AIG 2012 Annual Report Download - page 189

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Critical Accounting Estimates
The preparation of financial statements in conformity with 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:
• classification of ILFC as held for sale;
• insurance liabilities, including property and casualty and mortgage guaranty unpaid claims and claims
adjustment expenses and future policy benefits for life and accident and health contracts;
• 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;
• recoverability of assets including reinsurance assets;
• estimated gross profits for investment-oriented products;
• impairment charges, including other-than-temporary impairments of financial instruments and goodwill
impairments;
• liabilities for legal contingencies; and
• fair value measurements of certain financial assets and liabilities.
See Note 1 to Consolidated Financial Statements for additional information.
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 categories for which assumptions are developed and used to establish each critical accounting
estimate are highlighted below.
Classification of ILFC as Held for Sale
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We report a business as held for sale when management has approved or received approval to sell the business
and is committed to a formal plan, the business is available for immediate sale, the business is being actively
marketed, the sale is anticipated to occur during the next 12 months, which may require significant judgment, and
certain other specified criteria are met. A business classified as held for sale is recorded at the lower of its carrying
amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair
value, a loss is recognized.
On December 9, 2012, we entered into a definitive agreement with Jumbo Acquisition Limited for the sale of
80.1 percent of the common stock of ILFC for approximately $4.23 billion in cash. Jumbo Acquisition Limited may
elect to purchase an additional 9.9 percent of the common stock of ILFC for $522.5 million (the Option) by the later
of March 15, 2013 and ten days after approval of the ILFC Transaction and the Option by the Committee on Foreign
Investment in the United States. The transaction is subject to required regulatory approvals and other customary
closing conditions. We determined ILFC met the criteria at December 31, 2012 for held for sale accounting and,
consequently, we recorded a $4.4 billion after tax loss for the year ended December 31, 2012, which is reported in
Income (loss) from discontinued operations in the Consolidated Statement of Operations.
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AIG 2012 Form 10-K172
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES