Amended in Assembly April 2, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 584

Introduced by Assembly Members Perea and Cooley

February 20, 2013

An act to add Article 10.6 (commencing with Section begin delete 935) end delete begin insert 935.1) end insert to Chapter 1 of Part 2 of Division 1 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 584, as amended, Perea. Insurance: risk and solvency assessment.

Existing law regulates the business of insurance, including, but not limited to, requiring that each domestic, foreign, and alien insurer doing business in this state annually, on or before the first day of March of each year, file with the National Association of Insurance Commissioners a copy of its annual statement convention blank, along with any additional filings as prescribed by the Insurance Commissioner for the preceding year.

begin insert

The California Public Records Act requires state and local agencies to make their records available for public inspection and to make copies available upon request and payment of a fee unless the records are exempt from disclosure.

end insert

This bill would begin delete require all domestic, foreign, and alien insurers doing business in this state, on an annual basis, to submit to the commissioner an Own Risk and Solvency Assessment Summary Report applicable to the insurer or the insurer’s insurance group end delete begin insert , on and after January 1, 2015, require an insurer to maintain a risk management framework, to conduct no less than annually an Own Risk and Solvency Assessment (ORSA), as specified, and to submit to the commissioner, upon request and no more than once each year, an ORSA Summary Report. The bill would exempt certain insurance companies from these provisions. The bill would provide that the documents, materials, and other information in the possession or control of the Department of Insurance that are obtained by, created by, or disclosed to the commissioner or any other person pursuant to these provisions are confidential, are not subject to disclosure pursuant to the California Public Records Act, and are not subject to subpoena or discovery in a civil action, as specified. The bill would make related findings on the confidentiality of these records. The bill would provide that an insurer who fails, without just cause, to timely file the ORSA Summary Report as required by these provisions would be subject to specified late filing fees end insert .

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Article 10.6 (commencing with Section begin delete 935) end delete
begin insert 935.1) end insert is added to Chapter 1 of Part 2 of Division 1 of the Insurance
Code, to read:

 

Article 10.6.  Own Risk and Solvency Assessment

 

begin delete

935.  

The provisions of this article shall apply to all domestic,
foreign, and alien insurers doing business in this state.

end delete begin delete

936.  

On an annual basis, an insurer shall submit to the
commissioner an Own Risk and Solvency Assessment Summary
Report applicable to the insurer or the insurance group of which
the insurer is a member.

end delete begin insert

begin insert 935.1. end insert   

(a) The purpose of this article is to provide the
requirements for maintaining a risk management framework,
completing an Own Risk and Solvency Assessment (ORSA), and
provide guidance and instructions for filing an ORSA Summary
Report with the commissioner. The requirements of this article
shall apply to all insurers domiciled in this state unless exempt
pursuant to Section 935.6.

(b) The Legislature finds and declares that the ORSA Summary
Report will contain confidential and sensitive information related
to an insurer’s or insurance group’s identification of risks that
are material and relevant to the insurer or insurance group filing
the report. This information will include proprietary and trade
secret information that has the potential for harm and competitive
disadvantage to the insurer or insurance group if the information
is made public. It is the intent of the Legislature that the ORSA
Summary Report shall be a confidential document filed with the
commissioner, that the ORSA Summary Report shall be shared
only as stated in this article to assist the commissioner in the
performance of his or her duties, and that in no event shall the
ORSA Summary Report be subject to public disclosure.

end insert begin insert

begin insert 935.2. end insert   

For purposes of this article, the following definitions
apply:

(a) For the purpose of conducting an ORSA, the term “insurance
group” shall mean those insurers and affiliates included within
an insurance holding company system as defined in subdivision
(e) of Section 1215.

(b) The term “insurer” shall have the same meaning as set forth
in subdivision (f) of Section 1215, except that it shall not include
agencies, authorities, or instrumentalities of the United States, its
possessions and territories, the Commonwealth of Puerto Rico,
the District of Columbia, or a state or political subdivision of a
state.

