DERIVATIVES AND HEDGE ACCOUNTING (Tables)

3 Months Ended

Mar. 31, 2014

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	March 31, 2014								December 31, 2013
	Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities
		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
(in millions)		Amount		Value(a)		Amount		Value(a)		Amount		Value(a)		Amount		Value(a)
Derivatives designated as
hedging instruments:
Interest rate contracts(b)	$	-	$	-	$	114	$	13	$	-	$	-	$	112	$	15
Foreign exchange contracts		210		2		1,752		153		-		-		1,857		190
Equity contracts(c)		80		4		25		-		-		-		-		-
Derivatives not designated
as hedging instruments:
Interest rate contracts(b)		54,735		3,797		58,374		4,399		50,897		3,771		59,585		3,849
Foreign exchange contracts		2,091		35		3,840		101		1,774		52		3,789		129
Equity contracts(c)		4,106		203		32,531		875		29,296		413		9,840		524
Commodity contracts		17		1		13		4		17		1		13		5
Credit contracts		60		41		15,252		1,226		70		55		15,459		1,335
Other contracts(d)		33,396		36		1,325		171		32,440		34		1,408		167
Total derivatives not
designated as hedging
instruments		94,405		4,113		111,335		6,776		114,494		4,326		90,094		6,009
Total derivatives, gross	$	94,695	$	4,119	$	113,226	$	6,942	$	114,494	$	4,326	$	92,063	$	6,214

(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 were both zero at March 31,2014 and were $23.2 billion and $107 million at December 31,2013, respectively, related to bifurcated embedded derivatives. Notional amount of derivative liabilities and fair value of derivative liabilities include $32 billion and $782 million, respectively, at March 31,2014, and $6.7 billion and $424 million, respectively, at December 31,2013, 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

	March 31, 2014								December 31, 2013
	Derivative Assets				Derivative Liabilities				Derivative Assets				Derivative Liabilities
		Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
(in millions)		Amount		Value		Amount		Value		Amount		Value		Amount		Value
Global Capital Markets derivatives:
AIG Financial Products	$	41,629	$	2,470	$	52,643	$	3,850	$	41,942	$	2,567	$	52,679	$	3,506
AIG Markets		14,986		1,016		19,263		1,499		12,531		964		23,716		1,506
Total Global Capital Markets derivatives		56,615		3,486		71,906		5,349		54,473		3,531		76,395		5,012
Non-Global Capital Markets derivatives(a)		38,080		633		41,320		1,593		60,021		795		15,668		1,202
Total derivatives, gross	$	94,695		4,119	$	113,226		6,942	$	114,494		4,326	$	92,063		6,214
Counterparty netting(b)				(1,680)				(1,680)				(1,734)				(1,734)
Cash collateral(c)				(838)				(1,375)				(820)				(1,484)
Total derivatives, net				1,601				3,887				1,772				2,996
Less: Bifurcated embedded derivatives				-				848				107				485
Total derivatives on consolidated
balance sheet			$	1,601			$	3,039			$	1,665			$	2,511

(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

Three Months Ended March 31,
(in millions)		2014		2013
Interest rate contracts:
Gain recognized in earnings on derivatives(b)	$	2	$	-
Gain recognized in earnings on hedged items(c)		65		30
Foreign exchange contracts:(d)
Gain (loss) recognized in earnings on derivatives		24		(5)
Gain (loss) recognized in earnings on hedged items		(32)		4
Loss recognized in earnings for amounts excluded from effectiveness testing		(8)		(1)

(a) Excludes immaterial amounts related to equity forwards used to hedge the change in fair value of available-for-sale common stock.

(b) Includes gains of $1 million recorded in Interest credited to policyholder account balances and $1 million recorded in Net realized capital gains (losses) for the three month period ending March 31,2014.

(c) Includes gains of $18 million and $30 million for the three month periods ended March 31,2014 and 2013, respectively, representing the amortization of debt basis adjustment recorded in Other income and Net realized capital gains (losses) following the discontinuation of hedge accounting. Also includes gains of $50 million for the three month period ended March 31,2014, recorded in Loss on extinguishment of debt, representing the release of debt basis following the repurchase of issued debt that was part of previously discontinued hedge accounting relationships.

(d) 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 not designated as hedging instruments in the Consolidated Statements of Income

	Gains (Losses)
Three Months Ended March 31,	Recognized in Earnings
(in millions)		2014		2013
By Derivative Type:
Interest rate contracts(a)	$	139	$	(216)
Foreign exchange contracts		(14)		155
Equity contracts(b)		(422)		44
Commodity contracts		1		-
Credit contracts		80		175
Other contracts		15		44
Total	$	(201)	$	202
By Classification:
Policy fees	$	68	$	45
Net investment income		14		24
Net realized capital losses		(337)		(276)
Other income		49		412
Policyholder benefits and claims incurred		5		(3)
Total	$	(201)	$	202

(a) Includes cross currency swaps.

(b)Includes embedded derivative gains (losses) of $(389) million and $256 million for the three month periods ended March 31,2014 and 2013, respectively.

Net notional amount (net of all structural subordination below the covered tranches), fair value of derivative (asset) liability before the effects of counterparty netting adjustments and offsetting cash collateral and unrealized market valuation gain (loss) of the super senior credit default swap portfolio by asset class

						Fair Value of			Unrealized Market Valuation
	Net Notional Amount at				Derivative Liability at				Three Months Ended
	March 31,			December 31,	March 31,			December 31,	March 31,			March 31,
(in millions)		2014		2013		2014		2013		2014		2013
Arbitrage:
Multi-sector CDOs(a)		3,166		3,257		1,151		1,249		72		155
Corporate debt/CLOs(b)		11,821		11,832		25		28		3		16
Total	$	14,987	$	15,089	$	1,176	$	1,277	$	75	$	171

(a)During the three month period ended March 31,2014, we paid $26million 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. Collateral postings with regards to multi-sector CDOs were $1.0 billion and $1.1billion at March 31,2014 and December 31,2013, respectively.

(b)Corporate debt/Collateralized Loan Obligations (CLOs) include $1.0billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at both March 31,2014 and December 31,2013. Collateral postings with regards to corporate debt/CLOs were $352million and $353million at March 31,2014 and December 31,2013, respectively.