Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

6. Fair Value Measurements

Fair Value Measurements on a Recurring Basis

    AIG measures the following financial instruments at fair value on a recurring basis:

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  trading and available for sale securities portfolios;

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  certain mortgage and other loans receivable;

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  derivative assets and liabilities (including bifurcated embedded derivatives);

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  non-traded equity investments and certain private limited partnerships and certain hedge funds included in Other invested assets;

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  the Maiden Lane Interests and the equity interest in AIA, all of which are accounted for under the fair value option;

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  certain short-term investments;

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  certain securities purchased under agreements to resell included in Short-term investments;

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  securities sold under agreements to repurchase and securities and spot commodities sold but not yet purchased included in Other liabilities;

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  separate account assets;

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  certain policyholder contract deposits;

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  certain trust deposits and deposits due to banks and other depositors included in Other liabilities;

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  certain long-term debt; and

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  certain hybrid financial instruments included in Other liabilities.

    The fair value of a financial instrument is the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between willing, able and knowledgeable market participants at the measurement date.

    The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of observable valuation inputs. AIG maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, liquidity and general market conditions.

Fair Value Hierarchy

    Assets and liabilities recorded at fair value in the Consolidated Balance Sheet are measured and classified in a hierarchy for disclosure purposes consisting of three "levels" based on the observability of inputs available in the marketplace used to measure the fair values as discussed below:

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  Level 1:  Fair value measurements that are quoted prices (unadjusted) in active markets that AIG has the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. AIG does not adjust the quoted price for such instruments. Assets and liabilities measured at fair value on a recurring basis and classified as Level 1 include certain government and agency securities, actively traded listed common stocks and futures and options contracts, most separate account assets and most mutual funds.

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  Level 2:  Fair value measurements based on inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Assets and liabilities measured at fair value on a recurring basis and classified as Level 2 generally include certain government and agency securities, most investment-grade and high-yield corporate bonds, certain residential mortgage-backed securities (RMBS), certain commercial mortgage-backed securities (CMBS) and certain collateralized loan obligations/asset backed securities (CLO/ABS), certain listed equities, state, municipal and provincial obligations, hybrid securities, certain securities purchased (sold) under agreements to resell (repurchase), certain mutual fund and hedge fund investments, certain interest rate, currency and commodity derivative contracts, guaranteed investment agreements (GIAs) for the Direct Investment book, other long-term debt and physical commodities.

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  Level 3:  Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, AIG must make certain assumptions as to the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. AIG's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment. In making the assessment, AIG considers factors specific to the asset or liability. Assets and liabilities measured at fair value on a recurring basis and classified as Level 3 include certain RMBS, CMBS and collateralized debt obligations/asset backed securities (CDO/ABS), corporate debt, certain municipal and sovereign debt, certain derivative contracts (including Capital Markets super senior credit default swap portfolio), policyholder contract deposits carried at fair value, private equity and real estate fund investments, and direct private equity investments. AIG's non-financial instrument assets that are measured at fair value on a non-recurring basis generally are classified as Level 3.

    The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the levels noted above, and it is the observability of the inputs used that determines the appropriate level in the fair value hierarchy for the respective asset or liability.

Valuation Methodologies

Incorporation of Credit Risk in Fair Value Measurements

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  AIG's Own Credit Risk.    Fair value measurements for certain Direct Investment book debt, GIAs, structured note liabilities and freestanding derivatives, as well as Capital Markets derivatives, incorporate AIG's own credit risk by determining the explicit cost for each counterparty to protect against its net credit exposure to AIG at the balance sheet date by reference to observable AIG CDS or cash bond spreads. A derivative counterparty's net credit exposure to AIG is determined based on master netting agreements, when applicable, which take into consideration all derivative positions with AIG, as well as collateral posted by AIG with the counterparty at the balance sheet date.

• •     Fair value measurements for embedded policy derivatives and policyholder contract deposits take into consideration that policyholder liabilities are senior in priority to general creditors of AIG and therefore are much less sensitive to changes in AIG credit default swap or cash issuance spreads.

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  Counterparty Credit Risk.    Fair value measurements for freestanding derivatives incorporate counterparty credit by determining the explicit cost for AIG to protect against its net credit exposure to each counterparty at the balance sheet date by reference to observable counterparty CDS spreads, when available. When not available, other directly or indirectly observable credit spreads will be used to derive the best estimates of the counterparty spreads. AIG's net credit exposure to a counterparty is determined based on master netting agreements, which take into consideration all derivative positions with the counterparty, as well as collateral posted by the counterparty at the balance sheet date.

    A CDS is a derivative contract that allows the transfer of third party credit risk from one party to the other. The buyer of the CDS pays an upfront and/or periodic premium to the seller. The seller's payment obligation is triggered by the occurrence of a credit event under a specified reference security and is determined by the loss on that specified reference security. The present value of the amount of the upfront and/or periodic premium therefore represents a market-based expectation of the likelihood that the specified reference party will fail to perform on the reference obligation, a key market observable indicator of non-performance risk (the CDS spread).

    Fair values for fixed maturity securities based on observable market prices for identical or similar instruments implicitly incorporate counterparty credit risk. Fair values for fixed maturity securities based on internal models incorporate counterparty credit risk by using discount rates that take into consideration cash issuance spreads for similar instruments or other observable information.

    The cost of credit protection is determined under a discounted present value approach considering the market levels for single name CDS spreads for each specific counterparty, the mid market value of the net exposure (reflecting the amount of protection required) and the weighted average life of the net exposure. CDS spreads are provided to AIG by an independent third party. AIG utilizes an interest rate based on the benchmark London Interbank Offered Rate (LIBOR) curve to derive its discount rates.

    While this approach does not explicitly consider all potential future behavior of the derivative transactions or potential future changes in valuation inputs, AIG believes this approach provides a reasonable estimate of the fair value of the assets and liabilities, including consideration of the impact of non-performance risk.

Fixed Maturity Securities — Trading and Available for Sale

    Whenever available, AIG obtains quoted prices in active markets for identical assets at the balance sheet date to measure fixed maturity securities at fair value in its trading and available for sale portfolios. Market price data is generally obtained from dealer markets.

    Management is responsible for the determination of the value of the investments carried at fair value and the supporting methodologies and assumptions. AIG employs independent third-party valuation service providers to gather, analyze, and interpret market information and derive fair value estimates based upon relevant methodologies and assumptions for individual instruments. When AIG's valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a price quote, which is generally non-binding, or by employing widely accepted valuation models.

    Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested under the terms of service agreements. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, benchmark yields, interest rate yield curves, credit spreads, currency rates, quoted prices for similar securities and other market-observable information, as applicable. The valuation models take into account, among other things, market observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased.

    AIG has processes designed to ensure that the values received or internally estimated are accurately recorded, that the data inputs and the valuation techniques utilized are appropriate and consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value. AIG assesses the reasonableness of individual security values received from valuation service providers through various analytical techniques. In addition, AIG may validate the reasonableness of fair values by comparing information obtained from AIG's valuation service providers to other third-party valuation sources for selected securities. AIG also validates prices for selected securities obtained from brokers through reviews by members of management who have relevant expertise and who are independent of those charged with executing investing transactions.

    The methodology above is relevant for all fixed maturity securities; following are discussions of certain procedures unique to specific classes of securities.

Fixed Maturity Securities issued by Government Entities

    For most debt securities issued by government entities, AIG obtains fair value information from independent third-party valuation service providers, as quoted prices in active markets are generally only available for limited debt securities issued by government entities. The fair values received from these valuation service providers may be based on a market approach using matrix pricing, which considers a security's relationship to other securities for which quoted prices in an active market may be available, or alternatively based on an income approach, which uses valuation techniques to convert future cash flows to a single present value amount.

Fixed Maturity Securities issued by Corporate Entities

    For most debt securities issued by corporate entities, AIG obtains fair value information from independent third-party valuation service providers. For certain corporate debt securities, AIG obtains fair value information from brokers. For those corporate debt instruments (for example, private placements) that are not traded in active markets or that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and non-transferability, and such adjustments generally are based on available market evidence. In the absence of such evidence, management's best estimate is used.

RMBS, CMBS, CDOs and other ABS

    Independent third-party valuation service providers also provide fair value information for the majority of AIG investments in RMBS, CMBS, CDOs and other ABS. Where pricing is not available from valuation service providers, AIG obtains fair value information from brokers. Broker prices may be based on an income approach, which converts expected future cash flows to a single present value amount, with specific consideration of inputs relevant to structured securities, including ratings, collateral types, geographic concentrations, underlying loan vintages, loan delinquencies, and weighted average coupons and maturities. Broker prices may also be based on a market approach that considers recent transactions involving identical or similar securities. When the volume or level of market activity for an investment in RMBS, CMBS, CDOs or other ABS is limited, certain inputs used to determine fair value may not be observable in the market.

