INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2012

INVESTMENTS

The amortized cost or cost and fair value of AIG's available for sale securities and other invested assets carried at fair value

(in millions)	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Other-Than- Temporary Impairments in AOCI(a)
September 30, 2012
Bonds available for sale:
U.S. government and government sponsored entities	$	4,049	$	359	$	–		$	4,408	$	–
Obligations of states, municipalities and political subdivisions		33,716		2,799		(51	)		36,464		(23	)
Non-U.S. governments		24,900		1,441		(43	)		26,298		–
Corporate debt		134,977		15,755		(592	)		150,140		125
Mortgage-backed, asset-backed and collateralized:
RMBS		32,343		3,231		(394	)		35,180		1,109
CMBS		9,258		738		(514	)		9,482		(112	)
CDO/ABS		7,447		737		(242	)		7,942		90
Total mortgage-backed, asset-backed and collateralized		49,048		4,706		(1,150	)		52,604		1,087
Total bonds available for sale(b)		246,690		25,060		(1,836	)		269,914		1,189
Equity securities available for sale:
Common stock		1,517		1,355		(50	)		2,822		–
Preferred stock		65		28		–			93		–
Mutual funds		94		12		–			106		–
Total equity securities available for sale		1,676		1,395		(50	)		3,021		–
Other invested assets carried at fair value(c)		6,491		1,756		(25	)		8,222		–
Total	$	254,857	$	28,211	$	(1,911	)	$	281,157	$	1,189
December 31, 2011
Bonds available for sale:
U.S. government and government sponsored entities	$	5,661	$	418	$	(1	)	$	6,078	$	–
Obligations of states, municipalities and political subdivisions		35,017		2,554		(73	)		37,498		(28	)
Non-U.S. governments		24,843		994		(102	)		25,735		–
Corporate debt		134,699		11,844		(1,725	)		144,818		115
Mortgage-backed, asset-backed and collateralized:
RMBS		34,780		1,387		(1,563	)		34,604		(716	)
CMBS		8,449		470		(973	)		7,946		(276	)
CDO/ABS		7,321		454		(473	)		7,302		49
Total mortgage-backed, asset-backed and collateralized		50,550		2,311		(3,009	)		49,852		(943	)
Total bonds available for sale(b)		250,770		18,121		(4,910	)		263,981		(856	)
Equity securities available for sale:
Common stock		1,682		1,839		(100	)		3,421		–
Preferred stock		83		60		–			143		–
Mutual funds		55		6		(1	)		60		–
Total equity securities available for sale		1,820		1,905		(101	)		3,624		–
Other invested assets carried at fair value(c)		5,155		1,611		(269	)		6,497		–
Total	$	257,745	$	21,637	$	(5,280	)	$	274,102	$	(856	)

(a)      Represents the amount of other-than-temporary impairment losses recognized in Accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

(b)      At September 30, 2012 and December 31, 2011, bonds available for sale held by AIG that were below investment grade or not rated totaled $28.9 billion and $24.2 billion, respectively.

(c)      Represents private equity and hedge fund investments carried at fair value for which unrealized gains and losses are required to be recognized in other comprehensive income.

The fair value and gross unrealized losses on AIG's available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position

	Less than 12 Months				12 Months or More				Total
(in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2012
Bonds available for sale:
U.S. government and government sponsored entities	$	68	$	–	$	–	$	–	$	68	$	–
Obligations of states, municipalities and political subdivisions		457		30		197		21		654		51
Non-U.S. governments		1,067		14		512		29		1,579		43
Corporate debt		6,383		168		5,121		424		11,504		592
RMBS		659		14		2,012		380		2,671		394
CMBS		193		28		1,786		486		1,979		514
CDO/ABS		143		3		1,779		239		1,922		242
Total bonds available for sale		8,970		257		11,407		1,579		20,377		1,836
Equity securities available for sale:
Common stock		313		45		37		5		350		50
Preferred stock		–		–		–		–		–		–
Mutual funds		4		–		1		–		5		–
Total equity securities available for sale		317		45		38		5		355		50
Total	$	9,287	$	302	$	11,445	$	1,584	$	20,732	$	1,886
December 31, 2011
Bonds available for sale:
U.S. government and government sponsored entities	$	142	$	1	$	–	$	–	$	142	$	1
Obligations of states, municipalities and political subdivisions		174		1		669		72		843		73
Non-U.S. governments		3,992		67		424		35		4,416		102
Corporate debt		18,099		937		5,907		788		24,006		1,725
RMBS		10,624		714		4,148		849		14,772		1,563
CMBS		1,697		185		1,724		788		3,421		973
CDO/ABS		1,680		50		1,682		423		3,362		473
Total bonds available for sale		36,408		1,955		14,554		2,955		50,962		4,910
Equity securities available for sale:
Common stock		608		100		–		–		608		100
Preferred stock		6		–		–		–		6		–
Mutual funds		2		1		–		–		2		1
Total equity securities available for sale		616		101		–		–		616		101
Total	$	37,024	$	2,056	$	14,554	$	2,955	$	51,578	$	5,011

