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DERIVATIVES AND HEDGE ACCOUNTING (Tables)

12 Months Ended

Dec. 31, 2014

Notional amounts and fair values of derivative instruments

	December 31, 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	$	155	$	-	$	25	$	2	$	-	$	-	$	112	$	15
Foreign exchange contracts		611		25		1,794		239		-		-		1,857		190
Equity contracts		7		1		104		13		-		-		-		-
Derivatives not designated
as hedging instruments:
Interest rate contracts		65,070		3,743		45,251		3,183		50,897		3,771		59,585		3,849
Foreign exchange contracts		13,667		815		8,516		1,251		1,774		52		3,789		129
Equity contracts^(b)		7,565		206		42,387		1,615		29,296		413		9,840		524
Commodity contracts		15		-		11		6		17		1		13		5
Credit contracts		5		4		5,288		982		70		55		15,459		1,335
Other contracts^(c)		36,155		31		538		90		32,440		34		1,408		167
Total derivatives not
designated as hedging
instruments		122,477		4,799		101,991		7,127		114,494		4,326		90,094		6,009
Total derivatives, gross	$	123,250	$	4,825	$	103,914	$	7,381	$	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) There were no derivative assets or notionals related to bifurcated embedded derivatives at December 31, 2014. Notional amount of derivative assets and fair value of derivative assets include $23.2 billion and $107 million at December 31, 2013 related to bifurcated embedded derivatives. Notional amount of derivative liabilities and fair values of derivative liabilities include $39.3 billion and $1.5 billion, respectively, at December 31, 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 Consolidated Balance Sheets.

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

	December 31, 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	$	23,153	$	2,445	$	27,719	$	3,019	$	41,942	$	2,567	$	52,679	$	3,506
AIG Markets		55,005		1,935		29,251		2,136		12,531		964		23,716		1,506
Total Global Capital Markets derivatives		78,158		4,380		56,970		5,155		54,473		3,531		76,395		5,012
Non-Global Capital Markets derivatives^(a)		45,092		445		46,944		2,226		60,021		795		15,668		1,202
Total derivatives, gross	$	123,250		4,825	$	103,914		7,381	$	114,494		4,326	$	92,063		6,214
Counterparty netting^(b)				(2,102)				(2,102)				(1,734)				(1,734)
Cash collateral^(c)				(1,119)				(1,429)				(820)				(1,484)
Total derivatives, net				1,604				3,850				1,772				2,996
Less: Bifurcated embedded derivatives				-				1,577				107				485
Total derivatives on consolidated
balance sheet			$	1,604			$	2,273			$	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

	Gains/(Losses) Recognized in Earnings for:				Including Gains/(Losses) Attributable to:
	Hedging		Hedged		Hedge		Excluded
(in millions)	Derivatives^(a)		Items		Ineffectiveness		Components		Other^(b)
Year ended December 31, 2014
Interest rate contracts:
Realized capital gains/(losses)	$	1	$	(2)	$	-	$	-	$	(1)
Interest credited to policyholder
account balances		-		(1)		-		-		(1)
Other income		-		43		-		-		43
Gain/(Loss) on extinguishment of debt		-		164		-		-		164
Foreign exchange contracts:
Realized capital gains/(losses)		(129)		147		-		8		10
Interest credited to policyholder
account balances		-		(3)		-		-		(3)
Other income		-		23		-		-		23
Gain/(Loss) on extinguishment of debt		-		2		-		-		2
Equity contracts:
Realized capital gains/(losses)		(23)		22		-		(1)		-
Year ended December 31, 2013
Interest rate contracts:
Realized capital gains/(losses)	$	(5)	$	5	$	-	$	-	$	-
Interest credited to policyholder
account balances		-		(2)		-		-		(2)
Other income		-		99		-		-		99
Foreign exchange contracts:
Realized capital gains/(losses)		(187)		204		-		17		-
Policyholder benefits		-		-		-		-		-
Other income		-		-		-		-		-
Year ended December 31, 2012
Interest rate contracts:
Other income	$	-	$	124	$	-	$	-	$	124
Foreign exchange contracts:
Realized capital gains/(losses)		(2)		2		-		-		-

(a) The amounts presented do not include the periodic net coupon settlements of the derivative contract or the coupon income (expense) related to the hedged item.

(b) Represents accretion/amortization of opening fair value of the hedged item at inception of hedge relationship, amortization of basis adjustment on hedged item following the discontinuation of hedge accounting, and the release of debt basis adjustment following the repurchase of issued debt that was part of previously-discontinued fair value hedge relationship.

Effect of AIG's derivative instruments in cash flow hedging relationships in the Consolidated Statement of Income

Years Ended December 31,
(in millions)	2014		2013		2012
Interest rate contracts^(a):
Loss recognized in Other comprehensive income on derivatives	$	-	$	-	$	(2)
Loss reclassified from Accumulated other comprehensive income into earnings^(b)		-		-		(35)

(a) Hedge accounting was discontinued in December 2012 in connection with ILFC being classified as held-for-sale. Gains and losses recognized in earnings are recorded in Income from continuing operations. Previously the effective portion of the change in fair value of a derivative qualifying as a cash flow hedge was recorded in Accumulated other comprehensive income until earnings were affected by the variability of cash flows in the hedged item. Gains and losses reclassified from Accumulated other comprehensive income were previously recorded in Other income. Gains or losses recognized in earnings on derivatives for the ineffective portion were previously recorded in Net realized capital gains (losses).

(b) Includes $19 million for the year ended December 2012, representing the reclassification from Accumulated other comprehensive income into earnings following the discontinuation of cash flow hedges of ILFC debt.

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

	Gains (Losses)
Years Ended December 31,	Recognized in Earnings
(in millions)		2014		2013		2012
By Derivative Type:
Interest rate contracts^(a)	$	847	$	(331)	$	(241)
Foreign exchange contracts		309		41		96
Equity contracts^(b)		(1,111)		664		(644)
Commodity contracts		(1)		(4)		(1)
Credit contracts		263		567		641
Other contracts		192		85		6
Total	$	499	$	1,022	$	(143)
By Classification:
Net investment income		102		28		5
Net realized capital gains (losses)		(219)		257		(516)
Other income		599		750		368
Policyholder benefits and losses incurred		17		(13)		-
Total	$	499	$	1,022	$	(143)

(a) Includes cross currency swaps.

(b) Includes embedded derivative gains (losses) of $(837) million, $1.2 billion and $(170) million for the years ended December 31, 2014, 2013 and 2012, respectively.

Net notional amount, fair value of derivative (asset) liability and unrealized market valuation gain (loss)

						Fair Value of			Unrealized Market Valuation
	Net Notional Amount at				Derivative Liability at				Gain for the Years Ended
	December 31,			December 31,	December 31,			December 31,	December 31,			December 31,
(in millions)		2014		2013		2014		2013		2014		2013
Arbitrage:
Multi-sector CDOs^(a)	$	2,619	$	3,257	$	947	$	1,249	$	235	$	518
Corporate debt/CLOs^(b)(c)		2,480		11,832		7		28		21		32
Total	$	5,099	$	15,089	$	954	$	1,277	$	256	$	550

(a) During 2014, we paid $67 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 $852 million and $1.1 billion at December 31, 2014 and 2013, respectively.

(b) Corporate debt/Collateralized Loan Obligations (CLOs) include $555 million and $1.0 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at December 31, 2014 and 2013, respectively. Collateral postings with regards to corporate debt/CLOs were $147 million and $353 million at December 31, 2014 and 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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