INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2013

INVESTMENTS

The amortized cost or cost and fair value of AIG's available for sale securities and other invested assets carried at fair value

(in millions)	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Other-Than- Temporary Impairments in AOCI(a)
June 30, 2013
Bonds available for sale:
U.S. government and government sponsored entities	$	3,346	$	219	$	(35	)	$	3,530	$	–
Obligations of states, municipalities and political subdivisions		31,481		1,565		(318	)		32,728		2
Non-U.S. governments		22,885		1,041		(297	)		23,629		–
Corporate debt		137,184		9,285		(2,512	)		143,957		82
Mortgage-backed, asset-backed and collateralized:
RMBS		34,199		3,228		(445	)		36,982		1,618
CMBS		10,437		591		(347	)		10,681		43
CDO/ABS		9,162		702		(142	)		9,722		81
Total mortgage-backed, asset-backed and collateralized		53,798		4,521		(934	)		57,385		1,742
Total bonds available for sale(b)		248,694		16,631		(4,096	)		261,229		1,826
Equity securities available for sale:
Common stock		1,356		1,561		(24	)		2,893		–
Preferred stock		55		26		–			81		–
Mutual funds		179		11		(11	)		179		–
Total equity securities available for sale		1,590		1,598		(35	)		3,153		–
Total	$	250,284	$	18,229	$	(4,131	)	$	264,382	$	1,826
December 31, 2012
Bonds available for sale:
U.S. government and government sponsored entities	$	3,161	$	323	$	(1	)	$	3,483	$	–
Obligations of states, municipalities and political subdivisions		33,042		2,685		(22	)		35,705		2
Non-U.S. governments		25,449		1,395		(44	)		26,800		–
Corporate debt		135,728		15,848		(464	)		151,112		115
Mortgage-backed, asset-backed and collateralized:
RMBS		31,330		3,379		(317	)		34,392		1,330
CMBS		9,449		770		(304	)		9,915		(79	)
CDO/ABS		7,990		806		(244	)		8,552		82
Total mortgage-backed, asset-backed and collateralized		48,769		4,955		(865	)		52,859		1,333
Total bonds available for sale(b)		246,149		25,206		(1,396	)		269,959		1,450
Equity securities available for sale:
Common stock		1,492		1,574		(37	)		3,029		–
Preferred stock		55		23		–			78		–
Mutual funds		93		12		–			105		–
Total equity securities available for sale		1,640		1,609		(37	)		3,212		–
Total	$	247,789	$	26,815	$	(1,433	)	$	273,171	$	1,450

(a)  Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

(b)  At June 30, 2013 and December 31, 2012, bonds available for sale held by us that were below investment grade or not rated totaled $31.0 billion and $29.6 billion, respectively.

The fair value and gross unrealized losses on AIG's available for sale securities in a loss position, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position

	Less than 12 Months				12 Months or More				Total
(in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
June 30, 2013
Bonds available for sale:
U.S. government and government sponsored entities	$	889	$	33	$	10	$	2	$	899	$	35
Obligations of states, municipalities and political subdivisions		4,623		298		88		20		4,711		318
Non-U.S. governments		3,995		273		159		24		4,154		297
Corporate debt		34,380		2,274		2,247		238		36,627		2,512
RMBS		7,164		272		1,048		173		8,212		445
CMBS		2,517		209		1,106		138		3,623		347
CDO/ABS		1,691		35		1,038		107		2,729		142
Total bonds available for sale		55,259		3,394		5,696		702		60,955		4,096
Equity securities available for sale:
Common stock		116		22		7		2		123		24
Preferred stock		5		–		–		–		5		–
Mutual funds		132		11		–		–		132		11
Total equity securities available for sale		253		33		7		2		260		35
Total	$	55,512	$	3,427	$	5,703	$	704	$	61,215	$	4,131
December 31, 2012
Bonds available for sale:
U.S. government and government sponsored entities	$	153	$	1	$	–	$	–	$	153	$	1
Obligations of states, municipalities and political
subdivisions		692		11		114		11		806		22
Non-U.S. governments		1,555		19		442		25		1,997		44
Corporate debt		8,483		201		3,229		263		11,712		464
RMBS		597		28		1,661		289		2,258		317
CMBS		404		8		1,481		296		1,885		304
CDO/ABS		393		3		1,624		241		2,017		244
Total bonds available for sale		12,277		271		8,551		1,125		20,828		1,396
Equity securities available for sale:
Common stock		247		36		18		1		265		37
Mutual funds		3		–		–		–		3		–
Total equity securities available for sale		250		36		18		1		268		37
Total	$	12,527	$	307	$	8,569	$	1,126	$	21,096	$	1,433

The amortized cost and fair value of fixed maturity securities available for sale by contractual maturity

	Total Fixed Maturity Securities Available for Sale				Fixed Maturity Securities in a Loss Position Available for Sale
June 30, 2013 (in millions)
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	10,378	$	10,572	$	526	$	512
Due after one year through five years		51,826		54,692		7,290		7,112
Due after five years through ten years		70,605		73,791		18,414		17,515
Due after ten years		62,087		64,789		23,323		21,252
Mortgage-backed, asset-backed and collateralized		53,798		57,385		15,498		14,564
Total	$	248,694	$	261,229	$	65,051	$	60,955

The gross realized gains and gross realized losses from sales of AIG's available for sale securities

	Three Months Ended June 30,								Six Months Ended June 30,
	2013				2012				2013				2012
(in millions)	Gross Realized Gains		Gross Realized Losses		Gross Realized Gains		Gross Realized Losses		Gross Realized Gains		Gross Realized Losses		Gross Realized Gains		Gross Realized Losses
Fixed maturity securities	$	1,329	$	56	$	875	$	23	$	1,700	$	127	$	1,365	$	39
Equity securities		46		6		14		1		83		9		465		4
Total	$	1,375	$	62	$	889	$	24	$	1,783	$	136	$	1,830	$	43

