AIG 2009 Annual Report Download - page 37

American International Group, Inc., and Subsidiaries
• requesting additional capital contributions from AIG parent;
• requesting that intercompany reinsurance reserves be covered by assets locally;
• restricting the business in which the subsidiaries may engage;
• requiring pre-approval of all proposed transactions between the regulated subsidiaries and AIG parent or any
affiliate; and
• requiring more frequent reporting, including with respect to capital and liquidity positions.
These and other actions have made it challenging for AIG to continue to maintain focus on its businesses and
engage in business in the ordinary course. AIG does not expect these conditions to change in the foreseeable future.
Requirements of the USA PATRIOT Act, the Office of Foreign Assets Control, and similar laws that apply to AIG may
expose AIG to significant penalties. The operations of certain of AIG’s subsidiaries are subject to laws and
regulations, including the USA PATRIOT Act of 2001, which requires companies to know certain information about
their clients and to monitor their transactions for suspicious activities. In addition, the Department of the Treasury’s
Office of Foreign Assets Control administers regulations requiring U.S. persons to refrain from doing business, or
allowing their clients to do business through them, with certain organizations or individuals on a prohibited list
maintained by the U.S. government or with certain countries. The United Kingdom, the European Union and other
jurisdictions maintain similar laws and regulations. Although AIG has instituted compliance programs to address
these requirements, there are inherent risks in global transactions such as those engaged in by AIG and its
subsidiaries.
Proposed regulations may affect AIG’s operations, financial condition and ability to compete effectively. Legislators
and regulators have recently put forward various proposals that may impact the profitability of certain of AIG’s
businesses or even its ability to conduct certain businesses at all, including proposals relating to restrictions on the type
of activities in which financial institutions are permitted to engage and the size of financial institutions, and proposals
to impose additional taxes on a limited subset of financial institutions and insurance companies (either based on size,
activities, geography, government support or other criteria). It is unclear how these and other such proposals would
apply to AIG or its competitors or how they could impact AIG’s consolidated results of operations, financial
condition, and ability to compete effectively.
Foreign Operations
Foreign operations expose AIG to risks that may affect its operations, liquidity and financial condition. AIG provides
insurance, investment and other financial products and services to both businesses and individuals in more than 130
countries and jurisdictions. A substantial portion of AIG’s General Insurance business and all of its Foreign Life
Insurance & Retirement Services business is conducted outside the United States. Operations outside the United
States, particularly those in developing nations, may be affected by regional economic downturns, changes in foreign
currency exchange rates, political upheaval, nationalization and other restrictive government actions, which could also
affect other AIG operations.
The degree of regulation and supervision in foreign jurisdictions varies. Generally, AIG, as well as its subsidiaries
operating in such jurisdictions, must satisfy local regulatory requirements. Licenses issued by foreign authorities to
AIG subsidiaries are subject to modification and revocation. Thus, AIG’s insurance subsidiaries could be prevented
from conducting future business in certain of the jurisdictions where they currently operate. Adverse actions from any
single country could adversely affect AIG’s results of operations, liquidity and financial condition depending on the
magnitude of the event and AIG’s financial exposure at that time in that country.
Legal Proceedings
Significant legal proceedings may adversely affect AIG’s results of operations. AIG is party to numerous legal
proceedings, including securities class actions and regulatory or governmental investigations. Due to the nature of the
litigation, the lack of precise damage claims and the type of claims made against AIG, AIG cannot currently quantify
its ultimate or maximum liability for these actions. It is possible that developments in these unresolved matters could
have a material adverse effect on AIG’s consolidated financial condition or consolidated results of operations for an
29 AIG 2009 Form 10-K