DERIVATIVES AND HEDGE ACCOUNTING (Tables)

9 Months Ended

Sep. 30, 2018

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	September 30, 2018								December 31, 2017
	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	$	75	$	1	$	811	$	23	$	-	$	-	$	838	$	15
Foreign exchange contracts		4,323		241		4,173		269		2,823		173		4,783		350
Equity contracts		-		-		-		-		-		-		159		19
Derivatives not designated
as hedging instruments:(a)
Interest rate contracts		36,841		2,504		27,131		2,096		37,751		2,171		26,461		2,185
Foreign exchange contracts		8,877		686		8,282		818		6,305		658		11,093		895
Equity contracts		18,826		340		1,585		5		19,975		522		1,130		2
Credit contracts(b)		3		1		1,418		252		4		1		1,365		277
Other contracts(c)		38,292		15		60		3		39,829		20		59		5
Total derivatives, gross	$	107,237	$	3,788	$	43,460	$	3,466	$	106,687	$	3,545	$	45,888	$	3,748
Counterparty netting(d)				(1,874)				(1,874)				(1,464)				(1,464)
Cash collateral(e)				(964)				(290)				(1,159)				(1,249)
Total derivatives on condensed
consolidated balance sheets(f)			$	950			$	1,302			$	922			$	1,035

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

(b) As of September 30,2018 and December 31,2017, included CDSs on super senior multi-sector CDOs with a net notional amount of $616 million and $685 million (fair value liability of $232 million and $254 million), respectively. The net notional amount represents the maximum exposure to loss on the portfolio. As of September 30,2018 and December 31,2017, there were no super senior corporate debt/CLOs remaining.

(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 Liabilities, respectively. Fair value of assets related to bifurcated embedded derivatives was zero at both September 30,2018 and December 31, 2017. Fair value of liabilities related to bifurcated embedded derivatives was $3.4 billion and $4.1 billion, respectively, at September 30,2018 and December 31, 2017. 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.

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:				Including Gains/(Losses) Attributable to:
	Hedging		Hedged		Hedge		Excluded
(in millions)	Derivatives(a)		Items		Ineffectiveness		Components		Other(b)
Three Months Ended September 30, 2018
Interest rate contracts:
Realized capital gains/(losses)	$	(1)	$	1	$	-	$	-	$	-
Foreign exchange contracts:
Realized capital gains/(losses)		(11)		16		-		5		-
Other income		-		-		-		-		-
Equity contracts:
Realized capital gains/(losses)		-		-		-		-		-
Three Months Ended September 30, 2017
Interest rate contracts:
Realized capital gains/(losses)	$	(1)	$	1	$	-	$	-	$	-
Foreign exchange contracts:
Realized capital gains/(losses)		(157)		142		-		(15)		-
Other income		-		-		-		-		-
Equity contracts:
Realized capital gains/(losses)		(3)		2		-		(1)		-
Nine Months Ended September 30, 2018
Interest rate contracts:
Realized capital gains/(losses)	$	(9)	$	10	$	1	$	-	$	-
Foreign exchange contracts:
Realized capital gains/(losses)		184		(175)		-		9		-
Other income		-		-		-		-		-
Equity contracts:
Realized capital gains/(losses)		-		-		-		-		-
Nine Months Ended September 30, 2017
Interest rate contracts:
Realized capital gains/(losses)	$	1	$	(1)	$	-	$	-	$	-
Foreign exchange contracts:
Realized capital gains/(losses)		(318)		332		-		14		-
Other income		-		4		-		-		4
Equity contracts:
Realized capital gains/(losses)		(29)		26		-		(3)		-

(a) The amounts presented do not include the periodic net coupon settlements of the derivative contract or the coupon income (expense) related to the hedged item.

(b) Represents accretion/amortization of opening fair value of the hedged item at inception of hedge relationship, amortization of basis adjustment on hedged item following the discontinuation of hedge accounting, and the release of debt basis adjustment following the repurchase of issued debt that was part of previously-discontinued fair value hedge relationship.

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)		2018		2017		2018		2017
By Derivative Type:
Interest rate contracts	$	(270)	$	(18)	$	(892)	$	81
Foreign exchange contracts		43		(98)		295		(220)
Equity contracts		(199)		(233)		(386)		(723)
Credit contracts		6		19		18		55
Other contracts		18		19		52		55
Embedded derivatives		229		(213)		1,164		(326)
Total	$	(173)	$	(524)	$	251	$	(1,078)
By Classification:
Policy fees	$	17	$	20	$	51	$	59
Net investment income		-		(3)		(3)		(10)
Net realized capital gains (losses)		(223)		(550)		133		(1,250)
Other income		35		8		76		121
Policyholder benefits and claims incurred		(2)		1		(6)		2
Total	$	(173)	$	(524)	$	251	$	(1,078)