BILL NUMBER: AB 553 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 22, 2015
AMENDED IN ASSEMBLY APRIL 6, 2015
INTRODUCED BY Assembly Member Daly
FEBRUARY 23, 2015
An act to amend Sections 1215, 1215.1, 1215.2, 1215.5, 1215.6, and
1215.8 of, to add Section 1215.75 to, and to add Article 10.8
(commencing with Section 936.1) to Chapter 1 of Part 2 of Division 1
of, the Insurance Code, relating to insurance, and declaring the
urgency thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
AB 553, as amended, Daly. Insurance: corporate governance:
insurance holding companies.
(1) Existing law regulates the business of insurance, including,
but not limited to, requiring that each domestic, foreign, and alien
insurer doing business in this state annually, on or before the first
day of March of each year, file with the National Association of
Insurance Commissioners a copy of its annual statement convention
blank, along with any additional filings as prescribed by the
Insurance Commissioner for the preceding year.
The California Public Records Act requires state and local
agencies to make their records available for public inspection and to
make copies available upon request and payment of a fee unless the
records are exempt from disclosure.
This bill would encourage an insurer or insurance group of which
the insurer is a member, to, no later than June 1 of each calendar
year, submit to the commissioner a Corporate Governance Annual
Disclosure (CGAD) that contains specified information relating to
corporate governance structure, policies, and practices. The bill
would provide, with exceptions, that the documents, materials, or
other information in the possession or control of the Department of
Insurance that are obtained by, created by, or disclosed to the
commissioner or any other person pursuant to these provisions are
confidential and privileged, are not subject to disclosure by
the commissioner pursuant to the California Public Records Act,
and are not subject to subpoena or
subpoena, and are not subject to
discovery from the commissioner or admissible in evidence
in a any civil action if obtained from
the commissioner, as specified. The bill would make related findings
on the confidentiality of these records. The bill would provide that
an insurer who fails, without just cause, to timely file the CGAD as
required by these provisions would be subject to specified late
filing fees.
(2) The Insurance Holding Company System Regulatory Act, requires
each insurer that is authorized to do business in this state and that
is a member of an insurance holding company system to register with
the commissioner and to file a registration statement containing
specified information, including the capital structure and general
financial condition of the insurer and specified transactions between
the insurer and its affiliates.
The act prohibits a person from making a tender offer for, or a
request or invitation for tenders of, or from entering into an
agreement to exchange securities for or acquire in the open market,
any voting security, or any security convertible into a voting
security, of a domestic insurer or of any other person controlling a
domestic insurer, if the other person is not substantially engaged in
any businesses other than insurance, if that would result in the
person acquiring control of the insurer. Existing law also prohibits
a person from entering into an agreement to merge with or otherwise
acquire control of a domestic insurer. These prohibitions do not
apply if, at the time copies of the offer, purchase, request, or
invitation are first published, sent, or given to security holders or
the agreement or transaction is entered into, the person has filed
with the commissioner, and has sent to the insurer, a statement
containing specified information and any additional information the
commissioner prescribes in the public interest or to protect
policyholders or shareholders.
Under the act, a domestic insurer or commercially domiciled
insurer, and a person in its insurance holding company system, may
only enter into specified affiliate transactions, including
reinsurance or pooling agreements, if the insurer has notified the
commissioner in writing of its intent to enter into the transaction
with at least 30 days' notice, or a shorter period that the
commissioner allows, and the commissioner has not disapproved the
transaction within that period.
The act provides that any insurer or any director, officer,
employee, or agent of the insurer that commits a willful violation of
the act is subject to criminal proceedings.
This bill would require the tender offer or merger statement and
the notification of proposed affiliate transaction filed with the
commissioner to be submitted on a form and in a format prescribed by
the National Association of Insurance Commissioners.
Because a willful violation of this provision would be subject to
criminal proceedings, the bill would create a state-mandated local
program.
This bill would authorize the commissioner to act as groupwide
supervisor, as defined, for any internationally active insurance
group, as defined, or, alternatively, authorize the commissioner to
acknowledge another regulatory official as the groupwide supervisor
if the internationally active insurance group meets any specified
condition pertaining to its insurance operations in the state. The
bill would also authorize the commissioner, as the groupwide
supervisor, to engage in specified supervision activities, including,
but not limited to: (A) assessing the enterprise risks within the
internationally active insurance group; (B) requesting relevant
information from any member of that group; and (C) coordinating and
compelling development and implementation of reasonable measures
designed to ensure that the internationally active insurance group is
able to timely recognize and mitigate enterprise risks to its
member. The bill would also make technical, nonsubstantive, and
conforming changes.
(3) Existing constitutional provisions require that a statute that
limits the right of access to the meetings of public bodies or the
writings of public officials and agencies be adopted with findings
demonstrating the interest protected by the limitation and the need
for protecting that interest.
This bill would make legislative findings to that effect.
(4) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
This
(5) This bill would declare that
it is to take effect immediately as an urgency statute.
Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Article 10.8 (commencing with Section 936.1) is added
to Chapter 1 of Part 2 of Division 1 of the Insurance Code, to read:
Article 10.8. Corporate Governance Disclosure Act
936.1. (a) The purpose of this article is to provide the
Insurance Commissioner a summary of an insurer or insurance group's
corporate governance structure, policies, and practices to permit the
commissioner to gain and maintain an understanding of the insurer's
corporate governance framework and outline the requirements for
completing a corporate governance annual disclosure with the
Insurance Commissioner. The requirements of this article shall apply
to all insurers domiciled in this state.
(b) The Legislature finds and declares that the Corporate
Governance Annual Disclosure and related information will contain
confidential and sensitive information related to an insurer or
insurance group's internal operations and proprietary and trade
secret information that, if made public, could potentially cause the
insurer or insurance group competitive harm or disadvantage.
(c) This article shall not be construed to prescribe or impose
corporate governance standards and internal procedures beyond that
which is required under applicable state corporate law.
Notwithstanding the foregoing, this article shall not be construed to
limit the commissioner's authority or the rights or obligations of
third parties, under Article 4 (commencing with Section 729) relating
to the examination of insurers.
936.2. For the purposes of this article, the following
definitions apply:
(a) "Corporate Governance Annual Disclosure (CGAD)" means a
confidential report filed by the insurer or insurance group made in
accordance with the requirements of this article.
(b) "Insurance group" means those insurers and affiliates included
within an insurance holding company system as defined in subdivision
(e) of Section 1215 (Insurance Holding Company System Regulatory
Act).
(c) "Insurer" has the same meaning as set forth in subdivision (f)
of Section 1215, except that it shall not include agencies,
authorities, or instrumentalities of the United States, its
possessions and territories, the Commonwealth of Puerto Rico, the
District of Columbia, or a state or political subdivision of a state.
(d) An "ORSA Summary Report" means the report filed in accordance
with subdivision (e) of Section 935.2.
