income (loss)

				OCI
	AOCI Beginning Balance			Pre- tax		Tax			Non- controlling interests			Net		AOCI Ending Balance
Three Months ended March 31, 2012
Net unrealized gains on securities	$	578	(a)	$	200	($	70	)	($	3	)	$	127	$	705	(a)
Foreign currency translation adjustments		10			7		—			(1	)		6		16
Pension and other postretirement plans adjustments		(8	)		1		—			—			1		(7	)
Total	$	580		$	208	($	70	)	($	4	)	$	134	$	714
Three Months ended March 31, 2011
Net unrealized gains on securities	$	491		$	28	($	10	)	$	—		$	18	$	509
Foreign currency translation adjustments		12			7		—			—			7		19
Pension and other postretirement plans adjustments		(8	)		—		—			—			—		(8	)
Total	$	495		$	35	($	10	)	$	—		$	25	$	520

(a) Includes net unrealized losses of $8 million at March 31, 2012 and $15 million at December 31, 2011 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

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Accounting Policies

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Accounting Policies

A. Accounting Policies

Basis of Presentation The accompanying consolidated financial statements for American Financial Group, Inc. (“AFG”) and its subsidiaries are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles.

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to March 31, 2012, and prior to the filing date of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Accounting Standards Adopted in 2012 Effective January 1, 2012, AFG retrospectively adopted Accounting Standards Update (“ASU”) 2010-26 that addresses which costs related to issuing or renewing insurance contracts qualify for deferral. To qualify for deferral, the guidance specifies that a cost must be directly related to the successful acquisition of an insurance contract. The financial statements for prior periods have been adjusted to reflect the adoption of the new standard.

The impact of adoption on amounts previously reported is shown in the table below (in millions, except per share data):

	December 31, 2011
Deferred policy acquisition costs
As previously reported	$	1,105
As adjusted		901
Net deferred tax liability (included in other liabilities)
As previously reported	$	203
As adjusted		133
Shareholders’ equity
As previously reported	$	4,545
As adjusted		4,411

	2011
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total Year
Net earnings attributable to shareholders
As previously reported	$	83	$	55	$	96	$	109	$	343
As adjusted		88		48		97		109		342
Diluted earnings per Common Share
As previously reported	$	.79	$	.52	$	.94	$	1.10	$	3.33
As adjusted		.83		.46		.95		1.09		3.32

Effective January 1, 2012, AFG retrospectively adopted ASU 2011-05, which eliminates the option to report other comprehensive income in the Statement of Changes in Equity. As permitted by the standard, comprehensive income is presented herein in a separate statement immediately following the Statement of Earnings. This new presentation does not change the measurement of net earnings, other comprehensive income or earnings per share, and accordingly, had no impact on AFG’s results of operations or financial position.

Effective January 1, 2012, AFG adopted ASU 2011-04, which clarifies the application of existing fair value measurement and amends certain disclosure requirements. Disclosures required by the guidance are included in Note C. The impact of adoption was not material to AFG’s results of operations or financial position.

Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. AFG did not have any significant nonrecurring fair value measurements of nonfinancial assets and liabilities in the first quarter of 2012 or 2011.

Investments Fixed maturity and equity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income in AFG’s Balance Sheet. Fixed maturity and equity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the interest method; mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Gains or losses on securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses)) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: 1) the amount related to credit losses (recorded in earnings) and 2) the amount related to all other factors (recorded in other comprehensive income). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the Statement of Earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value and consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related call options (included in other investments) designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products. Changes in the fair value of derivatives are included in earnings.

Goodwill Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually. Under guidance adopted in 2011, an entity is only required to complete the quantitative annual goodwill impairment test on a reporting unit if the entity determines (through qualitative analysis) that it is more likely than not that the reporting unit’s fair value is less than its carrying amount.

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (a) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (b) amounts paid to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

Certain annuity and supplemental insurance subsidiaries cede life insurance policies to a third party on a funds withheld basis whereby the subsidiaries retain the assets (securities) associated with the reinsurance contracts. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. These reinsurance contracts are considered to contain embedded derivatives (that must be adjusted to fair value) because the yield on the payables is based on specific blocks of the ceding companies’ assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolios of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to these transactions are classified as “trading.” The adjustment to fair value on the embedded derivatives offsets the investment income recorded on the adjustment to fair value of the related trading portfolios.

Deferred Policy Acquisition Costs (“DPAC”) Policy acquisition costs (principally commissions, premium taxes and certain policy issuance costs) directly related to the successful acquisition of an insurance contract are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses. As discussed above under “Accounting Standards Adopted in 2012,” AFG’s accounting for DPAC changed effective January 1, 2012, and amounts previously reported have been adjusted retrospectively.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses and unamortized acquisition costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and variable annuity policy charges, less death and annuitization benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses).

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.

DPAC related to annuities is also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains (losses) on marketable securities, a component of accumulated other comprehensive income in AFG’s Balance Sheet.

DPAC includes the present value of future profits on business in force of annuity and supplemental insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

Managed Investment Entities A company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, collateralized loan obligations (“CLOs”) that are VIEs (see Note G – “Managed Investment Entities”). Both the management fees (payment of which are subordinate to other obligations of the CLOs) and the investments in the CLOs are considered variable interests. AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) it has exposure to CLO losses (through its investments in the CLO debt tranches) and the right to receive benefits (through its subordinated management fees and returns on its investments), both of which could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The excess of fair value of the CLOs’ assets over the fair value of the liabilities is recorded in AFG’s Balance Sheet as appropriated retained earnings – managed investment entities, representing amounts that ultimately will inure to the benefit of the CLO debt holders.

The net gain or loss from accounting for the CLO assets and liabilities at fair value is separately presented in AFG’s Statement of Earnings. CLO earnings attributable to AFG’s shareholders represent the change in fair value of AFG’s investments in the CLOs (including distributions) and management fees earned. All other CLO earnings (losses) are not attributable to AFG’s shareholders and will ultimately inure to the benefit of the other CLO debt holders. As a result, such CLO earnings (losses) are included in net earnings (loss) attributable to noncontrolling interests in AFG’s Statement of Earnings and in appropriated retained earnings – managed investment entities in the Balance Sheet. As the CLOs approach maturity (2016 to 2022), it is expected that losses attributable to noncontrolling interests will reduce appropriated retained earnings towards zero as the fair values of the assets and liabilities converge and the CLO assets are used to pay the CLO debt.

Unpaid Losses and Loss Adjustment Expenses The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon (a) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (b) estimates received from ceding reinsurers and insurance pools and associations; (c) estimates of unreported losses (including possible development on known claims) based on past experience; (d) estimates based on experience of expenses for investigating and adjusting claims; and (e) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the Statement of Earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity Benefits Accumulated Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to expense and decreases for surrender charges are credited to other income.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liability for EDAR is accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and variable annuity policy charges, and unearned revenues once they are recognized as income.

Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati.

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

Variable Annuity Assets and Liabilities Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium Recognition Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling Interests For Balance Sheet purposes, noncontrolling interests represents the interests of shareholders other than AFG in consolidated entities. In the Statement of Earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities.

Income Taxes Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. A valuation allowance is established to reduce total deferred tax assets to an amount that will more likely than not be realized.

AFG records a liability for the inherent uncertainty in quantifying its income tax provisions. Related interest and penalties are recognized as a component of tax expense.

Stock-Based Compensation All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated fair value at the date of grant. AFG uses the Black-Scholes pricing model to measure the fair value of employee stock options. See Note J - “Shareholders’ Equity” for further information.

Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings Per Share Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted earnings per share includes adjustments to weighted average common shares of 1.7 million for the first quarter of 2012 and 1.6 million for the first quarter of 2011 related to stock-based compensation plans.

AFG’s weighted average diluted shares outstanding excludes 1.5 million for the first quarter of 2012 and 1.8 million for the first quarter of 2011 in anti-dilutive potential common shares related to stock compensation plans. Adjustments to net earnings attributable to shareholders in the calculation of diluted earnings per share were nominal in the 2012 and 2011 periods.

Statement of Cash Flows For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

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Condensed Consolidating Information (Tables)

3 Months Ended

Mar. 31, 2012

Condensed Consolidating Information [Abstract]

Condensed Consolidating Balance Sheet

	AFG		GAFRI		AAG Holding		All Other Subs		Consol. Entries			Consolidated
MARCH 31, 2012
Assets:
Cash and investments	$	419	$	25	$	—	$	26,035	($	1	)	$	26,478
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,093		—			3,093
Agents’ balances and premiums receivable		—		—		—		550		—			550
Deferred policy acquisition costs		—		—		—		916		—			916
Assets of managed investment entities		—		—		—		2,952		—			2,952
Other assets		120		8		8		2,121		(35	)		2,222
Investment in subsidiaries and affiliates		4,931		2,169		2,254		640		(9,994	)		—
Total assets	$	5,470	$	2,202	$	2,262	$	36,307	($	10,030	)	$	36,211
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	7,613	$	—		$	7,613
Annuity, life, accident and health benefits and reserves		—		—		—		17,815		(12	)		17,803
Liabilities of managed investment entities		—		—		—		2,672		—			2,672
Long-term debt		600		—		219		112		—			931
Other liabilities		290		20		109		2,247		(206	)		2,460
Total liabilities		890		20		328		30,459		(218	)		31,479
Total shareholders’ equity		4,580		2,182		1,934		5,696		(9,812	)		4,580
Noncontrolling interests		—		—		—		152		—			152
Total liabilities and equity	$	5,470	$	2,202	$	2,262	$	36,307	($	10,030	)	$	36,211
DECEMBER 31, 2011
Assets:
Cash and investments	$	456	$	32	$	—	$	25,090	($	1	)	$	25,577
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,351		—			3,351
Agents’ balances and premiums receivable		—		—		—		565		—			565
Deferred policy acquisition costs		—		—		—		901		—			901
Assets of managed investment entities		—		—		—		3,058		—			3,058
Other assets		105		5		5		2,309		(38	)		2,386
Investment in subsidiaries and affiliates		4,732		2,015		2,107		643		(9,497	)		—
Total assets	$	5,293	$	2,052	$	2,112	$	35,917	($	9,536	)	$	35,838
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	8,004	$	—		$	8,004
Annuity, life, accident and health benefits and reserves		—		—		—		17,148		(1	)		17,147
Liabilities of managed investment entities		—		—		—		2,787		—			2,787
Long-term debt		600		—		220		115		(1	)		934
Other liabilities		282		20		109		2,196		(198	)		2,409
Total liabilities		882		20		329		30,250		(200	)		31,281
Total shareholders’ equity		4,411		2,032		1,783		5,521		(9,336	)		4,411
Noncontrolling interests		—		—		—		146		—			146
Total liabilities and equity	$	5,293	$	2,052	$	2,112	$	35,917	($	9,536	)	$	35,838

Condensed Consolidating Statement of Earnings

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	603		$	—		$	603
Life, accident and health premiums		—		—		—		105			—			105
Realized gains (losses)		—		—		—		45			(1	)		44
Income of managed investment entities		—		—		—		—			—			—
Investment and other income		2		2		—		362			(5	)		361
Equity in earnings of subsidiaries		203		78		84		—			(365	)		—
Total revenues		205		80		84		1,115			(371	)		1,113
Costs and Expenses:
Insurance benefits and expenses		—		—		—		824			—			824
Interest charges on borrowed money		16		—		6		4			(5	)		21
Expenses of managed investment entities		—		—		—		19			—			19
Other operating and general expenses		18		4		2		80			(1	)		103
Total costs and expenses		34		4		8		927			(6	)		967
Operating earnings before income taxes		171		76		76		188			(365	)		146
Provision (credit) for income taxes		58		27		27		72			(126	)		58
Net earnings, including noncontrolling interests		113		49		49		116			(239	)		88
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(25	)		—			(25	)
Net Earnings Attributable to Shareholders	$	113	$	49	$	49	$	141		($	239	)	$	113
	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	599		$	—		$	599
Life, accident and health premiums		—		—		—		110			—			110
Realized gains (losses)		—		—		—		(3	)		—			(3	)
Income of managed investment entities		—		—		—		(8	)		—			(8	)
Investment and other income		2		3		—		343			(7	)		341
Equity in earnings of subsidiaries		167		47		55		—			(269	)		—
Total revenues		169		50		55		1,041			(276	)		1,039
Costs and Expenses:
Insurance benefits and expenses		—		—		—		806			—			806
Interest charges on borrowed money		16		—		6		4			(5	)		21
Expenses of managed investment entities		—		—		—		18			—			18
Other operating and general expenses		17		3		1		72			(1	)		92
Total costs and expenses		33		3		7		900			(6	)		937
Operating earnings before income taxes		136		47		48		141			(270	)		102
Provision (credit) for income taxes		48		17		17		60			(94	)		48
Net earnings, including noncontrolling interests		88		30		31		81			(176	)		54
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(34	)		—			(34	)
Net Earnings Attributable to Shareholders	$	88	$	30	$	31	$	115		($	176	)	$	88

Condensed Consolidating Statement Of Comprehensive Income

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Net earnings, including noncontrolling interests	$	113	$	49	$	49	$	116		($	239	)	$	88
Other comprehensive income, net of tax		134		119		117		138			(370	)		138
Total comprehensive income, net of tax		247		168		166		254			(609	)		226
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		—		—		(21	)		—			(21	)
Comprehensive income attributable to shareholders	$	247	$	168	$	166	$	275		($	609	)	$	247

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Net earnings, including noncontrolling interests	$	88	$	30	$	31	$	81		($	176	)	$	54
Other comprehensive income, net of tax		25		18		18		24			(60	)		25
Total comprehensive income, net of tax		113		48		49		105			(236	)		79
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		—		—		(34	)		—			(34	)
Comprehensive income attributable to shareholders	$	113	$	48	$	49	$	139		($	236	)	$	113

