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DERIVATIVES AND HEDGE ACCOUNTING (Tables)

6 Months Ended

Jun. 30, 2012

Notional amounts and fair values of derivative instruments

	June 30, 2012								December 31, 2011


	Gross Derivative Assets				Gross Derivative Liabilities				Gross Derivative Assets				Gross Derivative Liabilities
(in millions)	Notional Amount		Fair Value^(a)		Notional Amount		Fair Value^(a)		Notional Amount		Fair Value^(a)		Notional Amount		Fair Value^(a)

Derivatives designated as hedging instruments:
Interest rate contracts^(b)	$	-	$	-	$	409	$	29	$	-	$	-	$	481	$	38
Foreign exchange contracts		-		-		-		-		-		-		180		1
Derivatives not designated as hedging instruments:
Interest rate contracts^(b)		72,634		7,667		69,122		6,879		72,660		8,286		73,248		6,870
Foreign exchange contracts		2,469		53		6,328		171		3,278		145		3,399		178
Equity contracts^(c)		5,581		261		21,632		1,434		4,748		263		18,911		1,126
Commodity contracts		671		183		635		185		691		136		861		146
Credit contracts		310		64		20,842		2,656		407		89		25,857		3,366
Other contracts^(d)		21,835		232		2,033		287		24,305		741		2,125		372

Total derivatives not designated as hedging instruments		103,500		8,460		120,592		11,612		106,089		9,660		124,401		12,058

Total derivatives	$	103,500	$	8,460	$	121,001	$	11,641	$	106,089	$	9,660	$	125,062	$	12,097

(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 liabilities and fair values of derivative liabilities include $20.9 billion and $1.2 billion, respectively, at June 30, 2012, and $18.3 billion and $0.9 billion, respectively, at December 31, 2011, related to bifurcated embedded derivatives. A bifurcated embedded derivative is generally presented with the host contract in the Consolidated Balance Sheet.
(d): Consist primarily of contracts with multiple underlying exposures.

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

	June 30, 2012										December 31, 2011


	Derivative Assets					Derivative Liabilities					Derivative Assets					Derivative Liabilities
(in millions)	Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value

Global Capital Markets derivatives	$	91,350	$	7,396		$	93,518	$	9,300		$	94,036	$	8,472		$	98,442	$	10,021
All other derivatives^(a)		12,150		1,064			27,483		2,341			12,053		1,188			26,620		2,076

Total derivatives, gross	$	103,500		8,460		$	121,001		11,641		$	106,089		9,660		$	125,062		12,097

Counterparty netting^(b)				(3,716	)				(3,716	)				(3,660	)				(3,660	)
Cash collateral^(c)				(991	)				(2,599	)				(1,501	)				(2,786	)

Total derivatives, net				3,753					5,326					4,499					5,651

Less: Bifurcated embedded derivatives				-					1,188					-					918

Total derivatives on consolidated balance sheet			$	3,753				$	4,138				$	4,499				$	4,733

(a): 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 contracts. 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.

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

	Three Months Ended June 30,				Six Months Ended June 30,


(in millions)	2012		2011		2012			2011

Interest rate contracts^(a):
Gain (loss) recognized in earnings on derivatives	$	-	$	4	$	(2	)	$	(3	)
Gain recognized in earnings on hedged items^(b)		48		40		80			88
Gain (loss) recognized in earnings for ineffective portion and amount excluded from effectiveness testing		-		-		-			(1	)

(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 immaterial amounts related to foreign exchange contracts.
(b): Includes $49 million and $44 million, for the three-month periods ended June 30, 2012 and 2011, respectively, and $79 million and $86 million, for the six-month periods ended June 30, 2012 and 2011, respectively, 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

	Three Months Ended June 30,						Six Months Ended June 30,


(in millions)	2012			2011			2012			2011

Interest rate contracts^(a):
Loss recognized in OCI on derivatives	$	-		$	(3	)	$	(1	)	$	(3	)
Loss reclassified from Accumulated OCI into earnings^(b)		(4	)		(16	)		(9	)		(34	)

