DERIVATIVES AND HEDGE ACCOUNTING (Tables)

3 Months Ended

Mar. 31, 2017

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	March 31, 2017								December 31, 2016
	Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities
		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
(in millions)		Amount		Value		Amount		Value		Amount		Value		Amount		Value
Derivatives designated as
hedging instruments:(a)
Interest rate contracts	$	155	$	1	$	761	$	11	$	175	$	-	$	782	$	11
Foreign exchange contracts		4,353		340		2,361		71		3,527		385		2,602		184
Equity contracts		-		-		119		9		-		-		113		7
Derivatives not designated
as hedging instruments:(a)
Interest rate contracts		59,814		2,348		27,134		2,504		51,030		2,328		44,211		3,066
Foreign exchange contracts		6,383		771		9,268		1,034		9,468		935		7,674		1,185
Equity contracts		21,506		447		2,703		39		14,060		305		8,633		12
Credit contracts(b)		3		2		825		317		4		2		861		331
Other contracts(c)		39,113		21		61		6		37,633		22		62		6
Total derivatives, gross	$	131,327	$	3,930	$	43,232	$	3,991	$	115,897	$	3,977	$	64,938	$	4,802
Counterparty netting(d)				(1,269)				(1,269)				(1,265)				(1,265)
Cash collateral(e)				(1,414)				(1,461)				(903)				(1,521)
Total derivatives on condensed
consolidated balance sheets(f)			$	1,247			$	1,261			$	1,809			$	2,016

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

(b) As of March 31,2017 and December 31,2016, included CDSs on super senior multi-sector CDOs with a net notional amount of $774 million and $801 million (fair value liability of $299 million and $308 million), respectively. The expected weighted average maturity as of March 31,2017 is six years. Because of long-term maturities of the CDSs in the portfolio, we are unable to make reasonable estimates of the periods during which any payments would be made. However, the net notional amount represents the maximum exposure to loss on the portfolio. As of March 31,2017 and December 31,2016, there were no super senior corporate debt/CLOs remaining.

(c) Consists primarily of stable value wraps and contracts with multiple underlying exposures.

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

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

(f) Freestanding derivatives only, excludes Embedded derivatives. Derivative instrument assets and liabilities are recorded in Other Assets and Liabilities, respectively. Fair value of assets related to bifurcated Embedded derivatives was zero at both March 31,2017 and December 31, 2016. Fair value of liabilities related to bifurcated Embedded derivatives was $3.1 billion at both March 31,2017 and December 31, 2016. A bifurcated Embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in variable annuity products, which include equity and interest rate components.

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)
Three Months Ended March 31, 2017
Interest rate contracts:
Realized capital gains/(losses)	$	(1)	$	1	$	-	$	-	$	-
Other income		-		-		-		-		-
Gain/(Loss) on extinguishment of debt		-		-		-		-		-
Foreign exchange contracts:
Realized capital gains/(losses)		52		(42)		-		10		-
Other income		-		1		-		-		1
Gain/(Loss) on extinguishment of debt		-		-		-		-		-
Equity contracts:
Realized capital gains/(losses)		(2)		-		-		(2)		-

Three Months Ended March 31, 2016
Interest rate contracts:
Realized capital gains/(losses)	$	1	$	(1)	$	-	$	-	$	-
Other income		-		2		-		-		2
Gain/(Loss) on extinguishment of debt		-		-		-		-		-
Foreign exchange contracts:
Realized capital gains/(losses)		34		(64)		-		(29)		(1)
Other income		-		7		-		-		7
Gain/(Loss) on extinguishment of debt		-		-		-		-		-
Equity contracts
Realized capital gains/(losses)		10		(12)		-		(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 not designated as hedging instruments in the Consolidated Statements of Income

	Gains (Losses)
Three Months Ended March 31,	Recognized in Earnings
(in millions)		2017		2016
By Derivative Type:
Interest rate contracts	$	(152)	$	770
Foreign exchange contracts		(46)		(28)
Equity contracts		(314)		(131)
Commodity contracts		-		-
Credit contracts		15		6
Other contracts		18		16
Embedded derivatives		146		(772)
Total	$	(333)	$	(139)
By Classification:
Policy fees	$	20	$	20
Net investment income		(2)		(1)
Net realized capital losses		(384)		(35)
Other income (losses)		33		(130)
Policyholder benefits and claims incurred		-		7
Total	$	(333)	$	(139)