California domestic insurers will become subject to new and expanded filing and reporting requirements under the California Insurance Holding Company Act as a result of Senate Bill 1448 (SB 1448) that was signed by the Governor on September 7, 2012. SB 1448 will become effective January 1, 2013.
The changes implemented by SB 1448 are intended to improve the ability of the commissioner to monitor insurance holding company systems to assess any substantial enterprise risk to an insurer and its insurance holding company, including risks arising from or relating to any affiliated entity that could have a material adverse impact on the insurer or the holding company system. SB 1448 is based on certain amendments to the National Association of Insurance Commissioners (NAIC) Model Holding Company Act that provide additional statutory authority for commissioners to collaborate with state, federal, and international regulators to monitor the enterprise risk and solvency of insurers.
The enactment of SB 1448 follows other recent developments intended to provide regulators with enhanced authority to monitor the solvency and viability of large global insurers, such as the NAIC-proposed Own Risk and Solvency Assessment (ORSA) and, at the international level, the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame).
The principal provisions of SB 1448 include:
- Acquisition: SB 1448 authorizes the commissioner to hold a public hearing on an application to acquire control of a domestic insurer, and any person whose interests may be affected by the acquisition may present evidence, examine witnesses, and offer arguments at the hearing. SB 1448 also adds a new requirement to provide notice to the commissioner before a person may divest a controlling interest in a domestic insurer, and the commissioner may determine those instances in which the person or persons divesting control will be required to obtain the prior approval of the commissioner for the divestiture.
- Registration statement: SB 1448 requires an insurer to provide: (i) financial statements of all affiliates, if requested by the commissioner; (ii) a statement that the insurer's board of directors is responsible for and oversees corporate governance and internal controls and that officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures; and (iii) an enterprise risk report filed by the insurer's ultimate controlling person beginning with the first registration statement filed after July 1, 2013 that identifies the material risks within the holding company system that could expose the insurer to enterprise risk. A failure to file a complete enterprise risk report may be used by the commissioner as an independent basis to disapprove dividends or distributions, and to place the insurer under supervision.
- Inter-affiliate transactions: Amendments or modifications of previously filed agreements involving the insurer and any affiliate are subject to advance notice to the commissioner, and notice is required within 30 days after termination of a previously filed agreement.
- Examination: SB 1448 permits the commissioner to examine any insurer to ascertain the enterprise risk to the insurer by the holding company system, and the insurer may be ordered to produce information in its possession or the possession its affiliates, as necessary to ascertain the financial condition or legality of conduct of the insurer. This power is available only if the regular financial examination of the insurer is inadequate or the interests of policyholders are being adversely affected.
- Supervisory colleges: SB 1448 authorizes the commissioner to participate in "supervisory colleges" for a domestic insurer, at the insurer's expense, with other state, federal, and international regulatory agencies, the goals of which include additional oversight and consistency of regulation across jurisdictions.
- Confidentiality: Because of the sensitive nature of information that would be included in the enterprise risk report, SB 1448 sets forth additional provisions regarding confidentiality and information sharing and provides a framework for information to be shared with the NAIC.