BILL ANALYSIS Ó
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