AIG 2015 Annual Report Download - page 334

ITEM 8 / NOTE 22. INCOME TAXES
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Assessment of Deferred Tax Asset Valuation Allowance
The evaluation of the recoverability of our 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 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.
Our framework for assessing the recoverability of the deferred tax asset requires us to consider all available evidence,
including:
 the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
 the sustainability of recent operating profitability of our subsidiaries;
 the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;
 the carryforward period for the net operating loss, capital loss and foreign tax credit carryforwards, including the effect of
reversing taxable temporary differences; and
 prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss
of the deferred tax asset.
In performing our assessment of the recoverability of the deferred tax asset under this framework, we consider tax laws
governing the utilization of the net operating loss, capital loss and foreign tax credit carryforwards in each applicable
jurisdiction. Under U.S. tax law, a company generally must use its net operating loss carryforwards before it can use its foreign
tax credit carryforwards, even though the carryforward period for the foreign tax credit is shorter than for the net operating
loss. Our U.S. federal consolidated income tax group includes both life companies and non-life companies. While the U.S.
taxable income of our non-life companies can be offset by the net operating loss carryforwards, only a portion (no more than
35 percent) of the U.S. taxable income of our life companies can be offset by those net operating loss carryforwards. The
remaining tax liability of our life companies can be offset by the foreign tax credit carryforwards. Accordingly, we utilize both
the net operating loss and foreign tax credit carryforwards concurrently which enables us to realize our tax attributes prior to
expiration. As of December 31, 2015, based on all available evidence, it is more likely than not that the U.S. net operating loss
and foreign tax credit carryforwards will be utilized prior to expiration and, thus, no valuation allowance has been established.
Estimates of future taxable income, including income generated from prudent and feasible actions and tax planning strategies
could change in the near term, perhaps materially, which may require us to consider any potential impact to our assessment of
the recoverability of the deferred tax asset. Such potential impact could be material to our consolidated financial condition or
results of operations for an individual reporting period.
For the three months ended December 31, 2015, recent changes in market conditions, including rising interest rates, impacted
the unrealized tax losses in the U.S. Life Insurance Companies’ available for sale portfolio, resulting in an increase to the
related deferred tax asset. The deferred tax asset relates to the unrealized losses for which the carryforward period has not
yet begun, and 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.
For the year ended December 31, 2015, we established $1.2 billion of valuation allowance associated with the unrealized tax
losses in the U.S. Life Insurance Companies, all of which was allocated to other comprehensive income.
During the year ended December 31, 2015, we recognized an increase of $110 million in our deferred tax asset valuation
allowance associated with certain foreign jurisdictions, primarily attributable to factors such as cumulative losses in recent
years and the inability to demonstrate profits within the specific jurisdictions over the relevant carryforward periods.