DERIVATIVES AND HEDGE ACCOUNTING (Tables)

9 Months Ended

Sep. 30, 2014

Notional amounts and fair values of derivative instruments

	September 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		327		12		1,645		164		-		-		1,857		190
Equity contracts		99		1		8		1		-		-		-		-
Derivatives not designated
as hedging instruments:
Interest rate contracts		47,090		2,823		37,613		2,783		50,897		3,771		59,585		3,849
Foreign exchange contracts		13,965		1,052		9,456		1,339		1,774		52		3,789		129
Equity contracts^(b)		8,373		220		38,420		1,113		29,296		413		9,840		524
Commodity contracts		15		-		12		5		17		1		13		5
Credit contracts		30		20		5,688		1,038		70		55		15,459		1,335
Other contracts^(c)		35,169		34		636		89		32,440		34		1,408		167
Total derivatives not
designated as hedging
instruments		104,642		4,149		91,825		6,367		114,494		4,326		90,094		6,009
Total derivatives, gross	$	105,068	$	4,162	$	93,503	$	6,533	$	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 September 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 $35.6 billion and $1.0 billion, respectively, at September 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.

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

	September 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	$	30,619	$	2,331	$	28,650	$	3,020	$	41,942	$	2,567	$	52,679	$	3,506
AIG Markets		25,142		1,308		20,959		1,798		12,531		964		23,716		1,506
Total Global Capital Markets derivatives		55,761		3,639		49,609		4,818		54,473		3,531		76,395		5,012
Non-Global Capital Markets derivatives^(a)		49,307		523		43,894		1,715		60,021		795		15,668		1,202
Total derivatives, gross	$	105,068		4,162	$	93,503		6,533	$	114,494		4,326	$	92,063		6,214
Counterparty netting^(b)				(1,769)				(1,769)				(1,734)				(1,734)
Cash collateral^(c)				(805)				(1,186)				(820)				(1,484)
Total derivatives, net				1,588				3,578				1,772				2,996
Less: Bifurcated embedded derivatives				-				1,076				107				485
Total derivatives on consolidated
balance sheet			$	1,588			$	2,502			$	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.

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

	Three Months Ended				Nine Months Ended
		September 30,			September 30,
(in millions)		2014		2013		2014		2013
Interest rate contracts:
Gain recognized in earnings on derivatives^(a)	$	-	$	2	$	2	$	2
Gain recognized in earnings on hedged items^(b)		10		17		85		70
Foreign exchange contracts:^(c)
Loss recognized in earnings on derivatives^(d)		(76)		(21)		(20)		(61)
Gain recognized in earnings on hedged items^(e)		97		19		37		66
Gain (loss) recognized in earnings for amounts excluded from effectiveness testing		9		(2)		(3)		5
Equity contracts:^(f)
Gain (loss) recognized in earnings on derivatives		4		-		(10)		-
Gain (loss) recognized in earnings on hedged items		(6)		-		8		-
Gain (loss) recognized in earnings for amounts excluded from effectiveness testing		(2)		-		(2)		-

(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 nine-month period ended September 30, 2014.

(b) Includes gains of $10 million and $17 million for the three-month periods ended September 30, 2014 and 2013, respectively, and $37 million and $72 million for the nine-month periods ended September 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 nine-month period ended September 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 nine-month periods ended September 30, 2014. All other gains and losses are recorded in Net realized capital gains (losses).

(e) Includes gains of $14 million and $22 million for the three- and nine-month periods ended September 30, 2014, 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 losses of $2 million and $3 million for the three- and nine-month periods ended September 30, 2014, respectively, in Interest credited to policyholder account balances. 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				Nine Months Ended
	September 30,				September 30,
(in millions)		2014		2013		2014		2013
By Derivative Type:
Interest rate contracts	$	222	$	35	$	409	$	(250)
Foreign exchange contracts		253		(83)		276		64
Equity contracts^*		(151)		158		(562)		670
Commodity contracts		(2)		(1)		(1)		(3)
Credit contracts		75		52		229		365
Other contracts		44		14		83		74
Total	$	441	$	175	$	434	$	920
By Classification:
Policy fees	$	74	$	56	$	210	$	149
Net investment income		43		(7)		69		22
Net realized capital gains (losses)		13		200		(302)		200
Other income (losses)		309		(71)		447		560
Policyholder benefits and claims incurred		2		(3)		10		(11)
Total	$	441	$	175	$	434	$	920

* Includes embedded derivative losses of $64 million and $406 million for the three- and nine-month periods ended September 30, 2014, respectively, and embedded derivative gains of $266 million and $1.0 billion for the three- and nine-month periods ended September 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
	September 30,			December 31,	September 30,			December 31,	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)		2014		2013		2014		2013		2014		2013		2014		2013
Arbitrage:
Multi-sector CDOs^(a)		2,769		3,257		989		1,249		63		49		201		330
Corporate debt/CLOs^(b)(c)		2,715		11,832		6		28		12		5		22		26
Total	$	5,484	$	15,089	$	995	$	1,277	$	75	$	54	$	223	$	356

(a) During the nine-month period ended September 30, 2014, we paid $59 million 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 $899 million and $1.1 billion at September 30, 2014 and December 31, 2013, respectively.

(b) Corporate debt/Collateralized Loan Obligations (CLOs) include $790 million and $1.0 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at September 30, 2014 and December 31, 2013, respectively. Collateral postings with regards to Corporate debt/CLOs were $182 million and $353 million at September 30, 2014 and December 31, 2013, respectively.

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

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- Definition

Tabular disclosure of pertinent information about a derivative or group of derivatives on a disaggregated basis, such as for individual instruments, or small groups of similar instruments. May include a combination of the type of instrument, risks being hedged, notional amount, hedge designation, related hedged item, inception date, maturity date, or other relevant item.

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