DERIVATIVES AND HEDGE ACCOUNTING (Tables)

12 Months Ended

Dec. 31, 2012

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	December 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)	$	–	$	–	$	–	$	–	$	–	$	–	$	481	$	38
Foreign exchange contracts		–		–		–		–		–		–		180		1
Derivatives not designated as hedging instruments:
Interest rate contracts(b)		63,463		6,479		63,482		5,806		72,660		8,286		73,248		6,870
Foreign exchange contracts		8,325		104		10,168		174		3,278		145		3,399		178
Equity contracts(c)		4,990		221		25,626		1,377		4,748		263		18,911		1,126
Commodity contracts		625		145		622		146		691		136		861		146
Credit contracts		70		60		16,244		2,051		407		89		25,857		3,366
Other contracts(d)		20,449		38		1,488		206		24,305		741		2,125		372
Total derivatives not designated as hedging instruments		97,922		7,047		117,630		9,760		106,089		9,660		124,401		12,058
Total derivatives	$	97,922	$	7,047	$	117,630	$	9,760	$	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 $23 billion and $1.3 billion, respectively, at December 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

	December 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
Global Capital Markets derivatives:
AIG Financial Products	$	59,854	$	4,725		$	66,717	$	5,506		$	86,128	$	7,063		$	90,241	$	8,853
AIG Markets		14,028		1,308			18,774		1,818			7,908		1,409			8,201		1,168
Total Global Capital Markets derivatives		73,882		6,033			85,491		7,324			94,036		8,472			98,442		10,021
Non-Global Capital Markets derivatives(a)		24,040		1,014			32,139		2,436			12,053		1,188			26,620		2,076
Total derivatives, gross	$	97,922		7,047		$	117,630		9,760		$	106,089		9,660		$	125,062		12,097
Counterparty netting(b)				(2,467	)				(2,467	)				(3,660	)				(3,660	)
Cash collateral(c)				(909	)				(1,976	)				(1,501	)				(2,786	)
Total derivatives, net				3,671					5,317					4,499					5,651
Less: Bifurcated embedded derivatives				–					1,256					–					918
Total derivatives on consolidated balance sheet			$	3,671				$	4,061				$	4,499				$	4,733

(a)     Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance 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 that is eligible for netting.

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

Years Ended December 31, (in millions)	2012			2011
Interest rate contracts:(a)
Loss recognized in earnings on derivatives	$	–		$	(3	)
Gain recognized in earnings on hedged items(b)		124			152
Foreign exchange contracts:(a)
Loss recognized in earnings on derivatives		(2	)		(1	)
Gain recognized in earnings on hedged items		2			1

(a)     Gains and losses recognized in earnings for the ineffective portion and amounts excluded from effectiveness testing, if any, are recorded in Net realized capital gains (losses).

(b)     Includes $124 million and $149 million, for the years ended December 31, 2012 and 2011, respectively, representing the amortization of debt basis adjustment recorded in Other income and Net realized capital gains (losses) following the discontinuation of hedge accounting.

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

Years Ended December 31, (in millions)	2012			2011
Interest rate contracts(a):
Gain (loss) recognized in OCI on derivatives	$	(2	)	$	(5	)
Gain (loss) reclassified from Accumulated OCI into earnings(b)		(35	)		(55	)

(a)     Hedge accounting was discontinued in December 2012 subsequent to the announcement of the ILFC Transaction. Gains and losses recognized in earnings are recorded in Income (loss) from discontinued operations. Previously the effective portion of the change in fair value of a derivative qualifying as a cash flow hedge was recorded in Accumulated other comprehensive income until earnings were affected by the variability of cash flows in the hedged item. Gains and losses reclassified from Accumulated other comprehensive income were previously recorded in Other income. Gains or losses recognized in earnings on derivatives for the ineffective portion were previously recorded in Net realized capital gains (losses).

(b)     Includes $19 million for the year ended December 2012, representing the reclassification from Accumulated other comprehensive income into earnings following the discontinuation of cash flow hedges of ILFC debt.

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

	Gains (Losses) Recognized in Earnings
Years Ended December 31, (in millions)
	2012			2011
By Derivative Type:
Interest rate contracts(a)	$	(241	)	$	603
Foreign exchange contracts		96			137
Equity contracts(b)		(641	)		(263	)
Commodity contracts		(1	)		4
Credit contracts		641			337
Other contracts		6			47
Total	$	(140	)	$	865
By Classification:
Policy fees	$	160		$	113
Net investment income		5			8
Net realized capital gains (losses)		(672	)		248
Other income (losses)		367			496
Total	$	(140	)	$	865

(a)     Includes cross currency swaps.

(b)     Includes embedded derivative losses of $166 million and $397 million for the years ended December 31, 2012 and 2011, respectively.

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

									Unrealized Market Valuation Gain(c)
					Fair Value of Derivative Liability at(b)(c)
	Net Notional Amount(a)
									Years Ended December 31,
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
(in millions)									2012		2011
Regulatory Capital:
Corporate loans	$	–	$	1,830	$	–	$	–	$	–	$	–
Prime residential mortgages		97		3,653		–		–		–		6
Other		–		887		–		9		9		8
Total		97		6,370		–		9		9		14
Arbitrage:
Multi-sector CDOs(d)		3,944		5,476		1,910		3,077		538		249
Corporate debt/CLOs(e)		11,832		11,784		60		127		67		44
Total		15,776		17,260		1,970		3,204		605		293
Mezzanine tranches		–		989		–		10		3		32
Total	$	15,873	$	24,619	$	1,970	$	3,223	$	617	$	339

(a)     Net notional amounts presented are net of all structural subordination below the covered tranches. The decrease in the total net notional amount from December 31, 2011 to December 31, 2012 was due primarily to terminations of $5.4 billion and amortization of $3.2 billion.

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

(c)     Includes credit valuation adjustment gains (losses) of $(39) million and $26 million for the years ended December 31, 2012 and 2011, respectively, representing the effect of changes in our credit spreads on the valuation of the derivatives liabilities.

(d)     During 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 2012, $213 million was paid to counterparties with respect to multi-sector CDOs. Upon payment, a $213 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 $3.4 billion and $4.6 billion in net notional amount of credit default swaps written with cash settlement provisions at December 31, 2012 and December 31, 2011, respectively. Collateral postings with regards to multi-sector CDOs were $1.6 billion and $2.7 billion at December 31, 2012 and December 31, 2011, respectively.

(e)     Corporate debt/CLOs include $1.2 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at both December 31, 2012 and December 31, 2011. Collateral postings with regards to corporate debt/CLOs were $420 million and $477 million at December 31, 2012 and December 31, 2011, respectively