Bill Text: CA SB291 | 2009-2010 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Insurance reserves.

Spectrum: Partisan Bill (Democrat 2-0)

Status: (Passed) 2009-10-11 - Chaptered by Secretary of State. Chapter 574, Statutes of 2009. [SB291 Detail]

Download: California-2009-SB291-Amended.html

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BILL NUMBER: SB 291	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  JUNE 26, 2009

INTRODUCED BY    Committee on Banking, Finance and Insurance
  (   Senators Calderon (Chair),
Correa, Cox, Florez, Harman, Kehoe, Liu, Lowenthal, Padilla, and
Runner   )   Senator  
Calderon 

                        FEBRUARY 25, 2009

   An act to amend  Sections 1215.5 and 11136  
Section 12640.05  of the Insurance Code, relating to insurance
 regulations  .



	LEGISLATIVE COUNSEL'S DIGEST


   SB 291, as amended,  Committee on Banking, Finance and
Insurance   Calderon  .  Insurance
regulations.   Insurance reserves.  
   Existing law requires a mortgage guaranty insurer to maintain a
policyholders surplus at all times in an amount not less than the
amount required, as specified, and defines "face amount of an insured
mortgage" for these purposes. Existing law requires a mortgage
guaranty insurer to cease new business if the insurer does not have
the amount of policyholders surplus required, as specified. 

   This bill would revise the definition of "face amount of an
insured mortgage" to exclude the outstanding principal balance of any
loan that is in default and for which the insurer has established a
loss reserve, as specified. The bill would provide that if a mortgage
guaranty insurer will not have the amount of policyholders surplus
required, then as soon as practicable after the insurer is reasonably
certain that its policyholder surplus will fall below the amount
required, the insurer shall so notify the commissioner. The
commissioner may issue an order instructing the insurer to cease
transacting new business in California, as specified, provided
however, that prior to the issuance of an order instructing the
insurer to cease transacting new business, the insurer shall be
entitled to a hearing. The costs of the hearing would be borne by the
insurer, as specified.  
   Existing law prohibits domestic insurers or commercially domiciled
insurers from entering into specified transactions unless they have
notified the Insurance Commissioner of their intent to enter into the
transaction in advance of entering into the transaction and the
commissioner fails to prohibit the transaction, as specified.
 
   This bill would specify that tax sharing agreements are among the
types of transactions for which the insurer would have to give the
commissioner advanced notification of its intent to enter into the
transaction, as specified.  
   Existing law defines a fraternal benefit society as an
incorporated society or supreme lodge without capital stock conducted
solely for the benefit of its members and members' beneficiaries and
not for profit. Under existing law, a fraternal benefit society may
issue certificates of insurance providing for the payment of life and
disability insurance benefits, as specified. Existing law requires
fraternal benefit societies to use, among other tables, mortality
tables approved by regulation promulgated by the Insurance
Commissioner for purposes of determining actuary values, as
specified.  
   This bill would, in addition, authorize fraternal benefit
societies to use mortality tables approved by bulletin issued by the
commissioner for purposes of determining actuary values, as
specified. 
   Vote: majority. Appropriation: no. Fiscal committee:  no
  yes  . State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 12640.05 of the  
Insurance Code   is amended to read: 
   12640.05.  (a) A mortgage guaranty insurer shall maintain 
at all times  a policyholders surplus in an amount not less
than the amount required by this section. The  required
 policyholders surplus shall be the calculated net of
reinsurance ceded, but shall include reinsurance assumed. "Face
amount of an insured mortgage" means the outstanding principal
balance computed without any reduction because of an insurer's option
limiting its coverage  , but shall exclude the outstanding
principal balance of any loan that is in default and for which the
insurer has established a loss reserve, provided   that the
loss reserve established for that loan is equal to or greater than
the policyholders surplus the insurer would otherwise be required to
establish with respect to that loan, pursuant to this section.
Nothing in this subdivision limits the commissioner's authority under
Section 12640.04  .
   (b) If a policy of mortgage guaranty insurance insures individual
loans with a percentage claim settlement option on such loans, the
insurer shall maintain a policyholders surplus based on each one
hundred dollars ($100) of the face amount of the mortgage, the
percentage coverage or claim settlement option, and the loan-to-value
category.
   The required amount of policyholders surplus shall be calculated
in the following manner:
   (1) If the total indebtedness is greater than 75 percent of the
value of the collateral property at the date of the insurance:
             Policyholders             Policyholders
              Surplus per               Surplus per
                  $100                      $100
              of the Face               of the Face
   Percent   Amount of the   Percent   Amount of the
   Coverage     Mortgage     Coverage     Mortgage
      5%         $ .20          55%        $1.50
      10           .40          60          1.55
      15           .60          65          1.60
      20           .80          70          1.65
      25          1.00          75          1.75
      30          1.10          80          1.80
      35          1.20          85          1.85
      40          1.30          90          1.90
      45          1.35          95          1.95
      50          1.40         100          2.00


