text:
An offer or sale of voting common stock or preferred stock of and by a foreign or alien insurer to property broker-agents or casualty broker-agents, as defined in Section 33.5, shall be exempt from the requirements of this article if all of the following requirements are met:

(a) The sale shall not be made to more than 35 property broker-agents and casualty broker-agents in the State of California.

(b) Each property broker-agent and each casualty broker-agent to whom an offer is made is an “accredited investor” as defined in Regulation D under the Federal Securities Act of 1933, as amended.

(c) Each property broker-agent and each casualty broker-agent to whom an offer is made meets all of the following requirements:

(1) The broker-agent shall have been appointed by the admitted insurer for a period of at least one year and that admitted insurer shall meet all of the following requirements:

(A) Be authorized to transact property and casualty insurance. For purposes of this section, property and casualty insurance means insurance falling within classes 2, 3, 7, 8, 10, 11, 12, 14, 15, 16, 18, and 20 under Section 100 except home protection contracts, as defined in Section 12740.

(B) Have at least four hundred million dollars ($400,000,000) of statutory capital and surplus.

(C) Hold a certificate of authority in good standing with this state and have no regulatory action relating to financial hazard or fraud against the company in the last three years from states, including this state, where the insurer is authorized as an admitted insurer to do business.

(D) Is currently reinsuring or has definite plans to reinsure business produced by that broker-agent with the same foreign or alien insurer offering securities to the broker-agent.

(2) The broker-agent generates five million dollars ($5,000,000) in premiums per year and plans on transferring or writing at least one million dollars ($1,000,000) per year with the admitted insurer.

(3) The broker-agent shall pay at least fifty thousand dollars ($50,000) for the securities purchased in the transaction but not in excess of five hundred thousand dollars ($500,000).

(4) The broker-agent shall have a net worth of at least five million dollars ($5,000,000).

(d) The offer and sale of stock is accompanied by the prospectus, private placement memorandum, together with any other information required pursuant to Regulation D of the Federal Securities Act of 1933.

(e) The consideration received by the issuer for the stock to be issued consists solely of cash.

(f) No promotional consideration or selling expenses have been given, paid, or incurred in connection with the issuance of stock, and the offer and sale of stock is not accompanied by the publication of any advertisement.

(g) All stock issued shall be evidenced by a certificate that shall have a notice printed prominently on its face restricting the transfer of the stock solely to the issuer or investors who have been shareholders of the issuer for at least three years and who are approved by at least 51 percent of the members of the board of directors of the issuer.

(h) The issuer of both the common and preferred stock shall be all of the following:

(1) A foreign or alien insurer that does not transact insurance directly in California, but is solely a reinsurer.

(2) A reinsurer that only reinsures commercial lines property and casualty insurance, as specified in subparagraph (A) of paragraph (1) of subdivision (c).

history: (History: Amended by Stats. 2011, Ch. 411, Sec. 7. (AB 1416) Effective January 1, 2012.)

article: 8. Issue of Securities


kind: section

code: INS

citation: INS § 828

text: Except in the case of a broker holding a broker’s certificate issued by the commissioner under this code or by the Commissioner of Financial Protection and Innovation under the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code) and then in effect, a person, desiring or proposing to sell a security to be issued by any insurer, shall not issue, circulate, or publish any advertisement, pamphlet, prospectus, or circular concerning that security until the insurer secures from the commissioner a permit authorizing it to sell the security.

history: (History: Amended by Stats. 2022, Ch. 452, Sec. 194. (SB 1498) Effective January 1, 2023.)

division: 1. GENERAL RULES GOVERNING INSURANCE

part: 2. THE BUSINESS OF INSURANCE

chapter: 1. General Regulations

article: 8. Issue of Securities

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 1. General Regulations > 8. Issue of Securities


citation: INS § 829

text: A person shall not issue, circulate, or publish any advertisement or writing concerning any security sold by him, unless either his name is subscribed thereto, and a true copy thereof is filed in the office of the commissioner at least one day prior to the issue, publication, or circulation, or the commissioner first authorizes or consents to the issuance, circulation or publication.

history: (History: Enacted by Stats. 1935, Ch. 145.)

