AIG 2015 Annual Report Download - page 26

ITEM 1 / BUSINESS

26
and is not bound to impose capital standards and quantitative requirements generally applicable to insured depository
institutions and bank holding companies. We cannot predict with certainty, however, what capital rules the FRB may impose
on insurers designated as nonbank SIFIs.
As a nonbank SIFI, we anticipate we will be subject to:
• stress tests to determine whether, on a consolidated basis, we have the capital necessary to absorb losses due to adverse
economic conditions;
• enhanced prudential standards, including new group-wide requirements relating to risk-based capital, leverage, liquidity and
credit exposure, as well as overall risk management requirements;
• management interlock prohibitions and a requirement to maintain a plan for rapid and orderly resolution in the event of
severe financial distress (requirements that we are already subject to); and
• an early remediation regime process to be administered by the FRB.
Furthermore, if the Council were to make an additional separate determination that AIG poses a “grave threat” to U.S. financial
stability, we would be required to maintain a debt-to-equity ratio of no more than 15:1 and the FRB may impose additional
restrictions.
As part of its general prudential supervisory powers, the FRB has the authority to limit our ability to conduct activities that
would otherwise be permissible for us to engage in if we do not satisfy certain requirements. In addition, if we were to seek to
acquire a stake in certain financial companies, Dodd-Frank would require us to obtain the prior authorization of the FRB.
Other Effects of Dodd-Frank
In addition, Dodd-Frank may also have the following effects on us:
• As a nonbank SIFI, we are currently required to provide on an annual basis (or more frequently, if required) to the FRB and
FDIC a plan for our rapid and orderly resolution in the event of material financial distress or failure, which must, among
other things, provide a detailed resolution strategy and analyses of our material entities, organizational structure,
interconnections and interdependencies, and management information systems. Our original resolution plan was submitted
to regulators on July 1, 2014, and our second resolution plan on December 31, 2015. We continue to refine and update our
resolution plan, which is next required to be submitted to regulators on December 31, 2016. If the FRB and FDIC jointly
determine, based on their review of the plan, that it is not credible or would not facilitate our orderly resolution under Title 11
of the United States Code (the Bankruptcy Code), they may require us to re-submit an amended plan. If the re-submitted
plan also fails to meet regulatory expectations, the FRB and FDIC may exercise their authority under Dodd-Frank to impose
more stringent capital, leverage, or liquidity requirements, restrict our growth, activities, or operations, require us to divest
assets and operations, or otherwise increase their level of supervision of us.
• The Council may recommend that state insurance regulators or other regulators apply new or heightened standards and
safeguards for activities or practices that we and other insurers or other financial services companies engage in.
• Title II of Dodd-Frank provides that a financial company whose largest United States subsidiary is an insurer (such as us)
may be subject to a special resolution process outside the Bankruptcy Code. That process is to be administered by the
FDIC upon a determination of the Secretary of the Treasury (the Secretary), in consultation with the President, and upon the
written recommendation of the director of the Federal Insurance Office and the FRB, that, among other things, it is in default
or in danger of default, that the insurer is not likely to attract private sector alternatives to default, and is not suitable for
resolution under the Bankruptcy Code.
• Title VII of Dodd-Frank provides for significantly increased regulation of and restrictions on derivatives markets and
transactions that could affect various activities of AIG and its insurance and financial services subsidiaries, including (i)
regulatory reporting for swaps (which are regulated by the CFTC) and security-based swaps (which are regulated by the
SEC), (ii) mandated clearing through central counterparties and execution through regulated swap execution facilities for
certain swaps and security-based swaps and (iii) margin and collateral requirements. The CFTC has finalized many of its