AIG 2011 Annual Report Download - page 323

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Overview. AIG and its subsidiaries, in common with the insurance and financial services industries in general,
are subject to litigation, including claims for punitive damages, in the normal course of their business. In AIG’s
insurance operations (including UGC), litigation arising from claims settlement activities is generally considered in
the establishment of AIG’s liability for unpaid claims and claims adjustment expense. However, the potential for
increasing jury awards and settlements makes it difficult to assess the ultimate outcome of such litigation. AIG is
also subject to derivative, class action and other claims asserted by its shareholders and others alleging, among
other things, breach of fiduciary duties by its directors and officers and violations of insurance laws and
regulations, as well as federal and state securities laws. In the case of any derivative action brought on behalf of
AIG, any recovery would accrue to the benefit of AIG.
Various regulatory and governmental agencies have been reviewing certain public disclosures, transactions and
practices of AIG and its subsidiaries in connection with industry-wide and other inquiries into, among other
matters, AIG’s liquidity, compensation paid to certain employees, payments made to counterparties, and certain
business practices and valuations of current and former operating insurance subsidiaries. AIG has cooperated, and
will continue to cooperate, in producing documents and other information in response to subpoenas and other
requests.
AIG’s life insurance companies have received industry-wide regulatory inquiries, including a multi-state audit
covering compliance with unclaimed property laws and a directive from the New York Insurance Department (the
New York Directive) regarding claims settlement practices. In particular, the above referenced multi-state audit
seeks to require insurers to use the Social Security Death Master File (SSDMF) to identify potential deceased
insureds, notwithstanding that the beneficiary or other payee has not presented the company with a valid claim, to
determine whether a claim is payable and to take appropriate action. The multi-state audit covers certain policies
in force at any time since 1992. The New York Directive generally requires a similar review and action although
the time frame under review is different.
AIG recorded an increase of $202 million in the estimated reserves for incurred but not reported death claims
in 2011 in conjunction with the use of the SSDMF to identify potential claims not yet presented. Although AIG
has enhanced its claims practices to include use of the SSDMF, it is possible that the inquiries, audits and other
regulatory activity could result in the payment of additional death claims, additional escheatment of funds deemed
abandoned under state laws, administrative penalties and interest. AIG believes it is adequately reserved for such
claims, but there can be no assurance that the ultimate cost will not vary, perhaps materially, from its estimate.
Additionally, state regulators are considering a variety of proposals that would require life insurance companies to
take additional steps to identify unreported deceased policy holders.
The National Association of Insurance Commissioners Market Analysis Working Group, led by the states of
Ohio and Iowa, is conducting a multi-state examination of certain accident and health products, including travel
products, issued by National Union Fire Insurance Company of Pittsburgh, Pa. (National Union). The examination
formally commenced in September 2010 after National Union, based on the identification of certain regulatory
issues related to the conduct of its accident and health insurance business, including rate and form issues,
producer licensing and appointment, and vendor management, requested that state regulators collectively conduct
an examination of the regulatory issues in its accident and health business. In addition to Ohio and Iowa, the lead
states in the multi-state examination are Minnesota, New Jersey and Pennsylvania, and currently a total of 38
states have agreed to participate in the multi-state examination. As part of the multi-state examination, the
following Interim Consent Orders were entered into with Ohio: (a) on January 7, 2011, in which National Union
agreed, on a nationwide basis, to cease marketing directly to individual bank customers accident/sickness policy
forms that had been approved to be sold only as policies providing blanket coverage, and to certain related
remediation and audit procedures and (b) on February 14, 2012, in which National Union agreed, on a nationwide
basis, to limit outbound telemarketing to certain forms and rates. A Consent Order was entered into with
Minnesota on February 10, 2012, in which National Union and Travel Guard Group Inc., an AIG subsidiary,
AIG 2011 Form 10-K 309
(A) LITIGATION AND INVESTIGATIONS