California Legislature—2015–16 Regular Session

Assembly BillNo. 553


Introduced by Assembly Member Daly

February 23, 2015


An act to amend Sections 1215, 1215.1, 1215.2, 1215.5, 1215.6, and 1215.8 of, to add Section 1215.75 to, and to add Article 10.8 (commencing with Section 936.1) to Chapter 1 of Part 2 of Division 1 of, the Insurance Code, relating to insurance, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

AB 553, as introduced, Daly. Insurance: corporate governance: insurance holding companies.

(1) Existing law regulates the business of insurance, including, but not limited to, requiring that each domestic, foreign, and alien insurer doing business in this state annually, on or before the first day of March of each year, file with the National Association of Insurance Commissioners a copy of its annual statement convention blank, along with any additional filings as prescribed by the Insurance Commissioner for the preceding year.

The California Public Records Act requires state and local agencies to make their records available for public inspection and to make copies available upon request and payment of a fee unless the records are exempt from disclosure.

This bill would require an insurer or insurance group of which the insurer is a member, to, no later than June 1 of each calendar year, submit to the commissioner a Corporate Governance Annual Disclosure (CGAD) that contains specified information relating to corporate governance structure, policies, and practices. The bill would provide, with exceptions, that the documents, materials, or other information in the possession or control of the Department of Insurance that are obtained by, created by, or disclosed to the commissioner or any other person pursuant to these provisions are confidential and privileged, are not subject to disclosure pursuant to the California Public Records Act, and are not subject to subpoena or discovery in a civil action if obtained from the commissioner, as specified. The bill would make related findings on the confidentiality of these records. The bill would provide that an insurer who fails, without just cause, to timely file the CGAD as required by these provisions would be subject to specified late filing fees.

(2) The Insurance Holding Company System Regulatory Act, requires each insurer that is authorized to do business in this state and that is a member of an insurance holding company system to register with the commissioner and to file a registration statement containing specified information, including the capital structure and general financial condition of the insurer and specified transactions between the insurer and its affiliates.

The act prohibits a person from making a tender offer for, or a request or invitation for tenders of, or from entering into an agreement to exchange securities for or acquire in the open market, any voting security, or any security convertible into a voting security, of a domestic insurer or of any other person controlling a domestic insurer, if the other person is not substantially engaged in any businesses other than insurance, if that would result in the person acquiring control of the insurer. Existing law also prohibits a person from entering into an agreement to merge with or otherwise acquire control of a domestic insurer. These prohibitions do not apply if, at the time copies of the offer, purchase, request, or invitation are first published, sent, or given to security holders or the agreement or transaction is entered into, the person has filed with the commissioner, and has sent to the insurer, a statement containing specified information and any additional information the commissioner prescribes in the public interest or to protect policyholders or shareholders.

Under the act, a domestic insurer or commercially domiciled insurer, and a person in its insurance holding company system, may only enter into specified affiliate transactions, including reinsurance or pooling agreements, if the insurer has notified the commissioner in writing of its intent to enter into the transaction with at least 30 days’ notice, or a shorter period that the commissioner allows, and the commissioner has not disapproved the transaction within that period.

The act provides that any insurer or any director, officer, employee, or agent of the insurer that commits a willful violation of the act is subject to criminal proceedings.

This bill would require the tender offer or merger statement and the notification of proposed affiliate transaction filed with the commissioner to be submitted on a form and in a format prescribed by the National Association of Insurance Commissioners.

Because a willful violation of this provision would be subject to criminal proceedings, the bill would create a state-mandated local program.

This bill would authorize the commissioner to act as groupwide supervisor, as defined, for any internationally active insurance group, as defined, or, alternatively, authorize the commissioner to acknowledge another regulatory official as the groupwide supervisor if the internationally active insurance group meets any specified condition pertaining to its insurance operations in the state. The bill would also authorize the commissioner, as the groupwide supervisor, to engage in specified supervision activities, including, but not limited to: (A) assessing the enterprise risks within the internationally active insurance group; (B) requesting relevant information from any member of that group; and (C) coordinating and compelling development and implementation of reasonable measures designed to ensure that the internationally active insurance group is able to timely recognize and mitigate enterprise risks to its member. The bill would also make technical, nonsubstantive, and conforming changes.

(3) Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

(4) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would declare that it is to take effect immediately as an urgency statute.

Vote: 23. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

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

P4    1

SECTION 1.  

Article 10.8 (commencing with Section 936.1)
2is added to Chapter 1 of Part 2 of Division 1 of the Insurance Code,
3to read:

4 

5Article 10.8.  Corporate Governance Disclosure Act
6

 

7

936.1.  

(a) The purpose of this article is to provide the Insurance
8Commissioner a summary of an insurer or insurance group’s
9corporate governance structure, policies, and practices to permit
10the commissioner to gain and maintain an understanding of the
11insurer’s corporate governance framework and outline the
12requirements for completing a corporate governance annual
13disclosure with the Insurance Commissioner. The requirements of
14this article shall apply to all insurers domiciled in this state.

15(b) The Legislature finds and declares that the Corporate
16Governance Annual Disclosure and related information will contain
17confidential and sensitive information related to an insurer or
18insurance group’s internal operations and proprietary and trade
19secret information that, if made public, could potentially cause the
20insurer or insurance group competitive harm or disadvantage.

21(c) This article shall not be construed to prescribe or impose
22corporate governance standards and internal procedures beyond
23that which is required under applicable state corporate law.
24Notwithstanding the foregoing, this article shall not be construed
25to limit the commissioner’s authority or the rights or obligations
26of third parties, under Article 4 (commencing with Section 729)
27relating to the examination of insurers.

28

936.2.  

For the purposes of this article, the following definitions
29apply:

30(a) “Corporate Governance Annual Disclosure (CGAD)” means
31a confidential report filed by the insurer or insurance group made
32in accordance with the requirements of this article.

33(b) “Insurance group” means those insurers and affiliates
34included within an insurance holding company system as defined
P5    1in subdivision (e) of Section 1215 (Insurance Holding Company
2System Regulatory Act).

3(c) “Insurer” has the same meaning as set forth in subdivision
4(f) of Section 1215, except that it shall not include agencies,
5authorities, or instrumentalities of the United States, its possessions
6and territories, the Commonwealth of Puerto Rico, the District of
7Columbia, or a state or political subdivision of a state.

8(d) An “ORSA Summary Report” means the report filed in
9accordance with subdivision (e) of Section 935.2.

10(e) “Corporate Governance Annual Disclosure Model
11Regulation” means the current version of the Corporate Governance
12Annual Disclosure Model Regulation developed and adopted by
13the National Association of Insurance Commissioners (NAIC) and
14as amended from time to time. A change in the Corporate
15Governance Annual Disclosure Model Regulations shall be
16effective on the January 1 following the calendar year in which
17the changes have been adopted by the NAIC.

18

936.3.  

(a) An insurer, or the insurance group of which the
19insurer is a member, shall, no later than June 1 of each calendar
20year, submit to the commissioner a CGAD that contains the
21information described in subdivision (b) of Section 936.5.
22Notwithstanding any request from the commissioner made pursuant
23to subdivision (c), if the insurer is a member of an insurance group,
24the insurer shall submit the report required by this section to the
25commissioner of the lead state for the insurance group, in
26accordance with the laws of the lead state, as determined by the
27procedures outlined in the most recent Financial Analysis
28Handbook adopted by the NAIC.

29(b) The CGAD shall include a signature of the insurer or
30insurance group’s chief executive officer or corporate secretary
31attesting to the best of that individual’s belief and knowledge that
32the insurer has implemented the corporate governance practices
33therein and that a copy of the disclosure has been provided to the
34insurer’s board of directors or the appropriate committee thereof.

