Amended in Senate August 18, 2014

Amended in Senate June 16, 2014

Amended in Assembly March 18, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2734

Introduced by Committee on Insurance (Assembly Members Perea (Chair), Hagman (Vice Chair), Bradford, Ian Calderon, Cooley, Dababneh, Frazier, Gonzalez, Nestande, V. Manuel Pérez, and Wieckowski)

February 25, 2014

An act to amend Sections 922.4, 922.41, 927.2, 1775.1, 10505.1, and 11628 of the Insurance Code, to amend Sections 12251 and 12260 of the Revenue and Taxation Code, and to amend Section 38750 of the Vehicle Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2734, as amended, Committee on Insurance. Insurance: omnibus.

(1) Existing law requires every surplus line broker whose annual tax for the preceding calendar year was $5,000 or more to make monthly installment payments on account of the annual tax on business done during the calendar year, and authorizes the Insurance Commissioner to relieve a surplus line broker of his or her obligations to make monthly payments if the broker establishes to the commissioner’s satisfaction that he or she has ceased to transact business in the state, or his or her annual tax for the current year will be less than $5,000.

This bill would raise the threshold for making monthly installment payments to $20,000 or more in annual tax for the preceding calendar year, and would authorize the commissioner to relieve a surplus line broker of his or her obligations to make monthly payments if his or her annual tax for the current year would be less than $20,000.

(2) Existing law exempts nonprofit cooperative assessment associations whose membership and insurance are restricted to members of a labor union from provisions relating to the supervision or regulation of insurance with respect to the provision of job protection benefits to their members. Existing law also prohibits these associations from being a member of the California Insurance Guarantee Association for the purpose of providing insolvency insurance to each member.

This bill would provide that the job protection benefits may include accidental death benefits. The bill would prohibit these associations from being a member of any insurance guaranty association in this state and would require each policy issued in this state pursuant to these provisions to contain a specified notice.

(3) Existing law prohibits, among other things, an admitted insurer that is licensed to issue and is issuing motor vehicle liability policies from failing or refusing to accept an application for that insurance, failing or refusing to issue that insurance to the applicant, or from issuing or canceling that insurance under conditions less favorable to the insured than in other comparable cases because of specified reasons, including, but not limited to, discrimination between persons within the same geographic area. Existing law prohibits the admitted motor vehicle liability insurer from using specified characteristics, including, but not limited to, location within a geographic area, in and of itself, as a condition or risk for which a higher rate, premium, or charge is required of the insured for that insurance. Existing law also requires an admitted insurer, licensed to issue and issuing motor vehicle liability policies, motor vehicle physical damage policies, or both, to submit annually to the commissioner a record of loss experience, as specified, for the geographic area, as defined, including statistical data by ZIP Code area. An insurer may satisfy its obligation to report statistical data by providing its loss experience data and statewide expense ratio and combined ratio on its assigned-risk business to a rating or advisory organization for submission to the commissioner. This data is required to be made public by the commissioner annually after examination.

This bill would instead require an insured to submit the record of loss experience for the geographic area biennially. The bill would also require statewide summary data to be submitted to the commissioner annually. The bill would also require that the reported data be made available to the public biennially.

(4) Existing law requires insurers transacting insurance in this state whose annual tax for the preceding calendar year was $5,000 or more to make prepayments of the annual tax for the current calendar year, except as provided. The commissioner is authorized to relieve an insurer of its obligations to make prepayments if the insurer establishes to the commissioner’s satisfaction that the insurer has ceased to transact business in the state, or the insurer’s annual tax for the current year will be less than $5,000.

This bill would raise the threshold for making tax prepayments to $20,000 or more in annual tax for the preceding calendar year, and would authorize the commissioner to relieve an insurer of its obligations to make prepayments if the insurer’s annual tax for the current year would be less than $20,000.

(5) Existing law requires every insurer doing business in this state to make and file with the Insurance Commissioner financial statements exhibiting its condition and affairs as of the previous year.

Existing law requires credit for reinsurance be allowed for a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets specified requirements, including, but not limited to, when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution, as defined, for the payment of the valid claims of its United States ceding insurers, their assigns, and successors in interest. Existing law requires that at any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least 3 full years, the commissioner may authorize a reduction in the required trusteed surplus, as provided, and the minimum required trusteed surplus may not be reduced to an amount less than 50% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

This bill would authorize the trusteed surplus to be reduced to not less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust if the commissioner expressly finds that appropriate circumstances justify a lower level of minimum required begin delete trustee end delete begin insert trusteed end insert surplus.

Existing law requires that credit be allowed for a domestic insurer when the reinsurance is ceded to an assuming insurer that has been certified by the commissioner as a reinsurer in this state and secures its obligations in accordance with certain requirements. The commissioner is required to post a notice on the department’s Internet Web site promptly upon receipt of any application for certification, including instructions on how members of the public may respond to the application, and the commissioner is prohibited from taking final action on the application until at least 90 days after posting the required notice.

This bill would reduce the period during which the commissioner is prohibited from taking final action on the application to 30 days after posting the required notice.

(6) Existing law, except as provided, prohibits an autonomous vehicle, as defined, from being operated on public roads until the manufacturer submits an application to the Department of Motor Vehicles, and that application is approved by the department. The application is required to contain, at a minimum, specified certifications, including, but not limited to, a certification that the manufacturer will maintain a surety bond or proof of self-insurance in an amount of $5,000,000.

This bill would provide that the $5,000,000 in coverage may also be in the form of an instrument of insurance.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 922.4 of the Insurance Code is amended
to read:

922.4.  

Credit for reinsurance shall be allowed a domestic ceding
insurer as either an asset or a deduction from liability on account
of reinsurance ceded only when the reinsurer meets the
requirements of subdivision (a), (b), (c), (d), or (e). Credit shall
be allowed under subdivision (a), (b), or (c) only for cessions of
those kinds or classes of business that the assuming insurer is
licensed or otherwise permitted to write or assume in its state of
domicile or, in the case of a United States branch of an alien
assuming insurer, in the state through which it is entered and
licensed to transact insurance or reinsurance.

(a) Credit shall be allowed when the reinsurance is ceded to an
assuming insurer that is licensed to transact insurance or
reinsurance in this state unless the assuming insurer is the subject
of a regulatory order or regulatory oversight by any state in which
it is licensed based upon a commissioner’s determination that the
assuming insurer is in a hazardous financial condition.

(b) (1) Credit shall be allowed when the reinsurance is ceded
to an assuming insurer that is accredited as a reinsurer in this state
unless the assuming insurer is the subject of a regulatory order or
regulatory oversight by any state in which it is licensed based upon
a commissioner’s determination that the assuming insurer is in a
hazardous financial condition. An accredited reinsurer is one that
does all of the following:

(A) Files with the commissioner evidence of its submission to
this state’s jurisdiction.

(B) Submits to this state’s authority to examine its books and
records.

(C) Designates the commissioner or a designated attorney in
this state as its true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by
or on behalf of the ceding insurer.

(D) Is licensed to transact insurance or reinsurance in at least
one state, or in the case of a United States branch of an alien
assuming insurer, is entered through and licensed to transact
insurance or reinsurance in at least one state.

(E) Files annually with the commissioner a copy of its annual
statement filed with the insurance department of its state of
domicile and a copy of its most recent audited financial statement
and other financial information requested by the commissioner.

(F) Submits a statement, signed and verified by an officer of
the assuming insurer to be true and correct, that discloses whether
the assuming insurer or any affiliated person who owns or has a
controlling interest in the assuming insurer is currently known to
be the subject of any of the following:

(i) Any order or proceeding regarding conservation, liquidation,
or receivership.

(ii) Any order or proceeding regarding the revocation or
suspension of a license or accreditation to transact insurance or
reinsurance in any jurisdiction.

(iii) Any order or proceeding brought by an insurance regulator
in any jurisdiction seeking to restrict or stop the assuming insurer
from transacting insurance or reinsurance based upon a hazardous
financial condition.

The assuming insurer shall provide the commissioner with copies
of any orders or other documents initiating proceedings subject to
disclosure under this paragraph. The statement shall affirm that
no actions, proceedings, or orders subject to this subparagraph are
outstanding against the assuming insurer or any affiliated person
who owns or has a controlling interest in the assuming insurer,
except as disclosed in the statement.

