Insurance Commissioner Dave Jones Applauds Passage of SB 1216 and SB 1448 by California State Senate
News: 2012 Press Release
Insurance Commissioner Dave Jones today announced that the California Senate has passed SB 1216, authored by Senator Alan Lowenthal (D-Long Beach), and SB 1448, authored by Senate Insurance Committee Chairman Ron Calderon (D-Montebello). SB 1216 passed by a vote of 37 to 0 and SB 1448 passed on consent with a vote of 39 to 0. Both bills are sponsored by Commissioner Jones and the California Department of Insurance, and update California insurance law in response to changes in federal law and revisions in the National Association of Insurance Commissioners (NAIC) Model Laws and Regulations.
"I am pleased that the Senate has passed these bills which will ensure that the Insurance Commissioner and the Department of Insurance have the authority and regulatory tools needed to protect consumers," Commissioner Jones said. "This will provide the needed response to the changing business practices in the areas of reinsurance and insurer-related holding company systems."
SB 1216 will align existing California insurance law related to credit for reinsurance to that of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) and NAIC Reinsurance Model Law and Regulations with some further enhancements. Reinsurance is insurance purchased by an insurer from another insurer for all or a portion of loss that may arise under one or more of the insurer's policies. Since reinsurance involves a transfer of liability company to company, it is often used by insurance companies as a risk management tool. Policyholders are generally unaware of the reinsurance transaction and any direct action they may have on the policy remains with the original insurer.
The NAIC's recently amended reinsurance Models reflect efforts by the states to modernize reinsurance regulation, including responding to Dodd-Frank changes. A key provision of the NAIC changes relates to the certification of a non-admitted reinsurer. Under the revised NAIC Models, each state has the authority to certify a reinsurer or to recognize the certification issued by another NAIC-accredited state. As part of the certification process, a rating system provides for certified non-U.S.-based reinsurers to reduce collateral under specified conditions. The certification process is pivotal to permit a California domiciled ceding insurer to qualify for a credit on its financial statement under these new conditions.
SB 1448 will enact the standards of the recently adopted NAIC Holding Company Systems Regulatory Act. One principal provision in the bill would require the controlling person of the holding company system to disclose an enterprise risk. Enterprise risk is any situation involving one or more affiliates of an insurer that, if not quickly corrected, will adversely affect the financial condition of the insurer. The bill would also authorize the Insurance Commissioner to participate in "supervisory colleges." These colleges are meetings of international regulators for internationally active insurance groups to share financial and operational information. The need for a greater ability to evaluate risks within insurance groups stems from the financial difficulties faced by some affiliates of the AIG insurance holding company system during the 2008 financial crisis.
The legislation will now be considered by the State Assembly.
"These bills will enable the Department of Insurance to continue to protect California consumers to the best of our ability, and I look forward to seeing them continue on to the Governor's desk," Jones said.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.