35(c) An insurer not required to submit a CGAD under this section
36shall submit a CGAD upon the commissioner’s request.

37(d) (1) For purposes of completing the CGAD, the insurer or
38insurance group may provide information regarding corporate
39governance at one or all of the following: the ultimate controlling
40parent level, an intermediate holding company level, or the
P6    1individual legal entity level, depending upon how the insurer or
2insurance group has structured its system of corporate governance.

3(2) The insurer or insurance group shall make the CGAD
4disclosures at one of the following levels:

5(A) At the level at which the insurer’s or insurance group’s risk
6appetite is determined.

7(B) At the level at which the earnings, capital, liquidity,
8operations, and reputation of the insurer are overseen collectively
9and at which the supervision of those factors are coordinated and
10exercised.

11 (C) At the level at which legal liability for failure of general
12corporate governance duties would be placed.

13(3) If the insurer or insurance group determines the level of
14reporting based on the criteria listed in paragraph (2), it shall
15indicate which of the three criteria was used to determine the level
16of reporting and explain any subsequent changes in the level of
17reporting.

18(e) The review of the CGAD and any additional requests for
19information shall be made through the lead state as determined by
20the procedures within the most recent Financial Analysis Handbook
21referenced in subdivision (a).

22(f) Insurers providing information substantially similar to the
23information required by this article in other documents provided
24to the commissioner, including proxy statements filed in
25conjunction with Form B requirements, or other state or federal
26filings provided to the department, shall not be required to duplicate
27that information in the CGAD but shall only be required to cross
28reference the document in which the information is included.

29

936.4.  

The commissioner may, upon notice and opportunity
30for all interested parties to be heard, issue those rules, regulations,
31and orders as may be necessary to carry out the provisions of this
32article. Those rules and regulations shall be adopted, amended, or
33repealed in accordance with Administrative Procedure Act Chapter
343.5 (commencing with Section 11340) of Part 1 of Division 3 of
35Title 2 of the Government Code.

36

936.5.  

(a) The insurer or insurance group shall have discretion
37over the responses to the CGAD inquiries, provided the CGAD
38contains the material information necessary to permit the
39commissioner to gain an understanding of the insurer's or group's
40corporate governance structure, policies, and practices. The
P7    1commissioner may request additional information that he or she
2deems material and necessary to provide him or her with a clear
3understanding of the corporate governance policies, the reporting
4or information system, or controls implementing those policies.

5(b) Notwithstanding subdivision (a), the insurer or insurer group
6shall prepare the CGAD consistent with the NAIC Corporate
7Governance Annual Disclosure Model Regulation, subject to the
8 requirements of this article. Documentation and supporting
9information shall be maintained and made available upon
10examination or upon request of the commissioner.

11

936.6.  

(a) (1) Documents, materials, or other information,
12including the CGAD, in the possession or control of the department
13that are obtained by, created by, or disclosed to, the commissioner
14or any other person under this article are recognized by this state
15as being proprietary and to contain trade secrets. All those
16documents, materials, or other information shall be confidential
17by law and privileged, shall not be subject to disclosure pursuant
18to the California Public Records Act (Chapter 3.5 (commencing
19with Section 6250) of Division 7 of Title 1 of the Government
20Code), shall not be subject to subpoena, and shall not be subject
21to discovery or admissible in evidence in any private civil action
22if obtained from the commissioner in any manner.

23(2) However, the commissioner is authorized to use the
24documents, materials, or other information in the furtherance of
25any regulatory or legal action brought as a part of the
26commissioner’s official duties. The commissioner shall not
27otherwise disclose or make public the documents, materials, or
28other information without the prior written consent of the insurer.

29(3) This section shall not be construed to require written consent
30of the insurer before the commissioner may share or receive
31confidential documents, materials, or other CGAD-related
32information pursuant to subdivision (c) to assist in the performance
33of the commissioner’s regulatory duties.

34(b) Neither the commissioner nor any person who received
35documents, materials, or other CGAD-related information, through
36examination or otherwise, while acting under the authority of the
37commissioner, or with whom those documents, materials, or other
38information are shared pursuant to this article shall be permitted
39or required to testify in any private civil action concerning any
P8    1confidential documents, materials, or information described in
2subdivision (a).

3(c) In order to assist in the performance of the commissioner’s
4regulatory duties, the commissioner may do both of the following:

5(1) Upon request, share documents, materials, or other
6CGAD-related information, including the confidential and
7privileged documents, materials, or information described in
8subdivision (a), including proprietary and trade secret documents
9and materials with other state, federal, and international financial
10regulatory agencies, including members of any supervisory college
11as defined in Section 1215.7 (Insurance Holding Company System
12Regulatory Act), with the NAIC, and with third-party consultants
13pursuant to Section 936.7, provided that the recipient agrees in
14writing to maintain the confidentiality and privileged status of the
15CGAD-related documents, materials, or other information and has
16verified in writing the legal authority to maintain confidentiality.

17(2) Receive documents, materials, or other CGAD-related
18information, including otherwise confidential and privileged
19documents, materials, or information, including proprietary and
20trade-secret information or documents, from regulatory officials
21of other state, federal, and international financial regulatory
22agencies, including members of any supervisory college as defined
23in Section 1215.7 (Insurance Holding Company System Regulatory
24Act), and from the NAIC, and shall maintain as confidential or
25privileged any documents, materials, or information received with
26notice or the understanding that it is confidential or privileged
27under the laws of the jurisdiction that is the source of the document,
28materials, or information.

29(d) The sharing of information and documents by the
30commissioner pursuant to this article shall not constitute a
31delegation of regulatory authority or rulemaking, and the
32commissioner is solely responsible for the administration,
33execution, and enforcement of this article.

34(e) No waiver of any applicable privilege or claim of
35confidentiality in the documents, proprietary and trade-secret
36materials, or other CGAD-related information shall occur as a
37result of disclosure of that CGAD-related information or those
38documents to the commissioner under this section or as a result of
39sharing as authorized in this article.

P9    1

936.7.  

(a) The commissioner may retain, at the insurer's
2expense, third-party consultants, including attorneys, actuaries,
3accountants, and other experts not otherwise a part of the
4commissioner's staff as may be reasonably necessary to assist the
5commissioner in reviewing the CGAD and related information or
6the insurer's compliance with this article.

7(b) Any person retained under subdivision (a) shall be under
8the direction and control of the commissioner and shall act in a
9purely advisory capacity.

10(c) The NAIC and third-party consultants shall be subject to the
11same confidentiality standards and requirements as the
12commissioner.

13(d) As part of the retention process, a third-party consultant
14shall verify to the commissioner in writing, with notice to the
15insurer, that it is free of a conflict of interest, and that it has internal
16procedures in place to monitor compliance with a conflict and to
17comply with the confidentiality standards and requirements of this
18article.

19(e) A written agreement with the NAIC, a third-party consultant,
20or both, governing sharing and use of information provided
21pursuant to this article shall contain all of the following provisions
22and expressly require the written consent of the insurer prior to
23making public information provided under this article:

24(1) Specific procedures and protocols for maintaining the
25confidentiality and security of CGAD-related information shared
26with the NAIC or a third-party consultant pursuant to this article.

27(2) Procedures and protocols for sharing by the NAIC only with
28other state regulators from states in which the insurance group has
29domiciled insurers. The agreement shall provide that the recipient
30agrees in writing to maintain the confidentiality and privileged
31status of the CGAD-related documents, materials, or other
32information and has verified in writing the legal authority to
33maintain confidentiality.

