On May 2, 2012, the California Assembly Insurance Committee approved a bill that would direct the insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset.

Assembly Bill 2160 requires any domestic insurer doing business in California to determine whether it has investments in companies doing business with certain segments of the Iran economy. The bill allows an insurer to rely on the list of companies published by the Department of General Services to make that determination. AB 2160 provides that the insurer’s investments in any of the companies on the DGS list are to be treated as non-admitted assets.

After more than one hour of testimony and debate on AB 2160, eight members of the 13-member Assembly Insurance Committee voted to approve the bill. AB 2160 now goes to the Assembly floor for consideration by the 80-member Assembly.

During the committee hearing, supporters of the bill argued that Iran’s volatile political environment makes it risky for an insurer to make investments in companies that do business in Iran. Moreover, supporters asserted that it is good public policy to take action to weaken Iran’s economy. The bill’s supporters conceded that AB 2160 may face litigation challenges if it is enacted, however they argued that concerns about litigation should not block passage of the bill.

Insurer representatives opposed the bill. They argued that rulings by the U.S. Supreme Court and other federal courts make clear that AB 2160 is pre-empted by federal law. The insurer representatives pointed out that there is no evidence that the investments targeted by AB 2160 threaten the solvency of insurers. Finally, the opponents of the bill reminded the committee that Insurance Commissioner Dave Jones has settled a lawsuit that challenged the Department of Insurance’s directive to insurers regarding insurer investments in companies doing business in Iran. The settlement does not authorize the commissioner to treat the investments as non-admitted assets but it does allow the commissioner to publicize the names of insurers that have investments in Iran-related businesses. The settlement is discussed in this blog here.