BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 553 (Daly)
Version: April 22, 2015
Hearing Date: June 23, 2015
Fiscal: Yes
Urgency: Yes
TMW
SUBJECT
Insurance: corporate governance: insurance holding companies
DESCRIPTION
This bill would establish the Corporate Governance Disclosure
Act (CGDA) in order to provide the California Insurance
Commissioner (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 (CGAD) with the Commissioner, which would apply to
all insurers domiciled in California.
This bill would make confidential all documents, materials, or
other information, including the CGAD, obtained by, created by,
or disclosed to the Commissioner or any other person. This bill
would exempt that information from disclosure under the
California Public Records Act, and provide that the information
would not be subject to subpoena or discovery from the
Commissioner or admissible into evidence in any private civil
action if obtained from the Commissioner in any manner.
This bill would also authorize the Commissioner, upon notice and
opportunity for all interested parties to be heard, to issue
rules, regulations, and orders as may be necessary to implement
the CGDA. This bill would require those actions to be taken in
accordance with the Administrative Procedure Act.
BACKGROUND
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The California Department of Insurance (CDI) participates in an
insurance regulator accreditation program developed by the
National Association of Insurance Commissioners (NAIC). This
accreditation program provides uniformity among the member state
insurance departments as well as consumer protections.
Periodically, NAIC develops uniform insurance standards which
are included in NAIC's model laws. Each member of the
accreditation program must then adopt the model laws in order to
maintain its accreditation.
SB 1448 (Calderon, Chapter 282, Statutes of 2012) adopted the
NAIC's revisions under California's Insurance Holding Company
System Regulatory Act (IHCSRA), and provided that all
information required to be reported to the Commissioner in
IHCSRA registration documents, shall be kept confidential, shall
not be subject to disclosure pursuant to the California Public
Records Act (CPRA) and shall not be subject to subpoena.
On August 18, 2014, the NAIC developed the Corporate Governance
Annual Disclosure Model Act, which provides a means for
insurance regulators to receive additional information on the
corporate governance practices of United States insurers, and
requires those insurers to provide detailed information
describing governance practices to the lead state or domestic
regulator by June 1 of each year. The Model Act requires the
information provided to be protected by strict confidentiality
measures to encourage insurers to be open and transparent in
describing their governance practices to regulators.
This bill would adopt the NAIC Model Corporate Governance Annual
Disclosure Act and provide standards for the submission by
California insurers to submit summaries of their corporate
governance structure, policies, and practices to permit the
Commissioner to gain and maintain an understanding of the
insurers' corporate governance framework. This bill would also
update the IHCSRA by outlining a process for determining the
lead state for domestic insurance groups, authorizing the
Commissioner to act as the groupwide supervisor for any
internationally active insurance group, and expands the list of
confidential documents submitted to the Commissioner that are
confidential and not subject to disclosure by the Commissioner,
as specified.
This bill was heard by the Senate Insurance Committee on June
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10, 2015, and was approved by a vote of 9-0.
CHANGES TO EXISTING LAW
Existing law requires the California Insurance Commissioner
(Commissioner),
whenever he or she deems necessary or whenever he or she is
requested by verified petition, signed by 25 persons interested
as shareholders, policyholders, or creditors of any admitted
insurer showing that the insurer is insolvent under this code,
or upon information that any insurer has violated a provision of
the Insurance Code, as specified, to examine the business and
affairs of the insurer. The commissioner is also required to so
examine every domestic insurer before issuing to it a
certificate of authority other than a renewal. (Ins. Code Sec.
730(a).)
Existing law authorizes the commissioner in making insurer
examinations to have free access to all the books and papers of
the company, thoroughly inspect and examine all its affairs,
ascertain its condition and ability to fulfill its obligations,
ascertain if it has complied with all laws applicable to its
insurance transactions, appraise or cause to be appraised by
competent appraisers appointed by him or her all property in
which the insurer has or claims an interest, or which is
security, in any form, for the payment of any debt or obligation
to the insurer, and, in conducting the examination, observe
those guidelines and procedures set forth in the Examiner's
Handbook adopted by the National Association of Insurance
Commissioners (NAIC). (Ins. Code Sec. 733.)
