DERIVATIVES AND HEDGE ACCOUNTING (Tables)

12 Months Ended

Dec. 31, 2011

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

		December 31, 2011								December 31, 2010
		Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities
(in millions)		Notional Amount(a)		Fair Value(b)		Notional Amount(a)		Fair Value(b)		Notional Amount(a)		Fair Value(b)		Notional Amount(a)		Fair Value(b)
Derivatives designated as hedging instruments:
	Interest rate contracts(c)	$	-	$	-	$	481	$	38	$	1,471	$	156	$	626	$	56
	Foreign exchange contracts		-		-		180		1		-		-		-		-
Derivatives not designated as hedging instruments:
	Interest rate contracts(c)		72,660		8,286		73,248		6,870		150,966		14,048		118,783		9,657
	Foreign exchange contracts		3,278		145		3,399		178		2,495		203		4,105		338
	Equity contracts(d)		4,748		263		18,911		1,126		5,002		358		15,666		774
	Commodity contracts		691		136		861		146		944		92		768		67
	Credit contracts		407		89		25,857		3,366		2,046		379		62,715		4,180
	Other contracts(e)		24,305		741		2,125		372		27,333		1,075		2,190		308
Total derivatives not designated as hedging instruments			106,089		9,660		124,401		12,058		188,786		16,155		204,227		15,324
Total derivatives		$	106,089	$	9,660	$	125,062	$	12,097	$	190,257	$	16,311	$	204,853	$	15,380

(a)

Notional amount represents a standard of measurement of the volume of derivatives business of AIG. Notional amount is generally not a quantification of market risk or credit risk and is not recorded in the Consolidated Balance Sheet. Notional amounts generally represent those amounts used to calculate contractual cash flows to be exchanged and are not paid or received, except for certain contracts such as currency swaps and certain credit contracts. For credit contracts, notional amounts are net of all underlying subordination.

(b)

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

(c)

Includes cross currency swaps.

(d)

Notional amount of derivative liabilities and fair value of derivative liabilities include $18,254 million and $918 million, respectively, at December 31, 2011, and $14,107 million and $445 million, respectively, at December 31, 2010, related to bifurcated embedded derivatives. At December 31, 2010, these respective amounts were previously included in Other Contracts.

(e)

Consist primarily of contracts with multiple underlying exposures.

Fair values of derivative assets and liabilities in the Consolidated Balance Sheet

		December 31, 2011										December 31, 2010
		Derivative Assets					Derivative Liabilities(a)					Derivative Assets					Derivative Liabilities(a)
(in millions)		Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value
AIGFP derivatives		$	86,128	$	7,063		$	90,241	$	8,854		$	168,033	$	12,268		$	173,226	$	12,379
All other derivatives(b)			19,961		2,597			34,821		3,243			22,224		4,043			31,627		3,001
	Total derivatives, gross	$	106,089		9,660		$	125,062		12,097		$	190,257		16,311		$	204,853		15,380
Counterparty netting(c)					(3,660	)				(3,660	)				(6,298	)				(6,298	)
Cash collateral(d)					(1,501	)				(2,786	)				(4,096	)				(2,902	)
	Total derivatives, net				4,499					5,651					5,917					6,180
Less: Bifurcated embedded derivatives					-					918					-					445
Total derivatives on consolidated balance sheet				$	4,499				$	4,733				$	5,917				$	5,735

(a)

Included in All other derivatives are bifurcated embedded derivatives, which are recorded in Policyholder contract deposits.

(b)

Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance and ILFC operations, as well as embedded derivatives included in insurance obligations.

(c)

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

(d)

Represents cash collateral posted and received.

Effect of AIG's derivative instruments in fair value hedging relationships in the Consolidated Statement of Operations

Years Ended December 31, (in millions)		2011			2010
Interest rate contracts(a)(b):
	Gain (loss) recognized in earnings on derivatives	$	(4	)	$	196
	Gain (loss) recognized in earnings on hedged items(c)		153			(25	)
	Gain recognized in earnings for ineffective portion and amount excluded from effectiveness testing		-			27

(a)

Gains and losses recognized in earnings for the ineffective portion and amounts excluded from effectiveness testing are recorded in Net realized capital gains (losses). Includes $27 million for 2010 related to the ineffective portion.

(b)

Includes immaterial amounts related to Foreign exchange contracts.

(c)

Includes $149 million for 2011 and $144 million for 2010, representing the amortization of debt basis adjustment following the discontinuation of hedge accounting recorded in Other income and Net realized capital gains (losses).

