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ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................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 usto weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or someportion of the net deferred tax asset will not be realized. The weight given to the evidence is commensurate with theextent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence isnecessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.We take a number of factors into account in order to reliably estimate future taxable income, so that we candetermine the extent of our ability to realize net operating losses (NOLs), foreign tax credits (FTCs) and nonlifecapital loss carryforwards. These factors include forecasts of future income for each of our businesses, actual andplanned business and operational changes, which includes assumptions about future macroeconomic andAIG-specific conditions and events. We also subject the forecasts to stresses of key assumptions and evaluate theeffect on tax attribute utilization. We also apply stresses to our assumptions about the effectiveness of relevantprudent and feasible tax planning strategies. Our income forecasts, coupled with our tax planning strategies andstressed scenarios, all resulted in sufficient taxable income to achieve realization of the tax attributes (other thanlife-insurance-business capital loss carryforwards) prior to their expiration.For additional discussion of the recoverability of our net deferred tax asset, see Note 24 to the ConsolidatedFinancial Statements.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 differencesbetween the book carrying values and tax bases of subsidiaries are complex. Determining the amount also requiressignificant judgment and reliance on reasonable assumptions and estimates.Liability for Unpaid Claims and Claims Adjustment Expenses (AIG Property Casualty and MortgageGuaranty)..............................................................................................................................................................................................The estimate of Unpaid Claims and Claims 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 ofdissimilar claims within a class.We use numerous assumptions in determining the best estimate of reserves for each class of business. Theimportance of any specific assumption can vary by both class of business and accident year. Because actualexperience can differ from key assumptions used in establishing reserves, there is potential for significant variation inthe development of loss reserves. This is particularly true for long-tail casualty classes of business such as excesscasualty, asbestos, D&O, and primary or excess workers’ compensation.All of our methods to calculate net reserves include assumptions about estimated reinsurance recoveries and theircollectability. Reinsurance collectability is evaluated independently of the reserving process and appropriateallowances for uncollectible reinsurance are established...................................................................................................................................................................................................................................AIG 2012 Form 10-K 173