Maiden Lane II and Maiden Lane III

    At their inception, AIG's interests in ML II and ML III were valued and recorded at the transaction prices of $1 billion and $5 billion, respectively.

    Subsequently, AIG's interest in ML III has been valued using a discounted cash flow methodology that (1) uses the estimated future cash flows and the fair value of the ML III assets, (2) allocates the estimated future cash flows according to the ML III waterfall, and (3) calibrates the discount rate to the estimated asset values of ML III assets commensurate with AIG's interest in the capital structure. Estimated cash flows and discount rates used in the valuations are validated, to the extent possible, using market observable information for securities with similar asset pools, structure and terms.

    The fair value methodology used since inception and prior to March 31, 2011 for AIG's interest in ML II had used the same discounted cash flow methodology as for ML III. As a result of the announcement on March 31, 2011 by the FRBNY of its plan to begin selling the assets in the ML II portfolio over time through a competitive sales process, AIG modified its methodology for estimating the fair value of its interest in ML II to incorporate the assumption of a current liquidation, which (1) uses the estimated fair value of the ML II assets and (2) allocates the estimated asset fair value according to the ML II waterfall.

    AIG does not believe a change in the fair value methodology used for its interest in ML III is appropriate at this time based on current available information. Other methodologies employed or assumptions made in determining fair value for these investments could result in amounts that differ significantly from the amounts reported.

    Adjustments to the fair value of AIG's interest in ML II are recorded in the Consolidated Statement of Operations in Net investment income for SunAmerica's domestic life insurance companies. Adjustments to the fair value of AIG's interest in ML III are recorded in the Consolidated Statement of Operations in Net investment income for AIG's Other operations.

    As of June 30, 2011, AIG expects to receive cash flows (undiscounted) in excess of AIG's initial investment, and any accrued interest, on the Maiden Lane Interests after repayment of the first priority obligations owed to the FRBNY. AIG's fair value methodology considers the capital structure of the collateral securities and their expected credit losses from the underlying asset pools. The fair value of AIG's interest in ML II is most affected by the liquidation proceeds realized by the FRBNY from the sale of the collateral securities. A 10 percent change in the liquidation proceeds realized by the FRBNY would result in a change of approximately $170 million in the fair value of the ML II interest. The fair value of AIG's interest in ML III is most affected by changes in the discount rates and changes in the estimated future collateral cash flows used in the valuation model. Changes in estimated future cash flows for ML III would primarily be the result of changes in expectations of defaults, recoveries and prepayments on underlying loans.

    The LIBOR interest rate curve changes are determined based on observable prices, interpolated or extrapolated to derive a LIBOR for a specific maturity term as necessary. The spreads over LIBOR for the Maiden Lane Interests (including collateral-specific credit and liquidity spreads) can change as a result of changes in market expectations about the future performance of these investments as well as changes in the risk premium that market participants would demand at the time of the transactions.

Changes in the discount rate or the estimated future cash flows used in the valuation would alter AIG's estimate of the fair value of AIG's interest in ML III as shown in the table below.

Six Months Ended June 30, 2011 (in millions)	Maiden Lane III Fair Value Change
Discount Rates:
200 basis point increase	$	(632	)
200 basis point decrease		717
400 basis point increase		(1,192	)
400 basis point decrease		1,533
Estimated Future Cash Flows:
10% increase		790
10% decrease		(805	)
20% increase		1,564
20% decrease		(1,619	)

    If the FRBNY were to similarly announce a plan to liquidate the assets of ML III at their estimated fair values, the impact of the change in AIG's assumptions would be an increase in the fair value of AIG's interest in ML III by approximately $513 million at June 30, 2011.

    AIG believes that the ranges of discount rates used in these analyses are reasonable on the basis of implied spread volatilities of similar collateral securities. The ranges of estimated future cash flows were determined on the basis of variability in estimated future cash flows implied by cumulative loss estimates. Because of these factors, the fair values of the Maiden Lane Interests are likely to vary, perhaps materially, from the amounts estimated.

Equity Securities Traded in Active Markets — Trading and Available for Sale

    Whenever available, AIG obtains quoted prices in active markets for identical assets at the balance sheet date to measure at fair value marketable equity securities in its trading and available for sale portfolios or in Other invested assets. Market price data is generally obtained from exchange or dealer markets.

Direct Private Equity Investments — Other Invested Assets

    AIG initially estimates the fair value of direct private equity investments by reference to the transaction price. This valuation is adjusted for changes in inputs and assumptions that are corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity capital markets and/or changes in financial ratios or cash flows. For equity securities that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability and such adjustments generally are based on available market evidence. In the absence of such evidence, management's best estimate is used.

Hedge Funds, Private Equity Funds and Other Investment Partnerships — Other Invested Assets

    AIG initially estimates the fair value of investments in certain hedge funds, private equity funds and other investment partnerships by reference to the transaction price. Subsequently, AIG generally obtains the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are generally audited annually. AIG considers observable market data and performs diligence procedures in validating the appropriateness of using the net asset value as a fair value measurement.

Separate Account Assets

    Separate account assets are composed primarily of registered and unregistered open-end mutual funds that generally trade daily and are measured at fair value in the manner discussed above for equity securities traded in active markets.

Short-term Investments

    For short-term investments that are measured at fair value, AIG obtains fair value information from independent third-party valuation service providers. The determination of fair value for these instruments is consistent with the process for fixed maturity securities, as discussed above.

Securities Purchased Under Agreements to Resell

    AIG also reports securities purchased under agreements to resell in Short-term investments in the Consolidated Balance Sheet. AIG estimates the fair value of those receivables arising from securities purchased under agreements to resell that are measured at fair value using dealer price quotes, discounted cash flow analyses and/or internal valuation models. This methodology considers such factors as the coupon rate, yield curves, prepayment rates and other relevant factors.

Mortgage and Other Loans Receivable

    AIG estimates the fair value of mortgage and other loans receivable by using dealer quotations, discounted cash flow analyses and/or internal valuation models. The determination of fair value considers inputs such as interest rate, maturity, the borrower's creditworthiness, collateral, subordination, guarantees, past-due status, yield curves, credit curves, prepayment rates, market pricing for comparable loans and other relevant factors.

Freestanding Derivatives

    Derivative assets and liabilities can be exchange-traded or traded over-the-counter (OTC). AIG generally values exchange-traded derivatives such as futures and options using quoted prices in active markets for identical derivatives at the balance sheet date.

    OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. AIG generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment.

    Certain OTC derivatives trade in less liquid markets with limited pricing information, and the determination of fair value for these derivatives is inherently more difficult. When AIG does not have corroborating market evidence to support significant model inputs and cannot verify the model to market transactions, the transaction price may provide the best estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so the model value at inception equals the transaction price. AIG will update valuation inputs in these models only when corroborated by evidence such as similar market transactions, third party pricing services and/or broker or dealer quotations, or other empirical market data. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate is used.

Embedded Policy Derivatives

    The fair value of embedded policy derivatives contained in certain variable annuity and equity-indexed annuity and life contracts is measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts. These cash flow estimates primarily include benefits and related fees assessed, when applicable, and incorporate expectations about policyholder behavior. Estimates of future policyholder behavior are subjective and based primarily on AIG's historical experience. With respect to embedded policy derivatives in AIG's variable annuity contracts, because of the dynamic and complex nature of the expected cash flows, risk neutral valuations are used. Estimating the underlying cash flows for these products involves many estimates and judgments, including those regarding expected market rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and policyholder behavior. With respect to embedded policy derivatives in AIG's equity-indexed annuity and life contracts, option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and determinations on adjusting the participation rate and the cap on equity indexed credited rates in light of market conditions and policyholder behavior assumptions. These methodologies incorporate an explicit risk margin to take into consideration market participant estimates of projected cash flows and policyholder behavior.

    Fair value measurements for embedded derivatives associated with variable annuity and equity-indexed annuity and life contracts incorporate AIG insurance subsidiaries' own risk of non-performance by reflecting a market participant's view of AIG insurance subsidiaries' claims paying ability. AIG therefore incorporates an additional spread to the interest rate swap curve to value the embedded policy derivatives.

