BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 584
                                                                  Page  1

          Date of Hearing:   April 10, 2013

                           ASSEMBLY COMMITTEE ON INSURANCE
                                Henry T. Perea, Chair
                 AB 584 (Perea & Cooley) - As Amended:  April 2, 2013
           
          SUBJECT  :   Insurance: Own Risk Solvency Assessment (ORSA)

           SUMMARY  :   Implements a model law adopted by the National  
          Association of Insurance Commissioners (NAIC) requiring  
          insurance companies to implement and report on risk management  
          practices.  Specifically,  this bill  :  

          1)Finds and declares that the reports required by this bill  
            contain sensitive, proprietary, and trade secret information  
            that shall not be subject to public disclosure.

          2)Defines "insurance group" as insurers and affiliated companies  
            within an insurance holding company system.

          3)Exempts insurers that are agencies, authorities, or  
            instrumentalities of the United States government, state  
            governments, or political subdivisions of a state government.

          4)Defines an ORSA summary report as:

               a)     an assessment of the material and relevant risks  
                 associated with an insurer's business plan, and 
               b)     a determination of whether the insurer has  
                 sufficient capital to support those risks.

          5)Requires insurers to maintain a risk management system to  
            identify, assess, monitor, manage, and report on material and  
            relevant risks.  

          6)Requires insurers to conduct an ORSA and submit it to the  
            Insurance Commissioner (Commissioner) at least annually.

          7)Requires the insurer's chief risk officer to attest that the  
            ORSA summary report accurately describes the risk management  
            process and that a copy of the report has been provided to the  
            insurer's board of directors.

          8)Exempts insurers from the bill if the insurer has less than  
            $500 million per year in premium and is part of an insurance  








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            group with less than $1 billion per year in premium.

          9)Requires an insurer with less than $500 million per year in  
            premium that is part of an insurance group with more than $1  
            billion per year in premium to include an ORSA report for  
            every insurer in the group.

          10)Requires an insurer with more than $500 million per year in  
            premium that is part of a group with less than $1 billion per  
            year in premium to file an ORSA report only for the insurer.

          11)Permits an insurer to request the Commissioner to grant a  
            waiver from complying with ORSA.

          12)Permits the Commissioner to require any insurer to comply  
            with ORSA based on unique circumstances that include the type  
            and volume of business written, ownership and organizational  
            structure, federal agency requests, and requests from  
            international regulators.

          13)Permits the Commissioner to require any insurer that fails to  
            meet risk based capital requirements or otherwise exhibits  
            qualities of a troubled insurer to maintain a risk management  
            framework, conduct an ORSA, and submit an ORSA summary report.  
             

          14)Requires the ORSA summary report submitted to the  
            Commissioner to be prepared consistent with the guidelines  
            issued by NAIC.

          15)Provides that the ORSA summary report and any related  
            documentation held by the Commissioner contains proprietary  
            information and those materials are confidential and are not:

               a)     subject to disclosure through the California Public  
                 Records Act;
                  
               b)     subject to subpoena;

               c)     subject to discovery in any civil proceeding; and

               d)     admissible in any civil proceeding.  

          16)Permits the Commissioner to use the ORSA summary report and  
            any related documentation in a regulatory or legal proceeding  








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            related to the Commissioner's official duties.

          17)Requires the Commissioner to obtain consent from the insurer  
            before making the ORSA summary report and any related  
            materials public.

          18)Permits the Commissioner to share the ORSA summary report and  
            related documents with other state, federal, and international  
            regulatory agencies and the NAIC if the recipient agrees to  
            maintain the confidentiality of the documents.

          19)Permits the Commissioner to receive confidential ORSA  
            documents from other regulatory agencies and permits the  
            Commissioner to agree to preserve the confidentiality of those  
            documents.

          20)Requires the Commissioner to enter into a written agreement  
            with any consultant to the NAIC prior to sharing any ORSA  
            related documents and requires that agreement to contain  
            specific provisions.

          21)Requires insurers that fail to submit their ORSA summary  
            report to the Commissioner in a timely manner to pay a late  
            filing fee.  

          22)Provides that the bill takes effect on January 1, 2015.

           

          EXISTING LAW  :

          1)Regulates the business of insurance and authorizes the  
            commissioner to provide oversight over the insurance industry.

          2)Establishes the Insurance Holding Company Systems Act which  
            requires insurers authorized to do business in this state that  
            are part of a holding company system to register with the  
            commissioner.

          3)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.

           FISCAL EFFECT  :   Unknown








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           COMMENTS  :   

           1)Purpose  .  According to the sponsor, the near collapse of the  
            American International Group (AIG) during the 2008 economic  
            crisis revealed the need for insurers and insurance groups to  
            better evaluate their risks.  In response, the NAIC adopted  
            the ORSA model law to establish regulatory oversight needed to  
            assess an insurer's or insurance group's ability to weather  
            severe economic stress.  This bill protects consumers by  
            helping to make sure insurers and insurance groups do not  
            collapse as other financial institutions did in the 2008  
            economic crisis.  It establishes enhanced risk management  
            practices and provides the Commissioner access to information  
            to better understand the risks to which an insurer or  
            insurance group is exposed.  It is likely that implementing  
            the ORSA model law will be required for state insurance  
            departments to retain NAIC accreditation.

           2)AIG  .  AIG is a large international financial services firm  
            with a presence in many insurance markets.  The firm faced  
            financial collapse in 2008 stemming from massive losses  
            connected to the purchase of credit default swaps (an  
            insurance-like financial product) by one of its a banking  
            arms.  The U.S. government ultimately provided $182.3 billion  
            to AIG (all of which was subsequently repaid along with a  
            $22.7 billion profit to the U.S. government) because of  
            concerns that a collapse of AIG would have worsened the  
            financial crisis and possibly caused the collapse of other  
            major financial services firms.

           3)NAIC Accreditation  .  Accreditation is given to a state  
            insurance department once it has demonstrated it has met and  
            continues to meet an assortment of legal, financial and  
            organizational standards established by the NAIC.   
            Accreditation allows for inter-state regulatory cooperation  
            and reduces regulatory redundancies.  For instance, if a  
            company is domiciled in an accredited state, the other states  
            in which that company is licensed and/or writes business may  
            be assured that, because of its accredited status, the  
            domiciliary state is adequately monitoring the financial  
            solvency of that company.  In fact, other state insurance  
            commissioners can accept the examination report prepared by  
            another accredited insurance department in lieu of performing  
            its own financial examination which ultimately saves millions  








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            of dollars in duplicative regulatory costs.  This uniformity  
            and cooperation allows for insurers to operate efficiently in  
            multiple states. 

           
          REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Department of Insurance (sponsor)
          America's Health Insurance Plan
          Association of California Insurance Companies
          Pacific Compensation Insurance Company

           Opposition 
           
          None available
           
          Analysis Prepared by  :    Paul Riches / INS. / (916) 319-2086