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ITEM 1A / RISK FACTORS.....................................................................................................................................................................................We regularly review DAC for insurance-oriented, investment-oriented, and retirement services products to assessrecoverability. This review involves estimating the future profitability of in-force business and requires significantmanagement judgment. If future profitability is substantially lower than estimated, we could be required to accelerateDAC amortization.Periodically, we evaluate the estimates used in establishing liabilities for future policy benefits for life and A&Hinsurance contracts, which include liabilities for certain payout annuities. We evaluate these estimates against actualexperience and make adjustments based on judgments about mortality, morbidity, persistency, maintenanceexpenses, and investment returns, including the interest rate environment and net realized capital gains (losses). Ifactual experience or estimates result in changes to projected future losses on long duration insurance contracts, wemay be required to record additional liabilities through a charge to policyholder benefit expense, which couldnegatively affect our results of operations. For further discussion of DAC and future policy benefits, see Item 7.MD&A – Critical Accounting Estimates and Notes 2, 10 and 13 to the Consolidated Financial Statements.Certain of our products offer guarantees that may decrease our earnings and increase the volatility of ourresults. We offer variable annuity products that guarantee a certain level of benefits, such as guaranteed minimumdeath benefits (GMDB), guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits(GMWB) and guaranteed minimum account value benefits (GMAV). At December 31, 2012, our net liabilitiesassociated with these guaranteed benefits were $1.4 billion. We use reinsurance combined with derivativeinstruments to mitigate our exposure to these liabilities. While we believe that our actions have mitigated the risksrelated to guaranteed benefits, our exposure is not fully hedged; in addition, we remain liable if reinsurers orcounterparties are unable or unwilling to pay. Finally, downturns in equity markets, increased equity volatility orreduced interest rates could result in an increase in the liabilities associated with the guaranteed benefits, reducingour net income and shareholders’ equity.Indemnity claims could be made against us in connection with divested businesses. We have providedfinancial guarantees and indemnities in connection with the businesses we have sold, including ALICO, as describedin greater detail in Note 16 to the Consolidated Financial Statements. While we do not currently believe the claimsunder these indemnities will be material, it is possible that significant indemnity claims could be made against us. Ifsuch a claim or claims were successful, it could have a material adverse effect on our results of operations, cashflows and liquidity. See Note 16 to the Consolidated Financial Statements for more information on these financialguarantees and indemnities.Our foreign operations expose us to risks that may affect our operations. We provide insurance, investmentand other financial products and services to both businesses and individuals in more than 130 countries. Asubstantial portion of our AIG Property Casualty business is conducted outside the United States, and we intend tocontinue to grow this business. Operations outside the United States, particularly in developing nations, may beaffected by regional economic downturns, changes in foreign currency exchange rates, political upheaval,nationalization and other restrictive government actions, which could also affect our other operations.The degree of regulation and supervision in foreign jurisdictions varies. Generally, AIG Parent, as well as itssubsidiaries operating in such jurisdictions, must satisfy local regulatory requirements. Licenses issued by foreignauthorities to our subsidiaries are subject to modification and revocation. Consequently, our insurance subsidiariescould be prevented from conducting future business in some of the jurisdictions where they currently operate.Adverse actions from any single country could adversely affect our results of operations depending on the magnitudeof the event and our financial exposure at that time in that country.Significant conditions precedent must be satisfied in order to complete the sale of the common stock ofILFC on the agreed terms. Under the terms of the share purchase agreement (Share Purchase Agreement) weentered into for the sale of up to 90% of the common stock of ILFC (the ILFC Transaction) to an entity (thePurchaser) formed on behalf of an investor group, consummation of the ILFC Transaction is subject to thesatisfaction or waiver of a number of conditions precedent, such as certain customary conditions and other closingconditions, including the receipt of approvals or non-disapprovals from certain regulatory bodies, including, amongothers:• the People’s Republic of China National Development and Reform Commission,• the Committee on Foreign Investment in the United States (CFIUS), and• other antitrust and regulatory agencies,..................................................................................................................................................................................................................................36 AIG 2012 Form 10-K