BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2160|
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THIRD READING
Bill No: AB 2160
Author: Blumenfield (D), et al.
Amended: 8/6/12 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 9-0, 6/28/12
AYES: Calderon, Gaines, Anderson, Corbett, Correa, Lieu,
Lowenthal, Price, Wyland
ASSEMBLY FLOOR : 63-4, 5/25/12 - See last page for vote
SUBJECT : Insurance: retention risk
SOURCE : Author
DIGEST : This bill deems an investment by a domestic
insurer in specified companies as a nonadmitted asset for
the purposes of meeting the insurer's capital requirements.
Specifically, the targeted investment activities involve
companies included on the list of companies prepared by the
Department of General Services (DGS) pursuant to the Iran
Contracting Act of 2010.
Senate Floor Amendments of 8/6/12 delete a provision from
the bill which requires an insurer to provide a detailed
summary of the business operations of a company that
appears on the DGS Iran Contracting Act List, if the
insurer holds investments in any of those companies.
ANALYSIS :
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Existing law:
1. Prohibits domestic insurers from acquiring foreign
investments from or located in foreign jurisdictions
designated as state sponsors of terrorism by the United
States Secretary of State.
2. The Iran Contracting Act of 2010, provides that a person
whose name appears on a list developed or contracted for
development by DGS as a person determined by the
department to be engaged in investment activities in
Iran is ineligible to bid on, submit a proposal for,
enter into, or renew a contract with a public entity.
This bill:
1. Requires that above-referenced investments by a domestic
insurer in companies that are included on the list
maintained by DGS be treated as non-admitted assets on
the financial statements of the domestic insurer.
2. Deems use of the list developed for purposes of the Iran
Contracting Act of 2010 as automatic compliance with
these requirements.
3. Requires the insurer to provide the department with
specified information, on an annual basis, a list of the
investments the insurer has in companies included on the
list.
Background
An insurer assumes liability or risk of loss by selling
policies. California law limits the aggregate amount of
insurance an insurer can sell according to a cap defined,
in part, by its available reliable assets. Those reliable
assets are called "admitted assets." The more admitted
assets an insurer has, the more risk it can accept.
Standards for admitted assets . The Insurance Code sets
basic standards for the types of investments held by
domestic insurers. The standards apply to different types
of assets (loans, real estate, securities, etc.).
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(Investments outside the U.S. have their own special set of
regulations.)
For instance, when evaluating debt securities, the
Insurance Code considers assessments by nationally
recognized statistical rating organizations approved by the
Securities and Exchange Commission as Nationally Recognized
Statistical Rating Organizations (NRSROs) (Moody's
Investors Service, Standard & Poor's Ratings Services,
etc.) and the NAIC's Securities Valuations Office (SVO).
(See Insurance Code Section 922.5, 922.7, 1192.10, 1196.1.
1240, 1211, 1781.2, and 12100)
In addition, different regulations apply to risk-based
capital versus excess funds; the purpose for which the
investment is used determines the standards applied.
Risk-based capital requirements (the amount of admitted
assets necessary to assume so much in risk) are determined
by a formula designed for the type of insurance offered and
are used to make sure that the insurer has sufficient
assets to cover claims. Excess funds, those over the
amount required by the risk-based capital requirements,
would not be affected by this bill.
AB 2160 standard for admitted asset . This bill tests an
asset against a list compiled by DGS pursuant to the Iran
Contracting Act of 2010. Under Public Contract Code
Section 2203, DGS must "using credible information
available to the public, develop, or contract to develop, a
list of persons it determines engage in investment
activities in Iran." These investment activities include
providing "goods or services of $20 million, or more, in
the energy sector of Iran, including a person that provides
oil or liquefied natural gas tankers, or products used to
construct or maintain pipelines used to transport oil or
liquefied natural gas, for the energy sector of Iran."
(Public Contract Code Section 2202.5.) The May 23, 2012
list includes 39 companies identified by DGS that are
prohibited from contracting with public entities in
California per the Iranian Contracting Act, 2010. The
method proposed by this bill to regulate admitted assets
does not evaluate the value or relative reliability of the
company, but deems and investment in it as nonadmitted by
virtue its presence on the DGS contracting list.
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Prior/Related Federal and State Legislation and CDI
Regulations
Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 (CISADA) . Presidential duties and
powers are defined in Section 102 that also directs the
President to impose, and authorizes the President to waive,
sanctions for activities related to commerce with Iran, as
specified.
