AIG 2010 Annual Report Download - page 36

American International Group, Inc., and Subsidiaries
danger of default and presents a systemic risk to U.S. financial stability. AIG is a financial company and its
largest U.S. subsidiary is an insurer.
• Dodd-Frank establishes a new framework for regulation of the over-the-counter (OTC) derivatives markets
and certain market participants that could affect various activities of AIG and its insurance subsidiaries, as
well as Capital Markets. These regulations could impose margin or collateral requirements on derivative
transactions entered into by AIG prior to the passage of Dodd-Frank or intercompany derivative transactions
between AIG and one or more of its affiliates or between affiliates. Any such margin or collateral
requirements could adversely affect AIG’s liquidity and credit ratings. The CFTC and SEC have published
proposed rules governing major swap participants and major security-based swap participants. If AIG or one
or more of its subsidiaries meet the tests finally adopted by the CFTC or SEC, AIG or one or more of its
subsidiaries may become subject to derivative transaction clearing, execution and reporting requirements,
capital and margin requirements and business conduct rules.
• Dodd-Frank establishes a Federal Insurance Office (FIO) within the Department of the Treasury to be
headed by a director appointed by the Secretary of the Treasury. While not having a general supervisory or
regulatory authority over the business of insurance, the director of this office would perform various
functions with respect to insurance (other than health insurance), including serving as a non-voting member
of the Council and participating in the Council’s decisions regarding insurers, potentially including AIG to
be designated for stricter prudential regulation. The director is also required to conduct a study on how to
modernize and improve the system of insurance regulation in the United States, including by increased
national uniformity through either a federal charter or effective action by the states. The FIO may also
recommend enhanced regulations to state insurance regulatory bodies.
• Dodd-Frank authorizes the FRB to require a savings and loan holding company or a Designated Financial
Company to place its financial activities in an intermediate holding company separate from non-financial
activities (as defined for purposes of the Bank Holding Company Act) and imposes restrictions on
transactions between the two businesses, which could be burdensome and costly to implement.
• Dodd-Frank establishes the Bureau of Consumer Financial Protection (BCFP) as an independent agency
within the FRB to regulate consumer financial products and services offered primarily for personal, family or
household purposes. Insurance products and services are not within the BCFP’s general jurisdiction, and
broker-dealers and investment advisers are not subject to the BCFP’s jurisdiction when acting in their
registered capacity.
• Title XIV of Dodd-Frank also restricts certain terms for mortgage loans, such as loan fees, prepayment fees
and other charges, and imposes certain duties on a lender to ensure that a borrower can afford to repay the
loan. These changes may adversely affect UGC’s business.
• Dodd-Frank seeks to increase efficiency, reduce transaction costs and improve consumer access in the
nonadmitted property and casualty insurance market (excess and surplus lines). AIG expects that these
measures will make certain of Chartis’ operations within the U.S. more streamlined and efficient, although
they could lead to greater competition in these markets.
• Dodd-Frank includes various securities law reforms that may affect AIG’s business practices and the
liabilities and/or exposures associated therewith, including:
• The SEC recently completed a staff report on registered broker-dealers who provide personalized
investment advice to retail investors, such as certain of SunAmerica’s operations. The staff report
recommended to Congress a uniform fiduciary standard of conduct for broker-dealers and investment
advisers. The SEC may also require broker-dealers selling proprietary or a limited range of products
to make certain disclosures and obtain customer consents or acknowledgements.
• The SEC and other regulators are required to promulgate regulations requiring the originator of
certain asset-backed securities to retain at least five percent of the credit risk of securities sold, which
may apply to activities of subsidiaries of AIG as part of their funding activities in the future.
20 AIG 2010 Form 10-K