(c) An “Own Risk and Solvency Assessment” or “ORSA” means
a confidential internal assessment that is appropriate to the nature,
scale, and complexity of an insurer or insurance group, conducted
by that insurer or insurance group, of the material and relevant
risks associated with the insurer’s or insurance group’s current
business plan and the sufficiency of capital resources to support
those risks.

(d) The term “ORSA Guidance Manual” means the current
version of the Own Risk and Solvency Assessment Guidance
Manual developed and adopted by the National Association of
Insurance Commissioners (NAIC) and as amended from time to
time. A change in the ORSA Guidance Manual shall be effective
on the January 1 following the calendar year in which the changes
have been adopted by the NAIC.

(e) An “ORSA Summary Report” means a confidential high-level
summary of an insurer’s or insurance group’s ORSA.

end insert begin insert

begin insert 935.3. end insert   

An insurer shall maintain a risk management framework
to assist the insurer with identifying, assessing, monitoring,
managing, and reporting on its material and relevant risks. This
requirement may be satisfied if the insurance group of which the
insurer is a member maintains a risk management framework
applicable to the operations of the insurer.

end insert begin insert

begin insert 935.4. end insert   

Subject to Section 935.6, an insurer, or the insurance
group of which the insurer is a member, shall regularly conduct
an ORSA consistent with a process comparable to the ORSA
Guidance Manual. The ORSA shall be conducted no less than
annually but also at any time when there are significant changes
to the risk profile of the insurer or the insurance group of which
the insurer is a member.

end insert begin insert

begin insert 935.5. end insert   

(a) On and after January 1, 2015, upon the
commissioner’s request, and no more than once each year, an
insurer shall submit to the commissioner, and the commissioner
shall review, an ORSA Summary Report or any combination of
reports that together contain the information described in the
ORSA Guidance Manual, applicable to the insurer or the insurance
group of which it is a member. Notwithstanding any request from
the commissioner, if the insurer is a member of an insurance group,
the insurer shall submit the report or reports required by this
subdivision only if the commissioner is the lead state commissioner
of the insurance group as determined by the procedures within the
Financial Analysis Handbook adopted by the NAIC.

(b) The report shall include a signature of the insurer’s or
insurance group’s chief risk officer or other executive having
responsibility for the oversight of the insurer’s enterprise risk
management process, attesting to the best of his or her belief and
knowledge that the insurer applies the enterprise risk management
process described in the ORSA Summary Report and that a copy
of the report has been provided to the insurer’s board of directors
or the appropriate committee thereof.

(c) An insurer may comply with subdivision (a) by providing
the most recent and substantially similar report provided by the
insurer, or by another member of an insurance group of which the
insurer is a member, to the commissioner of another state, or to
a supervisor or regulator of a foreign jurisdiction, provided that
the report provides information that is comparable to the
information described in the ORSA Guidance Manual. A report
in a language other than English shall be accompanied by a
translation of that report into the English language.

end insert begin insert

begin insert 935.6. end insert   

(a) An insurer shall be exempt from the requirements
of this article if both of the following apply:

(1) The insurer has annual direct written and unaffiliated
assumed premiums, including international direct and assumed
premiums, but excluding premiums reinsured with the Federal
Crop Insurance Corporation and Federal Flood Program, less
than five hundred million dollars ($500,000,000).

(2) The insurance group of which the insurer is a member has
annual direct written and unaffiliated assumed premiums, including
international direct and assumed premiums, but excluding
premiums reinsured with the Federal Crop Insurance Corporation
and Federal Flood Program, less than one billion dollars
($1,000,000,000).

(b) If an insurer qualifies for exemption pursuant to paragraph
(1) of subdivision (a), but the insurance group of which the insurer
is a member does not qualify for exemption pursuant to paragraph
(2) of subdivision (a), then the ORSA Summary Report that may
be required pursuant to Section 935.5 shall include every insurer
within the insurance group. This requirement may be satisfied by
the submission of more than one ORSA Summary Report for any
combination of insurers provided any combination of reports
includes every insurer within the insurance group.

