AIG 2015 Annual Report Download - page 29

ITEM 1 / BUSINESS
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Member States may decide either to apply relevant Solvency II requirements to a worldwide insurance group operating in the
EU as if it were based in the European Economic Area, or to use “other methods”. Firms have to apply for a waiver to the
appropriate EU regulator in order for the regulator to use “other methods.” AIG’s UK subsidiary, AIG Europe Limited, has
applied to the PRA and been granted a waiver to allow the PRA to use “other methods.” Over the long-term, the impact on us
will depend on whether the U.S. insurance regulatory regime is deemed “equivalent” to Solvency II; if the U.S. insurance
regulatory regime is not equivalent and no other agreement addressing these differences is reached with the EU, we, along
with other U.S.-based insurance companies, could be required to be supervised under Solvency II standards. On November
20, 2015, the Department of the Treasury and the United States Trade Representative announced their intention to negotiate
an agreement between the U.S. and the EU, and that in these negotiations they would seek to obtain, among other things,
treatment of the U.S. insurance regulatory system as “equivalent” for purposes of Solvency II. The European Commission has
granted “provisional equivalence” with respect to the “solvency calculation” area of Solvency II to the insurance regulation
regime of several countries, including the United States. The provisional equivalence, granted for a period of 10 years, will
allow EU insurers with subsidiaries operating in these countries to use local rules, rather than Solvency II rules, to carry out
their EU prudential reporting for these subsidiaries, and as such is not applicable to U.S. insurers such as AIG. This decision
will take effect following the review by the European Parliament and the European Council. Whether the U.S. insurance
regulatory regime will be deemed “equivalent” as relating to U.S. insurers such as AIG is still under consideration by European
authorities and remains uncertain, so we are not currently able to predict the impact of Solvency II.
ERISA Considerations
We provide products and services to certain employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA) or the Internal Revenue Code of 1986, as amended (the Internal Revenue Code).
Plans subject to ERISA include pension and profit sharing plans and welfare plans, including health, life and disability plans.
As a result, our activities are subject to the restrictions imposed by ERISA and the Internal Revenue Code, including the
requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan participants and
beneficiaries, and that fiduciaries may not cause a covered plan to engage in certain prohibited transactions. The prohibited
transaction rules of ERISA and the Internal Revenue Code generally restrict the provision of investment advice to ERISA plans
and participants and Individual Retirement Account (IRA) holders if the investment recommendation results in fees paid to the
individual advisor, his or her firm or their affiliates that vary according to the investment recommendation chosen. ERISA also
provides for civil and criminal penalties and enforcement.
The U.S. Department of Labor (DOL) proposed a new regulation in April 2015 that would, if enacted, substantially expand the
definition of "investment advice," which would substantially expand the range of activities considered to be fiduciary investment
advice under ERISA and the Internal Revenue Code. In connection with the proposed regulation, the DOL also proposed
amendments to its prohibited transaction exemption under ERISA that would, among other things, apply more extensive
disclosure and contract requirements, and increased fiduciary requirements, for transactions involving ERISA plans, plan
participants and IRA holders. On January 28, 2016, the DOL submitted its final version of the proposed regulation to the Office
of Management and Budget for review. The proposed regulation is subject to potential modification before the final rule, if any,
is issued. It is unknown at this time whether or how any final regulation may be different from that proposed, and what the
timing for implementation of compliance requirements would be, if adopted. For additional information, see Item 7. MD&A —
Executive Overview - Consumer Insurance Strategic Initiatives and Outlook.
We expect that the regulations applicable to us and our regulated entities will continue to evolve for the foreseeable future.
Regulation of Insurance Subsidiaries
Certain states and other jurisdictions require registration and periodic reporting by insurance companies that are licensed in
such jurisdictions and are controlled by other entities. Applicable legislation typically requires periodic disclosure concerning
the entity that controls the registered insurer and the other companies in the holding company system and prior approval of
intercompany services and transfers of assets, including in some instances payment of dividends by the insurance subsidiary,
within the holding company system. Our subsidiaries are registered under such legislation in those jurisdictions that have such
requirements.