BILL ANALYSIS Ó
SB 712
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SENATE THIRD READING
SB 712 (Insurance Committee)
As Amended May 3, 2011
Majority vote
SENATE VOTE :39-0
INSURANCE 11-0 GOVERNMENTAL
ORGANIZATION 14-0
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|Ayes:|Solorio, Hagman, Carter, |Ayes:|Hall, Nestande, Atkins, |
| |Feuer, Grove, Hayashi, | |Block, Cook, Garrick, |
| |Miller, Olsen, Skinner, | |Gatto, Hill, Jeffries, |
| |Torres, Wieckowski | |Ma, Perea, V. Manuel |
| | | |Pérez, Silva, Torres |
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APPROPRIATIONS 17-0
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|Ayes:|Fuentes, Harkey, | | |
| |Blumenfield, Bradford, | | |
| |Charles Calderon, Campos, | | |
| |Davis, Donnelly, Gatto, | | |
| |Hall, Hill, Lara, | | |
| |Mitchell, Nielsen, Norby, | | |
| |Solorio, Wagner | | |
| | | | |
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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.
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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
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.
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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 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 : According to the Assembly Appropriations
Committee, there are no significant costs associated with this
legislation.
COMMENTS :
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1)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)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
and regulations are: a) examination authority; b) capital and
surplus requirement; c) NAIC accounting practices and
procedures; d) corrective action; e) valuation of investments;
f) holding company systems; g) risk limitation; h)
investment regulations; i) liabilities and reserves; j)
reinsurance ceded; k) CPA audits; l) actuarial opinion; m)
receivership; n) guaranty funds; o) filings with
the NAIC; p) producer controlled insurers; q) managing general
agents act; and, r) reinsurance intermediaries act. This bill
addresses the 12th subject, the laws governing actuarial
opinions.
3)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.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
SB 712
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FN: 0002044