AIG 2010 Annual Report Download - page 83

American International Group, Inc., and Subsidiaries
may pay a dividend without prior approval of the insurance regulator when the amount of the dividend is below
certain regulatory thresholds. Other foreign jurisdictions may restrict the ability of AIG’s foreign insurance
subsidiaries to pay dividends. There are also various local restrictions limiting cash loans and advances to AIG by
its subsidiaries. Largely as a result of these restrictions, approximately 80 percent of the aggregate equity of AIG’s
consolidated subsidiaries was restricted from transfer to AIG Parent at December 31, 2010. AIG cannot predict
how regulatory investigations may affect the ability of its regulated subsidiaries to pay dividends. To AIG’s
knowledge, no AIG insurance company is currently on any regulatory or similar ‘‘watch list’’ with regard to
solvency.
Regulation and Supervision
AIG’s insurance subsidiaries, like other insurers, are subject to regulation and supervision by the states and
jurisdictions in which they do business. AIG Parent is not generally subject to supervision by state regulators, but
certain transactions, such as those involving statutorily designated transactions with its insurance company
subsidiaries and any transaction involving a change in control of AIG or any of its insurance company subsidiaries,
may require the prior approval of state regulators. In the United States, the NAIC has developed Risk-Based
Capital (RBC) Model Law requirements. RBC relates an individual insurance company’s statutory surplus to the
risk inherent in its overall operations.
AIG’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices
prescribed or permitted by domestic and foreign insurance regulatory authorities. The principal differences
between statutory financial statements for domestic companies and financial statements prepared in accordance
with U.S. GAAP are that in statutory financial statements acquisition costs are expensed instead of being deferred,
a large portion of the bond portfolios may be carried at amortized cost, securities are valued on a different basis,
assets and liabilities are presented net of reinsurance, policyholder liabilities are valued using more conservative
assumptions and certain assets are not admitted under statutory accounting practices and are charged directly to
surplus. Further, statutory accounting practices do not give recognition to purchase accounting adjustments and
require certain other reserves not required by U.S. GAAP.
As discussed under Note 16(a) to the Consolidated Financial Statements, various regulators have commenced
investigations into certain insurance business practices. In addition, insurance regulators routinely conduct
examinations of AIG and its subsidiaries. AIG cannot predict the ultimate effect that these investigations and
examinations, or any additional regulation arising therefrom, might have on its business. Federal, state or local
legislation, including Dodd-Frank, may affect AIG’s ability to operate its various financial services businesses, and
changes in the current laws, regulations or interpretations thereof may have a material adverse effect on these
businesses. See Item 1A. Risk Factors for additional information.
AIG’s U.S. operations are negatively affected under guarantee fund assessment laws which exist in most states.
As a result of operating in a state that has guarantee fund assessment laws, a solvent insurance company may be
assessed for certain obligations arising from the insolvencies of other insurance companies operated in that state.
AIG generally records these assessments upon notice. Additionally, certain states permit at least a portion of the
assessed amount to be used as a credit against a company’s future premium tax liabilities. Therefore, the ultimate
net assessment cannot reasonably be estimated. The guarantee fund assessments net of credits recognized in 2010,
2009 and 2008, respectively, were $16 million, $18 million and $12 million.
AIG is also required to participate in various involuntary pools (principally workers’ compensation business and,
internationally, personal automobile business) that provide insurance coverage for those not able to obtain such
coverage in the voluntary markets. This participation is also recorded upon notification, as these amounts cannot
reasonably be estimated.
AIG 2010 Form 10-K 67