AIGFP's Super Senior Credit Default Swap Portfolio

    AIGFP values AIGFP's CDS transactions written on the super senior risk layers of designated pools of debt securities or loans using internal valuation models, third-party price estimates and market indices. The principal market was determined to be the market in which super senior credit default swaps of this type and size would be transacted, or have been transacted, with the greatest volume or level of activity. AIG has determined that the principal market participants, therefore, would consist of other large financial institutions who participate in sophisticated over-the-counter derivatives markets. The specific valuation methodologies vary based on the nature of the referenced obligations and availability of market prices.

    The valuation of the super senior credit derivatives is challenging given the limitation on the availability of market observable information due to the lack of trading and price transparency in certain structured finance markets. These market conditions have increased the reliance on management estimates and judgments in arriving at an estimate of fair value for financial reporting purposes. Further, disparities in the valuation methodologies employed by market participants and the varying judgments reached by such participants when assessing volatile markets have increased the likelihood that the various parties to these instruments may arrive at significantly different estimates as to their fair values.

    AIG's valuation methodologies for the super senior credit default swap portfolio have evolved over time in response to market conditions and the availability of market observable information. AIG has sought to calibrate the methodologies to available market information and to review the assumptions of the methodologies on a regular basis.

Regulatory capital portfolio:  In the case of credit default swaps written to facilitate regulatory capital relief, AIG estimates the fair value of these derivatives by considering observable market transactions. The transactions with the most observability are the early terminations of these transactions by counterparties. AIG continues to reassess the expected maturity of the portfolio. AIGFP has not been required to make any payments as part of terminations of super senior regulatory capital CDSs initiated by counterparties. However, during the second quarter of 2011, AIGFP terminated mezzanine tranches related to certain terminated super senior regulatory capital trades and made payments which approximated their fair values at the time of termination. The regulatory benefit of these transactions for AIGFP's financial institution counterparties is generally derived from the capital regulations promulgated by the Basel Committee on Banking Supervision, known as Basel I. In December 2010, the Basel Committee on Banking Supervision finalized a new framework for international capital and liquidity standards known as Basel III, which, when fully implemented, may reduce or eliminate the regulatory benefits to certain counterparties and thus may impact the period of time that such counterparties are expected to hold the positions. In assessing the fair value of the regulatory capital CDS transactions, AIG also considers other market data to the extent relevant and available. For further discussion, see Note 10 herein.

Multi-sector CDO portfolios:  AIG uses a modified version of the Binomial Expansion Technique (BET) model to value AIGFP's credit default swap portfolio written on super senior tranches of multi-sector collateralized debt obligations (CDOs) of ABS. The BET model was developed in 1996 by a major rating agency to generate expected loss estimates for CDO tranches and derive a credit rating for those tranches, and remains widely used.

    AIG has adapted the BET model to estimate the price of the super senior risk layer or tranche of the CDO. AIG modified the BET model to imply default probabilities from market prices for the underlying securities and not from rating agency assumptions. To generate the estimate, the model uses the price estimates for the securities comprising the portfolio of a CDO as an input and converts those estimates to credit spreads over current LIBOR-based interest rates. These credit spreads are used to determine implied probabilities of default and expected losses on the underlying securities. This data is then aggregated and used to estimate the expected cash flows of the super senior tranche of the CDO.

    Prices for the individual securities held by a CDO are obtained in most cases from the CDO collateral managers, to the extent available. CDO collateral managers provided market prices for 62.5 percent of the underlying securities used in the valuation at June 30, 2011. When a price for an individual security is not provided by a CDO collateral manager, AIG derives the price through a pricing matrix using prices from CDO collateral managers for similar securities. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the relationship of the security to other benchmark quoted securities. Substantially all of the CDO collateral managers who provided prices used dealer prices for all or part of the underlying securities, in some cases supplemented by third-party pricing services.

    The BET model also uses diversity scores, weighted average lives, recovery rates and discount rates. AIG employs a Monte Carlo simulation to assist in quantifying the effect on the valuation of the CDO of the unique aspects of the CDO's structure such as triggers that divert cash flows to the most senior part of the capital structure. The Monte Carlo simulation is used to determine whether an underlying security defaults in a given simulation scenario and, if it does, the security's implied random default time and expected loss. This information is used to project cash flow streams and to determine the expected losses of the portfolio.

    In addition to calculating an estimate of the fair value of the super senior CDO security referenced in the credit default swaps using its internal model, AIG also considers the price estimates for the super senior CDO securities provided by third parties, including counterparties to these transactions, to validate the results of the model and to determine the best available estimate of fair value. In determining the fair value of the super senior CDO security referenced in the credit default swaps, AIG uses a consistent process that considers all available pricing data points and eliminates the use of outlying data points. When pricing data points are within a reasonable range an averaging technique is applied.

Corporate debt/Collateralized loan obligation (CLO) portfolios: In the case of credit default swaps written on portfolios of investment-grade corporate debt, AIG uses a mathematical model that produces results that are closely aligned with prices received from third parties. This methodology is widely used by other market participants and uses the current market credit spreads of the names in the portfolios along with the base correlations implied by the current market prices of comparable tranches of the relevant market traded credit indices as inputs. One transaction, representing two percent of the total notional amount of the corporate debt transactions, is valued using third party quotations given its unique attributes.

    AIG estimates the fair value of its obligations resulting from credit default swaps written on CLOs to be equivalent to the par value less the current market value of the referenced obligation. Accordingly, the value is determined by obtaining third-party quotations on the underlying super senior tranches referenced under the credit default swap contract.

Policyholder Contract Deposits

    Policyholder contract deposits accounted for at fair value are measured using an earnings approach by taking into consideration the following factors:

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  Current policyholder account values and related surrender charges;

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  The present value of estimated future cash inflows (policy fees) and outflows (benefits and maintenance expenses) associated with the product using risk neutral valuations, incorporating expectations about policyholder behavior, market returns and other factors; and

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  A risk margin that market participants would require for a market return and the uncertainty inherent in the model inputs.

    The change in fair value of these policyholder contract deposits is recorded as Policyholder benefits and claims incurred in the Consolidated Statement of Operations.

Other Long-Term Debt

    When fair value accounting has been elected, the fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer markets, when available, or discounting expected cash flows using the appropriate discount rate for the applicable maturity. Such instruments are generally classified in Level 2 of the fair value hierarchy as substantially all inputs are readily observable. AIG determines the fair value of structured liabilities and hybrid financial instruments (where performance is linked to structured interest rates, inflation or currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk profile. Such instruments are classified in Level 2 or Level 3 depending on the observability of significant inputs to the model. In addition, adjustments are made to the valuations of both non-structured and structured liabilities to reflect AIG's own creditworthiness based on observable credit spreads of AIG.

Other Liabilities

    Other liabilities measured at fair value include securities sold under agreements to repurchase and securities and spot commodities sold but not yet purchased. For liabilities arising from securities sold under agreements to repurchase, AIG estimates the fair value by using dealer quotations, discounted cash flow analyses and/or internal valuation models. This methodology considers such factors as the coupon rate, yield curves, prepayment rates and other relevant factors. Fair values for securities sold but not yet purchased are based on current market prices. Fair values of spot commodities sold but not yet purchased are based on current market prices of reference spot futures contracts traded on exchanges.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the levels of the inputs used:

June 30, 2011 (in millions)			Level 1		Level 2		Level 3		Counterparty Netting(a)			Cash Collateral(b)			Total
Assets:
	Bonds available for sale:
		U.S. government and government sponsored entities	$	1,125	$	7,352	$	-	$	-		$	-		$	8,477
		Obligations of states, municipalities and Political subdivisions		1		38,536		800		-			-			39,337
		Non-U.S. governments		774		17,076		5		-			-			17,855
		Corporate debt		27		136,286		1,844		-			-			138,157
		RMBS		-		20,718		10,692		-			-			31,410
		CMBS		-		3,502		4,228		-			-			7,730
		CDO/ABS		-		2,469		3,925		-			-			6,394
Total bonds available for sale				1,927		225,939		21,494		-			-			249,360
	Bond trading securities:
		U.S. government and government sponsored entities		181		6,856		-		-			-			7,037
		Obligations of states, municipalities and Political subdivisions		-		296		-		-			-			296
		Non-U.S. governments		-		339		-		-			-			339
		Corporate debt		-		997		9		-			-			1,006
		RMBS		-		1,657		170		-			-			1,827
		CMBS		-		1,726		483		-			-			2,209
		CDO/ABS		-		4,751		9,503		-			-			14,254
Total bond trading securities				181		16,622		10,165		-			-			26,968
	Equity securities available for sale:
		Common stock		3,861		6		59		-			-			3,926
		Preferred stock		-		61		64		-			-			125
		Mutual funds		67		10		-		-			-			77
Total equity securities available for sale				3,928		77		123		-			-			4,128
	Equity securities trading			43		120		1		-			-			164
	Mortgage and other loans receivable			-		115		-		-			-			115
	Other invested assets(c)			14,064		1,814		7,045		-			-			22,923
	Derivative assets:
		Interest rate contracts		1		6,811		1,008		-			-			7,820
		Foreign exchange contracts		-		117		4		-			-			121
		Equity contracts		51		162		62		-			-			275
		Commodity contracts		-		65		5		-			-			70
		Credit contracts		-		1		116		-			-			117
		Other contracts		11		596		320		-			-			927
		Counterparty netting and cash collateral		-		-		-		(2,808	)		(1,883	)		(4,691	)
Total derivative assets				63		7,752		1,515		(2,808	)		(1,883	)		4,639
	Short-term investments(d)			2,903		8,466		-		-			-			11,369
	Separate account assets			53,164		2,940		-		-			-			56,104
Total			$	76,273	$	263,845	$	40,343	$	(2,808	)	$	(1,883	)	$	375,770
Liabilities:
	Policyholder contract deposits		$	-	$	-	$	406	$	-		$	-		$	406
	Derivative liabilities:
		Interest rate contracts		-		5,992		254		-			-			6,246
		Foreign exchange contracts		-		233		-		-			-			233
		Equity contracts		-		205		28		-			-			233
		Commodity contracts		-		65		-		-			-			65
		Credit contracts(e)		-		2		3,448		-			-			3,450
		Other contracts		-		81		389		-			-			470
		Counterparty netting and cash collateral		-		-		-		(2,808	)		(2,542	)		(5,350	)
Total derivative liabilities				-		6,578		4,119		(2,808	)		(2,542	)		5,347
	Other long-term debt			-		10,292		958		-			-			11,250
	Other liabilities(f)			110		1,595		-		-			-			1,705
Total			$	110	$	18,465	$	5,483	$	(2,808	)	$	(2,542	)	$	18,708

December 31, 2010 (in millions)			Level 1		Level 2		Level 3		Counterparty Netting(a)			Cash Collateral(b)			Total
Assets:
	Bonds available for sale:
		U.S. government and government sponsored entities	$	142	$	7,208	$	-	$	-		$	-		$	7,350
		Obligations of states, municipalities and Political subdivisions		4		46,007		609		-			-			46,620
		Non-U.S. governments		719		14,620		5		-			-			15,344
		Corporate debt		8		124,088		2,262		-			-			126,358
		RMBS		-		13,441		6,367		-			-			19,808
		CMBS		-		2,807		3,604		-			-			6,411
		CDO/ABS		-		2,170		4,241		-			-			6,411
Total bonds available for sale				873		210,341		17,088		-			-			228,302
	Bond trading securities:
		U.S. government and government sponsored entities		339		6,563		-		-			-			6,902
		Obligations of states, municipalities and Political subdivisions		-		316		-		-			-			316
		Non-U.S. governments		-		125		-		-			-			125
		Corporate debt		-		912		-		-			-			912
		RMBS		-		1,837		91		-			-			1,928
		CMBS		-		1,572		506		-			-			2,078
		CDO/ABS		-		4,490		9,431		-			-			13,921
Total bond trading securities				339		15,815		10,028		-			-			26,182
	Equity securities available for sale:
		Common stock		3,577		61		61		-			-			3,699
		Preferred stock		-		423		64		-			-			487
		Mutual funds		316		79		-		-			-			395
Total equity securities available for sale				3,893		563		125		-			-			4,581
	Equity securities trading			6,545		106		1		-			-			6,652
	Mortgage and other loans receivable			-		143		-		-			-			143
	Other invested assets(c)			12,281		1,661		7,414		-			-			21,356
	Derivative assets:
		Interest rate contracts		1		13,146		1,057		-			-			14,204
		Foreign exchange contracts		14		172		16		-			-			202
		Equity contracts		61		233		65		-			-			359
		Commodity contracts		-		69		23		-			-			92
		Credit contracts		-		2		377		-			-			379
		Other contracts		8		923		144		-			-			1,075
		Counterparty netting and cash collateral		-		-		-		(6,298	)		(4,096	)		(10,394	)
Total derivative assets				84		14,545		1,682		(6,298	)		(4,096	)		5,917
	Short-term investments(d)			5,401		18,459		-		-			-			23,860
	Separate account assets			51,607		2,825		-		-			-			54,432
	Other assets			-		14		-		-			-			14
Total			$	81,023	$	264,472	$	36,338	$	(6,298	)	$	(4,096	)	$	371,439
Liabilities:
	Policyholder contract deposits		$	-	$	-	$	445	$	-		$	-		$	445
	Derivative liabilities:
		Interest rate contracts		-		9,387		325		-			-			9,712
		Foreign exchange contracts		14		324		-		-			-			338
		Equity contracts		-		286		43		-			-			329
		Commodity contracts		-		68		-		-			-			68
		Credit contracts(e)		-		5		4,175		-			-			4,180
		Other contracts		-		52		256		-			-			308
		Counterparty netting and cash collateral		-		-		-		(6,298	)		(2,902	)		(9,200	)
Total derivative liabilities				14		10,122		4,799		(6,298	)		(2,902	)		5,735
	Other long-term debt			-		11,161		982		-			-			12,143
	Other liabilities(f)			391		2,228		-		-			-			2,619
Total			$	405	$	23,511	$	6,226	$	(6,298	)	$	(2,902	)	$	20,942

(a)

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

(b)

Represents cash collateral posted and received. Securities collateral posted for derivative transactions that is reflected in Fixed maturity securities in the Consolidated Balance Sheet, and collateral received, not reflected in the Consolidated Balance Sheet, were $2.0 billion and $83 million, respectively, at June 30, 2011 and $1.4 billion and $109 million, respectively, at December 31, 2010.

(c)

Included in Level 1 are $13.7 billion and $11.1 billion at June 30, 2011 and December 31, 2010, respectively, of AIA shares publicly traded on the Hong Kong Stock Exchange. Approximately 4 percent and 5 percent of the fair value of the assets recorded as Level 3 relates to various private equity, real estate, hedge fund and fund-of-funds investments that are consolidated by AIG at June 30, 2011 and December 31, 2010, respectively. AIG's ownership in these funds represented 59.5 percent, or $0.9 billion, of Level 3 assets at June 30, 2011 and 68.6 percent, or $1.3 billion, of Level 3 assets at December 31, 2010.

(d)

Included in Level 2 is the fair value of $0.8 billion and $1.6 billion at June 30, 2011 and December 31, 2010, respectively, of securities purchased under agreements to resell.

(e)

Included in Level 3 is the fair value derivative liability of $3.3 billion and $3.7 billion at June 30, 2011 and December 31, 2010, respectively, on the Capital Markets super senior credit default swap portfolio.

(f)

Included in Level 2 is the fair value of $1.4 billion, $172 million and $7 million at June 30, 2011 of securities sold under agreements to repurchase, securities and spot commodities sold but not yet purchased and trust deposits and deposits due to banks and other depositors, respectively. Included in Level 2 is the fair value of $2.1 billion, $94 million and $15 million at December 31, 2010 of securities sold under agreements to repurchase, securities and spot commodities sold but not yet purchased and trust deposits and deposits due to banks and other depositors, respectively.

Transfers of Level 1 and Level 2 Assets and Liabilities

    AIG's policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. During the six-month period ended June 30, 2011, AIG transferred certain assets from Level 1 to Level 2, including approximately $138 million of investments in securities issued by foreign governments. AIG had no significant transfers from Level 1 to Level 2 during the three-month period ended June 30, 2011. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. AIG had no significant transfers from Level 2 to Level 1 during the six-month period ended June 30, 2011.

