BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 553|
|Office of Senate Floor Analyses | |
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CONSENT
Bill No: AB 553
Author: Daly (D)
Amended: 4/22/15 in Assembly
Vote: 27 - Urgency
SENATE INSURANCE COMMITTEE: 9-0, 6/10/15
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Liu,
Mitchell, Wieckowski
SENATE JUDICIARY COMMITTEE: 7-0, 6/23/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 78-0, 5/14/15 (Consent) - See last page for
vote
SUBJECT: Insurance: corporate governance: insurance holding
companies
SOURCE: California Department of Insurance
DIGEST: This bill conforms California law to updated corporate
governance models laws adopted by the National Association of
Insurance Commissioners (NAIC) including establishment of a
Corporate Governance Annual Disclosure requirement (CGAD), as
specified; updates and clarifies existing law relating to the
oversight of internationally active insurance groups (IAIGs),
including explicitly authorizing the Insurance Commissioner (IC)
to act as a group-wide supervisor for an IAIG, or accept another
regulator as the group-wide supervisor, as specified; and
declares this provision will take effect as an urgency statute
in order to permit insurers and insurance groups time to prepare
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their first CGAD, and to allow the IC to act as a group-wide
supervisor as quickly as possible.
ANALYSIS:
Existing law:
1) Provides for the regulation of insurance holding companies
through the Insurance Holding Company System Regulatory Act
(IHCSRA).
2) Requires every insurer authorized to do business in this
state to register with the IC and to file a registration
statement containing specified information, including the
identity and relationship of every member of an Insurance
Holding Company (IHC) group.
3) Allows the IC to participate in a supervisory college with
other regulators charged with supervision of the insurer or
its affiliates, including other state, federal and
international regulatory agencies.
4) Requires an insurer or insurer group subject to a
supervisory college to pay the reasonable expenses of the
IC's participation in the supervisory college as reasonably
related to the insurer's business in this state.
5) Provides that all information and documents obtained by or
disclosed to the IC under the IHCSRA in the course of an
examination or investigation is confidential and not subject
to disclosure by the IC under the Public Records Act (PRA),
not subject to subpoena, not subject to discovery from the
IC, and not admissible into evidence in a private civil
action if obtained from the IC in any manner.
6) Requires every insurer doing business in this state to make
specified filings with the NAIC, including an annual
statement and quarterly statements.
7) Allows the IC to suspend, revoke, or refuse to renew the
certificate of authority for any insurer that fails to file
its annual or quarterly statement with the NAIC.
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8) Requires domestic insurers to conduct an Own Risk and
Solvency Assessment (ORSA), to file an ORSA Summary report
with the IC, and specifies that the ORSA report will contain
confidential and sensitive information related to an insurer
or insurance group, and as such it shall be confidential and
not subject to public disclosure.
9) Exempts from the ORSA requirement an insurer that has direct
written premium of less than $500 million and the insurance
group of which it is a member has direct written premium of
less than $1 billion, as specified.
10)Imposes a late filing fee on an insurer who, without just
cause, fails to timely file its ORSA Summary report.
This bill:
1) Enacts the Corporate Governance Disclosure Act to provide
the IC a summary of an insurer or insurance group's corporate
governance structure, policies and practices.
2) Adopts the CGAD Model Regulation, as developed and adopted
by the NAIC and as amended by the NAIC from time to time.
3) Requires insurers domiciled in this state, or the insurance
holding group of which they are a member, to annually submit
a CGAD, as specified, to the IC by June 1, and include the
signature of the insurer or insurance group's chief executive
or corporate secretary attesting to the best of that
individual's belief and knowledge the insurer has implemented
the described corporate governance practices.
4) Specifies that if the insurer is a member of an insurance
group, the insurer shall submit the report required by this
act to the IC of the lead state for the insurance group, in
accordance with the laws of the lead state, as determined by
the procedures established by the NAIC.
5) Requires an insurer not required to submit a CGAD under this
act to submit a CGAD upon the IC's request.
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6) States legislative findings that the CGAD 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 cause the
insurer or insurance group competitive harm or disadvantage.
7) Defines an insurance group as those insurers and affiliates
within an IHC as defined in the IHCSRA.
8) Allows the insurer or group to decide which level of the
corporate structure will submit the CGAD report.
9) Allows the IC to request additional information he or she
deems material and necessary to gain a clear understanding of
the corporate governance policies of the insurer or group.
10)Gives the IC authority to adopt rules and regulations to
carry out this act in accordance with the Administrative
Procedure Act.
11)Provides that the CGAD and any documents, materials or other
information provided to the IC under this act are proprietary
and considered to contain trade secrets, and as such are not
subject to disclosure by the IC pursuant to the PRA, not
subject to subpoena, not subject to discovery from the IC, or
admissible in evidence in any private civil action if
obtained from the IC in any manner.
12)Allows the IC to use the materials in any regulatory or
legal action as part of his or her official duties.
13)Allows the IC to share the CGAD and any other documents or
materials with other state, federal or international
regulators.
