FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

September 30, 2012 (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	$	28	$	4,380	$	–	$	–		$	–		$	4,408
Obligations of states, municipalities and political subdivisions		–		35,360		1,104		–			–			36,464
Non-U.S. governments		742		25,542		14		–			–			26,298
Corporate debt		–		148,528		1,612		–			–			150,140
RMBS		–		23,692		11,488		–			–			35,180
CMBS		–		4,469		5,013		–			–			9,482
CDO/ABS		–		3,293		4,649		–			–			7,942
Total bonds available for sale		770		245,264		23,880		–			–			269,914
Bond trading securities:
U.S. government and government sponsored entities		302		7,406		–		–			–			7,708
Obligations of states, municipalities and political subdivisions		–		81		–		–			–			81
Non-U.S. governments		–		2		–		–			–			2
Corporate debt		–		1,316		2		–			–			1,318
RMBS		–		1,101		370		–			–			1,471
CMBS		–		1,490		612		–			–			2,102
CDO/ABS		–		3,650		8,505		–			–			12,155
Total bond trading securities		302		15,046		9,489		–			–			24,837
Equity securities available for sale:
Common stock		2,781		1		40		–			–			2,822
Preferred stock		–		48		45		–			–			93
Mutual funds		86		20		–		–			–			106
Total equity securities available for sale		2,867		69		85		–			–			3,021
Equity securities trading		17		81		–		–			–			98
Mortgage and other loans receivable		–		129		1		–			–			130
Other invested assets(c)		6,257		1,706		7,070		–			–			15,033
Derivative assets:
Interest rate contracts		11		6,278		996		–			–			7,285
Foreign exchange contracts		–		53		–		–			–			53
Equity contracts		113		98		53		–			–			264
Commodity contracts		–		141		1		–			–			142
Credit contracts		–		1		59		–			–			60
Other contracts		–		11		57		–			–			68
Counterparty netting and cash collateral		–		–		–		(3,219	)		(1,197	)		(4,416	)
Total derivative assets		124		6,582		1,166		(3,219	)		(1,197	)		3,456
Short-term investments		592		6,708		–		–			–			7,300
Separate account assets		53,829		2,911		–		–			–			56,740
Other assets		–		698		–		–			–			698
Total	$	64,758	$	279,194	$	41,691	$	(3,219	)	$	(1,197	)	$	381,227
Liabilities:
Policyholder contract deposits	$	–	$	–	$	1,308	$	–		$	–		$	1,308
Derivative liabilities:
Interest rate contracts		–		6,303		243		–			–			6,546
Foreign exchange contracts		–		166		–		–			–			166
Equity contracts		2		159		10		–			–			171
Commodity contracts		–		143		–		–			–			143
Credit contracts(d)		–		–		2,349		–			–			2,349
Other contracts		–		26		250		–			–			276
Counterparty netting and cash collateral		–		–		–		(3,219	)		(2,118	)		(5,337	)
Total derivative liabilities		2		6,797		2,852		(3,219	)		(2,118	)		4,314
Other long-term debt(e)		–		8,428		407		–			–			8,835
Other liabilities		138		792		–		–			–			930
Total	$	140	$	16,017	$	4,567	$	(3,219	)	$	(2,118	)	$	15,387