(G) Demonstrates to the satisfaction of the commissioner that
it has adequate financial capacity to meet its reinsurance obligations
and is otherwise qualified to assume reinsurance from domestic
insurers. An assuming insurer is deemed to meet this requirement
if it maintains a surplus as regards policyholders in an amount that
is not less than twenty million dollars ($20,000,000) and whose
accreditation has not been denied by the commissioner within 90
days of its submission. An assuming insurer who is not deemed
to meet this requirement shall obtain the affirmative approval of
the commissioner. The approval of the commissioner shall be
based upon a finding that the assuming insurer has adequate
financial capacity to meet its reinsurance obligations and is
otherwise qualified to assume reinsurance from domestic insurers.

(2) The commissioner may deny or revoke an assuming insurer’s
accreditation if the assuming insurer does not meet all of the
standards required of an accredited reinsurer, or if its accreditation
would be hazardous to the policyholders of this state. In
determining whether to deny or revoke accreditation, the
commissioner may consider the qualifications of the assuming
insurer with respect to all the following subjects:

(A) Its financial stability.

(B) The lawfulness and quality of its investments.

(C) The competency, character, and integrity of its management.

(D) The competency, character, and integrity of persons who
own or have a controlling interest in the assuming insurer.

(E) Whether claims under its contracts are promptly and fairly
adjusted and are promptly and fully paid in accordance with the
law and the terms of the contracts.

(3) Credit shall not be allowed a domestic ceding insurer if the
assuming insurer’s accreditation has been revoked by the
commissioner after notice and hearing.

(c) Credit shall be allowed when the reinsurance is ceded to an
assuming insurer that has been certified by the commissioner
pursuant to Section 922.41.

(d) (1) Credit shall be allowed when the reinsurance is ceded
to an assuming insurer that maintains a trust fund in a qualified
United States financial institution as defined in subdivision (b) of
Section 922.7 for the payment of the valid claims of its United
States ceding insurers, their assigns, and successors in interest. To
enable the commissioner to determine the sufficiency of the trust
fund the assuming insurer shall report annually to the commissioner
information substantially the same as that required to be reported
on the NAIC Annual Statement form by licensed insurers or any
other form required by the NAIC.

(2) Credit for reinsurance shall not be granted under this
subdivision unless the form of the trust and any amendments to
the trust have been approved by either:

(A) The commissioner of the state where the trust is domiciled.

(B) The commissioner of another state who, pursuant to the
terms of the trust instrument, has accepted principal regulatory
oversight of the trust.

The trust and any trust amendments shall also be filed with the
commissioner of every state in which the ceding insurer
beneficiaries of the trust are domiciled. Notwithstanding the
foregoing, nothing in this paragraph shall prevent the commissioner
from disapproving the form of the trust if it is not in compliance
with this state’s laws and regulations.

(3) Credit for reinsurance shall not be granted under this
subdivision unless the following requirements are met:

(A) The trust instrument shall provide that contested claims
shall be valid, enforceable, and payable out of funds in trust to the
extent remaining unsatisfied 30 days after entry of the final order
of any court of competent jurisdiction in the United States.

(B) The trust shall vest legal title to its assets in the trustees of
the trust for the benefit of the grantor’s United States ceding
insurers, their assigns, and successors in interest.

(C) The trust and the assuming insurer shall be subject to
examination as determined by the commissioner.

(D) The trust shall remain in effect for as long as the assuming
insurer, or any member or former member of a group of insurers,
shall have outstanding obligations due under the reinsurance
agreements subject to the trust.

(E) No later than February 28 of each year, the trustees of the
trust shall report to the commissioner in writing setting forth the
balance of the trust and listing the trust’s investments at the
preceding yearend and shall certify the date of termination of the
trust, if so planned, or certify that the trust shall not expire within
the next 18 months.

(F) The assuming insurer shall do both of the following:

(i) Submit to the jurisdiction of any court of competent
jurisdiction in any state of the United States, comply with all
requirements necessary to give the court jurisdiction, and abide
by the final decision of the court or of any appellate court in the
event of an appeal.

(ii) Designate the commissioner or an attorney in this state as
its true and lawful agent upon whom may be served any lawful
process in any action, suit, or proceeding instituted by or on behalf
of the ceding insurer.

This subparagraph is not intended to conflict with or override
the obligation of the parties to a reinsurance agreement to arbitrate
their disputes, if this obligation is created in the agreement.

(G) The assuming insurer shall agree in the trust agreement that
notwithstanding any other provision in the trust instrument, if the
trust fund is inadequate because it contains an amount less than
the amount required by paragraph (4), or if the grantor of the trust
has been declared insolvent or placed into receivership,
rehabilitation, liquidation, or similar proceedings under the laws
of its state or country of domicile:

(i) The trustee shall comply with an order of the commissioner
with regulatory oversight over the trust or with an order of a court
of competent jurisdiction directing the trustee to transfer to the
commissioner with regulatory oversight all of the assets of the
trust fund.

(ii) The assets shall be distributed by, and insurance claims shall
be filed with and valued by, the commissioner with regulatory
oversight in accordance with the laws of the state in which the
trust is domiciled that are applicable to the liquidation of domestic
insurance companies.

(iii) If the commissioner with regulatory oversight determines
that the assets of the trust fund or any part thereof are not necessary
to satisfy the claims of the United States ceding insurers of the
grantor of the trust, the assets or part thereof shall be returned by
the commissioner with regulatory oversight to the trustee for
distribution in accordance with the trust agreement.

(iv) The grantor hereby waives any right otherwise available to
it under United States law that is inconsistent with this provision.

(4) The following requirements apply to the following categories
of assuming insurer:

(A) The trust fund for a single assuming insurer shall consist
of funds in trust in an amount not less than the assuming insurer’s
liabilities attributable to reinsurance ceded by United States
domiciled ceding insurers, and, in addition, the assuming insurer
shall maintain a trusteed surplus of not less than twenty million
dollars ($20,000,000), except as provided in subparagraph (B),
(C), or (D).

(B) In the case of a group including incorporated and individual
unincorporated underwriters:

(i) For reinsurance ceded under reinsurance agreements with
an inception, amendment, or renewal date on or after January 1,
1993, the trust shall consist of a trusteed account in an amount not
less than the respective underwriters’ several liabilities attributable
to business ceded by United States domiciled ceding insurers to
any underwriter of the group.

(ii) For reinsurance ceded under reinsurance agreements with
an inception date on or before December 31, 1992, and not
amended or renewed after that date, notwithstanding the other
provisions of this article, the trust shall consist of a trusteed account
in an amount not less than the respective underwriters’ several
insurance and reinsurance liabilities attributable to business written
in the United States.

(iii) In addition to the trusts required in clauses (i) and (ii), the
group shall maintain in trust a trusteed surplus of which one
hundred million dollars ($100,000,000) shall be held jointly for
the benefit of the United States domiciled ceding insurers of any
member of the group for all years of account.

(iv) The incorporated members of the group shall not be engaged
in any business other than underwriting as a member of the group
and shall be subject to the same level of regulation and solvency
control by the group’s domiciliary regulator as are the
unincorporated members.

(v) The group shall, within 90 days after its financial statements
are due to be filed with the group’s domiciliary regulator, provide
to the commissioner an annual certification by the group’s
domiciliary regulator of the solvency of each underwriter begin delete member;
or end delete begin insert member; or, end insert if a certification is unavailable, financial statements
prepared by independent public accountants of each underwriter
member of the group.

(C) In the case of a group of incorporated insurers under
common administration, the group shall meet all of the following
requirements:

(i) Have continuously transacted an insurance business outside
the United States for at least three years immediately prior to
making application for accreditation and be in good standing with
its domiciliary regulator.

(ii) Demonstrate that individual insurer members maintain
standards and financial conditions reasonably comparable to
admitted insurers.

(iii) Maintain aggregate policyholders’ surplus of at least ten
billion dollars ($10,000,000,000).

