AIG 2013 Annual Report Download - page 61

The USA PATRIOT Act, the Office of Foreign Assets Control and similar laws that apply to us may expose us
to significant penalties. The operations of our subsidiaries are subject to laws and regulations, including, in some
cases, the USA PATRIOT Act of 2001, which require companies to know certain information about their clients and
to monitor their transactions for suspicious activities. Also, the Department of the Treasury’s Office of Foreign Assets
Control administers regulations requiring U.S. persons to refrain from doing business, or allowing their clients to do
business through them, with certain organizations or individuals on a prohibited list maintained by the U.S.
government or with certain countries. The United Kingdom, the European Union and other jurisdictions maintain
similar laws and regulations. Although we have instituted compliance programs to address these requirements, there
are inherent risks in global transactions.
Attempts to efficiently manage the impact of Regulation XXX and Actuarial Guideline AXXX may fail in whole
or in part resulting in an adverse effect on our financial condition and results of operations. The NAIC Model
Regulation ‘‘Valuation of Life Insurance Policies’’ (Regulation XXX) requires insurers to establish additional statutory
reserves for term life insurance policies with long-term premium guarantees and universal life policies with secondary
guarantees. In addition, NAIC Actuarial Guideline 38 (AXXX) (Guideline AXXX) clarifies the application of
Regulation XXX as to certain universal life insurance policies with secondary guarantees.
AIG Life and Retirement manages the capital impact on its life insurers of statutory reserve requirements under
Regulation XXX and Guideline AXXX through affiliated reinsurance transactions, to maintain our ability to offer
competitive pricing and successfully market such products. See Note 19 to the Consolidated Financial Statements for
additional information on statutory reserving requirements under Regulation XXX and Guideline AXXX and our use of
affiliated reinsurance. The NAIC, the New York State Department of Financial Services and other regulators have
increased their focus on life insurers’ affiliated reinsurance transactions used to satisfy certain reserve requirements
or to manage the capital impact of certain statutory reserve requirements, particularly transactions using captive
insurance companies or special purpose vehicles. While AIG Life and Retirement does not use captive or special
purpose vehicle structures for this purpose, we cannot predict whether any applicable insurance laws will be changed
in a way that prohibits or adversely impacts the use of affiliated reinsurance. If regulations change, we could be
required to increase statutory reserves, increase prices on our products or incur higher expenses to obtain
reinsurance, which could adversely affect our competitive position, financial condition or results of operations. If our
actions to efficiently manage the impact of Regulation XXX or Guideline AXXX on future sales of term and universal
life insurance products are not successful, we may reduce the sales of these products or incur higher operating
costs, or it may impact our sales of these products.
New regulations promulgated from time to time may affect our businesses, results of operations, financial
condition and ability to compete effectively. Legislators and regulators may periodically consider various
proposals that may affect the profitability of certain of our businesses. New regulations may even affect 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. These proposals could also 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.
An ‘‘ownership change’’ could limit our ability to utilize tax losses and credits carryforwards to offset future
taxable income. As of December 31, 2013, we had a U.S. federal net operating loss carryforward of approximately
$34.2 billion, $ 1.1 billion in capital loss carryforwards and $5.8 billion in foreign tax credits (tax losses and credits
carryforwards). Our ability to use 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.
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AIG 2013 Form 10-K 43
ITEM 1A / RISK FACTORS
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