Condensed Consolidating Statement of Cash Flows

	AFG			GAFRI			AAG Holding			All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Operating Activities:
Net earnings, including noncontrolling interests	$	113		$	49		$	49		$	116		($	239	)	$	88
Adjustments:
Equity in net earnings of subsidiaries		(134	)		(51	)		(54	)		—			239			—
Dividends from subsidiaries		55			—			—			—			(55	)		—
Other operating activities, net		—			(2	)		(3	)		(73	)		—			(78	)
Net cash provided by (used in) operating activities		34			(4	)		(8	)		43			(55	)		10
Investing Activities:
Purchases of investments, property and equipment		(8	)		—			—			(1,085	)		—			(1,093	)
Capital contributions to subsidiaries		(4	)		(8	)		—			—			12			—
Proceeds from maturities and redemptions of investments		—			—			—			516			—			516
Proceeds from sales of investments, property and equipment		—			—			—			196			—			196
Managed investment entities:
Purchases of investments		—			—			—			(566	)		—			(566	)
Proceeds from sales and redemptions of investments		—			—			—			774			—			774
Other investing activities, net		—			—			—			(10	)		—			(10	)
Net cash provided by (used in) investing activities		(12	)		(8	)		—			(175	)		12			(183	)
Financing Activities:
Annuity receipts		—			—			—			804			—			804
Annuity surrenders, benefits and withdrawals		—			—			—			(348	)		—			(348	)
Issuances of managed investment entities’ liabilities		—			—			—			359			—			359
Retirement of managed investment entities’ liabilities		—			—			—			(489	)		—			(489	)
Issuances of Common Stock		14			—			—			—			—			14
Capital contributions from parent		—			4			8			—			(12	)		—
Repurchases of Common Stock		(56	)		—			—			—			—			(56	)
Cash dividends paid		(17	)		—			—			(55	)		55			(17	)
Other financing activities, net		—			—			—			4			—			4
Net cash provided by (used in) financing activities		(59	)		4			8			275			43			271
Net change in cash and cash equivalents		(37	)		(8	)		—			143			—			98
Cash and cash equivalents at beginning of period		415			19			—			890			—			1,324
Cash and cash equivalents at end of period	$	378		$	11		$	—		$	1,033		$	—		$	1,422

	AFG			GAFRI			AAG Holding			All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$	88		$	30		$	31		$	81		($	176	)	$	54
Adjustments:
Equity in net earnings of subsidiaries		(110	)		(30	)		(36	)		—			176			—
Dividends from subsidiaries		105			—			—			—			(105	)		—
Other operating activities, net		(23	)		(2	)		(2	)		362			—			335
Net cash provided by (used in) operating activities		60			(2	)		(7	)		443			(105	)		389
Investing Activities:
Purchases of investments, property and equipment		(7	)		—			—			(1,182	)		—			(1,189	)
Capital contributions to subsidiaries		(5	)		(8	)		(1	)		—			14			—
Proceeds from maturities and redemptions of investments		2			2			—			596			—			600
Proceeds from sales of investments, property and equipment		—			—			—			297			—			297
Managed investment entities:
Purchases of investments		—			—			—			(352	)		—			(352	)
Proceeds from sales and redemptions of investments		—			—			—			400			—			400
Other investing activities, net		—			—			—			(13	)		—			(13	)
Net cash provided by (used in) investing activities		(10	)		(6	)		(1	)		(254	)		14			(257	)
Financing Activities:
Annuity receipts		—			—			—			672			—			672
Annuity surrenders, benefits and withdrawals		—			—			—			(311	)		—			(311	)
Retirement of managed investment entities’ liabilities		—			—			—			(4	)		—			(4	)
Issuances of Common Stock		10			—			—			1			—			11
Capital contributions from parent		—			4			8			2			(14	)		—
Repurchases of Common Stock		(84	)		—			—			—			—			(84	)
Cash dividends paid		(16	)		—			—			(105	)		105			(16	)
Net cash provided by (used in) financing activities		(90	)		4			8			255			91			268
Net change in cash and cash equivalents		(40	)		(4	)		—			444			—			400
Cash and cash equivalents at beginning of period		370			20			—			709			—			1,099
Cash and cash equivalents at end of period	$	330		$	16		$	—		$	1,153		$	—		$	1,499

XML

Fair Value Measurements (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Liabilities of Managed Investment Entities [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial liabilities, Beginning Balance	$ (2,593)	$ (2,258)
Total realized/unrealized Gains (losses) included in Net income	(84)	(62)
Purchases and issuances	(366)
Sales and settlements	489	4
Financial liabilities, Ending Balance	(2,554)	(2,316)
Embedded derivatives [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial liabilities, Beginning Balance	(395)	(190)
Total realized/unrealized Gains (losses) included in Net income	(62)	(19)
Purchases and issuances	(34)	(30)
Sales and settlements	8	5
Financial liabilities, Ending Balance	(483)	(234)
States, municipalities and political subdivisions [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	83	20
Total realized/unrealized gains (losses) included in Net income
Total realized/unrealized gains (losses) included in Other comprehensive income loss		1
Purchases and issuances	10
Transfer out of Level 3	(21)
Financial assets, Ending Balance	72	21
Residential Mortgage Backed Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	361	312
Total realized/unrealized gains (losses) included in Net income	1	1
Total realized/unrealized gains (losses) included in Other comprehensive income loss
Purchases and issuances	8
Sales and settlements	(10)	(13)
Transfer into Level 3	60	7
Transfer out of Level 3	(106)	(36)
Financial assets, Ending Balance	314	271
Commercial Mortgage Backed Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	19	6
Total realized/unrealized gains (losses) included in Other comprehensive income loss	1
Transfer into Level 3		3
Financial assets, Ending Balance	20	9
Assets of Managed Investment Entities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	44	48
Total realized/unrealized gains (losses) included in Net income		(1)
Purchases and issuances	12	7
Sales and settlements	(3)	(4)
Transfer into Level 3	14	6
Transfer out of Level 3	(3)	(2)
Financial assets, Ending Balance	64	54
All other corporate [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	519	436
Total realized/unrealized gains (losses) included in Net income	2	(2)
Total realized/unrealized gains (losses) included in Other comprehensive income loss	3
Purchases and issuances	26	45
Sales and settlements	(16)	(11)
Transfer into Level 3	21	22
Transfer out of Level 3	(40)	(66)
Financial assets, Ending Balance	515	424
Equity Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	11	21
Total realized/unrealized gains (losses) included in Other comprehensive income loss		2
Purchases and issuances	9
Sales and settlements		(2)
Transfer into Level 3	4
Financial assets, Ending Balance	24	21
Trading fixed maturities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Financial assets, Beginning Balance	1	3
Total realized/unrealized gains (losses) included in Net income
Total realized/unrealized gains (losses) included in Other comprehensive income loss
Transfer out of Level 3		(2)
Financial assets, Ending Balance	$ 1	$ 1

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Derivatives (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2012
Derivatives (Textual) [Abstract]
Notional amount of pay-fixed interest rate swaptions	$ 1,000,000,000
Payments to purchase swaptions	$ 29,000,000
Indexed annuities as a fraction of annuity benefits	approximately one-third

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Consolidated Balance Sheet (Unaudited) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Assets:
Cash and cash equivalents	$ 1,422	$ 1,324
Investments:
Fixed maturities, available for sale at fair value (amortized cost - $20,994 and $20,562)	22,371	21,807
Fixed maturities, trading at fair value	457	440
Equity securities, at fair value (cost - $800 and $744)	1,054	928
Mortgage loans	438	401
Policy loans	249	252
Real estate and other investments	487	425
Total cash and investments	26,478	25,577
Recoverables from reinsurers	2,678	2,942
Prepaid reinsurance premiums	415	409
Agents' balances and premiums receivable	550	565
Deferred policy acquisition costs	916	901
Assets of managed investment entities	2,952	3,058
Other receivables	625	895
Variable annuity assets (separate accounts)	601	548
Other assets	810	757
Goodwill	186	186
Total assets	36,211	35,838
Liabilities and Equity:
Unpaid losses and loss adjustment expenses	6,117	6,520
Unearned premiums	1,496	1,484
Annuity benefits accumulated	16,064	15,420
Life, accident and health reserves	1,739	1,727
Payable to reinsurers	292	475
Liabilities of managed investment entities	2,672	2,787
Long-term debt	931	934
Variable annuity liabilities (separate accounts)	601	548
Other liabilities	1,567	1,386
Total liabilities	31,479	31,281
Shareholders' equity:
Common Stock, no par value - 200,000,000 shares authorized - 97,177,820 and 97,846,402 shares outstanding	97	98
Capital surplus	1,126	1,121
Retained earnings:
Appropriated - managed investment entities	145	173
Unappropriated	2,498	2,439
Accumulated other comprehensive income, net of tax	714	580
Total shareholders' equity	4,580	4,411
Noncontrolling interests	152	146
Total equity	4,732	4,557
Total liabilities and equity	$ 36,211	$ 35,838

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Investments (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
The credit portion of other-than-temporary impairments on fixed maturity securities, non-credit portion of an impairment has been recognized in other comprehensive income (loss)
Beginning Balance	$ 187	$ 143
Additional credit impairments on:
Previously impaired securities	3	7
Securities without prior impairments		1
Ending Balance	$ 190	$ 151

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Consolidated Statement of Changes in Equity (Unaudited) (USD $) In Millions, except Share data, unless otherwise specified	Total USD ($)	Common Shares	Common Stock and Capital Surplus USD ($)	Retained Earnings Appro. USD ($)	Retained Earnings Unappro. USD ($)	Accum. Other Comprehensive Inc. (Loss) USD ($)	Total USD ($)	Noncontrolling Interests USD ($)
Beginning Balance at Dec. 31, 2009
Balance at December 31, 2010	$ 4,620		$ 1,271	$ 197	$ 2,523	$ 479	$ 4,470	$ 150
Balance, shares at December 31, 2010		105,168,366
Cumulative effect of accounting change	(139)				(155)	16	(139)
Ending Balance at Dec. 31, 2010	4,481		1,271	197	2,368	495	4,331	150
Beginning Balance, shares at Dec. 31, 2010		105,168,366
Net earnings	54				88		88	(34)
Other comprehensive income	25					25	25
Allocation of losses of managed investment entities				(35)			(35)	35
Dividends on Common Stock	(17)				(17)		(17)
Shares issued:
Exercise of stock options	11		11				11
Exercise of stock options, shares		436,127
Other benefit plans	7		7				7
Other benefit plans, shares		332,337
Dividend reinvestment plan, shares		4,043
Stock-based compensation expense	3		3				3
Shares acquired and retired	(84)		(30)		(54)		(84)
Shares acquired and retired, shares		(2,457,721)
Other	(2)							(2)
Ending Balance at Mar. 31, 2011	4,478		1,262	162	2,385	520	4,329	149
Ending Balance, shares at Mar. 31, 2011		103,483,152
Beginning Balance at Dec. 31, 2011	4,557		1,219	173	2,439	580	4,411	146
Beginning Balance, shares at Dec. 31, 2011	97,846,402	97,846,402
Net earnings	88				113		113	(25)
Other comprehensive income	138					134	134	4
Allocation of losses of managed investment entities				(28)			(28)	28
Dividends on Common Stock	(17)				(17)		(17)
Shares issued:
Exercise of stock options	14		14				14
Exercise of stock options, shares		551,219
Other benefit plans	5		5				5
Other benefit plans, shares		250,072
Dividend reinvestment plan, shares		3,916
Stock-based compensation expense	4		4				4
Shares acquired and retired	(56)		(19)		(37)		(56)
Shares acquired and retired, shares		(1,473,789)
Other	(1)							(1)
Ending Balance at Mar. 31, 2012	$ 4,732		$ 1,223	$ 145	$ 2,498	$ 714	$ 4,580	$ 152
Ending Balance, shares at Mar. 31, 2012	97,177,820	97,177,820

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Long-Term Debt (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Summary of Carrying value of long-term debt
Long-term debt	$ 931	$ 934
Notes payable secured by real estate due 2012 through 2016	64	64
Secured borrowings ($16 and $17 guaranteed by AFG)	27	30
Subsidiaries [Member]
Summary of Carrying value of long-term debt
Long-term debt	311	314
Notes payable secured by real estate due 2012 through 2016	64	64
Secured borrowings ($16 and $17 guaranteed by AFG)	27	30
National Interstate bank credit facility	22	22
AFG [Member]
Summary of Carrying value of long-term debt
Other long-term debt	3	3
Long-term debt	600	600
Payable To Subsidiary Trusts [Member]
Summary of Carrying value of long-term debt
AAG Holding Variable Rate Subordinated Debentures due May 2033	20	20
9-7/8% Senior Notes due June 2019 [Member] | AFG [Member]
Summary of Carrying value of long-term debt
Senior Notes	350	350
7% Senior Notes due September 2050 [Member] | AFG [Member]
Summary of Carrying value of long-term debt
Senior Notes	132	132
7-1/2% Senior Debentures due November 2033 [Member] | Subsidiaries [Member]
Summary of Carrying value of long-term debt
Senior Notes	112	112
7-1/4% Senior Debentures due January 2034 [Member] | Subsidiaries [Member]
Summary of Carrying value of long-term debt
Senior Notes	86	86
7-1/8% Senior Debentures due February 2034 [Member] | AFG [Member]
Summary of Carrying value of long-term debt
Senior Notes	$ 115	$ 115

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Segments of Operations (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenues by significant business segment and sub-segment
Total premiums earned	$ 603	$ 599
Investment income	322	300
Life, accident and health premiums	105	110
Realized gains (losses)	44	(3)
Other income	39	41
Total revenues	1,113	1,039
Property and Casualty Insurance [Member]
Revenues by significant business segment and sub-segment
Investment income	71	75
Realized gains (losses)	31
Other income	13	15
Total revenues	718	689
Annuity and Supplemental Insurance [Member]
Revenues by significant business segment and sub-segment
Investment income	252	228
Life, accident and health premiums	105	110
Realized gains (losses)	13	(3)
Other income	26	24
Total revenues	396	359
Other Segment [Member]
Revenues by significant business segment and sub-segment
Total revenues	(1)	(9)
Specialty Property and Transportation [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	263	255
Specialty Casualty [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	220	216
Specialty Financial [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	103	112
Specialty Other [Member]
Revenues by significant business segment and sub-segment
Total premiums earned	$ 17	$ 16

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Condensed Consolidating Information (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Assets:
Cash and investments	$ 26,478	$ 25,577
Recoverables from reinsurers and prepaid reinsurance premiums	3,093	3,351
Agents' balances and premiums receivable	550	565
Deferred policy acquisition costs	916	901
Assets of managed investment entities	2,952	3,058
Other assets	2,222	2,386
Total assets	36,211	35,838
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	7,613	8,004
Annuity, life, accident and health benefits and reserves	17,803	17,147
Liabilities of managed investment entities	2,672	2,787
Long-term debt	931	934
Other liabilities	2,460	2,409
Total liabilities	31,479	31,281
Total shareholders' equity	4,580	4,411
Noncontrolling interests	152	146
Total liabilities and equity	36,211	35,838
AFG [Member]
Assets:
Cash and investments	419	456
Other assets	120	105
Investment in subsidiaries and affiliates	4,931	4,732
Total assets	5,470	5,293
Liabilities and Equity:
Long-term debt	600	600
Other liabilities	290	282
Total liabilities	890	882
Total shareholders' equity	4,580	4,411
Total liabilities and equity	5,470	5,293
GAFRI [Member]
Assets:
Cash and investments	25	32
Other assets	8	5
Investment in subsidiaries and affiliates	2,169	2,015
Total assets	2,202	2,052
Liabilities and Equity:
Other liabilities	20	20
Total liabilities	20	20
Total shareholders' equity	2,182	2,032
Total liabilities and equity	2,202	2,052
AAG Holding [Member]
Assets:
Other assets	8	5
Investment in subsidiaries and affiliates	2,254	2,107
Total assets	2,262	2,112
Liabilities and Equity:
Long-term debt	219	220
Other liabilities	109	109
Total liabilities	328	329
Total shareholders' equity	1,934	1,783
Total liabilities and equity	2,262	2,112
All Other Subs [Member]
Assets:
Cash and investments	26,035	25,090
Recoverables from reinsurers and prepaid reinsurance premiums	3,093	3,351
Agents' balances and premiums receivable	550	565
Deferred policy acquisition costs	916	901
Assets of managed investment entities	2,952	3,058
Other assets	2,121	2,309
Investment in subsidiaries and affiliates	640	643
Total assets	36,307	35,917
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	7,613	8,004
Annuity, life, accident and health benefits and reserves	17,815	17,148
Liabilities of managed investment entities	2,672	2,787
Long-term debt	112	115
Other liabilities	2,247	2,196
Total liabilities	30,459	30,250
Total shareholders' equity	5,696	5,521
Noncontrolling interests	152	146
Total liabilities and equity	36,307	35,917
Consol. Entries [Member]
Assets:
Cash and investments	(1)	(1)
Other assets	(35)	(38)
Investment in subsidiaries and affiliates	(9,994)	(9,497)
Total assets	(10,030)	(9,536)
Liabilities and Equity:
Annuity, life, accident and health benefits and reserves	(12)	(1)
Long-term debt		(1)
Other liabilities	(206)	(198)
Total liabilities	(218)	(200)
Total shareholders' equity	(9,812)	(9,336)
Total liabilities and equity	$ (10,030)	$ (9,536)

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Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Basis of presentation

Basis of Presentation The accompanying consolidated financial statements for American Financial Group, Inc. (“AFG”) and its subsidiaries are unaudited; however, management believes that all adjustments (consisting only of normal recurring accruals unless otherwise disclosed herein) necessary for fair presentation have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary to be in conformity with U.S. generally accepted accounting principles.

