AIG 2015 Annual Report Download - page 190

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires the application of accounting policies that often
involve a significant degree of judgment.
The accounting policies that we believe are most dependent on the application of estimates and
assumptions, which are critical accounting estimates, are related to the determination of:
• income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax
operating profitability of the character necessary to realize the net deferred tax asset;
• liability for unpaid losses and loss adjustment expenses;
• reinsurance assets;
• valuation of future policy benefit liabilities and timing and extent of loss recognition;
• valuation of liabilities for guaranteed benefit features of variable annuity products;
• estimated gross profits to value deferred acquisition costs for investment-oriented products;
• impairment charges, including other-than-temporary impairments on available for sale securities, impairments on other
invested assets, including investments in life settlements, and goodwill impairment;
• liability for legal contingencies; and
• fair value measurements of certain financial assets and liabilities.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of
operations and cash flows could be materially affected.
The major assumptions used to establish each critical accounting estimate are discussed below.
Income Taxes
Recoverability of Net Deferred Tax Asset
The evaluation of the recoverability of our net deferred tax asset and the need for a valuation allowance requires us 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 net
deferred tax asset will not 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.
We consider a number of factors to reliably estimate future taxable income so we can determine the extent of our ability to
realize net operating losses (NOLs), foreign tax credits (FTCs), realized capital loss and other carryforwards. These factors
include forecasts of future income for each of our businesses and actual and planned business and operational changes, both
of which include assumptions about future macroeconomic and AIG-specific conditions and events. We subject the forecasts to
stresses of key assumptions and evaluate the effect on tax attribute utilization. We also apply stresses to our assumptions
about the effectiveness of relevant prudent and feasible tax planning strategies. Our income forecasts, coupled with our tax