BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1448|
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THIRD READING
Bill No: SB 1448
Author: Calderon (D)
Amended: 5/1/12
Vote: 21
SENATE INSURANCE COMMITTEE : 8-0, 4/25/12
AYES: Calderon, Gaines, Anderson, Corbett, Correa, Lieu,
Lowenthal, Wyland
NO VOTE RECORDED: Price
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Insurance
SOURCE : Department of Insurance
DIGEST : This bill conforms California law to the
recently revised Insurance Company System Regulatory Act
drafted by National Association of Insurance Commissioners.
ANALYSIS :
Existing law:
1.Governs the business of insurance and authorizes the
Insurance Commissioner to provide oversight over the
insurance industry, including conducting investigations
and bringing enforcement actions:
CONTINUED
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A. Provides that any officer, director, or employee of
an insurance holding company (IHC) who willfully and
knowingly subscribes to, makes, or causes to be made
materially false statements, reports, or filings, as
specified, that involves the deliberate perpetration
of a fraud upon the Commissioner is guilty of a
misdemeanor or a felony.
B. Prohibits a person from making a tender offer for,
or a request or invitation for tenders of, or from
entering into an agreement to exchange securities for
or acquire in the open market, any voting security, or
any security convertible into a voting security, of a
domestic insurer or of any other person controlling a
domestic insurer, if the other person is not
substantially engaged either directly or through its
affiliates in any businesses other than that of
insurance, if, as a result of the consummation
thereof, the person would, directly or indirectly,
acquire control of the insurer.
C. Prohibits a person from entering into an agreement
to merge with or otherwise acquire control of a
domestic insurer, unless, at the time copies of the
offer, purchase, request, or invitation are first
published, sent, or given to security holders or the
agreement or transaction is entered into, the person
has filed with the Commissioner, and has sent to the
insurer, a statement containing the specified
information, including, among other things,
information regarding the background and identity of
all persons by whom or on whose behalf the purchases
or the exchange, merger, or other acquisition of
control are to be effected, and any additional
information as the Commissioner may by rule or
regulation prescribe as necessary or appropriate in
the public interest or for the protection of
policyholders or shareholders.
1.Prohibits purchases, exchanges, mergers, or other
acquisitions of control from being made until the
Commissioner approves those acquisitions, and requires
the Commissioner to approve or disapprove the transaction
within 60 days after the filing of that statement.
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2.Requires every insurer authorized to do business in this
state to register with the Commissioner and to file a
registration statement containing specified information,
including the identity and relationship of every member
of the IHC system.
3.Authorizes domestic insurers and commercially domiciled
insurers to enter into specified transactions, including
sales, loans, and reinsurance agreements, only if the
insurer has notified the Commissioner in writing of its
intention to enter into the transactions at least 30 days
prior thereto, or a shorter period as the Commissioner
may permit, and the Commissioner has not disapproved it
within that period.
4.Requires that information reported to the Commissioner in
the registration statement, and information disclosed in
the course of an examination or investigation of the
registration statement, be exempt from subpoena or public
disclosure, except as specified.
