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Basis of the Financial Stability Oversight Council’s

Final Determination Regarding American International Group, Inc.

Introduction

Pursuant to section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act), the Financial Stability Oversight Council (Council) has made a final 

determination that material financial distress at American International Group, Inc. (AIG) could

pose a threat to U.S. financial stability and that AIG should be subject to supervision by the 

Board of Governors of the Federal Reserve System (Board of Governors) and enhanced 

prudential standards.

In reaching this determination, the Council carefully considered a broad range of information in 

light of the statutory factors set forth in section 113(a)(2) of the Dodd-Frank Act, both separately 

and in conjunction with each other. The Council has considered information available through 

existing public and regulatory sources, as well as information provided by AIG. The Council 

also consulted with AIG’s primary financial regulatory agency, the Board of Governors, as well 

as regulators of certain of AIG’s insurance subsidiaries. Certain of AIG’s subsidiaries are also 

regulated by other Council member agencies. 

On June 3, 2013, the Council made a proposed determination under section 113 of the DoddFrank Act that material financial distress at AIG could pose a threat to U.S. financial stability 

and that AIG should be subject to Board of Governors supervision and enhanced prudential 

standards. The Council provided AIG with an explanation of the basis for the Council’s 

proposed determination. On July 3, 2013, the Council received a letter from AIG stating that 

AIG had chosen not to contest the Council’s proposed determination.

Based on the Council’s evaluation of all the facts of record in light of the factors that the Council 

is required to consider under section 113 of the Dodd-Frank Act and the Council’s interpretive 

guidance regarding nonbank financial company determinations (Interpretive Guidance),1 the 

Council has voted to make a final determination that material financial distress at AIG could 

pose a threat to U.S. financial stability and that AIG will be supervised by the Board of 

Governors and subject to enhanced prudential standards. 

The Council’s final determination does not constitute a conclusion that AIG is experiencing 

material financial distress. Rather, consistent with the statutory standard for determinations by 

the Council under section 113 of the Dodd-Frank Act, the Council has determined that material 

financial distress at the company, if it were to occur, could pose a threat to U.S. financial 

stability.

 

1 12 C.F.R. part 1310, app. A (2013).
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Summary

Because of AIG’s size and interconnectedness, certain characteristics of its liabilities and 

products, the potential effects of a rapid liquidation of its assets, potential challenges with 

resolvability, as well as other factors described herein, material financial distress at AIG could 

cause an impairment of financial intermediation or of financial market functioning that would be 

sufficiently severe to inflict significant damage on the broader economy.

Prior to the onset of the financial crisis, the company expanded its operations to include noninsurance businesses. During the intensification of the financial crisis in the fall of 2008, AIG 

became the recipient of considerable government support, which was deemed necessary to avoid 

an even larger financial disruption.2

 While the company’s strategy, funding profile, and global 

footprint have changed greatly since the financial crisis, AIG remains a large and complex 

company with meaningful non-insurance-related exposures.

AIG is the third largest insurance company in the United States, and one of the largest insurers in 

the world, operating across many different markets. The company underwrites life insurance, 

annuity products, consumer property/casualty insurance, and a wide range of more specialized,

commercial insurance products through subsidiaries in numerous jurisdictions around the world. 

AIG has approximately 63,000 employees, and its incorporated subsidiaries operate from over 

400 offices in the United States and from approximately 600 offices outside the United States.

3

 

AIG’s core insurance operations create exposures and liabilities that could affect its 

policyholders and those of other insurers if material financial distress at AIG leads to a broader 

loss of confidence across the industry. AIG’s life and retirement business has over 18 million 

customers and holds hundreds of billions of dollars in reserves to satisfy the obligations created 

by its operations. Many of AIG’s life insurance and annuity products, while intended to be 

long-term liabilities, have features that could make them vulnerable to rapid and early 

withdrawals by policyholders. 

If the company’s financial distress were sufficiently severe, funds from products allowing for

early withdrawals might be withdrawn regardless of the size of associated surrender charges or 

tax penalties. A rapid liquidation of AIG’s life insurance and annuity liabilities could strain 

AIG’s liquidity resources and compel the company to liquidate a substantial portion of its large 

portfolio of relatively illiquid corporate and foreign bonds, as well as asset-backed securities

(ABS). This asset liquidation could have disruptive effects on the broader financial markets and 

impair financial market functioning. 

