Company: AFGC
Filing Date: 2025-08-07
Form Type: 10-Q
Source: 0001042046-25-000024
Chunk: 72

Company: AMERICAN FINANCIAL GROUP INC
Filing Date: 2025-08-07
Form: 10-Q
Item: Part I, Item 8
Chunk 72
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MENTS — CONTINUED

The fixed maturities with embedded derivatives consist of convertible fixed maturity securities and interest-only and principal-only MBS. AFG records the change in the fair value of these securities in net earnings. These investments are part of AFG’s overall investment strategy and represent a small component of AFG’s overall investment portfolio.AFG is exposed to fair value changes from certain equity and fixed maturity market-based exposures related to its deferred compensation obligations to certain employees. To mitigate this risk, AFG entered into a total return swap. AFG’s Balance Sheet includes a $3 million liability to return collateral related to the swap (included in other liabilities) and a $4 million receivable for collateral posted related to the swap (included in other assets) at June 30, 2025 and December 31, 2024, respectively.The following table summarizes the gains (losses) included in AFG’s Statement of Earnings for changes in the fair value of derivatives (in millions):Three months ended June 30,Six months ended June 30,Statement of Earnings Line2025202420252024Qualifying cash flow hedges:Interest rate swapsNet investment income$(2)$(7)$(5)$(14)Non-designated hedges:Fixed maturities with embedded derivativesRealized gains (losses) on securities— — 1 (1)Fixed maturities with embedded derivativesNet investment income7 1 2 1 Total return swapOther expenses9 — 6 6 Earnings (losses) on non-designated hedges16 1 9 6 Total earnings (losses) on derivatives$14 $(6)$4 $(8)

F.    Managed Investment Entities

AFG is the investment manager and it has investments ranging from 5.4% to 100% of the most subordinate debt tranche of thirteen active CLOs, which are considered variable interest entities. AFG also owns portions of the senior debt tranches of certain of these CLOs. Upon formation, these entities issued securities in various senior and subordinate classes and invested the proceeds primarily in secured bank loans, which serve as collateral for the debt securities issued by each CLO. None of the collateral was purchased from AFG. AFG’s investments in the subordinate debt tranches of these entities receive residual income from the CLOs only after the CLOs pay expenses (including management fees to AFG