Article 4.7 - Insurance Holding Company System Regulatory Act

California Insurance Code — §§ 1215-1215.18

Sections (11)

Amended by Stats. 2021, Ch. 464, Sec. 1. (AB 494) Effective January 1, 2022.

As used in this article, the following terms shall have the respective meanings hereafter set forth, unless the context shall otherwise require:

(a)An “affiliate” of, or person “affiliated” with, a specific person, is a person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(b)“Business day” is any day other than Saturday, Sunday, and any other day that is specified or provided for as a holiday in the Government Code.

(c)“Commissioner” means the Insurance Commissioner of the state

and any assistant to the Insurance Commissioner designated and authorized by the commissioner while acting under their designation as the Insurance Commissioner.

(d)The term “control” includes the terms “controlling,” “controlled by,” and “under common control with,” and means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, more than 10 percent of the voting securities of

any other person. This presumption may be rebutted by a showing that control does not exist in fact pursuant to the filing of a disclaimer of affiliation in accordance with subdivision (l) of Section 1215.4. The commissioner may, after furnishing all persons in interest notice and opportunity to be heard, determine that control exists in fact, notwithstanding the absence of a presumption to that effect.

(e)“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 actions that are necessary under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), and Article 15.5 (commencing with Section 1077).

(f)“Group capital calculation instructions” means the group capital calculation instructions as adopted by the NAIC and as amended by the NAIC in accordance with the procedures adopted by the NAIC.

(g)“Groupwide supervisor” means the insurance official authorized to engage in conducting and coordinating groupwide supervision activities who is determined or acknowledged by the commissioner pursuant to

subdivision (a) of Section 1215.75 to have sufficient significant contacts with the internationally active insurance group.

(h)An “insurance holding company system” consists of two or more affiliated persons, one or more of which is an insurer.

(i)“Insurer” shall have the same meaning as set forth in Section 826, excluding subdivisions (e) and (f) of that section.

(j)“Internationally active insurance group” means an insurance holding company system that includes an insurer registered pursuant to Section 1215.4 and that meets the following criteria:

(1)Insurers that are part of the insurance holding company system write premiums in at least three countries.

(2)The percentage of gross premiums written outside the United States is at least 10 percent of the insurance holding company system’s total gross written premiums.

(3)Based on a three-year rolling average, the total assets of the insurance holding company system are at least fifty billion dollars ($50,000,000,000) or the total gross written premiums of the insurance holding company system are at least ten billion dollars ($10,000,000,000).

(k)“NAIC” means the National Association of Insurance Commissioners.

(l)The “NAIC Liquidity Stress Test Framework” is an NAIC publication that includes a history of the NAIC’s development of regulatory liquidity

stress testing, the scope criteria applicable for a specific data year, and the liquidity stress test instructions and reporting templates for a specific data year. The scope criteria, instructions, and reporting template may be adopted by the NAIC and amended by the NAIC in accordance with the procedures adopted by the NAIC.

(m)“Person” is an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a business trust, an unincorporated organization, or any similar entity, or any combination thereof acting in concert.

(n)“Scope criteria,” as detailed in the NAIC Liquidity Stress Test Framework, are the designated exposure bases along with minimum magnitudes thereof for the specified data year, which are used to establish a

preliminary list of insurers considered scoped into the NAIC Liquidity Stress Test Framework for that data year.

(o)A “security holder” of a specified person is the holder that owns any security of that person, including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing.

(p)A “subsidiary” of a specified person is an affiliate controlled by that person directly, or indirectly through one or more intermediaries.

(q)“Voting security” shall include any security convertible into or evidencing a right to acquire a voting security.

§ 1215.1

Amended by Stats. 2015, Ch. 213, Sec. 3. (AB 553) Effective August 17, 2015.

(a)Any domestic insurer, either by itself or in cooperation with one or more persons, may organize or acquire one or more subsidiaries subject to the limitations of this section.

