AIG 2015 Annual Report Download - page 40

ITEM 1A / RISK FACTORS
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REGULATION
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 group-wide capital requirements on certain insurance companies designated as systemically important,
that may augment 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 nonbank 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.
We provide products and services to certain employee benefit plans that are subject to restrictions imposed by ERISA and the
Internal Revenue Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests
of ERISA plan participants and beneficiaries, and that fiduciaries may not cause a covered plan to engage in certain prohibited
transactions. The DOL has proposed a new regulation that could, if enacted as originally proposed, materially affect our ability
to sell and service certain types of annuities and other investment products. If the new DOL proposals are finalized as
originally proposed, the investment-related information and support that our advisors and employees could provide to ERISA-
covered plan sponsors, participants and IRA holders on a non-fiduciary basis could be substantially limited compared to what
is allowed under current law, and these changes could have a material impact on the types and levels of and compensation
structures associated with the investment products and services we provide. For additional information, see Item 1 – Business
– Regulation and Item 7 – MD&A – Executive Overview – Consumer Insurance Strategic Initiatives and Outlook.
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. Accordingly, 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.