December 31, 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	$	174	$	5,904	$	–	$	–		$	–		$	6,078
Obligations of states, municipalities and political subdivisions		–		36,538		960		–			–			37,498
Non-U.S. governments		259		25,467		9		–			–			25,735
Corporate debt		–		142,883		1,935		–			–			144,818
RMBS		–		23,727		10,877		–			–			34,604
CMBS		–		3,991		3,955		–			–			7,946
CDO/ABS		–		3,082		4,220		–			–			7,302
Total bonds available for sale		433		241,592		21,956		–			–			263,981
Bond trading securities:
U.S. government and government sponsored entities		100		7,404		–		–			–			7,504
Obligations of states, municipalities and political subdivisions		–		257		–		–			–			257
Non-U.S. governments		–		35		–		–			–			35
Corporate debt		–		809		7		–			–			816
RMBS		–		1,345		303		–			–			1,648
CMBS		–		1,283		554		–			–			1,837
CDO/ABS		–		3,835		8,432		–			–			12,267
Total bond trading securities		100		14,968		9,296		–			–			24,364
Equity securities available for sale:
Common stock		3,294		70		57		–			–			3,421
Preferred stock		–		44		99		–			–			143
Mutual funds		55		5		–		–			–			60
Total equity securities available for sale		3,349		119		156		–			–			3,624
Equity securities trading		43		82		–		–			–			125
Mortgage and other loans receivable		–		106		1		–			–			107
Other invested assets(c)		12,549		1,709		6,618		–			–			20,876
Derivative assets:
Interest rate contracts		2		7,251		1,033		–			–			8,286
Foreign exchange contracts		–		143		2		–			–			145
Equity contracts		92		133		38		–			–			263
Commodity contracts		–		134		2		–			–			136
Credit contracts		–		–		89		–			–			89
Other contracts		29		462		250		–			–			741
Counterparty netting and cash collateral		–		–		–		(3,660	)		(1,501	)		(5,161	)
Total derivative assets		123		8,123		1,414		(3,660	)		(1,501	)		4,499
Short-term investments		2,309		3,604		–		–			–			5,913
Separate account assets		48,502		2,886		–		–			–			51,388
Total	$	67,408	$	273,189	$	39,441	$	(3,660	)	$	(1,501	)	$	374,877
Liabilities:
Policyholder contract deposits	$	–	$	–	$	918	$	–		$	–		$	918
Derivative liabilities:
Interest rate contracts		–		6,661		248		–			–			6,909
Foreign exchange contracts		–		178		–		–			–			178
Equity contracts		–		198		10		–			–			208
Commodity contracts		–		146		–		–			–			146
Credit contracts(d)		–		4		3,362		–			–			3,366
Other contracts		–		155		217		–			–			372
Counterparty netting and cash collateral		–		–		–		(3,660	)		(2,786	)		(6,446	)
Total derivative liabilities		–		7,342		3,837		(3,660	)		(2,786	)		4,733
Other long-term debt(e)		–		10,258		508		–			–			10,766
Other liabilities		193		714		–		–			–			907
Total	$	193	$	18,314	$	5,263	$	(3,660	)	$	(2,786	)	$	17,324

(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 $1.8 billion and $177 million, respectively, at September 30, 2012 and $1.8 billion and $100 million, respectively, at December 31, 2011.

(c)      Included in Level 1 are $6.1 billion and $12.4 billion at September 30, 2012 and December 31, 2011, respectively, of AIA ordinary shares publicly traded on the Hong Kong Stock Exchange.

(d)      Included in Level 3 is the fair value derivative liability of $2.3 billion and $3.2 billion at September 30, 2012 and December 31, 2011, respectively, on the super senior credit default swap portfolio.

(e)      Includes Guaranteed Investment Agreements (GIAs), notes, bonds, loans and mortgages payable.

Changes in Level 3 recurring fair value measurements

(in millions)	Fair value Beginning of Period(a)		Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income (Loss)			Purchases, Sales, Issues 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 September 30, 2012
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	1,013	$	16		$	–		$	102		$	25	$	(52	)	$	1,104	$	–
Non-U.S. governments		13		1			(1	)		2			–		(1	)		14		–
Corporate debt		1,306		10			35			94			233		(66	)		1,612		–
RMBS		10,488		197			1,029			(678	)		566		(114	)		11,488		–
CMBS		4,643		(17	)		271			115			1		–			5,013		–
CDO/ABS		5,074		87			82			(129	)		63		(528	)		4,649		–
Total bonds available for sale		22,537		294			1,416			(494	)		888		(761	)		23,880		–
Bond trading securities:
Corporate debt		3		–			–			(1	)		–		–			2		–
RMBS		290		40			–			(56	)		97		(1	)		370		12
CMBS		457		(3	)		–			1			157		–			612		(19	)
CDO/ABS		14,647		581			–			(6,780	)		57		–			8,505		427
Total bond trading securities		15,397		618			–			(6,836	)		311		(1	)		9,489		420
Equity securities available for sale:
Common stock		41		–			(1	)		–			–		–			40		–
Preferred stock		139		15			(12	)		(104	)		8		(1	)		45		–
Total equity securities available for sale		180		15			(13	)		(104	)		8		(1	)		85		–
Mortgage and other loans receivable		1		–			–			–			–		–			1		–
Other invested assets		7,049		22			8			(90	)		126		(45	)		7,070		–
Total	$	45,164	$	949		$	1,411		$	(7,524	)	$	1,333	$	(808	)	$	40,525	$	420

