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ITEM 8 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.....................................................................................................................................................................................Presentation of Comprehensive Income..............................................................................................................................................................................................In February 2013 the FASB issued guidance on the presentation requirements for items reclassified out ofaccumulated other comprehensive income. We will be required to disclose the effect of significant items reclassifiedout of accumulated other comprehensive income on the respective line items of net income or provide a crossreferenceto other disclosures currently required under U.S. GAAP for relevant items.The standard is effective for annual and interim reporting periods beginning after December 15, 2012. We do notexpect adoption of the standard to have a material effect on our consolidated financial condition, results of operationsor cash flows.Accounting Standards Adopted During 2012..............................................................................................................................................................................................We adopted the following accounting standards on January 1, 2012Accounting for Costs Associated with Acquiring or Renewing Insurance ContractsIn October 2010, the FASB issued an accounting standard update that amends the accounting for costs incurred byinsurance companies that can be capitalized in connection with acquiring or renewing insurance contracts. Thestandard clarifies how to determine whether the costs incurred in connection with the acquisition of new or renewalinsurance contracts qualify as DAC. We adopted the standard retrospectively on January 1, 2012.Deferred policy acquisition costs represent those costs that are incremental and directly related to the successfulacquisition of new or renewal insurance contracts. We defer incremental costs that result directly from, and areessential to, the acquisition or renewal of an insurance contract. Such costs generally include agent or brokercommissions and bonuses, premium taxes, and medical and inspection fees that would not have been incurred if theinsurance contract had not been acquired or renewed. Each cost is analyzed to assess whether it is fully deferrable.We partially defer costs, including certain commissions, when we do not believe the entire cost is directly related tothe acquisition or renewal of insurance contracts.We also defer a portion of employee total compensation and payroll-related fringe benefits directly related to timespent performing specific acquisition or renewal activities, including costs associated with the time spent onunderwriting, policy issuance and processing, and sales force contract selling. The amounts deferred are those thatresulted in successful policy acquisition or renewal for each distribution channel and/or cost center from which thecost originates.Advertising costs related to the issuance of insurance contracts that meet the direct-advertising criteria are deferredand amortized as part of DAC.The method we use to amortize DAC for either short- or long-duration insurance contracts did not change as a resultof the adoption of the standard.The adoption of the standard resulted in a reduction to beginning of period retained earnings for the earliest periodpresented and a decrease in the amount of capitalized costs in connection with the acquisition or renewal ofinsurance contracts. Accordingly, we revised our historical financial statements and accompanying notes to theconsolidated financial statements for the changes in DAC and associated changes in acquisition expenses andincome taxes for affected entities and segments, including divested entities presented in continuing and discontinuedoperations...................................................................................................................................................................................................................................AIG 2012 Form 10-K 217