Existing law , the Insurance Holding Company System Regulatory
Act (IHCSRA), requires insurers authorized to do business in
this state that are part of an insurance holding company system
(IHCS) to register with the Insurance Commissioner
(Commissioner). (Ins. Code Sec. 1215.4(a).)
Existing law requires registration forms to include specified
information regarding the legal and financial relationships
between IHCS members, including, for example, the capital
structure, general financial condition, ownership, and
management of the insurer. (Ins. Code Sec. 1215.4(b).)
Existing law authorizes the Commissioner to examine any insurer
registered as an IHCS to ascertain the enterprise risk to which
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the insurer is subjected by the ultimate controlling party, or
by any entity or combination of entities within the IHCS on a
consolidated basis, and authorizes the Commissioner to order
IHCS-registered insurers to produce such 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 IHCS, or by the IHCS on a
consolidated basis, as shall be necessary to ascertain the
financial condition or legality of conduct of such insurer.
(Ins. Code Sec. 1215.6(a).)
Existing law provides that 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 of an IHCS member, and all information required to
be reported to the Commissioner in IHCS registration documents,
shall be kept confidential, is not subject to disclosure by the
Commissioner pursuant to the California Public Records Act
(CPRA) 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. (Ins. Code Sec.
1215.8(a).)
Existing law requires that information to 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 notice and an opportunity
to be heard, determines that the interests of policyholders,
shareholders, or the public will be served by the publication of
the information, as specified. (Ins. Code Sec. 1215.8(a).)
Existing law specifies circumstances under which the
Commissioner may share otherwise confidential documents or
information with certain parties in order to assist in the
performance of the Commissioner's duties. (Ins. Code Sec.
1215.8(b).)
Existing law provides that documents, materials, or other
information filed in the possession or control of the NAIC 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. (Ins. Code Sec.
1215.8(e).)
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Existing law , the CPRA, generally requires records maintained by
public agencies to be accessible to the public. (Gov. Code Sec.
6250 et seq.) Existing law exempts from public disclosure
applications submitted by insurance companies to state agencies.
(Gov. Code Sec. 6254(d)(1).)
Existing law , the Administrative Procedure Act (APA), governs
the procedure for the adoption, amendment, or repeal of
regulations by state agencies and for the review of those
regulatory actions by the Office of Administrative Law. (Gov.
Code Sec. 11340 et seq.)
This bill would establish the Corporate Governance Disclosure
Act (CGDA) in order to provide the 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 Commissioner,
which would apply to all insurers domiciled in California.
This bill would authorize the Commissioner, upon notice and
opportunity for all interested parties to be heard, to issue
rules, regulations, and orders as may be necessary to carry out
the CGDA, and would require those rules, regulations, and orders
to be adopted, amended, or repealed in accordance with the APA.
This bill would provide that documents, materials, or other
information, including the corporate governance annual
disclosure (CGAD) required to be submitted by an insurer under
the CGDA, 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 the CGDA, are
recognized as being proprietary and containing trade secrets,
and those documents, materials, or other information would be
required to be kept confidential by law and privileged, not
subject to disclosure by the Commissioner pursuant to the CPRA,
and not subject to subpoena, discovery from the Commissioner, or
admissible into evidence in any private civil action if obtained
from the Commissioner in any manner.
This bill would authorize the Commissioner to share or receive
confidential documents, materials, or other CGAD-related
information without the written consent of the insurer to assist
in the Commissioner's regulator duties, as specified.
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This bill would prohibit the Commissioner and 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 from
testifying in any private civil action concerning those
documents, materials, or information.
This bill would provide that no waiver of any applicable
privilege or claim of confidentiality in the documents,
proprietary and trade-secret materials, or other CGAD-related
information could occur as a result of disclosure of that
CGAD-related information or those documents to the Commissioner
or as a result of sharing pursuant to the CGDA.
This bill would require a written agreement with the NAIC, a
third-party consultant, or both, governing sharing and use of
information provided pursuant to the CGDA to contain express
provisions requiring the written consent of the insurer prior to
making public information provided under the CGDA.
This bill would expand the confidentiality and non-disclosure
provisions under the IHCSRA to include the records, books, or
other information or papers produced by an insurer or its
affiliate as ordered by the Commissioner.