(in millions)	Fair value Beginning of Period(a)			Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income (Loss)			Purchases, Sales, Issues 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
Liabilities:
Policyholder contract deposits	$	(1,188	)	$	(45	)	$	(72	)	$	(3	)	$	–		$	–		$	(1,308	)	$	279
Derivative liabilities, net:
Interest rate contracts		761			(55	)		–			47			–			–			753			11
Foreign exchange contracts		–			–			–			–			–			–			–			–
Equity contracts		28			18			–			(4	)		1			–			43			–
Commodity contracts		2			4			–			(3	)		–			(2	)		1			(1	)
Credit contracts		(2,587	)		208			–			89			–			–			(2,290	)		(360	)
Other contracts		(154	)		(122	)		(6	)		73			16			–			(193	)		14
Total derivative liabilities, net		(1,950	)		53			(6	)		202			17			(2	)		(1,686	)		(336	)
Other long-term debt(b)		(407	)		(27	)		–			61			(34	)		–			(407	)		170
Total	$	(3,545	)	$	(19	)	$	(78	)	$	260		$	(17	)	$	(2	)	$	(3,401	)	$	113
Nine Months Ended September 30, 2012
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	960		$	48		$	11		$	139		$	70		$	(124	)	$	1,104		$	–
Non-U.S. governments		9			1			–			–			5			(1	)		14			–
Corporate debt		1,935			(7	)		104			96			579			(1,095	)		1,612			–
RMBS		10,877			322			1,832			32			921			(2,496	)		11,488			–
CMBS		3,955			(84	)		572			618			44			(92	)		5,013			–
CDO/ABS		4,220			127			348			(150	)		669			(565	)		4,649			–
Total bonds available for sale		21,956			407			2,867			735			2,288			(4,373	)		23,880			–
Bond trading securities:
Corporate debt		7			–			–			(5	)		–			–			2			–
RMBS		303			68			–			(94	)		97			(4	)		370			18
CMBS		554			46			–			(121	)		193			(60	)		612			45
CDO/ABS		8,432			3,646			–			(3,630	)		57			–			8,505			2,635
Total bond trading securities		9,296			3,760			–			(3,850	)		347			(64	)		9,489			2,698
Equity securities available for sale:
Common stock		57			23			(13	)		(33	)		6			–			40			–
Preferred stock		99			17			(35	)		(35	)		11			(12	)		45			–
Total equity securities available for sale		156			40			(48	)		(68	)		17			(12	)		85			–
Mortgage and other loans receivable		1			–			–			–			–			–			1			–
Other invested assets		6,618			(157	)		284			(57	)		886			(504	)		7,070			–
Total	$	38,027		$	4,050		$	3,103		$	(3,240	)	$	3,538		$	(4,953	)	$	40,525		$	2,698
Liabilities:
Policyholder contract deposits	$	(918	)	$	(314	)	$	(72	)	$	(4	)	$	–		$	–		$	(1,308	)	$	135
Derivative liabilities, net:
Interest rate contracts		785			(9	)		–			(23	)		–			–			753			(37	)
Foreign exchange contracts		2			–			–			(2	)		–			–			–			–
Equity contracts		28			7			–			9			(1	)		–			43			–
Commodity contracts		2			4			–			(5	)		–			–			1			–
Credit contracts		(3,273	)		409			–			574			–			–			(2,290	)		(880	)
Other contracts		33			(110	)		(4	)		(5	)		(107	)		–			(193	)		53
Total derivative liabilities, net		(2,423	)		301			(4	)		548			(108	)		–			(1,686	)		(864	)
Other long-term debt(b)		(508	)		(405	)		(77	)		197			(34	)		420			(407	)		224
Total	$	(3,849	)	$	(418	)	$	(153	)	$	741		$	(142	)	$	420		$	(3,401	)	$	(505	)