article: 8. Issue of Securities


citation: INS § 830

text: A person shall not issue, circulate, or publish any such advertisement or writing after receipt of notice in writing from the commissioner that, in his opinion, the same contains any statement that is false or misleading or otherwise likely to deceive a reader thereof.

article: 8. Issue of Securities


citation: INS § 831

text: Every security issued by any insurer without a permit of the commissioner authorizing the same in effect at the time of the issue, shall be void. Every security issued by any insurer under a permit of the commissioner shall be void unless its provisions conform to the provisions, if any, required by the permit.

article: 8. Issue of Securities


text:
Every security of a home protection company issued or authorized to be issued prior to December 31, 1978, shall be valid even though it has been issued without a permit of the commissioner authorizing the same if, at the time of the issue or authorization, the security was qualified or exempt from qualification under the Corporate Securities Law of 1968 (Title 4, Division 1 of the Corporations Code).

Any sale, transfer, hypothecation, or other distribution of a security whose issuance is validated by this section, whether such transaction takes place before or after the effective date of this section is not prohibited by the provisions of this article.

history: (History: Added by Stats. 1978, Ch. 1203.)

article: 8. Issue of Securities


citation: INS § 832

text:
Every insurer that commits any of the following acts is guilty of a public offense and punishable by fine not exceeding ten thousand dollars:

(a) Selling or causing to be issued a security contrary to the provisions of this article or not in conformity with the permit of the commissioner.

(b) Applying any of the proceeds of sale of a security to any purpose other than as specified in the permit, or to a purpose specified in the permit, but in excess of the amount limited for that purpose.

article: 8. Issue of Securities


citation: INS § 833

text:
Every person who commits any of the acts specified in this section is guilty of a public offense and punishable by a fine not exceeding ten thousand dollars ($10,000), or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail not exceeding one year, or by both that fine and imprisonment.

(a) Knowingly authorizing, directing, aiding, causing, or assisting in causing the issuance, execution, or sale of, any security, in nonconformity with a permit of the commissioner then in effect and authorizing such issuance, or contrary to the provisions of this article.

(b) Knowingly making any false statement or representation in any application to the commissioner, or in any proceeding before him, or in any examination, audit, or investigation made by him, or by his authority.

(c) With knowledge of the falsity, causing to be filed in the office of the commissioner any false statement or representation concerning an insurer, the property which the insurer then holds or proposes to acquire, the insurer’s officers, the insurer’s financial condition or other affairs, or the insurer’s proposed plan of business.

(d) With knowledge of the falsity of any such statement or representation, causing any security to be issued, executed, or sold without first informing the commissioner of the falsity of such statement in writing.

(e) Directly or indirectly, knowingly causing or assisting in causing any part of the proceeds from the sale of any security to be applied to any purpose contrary to the provisions of the permit authorizing the issuance of such security, or to any purpose in excess of the amount specified in such permit for such purpose.

(f) Selling a security with knowledge that it has been issued or executed in violation of any of the provisions of this article.

(g) Causing a writing concerning a security to be issued, circulated, or published while having knowledge that such matter contains any statement that is false, misleading, or otherwise likely to deceive a reader thereof.

(h) In any respect, willfully violating or failing to comply with any of the provisions of this article.

(i) In any other respect, willfully violating or neglecting to comply with any part of an order or permit of the commissioner under the provisions of this article.

(j) Conspiring with one or more other persons to violate any permit or order issued by the commissioner, or any of the provisions of this article.

history: (History: Amended by Stats. 2011, Ch. 15, Sec. 207. (AB 109) Effective April 4, 2011. Operative October 1, 2011, by Sec. 636 of Ch. 15, as amended by Stats. 2011, Ch. 39, Sec. 68.)

article: 8. Issue of Securities


citation: INS § 834

text:
The application for a permit to issue or sell securities shall be verified as provided in the Code of Civil Procedure for the verification of pleadings, and shall be filed on 812 x 11 inch size paper in the office of the commissioner. In the application the applicant shall set forth:

(a) The names and addresses of its officers.

(b) The location of its office.

(c) An itemized account of its financial condition, including the amount and character of its assets and liabilities.

