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
FN: 0001761