Amended in Assembly April 22, 2015

Amended in Assembly April 6, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 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 amended, 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 encourage 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 begin insert by the commissioner end insert pursuant to the California Public Records Act, begin delete and end delete are not subject to begin delete subpoena or end delete begin insert subpoena, and are not subject to end insert discovery begin insert from the commissioner or admissible in evidence end insert in begin delete a end delete begin insert any end insert 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.

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This

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begin insert (5) end insert begin insert   end insert begin insert This end insert bill would declare that it is to take effect immediately as an urgency statute.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

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

SECTION 1.  

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

 

Article 10.8.  Corporate Governance Disclosure Act

 

936.1.  

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

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

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

936.2.  

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

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

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

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

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

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

936.3.  

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

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

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

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

(2) The insurer or insurance group is encouraged to make the
CGAD disclosures at one of the following levels:

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

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

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

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

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

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

936.4.  

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

936.5.  

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

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

936.6.  

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

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

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

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

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

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

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

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

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

936.7.  

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

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

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

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

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

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

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

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

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

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

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

936.8.  

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

936.9.  

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

SEC. 2.  

Section 1215 of the Insurance Code is amended to
read:

1215.  

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

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

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

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

(d) “Enterprise risk” means any activity, circumstance, or event
or series of events involving one or more affiliates of an insurer
that, if not remedied promptly, is likely to have a material adverse
effect upon the financial condition or liquidity of the insurer or its
insurance holding company system as a whole, including, but not
limited to, anything that would cause the insurer’s risk-based
capital to fall into company action level as set forth in Article 4.1
(commencing with Section 739) of Chapter 1 and under Section
739.5 or would cause the insurer to be in hazardous financial
condition and allow the commissioner to take actions that are
necessary under Article 14 (commencing with Section 1010),
Article 14.3 (commencing with Section 1064.1), and Article 15.5
(commencing with Section 1077).

(e) An “insurance holding company system” consists of two or
more affiliated persons, one or more of which is an insurer.

(f) “Insurer” shall have the same meaning as set forth in Section
826, excluding subdivisions (e) and (f) of that section.

(g) “Person” is an individual, a corporation, a limited liability
company, a partnership, an association, a joint stock company, a
business trust, an unincorporated organization, or any similar entity,
or any combination thereof acting in concert.

(h) A “security holder” of a specified person is the holder that
owns any security of that person, including common stock,
preferred stock, debt obligations, and any other security convertible
into or evidencing the right to acquire any of the foregoing.

(i) A “subsidiary” of a specified person is an affiliate controlled
by that person directly, or indirectly through one or more
intermediaries.

(j) “Voting security” shall include any security convertible into
or evidencing a right to acquire a voting security.

(k) “Commissioner” means the Insurance Commissioner of the
state and any assistant to the Insurance Commissioner designated
and authorized by the commissioner while acting under his or her
designation as the Insurance Commissioner.

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

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

(1) Insurers that are part of the insurance holding company
system write premiums in at least three countries.

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

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

(n) “NAIC” means the National Association of Insurance
Commissioners.

SEC. 3.  

Section 1215.1 of the Insurance Code is amended to
read:

1215.1.  

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

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

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

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

(A) Any direct investment in an insurance subsidiary.

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

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

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

(c) Investments in common stock, preferred stock, debt
obligations, or other securities of subsidiaries made pursuant to
subdivision (b) shall neither limit nor be subject to any of the
otherwise applicable authorizations, restrictions, or prohibitions
contained in this article applicable to these investments of insurers.

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

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

SEC. 4.  

Section 1215.2 of the Insurance Code is amended to
read:

1215.2.  

(a) No person shall make a tender offer for, or a request
or invitation for tenders of, or enter 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 either directly or
through its affiliates in any businesses other than that of insurance,
if, as a result of the consummation thereof, the person would,
directly or indirectly, acquire control of the insurer, and no person
shall enter into an agreement to merge with or otherwise to acquire
control of a domestic insurer, unless, 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,
as the case may be, the person has filed with the commissioner,
and has sent to the insurer, a statement containing the following
information, and any additional information as the commissioner
may by rule or regulation prescribe as necessary or appropriate in
the public interest or for the protection of policyholders or
shareholders:

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

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

(3) Any plans or proposals that those persons may have to
liquidate the insurer, to sell its assets or merge it with any person,
or to make any other major change in its business or corporate
structure or management.

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

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

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

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

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

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

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

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

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

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

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

(e) The commissioner shall require the payment of two thousand
three hundred sixty dollars ($2,360) as a fee for filing an
application pursuant to this section, the amount to accompany the
application. The application shall be on a form and in a format
prescribed by the NAIC.

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

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

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

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

SEC. 5.  

