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ITEM 8 / NOTE 12. DERIVATIVES AND HEDGE ACCOUNTING.....................................................................................................................................................................................12. DERIVATIVES AND HEDGE ACCOUNTING..............................................................................................................................................................................................We use derivatives and other financial instruments as part of our financial risk management programs and as part ofour investment operations. Interest rate, currency, equity and commodity swaps, credit contracts (including the supersenior credit default swap portfolio), swaptions, options and forward transactions are accounted for as derivativesrecorded on a trade-date basis, and carried at fair value. Unrealized gains and losses are reflected in income, whenappropriate. In certain instances, a contract’s transaction price is the best indication of initial fair value. Aggregateasset or liability positions are netted on the Consolidated Balance Sheet only to the extent permitted by qualifyingmaster netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties inconjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of thecorresponding net derivative liability, while cash collateral received in conjunction with transactions supported byqualifying master netting arrangements is reported as a reduction of the corresponding net derivative asset.Derivatives, with the exception of bifurcated embedded derivatives, are reflected in the Consolidated Balance Sheetin Derivative assets, at fair value and Derivative liabilities, at fair value. A bifurcated embedded derivative ismeasured at fair value and accounted for in the same manner as a free standing derivative contract. Thecorresponding host contract is accounted for according to the accounting guidance applicable for that instrument. Abifurcated embedded derivative is generally presented with the host contract in the Consolidated Balance Sheet. SeeNote 6 herein for additional information on embedded policy derivatives.The following table presents the notional amounts and fair values of our derivative instruments:December 31, 2012 December 31, 2011Gross Derivative Gross Derivative Gross Derivative Gross DerivativeAssets Liabilities Assets LiabilitiesNotional Fair Notional Fair Notional Fair Notional Fair(in millions) Amount Value (a) Amount Value (a) Amount Value (a) Amount Value (a)Derivatives designated ashedging instruments:Interest rate contracts (b) $ – $ – $ – $ – $ – $ – $ 481 $ 38Foreign exchange contracts – – – – – – 180 1Derivatives not designated ashedging instruments:Interest rate contracts (b) 63,463 6,479 63,482 5,806 72,660 8,286 73,248 6,870Foreign exchange contracts 8,325 104 10,168 174 3,278 145 3,399 178Equity contracts (c) 4,990 221 25,626 1,377 4,748 263 18,911 1,126Commodity contracts 625 145 622 146 691 136 861 146Credit contracts 70 60 16,244 2,051 407 89 25,857 3,366Other contracts (d) 20,449 38 1,488 206 24,305 741 2,125 372Total derivatives notdesignated as hedginginstruments 97,922 7,047 117,630 9,760 106,089 9,660 124,401 12,058Total derivatives $ 97,922 $ 7,047 $ 117,630 $ 9,760 $ 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 $23 billion and $1.3 billion, respectively, at December 31,2012 and $18.3 billion and $0.9 billion, respectively at December 31, 2011 related to bifurcated embedded derivatives. A bifurcated embeddedderivative is generally presented with the host contract in the Consolidated Balance Sheet.(d) Consist primarily of contracts with multiple underlying exposures...................................................................................................................................................................................................................................AIG 2012 Form 10-K 277
ITEM 8 / NOTE 12. DERIVATIVES AND HEDGE ACCOUNTING.....................................................................................................................................................................................The following table presents the fair values of derivative assets and liabilities in the Consolidated BalanceSheet:December 31, 2012 December 31, 2011Derivative Assets Derivative Liabilities Derivative Assets Derivative LiabilitiesNotional Fair Notional Fair Notional Fair Notional Fair(in millions) Amount Value Amount Value Amount Value Amount ValueGlobal Capital Marketsderivatives:AIG Financial Products $ 59,854 $ 4,725 $ 66,717 $ 5,506 $ 86,128 $ 7,063 $ 90,241 $ 8,853AIG Markets 14,028 1,308 18,774 1,818 7,908 1,409 8,201 1,168Total Global Capital Marketsderivatives 73,882 6,033 85,491 7,324 94,036 8,472 98,442 10,021Non-Global Capital Marketsderivatives (a) 24,040 1,014 32,139 2,436 12,053 1,188 26,620 2,076Total derivatives, gross $ 97,922 7,047 $ 117,630 9,760 $ 106,089 9,660 $ 125,062 12,097Counterparty netting (b) (2,467) (2,467)(3,660) (3,660)Cash collateral (c) (909) (1,976)(1,501) (2,786)Total derivatives, net 3,671 5,3174,499 5,651Less: Bifurcated embeddedderivatives – 1,256– 918Total derivatives onconsolidated balance sheet $ 3,671 $ 4,061$ 4,499 $ 4,733(a) Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance as well as embedded derivativesincluded 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 that is eligible for netting.Collateral..............................................................................................................................................................................................We engage in derivative transactions directly with unaffiliated third