AIG 2010 Annual Report Download - page 37

American International Group, Inc., and Subsidiaries
Dodd-Frank imposes various assessments on financial companies, including, as applicable to AIG, ex-post
assessments to provide funds necessary to repay any borrowing and to cover the costs of any special resolution of
a financial company conducted under Title II (although the regulatory authority would have to take account of the
amounts paid by AIG into state guaranty funds). AIG cannot predict the potential effects the new legislation will
have on its organizational structure, financial condition or results of operations. However, it is possible that such
effect could be materially adverse.
In addition to the adoption of Dodd-Frank in the United States, regulators and lawmakers around the world are
actively reviewing the causes of the financial crisis and taking steps to avoid similar problems in the future. The
Financial Stability Board (FSB), consisting of representatives of national financial authorities of the G20 nations,
has issued a series of frameworks and recommendations intended to produce significant changes in how financial
companies, particularly systematically important financial institutions, should be regulated. These frameworks and
recommendations address such issues as financial group supervision, capital and solvency standards, systemic
economic risk, corporate governance including compensation, and a host of related issues associated with
responses to the financial crisis. The FSB has directed the International Association of Insurance Supervisors (the
IAIS, headquartered in Basel, Switzerland) to create standards relative to these areas and incorporate them within
that body’s Insurance Core Principles. IAIS Insurance Core Principles form the baseline threshold for how
countries’ financial services regulatory efforts are measured relative to the insurance sector. That measurement is
made by periodic Financial Sector Assessment Program (FSAP) reviews conducted by the World Bank and the
International Monetary Fund and the reports thereon spur the development of country-specific additional or
amended regulatory changes. Lawmakers and regulatory authorities in a number of jurisdictions in which AIG’s
subsidiaries conduct business have already begun implementing legislative and regulatory changes consistent with
these recommendations, including proposals governing consolidated regulation of insurance holdings companies by
the Financial Services Agency (FSA) in Japan, financial and banking regulation adopted in France and
compensation regulations proposed or adopted by the financial regulators in Germany (BaFIN) and the United
Kingdom (FSA).
AIG cannot predict whether these actions will become effective or the effect they may have on the financial
markets or on AIG’s business, results of operations, cash flows, financial condition and credit ratings.
Other Regulatory Developments
AIG’s operations are subject to regulatory supervision and the possibility of intervention. In light of AIG’s
liquidity problems beginning in the third quarter of 2008, AIG and its regulated subsidiaries have been subject to
intense review and supervision around the world. Regulators have taken significant steps to protect the businesses
of the entities they regulate. These steps have included:
• restricting or prohibiting the payment of dividends to AIG Parent and its subsidiaries;
• restricting or prohibiting other payments to AIG Parent and its 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.
Legislation in the European Union could also affect AIG’s international insurance operations. The Solvency II
Directive (2009/138/EEC), which was adopted on November 25, 2009 and is expected to become effective in
January 2013 (Solvency II), reforms the insurance industry’s solvency framework, including minimum capital and
solvency requirements, governance requirements, risk management and public reporting standards. The impact on
AIG will depend on whether the U.S. insurance regulatory regime is deemed ‘‘equivalent’’ to Solvency II; if the
U.S. insurance regulatory regime is not equivalent, then AIG as a group could be required to be supervised under
AIG 2010 Form 10-K 21