34(3) A provision specifying that ownership of the CGAD-related
35information shared with the NAIC or a third-party consultant
36remains with the department, and the NAIC’s or third-party
37consultant’s use of the information is subject to the direction of
38the commissioner.

P10   1(4) A provision that prohibits the NAIC or a third-party
2consultant from storing the information shared pursuant to this act
3in a permanent database after the underlying analysis is completed.

4(5) A provision requiring the NAIC or third-party consultant to
5provide prompt notice to the commissioner and to the insurer or
6insurance group regarding any subpoena, request for disclosure,
7or request for production of the insurer’s CGAD-related
8information.

9(6) A requirement that the NAIC or a third-party consultant
10consent to intervention by an insurer in any judicial or
11administrative action in which the NAIC or a third-party consultant
12may be required to disclose confidential information about the
13insurer shared with the NAIC or a third-party consultant pursuant
14to this article.

15

936.8.  

Any insurer or insurer group failing, without just cause,
16to timely file the CGAD as required in this article shall be subject
17to the late filing fees set forth in Section 924. The commissioner
18may reduce the penalty if the insurer or insurer group demonstrates
19to the commissioner that the imposition of the penalty would
20constitute a financial hardship to the insurer or insurer group.

21

936.9.  

The provisions of this article, other than Section 936.6,
22are severable. If any provision of this article, other than Section
23936.6, or its application is held invalid, that invalidity shall not
24affect other provisions or applications that can be given effect
25without the invalid provision or application.

26

SEC. 2.  

Section 1215 of the Insurance Code is amended to
27read:

28

1215.  

As used in this article, the following terms shall have
29the respective meanings hereafter set forth, unless the context shall
30otherwise require:

31(a) An “affiliate” of, or person “affiliated” with, a specific
32person, is a person that directly, or indirectly, through one or more
33intermediaries, controls, or is controlled by, or is under common
34control with, the person specified.

35(b) “Business day” is any day other than Saturday, Sunday, and
36any other day that is specified or provided for as a holiday in the
37Government Code.

begin insert

38(c) “Commissioner” means the Insurance Commissioner of the
39 state and any assistant to the Insurance Commissioner designated
P11   1and authorized by the commissioner while acting under his or her
2designation as the Insurance Commissioner.

end insert
begin delete

3(c)

end delete

4begin insert(d)end insert The term “control” includes the terms “controlling,”
5“controlled by,” and “under common control with,” and means
6the possession, direct or indirect, of the power to direct or cause
7the direction of the management and policies of a person, whether
8through the ownership of voting securities, by contract other than
9a commercial contract for goods or nonmanagement services, or
10otherwise, unless the power is the result of an official position with
11or corporate office held by the person. Control shall be presumed
12to exist if any person, directly or indirectly, owns, controls, holds
13with the power to vote, or holds proxies representing, more than
1410 percent of the voting securities of any other person. This
15presumption may be rebutted by a showing that control does not
16exist in fact pursuant to the filing of a disclaimer of affiliation in
17accordance with subdivision (l) of Section 1215.4. The
18commissioner may, after furnishing all persons in interest notice
19and opportunity to be heard, determine that control exists in fact,
20notwithstanding the absence of a presumption to that effect.

begin delete

21(d)

end delete

22begin insert(e)end insert “Enterprise risk” means any activity, circumstance, or event
23or series of events involving one or more affiliates of an insurer
24that, if not remedied promptly, is likely to have a material adverse
25effect upon the financial condition or liquidity of the insurer or its
26insurance holding company system as a whole, including, but not
27limited to, anything that would cause the insurer’s risk-based
28capital to fall into company action level as set forth in Article 4.1
29(commencing with Section 739) of Chapter 1 and under Section
30739.5 or would cause the insurer to be in hazardous financial
31condition and allow the commissioner to takebegin delete suchend delete actionsbegin delete asend deletebegin insert that
32areend insert
necessary under Article 14 (commencing with Section 1010),
33Article 14.3 (commencing with Section 1064.1), and Article 15.5
34 (commencing with Section 1077).

begin insert

35(f) “Groupwide supervisor” means the insurance regulatory
36official authorized to engage in conducting and coordinating
37groupwide supervision activities who is determined or
38acknowledged by the commissioner pursuant to subdivision (a) of
39Section 1215.75 to have sufficient significant contacts with the
40internationally active insurance group.

end insert
begin delete

P12   1(e)

end delete

2begin insert(g)end insert An “insurance holding company system” consists of two or
3more affiliated persons, one or more of which is an insurer.

begin delete

4(f)

end delete

5begin insert(h)end insert “Insurer” shall have the same meaning as set forth in Section
6826, excluding subdivisions (e) and (f) of that section.

begin insert

7(i) “Internationally active insurance group” means an insurance
8holding company system that includes an insurer registered
9pursuant to Section 1215.4 and that meets the following criteria:

end insert
begin insert

10(1) The insurance holding company system writes premiums in
11at least three countries.

end insert
begin insert

12(2) The percentage of gross premiums written outside the United
13States is at least 10 percent of the insurance holding company
14system’s total gross written premiums.

end insert
begin insert

15(3) Based on a three-year rolling average, the total assets of
16the insurance holding company system are at least fifty billion
17dollars ($50,000,000,000) or the total gross written premiums of
18the insurance holding company system are at least ten billion
19dollars ($10,000,000,000).

end insert
begin insert

20(j) “NAIC” means the National Association of Insurance
21Commissioners.

end insert
begin delete

22(g)

end delete

23begin insert(k)end insert “Person” is an individual, a corporation, a limited liability
24company, a partnership, an association, a joint stock company, a
25business trust, an unincorporated organization, or any similar entity,
26or any combination thereof acting in concert.

begin delete

27(h)

end delete

28begin insert(l)end insert A “security holder” of a specified person is the holder that
29owns any security of that person, including common stock,
30preferred stock, debt obligations, and any other security convertible
31into or evidencing the right to acquire any of the foregoing.

begin delete

32(i)

end delete

33begin insert(m)end insert A “subsidiary” of a specified person is an affiliate controlled
34by that person directly, or indirectly through one or more
35intermediaries.

begin delete

36(j)

end delete

37begin insert(n)end insert “Voting security” shall include any security convertible into
38or evidencing a right to acquire a voting security.

39

SEC. 3.  

Section 1215.1 of the Insurance Code is amended to
40read:

P13   1

1215.1.  

(a) Any domestic insurer, either by itself or in
2cooperation with one or more persons, may organize or acquire
3one or more subsidiaries subject to the limitations of this section.

4(b) In addition to investments in common stock, preferred stock,
5debt obligations, and other securities permitted under all other
6sections of this chapter, a domestic insurer may also do one or
7more of the following:

8(1) Invest in common stock, preferred stock, debt obligations,
9and other securities of one or more subsidiaries, amounts that do
10not exceed the lesser of 10 percent of the insurer’s assets or 50
11percent of the insurer’s surplus as regards policyholders. However,
12after these investments, the insurer’s surplus as regards
13policyholders shall be reasonable in relation to the insurer’s
14outstanding liabilities and adequate to its financial needs. In
15calculating the amount of these investments, there shall be excluded
16investments in insurance subsidiaries, and there shall be included
17(A) total net moneys or other consideration expended and
18obligations assumed in the acquisition or formation of a subsidiary,
19including all organizational expenses and contributions to capital
20and surplus of the subsidiary whether or not represented by the
21purchase of capital stock or issuance of other securities, and (B)
22all amounts expended in acquiring additional common stock,
23preferred stock, debt obligations, and other securities and all
24contributions to the capital or surplus of a subsidiary subsequent
25to its acquisition or formation.

