FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2013

FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

March 31, 2013 (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	$	–	$	3,496	$	–	$	–		$	–		$	3,496
Obligations of states, municipalities and political subdivisions		–		34,092		1,019		–			–			35,111
Non-U.S. governments		690		24,667		18		–			–			25,375
Corporate debt		–		148,857		1,449		–			–			150,306
RMBS		–		24,030		12,096		–			–			36,126
CMBS		–		5,096		5,315		–			–			10,411
CDO/ABS		–		3,849		5,577		–			–			9,426
Total bonds available for sale		690		244,087		25,474		–			–			270,251
Bond trading securities:
U.S. government and government sponsored entities		174		6,165		–		–			–			6,339
Obligations of states, municipalities and political subdivisions		–		183		–		–			–			183
Non-U.S. governments		–		2		–		–			–			2
Corporate debt		–		1,138		–		–			–			1,138
RMBS		–		1,239		730		–			–			1,969
CMBS		–		1,143		776		–			–			1,919
CDO/ABS		–		3,463		8,842		–			–			12,305
Total bond trading securities		174		13,333		10,348		–			–			23,855
Equity securities available for sale:
Common stock		2,899		1		22		–			–			2,922
Preferred stock		–		33		49		–			–			82
Mutual funds		81		23		–		–			–			104
Total equity securities available for sale		2,980		57		71		–			–			3,108
Equity securities trading		614		82		–		–			–			696
Mortgage and other loans receivable		–		58		–		–			–			58
Other invested assets		129		1,721		5,467		–			–			7,317
Derivative assets:
Interest rate contracts		5		4,869		961		–			–			5,835
Foreign exchange contracts		–		81		–		–			–			81
Equity contracts		132		51		69		–			–			252
Commodity contracts		–		146		1		–			–			147
Credit contracts		–		–		59		–			–			59
Other contracts		–		–		38		–			–			38
Counterparty netting and cash collateral		–		–		–		(2,234	)		(888	)		(3,122	)
Total derivative assets		137		5,147		1,128		(2,234	)		(888	)		3,290
Short-term investments		218		6,194		–		–			–			6,412
Separate account assets		58,111		2,948		–		–			–			61,059
Other assets		–		694		–		–			–			694
Total	$	63,053	$	274,321	$	42,488	$	(2,234	)	$	(888	)	$	376,740
Liabilities:
Policyholder contract deposits	$	–	$	–	$	1,047	$	–		$	–		$	1,047
Derivative liabilities:
Interest rate contracts		–		5,190		205		–			–			5,395
Foreign exchange contracts		–		128		–		–			–			128
Equity contracts		–		109		3		–			–			112
Commodity contracts		–		148		–		–			–			148
Credit contracts		–		–		1,834		–			–			1,834
Other contracts		–		6		177		–			–			183
Counterparty netting and cash collateral		–		–		–		(2,234	)		(1,855	)		(4,089	)
Total derivative liabilities		–		5,581		2,219		(2,234	)		(1,855	)		3,711
Long-term debt		–		7,256		407		–			–			7,663
Other liabilities		5		919		–		–			–			924
Total	$	5	$	13,756	$	3,673	$	(2,234	)	$	(1,855	)	$	13,345