Certain reclassifications have been made to prior periods to conform to the current year’s presentation. All significant intercompany balances and transactions have been eliminated. The results of operations of companies since their formation or acquisition are included in the consolidated financial statements. Events or transactions occurring subsequent to March 31, 2012, and prior to the filing date of this Form 10-Q, have been evaluated for potential recognition or disclosure herein.

The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Accounting standards adopted in 2012

Accounting Standards Adopted in 2012 Effective January 1, 2012, AFG retrospectively adopted Accounting Standards Update (“ASU”) 2010-26 that addresses which costs related to issuing or renewing insurance contracts qualify for deferral. To qualify for deferral, the guidance specifies that a cost must be directly related to the successful acquisition of an insurance contract. The financial statements for prior periods have been adjusted to reflect the adoption of the new standard.

The impact of adoption on amounts previously reported is shown in the table below (in millions, except per share data):

	December 31, 2011
Deferred policy acquisition costs
As previously reported	$	1,105
As adjusted		901
Net deferred tax liability (included in other liabilities)
As previously reported	$	203
As adjusted		133
Shareholders’ equity
As previously reported	$	4,545
As adjusted		4,411

	2011
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total Year
Net earnings attributable to shareholders
As previously reported	$	83	$	55	$	96	$	109	$	343
As adjusted		88		48		97		109		342
Diluted earnings per Common Share
As previously reported	$	.79	$	.52	$	.94	$	1.10	$	3.33
As adjusted		.83		.46		.95		1.09		3.32

Effective January 1, 2012, AFG retrospectively adopted ASU 2011-05, which eliminates the option to report other comprehensive income in the Statement of Changes in Equity. As permitted by the standard, comprehensive income is presented herein in a separate statement immediately following the Statement of Earnings. This new presentation does not change the measurement of net earnings, other comprehensive income or earnings per share, and accordingly, had no impact on AFG’s results of operations or financial position.

Effective January 1, 2012, AFG adopted ASU 2011-04, which clarifies the application of existing fair value measurement and amends certain disclosure requirements. Disclosures required by the guidance are included in Note C. The impact of adoption was not material to AFG’s results of operations or financial position.

Fair value measurements

Fair Value Measurements Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The standards establish a hierarchy of valuation techniques based on whether the assumptions that market participants would use in pricing the asset or liability (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect AFG’s assumptions about the assumptions market participants would use in pricing the asset or liability. AFG did not have any significant nonrecurring fair value measurements of nonfinancial assets and liabilities in the first quarter of 2012 or 2011.

Investments

Investments Fixed maturity and equity securities classified as “available for sale” are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income in AFG’s Balance Sheet. Fixed maturity and equity securities classified as “trading” are reported at fair value with changes in unrealized holding gains or losses during the period included in investment income. Mortgage and policy loans are carried primarily at the aggregate unpaid balance.

Premiums and discounts on fixed maturity securities are amortized using the interest method; mortgage-backed securities (“MBS”) are amortized over a period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations.

Gains or losses on securities are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses)) and the cost basis of that investment is reduced. If management can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: 1) the amount related to credit losses (recorded in earnings) and 2) the amount related to all other factors (recorded in other comprehensive income). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. Both components are shown in the Statement of Earnings. If management intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

Derivatives

Derivatives Derivatives included in AFG’s Balance Sheet are recorded at fair value and consist primarily of (i) components of certain fixed maturity securities (primarily interest-only MBS) and (ii) the equity-based component of certain annuity products (included in annuity benefits accumulated) and related call options (included in other investments) designed to be consistent with the characteristics of the liabilities and used to mitigate the risk embedded in those annuity products. Changes in the fair value of derivatives are included in earnings.

Goodwill

Goodwill Goodwill represents the excess of cost of subsidiaries over AFG’s equity in their underlying net assets. Goodwill is not amortized, but is subject to an impairment test at least annually. Under guidance adopted in 2011, an entity is only required to complete the quantitative annual goodwill impairment test on a reporting unit if the entity determines (through qualitative analysis) that it is more likely than not that the reporting unit’s fair value is less than its carrying amount.

Reinsurance

Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. AFG’s property and casualty insurance subsidiaries report as assets (a) the estimated reinsurance recoverable on paid and unpaid losses, including an estimate for losses incurred but not reported, and (b) amounts paid to reinsurers applicable to the unexpired terms of policies in force. Payable to reinsurers includes ceded premiums due to reinsurers as well as ceded premiums retained by AFG’s property and casualty insurance subsidiaries under contracts to fund ceded losses as they become due. AFG’s insurance subsidiaries also assume reinsurance from other companies. Earnings on reinsurance assumed is recognized based on information received from ceding companies.

Certain annuity and supplemental insurance subsidiaries cede life insurance policies to a third party on a funds withheld basis whereby the subsidiaries retain the assets (securities) associated with the reinsurance contracts. Interest is credited to the reinsurer based on the actual investment performance of the retained assets. These reinsurance contracts are considered to contain embedded derivatives (that must be adjusted to fair value) because the yield on the payables is based on specific blocks of the ceding companies’ assets, rather than the overall creditworthiness of the ceding company. AFG determined that changes in the fair value of the underlying portfolios of fixed maturity securities is an appropriate measure of the value of the embedded derivative. The securities related to these transactions are classified as “trading.” The adjustment to fair value on the embedded derivatives offsets the investment income recorded on the adjustment to fair value of the related trading portfolios.

Deferred policy acquisition costs ("DPAC")

Deferred Policy Acquisition Costs (“DPAC”) Policy acquisition costs (principally commissions, premium taxes and certain policy issuance costs) directly related to the successful acquisition of an insurance contract are deferred. DPAC also includes capitalized costs associated with sales inducements offered to fixed annuity policyholders such as enhanced interest rates and premium and persistency bonuses. As discussed above under “Accounting Standards Adopted in 2012,” AFG’s accounting for DPAC changed effective January 1, 2012, and amounts previously reported have been adjusted retrospectively.

For the property and casualty companies, DPAC is limited based upon recoverability without any consideration for anticipated investment income and is charged against income ratably over the terms of the related policies. A premium deficiency is recognized if the sum of expected claims costs, claims adjustment expenses and unamortized acquisition costs exceed the related unearned premiums. A premium deficiency is first recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency is greater than unamortized acquisition costs, a liability is accrued for the excess deficiency and reported with unpaid losses and loss adjustment expenses.

DPAC related to annuities is deferred to the extent deemed recoverable and amortized, with interest, in relation to the present value of actual and expected gross profits on the policies. Expected gross profits consist principally of estimated future investment margin (estimated future net investment income less interest credited on policyholder funds) and surrender, mortality, and other life and variable annuity policy charges, less death and annuitization benefits in excess of account balances and estimated future policy administration expenses. To the extent that realized gains and losses result in adjustments to the amortization of DPAC related to annuities, such adjustments are reflected as components of realized gains (losses).

DPAC related to traditional life and health insurance is amortized over the expected premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues.

DPAC related to annuities is also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in unrealized gains (losses) on marketable securities, a component of accumulated other comprehensive income in AFG’s Balance Sheet.

DPAC includes the present value of future profits on business in force of annuity and supplemental insurance companies acquired (“PVFP”). PVFP represents the portion of the costs to acquire companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVFP is amortized with interest in relation to expected gross profits of the acquired policies for annuities and universal life products and in relation to the premium paying period for traditional life and health insurance products.

Managed investment entities

Managed Investment Entities A company is considered the primary beneficiary of, and therefore must consolidate, a variable interest entity (“VIE”) based primarily on its ability to direct the activities of the VIE that most significantly impact that entity’s economic performance and the obligation to absorb losses of, or receive benefits from, the entity that could potentially be significant to the VIE.

AFG manages, and has investments in, collateralized loan obligations (“CLOs”) that are VIEs (see Note G – “Managed Investment Entities”). Both the management fees (payment of which are subordinate to other obligations of the CLOs) and the investments in the CLOs are considered variable interests. AFG has determined that it is the primary beneficiary of the CLOs because (i) its role as asset manager gives it the power to direct the activities that most significantly impact the economic performance of the CLOs and (ii) it has exposure to CLO losses (through its investments in the CLO debt tranches) and the right to receive benefits (through its subordinated management fees and returns on its investments), both of which could potentially be significant to the CLOs.

Because AFG has no right to use the CLO assets and no obligation to pay the CLO liabilities, the assets and liabilities of the CLOs are shown separately in AFG’s Balance Sheet. AFG has elected the fair value option for reporting on the CLO assets and liabilities to improve the transparency of financial reporting related to the CLOs. The excess of fair value of the CLOs’ assets over the fair value of the liabilities is recorded in AFG’s Balance Sheet as appropriated retained earnings – managed investment entities, representing amounts that ultimately will inure to the benefit of the CLO debt holders.

The net gain or loss from accounting for the CLO assets and liabilities at fair value is separately presented in AFG’s Statement of Earnings. CLO earnings attributable to AFG’s shareholders represent the change in fair value of AFG’s investments in the CLOs (including distributions) and management fees earned. All other CLO earnings (losses) are not attributable to AFG’s shareholders and will ultimately inure to the benefit of the other CLO debt holders. As a result, such CLO earnings (losses) are included in net earnings (loss) attributable to noncontrolling interests in AFG’s Statement of Earnings and in appropriated retained earnings – managed investment entities in the Balance Sheet. As the CLOs approach maturity (2016 to 2022), it is expected that losses attributable to noncontrolling interests will reduce appropriated retained earnings towards zero as the fair values of the assets and liabilities converge and the CLO assets are used to pay the CLO debt.

Unpaid losses and loss adjustment expenses

Unpaid Losses and Loss Adjustment Expenses The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon (a) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (b) estimates received from ceding reinsurers and insurance pools and associations; (c) estimates of unreported losses (including possible development on known claims) based on past experience; (d) estimates based on experience of expenses for investigating and adjusting claims; and (e) the current state of the law and coverage litigation. Establishing reserves for asbestos, environmental and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, novel theories of coverage, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage.

Loss reserve liabilities are subject to the impact of changes in claim amounts and frequency and other factors. Changes in estimates of the liabilities for losses and loss adjustment expenses are reflected in the Statement of Earnings in the period in which determined. Despite the variability inherent in such estimates, management believes that the liabilities for unpaid losses and loss adjustment expenses are adequate.

Annuity benefits accumulated

Annuity Benefits Accumulated Annuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability for interest credited are charged to expense and decreases for surrender charges are credited to other income.

For certain products, annuity benefits accumulated also includes reserves for accrued persistency and premium bonuses and excess benefits expected to be paid on future deaths and annuitizations (“EDAR”). The liability for EDAR is accrued for and modified using assumptions consistent with those used in determining DPAC and DPAC amortization, except that amounts are determined in relation to the present value of total expected assessments. Total expected assessments consist principally of estimated future investment margin, surrender, mortality, and other life and variable annuity policy charges, and unearned revenues once they are recognized as income.

Annuity benefits accumulated also includes amounts advanced from the Federal Home Loan Bank of Cincinnati.

Life, accident and health reserves

Life, Accident and Health Reserves Liabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the original projections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations. Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.

Variable annuity assets and liabilities

Variable Annuity Assets and Liabilities Separate accounts related to variable annuities represent the fair value of deposits invested in underlying investment funds on which AFG earns a fee. Investment funds are selected and may be changed only by the policyholder, who retains all investment risk.

AFG’s variable annuity contracts contain a guaranteed minimum death benefit (“GMDB”) to be paid if the policyholder dies before the annuity payout period commences. In periods of declining equity markets, the GMDB may exceed the value of the policyholder’s account. A GMDB liability is established for future excess death benefits using assumptions together with a range of reasonably possible scenarios for investment fund performance that are consistent with DPAC capitalization and amortization assumptions.

Premium recognition

Premium Recognition Property and casualty premiums are earned generally over the terms of the policies on a pro rata basis. Unearned premiums represent that portion of premiums written which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, unearned premiums are based on information received from such companies and organizations. For traditional life, accident and health products, premiums are recognized as revenue when legally collectible from policyholders. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account, which is reflected as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses.

Noncontrolling interests

Noncontrolling Interests For Balance Sheet purposes, noncontrolling interests represents the interests of shareholders other than AFG in consolidated entities. In the Statement of Earnings, net earnings and losses attributable to noncontrolling interests represents such shareholders’ interest in the earnings and losses of those entities.

Income taxes

Income Taxes Deferred income taxes are calculated using the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases and are measured using enacted tax rates. A valuation allowance is established to reduce total deferred tax assets to an amount that will more likely than not be realized.

