DERIVATIVES AND HEDGE ACCOUNTING (Tables)

3 Months Ended

Mar. 31, 2013

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	March 31, 2013								December 31, 2012
	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:
Foreign exchange contracts	$	344	$	5	$	298	$	25	$	–	$	–	$	–	$	–
Derivatives not designated as hedging instruments:
Interest rate contracts(b)		63,239		5,835		58,739		5,395		63,463		6,479		63,482		5,806
Foreign exchange contracts		3,275		76		2,825		103		8,325		104		10,168		174
Equity contracts(c)		5,596		252		24,714		1,160		4,990		221		25,626		1,377
Commodity contracts		620		147		615		148		625		145		622		146
Credit contracts		70		59		15,763		1,834		70		60		16,244		2,051
Other contracts(d)		20,796		38		1,385		183		20,449		38		1,488		206
Total derivatives not designated as hedging instruments		93,596		6,407		104,041		8,823		97,922		7,047		117,630		9,760
Total derivatives, gross	$	93,940	$	6,412	$	104,339	$	8,848	$	97,922	$	7,047	$	117,630	$	9,760

(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 $22 billion and $1 billion, respectively, at March 31, 2013, and $23 billion and $1.3 billion, respectively, at December 31, 2012, related to bifurcated embedded derivatives. A bifurcated embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheet.

(d)  Consists primarily of contracts with multiple underlying exposures.

Fair values of derivative assets and liabilities on the Condensed Consolidated Balance Sheet

	March 31, 2013										December 31, 2012
	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	$	61,763	$	4,445		$	60,355	$	4,966		$	59,854	$	4,725		$	66,717	$	5,506
AIG Markets		6,893		1,083			13,621		1,783			14,028		1,308			18,774		1,818
Total Global Capital Markets derivatives		68,656		5,528			73,976		6,749			73,882		6,033			85,491		7,324
Non-Global Capital Markets derivatives(a)		25,284		884			30,363		2,099			24,040		1,014			32,139		2,436
Total derivatives, gross	$	93,940		6,412		$	104,339		8,848		$	97,922		7,047		$	117,630		9,760
Counterparty netting(b)				(2,234	)				(2,234	)				(2,467	)				(2,467	)
Cash collateral(c)				(888	)				(1,855	)				(909	)				(1,976	)
Total derivatives, net				3,290					4,759					3,671					5,317
Less: Bifurcated embedded derivatives				–					1,048					–					1,256
Total derivatives on consolidated balance sheet			$	3,290				$	3,711				$	3,671				$	4,061

(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.

Gain (loss) recognized in earnings on AIG's derivative instruments in fair value hedging relationships in the Condensed Consolidated Statement of Income

Three Months Ended March 31, (in millions)	2013			2012
Interest rate contracts:(a)
Hedged items(b)	$	30		$	30
Foreign exchange contracts:(a)
Derivatives		(5	)		(2	)
Hedged items		4			2
Amount excluded from effectiveness testing		(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)  Represents 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 not designated as hedging instruments in the Condensed Consolidated Statement of Income

	Gains (Losses) Recognized in Earnings
Three Months Ended March 31, (in millions)
	2013			2012
By Derivative Type:
Interest rate contracts(a)	$	(216	)	$	(586	)
Foreign exchange contracts		155			69
Equity contracts(b)		44			(188	)
Commodity contracts		–			(1	)
Credit contracts		175			151
Other contracts		44			30
Total	$	202		$	(525	)
By Classification:
Policy fees	$	45		$	36
Net investment income		24			1
Net realized capital gains (losses)		(276	)		(290	)
Other income (losses)		412			(272	)
Policyholder benefits and claims incurred		(3	)		–
Total	$	202		$	(525	)

(a)  Includes cross currency swaps.

(b)  Includes embedded derivative gains of $256 million and $175 million for the three month periods ended March 31, 2013 and 2012, respectively.

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

	Net Notional Amount at(a)				Fair Value of Derivative Liability at(b)(c)				Unrealized Market Valuation Gain(c)
									Three Months Ended March 31,
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
(in millions)									2013		2012
Regulatory Capital:
Prime residential mortgages	$	23	$	97	$	–	$	–	$	–	$	–
Other		–		–		–		–		–		6
Total		23		97		–		–		–		6
Arbitrage:
Multi-sector CDOs(d)		3,743		3,944		1,715		1,910		155		126
Corporate debt/CLOs(e)		11,631		11,832		44		60		16		17
Total		15,374		15,776		1,759		1,970		171		143
Mezzanine tranches		–		–		–		–		–		(9	)
Total	$	15,397	$	15,873	$	1,759	$	1,970	$	171	$	140

(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, 2012 to March 31, 2013 was due primarily to foreign exchange rate gains of $222 million, amortization of $190 million and terminations of $59 million.

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

(c)     Includes credit valuation adjustment losses of $2 million and $26 million for the three-month periods ended March 31, 2013 and 2012, respectively, representing the effect of changes in AIG's credit spreads on the valuation of the derivatives liabilities.

(d)     During the three-month period ended March 31, 2013, we paid $40 million to counterparties with respect to multi-sector CDOs. Upon payment, a $40 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 $3.3 billion and $3.4 billion in net notional amount of credit default swaps written with cash settlement provisions at March 31, 2013 and December 31, 2012, respectively. Collateral postings with regards to multi-sector CDOs were $1.4 billion and $1.6 billion at March 31, 2013 and December 31, 2012, respectively.

(e)     Corporate debt/CLOs include $1.1 billion and $1.2 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at March 31, 2013 and December 31, 2012, respectively. Collateral postings with regards to corporate debt/CLOs were $398 million and $420 million at March 31, 2013 and December 31, 2012, respectively.