In addition to the direct effects of asset liquidation on financial markets, wide-ranging and rapid 

withdrawals by AIG policyholders and the associated deterioration of AIG’s financial condition 

could cause financial contagion if the negative sentiment and uncertainty associated with 

 

2 Many of the businesses into which AIG expanded created exposures to the U.S. housing market, which nearly 

bankrupted the organization during the financial crisis. Initiatives conducted by the Board of Governors, the Federal 

Reserve Bank of New York, and the U.S. Department of the Treasury ultimately stabilized AIG. 3 AIG Annual Report on Form 10-K for the year ended December 31, 2012, pp. 29, 44. 
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material distress at AIG spreads to other insurers. In particular, if distress at AIG were to cause 

concern among policyholders at other insurers, those insurers could experience unanticipated 

increases in surrender activity that could strain liquidity resources, potentially impairing the 

financial condition of multiple insurers across the industry.

Numerous corporate and financial entities are exposed to AIG as counterparties and customers

and could suffer significant losses in the event of material financial distress at AIG. Capital 

markets exposures to AIG arise through the company’s outstanding securities, credit lines, 

derivatives liabilities, repurchase agreement transactions, and securities lending activities. While 

individual capital markets exposures to AIG may be relatively small, in the aggregate these

exposures are potentially large enough that material financial distress at AIG could have a 

destabilizing effect on financial markets. These capital markets exposures could pose larger 

second-order and indirect risks to broader financial market functioning.

AIG is also the leading commercial insurance underwriter in the United States. It plays a major 

role in the provision of certain commercial insurance coverages that are highly capital intensive 

and difficult for policyholders to replace in a short timeframe. 

The interstate and cross-border complexities involved in resolving a large organization such as 

AIG, particularly with insurer and non-insurer subsidiaries operating in multiple states and 

countries, increases the risk that such a resolution could be protracted or disorderly, increasing 

the possibility that material financial distress at AIG could pose a threat to the financial stability 

of the United States. These factors and others, in the context of AIG’s size and complex 

structure, increase the obstacles to a rapid and orderly resolution of the company. 

The Council has considered potential mitigants that could reduce the potential for material 

financial distress at AIG to be transmitted to other financial firms and markets, including the 

nature of certain insurance products and the significant efforts made by the company to simplify 

and restructure its core operations. However, based on the Council’s evaluation of all the facts 

of record in light of the statutory factors that it is required to consider under the Dodd-Frank Act, 

the Council has concluded that material financial distress at AIG could cause an impairment of 

financial intermediation or of financial market functioning that would be sufficiently severe to 

inflict significant damage on the broader economy. Therefore, the Council has made a final 

determination that material financial distress at AIG could pose a threat to U.S. financial stability 

and that AIG should be subject to Board of Governors supervision and enhanced prudential 

standards.

Determination that AIG is Predominantly Engaged in Financial Activities

The Council is authorized to determine that a “nonbank financial company” will be subject to 

supervision by the Board of Governors and enhanced prudential standards.

4

 A company is a 

nonbank financial company, and thus eligible for a determination by the Council, if it is 

 

4 See Dodd-Frank Act section 113, 12 U.S.C. § 5323.
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predominantly engaged in financial activities, subject to certain exceptions.

5

 For purposes of 

Title I of the Dodd-Frank Act, a company is “predominantly engaged in financial activities” if at 

least 85 percent of the company’s and its subsidiaries’ annual gross revenues are derived from, or

at least 85 percent of the company’s and its subsidiaries’ consolidated assets are related to, 

“activities that are financial in nature” as defined in section 4(k) of the Bank Holding Company 

Act (BHC Act).6 

AIG is a nonbank financial company and thus is eligible for a determination by the Council. 

Based on AIG’s income statement for year-end 2012, more than 85 percent of AIG’s revenues 

are derived from activities that are financial in nature. In addition, based on AIG’s consolidated 

balance sheet as of year-end 2012, more than 85 percent of AIG’s assets are related to activities 

that are financial in nature. These activities include insurance, lending, underwriting and 

dealing, investing and trading activities, and merchant banking activities.

The Statutory Standard and the Legal Framework for a Final Determination

Under section 113 of the Dodd-Frank Act, the Council may determine that a nonbank financial

company will be supervised by the Board of Governors and be subject to enhanced prudential 

standards if the Council determines that (1) material financial distress at the nonbank financial

company could pose a threat to the financial stability of the United States (the First 

Determination Standard) or (2) the nature, scope, size, scale, concentration, interconnectedness, 

or mix of the activities of the nonbank financial company could pose a threat to the financial 

stability of the United States (the Second Determination Standard).

The Council may subject a nonbank financial company to Board of Governors supervision and 

enhanced prudential standards if either the First or Second Determination Standard is met. The 

Council evaluated AIG under the First Determination Standard.

In considering whether to make a determination that a nonbank financial company shall be 

supervised by the Board of Governors and be subject to enhanced prudential standards, 

section 113 of the Dodd-Frank Act requires the Council to consider the following 10 statutory 

considerations:

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1. the extent of the leverage of the company;

2. the extent and nature of the off-balance-sheet exposures of the company;

3. the extent and nature of the transactions and relationships of the company with 

other significant nonbank financial companies and significant bank holding 

companies;

4. the importance of the company as a source of credit for households, businesses, 

 

5 Dodd-Frank Act section 102(a)(4), 12 U.S.C. § 5311(a)(4). 6 Dodd-Frank Act section 102(a)(6), 12 U.S.C. § 5311(a)(6). The Board of Governors’ Regulation PP describes 

activities that are financial in nature as defined in section 4(k) of the BHC Act and establishes the requirements for 

determining if a company is predominantly engaged in financial activities for purposes of Title I of the Dodd-Frank 

Act. See 78 Fed. Reg. 20756 (April 5, 2013) (to be codified at 12 C.F.R. part 242). 7 The Council may also consider any other risk-related factors that it deems appropriate.
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and State and local governments and as a source of liquidity for the United States 

financial system;

5. the importance of the company as a source of credit for low-income, minority, or 

underserved communities, and the impact that the failure of such company would 

have on the availability of credit in such communities;

6. the extent to which assets are managed rather than owned by the company, and the

extent to which ownership of assets under management is diffuse;

7. the nature, scope, size, scale, concentration, interconnectedness, and mix of the 

activities of the company;

8. the degree to which the company is already regulated by 1 or more primary 

financial regulatory agencies;

9. the amount and nature of the financial assets of the company; and

10. the amount and types of the liabilities of the company, including the degree of 

reliance on short-term funding.

8

In considering whether material financial distress at AIG could pose a threat to U.S. financial 

stability, the Council considered each of the statutory considerations in section 113 of the DoddFrank Act, including the nature, scope, size, scale, concentration, interconnectedness, and mix of 

the activities of AIG. While the Council considered AIG’s activities in evaluating AIG under the 

First Determination Standard, the Council did not consider whether the nature, scope, size, scale, 

concentration, interconnectedness, or mix of AIG’s activities, absent material financial distress at 

AIG, could pose a threat to U.S. financial stability. 

As noted in the Council’s Interpretive Guidance, the Council will consider a “threat to the 

financial stability of the United States” to exist “if there would be an impairment of financial 

intermediation or of financial market functioning that would be sufficiently severe to inflict 

significant damage on the broader economy.” The Interpretive Guidance also states that 

“material financial distress” exists “when a nonbank financial company is in imminent danger of 

insolvency or defaulting on its financial obligations.” 

In addition, the Interpretive Guidance states that for purposes of considering whether material 

financial distress at a nonbank financial company could pose a threat to U.S. financial stability, 

the Council intends to assess the impact of the company’s material financial distress “in the 

context of a period of overall stress in the financial services industry and in a weak 

macroeconomic environment.” 

Analysis of Potential Effects of Material Financial Distress at AIG

Consideration of Transmission Channels

Consistent with the Dodd-Frank Act and the Interpretive Guidance, the Council evaluated the 

extent to which material financial distress at AIG could be transmitted to other financial firms 

 

8 See Dodd-Frank Act section 113(a)(2), 12 U.S.C. § 5323(a)(2). 
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and markets and thereby pose a threat to U.S. financial stability through the following three 

transmission channels: (1) the exposures of creditors, counterparties, investors, and other market 

participants to AIG; (2) the liquidation of assets by AIG, which could trigger a fall in asset prices 

and thereby could significantly disrupt trading or funding in key markets or cause significant 

losses or funding problems for other firms with similar holdings; and (3) the inability or 

unwillingness of AIG to provide a critical function or service relied upon by market participants 

and for which there are no ready substitutes. In evaluating whether material financial distress at 

AIG could be transmitted to other firms and markets through the transmission channels to a 

degree that could cause a broader impairment of financial intermediation or of financial market 

functioning, the Council has considered the statutory factors set forth in section 113 of the DoddFrank Act.

Exposure Channel

A nonbank financial company’s creditors, counterparties, investors, or other market participants 

have exposure to the nonbank financial company that is significant enough to materially impair 

those creditors, counterparties, investors, or other market participants and thereby pose a threat 

to U.S. financial stability.

A large number of corporate and financial entities have significant exposures to AIG, in its 

capacity as a leading multi-line insurer, and could suffer losses in the event of material financial 

distress at AIG.

9 For example, AIG provides group annuities for private pension funds through 

its life insurance subsidiaries, and its institutional business lines offer stable value wrap products. 

If AIG were to experience material financial distress, the pension plan parties to these wrap 

contracts could be forced to write down their assets from book to market value, resulting in costs 

for the pension plan sponsors. AIG’s retail policyholders, including over 18 million life 

insurance and retirement product customers in the United States,

10 could also suffer losses, 

which could lead them to withdraw the cash value of their policies in large numbers and create 

the potential for significant asset liquidation by AIG. 

