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ITEM 8 / NOTE 7. INVESTMENTS.....................................................................................................................................................................................Net Realized Capital Gains and Losses..............................................................................................................................................................................................Net realized capital gains and losses are determined by specific identification. The net realized capital gains andlosses are generated primarily from the following sources:• Sales of fixed maturity securities and equity securities (except trading securities accounted for at fair value andinvestments for which the fair value option has been elected), real estate, investments in private equity funds andhedge funds and other types of investments.• Reductions to the cost basis of fixed maturity securities and equity securities (except trading securities accountedfor at fair value and investments for which the fair value option has been elected) and other invested assets forother-than-temporary impairments.• Changes in fair value of derivatives except for (1) those instruments at AIGFP that are not intermediated on behalfof other AIG subsidiaries and (2) those instruments that are designated as hedging instruments when the changein the fair value of the hedged item is not reported in Net realized capital gains (losses Exchange gains and lossesresulting from foreign currency transactions.The following table presents the components of Net realized capital gains (losses) and the increase(decrease) in unrealized appreciation of our available for sale securities:Years Ended December 31,(in millions) 2012 2011 2010Sales of fixed maturity securities $ 2,607 $ 1,913 $ 1,846Sales of equity securities 484 164 725Other-than-temporary impairments:Severity (44) (51) (73)Change in intent (62) (12) (441)Foreign currency declines (8) (32) (63)Issuer-specific credit events (1,048) (1,165) (2,457)Adverse projected cash flows (5) (20) (5)Provision for loan losses 104 48 (304)Change in the fair value of MetLife securities prior to their sale – (191) 315Foreign exchange transactions (234) (93) 191Derivative instruments (684) 448 (416)Other (181) (308) (34)Net realized capital gains (losses) $ 929 $ 701 $ (716)Increase in unrealized appreciation of investments:Fixed maturities $ 10,599 $ 5,578 $ 8,677Equity securities (232) (206) 473Other investments 343 146 156Increase in unrealized appreciation * $ 10,710 $ 5,518 $ 9,306* Excludes net unrealized gains attributable to businesses held for sale.Evaluating Investments for Other-Than-Temporary Impairments..............................................................................................................................................................................................Fixed Maturity SecuritiesIf we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturitysecurity before recovery of its amortized cost basis and the fair value of the security is below amortized cost, another-than-temporary impairment has occurred and the amortized cost is written down to current fair value, with acorresponding charge to earnings. When assessing our intent to sell a fixed maturity security, or whether it is morelikely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis,management evaluates relevant facts and circumstances including, but not limited to, decisions to reposition ourinvestment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage offavorable pricing...................................................................................................................................................................................................................................260 AIG 2012 Form 10-K