(e) "Corporate Governance Annual Disclosure Model Regulation"
means the current version of the Corporate Governance Annual
Disclosure Model Regulation developed and adopted by the National
Association of Insurance Commissioners (NAIC) and as amended from
time to time. A change in the Corporate Governance Annual Disclosure
Model Regulations shall be effective on the January 1 following the
calendar year in which the changes have been adopted by the NAIC.
936.3. (a) An insurer, or the insurance group of which the
insurer is a member, shall, no later than June 1 of each calendar
year, submit to the commissioner a CGAD that contains the information
described in subdivision (b) of Section 936.5. Notwithstanding any
request from the commissioner made pursuant to subdivision (c), if
the insurer is a member of an insurance group, the insurer shall
submit the report required by this section to the commissioner of the
lead state for the insurance group, in accordance with the laws of
the lead state, as determined by the procedures outlined in the most
recent Financial Analysis Handbook adopted by the NAIC.
(b) The CGAD shall include a signature of the insurer or insurance
group's chief executive officer or corporate secretary attesting to
the best of that individual's belief and knowledge that the insurer
has implemented the corporate governance practices therein and that a
copy of the disclosure has been provided to the insurer's board of
directors or the appropriate committee thereof.
(c) An insurer not required to submit a CGAD under this section
shall submit a CGAD upon the commissioner's request.
(d) (1) For purposes of completing the CGAD, the insurer or
insurance group may provide information regarding corporate
governance at one or all of the following: the ultimate controlling
parent level, an intermediate holding company level, or the
individual legal entity level, depending upon how the insurer or
insurance group has structured its system of corporate governance.
(2) The insurer or insurance group is encouraged to make the CGAD
disclosures at one of the following levels:
(A) At the level at which the insurer's or insurance group's risk
appetite is determined.
(B) At the level at which the earnings, capital, liquidity,
operations, and reputation of the insurer are overseen collectively
and at which the supervision of those factors are coordinated and
exercised.
(C) At the level at which legal liability for failure of general
corporate governance duties would be placed.
(3) If the insurer or insurance group determines the level of
reporting based on the criteria listed in paragraph (2), it shall
indicate which of the three criteria was used to determine the level
of reporting and explain any subsequent changes in the level of
reporting.
(e) The review of the CGAD and any additional requests for
information shall be made through the lead state as determined by the
procedures within the most recent Financial Analysis Handbook
referenced in subdivision (a).
(f) Insurers providing information substantially similar to the
information required by this article in other documents provided to
the commissioner, including proxy statements filed in conjunction
with Form B requirements, or other state or federal filings provided
to the department, shall not be required to duplicate that
information in the CGAD but shall only be required to cross reference
the document in which the information is included.
936.4. The commissioner may, upon notice and opportunity for all
interested parties to be heard, issue those rules, regulations, and
orders as may be necessary to carry out the provisions of this
article. Those rules and regulations shall be adopted, amended, or
repealed in accordance with Administrative Procedure Act Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code.
936.5. (a) The insurer or insurance group shall have discretion
over the responses to the CGAD inquiries, provided the CGAD contains
the material information necessary to permit the commissioner to gain
an understanding of the insurer's or group's corporate governance
structure, policies, and practices. The commissioner may request
additional information that he or she deems material and necessary to
provide him or her with a clear understanding of the corporate
governance policies, the reporting or information system, or controls
implementing those policies.
(b) Notwithstanding subdivision (a), the insurer or insurer group
shall prepare the CGAD consistent with the NAIC Corporate Governance
Annual Disclosure Model Regulation, subject to the requirements of
this article. Documentation and supporting information shall be
maintained and made available upon examination or upon request of the
commissioner.
936.6. (a) (1) Documents, materials, or other information,
including the CGAD, in the possession or control of the department
that are obtained by, created by, or disclosed to, the commissioner
or any other person under this article are recognized by this state
as being proprietary and to contain trade secrets. All those
documents, materials, or other information shall be confidential by
law and privileged, shall not be subject to disclosure by the
commissioner pursuant to the California Public Records Act
(Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1
of the Government Code), shall not be subject to subpoena, and shall
not be subject to discovery from the commissioner or
admissible in evidence in any private civil action if obtained from
the commissioner in any manner.
(2) However, the commissioner is authorized to use the documents,
materials, or other information in the furtherance of any regulatory
or legal action brought as a part of the commissioner's official
duties. The commissioner shall not otherwise disclose or make public
the documents, materials, or other information without the prior
written consent of the insurer.
(3) This section shall not be construed to require written consent
of the insurer before the commissioner may share or receive
confidential documents, materials, or other CGAD-related information
pursuant to subdivision (c) to assist in the performance of the
commissioner's regulatory duties.
(b) Neither the commissioner nor any person who received
documents, materials, or other CGAD-related information, through
examination or otherwise, while acting under the authority of the
commissioner, or with whom those documents, materials, or other
information are shared pursuant to this article shall be permitted or
required to testify in any private civil action concerning any
confidential documents, materials, or information described in
subdivision (a).
(c) In order to assist in the performance of the commissioner's
regulatory duties, the commissioner may do both of the following:
(1) Upon request, share documents, materials, or other
CGAD-related information, including the confidential and privileged
documents, materials, or information described in subdivision (a),
including proprietary and trade secret documents and materials with
other state, federal, and international financial regulatory
agencies, including members of any supervisory college as defined in
Section 1215.7 (Insurance Holding Company System Regulatory Act),
with the NAIC, and with third-party consultants pursuant to Section
936.7, provided that the recipient agrees in writing to maintain the
confidentiality and privileged status of the CGAD-related documents,
materials, or other information and has verified in writing the legal
authority to maintain confidentiality.
(2) Receive documents, materials, or other CGAD-related
information, including otherwise confidential and privileged
documents, materials, or information, including proprietary and
trade-secret information or documents, from regulatory officials of
other state, federal, and international financial regulatory
agencies, including members of any supervisory college as defined in
Section 1215.7 (Insurance Holding Company System Regulatory Act), and
from the NAIC, and shall maintain as confidential or privileged any
documents, materials, or information received with notice or the
understanding that it is confidential or privileged under the laws of
the jurisdiction that is the source of the documents, materials, or
information.
(d) The sharing of information and documents by the commissioner
pursuant to this article shall not constitute a delegation of
regulatory authority or rulemaking, and the commissioner is solely
responsible for the administration, execution, and enforcement of
this article.
(e) No waiver of any applicable privilege or claim of
confidentiality in the documents, proprietary and trade-secret
materials, or other CGAD-related information shall occur as a result
of disclosure of that CGAD-related information or those documents to
the commissioner under this section or as a result of sharing as
authorized in this article.
936.7. (a) The commissioner may retain, at the insurer's expense,
third-party consultants, including attorneys, actuaries,
accountants, and other experts not otherwise a part of the
commissioner's staff as may be reasonably necessary to assist the
commissioner in reviewing the CGAD and related information or the
insurer's compliance with this article.
(b) Any person retained under subdivision (a) shall be under the
direction and control of the commissioner and shall act in a purely
advisory capacity.
