AIG 2011 Annual Report Download - page 303

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the fair values of derivative assets and liabilities in the Consolidated Balance Sheet:
December 31, 2011 December 31, 2010
Derivative Assets Derivative Liabilities(a) Derivative Assets Derivative Liabilities(a)
Notional Fair Notional Fair Notional Fair Notional Fair
(in millions) Amount Value Amount Value Amount Value Amount Value
AIGFP derivatives $ 86,128 $ 7,063 $ 90,241 $ 8,854 $ 168,033 $ 12,268 $ 173,226 $ 12,379
All other derivatives(b) 19,961 2,597 34,821 3,243 22,224 4,043 31,627 3,001
Total derivatives, gross $ 106,089 9,660 $ 125,062 12,097 $ 190,257 16,311 $ 204,853 15,380
Counterparty netting(c) (3,660) (3,660) (6,298) (6,298)
Cash collateral(d) (1,501) (2,786) (4,096) (2,902)
Total derivatives, net 4,499 5,651 5,917 6,180
Less: Bifurcated embedded
derivatives - 918 - 445
Total derivatives on consolidated
balance sheet $ 4,499 $ 4,733 $ 5,917 $ 5,735
(a) Included in All other derivatives are bifurcated embedded derivatives, which are recorded in Policyholder contract deposits.
(b) Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance and ILFC operations, as well as
embedded derivatives included in insurance obligations.
(c) Represents netting of derivative exposures covered by a qualifying master netting agreement.
(d) Represents cash collateral posted and received.
AIG engages in derivative transactions directly with unaffiliated third parties in most cases under International
Swaps and Derivatives Association, Inc. (ISDA) agreements. Many of the ISDA agreements also include Credit
Support Annex (CSA) provisions, which generally provide for collateral postings at various ratings and threshold
levels. AIG attempts to reduce its risk with certain counterparties by entering into agreements that enable
collateral to be obtained from a counterparty on an upfront or contingent basis. AIG minimizes the risk that
counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty
credit exposure and collateral value and generally requiring additional collateral to be posted to AIG upon the
occurrence of certain events or circumstances. In addition, a significant portion of the derivative transactions have
provisions that require collateral to be posted by AIG upon a downgrade of AIG’s long-term debt ratings or give
the counterparty the right to terminate the transaction. In the case of some of the derivative transactions, as an
alternative to posting collateral and subject to certain conditions, AIG may assign the transaction to an obligor
with higher debt ratings or arrange for a substitute guarantee of AIG’s obligations by an obligor with higher debt
ratings or take other similar action. The actual amount of collateral required to be posted to counterparties in the
event of such downgrades, or the aggregate amount of payments that AIG could be required to make, depends on
market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the
time of the downgrade.
Collateral posted by AIG to third parties for derivative transactions was $4.7 billion and $4.3 billion at
December 31, 2011 and 2010, respectively. This collateral can generally be repledged or resold by the
counterparties. Collateral obtained by AIG from third parties for derivative transactions was $1.6 billion and
$4.2 billion at December 31, 2011 and 2010, respectively. This collateral can generally be repledged or resold by
AIG.
AIG 2011 Form 10-K 289
COLLATERAL