26“Insurance subsidiary” is an insurer that is organized within the
27United States and is controlled, directly or indirectly, by a reporting
28insurer subject to this article. For purposes of this paragraph,
29“investments in insurance subsidiaries” shall include the following:

30(A) Any direct investment in an insurance subsidiary.

31(B) The insurer’s proportionate share of any investment in an
32insurance subsidiary held by any subsidiary of the insurer. This
33shall be calculated by multiplying the amount of the subsidiary’s
34investment in the insurance subsidiary by the insurer’s percentage
35of ownership of the subsidiary.

36(2) Invest any amount in common stock, preferred stock, debt
37obligations, and other securities of one or more subsidiaries,
38provided that each subsidiary agrees to limit its investments in any
39asset so that these investments will not cause the amount of the
40total investment of the insurer to exceed any of the investment
P14   1 limitations specified in paragraph (1) or in this chapter applicable
2to the insurer. For the purpose of this paragraph, “the total
3investment of the insurer” shall include (A) any direct investment
4by the insurer in an asset, and (B) the insurer’s proportionate share
5of any investment of an asset by any subsidiary of the insurer,
6which shall be calculated by multiplying the amount of the
7subsidiary’s investment by the percentage of the insurer’s
8ownership of that subsidiary.

9(3) With the approval of the commissioner, invest any amount
10in common stock, preferred stock, debt obligations, or other
11securities of one or more subsidiaries, provided that after this
12investment the insurer’s surplus as regards policyholders shall be
13reasonable in relation to the insurer’s outstanding liabilities and
14adequate to its financial needs.

15(c) Investments in common stock, preferred stock, debt
16 obligations, or other securities of subsidiaries made pursuant to
17subdivision (b) shall neither limit nor be subject to any of the
18otherwise applicable authorizations, restrictions, or prohibitions
19contained in thisbegin delete partend deletebegin insert articleend insert applicable to these investments of
20insurers.

21(d) Whether any investment pursuant to subdivision (b) meets
22the applicable requirements thereof is to be determined immediately
23after the investment is made, taking into account the then
24outstanding principal balance on all previous investments in debt
25obligations, and the value of all previous investments in equity
26securities as of the date they were made.

27(e) If an insurer ceases to control a subsidiary, it shall dispose
28of any investment therein made pursuant to this section within
29three years from the time of the cessation of control, or within any
30further time as the commissioner may prescribe, unless at any time
31after the investment has been made, the investment has met the
32requirements for investment under any other section of this part.

33

SEC. 4.  

Section 1215.2 of the Insurance Code is amended to
34read:

35

1215.2.  

(a) No person shall make a tender offer for, or a request
36or invitation for tenders of, or enter into an agreement to exchange
37securities for or acquire in the open market, any voting security,
38or any security convertible into a voting security, of a domestic
39insurer or of any other person controlling a domestic insurer, if
40the other person is not substantially engaged either directly or
P15   1through its affiliates in any businesses other than that of insurance,
2if, as a result of the consummation thereof, the person would,
3directly or indirectly, acquire control of the insurer, and no person
4shall enter into an agreement to merge with or otherwise to acquire
5control of a domestic insurer, unless, at the time copies of the offer,
6purchase, request, or invitation are first published, sent, or given
7to security holders or the agreement or transaction is entered into,
8as the case may be, the person has filed with the commissioner,
9and has sent to the insurer, a statement containing the following
10information, and any additional information as the commissioner
11may by rule or regulation prescribe as necessary or appropriate in
12the public interest or for the protection of policyholders or
13shareholders:

14(1) The background and identity of all persons by whom or on
15whose behalf the purchases or the exchange, merger, or other
16acquisition of control are to be effected.

17(2) The source and amount of the funds or other consideration
18used or to be used in making the purchases or in effecting the
19exchange, merger, or other acquisition of control, and, if any part
20of the funds or other consideration has been or is to be borrowed
21or otherwise obtained for the purpose of making the purchases or
22effecting the exchange, merger, or other acquisition of control, a
23description of the transaction and the names of the parties thereto.
24However, where a source of funds is a loan made in the lender’s
25ordinary course of business, if the person filing the statement so
26requests, the name of the lender shall not be made available to the
27public.

28(3) Any plans or proposalsbegin delete whichend deletebegin insert thatend insert those persons may have
29to liquidate the insurer, to sell its assets or merge it with any person,
30or to make any other major change in its business or corporate
31structure or management.

32(4) The amount of each class of voting securities or securities
33which may be converted into voting securities of the insurer or the
34controlling person which are beneficially owned, and the amount
35of each class of voting securities or securities which may be
36converted into voting securities of the insurer or the controlling
37person concerning which there is a right to acquire beneficial
38ownership, by each person and by each affiliate of each person,
39together with the name and address of each affiliate.

P16   1(5) Information as to any contracts, arrangements, or
2understandings with any person with respect to any securities of
3the insurer or the controlling person, including, but not limited to,
4transfer of any of the securities, joint ventures, loan or option
5arrangements, puts or calls, guarantees of loans, guarantees against
6loss or guarantees of profits, division of losses or profits, or the
7giving or withholding of proxies, naming the persons with whom
8the contracts, arrangements, or understandings have been entered
9into, and giving the details thereof.

10All requests or invitations for tenders or advertisements making
11a tender offer or requesting or inviting tenders of the voting
12securities of the insurer or the controlling person made by or on
13behalf of the person, and a copy of the agreement to exchange or
14otherwise acquire securities or to merge with or otherwise to
15acquire control of the insurer, shall be filed with the commissioner
16and sent to the insurer as a part of the statement and shall contain
17the information contained in the statement as the commissioner
18may by rule or regulation prescribe. Copies of any additional
19material soliciting or requesting the tender offers subsequent to
20the initial solicitation or request, and copies of any amendment to
21the agreement, shall contain the information as the commissioner
22may by rule or regulation prescribe as necessary or appropriate in
23the public interest or for the protection of policyholders or
24shareholders, and shall be filed with the commissioner and sent to
25the insurer not later than the time copies of the material are first
26published or sent or given to security holders or the amendment
27is entered into.

28(b) If the person required to file the statement referred to in
29subdivision (a) is a partnership, limited partnership, syndicate, or
30other group, the commissioner may require that the information
31called for by paragraphs (1) to (5), inclusive, of subdivision (a)
32shall be given with respect to: (1) each partner of the partnership
33or limited partnership, (2) each member of the syndicate or group,
34and (3) each person who controls the partner or member. If a
35person referred to in paragraph (1), (2), or (3) of this subdivision
36is a corporation or the person required to file the statement referred
37to in subdivision (a) is a corporation, the commissioner may require
38that the information called for by paragraphs (1) to (5), inclusive,
39of subdivision (a) shall be given with respect to the corporation
40and each officer and director of the corporation and each person
P17   1who is directly or indirectly the beneficial owner of more than 10
2percent of the outstanding voting securities of the corporation.

3(c) If any tender offer, request, or invitation for tenders, or
4agreement to exchange or otherwise acquire securities or to merge
5or otherwise acquire control referred to in subdivision (a), is
6proposed to be made by means of a registration statement under
7the federal Securities Act of 1933, or in circumstances requiring
8the disclosure of similar information under the federal Securities
9Exchange Act of 1934, or under a state law requiring similar
10registration or disclosure, the person required to file the statement
11referred to in subdivision (a) may file that registration statement
12with the commissioner as full satisfaction of the requirement in
13subdivision (a).