(c) The NAIC and third-party consultants shall be subject to the
same confidentiality standards and requirements as the commissioner.
(d) As part of the retention process, a third-party consultant
shall verify to the commissioner in writing, with notice to the
insurer, that it is free of a conflict of interest, and that it has
internal procedures in place to monitor compliance with a conflict
and to comply with the confidentiality standards and requirements of
this article.
(e) A written agreement with the NAIC, a third-party consultant,
or both, governing sharing and use of information provided pursuant
to this article shall contain all of the following provisions and
expressly require the written consent of the insurer prior to making
public information provided under this article:
(1) Specific procedures and protocols for maintaining the
confidentiality and security of CGAD-related information shared with
the NAIC or a third-party consultant pursuant to this article.
(2) Procedures and protocols for sharing by the NAIC only with
other state regulators from states in which the insurance group has
domiciled insurers. The agreement shall provide that the recipient
agrees in writing to maintain the confidentiality and privileged
status of the CGAD-related documents, materials, or other information
and has verified in writing the legal authority to maintain
confidentiality.
(3) A provision specifying that ownership of the CGAD-related
information shared with the NAIC or a third-party consultant remains
with the department, and the NAIC's or third-party consultant's use
of the information is subject to the direction of the commissioner.
(4) A provision that prohibits the NAIC or a third-party
consultant from storing the information shared pursuant to this act
in a permanent database after the underlying analysis is completed.
(5) A provision requiring the NAIC or third-party consultant to
provide prompt notice to the commissioner and to the insurer or
insurance group regarding any subpoena, request for disclosure, or
request for production of the insurer's CGAD-related information.
(6) A requirement that the NAIC or a third-party consultant
consent to intervention by an insurer in any judicial or
administrative action in which the NAIC or a third-party consultant
may be required to disclose confidential information about the
insurer shared with the NAIC or a third-party consultant pursuant to
this article.
936.8. Any insurer or insurer group failing, without just cause,
to timely file the CGAD as required in this article shall be subject
to the late filing fees set forth in Section 924. The commissioner
may reduce the penalty if the insurer or insurer group demonstrates
to the commissioner that the imposition of the penalty would
constitute a financial hardship to the insurer or insurer group.
936.9. The provisions of this article, other than Section 936.6,
are severable. If any provision of this article, other than Section
936.6, or its application is held invalid, that invalidity shall not
affect other provisions or applications that can be given effect
without the invalid provision or application.
SEC. 2. Section 1215 of the Insurance Code is amended to read:
1215. As used in this article, the following terms shall have the
respective meanings hereafter set forth, unless the context shall
otherwise require:
(a) An "affiliate" of, or person "affiliated" with, a specific
person, is a person that directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
(b) "Business day" is any day other than Saturday, Sunday, and any
other day that is specified or provided for as a holiday in the
Government Code.
(c) The term "control" includes the terms "controlling,"
"controlled by," and "under common control with," and means the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through
the ownership of voting securities, by contract other than a
commercial contract for goods or nonmanagement services, or
otherwise, unless the power is the result of an official position
with or corporate office held by the person. Control shall be
presumed to exist if any person, directly or indirectly, owns,
controls, holds with the power to vote, or holds proxies
representing, more than 10 percent of the voting securities of any
other person. This presumption may be rebutted by a showing that
control does not exist in fact pursuant to the filing of a disclaimer
of affiliation in accordance with subdivision ( l ) of
Section 1215.4. The commissioner may, after furnishing all persons in
interest notice and opportunity to be heard, determine that control
exists in fact, notwithstanding the absence of a presumption to that
effect.
(d) "Enterprise risk" means any activity, circumstance, or event
or series of events involving one or more affiliates of an insurer
that, if not remedied promptly, is likely to have a material adverse
effect upon the financial condition or liquidity of the insurer or
its insurance holding company system as a whole, including, but not
limited to, anything that would cause the insurer's risk-based
capital to fall into company action level as set forth in Article 4.1
(commencing with Section 739) of Chapter 1 and under Section 739.5
or would cause the insurer to be in hazardous financial condition and
allow the commissioner to take actions that are necessary under
Article 14 (commencing with Section 1010), Article 14.3 (commencing
with Section 1064.1), and Article 15.5 (commencing with Section
1077).
(e) An "insurance holding company system" consists of two or more
affiliated persons, one or more of which is an insurer.
(f) "Insurer" shall have the same meaning as set forth in Section
826, excluding subdivisions (e) and (f) of that section.
(g) "Person" is an individual, a corporation, a limited liability
company, a partnership, an association, a joint stock company, a
business trust, an unincorporated organization, or any similar
entity, or any combination thereof acting in concert.
(h) A "security holder" of a specified person is the holder that
owns any security of that person, including common stock, preferred
stock, debt obligations, and any other security convertible into or
evidencing the right to acquire any of the foregoing.
(i) A "subsidiary" of a specified person is an affiliate
controlled by that person directly, or indirectly through one or more
intermediaries.
(j) "Voting security" shall include any security convertible into
or evidencing a right to acquire a voting security.
(k) "Commissioner" means the Insurance Commissioner of the state
and any assistant to the Insurance Commissioner designated and
authorized by the commissioner while acting under his or her
designation as the Insurance Commissioner.
(l) "Groupwide supervisor" means the insurance official authorized
to engage in conducting and coordinating groupwide supervision
activities who is determined or acknowledged by the commissioner
pursuant to subdivision (a) of Section 1215.75 to have sufficient
significant contacts with the internationally active insurance group.
(m) "Internationally active insurance group" means an insurance
holding company system that includes an insurer registered pursuant
to Section 1215.4 and that meets the following criteria:
(1) Insurers that are part of the insurance holding company system
write premiums in at least three countries.
(2) The percentage of gross premiums written outside the United
States is at least 10 percent of the insurance holding company system'
s total gross written premiums.
(3) Based on a three-year rolling average, the total assets of the
insurance holding company system are at least fifty billion dollars
($50,000,000,000) or the total gross written premiums of the
insurance holding company system are at least ten billion dollars
($10,000,000,000).
(n) "NAIC" means the National Association of Insurance
Commissioners.
SEC. 3. Section 1215.1 of the Insurance Code is amended to read:
1215.1. (a) Any domestic insurer, either by itself or in
cooperation with one or more persons, may organize or acquire one or
more subsidiaries subject to the limitations of this section.
(b) In addition to investments in common stock, preferred stock,
debt obligations, and other securities permitted under all other
sections of this chapter, a domestic insurer may also do one or more
of the following:
(1) Invest in common stock, preferred stock, debt obligations, and
other securities of one or more subsidiaries, amounts that do not
exceed the lesser of 10 percent of the insurer's assets or 50 percent
of the insurer's surplus as regards policyholders. However, after
these investments, the insurer's surplus as regards policyholders
shall be reasonable in relation to the insurer's outstanding
liabilities and adequate to its financial needs. In calculating the
amount of these investments, there shall be excluded investments in
insurance subsidiaries, and there shall be included (A) total net
moneys or other consideration expended and obligations assumed in the
acquisition or formation of a subsidiary, including all
organizational expenses and contributions to capital and surplus of
the subsidiary whether or not represented by the purchase of capital
stock or issuance of other securities, and (B) all amounts expended
in acquiring additional common stock, preferred stock, debt
obligations, and other securities and all contributions to the
capital or surplus of a subsidiary subsequent to its acquisition or
formation.
