BILL ANALYSIS �
SB 1448
Page 1
SENATE THIRD READING
SB 1448 (Calderon)
As Amended June 27, 2012
Majority vote
SENATE VOTE :39-0
INSURANCE 8-3 APPROPRIATIONS 17-0
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|Ayes:|Solorio, Fong, Carter, |Ayes:|Fuentes, Harkey, |
| |Feuer, Hayashi, Olsen, | |Blumenfield, Bradford, |
| |Skinner, Wieckowski | |Charles Calderon, Campos, |
| | | |Davis, Donnelly, Gatto, |
| | | |Hall, Hill, Lara, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
|-----+--------------------------+-----+--------------------------|
|Nays:|Beth Gaines, Miller, | | |
| |Torres | | |
| | | | |
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SUMMARY : 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)States legislative intent to improve interstate and
international regulation of insurance holding company systems,
by conforming to and to maintaining standards consistent with
the NAIC revised model act.
2)Makes findings and declarations regarding the need for
improvements in the regulation of insurance holding company
systems.
3)Defines "enterprise risk" as any activity, circumstance, or
event that, if not remedied promptly, is likely to have a
material adverse effect on the financial condition of the
insurer or its insurance holding company system.
4)Defines "security holder" as a person that owns a security
(e.g., common stock, preferred stock, debt obligations) in a
company.
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5)Defines "voting security" to include any security that may be
converted into a voting security.
6)Permits the Insurance Commissioner (commissioner) to hold a
public hearing after the filing of a notice that a non-insurer
seeks to acquire a controlling interest in a domestic
insurance company. Permits interested parties to participate
in this hearing by presenting evidence, examine and
cross-examine witnesses, and offer both oral and written
arguments.
7)Permits the commissioner to consolidate the hearing with
hearings held by insurance regulators in other states.
8)Requires notice to the commissioner if a person seeks to
divest itself of control of a domestic insurer.
9)Requires the commissioner to determine if a party seeking to
divest itself of control of a domestic insurer must obtain the
commissioner's approval of the transaction.
10)Provides that the notice of divestment is confidential until
the transaction is concluded unless the commissioner
determines that confidentiality would interfere with the
enforcement of the Insurance Holding Company System Regulatory
Act (act).
11)Requires insurers in a registered insurance holding company
system (IHCS) to provide the commissioner with financial
statements upon request.
12)Requires the board of directors of an insurer in an insurance
holding company system 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.
13)Permits the commissioner to disallow a disclaimer of
affiliation if the information in the disclaimer application
is incomplete or inaccurate.
14)Requires the controlling person in an insurance holding
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company system to file an annual enterprise risk report.
Specifies that the first enterprise risk report must be filed
after July 1, 2013.
15)Requires notice of amendments to or modifications of
affiliate agreements between members of an insurance holding
company system to be filed with the commissioner.
16)Requires notice of a projected change reinsurance premiums or
increase in liabilities of 5% or more in any of the next three
years to be filed with the commissioner.
17)Permits the commissioner to examine any insurer to ascertain
enterprise risks to the insurer posed by members of the IHCS.
18)Permits the commissioner to order the production of records,
books, or other information from members of an IHCS.
19)Permits the commissioner to participate in a "supervisory
college" composed of other state, federal, and international
insurance regulators for a domestic insurer that is part of an
IHCS with international operations to determine compliance
with the act.
20)Permits the commissioner to share confidential information
with other state, federal and international regulatory
agencies (including NAIC) if those agencies agree to preserve
the confidentiality of the information.
21)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 : According to the Assembly Appropriations
Committee, the Department of Insurance workload associated with
this legislation should be minor and absorbable within existing
resources.
COMMENTS : According to the sponsor, holding company systems are
large and complex and this bill will provide the commissioner
with much needed new tools to evaluate the activities of
non-insurance entities within a holding company system that
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could pose a financial risk to the insurance company owned or
otherwise financially affiliated with the holding company. This
bill will help to ensure effective insurer group regulation and
oversight. It is anticipated that enacting these provisions
will be an accreditation issue with NAIC and passing this bill
conforms California law to the Model Law prepared by the NAIC.
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
American International Group insurance holding company system
during the 2008 financial crisis. This bill modifies current
law governing insurance holding company regulation to conform
with recent revisions to the NAIC model law.
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086
FN: 0004765