AIG 2014 Annual Report Download - page 307

ITEM 8 / NOTE 16. CONTINGENCIES, COMMITMENTS AND GUARANTEES
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compliance plan requirements. In furtherance of the compliance plan, the agreement provided for a monitoring period from
May 29, 2012 to May 29, 2014 leading up to a compliance plan examination. After the close of the monitoring period, as part
of preparation for the actual conduct of the compliance plan examination, on or about October 1, 2014, AIG and the lead states
agreed upon corrective action plans to address particular issues identified during the monitoring period. The compliance plan
examination is ongoing. There can be no assurance that the result of the compliance plan examination will not result in a fine,
have a material adverse effect on AIG’s ongoing operations or lead to civil litigation.
In connection with a multi-state examination of certain accident and health products, including travel products, issued by
National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), AIG Property Casualty Inc. (formerly Chartis Inc.),
on behalf of itself, National Union, and certain of AIG Property Casualty Inc.’s insurance and non-insurance companies
(collectively, the AIG PC 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 AIG PC 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 AIG PC 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 AIG PC 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 our 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. UGC and the CFPB reached a settlement, entered on April 8, 2013 by the United States District Court for the
Southern District of Florida, where UGC consented to discontinue its remaining captive reinsurance practices and to pay a civil
monetary penalty of $4.5 million to the CFPB. The settlement includes a release for all liability related to UGC’s captive
reinsurance practices and resolves the CFPB’s investigation. On January 31, 2014, PHH Corp. and various affiliates (all non-
parties to the action and the consent order) filed a motion to reopen the case and to intervene therein for the limited purpose of
obtaining a declaratory judgment enforcing the consent order. UGC opposed this request, and on March 10, 2014, the Court
denied PHH Corp.’s motion. PHH Corp. has appealed to the Eleventh Circuit.
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 and other state laws in connection with its practices with
captive reinsurance companies owned by lenders. UGC is 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 has been 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.
AIG is responding to subpoenas from the New York Department of Financial Services (NYDFS) and the Manhattan District
Attorney’s Office (NYDA) relating to AIG’s formerly wholly owned subsidiaries, ALICO and Delaware American Life Insurance
Company (DelAm), and other related business units, which were sold by AIG to MetLife in November 2010. The inquiries
relate to whether ALICO, DelAm and their representatives conducted insurance business in New York over an extended period
of time without a license, and whether certain representations by ALICO concerning its activities in New York were accurate.
On or about March 31, 2014, a consent order between MetLife and the NYDFS, whereby MetLife agreed to pay $50 million,
and a deferred prosecution agreement with the NYDA, whereby MetLife agreed to pay $10 million, were announced. AIG was
not a party to either settlement. The consent order between the NYDFS and MetLife made certain findings, including that
former AIG subsidiaries and affiliates conducted insurance business in New York without a license and that ALICO, while
operating as a subsidiary of AIG, made misrepresentations and omissions concerning its insurance business activities in New
York to NYDFS’s predecessor agency, the New York State Department of Insurance. The NYDFS also found in the consent
order that AIG had violated the New York Insurance Law. On April 3, 2014, AIG filed a complaint against the NYDFS and
NYDFS Superintendent Benjamin Lawsky in the Southern District of New York, seeking declaratory and injunctive relief on the
basis that the NYDFS’s interpretation of the New York Insurance Law is unconstitutional under the Due Process and
Commerce Clauses, as well as the First Amendment, of the U.S. Constitution. Defendants filed a motion to dismiss the federal