"Insurance subsidiary" is an insurer that is organized within the
United States and is controlled, directly or indirectly, by a
reporting insurer subject to this article. For purposes of this
paragraph, "investments in insurance subsidiaries" shall include the
following:
(A) Any direct investment in an insurance subsidiary.
(B) The insurer's proportionate share of any investment in an
insurance subsidiary held by any subsidiary of the insurer. This
shall be calculated by multiplying the amount of the subsidiary's
investment in the insurance subsidiary by the insurer's percentage of
ownership of the subsidiary.
(2) Invest any amount in common stock, preferred stock, debt
obligations, and other securities of one or more subsidiaries,
provided that each subsidiary agrees to limit its investments in any
asset so that these investments will not cause the amount of the
total investment of the insurer to exceed any of the investment
limitations specified in paragraph (1) or in this chapter applicable
to the insurer. For the purpose of this paragraph, "the total
investment of the insurer" shall include (A) any direct investment by
the insurer in an asset, and (B) the insurer's proportionate share
of any investment of an asset by any subsidiary of the insurer, which
shall be calculated by multiplying the amount of the subsidiary's
investment by the percentage of the insurer's ownership of that
subsidiary.
(3) With the approval of the commissioner, invest any amount in
common stock, preferred stock, debt obligations, or other securities
of one or more subsidiaries, provided that after this investment the
insurer's surplus as regards policyholders shall be reasonable in
relation to the insurer's outstanding liabilities and adequate to its
financial needs.
(c) Investments in common stock, preferred stock, debt
obligations, or other securities of subsidiaries made pursuant to
subdivision (b) shall neither limit nor be subject to any of the
otherwise applicable authorizations, restrictions, or prohibitions
contained in this article applicable to these investments of
insurers.
(d) Whether any investment pursuant to subdivision (b) meets the
applicable requirements thereof is to be determined immediately after
the investment is made, taking into account the then outstanding
principal balance on all previous investments in debt obligations,
and the value of all previous investments in equity securities as of
the date they were made.
(e) If an insurer ceases to control a subsidiary, it shall dispose
of any investment therein made pursuant to this section within three
years from the time of the cessation of control, or within any
further time as the commissioner may prescribe, unless at any time
after the investment has been made, the investment has met the
requirements for investment under any other section of this part.
SEC. 4. Section 1215.2 of the Insurance Code is amended to read:
1215.2. (a) No person shall make a tender offer for, or a request
or invitation for tenders of, or enter into an agreement to exchange
securities for or acquire in the open market, any voting security,
or any security convertible into a voting security, of a domestic
insurer or of any other person controlling a domestic insurer, if the
other person is not substantially engaged either directly or through
its affiliates in any businesses other than that of insurance, if,
as a result of the consummation thereof, the person would, directly
or indirectly, acquire control of the insurer, and no person shall
enter into an agreement to merge with or otherwise to acquire control
of a domestic insurer, unless, at the time copies of the offer,
purchase, request, or invitation are first published, sent, or given
to security holders or the agreement or transaction is entered into,
as the case may be, the person has filed with the commissioner, and
has sent to the insurer, a statement containing the following
information, and any additional information as the commissioner may
by rule or regulation prescribe as necessary or appropriate in the
public interest or for the protection of policyholders or
shareholders:
(1) The background and identity of all persons by whom or on whose
behalf the purchases or the exchange, merger, or other acquisition
of control are to be effected.
(2) The source and amount of the funds or other consideration used
or to be used in making the purchases or in effecting the exchange,
merger, or other acquisition of control, and, if any part of the
funds or other consideration has been or is to be borrowed or
otherwise obtained for the purpose of making the purchases or
effecting the exchange, merger, or other acquisition of control, a
description of the transaction and the names of the parties thereto.
However, where a source of funds is a loan made in the lender's
ordinary course of business, if the person filing the statement so
requests, the name of the lender shall not be made available to the
public.
(3) Any plans or proposals that those persons may have to
liquidate the insurer, to sell its assets or merge it with any
person, or to make any other
major change in its business or corporate structure or
management.
(4) The amount of each class of voting securities or securities
which may be converted into voting securities of the insurer or the
controlling person which are beneficially owned, and the amount of
each class of voting securities or securities which may be converted
into voting securities of the insurer or the controlling person
concerning which there is a right to acquire beneficial ownership, by
each person and by each affiliate of each person, together with the
name and address of each affiliate.
(5) Information as to any contracts, arrangements, or
understandings with any person with respect to any securities of the
insurer or the controlling person, including, but not limited to,
transfer of any of the securities, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against
loss or guarantees of profits, division of losses or profits, or the
giving or withholding of proxies, naming the persons with whom the
contracts, arrangements, or understandings have been entered into,
and giving the details thereof.
All requests or invitations for tenders or advertisements making a
tender offer or requesting or inviting tenders of the voting
securities of the insurer or the controlling person made by or on
behalf of the person, and a copy of the agreement to exchange or
otherwise acquire securities or to merge with or otherwise to acquire
control of the insurer, shall be filed with the commissioner and
sent to the insurer as a part of the statement and shall contain the
information contained in the statement as the commissioner may by
rule or regulation prescribe. Copies of any additional material
soliciting or requesting the tender offers subsequent to the initial
solicitation or request, and copies of any amendment to the
agreement, shall contain the information as the commissioner may by
rule or regulation prescribe as necessary or appropriate in the
public interest or for the protection of policyholders or
shareholders, and shall be filed with the commissioner and sent to
the insurer not later than the time copies of the material are first
published or sent or given to security holders or the amendment is
entered into.
(b) If the person required to file the statement referred to in
subdivision (a) is a partnership, limited partnership, syndicate, or
other group, the commissioner may require that the information called
for by paragraphs (1) to (5), inclusive, of subdivision (a) shall be
given with respect to: (1) each partner of the partnership or
limited partnership, (2) each member of the syndicate or group, and
(3) each person who controls the partner or member. If a person
referred to in paragraph (1), (2), or (3) of this subdivision is a
corporation or the person required to file the statement referred to
in subdivision (a) is a corporation, the commissioner may require
that the information called for by paragraphs (1) to (5), inclusive,
of subdivision (a) shall be given with respect to the corporation and
each officer and director of the corporation and each person who is
directly or indirectly the beneficial owner of more than 10 percent
of the outstanding voting securities of the corporation.
