BILL ANALYSIS Ó SB 712 Page 1 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 ----------------------------------------------------------------- |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 | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Fuentes, Harkey, | | | | |Blumenfield, Bradford, | | | | |Charles Calderon, Campos, | | | | |Davis, Donnelly, Gatto, | | | | |Hall, Hill, Lara, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | | | | | | | | ----------------------------------------------------------------- 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 SB 712 Page 2 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 SB 712 Page 3 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 SB 712 Page 4 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 SB 712 Page 5 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 FN: 0002242 SB 712 Page 6