AIG 2007 Annual Report Download - page 67

American International Group, Inc. and Subsidiaries
in Tata AIG General Insurance Company, Ltd. in India. Substan- the financial activities permitted for financial holding companies under
tially all of AIG’s equity interest in Allied World Assurance the law or for multiple savings and loan holding companies. The
Holdings, Ltd. was sold by AIG in December 2007. For a GLBA, however, grandfathered the unrestricted authority for activities
discussion of AIG’s investments in partially owned companies, with respect to a unitary savings and loan holding company existing
see Note 1(s) to Consolidated Financial Statements. prior to May 4, 1999, so long as its savings association subsidiary
continues to be a qualified thrift lender under the HOLA. As a unitary
savings and loan holding company whose application was pending as
Locations of Certain Assets
of May 4, 1999, AIG is grandfathered under the GLBA and generally
As of December 31, 2007, approximately 37 percent of the is not restricted under existing laws as to the types of business
consolidated assets of AIG were located in foreign countries (other activities in which it may engage, provided that AIG Federal Savings
than Canada), including $4.4 billion of cash and securities on Bank continues to be a qualified thrift lender under the HOLA.
deposit with foreign regulatory authorities. Foreign operations and Certain states require registration and periodic reporting by
assets held abroad may be adversely affected by political insurance companies that are licensed in such states and are
developments in foreign countries, including tax changes, national- controlled by other corporations. Applicable legislation typically
ization and changes in regulatory policy, as well as by conse- requires periodic disclosure concerning the corporation that
quence of hostilities and unrest. The risks of such occurrences controls the registered insurer and the other companies in the
and their overall effect upon AIG vary from country to country and holding company system and prior approval of intercorporate
cannot easily be predicted. If expropriation or nationalization does services and transfers of assets (including in some instances
occur, AIG’s policy is to take all appropriate measures to seek payment of dividends by the insurance subsidiary) within the
recovery of such assets. Certain of the countries in which AIG’s holding company system. AIG’s subsidiaries are registered under
business is conducted have currency restrictions which generally such legislation in those states that have such requirements.
cause a delay in a company’s ability to repatriate assets and AIG’s insurance subsidiaries, in common with other insurers, are
profits. See also Notes 1 and 2 to Consolidated Financial subject to regulation and supervision by the states and by other
Statements and Item 1A. Risk Factors — Foreign Operations. jurisdictions in which they do business. Within the United States, the
method of such regulation varies but generally has its source in
Regulation statutes that delegate regulatory and supervisory powers to an
insurance official. The regulation and supervision relate primarily to
AIG’s operations around the world are subject to regulation by
approval of policy forms and rates, the standards of solvency that
many different types of regulatory authorities, including insurance,
must be met and maintained, including risk-based capital, the
securities, investment advisory, banking and thrift regulators in
licensing of insurers and their agents, the nature of and limitations
the United States and abroad. The regulatory environment can
on investments, restrictions on the size of risks that may be insured
have a significant effect on AIG and its business. AIG’s operations
under a single policy, deposits of securities for the benefit of
have become more diverse and consumer-oriented, increasing the
policyholders, requirements for acceptability of reinsurers, periodic
scope of regulatory supervision and the possibility of intervention.
examinations of the affairs of insurance companies, the form and
Although AIG cannot predict the scope or effect of such regulation
content of reports of financial condition required to be filed, and
on its business, AIG expects further regulation of its domestic
reserves for unearned premiums, losses and other purposes. In
consumer finance operations as a result of the current disruption
general, such regulation is for the protection of policyholders rather
of the U.S. residential mortgage market. In addition, the investiga-
than the equity owners of these companies.
tions into financial accounting practices that led to two restate-
AIG has taken various steps to enhance the capital positions
ments of AIG’s consolidated financial statements have heightened
of the Domestic General Insurance companies. AIG entered into
regulatory scrutiny of AIG worldwide.
capital maintenance agreements with the Domestic General
In 1999, AIG became a unitary thrift holding company within
Insurance companies that set forth procedures through which AIG
the meaning of the Home Owners’ Loan Act (HOLA) when the
will provide ongoing capital support. Also, in order to allow the
Office of Thrift Supervision (OTS) granted AIG approval to organize
Domestic General Insurance companies to record as an admitted
AIG Federal Savings Bank. AIG is subject to OTS regulation,
asset at December 31, 2007 certain reinsurance ceded to
examination, supervision and reporting requirements. In addition,
non-U.S. reinsurers (which has the effect of increasing the
the OTS has enforcement authority over AIG and its subsidiaries.
statutory surplus of such Domestic General Insurance compa-
Among other things, this permits the OTS to restrict or prohibit
nies), AIG obtained and entered into reimbursement agreements
activities that are determined to be a serious risk to the financial
for approximately $1.8 billion of letters of credit issued by several
safety, soundness or stability of AIG’s subsidiary savings associa-
commercial banks in favor of certain Domestic General Insurance
tion, AIG Federal Savings Bank.
companies.
Under prior law, a unitary savings and loan holding company, such
In the U.S., Risk-Based Capital (RBC) is designed to measure
as AIG, was not restricted as to the types of business in which it
the adequacy of an insurer’s statutory surplus in relation to the
could engage, provided that its savings association subsidiary
risks inherent in its business. Thus, inadequately capitalized
continued to be a qualified thrift lender. The Gramm-Leach-Bliley Act
general and life insurance companies may be identified. The
of 1999 (GLBA) provides that no company may acquire control of an
U.S. RBC formula develops a risk-adjusted target level of statutory
OTS regulated institution after May 4, 1999 unless it engages only in
AIG 2007 Form 10-K 13