December 31, 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	$	–	$	3,483	$	–	$	–		$	–		$	3,483
Obligations of states, municipalities and political subdivisions		–		34,681		1,024		–			–			35,705
Non-U.S. governments		1,004		25,782		14		–			–			26,800
Corporate debt		–		149,625		1,487		–			–			151,112
RMBS		–		22,730		11,662		–			–			34,392
CMBS		–		5,010		5,124		–			–			10,134
CDO/ABS		–		3,492		4,841		–			–			8,333
Total bonds available for sale		1,004		244,803		24,152		–			–			269,959
Bond trading securities:
U.S. government and government sponsored entities		266		6,528		–		–			–			6,794
Non-U.S. governments		–		2		–		–			–			2
Corporate debt		–		1,320		–		–			–			1,320
RMBS		–		1,331		396		–			–			1,727
CMBS		–		1,424		812		–			–			2,236
CDO/ABS		–		3,969		8,536		–			–			12,505
Total bond trading securities		266		14,574		9,744		–			–			24,584
Equity securities available for sale:
Common stock		3,002		3		24		–			–			3,029
Preferred stock		–		34		44		–			–			78
Mutual funds		83		22		–		–			–			105
Total equity securities available for sale		3,085		59		68		–			–			3,212
Equity securities trading		578		84		–		–			–			662
Mortgage and other loans receivable		–		134		–		–			–			134
Other invested assets		125		1,542		5,389		–			–			7,056
Derivative assets:
Interest rate contracts		2		5,521		956		–			–			6,479
Foreign exchange contracts		–		104		–		–			–			104
Equity contracts		104		63		54		–			–			221
Commodity contracts		–		144		1		–			–			145
Credit contracts		–		–		60		–			–			60
Other contracts		–		–		38		–			–			38
Counterparty netting and cash collateral		–		–		–		(2,467	)		(909	)		(3,376	)
Total derivative assets		106		5,832		1,109		(2,467	)		(909	)		3,671
Short-term investments		285		7,771		–		–			–			8,056
Separate account assets		54,430		2,907		–		–			–			57,337
Other assets		–		696		–		–			–			696
Total	$	59,879	$	278,402	$	40,462	$	(2,467	)	$	(909	)	$	375,367
Liabilities:
Policyholder contract deposits	$	–	$	–	$	1,257	$	–		$	–		$	1,257
Derivative liabilities:
Interest rate contracts		–		5,582		224		–			–			5,806
Foreign exchange contracts		–		174		–		–			–			174
Equity contracts		–		114		7		–			–			121
Commodity contracts		–		146		–		–			–			146
Credit contracts		–		–		2,051		–			–			2,051
Other contracts		–		6		200		–			–			206
Counterparty netting and cash collateral		–		–		–		(2,467	)		(1,976	)		(4,443	)
Total derivative liabilities		–		6,022		2,482		(2,467	)		(1,976	)		4,061
Long-term debt		–		7,711		344		–			–			8,055
Other liabilities		30		1,050		–		–			–			1,080
Total	$	30	$	14,783	$	4,083	$	(2,467	)	$	(1,976	)	$	14,453

(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 Condensed Consolidated Balance Sheet, and collateral received, not reflected in the Condensed Consolidated Balance Sheet, was $1.7 billion and $163 million, respectively, at March 31, 2013 and $1.9 billion and $299 million, respectively, at December 31, 2012.

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
March 31, 2013
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	1,024		$	1		$	(5	)	$	136		$	–		$	(137	)	$	1,019		$	–
Non-U.S. governments		14			1			–			2			1			–			18			–
Corporate debt		1,487			(4	)		6			22			77			(139	)		1,449			–
RMBS		11,662			205			481			(262	)		10			–			12,096			–
CMBS		5,124			11			141			(75	)		154			(40	)		5,315			–
CDO/ABS		4,841			24			76			639			180			(183	)		5,577			–
Total bonds available for sale		24,152			238			699			462			422			(499	)		25,474			–
Bond trading securities:
RMBS		396			22			–			74			238			–			730			(17	)
CMBS		812			12			–			(99	)		159			(108	)		776			(25	)
CDO/ABS		8,536			284			–			(436	)		486			(28	)		8,842			82
Total bond trading securities		9,744			318			–			(461	)		883			(136	)		10,348			40
Equity securities available for sale:
Common stock		24			9			(1	)		(10	)		–			–			22			–
Preferred stock		44			–			5			–			–			–			49			–
Total equity securities available for sale		68			9			4			(10	)		–			–			71			–
Other invested assets		5,389			61			(13	)		(3	)		127			(94	)		5,467			–
Total	$	39,353		$	626		$	690		$	(12	)	$	1,432		$	(729	)	$	41,360		$	40
Liabilities:
Policyholder contract deposits	$	(1,257	)	$	205		$	–		$	5		$	–		$	–		$	(1,047	)	$	28
Derivative liabilities, net:
Interest rate contracts		732			11			–			13			–			–			756			(3	)
Equity contracts		47			28			–			(7	)		(2	)		–			66			(12	)
Commodity contracts		1			1			–			(1	)		–			–			1			–
Credit contracts		(1,991	)		175			–			41			–			–			(1,775	)		(214	)
Other contracts		(162	)		7			–			16			–			–			(139	)		13
Total derivative liabilities, net		(1,373	)		222			–			62			(2	)		–			(1,091	)		(216	)
Long-term debt(b)		(344	)		(80	)		–			19			(2	)		–			(407	)		8
Total	$	(2,974	)	$	347		$	–		$	86		$	(4	)	$	–		$	(2,545	)	$	(180	)

