BASIS OF PRESENTATION (Policies)

12 Months Ended

Dec. 31, 2012

BASIS OF PRESENTATION

Use of Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. We consider the accounting policies that are most dependent on the application of estimates and assumptions to be those relating to items considered by management in the determination of:

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classification of International Lease Finance Corporation (ILFC) as held for sale;

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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;

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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;

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recoverability of assets including reinsurance assets;

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estimated gross profits for investment-oriented products;

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impairment charges, including other-than-temporary impairments of financial instruments and goodwill impairments;

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liabilities for legal contingencies; and

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fair value measurements of certain financial assets and liabilities.

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.

Prior Period Reclassifications and Segment Changes

Prior period amounts were reclassified to conform to the current period presentation. Significant items include:

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Segment changes discussed in Note 3 herein.

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Revisions attributable to discontinued operations presented in Note 4 herein.

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Reclassified approximately $1.3 billion of income taxes from Accumulated other comprehensive income to Additional paid in capital as of January 1, 2010 to correct the presentation of components of Shareholders' Equity. These income taxes related to the creation in 2009 of special purpose vehicles that held our interests in AIA Group Ltd. (AIA) and American Life Insurance Company (ALICO). There was no effect on Total AIG shareholders' equity or on Total equity as a result of this reclassification.

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Changes were made to the presentation within the Consolidated Statement of Operations to align the presentation of changes in the fair value of derivatives with changes in the administration of AIG's derivatives portfolio. Specifically, amounts attributable to derivative activity where AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries (collectively, AIGFP) executed transactions with third parties on behalf of AIG subsidiaries have been reclassified from Other income to Net realized capital gains (losses).