BILL ANALYSIS �
SB 1448
Page 1
Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1448 (Calderon) - As Amended: June 27, 2012
Policy Committee: InsuranceVote:8 -
3
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill conforms California law to recent changes in the
National Association of Insurance Commissioners (NAIC) model law
relating to insurance holding company regulation.
Specifically, this bill:
1)Requires insurers in a registered insurance holding company
system (IHCS) to provide the State Insurance Commissioner with
financial statements upon request.
2)Requires the board of directors of an insurer in an insurance
holding company system to file a statement with the
commissioner that the board is responsible for overseeing
corporate governance and internal controls and that the
officers and senior management have implemented and maintain
corporate governance and internal control procedures.
3)Requires the controlling person in an insurance holding
company system to file an annual enterprise risk report with
the Commissioner. Specifies that the first enterprise risk
report must be filed after July 1, 2013.
4)Requires notice of amendments to or modifications of affiliate
agreements between members of an insurance holding company
system to be filed with the commissioner.
5)Requires notice of a projected change in reinsurance premiums
or an increase in liabilities of 5% or more in any of the next
three years to be filed with the commissioner.
6)Permits the commissioner to examine any insurer to ascertain
SB 1448
Page 2
enterprise risks to the insurer posed by members of the IHCS.
7)Permits the commissioner to order the production of records,
books, or other information from members of an IHCS.
8)Provides that a violation of the registration requirement for
IHCS is an independent basis for the commissioner to
disapprove dividends, distributions, or seek an order of
supervision.
FISCAL EFFECT
Department of Insurance workload associated with this
legislation should be minor and absorbable within existing
resources.
COMMENTS
1)Purpose. This bill modifies current law governing insurance
holding company regulation to conform with recent revisions to
the NAIC model law. According to the California Department of
Insurance (CDI), the sponsors of this bill, holding company
systems are large and complex and this bill will provide the
commissioner with tools to evaluate the activities of
non-insurance entities within a holding company system that
could pose a financial risk to the insurance company owned or
otherwise financially affiliated with the holding company.
2)Insurance Holding Company System . An IHCS consists of two or
more affiliated persons, one or more of which is an insurer.
But these systems can be far more complex than that and
involve transactions that shift control and apparent
accountability from the actor to a remote person. In this
context, person includes business entities such as a
corporation or partnership, as well as individuals.
The Senate Insurance Committee analysis characterizes an IHCS
in the following manner:
From a top-down perspective, an entity within a holding
company system may be likened to a remote-controlled car;
both may be controlled by someone far removed. But the
remote-control may be held by another remote-controlled
instrument, and so on. But the analogy changes when viewed
horizontally in that the controlling authority in a
SB 1448
Page 3
business entity may be spread around and decisions are
ultimately made by the person or persons who have the
controlling interest, not just a person who owns an
interest - several remotes might share control of the same
instrument or car. The person with, or persons sharing,
the most powerful remote-control drives the car.
An IHC system can become a vast network of drones, remotes
and decision-makers; the problem is identifying who is
what. SB 1448 would give regulators tools designed to
provide the information necessary to track down the
ultimate controlling person or persons - who has the most
powerful remote and what are they doing with it.
3)NAIC Model Law Changes. In December 2010, the NAIC adopted
significant revisions to the model law for insurance holding
company systems in response to concerns that insurance
regulators lacked the necessary authority to adequately
understand the risks and activities of non-insurance entities
within a holding company system that could pose a risk to an
insurer. The argument for new tools to evaluate risks within
insurance groups was intensified by the financial difficulties
experienced by certain affiliates of the AIG insurance holding
company system during the 2008 financial crisis.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081