(b)In addition to investments in common stock, preferred stock, debt obligations, and other securities permitted under all other sections of this chapter, a domestic insurer may also do one or more of the following:

(1)Invest in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries, amounts that do not exceed the lesser of 10 percent of the insurer’s assets or 50 percent of the insurer’s surplus

as regards policyholders. However, after these investments, the insurer’s surplus as regards policyholders shall be reasonable in relation to the insurer’s outstanding liabilities and adequate to its financial needs. In calculating the amount of these investments, there shall be excluded investments in insurance subsidiaries, and there shall be included (A) total net moneys or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary, including all organizational expenses and contributions to capital and surplus of the subsidiary whether or not represented by the purchase of capital stock or issuance of other securities, and (B) all amounts expended in acquiring additional common stock, preferred stock, debt obligations, and other securities and all contributions to the capital or surplus of a subsidiary subsequent to its acquisition or formation.

“Insurance subsidiary” is an insurer that is organized within the United

States and is controlled, directly or indirectly, by a reporting insurer subject to this article. For purposes of this paragraph, “investments in insurance subsidiaries” shall include the following:

(A)Any direct investment in an insurance subsidiary.

(B)The insurer’s proportionate share of any investment in an insurance subsidiary held by any subsidiary of the insurer. This shall be calculated by multiplying the amount of the subsidiary’s investment in the insurance subsidiary by the insurer’s percentage of ownership of the subsidiary.

(2)Invest any amount in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries, provided that each subsidiary agrees to limit its investments in any asset so that these investments will not cause the amount of the total investment of the

insurer to exceed any of the investment limitations specified in paragraph (1) or in this chapter applicable to the insurer. For the purpose of this paragraph, “the total investment of the insurer” shall include (A) any direct investment by the insurer in an asset, and (B) the insurer’s proportionate share of any investment of an asset by any subsidiary of the insurer, which shall be calculated by multiplying the amount of the subsidiary’s investment by the percentage of the insurer’s ownership of that subsidiary.

(3)With the approval of the commissioner, invest any amount in common stock, preferred stock, debt obligations, or other securities of one or more subsidiaries, provided that after this investment the insurer’s surplus as regards policyholders shall be reasonable in relation to the insurer’s outstanding liabilities and adequate to its financial needs.

(c)Investments in

common stock, preferred stock, debt obligations, or other securities of subsidiaries made pursuant to subdivision (b) shall neither limit nor be subject to any of the otherwise applicable authorizations, restrictions, or prohibitions contained in this article applicable to these investments of insurers.

(d)Whether any investment pursuant to subdivision (b) meets the applicable requirements thereof is to be determined immediately after the investment is made, taking into account the then outstanding principal balance on all previous investments in debt obligations, and the value of all previous investments in equity securities as of the date they were made.

(e)If an insurer ceases to control a subsidiary, it shall dispose of any investment therein made pursuant to this section within three years from the time of the cessation of control, or within any further time as the

commissioner may prescribe, unless at any time after the investment has been made, the investment has met the requirements for investment under any other section of this part.

§ 1215.10

Added by renumbering Section 1215.9 by Stats. 2012, Ch. 282, Sec. 10. (SB 1448) Effective January 1, 2013.

(a)Whenever it appears to the commissioner that any insurer or any director, officer, employee, or agent thereof has committed or is about to commit a violation of this article or of any rule, regulation, or order issued by the commissioner hereunder, the commissioner may apply to the superior court for the county in which the principal office of the insurer is located, or if such insurer has no such office in this state, then to the Superior Court for the County of Los Angeles, or for the City and County of San Francisco, for an order enjoining such insurer or such director, officer, employee, or agent thereof from violating or continuing to violate this article or any such rule, regulation, or order,

and for such other equitable relief as the nature of the case and the interests of the insurer’s policyholders, creditors, and shareholders or the public may require.

(b)No security which is the subject of any agreement or arrangement regarding acquisition, or which is acquired or to be acquired in contravention of the provisions of this article or of any rule, regulation, or order issued by the commissioner hereunder, may be voted at any shareholders’ meeting, or may be counted for quorum purposes, and any action of shareholders requiring the vote of an affirmative percentage of shares may be taken as though such securities were not issued and outstanding. If an insurer or the commissioner has reason to believe that any security of the insurer has been or is about to be acquired in contravention of the provisions of this article or of

any rule, regulation, or order issued by the commissioner hereunder, the insurer or the commissioner may apply to the Superior Court for the County of Los Angeles or for the City and County of San Francisco or to the superior court for the county in which the insurer has its principal place of business for equitable relief to enjoin the voting of any such security or to void any vote of such security already cast, at any meeting of shareholders.