AFG records a liability for the inherent uncertainty in quantifying its income tax provisions. Related interest and penalties are recognized as a component of tax expense.

Stock-based compensation

Stock-Based Compensation All share-based grants are recognized as compensation expense on a straight-line basis over their vesting periods based on their calculated fair value at the date of grant. AFG uses the Black-Scholes pricing model to measure the fair value of employee stock options. See Note J - “Shareholders’ Equity” for further information.

Benefit plans

Benefit Plans AFG provides retirement benefits to qualified employees of participating companies through the AFG 401(k) Retirement and Savings Plan, a defined contribution plan. AFG makes all contributions to the retirement fund portion of the plan and matches a percentage of employee contributions to the savings fund. Company contributions are expensed in the year for which they are declared. AFG and many of its subsidiaries provide health care and life insurance benefits to eligible retirees. AFG also provides postemployment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period employees earn such benefits.

Earnings per share

Earnings Per Share Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted earnings per share includes adjustments to weighted average common shares of 1.7 million for the first quarter of 2012 and 1.6 million for the first quarter of 2011 related to stock-based compensation plans.

AFG’s weighted average diluted shares outstanding excludes 1.5 million for the first quarter of 2012 and 1.8 million for the first quarter of 2011 in anti-dilutive potential common shares related to stock compensation plans. Adjustments to net earnings attributable to shareholders in the calculation of diluted earnings per share were nominal in the 2012 and 2011 periods.

Statement of cash flows

Statement of Cash Flows For cash flow purposes, “investing activities” are defined as making and collecting loans and acquiring and disposing of debt or equity instruments and property and equipment. “Financing activities” include obtaining resources from owners and providing them with a return on their investments, borrowing money and repaying amounts borrowed. Annuity receipts, benefits and withdrawals are also reflected as financing activities. All other activities are considered “operating.” Short-term investments having original maturities of three months or less when purchased are considered to be cash equivalents for purposes of the financial statements.

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Segments of Operations (Details 1) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating earnings before income taxes by significant business segment and sub-segment
Realized gains (losses)	$ 44	$ (3)
Operating earnings before income taxes	146	102
Property and Casualty Insurance [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	48	55
Investment and other income, net	55	69
Realized gains (losses)	31
Operating earnings before income taxes	134	124
Annuity and Supplemental Insurance [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Operations	67	54
Realized gains (losses)	13	(3)
Operating earnings before income taxes	80	51
Other Segment [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Operating earnings before income taxes	(68)	(73)
Specialty Property and Transportation [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	27	36
Specialty Casualty [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	4	1
Specialty Financial [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	16	16
Specialty Other [Member]
Operating earnings before income taxes by significant business segment and sub-segment
Property and casualty insurance underwriting income (loss)	$ 1	$ 2

XML

Segments of Operations (Tables)

3 Months Ended

Mar. 31, 2012

Segments of Operations [Abstract]

Segment Reporting Information, by Segment

	Three months ended March  31,
	2012			2011
Revenues
Property and casualty insurance:
Premiums earned:
Specialty
Property and transportation	$	263		$	255
Specialty casualty		220			216
Specialty financial		103			112
Other		17			16
Total premiums earned		603			599
Investment income		71			75
Realized gains		31			—
Other income		13			15
Total property and casualty insurance		718			689
Annuity and supplemental insurance:
Investment income		252			228
Life, accident and health premiums		105			110
Realized gains (losses)		13			(3	)
Other income		26			24
Total annuity and supplemental insurance		396			359
Other		(1	)		(9	)
Total revenues	$	1,113		$	1,039
Operating Earnings Before Income Taxes
Property and casualty insurance:
Underwriting:
Specialty
Property and transportation	$	27		$	36
Specialty casualty		4			1
Specialty financial		16			16
Other		1			2
Total underwriting		48			55
Investment and other income, net		55			69
Realized gains		31			—
Total property and casualty insurance		134			124
Annuity and supplemental insurance:
Operations		67			54
Realized gains (losses)		13			(3	)
Total annuity and supplemental insurance		80			51
Other (*)		(68	)		(73	)
Total operating earnings before income taxes	$	146		$	102

(*) Includes holding company expenses and $28 million and $35 million in losses of managed investment entities attributable to noncontrolling interests for the first quarter of 2012 and 2011, respectively.

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Condensed Consolidating Information (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$ 88	$ 54
Adjustments:
Other operating activities, net	(78)	335
Net cash provided by (used in) operating activities	10	389
Investing Activities:
Purchases of investments, property and equipment	(1,093)	(1,189)
Proceeds from maturities and redemptions of investments	516	600
Proceeds from sales of investments, property and equipment	196	297
Managed investment entities:
Purchases of investments	(566)	(352)
Proceeds from sales and redemptions of investments	774	400
Other investing activities, net	(10)	(13)
Net cash provided by (used in) investing activities	(183)	(257)
Financing Activities:
Annuity receipts	804	672
Annuity surrenders, benefits and withdrawals	(348)	(311)
Issuances of managed investment entities' liabilities	359
Retirement of managed investment entities' liabilities	(489)	(4)
Issuances of Common Stock	14	11
Repurchases of Common Stock	(56)	(84)
Cash dividends paid on Common Stock	(17)	(16)
Other financing activities, net	4
Net cash provided by (used in) financing activities	271	268
Net Change in Cash and Cash Equivalents	98	400
Cash and cash equivalents at beginning of period	1,324	1,099
Cash and cash equivalents at end of period	1,422	1,499
AFG [Member]
Operating Activities:
Net earnings, including noncontrolling interests	113	88
Adjustments:
Equity in net earnings of subsidiaries	(134)	(110)
Dividends from subsidiaries	55	105
Other operating activities, net		(23)
Net cash provided by (used in) operating activities	34	60
Investing Activities:
Purchases of investments, property and equipment	(8)	(7)
Capital contributions to subsidiaries	(4)	(5)
Proceeds from maturities and redemptions of investments		2
Managed investment entities:
Net cash provided by (used in) investing activities	(12)	(10)
Financing Activities:
Issuances of Common Stock	14	10
Repurchases of Common Stock	(56)	(84)
Cash dividends paid on Common Stock	(17)	(16)
Net cash provided by (used in) financing activities	(59)	(90)
Net Change in Cash and Cash Equivalents	(37)	(40)
Cash and cash equivalents at beginning of period	415	370
Cash and cash equivalents at end of period	378	330
GAFRI [Member]
Operating Activities:
Net earnings, including noncontrolling interests	49	30
Adjustments:
Equity in net earnings of subsidiaries	(51)	(30)
Other operating activities, net	(2)	(2)
Net cash provided by (used in) operating activities	(4)	(2)
Investing Activities:
Capital contributions to subsidiaries	(8)	(8)
Proceeds from maturities and redemptions of investments		2
Managed investment entities:
Net cash provided by (used in) investing activities	(8)	(6)
Financing Activities:
Capital contributions from parent	4	4
Net cash provided by (used in) financing activities	4	4
Net Change in Cash and Cash Equivalents	(8)	(4)
Cash and cash equivalents at beginning of period	19	20
Cash and cash equivalents at end of period	11	16
AAG Holding [Member]
Operating Activities:
Net earnings, including noncontrolling interests	49	31
Adjustments:
Equity in net earnings of subsidiaries	(54)	(36)
Other operating activities, net	(3)	(2)
Net cash provided by (used in) operating activities	(8)	(7)
Investing Activities:
Capital contributions to subsidiaries		(1)
Managed investment entities:
Net cash provided by (used in) investing activities		(1)
Financing Activities:
Capital contributions from parent	8	8
Net cash provided by (used in) financing activities	8	8
Cash and cash equivalents at beginning of period	0	0
Cash and cash equivalents at end of period	0	0
All Other Subs [Member]
Operating Activities:
Net earnings, including noncontrolling interests	116	81
Adjustments:
Other operating activities, net	(73)	362
Net cash provided by (used in) operating activities	43	443
Investing Activities:
Purchases of investments, property and equipment	(1,085)	(1,182)
Proceeds from maturities and redemptions of investments	516	596
Proceeds from sales of investments, property and equipment	196	297
Managed investment entities:
Purchases of investments	(566)	(352)
Proceeds from sales and redemptions of investments	744	400
Other investing activities, net	(10)	(13)
Net cash provided by (used in) investing activities	(175)	(254)
Financing Activities:
Annuity receipts	804	672
Annuity surrenders, benefits and withdrawals	(348)	(311)
Issuances of managed investment entities' liabilities	359
Retirement of managed investment entities' liabilities	(489)	(4)
Issuances of Common Stock		1
Capital contributions from parent		2
Cash dividends paid on Common Stock	(55)	(105)
Other financing activities, net	4
Net cash provided by (used in) financing activities	275	255
Net Change in Cash and Cash Equivalents	143	444
Cash and cash equivalents at beginning of period	890	709
Cash and cash equivalents at end of period	1,033	1,153
Consol. Entries [Member]
Operating Activities:
Net earnings, including noncontrolling interests	(239)	(176)
Adjustments:
Equity in net earnings of subsidiaries	239	176
Dividends from subsidiaries	(55)	(105)
Net cash provided by (used in) operating activities	(55)	(105)
Investing Activities:
Capital contributions to subsidiaries	12	14
Managed investment entities:
Net cash provided by (used in) investing activities	12	14
Financing Activities:
Capital contributions from parent	(12)	(14)
Cash dividends paid on Common Stock	55	105
Net cash provided by (used in) financing activities	43	91
Cash and cash equivalents at beginning of period	0	0
Cash and cash equivalents at end of period	$ 0	$ 0

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Consolidated Statement of Cash Flows (Unaudited) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$ 88	$ 54
Adjustments:
Depreciation and amortization	46	49
Annuity benefits	130	116
Realized (gains) losses on investing activities	(44)	3
Net purchases of trading securities	(13)	(5)
Deferred annuity and life policy acquisition costs	(60)	(51)
Change in:
Reinsurance and other receivables	535	446
Other assets	(30)	15
Insurance claims and reserves	(373)	(202)
Payable to reinsurers	(183)	(92)
Other liabilities	(3)	59
Managed investment entities' assets/liabilities	(86)	(12)
Other operating activities, net	3	9
Net cash provided by (used in) operating activities	10	389
Investing Activities:
Purchases of fixed maturities	(951)	(1,044)
Purchases of equity securities	(59)	(34)
Purchases of mortgage loans	(39)	(91)
Purchases of real estate, property and equipment	(44)	(20)
Proceeds from maturities and redemptions of fixed maturities	514	590
Proceeds from repayments of mortgage loans	2	10
Proceeds from sales of fixed maturities	131	291
Proceeds from sales of equity securities	65	6
Managed investment entities:
Purchases of investments	(566)	(352)
Proceeds from sales and redemptions of investments	774	400
Other investing activities, net	(10)	(13)
Net cash provided by (used in) investing activities	(183)	(257)
Financing Activities:
Annuity receipts	804	672
Annuity surrenders, benefits and withdrawals	(348)	(311)
Reductions of long-term debt	(3)	(3)
Issuances of managed investment entities' liabilities	359
Retirement of managed investment entities' liabilities	(489)	(4)
Issuances of Common Stock	14	11
Repurchases of Common Stock	(56)	(84)
Cash dividends paid on Common Stock	(17)	(16)
Other financing activities, net	7	3
Net cash provided by (used in) financing activities	271	268
Net Change in Cash and Cash Equivalents	98	400
Cash and cash equivalents at beginning of period	1,324	1,099
Cash and cash equivalents at end of period	$ 1,422	$ 1,499

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Consolidated Balance Sheet (Unaudited) (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Consolidated Balance Sheet [Abstract]
Fixed maturities, available for sale at amortized cost	$ 20,994	$ 20,562
Equity securities, at cost	$ 800	$ 744
Common Stock, par value
Common Stock, shares authorized	200,000,000	200,000,000
Common Stock, shares outstanding	97,177,820	97,846,402

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Shareholders' Equity

3 Months Ended

Mar. 31, 2012

Shareholders' Equity [Abstract]

Shareholders' Equity

J. Shareholders’ Equity

AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value.

Accumulated Other Comprehensive Income, Net of Tax (“AOCI”) Comprehensive income is defined as all changes in Shareholders’ Equity except those arising from transactions with shareholders. Comprehensive income includes net earnings and other comprehensive income (“OCI”), which consists primarily of changes in net unrealized gains or losses on available for sale securities. The progression of the components of accumulated other comprehensive income follows (in millions):

				OCI
	AOCI Beginning Balance			Pre- tax		Tax			Non- controlling interests			Net		AOCI Ending Balance
Three Months ended March 31, 2012
Net unrealized gains on securities	$	578	(a)	$	200	($	70	)	($	3	)	$	127	$	705	(a)
Foreign currency translation adjustments		10			7		—			(1	)		6		16
Pension and other postretirement plans adjustments		(8	)		1		—			—			1		(7	)
Total	$	580		$	208	($	70	)	($	4	)	$	134	$	714
Three Months ended March 31, 2011
Net unrealized gains on securities	$	491		$	28	($	10	)	$	—		$	18	$	509
Foreign currency translation adjustments		12			7		—			—			7		19
Pension and other postretirement plans adjustments		(8	)		—		—			—			—		(8	)
Total	$	495		$	35	($	10	)	$	—		$	25	$	520

(a) Includes net unrealized losses of $8 million at March 31, 2012 and $15 million at December 31, 2011 related to securities for which only the credit portion of an other-than-temporary impairment has been recorded in earnings.

Stock Based Compensation Under AFG’s Stock Incentive Plan, employees of AFG and its subsidiaries are eligible to receive equity awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards. In the first three months of 2012, AFG issued 131,731 shares of restricted Common Stock (fair value of $38.11 per share) and granted stock options for 1.1 million shares of Common Stock (at an average exercise price of $38.11) under the Stock Incentive Plan. In addition, AFG issued 111,270 shares of Common Stock (fair value of $38.38 per share) in the first quarter of 2012 under its Annual Co-CEO Equity Bonus Plan.

AFG uses the Black-Scholes option pricing model to calculate the “fair value” of its option grants. Expected volatility is based on historical volatility over a period equal to the expected term. The expected term was estimated based on historical exercise patterns and post vesting cancellations. The weighted average fair value of options granted during 2012 was $13.03 per share based on the following assumptions: expected dividend yield – 1.8%; expected volatility – 39%; expected term – 7.3 years; risk-free rate – 1.4%.

Total compensation expense related to stock incentive plans of AFG and its subsidiaries was $6 and $5 million, respectively, in the first quarter of 2012 and 2011.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 01, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	AMERICAN FINANCIAL GROUP INC
Entity Central Index Key	0001042046
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		96,887,372

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Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes

K. Income Taxes

Income (losses) attributable to noncontrolling interests related to AFG’s managed investment entities are non-taxable (non-deductible). For the first three months of 2012 and 2011, respectively, AFG’s operating earnings before income taxes included $28 million and $35 million of such non-deductible losses, thereby increasing AFG’s effective tax rate.