(in millions)	Fair value Beginning of Period(a)			Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income (Loss)			Purchases, Sales, Issues 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 September 30, 2011
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	800		$	1		$	83		$	74		$	–	$	(50	)	$	908		$	–
Non-U.S. governments		5			–			(1	)		1			–		–			5			–
Corporate debt		1,844			13			(21	)		(56	)		1,170		(475	)		2,475			–
RMBS		10,692			(83	)		29			(437	)		254		(47	)		10,408			–
CMBS		4,228			(46	)		(293	)		134			16		(64	)		3,975			–
CDO/ABS		3,925			12			(131	)		220			329		(238	)		4,117			–
Total bonds available for sale		21,494			(103	)		(334	)		(64	)		1,769		(874	)		21,888			–
Bond trading securities:
Corporate debt		9			–			–			(1	)		–		–			8			–
RMBS		170			(5	)		(1	)		168			–		–			332			(20	)
CMBS		483			(31	)		(4	)		(16	)		115		–			547			2
CDO/ABS		9,503			(993	)		(9	)		(131	)		48		(24	)		8,394			(1,340	)
Total bond trading securities		10,165			(1,029	)		(14	)		20			163		(24	)		9,281			(1,358	)
Equity securities available for sale:
Common stock		59			9			(9	)		(11	)		10		(2	)		56			–
Preferred stock		64			2			2			–			2		–			70			–
Total equity securities available for sale		123			11			(7	)		(11	)		12		(2	)		126			–
Equity securities trading		1			(1	)		–			–			–		–			–			–
Other invested assets		7,045			(27	)		42			(54	)		205		(27	)		7,184			–
Total	$	38,828		$	(1,149	)	$	(313	)	$	(109	)	$	2,149	$	(927	)	$	38,479		$	(1,358	)
Liabilities:
Policyholder contract deposits	$	(406	)	$	(928	)	$	–		$	(28	)	$	–	$	–		$	(1,362	)	$	950
Derivative liabilities, net:
Interest rate contracts		754			47			–			9			–		(21	)		789			(61	)
Foreign exchange contracts		4			1			–			(5	)		–		–			–			–
Equity contracts		34			(10	)		–			–			–		–			24			(7	)
Commodity contracts		5			(1	)		–			(1	)		–		–			3			(1	)
Credit contracts		(3,332	)		(25	)		–			(5	)		–		–			(3,362	)		398
Other contracts		(69	)		32			(32	)		9			–		99			39			(121	)
Total derivatives liabilities, net		(2,604	)		44			(32	)		7			–		78			(2,507	)		208
Other long-term debt(b)		(958	)		183			–			(14	)		–		–			(789	)		349
Total	$	(3,968	)	$	(701	)	$	(32	)	$	(35	)	$	–	$	78		$	(4,658	)	$	1,507