(iv) Maintain a trust fund in an amount not less than the group’s
several liabilities attributable to business ceded by United States
domiciled ceding insurers to any member of the group pursuant
to reinsurance contracts issued in the name of such group.

(v) In addition, maintain a joint trusteed surplus of which one
hundred million dollars ($100,000,000) shall be held jointly for
the benefit of United States ceding insurers of any member of the
group as additional security for these liabilities. The commissioner
shall have the authority to require additional amounts to be held
in the trust as a condition for initial or continued accreditation if
the commissioner determines that these additional amounts are
required for the protection of ceding insurers.

(vi) Within 90 days after its financial statements are due to be
filed with the group’s domiciliary regulator, make available to the
commissioner an annual certification of each underwriter member’s
solvency by the member’s domiciliary regulator, and financial
statements for each underwriter member of the group prepared by
its independent public accountant.

(D) At any time after the assuming insurer has permanently
discontinued underwriting new business secured by the trust for
at least three full years, the commissioner may authorize a
reduction in the required trusteed surplus, but only after a finding,
based on an assessment of the risk, that the new required surplus
level is adequate for the protection of United States ceding insurers,
policyholders, and claimants in light of reasonably foreseeable
adverse loss development. The risk assessment may involve an
actuarial review, including an independent analysis of reserves
and cashflows, and shall consider all material risk factors,
including, when applicable, the lines of business involved, the
stability of the incurred loss estimates, and the effect of the surplus
requirements on the assuming insurer’s liquidity or solvency. The
minimum required trusteed surplus may not be reduced to an
amount less than 50 percent of the assuming insurer’s liabilities
attributable to reinsurance ceded by United States ceding insurers
covered by the trust, unless the commissioner expressly finds that
appropriate circumstances justify a lower level of minimum
required trusteed surplus, provided the minimum required trusteed
surplus may not be reduced to an amount less than 30 percent of
the assuming insurer’s liabilities attributable to reinsurance ceded
by United States ceding insurers covered by the trust.

(e) Credit shall be allowed when the reinsurance ceded to an
assuming insurer not meeting the requirements of subdivision (a),
(b), (c), or (d), but only as to the insurance of risks located in
jurisdictions where the reinsurance is required by applicable law
or regulation of that jurisdiction. As used in this section,
“jurisdiction” means state, district, or territory of the United States
and any lawful national government.

SEC. 2.  

Section 922.41 of the Insurance Code is amended to
read:

922.41.  

(a) Credit shall be allowed a domestic insurer when
the reinsurance is ceded to an assuming insurer that has been
certified by the commissioner as a reinsurer in this state and secures
its obligations in accordance with the requirements of this section.
Credit shall be allowed at all times for which statutory financial
statement credit for reinsurance is claimed under this section. The
credit allowed shall be based upon the security held by or on behalf
of the ceding insurer in accordance with a rating assigned to the
certified reinsurer by the commissioner. The security shall be in
a form consistent with this section, any regulations promulgated
by the commissioner, and Section 922.5.

(b) In order to be eligible for certification, the assuming insurer
shall meet the following requirements:

(1) The assuming insurer shall be domiciled and licensed to
transact insurance or reinsurance in a qualified jurisdiction, as
determined by the commissioner pursuant to subdivisions (f) and
(g).

(2) The assuming insurer shall maintain minimum capital and
surplus, or its equivalent, in an amount to be determined by the
commissioner, but no less than two hundred fifty million dollars
($250,000,000) calculated in accordance with paragraph (4) of
subdivision (f) of this section or Section 922.5. This requirement
may also be satisfied by an association including incorporated and
individual unincorporated underwriters having minimum capital
and surplus equivalents (net of liabilities) of at least two hundred
fifty million dollars ($250,000,000) and a central fund containing
a balance of at least two hundred fifty million dollars
($250,000,000).

(3) The assuming insurer shall maintain financial strength ratings
from two or more rating agencies deemed acceptable by the
commissioner. These ratings shall be based on interactive
communication between the rating agency and the assuming insurer
and shall not be based solely on publicly available information.
These financial strength ratings will be one factor used by the
commissioner in determining the rating that is assigned to the
assuming insurer. Acceptable rating agencies include the following:

(A) Standard & Poor’s.

(B) Moody’s Investors Service.

(C) Fitch Ratings.

(D) A.M. Best Company.

(E) Any other nationally recognized statistical rating
organization.

(4) The assuming insurer shall agree to submit to the jurisdiction
of this state, appoint the commissioner or a designated attorney in
this state as its agent for service of process in this state, and agree
to provide security for 100 percent of the assuming insurer’s
liabilities attributable to reinsurance ceded by United States ceding
insurers if it resists enforcement of a final United States judgment.

(5) The assuming insurer shall agree to meet applicable
information filing requirements as determined by the commissioner,
both with respect to an initial application for certification and on
an ongoing basis.

(6) The certified reinsurer shall comply with any other
requirements deemed relevant by the commissioner.

(c) (1) If an applicant for certification has been certified as a
reinsurer in a National Association of Insurance Commissioners
(NAIC) accredited jurisdiction, the commissioner may defer to
that jurisdiction’s certification, and has the discretion to defer to
the rating assigned by that jurisdiction if the assuming insurer
submits a properly executed Form CR-1 (as published on the
department’s Internet Web site), and such additional information
as the commissioner requires. The commissioner, however, may
perform an independent review and determination of any applicant.
The assuming insurer shall then be considered to be a certified
reinsurer in this state.

(2) If the commissioner defers to a certification determination
by another state, any change in the certified reinsurer’s status or
rating in the other jurisdiction shall apply automatically in this
state as of the date it takes effect in the other jurisdiction unless
the commissioner otherwise determines. The certified reinsurer
shall notify the commissioner of any change in its status or rating
within 10 days after receiving notice of the change.

(3) The commissioner may withdraw recognition of the other
jurisdiction’s rating at any time and assign a new rating in
accordance with subdivision (h).

(4) The commissioner may withdraw recognition of the other
jurisdiction’s certification at any time, with written notice to the
certified reinsurer. Unless the commissioner suspends or revokes
the certified reinsurer’s certification in accordance with this section
and Section 922.42, the certified reinsurer’s certification shall
remain in good standing in this state for a period of three months,
which shall be extended if additional time is necessary to consider
the assuming insurer’s application for certification in this state.

(d) An association, including incorporated and individual
unincorporated underwriters, may be a certified reinsurer. In order
to be eligible for certification, in addition to satisfying requirements
of subdivision (b), the reinsurer shall meet all of the following
requirements:

(1) The association shall satisfy its minimum capital and surplus
requirements through the capital and surplus equivalents (net of
liabilities) of the association and its members, which shall include
a joint central fund that may be applied to any unsatisfied
obligation of the association or any of its members, in an amount
determined by the commissioner to provide adequate protection.

(2) The incorporated members of the association shall not be
engaged in any business other than underwriting as a member of
the association and shall be subject to the same level of regulation
and solvency control by the association’s domiciliary regulator as
are the unincorporated members.

(3) Within 90 days after its financial statements are due to be
filed with the association’s domiciliary regulator, the association
shall provide to the commissioner an annual certification by the
association’s domiciliary regulator of the solvency of each
underwriter member or, if a certification is unavailable, financial
statements, prepared by independent public accountants, of each
underwriter member of the association.

(e) (1) The commissioner shall post notice on the department’s
Internet Web site promptly upon receipt of any application for
certification, including instructions on how members of the public
may respond to the application. The commissioner shall not take
final action on the application until at least 30 days after posting
the notice required by this subdivision.

(2) The commissioner shall issue written notice to an assuming
insurer that has made application and has been approved as a
certified reinsurer. Included in that notice shall be the rating
assigned the certified reinsurer in accordance with subdivision (h).
The commissioner shall publish a list of all certified reinsurers and
their ratings.

(f) The certified reinsurer shall agree to meet applicable
information filing requirements as determined by the commissioner,
both with respect to an initial application for certification and on
an ongoing basis. All information submitted by certified reinsurers
that is not otherwise public information subject to disclosure shall
be exempted from disclosure under Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code,
and shall be withheld from public disclosure. The applicable
information filing requirements are as follows:

(1) Notification within 10 days of any regulatory actions taken
against the certified reinsurer, any change in the provisions of its
domiciliary license or any change in rating by an approved rating
agency, including a statement describing those changes and the
reasons for those changes.

