AIG 2011 Annual Report Download - page 152

Where estimable, AIG has recorded liabilities for certain of these arrangements. These liabilities are not
material in the aggregate. AIG is unable to develop a reasonable estimate of the maximum potential payout under
certain of these arrangements. Overall, AIG believes that it is unlikely it will have to make any material payments
related to completed sales under these arrangements. See Note 16 to the Consolidated Financial Statements for
additional information regarding indemnification provisions for the ALICO, AGF, AIG Star and AIG Edison
sales.
Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by
regulatory authorities. With respect to AIG’s domestic insurance subsidiaries, the payment of any dividend
requires formal notice to the insurance department in which the particular insurance subsidiary is domiciled. For
example, unless permitted by the New York Superintendent of Insurance, general insurance companies domiciled
in New York may not pay dividends to shareholders that, in any 12-month period, exceed the lesser of ten percent
of such company’s statutory policyholders’ surplus or 100 percent of its ‘‘adjusted net investment income,’’ as
defined. Generally, less severe restrictions applicable to both general and life insurance companies exist in most of
the other states in which AIG’s insurance subsidiaries are domiciled. Under the laws of many states, an insurer
may pay a dividend without prior approval of the insurance regulator when the amount of the dividend is below
certain regulatory thresholds. Other foreign jurisdictions may restrict the ability of AIG’s foreign insurance
subsidiaries to pay dividends. There are also various local restrictions limiting cash loans and advances to AIG by
its subsidiaries. Largely as a result of these restrictions, approximately 86 percent of the aggregate equity of AIG’s
consolidated insurance operations was restricted from transfer to AIG Parent at December 31, 2011. AIG cannot
predict how regulatory investigations may affect the ability of its regulated subsidiaries to pay dividends. To AIG’s
knowledge, no AIG insurance company is currently on any regulatory or similar ‘‘watch list’’ with regard to
solvency.
AIG’s insurance subsidiaries, like other insurers, are subject to regulation and supervision by the states and
jurisdictions in which they do business. AIG Parent is not generally subject to supervision by state regulators, but
certain transactions, such as those involving statutorily designated transactions with its insurance company
subsidiaries and any transaction involving a change in control of AIG or any of its insurance company subsidiaries,
may require the prior approval of state regulators. In the United States, the NAIC has developed Risk-Based
Capital (RBC) Model Law requirements. RBC relates an individual insurance company’s statutory surplus to the
risk inherent in its overall operations.
AIG’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices
prescribed or permitted by domestic and foreign insurance regulatory authorities. The principal differences
between statutory financial statements for domestic companies and financial statements prepared in accordance
with U.S. GAAP are that in statutory financial statements acquisition costs are expensed instead of being deferred,
a large portion of the bond portfolios may be carried at amortized cost, securities are valued on a different basis,
assets and liabilities are presented net of reinsurance, policyholder liabilities are valued using more conservative
assumptions and certain assets are not admitted under statutory accounting practices and are charged directly to
surplus. Further, statutory accounting practices do not give recognition to purchase accounting adjustments and
require certain other reserves not required by U.S. GAAP.
As discussed under Note 16(a) to the Consolidated Financial Statements, various regulators have commenced
investigations into certain insurance business practices. In addition, insurance regulators routinely conduct
examinations of AIG and its subsidiaries. AIG cannot predict the ultimate effect that these investigations and
examinations, or any additional regulation arising therefrom, might have on its business. Federal, state or local
legislation, including Dodd-Frank, may affect AIG’s ability to operate its various financial services businesses, and
changes in the current laws, regulations or interpretations thereof may have a material adverse effect on these
businesses. See Item 1A. Risk Factors for additional information.
138 AIG 2011 Form 10-K
DIVIDENDS FROM INSURANCE SUBSIDIARIES
REGULATION AND SUPERVISION