AIG 2011 Annual Report Download - page 55

as implemented by the Department of the Treasury in its Interim Final Rule, restrict bonus and other incentive
compensation payable to certain AIG employees. Historically, we have embraced a pay-for-performance
philosophy. Based on the limitations placed on incentive compensation, it is unclear whether, for the foreseeable
future, we will be able to create a compensation structure that permits us to attract talent and retain and motivate
our most senior and most highly compensated employees and other high performing employees who become
subject to such limitations. The restrictions on our ability to attract talent and retain and motivate our highest
performing employees may affect our ability to strengthen our businesses and prepare and make required filings in
a timely manner with the SEC and other federal, state and foreign regulators.
Employee error and misconduct may be difficult to detect and prevent and may result in significant losses. Losses
may result from, among other things, fraud, illegal acts, errors, failure to document transactions properly or to
obtain proper internal authorization or failure to comply with regulatory requirements or our internal policies.
There have been a number of highly publicized cases involving fraud or other misconduct by employees in the
financial services industry in recent years, and we run the risk that employee misconduct could occur. It is not
always possible to deter or prevent employee misconduct, and the controls that we have in place to prevent and
detect this activity may not be effective in all cases.
If we are unable to maintain the availability of our electronic data systems and safeguard the security of our data,
our ability to conduct business may be compromised, which could adversely affect our consolidated financial condition
or results of operations. We use computer systems to store, retrieve, evaluate and utilize customer, employee, and
company data and information. Some of these systems in turn, rely upon third-party systems. Our business is
highly dependent on our ability to access these systems to perform necessary business functions, including
providing insurance quotes, processing premium payments, making changes to existing policies, filing and paying
claims, administering variable annuity products and mutual funds, providing customer support and managing our
investment portfolios. Systems failures or outages could compromise our ability to perform these functions in a
timely manner, which could harm our ability to conduct business and hurt our relationships with our business
partners and customers. In the event of a natural disaster, a computer virus, a terrorist attack or other disruption
inside or outside the U.S., our systems may be inaccessible to our employees, customers or business partners for
an extended period of time, and our employees may be unable to perform their duties for an extended period of
time if our data or systems are disabled or destroyed. Our systems could also be subject to unauthorized access,
such as physical or electronic break-ins or unauthorized tampering. AIG maintains cyber risk insurance, but this
insurance may not cover all costs associated with the consequences of personal, confidential or proprietary
information being compromised. In some cases, such unauthorized access may not be immediately detected. This
may impede or interrupt our business operations and could adversely affect our consolidated financial condition or
results of operations.
In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email
and other electronic means. Although we attempt to keep such information confidential, we may be unable to do
so in all events, especially with clients, vendors, service providers, counterparties and other third parties who may
not have or use appropriate controls to protect confidential information. Furthermore, certain of our businesses
are subject to compliance with laws and regulations enacted by U.S. federal and state governments, the European
Union or other jurisdictions or enacted by various regulatory organizations or exchanges relating to the privacy
and security of the information of clients, employees or others. The compromise of personal, confidential or
proprietary information could result in remediation costs, legal liability, regulatory action and reputational harm.
A deterioration in the credit markets may cause us to recognize unrealized market valuation losses which could have
an adverse effect on our consolidated financial condition, consolidated results of operations or liquidity. Moreover,
depending on how and when the Basel I capital standards are phased out, the period of time that AIGFP remains at
risk for such deterioration could be longer than anticipated by AIGFP. A total of $6.4 billion in net notional amount
AIG 2011 Form 10-K 41
ELECTRONIC DATA SYSTEMS AND HANDLING OF CONFIDENTIAL
INFORMATION
REGULATORY CAPITAL CREDIT DEFAULT SWAP PORTFOLIO