BILL ANALYSIS �
SB 1216
Page 1
SENATE THIRD READING
SB 1216 (Lowenthal)
As Amended May 7, 2012
Majority vote
SENATE VOTE :37-0
INSURANCE 13-0 APPROPRIATIONS 17-0
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|Ayes:|Solorio, Hagman, |Ayes:|Fuentes, Harkey, |
| |Bradford, Fong, Carter, | |Blumenfield, Bradford, |
| |Feuer, Beth Gaines, | |Charles Calderon, Campos, |
| |Hayashi, Miller, Olsen, | |Davis, Donnelly, Gatto, |
| |Skinner, Torres, | |Hall, Hill, Lara, |
| |Wieckowski | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
| | | | |
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SUMMARY : Conforms California law with recent changes in federal
law and the National Association of Insurance Commissioners
(NAIC) model law regarding the regulation of reinsurance.
Specifically, this bill :
1)Permits the Insurance Commissioner (commissioner) to designate
a domestic insurer principally engaged in the business of
reinsurance as a professional reinsurer.
2)Permits professional reinsurers to include that designation in
their name, solicitations and advertisements.
3)Requires reinsurance contracts to include a provision that
makes the reinsurance payable to a successor entity if there
is a change of status to the insurer purchasing the
reinsurance (ceding insurer).
4)Requires a ceding insurer to notify the commissioner when
recoverables from a single reinsurer exceed 50% of the of the
insurer's policyholder surplus.
5)Requires a ceding insurer to notify the commissioner if it
obtains reinsurance for 20% or more of its gross written
premium from a single reinsurer.
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6)Permits the commissioner to certify reinsurers that:
a) Hold a license to transact insurance in another state or
qualified jurisdiction;
b) Maintain minimum capital and surplus of at least $250
million;
c) Maintain financial strength ratings from at least two
recognized rating agencies;
d) Submits to the commissioner's jurisdiction;
e) Submits to information filing requirements determined by
the commissioner; and,
f) Complies with any other requirements deemed relevant by
the commissioner.
7)Requires the commissioner to consider reinsurance provided by
a certified reinsurer as an asset or credit against the
liabilities of a ceding insurer.
8)Permits the commissioner to reduce the minimum surplus in a
trust account securing reinsurance contracts if the reinsurer
has discontinued activity for at least three years and a
reduced minimum surplus is adequate to protect ceding
insurers. The commissioner may not reduce the minimum surplus
to less than 50% of the reinsurer's liabilities.
9)Requires the commissioner to assign a financial strength
rating to each certified reinsurer based on a range of factors
including the ratings provided by recognized rating agencies.
10)Permits the commissioner to recognize a reinsurance
certification and rating by another jurisdiction that has been
accredited by the NAIC. The commissioner may withdraw
recognition of another jurisdiction's certification or rating
with written notice to the certified reinsurer.
11)Permits an association of individual or corporate
underwriters to be a certified reinsurer.
12)Requires the commissioner to notice an application for
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certification as a reinsurer on the Department of Insurance
Web site and allow 90 days for the public to comment on the
application.
13)Requires certified reinsurers to comply with a range of
information filing requirements.
14)Prohibits the commissioner from disclosing information filed
by certified reinsurers that is exempt from disclosure under
the California Public Records Act.
15)Requires the commissioner to establish a list of nations that
are accepted as "qualified jurisdictions" for the purposes of
certifying alien reinsurers. This list must be based on a
similar list to be established by NAIC and on a number of
other factors including the comparability of the nation's
regulatory structure for insurers and the extent to which the
nation cooperates with regulators from the United States.
16)Permits the commissioner to certify an alien reinsurer from a
qualified jurisdiction.
17)Requires certified reinsurers to provide collateral for
reinsurance obligations based on a financial security rating
assigned by the commissioner. The highest rated reinsurers
would be required to provide no collateral and the lowest
rated reinsurers would have to provide 100% collateral.
18)Provides that certified reinsurers do not have to maintain
collateral levels for one year following a catastrophic event
likely to result in significant insured losses for the
reinsurer. The deferral period is contingent upon the
reinsurer continuing to pay claims in a timely manner.
19)Sunsets the reinsurer certification law on January 1, 2016.
20)Permits the commissioner to suspend or revoke a reinsurer's
certification or accreditation.
21)Permits the commissioner to collect the cost of the
certification process from the reinsurer.
22)Provides that financial statement credit for reinsurance is
determined by the regulator in the state where the ceding
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insurer is domiciled.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, costs of up to $125,000 during the peak year of
2013-14, with on-going costs of about $30,000. These costs will
be fully recoverable by filing fees and cost recovery.
COMMENTS : According to the author, this bill updates California
reinsurance laws in response to changes in federal law and
revisions in the NAIC Reinsurance Model Law and Regulations.
Reinsurance is a transaction in which one insurance company
indemnifies, for a premium, another insurance company against
all or part of the loss resulting from the insurance policy or
policies it has issued. Insurance companies can purchase
reinsurance from different sources such as reinsurance companies
located in the United States, reinsurance departments of other
insurers, and reinsurers that are located outside the United
States and not licensed here. Insurers purchase reinsurance for
a number of reasons including to limit liability on specific
risks, protect against catastrophes, and to write policies that
exceed their available capital. Reinsurance helps insurers
spread risk and provides a tool that enables insurers to match
the risks they assume with their financial resources.
The bill modifies current law to provide a number of different
structures to regulate reinsurers. The bill allows domestic
(domiciled in California) reinsurers primarily in the business
of reinsurance to be licensed as "professional reinsurers."
Existing law allows foreign (domiciled in another state)
reinsurers to become "accredited" to sell reinsurance in
California without being an admitted insurer. The bill allows
both foreign and alien (domiciled in another country) reinsurers
to become "certified" to sell reinsurance in California. It is
expected that alien reinsurers will opt to become "certified"
which will allow highly rated companies to use more flexible
collateral standards than are provided in current law while
foreign reinsurers are expected to continue to use the
accreditation process. All three structures are designed to:
1)Ensure the availability of legal forums in order to
effectively and fairly resolve disputes and enforce judgments.
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2)Provide sufficient means for regulators to obtain information
necessary to monitor an insurer's activities and financial
health.
3)Require reinsurers to demonstrate the integrity and financial
capacity to meet their obligations.
This bill seeks to conform California law to the NAIC model law
for reinsurance based on revisions to the model law adopted in
2011. Those revisions include requirements in the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010
(Dodd-Frank).
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086FN:
0004764