14(d) The purchases, exchanges, mergers, or other acquisitions of
15control referred to in subdivision (a) may not be made until the
16commissioner approves the purchases, exchanges, mergers, or
17other acquisitions of control. The commissioner shall approve or
18disapprove the transaction on or before the latter of 60 days after
19the statement required by subdivision (a) has been filed with the
20commissioner or, if a hearing is held pursuant to subdivision (f),
2130 days after the close of the hearing held pursuant to subdivision
22(f). The commissioner may disapprove the transaction if the
23commissioner finds any of the following:

24(1) After the change of control the domestic insurer referred to
25in subdivision (a) could not satisfy the requirements for the
26issuance of a license to write the line or lines of insurance for
27which it is presently licensed.

28(2) The purchases, exchanges, mergers, or other acquisitions of
29control would substantially lessen competition in insurance in this
30state or create a monopoly therein.

31(3) The financial condition of an acquiring person might
32jeopardize the financial stability of the insurer, or prejudice the
33interests of its policyholders.

34(4) The plans or proposals which the acquiring person has to
35liquidate the insurer, to sell its assets, or to merge it with any
36person, or to make any other major change in its business or
37corporate structure or management, are not fair and reasonable to
38policyholders.

39(5) The competence, experience, and integrity of those persons
40who would control the operation of the insurer indicate that it
P18   1would not be in the interest of policyholders, or the public to permit
2them to do so.

3(e) The commissioner shall require the payment of two thousand
4three hundred sixty dollars ($2,360) as a fee for filing an
5applicationbegin delete underend deletebegin insert pursuant toend insert this section, the amount to
6accompany the application.begin insert The application shall be on a form
7and in a format prescribed by the NAIC.end insert

8(f) (1) The commissioner may hold a public hearing after the
9statement required by subdivision (a) is filed. If a hearing is held,
10at least 20 days’ notice shall be given by the commissioner to the
11person filing the statement. Not less than seven days’ notice of the
12public hearing shall be given by the person filing the statement to
13the insurer and tobegin delete suchend delete other persons as may be designated by the
14commissioner. At the hearing, the person filing the statement, the
15insurer, any person to whom notice of hearing was sent, and any
16other person whose interest may be affected, shall have the right
17to present evidence, examine and cross-examine witnesses, and
18offer oral and written arguments, and in connection therewith shall
19be entitled to conduct proceedings in the same manner as is
20presently allowed under the Administrative Procedure Act (Chapter
215 (commencing with Section 11500) of Part 1 of Division 3 of
22Title 2 of the Government Code). All discovery proceedings shall
23be concluded not later than three days prior to the commencement
24of the public hearing.

25(2) If the proposed acquisition of control will require the
26approval of more than one commissioner, the public hearing
27referred to in paragraph (1) may be held on a consolidated basis
28upon request of the person filing the statement referred to in
29subdivision (a). The person shall file the statement referred to in
30subdivision (a) with the National Association of Insurance
31Commissioners (NAIC) within five days of making the request
32for a public hearing. A commissioner may opt out of a consolidated
33hearing, and shall provide notice to the applicant of the opt-out
34within 10 days of the receipt of the statement referred to in
35subdivision (a). A hearing conducted on a consolidated basis shall
36be public and shall be held within the United States before the
37commissioners of the states in which the insurers are domiciled.
38The commissioners shall hear and receive evidence. Any
39commissioner may attend the hearing, in person or by
40telecommunication.

P19   1(g) This section shall not apply to any offer for or request or
2invitation for tenders of any voting securities, or any agreement
3to exchange securities for or otherwise acquire control, if the
4insurer whose shares are to be acquired remains a direct or indirect
5subsidiary of the same ultimate controlling company person within
6the insurer’s insurance holding company system, neither the
7acquiring person nor any affiliate acquires or incurs any debt,
8 guarantee, or other liability related to the transaction, and no shares
9are purchased by or sold to a person who is not an affiliated person
10in that insurance holding company system, or if, and to the extent
11that, the commissioner, by rule or regulation or by order, exempts
12the offer, request, invitation, or agreement from the provisions of
13this section as not comprehended within the purposes thereof.

14(h) For purposes of this section, any controlling person of a
15domestic insurer seeking to divest its controlling interest in the
16domestic insurer, in any manner, shall file with the commissioner,
17with a copy to the insurer, confidential notice of its proposed
18divestiture at least 30 days prior to the cessation of control. The
19commissioner shall determine those instances in which the party
20or parties seeking to divest a controlling interest in an insurer shall
21be required to file for and obtain approval of the transaction. The
22information shall remain confidential until the conclusion of the
23transaction unless the commissioner, in his or her discretion,
24determines that confidential treatment will interfere with
25enforcement of this article. If the statement referred to in
26subdivision (a) of Section 1215.2 is otherwise filed, this subdivision
27shall not apply.

28

SEC. 5.  

Section 1215.5 of the Insurance Code is amended to
29read:

30

1215.5.  

(a) Transactions by registered insurers with their
31affiliates are subject to the following standards:

32(1) The terms shall be fair and reasonable.

33(2) Charges or fees for services performed shall be reasonable.

34(3) Expenses incurred and payment received shall be allocated
35to the insurer in conformity with customary insurance accounting
36practices consistently applied.

37(4) The books, accounts, and records of each party to all
38transactions shall be so maintained as to clearly and accurately
39disclose the precise nature and details of the transactions, including
P20   1accounting information that is necessary to support the
2reasonableness of the charges or fees to the parties.

3(5) The insurer’s policyholder’s surplus following any dividends
4or distributions to shareholder affiliates shall be reasonable in
5relation to the insurer’s outstanding liabilities and adequate to its
6financial needs.

7(b) The following transactions involving a domestic insurer or
8commercially domiciled insurer, as defined in Section 1215.14,
9and any person in its insurance holding company system, including
10amendments or modifications of affiliate agreements previously
11filed pursuant to this section, may be entered into only if the insurer
12has notified the commissioner in writing of its intention to enter
13into the transaction at least 30 days prior thereto, or a shorter period
14as the commissioner may permit, and the commissioner has not
15disapproved it within that period. The notice for amendments or
16modifications shall include the reasons for the change and the
17financial impact on the domestic insurer or commercially domiciled
18insurer. Informal notice shall be reported, within 30 days after a
19termination of a previously filed agreement, to the commissioner
20for determination of the type of filing required, if any. The
21commissioner shall require the payment of one thousand eight
22hundred eighty-nine dollars ($1,889) as a fee for filingsbegin delete underend delete
23begin insert pursuant toend insert thisbegin delete subdivision.end deletebegin insert subdivision, and the filings shall be
24on a form and in a format prescribed by the NAIC.end insert
The payment
25shall accompany the filing.

26(1) Sales, purchases, exchanges, loans, extensions of credit, or
27investments, if the transactions are equal to or exceed:

28(A) For a nonlife insurer, the lesser of 3 percent of the insurer’s
29admitted assets or 25 percent of the policyholder’s surplus as of
30the preceding December 31st.

31(B) For a life insurer, 3 percent of the insurer’s admitted assets
32as of the preceding December 31st.

33(2) Loans or extensions of credit to a person who is not an
34affiliate, if made with the agreement or understanding that the
35proceeds of the transactions, in whole or in substantial part, are to
36be used to make loans or extensions of credit to, to purchase assets
37of, or to make investments in, any affiliate of the insurer, if the
38transactions are equal to or exceed:

P21   1(A) For a nonlife insurer, the lesser of 3 percent of the insurer’s
2admitted assets or 25 percent of the policyholder’s surplus as of
3the preceding December 31st.

4(B) For a life insurer, 3 percent of the insurer’s admitted assets
5as of the preceding December 31st.

