INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2013

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, 2013
Bonds available for sale:
U.S. government and government sponsored entities	$	3,278	$	190	$	(33	)	$	3,435	$	–
Obligations of states, municipalities and political subdivisions		29,967		1,319		(405	)		30,881		2
Non-U.S. governments		22,580		793		(339	)		23,034		–
Corporate debt		138,286		8,644		(2,762	)		144,168		78
Mortgage-backed, asset-backed and collateralized:
RMBS		33,833		3,094		(451	)		36,476		1,554
CMBS		11,203		605		(296	)		11,512		89
CDO/ABS		9,915		648		(168	)		10,395		62
Total mortgage-backed, asset-backed and collateralized		54,951		4,347		(915	)		58,383		1,705
Total bonds available for sale(b)		249,062		15,293		(4,454	)		259,901		1,785
Equity securities available for sale:
Common stock		1,284		1,748		(14	)		3,018		–
Preferred stock		53		25		(1	)		77		–
Mutual funds		289		4		(10	)		283		–
Total equity securities available for sale		1,626		1,777		(25	)		3,378		–
Total	$	250,688	$	17,070	$	(4,479	)	$	263,279	$	1,785
December 31, 2012
Bonds available for sale:
U.S. government and government sponsored entities	$	3,161	$	323	$	(1	)	$	3,483	$	–
Obligations of states, municipalities and political subdivisions		33,042		2,685		(22	)		35,705		2
Non-U.S. governments		25,449		1,395		(44	)		26,800		–
Corporate debt		135,728		15,848		(464	)		151,112		115
Mortgage-backed, asset-backed and collateralized:
RMBS		31,330		3,379		(317	)		34,392		1,330
CMBS		9,449		770		(304	)		9,915		(79	)
CDO/ABS		7,990		806		(244	)		8,552		82
Total mortgage-backed, asset-backed and collateralized		48,769		4,955		(865	)		52,859		1,333
Total bonds available for sale(b)		246,149		25,206		(1,396	)		269,959		1,450
Equity securities available for sale:
Common stock		1,492		1,574		(37	)		3,029		–
Preferred stock		55		23		–			78		–
Mutual funds		93		12		–			105		–
Total equity securities available for sale		1,640		1,609		(37	)		3,212		–
Total	$	247,789	$	26,815	$	(1,433	)	$	273,171	$	1,450

(a)  Represents the amount of other-than-temporary impairments 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, 2013 and December 31, 2012, bonds available for sale held by us that were below investment grade or not rated totaled $31.1 billion and $29.6 billion, respectively.

The fair value and gross unrealized losses on AIG's available for sale securities in a loss position, 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, 2013
Bonds available for sale:
U.S. government and government sponsored entities	$	825	$	29	$	32	$	4	$	857	$	33
Obligations of states, municipalities and political subdivisions		5,512		352		273		53		5,785		405
Non-U.S. governments		5,156		291		253		48		5,409		339
Corporate debt		38,230		2,417		2,890		345		41,120		2,762
RMBS		7,617		318		1,001		133		8,618		451
CMBS		2,685		190		994		106		3,679		296
CDO/ABS		3,204		62		963		106		4,167		168
Total bonds available for sale		63,229		3,659		6,406		795		69,635		4,454
Equity securities available for sale:
Common stock		113		13		2		1		115		14
Preferred stock		5		1		–		–		5		1
Mutual funds		157		10		–		–		157		10
Total equity securities available for sale		275		24		2		1		277		25
Total	$	63,504	$	3,683	$	6,408	$	796	$	69,912	$	4,479
December 31, 2012
Bonds available for sale:
U.S. government and government sponsored entities	$	153	$	1	$	–	$	–	$	153	$	1
Obligations of states, municipalities and political subdivisions		692		11		114		11		806		22
Non-U.S. governments		1,555		19		442		25		1,997		44
Corporate debt		8,483		201		3,229		263		11,712		464
RMBS		597		28		1,661		289		2,258		317
CMBS		404		8		1,481		296		1,885		304
CDO/ABS		393		3		1,624		241		2,017		244
Total bonds available for sale		12,277		271		8,551		1,125		20,828		1,396
Equity securities available for sale:
Common stock		247		36		18		1		265		37
Mutual funds		3		–		–		–		3		–
Total equity securities available for sale		250		36		18		1		268		37
Total	$	12,527	$	307	$	8,569	$	1,126	$	21,096	$	1,433

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

	Total Fixed Maturity Securities Available for Sale				Fixed Maturity Securities in a Loss Position Available for Sale
September 30, 2013 (in millions)
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	9,884	$	10,097	$	680	$	670
Due after one year through five years		51,912		54,768		7,975		7,816
Due after five years through ten years		69,813		72,610		20,182		19,212
Due after ten years		62,502		64,043		27,873		25,473
Mortgage-backed, asset-backed and collateralized		54,951		58,383		17,379		16,464
Total	$	249,062	$	259,901	$	74,089	$	69,635

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,
	2013				2012				2013				2012
(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	$	516	$	26	$	943	$	82	$	2,216	$	153	$	2,308	$	121
Equity securities		18		6		38		22		101		15		503		26
Total	$	534	$	32	$	981	$	104	$	2,317	$	168	$	2,811	$	147

