AIG 2015 Annual Report Download - page 316

ITEM 8 / NOTE 18. STATUTORY FINANCIAL DATA AND RESTRICTIONS
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Our insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or
permitted by domestic and foreign insurance regulatory authorities. The principal differences between statutory financial
statements and financial statements prepared in accordance with U.S. GAAP for domestic companies are that statutory
financial statements do not reflect DAC, some bond portfolios may be carried at amortized cost, investment impairments are
determined in accordance with statutory accounting practices, assets and liabilities are presented net of reinsurance,
policyholder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted.
For domestic insurance subsidiaries, aggregate minimum required statutory capital and surplus is based on the greater of the
RBC level that would trigger regulatory action or minimum requirements per state insurance regulation. Capital and surplus
requirements of our foreign subsidiaries differ from those prescribed in the U.S., and can vary significantly by jurisdiction. At
both December 31, 2015 and 2014, all domestic and foreign insurance subsidiaries individually exceeded the minimum
required statutory capital and surplus requirements and all domestic insurance subsidiaries individually exceeded RBC
minimum required levels.
At December 31, 2015 and 2014, with the exception of one permitted practice adopted by one domestic life insurance
subsidiary in 2015, described below, the use of prescribed or permitted statutory accounting practices by our domestic and
foreign insurance subsidiaries did not result in reported statutory surplus or risk-based capital that is significantly different from
the statutory surplus or risk-based capital that would have been reported had NAIC statutory accounting practices or the
prescribed regulatory accounting practices of their respective foreign regulatory authority been followed in all respects for
domestic and foreign insurance entities. As described in Note 12, our domestic insurance subsidiaries domiciled in New York
and Pennsylvania discount non-tabular workers’ compensation reserves based on the prescribed or approved regulations in
each of those states. This practice did not have a material impact on our statutory surplus, statutory net income (loss), or risk-
based capital. In 2015, a domestic life insurance subsidiary domiciled in Texas adopted a permitted statutory accounting
practice to report derivatives used to hedge interest rate risk on product-related embedded derivatives at amortized cost
instead of fair value. The initial adoption of the permitted practice resulted in a reduction to the statutory surplus of our
subsidiary of $366 million at December 31, 2015.
The NAIC Model Regulation “Valuation of Life Insurance Policies” (Regulation XXX) requires U.S. life insurers to establish
additional statutory reserves for term life insurance policies with long-term premium guarantees and universal life policies with
secondary guarantees (ULSGs). In addition, NAIC Actuarial Guideline 38 (Guideline AXXX) clarifies the application of
Regulation XXX as to these guarantees, including certain ULSGs.
Domestic insurance subsidiaries manage the capital impact of statutory reserve requirements under Regulation XXX and
Guideline AXXX through intercompany reinsurance transactions. The affiliated life insurers providing reinsurance capacity for
such transactions are fully licensed insurance companies and are not formed under captive insurance laws. Under one of
these intercompany reinsurance arrangements, certain Regulation XXX and Guideline AXXX reserves related to new and in-
force business are ceded to an affiliated U.S. life insurer, which is a licensed life insurer in the state of Missouri and an
accredited reinsurer in the state of Texas. As an accredited reinsurer, this affiliated life insurer is not required to post any
collateral such as letters of credit or assets in trust.
Under the other intercompany reinsurance arrangement, certain Regulation XXX and Guideline AXXX reserves related to a
closed block of in-force business are ceded to an affiliated off-shore life insurer, which is licensed as a class E insurer under
Bermuda law. Bermuda law permits the off-shore life insurer to record an asset that effectively reduces the statutory reserves
for the assumed reinsurance to the level that would be required under U.S. GAAP. Letters of credit are used to support the
credit for reinsurance provided by the affiliated off-shore life insurer. The letters of credit are subject to reimbursement by AIG
Parent in the event of a drawdown. See Note 7 for additional information regarding these letters of credit.
Subsidiary Dividend Restrictions
Payments of dividends to us by our insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities.
With respect to our domestic insurance subsidiaries, the payment of any dividend requires formal notice to the insurance
department in which the particular insurance subsidiary is domiciled. For example, unless permitted by the Superintendent of
Financial Services, property casualty companies domiciled in New York generally may not pay dividends to shareholders that,