AIG 2010 Annual Report Download - page 48

American International Group, Inc., and Subsidiaries
• impose conditions on how we conduct our activities; or
• with approval of the Financial Stability Oversight Council (Council), and a determination that the
foregoing actions are inadequate to mitigate a threat to U.S. financial stability, require us to sell or
otherwise transfer assets or off-balance-sheet items to unaffiliated entities.
If we continue to control AIG Federal Savings Bank or another insured depository institution, we would
become subject to the ‘‘Volcker Rule’’, which would place limits on ‘‘proprietary trading’’ and the sponsorship of,
or investment in, hedge, private equity or similar funds. Such prohibitions could substantially impact our
investment business as it is currently managed. The Volcker Rule contains an exception for trading by insurance
companies for their general account, but the extent of this exception cannot be predicted. Even if we no longer
controlled an insured depository institution, we might still be subject to additional capital and quantitative
limitations under the Volcker Rule.
In addition, Dodd-Frank establishes a new framework for regulation of OTC derivatives under which we may
have to collateralize previously uncollateralized swaps. These additional obligations to post collateral or the costs
of assignment, termination or obtaining alternative credit could have a material adverse affect on us. This new
framework may also increase the cost of conducting a hedging program or have other effects materially adverse to
us.
We cannot predict the requirements of the regulations ultimately adopted, the level and magnitude of
supervision we may become subject to, or how Dodd-Frank and such regulations will affect the financial markets
generally or our businesses, results of operations, cash flows or financial condition. It is possible that the
regulations adopted under Dodd-Frank could significantly alter our business practices, require us to raise
additional capital, impose burdensome and costly requirements and add additional costs. Some of the regulations
may also affect the perceptions of regulators, rating agencies, customers, counterparties, creditors or investors
about our financial strength and could potentially affect our financing costs or result in a ratings downgrade.
We are subject to extensive regulation in the jurisdictions in which we conduct our businesses, including with respect
to the pricing of policies that we write, and regulatory actions could make it challenging for us to continue to engage in
business in the ordinary course. Our operations around the world are subject to regulation by different types of
regulatory authorities, including insurance, securities, investment advisory, banking and thrift regulators in the
United States and abroad. Regulators have the ability to take various steps to protect the businesses of the entities
they regulate. These steps could include:
• 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.
In addition, the premium rates that we are able to charge and the profits that we are able to obtain are affected
by the actions of state and foreign insurance departments that regulate our businesses. In addition to this
regulation, our insurance subsidiaries are subject to laws that require insurers to participate in assigned risk plans,
or to offer coverage to all consumers or at prices that we might not otherwise offer. Any of these actions could
have an adverse effect on our consolidated results of operations.
Requirements of the USA PATRIOT Act, the Office of Foreign Assets Control and similar laws that apply to us may
expose us to significant penalties. The operations of certain of our subsidiaries are subject to laws and regulations,
32 AIG 2010 Form 10-K