(c) If any tender offer, request, or invitation for tenders, or
agreement to exchange or otherwise acquire securities or to merge or
otherwise acquire control referred to in subdivision (a), is proposed
to be made by means of a registration statement under the federal
Securities Act of 1933, or in circumstances requiring the disclosure
of similar information under the federal Securities Exchange Act of
1934, or under a state law requiring similar registration or
disclosure, the person required to file the statement referred to in
subdivision (a) may file that registration statement with the
commissioner as full satisfaction of the requirement in subdivision
(a).
(d) The purchases, exchanges, mergers, or other acquisitions of
control referred to in subdivision (a) may not be made until the
commissioner approves the purchases, exchanges, mergers, or other
acquisitions of control. The commissioner shall approve or disapprove
the transaction on or before the latter of 60 days after the
statement required by subdivision (a) has been filed with the
commissioner or, if a hearing is held pursuant to subdivision (f), 30
days after the close of the hearing held pursuant to subdivision
(f). The commissioner may disapprove the transaction if the
commissioner finds any of the following:
(1) After the change of control the domestic insurer referred to
in subdivision (a) could not satisfy the requirements for the
issuance of a license to write the line or lines of insurance for
which it is presently licensed.
(2) The purchases, exchanges, mergers, or other acquisitions of
control would substantially lessen competition in insurance in this
state or create a monopoly therein.
(3) The financial condition of an acquiring person might
jeopardize the financial stability of the insurer, or prejudice the
interests of its policyholders.
(4) The plans or proposals which the acquiring person has to
liquidate the insurer, to sell its assets, or to merge it with any
person, or to make any other major change in its business or
corporate structure or management, are not fair and reasonable to
policyholders.
(5) The competence, experience, and integrity of those persons who
would control the operation of the insurer indicate that it would
not be in the interest of policyholders or the public to permit them
to do so.
(e) The commissioner shall require the payment of two thousand
three hundred sixty dollars ($2,360) as a fee for filing an
application pursuant to this section, the amount to accompany the
application. The application shall be on a form and in a format
prescribed by the NAIC.
(f) (1) The commissioner may hold a public hearing after the
statement required by subdivision (a) is filed. If a hearing is held,
at least 20 days' notice shall be given by the commissioner to the
person filing the statement. Not less than seven days' notice of the
public hearing shall be given by the person filing the statement to
the insurer and to other persons as may be designated by the
commissioner. At the hearing, the person filing the statement, the
insurer, any person to whom notice of hearing was sent, and any other
person whose interest may be affected, shall have the right to
present evidence, examine and cross-examine witnesses, and offer oral
and written arguments, and in connection therewith shall be entitled
to conduct proceedings in the same manner as is presently allowed
under the Administrative Procedure Act (Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code). All discovery proceedings shall be concluded not later than
three days prior to the commencement of the public hearing.
(2) If the proposed acquisition of control will require the
approval of more than one commissioner, the public hearing referred
to in paragraph (1) may be held on a consolidated basis upon request
of the person filing the statement referred to in subdivision (a).
The person shall file the statement referred to in subdivision (a)
with the National Association of Insurance Commissioners (NAIC)
within five days of making the request for a public hearing. A
commissioner may opt out of a consolidated hearing, and shall provide
notice to the applicant of the opt-out within 10 days of the receipt
of the statement referred to in subdivision (a). A hearing conducted
on a consolidated basis shall be public and shall be held within the
United States before the commissioners of the states in which the
insurers are domiciled. The commissioners shall hear and receive
evidence. Any commissioner may attend the hearing, in person or by
telecommunication.
(g) This section shall not apply to any offer for or request or
invitation for tenders of any voting securities, or any agreement to
exchange securities for or otherwise acquire control, if the insurer
whose shares are to be acquired remains a direct or indirect
subsidiary of the same ultimate controlling company person within the
insurer's insurance holding company system, neither the acquiring
person nor any affiliate acquires or incurs any debt, guarantee, or
other liability related to the transaction, and no shares are
purchased by or sold to a person who is not an affiliated person in
that insurance holding company system, or if, and to the extent that,
the commissioner, by rule or regulation or by order, exempts the
offer, request, invitation, or agreement from the provisions of this
section as not comprehended within the purposes thereof.
(h) For purposes of this section, any controlling person of a
domestic insurer seeking to divest its controlling interest in the
domestic insurer, in any manner, shall file with the commissioner,
with a copy to the insurer, confidential notice of its proposed
divestiture at least 30 days prior to the cessation of control. The
commissioner shall determine those instances in which the party or
parties seeking to divest a controlling interest in an insurer shall
be required to file for and obtain approval of the transaction. The
information shall remain confidential until the conclusion of the
transaction unless the commissioner, in his or her discretion,
determines that confidential treatment will interfere with
enforcement of this article. If the statement referred to in
subdivision (a) of Section 1215.2 is otherwise filed, this
subdivision shall not apply.
SEC. 5. Section 1215.5 of the Insurance Code is amended to read:
1215.5. (a) Transactions by registered insurers with their
affiliates are subject to the following standards:
(1) The terms shall be fair and reasonable.
(2) Charges or fees for services performed shall be reasonable.
(3) Expenses incurred and payment received shall be allocated to
the insurer in conformity with customary insurance accounting
practices consistently applied.
(4) The books, accounts, and records of each party to all
transactions shall be so maintained as to clearly and accurately
disclose the precise nature and details of the transactions,
including accounting information that is necessary to support the
reasonableness of the charges or fees to the parties.
(5) The insurer's policyholder's surplus following any dividends
or distributions to shareholder affiliates shall be reasonable in
relation to the insurer's outstanding liabilities and adequate to its
financial needs.
(b) The following transactions involving a domestic insurer or
commercially domiciled insurer, as defined in Section 1215.14, and
any person in its insurance holding company system, including
amendments or modifications of affiliate agreements previously filed
pursuant to this section, may be entered into only if the insurer has
notified the commissioner in writing of its intention to enter into
the transaction at least 30 days prior thereto, or a shorter period
as the commissioner may permit, and the commissioner has not
disapproved it within that period. The notice for amendments or
modifications shall include the reasons for the change and the
financial impact on the domestic insurer or commercially domiciled
insurer. Informal notice shall be reported, within 30 days after a
termination of a previously filed agreement, to the commissioner for
determination of the type of filing required, if any. The
commissioner shall require the payment of one thousand eight hundred
eighty-nine dollars ($1,889) as a fee for filings pursuant to this
subdivision, and the filings shall be on a form and in a format
prescribed by the NAIC. The payment shall accompany the filing.
(1) Sales, purchases, exchanges, loans, extensions of credit, or
investments, if the transactions are equal to or exceed:
(A) For a nonlife insurer, the lesser of 3 percent of the insurer'
s admitted assets or 25 percent of the policyholder's surplus as of
the preceding December 31st.
(B) For a life insurer, 3 percent of the insurer's admitted assets
as of the preceding December 31st.
(2) Loans or extensions of credit to a person who is not an
affiliate, if made with the agreement or understanding that the
proceeds of the transactions, in whole or in substantial part, are to
be used to make loans or extensions of credit to, to purchase assets
of, or to make investments in, any affiliate of the insurer, if the
transactions are equal to or exceed:
(A) For a nonlife insurer, the lesser of 3 percent of the insurer'
s admitted assets or 25 percent of the policyholder's surplus as of
the preceding December 31st.
