AIG 2015 Annual Report Download - page 191

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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planning strategies, all resulted in sufficient taxable income to achieve realization of the U.S. tax attributes prior to their
expiration.
We separately assess the recoverability of our net deferred tax asset related to unrealized tax capital losses in the U.S. Life
Insurance Companies’ available for sale portfolio. The deferred tax asset relates to the unrealized losses for which the
carryforward period has not yet begun, as such when assessing its recoverability we consider our ability and intent to hold the
underlying securities to recovery. As of December 31, 2015, based on all available evidence, we concluded that a valuation
allowance should be established on a portion of the deferred tax asset related to unrealized losses that are not more-likely-
than-not to be realized.
See Note 22 to the Consolidated Financial Statements for a discussion of our framework for assessing the recoverability of our
deferred tax asset.
Uncertain Tax Positions
Our accounting for income taxes, including uncertain tax positions, represents management’s best estimate of various events
and transactions, and requires judgment. FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48)
(now incorporated into Accounting Standards Codification, 740, Income Taxes) prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to
be taken in a tax return. The standard also provides guidance on derecognition, classification, interest and penalties and
additional disclosures. We determine whether it is more likely than not that a tax position will be sustained, based on technical
merits, upon examination by the relevant taxing authorities before any part of the benefit can be recognized in the financial
statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon
settlement.
We classify interest expense and penalties recognized on income taxes as a component of income taxes.
U.S. Income Taxes on Earnings of Certain Foreign Subsidiaries
The U.S. federal income tax laws applicable to determining the amount of income taxes related to differences between the
book carrying amounts and tax bases of subsidiaries are complex. Determining the amount also requires significant judgment
and reliance on reasonable assumptions and estimates.
Insurance Liabilities
Liability for Unpaid Losses and Loss Adjustment Expenses (Non-Life Insurance Companies)
The estimate of the Liability for unpaid losses and loss adjustment expenses consists of several key judgments:
• the determination of the actuarial models used as the basis for these estimates;
• the relative weights given to these models by class;
• the underlying assumptions used in these models; and
• the determination of the appropriate groupings of similar classes and, in some cases, the segmentation of dissimilar claims
within a class.
We use numerous assumptions in determining the best estimate of reserves for each class of business. The importance of any
specific assumption can vary by both class of business and accident year. Because actual experience can differ from key
assumptions used in establishing reserves, there is potential for significant variation in the development of loss reserves. This