(in millions)	Fair value Beginning of Period(a)			Net Realized and Unrealized Gains (Losses) Included in Income			Accumulated Other Comprehensive Income (Loss)			Purchases, Sales, Issues 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
Nine Months Ended September 30, 2011
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	609		$	–		$	110		$	248		$	17		$	(76	)	$	908		$	–
Non-U.S. governments		5			–			(1	)		1			–			–			5			–
Corporate debt		2,262			10			1			216			1,703			(1,717	)		2,475			–
RMBS		6,367			(85	)		397			3,506			276			(53	)		10,408			–
CMBS		3,604			(80	)		262			206			69			(86	)		3,975			–
CDO/ABS		4,241			44			181			(617	)		775			(507	)		4,117			–
Total bonds available for sale		17,088			(111	)		950			3,560			2,840			(2,439	)		21,888			–
Bond trading securities:
Corporate debt		–			–			–			(10	)		18			–			8			–
RMBS		91			(5	)		(8	)		254			–			–			332			(15	)
CMBS		506			35			(1	)		(92	)		276			(177	)		547			31
CDO/ABS		9,431			(840	)		–			(221	)		48			(24	)		8,394			(770	)
Total bond trading securities		10,028			(810	)		(9	)		(69	)		342			(201	)		9,281			(754	)
Equity securities available for sale:
Common stock		61			27			(5	)		(38	)		18			(7	)		56			–
Preferred stock		64			(1	)		3			–			4			–			70			–
Total equity securities available for sale		125			26			(2	)		(38	)		22			(7	)		126			–
Equity securities trading		1			–			–			(1	)		–			–			–			–
Other invested assets		7,414			9			511			(565	)		250			(435	)		7,184			–
Total	$	34,656		$	(886	)	$	1,450		$	2,887		$	3,454		$	(3,082	)	$	38,479		$	(754	)
Liabilities:
Policyholder contract deposits	$	(445	)	$	(882	)	$	–		$	(35	)	$	–		$	–		$	(1,362	)	$	887
Derivative liabilities, net:
Interest rate contracts		732			69			–			9			–			(21	)		789			(55	)
Foreign exchange contracts		16			(11	)		–			(5	)		–			–			–			–
Equity contracts		22			(17	)		–			38			(7	)		(12	)		24			(14	)
Commodity contracts		23			1			–			(21	)		–			–			3			(1	)
Credit contracts		(3,798	)		451			–			(15	)		–			–			(3,362	)		446
Other contracts		(112	)		9			(58	)		49			–			151			39			(87	)
Total derivatives liabilities, net		(3,117	)		502			(58	)		55			(7	)		118			(2,507	)		289
Other long-term debt(b)		(982	)		(28	)		–			242			(21	)		–			(789	)		(31	)
Total	$	(4,544	)	$	(408	)	$	(58	)	$	262		$	(28	)	$	118		$	(4,658	)	$	1,145

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

(b)     Includes GIAs, notes, bonds, loans and mortgages payable.

Schedule of net realized and unrealized gains and losses related to Level 3 items

(in millions)	Net Investment Income			Net Realized Capital Gains (Losses)			Other Income			Total
Three Months Ended September 30, 2012
Bonds available for sale	$	218		$	51		$	25		$	294
Bond trading securities		491			–			127			618
Equity securities		–			15			–			15
Other invested assets		6			(16	)		32			22
Policyholder contract deposits		–			(45	)		–			(45	)
Derivative liabilities, net		–			(39	)		92			53
Other long-term debt		–			–			(27	)		(27	)
Three Months Ended September 30, 2011
Bonds available for sale	$	193		$	(300	)	$	4		$	(103	)
Bond trading securities		(1,333	)		4			300			(1,029	)
Equity securities		(1	)		11			–			10
Other invested assets		(13	)		(29	)		15			(27	)
Policyholder contract deposits		–			(928	)		–			(928	)
Derivative liabilities, net		1			54			(11	)		44
Other long-term debt		–			–			183			183
Nine Months Ended September 30, 2012
Bonds available for sale	$	683		$	(333	)	$	57		$	407
Bond trading securities		3,330			–			430			3,760
Equity securities		–			40			–			40
Other invested assets		(3	)		(189	)		35			(157	)
Policyholder contract deposits		–			(314	)		–			(314	)
Derivative liabilities, net		(1	)		22			280			301
Other long-term debt		–			–			(405	)		(405	)
Nine Months Ended September 30, 2011
Bonds available for sale	$	433		$	(556	)	$	12		$	(111	)
Bond trading securities		(828	)		4			14			(810	)
Equity securities		–			26			–			26
Other invested assets		31			(81	)		59			9
Policyholder contract deposits		–			(882	)		–			(882	)
Derivative liabilities, net		2			7			493			502
Other long-term debt		–			–			(28	)		(28	)

