AIG 2011 Annual Report Download - page 192

The major categories for which assumptions are developed and used to establish each critical accounting
estimate are highlighted below.
AIG considers the recoverability of its deferred tax asset to be a critical accounting estimate. The evaluation of
the recoverability of the deferred tax asset and the need for a valuation allowance requires AIG to weigh all
positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the
deferred tax asset will be realized. The weight given to the evidence is commensurate with the extent to which it
can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the
more difficult it is to support a conclusion that a valuation allowance is not needed.
AIG’s framework for assessing the recoverability of deferred tax assets weighs the sustainability of recent
operating profitability, the predictability of future operating profitability of the character necessary to realize the
deferred tax assets, and AIG’s emergence from cumulative losses in recent years. The framework requires AIG to
consider all available evidence, including:
• the nature, frequency, and severity of cumulative financial reporting losses in recent years;
• the sustainability of recent operating profitability of AIG’s subsidiaries in various tax jurisdictions;
• the predictability of future operating profitability of the character necessary to realize the net deferred tax
asset;
• the carryforward periods for the net operating loss (NOL), capital loss and foreign tax credit (FTC)
carryforwards, including the effect of reversing taxable temporary differences; and,
• prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the
loss of the deferred tax assets.
During 2011, AIG experienced significant favorable developments, including the completion of the
Recapitalization in January 2011, the wind-down of AIGFP’s portfolios, the sale of certain businesses, emergence
from cumulative losses in recent years and a return to sustainable operating profits within its primary operations.
During 2011, AIG’s level of profitability, excluding the $3.3 billion loss on extinguishment of debt in January,
confirmed its return to sustainable operating profit for the full year. This, together with the emergence from
cumulative losses in recent years and projections of sufficient future taxable income, represents significant positive
evidence. As of December 31, 2011, the cumulative positive evidence outweighed the historical negative evidence
regarding the likelihood that the deferred tax asset for AIG’s U.S. consolidated income tax group (other than the
life-insurance-business capital loss carryforwards) will be realized. This assessment was evidenced by AIG meeting
all of the criteria in its framework, resulting in its conclusion that $16.6 billion of the deferred tax asset valuation
allowance for AIG’s U.S. consolidated income tax group should be released in 2011. The life-insurance-business
capital loss carryforwards may be realized in the future if and when, either capital gains are realized or when
prudent and feasible tax planning strategies are identified that result in an assessment that the life-insurance-
business capital loss carryforwards will be realized on a more-likely-than-not basis prior to the expiration of such
capital loss carryforwards.
In order to demonstrate the predictability and sufficiency of future taxable income necessary to support the
realizability of the NOLs, FTCs and nonlife capital loss carryforwards related to the $16.6 billion valuation
allowance release, AIG considered its forecasts of future income for each of its businesses using comparisons to
historical results, and actual and planned business and operational changes, which included assumptions about
future macroeconomic and AIG-specific conditions and events. AIG also subjected the forecasts to stresses
(considering various adverse AIG- specific and macro-economic risks) of key assumptions and evaluated the effect
on tax attribute utilization. Management also stressed its assumptions related to the effectiveness of relevant
prudent and feasible tax planning strategies. AIG’s income forecasts coupled with its tax planning strategies (as
well as stressed scenarios), all resulted in sufficient taxable income to achieve realization of the tax attributes
(other than life-insurance-business capital loss carryforwards) prior to their expiration.
178 AIG 2011 Form 10-K
RECOVERABILITY OF DEFERRED TAX ASSET: