AIG 2015 Annual Report Download - page 44

ITEM 1A / RISK FACTORS
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Employee error and misconduct may be difficult to detect and prevent and may result in significant losses. There have
been a number of cases involving fraud or other misconduct by employees in the financial services industry in recent years and
we run the risk that employee misconduct could occur. Instances of fraud, illegal acts, errors, failure to document transactions
properly or to obtain proper internal authorization, misuse of customer or proprietary information, or failure to comply with
regulatory requirements or our internal policies may result in losses and/or reputational damage. It is not always possible to
deter or prevent employee misconduct, and the controls that we have in place to prevent and detect this activity may not be
effective in all cases.
ESTIMATES AND ASSUMPTIONS
Estimates used in the preparation of financial statements and modeled results used in various areas of our business
may differ materially from actual experience. Our financial statements are prepared in conformity with U.S. Generally
Accepted Accounting Principles (U.S. GAAP), which requires the application of accounting policies that often involve a
significant degree of judgment. The accounting policies that we consider most dependent on the application of estimates and
assumptions, and therefore may be viewed as critical accounting estimates, are described in Item 7. MD&A — Critical
Accounting Estimates. These accounting estimates require the use of assumptions, some of which are highly uncertain at the
time of estimation. These estimates are based on judgment, current facts and circumstances, and, when applicable, internally
developed models. Therefore, actual results could differ from these estimates, possibly in the near term, and could have a
material effect on our consolidated financial statements.
In addition, we employ models to price products, calculate reserves and value assets, as well as evaluate risk and determine
capital requirements, among other uses. These models rely on estimates and projections that are inherently uncertain, may
use incomplete, outdated or incorrect data or assumptions and may not operate properly. As our businesses continue to
expand and evolve, the number and complexity of models we employ has grown, increasing our exposure to error in the
design, implementation or use of models, including the associated input data, controls and assumptions and the controls we
have in place to mitigate their risk may not be effective in all cases.
Changes in accounting principles and financial reporting requirements could impact our reported results of
operations and our reported financial position. Our financial statements are subject to the application of U.S. GAAP, which
is periodically revised. Accordingly, from time to time, we are required to adopt new or revised accounting standards issued
by recognized authoritative bodies, including the Financial Accounting Standards Board (FASB). The impact of accounting
pronouncements that have been issued but are not yet required to be implemented is disclosed in Note 2 to the Consolidated
Financial Statements.
The FASB and International Accounting Standards Board (IASB) have ongoing projects to revise accounting standards for
insurance contracts. The FASB has focused on disclosures for short-duration insurance contracts, which primarily relate to our
property casualty products, and on targeted improvements to accounting measurements and disclosures for long-duration
insurance contracts, which primarily relate to our life and annuity products. The IASB continues to contemplate significant
changes to accounting measurements for both short and long-duration insurance contracts. While the final resolution of
changes to U.S. GAAP and International Financial Reporting Standards pursuant to these projects remains unclear, changes
to the manner in which we account for insurance products could have a significant impact on our future financial reports,
operations, capital management and business. Further, the adoption of a new insurance contracts standard as well as other
future accounting standards could have a material effect on our reported results of operations and reported financial condition.
Changes in our assumptions regarding the discount rate, expected rate of return, and expected compensation for our
pension and other postretirement benefit plans may result in increased expenses and reduce our profitability. We
determine our pension and other postretirement benefit plan costs based on assumed discount rates, expected rates of return
on plan assets, expected increases in compensation levels and trends in health care costs. Changes in these assumptions,
including from the impact of a sustained low interest rate environment, may result in increased expenses and reduce our
profitability. See Note 20 to the Consolidated Financial Statements for further details on our pension and postretirement benefit
plans.