Effect of AIG's derivative instruments in cash flow hedging relationships in the Consolidated Statement of Operations

Years Ended December 31, (in millions)		2011			2010
Interest rate contracts(a):
	Loss recognized in OCI on derivatives	$	(5	)	$	(33	)
	Loss reclassified from Accumulated OCI into earnings(b)		(55	)		(84	)
	Loss recognized in earnings on derivatives for ineffective portion		-			(6	)

(a)

Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Other income. Gains or losses recognized in earnings on derivatives for the ineffective portion are recorded in Net realized capital losses.

(b)

The effective portion of the change in fair value of a derivative qualifying as a cash flow hedge is recorded in Accumulated other comprehensive income until earnings are affected by the variability of cash flows in the hedged item. At December 31, 2011, $17 million of the deferred net loss in Accumulated other comprehensive loss is expected to be recognized in earnings during the next 12 months.

Effect of AIG's derivative instruments not designated as hedging instruments in the Consolidated Statement of Operations

		Gains (Losses) Recognized in Earnings
Years Ended December 31, (in millions)
		2011			2010
By Derivative Type:
	Interest rate contracts(a)	$	601		$	254
	Foreign exchange contracts		137			(123	)
	Equity contracts(b)		(263	)		427
	Commodity contracts		4			1
	Credit contracts		337			1,227
	Other contracts		47			545
Total		$	863		$	2,331
By Classification:
	Premiums	$	113		$	75
	Net investment income		8			18
	Net realized capital gains		96			726
	Other income		646			1,512
Total		$	863		$	2,331

(a)

Includes cross currency swaps.

(b)

Includes embedded derivative gains (losses) of $ (397) million and $423 million, for the years ended December 31, 2011 and December 31, 2010, respectively.

Net notional amount, fair value of derivative (asset) liability and unrealized market valuation gain (loss)

		Net Notional Amount
						Fair Value of Derivative (Asset) Liability at December 31,					Unrealized Market Valuation Gain (Loss) Years Ended December 31,
		December 31,
(in millions)		2011(a)		2010(a)		2011(b)(c)		2010(b)(c)			2011(c)		2010(c)
Regulatory Capital:
	Corporate loans	$	1,830	$	5,193	$	-	$	-		$	-	$	-
	Prime residential mortgages(d)		3,653		31,613		-		(190	)		6		53
	Other		887		1,263		9		17			8		4
	Total		6,370		38,069		9		(173	)		14		57
Arbitrage:
	Multi-sector CDOs(e)		5,476		6,689		3,077		3,484			249		663
	Corporate debt/CLOs(f)		11,784		12,269		127		171			44		(67	)
	Total		17,260		18,958		3,204		3,655			293		596
Mezzanine tranches(d)(g)			989		2,823		10		198			32		(55	)
Total		$	24,619	$	59,850	$	3,223	$	3,680		$	339	$	598

(a)

Net notional amounts presented are net of all structural subordination below the covered tranches.

(b)

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

(c)

Includes credit valuation adjustment gains (losses) of $26 million and ($133) million in the years ended December 31, 2011 and 2010, respectively, representing the effect of changes in AIG's credit spreads on the valuation of the derivatives liabilities.

(d)

During 2011, AIGFP terminated two super senior prime residential mortgage transactions, with a combined net notional amount of $24.1 billion, that had previously been the subject of a collateral dispute. In addition, AIGFP terminated all of the related mezzanine tranches and hedge transactions related to those mezzanine tranches, with a combined net notional amount of $2.2 billion. The transactions were terminated at values that approximated their collective fair values at the time of termination.

(e)

During 2011, AIGFP liquidated one multi-sector super senior CDS transaction with a net notional amount of $188 million. The primary underlying collateral components, which consisted of individual ABS CDS transactions, were sold in an auction to counterparties, including AIGFP, at their approximate fair value at the time of the liquidation. AIGFP was the winning bidder on approximately $107 million of individual ABS CDS transactions, which are reported in written single name credit default swaps as of December 31, 2011. During 2011, AIGFP also paid $37 million to its counterparties with respect to multi-sector CDOs. Multi-sector CDOs also include $4.6 billion and $5.5 billion in net notional amount of credit default swaps written with cash settlement provisions at December 31, 2011 and December 31, 2010, respectively.

(f)

Corporate debt/CLOs include $1.2 billion and $1.3 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at December 31, 2011 and December 31, 2010, respectively.

(g)

Net of offsetting purchased CDS of $1.4 billion in net notional amount at December 31, 2010. There were no offsetting purchased CDSs at December 31, 2011.