AIG 2012 Annual Report Download - page 294

.....................................................................................................................................................................................
12. DERIVATIVES AND HEDGE ACCOUNTING
..............................................................................................................................................................................................
We use derivatives and other financial instruments as part of our financial risk management programs and as part of
our investment operations. Interest rate, currency, equity and commodity swaps, credit contracts (including the super
senior credit default swap portfolio), swaptions, options and forward transactions are accounted for as derivatives
recorded on a trade-date basis, and carried at fair value. Unrealized gains and losses are reflected in income, when
appropriate. In certain instances, a contract’s transaction price is the best indication of initial fair value. Aggregate
asset or liability positions are netted on the Consolidated Balance Sheet only to the extent permitted by qualifying
master netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties in
conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the
corresponding net derivative liability, while cash collateral received in conjunction with transactions supported by
qualifying master netting arrangements is reported as a reduction of the corresponding net derivative asset.
Derivatives, with the exception of bifurcated embedded derivatives, are reflected in the Consolidated Balance Sheet
in Derivative assets, at fair value and Derivative liabilities, at fair value. A bifurcated embedded derivative is
measured at fair value and accounted for in the same manner as a free standing derivative contract. The
corresponding host contract is accounted for according to the accounting guidance applicable for that instrument. A
bifurcated embedded derivative is generally presented with the host contract in the Consolidated Balance Sheet. See
Note 6 herein for additional information on embedded policy derivatives.
The following table presents the notional amounts and fair values of our derivative instruments:
Derivatives designated as
hedging instruments:
Interest rate contracts(b) $ –$–$481$38
Foreign exchange contracts – – 180 1
Derivatives not designated as
hedging instruments:
Interest rate contracts(b) 72,660 8,286 73,248 6,870
Foreign exchange contracts 3,278 145 3,399 178
Equity contracts(c) 4,748 263 18,911 1,126
Commodity contracts 691 136 861 146
Credit contracts 407 89 25,857 3,366
Other contracts(d) 24,305 741 2,125 372
Total derivatives not
designated as hedging
instruments 106,089 9,660 124,401 12,058
Total derivatives $ 106,089 $ 9,660 $ 125,062 $ 12,097
(a) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(b) Includes cross currency swaps.
(c) Notional amount of derivative liabilities and fair values of derivative liabilities include $23 billion and $1.3 billion, respectively, at December 31,
2012 and $18.3 billion and $0.9 billion, respectively at December 31, 2011 related to bifurcated embedded derivatives. A bifurcated embedded
derivative is generally presented with the host contract in the Consolidated Balance Sheet.
(d) Consist primarily of contracts with multiple underlying exposures.
..................................................................................................................................................................................................................................
AIG 2012 Form 10-K 277
December 31, 2012 December 31, 2011
Gross Derivative Gross Derivative Gross Derivative Gross Derivative
Assets Liabilities Assets Liabilities
Notional Fair Notional Fair Notional Fair Notional Fair
(in millions) Amount Value(a) Amount Value(a) Amount Value(a) Amount Value(a)
$ –$–$ –$–
–– ––
63,463 6,479 63,482 5,806
8,325 104 10,168 174
4,990 221 25,626 1,377
625 145 622 146
70 60 16,244 2,051
20,449 38 1,488 206
97,922 7,047 117,630 9,760
$ 97,922 $ 7,047 $ 117,630 $ 9,760
ITEM 8 / NOTE 12. DERIVATIVES AND HEDGE ACCOUNTING