BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 299 (Assembly Insurance Committee) Hearing Date: July 9,
2009
As Introduced: July 2, 2009
Fiscal: Yes
Urgency: No
SUMMARY Would make a number of technical, corrective and
clarifying amendments to the Insurance Code and the Vehicle
Code.
DIGEST
Existing law
1. Requires the Insurance Commissioner (IC) to annually mail a
notice to every domestic insurer, specifying the "reciprocal
states." A domestic insurer is prohibited from selling
insurance in a "reciprocal state" unless the insurer is
authorized pursuant to the laws of that other state to
transact insurance (Section 706.7 of the Insurance Code);
2. Authorizes the IC to examine any insurer as often as he/she
deems it appropriate, and requires the IC to conduct an
examination of every "admitted insurer" at least once every
five years. (An "admitted insurer" is an insurance company
entitled to transact insurance in this state as a result of
meeting the conditions required by law.) In determining the
nature and frequency of the examination, the IC shall
consider the results of financial statement analyses and
ratios, changes in management or ownership, actuarial
opinions, reports of independent certified public
accountants, and other criteria set forth in the Examiner's
Handbook adopted by the NAIC (Section 730 of the Insurance
Code);
3. Allows the IC to use and, if appropriate, to make public
any final or preliminary examination report, any examiner or
company work papers or other documents, or other information
discovered during the course of the examination in the
furtherance of a legal or regulatory action which the IC
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deems appropriate (Section 735.5 of the Insurance Code);
4. Requires the expenses of insurer examinations incurred by
the IC to be payable by the insurers, except that special
examinations which are in addition to regular examinations
may be at the expense of the state in the discretion of the
IC (Section 700.2 of the Insurance Code);
5. Requires all insurers doing business in this state to have
an annual audit conducted by an independent certified public
accountant. The audit shall be conducted in conformity with
the Annual Audited Financial Reports instructions contained
in the annual statement instructions adopted by the NAIC
(Section 900.2 of the Insurance Code);
6. Authorizes the IC to grant a 30-day extension on the filing
of the annual audit upon a showing by the insurer and its
independent certified public accountant of the reasons for
the extension request and the determination by the IC of
substantial cause for an extension (Section 900.2 of the
Insurance Code);
7. Requires requests for an extension to be submitted in
writing within 20 days of the due date (Section 900.2 of the
Insurance Code);
8. Requires the IC to permit the deposit of securities on
behalf of policyholders and creditors of the insurer in the
State Treasury. This provision also states that this
authority is subject to two obsolete sections of law
(Sections 11715 and 11716 of the Insurance Code), if
applicable (Section 942 of the Insurance Code);
9. Allows domestic incorporated insurers to invest their
assets in the purchase of certain securities or in loans
upon such securities if they conform to specified conditions
including, in connection with loans not governed by an
obsolete code section (Section 1176 of Insurance Code), the
amount loaned does not exceed 85% of the market value
(Section 1170 of the Insurance Code);
10. Allows domestic incorporated insurers to invest in
accounts in banks or savings and loan associations to the
extent the accounts are insured by an agency or
instrumentality of the federal government (Section 1182 of
the Insurance Code);
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11. Limits the percentage of excess funds investments that can
be made in a loan to any one borrower, including all
affiliates, to 10% of the capital stock and surplus or 1% of
the admitted assets of the lending insurer, whichever amount
is greater (Section 1197 of the Insurance Code);
12.Prohibits domestic insurers or commercially domiciled insurers
from entering into specified transactions unless they have
notified the Insurance Commissioner (IC) of their intent to
enter into the transaction in advance of entering into the
transaction and the commissioner fails to prohibit the
transaction.
13.Defines a fraternal benefit society as an incorporated society
or supreme lodge without capital stock conducted solely for the
benefit of its members and members' beneficiaries and not for
profit. Under existing law, a fraternal benefit society may
issue certificates of insurance providing for the payment of
life and disability insurance benefits.
14.Requires fraternal benefit societies to use mortality tables
approved by regulation promulgated by the IC for purposes of
determining actuary values.
15.Requires life and disability insurance companies to use
mortality tables approved through bulletins issued by the IC for
purposes of determining actuary values.
