AIG 2012 Annual Report Download - page 317

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AIG’s life insurance companies have received industry-wide regulatory inquiries, including a
multi-state audit and market conduct examination covering compliance with unclaimed property laws and a directive
from the New York Insurance Department regarding claims settlement practices and other related state regulatory
inquiries. AIG recorded an increase of $55 million in policyholders benefit reserves in the third quarter of 2012 in
conjunction with the resolution of the multi-state examinations relating to the handling of unclaimed property and the
use of the Social Security Death Master File (SSDMF) to identify potential claims not yet presented to AIG in the
normal course of business. In addition, AIG paid an $11 million regulatory assessment to the various state insurance
departments that are parties to the regulatory settlement to defray costs of their examinations and monitoring.
Although AIG has enhanced its claims practices to include use of the SSDMF, it is possible that the settlement
remediation requirements, remaining inquiries, other regulatory activity or litigation could result in the payment of
additional amounts. AIG has also received a demand letter from a purported AIG shareholder requesting that the
Board of Directors investigate these matters, and bring appropriate legal proceedings against any person identified by
the investigation as engaging in misconduct. AIG believes it has adequately reserved for such claims, but there can
be no assurance that the ultimate cost will not vary, perhaps materially, from its estimate.
In connection with the previously disclosed multi-state examination of certain accident and health products, including
travel products, issued by National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), Chartis Inc.,
on behalf of itself, National Union, and certain of Chartis Inc.’s insurance and non-insurance companies (collectively,
the Chartis parties) entered into a Regulatory Settlement Agreement with regulators from 50 U.S. jurisdictions
effective November 29, 2012. Under the agreement, and without admitting any liability for the issues raised in the
examination, the Chartis parties (i) paid a civil penalty of $50 million, (ii) entered into a corrective action plan
describing agreed-upon specific steps and standards for evaluating the Chartis parties’ ongoing compliance with laws
and regulations governing the issues identified in the examination, and (iii) agreed to pay a contingent fine in the
event that the Chartis parties fail to satisfy certain terms of the corrective action plan. National Union and other AIG
companies are also currently subject to civil litigation relating to the conduct of their accident and health business,
and may be subject to additional litigation relating to the conduct of such business from time to time in the ordinary
course. There can be no assurance that any regulatory action resulting from the issues identified will not have a
material adverse effect on AIG’s ongoing operations of the business subject to the agreement, or on similar business
written by other AIG carriers.
Industry-wide examinations conducted by the Minnesota Department of Insurance and the Department of Housing
and Urban Development (HUD) on captive reinsurance practices by lenders and mortgage insurance companies,
including UGC, have been ongoing for several years. In 2011, the Consumer Financial Protection Bureau (‘‘CFPB’’)
assumed responsibility for violations of the Real Estate Settlement Procedures Act from HUD, and assumed HUD’s
aforementioned ongoing investigation. In June 2012, the CFPB issued a Civil Investigative Demand (‘‘CID’’) to UGC
and other mortgage insurance companies, requesting the production of documents and answers to written questions.
The CFPB agreed to toll the deadlines associated with the CID pending discussions that could resolve the
investigation. Although UGC filed a petition to modify the CID on December 7, 2012, ending the tolling period, the
discussions that could resolve the investigation are still ongoing. UGC has received a proposed consent order from
the Minnesota Commissioner of Commerce (the MN Commissioner) which alleges that UGC violated the Real Estate
Settlement Procedures Act, the Fair Credit Reporting Act and other state and federal laws in connection with its
practices with captive reinsurance companies owned by lenders. UGC engaged in discussions with the MN
Commissioner with respect to the terms of the proposed consent order. UGC cannot predict if or when a consent
order may be entered into or, if entered into, what the terms of the final consent order will be. UGC is also currently
subject to civil litigation relating to its placement of reinsurance with captives owned by lenders, and may be subject
to additional litigation relating to the conduct of such business from time to time in the ordinary course.
Other Contingencies
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Liability for unpaid claims and claims adjustment expense
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Although we regularly review the adequacy of the established Liability for unpaid claims and claims adjustment
expense, there can be no assurance that our loss reserves will not develop adversely and have a material adverse
effect on our results of operations. Estimation of ultimate net losses, loss expenses and loss reserves is a complex
process, particularly for long-tail casualty lines of business, which include, but are not limited to, general liability,
commercial automobile liability, environmental, workers’ compensation, excess casualty and crisis management
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AIG 2012 Form 10-K300
Regulatory Matters
ITEM 8 / NOTE 16. CONTINGENCIES, COMMITMENTS AND GUARANTEES