AIG 2010 Annual Report Download - page 39

American International Group, Inc., and Subsidiaries
There are a number of proposals to amend state insurance laws and regulations in ways that could affect AIG
and its subsidiaries. The National Association of Insurance Commissioners (NAIC) has recently adopted or
amended model laws on holding company regulation that would provide for supervision of insurers at the
corporate group level. Although these changes are only beginning to be adopted by individual state regulators, it
can be expected that most will ultimately adopt them in some form. The various proposals to implement group
supervision include:
• uniform standards for insurer corporate governance;
• group-wide supervision of insurance holding companies;
• adjustments to RBC calculations to account for group-wide risks; and
• additional regulatory and disclosure requirements for insurance holding companies.
Additionally, the NAIC has undertaken the Solvency Modernization Initiative (SMI) which focuses on a review
of insurance solvency regulations throughout the U.S. financial regulatory system and will lead to a set of
long-term solvency modernization goals. SMI is broad in scope, but NAIC has stated that its focus will include the
U.S. solvency framework, group solvency issues, capital requirements, international accounting and regulatory
standards, reinsurance and corporate governance.
AIG cannot predict the potential effect that any new regulations would have on AIG’s insurance subsidiaries or
on AIG’s business, results of operations, cash flows or financial condition.
Regulation of Domestic Subsidiaries in Foreign Jurisdictions
A substantial portion of Chartis’ business is conducted in foreign countries. The degree of regulation and
supervision in foreign jurisdictions varies. Generally, AIG, as well as the underwriting companies operating in such
jurisdictions, must satisfy local regulatory requirements. Licenses issued by foreign authorities to AIG subsidiaries
are subject to modification or revocation by such authorities, and these subsidiaries could be prevented from
conducting business in certain of the jurisdictions where they currently operate.
In addition to licensing requirements, AIG’s foreign operations are also regulated in various jurisdictions with
respect to currency, policy language and terms, advertising, amount and type of security deposits, amount and type
of reserves, amount and type of capital to be held, amount and type of local investment and the share of profits to
be returned to policyholders on participating policies. Some foreign countries regulate rates on various types of
policies. Certain countries have established reinsurance institutions, wholly or partially owned by the local
government, to which admitted insurers are obligated to cede a portion of their business on terms that may not
always allow foreign insurers, including AIG subsidiaries, full compensation. In some countries, regulations
governing constitution of technical reserves and remittance balances may hinder remittance of profits and
repatriation of assets.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital
Resources and Liquidity — Regulation and Supervision and Note 18 to Consolidated Financial Statements.
Competition
AIG’s businesses operate in highly competitive environments, both domestically and overseas. Principal sources
of competition are insurance companies, banks, investment banks and other non-bank financial institutions. AIG
considers its principal competitors to be other large multi-national insurance organizations.
The insurance industry in particular is highly competitive. Within the United States, Chartis subsidiaries
compete with approximately 3,300 other stock companies, specialty insurance organizations, mutual companies and
other underwriting organizations. SunAmerica subsidiaries compete in the United States with approximately 1,800
life insurance companies and other participants in related financial services fields. Overseas, AIG’s subsidiaries
compete for business with the foreign insurance operations of large U.S. insurers and with global insurance groups
and local companies in particular areas in which they are active.
AIG 2010 Form 10-K 23