AIG 2009 Annual Report Download - page 69

American International Group, Inc., and Subsidiaries
AIG consolidates a VIE when it is the primary beneficiary of the entity. The primary beneficiary is the party that
either (i) absorbs a majority of the VIE’s expected losses; (ii) receives a majority of the VIE’s expected residual
returns; or (iii) both. For a further discussion of AIG’s involvement with VIEs, see Note 10 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. For example, unless
permitted by the New York Superintendent of Insurance, general insurance companies domiciled in New York may
not pay dividends to shareholders that, in any twelve-month period, exceed the lesser of ten percent of such company’s
statutory policyholders’ surplus or 100 percent of its ‘‘adjusted net investment income,’’ as defined. Generally, less
severe restrictions applicable to both general and life insurance companies exist in most of the other states in which
AIG’s insurance subsidiaries are 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. There are also various local restrictions
limiting cash loans and advances to AIG by its subsidiaries. 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, 2009. AIG cannot predict how 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 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. AIG parent is not generally subject to supervision by state regulators, but
certain transactions, such as those involving significant transactions with its insurance company subsidiaries and any
transaction involving a change in control of AIG or any of its insurance company subsidiaries, may require the prior
approval of state regulators. In the United States, the NAIC has developed Risk-Based Capital (RBC) Model Law
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 differences between
statutory financial statements for domestic companies and financial statements prepared in accordance with
U.S. GAAP 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.
As discussed under Item 3. Legal Proceedings, various regulators have commenced investigations into certain
insurance business practices. In addition, the OTS and other regulators routinely conduct examinations of AIG and its
subsidiaries, including AIG’s consumer finance operations. AIG cannot predict the ultimate effect that these
investigations and examinations, or any additional regulation arising therefrom, might have on its business. Federal,
state or local legislation may affect AIG’s ability to operate and expand its various financial services businesses, and
changes in the current laws, regulations or interpretations thereof may have a material adverse effect on these
businesses. See Item 1A. Risk Factors for additional information.
AIG’s U.S. operations are negatively affected under guarantee fund assessment laws which exist in most states. As a
result of operating in a state which has guarantee fund assessment laws, a solvent insurance company may be assessed
for certain obligations arising from the insolvencies of other insurance companies which operated in that state. AIG
generally records these assessments upon notice. Additionally, certain states permit at least a portion of the assessed
amount to be used as a credit against a company’s future premium tax liabilities. Therefore, the ultimate net
61 AIG 2009 Form 10-K