AIG 2008 Annual Report Download - page 159

At February 18, 2009, $9 billion was available for purchases under the aggregate authorization. Pursuant to the
Fed Credit Agreement, however, AIG is restricted from repurchasing shares of its common stock.
Share Issuance
In May 2008, AIG sold 196,710,525 shares of its common stock at a price per share of $38 in a public offering.
Concurrent with the common stock offering, AIG sold 78.4 million Equity Units at a price per unit of $75. The
Equity Units consist of an ownership interest in AIG junior subordinated debentures and a stock purchase contract
obligating the holder of an equity unit to purchase, and obligating AIG to sell, on each of February 15, 2011, May 1,
2011 and August 1, 2011, for a price of $25, a variable number of shares of AIG common stock, that is not less than
0.54823 shares and not more than 0.6579 shares, subject to anti-dilution adjustments. Accordingly, a maximum
number of 154,738,080 shares and a minimum number of 128,944,480 shares of AIG common stock will be issued
in the year 2011 under the stock purchase contracts, subject to anti-dilution adjustments.
On May 7, 2008, AIG’s Board of Directors declared a quarterly cash dividend on the common stock of $0.22
per share that was paid on September 19, 2008 to shareholders of record on September 5, 2008. Effective
September 23, 2008, AIG’s Board of Directors suspended the declaration of dividends on AIG’s common stock.
Pursuant to the Fed Credit Agreement, AIG is restricted from paying dividends on its common stock.
See Note 15 to the Consolidated Financial Statements.
Dividends from Insurance Subsidiaries
Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by
regulatory authorities. With respect to AIG’s domestic insurance subsidiaries, the payment of any dividend requires
formal notice to the insurance department in which the particular insurance subsidiary is domiciled. Under the laws
of many states, an insurer may pay a dividend without prior approval of the insurance regulator when the amount of
the dividend is below certain regulatory thresholds. Other foreign jurisdictions, notably Bermuda, Japan, Hong
Kong, Taiwan, the U.K., Thailand and Singapore, may restrict the ability of AIG’s foreign insurance subsidiaries to
pay dividends. Largely as a result of these restrictions, a significant majority of the aggregate equity of AIG’s
consolidated subsidiaries was restricted from immediate transfer to AIG parent at December 31, 2008. See
Regulation and Supervision herein. AIG cannot predict how recent regulatory investigations may affect the ability
of its regulated subsidiaries to pay dividends. To AIG’s knowledge, no AIG company is currently on any regulatory
or similar “watch list” with regard to solvency. See also Liquidity herein, Note 14 to the Consolidated Financial
Statements and Item 1A. Risk Factors — Liquidity.
Regulation and Supervision
AIG’s insurance subsidiaries, in common with other insurers, are subject to regulation and supervision by the
states and jurisdictions in which they do business. In the United States, the NAIC has developed Risk-Based Capital
(RBC) requirements. RBC relates an individual insurance company’s statutory surplus to the risk inherent in its
overall operations.
AIG’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting
practices prescribed or permitted by domestic and foreign insurance regulatory authorities. The principal differ-
ences between statutory financial statements and financial statements prepared in accordance with U.S. GAAP for
domestic companies are that statutory financial statements do not reflect DAC, some bond portfolios may be carried
at amortized cost, assets and liabilities are presented net of reinsurance, policyholder liabilities are valued using
more conservative assumptions and certain assets are non-admitted.
In connection with the filing of the 2005 statutory financial statements for AIG’s domestic General Insurance
companies, AIG agreed with the relevant state insurance regulators on the statutory accounting treatment of various
items. The regulatory authorities have also permitted certain of the domestic and foreign insurance subsidiaries to
support the carrying value of their investments in certain non-insurance and foreign insurance subsidiaries by
utilizing the AIG audited consolidated financial statements to satisfy the requirement that the U.S. GAAP-basis
equity of such entities be audited. AIG has received similar permitted practice authorizations from insurance
regulatory authorities in connection with the 2008 and 2007 statutory financial statements. The permitted practice
AIG 2008 Form 10-K 153
American International Group, Inc., and Subsidiaries