(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
March 31, 2012
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	960		$	1		$	16		$	100		$	–		$	(23	)	$	1,054		$	–
Non-U.S. governments		9			–			8			(2	)		–			–			15			–
Corporate debt		1,935			(16	)		76			(3	)		291			(960	)		1,323			–
RMBS		10,877			(70	)		793			1,326			348			(34	)		13,240			–
CMBS		3,955			(69	)		287			11			31			(42	)		4,173			–
CDO/ABS		4,220			14			177			70			438			(37	)		4,882			–
Total bonds available for sale		21,956			(140	)		1,357			1,502			1,108			(1,096	)		24,687			–
Bond trading securities:
Corporate debt		7			–			–			(2	)		–			–			5			–
RMBS		303			33			–			(19	)		–			(3	)		314			39
CMBS		554			33			–			(135	)		32			(51	)		433			85
CDO/ABS		8,432			1,621			–			(1,637	)		–			–			8,416			2,122
Total bond trading securities		9,296			1,687			–			(1,793	)		32			(54	)		9,168			2,246
Equity securities available for sale:
Common stock		57			14			(12	)		(14	)		5			–			50			–
Preferred stock		99			2			8			8			–			(11	)		106			–
Total equity securities available for sale		156			16			(4	)		(6	)		5			(11	)		156			–
Equity securities trading		1			–			–			–			–			–			1			–
Mortgage and other loans receivable		–			–			–			–			–			–			–			–
Other invested assets		6,618			(147	)		210			101			742			(338	)		7,186			(4	)
Total	$	38,027		$	1,416		$	1,563		$	(196	)	$	1,887		$	(1,499	)	$	41,198		$	2,242
Liabilities:
Policyholder contract deposits	$	(918	)	$	139		$	–		$	(3	)	$	–		$	–		$	(782	)	$	(144	)
Derivative liabilities, net:
Interest rate contracts		785			–			–			(7	)		–			–			778			(23	)
Foreign exchange contracts		2			–			–			(2	)		–			–			–			–
Equity contracts		28			12			–			2			(2	)		–			40			10
Commodity contracts		2			–			–			–			–			–			2			–
Credit contracts		(3,273	)		(143	)		–			711			–			–			(2,705	)		(525	)
Other contracts		33			(410	)		9			412			(81	)		–			(37	)		24
Total derivatives liabilities, net		(2,423	)		(541	)		9			1,116			(83	)		–			(1,922	)		(514	)
Long-term debt(b)		(508	)		(110	)		(77	)		114			–			6			(575	)		(104	)
Total	$	(3,849	)	$	(512	)	$	(68	)	$	1,227		$	(83	)	$	6		$	(3,279	)	$	(762	)

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

(b)  Includes guaranteed investment agreements (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
March 31, 2013
Bonds available for sale	$	210		$	7		$	21		$	238
Bond trading securities		33			–			285			318
Equity securities		–			9			–			9
Other invested assets		47			(7	)		21			61
Policyholder contract deposits		–			205			–			205
Derivative liabilities, net		–			22			200			222
Other long-term debt		–			–			(80	)		(80	)
March 31, 2012
Bonds available for sale	$	231		$	(375	)	$	4		$	(140	)
Bond trading securities		1,549			–			138			1,687
Equity securities		–			16			–			16
Other invested assets		(14	)		(132	)		(1	)		(147	)
Policyholder contract deposits		–			139			–			139
Derivative liabilities, net		(1	)		19			(559	)		(541	)
Other long-term debt		–			–			(110	)		(110	)