(c) If an insurer does not qualify for exemption pursuant to
paragraph (1) of subdivision (a), but the insurance group of which
it is a member qualifies for exemption pursuant to paragraph (2)
of subdivision (a), the only ORSA Summary Report that may be
required pursuant to Section 935.5 shall be the report applicable
to that insurer.

(d) An insurer that does not qualify for exemption pursuant to
subdivision (a) may apply to the commissioner for a waiver from
the requirements of this article based upon unique circumstances.
In deciding whether to grant the insurer’s request for waiver, the
commissioner may consider the type and volume of business
written, ownership and organizational structure of the insurer,
and any other factor the commissioner considers relevant to the
insurer or insurance group of which the insurer is a member. If
the insurer is part of an insurance group with insurers domiciled
in more than one state, the commissioner shall coordinate with
the lead state commissioner and with the other domiciliary
commissioners in considering whether to grant the insurer’s
request for a waiver.

(e) Notwithstanding the exemptions stated in this section, the
commissioner may do both of the following:

(1) The commissioner may require that an insurer maintain a
risk management framework, conduct an ORSA, and file an ORSA
Summary Report based on unique circumstances, which include,
but are not limited to, the type and volume of business written,
ownership and organizational structure, federal agency requests,
and international supervisor requests.

(2) The commissioner may require that an insurer maintain a
risk management framework, conduct an ORSA, and file an ORSA
Summary Report if the insurer (A) has Risk-Based Capital for a
Company Action Level Event as described in Section 739.3, (B)
meets one or more of the standards of an insurer that may be
determined to be in hazardous financial condition as provided in
Article 14.5 (commencing with Section 1065.1), and in regulations,
or (C) otherwise exhibits qualities of a troubled insurer as
determined by the commissioner.

(f) If an insurer that qualifies for an exemption pursuant to
subdivision (a) subsequently no longer qualifies for that exemption
due to changes in premiums as reflected in the insurer’s most
recent annual statement or in the most recent annual statements
of the insurers within the insurance group of which the insurer is
a member, the insurer shall have one year following the year the
threshold in subdivision (a) is exceeded to comply with the
requirements of this article.

end insert begin insert

begin insert 935.7. end insert   

(a) The ORSA Summary Report shall be prepared
consistent with the ORSA Guidance Manual, subject to the
requirements of this section. Documentation and supporting
information shall be maintained and made available upon
examination or upon request of the commissioner.

(b) The commissioner shall review the ORSA Summary Report
submitted pursuant to Section 935.5 and any additional requests
for information, using procedures similar to those currently used
in the analysis and examination of multistate or global insurers
and insurance groups.

end insert begin insert

begin insert 935.8. end insert   

(a) Documents, materials, or other information,
including the ORSA Summary Report, in the possession of or
control of the Department of Insurance that are obtained by,
created by, or disclosed to the commissioner or any other person
under this article, are recognized by this state as being proprietary
and contain trade secrets. These documents, materials, or other
information shall be confidential by law and privileged, shall not
be subject to disclosure pursuant to the California Public Records
Act (Chapter 3.5 (commencing with Section 6250) of Division 7
of Title 1 of the Government Code), and shall not be subject to
subpoena or discovery, or admissible in evidence, in any private
civil action. However, the commissioner is authorized to use those
documents, materials, or other information in the furtherance of
any regulatory or legal action brought as a part of the
commissioner’s official duties. The commissioner shall not
otherwise make those documents, materials, or other information
public without the prior written consent of the insurer.

(b) Neither the commissioner nor any other person who received
documents, materials, or other ORSA-related information,
including the ORSA Summary Report, through examination or
otherwise, while acting under the authority of the commissioner,
or with whom those documents, materials, or other information
are shared pursuant to this article, shall be permitted or required
to testify in any private civil action concerning those confidential
documents, materials, or information, subject to subdivision (a).