(2) Annually, Form CR-F or CR-S, as applicable pursuant to
the instructions published on the department’s Internet Web site.

(3) Annually, the report of the independent auditor on the
financial statements of the insurance enterprise, on the basis
described in paragraph (4).

(4) Annually, audited financial statements, (audited United
States Generally Accepted Accounting Principles basis, if available,
audited International Financial Reporting Standards basis
statements are allowed, but must include an audited footnote
reconciling equity and net income to a United States Generally
Accepted Accounting Principles basis, or, with the written
permission of the commissioner, audited International Financial
Reporting Standards statements with reconciliation to United States
Generally Accepted Accounting Principles certified by an officer
of the company), regulatory filings, and actuarial opinion (as filed
with the certified reinsurer’s supervisor). Upon the initial
certification, audited financial statements for the last three years
filed with the certified reinsurer’s supervisor.

(5) At least annually, an updated list of all disputed and overdue
reinsurance claims regarding reinsurance assumed from United
States domestic ceding insurers.

(6) A certification from the certified reinsurer’s domestic
regulator that the certified reinsurer is in good standing and
maintains capital in excess of the jurisdiction’s highest regulatory
action level.

(7) Any other information that the commissioner may reasonably
require.

(g) If the commissioner certifies a non-United States domiciled
insurer, the commissioner shall create and publish a list of qualified
jurisdictions, under which an assuming insurer licensed and
domiciled in that jurisdiction is eligible to be considered for
certification by the commissioner as a certified reinsurer.

(1) In order to determine whether the domiciliary jurisdiction
of a non-United States assuming insurer is eligible to be recognized
as a qualified jurisdiction, the commissioner shall evaluate the
appropriateness and effectiveness of the reinsurance supervisory
system of the jurisdiction, both initially and on an ongoing basis,
and consider the rights, benefits, and the extent of reciprocal
recognition afforded by the non-United States jurisdiction to
reinsurers licensed and domiciled in the United States. The
commissioner shall determine the appropriate process for
evaluating the qualifications of those jurisdictions. Prior to its
listing, a qualified jurisdiction shall agree in writing to share
information and cooperate with the commissioner with respect to
all certified reinsurers domiciled within that jurisdiction. A
jurisdiction may not be recognized as a qualified jurisdiction if the
commissioner has determined that the jurisdiction does not
adequately and promptly enforce final United States judgments
and arbitration awards. Additional factors may be considered in
the discretion of the commissioner, including, but not limited to,
the following:

(A) The framework under which the assuming insurer is
regulated.

(B) The structure and authority of the domiciliary regulator with
regard to solvency regulation requirements and financial
surveillance.

(C) The substance of financial and operating standards for
assuming insurers in the domiciliary jurisdiction.

(D) The form and substance of financial reports required to be
filed or made publicly available by reinsurers in the domiciliary
jurisdiction and the accounting principles used.

(E) The domiciliary regulator’s willingness to cooperate with
United States regulators in general and the commissioner in
particular.

(F) The history of performance by assuming insurers in the
domiciliary jurisdiction.

(G) Any documented evidence of substantial problems with the
enforcement of final United States judgments in the domiciliary
jurisdiction.

(H) Any relevant international standards or guidance with
respect to mutual recognition of reinsurance supervision adopted
by the International Association of Insurance Supervisors or a
successor organization.

(I) Any other matters deemed relevant by the commissioner.

(2) The commissioner shall consider the list of qualified
jurisdictions published through the NAIC committee process in
determining qualified jurisdictions. The commissioner may include
on the list published pursuant to this begin delete section, end delete begin insert section end insert any
jurisdiction on the NAIC list of qualified begin delete jurisdictions, end delete begin insert jurisdictions end insert
or on any equivalent list of the United States Treasury.

(3) If the commissioner approves a jurisdiction as qualified that
does not appear on either the NAIC list of qualified jurisdictions,
or the United States Treasury list, the commissioner shall provide
thoroughly documented justification in accordance with criteria
to be developed under this section.

(4) United States jurisdictions that meet the requirements for
accreditation under the NAIC financial standards and accreditation
program shall be recognized as qualified jurisdictions.

(5) If a certified reinsurer’s domiciliary jurisdiction ceases to
be a qualified jurisdiction, the commissioner has the discretion to
suspend the reinsurer’s certification indefinitely, in lieu of
revocation.

(h) The commissioner shall assign a rating to each certified
reinsurer, giving due consideration to the financial strength ratings
that have been assigned by rating agencies deemed acceptable to
the commissioner pursuant to this section. The commissioner shall
publish a list of all certified reinsurers and their ratings.

(1) Each certified reinsurer shall be rated on a legal entity basis,
with due consideration being given to the group rating where
appropriate, except that an association including incorporated and
individual unincorporated underwriters that has been approved to
do business as a single certified reinsurer may be evaluated on the
basis of its group rating. Factors that may be considered as part of
the evaluation process include, but are not limited to, the following:

(A) The certified reinsurer’s financial strength rating from an
acceptable rating agency. The maximum rating that a certified
reinsurer may be assigned shall correspond to its financial strength
rating as set forth in clauses (i) to (vi), inclusive. The commissioner
shall use the lowest financial strength rating received from an
approved rating agency in establishing the maximum rating of a
certified reinsurer. A failure to obtain or maintain at least two
financial strength ratings from acceptable rating agencies shall
result in loss of eligibility for certification.

(i) Ratings category “Secure - 1” corresponds to A.M. Best
Company rating A++; Standard & Poor’s rating AAA; Moody’s
Investors Service rating Aaa; and Fitch Ratings rating AAA.

(ii) Ratings category “Secure - 2” corresponds to A.M. Best
Company rating A+; Standard & Poor’s rating AA+, AA, or AA-;
Moody’s Investors Service rating Aa1, Aa2, or Aa3; and Fitch
Ratings rating AA+, AA, or AA-.

(iii) Ratings category “Secure - 3” corresponds to A.M. Best
Company rating A; Standard & Poor’s rating A+ or A; Moody’s
Investors Service rating A1 or A2; and Fitch Ratings rating A+ or
A.

(iv) Ratings category “Secure - 4” corresponds to A.M. Best
Company rating A-; Standard & Poor’s rating A-; Moody’s
Investors Service rating A3; and Fitch Ratings rating A-.

(v) Ratings category “Secure - 5” corresponds to A.M. Best
Company rating B++ or B+; Standard & Poor’s rating BBB+,
BBB, or BBB-; Moody’s Investors Service rating Baa1, Baa2, or
Baa3; and Fitch Ratings rating BBB+, BBB, or BBB-.

(vi) Ratings category “Vulnerable - 6” corresponds to A.M.
Best Company rating B, B-, C++, C+, C, C-, D, E, or F; Standard
& Poor’s rating BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, or R;
Moody’s Investors Service rating Ba1, Ba2, Ba3, B1, B2, B3, Caa,
Ca, or C; and Fitch Ratings rating BB+, BB, BB-, B+, B, B-,
CCC+, CC, CCC-, or DD.

(B) The business practices of the certified reinsurer in dealing
with its ceding insurers, including its record of compliance with
reinsurance contractual terms and obligations.

(C) For certified reinsurers domiciled in the United States, a
review of the most recent applicable NAIC Annual Statement
Blank, either Schedule F (for property/casualty reinsurers) or
Schedule S (for life and health reinsurers).

(D) For certified reinsurers not domiciled in the United States,
a review annually of Form CR-F (for property/casualty reinsurers)
or Form CR-S (for life and health reinsurers) (as published on the
department’s Internet Web site).

(E) The reputation of the certified reinsurer for prompt payment
of claims under reinsurance agreements, based on an analysis of
ceding insurers’ Schedule F reporting of overdue reinsurance
recoverables, including the proportion of obligations that are more
than 90 days past due or are in dispute, with specific attention
given to obligations payable to companies that are in administrative
supervision or receivership.

(F) Regulatory actions against the certified reinsurer.