   If the percent coverage is between any five-point increment, then
the factor for policyholders surplus per one hundred dollars ($100)
of the face amount of the mortgage shall be prorated.
   (2) If the total indebtedness is at least 50 percent and not more
than 75 percent of the value of the collateral property at the date
of insurance, the required amount of policyholders surplus shall be
50 percent of the amount required by paragraph (1) of subdivision
(b).
   (3) If the total indebtedness is less than 50 percent of the value
of the collateral property at the date of insurance, the required
amount of policyholders surplus shall be 25 percent of the amount
required by paragraph (1) of subdivision (b).
   (c) If a policy of mortgage guaranty insurance provides coverage
on a group of loans subject to an aggregate loss limit, the
policyholders surplus shall be:
   (1) If the equity is not more than 50 percent and is at least 20
percent, or equity plus prior insurance or a deductible equals 25
percent of the value of the collateral property at the date of
insurance, the required amount of policyholders surplus shall be
calculated as follows:
             Policyholders             Policyholders
              Surplus per               Surplus per
                  $100                      $100
              of the Face               of the Face
   Percent   Amount of the   Percent   Amount of the
   Coverage     Mortgage     Coverage     Mortgage
       1%        $ .30          50%        $ .825
       5           .50          60           .85
      10           .60          70           .875
      15           .65          75           .90
      20           .70          80           .925
      25           .75          90           .95
      30           .775        100          1.00
      40           .80


