BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1837
                                                                  Page  1

          AB 1837 (Gaines)
          As Amended  August 10, 2010
          Majority vote
          |ASSEMBLY:  |58-1 |(May 28, 2010)  |SENATE: |32-0 |(August 18,    |
          |           |     |                |        |     |2010)          |
           Original Committee Reference:    INS.

          SUMMARY  :  Allows a domestic insurer that has a nonadmitted  
          affiliate in another state to provide specified services to the  
          nonadmitted affiliate. 

           The Senate amendments  :

          1)Clarify the scope of the functions that the domestic insurer  
            may provide in California to its out-of-state nonadmitted  

          2)Provide that the nonadmitted insurer's board of directors may  
            not have a majority of directors who are also on the board of  
            the domestic insurer.

          3)Add the authority for the domestic insurer to assist the  
            nonadmitted affiliate in executing its investment strategy,  
            provided that the domestic does not establish the strategy or  
            determine liquidity needs for the nonadmitted affiliate.

          4)Add double-jointing language to avoid chaptering out problems  
            with AB 1708.

           AS PASSED BY THE ASSEMBLY  , this bill:

          1)Authorized a nonadmitted insurer that is affiliated with a  
            California domestic insurer to have common directors, provided  
            that the directors do not perform management functions for the  
            nonadmitted affiliate, and provided that the common directors  
            do not constitute a majority of the nonadmitted affiliate's  

          2)Authorized a California domiciled insurer to provide the  
            following administrative services to its nonadmitted  


                                                                  AB 1837
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             a)   Computer operations, as specified, that are unrelated to  
               the underwriting process;

             b)   Clerical and administrative staffing support, provided  
               that the staff providing these services to not have contact  
               or interaction with policyholders of the nonadmitted  

             c)   Human resources, provided that hiring and firing  
               decisions, employee discipline, and compensation decisions  
               are handled directly by the nonadmitted affiliate;

             d)   Claims adjusting, as described in a specified Insurance  
               Code section, provided that the notices, decisions, and  
               payments are made directly by the nonadmitted insurer; and,

             e)   Investing services, provided that decisions on  
               investment goals, risk assumptions, diversification and  
               liquidity needs are made directly by the nonadmitted  

          3)Specified that nothing in the above provisions permits the  
            nonadmitted insurer to conduct activity that constitutes the  
            "transaction" of insurance, or a violation of specified  
            sections of the Insurance Code.

           FISCAL EFFECT  :  This bill is tagged non-fiscal.

           COMMENTS  :  A "nonadmitted insurer" is an insurer that is not  
          licensed to do business in California.  However, because  
          Californians often need insurance that the licensed companies  
          are not providing, nonadmitted insurers can sell insurance under  
          limited, controlled conditions.  If, however, an out-of-state  
          nonadmitted insurer is owned, controlled, operated and managed  
          totally by a California-based parent insurer, it creates a  
          fiction that the nonadmitted insurer is really an out-of-state  
          company.  At its worst, excessive operational control is no more  
          than an effort to dodge the insurance licensing laws of  

          AB 1837 represents a carefully balanced listing of ministerial  
          functions that serve to level the playing field for nonadmitted  
          insurers as between nonadmitted insurers owned by California  


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          companies, and nonadmitted insurers owned by non-California  

           Analysis Prepared by  :  Mark Rakich / INS. / (916) 319-2086

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