AIG 2012 Annual Report Download - page 58

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proposed, contains an exemption for proprietary trading by insurance companies for their general account, but the
final breadth and scope of this exemption cannot be predicted. Even if we no longer controlled an insured depository
institution, Dodd-Frank authorizes the FRB to subject SIFIs to additional capital and quantitative limitations if they
engage in activities prohibited for depository institutions by the Volcker Rule.
In addition, Dodd-Frank establishes a new framework for regulation of over-the-counter (OTC) derivatives under
which we may have to provide or increase collateral under the terms of bilateral agreements with derivatives
counterparties. These additional obligations to post collateral or the costs of assignment, termination or obtaining
alternative credit could have a material adverse effect 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 or cash flows. It is possible that the regulations adopted under Dodd-Frank and our
regulation by the FRB as an SLHC could significantly alter our business practices, require us to raise additional
capital, impose burdensome and costly requirements and additional costs. Some of the regulations may also affect
the perceptions of regulators, customers, counterparties, creditors or investors about our financial strength and could
potentially affect our financing costs.
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 our subsidiaries are subject to laws and regulations, including, in some
cases, the USA PATRIOT Act of 2001, which require companies to know certain information about their clients and
to monitor their transactions for suspicious activities. Also, the Department of the Treasury’s Office of Foreign Assets
Control administers regulations requiring U.S. persons to refrain from doing business, or allowing their clients to do
business through them, with certain organizations or individuals on a prohibited list maintained by the U.S.
government or with certain countries. The United Kingdom, the European Union and other jurisdictions maintain
similar laws and regulations. Although we have instituted compliance programs to address these requirements, there
are inherent risks in global transactions.
Attempts to mitigate the impact of Regulation XXX and Actuarial Guideline AXXX may fail in whole or in part
resulting in an adverse effect on our financial condition and results of operations. The NAIC Model Regulation
‘‘Valuation of Life Insurance Policies’’ (‘‘Regulation XXX’’) requires insurers to establish additional statutory reserves
for term life insurance policies with long-term premium guarantees and universal life policies with secondary
guarantees. In addition, NAIC Actuarial Guideline 38 (AXXX) (Guideline AXXX) clarifies the application of
Regulation XXX as to certain universal life insurance policies with secondary guarantees. The application of
Regulation XXX and Guideline AXXX involves numerous interpretations. At times, there may be differences of
opinion between management and state insurance departments about the application of these and other actuarial
guidelines. Consequently, a state insurance regulator may require greater reserves to support insurance liabilities
than management has estimated.
We have implemented intercompany reinsurance and capital management actions to mitigate the capital impact of
Regulation XXX and Guideline AXXX. In so doing, we focus on identifying cost-effective opportunities to manage our
intercompany reinsurance transactions, particularly with respect to certain redundant statutory reserve requirements
on Regulation XXX and Guideline AXXX reserves. Our efforts have included the use of an intercompany reinsurance
arrangement for Regulation XXX and Guideline AXXX reserves and the use of letters of credit to support the
reinsurance provided by our affiliated reinsurance subsidiary. All of these letters of credit are due to mature on
December 31, 2015. The reinsurance and capital management actions we have taken may not be sufficient to offset
regulatory, rating agency or other requirements. In that case, we could be required to increase statutory reserves or
incur higher operating and/or tax costs. If we are unable to implement actions to mitigate the impact of
Regulation XXX or Guideline AXXX on future sales of term and universal life insurance products, we may reduce the
sales of these products or incur higher operating costs or it may impact our sales of these products.
New regulations promulgated from time to time may affect our businesses, results of operations, financial
condition and ability to compete effectively. Legislators and regulators may periodically consider various
proposals that may affect the profitability of certain of our businesses. New regulations may even affect our ability to
conduct certain businesses at all, including proposals relating to restrictions on the type of activities in which financial
institutions are permitted to engage and the size of financial institutions. These proposals could also impose
additional taxes on a limited subset of financial institutions and insurance companies (either based on size, activities,
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AIG 2012 Form 10-K 41
ITEM 1A / RISK FACTORS