Changes in Level 3 Recurring Fair Value Measurements

The following tables present changes during the three- and six-month periods ended June 30, 2011 and 2010 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) recorded in the Consolidated Statement of Operations during those periods related to the Level 3 assets and liabilities that remained in the Consolidated Balance Sheet at June 30, 2011 and 2010:

(in millions)			Fair value Beginning of Period(b)			Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income			Purchases, Sales, Issuances and Settlements, Net			Gross Transfers in			Gross Transfers out			Fair value End of Period			Changes in Unrealized Gains (Losses) Included in Income on Instruments Held at End of Period
Three Months Ended June 30, 2011
Assets:
	Bonds available for sale:
		Obligations of states, municipalities and political subdivisions	$	702		$	(1	)	$	23		$	62		$	17		$	(3	)	$	800		$	-
		Non-U.S. governments		5			-			-			-			-			-			5			-
		Corporate debt		1,235			-			15			305			307			(18	)		1,844			-
		RMBS		6,868			79			(165	)		3,905			11			(6	)		10,692			-
		CMBS		4,316			(7	)		(109	)		-			28			-			4,228			-
		CDO/ABS		3,857			12			74			(382	)		374			(10	)		3,925			-
Total bonds available for sale				16,983			83			(162	)		3,890			737			(37	)		21,494			-
	Bond trading securities:
		Corporate debt		18			-			-			(9	)		-			-			9			-
		RMBS		99			(2	)		(7	)		80			-			-			170			(5	)
		CMBS		523			28			3			(18	)		80			(133	)		483			29
		CDO/ABS		10,461			(877	)		4			(85	)		-			-			9,503			(881	)(a)
Total bond trading securities				11,101			(851	)		-			(32	)		80			(133	)		10,165			(857	)
	Equity securities available for sale:
		Common stock		63			3			6			(12	)		2			(3	)		59			-
		Preferred stock		63			(1	)		1			(1	)		2			-			64			-
Total equity securities available for sale				126			2			7			(13	)		4			(3	)		123			-
	Equity securities trading			1			1			-			(1	)		-			-			1			1
	Other invested assets			7,070			(17	)		126			(161	)		45			(18	)		7,045			321
Total			$	35,281		$	(782	)	$	(29	)	$	3,683		$	866		$	(191	)	$	38,828		$	(535	)
Liabilities:
	Policyholder contract deposits		$	(369	)	$	(33	)	$	-		$	(4	)	$	-		$	-		$	(406	)	$	30
	Derivative liabilities, net:
		Interest rate contracts		619			138			-			(3	)		-			-			754			(29	)
		Foreign exchange contracts		16			(12	)		-			-			-			-			4			1
		Equity contracts		34			-			-			-			(7	)		7			34			-
		Commodity contracts		15			(1	)		-			(9	)		-			-			5			(2	)
		Credit contracts		(3,420	)		94			-			(6	)		-			-			(3,332	)		92
		Other contracts		(6	)		(27	)		(51	)		(10	)		32			(7	)		(69	)		4
Total derivative liabilities, net				(2,742	)		192			(51	)		(28	)		25			-			(2,604	)		66
	Other long-term debt			(996	)		(157	)		-			195			-			-			(958	)		(156	)
Total			$	(4,107	)	$	2		$	(51	)	$	163		$	25		$	-		$	(3,968	)	$	(60	)

(in millions)			Fair value Beginning of Period(b)			Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income			Purchases, Sales, Issuances and Settlements, Net			Gross Transfers in			Gross Transfers out			Fair value End of Period			Changes in Unrealized Gains (Losses) Included in Income on Instruments Held at End of Period
Six Months Ended June 30, 2011
Assets:
	Bonds available for sale:
		Obligations of states, municipalities and political subdivisions	$	609		$	(1	)	$	27		$	174		$	17		$	(26	)	$	800		$	-
		Non-U.S. governments		5			-			-			-			-			-			5			-
		Corporate debt		2,262			(3	)		22			272			533			(1,242	)		1,844			-
		RMBS		6,367			(2	)		368			3,943			22			(6	)		10,692			-
		CMBS		3,604			(34	)		555			72			53			(22	)		4,228			-
		CDO/ABS		4,241			32			312			(837	)		446			(269	)		3,925			-
Total bonds available for sale				17,088			(8	)		1,284			3,624			1,071			(1,565	)		21,494			-
	Bond trading securities:
		Corporate debt		-			-			-			(9	)		18			-			9			-
		RMBS		91			-			(7	)		86			-			-			170			(3	)
		CMBS		506			66			3			(76	)		161			(177	)		483			68
		CDO/ABS		9,431			153			9			(90	)		-			-			9,503			146	(a)
Total bond trading securities				10,028			219			5			(89	)		179			(177	)		10,165			211
	Equity securities available for sale:
		Common stock		61			18			4			(27	)		8			(5	)		59			-
		Preferred stock		64			(3	)		1			-			2			-			64			-
Total equity securities available for sale				125			15			5			(27	)		10			(5	)		123			-
	Equity securities trading			1			1			-			(1	)		-			-			1			1
	Other invested assets			7,414			36			469			(511	)		45			(408	)		7,045			129
Total			$	34,656		$	263		$	1,763		$	2,996		$	1,305		$	(2,155	)	$	38,828		$	341
Liabilities:
	Policyholder contract deposits		$	(445	)	$	46		$	-		$	(7	)	$	-		$	-		$	(406	)	$	(63	)
	Derivative liabilities, net:
		Interest rate contracts		732			22			-			-			-			-			754			(54	)
		Foreign exchange contracts		16			(12	)		-			-			-			-			4			1
		Equity contracts		22			(7	)		-			38			(7	)		(12	)		34			(7	)
		Commodity contracts		23			2			-			(20	)		-			-			5			-
		Credit contracts		(3,798	)		476			-			(10	)		-			-			(3,332	)		473
		Other contracts		(112	)		(23	)		(26	)		40			32			20			(69	)		(66	)
Total derivative liabilities, net				(3,117	)		458			(26	)		48			25			8			(2,604	)		347
	Other long-term debt			(982	)		(211	)		-			256			(21	)		-			(958	)		(198	)
Total			$	(4,544	)	$	293		$	(26	)	$	297		$	4		$	8		$	(3,968	)	$	86

(in millions)			Fair value Beginning of Period(b)			Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income			Purchases, Sales, Issuances and Settlements, Net			Net Transfers			Activity of Discontinued Operations			Fair value End of Period			Changes in Unrealized Gains (Losses) Included in Income on Instruments Held at End of Period
Three Months Ended June 30, 2010
Assets:
	Bonds available for sale:
		Obligations of states, municipalities and political subdivisions	$	948		$	(7	)	$	(6	)	$	49		$	101		$	1		$	1,086		$	-
		Non-U.S. governments		5			-			-			24			5			8			42			-
		Corporate debt		3,917			9			16			(126	)		(853	)		204			3,167			-
		RMBS		6,832			(122	)		550			(164	)		19			(1	)		7,114			-
		CMBS		4,396			(264	)		437			(63	)		(5	)		75			4,576			-
		CDO/ABS		4,576			53			19			(148	)		75			262			4,837			-
Total bonds available for sale				20,674			(331	)		1,016			(428	)		(658	)		549			20,822			-
	Bond trading securities:
		U.S. government and government sponsored entities		-			-			-			-			-			-			-			-
		Non-U.S. governments		2			-			-			(1	)		6			-			7			-
		Corporate debt		7			(11	)		(2	)		(2	)		-			109			101			(5	)
		RMBS		5			1			2			-			-			-			8			1
		CMBS		294			20			-			(88	)		-			-			226			29
		CDO/ABS		7,895			673			-			(49	)		3			-			8,522			708	(a)
Total bond trading securities				8,203			683			-			(140	)		9			109			8,864			733
	Equity securities available for sale:
		Common stock		36			2			(4	)		(6	)		3			2			33			-
		Preferred stock		52			4			2			(1	)		-			-			57			-
		Mutual funds		-			(5	)		(1	)		8			7			6			15			-
Total equity securities available for sale				88			1			(3	)		1			10			8			105			-
	Equity securities trading			1			-			-			-			-			-			1			-
	Other invested assets			5,853			113			93			5			429			287			6,780			(123	)
	Other assets			-			-			-			-			-			-			-			-
	Separate account assets			-			-			-			-			1			-			1			-
Total			$	34,819		$	466		$	1,106		$	(562	)	$	(209	)	$	953		$	36,573		$	610
Liabilities:
	Policyholder contract deposits		$	(641	)	$	(820	)	$	-		$	(129	)	$	-		$	(2,920	)	$	(4,510	)	$	869
	Derivative liabilities, net:
		Interest rate contracts		(1,286	)		435			(1	)		99			904			-			151			173
		Foreign exchange contracts		29			1			-			(3	)		-			(3	)		24			(13	)
		Equity contracts		55			(53	)		-			(31	)		29			-			-			5
		Commodity contracts		20			(3	)		-			-			-			-			17			6
		Credit contracts		(4,910	)		162			-			166			(1	)		-			(4,583	)		(650	)
		Other contracts		(130	)		(7	)		-			16			15			(1	)		(107	)		(26	)
Total derivatives liabilities, net				(6,222	)		535			(1	)		247			947			(4	)		(4,498	)		(505	)
	Other long-term debt			(1,123	)		73			-			67			29			-			(954	)		(74	)
Total			$	(7,986	)	$	(212	)	$	(1	)	$	185		$	976		$	(2,924	)	$	(9,962	)	$	290