(c) In order to assist in the performance of the commissioner’s
regulatory duties, the commissioner:

(1) May, upon request, share documents, materials, or other
ORSA-related information, including the confidential and
privileged documents, materials, or information subject to
subdivision (a), including proprietary and trade secret documents
and materials, with other state, federal, and international financial
regulatory agencies, including members of any supervisory college
as described in Section 1215.7, with the NAIC, and with any
third-party consultants designated by the commissioner, provided
that, to the extent not otherwise prohibited by federal law or treaty,
the recipient agrees in writing to maintain the confidentiality and
privileged status of the ORSA-related documents, materials, or
other information and has verified in writing the legal authority
to maintain confidentiality.

(2) May receive documents, materials, or other ORSA-related
information, including otherwise confidential and privileged
documents, materials, or information, including proprietary and
trade-secret information or documents, from regulatory officials
of other foreign or domestic jurisdictions, including members of
any supervisory college as described in Section 1215.7, and from
the NAIC, and shall maintain as confidential or privileged any
documents, materials, or information received with notice or the
understanding that it is confidential or privileged under the laws
of the jurisdiction that is the source of the document, material, or
information.

(3) Shall enter into a written agreement with the NAIC or a
third-party consultant governing the sharing and the use of
information provided pursuant to this article, consistent with this
subdivision that shall do all of the following:

(A) Specify procedures and protocols regarding the
confidentiality and security of information shared with the NAIC
or a third-party consultant pursuant to this article, including
procedures and protocols for sharing by the NAIC with other state
regulators from states in which the insurance group has domiciled
insurers. The agreement shall provide that the recipient agrees in
writing to maintain the confidentiality and privileged status of the
ORSA-related documents, materials, or other information and has
verified in writing the legal authority to maintain confidentiality.

(B) Specify that ownership of information shared with the NAIC
or a third-party consultant pursuant to this article remains with
the commissioner and that the NAIC’s or a third-party consultant’s
use of the information is subject to the direction of the
commissioner.

(C) Prohibit the NAIC or third-party consultant from storing
the information shared pursuant to this article in a permanent
database after the underlying analysis is completed.

(D) Require prompt notice to be given to an insurer whose
confidential information in the possession of the NAIC or a
third-party consultant pursuant to this article when that
information is subject to a request or subpoena to the NAIC or a
third-party consultant for disclosure or production.

(E) Require the NAIC or a third-party consultant to consent to
intervention by an insurer in any judicial or administrative action
in which the NAIC or a third-party consultant may be required to
disclose confidential information about the insurer shared with
the NAIC or a third-party consultant pursuant to this article.

(F) In the case of an agreement involving a third-party
consultant, provide for the insurer’s written consent.

(d) The sharing of information and documents by the
commissioner pursuant to this article shall not constitute a
delegation of regulatory authority or rulemaking, and the
commissioner is solely responsible for the administration,
execution, and enforcement of the provisions of this article.

(e) No waiver of any applicable privilege or claim of
confidentiality in the documents, proprietary and trade-secret
materials, or other ORSA-related information shall occur as a
result of disclosure of such ORSA-related information or documents
to the commissioner under this section or as a result of sharing
as authorized in this article.

(f) Documents, materials, or other information in the possession
or control of the NAIC or a third-party consultant pursuant to this
article shall be confidential by law and privileged, shall not be
subject to disclosure pursuant to the California Public Records
Act (Chapter 3.5 (commencing with Section 6250) of Division 7
of Title 1 of the Government Code), and shall not be subject to
subpoena or discovery, or admissible in evidence, in any private
civil action.

end insert begin insert

begin insert 935.9. end insert   

Any insurer failing, without just cause, to timely file the
ORSA Summary Report as required in this article shall be subject
to the late filing fees set forth in Section 924. The commissioner
may reduce the penalty if the insurer demonstrates to the
commissioner that the imposition of the penalty would constitute
a financial hardship to the insurer.

end insert begin insert

begin insert 935.10. end insert   

If any provision of this article, or the application
thereof to any person or circumstance, is held invalid, that
determination shall not affect the provisions or applications of
this article that can be given effect without the invalid provision
or application, and to that end the provisions of this article are
severable.

end insert begin insert

begin insert 935.11. end insert   

This article shall become operative on January 1, 2015.

end insert