Although some policyholder losses would be mitigated by the state-based guaranty and security 

fund association system (GA System), the failure of AIG’s insurance subsidiaries could put 

unprecedented strain on the system, particularly in the context of broader financial market stress, 

potentially exhausting its capacity to cover policyholders at other firms and undermining

confidence in other insurers, particularly in the context of broader financial stress across the 

insurance industry.

 

9 For this transmission channel, the Council has considered statutory considerations including the extent of AIG’s 

leverage (Dodd-Frank Act section 113(a)(2)(A), 12 U.S.C. § 5323(a)(2)(A)); the extent and nature of its off-balance 

sheet exposures (Dodd-Frank Act section 113(a)(2)(B), 12 U.S.C. § 5323(a)(2)(B)); the extent and nature of AIG’s 

transactions and relationships with other significant nonbank financial companies and significant bank holding 

companies (Dodd-Frank Act section 113(a)(2)(C), 12 U.S.C. § 5323(a)(2)(C)); the amount and nature of the 

financial assets of AIG (Dodd-Frank Act section 113(a)(2)(I), 12 U.S.C. § 5323(a)(2)(I)); the amount and types of 

AIG’s liabilities, including the degree of AIG’s reliance on short-term funding (Dodd-Frank Act section 

113(a)(2)(J), 12 U.S.C. § 5323(a)(2)(J)); and the nature, scope, size, scale, concentration, interconnectedness, and 

mix of the activities of AIG (Dodd-Frank Act section 113(a)(2)(G), 12 U.S.C. § 5323(a)(2)(G)). 10 AIG Annual Report on Form 10-K for the year ended December 31, 2012, p. 3.
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AIG also has the potential to transmit material financial distress to the broader economy through 

direct and indirect capital markets exposures. These exposures include holders of AIG securities 

as well as derivatives, repurchase agreements, and securities lending counterparties. Individual 

exposures to AIG may be relatively small, but in the aggregate, the exposures are large enough 

that material financial distress at AIG, if it were to occur, could have a destabilizing effect on the 

financial markets. AIG also ranks as a significant reference entity for single-name and index

credit default swaps (CDS) based on gross notional amount outstanding. 

Asset Liquidation Channel

A nonbank financial company holds assets that, if liquidated quickly, would cause a fall in asset 

prices and thereby significantly disrupt trading or funding in key markets or cause significant 

losses or funding problems for other firms with similar holdings.

A key determinant of the potential for transmission of financial distress of an insurer is the 

liquidity characteristics of its liabilities.11 Although AIG’s life insurance and annuity product 

reserves for claim and benefit payments are generally considered to be long-term liabilities, a 

substantial portion of these liabilities are available for discretionary withdrawal with little or no 

penalty and therefore can effectively become short-term liabilities. A large number of 

withdrawals and surrenders within a short period of time could strain AIG’s liquidity resources 

and compel the company to sell assets in order to meet its obligations to policyholders. The risk 

of a rapid liquidation of these liabilities would increase in the event that AIG experiences 

material financial distress, as concerns about the company’s ability to meet future obligations 

could induce large numbers of policyholders and contract holders to accelerate the withdrawal of 

available cash. 

In addition, AIG policyholders are entitled to take out loans against the cash values of certain life 

insurance and annuity policies. Many of these products are subject to tax, contractual, or other 

disincentives for early withdrawals, but these disincentives may not deter early withdrawals in 

the event of material financial distress at AIG. To meet the demand for greater than expected 

withdrawals, AIG would need to come up with a significant amount of cash in excess of current 

reserves. Because the value of highly liquid assets in AIG Life and Retirement subsidiaries is a 

small fraction of the value of AIG’s potentially liquid liabilities, a severe and sudden liquidity 

stress could force AIG to sell assets in such significant volume that these asset sales would place 

downward pressure on prices in certain markets, and under more severe conditions, cause 

markets to seize up. 

The effect of a liquidation of any significant portion of AIG’s assets on the financial markets is 

likely to be even greater during a period of overall stress in the financial services industry and in 

a weak macroeconomic environment, when liquidity dries up and price swings can be magnified. 

 

11 For this transmission channel, the Council has considered statutory considerations including the extent of AIG’s 

leverage (Dodd-Frank Act section 113(a)(2)(A), 12 U.S.C. § 5323(a)(2)(A)); the amount and nature of the financial 

assets of AIG (Dodd-Frank Act section 113(a)(2)(I), 12 U.S.C. § 5323(a)(2)(I)); the amount and types of AIG’s 

liabilities, including the degree of AIG’s reliance on short-term funding (Dodd-Frank Act section 113(a)(2)(J), 12 

U.S.C. § 5323(a)(2)(J)); and the nature, scope, size, scale, concentration, interconnectedness, and mix of the 

activities of AIG (Dodd-Frank Act section 113(a)(2)(G), 12 U.S.C. § 5323(a)(2)(G)).
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Given the large size of AIG’s investment portfolio, actions taken by the company to liquidate 

assets could have potentially large effects on the prices of those assets for other market 

participants and could disrupt the availability of funding in those markets.

Beyond the direct effect of AIG’s asset liquidation on the financial markets, other insurance 

companies are also exposed to indirect effects if asset liquidation at AIG sparks a loss of 

confidence in the broader insurance industry, potentially leading to runs at other major insurers. 

The imposition of a stay on discretionary withdrawals could cause a similar loss of confidence, 

particularly if other insurers are also simultaneously experiencing financial distress. 

Critical Function or Service Channel

A nonbank financial company is no longer able or willing to provide a critical function or 

service that is relied upon by market participants and for which there are no ready substitutes.

In evaluating the potential threat that material financial distress at AIG could pose to U.S. 

financial stability through the critical function or service channel, the Council has considered the 

extent to which AIG provides a critical function or service that is relied upon by market 

participants and for which there are no ready substitutes.12

AIG is the leading commercial insurance underwriter in the United States. While many large 

corporate clients have insurance programs that include coverage from multiple insurance 

providers, AIG’s commercial insurance policies cover many of the largest U.S. corporations, 

including 98 percent of the Fortune 500.13 The company has a significant presence in several 

lines of the commercial insurance business where competitors may not be able to promptly 

replace AIG coverages, particularly during a period of broader financial market stress. In 

particular, the specialized policies underwritten by AIG’s excess and surplus lines insurers, and 

the associated balance sheet capacity, could be difficult for competitors to rapidly replace should 

AIG exit the market. The resulting decline in capital in the property/casualty insurance sector

could reduce the availability and affordability of certain insurance products until the market’s 

capital levels and broader capacity are able to readjust. AIG’s exit from certain significant 

markets could aggravate the negative effects of material financial distress at AIG on the broader 

economy.

 

12 For this transmission channel, the Council has considered statutory considerations including the importance of 

AIG as a source of credit for households, businesses, and State and local governments and as a source of liquidity

for the United States financial system (Dodd-Frank Act section 113(a)(2)(D), 12 U.S.C. § 5323(a)(2)(D); the 

importance of AIG as a source of credit for low-income, minority, or underserved communities, and the impact that 

the failure of such company would have on the availability of credit in such communities (Dodd-Frank Act section 

113(a)(2)(E), 12 U.S.C. § 5323(a)(2)(E)); and the nature, scope, size, scale, concentration, interconnectedness, and 

mix of the activities of AIG (Dodd-Frank Act section 113(a)(2)(G), 12 U.S.C. § 5323(a)(2)(G)). 13 “AIG Property Casualty Commercial Insurance” Investor Presentation, April 1, 2013, p. 4,

http://www.aig.com/Chartis/internet/US/en/AIG%20Property%20Casualty%20Commercial%20Insurance%2004.01.

2013_tcm3171-482966.pdf
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Existing Supervision and Regulation

In considering whether to make a final determination that material financial distress at AIG could 

pose a threat to U.S. financial stability and that AIG should be subject to Board of Governors 

supervision and enhanced prudential standards, the Council has considered the degree to which 

AIG is already regulated by one or more primary financial regulatory agencies.

14

Incorporated in Delaware, AIG is currently a grandfathered unitary savings and loan holding 

company (SLHC) subject to consolidated supervision by the Board of Governors, and is 

permitted to engage in commercial activities under the governing statute for SLHCs, the Home 

Owners’ Loan Act (HOLA). The Board of Governors became the appropriate federal banking 

agency for AIG on July 21, 2011, when authority over SLHCs was transferred to the Board of 

Governors from the Office of Thrift Supervision.

AIG’s diverse subsidiaries are subject to supervision by dozens of U.S. and international 

regulators. For its insurance subsidiaries, the primary U.S. insurance regulators are the Texas 

Department of Insurance for its life insurance and annuity products businesses, the North 

Carolina Department of Insurance for its private mortgage insurance businesses, and the 

Pennsylvania Insurance Department and the New York Department of Financial Services for its 

property/casualty insurance businesses. AIG’s non-insurance subsidiaries include a federal 

savings bank (regulated by the Office of the Comptroller of the Currency), broker-dealers

(regulated by the Securities and Exchange Commission (SEC) and the Financial Industry 

Regulatory Authority), and registered investment advisers (regulated by the SEC).

The Board of Governors has asserted its intention, to the greatest extent possible taking into 

account any unique characteristics of SLHCs and the requirements of the HOLA, to assess the 

condition, performance, and activities of SLHCs on a consolidated risk-based basis in a manner 

that is consistent with the Board of Governors’ established risk-based approach regarding bank 

holding company supervision. Absent a determination by the Council regarding AIG, however, 

AIG would not be subject to the enhanced prudential standards required under sections 165 and 

166 of the Dodd-Frank Act because these standards do not apply to SLHCs unless the Board of 

Governors separately applies these requirements to SLHCs. Furthermore, it is possible that in 

the future, certain companies may no longer be subject to the Board of Governors’ authority if 

they successfully deregister as SLHCs. For example, if AIG were to deregister as an SLHC, 

even though its subsidiaries would remain subject to other regulatory regimes, the Board of 

Governors would no longer act as its consolidated supervisor.

A final determination by the Council under section 113 of the Dodd-Frank Act will allow the 

Board of Governors to apply a number of new requirements to AIG. These include the enhanced 

prudential standards required by sections 165 and 166 of the Dodd-Frank Act, which, among 

other things, will require the company to: (1) meet enhanced liquidity and capital standards; (2) 

undergo and report periodic stress tests; (3) adopt enhanced risk-management processes; (4) 

submit a resolution plan providing for its rapid and orderly resolution in the event of its material 

 

14 See Dodd-Frank Act section 113(a)(2)(H), 12 U.S.C. § 5323(a)(2)(H). 
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financial distress or failure; and (5) provide for the early remediation of financial distress at the 

company on a consolidated basis. The enhanced prudential standards required by section 165 of 

the Dodd-Frank Act are in addition to the authority that the Board of Governors now has to 

supervise and regulate SLHCs under the HOLA and for the purpose of “prevent[ing] or 

mitigat[ing] risks to the financial stability of the United States that could arise from the material 

financial distress, failure, or ongoing activities of large, interconnected financial institutions.” In 

addition, the Board of Governors would have additional authorities with respect to the review of 

any proposals by AIG to expand its size or scope.

Resolvability

In considering whether to make a final determination that material financial distress at AIG could 

pose a threat to U.S. financial stability and that the company should be subject to Board of 

Governors supervision and enhanced prudential standards, the Council has considered whether 

the threat that material financial distress at AIG could pose to U.S. financial stability could be 

mitigated or aggravated by its complexity, the opacity of its operations, or its difficulty to 

resolve, consistent with the Interpretive Guidance. The Council has evaluated AIG’s 

resolvability in light of all the facts of record. “Resolvability” refers to the ease or difficulty of 

successfully separating and liquidating, or otherwise disposing of, the company if it should fail. 

AIG is a highly complex and interconnected diversified financial services organization operating 

in 130 countries.

15 The company’s complicated organizational structure significantly increases 

the obstacles to a rapid and orderly resolution.16 AIG’s complexity increases the risk that 

material financial distress at AIG, if it occurred, could pose a threat to the financial stability of 

the United States and significantly decreases the likelihood of preserving its franchise value in a 

resolution scenario.

The interstate and cross-border complexities involved in liquidating a large organization with

insurer and non-insurer subsidiaries operating in multiple states and countries include the 

coordination of numerous receivers and bankruptcy courts across multiple jurisdictions. In the 

event of an insolvency at one or more of AIG’s insurance subsidiaries, various state-level 

receivers would have to disentangle a complex web of intercompany transactions, including 

loans and guarantees, reinsurance agreements, and pooled liquidity arrangements in a 

complicated process that would likely require significant time. A prolonged receivership process

would increase the likelihood that customers of the failed insurer would suffer losses and 

experience delays in payment. These factors could increase uncertainty and generally erode the 

public’s confidence in the insurance industry and potentially aggravate the threat posed to 

financial stability by material financial distress at AIG. An effort to achieve a coordinated 

resolution of AIG would require accommodations with each of its local supervisory authorities, 

as well as cooperation among a number of home and host jurisdiction supervisory authorities and 

 

15 AIG Annual Report on Form 10-K for the year ended December 31, 2012, p. 2. 16 It should be noted that some assets and businesses by their nature will take longer to wind down. “Rapid” as 

applied to these assets and businesses refers to the ability to timely implement a plan for resolving the company that 

calms markets and participants. By design, the winding down of a failed insurer’s estate may take several years to 

accomplish while policyholder liabilities are paid off as they come due.
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courts. There is currently no global regulatory framework for the resolution of cross-border 

financial conglomerates. The absence of such a global framework poses a significant obstacle to 

an orderly resolution of AIG, and could aggravate the risk that its material financial distress

could pose a threat to U.S. financial stability.

