AIG 2014 Annual Report Download - page 55

ITEM 1A / RISK FACTORS
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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.
The integration of companies we may acquire from time to time may not be as successful as we anticipate.
Acquisitions involve a number of risks, including operational, strategic, financial, accounting, legal and tax. Difficulties in
integrating an acquired company may result in the acquired company performing differently than we expected or in our failure
to realize anticipated expense-related efficiencies. Our existing businesses could also be negatively impacted by acquisitions.
Risks resulting from future acquisitions may have a material adverse effect on our results of operations and financial condition.
REGULATION
Our businesses are heavily regulated and changes in regulation may affect our operations, increase our insurance
subsidiary capital requirements or reduce our profitability. Our operations generally, and our insurance subsidiaries, in
particular, are subject to extensive and potentially conflicting supervision and regulation by national authorities and by the
various jurisdictions in which we do business. Supervision and regulation relate to numerous aspects of our business and
financial condition. State and foreign regulators also periodically review and investigate our insurance businesses, including
AIG-specific and industry-wide practices. The primary purpose of insurance regulation is the protection of our insurance
contract holders, and not our investors. The extent of domestic regulation varies, but generally is governed by state statutes.
These statutes delegate regulatory, supervisory and administrative authority to state insurance departments.
We strive to maintain all required licenses and approvals. However, our businesses may not fully comply with the wide variety
of applicable laws and regulations. The relevant authority’s interpretation of the laws and regulations also may change from
time to time. Regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do
not have the required licenses and approvals or do not comply with applicable regulatory requirements, these authorities could
preclude or temporarily suspend us from carrying on some or all of our activities or impose substantial fines. Further, insurance
regulatory authorities have relatively broad discretion to issue orders of supervision, which permit them to supervise the
business and operations of an insurance company.
In the U.S., the RBC formula is designed to measure the adequacy of an insurer’s statutory surplus in relation to the risks
inherent in its business. Virtually every state has adopted, in substantial part, the RBC Model Law promulgated by the NAIC,
which specifies the regulatory actions the insurance regulator may take if an insurer’s RBC calculations fall below specific
thresholds. Those actions range from requiring an insurer to submit a plan describing how it would regain a specified RBC ratio
to a mandatory regulatory takeover of the company. Regulators at the federal and international levels are also considering the
imposition of additional capital requirements on certain insurance companies, which may include us, that may augment or
even displace state-law RBC standards that apply at the legal entity level, and such capital calculations may be made on
bases other than the statutory statements of our insurance subsidiaries. See “Our status as a nonbank systemically important
financial institution, as well as the enactment of Dodd-Frank, will subject us to substantial additional federal regulation, which
may materially and adversely affect our businesses, results of operations and cash flows” and “Actions by foreign governments
and regulators could subject us to substantial additional regulation” below for additional information on increased capital
requirements that may be imposed on us. We cannot predict the effect these initiatives may have on our business, results of
operations, cash flows and financial condition.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign jurisdictions must
satisfy local regulatory requirements and it is possible that local licenses may require AIG Parent to meet certain conditions.
Licenses issued by foreign authorities to our subsidiaries are subject to modification and revocation. Accordingly, our insurance