Amended in Senate June 27, 2013

Amended in Assembly April 15, 2013

Amended in Assembly April 2, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 584


Introduced by Assembly Members Perea and Cooley

February 20, 2013


An act to add Article 10.6 (commencing with Section 935.1) 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.

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.

This bill would, 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.

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

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

P2    1

SECTION 1.  

Article 10.6 (commencing with Section 935.1)
2is added to Chapter 1 of Part 2 of Division 1 of the Insurance Code,
3to read:

4 

5Article 10.6.  Own Risk and Solvency Assessment
6

 

7

935.1.  

(a) The purpose of this article is to provide the
8requirements for maintaining a risk management framework,
9completing an Own Risk and Solvency Assessment (ORSA), and
10provide guidance and instructions for filing an ORSA Summary
11Report with the commissioner. The requirements of this article
12shall apply to all insurers domiciled in this state unless exempt
13pursuant to Section 935.6.

14(b) The Legislature finds and declares that the ORSA Summary
15Report will contain confidential and sensitive information related
16to an insurer’s or insurance group’s identification of risks that are
17material and relevant to the insurer or insurance group filing the
18report. This information will include proprietary and trade secret
19information that has the potential for harm and competitive
20disadvantage to the insurer or insurance group if the information
21is made public. It is the intent of the Legislature that the ORSA
22Summary Report shall be a confidential document filed with the
23commissioner, that the ORSA Summary Report shall be shared
P3    1only as stated in this article to assist the commissioner in the
2performance of his or her duties, and that in no event shall the
3ORSA Summary Report be subject to public disclosure.

4

935.2.  

For purposes of this article, the following definitions
5apply:

6(a) For the purpose of conducting an ORSA, the term “insurance
7group” shall mean those insurers and affiliates included within an
8insurance holding company system as defined in subdivision (e)
9of Section 1215.

10(b) The term “insurer” shall have the same meaning as set forth
11in subdivision (f) of Section 1215, except that it shall not include
12agencies, authorities, or instrumentalities of the United States, its
13possessions and territories, the Commonwealth of Puerto Rico,
14the District of Columbia, or a state or political subdivision of a
15state.

16(c) An “Own Risk and Solvency Assessment” or “ORSA” means
17a confidential internal assessment that is appropriate to the nature,
18scale, and complexity of an insurer or insurance group, conducted
19by that insurer or insurance group, of the material and relevant
20risks associated with the insurer’s or insurance group’s current
21business plan and the sufficiency of capital resources to support
22those risks.

23(d) The term “ORSA Guidance Manual” means the current
24version of the Own Risk and Solvency Assessment Guidance
25Manual developed and adopted by the National Association of
26Insurance Commissioners (NAIC) and as amended from time to
27time. A change in the ORSA Guidance Manual shall be effective
28on the January 1 following the calendar year in which the changes
29have been adopted by the NAIC.

30(e) An “ORSA Summary Report” means a confidential
31high-level summary of an insurer’s or insurance group’s ORSA.

32

935.3.  

An insurer shall maintain a risk management framework
33to assist the insurer with identifying, assessing, monitoring,
34managing, and reporting on its material and relevant risks. This
35requirement may be satisfied if the insurance group of which the
36insurer is a member maintains a risk management framework
37applicable to the operations of the insurer.

38

935.4.  

Subject to Section 935.6, an insurer, or the insurance
39group of which the insurer is a member, shall regularly conduct
40an ORSA consistent with a process comparable to the ORSA
P4    1Guidance Manual. The ORSA shall be conducted no less than
2annually but also at any time when there are significant changes
3to the risk profile of the insurer or the insurance group of which
4the insurer is a member.

5

935.5.  

begin insert(a)end insertbegin insertend insert Upon the commissioner’s request, and no more
6than once each year, an insurer shall submit to the commissioner
7an ORSA Summary Report or any combination of reports that
8together contain the information described in the ORSA Guidance
9Manual, applicable to the insurer or the insurance group of which
10it is a member. Notwithstanding any request from the
11commissioner, if the insurer is a member of an insurance group,
12the insurer shall submit the report or reports required by this
13subdivision only if the commissioner is the lead state commissioner
14of the insurance group as determined by the procedures within the
15Financial Analysis Handbook adopted by the NAIC.

16(b) The report shall include a signature of the insurer’s or
17insurance group’s chief risk officer or other executive having
18responsibility for the oversight of the insurer’s enterprise risk
19management process, attesting to the best of his or her belief and
20knowledge that the insurer applies the enterprise risk management
21process described in the ORSA Summary Report and that a copy
22of the report has been provided to the insurer’s board of directors
23or the appropriate committee thereof.

24(c) An insurer may comply with subdivision (a) by providing
25the most recent and substantially similar report provided by the
26insurer, or by another member of an insurance group of which the
27insurer is a member, to the commissioner of another state, or to a
28supervisor or regulator of a foreign jurisdiction, provided that the
29report provides information that is comparable to the information
30described in the ORSA Guidance Manual. A report in a language
31other than English shall be accompanied by a translation of that
32report into the English language.