A number of other factors could further complicate the resolution of AIG, including the 

company’s intercompany guarantees and support agreements. In addition, the system of separate 

state insurance guaranty funds has never been tested by the insolvency of a life insurance 

company with the combined size and scope of AIG’s subsidiaries. Based on all the facts of 

record, including information provided by AIG, the Council has determined that AIG’s

resolvability could aggravate the potential for its material financial distress to pose a threat to 

U.S. financial stability.

As noted above, a Council determination regarding AIG under section 113 of the Dodd-Frank 

Act will allow the Board of Governors to apply a number of new requirements to AIG, including 

a requirement that AIG submit a resolution plan providing for its rapid and orderly resolution in 

the event of its material financial distress or failure. While a company’s resolution can be 

complicated by its complexity, the opacity of its operations, or other exacerbating factors, the 

Council believes that no firm should be protected from its own failure, and these statutory tools 

enable regulators to facilitate the orderly liquidation of a company.

Evaluation of Statutory Considerations

The following discussion describes and summarizes the Council’s consideration of each of the 

statutory considerations in evaluating whether material financial distress at AIG could be 

transmitted through one or more of the transmission channels to other financial firms and 

markets to such a degree that there would be an impairment of financial intermediation or of 

financial market functioning sufficiently severe to inflict significant damage on the broader 

economy. 

The Council considered the extent of AIG’s leverage. AIG’s current leverage is lower than its 

leverage during the financial crisis. However, AIG’s significant amount of debt in the context of 

this leverage creates meaningful exposures to counterparties and customers, potentially 

exacerbating the effects of fire sales. AIG’s consolidated debt of approximately $48.5 billion 

represents the second-largest amount of consolidated debt among U.S. insurance company peers 

reviewed.17 

The Council considered the extent and nature of AIG’s off-balance-sheet exposures. 

Derivatives are a source of off-balance-sheet exposure for AIG. AIG has approximately $215 

billion of gross notional derivatives outstanding (as of year-end 2012).

18 AIG is a derivatives 

counterparty to large global banks. The banks exposed to AIG are also significant participants in 

 

17 AIG Annual Report on Form 10-K for the year ended December 31, 2012, p. 288. AIG’s total debt figure of 

$48.5 billion is exclusive of International Lease Finance Corporation’s (ILFC) debt, which AIG does not report in its 

year-end 2012 filings in light of the announced divestiture of this subsidiary. 18 Id. at p. 277.
July 8, 2013

12

the global debt and derivatives markets and are some of the largest issuers of commercial paper 

and long-term debt. The off-balance-sheet exposures of those large global banks to AIG expose 

those banks to AIG in ways that could transmit material financial distress at AIG to them as well 

as to financial markets more broadly. 

The Council considered the extent and nature of AIG’s transactions and relationships with

other significant nonbank financial companies and significant bank holding companies. As 

described above, AIG has exposure to other financial firms and the financial system more 

broadly, and its interconnectedness in the financial system is a conduit for the transmission of the 

effects of its material financial distress. Specifically, AIG has a number of exposures to global 

systemically important banks.

The Council considered the importance of AIG as a source of credit for households, 

businesses, and State and local governments and as a source of liquidity for the United States

financial system. AIG’s large balance sheet and reliance on long-term liabilities allow it to 

provide a substantial amount of credit to the U.S. economy. Specifically, as of December 31, 

2012, AIG held approximately $152 billion in corporate debt and $36 billion in state and 

municipal debt.19 The company also runs a commercial mortgage lending program, with 

exposures of $13.8 billion.20

The Council also considered the importance of AIG as a source of credit for low-income, 

minority, or underserved communities, and the impact that the failure of AIG would have on 

the availability of credit in such communities. While AIG is involved in the provision of credit 

to low-income, minority, or underserved communities, it does not appear to play an important 

role as a source of credit in these markets, and therefore, it appears that material financial distress 

at AIG would not have an appreciable impact on the availability of credit in such communities. 

However, in the event of material financial distress at AIG, the funding and building of lowincome housing may be affected because AIG is the market leader in certain private mortgage 

insurance products and a major investor in affordable housing.

The Council also considered the extent to which assets are managed rather than owned by 

AIG, and the extent to which ownership of assets under management is diffuse. The relevance 

of this factor to AIG is limited. If AIG were to experience material financial distress, its asset 

management business likely could be transferred to other asset managers, and therefore it is 

unlikely that AIG provides a critical function as a third-party asset manager.