Gross components of purchases, sales, issuances and settlements, net

(in millions)	Purchases			Sales			Settlements			Purchases, Sales, Issues and Settlements, Net(a)
Three Months Ended September 30, 2012
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	189		$	(53	)	$	(34	)	$	102
Non-U.S. governments		3			–			(1	)		2
Corporate debt		139			(6	)		(39	)		94
RMBS		198			(360	)		(516	)		(678	)
CMBS		299			(127	)		(57	)		115
CDO/ABS		210			–			(339	)		(129	)
Total bonds available for sale		1,038			(546	)		(986	)		(494	)
Bond trading securities:
Corporate debt		–			–			(1	)		(1	)
RMBS		–			(45	)		(11	)		(56	)
CMBS		11			–			(10	)		1
CDO/ABS(b)		2,191			(6	)		(8,965	)		(6,780	)
Total bond trading securities		2,202			(51	)		(8,987	)		(6,836	)
Equity securities		–			(22	)		(82	)		(104	)
Other invested assets		129			(30	)		(189	)		(90	)
Total assets	$	3,369		$	(649	)	$	(10,244	)	$	(7,524	)
Liabilities:
Policyholder contract deposits	$	–		$	(6	)	$	3		$	(3	)
Derivative liabilities, net		6			–			196			202
Other long-term debt(c)		–			–			61			61
Total liabilities	$	6		$	(6	)	$	260		$	260
Three Months Ended September 30, 2011
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	78		$	–		$	(4	)	$	74
Non-U.S. governments		–			–			1			1
Corporate debt		58			(27	)		(87	)		(56	)
RMBS		(11	)		–			(426	)		(437	)
CMBS		178			–			(44	)		134
CDO/ABS		405			–			(185	)		220
Total bonds available for sale		708			(27	)		(745	)		(64	)
Bond trading securities:
Corporate debt		–			–			(1	)		(1	)
RMBS		197			–			(29	)		168
CMBS		79			(90	)		(5	)		(16	)
CDO/ABS		101			(93	)		(139	)		(131	)
Total bond trading securities		377			(183	)		(174	)		20
Equity securities		–			(8	)		(3	)		(11	)
Other invested assets		156			(59	)		(151	)		(54	)
Total assets	$	1,241		$	(277	)	$	(1,073	)	$	(109	)
Liabilities:
Policyholder contract deposits	$	–		$	(32	)	$	4		$	(28	)
Derivative liabilities, net		1			–			6			7
Other long-term debt(c)		–			–			(14	)		(14	)
Total liabilities	$	1		$	(32	)	$	(4	)	$	(35	)

(in millions)	Purchases		Sales			Settlements			Purchases, Sales, Issues and Settlements, Net(a)
Nine Months Ended September 30, 2012
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	394	$	(219	)	$	(36	)	$	139
Non-U.S. governments		4		(3	)		(1	)		–
Corporate debt		280		(59	)		(125	)		96
RMBS		2,308		(722	)		(1,554	)		32
CMBS		1,021		(260	)		(143	)		618
CDO/ABS		730		(4	)		(876	)		(150	)
Total bonds available for sale		4,737		(1,267	)		(2,735	)		735
Bond trading securities:
Corporate debt		–		–			(5	)		(5	)
RMBS		–		(45	)		(49	)		(94	)
CMBS		194		(106	)		(209	)		(121	)
CDO/ABS(b)		7,216		(6	)		(10,840	)		(3,630	)
Total bond trading securities		7,410		(157	)		(11,103	)		(3,850	)
Equity securities		67		(55	)		(80	)		(68	)
Other invested assets		529		(63	)		(523	)		(57	)
Total assets	$	12,743	$	(1,542	)	$	(14,441	)	$	(3,240	)
Liabilities:
Policyholder contract deposits	$	–	$	(20	)	$	16		$	(4	)
Derivative liabilities, net		8		–			540			548
Other long-term debt(c)		–		–			197			197
Total liabilities	$	8	$	(20	)	$	753		$	741
Nine Months Ended September 30, 2011
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	254	$	–		$	(6	)	$	248
Non-U.S. governments		1		(1	)		1			1
Corporate debt		478		(27	)		(235	)		216
RMBS		4,613		(22	)		(1,085	)		3,506
CMBS		419		(20	)		(193	)		206
CDO/ABS		666		–			(1,283	)		(617	)
Total bonds available for sale		6,431		(70	)		(2,801	)		3,560
Bond trading securities:
Corporate debt		–		–			(10	)		(10	)
RMBS		300		–			(46	)		254
CMBS		139		(144	)		(87	)		(92	)
CDO/ABS		245		(219	)		(247	)		(221	)
Total bond trading securities		684		(363	)		(390	)		(69	)
Equity securities		–		(31	)		(8	)		(39	)
Other invested assets		506		(217	)		(854	)		(565	)
Total assets	$	7,621	$	(681	)	$	(4,053	)	$	2,887
Liabilities:
Policyholder contract deposits	$	–	$	(51	)	$	16		$	(35	)
Derivative liabilities, net		40		–			15			55
Other long-term debt(c)		–		–			242			242
Total liabilities	$	40	$	(51	)	$	273		$	262

(a)     There were no issuances during the three- and nine-month periods ended September 30, 2012 and 2011.