33

935.6.  

(a) An insurer shall be exempt from the requirements
34of this article if both of the following apply:

35(1) The insurer has annual direct written and unaffiliated
36assumed premiums, including international direct and assumed
37premiums, but excluding premiums reinsured with the Federal
38Crop Insurance Corporation and Federal Flood Program, less than
39five hundred million dollars ($500,000,000).

P5    1(2) The insurance group of which the insurer is a member has
2annual direct written and unaffiliated assumed premiums, including
3international direct and assumed premiums, but excluding
4premiums reinsured with the Federal Crop Insurance Corporation
5and Federal Flood Program, less than one billion dollars
6($1,000,000,000).

7(b) If an insurer qualifies for exemption pursuant to paragraph
8(1) of subdivision (a), but the insurance group of which the insurer
9is a member does not qualify for exemption pursuant to paragraph
10(2) of subdivision (a), then the ORSA Summary Report that may
11be required pursuant to Section 935.5 shall include every insurer
12within the insurance group. This requirement may be satisfied by
13the submission of more than one ORSA Summary Report for any
14combination of insurers provided any combination of reports
15includes every insurer within the insurance group.

16(c) If an insurer does not qualify for exemption pursuant to
17paragraph (1) of subdivision (a), but the insurance group of which
18it is a member qualifies for exemption pursuant to paragraph (2)
19of subdivision (a), the only ORSA Summary Report that may be
20required pursuant to Section 935.5 shall be the report applicable
21to that insurer.

22(d) An insurer that does not qualify for exemption pursuant to
23subdivision (a) may apply to the commissioner for a waiver from
24the requirements of this article based upon unique circumstances.
25In deciding whether to grant the insurer’s request for waiver, the
26commissioner may consider the type and volume of business
27written, ownership and organizational structure of the insurer or
28insurance group, and any other factor the commissioner considers
29relevant to the insurer or insurance group of which the insurer is
30a member. If the insurer is part of an insurance group with insurers
31domiciled in more than one state, the commissioner shall coordinate
32with the lead state commissioner and with the other domiciliary
33commissioners in considering whether to grant the insurer’s request
34for a waiver.

35(e) Notwithstanding the exemptions stated in this section, the
36 commissioner may do either one or both of the following:

37(1) The commissioner may require that an insurer maintain a
38risk management framework, conduct an ORSA, and file an ORSA
39Summary Report based on unique circumstances, which include,
40but are not limited to, the type and volume of business written,
P6    1ownership and organizational structure, federal agency requests,
2and international supervisor requests.

3(2) The commissioner may require that an insurer maintain a
4risk management framework, conduct an ORSA, and file an ORSA
5Summary Report if the insurer (A) has Risk-Based Capital for a
6Company Action Level Event as described in Section 739.3, (B)
7meets one or more of the standards of an insurer that may be
8determined to be in hazardous financial condition as provided in
9Article 14.5 (commencing with Section 1065.1), and in regulations,
10or (C) otherwise exhibits qualities of a troubled insurer as
11 determined by the commissioner.

12(f) If an insurer that qualifies for an exemption pursuant to
13subdivision (a) subsequently no longer qualifies for that exemption
14due to changes in premiums as reflected in the insurer’s most recent
15annual statement or in the most recent annual statements of the
16insurers within the insurance group of which the insurer is a
17member, the insurer shall have one year following the year the
18threshold in subdivision (a) is exceeded to comply with the
19requirements of this article.

20

935.7.  

(a) The ORSA Summary Report shall be prepared
21consistent with the ORSA Guidance Manual, subject to the
22requirements of this section. Documentation and supporting
23information shall be maintained and made available upon
24examination or upon request of the commissioner.

25(b) The commissioner shall review the ORSA Summary Report
26submitted pursuant to Section 935.5 and any additional requests
27for information, using procedures similar to those currently used
28in the analysis and examination of multistate or global insurers
29and insurance groups.

30

935.8.  

(a) Documents, materials, or other information,
31including the ORSA Summary Report, in the possession of or
32control of the Department of Insurance that are obtained by, created
33by, or disclosed to the commissioner or any other person under
34this article, are recognized by this state as being proprietary and
35contain trade secrets. These documents, materials, or other
36information shall be confidential by law and privileged, shall not
37be subject to disclosure pursuant to the California Public Records
38Act (Chapter 3.5 (commencing with Section 6250) of Division 7
39of Title 1 of the Government Code), and shall not be subject to
40subpoena or discovery, or admissible in evidence, in any private
P7    1civil action. However, the commissioner is authorized to use those
2documents, materials, or other information in the furtherance of
3any regulatory or legal action brought as a part of the
4commissioner’s official duties. The commissioner shall not
5otherwise make those documents, materials, or other information
6public without the prior written consent of the insurer.