(d) A detailed statement of the plan upon which it proposes to transact business.

(e) A copy of any security it proposes to issue.

(f) A copy of any contract it proposes to make concerning the same.

(g) A copy of any prospectus or advertisement, or other description of such securities, then prepared by it for distribution or publication.

(h) Such additional information concerning the company, its condition and affairs as the commissioner requires.

history: (History: Amended by Stats. 1995, Ch. 721, Sec. 1.5. Effective January 1, 1996.)

article: 8. Issue of Securities


citation: INS § 835

text: If the applicant is a partnership, unincorporated association, or joint stock company, it shall file with its application a copy of its articles of partnership or association, and all other papers pertaining to its organization.

article: 8. Issue of Securities


citation: INS § 836

text: If the applicant is a corporation, it shall file with its application a copy of all minutes of any proceedings of its directors, stockholders, or members, relating to or affecting the issue of such securities, and also a copy of its articles of incorporation, by-laws, and any amendments to either thereof.

article: 8. Issue of Securities


citation: INS § 837

text:
If the applicant is a foreign corporation or association, it shall also file with its application:

(a) A certificate of the proper officer of the jurisdiction in which it is organized, executed not more than 30 days before the filing of such application, showing that the applicant is authorized to transact business in that jurisdiction.

(b) In such form as the commissioner prescribes, its written instrument, irrevocably appointing the commissioner and his successor in office its true and lawful attorney upon whom all process in any action or proceeding against it can be served. Such service shall have the same effect as if the applicant was a domestic insurer lawfully served with process in this State.

article: 8. Issue of Securities


citation: INS § 838

text: Upon the filing of such application, the commissioner shall examine it and the other papers and documents filed therewith. He may, if he deems it advisable, cause to be made a detailed examination, audit, and investigation of the applicant and its affairs.

article: 8. Issue of Securities


text: Pursuant to this code, the commissioner has been and is authorized, in the instance of an application for a permit to issue securities in exchange for one or more bona fide outstanding securities, claims or property interest, or partly in such exchange and partly for cash, to approve the terms and conditions of such issuance and exchange and the fairness of such terms and conditions, after a hearing upon the fairness of such terms and conditions, to which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear.

history: (History: Amended by Stats. 1978, Ch. 795.)

article: 8. Issue of Securities


citation: INS § 839

text:
The commissioner shall issue a permit if he finds that:

(a) The proposed plan of business of the applicant and the proposed issuance of securities are fair, just, and equitable.

(b) The applicant intends fairly and honestly to transact its business, and

(c) The securities the applicant proposes to issue and the methods to be used by it in issuing or disposing of them are such as, in his opinion, will not work a fraud upon the purchaser thereof, or upon policyholders or other security holders of applicant.

Otherwise, he shall deny the application and notify the applicant in writing of his decision.

history: (History: Amended by Stats. 1965, Ch. 1568.)

article: 8. Issue of Securities


text:
(a) In any case where a domestic insurer is directly affected by the total transaction for some part of which the permit applied for is needed, and the commissioner in his discretion determines that reasonable grounds exist for contentions that such total transaction or any part thereof:

(1) Is a combination of capital, skill, or acts to create or carry out restrictions on or to prevent competition in the insurance business; or

(2) Is a combination (in the form of a trust or otherwise) in restraint of the insurance business; or

(3) Is an attempt to monopolize the insurance business; or

(4) Is a conspiracy to create any of the foregoing; or

(5) That such total transaction, or any part thereof, if consummated will create or result in any of the foregoing or will substantially lessen competition in the insurance business.

Then, in such event, the Insurance Commissioner may make findings with respect to whether such total transaction, or any part thereof, would or would not do or be any of the foregoing.