(B) For a life insurer, 3 percent of the insurer's admitted assets
as of the preceding December 31st.
(3) Reinsurance agreements and pooling agreements and
modifications thereto in which the reinsurance premium or a change in
the insurer's liabilities, or the projected reinsurance premium or a
change in the insurer's liabilities in any of the next three years,
equals or exceeds 5 percent of the insurer's policyholder's surplus,
as of the preceding December 31st, including those agreements that
may require as consideration the transfer of assets from an insurer
to a nonaffiliate, if an agreement or understanding exists between
the insurer and nonaffiliate that any portion of the assets will be
transferred to one or more affiliates of the insurer.
(4) All management agreements, service contracts, tax sharing
agreements, and cost-sharing arrangements. However, subscription
agreements or powers of attorney executed by subscribers of a
reciprocal or interinsurance exchange are not required to be reported
pursuant to this section if the form of the agreement was in use
before 1943 and was not amended in any way to modify payments, fees,
or waivers of fees or otherwise substantially amended after 1943.
Payment or waiver of fees or other amounts due under subscription
agreements or powers of attorney forms that were in use before 1943
and that have not been amended in any way to modify payments, fees,
or waiver of fees, or otherwise substantially amended after 1943
shall not be subject to regulation pursuant to paragraph (2) of
subdivision (a).
(5) Guarantees when initiated or made by a domestic or
commercially domiciled insurer, provided that a guarantee that is
quantifiable as to amount is not subject to the notice requirements
of this paragraph unless it exceeds the lesser of one-half of 1
percent of the insurer's admitted assets or 10 percent of surplus as
regards policyholders as of the 31st day of December next preceding.
Further, all guarantees that are not quantifiable as to amount are
subject to the notice requirements of this paragraph.
(6) Derivative transactions or series of derivative transactions.
The written filing to the commissioner shall include the type or
types of derivative transactions, the affiliate or affiliates
engaging with the insurer in the derivative transactions, the
objective and the rationale for the derivative transaction or series
of derivative transactions, the maximum maturity and economic effect
of the derivative transactions, and any other information required by
the commissioner. Derivative transactions entered into pursuant to
this subdivision shall comply with the provisions of Section 1211.
(7) Direct or indirect acquisitions or investments in a person
that controls the insurer or in an affiliate of the insurer in an
amount that, together with its present holdings in those investments,
exceeds 2.5 percent of the insurer's policyholder's surplus. Direct
or indirect acquisitions or investments in subsidiaries acquired
under Section 1215.1, or in nonsubsidiary insurance affiliates that
are subject to the provisions of this article, or in subsidiaries
acquired pursuant to Section 1199, are exempt from this requirement.
(8) Any material transactions, specified by regulation, that the
commissioner determines may adversely affect the interests of the
insurer's policyholders.
(c) A domestic insurer may not enter into transactions that are
part of a plan or series of transactions with persons within the
holding company system if the purpose of those transactions is to
avoid the statutory threshold amount and thus avoid review. If the
commissioner determines that separate transactions were entered into
over any 12-month period to avoid review, the commissioner may
exercise his or her authority under Section 1215.11.
(d) The commissioner, in reviewing transactions under subdivision
(b), shall consider whether the transactions comply with the
standards set forth in subdivision (a) and whether they may adversely
affect the interests of policyholders.
(e) The commissioner shall be notified within 30 days of any
investment by the insurer in any one corporation if the total
investment in the corporation by the insurance holding company system
exceeds 10 percent of the corporation's voting securities.
(f) For purposes of this article, in determining whether an
insurer's policyholder's surplus is reasonable in relation to the
insurer's outstanding liabilities and adequate to its financial
needs, the following factors, among others, shall be considered:
(1) The size of the insurer, as measured by its assets, capital
and surplus, reserves, premium writings, insurance in force, and
other appropriate criteria.
(2) The extent to which the insurer's business is diversified
among the several lines of insurance.
(3) The number and size of risks insured in each line of business.
(4) The extent of the geographical dispersion of the insurer's
insured risks.
(5) The nature and extent of the insurer's reinsurance program.
(6) The quality, diversification, and liquidity of the insurer's
investment portfolio.
(7) The recent past and projected future trend in the size of the
insurer's investment portfolio.
(8) The recent past and projected future trend in the size of the
insurer's surplus, and the policyholder's surplus maintained by other
comparable insurers.
(9) The adequacy of the insurer's reserves.
(10) The quality and liquidity of investments in subsidiaries made
under Section 1215.1. The commissioner may treat those investments
as a disallowed asset for purposes of determining the adequacy of the
policyholder's surplus whenever, in his or her judgment, the
investment so warrants.
(11) The quality of the company's earnings and the extent to which
the reported earnings include extraordinary accounting items.
(g) No insurer subject to registration under Section 1215.4 shall
pay any extraordinary dividend or make any other extraordinary
distribution to its stockholders until 30 days after the commissioner
has received notice of the declaration thereof and has approved the
payment or has not, within the 30-day period, disapproved the
payment.
For purposes of this section, an extraordinary dividend or
distribution is any dividend or distribution which, together with
other dividends or distributions made within the preceding 12 months,
exceeds the greater of (1) 10 percent of the insurer's policyholder'
s surplus as of the preceding December 31st, or (2) the net gain from
operations of the insurer, if the insurer is a life insurer, or the
net income, if the insurer is not a life insurer, for the 12-month
period ending the preceding December 31st.
Notwithstanding any other provision of law, an insurer may declare
an extraordinary dividend or distribution that is conditional upon
the commissioner's approval. The declaration confers no rights upon
stockholders until the commissioner has approved the payment of the
dividend or distribution or until the commissioner has not
disapproved the payment within the 30-day period referred to in this
subdivision.
(h) Notwithstanding the control of a domestic insurer by any
person, the officers and directors of the insurer shall not thereby
be relieved of any obligation or liability to which they would
otherwise be subject to by law, and the insurer shall be managed to
ensure its separate operating identity consistent with the provisions
of this article. However, nothing in this article shall preclude a
domestic insurer from having or sharing a common management or
cooperative or joint use of personnel, property, or services with one
or more other persons under arrangements meeting the standards of
subdivision (a).
(i) The provisions of this section do not apply to any insurer,
information, or transaction exempted by the commissioner.
SEC. 6. Section 1215.6 of the Insurance Code is amended to read:
1215.6. (a) Subject to the limitation contained in this section,
and in addition to the powers which the commissioner has under
Article 4 (commencing with Section 730) of Chapter 1 of this part
relating to the examination of insurers, the commissioner shall also
have the power to examine any insurer registered under Section 1215.4
and its affiliates to ascertain the enterprise risk to which the
insurer is subjected by the ultimate controlling party, or by any
entity or combination of entities within the insurance holding
company system, or by the insurance holding company system on a
consolidated basis. The commissioner may also order any insurer
registered under Section 1215.4 to produce the records, books, or
other information or papers in the possession of the insurer or its
affiliates, including a report on the enterprise risk to the insurer
by the ultimate controlling party, or by any entity or combination of
entities within the insurance holding company system, or by the
insurance holding company system on a consolidated basis, as shall be
necessary to ascertain the financial condition or legality of
conduct of that insurer.