   If the percent coverage is between any specified increment, then
the factor for policyholders surplus per one hundred dollars ($100)
of the face amount of the mortgage shall be prorated.
   (2) If the equity is less than 20 percent or the equity plus prior
insurance or a deductible is less than 25 percent of the value of
the collateral property at the date of insurance, the required amount
of policyholders surplus shall be 200 percent of the amount required
by paragraph (1) of subdivision (c).
   (3) If the equity is more than 50 percent or the equity plus prior
insurance or a deductible is more than 55 percent of the value of
the collateral property at the date of insurance, the required amount
of policyholders surplus shall be 50 percent of the amount of
policyholders surplus required by paragraph (1) of subdivision (c).
   (d) If a policy of mortgage guaranty insurance provides for layers
of coverage, deductibles or excess reinsurance, the required amount
of policyholders surplus may be computed by subtraction of the
required policyholders surplus for the lower percentage coverage
limits from the required policyholders surplus for the upper or
greater coverage limit.
   (e) If a policy of mortgage guaranty insurance provides for
coverage on loans secured by second liens, the policyholders surplus
shall be:
   (1) If the policy provides coverage on individual loans, the
required amount of policyholders surplus shall be calculated
according to subdivision (b) after the percent of coverage and the
loan-to-value ratios have been determined as follows: 
   (a) 
    (A)  Divide the insured portion of the second loan by
the entire loan indebtedness on the collateral property to determine
the percent coverage. 
   (b) 
    (B)  Divide the entire loan indebtedness on the property
by the value of the collateral property at the date of insurance to
determine loan-to-value percent. 
   (c) 
    (C)  The face amount of insured mortgage shall mean the
entire loan indebtedness on the property. 
   (d) 
    (D)  Equity shall mean the complement of the
loan-to-value percent.
   (2) If the policy provides coverage on a group of loans subject to
an aggregate loss limit, the policyholders surplus shall be
calculated according to subdivision (c) after the percent of coverage
and the loan-to-value ratios have been determined in accordance with
paragraph (1). 
   (e) 
    (f)  If a policy of mortgage guaranty insurance provides
for coverage on leases, the policyholders surplus shall be four
dollars ($4) for each one hundred dollars ($100) of the insured
amount of the lease. 
   (f) 
    (g)  If a mortgage guaranty insurer  does
  will  not have the amount of policyholders
surplus required by this section, it shall  cease transacting
new business until such time that its policyholders surplus is in
compliance with this section.   , as soon as practicable
after the insurer is reasonably certain that its policyholder
surplus will fall below the amount required by this section, so
notify the commissioner. Based on the information provided by the
insurer, or as otherwise determined by the commissioner, the
commissioner may issue an order instructing the insurer to cease
transacting new business in California. Prior to the issuance of an
order instructing the insurer to cease transacting new business, the
insurer shall be entitled to a hearing. The commissioner may retain
consultants, including accountants, actuaries, or other experts, to
  assist the commissioner in the review of the information
submitted by the insurer pursuant to this section. The insurer shall
bear the commissioner's cost of retaining those consultants, and
shall reimburse the commissioner for the cost of any hearing
requested by the insurer. Nothing in this section is intended to
limit the commissioner's authority under any other provision of this
code.  
  SECTION 1.    Section 1215.5 of the Insurance Code
is amended to read:
   1215.5.  (a) 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.
   (b) 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:
   (A) For a nonlife 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.
   (B) 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:
   (A) For a nonlife 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.
   (B) 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
nonaffiliate, if an agreement or understanding exists between the
insurer and nonaffiliate that any portion of the assets will be
transferred to one or more affiliates of the insurer.
   (4) All management agreements, service contracts, tax sharing
agreements, and 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 1943 and was not amended in any way to modify payments, fees,
or waivers of fees or otherwise substantially amended after 1943.
Payment or waiver of fees or other amounts due under subscription
agreements or powers of attorney forms that were in use before 1943
and that have not been amended in any way to modify payments, fees,
or waiver of fees, or otherwise substantially amended after 1943
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 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) Derivative transactions or series of derivative transactions.
The written filing to the commissioner shall include the type or
types of derivative transactions, the affiliate or affiliates
engaging with the insurer in the derivative transactions, the
objective and the rationale for the derivative transaction or series
of derivative transactions, the maximum maturity and economic effect
of the derivative transactions, and any other information required by
the commissioner. Derivative transactions entered into pursuant to
this subdivision shall comply with the provisions of Section 1211.
   (7) 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, or in nonsubsidiary insurance affiliates that
are subject to the provisions of this article, or in subsidiaries
acquired pursuant to Section 1199, are exempt from this requirement.
   (8) Any material transactions, specified by regulation, that the
commissioner determines may adversely affect the interests of the
insurer's policyholders.
   (c) 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.
   (d) 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.
   (e) 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.
   (f) 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.
   (g) 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 that 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.
   (h) Notwithstanding the control of a domestic insurer by any
person, the officers and directors of the insurer shall not thereby
be relieved of any obligation or liability to which they would
otherwise be subject to by law, and the insurer shall be managed to
ensure its separate operating identity consistent with the provisions
of this article. However, nothing in this article shall preclude a
domestic insurer from having or sharing a common management or
cooperative or joint use of personnel, property, or services with one
or more other persons under arrangements meeting the standards of
subdivision (a).
   (i) The provisions of this section do not apply to any insurer,
information, or transaction exempted by the commissioner. 