This bill would authorize the Commissioner to request, from any
member of an internationally active insurance group subject to
the Commissioner's supervision, information necessary and
appropriate for the Commissioner to assess enterprise risk,
including, but not limited to, information about the members of
the internationally active insurance group regarding any
governance, risk assessment, and management, capital adequacy,
or material intercompany transactions. This bill would make
that information received by the Commissioner confidential and
non-disclosable under the IHCSRA.
This bill would also authorize the Commissioner to enter into
agreements with, or obtain documentation from, any
IHCS-registered insurer, any member of the internationally
active insurance group, and any other state, federal, and
international regulatory group, providing the basis for or
otherwise clarifying the Commissioner's role as groupwide
supervisor, including provisions for resolving disputes with
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other regulatory officials. This bill would prohibit those
agreements or documentation from serving as evidence in any
proceeding that any insurer or person within an IHCS not
domiciled or incorporated in California is doing business in
this state or is otherwise subject to jurisdiction in this
state. This bill would also make those agreements and
documentation confidential and non-disclosable under the IHCSRA.
This bill contains legislative findings and declarations that,
in order to protect an insurer's 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, it is necessary to enact
legislation to ensure that information provided in the CGAD and
related information be kept confidential.
This bill contains an urgency clause.
COMMENT
1. Stated need for the bill
The author writes:
AB 553 aligns state law with international requirements for
the regulation of multi-national insurance companies. The
primary purpose of enacting these model laws and amendments is
to make sure California Insurance regulatory laws conform with
national and international insurance regulatory laws and to
provide the Department [of Insurance] with additional tools
for fulfilling its mission of overseeing solvency of insurance
companies.
2. Confidential, non-disclosable, non-discoverable information
This bill would exempt information submitted to the
Commissioner, as required under the Corporate Governance
Disclosure Act (CGDA) established by this bill, information
currently collected by the Commissioner pursuant to the
Insurance Holding Company System Regulatory Act (IHCSRA), and
information and agreements related to IHCS groupwide supervisory
actions, from disclosure under the California Public Records Act
(CPRA), a subpoena, and civil trial discovery requests.
a. CPRA confidentiality and non-disclosure
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The CPRA requires state and local agencies to make public
records available for inspection by the public, with specified
exceptions. (Gov. Code Sec. 6250 et seq.) The CPRA provides
for the confidentiality and non-disclosure of numerous classes
of information, including applications submitted by insurance
companies to a state agency and actuarial information of life
and disability insurers. (Gov. Code Secs. 6254(d)(1),
6276.28.)
This bill would provide that materials submitted under the
CGDA would not be subject to disclosure pursuant to the CPRA
because of the sensitive nature of the information and
documents shared with the Commissioner. To protect the
information submitted by private insurance companies to the
Commissioner, this bill would reaffirm the existing
confidentiality provisions that protect that information.
Further, this bill appears to correct an oversight to extend
the existing CPRA non-disclosure provisions under the IHCSRA
for the records, books, or other information or papers
produced by an insurer or its affiliate as ordered by the
Commissioner. Additionally, because this bill would create
additional document production requirements under the IHCSRA
regarding internationally active insurance group information
and agreements, this bill would also extend the existing CPRA
non-disclosure protections to that information.
b. Civil action discovery
Under this bill, all information, documents, and copies
thereof obtained by or disclosed to the Commissioner as
required under the CGDA in the course of an examination or
investigation or reported as required under existing law would
not be subject to subpoena, discovery, or be admissible as
evidence in any private party civil action.
Generally, all working papers, recorded information,
documents, and copies thereof produced by, obtained by, or
disclosed to the Commissioner or any other person in the
course of an examination are given confidential treatment, are
not subject to subpoena, and cannot be made public by the
Commissioner or any other person. (Ins. Code Sec. 735.5(c).)
Existing law protects various types of insurance documents
submitted to the Commissioner from discovery or use as
evidence in civil actions. (See, i.e., Ins. Code Sec.
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923.6(f)(1) (insurer certification examination); Ins. Code
Sec. 935.8 (own risk and solvency information); (Ins. Code
Sec. 1215.8(a), (e) IHCSRA information.) These protections
from disclosure ensure the critical cooperation and full
disclosure of insurers and affiliates who otherwise may be
forced to seek protection under other law. By extending these
confidentiality and non-disclosure provisions in the IHCSRA,
as well as providing those same confidentiality and
non-disclosure provisions under the CGDA, this bill would
bring California into conformity with NAIC requirements and
maintain California's NAIC accreditation.
