AIG 2005 Annual Report Download - page 68

conducting future business in certain of the jurisdictions where
Certain Material Weaknesses
they currently operate. AIG’s international operations include
Management identified three remaining material weaknesses operations in various developing nations. Both current and
in AIG’s internal control over financial reporting. Remedia- future foreign operations could be adversely affected by
tion of these material weaknesses is ongoing. Until these unfavorable political developments including tax changes,
weaknesses are remediated, the weaknesses could affect the regulatory restrictions and nationalization of AIG’s operations
accuracy or timing of future filings with the SEC and other without compensation. Adverse affects resulting from any one
regulatory authorities. A discussion of these material weak- country may affect AIG’s results of operations, liquidity and
nesses and AIG’s remediation efforts can be found in Item 9A financial condition depending on the magnitude of the event
of Part II of this Annual Report on Form 10-K. and AIG’s net financial exposure at that time in that country.
Access to Capital Markets Liquidity
AIG’s access to the U.S. public capital markets may be Payments from subsidiaries may be limited by regulators.
delayed by the SEC registration process. Although AIG is AIG depends on dividends, distributions and other payments
able to access the Rule 144A and Euro markets, AIG will be from AIG’s subsidiaries to fund dividend payments and to fund
unable to access the U.S. public securities markets until it has payments on AIG’s obligations, including debt obligations.
filed and the SEC has declared effective a new registration Regulatory and other legal restrictions may limit AIG’s ability
statement under the Securities Act of 1933. Depending upon to transfer funds freely, either to or from AIG’s subsidiaries. In
the SEC’s review of these filings, this process may take several particular, many of AIG’s subsidiaries, including AIG’s insur-
months or more. ance subsidiaries, are subject to laws and regulations that
authorize regulatory bodies to block or reduce the flow of funds
Unless relief is granted by the SEC, AIG will not be able to
to the parent holding company, or that prohibit such transfer
avail itself of certain favorable provisions of the Securities
altogether in certain circumstances. These laws and regulations
Act. AIG will not, for a period of three years, be a ‘‘well-
may hinder AIG’s ability to access funds that AIG may need
known seasoned issuer’’. During this period, AIG’s ability to
to make payments on AIG’s obligations.
communicate with respect to new product offerings and to
structure client products will be more limited than they
Regulation
otherwise would. In addition, during this period, AIG will not
be able to avail itself of provisions that allow for an AIG is subject to extensive regulation in the jurisdictions in
automatically effective shelf registration statement or rely on which it conducts its businesses. AIG’s operations around
the ‘‘forward-looking statements’’ safe harbor under the securi- the world are subject to regulation by different types of
ties laws in providing forward-looking information to investors. regulatory authorities, including insurance, securities, invest-
ment advisory, banking and thrift regulators in the United
Foreign Operations States and abroad. AIG’s operations have become more diverse
and consumer-oriented, increasing the scope of regulatory
Foreign operations expose AIG to risks that may affect its
supervision and the possibility of intervention. In particular,
operations, liquidity and financial conditions. AIG provides
AIG’s consumer lending business is subject to a broad array of
insurance and investment products and services to both
laws and regulations governing lending practices and permissi-
businesses and individuals in more than 130 countries and
ble loan terms, and AIG would expect increased regulatory
jurisdictions. A substantial portion of AIG’s General Insurance
oversight relating to this business.
business and a majority of its Life Insurance & Retirement
The regulatory environment could have a significant effect
Services businesses are conducted outside the United States.
on AIG and its businesses. Among other things, AIG could be
Operations outside of the United States may be affected by
fined, prohibited from engaging in some of its business
regional economic downturns, political upheaval, nationaliza-
activities or subject to limitations or conditions on its business
tion and other restrictive government actions, which could also
activities. Significant regulatory action against AIG could have
affect other AIG operations.
material adverse financial effects, cause significant reputational
The degree of regulation and supervision in foreign jurisdic-
harm, or harm business prospects. New laws or regulations or
tions varies. Generally, AIG, as well as the underwriting
changes in the enforcement of existing laws or regulations
companies operating in such jurisdictions, must satisfy local
applicable to clients may also adversely affect AIG and its
regulatory requirements. Licenses issued by foreign authorities
businesses. See Item 1. Business — ‘‘Regulation.’’
to AIG subsidiaries are subject to modification and revocation.
Thus, AIG’s insurance subsidiaries could be prevented from
16 AIG m Form 10-K