(in millions)			Fair value Beginning of Period(b)			Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income			Purchases, Sales, Issuances and Settlements, Net			Net Transfers			Activity of Discontinued Operations			Fair value End of Period			Changes in Unrealized Gains (Losses) Included in Income on Instruments Held at End of Period
Six Months Ended June 30, 2010
Assets:
	Bonds available for sale:
		Obligations of states, municipalities and political subdivisions	$	613		$	(21	)	$	(13	)	$	158		$	349		$	-		$	1,086		$	-
		Non-U.S. governments		753			-			-			24			5			(740	)		42			-
		Corporate debt		4,791			(10	)		102			(235	)		(1,388	)		(93	)		3,167			-
		RMBS		6,654			(241	)		992			(306	)		50			(35	)		7,114			-
		CMBS		4,939			(582	)		1,075			(154	)		447			(1,149	)		4,576			-
		CDO/ABS		4,724			74			275			(160	)		106			(182	)		4,837			-
Total bonds available for sale				22,474			(780	)		2,431			(673	)		(431	)		(2,199	)		20,822			-
	Bond trading securities:
		U.S. government and government sponsored entities		16			-			-			-			-			(16	)		-			-
		Non-U.S. governments		56			-			-			(51	)		8			(6	)		7			-
		Corporate debt		121			(16	)		-			(2	)		-			(2	)		101			(10	)
		RMBS		4			2			2			-			-			-			8			2
		CMBS		325			60			-			(95	)		34			(98	)		226			130
		CDO/ABS		6,865			1,790			-			(136	)		3			-			8,522			2,008	(a)
Total bond trading securities				7,387			1,836			2			(284	)		45			(122	)		8,864			2,130
	Equity securities available for sale:
		Common stock		35			-			1			(5	)		3			(1	)		33			-
		Preferred stock		54			(1	)		4			(1	)		1			-			57			-
		Mutual funds		6			(5	)		(1	)		8			7			-			15			-
Total equity securities available for sale				95			(6	)		4			2			11			(1	)		105			-
	Equity securities trading			8			-			-			-			-			(7	)		1			-
	Other invested assets			6,910			(15	)		380			(924	)		331			98			6,780			(149	)
	Other assets			270			-			-			(270	)		-			-			-			-
	Separate account assets			1			-			-			-			1			(1	)		1			-
Total			$	37,145		$	1,035		$	2,817		$	(2,149	)	$	(43	)	$	(2,232	)	$	36,573		$	1,981
Liabilities:
	Policyholder contract deposits		$	(5,214	)	$	(624	)	$	-		$	(268	)	$	-		$	1,596		$	(4,510	)	$	684
	Derivative liabilities, net:
		Interest rate contracts		(1,469	)		533			(1	)		195			893			-			151			6
		Foreign exchange contracts		29			-			(1	)		(3	)		-			(1	)		24			(10	)
		Equity contracts		74			(63	)		-			(31	)		20			-			-			(1	)
		Commodity contracts		22			(5	)		-			-			-			-			17			4
		Credit contracts		(4,545	)		326			-			(363	)		(1	)		-			(4,583	)		(485	)
		Other contracts		(176	)		34			-			13			15			7			(107	)		(29	)
Total derivatives liabilities, net				(6,065	)		825			(2	)		(189	)		927			6			(4,498	)		(515	)
	Other long-term debt			(881	)		(62	)		-			622			(633	)		-			(954	)		62
Total			$	(12,160	)	$	139		$	(2	)	$	165		$	294		$	1,602		$	(9,962	)	$	231

(a)

In 2011, AIG made revisions to the presentation to include income from ML III. The prior periods have been revised to conform to the current period presentation.

(b)

Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.

Net realized and unrealized gains and losses related to Level 3 items shown above are reported in the Consolidated Statement of Operations as follows:

(in millions)		Net Investment Income			Net Realized Capital Gains (Losses)			Other Income			Policyholder Benefits and Claims Incurred			Total
Three Months Ended June 30, 2011
	Bonds available for sale	$	159		$	(80	)	$	4		$	-		$	83
	Bond trading securities		(496	)		-			(355	)		-			(851	)
	Equity securities available for sale		-			2			-			-			2
	Equity securities trading		1			-			-			-			1
	Other invested assets		(2	)		(37	)		22			-			(17	)
	Policyholder contract deposits		-			(33	)		-			-			(33	)
	Derivative liabilities, net		1			7			184			-			192
	Other long-term debt		-			-			(157	)		-			(157	)
Three Months Ended June 30, 2010
	Bonds available for sale	$	85		$	(417	)	$	1		$	-		$	(331	)
	Bond trading securities		460			-			223			-			683
	Equity securities available for sale		-			1			-			-			1
	Other invested assets		192			(50	)		(29	)		-			113
	Policyholder contract deposits		-			(830	)		40			(30	)		(820	)
	Derivative liabilities, net		-			-			535			-			535
	Other long-term debt		-			-			73			-			73
Six Months Ended June 30, 2011
	Bonds available for sale	$	240		$	(256	)	$	8		$	-		$	(8	)
	Bond trading securities		505			-			(286	)		-			219
	Equity securities available for sale		-			15			-			-			15
	Equity securities trading		1			-			-			-			1
	Other invested assets		44			(52	)		44			-			36
	Policyholder contract deposits		-			46			-			-			46
	Derivative liabilities, net		1			(47	)		504			-			458
	Other long-term debt		-			-			(211	)		-			(211	)
Six Months Ended June 30, 2010
	Bonds available for sale	$	152		$	(941	)	$	9		$	-		$	(780	)
	Bond trading securities		1,357			-			479			-			1,836
	Equity securities available for sale		-			(6	)		-			-			(6	)
	Other invested assets		248			(248	)		(15	)		-			(15	)
	Policyholder contract deposits		-			(697	)		40			33			(624	)
	Derivative liabilities, net		-			-			825			-			825
	Other long-term debt		-			-			(62	)		-			(62	)

The following table presents the gross components of purchases, sales, issuances and settlements, net, shown above:

(in millions)			Purchases		Sales			Settlements			Purchases, Sales, Issuances and Settlements, Net*
Three Months Ended June 30, 2011
Assets:
	Bonds available for sale:
		Obligations of states, municipalities and political subdivisions	$	63	$	-		$	(1	)	$	62
		Non-U.S. governments		1		(1	)		-			-
		Corporate debt		412		19			(126	)		305
		RMBS		4,307		(9	)		(393	)		3,905
		CMBS		99		(20	)		(79	)		-
		CDO/ABS		196		-			(578	)		(382	)
Total bonds available for sale				5,078		(11	)		(1,177	)		3,890
	Bond trading securities:
		Corporate debt		-		-			(9	)		(9	)
		RMBS		103		-			(23	)		80
		CMBS		60		(49	)		(29	)		(18	)
		CDO/ABS		141		(126	)		(100	)		(85	)
Total bond trading securities				304		(175	)		(161	)		(32	)
	Equity securities available for sale:
		Common stock		-		(8	)		(4	)		(12	)
		Preferred stock		-		-			(1	)		(1	)
Total equity securities available for sale				-		(8	)		(5	)		(13	)
	Equity securities trading			-		-			(1	)		(1	)
	Other invested assets			236		(146	)		(251	)		(161	)
Total assets			$	5,618	$	(340	)	$	(1,595	)	$	3,683
Liabilities:
	Policyholder contract deposits		$	-	$	(10	)	$	6		$	(4	)
	Derivative liabilities, net:
		Interest rate contracts		-		-			(3	)		(3	)
		Equity contracts		-		-			-			-
		Commodity contracts		-		-			(9	)		(9	)
		Credit contracts		-		-			(6	)		(6	)
		Other contracts		-		-			(10	)		(10	)
Total derivative liabilities, net				-		-			(28	)		(28	)
Other long-term debt				-		-			195			195
Total liabilities			$	-	$	(10	)	$	173		$	163