(b)     Includes securities with a fair value of approximately $7.1 billion purchased through the FRBNY's auction of Maiden Lane III LLC (ML III) assets.

(c)     Includes GIAs, notes, bonds, loans and mortgages payable.

Fair value assets measured on nonrecurring basis and impairment charges

	Assets at Fair Value								Impairment Charges
	Non-Recurring Basis								Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	Level 1		Level 2		Level 3		Total		2012		2011		2012		2011
September 30, 2012
Investment real estate	$	–	$	–	$	311	$	311	$	–	$	–	$	–	$	15
Other investments		–		–		1,534		1,534		97		181		273		526
Aircraft*		–		–		324		324		98		1,518		227		1,676
Other assets		–		1		18		19		–		–		9		–
Total	$	–	$	1	$	2,187	$	2,188	$	195	$	1,699	$	509	$	2,217
December 31, 2011
Investment real estate	$	–	$	–	$	457	$	457
Other investments		–		–		2,199		2,199
Aircraft		–		–		1,683		1,683
Other assets		–		–		4		4
Total	$	–	$	–	$	4,343	$	4,343

*        Aircraft impairment charges include fair value adjustments on aircraft where appropriate.

Significant unobservable inputs used for recurring fair value measurements

(in millions)	Fair Value at September 30, 2012		Valuation Technique	Unobservable Input(a)	Range (Weighted Average)(a)
Assets:
Corporate debt	$	826	Discounted cash flow	Yield(b)	1.85% - 8.95% (5.40%)
Residential mortgage backed securities		10,867	Discounted cash flow	Constant prepayment rate(c)	0.00% - 10.58% (4.99%)
				Loss severity(c)	40.07% - 78.97% (59.52%)
				Constant default rate(c)	3.61% - 13.01% (8.31%)
				Yield(c)	2.69% - 9.53% (6.11%)
Certain CDO/ABS		1,866	Discounted cash flow	Constant prepayment rate(c)	0.00% - 39.55% (12.87%)
				Loss severity(c)	0.00% - 9.20% (0.78%)
				Constant default rate(c)	0.00% - 1.19% (0.13%)
				Yield(c)	0.84% - 4.85% (2.85%)
Commercial mortgage backed securities		3,051	Discounted cash flow	Yield(b)	0.00% - 27.34% (10.14%)
CDO/ABS – Direct			Binomial Expansion	Recovery rate(b)	3% - 65%
Investment Book		1,290	Technique (BET)	Diversity score(b)	4 - 37 (14)
				Weighted average life(b)	1.12 - 9.17 years (4.57 years)
Liabilities:
Policyholder contract deposits – GMWB		1,005	Discounted cash flow	Equity implied volatility(b)	6.0% - 40.0%
				Base lapse rates(b)	1.00% - 40.0%
				Dynamic lapse rates(b)	0.2% - 60.0%
				Mortality rates(b)	0.5% - 40.0%
				Utilization rates(b)	0.5% - 25.0%
Derivative Liabilities – Credit contracts		1,600	BET	Recovery rates(b)	3% - 36% (16%)
				Diversity score(b)	8 - 31 (13)
				Weighted average life(b)	5.02 - 8.40 years (6.08 years)

(a)     The unobservable inputs and ranges for the constant prepayment rate, loss severity and constant default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and collateralized debt obligation (CDO) securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by AIG. The ranges of these inputs do not directly correlate to changes in the fair values of the tranches purchased by AIG because there are other factors relevant to the specific tranches owned by AIG including, but not limited to, purchase price, position in the waterfall, senior versus subordinated position and attachment points.