The fair value of AIG's trading securities

	June 30, 2013					December 31, 2012
(in millions)	Fair Value		Percent of Total			Fair Value		Percent of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	6,061		25	%	$	6,794		27	%
Obligations of states, territories and political subdivisions		181		1			–		–
Non-U.S. governments		2		–			2		–
Corporate debt		1,098		4			1,320		5
Mortgage-backed, asset-backed and collateralized:
RMBS		2,186		9			1,727		7
CMBS		1,701		7			2,227		9
CDO/ABS and other collateralized(a)		12,553		51			12,506		50
Total mortgage-backed, asset-backed and collateralized		16,440		67			16,460		66
Other		7		–			8		–
Total fixed maturity securities		23,789		97			24,584		98
Equity securities		758		3			662		2
Total(b)	$	24,547		100	%	$	25,246		100	%

(a)  Includes $0.8 billion of U.S. Government agency backed ABS.

(b)  Securities presented herein are measured at fair value based on our election of the fair value option.

Components of net investment income

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2013			2012			2013		2012
Fixed maturity securities, including short-term investments	$	2,919		$	3,180		$	5,964	$	6,284
Change in fair value of ML II		–			–			–		246
Change in fair value of ML III		–			1,306			–		2,558
Change in fair value of AIA securities including realized gain		–			(493	)		–		1,302
Equity securities		(12	)		21			25		32
Interest on mortgage and other loans		290			264			570		529
Alternative investments*		738			350			1,604		855
Real estate		36			32			67		58
Other investments		28			(22	)		81		1
Total investment income		3,999			4,638			8,311		11,865
Investment expenses		155			157			303		279
Net investment income	$	3,844		$	4,481		$	8,008	$	11,586

*     Includes hedge funds, private equity funds, affordable housing partnerships and other investment partnerships.

Components of net realized capital gains (losses)

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2013			2012			2013			2012
Sales of fixed maturity securities	$	1,273		$	852		$	1,573		$	1,326
Sales of equity securities		40			13			74			461
Other-than-temporary impairments:
Severity		(3	)		(10	)		(5	)		(14	)
Change in intent		–			(2	)		(3	)		(22	)
Foreign currency declines		–			(1	)		–			(6	)
Issuer-specific credit events		(82	)		(202	)		(145	)		(788	)
Adverse projected cash flows		(1	)		(1	)		(7	)		(4	)
Provision for loan losses		(2	)		24			(5	)		26
Foreign exchange transactions		82			185			411			(47	)
Derivative instruments		288			(397	)		17			(659	)
Other		(4	)		(62	)		(19	)		(125	)
Net realized capital gains	$	1,591		$	399		$	1,891		$	148

Schedule of increase (decrease) in unrealized appreciation of available for sale securities

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2013			2012			2013			2012
Increase (decrease) in unrealized appreciation of investments:
Fixed maturities	$	(10,123	)	$	2,026		$	(11,275	)	$	5,013
Equity securities		(16	)		(30	)		(9	)		(590	)
Other investments		55			84			7			368
Total Increase (decrease) in unrealized appreciation of investments	$	(10,084	)	$	2,080		$	(11,277	)	$	4,791

Credit impairments recognized in earnings for available for sale fixed maturity securities

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2013			2012			2013			2012
Balance, beginning of period	$	4,603		$	6,464		$	5,164		$	6,504
Increases due to:
Credit impairments on new securities subject to impairment losses		10			35			27			172
Additional credit impairments on previously impaired securities		12			69			30			376
Reductions due to:
Credit impaired securities fully disposed for which there was no prior intent or requirement to sell		(167	)		(248	)		(558	)		(518	)
Accretion on securities previously impaired due to credit*		(222	)		(231	)		(427	)		(453	)
Other		–			1			–			9
Balance, end of period	$	4,236		$	6,090		$	4,236		$	6,090

*     Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time.

Schedule of Purchased Credit Impaired (PCI) Securities, at acquisition date

(in millions)	At Date of Acquisition
Contractually required payments (principal and interest)	$	23,138
Cash flows expected to be collected*		18,213
Recorded investment in acquired securities		11,920

*     Represents undiscounted expected cash flows, including both principal and interest.

Schedule of Purchased Credit Impaired (PCI) Securities, at reporting date

(in millions)	June 30, 2013		December 31, 2012
Outstanding principal balance	$	14,266	$	11,791
Amortized cost		9,676		7,718
Fair value		10,801		8,823

Activity for accretable yield on Purchased Credit Impaired (PCI) Securities

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2013			2012			2013			2012
Balance, beginning of period	$	5,114		$	5,146		$	4,766		$	4,135
Newly purchased PCI securities		761			196			1,106			1,418
Disposals		–			(121	)		(60	)		(168	)
Accretion		(170	)		(177	)		(330	)		(345	)
Effect of changes in interest rate indices		22			(133	)		106			(161	)
Net reclassification from non-accretable difference, including effects of prepayments		174			39			313			71
Balance, end of period	$	5,901		$	4,950		$	5,901		$	4,950

Schedule of fair value of securities pledged to counterparties under secured financing transactions

(in millions)	June 30, 2013		December 31, 2012
Securities available for sale	$	4,291	$	8,180
Trading securities		2,804		2,985

Schedule of fair value of securities pledged to the entity under reverse repurchase agreements

(in millions)	June 30, 2013		December 31, 2012
Securities collateral pledged to us	$	8,548	$	11,039
Amount repledged by us		7		33