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DERIVATIVES AND HEDGE ACCOUNTING (Tables)
 9 Months Ended
Sep. 30, 2019
DERIVATIVES AND HEDGE ACCOUNTING  
Notional amounts and fair values of derivative instruments

 

September 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

$

624

$

5

 

$

410

$

8

 

$

10

$

-

 

$

866

$

19

Foreign exchange contracts

 

6,614

 

558

 

 

2,212

 

78

 

 

6,357

 

363

 

 

2,536

 

147

Derivatives not designated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as hedging instruments:(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

60,452

 

4,377

 

 

32,595

 

2,848

 

 

42,821

 

2,890

 

 

27,329

 

2,004

Foreign exchange contracts

 

11,360

 

1,104

 

 

6,469

 

862

 

 

11,134

 

801

 

 

5,434

 

711

Equity contracts

 

20,218

 

797

 

 

8,073

 

88

 

 

17,807

 

398

 

 

2,399

 

15

Credit contracts(b)

 

44

 

1

 

 

943

 

121

 

 

8

 

1

 

 

1,406

 

236

Other contracts(c)

 

40,804

 

15

 

 

58

 

8

 

 

39,070

 

15

 

 

58

 

6

Total derivatives, gross

$

140,116

$

6,857

 

$

50,760

$

4,013

 

$

117,207

$

4,468

 

$

40,028

$

3,138

Counterparty netting(d)

 

 

 

(2,795)

 

 

 

 

(2,795)

 

 

 

 

(1,713)

 

 

 

 

(1,713)

Cash collateral(e)

 

 

 

(2,937)

 

 

 

 

(133)

 

 

 

 

(1,840)

 

 

 

 

(187)

Total derivatives on condensed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated balance sheets(f)

 

 

$

1,125

 

 

 

$

1,085

 

 

 

$

915

 

 

 

$

1,238

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

(b)As of September 30, 2019 and December 31, 2018, included CDSs on super senior multi-sector CDOs with a net notional amount of $160 million and $592 million (fair value liability of $91 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 September 30, 2019 and December 31, 2018. Fair value of liabilities related to bifurcated embedded derivatives was $7.2 billion and $4.1 billion, respectively, at September 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 September 30, 2019

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

$

-

$

-

$

-

 

$

-

Interest credited to policyholder account balances

 

4

 

-

 

(4)

 

 

-

Net investment income

 

-

 

-

 

-

 

 

-

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

228

 

41

 

(228)

 

 

41

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

$

(1)

$

-

$

1

 

$

-

Interest credited to policyholder account balances

 

-

 

-

 

-

 

 

-

Net investment income

 

-

 

-

 

-

 

 

-

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

(16)

 

5

 

16

 

 

5

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

$

-

$

-

$

-

 

$

-

Interest credited to policyholder account balances

 

18

 

-

 

(18)

 

 

-

Net investment income

 

(1)

 

-

 

1

 

 

-

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

278

 

84

 

(278)

 

 

84

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

$

(9)

$

-

$

10

 

$

1

Interest credited to policyholder account balances

 

-

 

-

 

-

 

 

-

Net investment income

 

-

 

-

 

-

 

 

-

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Realized capital gains/(losses)

 

175

 

9

 

(175)

 

 

9

(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)

 

2019

 

2018

 

 

2019

 

2018

By Derivative Type:

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

1,078

$

(270)

 

$

2,052

$

(892)

Foreign exchange contracts

 

342

 

43

 

 

545

 

295

Equity contracts

 

96

 

(199)

 

 

(23)

 

(386)

Credit contracts

 

26

 

6

 

 

35

 

18

Other contracts

 

14

 

18

 

 

48

 

52

Embedded derivatives

 

(756)

 

229

 

 

(2,037)

 

1,164

Total

$

800

$

(173)

 

$

620

$

251

By Classification:

 

 

 

 

 

 

 

 

 

Policy fees

$

16

$

17

 

$

51

$

51

Net investment income

 

(3)

 

-

 

 

(58)

 

(3)

Net realized capital gains (losses)

 

780

 

(223)

 

 

611

 

133

Other income

 

-

 

35

 

 

-

 

76

Policyholder benefits and claims incurred

 

7

 

(2)

 

 

16

 

(6)

Total

$

800

$

(173)

 

$

620

$

251