DERIVATIVES AND HEDGE ACCOUNTING (Tables)

6 Months Ended

Jun. 30, 2014

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	June 30, 2014								December 31, 2013
	Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities
		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
(in millions)		Amount		Value(a)		Amount		Value(a)		Amount		Value(a)		Amount		Value(a)
Derivatives designated as
hedging instruments:
Interest rate contracts	$	-	$	-	$	25	$	1	$	-	$	-	$	112	$	15
Foreign exchange contracts		779		9		1,304		122		-		-		1,857		190
Equity contracts		16		1		192		6		-		-		-		-
Derivatives not designated
as hedging instruments:
Interest rate contracts		43,171		2,929		45,072		2,733		50,897		3,771		59,585		3,849
Foreign exchange contracts		10,563		1,094		14,720		1,426		1,774		52		3,789		129
Equity contracts(b)		6,326		224		37,077		945		29,296		413		9,840		524
Commodity contracts		16		1		13		4		17		1		13		5
Credit contracts		60		41		14,978		1,126		70		55		15,459		1,335
Other contracts(c)		34,076		37		479		90		32,440		34		1,408		167
Total derivatives not
designated as hedging
instruments		94,212		4,326		112,339		6,324		114,494		4,326		90,094		6,009
Total derivatives, gross	$	95,007	$	4,336	$	113,860	$	6,453	$	114,494	$	4,326	$	92,063	$	6,214

(a)Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.

(b) Notional amount of derivative assets and fair value of derivative assets were both zero at June 30,2014 and were $23.2 billion and $107 million at December 31,2013, respectively, related to bifurcated embedded derivatives. Notional amount of derivative liabilities and fair value of derivative liabilities include $33.5 billion and $855 million, respectively, at June 30,2014, and $6.7 billion and $424 million, respectively, at December 31,2013, related to bifurcated embedded derivatives. A bifurcated embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets.

(c)Consists primarily of contracts with multiple underlying exposures.

Fair values of derivative assets and liabilities in the Condensed Consolidated Balance Sheets

	June 30, 2014								December 31, 2013
	Derivative Assets				Derivative Liabilities				Derivative Assets				Derivative Liabilities
		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
(in millions)		Amount		Value		Amount		Value		Amount		Value		Amount		Value
Global Capital Markets derivatives:
AIG Financial Products	$	37,422	$	2,527	$	48,856	$	3,224	$	41,942	$	2,567	$	52,679	$	3,506
AIG Markets		15,922		1,135		20,553		1,602		12,531		964		23,716		1,506
Total Global Capital Markets derivatives		53,344		3,662		69,409		4,826		54,473		3,531		76,395		5,012
Non-Global Capital Markets derivatives(a)		41,663		674		44,451		1,627		60,021		795		15,668		1,202
Total derivatives, gross	$	95,007		4,336	$	113,860		6,453	$	114,494		4,326	$	92,063		6,214
Counterparty netting(b)				(1,801)				(1,801)				(1,734)				(1,734)
Cash collateral(c)				(918)				(1,326)				(820)				(1,484)
Total derivatives, net				1,617				3,326				1,772				2,996
Less: Bifurcated embedded derivatives				-				910				107				485
Total derivatives on consolidated
balance sheet			$	1,617			$	2,416			$	1,665			$	2,511

(a) Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance as well as embedded derivatives included in insurance contracts. Assets and liabilities include bifurcated embedded derivatives which are recorded in Policyholder contract deposits.

(b) Represents netting of derivative exposures covered by a qualifying master netting agreement.

(c) Represents cash collateral posted and received that is eligible for netting.

Gain (loss) recognized in earnings on AIG's derivative instruments in fair value hedging relationships in the Consolidated Statements of Income

	Three Months Ended				Six Months Ended
		June 30,			June 30,
(in millions)		2014		2013		2014		2013
Interest rate contracts:
Gain (loss) recognized in earnings on derivatives(a)	$	-	$	-	$	2	$	-
Gain recognized in earnings on hedged items(b)		10		23		75		53
Foreign exchange contracts:(c)
Gain (loss) recognized in earnings on derivatives(d)		32		(35)		56		(40)
Gain (loss) recognized in earnings on hedged items(e)		(28)		43		(60)		47
Gain (loss) recognized in earnings for amounts excluded from effectiveness testing		(4)		8		(12)		7
Equity contracts:(f)
Gain (loss) recognized in earnings on derivatives		(14)		-		(14)		-
Gain (loss) recognized in earnings on hedged items		14		-		14		-
Gain (loss) recognized in earnings for amounts excluded from effectiveness testing		-		-		-		-

(a) Includes gains of $1 million recorded in Interest credited to policyholder account balances and $1 million recorded in Net realized capital gains (losses) for the six-month period ended June 30,2014.