6(3) Reinsurance agreements and pooling agreements and
7modifications thereto in which the reinsurance premium or a
8change in the insurer’s liabilities, or the projected reinsurance
9premium or a change in the insurer’s liabilities in any of the next
10three years, equals or exceeds 5 percent of the insurer’s
11policyholder’s surplus, as of the preceding December 31st,
12including those agreements that may require as consideration the
13transfer of assets from an insurer to a nonaffiliate, if an agreement
14or understanding exists between the insurer and nonaffiliate that
15 any portion of the assets will be transferred to one or more affiliates
16of the insurer.

17(4) All management agreements, service contracts, tax sharing
18agreements, and cost-sharing arrangements. However, subscription
19agreements or powers of attorney executed by subscribers of a
20reciprocal or interinsurance exchange are not required to be
21reported pursuant to this section if the form of the agreement was
22in use before 1943 and was not amended in any way to modify
23payments, fees, or waivers of fees or otherwise substantially
24amended after 1943. Payment or waiver of fees or other amounts
25due under subscription agreements or powers of attorney forms
26that were in use before 1943 and that have not been amended in
27any way to modify payments, fees, or waiver of fees, or otherwise
28substantially amended after 1943 shall not be subject to regulation
29pursuant to paragraph (2) of subdivision (a).

30(5) Guarantees when initiated or made by a domestic or
31commercially domiciled insurer, provided that a guarantee that is
32quantifiable as to amount is not subject to the notice requirements
33of this paragraph unless it exceeds the lesser of one-half of 1
34percent of the insurer’s admitted assets or 10 percent of surplus as
35regards policyholders as of the 31st day of December next
36preceding. Further, all guarantees that are not quantifiable as to
37amount are subject to the notice requirements of this paragraph.

38(6) Derivative transactions or series of derivative transactions.
39The written filing to the commissioner shall include the type or
40types of derivative transactions, the affiliate or affiliates engaging
P22   1with the insurer in the derivative transactions, the objective and
2the rationale for the derivative transaction or series of derivative
3transactions, the maximum maturity and economic effect of the
4derivative transactions, and any other information required by the
5commissioner. Derivative transactions entered into pursuant to
6this subdivision shall comply with the provisions of Section 1211.

7(7) Direct or indirect acquisitions or investments in a person
8that controls the insurer or in an affiliate of the insurer in an amount
9that, together with its present holdings in those investments,
10exceeds 2.5 percent of the insurer’s policyholder’s surplus. Direct
11or indirect acquisitions or investments in subsidiaries acquired
12under Section 1215.1, or in nonsubsidiary insurance affiliates that
13are subject to the provisions of this article, or in subsidiaries
14acquired pursuant to Section 1199, are exempt from this
15requirement.

16(8) Any material transactions, specified by regulation, that the
17commissioner determines may adversely affect the interests of the
18insurer’s policyholders.

19(c) A domestic insurer may not enter into transactions that are
20part of a plan or series of transactions with persons within the
21holding company system if the purpose of those transactions is to
22avoid the statutory threshold amount and thus avoid review. If the
23commissioner determines that separate transactions were entered
24into over any 12-month period to avoid review, the commissioner
25may exercise his or her authority under Section 1215.11.

26(d) The commissioner, in reviewing transactions under
27subdivision (b), shall consider whether the transactions comply
28with the standards set forth in subdivision (a) and whether they
29may adversely affect the interests of policyholders.

30(e) The commissioner shall be notified within 30 days of any
31investment by the insurer in any one corporation if the total
32investment in the corporation by the insurance holding company
33system exceeds 10 percent of the corporation’s voting securities.

34(f) For purposes of this article, in determining whether an
35insurer’s policyholder’s surplus is reasonable in relation to the
36insurer’s outstanding liabilities and adequate to its financial needs,
37the following factors, among others, shall be considered:

38(1) The size of the insurer, as measured by its assets, capital
39and surplus, reserves, premium writings, insurance in force, and
40other appropriate criteria.

P23   1(2) The extent to which the insurer’s business is diversified
2among the several lines of insurance.

3(3) The number and size of risks insured in each line of business.

4(4) The extent of the geographical dispersion of the insurer’s
5insured risks.

6(5) The nature and extent of the insurer’s reinsurance program.

7(6) The quality, diversification, and liquidity of the insurer’s
8investment portfolio.

9(7) The recent past and projected future trend in the size of the
10insurer’s investment portfolio.

11(8) The recent past and projected future trend in the size of the
12insurer’s surplus, and the policyholder’s surplus maintained by
13other comparable insurers.

14(9) The adequacy of the insurer’s reserves.

15(10) The quality and liquidity of investments in subsidiaries
16made under Section 1215.1. The commissioner may treat anybegin delete such
17investmentend delete
begin insert those investmentsend insert as a disallowed asset for purposes
18of determining the adequacy of the policyholder’s surplus
19whenever, in his or her judgment, the investment so warrants.

20(11) The quality of the company’s earnings and the extent to
21which the reported earnings include extraordinary accounting
22items.

23(g) No insurer subject to registration under Section 1215.4 shall
24pay any extraordinary dividend or make any other extraordinary
25distribution to its stockholders until 30 days after the commissioner
26has received notice of the declaration thereof and has approved
27the payment or has not, within the 30-day period, disapproved the
28payment.

29For purposes of this section, an extraordinary dividend or
30distribution is any dividend or distribution which, together with
31other dividends or distributions made within the preceding 12
32months, exceeds the greater of (1) 10 percent of the insurer’s
33policyholder’s surplus as of the preceding December 31st, or (2)
34the net gain from operations of the insurer, if the insurer is a life
35insurer, or the net income, if the insurer is not a life insurer, for
36the 12-month period ending the preceding December 31st.

37Notwithstanding any other provision of law, an insurer may
38declare an extraordinary dividend or distribution that is conditional
39upon the commissioner’s approval. The declaration confers no
40rights upon stockholders until the commissioner has approved the
P24   1payment of the dividend or distribution or until the commissioner
2has not disapproved the payment within the 30-day period referred
3to in this subdivision.

4(h) Notwithstanding the control of a domestic insurer by any
5person, the officers and directors of the insurer shall not thereby
6be relieved of any obligation or liability to which they would
7otherwise be subject to by law, and the insurer shall be managed
8to ensure its separate operating identity consistent with the
9provisions of this article. However, nothing in this article shall
10preclude a domestic insurer from having or sharing a common
11management or cooperative or joint use of personnel, property, or
12services with one or more other persons under arrangements
13meeting the standards of subdivision (a).

14(i) The provisions of this section do not apply to any insurer,
15information, or transaction exempted by the commissioner.

16

SEC. 6.  

Section 1215.6 of the Insurance Code is amended to
17read:

18

1215.6.  

(a) Subject to the limitation contained in this section,
19and in addition to the powers which the commissioner has under
20Article 4 (commencing with Section 730) of Chapter 1 of this part
21relating to the examination of insurers, the commissioner shall
22also have the power to examine any insurer registered under
23Section 1215.4begin insert and its affiliatesend insert to ascertain the enterprise risk to
24which the insurer is subjected by the ultimate controlling party, or
25by any entity or combination of entities within the insurance
26holding company system, or by the insurance holding company
27system on a consolidated basis. The commissioner may also order
28any insurer registered under Section 1215.4 to producebegin delete suchend deletebegin insert theend insert
29 records, books, or other information or papers in the possession
30of the insurer or its affiliates, including a report on the enterprise
31risk to the insurer by the ultimate controlling party, or by any entity
32or combination of entities within the insurance holding company
33system, or by the insurance holding company system on a
34consolidated basis, as shall be necessary to ascertain the financial
35condition or legality of conduct ofbegin delete suchend deletebegin insert thatend insert insurer.

36(b) The commissioner shall exercise his or her power under
37subdivision (a) only if the examination of the insurer under Article
384 (commencing with Section 730) of Chapter 1 of this part is
39inadequate or the interests of the policyholders ofbegin delete suchend deletebegin insert thatend insert insurer
40are being adversely affected.

