AIG 2013 Annual Report Download - page 292

ILFC created wholly-owned subsidiaries for the purpose of facilitating aircraft leases with airlines. The entities are
VIEs because they do not have sufficient equity to operate without ILFC’s subordinated financial support in the form
of intercompany notes which serve as equity. ILFC consolidates the entities, controls all the activities of the entities
and fully guarantees the activities of the entities. AIG has not included these entities in the above table as they are
wholly owned and there are no other variable interests in the entities other than those of ILFC.
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 Sheets 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 Sheets
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 Sheets.
See Note 5 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) $–$–$ – $–
Foreign exchange contracts ––––
Derivatives not designated as
hedging instruments:
Interest rate contracts(b) 63,463 6,479 63,482 5,806
Foreign exchange contracts 8,325 104 10,168 174
Equity contracts(c) 4,990 221 25,626 1,377
Commodity contracts 625 145 622 146
Credit contracts 70 60 16,244 2,051
Other contracts(d) 20,449 38 1,488 206
Total derivatives not designated as
hedging instruments 97,922 7,047 117,630 9,760
Total derivatives, gross $ 97,922 $ 7,047 $ 117,630 $ 9,760
(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 assets and fair value of derivative assets include $23.2 billion and $107 million, respectively, at December 31, 2013 related to
bifurcated embedded derivatives. There were no bifurcated embedded derivative assets at December 31, 2012. Notional amount of derivative liabilities and fair
values of derivative liabilities include $6.7 billion and $424 million, respectively, at December 31, 2013 and $23 billion and $1.3 billion, respectively at
December 31, 2012 related to bifurcated embedded derivatives. A bifurcated embedded derivative is generally presented with the host contract in the
Consolidated Balance Sheets.
(d) Consist primarily of contracts with multiple underlying exposures.
Leasing Entities
11. DERIVATIVES AND HEDGE ACCOUNTING
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AIG 2013 Form 10-K274
ITEM 8 / NOTE 10. VARIABLE INTEREST ENTITIES
December 31, 2013 December 31, 2012
Gross Derivative Assets Gross Derivative Liabilities Gross Derivative Assets Gross Derivative Liabilities
Notional Fair Notional Fair Notional Fair Notional Fair
(in millions) Amount Value(a) Amount Value(a) Amount Value(a) Amount Value(a)
$ – $ – $ 112 $ 15
– – 1,857 190
50,897 3,771 59,585 3,849
1,774 52 3,789 129
29,296 413 9,840 524
17 1 13 5
70 55 15,459 1,335
32,440 34 1,408 167
114,494 4,326 90,094 6,009
$ 114,494 $ 4,326 $ 92,063 $ 6,214
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