AFG is involved in litigation with the IRS regarding the calculation of tax reserves for certain annuity reserves pursuant to Actuarial Guideline 33. In 2010, the U.S. District Court in Southern Ohio issued a final summary judgment in favor of AFG. The IRS appealed the District Court decision to the Sixth Circuit Court of Appeals, which heard oral arguments on March 7, 2012. Ultimate resolution may require revised tax calculations for the years 1996-2005, possibly requiring a revised application of tax attribute carryovers or carrybacks, both capital and ordinary, to the affected years, and is contingent upon formal review and acceptance by the IRS. Resolution of the case could result in a decrease in the liability for unrecognized tax benefits by up to $36 million and a decrease in related accrued interest of $15 million. These amounts do not include tax and interest paid to the IRS in 2005 and 2006, for which the suit was filed, totaling $17 million. See Note N – “Subsequent Event.”

During the first quarter of 2012, there were no material changes to AFG’s liability for uncertain tax positions, which is discussed in Note L – “Income Taxes,” to AFG’s 2011 Form 10-K.

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Consolidated Statement of Earnings (Unaudited) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenues:
Property and casualty insurance premiums	$ 603	$ 599
Life, accident and health premiums	105	110
Investment income	322	300
Realized gains (losses) on:
Securities	44
Subsidiaries		(3)
Income (loss) of managed investment entities:
Investment income	29	25
Loss on change in fair value of assets/liabilities	(29)	(33)
Other income	39	41
Total revenues	1,113	1,039
Costs and Expenses:
Property and casualty insurance Losses and loss adjustment expenses	344	341
Property and casualty insurance Commissions and other underwriting expenses	211	203
Annuity benefits	130	116
Life, accident and health benefits	92	96
Annuity and supplemental insurance acquisition expenses	47	50
Interest charges on borrowed money	21	21
Expenses of managed investment entities	19	18
Other operating and general expenses	103	92
Total costs and expenses	967	937
Operating earnings before income taxes	146	102
Provision for income taxes	58	48
Net earnings, including noncontrolling interests	88	54
Less: Net earnings (loss) attributable to noncontrolling interests	(25)	(34)
Net Earnings Attributable to Shareholders	113	88
Earnings Attributable to Shareholders per Common Share:
Basic	$ 1.16	$ 0.84
Diluted	$ 1.14	$ 0.83
Average number of Common Shares:
Basic	97.7	104.6
Diluted	99.4	106.2
Cash dividends per Common Share	$ 0.175	$ 0.1625
Supplemental disclosure of Realized gains (losses) on securities:
Realized gains before impairments	48	10
Losses on securities with impairment	(5)	(7)
Non-credit portion recognized in other comprehensive income (loss)	1	(3)
Impairment charges recognized in earnings	(4)	(10)
Total realized gains on securities	$ 44

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Derivatives

3 Months Ended

Mar. 31, 2012

Derivatives [Abstract]

Derivatives

E. Derivatives

As discussed under “Derivatives” in Note A, AFG uses derivatives in certain areas of its operations. AFG’s derivatives do not qualify for hedge accounting under GAAP; changes in the fair value of derivatives are included in earnings.

The following derivatives are included in AFG’s Balance Sheet at fair value (in millions):

		March 31, 2012				December 31, 2011
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	102	$	—	$	99	$	—
Interest rate swaptions	Other investments		5		—		5		—
Indexed annuities     (embedded derivative)	Annuity benefits accumulated		—		483		—		395
Equity index call options	Other investments		137		—		66		—
Reinsurance contracts     (embedded derivative)	Other liabilities		—		22		—		23
		$	244	$	505	$	170	$	418

The MBS with embedded derivatives consist primarily of interest-only MBS with interest rates that float inversely with short-term rates. AFG records the entire change in the fair value of these securities in earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.

AFG has entered into $1 billion notional amount of pay-fixed interest rate swaptions (options to enter into pay-fixed/receive floating interest rate swaps at future dates expiring between 2012 and 2015) to mitigate interest rate risk in its annuity operations. AFG paid $29 million to purchase these swaptions, which represents its maximum potential economic loss over the life of the contracts.

AFG’s indexed annuities, which represented approximately one-third of annuity benefits accumulated at March 31, 2012, provide policyholders with a crediting rate tied, in part, to the performance of an existing stock market index. AFG attempts to mitigate the risk in the index-based component of these products through the purchase of call options on the appropriate index. AFG’s strategy is designed so that an increase in the liabilities, due to an increase in the market index, will be generally offset by unrealized and realized gains on the call options purchased by AFG. Both the index-based component of the annuities and the related call options are considered derivatives.

As discussed under “Reinsurance” in Note A, certain reinsurance contracts in AFG’s annuity and supplemental insurance business are considered to contain embedded derivatives.

The following table summarizes the gain (loss) included in the Statement of Earnings for changes in the fair value of these derivatives for the first quarter of 2012 and 2011 (in millions):

Derivative	Statement of Earnings Line	2012			2011
MBS with embedded derivatives	Realized gains	$	4		($	3	)
Interest rate swaptions	Realized gains		—			(2	)
Indexed annuities     (embedded derivative)	Annuity benefits		(62	)		(19	)
Equity index call options	Annuity benefits		57			18
Reinsurance contracts     (embedded derivative)	Investment income		1			—
		$	—		($	6	)

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Investments

3 Months Ended

Mar. 31, 2012

Investments [Abstract]

Investments

D. Investments

Available for sale fixed maturities and equity securities at March 31, 2012, and December 31, 2011, consisted of the following (in millions):

	March 31, 2012									December 31, 2011
	Amortized Cost		Fair Value		Gross Unrealized					Amortized Cost		Fair Value		Gross Unrealized
					Gains		Losses							Gains		Losses
Fixed maturities:
U.S. Government and government agencies	$	374	$	390	$	16	$	—		$	363	$	382	$	19	$	—
States, municipalities and political subdivisions		3,683		3,916		239		(6	)		3,613		3,877		267		(3	)
Foreign government		243		260		17		—			236		254		18		—
Residential MBS		4,069		4,118		192		(143	)		3,858		3,848		170		(180	)
Commercial MBS		2,651		2,900		250		(1	)		2,628		2,840		218		(6	)
All other corporate		9,974		10,787		836		(23	)		9,864		10,606		802		(60	)
Total fixed maturities	$	20,994	$	22,371	$	1,550	($	173	)	$	20,562	$	21,807	$	1,494	($	249	)
Common stocks	$	643	$	892	$	258	($	9	)	$	610	$	797	$	207	($	20	)
Perpetual preferred stocks	$	157	$	162	$	8	($	3	)	$	134	$	131	$	5	($	8	)

The non-credit related portion of other-than-temporary impairment charges are included in other comprehensive income. Cumulative charges taken for residential MBS still owned at March 31, 2012 and December 31, 2011, respectively were $229 million and $227 million.

The following tables show gross unrealized losses (in millions) on fixed maturities and equity securities by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2012 and December 31, 2011.

	Less Than Twelve Months								Twelve Months or More
	Unrealized Loss			Fair Value		Fair Value as % of  Cost			Unrealized Loss			Fair Value		Fair Value as % of  Cost
March 31, 2012
Fixed maturities:
U.S. Government and government agencies	$	—		$	27		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(5	)		250		98	%		(1	)		22		96	%
Foreign government		—			—		—	%		—			—		—	%
Residential MBS		(36	)		846		96	%		(107	)		502		82	%
Commercial MBS		(1	)		38		97	%		—			2		100	%
All other corporate		(12	)		602		98	%		(11	)		112		91	%
Total fixed maturities	($	54	)	$	1,763		97	%	($	119	)	$	638		84	%
Common stocks	($	8	)	$	70		90	%	($	1	)	$	4		80	%
Perpetual preferred stocks	$	—		$	2		100	%	($	3	)	$	22		88	%
December 31, 2011
Fixed maturities:
U.S. Government and government agencies	$	—		$	2		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(2	)		120		98	%		(1	)		59		98	%
Foreign government		—			1		100	%		—			—		—	%
Residential MBS		(59	)		1,141		95	%		(121	)		473		80	%
Commercial MBS		(6	)		183		97	%		—			18		100	%
All other corporate		(43	)		940		96	%		(17	)		114		87	%
Total fixed maturities	($	110	)	$	2,387		96	%	($	139	)	$	664		83	%
Common stocks	($	19	)	$	169		90	%	($	1	)	$	4		80	%
Perpetual preferred stocks	($	1	)	$	23		96	%	($	7	)	$	31		82	%

At March 31, 2012, the gross unrealized losses on fixed maturities of $173 million relate to approximately 725 securities. Investment grade securities (as determined by nationally recognized rating agencies) represented approximately 28% of the gross unrealized loss and 55% of the fair value.

AFG analyzes its MBS securities for other-than-temporary impairment each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of the MBS market, cash flow projections (which reflect loan to collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cash flows inherent in security ratings and analysis of historical payment data. For the first three months of 2012, AFG recorded in earnings $4 million in other-than-temporary impairment charges related to its residential MBS.

A progression of the credit portion of other-than-temporary impairments on fixed maturity securities for which the non-credit portion of an impairment has been recognized in other comprehensive income is shown below (in millions).

	2012		2011
Balance at January 1	$	187	$	143
Additional credit impairments on:
Previously impaired securities		3		7
Securities without prior impairments		—		1
Balance at March 31	$	190	$	151

The table below sets forth the scheduled maturities of available for sale fixed maturities as of March 31, 2012 (in millions). Asset-backed securities and other securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers. MBS had an average life of approximately 4 years at March 31, 2012.

	Amortized Cost		Fair Value
			Amount		%
Maturity
One year or less	$	634	$	648		3	%
After one year through five years		5,265		5,599		25
After five years through ten years		6,425		7,001		31
After ten years		1,950		2,105		10
		14,274		15,353		69
MBS		6,720		7,018		31
Total	$	20,994	$	22,371		100	%

Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, and general market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.

There were no investments in individual issuers that exceeded 10% of Shareholders’ Equity at March 31, 2012 or December 31, 2011.

Net Unrealized Gain on Marketable Securities In addition to adjusting equity securities and fixed maturity securities classified as “available for sale” to fair value, GAAP requires that deferred policy acquisition costs related to annuities and certain other balance sheet amounts be adjusted to the extent that unrealized gains and losses from securities would result in adjustments to those balances had the unrealized gains or losses actually been realized. The following table shows (in millions) the components of the net unrealized gain on securities that is included in Accumulated Other Comprehensive Income in AFG’s Balance Sheet.

	Pre-tax			Deferred Tax and Amounts  Attributable to Noncontrolling Interests			Net
March 31, 2012
Unrealized gain on:
Fixed maturity securities	$	1,377		($	492	)	$	885
Equity securities		254			(90	)		164
Deferred policy acquisition costs		(539	)		189			(350	)
Annuity benefits and other liabilities		10			(4	)		6
	$	1,102		($	397	)	$	705
December 31, 2011
Unrealized gain on:
Fixed maturity securities	$	1,245		($	444	)	$	801
Equity securities		184			(65	)		119
Deferred policy acquisition costs		(537	)		188			(349	)
Annuity benefits and other liabilities		10			(3	)		7
	$	902		($	324	)	$	578

Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments are summarized as follows (in millions):

	Fixed Maturities			Equity Securities			Mortgage Loans and Other Investments			Other (a)			Tax Effects			Noncon- trolling Interests			Total
Quarter ended March 31, 2012
Realized before impairments	$	14		$	35		$	1		($	2	)	($	17	)	$	—		$	31
Realized – impairments		(4	)		(2	)		—			2			1			—			(3	)
Change in unrealized		132			70			—			(2	)		(70	)		(3	)		127
Quarter ended March 31, 2011
Realized before impairments	$	13		$	1		($	2	)	($	2	)	($	3	)	$	—		$	7
Realized – impairments		(11	)		—			(3	)		4			3			—			(7	)
Change in unrealized		37			13			—			(22	)		(10	)		—			18

(a) Primarily adjustments to deferred policy acquisition costs related to annuities.

Realized gains (losses) on securities includes net gains of $4 million in the first quarter of 2012 compared to net losses of $3 million in the first quarter of 2011 from the mark-to-market of certain MBS, primarily interest-only securities with interest rates that float inversely with short-term rates. Gross realized gains and losses (excluding impairment writedowns and mark-to-market of derivatives) on available for sale fixed maturity and equity security investment transactions included in the Statement of Cash Flows consisted of the following (in millions):

	Three months ended March  31,
	2012		2011
Fixed maturities:
Gross gains	$	10	$	17
Gross losses		—		(1	)
Equity securities:
Gross gains		35		1
Gross losses		—		—

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Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Impact of adoption of new standard

	December 31, 2011
Deferred policy acquisition costs
As previously reported	$	1,105
As adjusted		901
Net deferred tax liability (included in other liabilities)
As previously reported	$	203
As adjusted		133
Shareholders’ equity
As previously reported	$	4,545
As adjusted		4,411

	2011
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total Year
Net earnings attributable to shareholders
As previously reported	$	83	$	55	$	96	$	109	$	343
As adjusted		88		48		97		109		342
Diluted earnings per Common Share
As previously reported	$	.79	$	.52	$	.94	$	1.10	$	3.33
As adjusted		.83		.46		.95		1.09		3.32

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Contingencies

3 Months Ended

Mar. 31, 2012

Contingencies [Abstract]

Contingencies

L. Contingencies

There have been no significant changes to the matters discussed and referred to in Note M – “Contingencies” of AFG’s 2011 Form 10-K covering property and casualty insurance reserves for claims related to environmental exposures, asbestos and other mass tort claims as well as environmental and occupational injury and disease claims of former subsidiary railroad and manufacturing operations.

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Goodwill and Other Intangibles

3 Months Ended

Mar. 31, 2012

Goodwill and Other Intangibles [Abstract]

Goodwill and Other Intangibles

H. Goodwill and Other Intangibles

There were no changes in the goodwill balance of $186 million during the three months ended March 31, 2012. Included in other assets in AFG’s Balance Sheet is $38 million at March 31, 2012 and $41 million at December 31, 2011, in amortizable intangible assets related to property and casualty insurance acquisitions. These amounts are net of accumulated amortization of $51 million and $47 million, respectively. Amortization of these intangibles was $4 million and $3 million for the first three months of 2012 and 2011, respectively. Other assets also include $8 million in non-amortizable intangible assets related to property and casualty insurance acquisitions.

