DERIVATIVES AND HEDGE ACCOUNTING (Tables)

6 Months Ended

Jun. 30, 2019

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	June 30, 2019								December 31, 2018
	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	$	322	$	2	$	540	$	10	$	10	$	-	$	866	$	19
Foreign exchange contracts		5,631		370		2,835		144		6,357		363		2,536		147
Derivatives not designated
as hedging instruments:(a)
Interest rate contracts		59,082		3,273		34,013		2,285		42,821		2,890		27,329		2,004
Foreign exchange contracts		10,460		896		7,630		816		11,134		801		5,434		711
Equity contracts		15,496		743		5,447		47		17,807		398		2,399		15
Credit contracts(b)		3		1		1,441		195		8		1		1,406		236
Other contracts(c)		40,579		13		58		6		39,070		15		58		6
Total derivatives, gross	$	131,573	$	5,298	$	51,964	$	3,503	$	117,207	$	4,468	$	40,028	$	3,138
Counterparty netting(d)				(2,080)				(2,080)				(1,713)				(1,713)
Cash collateral(e)				(2,315)				(303)				(1,840)				(187)
Total derivatives on condensed
consolidated balance sheets(f)			$	903			$	1,120			$	915			$	1,238

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

(b)As of June 30, 2019 and December 31, 2018, included CDSs on super senior multi-sector CDOs with a net notional amount of $448 million and $592 million (fair value liability of $163 million and $224 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 Liabilities, respectively. Fair value of assets related to bifurcated embedded derivatives was zero at both June 30, 2019 and December 31, 2018. Fair value of liabilities related to bifurcated embedded derivatives was $6.1 billion and $4.1 billion, respectively, at June 30, 2019 and December 31, 2018. 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:
	Hedging		Excluded		Hedged
(in millions)	Derivatives(a)		Components(b)		Items		Net Impact
Three Months Ended June 30, 2019
Interest rate contracts:
Realized capital gains/(losses)	$	-	$	-	$	-	$	-
Interest credited to policyholder account balances		9		-		(9)		-
Net investment income		-		-		-		-
Foreign exchange contracts:
Realized capital gains/(losses)		58		57		(58)		57
Three Months Ended June 30, 2018
Interest rate contracts:
Realized capital gains/(losses)	$	-	$	-	$	-	$	-
Interest credited to policyholder account balances		-		-		-		-
Net investment income		-		-		-		-
Foreign exchange contracts:
Realized capital gains/(losses)		199		37		(199)		37
Six Months Ended June 30, 2019
Interest rate contracts:
Realized capital gains/(losses)	$	-	$	-	$	-	$	-
Interest credited to policyholder account balances		14		-		(14)		-
Net investment income		(1)		-		1		-
Foreign exchange contracts:
Realized capital gains/(losses)		50		43		(50)		43
Six Months Ended June 30, 2018
Interest rate contracts:
Realized capital gains/(losses)	$	(8)	$	-	$	9	$	1
Interest credited to policyholder account balances		-		-		-		-
Net investment income		-		-		-		-
Foreign exchange contracts:
Realized capital gains/(losses)		191		4		(191)		4

(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				Six Months Ended
	June 30,				June 30,
(in millions)		2019		2018		2019		2018
By Derivative Type:
Interest rate contracts	$	615	$	(224)	$	974	$	(622)
Foreign exchange contracts		231		391		203		252
Equity contracts		89		(114)		(119)		(187)
Credit contracts		17		1		9		12
Other contracts		18		17		34		34
Embedded derivatives		(832)		344		(1,281)		935
Total	$	138	$	415	$	(180)	$	424
By Classification:
Policy fees	$	18	$	17	$	35	$	34
Net investment income		(50)		1		(55)		(3)
Net realized capital gains (losses)		165		369		(169)		356
Other income		-		29		-		41
Policyholder benefits and claims incurred		5		(1)		9		(4)
Total	$	138	$	415	$	(180)	$	424