(b) In the event the Insurance Commissioner makes affirmative findings as provided in subdivision (a) of this section, he may deny the permit applied for.

history: (History: Added by Stats. 1965, Ch. 1568.)

article: 8. Issue of Securities


text: The commissioner shall not issue a permit for the sale of any securities of a domestic insurer in any case where he finds that the expense of organization, exclusive of attorney fees, accountant fees, and actuary fees, will exceed 12 percent of the total amount actually paid for the capital stock.

history: (History: Amended by Stats. 1972, Ch. 196.)

article: 8. Issue of Securities


citation: INS § 840

text: The commissioner may prescribe in the permit the amounts, considerations, terms, and conditions governing the issue and disposal of the securities and the permit authorizes such issue and disposal only in accordance with its provisions.

article: 8. Issue of Securities


citation: INS § 841

text: Every permit shall recite in bold type that the issuance thereof is permissive only and does not constitute a recommendation or endorsement of the securities permitted to be issued.

article: 8. Issue of Securities


citation: INS § 842

text: The commissioner may impose conditions requiring the deposit in escrow of securities and the impoundment of the proceeds from the sale thereof, limiting the expense in connection with the sale thereof, and otherwise requiring such method of dealing as he deems reasonable and either necessary or advisable to insure the disposition of the proceeds of such securities in the manner and for the purposes provided in the permit.

article: 8. Issue of Securities


citation: INS § 843

text:
The commissioner may, from time to time and for cause, amend, alter or revoke any permit issued by him hereunder, or temporarily suspend the rights thereunder of the applicant. He also may establish such rules and regulations as are reasonable or necessary to carry out the purposes and provisions of this article.

In establishing any such rules and regulations the commissioner is expressly authorized, irrespective of the other provisions of this section or this article, to specify different and simplified forms for both applications and permits where a foreign insurer, whether admitted or not, is seeking to sell or issue securities of its own issue to persons in this state and meets all the following standards:

(a) It has, prior to filing the application, made a filing with the Securities and Exchange Commission;

(b) It (or a predecessor) has been lawfully engaged in the insurance business for at least five years and currently is admitted to transact insurance in at least five states;

(c) It currently has admitted assets of at least five million dollars ($5,000,000); and

(d) It has, prior to filing the application, obtained a written permit or consent to issue such securities from the authority in its domiciliary state having jurisdiction over issuances of its securities and the statutory standards for obtaining such permit or consent are comparable to the like standards of this state.

history: (History: Amended by Stats. 1965, Ch. 372.)

article: 8. Issue of Securities


citation: INS § 844

text:
Every insurer authorized by the commissioner to sell securities shall thereafter, at such times and in such form as he requires, make and file in his office a report, setting forth:

(a) The securities sold by it under the authority of any permit issued by him.

(b) The proceeds derived therefrom.

(c) The disposition of such proceeds.

(d) Such other information concerning its property, officers, or affairs, and relating to or affecting the value of such securities, as the commissioner requires.

article: 8. Issue of Securities


citation: INS § 845

text:
(a) A person shall not sell or resell any security of a domestic, foreign, or alien insurer:

(1) As an insurer with respect to securities of its own issue without securing the permit of the commissioner as provided in this article.

(2) As a stock agent of that insurer except under authority of a certificate issued by the commissioner under this code.

(3) As a broker or as a stock agent for a broker except under authority of a certificate or license issued by the Commissioner of Financial Protection and Innovation under the provisions of the Corporations Code and in full conformity with all provisions of the Corporations Code.

(b) Subdivision (a) shall not prohibit a bona fide owner of securities of an insurer from selling or reselling those securities if:

(1) The securities were originally issued under the authority of a permit of the commissioner and the sale or resale is made in conformity with the conditions, if any, in the permit effective at the time of sale or resale; or

(2) The securities were originally issued in a jurisdiction other than California in full conformity with the applicable laws, if any, governing the issuance in that jurisdiction.

A sale or resale of securities of an insurer by the owner of the securities which is made for the purpose of evading the provisions of this article requiring an insurer to secure a permit from the commissioner or for any other fraudulent purpose shall, however, be null and void and a violation of the criminal provisions of this article.

(c) A sale or resale permitted by this section is subject to the stop power of the commissioner under Section 854 and the similar powers of the Commissioner of Financial Protection and Innovation pursuant to the provisions of the Corporations Code.

(d) A violation of this section is subject to the penalties provided in Section 833.

history: (History: Amended by Stats. 2025, Ch. 558, Sec. 4. (AB 487) Effective January 1, 2026.)

article: 8. Issue of Securities


text:
The certificate required by Section 845 to act as a stock agent of an insurer shall be secured as provided in Section 846 and shall expire on the first day of July after its issue, unless sooner suspended or revoked.

