AIG 2013 Annual Report Download - page 295

The following table presents the effect of our derivative instruments in cash flow hedging relationships in the
Consolidated Statements of Income:
Interest rate contracts(a):
Loss recognized in Other comprehensive income on derivatives $ (2) $ (5)
Gain (loss) reclassified from Accumulated other comprehensive income into earnings(b) (35) 55
(a) Hedge accounting was discontinued in December 2012 in connection with ILFC being classified as held-for-sale. Gains and losses recognized in
earnings are recorded in Income from continuing operations. Previously the effective portion of the change in fair value of a derivative qualifying as a
cash flow hedge was recorded in Accumulated other comprehensive income until earnings were affected by the variability of cash flows in the
hedged item. Gains and losses reclassified from Accumulated other comprehensive income were previously recorded in Other income. Gains or
losses recognized in 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 into
earnings following the discontinuation of cash flow hedges of ILFC debt.
The following table presents the effect of our derivative instruments not designated as hedging instruments
in the Consolidated Statements of Income:
By Derivative Type:
Interest rate contracts(a) $ (241) $ 601
Foreign exchange contracts 96 137
Equity contracts(b) (641) (263)
Commodity contracts (1) 4
Credit contracts 641 337
Other contracts 647
Total $ (140) $ 863
By Classification:
Policy fees $ 160 $ 113
Net investment income 58
Net realized capital gains (losses) (672) 246
Other income 367 496
Policyholder benefits and claims incurred – –
Total $ (140) $ 863
(a) Includes cross currency swaps.
(b) Includes embedded derivative gains (losses) of $1.2 billion, $(166) million and $(397) million for the years ended December 31, 2013, 2012 and
2011, respectively.
Derivative transactions between AIG and its subsidiaries and third parties are generally centralized through GCM,
specifically AIG Markets. The portfolio of this entity consists primarily of interest rate and currency derivatives and
also includes legacy credit derivatives that have been novated to this entity. Another of GCM’s entities, AIGFP, also
enters into derivatives to mitigate market risk in its exposures (interest rates, currencies, credit, commodities and
equities) arising from its transactions.
GCM follows a policy of minimizing interest rate, currency, commodity, and equity risks associated with investment
securities by entering into offsetting positions, thereby offsetting a significant portion of the unrealized appreciation
and depreciation.
Derivatives Not Designated as Hedging Instruments
Global Capital Markets Derivatives
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AIG 2013 Form 10-K 277
ITEM 8 / NOTE 11. DERIVATIVES AND HEDGE ACCOUNTING
Years Ended December 31,
(in millions) 2013 2012 2011
$–
–
Gains (Losses)
Recognized in Earnings
Years Ended December 31,
(in millions) 2013 2012 2011
$ (331)
41
676
(4)
567
85
$ 1,034
$ 207
28
62
750
(13)
$ 1,034
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