AIG 2010 Annual Report Download - page 35

American International Group, Inc., and Subsidiaries
ongoing process anticipated to continue over the next few years. Many of the regulations must be adopted before
July 16, 2011. AIG cannot predict with certainty the requirements of the regulations ultimately adopted or how or
whether Dodd-Frank and such regulations will affect the financial markets generally; impact AIG’s businesses,
results of operations, cash flows or financial condition; or require AIG to raise additional capital or result in a
downgrade of AIG’s credit ratings.
Dodd-Frank’s potential impact on AIG includes the following:
• The new legislation provides two scenarios in which the Board of Governors of the Federal Reserve System
(FRB) could become AIG’s regulator: (1) if AIG is recognized as a ‘‘savings and loan holding company’’ as
defined by the Home Owners’ Loan Act (HOLA); and/or (2) if the newly created systemic risk regulator —
the Financial Stability Oversight Council (Council) — designates AIG as a company whose material financial
distress, or whose nature, scope, size, scale, concentration, interconnectedness or mix of activities, could pose
a threat to the financial stability of the United States (a Designated Financial Company).
• If AIG becomes subject, as a savings and loan holding company, to the examination, enforcement and
supervisory authority of the FRB, the FRB would be required to impose minimum leverage and risk-based
capital requirements on AIG and its subsidiaries. AIG cannot predict what capital regulations the FRB
would promulgate under these authorizations, either generally or as applicable to insurance businesses, nor
can AIG predict how the FRB would exercise general supervisory authority over AIG. If designated as a
Designated Financial Company, AIG would become subject to stricter prudential standards not yet specified,
including stricter requirements and limitations relating to risk-based capital, leverage, liquidity and credit
exposure, as well as overall risk management requirements, management interlock prohibitions, a new early
remediation process and a requirement to maintain a plan for rapid and orderly dissolution in the event of
severe financial distress.
• If AIG is designated as a Designated Financial Company and determined to be a grave threat to U.S.
financial stability, it would be required to maintain a debt-to-equity ratio of no more than 15:1, and the FRB
could (i) limit AIG’s ability to merge with, acquire, consolidate with, or become affiliated with another
company, to offer specified financial products or to terminate specified activities; (ii) impose conditions on
how we conduct our activities or (iii) with approval of the Council, and a determination that the foregoing
actions are inadequate to mitigate a threat to U.S. financial stability, require AIG to sell or otherwise
transfer assets or off-balance-sheet items to unaffiliated entities.
• In either scenario, AIG may become subject to stress tests to determine whether, on a consolidated basis,
AIG has the capital necessary to absorb losses due to adverse economic conditions. AIG cannot predict how
the stress tests would be designed or conducted or whether the results thereof would cause AIG to alter its
business practices or affect the perceptions of regulators, rating agencies, customers, counterparties or
investors about AIG’s financial strength.
• The Council may recommend that state insurance regulators or other regulators apply new or heightened
standards and safeguards for activities or practices that AIG and other insurers or other financial services
companies engage in.
• If AIG is considered a banking entity for purposes of certain provisions in Dodd-Frank referred to as the
‘‘Volcker Rule’’ AIG would become subject to the provisions of Dodd-Frank prohibiting, subject to the rule’s
exceptions, ‘‘proprietary trading’’ and the sponsorship of, or investment in, hedge, private equity or similar
funds. Even if AIG no longer controlled an insured depository institution, AIG might still be subject to
additional capital and quantitative limitations under the Volcker Rule.
• Title II of Dodd-Frank provides that a financial company whose largest United States subsidiary is an insurer
may be subject to a special liquidation process outside the federal bankruptcy code. That process is to be
administered by the Federal Deposit Insurance Corporation (FDIC) upon a coordinated determination by
the Secretary of the Treasury, the director of the Federal Insurance Office and the Board of Governors of
the Federal Reserve System, in consultation with the FDIC, that such a financial company is in default or in
AIG 2010 Form 10-K 19