State authority to act is granted in Section 202 that
authorizes a state or local government to adopt and enforce
measures to divest its assets from or prohibit the
investment of assets it controls in any person that (1) has
an investment of $20 million or more in Iran's energy
sector, including in a person that provides oil or
liquified natural gas tankers, or products used to
construct or maintain pipelines used to transport oil or
liquefied natural gas, for Iran's energy sector; or (2) is
a financial institution that extends $20 million or more in
credit to another person for at least 45 days if that
person will use the credit for investment in Iran's energy
sector. It also defines "assets" as public monies
including any pension, retirement, annuity, endowment fund,
or similar instrument that is controlled by a state or
local government. Excludes from such definition employee
benefit plans covered by title I of the Employee Retirement
Income Security Act of 1974 (ERISA). (See AB 221 and 1650
below.)
AB 1650 (Feuer), the Iran Contracting Act of 2010 (Chapter
573, Statutes of 2010), in part, prohibits a person from
bidding or renewing a contract with a public entity for
goods and services of $1 million or more who is identified
on a list maintained by DGS and engaging in investment
activities in Iran, as specified (see discussion above).
AB 221 (Anderson), Chapter 671, Statutes of 2007, prohibits
the Board of Administration of the Public Employees'
Retirement System or the State Teachers' Retirement System
from investing public employee retirement funds in a
company with "business operations" in the defense or
nuclear sector of Iran or that are involved in the
development of Iranian petroleum or natural gas resources
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and are subject to federal sanctions.
Department of Insurance (CDI) Settlement . In 2010, CDI
announced that it had compiled a list of foreign entities
doing business with the Iranian oil and natural gas,
nuclear, and defense sectors (CDI List). The CDI also
intended to treat investments held by insurance companies
doing business in California in those entities on the CDI
List as non-admitted, and that insurance companies holding
those investments should report those investments as
non-admitted assets. CDI did not adopt this policy through
the Administrative Procedure Act and eventually entered
into a settlement agreement that provides that CDI may
continue to maintain and post the list on its website and,
as specified, identify insurers with those investments.
CDI may not, under the agreement, use the information to
take disciplinary action against the insurer (other than
publication as specified) and it may not treat investments
in entities on the CDI List as nonadmitted.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/3/12)
30 Years After
Anti-Defamation League
American Jewish Committee
American Veterans of California
Jewish Community Relations Council
Jewish Federation of Greater Los Angeles
Jewish Public Affairs Committee of California
United Against a Nuclear Iran
OPPOSITION : (Verified 7/3/12)
American Council of Life Insurers
American Insurance Association
Association California Insurance Companies
Association of California Life and Health Insurance
Companies
California Chamber of Commerce
Pacific Association of Domestic Insurance Companies
Personal Insurance Federation of California
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National Association of Mutual Insurance Companies
ARGUMENTS IN SUPPORT : The Jewish Public Affairs
Committee of California (JPAC) and Jewish Community
Relations Council (JCRC) and American Jewish Committee
(AJC) write that this bill is an important part of national
and international efforts to ratchet up economic pressure
on the government of Iran to comply with demands to cease
its dangerous drive to develop a nuclear weapon.
Many supporters note that this bill does not require
divestment nor does it impose any penalty on the insurer.
This bill is completely consistent with the policy of the
United States government and prior legislation enacted by
the California Legislature.
United Against a Nuclear Iran (UANI) explains that it has
sought to use the purchasing power of the federal
government and the U.S. state governments to have
international businesses choose between doing business with
the United State and the individual states or Iran. This
bill presents insurers with just such a choice: do business
in California or do business in Iran.
ARGUMENTS IN OPPOSITION : Several representatives of the
insurance industry state that the federal bill only
authorizes state and local government entities to divest
their own assets, or prohibit their investment in Iran
investment activities. Indeed, this Legislature has
already passed legislation that relies on that provision.
However, as a clear reading of Section 202 of CISADA
indicates, the federal bill does NOT authorize the states
to control, ban or otherwise affect the activities of
private business as proposed by this bill.
ASSEMBLY FLOOR : 63-4, 5/25/12
AYES: Achadjian, Alejo, Allen, Ammiano, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Cedillo,
Chesbro, Cook, Davis, Dickinson, Eng, Feuer, Fong,
Fuentes, Furutani, Beth Gaines, Galgiani, Garrick, Gatto,
Gordon, Gorell, Halderman, Hayashi, Roger Hernández,
Hill, Huber, Hueso, Huffman, Jeffries, Lara, Logue,
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Bonnie Lowenthal, Mendoza, Miller, Mitchell, Monning,
Morrell, Nestande, Nielsen, Olsen, Pan, V. Manuel Pérez,
Portantino, Skinner, Smyth, Solorio, Swanson, Torres,
Valadao, Wagner, Williams, Yamada, John A. Pérez
NOES: Donnelly, Hagman, Jones, Norby
NO VOTE RECORDED: Atkins, Bill Berryhill, Conway,
Fletcher, Grove, Hall, Harkey, Knight, Ma, Mansoor,
Perea, Silva, Wieckowski
JJA:m 8/8/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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