7(b) Neither the commissioner nor any other person who received
8documents, materials, or other ORSA-related information,
9including the ORSA Summary Report, through examination or
10otherwise, while acting under the authority of the commissioner,
11or with whom those documents, materials, or other information
12are shared pursuant to this article, shall be permitted or required
13to testify in any private civil action concerning those confidential
14documents, materials, or information, subject to subdivision (a).

15(c) In order to assist in the performance of the commissioner’s
16regulatory duties, the commissioner:

17(1) May, upon request, share documents, materials, or other
18ORSA-related information, including the confidential and
19privileged documents, materials, or information subject to
20subdivision (a), including proprietary and trade secret documents
21and materials, with other state, federal, and international financial
22regulatory agencies, including members of any supervisory college
23as described in Section 1215.7, with the NAIC, and with any
24third-party consultants designated by the commissioner, provided
25that the recipient agrees in writing to maintain the confidentiality
26and privileged status of the ORSA-related documents, materials,
27or other information and has verified in writing the legal authority
28to maintain confidentiality.

29(2) May receive documents, materials, or other ORSA-related
30information, including otherwise confidential and privileged
31documents, materials, or information, including proprietary and
32begin delete trade-secretend deletebegin insert trade secretend insert information or documents, from regulatory
33officials of other foreign or domestic jurisdictions, including
34members of any supervisory college as described in Section 1215.7,
35and from the NAIC, and shall maintain as confidential or privileged
36any documents, materials, or information received with notice or
37the understanding that it is confidential or privileged under the
38laws of the jurisdiction that is the source of the document, material,
39or information.

P8    1(3) Shall enter into a written agreement with the NAIC or a
2third-party consultant governing the sharing and the use of
3information provided pursuant to this article, consistent with this
4subdivision that shall do all of the following:

5(A) Specify procedures and protocols regarding the
6confidentiality and security of information shared with the NAIC
7or a third-party consultant pursuant to this article, including
8procedures and protocols for sharing by the NAIC with other state
9regulators from states in which the insurance group has domiciled
10insurers. The agreement shall provide that the recipient agrees in
11writing to maintain the confidentiality and privileged status of the
12ORSA-related documents, materials, or other information and has
13verified in writing the legal authority to maintain confidentiality.

14(B) Specify that ownership of information shared with the NAIC
15or a third-party consultant pursuant to this article remains with the
16commissioner and that the NAIC’s or a third-party consultant’s
17use of the information is subject to the direction of the
18commissioner.

19(C) Prohibit the NAIC or third-party consultant from storing
20the information shared pursuant to this article in a permanent
21 database after the underlying analysis is completed.

22(D) Require prompt notice to be given to an insurer whose
23confidential information in the possession of the NAIC or a
24third-party consultant pursuant to this article when that information
25is subject to a request or subpoena to the NAIC or a third-party
26consultant for disclosure or production.

27(E) Require the NAIC or a third-party consultant to consent to
28intervention by an insurer in any judicial or administrative action
29in which the NAIC or a third-party consultant may be required to
30disclose confidential information about the insurer shared with the
31NAIC or a third-party consultant pursuant to this article.

32(F) In the case of an agreement involving a third-party
33consultant, provide for the insurer’s written consent.

34(d) The sharing of information and documents by the
35commissioner pursuant to this article shall not constitute a
36delegation of regulatory authority or rulemaking, and the
37commissioner is solely responsible for the administration,
38execution, and enforcement of the provisions of this article.

39(e) No waiver of any applicable privilege or claim of
40confidentiality in the documents, proprietary and trade-secret
P9    1materials, or other ORSA-related information shall occur as a result
2of disclosure ofbegin delete suchend deletebegin insert theend insert ORSA-related information or documents
3to the commissioner under this section or as a result of sharing as
4authorized in this article.

5(f) Documents, materials, or other information in the possession
6or control of the NAIC or a third-party consultant pursuant to this
7article shall be confidential by law and privileged, shall not be
8 subject to disclosure pursuant to the California Public Records Act
9(Chapter 3.5 (commencing with Section 6250) of Division 7 of
10Title 1 of the Government Code), and shall not be subject to
11subpoena or discovery, or admissible in evidence, in any private
12civil action.

13

935.9.  

Any insurer failing, without just cause, to timely file
14the ORSA Summary Report as required in this article shall be
15subject to the late filing fees set forth in Section 924. The
16commissioner may reduce the penalty if the insurer demonstrates
17to the commissioner that the imposition of the penalty would
18constitute a financial hardship to the insurer.

19

935.10.  

If any provision of this article, or the application thereof
20to any person or circumstance, is held invalid, that determination
21shall not affect the provisions or applications of this article that
22can be given effect without the invalid provision or application,
23and to that end the provisions of this article are severable.

24

935.11.  

This article shall become operative on January 1, 2015.



O

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