(b) Includes gains of $10 million and $23 million for the three-month periods ended June 30,2014 and 2013, respectively, and $28 million and $53 million for the six-month periods ended June 30,2014 and 2013, respectively, representing the amortization of debt basis adjustment recorded in Other income and Net realized capital gains (losses) following the discontinuation of hedge accounting. Also includes gains of $50 million for the six-month period ended June 30,2014, recorded in Loss on extinguishment of debt, representing the release of debt basis following the repurchase of issued debt that was part of previously discontinued hedge accounting relationships.

(c) Gains and losses recognized in earnings for the ineffective portion and amounts excluded from effectiveness testing, if any, are recorded in Net realized capital gains (losses).

(d) Includes gains of $1 million recorded in Interest credited to policyholder account balances for the three- and six-month periods ended June 30, 2014. All other gains and losses are recorded in Net realized capital gains (losses).

(e) Includes gains of $9 million for both the three- and six-month periods ended June 30, 2014, representing the amortization of debt basis adjustment recorded in Other income and Net realized capital gains (losses) following the discontinuation of hedge accounting. All other gains and losses are recorded in Net realized capital gains (losses).

(f) Gains and losses recognized in earnings are recorded in Net realized capital gains (losses).

Effect of AIG's derivative instruments not designated as hedging instruments in the Consolidated Statements of Income

	Gains (Losses) Recognized in Earnings
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in millions)		2014		2013		2014		2013
By Derivative Type:
Interest rate contracts	$	48	$	(69)	$	187	$	(285)
Foreign exchange contracts		37		(8)		23		147
Equity contracts*		11		468		(411)		512
Commodity contracts		-		(2)		1		(2)
Credit contracts		74		138		154		313
Other contracts		24		16		39		60
Total	$	194	$	543	$	(7)	$	745
By Classification:
Policy fees	$	68	$	48	$	136	$	93
Net investment income		12		5		26		29
Net realized capital gains (losses)		22		276		(315)		-
Other income		89		219		138		631
Policyholder benefits and claims incurred		3		(5)		8		(8)
Total	$	194	$	543	$	(7)	$	745

*Includes embedded derivative gains of $47 million and losses of $342 million for the three- and six-month periods ended June 30,2014, respectively, and embedded derivative gains of $505 million and $760 million for the three- and six-month periods ended June 30,2013, respectively.

Net notional amount (net of all structural subordination below the covered tranches), fair value of derivative (asset) liability before the effects of counterparty netting adjustments and offsetting cash collateral and unrealized market valuation gain (loss) of the super senior credit default swap portfolio by asset class

					Fair Value of				Unrealized Market
	Net Notional Amount at				Derivative Liability at				Valuation Gain
	June 30,			December 31,	June 30,			December 31,	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)		2014		2013		2014		2013		2014		2013		2014		2013
Arbitrage:
Multi-sector CDOs(a)		2,970		3,257		1,061		1,249		66		126		138		281
Corporate debt/CLOs(b)(c)		11,718		11,832		18		28		7		5		10		21
Total	$	14,688	$	15,089	$	1,079	$	1,277	$	73	$	131	$	148	$	302

(a)During the six-month period ended June 30,2014, we paid $50million to counterparties with respect to multi-sector CDOs, which was previously included in the fair value of the derivative liability as an unrealized market valuation loss. Collateral postings with regards to multi-sector CDOs were $1.0 billion and $1.1billion at June 30,2014 and December 31,2013, respectively.

(b)Corporate debt/Collateralized Loan Obligations (CLOs) include $887million and $1.0billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at June 30,2014 and December 31,2013, respectively. Collateral postings with regards to corporate debt/CLOs were $336 million and $353million at June 30,2014 and December 31,2013, respectively.

(c) See Note 17 for Corporate Debt Super Senior CDSs terminated subsequent to June 30,2014.