(G) The report of the independent auditor on the financial
statements of the insurance enterprise, on the basis described in
subparagraph (H).

(H) For certified reinsurers not domiciled in the United States,
audited financial statements, (audited United States Generally
Accepted Accounting Principles basis, if available, audited
International Financial Reporting Standards basis statements are
allowed, but must include an audited footnote reconciling equity
and net income to a United States Generally Accepted Accounting
Principles basis, or, with the written permission of the
commissioner, audited International Financial Reporting Standards
statements with reconciliation to United States Generally Accepted
Accounting Principles certified by an officer of the company),
regulatory filings, and actuarial opinion (as filed with the
non-United States jurisdiction supervisor). Upon the initial
application for certification, the commissioner shall consider
audited financial statements for the last three years filed with its
non-United States jurisdiction supervisor.

(I) The liquidation priority of obligations to a ceding insurer in
the certified reinsurer’s domiciliary jurisdiction in the context of
an insolvency proceeding.

(J) A certified reinsurer’s participation in any solvent scheme
of arrangement, or similar procedure, which involves United States
ceding insurers. The commissioner shall receive prior notice from
a certified reinsurer that proposes participation by the certified
reinsurer in a solvent scheme of arrangement.

(K) Any other information deemed relevant by the
commissioner.

(2) Based on the analysis conducted under subparagraph (E) of
paragraph (1) of a certified reinsurer’s reputation for prompt
payment of claims, the commissioner may make appropriate
adjustments in the security the certified reinsurer is required to
post to protect its liabilities to United States ceding insurers,
provided that the commissioner shall, at a minimum, increase the
security the certified reinsurer is required to post by one rating
level under regulations promulgated by the commissioner, if the
commissioner finds either of the following:

(A) More than 15 percent of the certified reinsurer’s ceding
insurance clients have overdue reinsurance recoverables on paid
losses of 90 days or more that are not in dispute and that exceed
one hundred thousand dollars ($100,000) for each ceding insurer.

(B) The aggregate amount of reinsurance recoverables on paid
losses that are not in dispute and that are overdue by 90 days or
more exceeds fifty million dollars ($50,000,000).

(3) The assuming insurer shall submit a properly executed Form
CR-1 (as published on the department’s Internet Web site) as
evidence of its submission to the jurisdiction of this state,
appointment of the commissioner as an agent for service of process
in this state, and agreement to provide security for 100 percent of
the assuming insurer’s liabilities attributable to reinsurance ceded
by United States ceding insurers if it resists enforcement of a final
United States judgment. The commissioner shall not certify any
assuming insurer that is domiciled in a jurisdiction that the
commissioner has determined does not adequately and promptly
enforce final United States judgments or arbitration awards.

(4) (A) In the case of a downgrade by a rating agency or other
disqualifying circumstance, the commissioner shall, upon written
notice, assign a new rating to the certified reinsurer in accordance
with the requirements of this subdivision.

(B) The commissioner shall have the authority to suspend,
revoke, or otherwise modify a certified reinsurer’s certification at
any time if the certified reinsurer fails to meet its obligations or
security requirements under this section, or if other financial or
operating results of the certified reinsurer, or documented
significant delays in payment by the certified reinsurer, lead the
commissioner to reconsider the certified reinsurer’s ability or
willingness to meet its contractual obligations.

(C) If the rating of a certified reinsurer is upgraded by the
commissioner, the certified reinsurer may meet the security
requirements applicable to its new rating on a prospective basis,
but the commissioner shall require the certified reinsurer to post
security under the previously applicable security requirements as
to all contracts in force on or before the effective date of the
upgraded rating. If the rating of a certified reinsurer is downgraded
by the commissioner, the commissioner shall require the certified
reinsurer to meet the security requirements applicable to its new
rating for all business it has assumed as a certified reinsurer.

(D) Upon revocation of the certification of a certified reinsurer
by the commissioner, the assuming insurer shall be required to
post security in accordance with Section 922.5 in order for the
ceding insurer to continue to take credit for reinsurance ceded to
the assuming insurer. If funds continue to be held in trust in
accordance with subdivision (d) of Section 922.4, the commissioner
may allow additional credit equal to the ceding insurer’s pro rata
share of those funds, discounted to reflect the risk of
uncollectibility and anticipated expenses of trust administration.
Notwithstanding the change of a certified reinsurer’s rating or
revocation of its certification, a domestic insurer that has ceded
reinsurance to that certified reinsurer shall not be denied credit for
reinsurance for a period of three months for all reinsurance ceded
to that certified reinsurer, unless the reinsurance is found by the
commissioner to be at high risk of uncollectibility.

(i) A certified reinsurer shall secure obligations assumed from
United States ceding insurers under this subdivision at a level
consistent with its rating. The amount of security required in order
for full credit to be allowed shall correspond with the following
requirements:

Ratings security required

Secure - 1: 0%

Secure - 2: 10%

Secure - 3: 20%

Secure - 4: 50%

Secure - 5: 75%

Vulnerable - 6: 100%

(1) In order for a domestic ceding insurer to qualify for full
financial statement credit for reinsurance ceded to a certified
reinsurer, the certified reinsurer shall maintain security in a form
acceptable to the commissioner and consistent with Section 922.5,
or in a multibeneficiary trust in accordance with subdivision (d)
of Section 922.4, except as otherwise provided in this subdivision.
In order for a domestic insurer to qualify for full financial statement
credit, reinsurance contracts entered into or renewed under this
section shall include a proper funding clause that requires the
certified reinsurer to provide and maintain security in an amount
sufficient to avoid the imposition of any financial statement penalty
on the ceding insurer under this section for reinsurance ceded to
the certified reinsurer.

(2) If a certified reinsurer maintains a trust to fully secure its
obligations subject to subdivision (d) of Section 922.4, and chooses
to secure its obligations incurred as a certified reinsurer in the form
of a multibeneficiary trust, the certified reinsurer shall maintain
separate trust accounts for its obligations incurred under
reinsurance agreements issued or renewed as a certified reinsurer
with reduced security as permitted by this subdivision or
comparable laws of other United States jurisdictions and for its
obligations subject to subdivision (d) of Section 922.4. It shall be
a condition to the grant of certification under this section that the
certified reinsurer shall have bound itself, by the language of the
trust and agreement with the commissioner with principal
regulatory oversight of each of those trust accounts, to fund, upon
termination of any of those trust accounts, out of the remaining
surplus of those trusts any deficiency of any other of those trust
accounts.

(3) The minimum trusteed surplus requirements provided in
subdivision (d) of Section 922.4 are not applicable with respect to
a multibeneficiary trust maintained by a certified reinsurer for the
purpose of securing obligations incurred under this subdivision,
except that the trust shall maintain a minimum trusteed surplus of
ten million dollars ($10,000,000).

(4) With respect to obligations incurred by a certified reinsurer
under this subdivision, if the security is insufficient, the
commissioner shall reduce the allowable credit by an amount
proportionate to the deficiency, and have the discretion to impose
further reductions in allowable credit upon finding that there is a
material risk that the certified reinsurer’s obligations will not be
paid in full when due.

(5) For purposes of this subdivision, a certified reinsurer whose
certification has been terminated for any reason shall be treated
as a certified reinsurer required to secure 100 percent of its
obligations.

(A) As used in this subdivision, the term “terminated” means
revocation, suspension, voluntary surrender, and inactive status.

(B) If the commissioner continues to assign a higher rating as
permitted by other provisions of this section, this requirement shall
not apply to a certified reinsurer in inactive status or to a reinsurer
whose certification has been suspended.

(6) The commissioner shall require the certified reinsurer to
post 100-percent security in accordance with Section 922.5, for
the benefit of the ceding insurer or its estate, upon the entry of an
order of rehabilitation, liquidation, or conservation against the
ceding insurer.

(7) Affiliated reinsurance transactions shall receive the same
opportunity for reduced security requirements as all other
reinsurance transactions.

