AIG 2009 Annual Report Download - page 22

American International Group, Inc., and Subsidiaries
activities that are determined to be a serious risk to the financial safety, soundness or stability of AIG’s subsidiary
savings association, AIG Federal Savings Bank.
Under prior law, a unitary savings and loan holding company, such as AIG, was not restricted as to the types of
business in which it could engage, provided that its savings association subsidiary continued to be a qualified thrift
lender. The Gramm-Leach-Bliley Act of 1999 (GLBA) provides that no company may acquire control of an OTS
regulated institution after May 4, 1999 unless it engages only in the financial activities permitted for financial holding
companies under the law or for multiple savings and loan holding companies. The GLBA, however, grandfathered the
unrestricted authority for activities with respect to a unitary savings and loan holding company existing 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 of May 4, 1999, AIG is grandfathered
under the GLBA and generally is not restricted under existing laws as to the types of business activities in which it may
engage, provided that AIG Federal Savings Bank continues to be a qualified thrift lender under the HOLA.
Certain states require registration and periodic reporting by insurance companies that are licensed in such states
and are controlled by other corporations. Applicable legislation typically requires periodic disclosure concerning the
corporation that controls the registered insurer and the other companies in the holding company system and prior
approval of intercorporate services and transfers of assets (including in some instances payment of dividends by the
insurance subsidiary) within the holding company system. AIG’s subsidiaries are registered under such legislation in
those states that have such requirements.
AIG’s insurance subsidiaries, in common with other insurers, are subject to regulation and supervision by the states
and by other jurisdictions in which they do business. Within the United States, the method of such regulation varies
but generally has its source in statutes that delegate regulatory and supervisory powers to an insurance official. The
regulation and supervision relate primarily to approval of policy forms and rates, the standards of solvency that must
be met and maintained, including risk-based capital, the licensing of insurers and their agents, the nature of and
limitations on investments, restrictions on the size of risks that may be insured under a single policy, deposits of
securities for the benefit of policyholders, requirements for acceptability of reinsurers, periodic examinations of the
affairs of insurance companies, the form and content of reports of financial condition required to be filed, and
reserves for unearned premiums, losses and other purposes. In general, such regulation is for the protection of
policyholders rather than the equity owners of these companies.
AIG has taken various steps to enhance the capital positions of the Chartis U.S. companies. AIG entered into
capital maintenance agreements with these companies that set forth procedures through which AIG has provided, and
expects to continue to provide, capital support. Also, in order to allow the Chartis companies to record as an admitted
asset at December 31, 2009 certain reinsurance ceded to non-U.S. reinsurers (which has the effect of maintaining the
level of the statutory surplus of such companies), AIG obtained and entered into reimbursement agreements for
approximately $1.5 billion of letters of credit issued by several commercial banks in favor of certain Chartis companies
and funded trusts totaling $2.8 billion.
In the U.S., the Risk-Based Capital (RBC) formula is designed to measure the adequacy of an insurer’s statutory
surplus in relation to the risks inherent in its business. Thus, inadequately capitalized general and life insurance
companies may be identified. The U.S. RBC formula develops a risk-adjusted target level of statutory surplus by
applying certain factors to various asset, premium and reserve items. Higher factors are applied to more risky items
and lower factors are applied to less risky items. Thus, the target level of statutory surplus varies not only as a result of
the insurer’s size, but also based on the risk profile of the insurer’s operations.
The RBC Model Law provides for four incremental levels of regulatory attention for insurers whose surplus is
below the calculated RBC target. These levels of attention range in severity from requiring the insurer to submit a
plan for corrective action to placing the insurer under regulatory control.
The statutory surplus of each of the U.S.-based life and property and casualty insurance subsidiaries exceeded their
RBC minimum required levels as of December 31, 2009.
AIG 2009 Form 10-K 14