BILL ANALYSIS �
SB 712
Page 1
SENATE THIRD READING
SB 712 (Insurance Committee)
As Amended August 25, 2011
Majority vote
SENATE VOTE : 39-0
INSURANCE 11-0 GOVERNMENT ORGANIZATION 14-0
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|Ayes:|Solorio, Hagman, Carter, |Ayes:|Hall, Nestande, Atkins, |
| |Feuer, Grove, Hayashi, | |Block, Cook, Garrick, |
| |Miller, Olsen, Skinner, | |Gatto, Hill, Jeffries, |
| |Torres, Wieckowski | |Ma, Perea, V. Manuel |
| | | |Perez, Silva, Torres |
|-----+--------------------------+-----+--------------------------|
| | | | |
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APPROPRIATIONS 17-0
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|Ayes:|Fuentes, Harkey, | | |
| |Blumenfield, Bradford, | | |
| |Charles Calderon, Campos, | | |
| |Davis, Donnelly, Gatto, | | |
| |Hall, Hill, Lara, | | |
| |Mitchell, Nielsen, Norby, | | |
| |Solorio, Wagner | | |
| | | | |
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SUMMARY : Requires property and casualty insurers to annually
submit a Statement of Actuarial Opinion in accordance with the
instructions of the National Association of Insurance
Commissioners (NAIC), and extends the time for bonds to be
issued to pay the claims of insolvent workers' compensation
insurers. Specifically, this bill :
1)Requires admitted property and casualty insurers unless
exempted by the Insurance Commissioner (IC), to annually
submit the opinion of an Appointed Actuary entitled "Statement
of Actuarial Opinion" in accordance with the instructions of
the NAIC.
2)Authorizes the IC to adopt regulations related to the terms
and conditions required by the Property and Casualty Annual
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Statement of Instructions of the NAIC.
3)Requires property and casualty insurers domiciled in this
state to annually submit an Actuarial Opinion Summary written
by the insurer's Appointed Actuary.
4)Requires admitted insurers not domiciled in this state to
provide the Actuarial Opinion Summary upon request of the IC.
5)Requires the Statement of Actuarial Opinion to be a public
record and open to inspection.
6)Provides that documents and materials in the possession of the
IC that are considered an Actuarial Report, work papers, or
Actuarial Opinion Summary provided in support of the Statement
of Actuarial Opinion shall be confidential and privileged, and
not made public. However, the IC is not restricted from
releasing these materials to the American Academy of Actuaries
Actuarial Board for Counseling and Discipline (ABCD) for the
purpose of professional disciplinary proceedings.
7)Authorizes the IC to disclose to law enforcement officials and
to insurance departments of other states the contents of
examination reports, market analysis data, or other relevant
matter regarding the supporting materials to the Statement of
Actuarial Opinion.
8)Specifies that state law governing the sale of life insurance
and annuity contracts requires differentials based on the sex
of the individual insured or annuitant in the rates or
dividends or benefits, when the differentials are
substantially supported by valid pertinent data segregated by
sex, including but not limited to, mortality data segregated
by sex.
9)Provides that reported replacement and lapse rates in
connection with the sale of long-term care insurance do not
constitute a violation of insurance laws or imply wrongdoing.
The reports are for the purpose of reviewing more closely
agent activities regarding the sale of long-term care
insurance.
10)Extends from January 1, 2013, until January 1, 2023, the time
for bonds to be issued on behalf of the California Insurance
Guarantee Association (CIGA) to pay the claims of insolvent
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workers' compensation insurers.
11)Makes two technical corrections to the insurance law
contained in the California Life and Health Insurance
Guarantee Association Act.
EXISTING LAW :
1)Requires insurers to maintain sufficient reserves, in
accordance with regulations adopted by the IC, to provide for
the payment of all losses for which the insurer may be liable
and to pay for adjustment expenses or settlement of losses.
2)Requires insurers to file financial statements with the IC,
and to have an annual audit performed by an independent
certified public accountant. The audit and the audit report
shall be prepared in conformance with the standards adopted by
the NAIC.
3)Requires admitted life and disability insurers to submit
annual actuarial opinions or statements.