The fair value of AIG's trading securities

	September 30, 2013					December 31, 2012
(in millions)	Fair Value		Percent of Total			Fair Value		Percent of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	5,867		25	%	$	6,794		27	%
Obligations of states, territories and political subdivisions		181		1			–		–
Non-U.S. governments		2		–			2		–
Corporate debt		1,147		5			1,320		5
Mortgage-backed, asset-backed and collateralized:
RMBS		2,178		9			1,727		7
CMBS		1,454		6			2,227		9
CDO/ABS and other collateralized(a)		12,048		51			12,506		50
Total mortgage-backed, asset-backed and collateralized		15,680		66			16,460		66
Other		7		–			8		–
Total fixed maturity securities		22,884		97			24,584		98
Equity securities		807		3			662		2
Total(b)	$	23,691		100	%	$	25,246		100	%

(a)  Includes $1.0 billion of U.S. Government agency backed ABS.

(b)  Securities presented herein are measured at fair value based on our election of the fair value option.

Components of net investment income

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2013			2012			2013		2012
Fixed maturity securities, including short-term investments	$	3,005		$	3,263		$	8,969	$	9,547
Change in fair value of ML II		–			–			–		246
Change in fair value of ML III		–			330			–		2,888
Change in fair value of AIA securities including realized gain		–			527			–		1,829
Equity securities		98			53			123		85
Interest on mortgage and other loans		292			270			862		799
Alternative investments*		288			340			1,892		1,194
Real estate		32			35			99		93
Other investments		(22	)		(11	)		59		(9	)
Total investment income		3,693			4,807			12,004		16,672
Investment expenses		120			157			423		436
Net investment income	$	3,573		$	4,650		$	11,581	$	16,236

*     Includes hedge funds, private equity funds, affordable housing partnerships and other investment partnerships.

Components of net realized capital gains (losses)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2013			2012			2013			2012
Sales of fixed maturity securities	$	490		$	861		$	2,063		$	2,187
Sales of equity securities		12			16			86			477
Other-than-temporary impairments:
Severity		–			(1	)		(5	)		(15	)
Change in intent		(1	)		(5	)		(4	)		(27	)
Foreign currency declines		–			(1	)		–			(7	)
Issuer-specific credit events		(55	)		(107	)		(200	)		(895	)
Adverse projected cash flows		–			–			(7	)		(4	)
Provision for loan losses		(33	)		51			(38	)		77
Foreign exchange transactions		(276	)		(54	)		135			(101	)
Derivative instruments		192			(203	)		209			(862	)
Other		(77	)		89			(96	)		(36	)
Net realized capital gains	$	252		$	646		$	2,143		$	794

Schedule of increase (decrease) in unrealized appreciation of available for sale securities

	Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2013			2012		2013			2012
Increase (decrease) in unrealized appreciation of investments:
Fixed maturities	$	(1,696	)	$	5,000	$	(12,971	)	$	10,013
Equity securities		189			131		180			(459	)
Other investments		50			24		57			392
Total Increase (decrease) in unrealized appreciation of investments	$	(1,457	)	$	5,155	$	(12,734	)	$	9,946

Credit impairments recognized in earnings for available for sale fixed maturity securities

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2013			2012			2013			2012
Balance, beginning of period	$	4,236		$	6,090		$	5,164		$	6,504
Increases due to:
Credit impairments on new securities subject to impairment losses		6			–			33			172
Additional credit impairments on previously impaired securities		29			45			59			421
Reductions due to:
Credit impaired securities fully disposed for which there was no prior intent or requirement to sell		(68	)		(297	)		(626	)		(815	)
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*		(184	)		(215	)		(611	)		(668	)
Other		–			(3	)		–			6
Balance, end of period	$	4,019		$	5,615		$	4,019		$	5,615

*     Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and 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)	$	23,784
Cash flows expected to be collected*		18,763
Recorded investment in acquired securities		12,268

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

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

(in millions)	September 30, 2013		December 31, 2012
Outstanding principal balance	$	14,104	$	11,791
Amortized cost		9,609		7,718
Fair value		10,685		8,823

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2013			2012			2013			2012
Balance, beginning of period	$	5,901		$	4,950		$	4,766		$	4,135
Newly purchased PCI securities		202			114			1,308			1,532
Disposals		–			(130	)		(60	)		(298	)
Accretion		(187	)		(165	)		(517	)		(510	)
Effect of changes in interest rate indices		282			(39	)		388			(200	)
Net reclassification from non-accretable difference, including effects of prepayments		405			53			718			124
Balance, end of period	$	6,603		$	4,783		$	6,603		$	4,783

Schedule of fair value of securities pledged to counterparties under secured financing transactions

(in millions)	September 30, 2013		December 31, 2012
Securities available for sale	$	4,064	$	8,180
Trading securities		2,881		2,985

Schedule of fair value of securities pledged to the entity under reverse repurchase agreements

(in millions)	September 30, 2013		December 31, 2012
Securities collateral pledged to us	$	10,222	$	11,039
Amount repledged by us		60		33