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CA Department of Insurance

Notice AB 2538 - Amended Sections 1215.4 and, 1215.5

Section 1215.4 of the Insurance Code is amended to read:

1215.4.

  1. Every insurer which is authorized to do business in this state and which is a member of an insurance holding company system shall register with the Commissioner, except a foreign insurer subject to disclosure requirements and standards adopted by statute or regulation in the jurisdiction of its domicile which are substantially similar to those contained in this section. Such exemption from registration for such foreign insurers shall not apply to any commercially domiciled insurer within this state, as provided in Section 1215.13. Any insurer which is subject to registration under this section shall register within 60 days after the effective date of this article or 15 days after it becomes subject to registration, whichever is later, and annually thereafter by April 30 of each year for the previous calendar year, unless the commissioner for good cause shown extends the time for registration. The commissioner may require a holding company system which is not subject to registration under this section to furnish a copy of the registration statement or other information filed by the insurance company with the insurance regulatory authority of domiciliary jurisdiction.

  2. Every insurer subject to registration shall file a registration statement on a form prescribed by the National Association of Insurance Commissioners, which shall contain current information about the following:

    1. The capital structure, general financial condition, ownership, and management of the insurer and any person controlling the insurer.

    2. The identity and relationship of every member of the insurance holding company system.

    3. The following agreements in force, relationships subsisting, and transactions currently outstanding or that have occurred during the last calendar year between the insurer and its affiliates:

      1. Loans, extensions of credit, investments, or purchases, sales, or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates.

      2. Purchases, sales, or exchanges of assets.

      3. Transactions not in the ordinary course of business.

      4. Guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the insurer's business.

      5. All management agreements, service contracts, and all 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 1940 and was not amended in any way to modify payments, fees, or waivers of fees or otherwise substantially amended after 1940.

      6. Reinsurance agreements.

      7. Dividends and other distributions to shareholders.

      8. Consolidated tax allocation agreements.

    4. A pledge of the insurer's stock, including stock of a subsidiary or controlling affiliate, for a loan made to a member of the insurance holding company system.

    5. Other matters as may be included in registration forms adopted by the National Association of Insurance Commissioners, to the extent otherwise required by the Commissioner.

  3. All registration statements shall contain a summary outlining all items in the current registration statement that are changes from the prior registration statement.

  4. No information need be disclosed on the registration statement filed pursuant to subdivision

  5. (b) of this section if the information is not material for the purposes of this section. Unless the Commissioner provides otherwise, sales, purchases, exchanges, loans or extensions of credit, investments, or guarantees involving one-half of 1 percent or less of an insurer's admitted assets as of the preceding December 31st, are not deemed material for purposes of this section.

  6. Each registered insurer shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions within 15 days after the end of the month in which it learns of each change or addition.

  7. Subject to Section 1215.5(g), each registered insurer shall report all dividends and other distributions to shareholders within five business days following declaration. No dividend or other distribution to shareholders may be paid until at least 10 business days after receipt by the Commissioner, at the office of the department prescribed by the Commissioner by notice to all insurers, of a notice of the declaration of the dividend or other distribution.

  8. Every person in an insurance holding company system subject to registration is required to provide the insurer with all information reasonably necessary to enable the insurer to comply with the provisions of this act.

  9. The Commissioner shall terminate the registration of any insurer which demonstrates that it no longer is a member of an insurance holding company system.

  10. The Commissioner may require or allow two or more affiliated insurers subject to registration hereunder to file a consolidated registration statement or consolidated reports amending their consolidated registration statement or their individual registration statements.

  11. The Commissioner may allow any insurer which is authorized to do business in this state and which is part of an insurance holding company system to register on behalf of any affiliated insurer which is required to register under subdivision (a) of this section and to file all information and material required to be filed under this article.

  12. The provisions of this section do not apply to any insurer, information, or transaction exempted by the commissioner.

  13. Any person may file with the Commissioner a disclaimer of affiliation with any authorized insurer. A disclaimer of affiliation may be filed by an insurer or any member of an insurance holding company system. The disclaimer shall fully disclose all material relationships and bases for affiliation between the person and the insurer, as well as the basis for disclaiming an affiliation. After a disclaimer has been filed, the insurer is relieved of any duty to register or report under this section which may arise out of the insurer's relationship with the disclaimed person unless and until the Commissioner disallows the disclaimer. The Commissioner shall disallow the disclaimer only after furnishing all parties in interest with notice and opportunity to be heard and after making specific findings of fact to support the disallowance.

  14. The failure to file a registration statement, summary thereof, amendment to the statement, or report of dividend required by this section within the time specified for the filing is a violation of this article.

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Section 1215.5 of the Insurance Code is amended to read:

1215.5.

  1. 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.

  2. The following transactions involving a domestic insurer or commercially domiciled insurer, as defined in Section 1215.13, and any person in its holding company system, 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 Commissioner shall require the payment of one thousand eight hundred eighty-nine dollars ($1,889) as a fee for filings under this subdivision. The payment shall accompany the filing.

    1. Sales, purchases, exchanges, loans, extensions of credit, or investments, if the transactions are equal to or exceed:

      1. For a non-life insurer, the lessor of 3 percent of the insurer's admitted assets or 25 percent of the policyholder's surplus as of the preceding December 31st.

      2. 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:

      1. For a non-life 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.

      2. For a life insurer, 3 percent of the insurer's admitted assets as of the preceding December 31st.

    3. Reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurer's liabilities 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 non-affiliated, if an agreement or understanding exists between the insurer and non-affiliated that any portion of the assets will be transferred to one or more affiliates of the insurer.

    4. All management agreements, service contracts, and all cost-sharing arrangements. However, subscription agreements or powers of attorney executed by subscribers of a reciprocal or inter-insurance exchange are not required to be reported pursuant to this section if the form of the agreement was in use before 1940 and was not amended in any way to modify payments, fees, or waivers of fees or otherwise substantially amended after 1940. Payment or waiver of fees or other amounts due under subscription agreements or powers of attorney forms that were in use before 1940 and that have not been amended in any way to modify payments, fees, or waiver of fees, or otherwise substantially amended after 1940 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, however, 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. 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 of this article, or in non-subsidiary insurance affiliates that are subject to the provisions of this article, or in subsidiaries acquired pursuant to Section 1199, are exempt from this requirement.

    7. Any material transactions, specified by regulation, that the Commissioner determines may adversely affect the interests of the insurer's policyholders.

  3. 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 1215.10.

  4. 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.

  5. 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.

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  1. 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 any such investment 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.

  2. 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 which 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.

  3. The provisions of this section do not apply to any insurer, information, or transaction exempted by the Commissioner.

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