(in millions)			Purchases		Sales			Settlements			Purchases, Sales, Issuances and Settlements, Net*
Six Months Ended June 30, 2011
Assets:
	Bonds available for sale:
		Obligations of states, municipalities and political subdivisions	$	176	$	-		$	(2	)	$	174
		Non-U.S. governments		1		(1	)		-			-
		Corporate debt		420		-			(148	)		272
		RMBS		4,624		(22	)		(659	)		3,943
		CMBS		241		(20	)		(149	)		72
		CDO/ABS		261		-			(1,098	)		(837	)
Total bonds available for sale				5,723		(43	)		(2,056	)		3,624
	Bond trading securities:
		Corporate debt		-		-			(9	)		(9	)
		RMBS		103		-			(17	)		86
		CMBS		60		(54	)		(82	)		(76	)
		CDO/ABS		144		(126	)		(108	)		(90	)
Total bond trading securities				307		(180	)		(216	)		(89	)
	Equity securities available for sale:
		Common stock		-		(23	)		(4	)		(27	)
		Preferred stock		-		-			-			-
Total equity securities available for sale				-		(23	)		(4	)		(27	)
	Equity securities trading			-		-			(1	)		(1	)
	Other invested assets			350		(158	)		(703	)		(511	)
Total assets			$	6,380	$	(404	)	$	(2,980	)	$	2,996
Liabilities:
	Policyholder contract deposits		$	-	$	(19	)	$	12		$	(7	)
	Derivative liabilities, net:
		Interest rate contracts		-		-			-			-
		Equity contracts		39		-			(1	)		38
		Commodity contracts		-		-			(20	)		(20	)
		Credit contracts		-		-			(10	)		(10	)
		Other contracts		-		-			40			40
Total derivative liabilities, net				39		-			9			48
Other long-term debt				-		-			256			256
Total liabilities			$	39	$	(19	)	$	277		$	297

*

There were no issuances during the three- and six-month periods ended June 30, 2011.

    Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at June 30, 2011 and 2010 may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in unobservable long-dated volatilities).

Transfers of Level 3 Assets and Liabilities

    AIG's policy is to transfer assets and liabilities into Level 3 when a significant input cannot be corroborated with market observable data. This may include circumstances in which market activity has dramatically decreased and transparency to underlying inputs cannot be observed, current prices are not available and substantial price variances in quotations among market participants exist.

    In certain cases, the inputs used to measure the fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. AIG's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment. In making the assessment, AIG considers factors specific to the asset or liability.

    AIG's policy is to record transfers of assets and liabilities into or out of Level 3 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. As a result, the Net realized and unrealized gains (losses) included in income or other comprehensive income and as shown in the table above excludes $6 million and $31 million of net gains related to assets and liabilities transferred into Level 3 during the three- and six-month periods ended June 30, 2011, respectively, and includes $7 million and $12 million of net gains related to assets and liabilities transferred out of Level 3 during the three- and six-month periods ended June 30, 2011, respectively.

Transfers of Level 3 Assets

    During the three- and six-month periods ended June 30, 2011, transfers into Level 3 included certain CMBS and ABS, as well as private placement corporate debt. The transfers into Level 3 related to investments in certain CMBS were due to a decrease in market transparency, downward credit migration and an overall increase in price disparity for certain individual security types. Transfers into Level 3 for private placement corporate debt and certain ABS were primarily the result of AIG adjusting matrix pricing information downward to better reflect the additional risk premium associated with those securities that AIG believes was not captured in the matrix.

    Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the asset, a specific event, one or more significant input(s) becoming observable or when a long-term interest rate significant to a valuation becomes short-term and thus observable. In addition, transfers out of Level 3 arise when investments are no longer carried at fair value as the result of a change in the applicable accounting methodology, given changes in the nature and extent of AIG's ownership interest. During the three-and six-month periods ended June 30, 2011, transfers out of Level 3 primarily related to investments in private placement corporate debt, investments in certain CMBS and ABS and certain investment partnerships. Transfers out of Level 3 for private placement corporate debt and for ABS were primarily the result of AIG using observable pricing information or a third party pricing quotation that appropriately reflects the fair value of those securities, without the need for adjustment based on AIG's own assumptions regarding the characteristics of a specific security or the current liquidity in the market. Transfers out of Level 3 for CMBS investments were primarily due to increased observations of market transactions and price information for those securities. Certain investment partnerships were transferred out of Level 3 due to these investments no longer being carried at fair value, based on AIG's use of the equity method of accounting consistent with the changes to AIG's ownership and ability to exercise significant influence over the respective investments.

Transfers of Level 3 Liabilities

    During the three- and six-month periods ended June 30, 2011, there were no significant transfers into or out of Level 3 liabilities.

    AIG uses various hedging techniques to manage risks associated with certain positions, including those classified within Level 3. Such techniques may include the purchase or sale of financial instruments that are classified within Level 1 and/or Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities classified within Level 3 presented in the table above do not reflect the related realized or unrealized gains (losses) on hedging instruments that are classified within Level 1 and/or Level 2.

Investments in certain entities carried at fair value using net asset value per share

The following table includes information related to AIG's investments in certain other invested assets, including private equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring or non-recurring basis, AIG uses the net asset value per share as a practical expedient to measure fair value.

			June 30, 2011					December 31, 2010
(in millions)		Investment Category Includes	Fair Value Using Net Asset Value			Unfunded Commitments		Fair Value Using Net Asset Value			Unfunded Commitments
Investment Category
Private equity funds:
	Leveraged buyout	Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired from the current shareholders, typically with the use of financial leverage	$	3,241		$	996	$	3,137		$	1,151
	Non-U.S.	Investments that focus primarily on Asian and European based buyouts, expansion capital, special situations, turnarounds, venture capital, mezzanine and distressed opportunities strategies		199			64		172			67
	Venture capital	Early-stage, high-potential, growth companies expected to generate a return through an eventual realization event, such as an initial public offering or sale of the company		337			46		325			42
	Distressed	Securities of companies that are already in default, under bankruptcy protection, or troubled		222			62		258			67
	Other	Real estate, energy, multi-strategy, mezzanine, and industry-focused strategies		300			108		373			147
Total private equity funds				4,299			1,276		4,265			1,474
Hedge funds:
	Event-driven	Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations		922			2		1,310			2
	Long-short	Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk		1,004			-		1,038			-
	Relative value	Funds that seek to benefit from market inefficiencies and value discrepancies between related investments		87			-		230			-
	Distressed	Securities of companies that are already in default, under bankruptcy protection or troubled		323			10		369			20
	Other	Non-U.S. companies, futures and commodities, macro and multi-strategy and industry-focused strategies		667			-		708			-
Total hedge funds				3,003			12		3,655			22
Total			$	7,302	*	$	1,288	$	7,920	*	$	1,496

*

Includes investments of entities classified as held for sale of $3 million and $415 million at June 30, 2011 and December 31, 2010, respectively.

    At June 30, 2011, private equity fund investments included above are not redeemable during the lives of the funds and have expected remaining lives that extend in some cases more than 10 years. At that date, 36 percent of the total above had expected remaining lives of less than three years, 53 percent between three and seven years and 11 percent between seven and 10 years. Expected lives are based upon legal maturity, which can be extended at the fund manager's discretion, typically in one-year increments.

    At June 30, 2011, hedge fund investments included above are redeemable monthly (12 percent), quarterly (52 percent), semi-annually (8 percent) and annually (28 percent), with redemption notices ranging from 1 day to 180 days. More than 82 percent require redemption notices of less than 90 days. Investments representing approximately 54 percent of the value of the hedge fund investments cannot be redeemed, either in whole or in part, because the investments include various restrictions. The majority of these restrictions were put in place in 2008 and do not have stated end dates. The remaining restrictions, which have pre-defined end dates, are generally expected to be lifted by the end of 2012. The partial restrictions relate to certain hedge funds that hold at least one investment that the fund manager deems to be illiquid. In order to treat investors fairly and to accommodate subsequent subscription and redemption requests, the fund manager isolates these illiquid assets from the rest of the fund until the assets become liquid.

Fair Value Measurements on a Non-Recurring Basis

    AIG also measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include cost and equity-method investments, life settlement contracts, flight equipment primarily under operating leases, collateral securing foreclosed loans and real estate and other fixed assets, goodwill and other intangible assets. AIG uses a variety of techniques to measure the fair value of these assets when appropriate, as described below:

• •

  Cost and Equity-Method Investments:  When AIG determines that the carrying value of these assets may not be recoverable, AIG records the assets at fair value with the loss recognized in earnings. In such cases, AIG measures the fair value of these assets using the techniques discussed above in Valuation Methodologies — Direct Private Equity Investments — Other Invested Assets and Valuation Methodologies — Hedge Funds, Private Equity Funds and Other Investment Partnerships — Other Invested Assets.

  •

  Life Settlement Contracts:  AIG measures the fair value of individual life settlement contracts (which are included in Other invested assets) whenever the carrying value plus the undiscounted future costs that are expected to be incurred to keep the life settlement contract in force exceed the expected proceeds from the contract. In those situations, the fair value is determined on a discounted cash flow basis, incorporating current life expectancy assumptions. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life settlement contract and AIG's estimate of the risk margin an investor in the contracts would require.