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Long-Term Debt (Details 1) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Summary showing division of total long term debt
Unsecured obligations	$ 840	$ 840
Obligations secured by real estate	64	64
Other secured borrowings	27	30
Long-term Debt	$ 931	$ 934

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Deferred Policy Acquisition Costs

3 Months Ended

Mar. 31, 2012

Deferred Policy Acquisition Costs [Abstract]

Deferred Policy Acquisition Costs

F. Deferred Policy Acquisition Costs

Deferred policy acquisition costs consisted of the following (in millions):

	March 31, 2012			December 31, 2011
Property and casualty insurance	$	191		$	189
Annuity and supplemental insurance:
Policy acquisition costs		922			898
Policyholder sales inducements		203			207
Present value of future profits (“PVFP”)		139			144
Impact of unrealized gains and losses on securities		(539	)		(537	)
Total annuity and supplemental		725			712
	$	916		$	901

See Accounting Standards Adopted in 2012 under Note A – “Accounting Policies.” The PVFP amounts in the table above are net of $200 million and $195 million of accumulated amortization at March 31, 2012 and December 31, 2011, respectively. Amortization of the PVFP was $5 million in the first quarter of 2012 and $6 million in the first quarter of 2011.

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Managed Investment Entities

3 Months Ended

Mar. 31, 2012

Managed Investment Entities [Abstract]

Managed Investment Entities

G. Managed Investment Entities

AFG is the investment manager and has investments ranging from 7.5% to 51.2% of the most subordinate debt tranche of eight collateralized loan obligation entities or “CLOs,” which are considered variable interest entities. Upon formation between 2004 and 2012, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each particular CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay operating expenses (including management fees to AFG), interest on and returns of capital to senior levels of debt securities. There are no contractual requirements for AFG to provide additional funding for these entities. AFG has not provided and does not intend to provide any financial support to these entities.

AFG’s maximum ultimate exposure to economic loss on its CLOs is limited to its investment in the CLOs, which had an aggregate fair value of $135 million at March 31, 2012, and $98 million at December 31, 2011.

In February 2012, one of the AFG CLOs was substantially liquidated at the instruction of the holder of the majority of the most subordinate debt tranche, as permitted by the CLO indentures. In March 2012, AFG formed a new CLO, which issued $410 million face amount of liabilities (including $39 million face amount purchased by subsidiaries of AFG).

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

	Three months ended March  31,
	2012			2011
Gains (losses) on change in fair value of assets/liabilities (a):
Assets	$	55		$	29
Liabilities		(84	)		(62	)
Management fees paid to AFG		4			3
CLO earnings (losses) attributable to:
AFG shareholders (b)		5			6
Noncontrolling interests (b)		(28	)		(35	)

(a) Included in AFG’s “Revenues.”

(b) Included in AFG’s “Operating earnings before income taxes.”

The aggregate unpaid principal balance of the CLOs’ fixed maturity investments exceeded the fair value of the investments by $65 million and $120 million at March 31, 2012 and December 31, 2011. The aggregate unpaid principal balance of the CLOs’ debt exceeded its fair value by $227 million and $306 million at those dates. The CLO assets include $6 million and $2 million in loans (aggregate unpaid principal balance of $17 million and $7 million, respectively) at March 31, 2012 and December 31, 2011, for which the CLOs are not accruing interest because the loans are in default.

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Long-Term Debt

3 Months Ended

Mar. 31, 2012

Long-Term Debt [Abstract]

Long-Term Debt

I. Long-Term Debt

The carrying value of long-term debt consisted of the following (in millions):

	March 31, 2012		December 31, 2011
Direct obligations of AFG:
9-7/8% Senior Notes due June 2019	$	350	$	350
7% Senior Notes due September 2050		132		132
7-1/8% Senior Debentures due February 2034		115		115
Other		3		3
		600		600
Subsidiaries:
Obligations of AAG Holding (guaranteed by AFG):
7-1/2% Senior Debentures due November 2033		112		112
7-1/4% Senior Debentures due January 2034		86		86
Notes payable secured by real estate due 2012 through 2016		64		64
Secured borrowings ($16 and $17 guaranteed by AFG)		27		30
National Interstate bank credit facility		22		22
		311		314
Payable to Subsidiary Trusts:
AAG Holding Variable Rate Subordinated Debentures due May 2033		20		20
	$	931	$	934

Scheduled principal payments on debt for the balance of 2012 and the subsequent five years were as follows: 2012 – $31 million; 2013 – $20 million; 2014 – $2 million; 2015 – $14 million; 2016 – $45 million and 2017 – none.

As shown below (in millions), the majority of AFG’s long-term debt is unsecured obligations of the holding company and its subsidiaries:

	March 31, 2012		December 31, 2011
Unsecured obligations	$	840	$	840
Obligations secured by real estate		64		64
Other secured borrowings		27		30
	$	931	$	934

AFG can borrow up to $500 million under its revolving credit facility which expires in August 2013. Amounts borrowed under this agreement bear interest at rates ranging from 1.75% to 3.00% (currently 2%) over LIBOR based on AFG’s credit rating. No amounts were borrowed under this facility at March 31, 2012.

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Income Taxes (Textual) [Abstract]
Change in AFG's liability for uncertain tax positions	$ 0
Non-deductible losses related to managed investment entities	28	35
Decrease in the liability for unrecognized tax benefits	36
Decrease in related accrued interest	$ 15

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Condensed Consolidating Information (Details 1) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenues:
Property and casualty insurance premiums	$ 603	$ 599
Life, accident and health premiums	105	110
Realized gains (losses)	44	(3)
Income of managed investment entities		(8)
Investment and other income	361	341
Total revenues	1,113	1,039
Costs and Expenses:
Insurance benefits and expenses	824	806
Interest charges on borrowed money	21	21
Expenses of managed investment entities	19	18
Other operating and general expenses	103	92
Total costs and expenses	967	937
Operating earnings before income taxes	146	102
Provision (credit) for income taxes	58	48
Net earnings, including noncontrolling interests	88	54
Less: Net earnings (loss) attributable to noncontrolling interests	(25)	(34)
Net earnings attributable to shareholders	113	88
AFG [Member]
Revenues:
Investment and other income	2	2
Equity in earnings of subsidiaries	203	167
Total revenues	205	169
Costs and Expenses:
Interest charges on borrowed money	16	16
Other operating and general expenses	18	17
Total costs and expenses	34	33
Operating earnings before income taxes	171	136
Provision (credit) for income taxes	58	48
Net earnings, including noncontrolling interests	113	88
Net earnings attributable to shareholders	113	88
GAFRI [Member]
Revenues:
Investment and other income	2	3
Equity in earnings of subsidiaries	78	47
Total revenues	80	50
Costs and Expenses:
Other operating and general expenses	4	3
Total costs and expenses	4	3
Operating earnings before income taxes	76	47
Provision (credit) for income taxes	27	17
Net earnings, including noncontrolling interests	49	30
Net earnings attributable to shareholders	49	30
AAG Holding [Member]
Revenues:
Equity in earnings of subsidiaries	84	55
Total revenues	84	55
Costs and Expenses:
Interest charges on borrowed money	6	6
Other operating and general expenses	2	1
Total costs and expenses	8	7
Operating earnings before income taxes	76	48
Provision (credit) for income taxes	27	17
Net earnings, including noncontrolling interests	49	31
Net earnings attributable to shareholders	49	31
All Other Subs [Member]
Revenues:
Property and casualty insurance premiums	603	599
Life, accident and health premiums	105	110
Realized gains (losses)	45	(3)
Income of managed investment entities		(8)
Investment and other income	362	343
Total revenues	1,115	1,041
Costs and Expenses:
Insurance benefits and expenses	824	806
Interest charges on borrowed money	4	4
Expenses of managed investment entities	19	18
Other operating and general expenses	80	72
Total costs and expenses	927	900
Operating earnings before income taxes	188	141
Provision (credit) for income taxes	72	60
Net earnings, including noncontrolling interests	116	81
Less: Net earnings (loss) attributable to noncontrolling interests	(25)	(34)
Net earnings attributable to shareholders	141	115
Consol. Entries [Member]
Revenues:
Realized gains (losses)	(1)
Investment and other income	(5)	(7)
Equity in earnings of subsidiaries	(365)	(269)
Total revenues	(371)	(276)
Costs and Expenses:
Interest charges on borrowed money	(5)	(5)
Other operating and general expenses	(1)	(1)
Total costs and expenses	(6)	(6)
Operating earnings before income taxes	(365)	(270)
Provision (credit) for income taxes	(126)	(94)
Net earnings, including noncontrolling interests	(239)	(176)
Net earnings attributable to shareholders	$ (239)	$ (176)

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Shareholders' Equity (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012 Y	Mar. 31, 2011	Dec. 31, 2011
Stockholders' Equity (Textual) [Abstract]
Expected dividend yield	1.80%
Expected volatility	39.00%
Expected term (in years)	7.3
Risk-free rate	1.40%
Restricted Common Stock, shares issued	131,731
Restricted Common Stock, fair value per share	$ 38.11
Fair value per share of options granted	$ 13.03
Total compensation expense related to stock incentive plans	$ 6	$ 5
Net of tax unrealized gains (losses) related to credit-only impaired securities	$ (8)		$ (15)
Stock incentive plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common Stock options issued under stock incentive plan	1,100,000
Common Stock options issued under stock incentive plan, average exercise price	$ 38.11
Annual Co-CEO Equity Bonus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Other benefit plans, shares	111,270
Common stock issued, fair value per share	$ 38.38
Voting Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, shares authorized	12,500,000
Preferred Stock, par value	$ 0
Nonvoting Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, shares authorized	12,500,000
Preferred Stock, par value	$ 0

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Accounting Policies (Details Textual) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Accounting Policies (Textual) [Abstract]
Weighted average common shares adjustment related to stock-based compensation	1.7	1.6
Anti-dilutive potential common shares related to stock-based compensation plans	1.5	1.8
Maturities of short term investments	3 months

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Derivatives (Details) (Not Designated as Hedging Instrument [Member], USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	$ 244	$ 170
Derivative liability, at fair value	505	418
MBS with embedded derivatives [Member] | Fixed Maturities [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	102	99
Interest rate swaptions [Member] | Other Investments [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	5	5
Indexed annuities embedded derivative [Member] | Annuity benefits accumulated [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative liability, at fair value	483	395
Equity index call options [Member] | Other Investments [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative asset, at fair value	137	66
Reinsurance contracts embedded derivative [Member] | Other Liabilities [Member]
Derivatives included in AFG' s Balance Sheet at fair value
Derivative liability, at fair value	$ 22	$ 23

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Subsequent Event

3 Months Ended

Mar. 31, 2012

Subsequent Events [Abstract]

Subsequent Event

N. Subsequent Event As discussed in Note K – “Income Taxes,” AFG has been involved in litigation with the IRS regarding the calculation of tax reserves for certain annuity reserves for the years 1996 through 2001. On May 4, 2012, the Sixth Circuit Court of Appeals affirmed the Summary Judgment of the District Court in favor of AFG. As a result, unless the IRS determines to seek a discretionary appeal of this decision within 90 days, the decision will become final, and AFG will record net earnings of approximately $27 million. As discussed in Note K, AFG continues to hold discussions with the IRS involving subsequent tax years.

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Investments (Tables)

3 Months Ended

Mar. 31, 2012

Investments [Abstract]

Available for sale fixed maturities and equity securities

	March 31, 2012									December 31, 2011
	Amortized Cost		Fair Value		Gross Unrealized					Amortized Cost		Fair Value		Gross Unrealized
					Gains		Losses							Gains		Losses
Fixed maturities:
U.S. Government and government agencies	$	374	$	390	$	16	$	—		$	363	$	382	$	19	$	—
States, municipalities and political subdivisions		3,683		3,916		239		(6	)		3,613		3,877		267		(3	)
Foreign government		243		260		17		—			236		254		18		—
Residential MBS		4,069		4,118		192		(143	)		3,858		3,848		170		(180	)
Commercial MBS		2,651		2,900		250		(1	)		2,628		2,840		218		(6	)
All other corporate		9,974		10,787		836		(23	)		9,864		10,606		802		(60	)
Total fixed maturities	$	20,994	$	22,371	$	1,550	($	173	)	$	20,562	$	21,807	$	1,494	($	249	)
Common stocks	$	643	$	892	$	258	($	9	)	$	610	$	797	$	207	($	20	)
Perpetual preferred stocks	$	157	$	162	$	8	($	3	)	$	134	$	131	$	5	($	8	)

Available for sale securities in a continuous unrealized loss position

	Less Than Twelve Months								Twelve Months or More
	Unrealized Loss			Fair Value		Fair Value as % of  Cost			Unrealized Loss			Fair Value		Fair Value as % of  Cost
March 31, 2012
Fixed maturities:
U.S. Government and government agencies	$	—		$	27		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(5	)		250		98	%		(1	)		22		96	%
Foreign government		—			—		—	%		—			—		—	%
Residential MBS		(36	)		846		96	%		(107	)		502		82	%
Commercial MBS		(1	)		38		97	%		—			2		100	%
All other corporate		(12	)		602		98	%		(11	)		112		91	%
Total fixed maturities	($	54	)	$	1,763		97	%	($	119	)	$	638		84	%
Common stocks	($	8	)	$	70		90	%	($	1	)	$	4		80	%
Perpetual preferred stocks	$	—		$	2		100	%	($	3	)	$	22		88	%
December 31, 2011
Fixed maturities:
U.S. Government and government agencies	$	—		$	2		100	%	$	—		$	—		—	%
States, municipalities and political subdivisions		(2	)		120		98	%		(1	)		59		98	%
Foreign government		—			1		100	%		—			—		—	%
Residential MBS		(59	)		1,141		95	%		(121	)		473		80	%
Commercial MBS		(6	)		183		97	%		—			18		100	%
All other corporate		(43	)		940		96	%		(17	)		114		87	%
Total fixed maturities	($	110	)	$	2,387		96	%	($	139	)	$	664		83	%
Common stocks	($	19	)	$	169		90	%	($	1	)	$	4		80	%
Perpetual preferred stocks	($	1	)	$	23		96	%	($	7	)	$	31		82	%

Roll forward of cumulative credit portion of other-than-temporary impairments on fixed maturity securities

	2012		2011
Balance at January 1	$	187	$	143
Additional credit impairments on:
Previously impaired securities		3		7
Securities without prior impairments		—		1
Balance at March 31	$	190	$	151

Available for sale fixed maturity securities by contractual maturity date

	Amortized Cost		Fair Value
			Amount		%
Maturity
One year or less	$	634	$	648		3	%
After one year through five years		5,265		5,599		25
After five years through ten years		6,425		7,001		31
After ten years		1,950		2,105		10
		14,274		15,353		69
MBS		6,720		7,018		31
Total	$	20,994	$	22,371		100	%

Components of the net unrealized gain on securities, included in Accumulated Other Comprehensive Income

	Pre-tax			Deferred Tax and Amounts  Attributable to Noncontrolling Interests			Net
March 31, 2012
Unrealized gain on:
Fixed maturity securities	$	1,377		($	492	)	$	885
Equity securities		254			(90	)		164
Deferred policy acquisition costs		(539	)		189			(350	)
Annuity benefits and other liabilities		10			(4	)		6
	$	1,102		($	397	)	$	705
December 31, 2011
Unrealized gain on:
Fixed maturity securities	$	1,245		($	444	)	$	801
Equity securities		184			(65	)		119
Deferred policy acquisition costs		(537	)		188			(349	)
Annuity benefits and other liabilities		10			(3	)		7
	$	902		($	324	)	$	578

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

	Fixed Maturities			Equity Securities			Mortgage Loans and Other Investments			Other (a)			Tax Effects			Noncon- trolling Interests			Total
Quarter ended March 31, 2012
Realized before impairments	$	14		$	35		$	1		($	2	)	($	17	)	$	—		$	31
Realized – impairments		(4	)		(2	)		—			2			1			—			(3	)
Change in unrealized		132			70			—			(2	)		(70	)		(3	)		127
Quarter ended March 31, 2011
Realized before impairments	$	13		$	1		($	2	)	($	2	)	($	3	)	$	—		$	7
Realized – impairments		(11	)		—			(3	)		4			3			—			(7	)
Change in unrealized		37			13			—			(22	)		(10	)		—			18

(a) Primarily adjustments to deferred policy acquisition costs related to annuities.

