BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 712
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          SENATE THIRD READING
          SB 712 (Insurance Committee)
          As Amended  August 25, 2011
          Majority vote

           SENATE VOTE  :   39-0
            
           INSURANCE           11-0        GOVERNMENT 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      |
          |     |                          |     |Perez, 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), and extends the time for bonds to be 
          issued to pay the claims of insolvent workers' compensation 
          insurers.  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 








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            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 
            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.

          10)Extends from January 1, 2013, until January 1, 2023, the time 
            for bonds to be issued on behalf of the California Insurance 
            Guarantee Association (CIGA) to pay the claims of insolvent 








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            workers' compensation insurers.

          11)Makes two technical corrections to the insurance law 
            contained in the California Life and Health Insurance 
            Guarantee Association Act.

           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 
            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 








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            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.

          8)Authorizes the CIGA to pay eligible claims of insolvent 
            insurers through the collection of premiums from its members.  
            Its members are property, casualty, and workers' compensation 
            insurers.

          9)Provides that bonds issued to provide funds for covered 
            workers' compensation claims shall be issued prior to January 
            1, 2013, in an aggregate amount outstanding not to exceed $1.5 
            billion.

          10)Places in an uncodified section of law the stipulation that 
            amendments made to the California Life and Health Insurance 
            Guarantee Association Act made by SB 1408 (Banking, Finance 
            and Insurance Committee), Chapter 334, Statutes of 2010 shall 
            not apply to any member insurer that, prior to the effective 
            date of that chapter, has been placed under an order of 
            liquidation with a finding of insolvency.

           FISCAL EFFECT  :  According to the Assembly Appropriations 
          Committee, costs associated with this legislation should be 
          minor and absorbable within existing Department of Insurance 
          resources.

           COMMENTS  :

          1)This bill has two purposes:  a) 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; and, b) to give the 
            California Insurance Guarantee Association the flexibility to 
            refinance existing variable rate bonds to avoid higher 
            interest costs if the bond market changes.

          2)This bill contains the Department of Insurance's (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 








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            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.

          4)Starting in 2006, a series of legislative bills have extended 
            the time deadline to issue bonds to pay for workers' 
            compensation claims of insolvent workers' compensation 
            insurance companies.  These extensions have been for two years 
            each time to assure that CIGA can meet its obligations to pay 
            these claims.  The outstanding bonds with variable interest 
            rates total $350 million.  The Department of Insurance and 
            CIGA state that it may be cost-effective for CIGA to have the 
            flexibility to refinance the bond debt in the future.  This 
            bill would provide that authority.


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


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