INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2014

INVESTMENTS

The amortized cost or cost and fair value of AIG's available for sale securities and other invested assets carried at fair value

										Other-Than-
		Amortized		Gross		Gross				Temporary
		Cost or		Unrealized		Unrealized		Fair		Impairments
(in millions)		Cost		Gains		Losses		Value		in AOCI(a)
June 30, 2014
Bonds available for sale:
U.S. government and government sponsored entities	$	2,652	$	187	$	(14)	$	2,825	$	-
Obligations of states, municipalities and political subdivisions		28,225		1,579		(82)		29,722		(13)
Non-U.S. governments		21,391		946		(157)		22,180		-
Corporate debt		139,393		11,181		(818)		149,756		74
Mortgage-backed, asset-backed and collateralized:
RMBS		34,369		3,599		(277)		37,691		1,805
CMBS		11,705		791		(102)		12,394		226
CDO/ABS		11,188		673		(125)		11,736		23
Total mortgage-backed, asset-backed and collateralized		57,262		5,063		(504)		61,821		2,054
Total bonds available for sale(b)		248,923		18,956		(1,575)		266,304		2,115
Equity securities available for sale:
Common stock		1,320		1,946		(11)		3,255		-
Preferred stock		24		4		-		28		-
Mutual funds		729		37		(1)		765		-
Total equity securities available for sale		2,073		1,987		(12)		4,048		-
Total	$	250,996	$	20,943	$	(1,587)	$	270,352	$	2,115
December 31, 2013
Bonds available for sale:
U.S. government and government sponsored entities	$	3,084	$	150	$	(39)	$	3,195	$	-
Obligations of states, municipalities and political subdivisions		28,704		1,122		(446)		29,380		(15)
Non-U.S. governments		22,045		822		(358)		22,509		-
Corporate debt		139,461		7,989		(2,898)		144,552		74
Mortgage-backed, asset-backed and collateralized:
RMBS		33,520		3,101		(473)		36,148		1,670
CMBS		11,216		558		(292)		11,482		125
CDO/ABS		10,501		649		(142)		11,008		62
Total mortgage-backed, asset-backed and collateralized		55,237		4,308		(907)		58,638		1,857
Total bonds available for sale(b)		248,531		14,391		(4,648)		258,274		1,916
Equity securities available for sale:
Common stock		1,280		1,953		(14)		3,219		-
Preferred stock		24		4		(1)		27		-
Mutual funds		422		12		(24)		410		-
Total equity securities available for sale		1,726		1,969		(39)		3,656		-
Total	$	250,257	$	16,360	$	(4,687)	$	261,930	$	1,916

(a) Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

(b) At June 30,2014 and December 31,2013, bonds available for sale held by us that were below investment grade or not rated totaled $33.9 billion and $32.6 billion, respectively.

The fair value and gross unrealized losses on AIG's available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position

	Less than 12 Months				12 Months or More				Total
				Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in millions)		Value		Losses		Value		Losses		Value		Losses
June 30, 2014
Bonds available for sale:
U.S. government and government sponsored entities	$	38	$	-	$	416	$	14	$	454	$	14
Obligations of states, municipalities and political
subdivisions		482		7		1,800		75		2,282		82
Non-U.S. governments		1,815		22		2,211		135		4,026		157
Corporate debt		5,007		62		17,957		756		22,964		818
RMBS		2,681		42		4,882		235		7,563		277
CMBS		108		1		2,566		101		2,674		102
CDO/ABS		1,424		42		1,792		83		3,216		125
Total bonds available for sale		11,555		176		31,624		1,399		43,179		1,575
Equity securities available for sale:
Common stock		133		10		4		1		137		11
Mutual funds		77		1		26		-		103		1
Total equity securities available for sale		210		11		30		1		240		12
Total	$	11,765	$	187	$	31,654	$	1,400	$	43,419	$	1,587
December 31, 2013
Bonds available for sale:
U.S. government and government sponsored entities	$	1,101	$	34	$	42	$	5	$	1,143	$	39
Obligations of states, municipalities and political
subdivisions		6,134		379		376		67		6,510		446
Non-U.S. governments		4,102		217		710		141		4,812		358
Corporate debt		38,495		2,251		4,926		647		43,421		2,898
RMBS		8,543		349		1,217		124		9,760		473
CMBS		3,191		176		1,215		116		4,406		292
CDO/ABS		2,845		62		915		80		3,760		142
Total bonds available for sale		64,411		3,468		9,401		1,180		73,812		4,648
Equity securities available for sale:
Common stock		96		14		-		-		96		14
Preferred stock		5		1		-		-		5		1
Mutual funds		369		24		-		-		369		24
Total equity securities available for sale		470		39		-		-		470		39
Total	$	64,881	$	3,507	$	9,401	$	1,180	$	74,282	$	4,687

The amortized cost and fair value of fixed maturity securities available for sale by contractual maturity

	Total Fixed Maturity Securities				Fixed Maturity Securities in a Loss
June 30, 2014	Available for Sale				Position Available for Sale
(in millions)		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	10,262	$	10,453	$	617	$	609
Due after one year through five years		50,469		53,409		4,752		4,683
Due after five years through ten years		67,282		71,508		11,107		10,809
Due after ten years		63,648		69,113		14,321		13,625
Mortgage-backed, asset-backed and collateralized		57,262		61,821		13,957		13,453
Total	$	248,923	$	266,304	$	44,754	$	43,179

The gross realized gains and gross realized losses from sales of AIG's available for sale securities