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

(in millions)	Purchases		Sales			Settlements			Purchases, Sales, Issues and Settlements, Net(a)
March 31, 2013
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	158	$	(22	)	$	–		$	136
Non-U.S. governments		3		–			(1	)		2
Corporate debt		97		–			(75	)		22
RMBS		603		(231	)		(634	)		(262	)
CMBS		373		(146	)		(302	)		(75	)
CDO/ABS		798		(159	)		–			639
Total bonds available for sale		2,032		(558	)		(1,012	)		462
Bond trading securities:
RMBS		105		–			(31	)		74
CMBS		19		(58	)		(60	)		(99	)
CDO/ABS		188		–			(624	)		(436	)
Total bond trading securities		312		(58	)		(715	)		(461	)
Equity securities		1		(10	)		(1	)		(10	)
Other invested assets		243		(30	)		(216	)		(3	)
Total assets	$	2,588	$	(656	)	$	(1,944	)	$	(12	)
Liabilities:
Policyholder contract deposits	$	–	$	(6	)	$	11		$	5
Derivative liabilities, net		3		(4	)		63			62
Other long-term debt(b)		–		–			19			19
Total liabilities	$	3	$	(10	)	$	93		$	86
March 31, 2012
Assets:
Bonds available for sale:
Obligations of states, municipalities and political subdivisions	$	108	$	(8	)	$	–		$	100
Non-U.S. governments		–		(2	)		–			(2	)
Corporate debt		61		(1	)		(63	)		(3	)
RMBS		1,912		(94	)		(492	)		1,326
CMBS		126		(64	)		(51	)		11
CDO/ABS		317		(4	)		(243	)		70
Total bonds available for sale		2,524		(173	)		(849	)		1,502
Bond trading securities:
Corporate debt		–		–			(2	)		(2	)
RMBS		–		–			(19	)		(19	)
CMBS		113		(57	)		(191	)		(135	)
CDO/ABS		–		(310	)		(1,327	)		(1,637	)
Total bond trading securities		113		(367	)		(1,539	)		(1,793	)
Equity securities		11		(14	)		(3	)		(6	)
Other invested assets		266		(4	)		(161	)		101
Total assets	$	2,914	$	(558	)	$	(2,552	)	$	(196	)
Liabilities:
Policyholder contract deposits	$	–	$	(6	)	$	3		$	(3	)
Derivative liabilities, net		2		–			1,114			1,116
Other long-term debt(b)		–		–			114			114
Total liabilities	$	2	$	(6	)	$	1,231		$	1,227

(a)  There were no issuances during the three month periods ended March 31, 2013 and 2012.

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

Significant unobservable inputs used for recurring fair value measurements

(in millions)	Fair Value at March 31, 2013		Valuation Technique	Unobservable Input(a)	Range (Weighted Average)(a)
Assets:
Corporate debt	$	796	Discounted cash flow	Yield(b)	2.81% – 9.59% (6.20%)
RMBS		11,241	Discounted cash flow	Constant prepayment rate(c)	0.00% – 10.34% (4.84%)
				Loss severity(c)	41.70% – 79.63% (60.66%)
				Constant default rate(c)	4.04% – 13.20% (8.62%)
				Yield(c)	2.18% – 7.66% (4.92%)
Certain CDO/ABS(d)		5,869	Discounted cash flow	Constant prepayment rate(c)	4.08% – 7.78% (5.93%)
				Loss severity(c)	56.61% – 67.23% (61.93%)
				Constant default rate(c)	6.42% – 14.10% (10.41%)
				Yield(c)	7.04% – 10.52% (8.78%)
Commercial mortgage backed securities		3,948	Discounted cash flow	Yield(b)	0.00% – 17.12% (6.92%)
CDO/ABS — Direct			Binomial Expansion	Recovery rate(b)	4% – 63% (27%)
Investment Book		997	Technique (BET)	Diversity score(b)	4 – 42 (14)
				Weighted average life(b)	1.28 – 9.76 years (4.99 years)
Liabilities:
Policyholder contract deposits — GMWB		1,047	Discounted cash flow	Equity implied volatility(b)	6.0% – 39.0%
				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		1,324	BET	Recovery rates(b)	4% – 36% (18%)
				Diversity score(b)	9 – 41 (13)
				Weighted average life(b)	5.05 – 9.72 years (5.93 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 CDO securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the tranches purchased by us because there are other factors relevant to the specific tranches owned by us 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 we believe would be used by market participants when valuing these assets and liabilities.

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

(d)     Yield was the only input available for $297 million of total fair value at March 31, 2013.