The permission granted by Section 845 to persons holding certificates or licenses issued by the Commissioner of Financial Protection and Innovation does not affect the provisions of this article requiring that an insurer and that a stock agent appointed by an insurer secure a permit or certificate from the commissioner to issue, sell, or resell securities and the issue, sale, or resale and the advertising thereof is subject to the provisions of this article, nor does that section permit an owner of securities to sell or resell the same except in conformity with that section and this article.

history: (History: Amended by Stats. 2025, Ch. 558, Sec. 5. (AB 487) Effective January 1, 2026.)

article: 8. Issue of Securities


citation: INS § 846

text:
To secure such certificate, the applicant shall make and file in the office of the commissioner an application therefor in writing, verified by or in behalf of the applicant. Such application shall set forth:

(a) The name and address of the applicant.

(b) 1. In the case of an applying corporation, association, or joint stock company, the name and address of each of its managing officers and managing stock agents.

2. In the case of an applying partnership, the name and address of each of the partners.

(c) A succinct statement of facts showing possession of a good business reputation:

1. By the applicant.

2. In the case of an applicant corporation, association, or joint stock company, by its managing officers and managing stock agents.

3. In the case of an applicant partnership, by its members.

(d) If the applicant is a broker, the general plan and character of the business of the applicant.

(e) Such other information as the commissioner requires.

history: (History: Amended by Stats. 2025, Ch. 558, Sec. 6. (AB 487) Effective January 1, 2026.)

article: 8. Issue of Securities


citation: INS § 847

text:
At the time of filing an application for a broker’s certificate, the applicant shall file with the commissioner a bond for five thousand dollars ($5,000), payable to the people of the State of California, for the use and benefit of any interested person, to be approved by the commissioner. The bond shall be conditioned upon the following conduct by the broker, the broker’s stock agents, and employees:

(a) Strict compliance with the provisions of this article.

(b) Honest and faithful application of all funds received.

(c) Honest and faithful performance of all obligations and undertakings in the purchase or sale of securities.

(d) Payment of all damages suffered by any person damaged or defrauded by reason of the violation of any of the provisions of this article, or by reason of any fraud connected with or growing out of any transaction contemplated by the provisions of this article.

history: (History: Amended by Stats. 2025, Ch. 558, Sec. 7. (AB 487) Effective January 1, 2026.)

article: 8. Issue of Securities


citation: INS § 850

text:
If the applicant is a foreign corporation or association, it shall file with its application:

(a) A copy of its articles of incorporation or association.

(b) A certificate of the proper officer of the jurisdiction in which it is organized, executed not more than thirty days before the filing of such application, showing that the applicant is authorized to transact business in that jurisdiction.

(c) In such form as the commissioner prescribes, its written instrument irrevocably appointing the commissioner and his successor in office its true and lawful attorney upon whom all process in any action or proceeding against it, arising out of or founded upon the fraud of such applicant in the sale of securities within this State, or in any action upon any bond provided by this article, can be served. Such service shall have the same effect as if the applicant was a domestic corporation or association lawfully served with process in this State.

article: 8. Issue of Securities


citation: INS § 851

text:
The commissioner shall examine such application, and shall make such further investigation of the applicant and its affairs as he deems advisable. He shall issue the certificate if, from such examination, the commissioner is satisfied that:

(a) The business reputation of the applicant and, in the case of a firm or corporation, its officers or members, is good.

(b) The sale of the securities proposed to be sold by it would not be unfair, unjust or inequitable to the purchasers thereof.

(c) Neither it nor its officers or members have violated any of the provisions of this article.

(d) Neither it nor its officers or members have engaged or are about to engage in any fraudulent transaction.

Otherwise, he shall deny the application and notify the applicant of his decision.