(b) The commissioner shall exercise his or her power under
subdivision (a) only if the examination of the insurer under Article
4 (commencing with Section 730) of Chapter 1 of this part is
inadequate or the interests of the policyholders of that insurer are
being adversely affected.
(c) The commissioner may retain at the registered insurer's
expense the attorneys, actuaries, accountants, and other experts not
otherwise a part of the commissioner's staff as shall be reasonably
necessary to assist in the conduct of the examination under
subdivision (a) of this section. Any persons so retained shall be
under the direction and control of the commissioner and shall act in
a purely advisory capacity.
(d) Each registered insurer producing for examination records,
books, and papers pursuant to subdivision (a) shall be liable for,
and shall pay the expense of, that examination in accordance with
Section 736.
SEC. 7. Section 1215.75 is added to the Insurance Code, to read:
1215.75. (a) (1) The commissioner is authorized to act as the
groupwide supervisor for any internationally active insurance group
in accordance with this section. However, the commissioner may
otherwise acknowledge another regulatory official as the groupwide
supervisor when the internationally active insurance group meets any
of the following conditions:
(A) Does not have substantial insurance operations in the United
States.
(B) Has substantial insurance operations in the United States, but
not in this state.
(C) Has substantial insurance operations in the United States and
this state, but the commissioner has determined pursuant to the
factors set forth in subdivisions (b) and (f) that the other
regulatory official is the appropriate groupwide supervisor.
(2) An insurance holding company system that does not otherwise
qualify as an internationally active insurance group may request that
the commissioner make a determination or acknowledgment as to a
groupwide supervisor pursuant to this section.
(b) In cooperation with other state, federal, and international
regulatory agencies, the commissioner shall identify a single
groupwide supervisor for an internationally active insurance group.
The commissioner may determine that he or she is the appropriate
groupwide supervisor for an internationally active insurance group
that conducts substantial insurance operations concentrated in the
state. However, the commissioner may acknowledge that a regulatory
official from another jurisdiction is the appropriate groupwide
supervisor for the internationally active insurance group. The
commissioner shall consider all of the following factors when making
a determination or acknowledgment pursuant to this subdivision:
(1) The place of domicile of the insurers within the
internationally active insurance group that hold the largest share of
the group's written premiums, assets, or liabilities.
(2) The place of domicile of the top-tiered insurer or insurers in
the insurance holding company system of the internationally active
insurance group.
(3) The location of the executive offices or largest operational
offices of the internationally active insurance group.
(4) Whether another regulatory official is acting, or is seeking
to act, as the groupwide supervisor under a regulatory system that
the commissioner determines to be either of the following:
(A) Substantially similar to the system of regulation provided
under the laws of this state.
(B) Otherwise sufficient in terms of providing for groupwide
supervision, enterprise risk analysis, and cooperation with other
regulatory officials.
(5) Whether another regulatory official acting, or seeking to act,
as the groupwide supervisor provides the commissioner with
reasonably reciprocal recognition and cooperation.
However, a commissioner identified pursuant to this section as the
groupwide supervisor may determine that it is appropriate to
acknowledge another supervisor to serve as the groupwide supervisor.
The acknowledgment of the groupwide supervisor shall be made after
consideration of the factors listed in paragraphs (1) to (5),
inclusive, and shall be made in cooperation with and subject to the
acknowledgment of other regulatory officials involved with
supervision of members of the internationally active insurance group,
and in consultation with the internationally active insurance group.
(c) Notwithstanding any other law, when another regulatory
official is acting as the groupwide supervisor of an internationally
active insurance group, the commissioner shall acknowledge that
regulatory official as the groupwide supervisor. However, if there is
a material change in the internationally active insurance group that
results in either (1) the internationally active insurance group's
insurers domiciled in this state holding the largest share of the
group's premiums, assets, or liabilities, or (2) this state being the
place of domicile of the top-tiered insurer or insurers in the
insurance holding company
system of the internationally active insurance group, the
commissioner shall make a determination or acknowledgment as to the
appropriate groupwide supervisor for that internationally active
insurance group pursuant to subdivision (b).
(d) Pursuant to Section 1215.6, the commissioner is authorized to
collect from any insurer registered pursuant to Section 1215.4 all
information necessary to determine whether the commissioner may act
as the groupwide supervisor of an internationally active insurance
group or if the commissioner may acknowledge another regulatory
official to act as the groupwide supervisor. Prior to issuing a
determination that an internationally active insurance group is
subject to groupwide supervision by the commissioner, the
commissioner shall notify the insurer registered pursuant to Section
1215.4 and the ultimate controlling person within the internationally
active insurance group. The internationally active insurance group
shall have not less than 30 days to provide the commissioner with
additional information pertinent to the pending determination. The
commissioner shall publish on the department's Internet Web site the
identity of internationally active insurance groups that the
commissioner has determined are subject to groupwide supervision by
the commissioner.
(e) If the commissioner is the groupwide supervisor for an
internationally active insurance group, the commissioner is
authorized to engage in any of the following groupwide supervision
activities:
(1) Assess the enterprise risks within the internationally active
insurance group to ensure both of the following:
(A) The material financial condition and liquidity risks to the
members of the internationally active insurance group that are
engaged in the business of insurance are identified by management.
(B) Reasonable and effective mitigation measures are in place.
(2) Request, from any member of an internationally active
insurance group subject to the commissioner's supervision,
information necessary and appropriate to assess enterprise risk,
including, but not limited to, information about the members of the
internationally active insurance group regarding any of the
following:
(A) Governance, risk assessment, and management.
(B) Capital adequacy.
(C) Material intercompany transactions.
(3) Coordinate and, through the authority of the regulatory
officials of the jurisdictions where members of the internationally
active insurance group are domiciled, compel development and
implementation of reasonable measures designed to ensure that the
internationally active insurance group is able to timely recognize
and mitigate enterprise risks to members of that internationally
active insurance group that are engaged in the business of insurance.
(4) Communicate with other state, federal, and international
regulatory agencies for members within the internationally active
insurance group and share relevant information subject to the
confidentiality provisions of Section 1215.8, through supervisory
colleges as set forth in Section 1215.7 or otherwise.
(5) Enter into agreements with, or obtain documentation from, any
insurer registered pursuant to Section 1215.4, any member of the
internationally active insurance group, and any other state, federal,
and international regulatory agencies for members of the
internationally active insurance group, providing the basis for or
otherwise clarifying the commissioner's role as groupwide supervisor,
including provisions for resolving disputes with other regulatory
officials. These agreements or documentation shall not serve as
evidence in any proceeding that any insurer or person within an
insurance holding company system not domiciled or incorporated in
this state is doing business in this state or is otherwise subject to
jurisdiction in this state.
