BILL ANALYSIS
AB 954
Page 1
Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 954 (Jones) - As Amended: April 13, 2009
SUBJECT : Insurance Commissioner regulations
SUMMARY : Requires the Insurance Commissioner to follow the
state's administrative procedure when adopting rules,
regulations, or insurance standards recommended by the National
Association of Insurance Commissioners, except as specified.
Specifically, this bill :
1)Requires the Insurance Commissioner (IC) to use the
Administrative Procedure Act (APA) when adopting a rule,
regulation, or insurance standard that is recommended by the
National Association of Insurance Commissioners (NAIC).
2)Creates an exception (to 1 above) if the IC adopts a technical
or ministerial rule, regulation, or insurance standard that is
recommended by the NAIC, in which case that rule, regulation,
or insurance standard shall be posted on the California
Department of Insurance's Internet website.
EXISTING LAW :
1)Prohibits state agencies from issuing or enforcing any
guideline, criterion, bulletin, instruction, order, standard
of general application, or other rule, which is a "regulation"
unless adopted as a regulation pursuant to the state
Administrative Procedure Act (APA). The APA defines a
regulation to be each rule, regulation, order, or standard of
general application adopted by any state agency to implement,
interpret, or make specific the law enforced or administered
by it, or to govern its procedure.
2)Requires that each proposed regulation, as defined by the APA,
be publicly noticed and provide an opportunity for the public
to comment.
3)Requires the IC to direct insurers to use statement blanks and
instructions adopted by the NAIC, and requires insurers to
complete their annual and quarterly statements in conformance
with the Accounting Practices and Procedures Manual adopted by
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NAIC. The IC may periodically change the form of the
statements in order to elicit from the insurers a true exhibit
of their condition. (Section 923 of Insurance Code)
4)Requires each insurer to have an annual audit by an
independent certified public accountant (CPA) that is
conducted in conformance with the Annual Audited Financial
Reports instructions adopted by the NAIC. (Section 900.2 of
Insurance Code)
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose. The author states that the purpose of this bill is
to require the Insurance Commissioner to adopt any substantive
NAIC recommendation through public rulemaking, the
Administrative Procedure Act.
According to the author, the following information forms the
background for this bill:
In 2008 the American Council of Life Insurers (ACLI)
proposed a rule change to NAIC that would reduce life
insurance reserve fund requirements. ACLI proposed this
change to accommodate fund losses suffered as a result of
market and mortgage investments. By proposing an
"accounting standard," it would allow life insurers to
reduce reserve fund requirements by an amount equal to fund
losses, or $25 billion. According to the Consumer
Federation of America and the Center for Economic Justice,
the solvency of these companies is potentially threatened -
but due to the lack of public notice or discussion, that
evaluation has not effectively occurred. Given the
dramatic losses of solvency seen in other sectors of the
financial and business markets, it is unseemly to permit or
require the IC to potentially adopt such a significant
change in public protection. The holders of life insurance
policies are the same people that have been injured by
investment losses and retirements savings in recent years.
2)Information from NAIC and CDI. According to information
provided by the NAIC, the Capital and Surplus Relief Working
Group of the NAIC approved a proposal submitted in 2008 by the
American Council of Life Insurers (ACLI) to provide capital
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and surplus relief to life insurance companies. Subsequently,
however, the Executive Committee of NAIC did not approve the
Working Group's recommendation. The CDI, which is a member of
NAIC, states that these ACLI proposals have been assigned to
technical groups of the NAIC to further review the proposals.
3)Amendment to consider . The bill requires the IC to adopt
substantive changes recommended by the NAIC by following the
APA requirements, and it would allow the IC to adopt a
technical or ministerial rule or insurance standard by posting
it on the CDI website. The author may want to consider an
amendment that requires when a ministerial rule or insurance
standard is proposed that it be posted on the website for a
specific period of time prior to its adoption.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumer Watchdog
Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086