VARIABLE INTEREST ENTITIES

6 Months Ended

Jun. 30, 2014

8. VARIABLE INTEREST ENTITIES

We enter into various arrangements with variable interest entities (VIEs) in the normal course of business and consolidate the VIEs when we determine we are the primary beneficiary. This analysis includes a review of the VIE’s capital structure, contractual relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and our involvement with the entity. When assessing the need to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed to expose the variable interest holders to.

For VIEs with attributes consistent with that of an investment company or a money market fund, the primary beneficiary is the party or group of related parties that absorbs a majority of the expected losses of the VIE, receives the majority of the expected residual returns of the VIE, or both.

For all other VIEs, the primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and (2) the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of our decision-making ability and our ability to influence activities that significantly affect the economic performance of the VIE.

Balance Sheet Classification and Exposure to Loss

The following table presents the total assets and total liabilities associated with our variable interests in consolidated VIEs, as classified in the Condensed Consolidated Balance Sheets:

(in millions)		Real Estate and Investment Funds^(e)		Securitization Vehicles		Structured Investment Vehicles		Affordable Housing Partnerships		Other		Total
June 30, 2014
Assets:
Bonds available for sale	$	-	$	11,502	$	-	$	-	$	42	$	11,544
Other bond securities		-		7,816		726		-		79		8,621
Mortgage and other loans receivable		-		1,681		-		-		176		1,857
Other invested assets		594		-		-		1,832		733		3,159
Other ^(a)		40		734		66		40		625		1,505
Total assets^(b)(c)	$	634	$	21,733	$	792	$	1,872	$	1,655	$	26,686
Liabilities:
Long-term debt	$	70	$	1,223	$	98	$	184	$	105	$	1,680
Other ^(d)		32		116		-		92		201		441
Total liabilities	$	102	$	1,339	$	98	$	276	$	306	$	2,121
December 31, 2013
Assets:
Bonds available for sale	$	-	$	11,028	$	-	$	-	$	70	$	11,098
Other bond securities		-		7,449		748		-		113		8,310
Mortgage and other loans receivable		-		1,508		-		-		189		1,697
Other invested assets		849		-		-		1,986		793		3,628
Other ^(a)		49		481		93		41		615		1,279
Total assets^(b)(c)	$	898	$	20,466	$	841	$	2,027	$	1,780	$	26,012
Liabilities:
Long-term debt	$	71	$	494	$	87	$	188	$	154	$	994
Other^(d)		31		74		-		83		367		555
Total liabilities	$	102	$	568	$	87	$	271	$	521	$	1,549

(a) Comprised primarily of Short-term investments, Premiums and other receivables and Other assets at both June 30, 2014 and December 31, 2013.

(b) The assets of each VIE can be used only to settle specific obligations of that VIE.

(c) At June 30, 2014 and December 31, 2013, includes approximately $21.6 billion and $21.4 billion, respectively, of investment-grade debt securities, loans and other assets held by certain securitization vehicles that issued beneficial interests in these investments. The majority of the beneficial interests issued are held by AIG.

(d) Comprised primarily of Other liabilities and Derivative liabilities, at fair value, at both June 30, 2014 and December 31, 2013.

(e) At June 30, 2014 and December 31, 2013, off-balance sheet exposure, primarily consisting of commitments to real estate and investment funds, was $61.8 million and $50.8 million, respectively.

We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as the referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by us generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to us, except in limited circumstances when we have provided a guarantee to the VIE’s interest holders.

The following table presents total assets of unconsolidated VIEs in which we hold a variable interest, as well as our maximum exposure to loss associated with these VIEs:

			Maximum Exposure to Loss
		Total VIE		On-Balance		Off-Balance
(in millions)		Assets		Sheet^*		Sheet		Total
June 30, 2014
Real estate and investment funds	$	20,010	$	2,599	$	402	$	3,001
Affordable housing partnerships		477		476		-		476
Other		633		39		-		39
Total	$	21,120	$	3,114	$	402	$	3,516
December 31, 2013
Real estate and investment funds	$	17,572	$	2,343	$	289	$	2,632
Affordable housing partnerships		478		477		-		477
Other		708		37		-		37
Total	$	18,758	$	2,857	$	289	$	3,146

* At June 30, 2014 and December 31, 2013, $3.1 billion and $2.8 billion, respectively, of our total unconsolidated VIE assets were recorded as Other invested assets.

See Note 10 to the Consolidated Financial Statements in the 2013 Annual Report for additional information on VIEs.