16.Requires policies of automobile insurance to provide for
the replacement of a child passenger restraint system that
was in use by a child during an accident. This applies to
automobile liability insurance, automobile collision
coverage, and automobile physical damage coverage (Section
11580.011 of the Insurance Code).
17.Provides that all orders or pleadings on the Department's
website pertaining to disciplinary proceedings against a
licensee are to be removed 10 years from the date the action
becomes final.
This bill
Would make a series of technical non-controversial changes to
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laws governing the authority and duties of the IC and insurance
companies. Specifically, this bill:
1. Would require the IC to mail a notice every four years to
every domestic insurer (i.e., California-domiciled insurance
company), specifying the "reciprocal states." A "reciprocal
state" is a state with laws that prohibit an insurer based
in that state from insuring the lives or property located in
California unless that insurer holds a valid certificate of
authority issued by the IC;
2. Would add the following information on which the IC is
required to consider when determining the nature and
frequency of an examination of an insurer:
a. market analysis results including consumer complaint
analysis, evaluation of recent and ongoing regulatory
activities;
b. analysis of data derived from industry surveys or
interrogatories; and
c. other criteria in the Market Regulation Handbook
adopted by the National Association of Insurance
Commissioners (NAIC);
3. Would add market analysis data to the list of information
that may be shared with other government entities and to the
National Association of Insurance Commissioners, provided
that the recipient of the information agrees to main
confidentiality of the information;
4. Would clarify that insurer analyses as required in Section
730 to be at the expense of the insurer;
5. Would require the mandatory annual audit of all insurers
doing business in this state to include required auditor and
management reporting in conformity with the standards
adopted by the NAIC;
6. Would permit the IC to grant multiple 30-day extension and
require insurers to request the extension within 10 days of
the audit due date;
7. Would correct reference to 2 non-existent sections in the
Insurance Code to accurately reference Section 11691, which
applies to deposits by workers' compensation insurers;
8. Would correct an obsolete reference to law that allows
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domestic incorporated insurers to invest their assets in the
purchase of certain securities or in loans upon such
securities if they conform to specified conditions;
9. Would allow domestic incorporated insurers to invest in
credit unions to the extent the accounts are insured by an
agency or instrumentality of the federal government;
10. Would limit the percentage of excess funds investments that
can be made in a loan or any other obligation to any one
borrower, including all affiliates, to 10% of the capital
stock and surplus or 1% of the admitted assets of the
lending insurer, whichever amount is greater;
11.Would require policies of automobile insurance to provide
for the replacement of a child passenger restraint system
that was in use by a child during an accident, or if the
child passenger restraint system was in the vehicle and it
sustained a loss covered by the policy. This applies to
automobile liability insurance, automobile collision
coverage, and automobile physical damage coverage.
12.Would require insurers to give the IC advanced notification
of its intent to enter into tax sharing agreements.
13.Would authorize fraternal benefit societies to use
mortality tables approved by bulletin (not just through
regulations) issued by the IC for purposes of determining
actuary values.
14.Would provide that if an enforcement action against a
licensee is withdrawn, then each pleading, document, or
order against that licensee shall be removed from the
Department's web site within 30 days of the withdrawal. If
a matter involves multiple licensees and the DOI withdraws
all allegation against one or more of the licensees, the DOI
will be required to post appropriate clarifying documents
indicating the action has been withdrawn on the website.
COMMENTS
1. Purpose of the bill This committee bill incorporates a
series of corrective and clarifying amendments suggested by
the Department of Insurance, which are explained below:
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Section 1 of the bill would require the notice to domestic
insurers of "reciprocal states" to be made every four years,
instead of annually, because that notice is rarely needed,
and existing California law now makes it possible for the IC
to stop unlawful transactions by non-domestics directly.
This change will save the Department time and the cost of
updating a bulletin which is very seldom used or changes in
content.
Sections 2, 3, and 4 of the bill would require new factors
for the IC to consider in determining the nature and
frequency of examinations for insurers. This section also
clarifies that the analysis performed is at the expense of
the insurer being examined.
