BILL ANALYSIS �
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THIRD READING
Bill No: AB 584
Author: Perea (D) and Cooley (D)
Amended: 6/27/13 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 9-0, 6/26/13
AYES: Calderon, Gaines, Corbett, Correa, Knight, Lieu, Nielsen,
Roth, Torres
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 75-0, 5/9/13 (Consent) - See last page for vote
SUBJECT : Insurance: risk and solvency assessment
SOURCE : Department of Insurance
DIGEST : This bill requires insurers with annual premiums
greater than $500 million and insurance groups with annual
premiums greater than $1 billion to maintain a comprehensive
risk management framework to identify, assess, and manage
material and relevant risks. This bill also requires the
qualifying insurer or insurance group to file an Own Risk and
Solvency Assessment (ORSA) report annually with the Insurance
Commissioner (Commissioner) detailing the risks identified and
the sufficiency of its capital to support the risks.
ANALYSIS :
Existing law:
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1. 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 (NAIC) a copy of its
annual statement convention blank, along with any additional
filings as prescribed by the Commissioner for the preceding
year.
2. 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:
1. Finds and declares that the reports required by this bill
contain sensitive, proprietary, and trade secret information
that are not 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 as:
A. A confidential internal 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. Defines "ORSA Guidance Manual" as the current version of the
ORSA Assessment Guidance Manual developed and adopted by the
NAIC and as amended from time to time.
6. Defines "ORSA Summary Report" as a confidential high-level
summary of an insurer's or insurance group's ORSA.
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7. Requires insurers to conduct an ORSA at least annually or
when there are significant changes to the risk profile of the
insurer or group.
8. Requires the insurer to submit an ORSA Summary Report on
request by the commissioner or a regulator of another
jurisdiction as provided.
9. Requires the 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.
10.Exempts insurers from this bill if the insurer has less than
$500 million per year in premiums and is part of an insurance
group with less than $1 billion per year in premiums.
11.Requires an insurer with less than $500 million per year in
premiums that is part of an insurance group with more than $1
billion per year in premiums to include an ORSA report for
every insurer in the group.
12.Requires an insurer with more than $500 million per year in
premiums that is part of a group with less than $1 billion
per year in premiums to file an ORSA report only for the
insurer.
13.Permits an insurer to request the Commissioner to grant a
waiver from complying with ORSA based upon unique
circumstances.
14.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.
15.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.
16.Requires the ORSA Summary Report submitted to the
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Commissioner to be prepared consistent with the guidelines
issued by NAIC.
17.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.
18.Permits the Commissioner to use the ORSA Summary Report and
any related documentation in a regulatory or legal proceeding
related to the Commissioner's official duties.
19.Requires the Commissioner to obtain consent from the insurer
before making the ORSA Summary Report and any related
materials public.
20.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.
21.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.
22.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.
23.Requires insurers that fail to submit their ORSA Summary
Report to the Commissioner in a timely manner to pay a late
filing fee.
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24.Provides that this bill takes effect on January 1, 2015.
Background
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. Other state
insurance regulators may accept the examination report prepared
by another accredited insurance department in lieu of performing
its own financial examination avoiding duplicative regulatory
costs. Uniformity and cooperation allows insurers to operate
efficiently in multiple states. It is anticipated that adoption
of the ORSA model law will become a requirement for state
insurance departments to retain NAIC accreditation.
ORSA . According to the NAIC, an ORSA will require insurers to
analyze all reasonably foreseeable and relevant material risks
(including credit, operational, and liquidity risks, as well as
others) that could have an impact on an insurer's ability to
meet its policyholder obligations. Insurers and insurance
groups would be required to articulate their own judgment about
risk management and the adequacy of their capital position.
ORSA is intended to encourage management to anticipate potential
capital needs and take early action if necessary. ORSA is
proposed as a continuous process and as a fundamental part of
the risk management system for an insurer.
ORSA Guidance Manual and Summary Report . The ORSA Guidance
Manual provides information for insurers on performing its ORSA
and documenting risk policies and procedures. The Manual is
deliberately nonprescriptive and allows each insurer to decide
how to conduct the ORSA. Results and contents of an ORSA report
will vary from company to company.
The ORSA Summary Report should demonstrate that each entity's
capital is sufficient to cover the risks inherent in the
entity's business plan by describing the insurer's (1) risk
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management framework; (2) assessment of risk exposure (include
detail showing the insurers' process for assessing risks in both
normal and stressed environments; and (3) group risk capital and
prospective solvency demonstrating that current and future
capital is sufficient to support the identified risks.
If the insurer does not have the necessary capital to meet its
current or projected risk capital requirement, then the Report
should also include a description of the management actions it
has taken (or will take) to remediate any capital adequacy
concerns.
Prior legislation . SB 1448 (Calderon, Chapter 282, Statutes of
2012) adopted revisions to the NAIC Insurance Holding Company
System Regulatory Act and required the ultimate controlling
person of every insurance holding company system to file an
annual enterprise risk report identifying potential enterprise
risks to the insurer.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/6/13)
Department of Insurance (source)
America's Health Insurance Plan
Association of California Insurance Companies
Pacific Compensation Insurance Company
ARGUMENTS IN SUPPORT : The sponsor of this bill, the
Department of Insurance, argues that this bill protects
insurance consumers by helping to make sure insurers and
insurance groups do not collapse like big banks in 2008. This
bill establishes enhanced risk management requirements and
provides the Commissioner access to information to better
understand the risks to which an insurer or insurance group is
exposed.
ASSEMBLY FLOOR : 75-0, 5/9/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Ch�vez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,
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Grove, Hagman, Hall, Harkey, Roger Hern�ndez, Jones,
Jones-Sawyer, Levine, Linder, Lowenthal, Maienschein, Mansoor,
Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi,
Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel
P�rez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone,
Ting, Torres, Wagner, Weber, Wieckowski, Wilk, Williams,
Yamada, John A. P�rez
NO VOTE RECORDED: Donnelly, Holden, Logue, Waldron, Vacancy
AL:k 8/13/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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