AIG 2015 Annual Report Download - page 42

ITEM 1A / RISK FACTORS
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not use captive or special purpose vehicle structures for this purpose, we cannot predict whether any applicable insurance
laws or regulations will be changed in a way that prohibits or adversely impacts the use of affiliated reinsurance. If regulations
change, our statutory reserve requirements could increase, and we could be required to increase prices on our products or
incur higher expenses to obtain reinsurance, which could adversely affect our competitive position, financial condition or
results of operations. If our actions to efficiently manage the impact of Regulation XXX or Guideline AXXX on future sales of
term and universal life insurance products are not successful, we may incur higher operating costs or our sales of these
products may be affected.
New regulations promulgated from time to time may affect our businesses, results of operations, financial condition
and ability to compete effectively. Legislators and regulators may periodically consider various proposals that may affect the
profitability of certain of our businesses. New regulations may even affect our ability to conduct certain businesses at all,
including proposals relating to restrictions on the type of activities in which financial institutions are permitted to engage and
the size of financial institutions. These proposals could also impose additional taxes on a limited subset of financial institutions
and insurance companies (either based on size, activities, geography, government support or other criteria). It is uncertain
whether and how these and other such proposals would apply to us or our competitors or how they could impact our
consolidated results of operations, financial condition and ability to compete effectively.
An “ownership change” could limit our ability to utilize tax loss and credit carryforwards to offset future taxable
income. As of December 31, 2015, we had a U.S. federal net operating loss carryforward of approximately $34.9 billion and
$6.9 billion in foreign tax credits (tax loss and credit carryforwards). Our ability to use such tax attributes to offset future taxable
income may be significantly limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue
Code of 1986, as amended (the Code). In general, an ownership change will occur when the percentage of AIG Parent's
ownership (by value) of one or more “5-percent shareholders” (as defined in the Code) has increased by more than 50 percent
over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis).
An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change
tax loss and credit carryforwards equal to the equity value of the corporation immediately before the ownership change,
multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The annual limitation
would be increased each year to the extent that there is an unused limitation in a prior year. The limitation on our ability to
utilize tax loss and credit carryforwards arising from an ownership change under Section 382 would depend on the value of our
equity at the time of any ownership change. If we were to experience an “ownership change”, it is possible that a significant
portion of our tax loss and credit carryforwards could expire before we would be able to use them to offset future taxable
income.
On March 9, 2011, our Board adopted our Tax Asset Protection Plan (the Plan) to help protect these tax loss and credit
carryforwards, and on January 8, 2014, the Board adopted an amendment to the Plan, extending its expiration date to January
8, 2017. The amendment of the Plan was ratified by our shareholders at our 2014 Annual Meeting of Shareholders. At our
2011 Annual Meeting of Shareholders, shareholders adopted a protective amendment to our Restated Certificate of
Incorporation (Protective Amendment), which is designed to prevent certain transfers of AIG Common Stock that could result in
an “ownership change.” At our 2014 Annual Meeting of Shareholders, our shareholders approved an amendment to our
Restated Certificate of Incorporation to adopt a successor to the Protective Amendment that contains substantially the same
terms as the Protective Amendment and that expires on May 12, 2017, the third anniversary of the date of our 2014 Annual
Meeting of Shareholders.
The Plan is designed to reduce the likelihood of an “ownership change” by (i) discouraging any person or group from becoming
a 4.99 percent shareholder and (ii) discouraging any existing 4.99 percent shareholder from acquiring additional shares of AIG
Common Stock. The Protective Amendment generally restricts any transfer of AIG Common Stock that would (i) increase the
ownership by any person to 4.99 percent or more of AIG stock then outstanding or (ii) increase the percentage of AIG stock
owned by a Five Percent Stockholder (as defined in the Plan). Despite the intentions of the Plan and the Protective
Amendment to deter and prevent an “ownership change”, such an event may still occur. In addition, the Plan and the
Protective Amendment may make it more difficult and more expensive to acquire us, and may discourage open market
purchases of AIG Common Stock or a non-negotiated tender or exchange offer for AIG Common Stock. Accordingly, the Plan
and the Protective Amendment may limit a shareholder’s ability to realize a premium over the market price of AIG Common
Stock in connection with any stock transaction.