DERIVATIVES AND HEDGE ACCOUNTING (Tables)

3 Months Ended

Mar. 31, 2012

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	March 31, 2012								December 31, 2011
	Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities
(in millions)	Notional Amount		Fair Value(a)		Notional Amount		Fair Value(a)		Notional Amount		Fair Value(a)		Notional Amount		Fair Value(a)
Derivatives designated as hedging instruments:
Interest rate contracts(b)	$	-	$	-	$	438	$	32	$	-	$	-	$	481	$	38
Foreign exchange contracts		-		-		30		-		-		-		180		1
Derivatives not designated as hedging instruments:
Interest rate contracts(b)		71,305		7,527		76,753		6,512		72,660		8,286		73,248		6,870
Foreign exchange contracts		1,935		38		3,177		165		3,278		145		3,399		178
Equity contracts(c)		5,266		286		20,184		1,023		4,748		263		18,911		1,126
Commodity contracts		685		155		655		156		691		136		861		146
Credit contracts		436		65		23,778		2,771		407		89		25,857		3,366
Other contracts(d)		23,153		694		2,202		411		24,305		741		2,125		372
Total derivatives not designated as hedging instruments		102,780		8,765		126,749		11,038		106,089		9,660		124,401		12,058
Total derivatives	$	102,780	$	8,765	$	127,217	$	11,070	$	106,089	$	9,660	$	125,062	$	12,097

(a)

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

(b)

Includes cross currency swaps.

(c)

Notional amount of derivative liabilities and fair values of derivative liabilities include $19.3 billion and $0.8 billion, respectively, at March 31, 2012, and $18.3 billion and $0.9 billion, respectively, at December 31, 2011, related to bifurcated embedded derivatives. A bifurcated embedded derivative is generally presented with the host contract in the Consolidated Balance Sheet.

(d)

Consist primarily of contracts with multiple underlying exposures.

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

	March 31, 2012										December 31, 2011
	Derivative Assets					Derivative Liabilities					Derivative Assets					Derivative Liabilities
(in millions)	Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value
AIGFP derivatives	$	77,854	$	5,666		$	90,350	$	7,095		$	86,128	$	7,063		$	90,241	$	8,854
Non-AIGFP derivatives(a)		24,926		3,099			36,867		3,975			19,961		2,597			34,821		3,243
Total derivatives, gross	$	102,780		8,765		$	127,217		11,070		$	106,089		9,660		$	125,062		12,097
Counterparty netting(b)				(3,264	)				(3,264	)				(3,660	)				(3,660	)
Cash collateral(c)				(1,280	)				(2,801	)				(1,501	)				(2,786	)
Total derivatives, net				4,221					5,005					4,499					5,651
Less: Bifurcated embedded derivatives				-					783					-					918
Total derivatives on consolidated balance sheet			$	4,221				$	4,222				$	4,499				$	4,733

(a)

Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance and ILFC operations, as well as embedded derivatives included in insurance contracts. Liabilities include bifurcated embedded derivatives, which are recorded in Policyholder contract deposits.

(b)

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

(c)

Represents cash collateral posted and received.

Effect of AIG's derivative instruments in fair value hedging relationships in the Consolidated Statement of Operations

Three Months Ended March 31, (in millions)	2012			2011
Interest rate contracts(a):
Loss recognized in earnings on derivatives	$	(2	)	$	(7	)
Gain recognized in earnings on hedged items(b)		32			48
Loss recognized in earnings for ineffective portion and amount excluded from effectiveness testing		-			(1	)

(a)

Gains and losses recognized in earnings for the ineffective portion and amounts excluded from effectiveness testing are recorded in Net realized capital losses. Includes immaterial amounts related to foreign exchange contracts.

(b)

Includes $30 million and $42 million for the three-month periods ended March 31, 2012 and 2011, respectively, representing the amortization of debt basis adjustment following the discontinuation of hedge accounting recorded in Other income and Net realized capital losses.

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

Three Months Ended March 31, (in millions)	2012			2011
Interest rate contracts(a):
Gain (loss) recognized in OCI on derivatives	$	(1	)	$	-
Loss reclassified from Accumulated OCI into earnings(b)		(5	)		(18	)

(a)

Gains and losses reclassified from Accumulated other comprehensive income are recorded in Other income. Gains or losses recognized in earnings on derivatives for the ineffective portion are recorded in Net realized capital losses.

(b)

The effective portion of the change in fair value of a derivative qualifying as a cash flow hedge is recorded in Accumulated other comprehensive income until earnings are affected by the variability of cash flows in the hedged item. At March 31, 2012, $16 million of the deferred net loss in Accumulated other comprehensive income is expected to be recognized in earnings during the next 12 months.

Effect of AIG's derivative instruments not designated as hedging instruments in the Consolidated Statement of Operations

	Gains (Losses) Recognized in Earnings
Three Months Ended March 31, (in millions)
	2012			2011
By Derivative Type:
Interest rate contracts(a)	$	(586	)	$	(274	)
Foreign exchange contracts		69			20
Equity contracts(b)		(188	)		(104	)
Commodity contracts		(1	)		5
Credit contracts		151			347
Other contracts		29			(18	)
Total	$	(526	)	$	(24	)
By Classification:
Premiums	$	36		$	25
Net investment income		1			2
Net realized capital gains (losses)		(290	)		32
Other losses		(273	)		(83	)
Total	$	(526	)	$	(24	)

(a)

Includes cross currency swaps.

(b)

Includes embedded derivative gains of $175 million and $107 million for the three months ended March 31, 2012 and 2011, respectively.

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

					Fair Value of Derivative (Asset) Liability at				Unrealized Market Valuation Gain (Loss) Three Months Ended March 31,
	Net Notional Amount
	March 31, 2012(a)		December 31, 2011(a)		March 31, 2012(b)(c)		December 31, 2011(b)(c)
(in millions)									2012(c)			2011(c)
Regulatory Capital:
Corporate loans	$	1,566	$	1,830	$	-	$	-	$	-		$	-
Prime residential mortgages		2,526		3,653		-		-		-			6
Other		818		887		3		9		6			9
Total		4,910		6,370		3		9		6			15
Arbitrage:
Multi-sector CDOs(d)		4,880		5,476		2,510		3,077		126			273
Corporate debt/CLOs(e)		11,962		11,784		110		127		17			37
Total		16,842		17,260		2,620		3,204		143			310
Mezzanine tranches		1,029		989		19		10		(9	)		(2	)
Total	$	22,781	$	24,619	$	2,642	$	3,223	$	140		$	323

(a)

Net notional amounts presented are net of all structural subordination below the covered tranches.

(b)

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

(c)

Includes credit valuation adjustment losses of $26 million and $6 million in the three-month periods ended March 31, 2012 and 2011, respectively, representing the effect of changes in AIG's credit spreads on the valuation of the derivatives liabilities.

(d)

During the three-month period ended March 31, 2012, a super senior CDS transaction with a net notional amount of $470 million was terminated at approximately its fair value at the time of termination. As a result, a $416 million loss, which was previously included in the fair value derivative liability as an unrealized market valuation loss, was realized. During the three-month period ended March 31, 2012, $25 million was paid to counterparties with respect to multi-sector CDOs. Upon payment, a $25 million loss, which was previously included in the fair value of the derivative liability as an unrealized market valuation loss, was realized. Multi-sector CDOs also include $4.1 billion and $4.6 billion in net notional amount of credit default swaps written with cash settlement provisions at March 31, 2012 and December 31, 2011, respectively.

(e)

Corporate debt/CLOs include $1.3 billion and $1.2 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at March 31, 2012 and December 31, 2011, respectively.