  •

  Flight Equipment Primarily Under Operating Leases:  When AIG determines that the carrying value of its commercial aircraft may not be recoverable, AIG records the aircraft at fair value with the loss recognized in earnings. AIG measures the fair value of its commercial aircraft using an income approach based on the present value of all cash flows from existing contractual and projected lease payments (based on historical experience and current expectations regarding market participants), including net contingent rentals where appropriate, for the period extending to the end of the aircraft's economic life in its highest and best use configuration, plus its disposition value based on expectations of a market participant.

  •

  Collateral Securing Foreclosed Loans on Real Estate and Other Fixed Assets:  When AIG takes collateral in connection with foreclosed loans, AIG generally bases its estimate of fair value on the price that would be received in a current transaction to sell the asset by itself, by reference to observable transactions for similar assets.

  •

  Goodwill:  AIG tests goodwill for impairment annually or more frequently whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. When AIG determines that goodwill may be impaired, AIG uses techniques including market-based earning multiples of peer companies, discounted expected future cash flows, appraisals, or, in the case of reporting units being considered for sale, third-party indications of fair value of the reporting unit, if available, to determine the amount of any impairment.

  •

  Long-Lived Assets:  AIG tests its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. AIG measures the fair value of long-lived assets based on an in-use premise that considers the same factors used to estimate the fair value of its real estate and other fixed assets under an in-use premise.

  •

  Businesses Held for Sale:  When AIG determines that a business qualifies as held for sale and AIG's carrying amount is greater than the expected sale price less cost to sell, AIG records an impairment loss for the difference.

    See Notes 2(d), (f), (g) and (h) to the Consolidated Financial Statements in AIG's 2010 Annual Report on Form 10-K for additional information about how AIG tests various asset classes for impairment.

The following table presents assets (excluding discontinued operations) measured at fair value on a non-recurring basis on which impairment charges were recorded, and the related impairment charges:

										Impairment Charges
		Assets at Fair Value
										Three Months Ended June 30,				Six Months Ended June 30,
		Non-Recurring Basis
(in millions)		Level 1		Level 2		Level 3		Total		2011		2010		2011		2010
June 30, 2011
	Investment real estate	$	-	$	-	$	770	$	770	$	3	$	246	$	15	$	530
	Other investments		-		29		2,096		2,125		239		25		345		77
	Aircraft*		-		-		159		159		44		60		158		407
	Other assets		-		-		-		-		-		-		-		5
Total		$	-	$	29	$	3,025	$	3,054	$	286	$	331	$	518	$	1,019
December 31, 2010
	Investment real estate	$	-	$	-	$	1,588	$	1,588
	Other investments		-		4		2,388		2,392
	Aircraft		-		-		4,224		4,224
	Other assets		-		-		2		2
Total		$	-	$	4	$	8,202	$	8,206

*

Aircraft impairment charges include fair value adjustments on aircraft.

Fair Value Option

    Under the fair value option, AIG may elect to measure at fair value financial assets and financial liabilities that are not otherwise required to be carried at fair value. Subsequent changes in fair value for designated items are reported in earnings.

The following table presents the gains or losses recorded related to the eligible instruments for which AIG elected the fair value option:

		Gain (Loss) Three Months Ended June 30,						Gain (Loss) Six Months Ended June 30,
(in millions)		2011			2010			2011			2010
Assets:
	Mortgage and other loans receivable	$	6		$	(3	)	$	1		$	37
	Bonds and equity securities		481			(829	)		1,437			604
	Trading – Maiden Lane II interest		(176	)		120			75			280
	Trading – Maiden Lane III interest		(667	)		358			77			1,109
	Retained interest in AIA		1,521			-			2,583			-
	Short-term investments and other invested assets		13			(34	)		29			(48	)
	Other assets		(1	)		-			(1	)		-
Liabilities:
	Policyholder contract deposits		-			(11	)		-			33
	Debt		(428	)		(411	)		(472	)		(1,101	)
	Other liabilities		(63	)		(32	)		(175	)		2
Total gain (loss)*		$	686		$	(842	)	$	3,554		$	916

*

Excludes discontinued operations gains or losses on instruments that are required to be carried at fair value. For instruments required to be carried at fair value, AIG recognized losses of $105 million and gains of $607 million for the three months ended June 30, 2011 and 2010, respectively, and gains of $921 million and $599 million for the six months ended June 30, 2011 and 2010, respectively, that were primarily due to changes in the fair value of derivatives, trading securities and certain other invested assets for which the fair value option was not elected.

    Interest income and expense and dividend income on assets and liabilities elected under the fair value option are recognized and classified in the Consolidated Statement of Operations depending on the nature of the instrument and related market conventions. For Direct Investment book-related activity, interest, dividend income and interest expense are included in Other income. Otherwise, interest and dividend income are included in Net investment income in the Consolidated Statement of Operations. Gains and losses on AIG's Maiden Lane interests are recorded in Net investment income. See Note 2(a) to the Consolidated Financial Statements in AIG's 2010 Annual Report on Form 10-K for additional information about AIG's policies for recognition, measurement, and disclosure of interest and dividend income and interest expense.

    During the three- and six-month periods ended June 30, 2011, AIG recognized gains of $57 million and $16 million, respectively, and during the three- and six-month periods ended June 30, 2010, AIG recognized a gain of $237 million and a loss of $390 million, respectively, attributable to the observable effect of changes in credit spreads on AIG's own liabilities for which the fair value option was elected. AIG calculates the effect of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, AIG's observable credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted.

The following table presents the difference between fair values and the aggregate contractual principal amounts of mortgage and other loans receivable and long-term borrowings for which the fair value option was elected:

		June 30, 2011							December 31, 2010
(in millions)		Fair Value		Outstanding Principal Amount		Difference			Fair Value		Outstanding Principal Amount		Difference
Assets:
	Mortgage and other loans receivable	$	115	$	168	$	(53	)	$	143	$	203	$	(60	)
Liabilities:
	Long-term debt	$	10,064	$	8,206	$	1,858		$	10,778	$	8,977	$	1,801

    At June 30, 2011 and December 31, 2010, there were no significant mortgage or other loans receivable for which the fair value option was elected that were 90 days or more past due and in non-accrual status.

Fair Value Information about Financial Instruments Not Measured at Fair Value

    Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding insurance contracts and lease contracts) is discussed below:

•

Mortgage and other loans receivable:  Fair values of loans on real estate and collateral loans were estimated for disclosure purposes using discounted cash flow calculations based upon discount rates that AIG believes market participants would use in determining the price that they would pay for such assets. For certain loans, AIG's current incremental lending rates for similar type loans is used as the discount rate, as it is believed that this rate approximates the rates that market participants would use. The fair values of policy loans were not estimated as AIG believes it would have to expend excessive costs for the benefits derived.

•

Other Invested Assets:  The majority of Other invested assets that are not measured at fair value represent investments in hedge funds, private equity funds and other investment partnerships for which AIG uses the equity method of accounting. The fair value of AIG's investment in these funds is measured based on AIG's share of the funds' reported net asset value.

•

Cash and short-term investments:  The carrying values of these assets approximate fair values because of the relatively short period of time between origination and expected realization, and their limited exposure to credit risk.

•

Policyholder contract deposits associated with investment-type contracts:  Fair values for policyholder contract deposits associated with investment-type contracts not accounted for at fair value were estimated for disclosure purposes using discounted cash flow calculations based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. Where no similar contracts are being offered, the discount rate is the appropriate tenor swap rate (if available) or current risk-free interest rate consistent with the currency in which the cash flows are denominated.

•

Long-term debt:  Fair values of these obligations were determined for disclosure purposes by reference to quoted market prices, where available and appropriate, or discounted cash flow calculations based upon AIG's current market-observable implicit-credit-spread rates for similar types of borrowings with maturities consistent with those remaining for the debt being valued.

The following table presents the carrying value and estimated fair value of AIG's financial instruments not measured at fair value:

		June 30, 2011				December 31, 2010
(in millions)		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets:
	Mortgage and other loans receivable	$	19,138	$	19,761	$	20,094	$	20,285
	Other invested assets*		19,546		18,416		19,472		18,864
	Short-term investments		19,120		19,120		19,878		19,878
	Cash		2,590		2,590		1,558		1,558
Liabilities:
	Policyholder contract deposits associated with investment-type contracts		104,353		117,153		102,585		112,710
	Long-term debt (including Federal Reserve Bank of New York credit facility)		68,211		69,128		94,318		93,745

*

Excludes aircraft asset investments held by non-Financial Services subsidiaries.