Insurance.

(1) Existing law governs the business of insurance and authorizes the Insurance Commissioner to provide oversight over the insurance industry, including conducting investigations and bringing enforcement actions. Existing law provides that any officer, director, or employee of an insurance holding company who willfully and knowingly subscribes to, makes, or causes to be made materially false statements, reports, or filings, as specified, that involves the deliberate perpetration of a fraud upon the commissioner is guilty of a misdemeanor or a felony. Existing law prohibits a person from making a tender offer for, or a request or invitation for tenders of, or from entering into an agreement to exchange securities for or acquire in the open market, any voting security, or any security convertible into a voting security, of a domestic insurer or of any other person controlling a domestic insurer, if the other person is not substantially engaged either directly or through its affiliates in any businesses other than that of insurance, if, as a result of the consummation thereof, the person would, directly or indirectly, acquire control of the insurer. Existing law also prohibits a person from entering into an agreement to merge with or otherwise acquire control of a domestic insurer, unless, at the time copies of the offer, purchase, request, or invitation are first published, sent, or given to security holders or the agreement or transaction is entered into, the person has filed with the commissioner, and has sent to the insurer, a statement containing the specified information, including, among other things, information regarding the background and identity of all persons by whom or on whose behalf the purchases or the exchange, merger, or other acquisition of control are to be effected, and any additional information as the commissioner may by rule or regulation prescribe as necessary or appropriate in the public interest or for the protection of policyholders or shareholders. This bill would authorize the commissioner to hold a noticed public hearing after the statement described above is filed and would provide the person filing the statement with the right to present evidence, to examine witnesses, and to offer oral and written arguments. The bill would also provide for a consolidated hearing before the commissioner and commissioners from other states, as specified. The bill would require any controlling person of a domestic insurer seeking to divest its controlling interest in the domestic insurer to file with the commissioner confidential notice of its proposed divestiture at least 30 days prior to the cessation of control. The bill would require the commissioner to determine those instances in which an insurer under those circumstances would be required to file for and obtain approval of the transaction. The bill would require the information to remain confidential unless the commissioner makes a specified determination. The bill would require that the ultimate controlling person of every insurer subject to registration file an annual enterprise risk report. The bill would define "enterprise risk" for purposes of these provisions to mean 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. The bill would authorize the commissioner to ascertain the enterprise risk to which an insurer is subjected by the ultimate controlling party or by any entity or combination of entities within the insurance holding company system, or by the insurance holding company system on a consolidated basis, and to order an insurer to produce an enterprise risk report. The bill would provide that whenever it appears to the commissioner that any person has committed a violation of the registration requirements that prevents the full understanding of the enterprise risk to the insurer by affiliates of the insurance company holding system, the violation may serve as an independent basis for disapproving dividends or distribution or placing the insurer under an order of supervision. (2) Existing law prohibits purchases, exchanges, mergers, or other acquisitions of control from being made until the commissioner approves those acquisitions, and requires the commissioner to approve or disapprove the transaction within 60 days after the filing of that statement. The bill would instead require the commissioner to approve or disapprove an acquisition of control on or before the latter of 60 days after the statement has been filed with the commissioner or 30 days after the close of the hearing. (3) Existing law requires every insurer authorized to do business in this state to register with the commissioner and to file a registration statement containing specified information, including the identity and relationship of every member of the insurance holding company system. This bill would additionally require the registration statement to specify that the insurer's board of directors is responsible for overseeing corporate governance and internal controls, and that the insurer's officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures. The bill would also require the insurer to include in the registration statement, if requested by the commissioner, financial statements, as described, of or within an insurance holding company system, including all affiliates. (4) Existing law authorizes domestic insurers and commercially domiciled insurers to enter into specified transactions, including sales, loans, and reinsurance agreements, only if the insurer has notified the commissioner in writing of its intention to enter into the transactions 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. This bill would expand that requirement to apply to amendments or modifications of affiliate agreements previously filed, and would also make it applicable to pooling agreements. The bill would require that the notice include the reasons for the change and the financial impact on the insurer, and would require informal notice to the commissioner for determination of the type of filing required. The bill would authorize the commissioner to participate in a supervisory college for any domestic insurer that is part of an insurance holding company system with international operations in order to determine compliance with the provisions described above and would require the insurer to pay for the reasonable expenses of the commissioner's participation, as provided. The bill would also authorize the commissioner to establish the supervisory college, clarify its membership, and establish a crisis management plan. (5) Existing law requires that information reported to the commissioner in the registration statement, and information disclosed in the course of an examination or investigation of the registration statement, be exempt from subpoena or public disclosure, except as specified. This bill would clarify that information disclosed in the course of an examination or investigation of specified transactions between registered insurers and their affiliates is exempt from subpoena or public disclosure. The bill would specify that this information and the registration statement information is not subject to disclosure pursuant to the California Public Records Act, but would authorize the commissioner to share the information with other state, federal, and international regulatory and enforcement entities if specified requirements are met. The bill would authorize the commissioner to receive documents from the National Association of Insurance Commissioners (NAIC) and regulatory and enforcement entities and to enter into agreements with the NAIC governing the sharing and use of that information, as specified. (6) The bill would state the intent of the Legislature to conform California law to, and maintain standards consistent with, the National Association of Insurance Commissioners revised model act and would make related findings and declarations. (7) Because this bill would revise the required content of statements, filings, and reports, and require additional statements and reports, and because it would be a crime for an officer, director, or employee of an insurance holding company to willfully or knowingly engage in specified acts relative to those statements, filings, and reports, the bill would impose a state-mandated local program. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason.