AIG 2011 Annual Report Download - page 50

policies with secondary guarantees. In addition, Actuarial Guideline 38, more commonly known as ‘‘Guideline
AXXX’’, clarifies the application of Regulation XXX with respect to certain universal life insurance policies with
secondary guarantees. The application of both Regulation XXX and Guideline AXXX involves numerous
interpretations. At times, there may be differences of opinion between management and state insurance
departments regarding the application of these and other actuarial standards. Such differences of opinion may
lead to a state insurance regulator requiring greater reserves to support insurance liabilities than management
estimated.
We also have implemented reinsurance and capital management actions to mitigate the capital impact of
Regulation XXX and Guideline AXXX, including the use of letters of credit to support the reinsurance provided
by our captive reinsurance subsidiaries. We focus on identifying cost-effective opportunities to manage our
intercompany reinsurance transactions, particularly with respect to certain redundant statutory reserve
requirements on term insurance and universal life with secondary guarantees (Regulation XXX and Guideline
AXXX reserves). For this purpose, we had a $585 million syndicated letter of credit facility and $215 million of
letters of credit on a bilateral basis outstanding at December 31, 2011, all of which relate to intercompany life
reinsurance transactions. All of these letters of credit are due to mature on December 31, 2015. However, such
actions may not be sufficient to offset regulatory, rating agency or other requirements. In that case, we could be
required to increase statutory reserves or incur higher operating and/or tax costs.
We also cannot provide assurance that we will be able to continue to implement actions to mitigate the impact
of Regulation XXX or Guideline AXXX on future sales of term and universal life insurance products. If we are
unable to continue to implement those actions, we may incur higher operating costs and lower returns on products
sold than we currently anticipate or reduce our sales of these products.
New regulations promulgated from time to time may affect our operations, financial condition and ability to compete
effectively. Legislators and regulators may periodically consider and put forward various proposals that may affect
the profitability of certain of our businesses or even our ability to conduct certain businesses at all, including
proposals relating to restrictions on the type of activities in which financial institutions are permitted to engage
and the size of financial institutions, and proposals to impose additional taxes on a limited subset of financial
institutions and insurance companies (either based on size, activities, geography, government support or other
criteria). It is uncertain whether and how these and other such proposals would apply to us or our competitors or
how they could impact our consolidated results of operations, financial condition and ability to compete
effectively.
Our ability to utilize tax losses and credits carryforwards to offset future taxable income may be significantly limited if
we experience an ‘‘ownership change’’ under the Internal Revenue Code. As of December 31, 2011, we had a U.S.
federal net operating loss carryforward of approximately $45.3 billion, $21.3 billion in capital loss carryforwards
and $4.6 billion in foreign tax credits (Tax Losses and credits carryforwards). Our ability to utilize such tax
attributes to offset future taxable income may be significantly limited if we experience an ‘‘ownership change’’ as
defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general, an ownership
change will occur when the percentage of AIG Parent’s ownership (by value) of one or more ‘‘5-percent
shareholders’’ (as defined in the Code) has increased by more than 50 percent over the lowest percentage owned
by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that
experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax
losses and credits carryforwards equal to the equity value of the corporation immediately before the ownership
change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments).
The annual limitation would be increased each year to the extent that there is an unused limitation in a prior
year. The limitation on our ability to utilize tax losses and credits carryforwards arising from an ownership change
under Section 382 would depend on the value of our equity at the time of any ownership change.
While the Department of the Treasury owns more than 50 percent of AIG Common Stock, under guidance
issued by the Internal Revenue Service, we will not be treated as having experienced an ownership change.
However, once the Department of the Treasury’s ownership of outstanding AIG Common Stock falls below
36 AIG 2011 Form 10-K
CHANGE IN CONTROL