AIG 2007 Annual Report Download - page 73

American International Group, Inc. and Subsidiaries
AIGFP’s super senior credit default swap portfolio. To the extent Significant regulatory action against AIG could have material
actual experience differs from the assumptions used, AIG’s adverse financial effects, cause significant reputational harm or
consolidated results of operations or financial condition would be harm business prospects. New laws or regulations or changes in
directly affected, perhaps materially. the enforcement of existing laws or regulations applicable to
clients may also adversely affect AIG and its businesses.
Legal Proceedings
A Material Weakness
Significant legal proceedings may adversely affect AIG’s results
of operations. AIG is party to numerous legal proceedings and A material weakness in internal control over financial reporting
regulatory or governmental investigations. It is possible that the and oversight relating to the AIGFP valuation of its super senior
effect of these unresolved matters could be material to AIG’s credit default swap portfolio could adversely affect the accuracy
consolidated results of operations for an individual reporting or timing of future regulatory filings. AIG’s management has
period. For a discussion of these unresolved matters, see Item 3. concluded that a material weakness relating to the internal control
Legal Proceedings. over financial reporting and oversight relating to the fair value
valuation of the AIGFP super senior credit default swap portfolio
existed as of December 31, 2007. Until remediated, this
Foreign Operations
weakness could adversely affect the accuracy or timing of future
Foreign operations expose AIG to risks that may affect its
filings with the SEC and other regulatory authorities. A discussion
operations, liquidity and financial condition. AIG provides insur- of this material weakness and AIG’s remediation efforts can be
ance, investment and other financial products and services to found in Item 9A. Controls and Procedures — Management’s
both businesses and individuals in more than 130 countries and Report on Internal Control Over Financial Reporting.
jurisdictions. A substantial portion of AIG’s General Insurance
business and a majority of its Life Insurance & Retirement Employee Error and Misconduct
Services business is conducted outside the United States.
Operations outside of the United States, particularly those in Employee error and misconduct may be difficult to detect and
developing nations, may be affected by regional economic down- prevent and may result in significant losses. Losses may result
turns, changes in foreign currency exchange rates, political from, among other things, fraud, errors, failure to document
upheaval, nationalization and other restrictive government actions, transactions properly or to obtain proper internal authorization or
which could also affect other AIG operations. failure to comply with regulatory requirements.
The degree of regulation and supervision in foreign jurisdic- There have been a number of highly publicized cases involving
tions varies. Generally, AIG, as well as its subsidiaries operating fraud or other misconduct by employees in the financial services
in such jurisdictions, must satisfy local regulatory requirements. industry in recent years, and AIG runs the risk that employee
Licenses issued by foreign authorities to AIG subsidiaries are misconduct could occur. It is not always possible to deter or prevent
subject to modification and revocation. Thus, AIG’s insurance employee misconduct and the controls that AIG has in place to
subsidiaries could be prevented from conducting future business prevent and detect this activity may not be effective in all cases.
in certain of the jurisdictions where they currently operate.
Adverse actions from any single country could adversely affect Aircraft Suppliers
AIG’s results of operations, liquidity and financial condition
There are limited suppliers of aircraft and engines. The supply of
depending on the magnitude of the event and AIG’s net financial
jet transport aircraft, which ILFC purchases and leases, is
exposure at that time in that country.
dominated by two airframe manufacturers, Boeing and Airbus, and
a limited number of engine manufacturers. As a result, ILFC is
Regulation
dependent on the manufacturers’ success in remaining financially
AIG is subject to extensive regulation in the jurisdictions in which it stable, producing aircraft and related components which meet the
conducts its businesses. AIG’s operations around the world are airlines’ demands, both in type and quantity, and fulfilling their
subject to regulation by different types of regulatory authorities, contractual obligations to ILFC. Competition between the manufac-
including insurance, securities, investment advisory, banking and turers for market share is intense and may lead to instances of
thrift regulators in the United States and abroad. AIG’s operations deep discounting for certain aircraft types and could negatively
have become more diverse and consumer-oriented, increasing the affect ILFC’s competitive pricing.
scope of regulatory supervision and the possibility of intervention. In
particular, AIG’s consumer lending business is subject to a broad Item 1B.
array of laws and regulations governing lending practices and Unresolved Staff Comments
permissible loan terms, and AIG would expect increased regulatory
There are no material unresolved written comments that were
oversight relating to this business.
received from the SEC staff 180 days or more before the end of
The regulatory environment could have a significant effect on
AIG’s fiscal year relating to AIG’s periodic or current reports under
AIG and its businesses. Among other things, AIG could be fined,
the Exchange Act.
prohibited from engaging in some of its business activities or
subject to limitations or conditions on its business activities.
AIG 2007 Form 10-K 19