Section 1215.5 of the Insurance Code is amended to
read:

1215.5.  

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

(1) The terms shall be fair and reasonable.

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

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

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

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

(b) The following transactions involving a domestic insurer or
commercially domiciled insurer, as defined in Section 1215.14,
and any person in its insurance holding company system, including
amendments or modifications of affiliate agreements previously
filed pursuant to this section, may be entered into only if the insurer
has notified the commissioner in writing of its intention to enter
into the transaction at least 30 days prior thereto, or a shorter period
as the commissioner may permit, and the commissioner has not
disapproved it within that period. The notice for amendments or
modifications shall include the reasons for the change and the
financial impact on the domestic insurer or commercially domiciled
insurer. Informal notice shall be reported, within 30 days after a
termination of a previously filed agreement, to the commissioner
for determination of the type of filing required, if any. The
commissioner shall require the payment of one thousand eight
hundred eighty-nine dollars ($1,889) as a fee for filings pursuant
to this subdivision, and the filings shall be on a form and in a
format prescribed by the NAIC. The payment shall accompany
the filing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(10) The quality and liquidity of investments in subsidiaries
made under Section 1215.1. The commissioner may treat those
investments as a disallowed asset for purposes of determining the
adequacy of the policyholder’s surplus whenever, in his or her
judgment, the investment so warrants.

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

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

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

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

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

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

SEC. 6.  

Section 1215.6 of the Insurance Code is amended to
read:

1215.6.  

(a) Subject to the limitation contained in this section,
and in addition to the powers which the commissioner has under
Article 4 (commencing with Section 730) of Chapter 1 of this part
relating to the examination of insurers, the commissioner shall
also have the power to examine any insurer registered under
Section 1215.4 and its affiliates to ascertain the enterprise risk to
which the insurer is subjected by the ultimate controlling party, or
by any entity or combination of entities within the insurance
holding company system, or by the insurance holding company
system on a consolidated basis. The commissioner may also order
any insurer registered under Section 1215.4 to produce the records,
books, or other information or papers in the possession of the
insurer or its affiliates, including a report on the enterprise risk to
the insurer by the ultimate controlling party, or by any entity or
combination of entities within the insurance holding company
system, or by the insurance holding company system on a
consolidated basis, as shall be necessary to ascertain the financial
condition or legality of conduct of that insurer.

(b) The commissioner shall exercise his or her power under
subdivision (a) only if the examination of the insurer under Article
4 (commencing with Section 730) of Chapter 1 of this part is
inadequate or the interests of the policyholders of that insurer are
being adversely affected.

(c) The commissioner may retain at the registered insurer’s
expense the attorneys, actuaries, accountants, and other experts
not otherwise a part of the commissioner’s staff as shall be
reasonably necessary to assist in the conduct of the examination
under subdivision (a) of this section. Any persons so retained shall
be under the direction and control of the commissioner and shall
act in a purely advisory capacity.

(d) Each registered insurer producing for examination records,
books, and papers pursuant to subdivision (a) shall be liable for,
and shall pay the expense of, that examination in accordance with
Section 736.

SEC. 7.  

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

1215.75.  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(A) Governance, risk assessment, and management.

(B) Capital adequacy.

(C) Material intercompany transactions.

(3) Coordinate and, through the authority of the regulatory
officials of the jurisdictions where members of the internationally
active insurance group are domiciled, compel 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 members of that
internationally active insurance group that are engaged in the
business of insurance.

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

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

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

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

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

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

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

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

SEC. 8.  

Section 1215.8 of the Insurance Code is amended to
read:

1215.8.  

(a) All information, documents, and copies thereof
obtained by or disclosed to the commissioner or any other person
in the course of an examination or investigation made pursuant to
Section 1215.4, 1215.5, 1215.6, or 1215.75, and all information
reported or provided pursuant to Section 1215.4, 1215.5, 1215.6,
or 1215.75 shall be kept confidential, is not subject to disclosure
by the commissioner pursuant to the California Public Records
Act (Chapter 3.5 (commencing with Section 6250) of Division 7
of Title 1 of the Government Code), is not subject to subpoena,
and is not subject to discovery from the commissioner or admissible
into evidence in any private civil action if obtained from the
commissioner in any manner. This information shall not be made
public by the commissioner or any other person except to insurance
departments of other states without the prior written consent of
the insurance company to which it pertains, unless the
commissioner, after giving the insurer and its affiliates who would
be affected thereby notice and opportunity to be heard, determines
that the interests of policyholders, shareholders, or the public will
be served by the publication thereof, in which event he or she may
publish all or any part thereof in a manner as he or she may deem
appropriate.

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

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

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

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

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

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

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

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

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

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

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

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

SEC. 9.  

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

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

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

SEC. 10.  

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

SEC. 11.  

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

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

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