  SEC. 2.    Section 11136 of the Insurance Code is
amended to read:
   11136.  Except as otherwise provided in Section 10489.4, such
valuation shall be certified by a competent actuary or, at the
expense of the society, verified by the actuary of the insurance
supervisory official of the state of domicile of the society, and the
legal minimum standard of valuation shall be as follows:
   (a) All benefits promised by certificates issued prior to
September 22, 1952, and the rates therefor shall be valued in
accordance with the provisions of law applicable thereto as of the
date of issuance, but not lower than the standards and interest
assumptions used in the calculation of rates for such benefits.
   (b) The minimum standard for the valuation of all certificates
issued after September 21, 1952, and prior to January 1, 1972, shall
be 3 percent per annum interest; in the case of certificates issued
on and after January 1, 1972, and prior to January 1, 1980, the
minimum standard for the valuation of all such certificates shall be
4 percent per annum interest; and in the case of certificates issued
on and after January 1, 1980, the minimum standard for the valuation
of all single premium certificates shall be 51/2 percent per annum
interest and for the valuation of all other such certificates shall
be 41/2 percent per annum interest, and the following tables:
   (1) For all ordinary certificates of life insurance issued on the
standard basis, excluding any disability and accidental death
benefits in such certificates--the American Men Ultimate Table of
Mortality, with Bowerman's or Davis' Extension thereof, or, at the
option of the society, the Commissioners 1941 Standard Ordinary
Mortality Table or the Commissioners 1958 Standard Ordinary Mortality
Table, using actual age of the insured for male risks and an age not
more than six years younger than the actual age of the insured for
female risks, and for such policies issued on or after the operative
date of Section 10163.2 (i) the Commissioners 1980 Standard Ordinary
Mortality Table, or (ii) at the election of the company for any one
or more specified plans of life insurance, the Commissioners 1980
Standard Ordinary Mortality Table with Ten-Year Select Mortality
Factors, or (iii) any ordinary mortality table, adopted after 1980 by
the National Association of Insurance Commissioners, or its
successor, that is approved by regulation promulgated or bulletin
issued by the commissioner for use in determining the minimum
standard of valuation for such policies.
   (2) For all industrial life insurance certificates issued on the
standard basis, excluding any disability and accidental death
benefits in such certificates--the 1941 Standard Industrial Mortality
Table, for such certificates issued prior to the operative date of
Section 10163.2, and for such policies issued on or after such
operative date, the Commissioners 1961 Standard Industrial Mortality
Table or any industrial mortality table, adopted after 1980 by the
National Association of Insurance Commissioners, or its successor,
that is approved by regulation promulgated or bulletin issued by the
commissioner for use in determining the minimum standard of valuation
for such policies.
   (3) For annuity and pure endowment certificates, excluding any
disability and accidental death benefits in such certificates--the
1937 Standard Annuity Mortality Table, or the Annuity Mortality Table
for 1949 Ultimate, or the Individual Annuity Mortality Table for
1971, or any individual annuity mortality table, adopted after 1980
by the National Association of Insurance Commissioners, or its
successor, that is approved by regulation promulgated or bulletin
issued by the commissioner for use in determining the minimum
standard of valuation for such contracts, or any modification of any
of these tables approved by the commissioner.
   (4) For disability benefits in or supplementary to ordinary
certificates--Hunter's Disability Table or the Class 3 Disability
Table (1926), modified to conform to the contractual waiting period,
or the tables of Period 2 disablement rates and the 1930 to 1950
termination rates of the 1952 Disability Study of the Society of
Actuaries with due regard to the type of benefit, or the 1964
Commissioners Disability Table, or any tables of disablement rates
and termination rates, adopted after 1980 by the National Association
of Insurance Commissioners, or its successor, that are approved by
regulation promulgated or bulletin issued by the commissioner for use
in determining the minimum standard of valuation for such policies.
Any such table shall, for active lives, be combined with a mortality
table permitted for calculating the reserves for life insurance
certificates.
   (5) For accidental death benefits in or supplementary to
certificates--The Inter-Company Double Indemnity Mortality Table or
the 1959 Accidental Death Benefits Table, or any accidental death
benefits table, adopted after 1980 by the National Association of
Insurance Commissioners, or its successor, that is approved by
regulation promulgated or bulletin issued by the commissioner for use
in determining the minimum standard of valuation for such policies.
Any such table shall be combined with a mortality table permitted for
calculating the reserves for life insurance certificates.
   (6) For temporary accident and health benefits in or supplementary
to certificates--Class 3 Disability Table (1926) with Conference
Modifications or the 1964 Commissioners Disability Table, or any
tables of disablement rates and termination rates, adopted after 1980
by the National Association of Insurance Commissioners, or its
successor, that are approved by regulation promulgated or bulletin
issued by the commissioner for use in
            determining the minimum standard of valuation for such
policies.
   (7) For life insurance issued upon the substandard basis and other
special benefits--such tables as may be approved by the
commissioner.
   (c) The commissioner may, in his discretion, accept other
standards for valuation if he finds that the reserves produced
thereby will not be less in the aggregate than reserves computed in
accordance with the minimum valuation standard prescribed. Whenever
the mortality experience under the certificates valued on the same
mortality table is in excess of the expected mortality according to
such table for a period of three consecutive years, the commissioner
may require additional reserves when in his judgment deemed necessary
on account of such certificates.
   (d) Notwithstanding the provisions of subdivisions (a) and (b),
any society, with the consent of the insurance supervisory official
of the state of domicile of the society, and under such conditions,
if any, which he may impose, may establish and maintain reserves on
its certificates in excess of the reserves required thereunder, but
the contractual rights of any insured member shall not be affected
thereby.