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ITEM 8 / NOTE 12. DERIVATIVES AND HEDGE ACCOUNTING.....................................................................................................................................................................................designated as hedges of the change in fair value of foreign currency denominated available-for-sale securitiesattributable to changes in foreign exchange rates. We previously designated certain interest rate swaps entered intoby GCM with third parties as cash flow hedges of certain floating rate debt issued by ILFC, specifically to hedge thechanges in cash flows on floating rate debt attributable to changes in the benchmark interest rate. We de-designatedsuch cash flow hedges in December 2012 subsequent to the announcement of the ILFC Transaction.We use foreign currency denominated debt and cross-currency swaps as hedging instruments in net investmenthedge relationships to mitigate the foreign exchange risk associated with our non-U.S. dollar functional currencyforeign subsidiaries. We assess the hedge effectiveness and measure the amount of ineffectiveness for these hedgerelationships based on changes in spot exchange rates. For the years ended December 31, 2012, 2011, and 2010we recognized gains (losses) of $(74) million, $(13) million and $28 million, respectively, included in Foreign currencytranslation adjustment in Accumulated other comprehensive income related to the net investment hedgerelationships.A qualitative methodology is utilized to assess hedge effectiveness for net investment hedges, while regressionanalysis is employed for all other hedges.The following table presents the effect of our derivative instruments in fair value hedging relationships in theConsolidated Statement of Operations:Years Ended December 31,(in millions) 2012 2011Interest rate contracts: (a)Loss recognized in earnings on derivatives $ – $ (3)Gain recognized in earnings on hedged items (b) 124 152Foreign exchange contracts: (a)Loss recognized in earnings on derivatives (2) (1)Gain recognized in earnings on hedged items 2 1(a) Gains and losses recognized in earnings for the ineffective portion and amounts excluded from effectiveness testing, if any, are recorded inNet realized capital gains (losses).(b) Includes $124 million and $149 million, for the years ended December 31, 2012 and 2011, respectively, representing the amortization of debtbasis adjustment recorded in Other income and Net realized capital gains (losses) following the discontinuation of hedge accounting.The following table presents the effect of our derivative instruments in cash flow hedging relationships in theConsolidated Statement of Operations:Years Ended December 31,(in millions) 2012 2011Interest rate contracts (a) :Gain (loss) recognized in OCI on derivatives $ (2) $ (5)Gain (loss) reclassified from Accumulated OCI into earnings (b) (35) (55)(a) Hedge accounting was discontinued in December 2012 subsequent to the announcement of the ILFC Transaction. Gains and losses recognized inearnings are recorded in Income (loss) from discontinued operations. Previously the effective portion of the change in fair value of a derivative qualifying asa cash flow hedge was recorded in Accumulated other comprehensive income until earnings were affected by the variability of cash flows in the hedgeditem. Gains and losses reclassified from Accumulated other comprehensive income were previously recorded in Other income. Gains or losses recognizedin earnings on derivatives for the ineffective portion were previously recorded in Net realized capital gains (losses).(b) Includes $19 million for the year ended December 2012, representing the reclassification from Accumulated other comprehensive income intoearnings following the discontinuation of cash flow hedges of ILFC debt...................................................................................................................................................................................................................................AIG 2012 Form 10-K 279
ITEM 8 / NOTE 12. DERIVATIVES AND HEDGE ACCOUNTING.....................................................................................................................................................................................Derivatives Not Designated as Hedging Instruments..............................................................................................................................................................................................The following table presents the effect of our derivative instruments not designated as hedging instrumentsin the Consolidated Statement of Operations:Gains (Losses)Recognized in EarningsYears Ended December 31,(in millions) 2012 2011By Derivative Type:Interest rate contracts (a) $ (241) $ 603Foreign exchange contracts 96 137Equity contracts (b) (641) (263)Commodity contracts (1) 4Credit contracts 641 337Other contracts 6 47Total $ (140) $ 865By Classification:Policy fees $ 160 $ 113Net investment income 5 8Net realized capital gains (losses) (672) 248Other income (losses) 367 496Total $ (140) $ 865(a)(b)Includes cross currency swaps.Includes embedded derivative losses of $166 million and $397 million for the years ended December 31, 2012 and 2011, respectively.Global Capital Markets Derivatives..............................................................................................................................................................................................GCM enters into derivative transactions to mitigate market risk in its exposures (interest rates, currencies,commodities, credit and equities) arising from its transactions. At December 31, 2012, GCM has entered into creditderivative transactions with respect to $67 million of securities to economically hedge its credit risk. In most cases,GCM has not hedged its exposures related to the credit default swaps it had written.GCM follows a policy of minimizing interest rate, currency, commodity, and equity risks associated with investmentsecurities by entering into offsetting positions, thereby offsetting a significant portion of the unrealized appreciationand depreciation.Super Senior Credit Default Swaps..............................................................................................................................................................................................Credit default swap transactions were entered into with the intention of earning revenue on credit exposure. In themajority of these transactions, we sold credit protection on a designated portfolio of loans or debt securities.Generally, such credit protection was provided on a ‘‘second loss’’ basis, meaning we would incur credit losses onlyafter a shortfall of principal and/or interest, or other credit events, in respect of the protected loans and debtsecurities, exceeded a specified threshold amount or level of ‘‘first losses.’’..................................................................................................................................................................................................................................280 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 / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG LIFE AND RE
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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ITEM 5 / MARKET FOR REGISTRANT’S
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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 / USE OF NON-GAAP MEASURES..
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ITEM 7 / EXECUTIVE SUMMARY.........
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ITEM 7 / RESULTS OF OPERATIONS.....
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ITEM 7 / LIQUIDITY AND CAPITAL RESO
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ITEM 7 / INVESTMENTS...............
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ITEM 7 / ENTERPRISE RISK MANAGEMENT
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ITEM 7 / CRITICAL ACCOUNTING ESTIMA
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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 2. SUMMARY OF SIGNIFI
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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ITEM 8 / NOTE 24. INCOME TAXES.....
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ITEM 8 / NOTE 26. QUARTERLY FINANCI
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ITEM 8 / NOTE 27. INFORMATION PROVI
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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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