4)Identifies a series of unfair methods of competition and
unfair and deceptive acts or practices in the business of
insurance, and prohibits these as unfair trade practices.
5)Specifies that one of these prohibited insurance trade
practices is making or permitting unfair discrimination
between individuals of the same class and equal expectation of
life in the rates charged for life insurance or a life
annuity. State law requires differentials based on the sex of
the individual insured or annuitant in the rates or dividends
or benefits, when the differentials are substantially
supported by valid pertinent data segregated by sex, including
but not necessarily limited to, mortality data segregated by
sex.
6)Requires insurers, in connection with the sales of long-term
care insurance, to maintain records for each agent that
identify the amount of replacement sales as a percent of the
agent's total annual sales and the amount of lapses of
long-term care policies sold by the agent as a percent of the
agent's total annual sales.
7)Provides that reported replacement and lapse rates do not
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constitute a violation of insurance laws or necessarily imply
wrongdoing. The reports are for the purpose of reviewing more
closely agent activities regarding the sale of long-term care
insurance.
8)Authorizes the CIGA to pay eligible claims of insolvent
insurers through the collection of premiums from its members.
Its members are property, casualty, and workers' compensation
insurers.
9)Provides that bonds issued to provide funds for covered
workers' compensation claims shall be issued prior to January
1, 2013, in an aggregate amount outstanding not to exceed $1.5
billion.
10)Places in an uncodified section of law the stipulation that
amendments made to the California Life and Health Insurance
Guarantee Association Act made by SB 1408 (Banking, Finance
and Insurance Committee), Chapter 334, Statutes of 2010 shall
not apply to any member insurer that, prior to the effective
date of that chapter, has been placed under an order of
liquidation with a finding of insolvency.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, costs associated with this legislation should be
minor and absorbable within existing Department of Insurance
resources.
COMMENTS :
1)This bill has two purposes: a) to conform California
insurance laws to the NAIC Model law regarding actuarial
opinions needed to monitor the adequacy of financial reserves
of property and casualty insurers; and, b) to give the
California Insurance Guarantee Association the flexibility to
refinance existing variable rate bonds to avoid higher
interest costs if the bond market changes.
2)This bill contains the Department of Insurance's (DOI's)
adaptation of the NAIC's Property and Casualty Actuarial
Opinion Model Law, and is required to support California's
accreditation pursuant to the NAIC's Financial Regulation
Standards and Accreditation Program.
The NAIC's Financial Regulation Standards and Accreditation
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Program is a voluntary program which has led to NAIC
accreditation of 49 states and the District of Columbia. In
order to be accredited, the state must meet minimum baseline
accreditation standards in the following categories: laws and
regulations, regulatory practices and procedures, and
organizational and personnel practices.
In order to gain and maintain accreditation, 18 laws and
regulations are required to adequately monitor the financial
solvency of its domestic insurers. The subject of these laws
and regulations are: a) examination authority; b) capital and
surplus requirement; c) NAIC accounting practices and
procedures; d) corrective action; e) valuation of investments;
f) holding company systems; g) risk limitation; h)
investment regulations; i) liabilities and reserves; j)
reinsurance ceded; k) CPA audits; l) actuarial opinion; m)
receivership; n) guaranty funds; o) filings
with the NAIC; p) producer controlled insurers; q) managing
general agents act; and, r) reinsurance intermediaries act.
This bill addresses the 12th subject, the laws governing
actuarial opinions.
3)The author and the DOI state that this bill is needed to
preserve California's accreditation status by the NAIC. This
bill enacts the updated NAIC Property and Casualty Actuarial
Opinion Model Law, and makes a series of minor Insurance Code
clean-up changes.
4)Starting in 2006, a series of legislative bills have extended
the time deadline to issue bonds to pay for workers'
compensation claims of insolvent workers' compensation
insurance companies. These extensions have been for two years
each time to assure that CIGA can meet its obligations to pay
these claims. The outstanding bonds with variable interest
rates total $350 million. The Department of Insurance and
CIGA state that it may be cost-effective for CIGA to have the
flexibility to refinance the bond debt in the future. This
bill would provide that authority.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
FN: 0002242
SB 712
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