Where a hearing is held under this section the proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.

history: (History: Amended by Stats. 1945, Ch. 901.)

article: 8. Issue of Securities


citation: INS § 852

text: The commissioner may at any time in accordance with the procedure provided in Section 1738 suspend or revoke any broker’s or stock agent’s certificate issued by the commissioner if the commissioner finds that the holder thereof is of bad business repute, has violated this article, or has engaged, or is about to engage, in any fraudulent transaction.

history: (History: Amended by Stats. 2025, Ch. 558, Sec. 8. (AB 487) Effective January 1, 2026.)

article: 8. Issue of Securities


citation: INS § 853

text:
Every broker shall, at such times as the commissioner requires, make and file in the office of the commissioner a true and correct statement concerning any security sold or offered for sale by the broker. The statement shall show:

(a) The name and location of the principal office of the issuer of such security.

(b) The names of the issuer’s managing officers if it is a corporation, or of its members if it is a partnership.

(c) The issuer’s assets, liabilities, and issued capital stock, at the close of its fiscal year then last ended, or at a later date.

(d) The issuer’s gross income, expenses, and fixed charges for the year next preceding such date, or for such time as such issuer of such security has transacted business, if for less than one year.

(e) The approximate price at which the broker has sold or proposes to sell such security.

(f) Such other information, of which the broker has knowledge, as the commissioner requires.

article: 8. Issue of Securities


citation: INS § 854

text: After receipt of notice in writing from the commissioner, stating that the sale of a security would, in the commissioner’s opinion, be unfair, unjust, or inequitable to the purchaser, no broker shall sell such security until and unless the commissioner in writing withdraws the objection.

article: 8. Issue of Securities


citation: INS § 855

text: All writings filed with the commissioner under this article shall be open to public inspection except where, in his judgment, the public welfare or the welfare of any insurer demands that any portion of such information be not made public. In such cases he may, in his discretion, withhold such information from public inspection for such time as in his judgment is necessary.

article: 8. Issue of Securities


citation: INS § 856

text:
(a) The commissioner may at any time give or make public any information concerning any insurer, if in the commissioner’s judgment, the giving or publishing of the information will be of public interest.

(b) The commissioner may at any time give or make public any information concerning securities purchased or sold within this state by an insurer, if in the commissioner’s judgment, the giving or publishing of the information is in the public interest or it will tend to prevent the fraudulent purchase or sale of the securities.

history: (History: Amended by Stats. 1990, Ch. 1300, Sec. 1.)

article: 8. Issue of Securities


citation: INS § 857

text:
The commissioner shall charge and collect the following fees:

(a) For filing an original or supplemental application, or any amendments thereto, for a permit to issue securities, four thousand two hundred thirty-three dollars ($4,233) except for applications for a permit to issue securities evidencing any change in rights, preferences, privileges, or restrictions on outstanding securities, or for applications for a permit to issue securities evidencing only a share dividend or a share split.

(b) For filing an application for a permit to issue securities evidencing any change in the rights, preferences, privileges, or restrictions on outstanding securities, five hundred sixty-seven dollars ($567).

(c) For filing an application for a permit to issue securities evidencing a share dividend or a share split, one thousand four hundred ten dollars ($1,410).

(d) For filing an application for any other kind of permit, such as an application, for the issuance of a preorganizational or a negotiating permit, an application for a permit to issue options for securities, but not for the securities themselves, or any application for an amendment to an existing permit to issue securities, two hundred eighty-three dollars ($283).

(e) An original or supplemental application shall not be amended after the permit sought thereby or by amendment thereto has been issued or denied.

history: (History: Amended by Stats. 2017, Ch. 534, Sec. 10. (AB 1699) Effective January 1, 2018.)

article: 8. Issue of Securities


citation: INS § 859

text:
The commissioner shall also collect the following fees:

(a) For filing any application for a broker’s certificate, two hundred eighty-three dollars ($283) for the first office or location plus one hundred thirty-six dollars ($136) for each additional office or location.

(b) For filing any application for a stock agent’s certificate, one hundred thirty-six dollars ($136).

(c) For an examination, audit, or investigation, the actual amount of expenses reasonably incurred in the performance of the work, plus the following:

(1) If made by an employee of the commissioner, the actual amount of the compensation paid to that employee for that time.