This bill:
1. Authorizes the Commissioner to hold a noticed public
hearing after a statement containing specified
information regarding the acquisition of a domestic
insurer is filed and provides the person filing the
statement with the right to present evidence, to examine
witnesses, and to offer oral and written arguments; also
provides for a consolidated hearing before the
Commissioner and commissioners from other states, as
specified;
2. Requires any controlling person of a domestic insurer
seeking to divest its controlling interest in the
domestic insurer to file with the Commissioner a
confidential notice of its proposed divestiture at least
30 days prior to the cessation of control;
3. Requires the Commissioner to determine those instances
in which an insurer under those circumstances would be
required to file for and obtain approval of the
transaction;
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4. Requires the information submitted to the Commissioner
to remain confidential unless the Commissioner makes a
specified determination;
5. Requires that the ultimate controlling person of every
insurer subject to registration file an annual
enterprise risk report;
6. Defines "enterprise risk" for purposes of these
provisions to mean any activity, circumstance, or event
or series of events involving directly or indirectly one
or more affiliates of an insurer that, if not remedied
promptly, is likely to have a material adverse effect
upon the financial condition or liquidity of the insurer
or its IHC system as a whole;
7. Authorizes the Commissioner to ascertain the enterprise
risk to which an insurer is subjected by the ultimate
controlling party or by any entity or combination of
entities within the IHC system, or by the IHC system on
a consolidated basis, and to order an insurer to produce
an enterprise risk report;
8. Provides that whenever it appears to the Commissioner
that any person has committed a violation of the
registration requirements that prevents the full
understanding of the enterprise risk to the insurer by
affiliates of the insurance company holding system, the
violation may serve as an independent basis for
disapproving dividends or distribution or placing the
insurer under an order of supervision;
9. Requires the Commissioner to approve or disapprove an
acquisition of control on or before the latter of 60
days after the statement has been filed with the
Commissioner or 30 days after the close of the hearing;
10.Requires the registration statement to specify that the
insurer's board of directors is responsible for
overseeing corporate governance and internal controls,
and that the insurer's officers or senior management
have approved, implemented, and continue to maintain and
monitor corporate governance and internal control
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procedures;
11.Requires the insurer to include in the registration
statement, if requested by the Commissioner, financial
statements, as described, of or within an IHC system,
including all affiliates;
12.Authorizes the Commissioner to participate in a
supervisory college for any domestic insurer that is
part of an IHC system with international operations in
order to determine compliance with specified provisions
and requires the insurer to pay for the reasonable
expenses of the Commissioner's participation;
13.Authorizes the Commissioner to establish the
supervisory college, clarify its membership, and
establish a crisis management plan;
14.Clarifies that information disclosed in the course of
an examination or investigation of specified
transactions between registered insurers and their
affiliates is exempt from subpoena or public disclosure;
15.Specifies that information disclosed in the course of
an examination or investigation of specified
transactions between registered insurers and their
affiliates and the registration statement information is
not subject to disclosure pursuant to the California
Public Records Act, but would authorize the Commissioner
to share the information with other state, federal, and
international regulatory and enforcement entities if
specified requirements are met;
16.Authorizes the Commissioner to receive documents from
the National Association of Insurance Commissioners
(NAIC) and regulatory and enforcement entities and to
enter into agreements with the NAIC governing the
sharing and use of that information, as specified.
17.Revises the required content of statements, filings,
and reports, and require additional statements and
reports, and because it would be a crime for an officer,
director, or employee of an IHC to willfully or
knowingly engage in specified acts relative to those
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statements, filings, and reports.
Background
History of the Model Act . According to the Insurance
Commissioner, the NAIC is an organization of state
insurance regulators for all 50 states, Washington, D.C.,
and five U.S. territories. Its primary mission is to
promote uniform practices in regulating multi-state
insurers. To support this effort, the NAIC maintains an
insurance regulator accreditation program and develops
uniform standards known as model laws. Commonality in
regulating insurers is critical toward maintaining
effective state-based consumer protections.
The Commissioner explains that in December 2010, the NAIC
adopted significant revisions to the Model Act in response
to concerns that insurance regulators lacked the necessary
authority to adequately understand the risks and activities
of non-insurance entities within a holding company system
that could pose a risk to an insurer. The argument for new
tools to evaluate risks within insurance groups was
intensified by the financial difficulties experienced by
certain affiliates of the AIG insurance holding company
system during the 2008 financial crisis.
The NAIC designed these models to provide
inter-jurisdictional uniformity and cooperation among
regulators in a manner that builds in quality control.
This approach should allow one jurisdiction to comfortably
rely on another NAIC accredited jurisdiction since, by
statute, the regulatory processes and standards applied
would be substantially similar.
Prior/Related Legislation
AB 299 (Assembly Insurance Committee), Chapter 234,
Statutes of 2009, created filing and notice requirements
for specified transactions involving holding company
systems and persons therein.
AB 109 (Assembly Budget Committee), Chapter 15, Statutes of
2011, created civil and criminal penalties for directors or
officers of insurance holding company systems that engage
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in transactions or make investments which have not been
properly reported or submitted.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/15/12)
Department of Insurance (source)
JJA:nlm 5/15/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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