3. Administrative Procedure Act
The Administrative Procedure Act (APA) establishes rulemaking
procedures and standards for state agencies in California. The
requirements set forth in the APA are designed to provide the
public with a meaningful opportunity to participate in the
adoption of state regulations and to ensure that regulations are
clear, necessary, and legally valid. In emergency situations,
where the adoption (or repeal) of a regulation is necessary for
the immediate preservation of the public peace, health, or
safety, an agency is not required to comply with all of the
public participation requirements of the APA. (See Gov. Code
Sec. 11346.1.) In those situations, the agency is required to
take additional action to ensure transparency and subsequent
participation by the public.
The APA is particularly important because many state agencies
effectively hold legislative, executive, and judicial power over
the industries they regulate. Thus, the APA represents the
basic level of protection that individuals and entities can
expect with respect to rulemaking by state agencies, and
agencies should not be able to exempt themselves from its
requirements without good justification.
The APA prohibits state agencies from issuing, utilizing,
enforcing, or attempting to enforce any guideline, criterion,
bulletin, manual, instruction, order, standard of general
application, or other rule, which is a regulation, unless that
document has been adopted as a regulation and field with the
Secretary of State. (Gov. Code Sec. 11340.5(a).) Further,
pursuant to the requirements of the APA and the Insurance Code,
an emergency regulation adopted by the Commissioner is subject
to the following:
at least 5 working days prior to submission of the emergency
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regulation to the Office of Administrative Law, the
Commissioner shall mail a notice of proposed emergency action
to every person, group, or association who had previously
filed a request for notice of regulatory actions with the
commissioner; and
the notice of proposed emergency action shall include the
following:
o a description of the problem and the necessity for the
regulation;
o a description of the justification for adoption of the
regulation as an emergency regulation; and
o a copy of the text of the proposed emergency regulation.
(Gov. Code Sec. 11346.1; Ins. Code Sec. 12921.7.)
In addition to the APA, existing law provides that the acts and
orders of the Commissioner are subject to review, or other
action by a court of competent jurisdiction, as is permitted or
authorized by law. (Ins. Code Sec. 12940.)
This bill would authorize the Commissioner to issues rules,
regulations, and orders as may be necessary to carry out the
CGDA and would require those actions to be taken in accordance
with the APA. Further, this bill would require the Commissioner
to provide notice and opportunity for all interested parties to
be heard on these actions. These provisions provide appropriate
public notice and participation, as well as protection for
individuals and entities subject to the rulemaking by the
Commissioner.
Support : None Known
Opposition : None Known
HISTORY
Source : California Department of Insurance
Related Pending Legislation : SB 696 (Roth, 2015) would
establish the new Standard Valuation Law (SVL) proposed by the
National Association of Insurance Commissioners (NAIC), make
bulletins, manuals, and emergency regulations promulgated by the
Insurance Commissioner under the SVL subject to the APA, and
make the information received by or disclosed to the Insurance
Commissioner required to be provided under the SVL confidential
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and non-disclosable under the California Public Records Act
(CPRA), a subpoena, or discovery. SB 696 is in the Assembly
Rules Committee.
Prior Legislation :
AB 1234 (Levine, Chapter 448, Statutes of 2014) supplemented the
California's Insurance Holding Company System Regulatory Act
(IHCSRA) provisions related to the confidential treatment of
materials submitted to the Insurance Commissioner.
AB 584 (Perea, Chapter 238, Statutes of 2013) enacted the Own
Risk and Solvency Assessment provisions and provided
confidential treatment of materials submitted to the Insurance
Commissioner and exemption of those materials from public
disclosure under the CPRA.
SB 1448 (Calderon, Chapter 282, Statutes of 2012) adopted the
NAIC revisions under IHCSRA, and provided that all information
required to be reported to the Insurance Commissioner in
insurance holding company system registration documents, shall
be kept confidential, shall not be subject to disclosure
pursuant to the CPRA and shall not be subject to subpoena.
Prior Vote :
Senate Insurance Committee (Ayes 9, Noes 0)
Assembly Floor (Ayes 78, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Insurance Committee (Ayes 12, Noes 0)
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