AIG 2011 Annual Report Download - page 38

IAIS, headquartered in Basel, Switzerland) to create standards relative to these areas and incorporate them within
that body’s Insurance Core Principles. IAIS Insurance Core Principles form the baseline threshold for how
countries’ financial services regulatory efforts are measured relative to the insurance sector. That measurement is
made by periodic Financial Sector Assessment Program (FSAP) reviews conducted by the World Bank and the
International Monetary Fund and the reports thereon spur the development of country-specific additional or
amended regulatory changes. Lawmakers and regulatory authorities in a number of jurisdictions in which AIG’s
subsidiaries conduct business have already begun implementing legislative and regulatory changes consistent with
these recommendations, including proposals governing consolidated regulation of insurance holdings companies by
the Financial Services Agency in Japan, financial and banking regulation adopted in France and compensation
regulations proposed or adopted by the financial regulators in Germany and the United Kingdom Financial
Services Authority.
AIG cannot predict whether these actions will become effective or the effect they may have on the financial
markets or on AIG’s business, results of operations, cash flows, financial condition and credit ratings.
AIG’s operations are subject to regulatory supervision and the possibility of intervention. In light of AIG’s
liquidity problems beginning in the third quarter of 2008, AIG and its regulated subsidiaries have been subject to
intense review and supervision around the world. Regulators have taken significant steps to protect the businesses
of the entities they regulate. These steps have included:
• restricting or prohibiting the payment of dividends to AIG Parent and its subsidiaries;
• restricting or prohibiting other payments to AIG Parent and its subsidiaries;
• requesting additional capital contributions from AIG Parent;
• requesting that intercompany reinsurance reserves be covered by assets locally;
• restricting the business in which the subsidiaries may engage;
• requiring pre-approval of all proposed transactions between the regulated subsidiaries and AIG Parent or
any affiliate; and
• requiring more frequent reporting, including with respect to capital and liquidity positions.
Many of these prohibitions and restrictions have been relaxed. However, AIG continues to be subject to
heightened regulatory scrutiny.
Legislation in the European Union could also affect AIG’s international insurance operations. The Solvency II
Directive (2009/138/EEC), which was adopted on November 25, 2009 and is expected to become effective in
January 2014 (Solvency II), reforms the insurance industry’s solvency framework, including minimum capital and
solvency requirements, governance requirements, risk management and public reporting standards. The impact on
AIG will depend on whether the U.S. insurance regulatory regime is deemed ‘‘equivalent’’ to Solvency II; if the
U.S. insurance regulatory regime is not equivalent, then AIG as a group could be required to be supervised under
Solvency II standards. Whether the U.S. insurance regulatory regime will be deemed ‘‘equivalent’’ is still under
consideration by European authorities and remains uncertain, so AIG is not currently able to predict the impact
of Solvency II.
AIG expects that the regulations applicable to it and its regulated entities will continue to evolve for the
foreseeable future.
Certain states require registration and periodic reporting by insurance companies that are licensed in such states
and are controlled by other corporations. Applicable legislation typically requires periodic disclosure concerning
the corporation that controls the registered insurer and the other companies in the holding company system and
prior approval of intercorporate services and transfers of assets, including in some instances payment of dividends
24 AIG 2011 Form 10-K
OTHER REGULATORY DEVELOPMENTS
REGULATION OF INSURANCE SUBSIDIARIES