§ 1215.11

Added by renumbering Section 1215.10 by Stats. 2012, Ch. 282, Sec. 11. (SB 1448) Effective January 1, 2013.

(a)Any insurer that fails to file a statement, report, or request for approval required by this article in a timely manner shall be subject to the late filing fees set forth in Section 924.

(b)Every director or officer of an insurance holding company system who knowingly violates, participates in, or assents to, or who knowingly permits any of the officers or agents of the insurer to engage in transactions or make investments which have not been properly reported or submitted pursuant to Sections 1215.4 and 1215.5, or which violate this article, shall pay, in their individual capacity, a civil forfeiture of not more than fifty thousand dollars ($50,000) per violation, after notice and

hearing before the commissioner. In determining the amount of the civil forfeiture, the commissioner shall take into account the appropriateness of the forfeiture with respect to the gravity of the violation, the history of previous violations, and any other matters as justice may require.

(c)Whenever it appears to the commissioner that any insurer subject to this article or any director, officer, employee, or agent thereof has engaged in any transaction or entered into a contract which is subject to Section 1215.5 and which would not have been approved had approval been requested, the commissioner may order the insurer to cease and desist immediately any further activity under that transaction or contract. After notice and hearing the commissioner may also order the insurer to void any contracts and restore the status quo if this action is

in the best interest of the policyholders, creditors, or the public.

(d)Whenever it appears to the commissioner that any insurer or any director, officer, employee, or agent thereof has committed a willful violation of this article, the commissioner may cause criminal proceedings to be instituted in the county in which the principal office of the insurer is located, or if such insurer has no such office in the state then by the Attorney General against such insurer or the responsible director, officer, employee, or agent thereof. Any insurer which willfully violates this article shall be fined not more than ten thousand dollars ($10,000). Any individual who willfully violates this article shall be fined not more than three thousand dollars ($3,000) or, if such willful violation involves the deliberate perpetration of a fraud upon the

commissioner, imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or both.

(e)Whenever it appears to the commissioner that any person has committed a violation of Section 1215.4 that prevents the full understanding of the enterprise risk to the insurer by affiliates or by the insurance holding company system, the violation may serve as an independent basis for disapproving dividends or distributions or for placing the insurer under an order of supervision in accordance with Article 14 (commencing with Section 1010) of Chapter 1.

(f)Any officer, director, or employee of an insurance holding company system who willfully and knowingly subscribes to or makes or causes to be made any materially false statements, reports, or filings with the intent to

deceive the commissioner in the performance of his or her duties under this article, upon conviction thereof, shall be fined not more than three thousand dollars ($3,000) or, if the willful violation of this subdivision involves the deliberate perpetration of a fraud upon the commissioner, imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or both that imprisonment and fine. Any fines imposed shall be paid by the officer, director, or employee in his or her individual capacity.

§ 1215.12

Added by renumbering Section 1215.11 by Stats. 2012, Ch. 282, Sec. 12. (SB 1448) Effective January 1, 2013.

Whenever it appears to the commissioner that any person has committed a violation of this article which so impairs the financial condition of a domestic insurer as to threaten insolvency or make the further transaction of business by it hazardous to its policyholders, creditors, shareholders, or the public, then the commissioner may proceed as provided in Article 14 (commencing with Section 1010) of Chapter 1 of this part to take possession of the property of the domestic insurer and to conduct the business thereof.

§ 1215.13

Added by renumbering Section 1215.12 by Stats. 2012, Ch. 282, Sec. 13. (SB 1448) Effective January 1, 2013.

Whenever it appears to the commissioner that any person has committed a violation of this article which makes the continued operation of an insurer contrary to the interests of policyholders or the public, the commissioner may, after giving notice and an opportunity to be heard, suspend, revoke, or refuse to renew that insurer’s license or authority to do business in this state for the period that he or she finds is required for the protection of policyholders or the public.

§ 1215.14

Added by renumbering Section 1215.13 by Stats. 2012, Ch. 282, Sec. 14. (SB 1448) Effective January 1, 2013.