(a): Gains and losses reclassified from Accumulated other comprehensive income are recorded in Other income. Gains or losses recognized in earnings on derivatives for the ineffective portion are recorded in Net realized capital gains (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 June 30, 2012, $16 million of the deferred net loss in Accumulated other comprehensive income 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


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2012			2011			2012			2011

By Derivative Type:
Interest rate contracts^(a)	$	598		$	21		$	12		$	(253	)
Foreign exchange contracts		21			(24	)		90			(4	)
Equity contracts^(b)		(207	)		67			(395	)		(37	)
Commodity contracts		(1	)		2			(2	)		7
Credit contracts		63			(46	)		214			301
Other contracts		(81	)		18			(52	)		-

Total	$	393		$	38		$	(133	)	$	14

By Classification:
Premiums	$	37		$	26		$	73		$	51
Net investment income		-			2			1			4
Net realized capital gains (losses)		(423	)		231			(660	)		176
Other income (losses)		779			(221	)		453			(217	)

Total	$	393		$	38		$	(133	)	$	14

(a): Includes cross currency swaps.
(b): Includes embedded derivative losses of $368 million and $5 million for the three-month periods ended June 30, 2012 and 2011, respectively, and embedded derivatives gains (losses) of $(193) million and $102 million, for the six-month periods ended June 30, 2012 and 2011, respectively.

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

									Unrealized Market Valuation Gain (Loss)


					Fair Value of Derivative (Asset) Liability at				Unrealized Market Valuation Gain (Loss)
	Net Notional Amount				Fair Value of Derivative (Asset) Liability at				Three Months Ended June 30,						Six Months Ended June 30,
	June 30, 2012^(a)		December 31, 2011^(a)		June 30, 2012^(b)(c)		December 31, 2011^(b)(c)		Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	June 30, 2012^(a)		December 31, 2011^(a)		June 30, 2012^(b)(c)		December 31, 2011^(b)(c)		2012^(c)			2011^(c)			2012^(c)			2011^(c)

Regulatory Capital:
Corporate loans	$	1,148	$	1,830	$	-	$	-	$	-		$	-		$	-		$	-
Prime residential mortgages		648		3,653		-		-		-			-			-			6
Other		754		887		6		9		(3	)		1			3			10

Total		2,550		6,370		6		9		(3	)		1			3			16

Arbitrage:
Multi-sector CDOs^(d)		4,602		5,476		2,386		3,077		68			(90	)		194			183
Corporate debt/CLOs^(e)		11,630		11,784		116		127		(6	)		7			11			44

Total		16,232		17,260		2,502		3,204		62			(83	)		205			227

Mezzanine tranches		985		989		21		10		(2	)		(12	)		(11	)		(14	)

Total	$	19,767	$	24,619	$	2,529	$	3,223	$	57		$	(94	)	$	197		$	229

(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 $2 million and $8 million in the three-month periods ended June 30, 2012 and 2011, respectively, and $(24) million and $2 million in the six-month periods ended June 30, 2012 and 2011, respectively, representing the effect of changes in AIG's credit spreads on the valuation of the derivatives liabilities.
(d): During the six-month period ended June 30, 2012, a super senior CDS transaction with a net notional amount of $470 million was terminated at approximately its fair value at the time of termination. As a result, a $416 million loss, which was previously included in the fair value derivative liability as an unrealized market valuation loss, was realized. During the six-month period ended June 30, 2012, $81 million was paid to counterparties with respect to multi-sector CDOs. Upon payment, an $81 million loss, which was previously included in the fair value of the derivative liability as an unrealized market valuation loss, was realized. Multi-sector CDOs also include $3.9 billion and $4.6 billion in net notional amount of credit default swaps written with cash settlement provisions at June 30, 2012 and December 31, 2011, respectively.
(e): Corporate debt/CLOs include $1.2 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at both June 30, 2012 and December 31, 2011.

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

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- Definition

Tabular disclosure of the location and fair value amounts of derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments) reported in the statement of financial position.

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- Definition

Tabular disclosure of pertinent information about a derivative or group of derivatives on a disaggregated basis, such as for individual instruments, or small groups of similar instruments. May include a combination of the type of instrument, risks being hedged, notional amount, hedge designation, related hedged item, inception date, maturity date, or other relevant item.

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