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ITEM 8 / NOTE 22. EMPLOYEE BENEFITS.....................................................................................................................................................................................The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated withinvesting in these securities. Based on our investment strategy, we have no significant concentrations of risks.The U.S. pension plan holds a group annuity contract with US Life, one of our subsidiaries, which totaled $29 millionand $31 million at December 31, 2012 and 2011, respectively.Changes in Level 3 fair value measurements..............................................................................................................................................................................................The following table presents changes in our U.S. and Non-U.S. Level 3 plan assets measured at fair value:NetChanges inRealized andUnrealized GainsBalance Unrealized Balance (Losses) onAt December 31, 2012Beginning Gains Transfers Transfers at End Instruments Held(in millions) of year (Losses) Purchases Sales Issuances Settlements In Out of year at End of yearU.S. Plan Assets:Fixed maturityU.S. investment gradeMortgage and other assetbackedsecuritiesPrivate equityTotalNon-U.S. Plan Assets:Other fixed maturity securitiesInsurance contractsTotal$ 1 $ 5 $ 9 $ (29) $ – $ (10) $ 36 $ (1) $ 11 $ 136 – – – – – – (36) – –223 9 23 (26) – – 4 (8) 225 (14)$ 260 $ 14 $ 32 $ (55) $ – $ (10) $ 40 $ (45) $ 236 $ (13)$ 1 $ – $ – $ (1) $ – $ – $ 27 $ – $ 27 $ –39 2 2 – – – – – 43 –$ 40 $ 2 $ 2 $ (1) $ – $ – $ 27 $ – $ 70 $ –Changes inNetUnrealized GainsBalance Realized and Balance (Losses) onAt December 31, 2011Beginning Unrealized Transfers Transfers at End Instruments Held(in millions) of year Gains (Losses) Purchases Sales Issuances Settlements In Out of year at End of yearU.S. Plan Assets:Fixed maturityU.S. investment grade $ 1 $ – $ – $ – $ – $ – $ – $ – $ 1 $ –U.S. and international highyield – – – – – (1) 1 – – 1Mortgage and other assetbackedsecurities 80 1 34 (79) – (1) 4 (3) 36 13Equities – U.S. – – – – – – – – – –Private equity 209 5 30 (20) – (1) – – 223 (23)Total $ 290 $ 6 $ 64 $ (99) $ – $ (3) $ 5 $ (3) $ 260 $ (9)Non-U.S. Plan Assets:Other fixed maturity securities $ – $ – $ 1 $ – $ – $ – $ – $ – $ 1 $ –Private equity – – – – – – – – – –Insurance contracts 34 3 2 – – – – – 39 –Total $ 34 $ 3 $ 3 $ – $ – $ – $ – $ – $ 40 $ –Transfers of Level 1 and Level 2 Assets and Liabilities..............................................................................................................................................................................................Our policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of theend of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out ofLevel 1 when they are no longer transacted with sufficient frequency and volume in an active market. Conversely,assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an activemarket. We had no significant transfers between Level 1 and Level 2 during the year ended December 31, 2012.Transfers of Level 3 Assets..............................................................................................................................................................................................During the year ended December 31, 2012, transfers of Level 3 assets included certain U.S. investment grade andmortgage backed securities and other fixed maturity securities. These transfers were due to a decrease in markettransparency, downward credit migration and an overall increase in price disparity for certain individual security types...................................................................................................................................................................................................................................AIG 2012 Form 10-K 327