The amortized cost and fair value of fixed maturity securities available for sale by contractual maturity

	Total Fixed Maturity Available for Sale Securities				Fixed Maturity Securities in a Loss Position
September 30, 2012 (in millions)
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	11,080	$	11,289	$	837	$	830
Due after one year through five years		54,288		57,505		4,143		4,009
Due after five years through ten years		70,835		78,191		4,058		3,845
Due after ten years		61,439		70,325		5,453		5,121
Mortgage-backed, asset-backed and collateralized		49,048		52,604		7,722		6,572
Total	$	246,690	$	269,914	$	22,213	$	20,377

The gross realized gains and gross realized losses from sales of AIG's available for sale securities

	Three Months Ended September 30,								Nine Months Ended September 30,
	2012				2011				2012				2011
(in millions)	Gross Realized Gains		Gross Realized Losses		Gross Realized Gains		Gross Realized Losses		Gross Realized Gains		Gross Realized Losses		Gross Realized Gains		Gross Realized Losses
Fixed maturity securities	$	943	$	82	$	612	$	11	$	2,308	$	121	$	1,462	$	104
Equity securities		38		22		30		10		503		26		178		18
Total	$	981	$	104	$	642	$	21	$	2,811	$	147	$	1,640	$	122

The fair value of AIG's trading securities

	September 30, 2012					December 31, 2011
(in millions)	Fair Value		Percent of Total			Fair Value		Percent of Total
Fixed maturities:
U.S. government and government sponsored entities	$	7,708		31	%	$	7,504		31	%
Non-U.S. governments		2		–			35		–
Corporate debt		1,318		5			816		3
State, territories and political subdivisions		81		–			257		1
Mortgage-backed, asset-backed and collateralized:
RMBS		1,471		6			1,648		7
CMBS		2,102		9			1,837		7
CDO/ABS and other collateralized*		12,147		49			5,282		22
Total mortgage-backed, asset-backed and collateralized		15,720		64			8,767		36
ML II		–		–			1,321		5
ML III		8		–			5,664		23
Total fixed maturities		24,837		100			24,364		99
Equity securities		98		–			125		1
Total	$	24,935		100	%	$	24,489		100	%

*         Includes securities with a fair value of approximately $7.1 billion purchased through the FRBNY's auction of ML III assets.

Credit impairments recognized in earnings for available for sale fixed maturity securities held by AIG

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2012			2011			2012			2011
Balance, beginning of period	$	6,090		$	6,396		$	6,504		$	6,786
Increases due to:
Credit impairments on new securities subject to impairment losses		–			169			172			254
Additional credit impairments on previously impaired securities		45			222			421			457
Reductions due to:
Credit impaired securities fully disposed for which there was no prior intent or requirement to sell		(297	)		(133	)		(815	)		(458	)
Credit impaired securities for which there is a current intent or anticipated requirement to sell		(5	)		–			(5	)		–
Accretion on securities previously impaired due to credit*		(215	)		(148	)		(668	)		(355	)
Hybrid securities with embedded credit derivatives reclassified to Bond trading securities		–			–			–			(179	)
Other		(3	)		–			6			1
Balance, end of period	$	5,615		$	6,506		$	5,615		$	6,506

*         Represents accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities as well as the accretion due to the passage of time.

Schedule of Purchased Credit Impaired (PCI) Securities, at acquisition date

(in millions)	At Date of Acquisition
Contractually required payments (principal and interest)	$	18,315
Cash flows expected to be collected*		14,286
Recorded investment in acquired securities		9,128

*         Represents undiscounted expected cash flows, including both principal and interest.

Schedule of Purchased Credit Impaired (PCI) Securities, at reporting date

(in millions)	September 30, 2012		December 31, 2011
Outstanding principal balance	$	11,957	$	10,119
Amortized cost		7,743		7,006
Fair value		8,734		6,535

Activity for accretable yield on Purchased Credit Impaired (PCI) Securities

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2012			2011			2012			2011
Balance, beginning of period	$	4,950		$	2,276		$	4,135		$	–
Newly purchased PCI securities		114			306			1,532			2,688
Disposals		(130	)		–			(298	)		–
Accretion		(165	)		(119	)		(510	)		(194	)
Effect of changes in interest rate indices		(39	)		(46	)		(200	)		(54	)
Net reclassification (to) from non-accretable difference, including effects of prepayments		53			(93	)		124			(116	)
Balance, end of period	$	4,783		$	2,324		$	4,783		$	2,324