(8) In order to facilitate the prompt payment of claims, a certified
reinsurer shall not be required to post security for catastrophe
recoverables for a period of one year from the date of the first
instance of a liability reserve entry by the ceding company as a
result of a loss from a catastrophic occurrence that is likely to result
in significant insured losses, as recognized by the commissioner.
The one-year deferral period is contingent upon the certified
reinsurer continuing to pay claims in a timely manner, as
determined by the commissioner, in writing. Reinsurance
recoverables for only the following lines of business as reported
on the NAIC annual financial statement related specifically to the
catastrophic occurrence shall be included in the deferral:

(A) Line 1: Fire.

(B) Line 2: Allied lines.

(C) Line 3: Farmowners’ multiple peril.

(D) Line 4: Homeowners’ multiple peril.

(E) Line 5: Commercial multiple peril.

(F) Line 9: Inland marine.

(G) Line 12: Earthquake.

(H) Line 21: Auto physical damage.

(9) Credit for reinsurance under this section shall apply only to
reinsurance contracts entered into or renewed on or after the
effective date of the certification of the assuming insurer. Any
reinsurance contract entered into prior to the effective date of the
certification of the assuming insurer that is subsequently amended
by mutual agreement of the parties to the reinsurance contract after
the effective date of the certification of the assuming insurer, or a
new reinsurance contract, covering any risk for which collateral
was provided previously, shall only be subject to this section with
respect to losses incurred and reserves reported from and after the
effective date of the amendment or new contract.

(10) Nothing in this section shall be construed to prohibit the
parties to a reinsurance agreement from agreeing to provisions
establishing security requirements that exceed the minimum
security requirements established for certified reinsurers under
this section.

(j) A certified reinsurer that ceases to assume new business in
this state may request to maintain its certification in inactive status
in order to continue to qualify for a reduction in security for its
in-force business. An inactive certified reinsurer shall continue to
comply with all applicable requirements of this section, and the
commissioner shall assign a rating that takes into account, if
relevant, the reasons why the reinsurer is not assuming new
business.

(k) Notwithstanding this section, credit for reinsurance or
deduction from liability by a domestic ceding insurer for cessions
to a certified reinsurer may be disallowed upon a finding by the
commissioner that the application of the literal provisions of this
section does not accomplish its intent, or either the financial
condition of the reinsurer or the collateral or other security provided
by the reinsurer does not, in substance, satisfy the credit for
reinsurance requirements in Section 922.4.

(l) This section shall remain in effect only until January 1, 2016,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2016, deletes or extends that date.

SEC. 3.  

Section 927.2 of the Insurance Code is amended to
read:

927.2.  

(a) (1) By July 1, 2013, each admitted insurer, with
California premiums written of one hundred million dollars
($100,000,000) or more, shall submit a report to the commissioner
on its minority, women, and disabled veteran-owned business
procurement efforts during the reporting period.

(2) The report shall include all of the following:

(A) The insurer’s supplier diversity policy statement.

(B) The insurer’s outreach and communications to minority,
women, and disabled veteran business enterprises, including:

(i) How the insurer encourages and seeks out minority, women,
and disabled veteran owned business enterprises to become
potential suppliers.

(ii) How the insurer encourages its employees involved in
procurement to seek out minority, women, and disabled
veteran-owned business enterprises to become potential suppliers.

(iii) How the insurer conducts outreach and communication to
minority, women, and disabled veteran business enterprises.

(iv) How the insurer supports organizations that promote or
certify minority, women, and disabled veteran-owned business
enterprises.

(v) Information regarding appropriate contacts at the insurer for
interested business enterprises.

(C) The report shall include information about which
procurements are made from begin delete minority, women, and disabled
veteran end delete begin insert minority and women end insert business enterprises with a
headquarters’ address in California, begin insert and from disabled veteran
business enterprises, as defined in subdivision (b) of Section 927.1, end insert
with each category aggregated separately, to the extent that
information is readily accessible. An insurer may also include
other relevant information in the report.

(3) An insurer that does not enter into contracts to procure goods
or services in California satisfies the requirements of paragraph
(2) by filing a statement with the commissioner attesting that it
does not enter into procurement contracts in California.

(b) Nothing in this section shall be construed to require quotas,
set-asides, or preferences in an admitted insurer’s procurement of
goods or services, nor does this section apply to insurer producer
or licensee contracts. Admitted insurers retain the authority to use
business judgment to select the supplier for a particular contract.

(c) Nothing in this section shall preclude an admitted insurer
that is a member of an insurance holding company system, as
defined in Article 4.7 (commencing with Section 1215) of Chapter
2, from complying with paragraphs (1) and (2) of subdivision (a)
through a single filing on behalf of the entire group of affiliated
companies.

(d) Failure to file the report required by subdivision (a), by July
1, 2013, shall subject the admitted insurer to a civil penalty to be
fixed by the commissioner, not to exceed five thousand dollars
($5,000), or if the act or practice was willful, a civil penalty not
to exceed ten thousand dollars ($10,000). An insurer may request,
and the commissioner may grant, a 30-day extension to file the
report if needed due to unintended or unforeseen delays. If the
insurer has failed to file the report within 30 days of a written
notice by the commissioner that the insurer has failed to file the
report, the commissioner may find that the failure to file the report
was willful and increase the civil penalty to an amount not to
exceed ten thousand dollars ($10,000). The penalty imposed by
this section shall be enforced by the commissioner and is
appealable by means of any remedy provided by Section 12940,
or by Chapter 5 (commencing with Section 11500) of Part 1 of
Division 3 of Title 2 of the Government Code. This subdivision
is the sole means for enforcement of this section.

(e) Commencing July 1, 2015, each admitted insurer specified
in subdivision (a) shall biennially update its supplier diversity
report and submit the new report to the commissioner no later than
July 1.

(f) By September 30 of the reporting year, the commissioner
shall establish and maintain a link on the department’s Internet
Web site that provides public access to the contents of each
admitted insurer’s report on minority, women, and disabled
veteran-owned business procurement efforts. The commissioner
shall include a statement on the department’s Internet Web site
that the information contained in the insurer’s report on minority,
women, and disabled veteran-owned businesses is provided for
informational purposes only.

SEC. 4.  

Section 1775.1 of the Insurance Code is amended to
read:

1775.1.  

(a) Each calendar year, every surplus line broker whose
annual tax for the preceding calendar year was twenty thousand
dollars ($20,000) or more shall make monthly installment payments
on account of the annual tax on business done during the current
calendar year imposed by Section 1775.5.

(b) Notwithstanding any other law, the commissioner may
relieve a surplus line broker of his or her obligation to make
monthly payments if the broker establishes to the satisfaction of
the commissioner that either the broker has ceased to transact
business in this state, or his or her annual tax for the current year
will be less than twenty thousand dollars ($20,000).

SEC. 5.  

Section 10505.1 of the Insurance Code is amended to
read:

10505.1.  

(a) (1) Any nonprofit cooperative assessment
association, the membership and insurance in which are restricted
to members of a labor union, is exempt from the provisions of this
code relating to the supervision or regulation of insurance with
respect to the provision of job protection benefits, including any
accidental death benefits, to its members. A nonprofit cooperative
assessment association established pursuant to this section is not,
and shall not be, a member of the California Insurance Guarantee
Association under Article 14.2 (commencing with Section 1063)
of Chapter 1 of Part 2 of Division 1, or any other insurance
guaranty association in this state.

(2) Each policy issued in this state pursuant to this section shall
contain, in at least 10-point typeface on the front page and the
declaration page, the following notice:

“NOTICE

This policy is issued by a nonprofit cooperative assessment
association that is not subject to CALIFORNIA insurance laws
and regulation and is not admitted in California. California
insurance guaranty funds are not available for your nonprofit
cooperative assessment association.”

(b) “Job protection insurance” means the business of providing
indemnity to conductors, engineers, motormen, brakemen,
switchmen, firemen, dispatchers, clerks, operators, trackmen,
signalmen, and maintenance of way personnel of steam and electric
railways and to busdrivers and truckdrivers employed by common
carriers for loss of position arising from discharge or suspension,
which indemnity is payable in installments that do not exceed the
average monthly wage of the insured. “Job protection insurance”
may include accidental death coverage insuring the member.
Nothing in this section is intended to regulate or define any benefit
delivery system which provides indemnity, as defined in this
section, in any manner other than the sale of insurance. Labor
unions providing the type of indemnity defined in this section,
shall be expressly exempt from any regulation by any state agency.

