AIG 2013 Annual Report Download - page 59

In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email and
other electronic means. Although we attempt to keep such information confidential, we may be unable to do so in all
events, especially with clients, vendors, service providers, counterparties and other third parties who may not have or
use appropriate controls to protect confidential information. Furthermore, certain of our businesses are subject to
compliance with laws and regulations enacted by U.S. federal and state governments, the European Union or other
jurisdictions or enacted by various regulatory organizations or exchanges relating to the privacy and security of the
information of clients, employees or others. The compromise of personal, confidential or proprietary information could
result in remediation costs, legal liability, regulatory action and reputational harm.
Our businesses are heavily regulated and changes in regulation may affect our operations, increase our
insurance subsidiary capital requirements or reduce our profitability. Our operations generally, and our
insurance subsidiaries, in particular, are subject to extensive and potentially conflicting supervision and regulation by
national authorities and by the various jurisdictions in which we do business. Supervision and regulation relate to
numerous aspects of our business and financial condition. State and foreign regulators also periodically review and
investigate our insurance businesses, including AIG-specific and industry-wide practices. The primary purpose of
insurance regulation is the protection of our insurance contract holders, and not our investors. The extent of domestic
regulation varies, but generally is governed by state statutes. These statutes delegate regulatory, supervisory and
administrative authority to state insurance departments.
We strive to maintain all required licenses and approvals. However, our businesses may not fully comply with the
wide variety of applicable laws and regulations. The relevant authority’s interpretation of the laws and regulations
also may change from time to time. Regulatory authorities have relatively broad discretion to grant, renew or revoke
licenses and approvals. If we do not have the required licenses and approvals or do not comply with applicable
regulatory requirements, these authorities could preclude or temporarily suspend us from carrying on some or all of
our activities or impose substantial fines. Further, insurance regulatory authorities have relatively broad discretion to
issue orders of supervision, which permit them to supervise the business and operations of an insurance company.
In the U.S., the RBC formula is designed to measure the adequacy of an insurer’s statutory surplus in relation to the
risks inherent in its business. Virtually every state has adopted, in substantial part, the RBC Model Law promulgated
by the NAIC, which specifies the regulatory actions the insurance regulator may take if an insurer’s RBC calculations
fall below specific thresholds. Those actions range from requiring an insurer to submit a plan describing how it would
regain a specified RBC ratio to a mandatory regulatory takeover of the company. Regulators at the federal and
international levels are also considering the imposition of additional capital requirements on certain insurance
companies, which may include us, that may augment or even displace state-law RBC standards that apply at the
legal entity level, and such capital calculations may be made on bases other than the statutory statements of our
insurance subsidiaries. See ‘‘Our status as a savings and loan holding company and a systemically important
financial institution, as well as the enactment of Dodd-Frank, will subject us to substantial additional federal
regulation, which may materially and adversely affect our businesses, results of operations and cash flows’’ and
‘‘Actions by foreign governments and regulators could subject us to substantial additional regulation’’ below for
additional information on increased capital requirements that may be imposed on us. We cannot predict the effect
these initiatives may have on our business, results of operations, cash flows and financial condition.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign
jurisdictions must satisfy local regulatory requirements and it is possible that local licenses may require AIG Parent to
meet certain conditions. Licenses issued by foreign authorities to our subsidiaries are subject to modification and
revocation. Thus, our insurance subsidiaries could be prevented from conducting future business in certain of the
jurisdictions where they currently operate. Adverse actions from any single country could adversely affect our results
of operations, liquidity and financial condition, depending on the magnitude of the event and our financial exposure at
that time in that country.
See Item 1. Business — Regulation for further discussion of our regulatory environment.
Our status as a savings and loan holding company and a systemically important financial institution, as well
as the enactment of Dodd-Frank , will subject us to substantial additional federal regulation, which may
materially and adversely affect our businesses, results of operations and cash flows. On July 21, 2010,
Dodd-Frank, which effects comprehensive changes to the regulation of financial services in the United States, was
REGULATION
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AIG 2013 Form 10-K 41
ITEM 1A / RISK FACTORS
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