BILL ANALYSIS                                                                                                                                                                                                    Ó


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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  

          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,  

             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.



                                                                     AB 584

          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  

          13.Permits an insurer to request the Commissioner to grant a  
             waiver from complying with ORSA based upon unique  

          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  

          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  

          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.  



                                                                     AB 584

          24.Provides that this bill takes effect on January 1, 2015.

           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  

           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  

           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, Chávez, 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 Hernández, Jones,  
            Jones-Sawyer, Levine, Linder, Lowenthal, Maienschein, Mansoor,  
            Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi,  
            Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel  
            Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone,  
            Ting, Torres, Wagner, Weber, Wieckowski, Wilk, Williams,  
            Yamada, John A. Pérez
          NO VOTE RECORDED:  Donnelly, Holden, Logue, Waldron, Vacancy

          AL:k  8/13/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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