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DERIVATIVES AND HEDGE ACCOUNTING (Tables)
 6 Months Ended
Jun. 30, 2017
DERIVATIVES AND HEDGE ACCOUNTING  
Notional amounts and fair values of derivative instruments
June 30, 2017December 31, 2016
Gross Derivative AssetsGross Derivative LiabilitiesGross Derivative AssetsGross Derivative Liabilities
NotionalFairNotionalFairNotionalFairNotionalFair
(in millions)AmountValueAmountValueAmountValueAmountValue
Derivatives designated as
hedging instruments:(a)
Interest rate contracts$-$-$865$10$175$-$782$11
Foreign exchange contracts2,7052503,9212073,5273852,602184
Equity contracts--141---1137
Derivatives not designated
as hedging instruments:(a)
Interest rate contracts55,6562,35921,3811,89151,0302,32844,2113,066
Foreign exchange contracts7,7717249,8461,0019,4689357,6741,185
Equity contracts14,8955298,7274314,0603058,63312
Credit contracts(b)3280129542861331
Other contracts(c)38,15222119637,63322626
Total derivatives, gross$119,182$3,886$45,801$3,453$115,897$3,977$64,938$4,802
Counterparty netting(d)(1,265)(1,265)(1,265)(1,265)
Cash collateral(e)(1,625)(1,074)(903)(1,521)
Total derivatives on condensed
consolidated balance sheets(f)$996$1,114$1,809$2,016

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

(b) As of June 30, 2017 and December 31, 2016, included CDSs on super senior multi-sector CDOs with a net notional amount of $750 million and $801 million (fair value liability of $280 million and $308 million), respectively. The expected weighted average maturity as of June 30, 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 June 30, 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 June 30, 2017 and December 31, 2016. Fair value of liabilities related to bifurcated Embedded derivatives was $3.5 billion and $3.1 billion, respectively, at June 30, 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:
HedgingHedgedHedgeExcluded
(in millions)Derivatives(a)ItemsIneffectivenessComponentsOther(b)
Three Months Ended June 30, 2017
Interest rate contracts:
Realized capital gains/(losses)$3$(3)$-$-$-
Interest credited to policyholder account balances-----
Other income-----
Gain/(Loss) on extinguishment of debt-----
Foreign exchange contracts:
Realized capital gains/(losses)(213)232-19-
Interest credited to policyholder account balances-----
Other income-3--3
Gain/(Loss) on extinguishment of debt-----
Equity contracts:
Realized capital gains/(losses)(24)24---

Three Months Ended June 30, 2016
Interest rate contracts:
Realized capital gains/(losses)$-$-$-$-$-
Interest credited to policyholder account balances-----
Other income-5--5
Gain/(Loss) on extinguishment of debt-----
Foreign exchange contracts:
Realized capital gains/(losses)389(345)-431
Interest credited to policyholder account balances-----
Other income-5--5
Gain/(Loss) on extinguishment of debt-----
Equity contracts:
Realized capital gains/(losses)10(7)-3-
Six Months Ended June 30, 2017
Interest rate contracts:
Realized capital gains/(losses)$2$(2)$-$-$-
Interest credited to policyholder account balances-----
Other income-----
Gain/(Loss) on extinguishment of debt-----
Foreign exchange contracts:
Realized capital gains/(losses)(161)190-29-
Interest credited to policyholder account balances-----
Other income-4--4
Gain/(Loss) on extinguishment of debt-----
Equity contracts:
Realized capital gains/(losses)(26)24-(2)-
Six Months Ended June 30, 2016
Interest rate contracts:
Realized capital gains/(losses)$1$(7)$-$-$(6)
Interest credited to policyholder account balances-----
Other income-7--7
Gain/(Loss) on extinguishment of debt-----
Foreign exchange contracts:
Realized capital gains/(losses)423(409)-14-
Interest credited to policyholder account balances-----
Other income-12--12
Gain/(Loss) on extinguishment of debt-----
Equity contracts:
Realized capital gains/(losses)20(19)-1-

(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) Recognized in Earnings
Three Months EndedSix Months Ended
June 30,June 30,
(in millions)2017201620172016
By Derivative Type:
Interest rate contracts$251$603$99$1,373
Foreign exchange contracts(76)182(122)154
Equity contracts(176)(141)(490)(272)
Commodity contracts----
Credit contracts21283634
Other contracts18203636
Embedded derivatives(259)(513)(113)(1,285)
Total$(221)$179$(554)$40
By Classification:
Policy fees$19$20$39$40
Net investment income(5)13(7)12
Net realized capital gains (losses)(316)123(700)88
Other income (losses)8018113(112)
Policyholder benefits and claims incurred15112
Total$(221)$179$(554)$40