BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 584
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        CONCURRENCE IN SENATE AMENDMENTS
        AB 584 (Perea and Cooley)
        As Amended  June 27, 2013
        Majority vote
         
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        |ASSEMBLY:  |75-0 |(May 9, 2013)   |SENATE: |37-0 |(August 19,    |
        |           |     |                |        |     |2013)          |
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         Original Committee Reference:    INS.  

         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 Own Risk Solvency Assessment (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 describe the risk management process and  








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          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 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.  









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        16)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.

        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  :   According to the Senate Appropriations Committee,  
        pursuant to Senate Rule 28.8, negligible state costs. 









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









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        Analysis Prepared by  :    Paul Riches / INS. / (916) 319-2086


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