UPDATE: California State Legislature Approves NAIC Model Laws Regarding Enterprise Risk and Collateral Reduction for Alien Reinsurers; Bills with Governor for Signature


    This updates our June 12, 2012 blog posting.

    The California State Legislature has unanimously passed SB 1216 and SB 1448, both of which follow model laws recently put forth by the National Association of Insurance Commissioners ("NAIC").

    SB 1216 eases the collateral requirements for alien insurers1 providing reinsurance to domestic insurers.  Previously, the alien insurer would need to provide 100% collateral in order for the domestic insurer to receive credit for reinsurance.  SB 1216 authorizes the insurance commissioner to employ a sliding scale for collateral requirements based on the reinsurer's financial strength and other specified conditions.  Similar laws have been enacted in New York, New Jersey, Florida, Indiana, and Connecticut.

    SB 1448 requires the ultimate controlling parent of a holding company system to annually file an enterprise risk report.  The annual enterprise risk report must identify, to the best of the filer's knowledge and belief, the material risks within the insurance holding company system that could pose enterprise risk2 to the domestic insurance company.  SB 1448 also empowers the insurance commissioner to participate in a supervisory college.  The purpose of the supervisory college is "to assess the business strategy, financial position, legal and regulatory position, risk exposure, risk management, and governance processes, and as part of the examination of [domestic] insurers . . . .”

    SB 1216 and SB 1448 will now head to Governor Jerry Brown for enactment.  Click here and here to view the California Department of Insurance's official press releases.

    1“Alien reinsurer” means a reinsurer domiciled outside of the U.S.

    2“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 such actions as necessary under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), and Article 15.5 (commencing with Section 1077).

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