SEC. 6.  

Section 11628 of the Insurance Code is amended to
read:

11628.  

(a) (1) No admitted insurer that is licensed to issue
and issuing motor vehicle liability policies, as defined in Section
16450 of the Vehicle Code, shall fail or refuse to accept an
application for that insurance, to issue that insurance to an applicant
therefor, or issue or cancel that insurance under conditions less
favorable to the insured than in other comparable cases, except for
reasons applicable alike to persons of every characteristic listed
or defined in subdivision (b) or (e) of Section 51 of the Civil Code,
including, but not limited to, language, or persons of the same
geographic area; nor shall any characteristic listed or defined in
subdivision (b) or (e) of Section 51 of the Civil Code, including,
but not limited to, language, or location within a geographic area,
of itself, constitute a condition or risk for which a higher rate,
premium, or charge may be required of the insured for that
insurance.

(2) As used in this section “geographic area” means a portion
of this state of not less than 20 square miles defined by description
in the rating manual of an insurer or in the rating manual of a rating
bureau of which the insurer is a member or subscriber. In order
that geographic areas used for rating purposes may reflect
homogeneity of loss experience, a record of loss experience for
the geographic area shall include the breakdown of actual loss
experience statistics by ZIP Code area (as designated by the United
States Postal Service) within each geographic area for family
owned private passenger motor vehicles and lightweight
commercial motor vehicles, under 11⁄2-ton load capacity, used for
local service or retail delivery, normally within a 50-mile radius
of garaging, and that are not part of a fleet of five or more motor
vehicles under one ownership. A record of loss experience for the
geographic area, including that statistical data by ZIP Code area,
shall be submitted biennially to the commissioner for examination
by each insurer licensed to issue and issuing motor vehicle liability
policies, motor vehicle physical damage policies, or both. Loss
experience shall include separate loss data for each type of
coverage, including liability or physical damage coverage,
underwritten. The biennial report shall include the insurer’s
statewide loss ratio, loss adjustment expense ratio, expense ratio,
and combined ratio on its assigned-risk business. Statewide
summary data shall be submitted annually to the commissioner.
An insurer may satisfy its obligation to report statistical data under
this subdivision by providing its loss experience data and statewide
expense ratio and combined ratio on its assigned-risk business to
a rating or advisory organization for submission to the
commissioner. This data shall be made available to the public by
the commissioner biennially after examination. However, the data
shall be released in aggregate form by ZIP Code or statewide basis
in order that no individual insurer’s loss experience for any specific
geographic area be revealed. Differentiation in rates between
geographical areas shall not constitute unfair discrimination.

(3) All information reported to the department pursuant to this
subdivision shall be confidential.

(4) As used in this section:

(A) “Language” means the inability to speak, read, write, or
comprehend the English language.

(B) “Dependents” shall include, but not be limited to, issue
regardless of generation.

(C) “Spouse” shall be determined without regard to current
marital status.

(b) The commissioner may require insurers with combined ratios
on statewide assigned-risk business that are 10 percent above the
mean combined ratio for all plan participants to also report the
following:

(1) The reason for the excessive ratio.

(2) A plan for reducing the ratio, and when the reduction can
be expected to occur. The commissioner may require insurers
subject to this subdivision to provide periodic reports on the
progress in reducing the combined ratio.

(c) (1) No admitted insurer, licensed to issue and issuing motor
vehicle liability insurance policies as defined in Section 16450 of
the Vehicle Code, shall fail or refuse to accept an application for
that insurance, refuse to issue that insurance to an applicant
therefor, or cancel that insurance solely for the reason that the
applicant for that insurance or any insured is employed in a specific
occupation, or is on active duty service in the Armed Forces of
the United States.

(2) Nothing in this section shall prohibit an insurer from doing
any of the following:

(A) Considering the occupation of the applicant or insured as
a condition or risk for which a higher rate or discounted rate may
be required or offered for coverage in the course and scope of his
or her occupation.

(B) Charging a deviated rate to any classification of risks
involving a specific occupation, or grouping thereof, if the rate
meets the requirements of Chapter 9 (commencing with Section
1850.4) of Part 2 of Division 1 and is based upon actuarial data
that demonstrates a significant actual historical differential between
past losses or expenses attributable to the specific occupation, or
grouping thereof, and the past losses or expenses attributable to
other classification of risks. For purposes of compiling that
actuarial data for a specific occupation or grouping thereof, a
person shall be deemed employed in the occupation in which that
data is compiled if any of the following is true:

(i) The majority of his or her employment during the previous
year was in the occupation.

(ii) The majority of his or her aggregate earnings for the
immediate preceding three-year period were derived from the
occupation.

(iii) The person is a member in good standing of a union that is
an authorized collective bargaining agent for persons engaged in
the occupation.

(3) Nothing in this section shall be construed to include in the
definition of “occupation” any status or activity that does not result
in remuneration for work done or services performed, or
self-employment in a business operated out of an applicant’s or
insured’s place of residence or persons engaged in the renting,
leasing, selling, repossessing, rebuilding, wrecking, or salvaging
of motor vehicles.

(d) Nothing in this section shall limit or restrict the ability of
an insurer to refuse to accept an application for or refuse to issue
or cancel insurance for the reason that it is a commercial vehicle
or based upon the consideration of a vehicle’s size, weight, design,
or intended use.

(e) It is the intent of the Legislature that actuarial data by
occupation may be examined for credibility by the commissioner
on the same basis as any other automobile insurance data that he
or she is empowered to examine.

(f) (1) Except as provided in Article 4 (commencing with
Section 11620), nothing in this section or in Article 10
(commencing with Section 1861.01) of Chapter 9 of Part 2 of
Division 1 or in any other provision of this code, shall prohibit an
insurer from limiting the issuance or renewal of insurance, as
defined in subdivision (a) of Section 660, to persons who engage
in, or have formerly engaged in, governmental or military service
or segments of categories thereof, and their spouses, dependents,
direct descendants, and former dependents or spouses.

(2) The term “military service” includes, but is not limited to,
officers, warrant officers, and enlisted persons, officer and warrant
officer candidates, cadets or midshipmen at a service academy,
cadets or midshipmen in advance Reserve Officer Training Corps
programs or on Reserve Officer Training Corps program
scholarships, National Guard officer candidates, students in
government-sponsored precommissioning programs, and foreign
military officers while on temporary duty in the United States.

(g) Any person subject to regulation by the commissioner
pursuant to this code who fails to comply with a data call required
by the department pursuant to subdivision (a) shall be liable to the
state for a civil penalty in an amount not exceeding five thousand
dollars ($5,000) for each 30-day period that the person is not in
compliance, unless the failure to comply is willful, in which case
the civil penalty shall be in an amount not to exceed ten thousand
dollars ($10,000) for each 30-day period that the person is not in
compliance, but not to exceed an aggregate amount of one hundred
thousand dollars ($100,000). The commissioner shall collect the
amount so payable and may bring an action in the name of the
people of the State of California to enforce collection. These
penalties shall be in addition to other penalties provided by law.

(h) This section shall be known and may be cited as the
“Rosenthal Auto Insurance Nondiscrimination Law.”

SEC. 7.  

Section 12251 of the Revenue and Taxation Code, as
added by Section 13 of Chapter 33 of the Statutes of 2013, is
amended to read:

12251.  

(a) Each calendar year, insurers transacting insurance
in this state and whose annual tax for the preceding calendar year
was twenty thousand dollars ($20,000) or more shall make
prepayments of the annual tax for the current calendar year imposed
by Section 28 of Article XIII of the California Constitution and
this part, provided that prepayments shall not be made with respect
to the tax on ocean marine insurance underwriting profit or any
retaliatory tax.

(b) This section shall become operative on July 1, 2013.

SEC. 8.  

Section 12260 of the Revenue and Taxation Code, as
added by Section 28 of Chapter 33 of the Statutes of 2013, is
amended to read:

12260.  

(a) Notwithstanding any other provision of this article,
the commissioner may relieve an insurer of its obligation to make
prepayments if the insurer establishes to the satisfaction of the
commissioner that either the insurer has ceased to transact
insurance in this state, or the insurer’s annual tax for the current
year will be less than twenty thousand dollars ($20,000).