(b)     Represents discount rates, estimates and assumptions that AIG believes would be used by market participants when valuing these assets and liabilities.

(c)     Information received from independent third-party valuation service providers.

Investments in Certain Entities Carried at Fair Value Using Net Asset Value per Share

		September 30, 2012				December 31, 2011
(in millions)	Investment Category Includes	Fair Value Using Net Asset Value or its equivalent		Unfunded Commitments		Fair Value Using Net Asset Value or its equivalent		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	$	3,223	$	821	$	3,185	$	945
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		173		31		165		57
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		309		32		316		39
Distressed	Securities of companies that are already in default, under bankruptcy protection, or troubled		172		37		182		42
Other	Real estate, energy, multi-strategy, mezzanine, and industry-focused strategies		364		145		252		98
Total private equity funds			4,241		1,066		4,100		1,181
Hedge funds:
Event-driven	Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations		894		2		774		2
Long-short	Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk		1,139		–		927		–
Macro	Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions		248		–		173		–
Distressed	Securities of companies that are already in default, under bankruptcy protection or troubled		367		–		272		10
Other	Non-U.S. companies, futures and commodities, relative value, and multi-strategy and industry-focused strategies		604		–		627		–
Total hedge funds			3,252		2		2,773		12
Total		$	7,493	$	1,068	$	6,873	$	1,193

Gains or losses related to the eligible instruments for which AIG elected the fair value option

	Gain (Loss) Three Months Ended September 30,						Gain (Loss) Nine Months Ended September 30,
(in millions)	2012			2011			2012			2011
Assets:
Mortgage and other loans receivable	$	10		$	(3	)	$	41		$	(2	)
Bonds and equity securities		875			(138	)		1,782			1,299
Trading – ML II interest		–			(43	)		246			32
Trading – ML III interest		330			(931	)		2,888			(854	)
Retained interest in AIA		527			(2,315	)		1,829			268
Other, including Short-term investments		14			12			27			40
Liabilities:
Other long-term debt(a)		(86	)		(265	)		(750	)		(821	)
Other liabilities		(9	)		84			(31	)		(91	)
Total gain (loss)(b)	$	1,661		$	(3,599	)	$	6,032		$	(129	)

(a)     Includes GIAs, notes, bonds, loans and mortgages payable.

(b)     Excludes discontinued operation gains or losses on instruments that were required to be carried at fair value. For instruments required to be carried at fair value, AIG recognized gains of $110 million and $664 million for the three and nine months ended September 30, 2012, respectively, and losses of $102 million and gains of $819 million for the three and nine months ended September 30, 2011, 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.

Difference between fair values and aggregate contractual principal amounts, fair value option

	September 30, 2012							December 31, 2011
(in millions)	Fair Value		Outstanding Principal Amount		Difference			Fair Value		Outstanding Principal Amount		Difference
Assets:
Mortgage and other loans receivable	$	130	$	140	$	(10	)	$	107	$	150	$	(43	)
Liabilities:
Other long-term debt*	$	8,835	$	6,483	$	2,352		$	10,766	$	8,624	$	2,142

*         Includes GIAs, notes, bonds, loans and mortgages payable.

Carrying value and estimated fair value of AIG's financial instruments

	Estimated Fair Value
									Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
September 30, 2012
Assets:
Mortgage and other loans receivable	$	–	$	549	$	20,099	$	20,648	$	19,200
Other invested assets		–		209		3,451		3,660		4,947
Short-term investments		–		15,257		–		15,257		15,257
Cash		1,608		–		–		1,608		1,608
Liabilities:
Policyholder contract deposits associated with investment-type contracts		–		138		126,671		126,809		107,119
Other liabilities		–		1,843		831		2,674		2,676
Long-term debt		18,229		50,605		1,792		70,626		64,913
December 31, 2011
Assets:
Mortgage and other loans receivable							$	20,494	$	19,382
Other invested assets								3,390		4,701
Short-term investments								16,657		16,659
Cash								1,474		1,474
Liabilities:
Policyholder contract deposits associated with investment-type contracts								122,125		106,950
Other liabilities								896		896
Long-term debt								61,295		64,487