The Council also considered the nature, scope, size, scale, concentration, interconnectedness, 

and mix of the activities of AIG. AIG is a diversified financial conglomerate, a leading multiline insurer, and one of the largest insurance companies in the world by equity capital.21 It had a 

market capitalization of $52 billion and GAAP equity capital outstanding of $99 billion as of 

 

19 Id. at p. 240. 20 Id. at p. 149. 21 Based on data aggregated by Bloomberg as of December 31, 2012, AIG is the largest insurer in the world by total 

equity after Berkshire Hathaway.
July 8, 2013

13

year-end 2012.22 It also reported $48.5 billion in long-term debt outstanding, creating sizable 

exposure for bondholders.23 Its activities in the capital markets entail exposures to a host of 

counterparties including financial entities, sovereigns, nonfinancial companies, special-purpose 

entities, municipalities, universities, pensions, and exchanges. Furthermore, other insurance 

industry participants are exposed to AIG through the assessment processes associated with state 

guaranty funds for life and health insurance companies and the security funds for 

property/casualty companies. Other insurance underwriters could be responsible for 

guaranteeing a portion of any unpaid insurance liabilities in the event that any of AIG’s 

insurance companies becomes insolvent and assets are insufficient to meet policyholder 

obligations. In addition, AIG and its subsidiary ILFC are the reference entities for a combined

$70 billion in notional single-name CDS, which is significant and comparable to several of the 

largest money-center banks, investment banks, bond insurers, and prime brokers.24 

The Council also considered the degree to which AIG is already regulated by one or more

primary financial regulatory agencies. As discussed above, AIG’s worldwide operations are 

subject to regulation by various regulatory authorities, including banking, insurance, securities, 

and investment advisory regulators in the United States and abroad. AIG is subject to 

consolidated supervision by the Board of Governors as a grandfathered unitary SLHC that is 

permitted to continue to engage in commercial activities. The Board of Governors has asserted 

its intention of taking into account, to the greatest extent possible, any unique characteristics of 

SLHCs and the requirements of the HOLA, to assess the condition, performance, and activities 

of SLHCs on a consolidated risk-based basis in a manner that is consistent with the Board of 

Governors’ established risk-based approach regarding bank holding company supervision.25 

The Council also considered the amount and nature of the financial assets of AIG. In AIG’s 

case, this involves not only the composition and size of its asset portfolio, but also available 

sources of liquidity at AIG’s life insurance subsidiaries. Only assets within AIG Life and 

Retirement subsidiaries and the parent holding company would be available to meet liquidity 

needs arising from a run on AIG Life and Retirement products because assets on the books of 

other insurance company affiliates generally may not be transferred without regulatory approval. 

The value of highly liquid assets in AIG Life and Retirement subsidiaries is a small fraction of 

the value of AIG’s potentially liquid liabilities. In times of severe stress, policyholders could 

surrender products at a higher-than-anticipated rate, creating liquidity challenges resulting in the 

potential need to sell large volumes of relatively illiquid assets over a short period of time. The 

sale of these assets could place downward pressure on prices in certain markets. 

The Council also considered the amount and types of AIG’s liabilities, including the degree of

AIG’s reliance on short-term funding. As noted above, AIG has consolidated debt of 

 

22 AIG Annual Report on Form 10-K for the year ended December 31, 2012, p. 204. Market capitalization per SNL 

Financial; as of December 31, 2012. 23 AIG Annual Report on Form 10-K for the year ended December 31, 2012, p. 288. This figure excludes ILFC 

debt.

24 Based on information provided by the Trade Information Warehouse 25 See “Notice of Intent to Apply Certain Supervisory Guidance to Savings and Loan Holding Companies,” 76 Fed. 

Reg. 22662 (April 22, 2011). 
July 8, 2013

14

approximately $48.5 billion.26 AIG is a leading multi-line insurer with exposures to 

policyholders and contract holders.

27 AIG’s net liability for unpaid claims and claim adjustment 

expenses is approximately $88 billion and deposit contract obligations are approximately $127 

billion.28 AIG also accesses the short-term funding markets through repurchase agreements and 

securities lending. Although AIG’s life insurance and annuity products reserves for claim and 

benefit payments are generally considered to be long-term liabilities, a substantial portion of 

these liabilities are available for discretionary withdrawal with little or no penalty and therefore 

can effectively become short-term liabilities. 

Conclusion

The Council has made a final determination that material financial distress at AIG could pose a 

threat to the financial stability of the United States and that AIG should be supervised by the 

Board of Governors and be subject to enhanced prudential standards.

 

26 Excludes ILFC’s debt, which AIG does not report in its year-end 2012 filings in light of the pending divestiture of 

this subsidiary. Inclusive of ILFC debt, this figure is approximately $73 billion. AIG Annual Report on Form 10-K 

for the year ended December 31, 2012, p. 288. 27 Id. at p. 2. 28 Id. at p. 204.