parties in most cases under International Swapsand Derivatives Association, Inc. (ISDA) agreements. Many of the ISDA agreements also include Credit SupportAnnex (CSA) provisions, which generally provide for collateral postings at various ratings and threshold levels. Weattempt to reduce our risk with certain counterparties by entering into agreements that enable collateral to beobtained from a counterparty on an upfront or contingent basis. We minimize the risk that counterparties totransactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure andcollateral value and generally requiring additional collateral to be posted upon the occurrence of certain events orcircumstances. In addition, a significant portion of the derivative transactions have provisions that require collateral tobe posted upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate thetransaction. In the case of some of the derivative transactions, as an alternative to posting collateral and subject tocertain conditions, we may assign the transaction to an obligor with higher debt ratings or arrange for a substituteguarantee of our obligations by an obligor with higher debt ratings or take other similar action. The actual amount ofcollateral required to be posted to counterparties in the event of such downgrades, or the aggregate amount ofpayments that we could be required to make, depends on market conditions, the fair value of outstanding affectedtransactions and other factors prevailing at and after the time of the downgrade.Collateral posted by us to third parties for derivative transactions was $4.5 billion and $4.7 billion at December 31,2012 and December 31, 2011, respectively. This collateral can generally be repledged or resold by thecounterparties. Collateral obtained by us from third parties for derivative transactions was $1.4 billion and $1.6 billionat December 31, 2012 and December 31, 2011, respectively. We generally can repledge or resell this collateral.Hedge Accounting..............................................................................................................................................................................................We designated certain derivatives entered into by GCM with third parties as fair value hedges of available-for-saleinvestment securities held by our insurance subsidiaries. The fair value hedges include foreign currency forwards..................................................................................................................................................................................................................................278 AIG 2012 Form 10-K
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American International Group, Inc.2
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KEY FACTS & FIGURES52,000+ $65.7 bi
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■We said we would return to profi
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Financial HighlightsYears Ended Dec
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~63,000AIG EMPLOYEES AROUND THE WOR
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$115.1 millionAVERAGE CLAIMS PAID E
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$10,000MAXIMUM DONATION MADE BY AIG
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American International Group, Inc.F
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AMERICAN INTERNATIONAL GROUP, INC.A
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 7 / MANAGEMENT’S DISCUSSION
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ITEM 7 / INVESTMENTS...............
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ITEM 7 / GLOSSARY..................
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ITEM 7 / GLOSSARY..................
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ITEM 7A / QUANTITATIVE AND QUALITAT
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ITEM 8 / INDEX TO FINANCIAL STATEME
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AMERICAN INTERNATIONAL GROUP, INC.C
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ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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PART II............................
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PART IV............................
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SignatureTitle/s/ ARTHUR C. MARTINE
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ExhibitNumber Description Location(
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Condensed Financial Information of
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Condensed Financial Information of
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Notes to Condensed Financial Inform
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Supplementary Insurance Information
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Valuation and Qualifying AccountsFo
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Subsidiaries of RegistrantExhibit 2
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Percentageof VotingSecuritiesJurisd
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Percentageof VotingSecuritiesJurisd
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CONSENT OF INDEPENDENT REGISTERED P
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CERTIFICATIONSI, Robert H. Benmosch
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CERTIFICATIONExhibit 32In connectio
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SECURITIES REGISTERED PURSUANT TO S
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American International Group, Inc.1
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