BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 712 (Committee on Insurance)Hearing Date: April 13, 2011
As Amended: April 5, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would adopt the core provisions of the NAIC's Property
and Casualty Actuarial Opinion Model law to support the
California Insurance Department's continued accreditation.
DIGEST
Existing law
1. Provides for solvency regulation of the business of
insurance in California, for the "purpose of adequately
protecting the insured and securing the solvency of the
insurer." (California Insurance Code (CIC) Section 923.5)
.
2. Authorizes the California Insurance Commissioner to
extend reciprocity to certain actions, reports and filings,
if they have been approved by an insurance regulator of
another state whose department is accredited by the
Financial Regulation Standards and Accreditation Program of
the National Association of Insurance Commissioners (NAIC).
(See for example, CIC Secs. 730(d), 922.6(a), and
1216.1(a))
3. Recognizes the NAIC's Financial Regulation Standards and
Accreditation Program , which requires states to adopt 18
laws or regulations deemed indispensable to adequately
monitoring the financial solvency of its domestic insurers.
For accreditation purposes, the NAIC standard is that a
state must have all laws and regulations in effect to be
accredited (i.e., pass or fail).
This bill
1. Makes various non-substantive "code clean-up" type
changes.
SB
712 (Committee On Insurance), Page 2
2. Requires every admitted property and casualty insurer,
unless exempted by their domiciliary commissioner, to
annually submit the opinion of an Appointed Actuary
entitled "Statement of Actuarial Opinion" to the California
Insurance Department, pursuant to the appropriate Property
and Casualty Annual Statement Instructions of the National
Association of Insurance Commissioners (NAIC).
COMMENTS
1. Purpose of the bill : According to the Department of
Insurance, which is this bill's sponsor, California needs to
adopt the National Association of Insurance Commissioners
(NAIC) Model Law in order for the Department of Insurance
(CDI), California's insurance regulator, to retain NAIC
accreditation.
2. The addition of Section 923.6 to the CIC will satisfy the
NAIC accreditation requirement as to this element. The
purpose behind the P & C Actuarial Opinion Model Law is to
ensure that regulators have access to additional information
which can assist them in the solvency-related oversight on
behalf of protecting consumers.
3. The balance of the bill are technical, code clean-up type
changes which will, among other things, provide recognition
in the California Insurance Code that California's Attorney
General may be male or female.
4. Background and Discussion:
According to the bill's sponsor, the Department of
Insurance, the business of insurance is principally
regulated at the state level. The NAIC is an organization
of state insurance regulators for 50 states, Washington
D.C., and five U.S. territories. The NAIC's primary mission
is to promote uniform practices amongst states in regulating
multi-state insurers. To support this effort, the NAIC
maintains an insurance regulator accreditation program and
develops uniform standards known as Model Laws. The NAIC
performs an on-site accreditation review of each insurance
regulator every 5 years; however, it also may carry out, at
SB
712 (Committee On Insurance), Page 3
its discretion, interim annual reviews.
An insurance regulator's accreditation status is dependent
on its adoption of statutes and regulations that align with
the Model Laws adopted by the NAIC. Commonality in
regulating insurers is critical toward maintaining effective
state-based consumer protections.
Effective January 1, 2010, the NAIC added a requirement for
states to adopt the NAIC Property and Casualty Opinion Model
Law. The accreditation standard for this Model Law requires
states to codify four required elements:
a. Annual submission of an actuarial opinion,
b. Annual submission of an actuarial opinion summary,
c. The actuarial opinion must be provided with the
Annual Statement and treated as a public document, and
d. The various documents related to the actuarial
report or actuarial opinion summary must be privileged
and treated as confidential by law because they contain
significant proprietary information.
The NAIC, during an interim annual review of CDI last year
noted, as a finding, that California had not codified the
NAIC Property and Casualty Opinion Model Law. It is
imperative that California adopt this Model Law to preserve
its NAIC accreditation status. The status of CDI as an
accredited insurance regulator allows our Reports of
Examination to be accepted by other states, and allows other
states to rely on us for other regulatory functions related
to financial surveillance. Losing accreditation would
seriously impede the CDI's abilities to protect California
consumers, as well as negatively impact the state's domestic
insurance industry.
It should be noted that the NAIC Property and Casualty
Opinion Model Law reflects CDI's current business practices
in this area so codifying it will result in no changes in
the methods and processes of CDI's current regulatory
activities.
5. The NAIC's Financial Regulation Standards and Accreditation
Program is a voluntary program under whose auspices 49
states plus the District of Columbia are now accredited. For
accreditation, state insurance departments must meet
established minimum accreditation standards which address
SB
712 (Committee On Insurance), Page 4
categories of 1) Laws & Regulations, 2) Regulatory Practices
& Procedures, and 3) Organizational & Personnel Practices.
The "Laws and Regulations" standard requires 18 laws or
regulations which the NAIC deems indispensable to adequately
monitoring the financial solvency of its domestic insurers.
The accreditation standard is that a state must have all
laws and regulations in effect to be accredited (i.e., pass
or fail).
The required laws are those relating to:
a. Examination Authority
b. Capital & Surplus Requirement
c. NAIC Accounting Practices & Procedures
d. Corrective Action
e. Valuation of Investment
f. Holding Company Systems
g. Risk Limitation
h. Investment Regulations
i. Liabilities & Reserves
j. Reinsurance Ceded
aa. CPA Audits
bb. Actuarial Opinion
cc. Receivership
dd. Guaranty Funds
ee. Filings with NAIC
ff. Producer Controlled Insurers
gg. Managing General Agents Act
hh. Reinsurance Intermediaries Act
SB 715 addresses the law identified for NAIC accreditation
purposes in item I. above.
6. Summary of Arguments in Support:
a. The Department of Insurance supports this bill to
preserve its accreditation by the NAIC.
7. Summary of Arguments in Opposition:
a. None received
8. Amendments:
SB
712 (Committee On Insurance), Page 5
a. None
9. Prior and Related Legislation:
a. None
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Department of Insurance (Sponsor)
Opposition
None
Consultant: Ken Cooley (916) 651-4110