BILL NUMBER: SB 291 INTRODUCED
BILL TEXT
INTRODUCED BY Committee on Banking, Finance and Insurance (Senators
Calderon (Chair), Correa, Cox, Florez, Harman, Kehoe, Liu,
Lowenthal, Padilla, and Runner)
FEBRUARY 25, 2009
An act to amend Sections 1215.5 and 11136 of the Insurance Code,
relating to insurance regulations.
LEGISLATIVE COUNSEL'S DIGEST
SB 291, as introduced, Committee on Banking, Finance and
Insurance. Insurance regulations.
Existing law prohibits domestic insurers or commercially domiciled
insurers from entering into specified transactions unless they have
notified the Insurance Commissioner of their intent to enter into the
transaction in advance of entering into the transaction and the
commissioner fails to prohibit the transaction, as specified.
This bill would specify that tax sharing agreements are among the
types of transactions for which the insurer would have to give the
commissioner advanced notification of its intent to enter into the
transaction, as specified.
Existing law 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, as specified. Existing law requires
fraternal benefit societies to use, among other tables, mortality
tables approved by regulation promulgated by the Insurance
Commissioner for purposes of determining actuary values, as
specified.
This bill would, in addition, authorize fraternal benefit
societies to use mortality tables approved by bulletin issued by the
commissioner for purposes of determining actuary values, as
specified.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. 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 1215.13, and
any person in its holding company system, 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
commissioner shall require the payment of one thousand eight hundred
eighty-nine dollars ($1,889) as a fee for filings under this
subdivision. 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 lessor
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 or modifications thereto in which the
reinsurance premium or a change in the insurer's liabilities 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 sh
aring 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 1215.10.
(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 any such investment
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. 2. Section 11136 of the Insurance Code is amended to read:
11136. Except as otherwise provided in Section 10489.4, such
valuation shall be certified by a competent actuary or, at the
expense of the society, verified by the actuary of the insurance
supervisory official of the state of domicile of the society, and the
legal minimum standard of valuation shall be as follows:
(a) All benefits promised by certificates issued prior to
September 22, 1952, and the rates therefor shall be valued in
accordance with the provisions of law applicable thereto as of the
date of issuance, but not lower than the standards and interest
assumptions used in the calculation of rates for such benefits.
(b) The minimum standard for the valuation of all certificates
issued after September 21, 1952, and prior to January 1, 1972, shall
be 3 percent per annum interest; in the case of certificates issued
on and after January 1, 1972, and prior to January 1, 1980, the
minimum standard for the valuation of all such certificates shall be
4 percent per annum interest; and in the case of certificates issued
on and after January 1, 1980, the minimum standard for the valuation
of all single premium certificates shall be 51/2 percent per annum
interest and for the valuation of all other such certificates shall
be 41/2 percent per annum interest, and the following tables:
(1) For all ordinary certificates of life insurance issued on the
standard basis, excluding any disability and accidental death
benefits in such certificates--the American Men Ultimate Table of
Mortality, with Bowerman's or Davis' Extension thereof, or, at the
option of the society, the Commissioners 1941 Standard Ordinary
Mortality Table or the Commissioners 1958 Standard Ordinary Mortality
Table, using actual age of the insured for male risks and an age not
more than six years younger than the actual age of the insured for
female risks, and for such policies issued on or after the operative
date of Section 10163.2 (i) the Commissioners 1980 Standard Ordinary
Mortality Table, or (ii) at the election of the company for any one
or more specified plans of life insurance, the Commissioners 1980
Standard Ordinary Mortality Table with Ten-Year Select Mortality
Factors, or (iii) any ordinary mortality table, adopted after 1980 by
the National Association of Insurance Commissioners, or its
successor, that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies.
(2) For all industrial life insurance certificates issued on the
standard basis, excluding any disability and accidental death
benefits in such certificates--the 1941 Standard Industrial Mortality
Table, for such certificates issued prior to the operative date of
Section 10163.2, and for such policies issued on or after such
operative date, the Commissioners 1961 Standard Industrial Mortality
Table or any industrial mortality table, adopted after 1980 by the
National Association of Insurance Commissioners, or its successor,
that is approved by regulation promulgated or bulletin issued
by the commissioner for use in determining the minimum standard
of valuation for such policies.
(3) For annuity and pure endowment certificates, excluding any
disability and accidental death benefits in such certificates--the
1937 Standard Annuity Mortality Table, or the Annuity Mortality Table
for 1949 Ultimate, or the Individual Annuity Mortality Table for
1971, or any individual annuity mortality table, adopted after 1980
by the National Association of Insurance Commissioners, or its
successor, that is approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such contracts, or any modification
of any of these tables approved by the commissioner.
(4) For disability benefits in or supplementary to ordinary
certificates--Hunter's Disability Table or the Class 3 Disability
Table (1926), modified to conform to the contractual waiting period,
or the tables of Period 2 disablement rates and the 1930 to 1950
termination rates of the 1952 Disability Study of the Society of
Actuaries with due regard to the type of benefit, or the 1964
Commissioners Disability Table, or any tables of disablement rates
and termination rates, adopted after 1980 by the National Association
of Insurance Commissioners, or its successor, that are approved by
regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such policies. Any such table shall, for active lives, be
combined with a mortality table permitted for calculating the
reserves for life insurance certificates.
(5) For accidental death benefits in or supplementary to
certificates--The Inter-Company Double Indemnity Mortality Table or
the 1959 Accidental Death Benefits Table, or any accidental death
benefits table, adopted after 1980 by the National Association of
Insurance Commissioners, or its successor, that is approved by
regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such policies. Any such table shall be combined with a mortality
table permitted for calculating the reserves for life insurance
certificates.
(6) For temporary accident and health benefits in or supplementary
to certificates--Class 3 Disability Table (1926) with Conference
Modifications or the 1964 Commissioners Disability Table, or any
tables of disablement rates and termination rates, adopted after 1980
by the National Association of Insurance Commissioners, or its
successor, that are approved by regulation promulgated or
bulletin issued by the commissioner for use in determining the
minimum standard of valuation for such policies.
(7) For life insurance issued upon the substandard basis and other
special benefits--such tables as may be approved by the
commissioner.
(c) The commissioner may, in his discretion, accept other
standards for valuation if he finds that the reserves produced
thereby will not be less in the aggregate than reserves computed in
accordance with the minimum valuation standard prescribed. Whenever
the mortality experience under the certificates valued on the same
mortality table is in excess of the expected mortality according to
such table for a period of three consecutive years, the commissioner
may require additional reserves when in his judgment deemed necessary
on account of such certificates.
(d) Notwithstanding the provisions of subdivisions (a) and (b),
any society, with the consent of the insurance supervisory official
of the state of domicile of the society, and under such conditions,
if any, which he may impose, may establish and maintain reserves on
its certificates in excess of the reserves required thereunder, but
the contractual rights of any insured member shall not be affected
thereby.