BILL ANALYSIS Ó
SB 1448
Page 1
Date of Hearing: June 20, 2012
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 1448 (Calderon) - As Amended: June 11, 2012
SENATE VOTE : 39-0
SUBJECT : Insurance Holding Company Systems
SUMMARY : Conforms California law to recent changes in the
National Association of Insurance Commissioners (NAIC) model law
relating to insurance holding company regulation.
Specifically, this bill :
1)States legislative intent to improve interstate and
international regulation of insurance holding company systems,
by conforming to and to maintaining standards consistent with
the NAIC revised model act.
2)Makes findings and declarations regarding the need for
improvements in the regulation of insurance holding company
systems.
3)Defines "enterprise risk" as any activity, circumstance, or
event that, if not remedied promptly, is likely to have a
material adverse effect on the financial condition of the
insurer or its insurance holding company system.
4)Defines "security holder" as a person that owns a security
(e.g., common stock, preferred stock, debt obligations) in a
company.
5)Defines "voting security" to include any security that may be
converted into a voting security.
6)Permits the Insurance Commissioner (commissioner) to hold a
public hearing after the filing of a notice that a non-insurer
seeks to acquire a controlling interest in a domestic
insurance company. Permits interested parties to participate
in this hearing by presenting evidence, examine and
cross-examine witnesses, and offer both oral and written
arguments.
7)Permits the commissioner to consolidate the hearing with
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hearings held by insurance regulators in other states.
8)Requires notice to the commissioner if a person seeks to
divest itself of control of a domestic insurer.
9)Requires the commissioner to determine if a party seeking to
divest itself of control of a domestic insurer must obtain the
commissioner's approval of the transaction.
10)Provides that the notice of divestment is confidential until
the transaction is concluded unless the commissioner
determines that confidentiality would interfere with the
enforcement of the Insurance Holding Company System Regulatory
Act (act).
11)Requires insurers in a registered insurance holding company
system (IHCS) to provide the commissioner with financial
statements upon request.
12)Requires the board of directors of an insurer in an insurance
holding company system file a statement with the commissioner
that the board is responsible for overseeing corporate
governance and internal controls and that the officers and
senior management have implemented and maintain corporate
governance and internal control procedures.
13)Permits the commissioner to disallow a disclaimer of
affiliation if the information in the disclaimer application
is incomplete or inaccurate.
14)Requires the controlling person in an insurance holding
company system to file an annual enterprise risk report.
Specifies that the first enterprise risk report must be filed
after July 1, 2013.
15)Requires notice of amendments to or modifications of
affiliate agreements between members of an insurance holding
company system to be filed with the commissioner.
16)Requires notice of a projected change reinsurance premiums or
increase in liabilities of 5% or more in any of the next three
years to be filed with the commissioner.
17)Permits the commissioner to examine any insurer to ascertain
enterprise risks to the insurer posed by members of the IHCS.
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18)Permits the commissioner to order the production of records,
books, or other information from members of an IHCS.
19)Permits the commissioner to participate in a "supervisory
college" composed of other state, federal, and international
insurance regulators for a domestic insurer that is part of an
IHCS with international operations to determine compliance
with the act.
20)Permits the commissioner to share confidential information
with other state, federal and international regulatory
agencies (including the National Association of Insurance
Commissioners) if those agencies agree to preserve the
confidentiality of the information.
21)Provides that a violation of the registration requirement for
IHCS is an independent basis for the commissioner to
disapprove dividends, distributions, or seek an order of
supervision.
EXISTING LAW :
1)Governs the business of insurance and authorizes the
commissioner to provide oversight over the insurance industry.
2)Establishes the act which requires insurers authorized to do
business in this state that are part of an IHCS to register
with the commissioner.
3)Requires registration forms to include information regarding
the legal and financial relationships between members of the
IHCS.
4)Regulates a range of activities related to an IHCS including:
a) Acquisition of subsidiaries by domestic insurers;
b) Acquisition of domestic insurers by non-insurance
companies;
c) Transactions between registered insurers and their
affiliates.
d) Transactions between members of an IHCS.
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e) Payments of extraordinary dividends or distributions
by registered insurers.
5)Provides the commissioner with a number of powers to enforce
the act including:
a) Examination of registered insurers and their
affiliates to determine the financial condition of the
registered insurer.
b) Obtain an injunction against a registered insurer to
stop or prevent violations of the act.
c) Seek criminal penalties for willful violation of the
act and willful making false statements to the
commissioner.
d) Impose fines of up to $50,000 per violation on
officers and directors of IHCS for willful violations of
the act.
e) Suspend, revoke or refuse to renew the insurer's
license for violations of the act that makes the
continued operation of the insurer contrary to the
interests of policyholders or the public.
6)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.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose. According to the sponsor, holding company systems
are large and complex and this bill will provide the
commissioner with much needed new tools to evaluate the
activities of non-insurance entities within a holding company
system that could pose a financial risk to the insurance
company owned or otherwise financially affiliated with the
holding company. SB 1448 will help to ensure effective
insurer group regulation and oversight. It is anticipated
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that enacting these provisions will be an accreditation issue
with NAIC and passing this bill is bill conforms California
law to the Model Law prepared by the NAIC.
2)NAIC Model Law Changes. In December 2010, the NAIC adopted
significant revisions to the model law for insurance holding
company systems 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. SB 1448
modifies current law governing insurance holding company
regulation to conform with recent revisions to the NAIC model
law.
3)Suggested Amendment . Staff recommends that the bill be
amended to clarify the requirements for providing the
commissioner with the enterprise risk report required by the
bill. Insurance Code Section 1215.4 (m) should be amended as
follows:
(m) The ultimate controlling person of every insurer
subject to registration shall also file an annual
enterprise risk report. The report shall, to the best of
the ultimate controlling person's knowledge and belief,
identify the material risks within the insurance holding
company system that could pose enterprise risk to the
insurer. The report shall be filed with the lead state
commissioner of another state, when applicable, of the
insurance holding company system as determined by the
procedures within the Financial Analysis Handbook adopted
by the National Association of Insurance Commissioners, and
with if the commissioner is not the lead state commissioner
of the insurance holding company system, a copy shall be
provided to the commissioner if the insurance holding
company system has an insurer domiciled in this state. The
first annual enterprise risk report shall be filed with the
insurer's registration statement after July 1, 2013, unless
the commissioner establishes a later date either by
bulletin or notice.
REGISTERED SUPPORT / OPPOSITION :
SB 1448
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Support
Association of California Insurance Companies (ACIC)
Department of Insurance
Fireman's Fund Insurance Company
Opposition
None Received.
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086