(a)For the purposes of this article only, every foreign insurer, except an insurer described in Article 2 (commencing with Section 12350) of Chapter 1 of Part 6 of Division 2, that is authorized to do business in this state and that, during its three preceding fiscal years taken together, or during any lesser period of time if it has been licensed to transact its business in California only for such lesser period of time, has written an average of more direct premiums in the State of California than it has written in its state of domicile during the same period, and those direct premiums

written constitute 33 percent or more of its total direct premiums written everywhere in the United States for that three-year or lesser period, as reported in its three most recent annual statements, shall be deemed a “commercially domiciled insurer” within the State of California.

(b)The commissioner may exempt from the provisions of this article any commercially domiciled insurer made subject to this article by subdivision (a) if he or she determines that it has a sufficiently large amount of assets and the evidences of title thereto physically located in California, or that the ratio of those assets to its California policyholder liability is sufficiently large, as to justify the conclusion that there is no reasonable danger that the operations or conduct of the business of the insurer could present a danger of loss

to California policyholders. The commissioner may also exempt from the provisions of this article any commercially domiciled insurer made subject to this article by subdivision (a) under the circumstances that he or she deems appropriate.

(c)This section does not exempt any foreign insurer that is authorized to do business in this state, including a commercially domiciled insurer, from the provisions of any other sections of this article that may be applicable to the insurer.

§ 1215.15

Added by renumbering Section 1215.13 1/2 by Stats. 2012, Ch. 282, Sec. 15. (SB 1448) Effective January 1, 2013.

(a)The provisions of this article shall not apply to any party or entity participating in any investment by a home protection company in its subsidiary or affiliate or any debt or security instruments thereof, an effectuation or attempt to effectuate an acquisition of control or a liquidation of, or merger with, a home protection company, or any material transaction by a home protection company with its affiliate if the investment, effectuation, attempt, or transaction occurred prior to December 31, 1978.

(b)The registration required by Section 1215.4 shall first be applicable to home protection companies who are members of an insurance holding

company system on January 1, 1980.

§ 1215.16

Added by renumbering Section 1215.14 by Stats. 2012, Ch. 282, Sec. 16. (SB 1448) Effective January 1, 2013.

All laws and parts of laws of this state inconsistent with this article are hereby superseded with respect to matters covered by this article.

§ 1215.17

Added by renumbering Section 1215.15 by Stats. 2012, Ch. 282, Sec. 17. (SB 1448) Effective January 1, 2013.

If any provision of this article or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this article which can be given effect without the invalid provision or application, and for this purpose the provisions of this article are severable.

§ 1215.18

Added by renumbering Section 1215.16 by Stats. 2012, Ch. 282, Sec. 18. (SB 1448) Effective January 1, 2013.

(a)If an order for liquidation or rehabilitation of a domestic insurer has been entered, the receiver appointed under that order shall have a right to recover on behalf of the insurer (1) from any parent corporation or holding company or person or affiliate who otherwise controlled the insurer, the amount of distributions other than distributions of shares of the same class of stock paid by the insurer on its capital stock, or (2) any payment in the form of a bonus, termination settlement, or extraordinary lump sum salary adjustment made by the insurer or its subsidiary to a director, officer, or employee, where the distribution or payment pursuant to (1) or (2) is made at any time during the one year

preceding the petition for liquidation, conservation, or rehabilitation, as the case may be, subject to the limitations of subdivisions (b), (c), and (d).

(b)No distribution shall be recoverable if the parent or affiliate shows that when paid the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.

(c)Any person who was a parent corporation or holding company or a person who otherwise controlled the insurer or affiliate at the time the distributions were paid shall be liable up to the amount of distributions or payments under subdivision (a) that the person received. Any person who otherwise controlled the insurer

at the time the distributions were declared shall be liable up to the amount of distributions he or she would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severally liable.

(d)The maximum amount recoverable under this section shall be the amount needed in excess of all other available assets of the impaired or insolvent insurer to pay the contractual obligations of the impaired or insolvent insurer and to reimburse any guaranty funds.

(e)To the extent that any person liable under subdivision (c) is insolvent or otherwise fails to pay claims due from it pursuant to that subdivision, its parent corporation or holding company or person who otherwise controlled it at the time

the distribution was paid, shall be jointly and severally liable for any resulting

deficiency in the amount recovered from the parent corporation or holding company or person who otherwise controlled it.