14)Allows the IC to retain third party experts, including
attorneys, actuaries and accountants as may be reasonably
necessary, at the insurer's expense to assist in the review
of the CGAD and related materials, and provides that the
third party experts are subject to the same confidentiality
provisions noted above.
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15)Imposes a late fee on insurers who fail to file the CGAD by
June 1 without just cause, and allows the IC to reduce the
penalty if the insurer or group demonstrates financial
hardship.
16)Defines an "internationally active insurance group" for
purposes of the IHCSRA as a company system that writes
insurance in at least three countries, at least 10% of its
gross premiums are written outside the United States, and the
total assets of the holding company are at least $50 billion
or the total gross written premiums are $10 billion.
17)Authorizes the IC to act as a group-wide supervisor for an
IAIG, or accept another regulator as the group-wide
supervisor, as specified.
18)Makes multiple technical and clarifying changes.
19)Declares this provision will take effect as an urgency
statute in order to permit insurers and insurance groups time
to prepare their first CGAD, and to allow the IC to act as a
group-wide supervisor as quickly as possible.
Background
The NAIC promotes uniform practices throughout the United States
by regulating multi-state insurers and maintaining an insurance
regulator accreditation program. NAIC develops uniform standards
called model acts, and these are periodically updated to reflect
new developments. The NAIC has played an important role in
maintaining relations with international regulators and
supervisors who do not like having to deal with more than 50
state regulators in the U.S. insurance market. They would prefer
the U.S. to move to a federal system of insurance regulation-a
move strongly rejected by the states.
California enacted the NAIC's updated model act on IHCs in
2012-the IHCSRA noted above (SB 1448 Calderon, Chapter 282
Statutes of 2012). That model act represented NAIC's response
to the recent financial crisis, and specifically the U.S.
Government's bailout of American Insurance Group in 2008. The
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model act was intended to improve state regulators' ability to
monitor the activities of non-insurance entities within a
holding company and ensure efficient and effective oversight of
affiliates that cross state and national lines.
The IHCSRA established "supervisory colleges," or meetings of
international regulators for IAIGs, and codified the authority
for the IC to participate in such supervisory colleges.
Generally, the role of the group-wide supervisor is undertaken
by the supervisor in the jurisdiction where: (1) the head of
the Internationally Active Insurance Group (IAIG) is based; (2)
the insurance operations of the IAIG are controlled; and (3) the
supervisor has the statutory responsibility to supervise the
head of the IAIG.
Insurance regulators worldwide are finding that increased levels
of communication, coordination and cooperation among regulators
at supervisory colleges, or other international fora, is vital
to understanding risk trends that could impact domestic insurers
and policyholders in an increasingly global insurance market.
Supervisory colleges allow regulators to better assess risks
that are emerging beyond their borders and outside their
respective authorities through information sharing, assessment
of holding company risk, contagion, risk exposure, overall
financial soundness, capital adequacy, group governance,
coordinated supervisory activities (including, for example,
joint inspections where relevant), liaison with holding company
management and establishing a role in crisis management.
Supervisory colleges, however, do not affect the legal rights
and responsibilities of the insurance regulatory authorities
involved in the supervisory college, as they continue to be
subject to their existing legal regulatory framework.
This bill updates the ICHSRA by outlining a process for
determining the lead state for domestic insurance groups,
clarifies activities the California Department of Insurance
(CDI) may engage in as a group-wide supervisor, and extends
confidentiality provisions to cover information received in the
course of group-wide supervision.
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The CGAD required by this bill will be filed in the insurer or
group's state of domicile. In 2013 fewer than 4% of property
casualty and life insurers were domiciled in California. The IC
may, however, request that an insurer or group provide the CDI
with the insurer's CGAD. The CGAD disclosure will include the
following:
1)The insurer's corporate governance framework and structure;
2)The policies and practices of its Board of Directors and
committees;
3)The policies and practices directing the insurer's management,
including a description of defined suitability standards, the
insurer's code of conduct and ethics, performance evaluation,
and compensation practices; and
4)The processes by which the insurer's management ensures proper
oversight of the critical risk areas impacting the insurer's
business activities, including risk management, actuarial
function, investments, reinsurance, and business strategy
decision-making processes.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified7/7/15)
California Department of Insurance (source)
American Council of Life Insurers
Association of California Life and Health Insurance Companies
OPPOSITION: (Verified7/7/15)
None received
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ARGUMENTS IN SUPPORT: According to the CDI, the sponsor of
this bill, insurance regulators need to have sufficient
authority to look at insurance groups and affiliates within an
entire IHC system. Without the amendments to the IHCSRA
contained in this bill, international regulators will challenge
the authority of CDI and other U.S. insurance regulators to lead
multi-national supervisory colleges of U.S. based insurers and
international insurers who own U.S. insurers. This in turn could
result in significant disadvantages for U.S. based insurers.
Without states having this authority, it is also likely that
federal regulatory authorities not responsible to state
legislatures would seek an increased role in regulating U.S.
insurance companies in supervisory colleges.
ASSEMBLY FLOOR: 78-0, 5/14/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Linder, Medina
Prepared by:Erin Ryan / INS. / (916) 651-4110
7/7/15 17:16:38
**** END ****
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