AIG 2009 Annual Report Download - page 281

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Derivatives and Hedge Accounting
AIG uses derivatives and other financial instruments as part of its financial risk management programs and as part
of its investment operations. AIGFP has also transacted in derivatives as a dealer.
Derivatives are financial arrangements among two or more parties with returns linked to or ‘‘derived’’ from some
underlying equity, debt, commodity or other asset, liability, or foreign exchange rate or other index or the occurrence
of a specified payment event. Derivative payments may be based on interest rates, exchange rates, prices of certain
securities, commodities, or financial or commodity indices or other variables. Derivatives, with the exception of
bifurcated embedded derivatives, are reflected at fair value on the Consolidated Balance Sheet in Unrealized gain on
swaps, options and forward transactions, at fair value and Unrealized loss on swaps, options and forward contracts, at
fair value. Bifurcated embedded derivatives are recorded with the host contract on the Consolidated Balance Sheet.
The following table presents the notional amounts and fair values of AIG’s derivative instruments:
Derivative Assets Derivative Liabilities
At December 31, 2009
Notional Fair Notional Fair
(in millions) Amount(a) Value(b) Amount(a) Value(b)
Derivatives designated as hedging instruments:
Interest rate contracts(c) $ 10,612 $ 2,129 $ 3,884 $ 375
Total derivatives designated as hedging instruments 10,612 2,129 3,884 375
Derivatives not designated as hedging instruments:
Interest rate contracts(c) 345,614 27,451 300,847 23,718
Foreign exchange contracts 16,662 720 9,719 939
Equity contracts 8,175 1,184 7,713 1,064
Commodity contracts 759 883 381 373
Credit contracts 3,706 1,210 190,275 5,815
Other contracts 34,605 928 23,310 1,101
Total derivatives not designated as hedging instruments 409,521 32,376 532,245 33,010
Total derivatives $420,133 $34,505 $536,129 $33,385
(a) Notional amount represents a standard of measurement of the volume of derivatives business of AIG. Notional amount is generally not a
quantification of market risk or credit risk and is not recorded on the Consolidated Balance Sheet. Notional amounts generally represent those
amounts used to calculate contractual cash flows to be exchanged and are not paid or received, except for certain contracts such as currency swaps
and certain credit contracts.
(b) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(c) Includes cross currency swaps.
273 AIG 2009 Form 10-K