DERIVATIVES AND HEDGE ACCOUNTING (Tables)

9 Months Ended

Sep. 30, 2013

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	September 30, 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:
Interest rate contracts(b)	$	–	$	–	$	119	$	7	$	–	$	–	$	–	$	–
Foreign exchange contracts		468		6		1,054		78		–		–		–		–
Derivatives not designated as hedging instruments:
Interest rate contracts(b)		54,968		4,013		52,688		4,177		63,463		6,479		63,482		5,806
Foreign exchange contracts		934		35		5,427		197		8,325		104		10,168		174
Equity contracts(c)		6,131		257		29,533		491		4,990		221		25,626		1,377
Commodity contracts		17		1		13		4		625		145		622		146
Credit contracts		71		56		15,608		1,561		70		60		16,244		2,051
Other contracts(d)		27,518		33		1,293		189		20,449		38		1,488		206
Total derivatives not designated as hedging instruments		89,639		4,395		104,562		6,619		97,922		7,047		117,630		9,760
Total derivatives, gross	$	90,107	$	4,401	$	105,735	$	6,704	$	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 assets and fair value of derivative assets include $1.1 billion and $4 million, respectively, at September 30, 2013, related to bifurcated embedded derivatives. Notional amount of derivative liabilities and fair value of derivative liabilities include $27 billion and $0.4 billion, respectively, at September 30, 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 Sheets.

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

Fair values of derivative assets and liabilities in the Condensed Consolidated Balance Sheets

	September 30, 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	$	46,395	$	2,761		$	56,908	$	3,959		$	59,854	$	4,725		$	66,717	$	5,506
AIG Markets		12,420		981			15,367		1,543			14,028		1,308			18,774		1,818
Total Global Capital Markets derivatives		58,815		3,742			72,275		5,502			73,882		6,033			85,491		7,324
Non-Global Capital Markets derivatives(a)		31,292		659			33,460		1,202			24,040		1,014			32,139		2,436
Total derivatives, gross	$	90,107		4,401		$	105,735		6,704		$	97,922		7,047		$	117,630		9,760
Counterparty netting(b)				(1,863	)				(1,863	)				(2,467	)				(2,467	)
Cash collateral(c)				(811	)				(1,664	)				(909	)				(1,976	)
Total derivatives, net				1,727					3,177					3,671					5,317
Less: Bifurcated embedded derivatives				4					455					–					1,256
Total derivatives on consolidated balance sheet			$	1,723				$	2,722				$	3,671				$	4,061

(a)  Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance operations as well as embedded derivatives included in insurance contracts. Bifurcated embedded derivatives are recorded in Policyholder contract deposits in the Condensed Consolidated Balance Sheets.

(b)  Represents netting of derivative exposures covered by a qualifying ISDA Master 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 Statements of Income

	Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2013			2012		2013			2012
Interest rate contracts:(a)
Gain (loss) recognized in earnings on derivatives	$	2		$	–	$	2		$	(2	)
Gain recognized in earnings on hedged items(b)		17			19		70			99
Gain (loss) recognized in earnings for ineffective portion		–			–		–			–
Foreign exchange contracts:(a)
Gain (loss) recognized in earnings on derivatives		(21	)		–		(61	)		–
Gain (loss) recognized in earnings on hedged items		19			–		66			–
Gain (loss) recognized in earnings for amounts excluded from effectiveness testing		(2	)		–		5			–

(a)  Gains and losses recognized in earnings on derivatives are recorded in Net realized capital gains and Interest credited to policyholder account balances. Gains and losses recognized in earnings on hedged items are recorded in Net realized capital gains, Interest credited to policyholder account balances, and Other income. Gains and losses recognized in earnings from the ineffective portion and amounts excluded from effectiveness testing, if any, are recorded in Net realized capital gains.

(b)  Includes $19 million and $18 million for the three-month periods ended September 30, 2013 and 2012, respectively, and $72 million and $97 million, for the nine-month periods ended September 30, 2013 and 2012, respectively, representing the amortization of debt basis adjustment following the discontinuation of hedge accounting.

Effect of AIG's derivative instruments not designated as hedging instruments in the Condensed Consolidated Statements of Income

	Gains (Losses) Recognized in Earnings
	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2013			2012			2013			2012
By Derivative Type:
Interest rate contracts(a)	$	35		$	(220	)	$	(250	)	$	(208	)
Foreign exchange contracts		(83	)		(93	)		64			(3	)
Equity contracts(b)		158			(206	)		670			(601	)
Commodity contracts		(1	)		2			(3	)		–
Credit contracts		52			200			365			414
Other contracts		14			(4	)		74			(56	)
Total	$	175		$	(321	)	$	920		$	(454	)
By Classification:
Policy fees	$	56		$	42		$	149		$	115
Net investment income		(7	)		–			22			1
Net realized capital gains (losses)		200			(183	)		200			(843	)
Other income (losses)		(71	)		(180	)		560			273
Policyholder benefits and claims incurred		(3	)		–			(11	)		–
Total	$	175		$	(321	)	$	920		$	(454	)

(a)  Includes cross currency swaps.

(b)  Includes embedded derivative gains of $266 million and $1.0 billion for the three- and nine-month periods ended September 30, 2013, respectively, and embedded derivative losses of $75 million and $268 million for the three- and nine-month periods ended September 30, 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)				Unrealized Market Valuation Gain(c)
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2013		2012		2013		2012		2013		2012		2013		2012
Regulatory Capital:
Prime residential mortgages	$	2	$	97	$	–	$	–	$	–	$	–	$	–	$	–
Other		–		–		–		–		–		6		–		9
Total		2		97		–		–		–		6		–		9
Arbitrage:
Multi-sector CDOs(d)		3,399		3,944		1,460		1,910		49		142		330		336
Corporate debt/CLOs(e)		11,836		11,832		34		60		5		42		26		53
Total		15,235		15,776		1,494		1,970		54		184		356		389
Mezzanine tranches		–		–		–		–		–		14		–		3
Total	$	15,237	$	15,873	$	1,494	$	1,970	$	54	$	204	$	356	$	401

(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 September 30, 2013 was due to amortization of $745 million and terminations and maturities of $67 million, partially offset by foreign exchange rate movement of $176 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 $12 million for the three-month periods ended September 30, 2013 and 2012, respectively, and losses of $3 million and $36 million for the nine-month periods ended September 30, 2013 and 2012, respectively, representing the effect of changes in our credit spreads on the valuation of the derivatives liabilities.

(d)  During the nine-month period ended September 30, 2013, we paid $120 million to counterparties with respect to multi-sector CDOs, which was previously included in the fair value of the derivative liability as an unrealized market valuation loss. Multi-sector CDOs also include $3.0 billion and $3.4 billion in net notional amount of credit default swaps written with cash settlement provisions at September 30, 2013 and December 31, 2012, respectively. Collateral postings with regards to multi-sector CDOs were $1.2 billion and $1.6 billion at September 30, 2013 and December 31, 2012, respectively.

(e)  Corporate debt/Collateralized Loan Obligations (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 September 30, 2013 and December 31, 2012, respectively. Collateral postings with regards to corporate debt/CLOs were $394 million and $420 million at September 30, 2013 and December 31, 2012, respectively.