Section 5 of the bill would require the mandatory audit of
insurers to comply with the NAIC accreditation requirements
and improve the quality of financial reporting by increasing
accountability of management oversight and provides
authority for the IC to promulgate regulations. Also would
permit the IC to grant multiple 30-day extension and require
insurers to request the extension within 10 days of the
audit due date.
Sections 6 and 7 of the bill would make technical
corrections to three code references.
Section 8 of the bill would allow insurers to invest in
credit unions and, thereby, provide another option that can
help in making community development investments.
Section 9 of the bill would clarify that limits on excess
funds investments applies to both loans and obligations.
This would address an NAIC accreditation requirement that
calls for state laws to address single investment limits.
Section 10 would require an insurer to give the Insurance
Commissioner advanced notification of its intent to enter
into tax sharing agreements.
Section 11 makes only a technical, nonsubstantive change to
renumber a duplicate section in the Insurance Code.
Section 12 would authorize fraternal benefit societies to
use mortality tables approved by bulletin (not just through
regulations) issued by the Insurance Commissioner for
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purposes of determining actuary values.
Section 13 of the bill would provide that child safety seats
that are damaged during an event such as auto theft, fire or
collision where the seat is destroyed or damaged, would be
covered under an automobile policy. The Department reports
that although some insurers interpret "use" of the child
passenger restraint system as "being available for use"
others take a more literal approach to the word "use" such
as attempting to avoid replacement if that system is in a
stolen, unoccupied vehicle. This change is intended to
broaden the opportunities for coverage for child passenger
restraint systems under an automobile insurance policy.
Section 14 revises the law governing the Internet posting of
all orders or pleadings on the Department's website arising
from disciplinary proceedings to provide that if an
enforcement action against a licensee is withdrawn, then
each pleading, document, or order against that licensee
shall be removed from the Department's web site within 30
days of the withdrawal. If a matter involves multiple
licensees and the DOI withdraws all allegation against one
or more of the licensees, the DOI will be required to post
appropriate clarifying documents indicating the action has
been withdrawn on the website.
2. Author's Amendments to be Offered in Committee:
i. The Department is requesting an
amendment to Insurance Code Section 900.2 to
clarify the Commissioner's authority to
promulgate all of the substantive provisions of
the NAIC Annual Financial Reporting Regulation.
The proposed amendment will conform the existing
grant of authority in the Insurance Code to
current provisions and terminology used to
describe these matters in the NAIC as follows:
900.2. (a) All insurers doing business in this
state shall have an annual audit by an
independent certified public accountant. The
audit , including required auditor and
management reporting, audit committee and its
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membership, and other aspects of the audit
content and process, shall be conducted , and
the audit report prepared and filed , in
conformity with the Annual Audited Financial
Reports instructions contained in the annual
statement instructions as adopted from time to
time standards adopted by the National
Association of Insurance Commissioners.
ii. To conform AB 299 to AB 3054 as
approved last year, and for internal consistency
with the use of the term "obligor" as added by
this bill, amend Insurance Code Section 1197 by
inserting on page 8, line 26, after "loan", the
phrase "or any other obligation"
3. Support . The State Department of Insurance is the sponsor
of the bill. The Department states that it is an omnibus
bill which will incorporate a series of corrective and
clarifying amendments.
4. Opposition . None received.
5. Prior Legislation AB 3054 of the 2007-2008 legislative
session was an essentially identical measure that was sent
to the Governor but subject to a veto for reasons unrelated
to its content last fall.
SB 203 (Lewis) Ch 28, Statutes of 1997 allowed the Insurance
Commissioner to approve and issue mortality tables by
bulletin as discussed above.
6. Veto Message In his 208 message vetoing AB 3054 the Governor
did not identify any substantive concerns with AB 3054,
stating only as follows:
To the Members of the California State Assembly:
I am returning Assembly Bill 3054 without my
signature.
The historic delay in passing the 2008-2009 State
Budget has forced
me to prioritize the bills sent to my desk at the end
of the year's
legislative session. Given the delay, I am only
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signing bills that
are the highest priority for California. This bill
does not meet
that standard and I cannot sign it at this time.
Sincerely,
Arnold Schwarzenegger
POSITIONS
Support
California Department of Insurance
America's Health Insurance Plans
Oppose
None
Principal Consultant: Kenneth Cooley (916) 651-4102