(6) Other groupwide supervision activities, consistent with the
authorities and purposes enumerated above, as considered necessary by
the commissioner.
(f) If the commissioner acknowledges that another regulatory
official from a jurisdiction that is not accredited by the NAIC is
the groupwide supervisor, the commissioner is authorized to
reasonably cooperate, through supervisory colleges or otherwise, with
groupwide supervision undertaken by the groupwide supervisor if the
following conditions are satisfied:
(1) The commissioner's cooperation is in compliance with the laws
of this state.
(2) The regulatory official acknowledged as the groupwide
supervisor also recognizes and cooperates with the commissioner's
activities as a groupwide supervisor for other internationally active
insurance groups when applicable. When that recognition and
cooperation is not reasonably reciprocal, the commissioner is
authorized to refuse recognition and cooperation.
(g) The commissioner is authorized to enter into agreements with,
or obtain documentation from, any insurer registered pursuant to
Section 1215.4, any affiliate of the insurer, and other state,
federal, or international regulatory agencies for members of the
internationally active insurance groups, that provide the basis for,
or otherwise clarify, a regulatory official's role as groupwide
supervisor.
(h) A registered insurer subject to this section shall be liable
for and shall pay the reasonable expenses of the commissioner's
participation in the administration of this section, including the
engagement of attorneys, actuaries, and any other professionals and
all reasonable travel expenses.
SEC. 8. Section 1215.8 of the Insurance Code is amended to read:
1215.8. (a) All information, documents, and copies thereof
obtained by or disclosed to the commissioner or any other person in
the course of an examination or investigation made pursuant to
Section 1215.4, 1215.5, 1215.6, or 1215.75, and all information
reported or provided pursuant to Section 1215.4, 1215.5, 1215.6, or
1215.75 shall be kept confidential, is not subject to disclosure by
the commissioner pursuant to the California Public Records Act
(Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1
of the Government Code), is not subject to subpoena, and is not
subject to discovery from the commissioner or admissible into
evidence in any private civil action if obtained from the
commissioner in any manner. This information shall not be made public
by the commissioner or any other person except to insurance
departments of other states without the prior written consent of the
insurance company to which it pertains, unless the commissioner,
after giving the insurer and its affiliates who would be affected
thereby notice and opportunity to be heard, determines that the
interests of policyholders, shareholders, or the public will be
served by the publication thereof, in which event he or she may
publish all or any part thereof in a manner as he or she may deem
appropriate.
(b) In order to assist in the performance of the commissioner's
duties, the commissioner:
(1) May, upon request, be required to share documents, materials,
or other information, including the confidential and privileged
documents, materials, or information subject to subdivision (a), with
other state, federal, and international regulatory agencies, with
the NAIC and its affiliates and subsidiaries, and with state,
federal, and international law enforcement authorities, including
members of any supervisory college described in Section 1215.7;
provided that the recipient agrees in writing to maintain the
confidentiality and privileged status of the documents, materials, or
other information, and has verified in writing the legal authority
to maintain confidentiality.
(2) Notwithstanding paragraph (1), may only share confidential and
privileged documents, materials, or information reported pursuant to
subdivision (m) of Section 1215.4 with commissioners of states
having statutes or regulations substantially similar to subdivision
(a) and who have agreed in writing not to disclose the information.
(3) May receive documents, materials, or information, including
otherwise confidential and privileged documents, materials, or
information, from the NAIC and its affiliates and subsidiaries and
from regulatory and law enforcement officials of other foreign or
domestic jurisdictions, and shall maintain as confidential or
privileged any documents, materials, or information received with
notice or the understanding that it is confidential or privileged
under the laws of the jurisdiction that is the source of the
documents, materials, or information.
(4) May enter into written agreements with the NAIC governing
sharing and use of information provided pursuant to this subdivision
consistent with this subdivision that shall do the following:
(A) Specify procedures and protocols regarding the confidentiality
and security of information shared with the NAIC and its affiliates
and subsidiaries pursuant to this subdivision, including procedures
and protocols for sharing by the NAIC with other state, federal, or
international regulators.
(B) Specify that ownership of information shared with the NAIC and
its affiliates and subsidiaries pursuant to this subdivision remains
with the commissioner and the NAIC's use of the information is
subject to the direction of the commissioner.
(C) Require prompt notice to be given to an insurer whose
confidential information in the possession of the NAIC pursuant to
this subdivision is subject to a request or subpoena to the NAIC for
disclosure or production.
(D) Require the NAIC and its affiliates and subsidiaries to
consent to intervention by an insurer in any judicial or
administrative action in which the NAIC and its affiliates and
subsidiaries may be required to disclose confidential information
about the insurer shared with the NAIC and its affiliates and
subsidiaries pursuant to this subdivision.
(c) The sharing of information by the commissioner pursuant to
this subdivision shall not constitute a delegation of regulatory
authority or rulemaking, and the commissioner is solely responsible
for the administration, execution, and enforcement of the provisions
of this article.
(d) No waiver of any applicable privilege or claim of
confidentiality in the documents, materials, or information shall
occur as a result of disclosure to the commissioner under this
section or as a result of sharing as authorized in subdivision (c).
(e) Documents, materials, or other information filed in the
possession or control of the NAIC pursuant to this subdivision shall
be confidential by law and privileged, shall not be subject to
subpoena, and shall not be subject to discovery or admissible in
evidence in any private civil action.
SEC. 9. The Legislature finds and declares that Section 936.6 of
the Insurance Code, as added by Section 1 of this act, imposes a
limitation on the public's right of access to the meetings of public
bodies or the writings of public officials and agencies within the
meaning of Section 3 of Article I of the California Constitution.
Pursuant to that constitutional provision, the Legislature makes the
following findings to demonstrate the interest protected by this
limitation and the need for protecting that interest:
(1) The Corporate Governance Annual Disclosure and related
information will contain confidential and sensitive information
related to an insurer or insurance group's internal operations and
proprietary and trade secret information that, if made public, could
potentially cause the insurer or insurance group competitive harm or
disadvantage.
(2) The interests in protecting the internal operations and
proprietary and trade secret information of the insurers or insurance
groups in order to promote consumer choice and competition in the
marketplace strongly outweighs the public interest in having access
to this information, and there are other means of obtaining financial
information, such as annual reports.
SEC. 10. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
SEC. 11. This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
(1) In order to permit insurers and insurance groups adequate time
to prepare their first Corporate Governance Annual Disclosure (CGAD)
that would be required, pursuant to the Corporate Governance
Disclosure Model Act, to be submitted to the Insurance Commissioner
no later than June 1, 2016, it is necessary for this act to take
effect immediately.
(2) In order to permit California's United States-based insurance
groups to receive, as quickly as possible, the benefits of the
Insurance Commissioner acting in the capacity of groupwide supervisor
under the amendments to the Insurance Holding Company System
Regulatory Act, it is necessary for this act take effect immediately.