DERIVATIVES AND HEDGE ACCOUNTING (Tables)

12 Months Ended

Dec. 31, 2013

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	December 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:
Interest rate contracts(b)	$	–	$	–	$	112	$	15	$	–	$	–	$	–	$	–
Foreign exchange contracts		–		–		1,857		190		–		–		–		–
Derivatives not designated as hedging instruments:
Interest rate contracts(b)		50,897		3,771		59,585		3,849		63,463		6,479		63,482		5,806
Foreign exchange contracts		1,774		52		3,789		129		8,325		104		10,168		174
Equity contracts(c)		29,296		413		9,840		524		4,990		221		25,626		1,377
Commodity contracts		17		1		13		5		625		145		622		146
Credit contracts		70		55		15,459		1,335		70		60		16,244		2,051
Other contracts(d)		32,440		34		1,408		167		20,449		38		1,488		206
Total derivatives not designated as hedging instruments		114,494		4,326		90,094		6,009		97,922		7,047		117,630		9,760
Total derivatives, gross	$	114,494	$	4,326	$	92,063	$	6,214	$	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 $23.2 billion and $107 million, respectively, at December 31, 2013 related to bifurcated embedded derivatives. There were no bifurcated embedded derivative assets at December 31, 2012. Notional amount of derivative liabilities and fair values of derivative liabilities include $6.7 billion and $424 million, respectively, at December 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 Consolidated Balance Sheets.

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

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

	December 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	$	41,942	$	2,567		$	52,679	$	3,506		$	59,854	$	4,725		$	66,717	$	5,506
AIG Markets		12,531		964			23,716		1,506			14,028		1,308			18,774		1,818
Total Global Capital Markets derivatives		54,473		3,531			76,395		5,012			73,882		6,033			85,491		7,324
Non-Global Capital Markets derivatives(a)		60,021		795			15,668		1,202			24,040		1,014			32,139		2,436
Total derivatives, gross	$	114,494		4,326		$	92,063		6,214		$	97,922		7,047		$	117,630		9,760
Counterparty netting(b)				(1,734	)				(1,734	)				(2,467	)				(2,467	)
Cash collateral(c)				(820	)				(1,484	)				(909	)				(1,976	)
Total derivatives, net				1,772					2,996					3,671					5,317
Less: Bifurcated embedded derivatives				107					485					–					1,256
Total derivatives on consolidated balance sheet			$	1,665				$	2,511				$	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. Assets and 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 Consolidated Statements of Income

Years ended December 31, (in millions)	2013			2012			2011
Interest rate contracts:
Gain (loss) recognized in earnings on derivatives(a)	$	(5	)	$	–		$	(4	)
Gain recognized in earnings on hedged items(b)		102			124			153
Gain (loss) recognized in earnings for ineffective portion(c)		–			–			(1	)
Foreign exchange contracts:(c)
Loss recognized in earnings on derivatives		(187	)		(2	)		(1	)
Gain recognized in earnings on hedged items		204			2			1
Gain (loss) recognized in earnings for amounts excluded from effectiveness testing		17			–			–

(a)  Includes $1 million gain recorded in Interest credited to policyholder account balances and $6 million loss recorded in Net realized capital gains (losses).

(b)  Includes gains of $99 million, $124 million and $149 million for the years ended December 31, 2013, 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. Includes a $2 million loss, for the year ended December 31, 2013, recorded in Interest credited to policyholder account balances, representing the accretion on GIC contracts that had a fair value different than par at inception of the hedge relationship.

(c)  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).

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

Years Ended December 31, (in millions)	2013		2012			2011
Interest rate contracts(a):
Loss recognized in Other comprehensive income on derivatives	$	–	$	(2	)	$	(5	)
Gain (loss) reclassified from Accumulated other comprehensive income into earnings(b)		–		(35	)		55

(a)  Hedge accounting was discontinued in December 2012 in connection with ILFC being classified as held-for-sale. Gains and losses recognized in earnings are recorded in Income from continuing 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 Statements of Income

	Gains (Losses) Recognized in Earnings
Years Ended December 31, (in millions)
	2013			2012			2011
By Derivative Type:
Interest rate contracts(a)	$	(331	)	$	(241	)	$	601
Foreign exchange contracts		41			96			137
Equity contracts(b)		676			(641	)		(263	)
Commodity contracts		(4	)		(1	)		4
Credit contracts		567			641			337
Other contracts		85			6			47
Total	$	1,034		$	(140	)	$	863
By Classification:
Policy fees	$	207		$	160		$	113
Net investment income		28			5			8
Net realized capital gains (losses)		62			(672	)		246
Other income		750			367			496
Policyholder benefits and claims incurred		(13	)		–			–
Total	$	1,034		$	(140	)	$	863

(a)  Includes cross currency swaps.

(b)  Includes embedded derivative gains (losses) of $1.2 billion, $(166) million and $(397) million for the years ended December 31, 2013, 2012 and 2011, 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 for the years ended(c)
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
(in millions)	2013		2012		2013		2012		2013		2012
Regulatory Capital:
Prime residential mortgages	$	–	$	97	$	–	$	–	$	–	$	–
Other		–		–		–		–		–		9
Total		–		97		–		–		–		9
Arbitrage:
Multi-sector CDOs(d)		3,257		3,944		1,249		1,910		518		538
Corporate debt/CLOs(e)		11,832		11,832		28		60		32		67
Total		15,089		15,776		1,277		1,970		550		605
Mezzanine tranches		–		–		–		–		–		3
Total	$	15,089	$	15,873	$	1,277	$	1,970	$	550	$	617

(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 December 31, 2013 was due to amortization of $1.0 billion and terminations and maturities of $69 million, partially offset by increases due to foreign exchange rate movement of $313 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 $5 million and $39 million for the years ended December 31, 2013 and 2012, respectively, representing the effect of changes in our credit spreads on the valuation of the derivatives liabilities.

(d)  During 2013, we paid $143 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 $2.8 billion and $3.4 billion in net notional amount of credit default swaps written with cash settlement provisions at December 31, 2013 and December 31, 2012, respectively. Collateral postings with regards to multi-sector CDOs were $1.1 billion and $1.6 billion at December 31, 2013 and December 31, 2012, respectively.

(e)  Corporate debt/Collateralized Loan Obligations (CLOs) include $1.0 billion and $1.2 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at December 31, 2013 and 2012, respectively. Collateral postings with regards to corporate debt/CLOs were $353 million and $420 million at December 31, 2013 and December 31, 2012, respectively.