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ITEM 8 / NOTE 11. VARIABLE INTEREST ENTITIES.....................................................................................................................................................................................11. VARIABLE INTEREST ENTITIES..............................................................................................................................................................................................A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its activitieswithout additional subordinated financial support or is structured such that equity investors lack the ability to makesignificant decisions relating to the entity’s operations through voting rights and do not substantively participate in thegains and losses of the entity. Consolidation of a VIE by its primary beneficiary is not based on majority votinginterest, but is based on other criteria discussed below.While we enter into various arrangements with VIEs in the normal course of business, our involvement with VIEs isprimarily via our insurance companies as a passive investor in debt securities (rated and unrated) and equityinterests issued by VIEs. In all instances, we consolidate the VIE when we determine we are the primary beneficiary.This analysis includes a review of the VIE’s capital structure, contractual relationships and terms, nature of the VIE’soperations and purpose, nature of the VIE’s interests issued and our involvement with the entity. When assessing theneed to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed toexpose the variable interest holders to.For VIEs with attributes consistent with that of an investment company or a money market fund, the primarybeneficiary is the party or group of related parties that absorbs a majority of the expected losses of the VIE, receivesthe majority of the expected residual returns of the VIE, or both.For all other variable interest entities, the primary beneficiary is the entity that has both (1) the power to direct theactivities of the VIE that most significantly affect the entity’s economic performance and (2) the obligation to absorblosses or the right to receive benefits that could be potentially significant to the VIE. While also considering thesefactors, the consolidation conclusion depends on the breadth of our decision-making ability and our ability toinfluence activities that significantly affect the economic performance of the VIE.Exposure to Loss..............................................................................................................................................................................................Our total off-balance sheet exposure associated with VIEs, primarily consisting of financial guarantees andcommitments to real estate and investment funds, was $0.2 billion and $0.4 billion at December 31, 2012 and 2011,respectively.The following table presents our total assets, total liabilities and off-balance sheet exposure associated withour variable interests in consolidated VIEs:VIE Assets (a)VIE LiabilitiesDecember 31, December 31, December 31, December 31,(in billions) 2012 2011 2012 2011AIA/ALICO SPVs $ 0.6 (b) $ 14.2 $ 0.1 $ 0.1Real estate and investment funds (c) 1.0 1.5 0.20.4Securitization Vehicles 2.4 – ––Structured investment vehicles 1.7 1.0 0.1–Affordable housing partnerships 2.3 2.5 0.20.1Other 3.3 3.6 1.32.0Total $ 11.3 $ 22.8 $ 1.9 $ 2.6(a) The assets of each VIE can be used only to settle specific obligations of that VIE.(b) Decrease primarily due to the retirement of the AIA SPV Preferred Interests held by the Department of the Treasury. As a result, the AIA SPVno longer qualified as a VIE. Assets include $567 million of cash held in escrow pursuant to the terms of the ALICO stock purchase agreementbetween AIG and MetLife. See Note 16 herein for further discussion of the escrow arrangement.(c) At December 31, 2012 and December 31, 2011, off-balance sheet exposure with respect to real estate and investments funds was$48.7 million and $85.7 million, respectively.We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) thenotional amount of VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE asthe referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsoredby us generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to us, exceptin limited circumstances when we have provided a guarantee to the VIE’s interest holders...................................................................................................................................................................................................................................AIG 2012 Form 10-K 273