P25   1(c) The commissioner may retain at the registered insurer’s
2expensebegin delete suchend deletebegin insert theend insert attorneys, actuaries, accountants, and other
3experts not otherwise a part of the commissioner’s staff as shall
4be reasonably necessary to assist in the conduct of the examination
5under subdivision (a) of this section. Any persons so retained shall
6be under the direction and control of the commissioner and shall
7act in a purely advisory capacity.

8(d) Each registered insurer producing for examination records,
9books, and papers pursuant to subdivision (a)begin delete of this sectionend delete shall
10be liable for, and shall pay the expense of,begin delete suchend deletebegin insert thatend insert examination
11in accordance with Section 736.

12

SEC. 7.  

Section 1215.75 is added to the Insurance Code, to
13read:

14

1215.75.  

(a) (1) The commissioner is authorized to act as the
15groupwide supervisor for any internationally active insurance
16group in accordance with this section. However, the commissioner
17may otherwise acknowledge another regulatory official as the
18groupwide supervisor when the internationally active insurance
19group meets any of the following conditions:

20(A) Does not have substantial insurance operations in the United
21States.

22(B) Has substantial insurance operations in the United States,
23but not in this state.

24(C) Has substantial insurance operations in the United States
25and this state, but the commissioner has determined pursuant to
26the factors set forth in subdivisions (b) and (f) that the other
27regulatory official is the appropriate groupwide supervisor.

28(2) An insurance holding company system that does not
29otherwise qualify as an internationally active insurance group may
30request that the commissioner make a determination or
31acknowledgment as to a groupwide supervisor pursuant to this
32section.

33(b) In cooperation with other state, federal, and international
34regulatory agencies, the commissioner shall identify a single
35groupwide supervisor for an internationally active insurance group.
36The commissioner may determine that he or she is the appropriate
37groupwide supervisor for an internationally active insurance group
38that conducts substantial insurance operations concentrated in the
39state. However, the commissioner may acknowledge that a
40regulatory official from another jurisdiction is the appropriate
P26   1groupwide supervisor for the internationally active insurance group.
2The commissioner shall consider all of the following factors when
3making a determination or acknowledgment pursuant to this
4subdivision:

5(1) The place of domicile of the insurers within the
6internationally active insurance group that hold the largest share
7of the group’s written premiums, assets, or liabilities.

8(2) The place of domicile of the top-tiered insurer or insurers
9in the insurance holding company system of the internationally
10active insurance group.

11(3) The location of the executive offices or largest operational
12offices of the internationally active insurance group.

13(4) Whether another regulatory official is acting, or is seeking
14to act, as the groupwide supervisor under a regulatory system that
15the commissioner determines to be either of the following:

16(A) Substantially similar to the system of regulation provided
17under the laws of this state.

18(B) Otherwise sufficient in terms of providing for groupwide
19supervision, enterprise risk analysis, and cooperation with other
20regulatory officials.

21(5) Whether another regulatory official acting, or seeking to
22act, as the groupwide supervisor provides the commissioner with
23reasonably reciprocal recognition and cooperation.

24However, a commissioner identified pursuant to this section as
25the groupwide supervisor may determine that it is appropriate to
26acknowledge another supervisor to serve as the groupwide
27supervisor. The acknowledgment of the groupwide supervisor shall
28 be made after consideration of the factors listed in paragraphs (1)
29to (5), inclusive, and shall be made in cooperation with and subject
30to the acknowledgment of other regulatory officials involved with
31supervision of members of the internationally active insurance
32group, and in consultation with the internationally active insurance
33group.

34(c) Notwithstanding any other law, when another regulatory
35official is acting as the groupwide supervisor of an internationally
36active insurance group, the commissioner shall acknowledge that
37regulatory official as the groupwide supervisor. However, if there
38is a material change in the internationally active insurance group
39that results in either (1) the internationally active insurance group’s
40insurers domiciled in this state holding the largest share of the
P27   1group’s premiums, assets, or liabilities, or (2) this state being the
2place of domicile of the top-tiered insurer or insurers in the
3insurance holding company system of the internationally active
4insurance group, the commissioner shall make a determination or
5acknowledgment as to the appropriate groupwide supervisor for
6that internationally active insurance group pursuant to subdivision
7(b).

8(d) Pursuant to Section 1215.6, the commissioner is authorized
9to collect from any insurer registered pursuant to Section 1215.4
10all information necessary to determine whether the commissioner
11may act as the groupwide supervisor of an internationally active
12insurance group or if the commissioner may acknowledge another
13regulatory official to act as the groupwide supervisor. Prior to
14issuing a determination that an internationally active insurance
15group is subject to groupwide supervision by the commissioner,
16the commissioner shall notify the insurer registered pursuant to
17Section 1215.4 and the ultimate controlling person within the
18internationally active insurance group. The internationally active
19 insurance group shall have not less than 30 days to provide the
20commissioner with additional information pertinent to the pending
21determination. The commissioner shall publish on the department’s
22Internet Web site the identity of internationally active insurance
23groups that the commissioner has determined are subject to
24groupwide supervision by the commissioner.

25(e) If the commissioner is the groupwide supervisor for an
26internationally active insurance group, the commissioner is
27authorized to engage in any of the following groupwide supervision
28activities:

29(1) Assess the enterprise risks within the internationally active
30insurance group to ensure both of the following:

31(A) The material financial condition and liquidity risks to the
32members of the internationally active insurance group that are
33engaged in the business of insurance are identified by management.

34(B) Reasonable and effective mitigation measures are in place.

35(2) Request, from any member of an internationally active
36insurance group subject to the commissioner’s supervision,
37information necessary and appropriate to assess enterprise risk,
38including, but not limited to, information about the members of
39the internationally active insurance group regarding any of the
40following:

P28   1(A) Governance, risk assessment, and management.

2(B) Capital adequacy.

3(C) Material intercompany transactions.

4(3) Coordinate and, through the authority of the regulatory
5officials of the jurisdictions where members of the internationally
6active insurance group are domiciled, compel development and
7implementation of reasonable measures designed to ensure that
8the internationally active insurance group is able to timely
9recognize and mitigate enterprise risks to members of that
10internationally active insurance group that are engaged in the
11business of insurance.

12(4) Communicate with other state, federal, and international
13regulatory agencies for members within the internationally active
14insurance group and share relevant information subject to the
15confidentiality provisions of Section 1215.8, through supervisory
16colleges as set forth in Section 1215.7 or otherwise.

17(5) Enter into agreements with, or obtain documentation from,
18any insurer registered pursuant to Section 1215.4, any member of
19the internationally active insurance group, and any other state,
20federal, and international regulatory agencies for members of the
21internationally active insurance group, providing the basis for or
22otherwise clarifying the commissioner’s role as groupwide
23supervisor, including provisions for resolving disputes with other
24regulatory officials. These agreements or documentation shall not
25serve as evidence in any proceeding that any insurer or person
26within an insurance holding company system not domiciled or
27incorporated in this state is doing business in this state or is
28otherwise subject to jurisdiction in this state.

29(6) Other groupwide supervision activities, consistent with the
30authorities and purposes enumerated above, as considered
31necessary by the commissioner.

32(f) If the commissioner acknowledges that another regulatory
33official from a jurisdiction that is not accredited by the NAIC is
34the groupwide supervisor, the commissioner is authorized to
35reasonably cooperate, through supervisory colleges or otherwise,
36with groupwide supervision undertaken by the groupwide
37supervisor if the following conditions are satisfied:

38(1) The commissioner’s cooperation is in compliance with the
39laws of this state.