(b) This section shall become operative on July 1, 2013.

SEC. 9.  

Section 38750 of the Vehicle Code is amended to read:

38750.  

(a) For purposes of this division, the following
definitions apply:

(1) “Autonomous technology” means technology that has the
capability to drive a vehicle without the active physical control or
monitoring by a human operator.

(2) (A) “Autonomous vehicle” means any vehicle equipped
with autonomous technology that has been integrated into that
vehicle.

(B) An autonomous vehicle does not include a vehicle that is
equipped with one or more collision avoidance systems, including,
but not limited to, electronic blind spot assistance, automated
emergency braking systems, park assist, adaptive cruise control,
lane keep assist, lane departure warning, traffic jam and queuing
assist, or other similar systems that enhance safety or provide driver
assistance, but are not capable, collectively or singularly, of driving
the vehicle without the active control or monitoring of a human
operator.

(3) “Department” means the Department of Motor Vehicles.

(4) An “operator” of an autonomous vehicle is the person who
is seated in the driver’s begin delete seat, or end delete begin insert seat, or, end insert if there is no person in the
driver’s seat, causes the autonomous technology to engage.

(5) A “manufacturer” of autonomous technology is the person
as defined in Section 470 that originally manufactures a vehicle
and equips autonomous technology on the originally completed
vehicle or, in the case of a vehicle not originally equipped with
autonomous technology by the vehicle manufacturer, the person
that modifies the vehicle by installing autonomous technology to
convert it to an autonomous vehicle after the vehicle was originally
manufactured.

(b) An autonomous vehicle may be operated on public roads
for testing purposes by a driver who possesses the proper class of
license for the type of vehicle being operated if all of the following
requirements are met:

(1) The autonomous vehicle is being operated on roads in this
state solely by employees, contractors, or other persons designated
by the manufacturer of the autonomous technology.

(2) The driver shall be seated in the driver’s seat, monitoring
the safe operation of the autonomous vehicle, and capable of taking
over immediate manual control of the autonomous vehicle in the
event of an autonomous technology failure or other emergency.

(3) Prior to the start of testing in this state, the manufacturer
performing the testing shall obtain an instrument of insurance,
surety bond, or proof of self-insurance in the amount of five million
dollars ($5,000,000), and shall provide evidence of the insurance,
surety bond, or self-insurance to the department in the form and
manner required by the department pursuant to the regulations
adopted pursuant to subdivision (d).

(c) Except as provided in subdivision (b), an autonomous vehicle
shall not be operated on public roads until the manufacturer submits
an application to the department, and that application is approved
by the department pursuant to the regulations adopted pursuant to
subdivision (d). The application shall contain, at a minimum, all
of the following certifications:

(1) A certification by the manufacturer that the autonomous
technology satisfies all of the following requirements:

(A) The autonomous vehicle has a mechanism to engage and
disengage the autonomous technology that is easily accessible to
the operator.

(B) The autonomous vehicle has a visual indicator inside the
cabin to indicate when the autonomous technology is engaged.

(C) The autonomous vehicle has a system to safely alert the
operator if an autonomous technology failure is detected while the
autonomous technology is engaged, and when an alert is given,
the system shall do either of the following:

(i) Require the operator to take control of the autonomous
vehicle.

(ii) If the operator does not or is unable to take control of the
autonomous vehicle, the autonomous vehicle shall be capable of
coming to a complete stop.

(D) The autonomous vehicle shall allow the operator to take
control in multiple manners, including, without limitation, through
the use of the brake, the accelerator pedal, or the steering wheel,
and it shall alert the operator that the autonomous technology has
been disengaged.

(E) The autonomous vehicle’s autonomous technology meets
Federal Motor Vehicle Safety Standards for the vehicle’s model
year and all other applicable safety standards and performance
requirements set forth in state and federal law and the regulations
promulgated pursuant to those laws.

(F) The autonomous technology does not make inoperative any
Federal Motor Vehicle Safety Standards for the vehicle’s model
year and all other applicable safety standards and performance
requirements set forth in state and federal law and the regulations
promulgated pursuant to those laws.

(G) The autonomous vehicle has a separate mechanism, in
addition to, and separate from, any other mechanism required by
law, to capture and store the autonomous technology sensor data
for at least 30 seconds before a collision occurs between the
autonomous vehicle and another vehicle, object, or natural person
while the vehicle is operating in autonomous mode. The
autonomous technology sensor data shall be captured and stored
in a read-only format by the mechanism so that the data is retained
until extracted from the mechanism by an external device capable
of downloading and storing the data. The data shall be preserved
for three years after the date of the collision.

(2) A certification that the manufacturer has tested the
autonomous technology on public roads and has complied with
the testing standards, if any, established by the department pursuant
to subdivision (d).

(3) A certification that the manufacturer will maintain, an
instrument of insurance, a surety bond, or proof of self-insurance
as specified in regulations adopted by the department pursuant to
subdivision (d), in an amount of five million dollars ($5,000,000).

(d) (1)  As soon as practicable, but no later than January 1,
2015, the department shall adopt regulations setting forth
requirements for the submission of evidence of insurance, surety
bond, or self-insurance required by subdivision (b), and the
submission and approval of an application to operate an
autonomous vehicle pursuant to subdivision (c).

(2) The regulations shall include any testing, equipment, and
performance standards, in addition to those established for purposes
of subdivision (b), that the department concludes are necessary to
ensure the safe operation of autonomous vehicles on public roads,
with or without the presence of a driver inside the vehicle. In
developing these regulations, the department may consult with the
Department of the California Highway Patrol, the Institute of
Transportation Studies at the University of California, or any other
entity identified by the department that has expertise in automotive
technology, automotive safety, and autonomous system design.

(3) The department may establish additional requirements by
the adoption of regulations, which it determines, in consultation
with the Department of the California Highway Patrol, are
necessary to ensure the safe operation of autonomous vehicles on
public roads, including, but not limited to, regulations regarding
the aggregate number of deployments of autonomous vehicles on
public roads, special rules for the registration of autonomous
vehicles, new license requirements for operators of autonomous
vehicles, and rules for revocation, suspension, or denial of any
license or any approval issued pursuant to this division.

(4) The department shall hold public hearings on the adoption
of any regulation applicable to the operation of an autonomous
vehicle without the presence of a driver inside the vehicle.

(e) (1) The department shall approve an application submitted
by a manufacturer pursuant to subdivision (c) if it finds that the
applicant has submitted all information and completed testing
necessary to satisfy the department that the autonomous vehicles
are safe to operate on public roads and the applicant has complied
with all requirements specified in the regulations adopted by the
department pursuant to subdivision (d).

(2) Notwithstanding paragraph (1), if the application seeks
approval for autonomous vehicles capable of operating without
the presence of a driver inside the vehicle, the department may
impose additional requirements it deems necessary to ensure the
safe operation of those vehicles, and may require the presence of
a driver in the driver’s seat of the vehicle if it determines, based
on its review pursuant to paragraph (1), that such a requirement is
necessary to ensure the safe operation of those vehicles on public
roads. The department shall notify the Legislature of the receipt
of an application from a manufacturer seeking approval to operate
an autonomous vehicle capable of operating without the presence
of a driver inside the vehicle and approval of the application.
Approval of the application shall be effective no sooner than 180
days after the date the application is submitted.

(f) Nothing in this division shall limit or expand the existing
authority to operate autonomous vehicles on public roads, until
120 days after the department adopts the regulations required by
paragraph (1) of subdivision (d).

(g) Federal regulations promulgated by the National Highway
Traffic Safety Administration shall supersede the provisions of
this division when found to be in conflict with any other state law
or regulation.

(h) The manufacturer of the autonomous technology installed
on a vehicle shall provide a written disclosure to the purchaser of
an autonomous vehicle that describes what information is collected
by the autonomous technology equipped on the vehicle. The
department may promulgate regulations to assess a fee upon a
manufacturer that submits an application pursuant to subdivision
(c) to operate autonomous vehicles on public roads in an amount
necessary to recover all costs reasonably incurred by the
department.