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

	Three months ended March  31,
	2012		2011
Fixed maturities:
Gross gains	$	10	$	17
Gross losses		—		(1	)
Equity securities:
Gross gains		35		1
Gross losses		—		—

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Investments (Details 6) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Fixed maturity securities [Member]
Gross realized gains and losses on the sale of available for sale fixed maturity and equity security investments
Gross gains	$ 10	$ 17
Gross losses		(1)
Equity Securities [Member]
Gross realized gains and losses on the sale of available for sale fixed maturity and equity security investments
Gross gains	35	1
Gross losses

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Fair Value Measurements (Details 3) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2011	Dec. 31, 2010
Financial assets:
Cash and cash equivalents	$ 1,422	$ 1,324	$ 1,499	$ 1,099
Mortgage loans	438	401
Policy loans	249	252
Financial liabilities:
Long-term debt	931	934
Level 1 [Member]
Financial assets:
Cash and cash equivalents	1,422
Total financial assets not accounted for at fair value	1,422
Level 2 [Member]
Financial liabilities:
Long-term debt	918
Total financial liabilities not accounted for at fair value	918
Level 3 [Member]
Financial assets:
Mortgage loans	441
Policy loans	249
Total financial assets not accounted for at fair value	690
Financial liabilities:
Annuity benefits accumulated	15,788
Long-term debt	115
Total financial liabilities not accounted for at fair value	15,903
Carrying Value [Member]
Financial assets:
Cash and cash equivalents	1,422
Mortgage loans	438
Policy loans	249
Total financial assets not accounted for at fair value	2,109
Financial liabilities:
Annuity benefits accumulated	15,864
Long-term debt	931
Total financial liabilities not accounted for at fair value	16,795
Fair Value [Member]
Financial assets:
Cash and cash equivalents	1,422
Mortgage loans	441
Policy loans	249
Total financial assets not accounted for at fair value	2,112
Financial liabilities:
Annuity benefits accumulated	15,788
Long-term debt	1,033
Total financial liabilities not accounted for at fair value	$ 16,821

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Consolidated Statement of Comprehensive Income (Unaudited) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statement of Comprehensive Income [Abstract]
Net earnings, including noncontrolling interests	$ 88	$ 54
Net unrealized gains on securities:
Unrealized holding gains on securities arising during the period	158	18
Reclassification adjustment for realized gains included in net earnings	(28)
Total net unrealized gains on securities	130	18
Foreign currency translation adjustments	7	7
Pension and other postretirement plans adjustments	1
Other comprehensive income, net of tax	138	25
Total comprehensive income, net of tax	226	79
Less: Comprehensive income (loss) attributable to noncontrolling interests	(21)	(34)
Comprehensive income attributable to shareholders	$ 247	$ 113

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Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

C. Fair Value Measurements

Accounting standards for measuring fair value are based on inputs used in estimating fair value. The three levels of the hierarchy are as follows:

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

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

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

AFG’s management is responsible for the valuation process and uses data from outside sources (including nationally recognized pricing services and broker/dealers) in establishing fair value. AFG’s internal investment professionals are a group of approximately 20 analysts whose primary responsibility is to manage AFG’s investment portfolio. These professionals monitor individual investments as well as overall industries and are active in the financial markets on a daily basis. The group is led by AFG’s chief investment officer, who reports directly to one of the Co-CEOs. Valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by AFG’s internal investment professionals who are familiar with the securities being priced and the markets in which they trade to ensure the fair value determination is representative of an exit price. To validate the appropriateness of the prices obtained, these investment managers consider widely published indices (as benchmarks), recent trades, changes in interest rates, general economic conditions and the credit quality of the specific issuers. In addition, the Company communicates directly with the pricing service regarding the methods and assumptions used in pricing, including verifying, on a test basis, the inputs used by the service to value specific securities.

Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
March 31, 2012
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	235	$	155	$	—	$	390
States, municipalities and political subdivisions		—		3,844		72		3,916
Foreign government		—		260		—		260
Residential MBS		—		3,804		314		4,118
Commercial MBS		—		2,880		20		2,900
All other corporate		8		10,264		515		10,787
Total AFS fixed maturities		243		21,207		921		22,371
Trading fixed maturities		—		456		1		457
Equity securities		955		75		24		1,054
Assets of managed investment entities (“MIE”)		245		2,643		64		2,952
Variable annuity assets (separate accounts) (a)		—		601		—		601
Other investments		—		142		—		142
Total assets accounted for at fair value	$	1,443	$	25,124	$	1,010	$	27,577
Liabilities:
Liabilities of managed investment entities	$	118	$	—	$	2,554	$	2,672
Derivatives in annuity benefits accumulated		—		—		483		483
Other liabilities – derivatives		—		22		—		22
Total liabilities accounted for at fair value	$	118	$	22	$	3,037	$	3,177
December 31, 2011
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	248	$	134	$	—	$	382
States, municipalities and political subdivisions		—		3,794		83		3,877
Foreign government		—		254		—		254
Residential MBS		—		3,487		361		3,848
Commercial MBS		—		2,821		19		2,840
All other corporate		9		10,078		519		10,606
Total AFS fixed maturities		257		20,568		982		21,807
Trading fixed maturities		—		439		1		440
Equity securities		888		29		11		928
Assets of managed investment entities (“MIE”)		290		2,724		44		3,058
Variable annuity assets (separate accounts) (a)		—		548		—		548
Other investments		—		71		—		71
Total assets accounted for at fair value	$	1,435	$	24,379	$	1,038	$	26,852
Liabilities:
Liabilities of managed investment entities	$	194	$	—	$	2,593	$	2,787
Derivatives in annuity benefits accumulated		—		—		395		395
Other liabilities – derivatives		—		23		—		23
Total liabilities accounted for at fair value	$	194	$	23	$	2,988	$	3,205

(a) Variable annuity liabilities equal the fair value of variable annuity assets.

At March 31, 2012, six preferred stocks with an aggregate fair value of $35 million were transferred from Level 1 to Level 2. The transfers were due to decreases in trade frequency, resulting in lack of available trade data sufficient to warrant classification in Level 1. Approximately 4% of the total assets measured at fair value on March 31, 2012, were Level 3 assets. Approximately 94% ($949 million) of the Level 3 assets were priced using non-binding broker quotes, for which there is a lack of transparency as to the inputs used to determine fair value. Details as to the quantitative inputs are neither provided by the brokers nor otherwise reasonably obtainable by AFG. Since internally developed Level 3 asset fair values represent less than one-half of 1% of the total assets measured at fair value and less than 2% of AFG’s shareholders’ equity, changes in unobservable inputs used to determine internally developed fair values would not have a material impact on AFG’s financial position.

The fair values of the liabilities of managed investment entities were determined using primarily non-binding broker quotes, which were reviewed by AFG’s investment professionals. AFG’s investment professionals are familiar with the cash flow models used by the brokers to determine the fair value of these liabilities and review the broker quotes based on their knowledge of the CLO market and the market for the underlying assets. Their review includes consideration of expected reinvestment, default and recovery rates on the assets supporting the CLO liabilities, as well as surveying general CLO liability fair values and analysis provided by third parties.

The only significant Level 3 assets or liabilities carried at fair value in the financial statements that were not measured using broker quotes are the derivatives embedded in AFG’s indexed annuity liabilities, which are measured using a discounted cash flow approach and had a fair value of $483 million at March 31, 2012. The following table presents information about the unobservable inputs used by management in determining fair value of these embedded derivatives. See Note E – “Derivatives.”

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	0.5% - 2.1% over the risk free rate
Risk margin for uncertainty in cash flows	0.3% reduction in the discount rate
Surrenders	4% - 25% of indexed account value
Partial surrenders	3% - 5% of indexed account value
Annuitizations	1% - 2% of indexed account value
Deaths	1% - 2.5% of indexed account value
Budgeted option costs	2.5% - 4.0% of indexed account value

Increasing the budgeted option cost or risk margin for uncertainty in cash flows assumptions in the table above would increase the fair value of the indexed annuity embedded derivatives, while increasing any of the other unobservable inputs in the table above would decrease the fair value of the embedded derivatives.

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the first quarter of 2012 and 2011 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.

				Total realized/unrealized gains  (losses) included in
	Balance at December  31, 2011			Net income			Other comp. income (loss)		Purchases and issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March 31, 2012
AFS fixed maturities:
State and municipal	$	83		$	—		$	—	$	10		$	—		$	—	($	21	)	$	72
Residential MBS		361			1			—		8			(10	)		60		(106	)		314
Commercial MBS		19			—			1		—			—			—		—			20
All other corporate		519			2			3		26			(16	)		21		(40	)		515
Trading fixed maturities		1			—			—		—			—			—		—			1
Equity securities		11			—			—		9			—			4		—			24
Assets of MIE		44			—			—		12			(3	)		14		(3	)		64
Liabilities of MIE (*)		(2,593	)		(84	)		—		(366	)		489			—		—			(2,554	)
Embedded derivatives		(395	)		(62	)		—		(34	)		8			—		—			(483	)

(*) Total realized/unrealized loss included in net income includes losses of $39 million related to liabilities outstanding as of March 31, 2012. See Note G – “Managed Investment Entities.”

				Total realized/unrealized gains (losses) included in
	Balance at December  31, 2010			Net income			Other comp. income (loss)		Purchases and Issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March  31, 2011
AFS fixed maturities:
State and municipal	$	20		$	—		$	1	$	—		$	—		$	—	$	—		$	21
Residential MBS		312			1			—		—			(13	)		7		(36	)		271
Commercial MBS		6			—			—		—			—			3		—			9
All other corporate		436			(2	)		—		45			(11	)		22		(66	)		424
Trading fixed maturities		3			—			—		—			—			—		(2	)		1
Equity securities		21			—			2		—			(2	)		—		—			21
Assets of MIE		48			(1	)		—		7			(4	)		6		(2	)		54
Liabilities of MIE (*)		(2,258	)		(62	)		—		—			4			—		—			(2,316	)
Embedded derivatives		(190	)		(19	)		—		(30	)		5			—		—			(234	)

(*) Total realized/unrealized loss included in net income includes losses of $61 million related to liabilities outstanding as of March 31, 2011. See Note G – “Managed Investment Entities.”

The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):

March 31, 2012	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	1,422	$	1,422	$	1,422	$	—	$	—
Mortgage loans		438		441		—		—		441
Policy loans		249		249		—		—		249
Total financial assets not accounted for at fair value	$	2,109	$	2,112	$	1,422	$	—	$	690
Financial liabilities:
Annuity benefits accumulated (*)	$	15,864	$	15,788	$	—	$	—	$	15,788
Long-term debt		931		1,033		—		918		115
Total financial liabilities not accounted for at fair value	$	16,795	$	16,821	$	—	$	918	$	15,903

(*) Excludes life contingent annuities in the payout phase.

The carrying amount of cash and cash equivalents approximates fair value. Fair values for mortgage loans are estimated by discounting the future contractual cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. The fair value of policy loans is estimated to approximate carrying value; policy loans have no defined maturity dates and are inseparable from insurance contracts. The fair value of annuity benefits was estimated based on expected cash flows discounted using forward interest rates adjusted for the Company’s credit risk and includes the impact of maintenance expenses and capital costs. Fair values of long-term debt are based primarily on quoted market prices.

