VARIABLE INTEREST ENTITIES

9 Months Ended

Sep. 30, 2012

VARIABLE INTEREST ENTITIES

VARIABLE INTEREST ENTITIES

7. VARIABLE INTEREST ENTITIES

AIG enters into various arrangements with variable interest entities (VIEs) in the normal course of business. AIG's involvement with VIEs is primarily through its insurance companies as a passive investor in debt securities (rated and unrated) and equity interests issued by VIEs. AIG's exposure is generally limited to those interests held. When AIG holds both an economic interest and the power to direct the most significant activities of the VIE, AIG is deemed to be the primary beneficiary and consolidates the VIE.

Exposure to Loss

AIG's total off-balance sheet exposure associated with VIEs, primarily consisting of commitments to real estate and investment funds, was $0.3 billion and $0.4 billion at September 30, 2012 and December 31, 2011, respectively.

The following table presents AIG's total assets and total liabilities associated with its variable interests in consolidated VIEs:

	VIE Assets(a)					VIE Liabilities
(in billions)	September 30, 2012			December 31, 2011		September 30, 2012		December 31, 2011
AIA/ALICO SPVs	$	0.6	(b)	$	14.2	$	0.1	$	0.1
Real estate and investment funds(c)		1.1			1.5		0.3		0.4
Structured investment vehicles		1.6			1.0		0.1		–
Affordable housing partnerships		2.3			2.5		.2		0.1
Other		3.3			3.6		1.0		2.0
Total	$	8.9		$	22.8	$	1.7	$	2.6

(a)     The assets of each VIE can be used only to settle specific obligations of that VIE.

(b)     Decrease primarily due to the retirement of the preferred interests held by the Department of the Treasury in the special purpose vehicle that held the proceeds of the initial public offering of AIA (such SPV, the AIA SPV and such preferred interests, the AIA SPV Preferred Interests). As a result, the AIA SPV no longer qualified as a VIE. Assets include $600 million of cash held in escrow pursuant to the terms of the American Life Insurance Company (ALICO) stock purchase agreement between AIG and MetLife, Inc. (MetLife). See Note 9 herein for further discussion of the escrow arrangement.

(c)     At both September 30, 2012 and December 31, 2011, off-balance sheet exposure with respect to real estate and investments funds was $0.1 billion.

AIG calculates its maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of VIE assets or liabilities where AIG has also provided credit protection to the VIE with the VIE as the referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by AIG generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to AIG, except in limited circumstances when AIG has provided a guarantee to the VIE's interest holders.

The following table presents total assets of unconsolidated VIEs in which AIG holds a variable interest, as well as AIG's maximum exposure to loss associated with these VIEs:

			Maximum Exposure to Loss
(in billions)	Total VIE Assets		On-Balance Sheet		Off-Balance Sheet		Total
September 30, 2012
Real estate and investment funds	$	14.3	$	1.8	$	0.2	$	2.0
Affordable housing partnerships		0.5		0.5		–		0.5
Other		1.1		0.1		–		0.1
Total	$	15.9	$	2.4	$	0.2	$	2.6
December 31, 2011
Real estate and investment funds	$	18.3	$	2.1	$	0.3	$	2.4
Affordable housing partnerships		0.6		0.6		–		0.6
Maiden Lane II and III interests		27.1		7.0		–		7.0
Other		1.5		–		–		–
Total	$	47.5	$	9.7	$	0.3	$	10.0

Balance Sheet Classification

AIG's interests in the assets and liabilities of consolidated and unconsolidated VIEs were classified in the Consolidated Balance Sheet as follows:

	Consolidated VIEs				Unconsolidated VIEs
(in billions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Assets:
Available for sale securities	$	0.5	$	0.4	$	–	$	–
Trading securities		1.0		1.3		0.1		7.1
Mortgage and other loans receivable		0.5		0.5		–		–
Other invested assets*		4.3		17.2		2.3		2.6
Other asset accounts		2.6		3.4		–		–
Total	$	8.9	$	22.8	$	2.4	$	9.7
Liabilities:
Other long-term debt	$	0.9	$	1.7	$	–	$	–
Other liability accounts		0.8		0.9		–		–
Total	$	1.7	$	2.6	$	–	$	–

*         Decrease primarily due to the retirement of the AIA SPV Preferred Interests. See Note 1 herein for further discussion.

For information on RMBS, CMBS, and other ABS, see Notes 4 and 5 herein. For additional information on ABS and VIEs, see Notes 6, 7, and 11 to the Consolidated Financial Statements in the 2011 Annual Report.