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

		March 31, 2013				December 31, 2012
(in millions)	Investment Category Includes	Fair Value Using Net Asset Value Per Share (or its equivalent)		Unfunded Commitments		Fair Value Using Net Asset Value Per Share (or its equivalent)		Unfunded Commitments
Investment Category
Private equity funds:
Leveraged buyout	Debt and/or equity investments made as part	$	2,487	$	646	$	2,529	$	669
	of a transaction in which assets of mature
	companies are acquired from the current
	shareholders, typically with the use of
	financial leverage
Real Estate /	Investments in real estate properties and		263		51		251		52
Infrastructure	infrastructure positions, including power plants
	and other energy generating facilities
Venture capital	Early-stage, high-potential, growth companies		150		16		157		16
	expected to generate a return through an
	eventual realization event, such as an initial
	public offering or sale of the company
Distressed	Securities of companies that are already in		185		39		184		36
	default, under bankruptcy protection, or
	troubled
Other	Includes multi-strategy and mezzanine		123		184		112		100
	strategies
Total private equity			3,208		936		3,233		873
funds
Hedge funds:
Event-driven	Securities of companies undergoing material		899		2		788		2
	structural changes, including mergers,
	acquisitions and other reorganizations
Long-short	Securities that the manager believes are		1,405		–		1,318		–
	undervalued, with corresponding short
	positions to hedge market risk
Macro	Investments that take long and short		470		–		320		–
	positions in financial instruments based on
	a top-down view of certain economic and
	capital market conditions
Distressed	Securities of companies that are already in		342		–		316		–
	default, under bankruptcy protection or
	troubled
Other	Includes multi-strategy and relative value		55		–		66		–
	strategies
Total hedge funds			3,171		2		2,808		2
Total		$	6,379	$	938	$	6,041	$	875

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

	Gain (Loss)
Three Months Ended March 31, (in millions)
	2013			2012
Assets:
Mortgage and other loans receivable	$	1		$	22
Bonds and equity securities		376			644
Trading — ML II interest		–			246
Trading — ML III interest		–			1,252
Retained interest in AIA		–			1,795
Alternative Investments(a)		84			2
Other, including Short-term investments		3			2
Liabilities:
Long-term debt(b)		9			(446	)
Other liabilities		(4	)		(48	)
Total gain (loss)(c)	$	469		$	3,469

(a)     Includes hedge funds, private equity funds, affordable housing partnerships and other investment partnerships.

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

(c)     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 losses of $1 million for the three months ended March 31, 2013, and gains of $0.6 billion for the three months ended March 31, 2012, that were primarily due to changes in the fair value of derivatives, trading securities and certain other invested assets.

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

	March 31, 2013						December 31, 2012
(in millions)	Fair Value		Outstanding Principal Amount		Difference		Fair Value		Outstanding Principal Amount		Difference
Assets:
Mortgage and other loans receivable	$	58	$	58	$	–	$	134	$	141	$	(7	)
Liabilities:
Long-term debt*	$	7,663	$	5,727	$	1,936	$	8,055	$	5,705	$	2,350

*         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								March 31,
(in millions)	Level 1		Level 2		Level 3		Total		2013		2012
March 31, 2013
Alternative investments	$	–	$	–	$	1,843	$	1,843	$	79	$	93
Other assets		–		8		7		15		13		8
Total	$	–	$	8	$	1,850	$	1,858	$	92	$	101
December 31, 2012
Alternative investments	$	–	$	–	$	2,062	$	2,062
Other assets		–		3		18		21
Total	$	–	$	3	$	2,080	$	2,083

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
March 31, 2013
Assets:
Mortgage and other loans receivable	$	–	$	572	$	20,147	$	20,719	$	19,430
Other invested assets		–		57		3,746		3,803		4,927
Short-term investments		–		16,924		–		16,924		16,924
Cash		1,227		–		–		1,227		1,227
Liabilities:
Policyholder contract deposits associated with investment-type contracts		–		233		122,844		123,077		105,680
Other liabilities		–		4,239		1,626		5,865		5,866
Long-term debt		–		40,991		1,957		42,948		37,603
December 31, 2012
Assets:
Mortgage and other loans receivable	$	–	$	823	$	19,396	$	20,219	$	19,348
Other invested assets		–		237		3,521		3,758		4,932
Short-term investments		–		20,752		–		20,752		20,752
Cash		1,151		–				1,151		1,151
Liabilities:
Policyholder contract deposits associated
with investment-type contracts		–		245		123,860		124,105		105,979
Other liabilities		–		3,981		818		4,799		4,800
Long-term debt		–		43,966		1,925		45,891		40,445