AIG 2015 Annual Report Download - page 22

ITEM 1 / BUSINESS
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Over the last several years, the Non-Life Insurance Companies revised the ceded reinsurance framework and strategy to
improve capital management and support our global product line risk and profitability objectives. As a result of adopting the
revised framework and strategy, many individual reinsurance contracts were consolidated into more efficient global programs
and therefore, reinsurance ceded to third parties in support of risk and capital management objectives has remained stable in
2015 compared to 2014. We continually evaluate the relative attractiveness of different forms of reinsurance contracts and
different markets that may be used to achieve our risk and profitability objectives.
Reinsurance markets include:
• Traditional local and global reinsurance markets including those in the United States, Bermuda, London and Europe,
accessed directly and through reinsurance intermediaries;
• Capital markets through insurance-linked securities and collateralized reinsurance transactions, such as catastrophe bonds,
sidecars and similar vehicles; and
• Other insurers that engage in both direct and assumed reinsurance.
The form of reinsurance that we may choose from time to time will generally depend on whether we are seeking:
• proportional reinsurance, whereby we cede a specified percentage of premiums and losses to reinsurers;
• non-proportional or excess of loss reinsurance, whereby we cede all or a specified portion of losses in excess of a specified
amount on a per risk, per occurrence (including catastrophe reinsurance) or aggregate basis; or
• facultative contracts that reinsure individual policies.
Reinsurance contracts do not relieve our subsidiaries from their direct obligations to insureds. However, an effective
reinsurance program substantially mitigates our exposure to potentially significant losses.
In certain markets, we are required to participate on a proportional basis in reinsurance pools based on our relative share of
direct writings in those markets. Such mandatory reinsurance generally covers higher-risk consumer exposures such as
assigned-risk automobile and earthquake, as well as certain commercial exposures such as workers’ compensation.
See Item 7. MD&A – Enterprise Risk Management – Insurance Operations Risks – Non-Life Insurance Companies Key
Insurance Risks – Reinsurance Recoverable for a summary of significant reinsurers.
REGULATION
Our operations around the world are subject to regulation by many different types of regulatory authorities, including insurance,
securities, derivatives, investment advisory and thrift regulators in the United States and abroad.
Our insurance subsidiaries are subject to regulation and supervision by the states and jurisdictions in which they do business.
The insurance and financial services industries generally have been subject to heightened regulatory scrutiny and supervision
in recent years.