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DERIVATIVES AND HEDGE ACCOUNTING (Tables)
 9 Months Ended
Sep. 30, 2020
DERIVATIVES AND HEDGE ACCOUNTING  
Notional amounts and fair values of derivative instruments

 

September 30, 2020

 

December 31, 2019

 

Gross Derivative Assets

 

Gross Derivative Liabilities

 

Gross Derivative Assets

 

Gross Derivative Liabilities

 

 

Notional

 

Fair

 

 

Notional

 

Fair

 

 

Notional

 

Fair

 

 

Notional

 

Fair

(in millions)

 

Amount

 

Value

 

 

Amount

 

Value

 

 

Amount

 

Value

 

 

Amount

 

Value

Derivatives designated as

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

hedging instruments:(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

690

$

19

 

$

299

$

13

 

$

495

$

3

 

$

410

$

7

Foreign exchange contracts

 

6,146

 

494

 

 

3,910

 

159

 

 

4,328

 

342

 

 

5,230

 

162

Derivatives not designated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as hedging instruments:(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

66,938

 

5,035

 

 

39,057

 

4,546

 

 

52,437

 

3,197

 

 

35,231

 

2,742

Foreign exchange contracts

 

15,771

 

1,094

 

 

6,345

 

460

 

 

8,133

 

698

 

 

12,093

 

863

Equity contracts

 

21,461

 

957

 

 

4,268

 

101

 

 

18,533

 

769

 

 

7,539

 

139

Credit contracts(b)

 

2,797

 

1

 

 

970

 

69

 

 

8,457

 

3

 

 

923

 

89

Other contracts(c)

 

43,069

 

13

 

 

55

 

7

 

 

40,582

 

14

 

 

56

 

7

Total derivatives, gross

$

156,872

$

7,613

 

$

54,904

$

5,355

 

$

132,965

$

5,026

 

$

61,482

$

4,009

Counterparty netting(d)

 

 

 

(3,695)

 

 

 

 

(3,695)

 

 

 

 

(2,427)

 

 

 

 

(2,427)

Cash collateral(e)

 

 

 

(3,129)

 

 

 

 

(1,060)

 

 

 

 

(1,806)

 

 

 

 

(527)

Total derivatives on condensed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated balance sheets(f)

 

 

$

789

 

 

 

$

600

 

 

 

$

793

 

 

 

$

1,055

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

(b) As of September 30, 2020 and December 31, 2019, included CDSs on super senior multi-sector CDOs with a net notional amount of $137 million and $152 million (fair value liability of $45 million and $48 million), respectively. The net notional amount represents the maximum exposure to loss on the portfolio.

(c) Consists primarily of stable value wraps and contracts with multiple underlying exposures.

(d) Represents netting of derivative exposures covered by a qualifying master netting agreement.

(e) Represents cash collateral posted and received that is eligible for netting.

(f) Freestanding derivatives only, excludes embedded derivatives. Derivative instrument assets and liabilities are recorded in Other assets and Other liabilities, respectively. Fair value of assets related to bifurcated embedded derivatives was zero at both September 30, 2020 and December 31, 2019. Fair value of liabilities related to bifurcated embedded derivatives was $14.5 billion and $6.9 billion, respectively, at September 30, 2020 and December 31, 2019. A bifurcated embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in variable annuity products, which include equity and interest rate components, and the funds withheld arrangement with Fortitude Re. For additional information see Note 7 to the Condensed Consolidated Financial Statements..
Gain (loss) recognized in earnings on AIG's derivative instruments in fair value hedging relationships in the Consolidated Statements of Income

 

Gains/(Losses) Recognized in Earnings for:

 

 

 

 

Hedging

Excluded

Hedged

 

 

 

(in millions)

Derivatives(a)

Components(b)

Items

 

Net Impact

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Interest credited to policyholder account balances

$

(2)

$

-

$

5

 

$

3

Net investment income

 

1

 

-

 

-

 

 

1

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

(250)

 

(50)

 

250

 

 

(50)

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Interest credited to policyholder account balances

$

4

$

-

$

(4)

 

$

-

Net investment income

 

-

 

-

 

-

 

 

-

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

228

 

41

 

(228)

 

 

41

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Interest credited to policyholder account balances

$

16

$

-

$

(15)

 

$

1

Net investment income

 

(6)

 

-

 

6

 

 

-

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

(77)

 

155

 

77

 

 

155

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Interest credited to policyholder account balances

$

18

$

-

$

(18)

 

$

-

Net investment income

 

(1)

 

-

 

1

 

 

-

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

278

 

84

 

(278)

 

 

84

(a) Gains and losses on derivative instruments designated and qualifying in fair value hedges that are included in the assessment of hedge effectiveness.

(b) Gains and losses on derivative instruments designated and qualifying in fair value hedges that are excluded from the assessment of hedge effectiveness and recognized in earnings on a mark-to-market basis.
Effect of AIG's derivative instruments not designated as hedging instruments in the Consolidated Statements of Income

 

Gains (Losses) Recognized in Earnings

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

(in millions)

 

2020

 

2019

 

 

2020

 

2019

By Derivative Type:

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

(462)

$

1,078

 

$

2,104

$

2,052

Foreign exchange contracts

 

(535)

 

342

 

 

366

 

545

Equity contracts

 

(46)

 

96

 

 

586

 

(23)

Credit contracts

 

(1)

 

26

 

 

55

 

35

Other contracts

 

18

 

14

 

 

44

 

48

Embedded derivatives

 

(507)

 

(756)

 

 

(3,333)

 

(2,037)

Total

$

(1,533)

$

800

 

$

(178)

$

620

By Classification:

 

 

 

 

 

 

 

 

 

Policy fees

$

16

$

16

 

$

46

$

51

Net investment income

 

4

 

(3)

 

 

1

 

(58)

Net realized capital gains (losses) - excluding

 

 

 

 

 

 

 

 

 

Fortitude Re funds withheld assets

 

(775)

 

780

 

 

1,398

 

611

Net realized capital gains (losses) on Fortitude Re

 

 

 

 

 

 

 

 

 

funds withheld assets

 

(776)

 

-

 

 

(1,639)

 

-

Policyholder benefits and claims incurred

 

(2)

 

7

 

 

16

 

16

Total

$

(1,533)

$

800

 

$

(178)

$

620