BILL ANALYSIS Ó
SB 1216
Page 1
Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1216 (Lowenthal) - As Amended: May 7, 2012
Policy Committee: InsuranceVote:13
- 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill conforms California law with changes in federal law
and the National Association of Insurance Commissioners (NAIC)
model law regarding the regulation of reinsurance. Specifically,
this bill:
1)Permits the Insurance Commissioner to designate a domestic
insurer principally engaged in the business of reinsurance as
a professional reinsurer.
2)Permits the commissioner to certify reinsurers that:
a) Hold a license to transact insurance in another
state or qualified jurisdiction.
b) Maintain minimum capital and surplus of at least
$250 million.
c) Maintain financial strength ratings from at least
two recognized rating agencies.
d) Submit to the commissioner's jurisdiction.
e) Submit to information filing requirements determined
by the commissioner.
f) Comply with any other requirements deemed relevant
by the commissioner.
3)Requires the commissioner to consider reinsurance provided by
a certified reinsurer as an asset or credit against the
liabilities of a ceding insurer.
4)Requires the commissioner to assign a financial strength
rating to each certified reinsurer based on a range of
factors, including the ratings provided by recognized rating
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agencies.
5)Requires the commissioner to notice an application for
certification as a reinsurer on the Department of Insurance
website and allow 90 days for the public to comment on the
application.
6)Requires the commissioner to establish a list of nations that
are accepted as qualified jurisdictions for the purposes of
certifying alien reinsurers. This list must be based on a
similar list to be established by NAIC and on a number of
other factors including the comparability of the nation's
regulatory structure for insurers and the extent to which the
nation cooperates with regulators from the United States.
7)Sunsets the reinsurer certification law on January 1, 2016.
8)Permits the commissioner to collect the cost of the
certification process from the reinsurer.
FISCAL EFFECT
1)Costs of up to $125,000 during the peak year of 2013-14, with
on-going costs of about $30,000. These costs will be fully
recoverable by filing fees and cost recovery
2)Any costs incurred by the Department of Insurance will either
be offset by filing fee revenue or recovered directly from the
insurer. SB 1216 provides for a $2,500 professional reinsurer
filing fee, however, the department does not anticipate a
significant number of insurers applying for qualification as a
professional reinsurer. The $1,500 filing fee for a certified
reinsurer will be established via regulations and will include
a $1,500 annual certification renewal fee. The department
anticipates about 18 reinsurers applying for certification in
the first three years and an occasional one applying
thereafter.
3)Any costs not recoverable, such as those for rulemaking, will
be minor and absorbable within the department's existing
budget.
COMMENTS
SB 1216
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1)Rationale . This bill seeks to conform California law to the
NAIC model law for reinsurance based on revisions to the model
law adopted in 2011. Those revisions include requirements in
the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010 (Dodd-Frank).
2)Reinsurance. Reinsurance is a transaction in which one
insurance company indemnifies, for a premium, another
insurance company against all or part of the loss resulting
from the insurance policy or policies it has issued. Insurance
companies can purchase reinsurance from different sources such
as reinsurance companies located in the United States,
reinsurance departments of other insurers, and reinsurers that
are located outside the United States and not licensed here.
Insurers purchase reinsurance for a number of reasons,
including to limit liability on specific risks, protect
against catastrophes, and to write policies that exceed their
available capital. Reinsurance helps insurers spread risk and
provides a tool that enables insurers to match the risks they
assume with their financial resources.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081