	Three Months Ended June 30,								Six Months Ended June 30,
		2014				2013			2014					2013
		Gross		Gross		Gross		Gross		Gross		Gross		Gross		Gross
	Realized		Realized		Realized		Realized		Realized		Realized		Realized			Realized
(in millions)		Gains		Losses		Gains		Losses		Gains		Losses		Gains		Losses
Fixed maturity securities	$	194	$	13	$	1,329	$	56	$	410	$	44		$	1,700	$	127
Equity securities		39		4		46		6		69		6			83		9
Total	$	233	$	17	$	1,375	$	62	$	479	$	50		$	1,783	$	136

The fair value of AIG's other securities

		June 30, 2014				December 31, 2013
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	5,380	24	%	$	5,723	24	%
Obligations of states, municipalities and political subdivisions		123	1			121	1
Non-U.S. governments		2	-			2	-
Corporate debt		1,055	5			1,169	5
Mortgage-backed, asset-backed and collateralized:
RMBS		2,278	10			2,263	10
CMBS		1,310	6			1,353	6
CDO/ABS and other collateralized*		11,275	51			11,985	51
Total mortgage-backed, asset-backed and collateralized		14,863	67			15,601	67
Other		7	-			7	-
Total fixed maturity securities		21,430	97			22,623	97
Equity securities		724	3			834	3
Total	$	22,154	100	%	$	23,457	100	%

*Includes $0.9 billion and $1.0 billion of U.S. Government agency backed ABS at June 30,2014 and December 31,2013, respectively.

Components of net investment income

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)		2014		2013		2014		2013
Fixed maturity securities, including short-term investments	$	3,111	$	2,919	$	6,242	$	5,964
Equity securities		17		(12)		(68)		25
Interest on mortgage and other loans		311		290		629		570
Alternative investments*		547		738		1,472		1,604
Real estate		33		36		61		67
Other investments		(2)		28		9		81
Total investment income		4,017		3,999		8,345		8,311
Investment expenses		133		155		265		303
Net investment income	$	3,884	$	3,844	$	8,080	$	8,008

*Includes hedge funds, private equity funds, affordable housing partnerships, investments in life settlements and other investment partnerships.

Components of net realized capital gains (losses)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)		2014		2013		2014		2013
Sales of fixed maturity securities	$	181	$	1,273	$	366	$	1,573
Sales of equity securities		35		40		63		74
Other-than-temporary impairments:
Severity		-		(3)		-		(5)
Change in intent		(1)		-		(6)		(3)
Foreign currency declines		(6)		-		(10)		-
Issuer-specific credit events		(44)		(42)		(93)		(79)
Adverse projected cash flows		(4)		(1)		(5)		(7)
Provision for loan losses		15		(2)		20		(5)
Foreign exchange transactions		(47)		82		(21)		411
Derivative instruments		12		288		(338)		17
Impairments on investments in life settlements		(45)		(35)		(87)		(78)
Other		5		(9)		(1)		(7)
Net realized capital gains (losses)	$	101	$	1,591	$	(112)	$	1,891

Schedule of increase (decrease) in unrealized appreciation (depreciation) of available for sale securities and other investements

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)		2014		2013		2014		2013
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	3,644	$	(10,123)	$	7,638	$	(11,275)
Equity securities		173		(16)		45		(9)
Other investments		(40)		55		33		7
Total Increase (decrease) in unrealized appreciation (depreciation) of investments*	$	3,777	$	(10,084)	$	7,716	$	(11,277)

* Excludes net unrealized gains attributable to businesses held for sale.

Credit impairments recognized in earnings for available for sale fixed maturity securities

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)		2014		2013		2014		2013
Balance, beginning of period	$	3,389	$	4,603	$	3,872	$	5,164
Increases due to:
Credit impairments on new securities subject to impairment losses		14		10		22		27
Additional credit impairments on previously impaired securities		18		12		54		30
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(82)		(167)		(412)		(558)
Accretion on securities previously impaired due to credit*		(173)		(222)		(361)		(427)
Other		-		-		(9)		-
Balance, end of period	$	3,166	$	4,236	$	3,166	$	4,236

* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time.

Schedule of Purchased Credit Impaired (PCI) Securities, at acquisition date

(in millions)	At Date of Acquisition
Contractually required payments (principal and interest)	$	28,482
Cash flows expected to be collected*		22,778
Recorded investment in acquired securities		15,049

*Represents undiscounted expected cash flows, including both principal and interest.

Schedule of Purchased Credit Impaired (PCI) Securities, at reporting date

(in millions)	June 30, 2014		December 31, 2013
Outstanding principal balance	$	16,272	$	14,741
Amortized cost		11,559		10,110
Fair value		12,998		11,338

Activity for accretable yield on Purchased Credit Impaired (PCI) Securities

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)		2014		2013		2014		2013
Balance, beginning of period	$	7,170	$	5,114	$	6,940	$	4,766
Newly purchased PCI securities		247		761		769		1,106
Disposals		-		-		-		(60)
Accretion		(219)		(170)		(431)		(330)
Effect of changes in interest rate indices		(172)		22		(231)		106
Net reclassification from (to) non-accretable difference,
including effects of prepayments		16		174		(5)		313
Balance, end of period	$	7,042	$	5,901	$	7,042	$	5,901

Schedule of fair value of securities pledged to counterparties under secured financing transactions

(in millions)		June 30, 2014		December 31, 2013
Securities available for sale	$	2,946	$	3,907
Other securities		2,500		2,766

Schedule of fair value of securities pledged to the entity under reverse repurchase agreements

(in millions)		June 30, 2014		December 31, 2013
Securities collateral pledged to us	$	9,438	$	8,878
Amount repledged by us		219		71