DERIVATIVES AND HEDGE ACCOUNTING (Tables)

6 Months Ended

Jun. 30, 2013

DERIVATIVES AND HEDGE ACCOUNTING

Notional amounts and fair values of derivative instruments

	June 30, 2013								December 31, 2012
	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:
Foreign exchange contracts	$	226	$	2	$	971	$	57	$	–	$	–	$	–	$	–
Derivatives not designated as hedging instruments:
Interest rate contracts(b)		56,436		5,078		61,714		4,596		63,463		6,479		63,482		5,806
Foreign exchange contracts		4,259		115		2,279		98		8,325		104		10,168		174
Equity contracts(c)		5,606		265		28,294		708		4,990		221		25,626		1,377
Commodity contracts		615		124		610		127		625		145		622		146
Credit contracts		70		56		15,526		1,650		70		60		16,244		2,051
Other contracts(d)		22,256		37		1,317		167		20,449		38		1,488		206
Total derivatives not designated as hedging instruments		89,242		5,675		109,740		7,346		97,922		7,047		117,630		9,760
Total derivatives, gross	$	89,468	$	5,677	$	110,711	$	7,403	$	97,922	$	7,047	$	117,630	$	9,760

(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 value of derivative liabilities include $25.9 billion and $.6 billion, respectively, at June 30, 2013, and $23 billion and $1.3 billion, respectively, at December 31, 2012, related to bifurcated embedded derivatives. A bifurcated embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets.

(d)  Consists primarily of contracts with multiple underlying exposures.

Fair values of derivative assets and liabilities in the Condensed Consolidated Balance Sheets

	June 30, 2013										December 31, 2012
	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:
AIG Financial Products	$	54,970	$	3,982		$	60,806	$	4,204		$	59,854	$	4,725		$	66,717	$	5,506
AIG Markets		8,051		853			15,642		1,576			14,028		1,308			18,774		1,818
Total Global Capital Markets derivatives		63,021		4,835			76,448		5,780			73,882		6,033			85,491		7,324
Non-Global Capital Markets derivatives(a)		26,447		842			34,263		1,623			24,040		1,014			32,139		2,436
Total derivatives, gross	$	89,468		5,677		$	110,711		7,403		$	97,922		7,047		$	117,630		9,760
Counterparty netting(b)				(2,011	)				(2,011	)				(2,467	)				(2,467	)
Cash collateral(c)				(861	)				(1,612	)				(909	)				(1,976	)
Total derivatives, net				2,805					3,780					3,671					5,317
Less: Bifurcated embedded derivatives				–					656					–					1,256
Total derivatives on consolidated balance sheet			$	2,805				$	3,124				$	3,671				$	4,061

(a)  Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance operations as well as embedded derivatives included in insurance contracts. Liabilities include bifurcated embedded derivatives, which are recorded in Policyholder contract deposits in the Condensed Consolidated Balance Sheets.

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

(c) Represents cash collateral posted and received that is eligible for netting.

Gain (loss) recognized in earnings on AIG's derivative instruments in fair value hedging relationships in the Condensed Consolidated Statements of Income

	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2013			2012		2013			2012
Interest rate contracts:(a)
Loss recognized in earnings on derivatives	$	–		$	–	$	–		$	(2	)
Hedged items(b)		23			48		53			80
Foreign exchange contracts:(a)
Derivatives		(35	)		–		(40	)		–
Hedged items		43			–		47			–
Amount excluded from effectiveness testing		8			–		7			–

(a)  Gains and losses recognized in earnings for the ineffective portion and amounts excluded from effectiveness testing, if any, are recorded in Net realized capital gains.

(b)  Represents the amortization of debt basis adjustment recorded in Other income and Net realized capital gains (losses) following the discontinuation of hedge accounting.

Effect of AIG's derivative instruments not designated as hedging instruments in the Condensed Consolidated Statements of Income

	Gains (Losses) Recognized in Earnings
							Gains (Losses) Recognized in Earnings
	Three Months Ended June 30,
							Six Months Ended June 30,
(in millions)	2013			2012			2013			2012
By Derivative Type:
Interest rate contracts(a)	$	(69	)	$	598		$	(285	)	$	12
Foreign exchange contracts		(8	)		21			147			90
Equity contracts(b)		468			(207	)		512			(395	)
Commodity contracts		(2	)		(1	)		(2	)		(2	)
Credit contracts		138			63			313			214
Other contracts		16			(81	)		60			(52	)
Total	$	543		$	393		$	745		$	(133	)
By Classification:
Policy fees	$	48		$	37		$	93		$	73
Net investment income		5			–			29			1
Net realized capital gains (losses)		276			(423	)		–			(660	)
Other income		219			779			631			453
Policyholder benefits and claims incurred		(5	)		–			(8	)		–
Total	$	543		$	393		$	745		$	(133	)

(a)  Includes cross currency swaps.

(b)  Includes embedded derivative gains of $505 million and $760 million for the three- and six-month periods ended June 30, 2013, respectively, and embedded derivative losses of $368 million and $193 million for the three- and six-month periods ended June 30, 2012, respectively.

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

	Net Notional Amount at(a)				Fair Value of Derivative Liability at(b)				Unrealized Market Valuation Gain(c)
	June 30,		December 31,		June 30,		December 31,		Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2013		2012		2013		2012		2013		2012			2013		2012
Regulatory Capital:
Prime residential mortgages	$	11	$	97	$	–	$	–	$	–	$	–		$	–	$	–
Other		–		–		–		–		–		(3	)		–		3
Total		11		97		–		–		–		(3	)		–		3
Arbitrage:
Multi-sector CDOs(d)		3,575		3,944		1,547		1,910		126		68			281		194
Corporate debt/CLOs(e)		11,590		11,832		39		60		5		(6	)		21		11
Total		15,165		15,776		1,586		1,970		131		62			302		205
Mezzanine tranches		–		–		–		–		–		(2	)		–		(11	)
Total	$	15,176	$	15,873	$	1,586	$	1,970	$	131	$	57		$	302	$	197

(a)  Net notional amounts presented are net of all structural subordination below the covered tranches. The decrease in the total net notional amount from December 31, 2012 to June 30, 2013 was primarily due to amortization of $523 million, foreign exchange rate movement of $110 million and a combination of terminations and maturities of $64 million.

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

(c)  Includes credit valuation adjustment gains of $1 million and $2 million for the three-month periods ended June 30, 2013 and 2012, respectively, and losses of $1 million and $24 million for the six-month periods ended June 30, 2013 and 2012, 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, 2013, we paid $82 million to counterparties with respect to multi-sector CDOs. Upon payment, a $82 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 $3.1 billion and $3.4 billion in net notional amount of credit default swaps written with cash settlement provisions at June 30, 2013 and December 31, 2012, respectively. Collateral postings with regards to multi-sector CDOs were $1.3 billion and $1.6 billion at June 30, 2013 and December 31, 2012, respectively.

(e)  Corporate debt/Collateralized Loan Obligations (CLOs) include $1.0 billion and $1.2 billion in net notional amount of credit default swaps written on the super senior tranches of CLOs at June 30, 2013 and December 31, 2012, respectively. Collateral postings with regards to corporate debt/CLOs were $383 million and $420 million at June 30, 2013 and December 31, 2012, respectively.