BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 712
                                                                  Page  1

          Date of Hearing:   June 22, 2011

                           ASSEMBLY COMMITTEE ON INSURANCE
                                 Jose Solorio, Chair
              SB 712 (Committee on Insurance) - As Amended:  May 3, 2011

           SENATE VOTE  :  39-0
           
          SUBJECT  :   Insurance: statement of actuarial opinion

           SUMMARY  :   Requires property and casualty insurers to annually 
          submit a Statement of Actuarial Opinion in accordance with the 
          instructions of the National Association of Insurance 
          Commissioners (NAIC).  Specifically,  this bill  :

          1)Requires admitted property and casualty insurers unless 
            exempted by the Insurance Commissioner (IC), to annually 
            submit the opinion of an Appointed Actuary entitled "Statement 
            of Actuarial Opinion" in accordance with the instructions of 
            the NAIC.

          2)Authorizes the IC to adopt regulations related to the terms 
            and conditions required by the Property and Casualty Annual 
            Statement of Instructions of the NAIC.

          3)Requires property and casualty insurers domiciled in this 
            state to annually submit an Actuarial Opinion Summary written 
            by the insurer's Appointed Actuary.

          4)Requires admitted insurers not domiciled in this state to 
            provide the Actuarial Opinion Summary upon request of the IC.

          5)Requires the Statement of Actuarial Opinion to be a public 
            record and open to inspection.  

          6)Provides that documents and materials in the possession of the 
            IC that are considered an Actuarial Report, work papers, or 
            Actuarial Opinion Summary provided in support of the Statement 
            of Actuarial Opinion shall be confidential and privileged, and 
            not made public.  However, the IC is not restricted from 
            releasing these materials to the American Academy of Actuaries 
            Actuarial Board for Counseling and Discipline (ABCD) for the 
            purpose of professional disciplinary proceedings.

          7)Authorizes the IC to disclose to law enforcement officials and 








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            to insurance departments of other states the contents of 
            examination reports, market analysis data, or other relevant 
            matter regarding the supporting materials to the Statement of 
            Actuarial Opinion.

          8)Specifies that state law governing the sale of life insurance 
            and annuity contracts requires differentials based on the sex 
            of the individual insured or annuitant in the rates or 
            dividends or benefits, when the differentials are 
            substantially supported by valid pertinent data segregated by 
            sex, including but not limited to, mortality data segregated 
            by sex.

          9)Provides that reported replacement and lapse rates in 
            connection with the sale of long-term care insurance do not 
            constitute a violation of insurance laws or imply wrongdoing.  
            The reports are for the purpose of reviewing more closely 
            agent activities regarding the sale of long-term care 
            insurance.

           EXISTING LAW  :

          1)Requires insurers to maintain sufficient reserves, in 
            accordance with regulations adopted by the IC, to provide for 
            the payment of all losses for which the insurer may be liable 
            and to pay for adjustment expenses or settlement of losses.

          2)Requires insurers to file financial statements with the IC, 
            and to have an annual audit performed by an independent 
            certified public accountant.  The audit and the audit report 
            shall be prepared in conformance with the standards adopted by 
            the NAIC.  

          3)Requires admitted life and disability insurers to submit 
            annual actuarial opinions or statements.  

          4)Identifies a series of unfair methods of competition and 
            unfair and deceptive acts or practices in the business of 
            insurance, and prohibits these as unfair trade practices.
            
          5)Specifies that one of these prohibited insurance trade 
            practices is making or permitting unfair discrimination 
            between individuals of the same class and equal expectation of 
            life in the rates charged for life insurance or a life 
            annuity.  State law requires differentials based on the sex of 








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            the individual insured or annuitant in the rates or dividends 
            or benefits, when the differentials are substantially 
            supported by valid pertinent data segregated by sex, including 
            but not  necessarily  limited to, mortality data segregated by 
            sex.

          6)Requires insurers, in connection with the sales of long-term 
            care insurance, to maintain records for each agent that 
            identify the amount of replacement sales as a percent of the 
            agent's total annual sales and the amount of lapses of 
            long-term care policies sold by the agent as a percent of the 
            agent's total annual sales.

          7)Provides that reported replacement and lapse rates do not 
            constitute a violation of insurance laws or  necessarily  imply 
            wrongdoing.  The reports are for the purpose of reviewing more 
            closely agent activities regarding the sale of long-term care 
            insurance.

           FISCAL EFFECT  :   Undetermined.

           COMMENTS  :

           1)Purpose .  The purpose of this bill is to conform California 
            insurance laws to the NAIC Model law regarding actuarial 
            opinions needed to monitor the adequacy of financial reserves 
            of property and casualty insurers.

           2)Background  .  This bill is the DOI's adaptation of the NAIC's 
            Property and Casualty Actuarial Opinion Model Law, and is 
            required to support California's accreditation pursuant to the 
            NAIC's Financial Regulation Standards and Accreditation 
            Program.

          The NAIC's Financial Regulation Standards and Accreditation 
            Program is a voluntary program which has led to NAIC 
            accreditation of 49 states and the District of Columbia.  In 
            order to be accredited, the state must meet minimum baseline 
            accreditation standards in the following categories:  laws and 
            regulations, regulatory practices and procedures, and 
            organizational and personnel practices.

          In order to gain and maintain accreditation, 18 laws and 
            regulations are required to adequately monitor the financial 
            solvency of its domestic insurers.  The subject of these laws 








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            and regulations are:  (1) examination authority, (2) capital 
            and surplus requirement, (3) NAIC accounting practices and 
            procedures, (4) corrective action, (5) valuation of 
            investments, (6) holding company systems, (7) risk limitation, 
            (8) investment regulations, (9) liabilities and reserves, (10) 
            reinsurance ceded, (11) CPA audits, (12) actuarial opinion, 
            (13) receivership, (14) guaranty funds, (15) filings with the 
            NAIC, (16) producer controlled insurers, (17) managing general 
            agents act, and (18) reinsurance intermediaries act.  This 
            bill addresses the 12th subject, the laws governing actuarial 
            opinions.

           3)Support arguments  .  The author and the DOI state that this 
            bill is needed to preserve California's accreditation status 
            by the NAIC.  This bill enacts the updated NAIC Property and 
            Casualty Actuarial Opinion Model Law, and makes a series of 
            minor Insurance Code clean-up changes.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Department of Insurance (Sponsor)

           Opposition 
           
          None received.

           Analysis Prepared by  :    Manny Hernandez / INS. / (916) 319-2086