P29   1(2) The regulatory official acknowledged as the groupwide
2supervisor also recognizes and cooperates with the commissioner’s
3activities as a groupwide supervisor for other internationally active
4insurance groups when applicable. When that recognition and
5cooperation is not reasonably reciprocal, the commissioner is
6authorized to refuse recognition and cooperation.

7(g) The commissioner is authorized to enter into agreements
8with, or obtain documentation from, any insurer registered pursuant
9to Section 1215.4, any affiliate of the insurer, and other state,
10federal, or international regulatory agencies for members of the
11internationally active insurance groups, that provide the basis for,
12or otherwise clarify, a regulatory official’s role as groupwide
13supervisor.

14(h) A registered insurer subject to this section shall be liable for
15and shall pay the reasonable expenses of the commissioner’s
16participation in the administration of this section, including the
17engagement of attorneys, actuaries, and any other professionals
18and all reasonable travel expenses.

19

SEC. 8.  

Section 1215.8 of the Insurance Code is amended to
20read:

21

1215.8.  

(a) All information, documents, and copies thereof
22obtained by or disclosed to the commissioner or any other person
23in the course of an examination or investigation made pursuant to
24begin delete Sections 1215.4 andend deletebegin insert Section 1215.4,end insert 1215.5,begin insert 1215.6, or 1215.75,end insert
25 and all information reportedbegin insert or providedend insert pursuant to Section
261215.4,begin insert 1215.5, 1215.6, or 1215.75end insert shall be kept confidential, is
27not subject to disclosure by the commissioner pursuant to the
28California Public Records Act (Chapter 3.5 (commencing with
29Section 6250) of Division 7 of Title 1 of the Government Code),
30is not subject to subpoena, and is not subject to discovery from
31the commissioner or admissible into evidence in any private civil
32action if obtained from the commissioner in any manner. This
33information shall not be made public by the commissioner or any
34other person except to insurance departments of other states without
35the prior written consent of the insurance company to which it
36pertains, unless the commissioner, after giving the insurer and its
37affiliates who would be affected thereby notice and opportunity
38to be heard, determines that the interests of policyholders,
39shareholders, or the public will be served by the publication thereof,
P30   1in which event he or she may publish all or any part thereof in a
2manner as he or she may deem appropriate.

3(b) In order to assist in the performance of the commissioner’s
4duties, the commissioner:

5(1) May, upon request, be required to share documents,
6materials, or other information, including the confidential and
7privileged documents, materials, or information subject to
8subdivision (a), with other state, federal, and international
9regulatory agencies, with the NAIC and its affiliates and
10subsidiaries, and with state, federal, and international law
11enforcement authorities, including members of any supervisory
12college described in Section 1215.7; provided that the recipient
13agrees in writing to maintain the confidentiality and privileged
14status of the documents, materials, or other information, and has
15verified in writing the legal authority to maintain confidentiality.

16(2) Notwithstanding paragraph (1), may only share confidential
17and privileged documents, materials, or information reported
18pursuant to subdivision (m) of Section 1215.4 with commissioners
19of states having statutes or regulations substantially similar to
20subdivision (a) and who have agreed in writing not to disclose the
21information.

22(3) May receive documents, materials, or information, including
23otherwise confidential and privileged documents, materials, or
24information, from the NAIC and its affiliates and subsidiaries and
25from regulatory and law enforcement officials of other foreign or
26domestic jurisdictions, and shall maintain as confidential or
27privileged any documents, materials, or information received with
28notice or the understanding that it is confidential or privileged
29under the laws of the jurisdiction that is the source of the
30documents, materials, or information.

31(4) May enter into written agreements with the NAIC governing
32sharing and use of information provided pursuant to this
33subdivision consistent with this subdivision that shall do the
34following:

35(A) Specify procedures and protocols regarding the
36confidentiality and security of information shared with the NAIC
37and its affiliates and subsidiaries pursuant to this subdivision,
38including procedures and protocols for sharing by the NAIC with
39other state, federal, or international regulators.

P31   1(B) Specify that ownership of information shared with the NAIC
2and its affiliates and subsidiaries pursuant to this subdivision
3remains with the commissioner and the NAIC’s use of the
4information is subject to the direction of the commissioner.

5(C) Require prompt notice to be given to an insurer whose
6confidential information in the possession of the NAIC pursuant
7to this subdivision is subject to a request or subpoena to the NAIC
8for disclosure or production.

9(D) Require the NAIC and its affiliates and subsidiaries to
10consent to intervention by an insurer in any judicial or
11administrative action in which the NAIC and its affiliates and
12subsidiaries may be required to disclose confidential information
13about the insurer shared with the NAIC and its affiliates and
14subsidiaries pursuant to this subdivision.

15(c) The sharing of information by the commissioner pursuant
16to this subdivision shall not constitute a delegation of regulatory
17authority or rulemaking, and the commissioner is solely responsible
18for the administration, execution, and enforcement of the provisions
19of this article.

20(d) No waiver of any applicable privilege or claim of
21confidentiality in the documents, materials, or information shall
22 occur as a result of disclosure to the commissioner under this
23section or as a result of sharing as authorized in subdivision (c).

24(e) Documents, materials, or other information filed in the
25possession or control of the NAIC pursuant to this subdivision
26shall be confidential by law and privileged, shall not be subject to
27subpoena, and shall not be subject to discovery or admissible in
28evidence in any private civil action.

29

SEC. 9.  

The Legislature finds and declares that Section 936.6
30of the Insurance Code, as added by Section 1 of this act, imposes
31a limitation on the public’s right of access to the meetings of public
32bodies or the writings of public officials and agencies within the
33meaning of Section 3 of Article I of the California Constitution.
34Pursuant to that constitutional provision, the Legislature makes
35the following findings to demonstrate the interest protected by this
36limitation and the need for protecting that interest:

37(1) The Corporate Governance Annual Disclosure and related
38information will contain confidential and sensitive information
39related to an insurer or insurance group’s internal operations and
40proprietary and trade secret information that, if made public, could
P32   1potentially cause the insurer or insurance group competitive harm
2or disadvantage.

3(2) The interests in protecting the internal operations and
4proprietary and trade secret information of the insurers or insurance
5groups in order to promote consumer choice and competition in
6the marketplace strongly outweighs the public interest in having
7access to this information, and there are other means of obtaining
8financial information, such as annual reports.

9

SEC. 10.  

No reimbursement is required by this act pursuant to
10Section 6 of Article XIII B of the California Constitution because
11the only costs that may be incurred by a local agency or school
12district will be incurred because this act creates a new crime or
13infraction, eliminates a crime or infraction, or changes the penalty
14for a crime or infraction, within the meaning of Section 17556 of
15the Government Code, or changes the definition of a crime within
16the meaning of Section 6 of Article XIII B of the California
17Constitution.

18

SEC. 11.  

This act is an urgency statute necessary for the
19immediate preservation of the public peace, health, or safety within
20the meaning of Article IV of the Constitution and shall go into
21immediate effect. The facts constituting the necessity are:

22(1) In order to permit insurers and insurance groups adequate
23time to prepare their first Corporate Goverance Annual Disclosure
24(CGAD) that would be required, pursuant to the Corporate
25Governance Disclosure Model Act, to be submitted to the Insurance
26Commissioner no later than June 1, 2016, it is necessary for this
27act to take effect immediately.

28(2) In order to permit California’s United States-based insurance
29groups to receive, as quickly as possible, the benefits of the
30Insurance Commissioner acting in the capacity of groupwide
31supervisor under the amendments to the Insurance Holding
32Company System Regulatory Act, it is necessary for this act take
33effect immediately.



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