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Goodwill and Other Intangibles (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011
Goodwill and other intangibles (Textual) [Abstract]
Goodwill	$ 186		$ 186
Amortizable intangible assets related to property and casualty insurance acquisitions	38		41
Amortization of intangible assets	4	3
Accumulated amortization	51		47
Non-amortizable intangible assets related to insurance licenses	$ 8

XML

Subsequent Event (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012
Subsequent Event (Textual) [Abstract]
Period of discretionary appeal	90 days
Litigation [Member]
Gain Contingencies [Line Items]
Net earnings	27

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Derivatives (Tables)

3 Months Ended

Mar. 31, 2012

Derivatives [Abstract]

Derivatives included in Balance Sheet at fair value

		March 31, 2012				December 31, 2011
Derivative	Balance Sheet Line	Asset		Liability		Asset		Liability
MBS with embedded derivatives	Fixed maturities	$	102	$	—	$	99	$	—
Interest rate swaptions	Other investments		5		—		5		—
Indexed annuities     (embedded derivative)	Annuity benefits accumulated		—		483		—		395
Equity index call options	Other investments		137		—		66		—
Reinsurance contracts     (embedded derivative)	Other liabilities		—		22		—		23
		$	244	$	505	$	170	$	418

Summary of gain (loss) included in the Statement of Earnings for changes in the fair value of derivatives

Derivative	Statement of Earnings Line	2012			2011
MBS with embedded derivatives	Realized gains	$	4		($	3	)
Interest rate swaptions	Realized gains		—			(2	)
Indexed annuities     (embedded derivative)	Annuity benefits		(62	)		(19	)
Equity index call options	Annuity benefits		57			18
Reinsurance contracts     (embedded derivative)	Investment income		1			—
		$	—		($	6	)

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Fair Value Measurements (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Millions, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Assets:
Total AFS securities	$ 22,371	$ 21,807
Trading fixed maturities	457	440
Assets of managed investment entities (MIE)	2,952	3,058
Total assets accounted for at fair value	27,577	26,852
Liabilities:
Liabilities of managed investment entities	2,672	2,787
Derivatives in annuity benefits accumulated	483	395
Other liabilities - derivatives	22	23
Total liabilities accounted for at fair value	3,177	3,205
Level 1 [Member]
Assets:
Total AFS securities	243	257
Assets of managed investment entities (MIE)	245	290
Total assets accounted for at fair value	1,443	1,435
Liabilities:
Liabilities of managed investment entities	118	194
Other liabilities - derivatives
Total liabilities accounted for at fair value	118	194
Level 2 [Member]
Assets:
Total AFS securities	21,207	20,568
Trading fixed maturities	456	439
Assets of managed investment entities (MIE)	2,643	2,724
Total assets accounted for at fair value	25,124	24,379
Liabilities:
Other liabilities - derivatives	22	23
Total liabilities accounted for at fair value	22	23
Level 3 [Member]
Assets:
Total AFS securities	921	982
Trading fixed maturities	1	1
Assets of managed investment entities (MIE)	64	44
Total assets accounted for at fair value	1,010	1,038
Liabilities:
Liabilities of managed investment entities	2,554	2,593
Derivatives in annuity benefits accumulated	483	395
Other liabilities - derivatives
Total liabilities accounted for at fair value	3,037	2,988
Variable Annuity Assets (separate accounts) [Member]
Assets:
Variable annuity assets	601	548
Variable Annuity Assets (separate accounts) [Member] | Level 2 [Member]
Assets:
Variable annuity assets	601	548
Other Investments [Member]
Assets:
Other Investments	142	71
Other Investments [Member] | Level 2 [Member]
Assets:
Other Investments	142	71
U.S. Government and government agencies [Member]
Assets:
Total AFS securities	390	382
U.S. Government and government agencies [Member] | Level 1 [Member]
Assets:
Total AFS securities	235	248
U.S. Government and government agencies [Member] | Level 2 [Member]
Assets:
Total AFS securities	155	134
States, municipalities and political subdivisions [Member]
Assets:
Total AFS securities	3,916	3,877
States, municipalities and political subdivisions [Member] | Level 2 [Member]
Assets:
Total AFS securities	3,844	3,794
States, municipalities and political subdivisions [Member] | Level 3 [Member]
Assets:
Total AFS securities	72	83
Foreign government [Member]
Assets:
Total AFS securities	260	254
Foreign government [Member] | Level 2 [Member]
Assets:
Total AFS securities	260	254
Residential Mortgage Backed Securities [Member]
Assets:
Total AFS securities	4,118	3,848
Residential Mortgage Backed Securities [Member] | Level 2 [Member]
Assets:
Total AFS securities	3,804	3,487
Residential Mortgage Backed Securities [Member] | Level 3 [Member]
Assets:
Total AFS securities	314	361
Commercial Mortgage Backed Securities [Member]
Assets:
Total AFS securities	2,900	2,840
Commercial Mortgage Backed Securities [Member] | Level 2 [Member]
Assets:
Total AFS securities	2,880	2,821
Commercial Mortgage Backed Securities [Member] | Level 3 [Member]
Assets:
Total AFS securities	20	19
All other corporate [Member]
Assets:
Total AFS securities	10,787	10,606
All other corporate [Member] | Level 1 [Member]
Assets:
Total AFS securities	8	9
All other corporate [Member] | Level 2 [Member]
Assets:
Total AFS securities	10,264	10,078
All other corporate [Member] | Level 3 [Member]
Assets:
Total AFS securities	515	519
Equity Securities [Member]
Assets:
Total AFS securities	1,054	928
Equity Securities [Member] | Level 1 [Member]
Assets:
Total AFS securities	955	888
Equity Securities [Member] | Level 2 [Member]
Assets:
Total AFS securities	75	29
Equity Securities [Member] | Level 3 [Member]
Assets:
Total AFS securities	$ 24	$ 11

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Condensed Consolidating Information

3 Months Ended

Mar. 31, 2012

Condensed Consolidating Information [Abstract]

Condensed Consolidating Information

M. Condensed Consolidating Information AFG has guaranteed all of the outstanding public debt of Great American Financial Resources, Inc. (“GAFRI”) and GAFRI’s wholly-owned subsidiary, AAG Holding Company, Inc. In addition, GAFRI guarantees AAG Holding’s public debt. The AFG and GAFRI guarantees are full and unconditional and joint and several. Condensed consolidating financial statements for AFG are as follows:

CONDENSED CONSOLIDATING BALANCE SHEET

(In millions)

	AFG		GAFRI		AAG Holding		All Other Subs		Consol. Entries			Consolidated
MARCH 31, 2012
Assets:
Cash and investments	$	419	$	25	$	—	$	26,035	($	1	)	$	26,478
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,093		—			3,093
Agents’ balances and premiums receivable		—		—		—		550		—			550
Deferred policy acquisition costs		—		—		—		916		—			916
Assets of managed investment entities		—		—		—		2,952		—			2,952
Other assets		120		8		8		2,121		(35	)		2,222
Investment in subsidiaries and affiliates		4,931		2,169		2,254		640		(9,994	)		—
Total assets	$	5,470	$	2,202	$	2,262	$	36,307	($	10,030	)	$	36,211
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	7,613	$	—		$	7,613
Annuity, life, accident and health benefits and reserves		—		—		—		17,815		(12	)		17,803
Liabilities of managed investment entities		—		—		—		2,672		—			2,672
Long-term debt		600		—		219		112		—			931
Other liabilities		290		20		109		2,247		(206	)		2,460
Total liabilities		890		20		328		30,459		(218	)		31,479
Total shareholders’ equity		4,580		2,182		1,934		5,696		(9,812	)		4,580
Noncontrolling interests		—		—		—		152		—			152
Total liabilities and equity	$	5,470	$	2,202	$	2,262	$	36,307	($	10,030	)	$	36,211
DECEMBER 31, 2011
Assets:
Cash and investments	$	456	$	32	$	—	$	25,090	($	1	)	$	25,577
Recoverables from reinsurers and prepaid reinsurance premiums		—		—		—		3,351		—			3,351
Agents’ balances and premiums receivable		—		—		—		565		—			565
Deferred policy acquisition costs		—		—		—		901		—			901
Assets of managed investment entities		—		—		—		3,058		—			3,058
Other assets		105		5		5		2,309		(38	)		2,386
Investment in subsidiaries and affiliates		4,732		2,015		2,107		643		(9,497	)		—
Total assets	$	5,293	$	2,052	$	2,112	$	35,917	($	9,536	)	$	35,838
Liabilities and Equity:
Unpaid losses and loss adjustment expenses and unearned premiums	$	—	$	—	$	—	$	8,004	$	—		$	8,004
Annuity, life, accident and health benefits and reserves		—		—		—		17,148		(1	)		17,147
Liabilities of managed investment entities		—		—		—		2,787		—			2,787
Long-term debt		600		—		220		115		(1	)		934
Other liabilities		282		20		109		2,196		(198	)		2,409
Total liabilities		882		20		329		30,250		(200	)		31,281
Total shareholders’ equity		4,411		2,032		1,783		5,521		(9,336	)		4,411
Noncontrolling interests		—		—		—		146		—			146
Total liabilities and equity	$	5,293	$	2,052	$	2,112	$	35,917	($	9,536	)	$	35,838

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

(In millions)

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	603		$	—		$	603
Life, accident and health premiums		—		—		—		105			—			105
Realized gains (losses)		—		—		—		45			(1	)		44
Income of managed investment entities		—		—		—		—			—			—
Investment and other income		2		2		—		362			(5	)		361
Equity in earnings of subsidiaries		203		78		84		—			(365	)		—
Total revenues		205		80		84		1,115			(371	)		1,113
Costs and Expenses:
Insurance benefits and expenses		—		—		—		824			—			824
Interest charges on borrowed money		16		—		6		4			(5	)		21
Expenses of managed investment entities		—		—		—		19			—			19
Other operating and general expenses		18		4		2		80			(1	)		103
Total costs and expenses		34		4		8		927			(6	)		967
Operating earnings before income taxes		171		76		76		188			(365	)		146
Provision (credit) for income taxes		58		27		27		72			(126	)		58
Net earnings, including noncontrolling interests		113		49		49		116			(239	)		88
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(25	)		—			(25	)
Net Earnings Attributable to Shareholders	$	113	$	49	$	49	$	141		($	239	)	$	113
	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Revenues:
Property and casualty insurance premiums	$	—	$	—	$	—	$	599		$	—		$	599
Life, accident and health premiums		—		—		—		110			—			110
Realized gains (losses)		—		—		—		(3	)		—			(3	)
Income of managed investment entities		—		—		—		(8	)		—			(8	)
Investment and other income		2		3		—		343			(7	)		341
Equity in earnings of subsidiaries		167		47		55		—			(269	)		—
Total revenues		169		50		55		1,041			(276	)		1,039
Costs and Expenses:
Insurance benefits and expenses		—		—		—		806			—			806
Interest charges on borrowed money		16		—		6		4			(5	)		21
Expenses of managed investment entities		—		—		—		18			—			18
Other operating and general expenses		17		3		1		72			(1	)		92
Total costs and expenses		33		3		7		900			(6	)		937
Operating earnings before income taxes		136		47		48		141			(270	)		102
Provision (credit) for income taxes		48		17		17		60			(94	)		48
Net earnings, including noncontrolling interests		88		30		31		81			(176	)		54
Less: Net earnings (loss) attributable to noncontrolling interests		—		—		—		(34	)		—			(34	)
Net Earnings Attributable to Shareholders	$	88	$	30	$	31	$	115		($	176	)	$	88

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(In millions)

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Net earnings, including noncontrolling interests	$	113	$	49	$	49	$	116		($	239	)	$	88
Other comprehensive income, net of tax		134		119		117		138			(370	)		138
Total comprehensive income, net of tax		247		168		166		254			(609	)		226
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		—		—		(21	)		—			(21	)
Comprehensive income attributable to shareholders	$	247	$	168	$	166	$	275		($	609	)	$	247

	AFG		GAFRI		AAG Holding		All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Net earnings, including noncontrolling interests	$	88	$	30	$	31	$	81		($	176	)	$	54
Other comprehensive income, net of tax		25		18		18		24			(60	)		25
Total comprehensive income, net of tax		113		48		49		105			(236	)		79
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		—		—		(34	)		—			(34	)
Comprehensive income attributable to shareholders	$	113	$	48	$	49	$	139		($	236	)	$	113

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)

	AFG			GAFRI			AAG Holding			All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Operating Activities:
Net earnings, including noncontrolling interests	$	113		$	49		$	49		$	116		($	239	)	$	88
Adjustments:
Equity in net earnings of subsidiaries		(134	)		(51	)		(54	)		—			239			—
Dividends from subsidiaries		55			—			—			—			(55	)		—
Other operating activities, net		—			(2	)		(3	)		(73	)		—			(78	)
Net cash provided by (used in) operating activities		34			(4	)		(8	)		43			(55	)		10
Investing Activities:
Purchases of investments, property and equipment		(8	)		—			—			(1,085	)		—			(1,093	)
Capital contributions to subsidiaries		(4	)		(8	)		—			—			12			—
Proceeds from maturities and redemptions of investments		—			—			—			516			—			516
Proceeds from sales of investments, property and equipment		—			—			—			196			—			196
Managed investment entities:
Purchases of investments		—			—			—			(566	)		—			(566	)
Proceeds from sales and redemptions of investments		—			—			—			774			—			774
Other investing activities, net		—			—			—			(10	)		—			(10	)
Net cash provided by (used in) investing activities		(12	)		(8	)		—			(175	)		12			(183	)
Financing Activities:
Annuity receipts		—			—			—			804			—			804
Annuity surrenders, benefits and withdrawals		—			—			—			(348	)		—			(348	)
Issuances of managed investment entities’ liabilities		—			—			—			359			—			359
Retirement of managed investment entities’ liabilities		—			—			—			(489	)		—			(489	)
Issuances of Common Stock		14			—			—			—			—			14
Capital contributions from parent		—			4			8			—			(12	)		—
Repurchases of Common Stock		(56	)		—			—			—			—			(56	)
Cash dividends paid		(17	)		—			—			(55	)		55			(17	)
Other financing activities, net		—			—			—			4			—			4
Net cash provided by (used in) financing activities		(59	)		4			8			275			43			271
Net change in cash and cash equivalents		(37	)		(8	)		—			143			—			98
Cash and cash equivalents at beginning of period		415			19			—			890			—			1,324
Cash and cash equivalents at end of period	$	378		$	11		$	—		$	1,033		$	—		$	1,422

	AFG			GAFRI			AAG Holding			All Other Subs			Consol. Entries			Consolidated
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Operating Activities:
Net earnings, including noncontrolling interests	$	88		$	30		$	31		$	81		($	176	)	$	54
Adjustments:
Equity in net earnings of subsidiaries		(110	)		(30	)		(36	)		—			176			—
Dividends from subsidiaries		105			—			—			—			(105	)		—
Other operating activities, net		(23	)		(2	)		(2	)		362			—			335
Net cash provided by (used in) operating activities		60			(2	)		(7	)		443			(105	)		389
Investing Activities:
Purchases of investments, property and equipment		(7	)		—			—			(1,182	)		—			(1,189	)
Capital contributions to subsidiaries		(5	)		(8	)		(1	)		—			14			—
Proceeds from maturities and redemptions of investments		2			2			—			596			—			600
Proceeds from sales of investments, property and equipment		—			—			—			297			—			297
Managed investment entities:
Purchases of investments		—			—			—			(352	)		—			(352	)
Proceeds from sales and redemptions of investments		—			—			—			400			—			400
Other investing activities, net		—			—			—			(13	)		—			(13	)
Net cash provided by (used in) investing activities		(10	)		(6	)		(1	)		(254	)		14			(257	)
Financing Activities:
Annuity receipts		—			—			—			672			—			672
Annuity surrenders, benefits and withdrawals		—			—			—			(311	)		—			(311	)
Retirement of managed investment entities’ liabilities		—			—			—			(4	)		—			(4	)
Issuances of Common Stock		10			—			—			1			—			11
Capital contributions from parent		—			4			8			2			(14	)		—
Repurchases of Common Stock		(84	)		—			—			—			—			(84	)
Cash dividends paid		(16	)		—			—			(105	)		105			(16	)
Net cash provided by (used in) financing activities		(90	)		4			8			255			91			268
Net change in cash and cash equivalents		(40	)		(4	)		—			444			—			400
Cash and cash equivalents at beginning of period		370			20			—			709			—			1,099
Cash and cash equivalents at end of period	$	330		$	16		$	—		$	1,153		$	—		$	1,499