AIG 2011 Annual Report Download - page 305

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the effect of AIG’s derivative instruments in cash flow hedging relationships in the
Consolidated Statement of Operations:
Years Ended December 31,
(in millions) 2011 2010
Interest rate contracts(a):
Loss recognized in OCI on derivatives $(5)$ (33)
Loss reclassified from Accumulated OCI into earnings(b) (55) (84)
Loss recognized in earnings on derivatives for ineffective portion -(6)
(a) Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Other income. Gains or losses recognized in earnings
on derivatives for the ineffective portion are recorded in Net realized capital losses.
(b) The effective portion of the change in fair value of a derivative qualifying as a cash flow hedge is recorded in Accumulated other comprehensive
income until earnings are affected by the variability of cash flows in the hedged item. At December 31, 2011, $17 million of the deferred net
loss in Accumulated other comprehensive loss is expected to be recognized in earnings during the next 12 months.
The following table presents the effect of AIG’s derivative instruments not designated as hedging instruments in
the Consolidated Statement of Operations:
Gains (Losses) Recognized in Earnings
Years Ended December 31,
(in millions) 2011 2010
By Derivative Type:
Interest rate contracts(a) $ 601 $ 254
Foreign exchange contracts 137 (123)
Equity contracts(b) (263) 427
Commodity contracts 41
Credit contracts 337 1,227
Other contracts 47 545
Total $ 863 $ 2,331
By Classification:
Premiums $ 113 $75
Net investment income 818
Net realized capital gains 96 726
Other income 646 1,512
Total $ 863 $ 2,331
(a) Includes cross currency swaps.
(b) Includes embedded derivative gains (losses) of $ (397) million and $423 million, for the years ended December 31, 2011 and December 31,
2010, respectively.
AIGFP enters into derivative transactions to mitigate market risk in its exposures (interest rates, currencies,
commodities, credit and equities) arising from its transactions. In most cases, AIGFP did not hedge its exposures
related to the credit default swaps it had written. As a dealer, AIGFP structured and entered into derivative
transactions to meet the needs of counterparties who may have been seeking to hedge certain aspects of such
counterparties’ operations or obtain a desired financial exposure.
AIGFP’s derivative transactions involving interest rate swap transactions generally involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the underlying notional amounts. AIGFP
typically became a principal in the exchange of interest payments between the parties and, therefore, is exposed to
AIG 2011 Form 10-K 291
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
AIGFP DERIVATIVES