(2) The amount of the usual cost to the state of typing, transcribing, or otherwise preparing any written report of that examination, audit, or investigation that may reasonably be needed in the discharge of the commissioner’s duties.

history: (History: Amended by Stats. 2025, Ch. 558, Sec. 9. (AB 487) Effective January 1, 2026.)

article: 8. Issue of Securities


citation: INS § 860

text: No fees shall be charged or collected for copies of papers, records, or official documents furnished to public officers for use in their official capacity or for the reports of the commissioner in the ordinary course of distribution.

history: (History: Enacted by Stats. 1935, Ch. 145.)

article: 8. Issue of Securities


citation: INS § 880

text: Except as provided in this article, every insurer shall conduct its business in this State in its own name.

article: 9. Registration of Insurers’ Names

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 1. General Regulations > 9. Registration of Insurers’ Names


citation: INS § 881

text:
(a) The commissioner shall require the name or any changed name of every insurer (including reciprocal or interinsurance exchanges), every attorney in fact, every motor club, and every underwritten title company to be submitted to him or her by written application and approved by him or her before the name is used in this state for business purposes. If approved, the commissioner shall issue his or her official certificate approving the name, and when appropriate, reserving the name for the following time periods, which shall commence on the date of the approval:

(1) One year if the applicant is newly formed, or if the application is filed on behalf of an entity to be formed, under the laws of this state.

(2) One hundred eighty days and during the pendency in good faith of an application for certificate of authority in the case of a foreign or alien applicant.

(3) Ninety days in the case of an admitted entity requesting authority to change the name under which it will conduct its business with the public in this state.

(b) Except in the case in which an applicant has already paid a fee on a pending application for admission, the commissioner shall collect a one-hundred-thirty-six-dollar ($136) fee for filing each application for name approval and reservation. An application for name approval may contain not more than three names in the order of applicant’s preference and the commissioner’s approval shall be limited to only one name submitted by any one application.

(c) The certificate of approval shall be attached to the articles of incorporation before the Secretary of State shall file the articles or any amended articles. The commissioner may reject any name submitted when it is an interference with, or too similar to one already appropriated, or when it is likely to mislead the public in any respect. In the event of a rejection, the applicant shall legally change its name to one approved by the commissioner or, if a foreign or alien insurer, may arrange to conduct any business it may do with the public in California under an approved name as an operating name, identifying itself under both its true name and operating name in the conduct of all official business with the commissioner.

(d) Notwithstanding Section 1282, this section shall apply to reciprocal insurers, including their attorneys in fact, and shall apply to motor clubs.

history: (History: Amended by Stats. 2017, Ch. 534, Sec. 12. (AB 1699) Effective January 1, 2018.)

article: 9. Registration of Insurers’ Names


text: Notwithstanding the provisions of Section 881 or any other provision of law, neither the commissioner or the Secretary of State shall reject a name proposed by an entity seeking admission as a home protection company if such name was used by such entity for conduct of a home protection or home warranty business in this state for at least one year prior to May 3, 1978. Every such name, upon the commissioner’s determination of such use, shall be approved upon submission of application therefor.

history: (History: Added by Stats. 1978, Ch. 1203.)

article: 9. Registration of Insurers’ Names


text: Notwithstanding Section 5652 of the Financial Code, use of the term “savings bank” in a name or title may be approved for use by the commissioner if the remaining words in the name or title show that the insurer is engaged in the business of insurance and is not a savings bank.

history: (History: Added by Stats. 2006, Ch. 740, Sec. 3.8. Effective January 1, 2007.)

article: 9. Registration of Insurers’ Names


text: Upon approval of an applicant’s name by the commissioner, and the issuance of a certificate approving the same, the applicant may apply to the Secretary of State for the issuance of a certificate of reservation of corporate name for the same periods specified in Section 881.

history: (History: Added by Stats. 1979, Ch. 737.)

article: 9. Registration of Insurers’ Names


text: If through inadvertance or otherwise a corporation does not comply with Section 881 of the Insurance Code, or with Sections 201.5, 202, 2105, 2106, 2106.5, and 2107 of the Corporations Code when any of such sections is applicable, any corporation lawfully engaged in the insurance business in this state may bring an action for judicial relief against such corporation by means of any remedy afforded by law. Such action may be based upon any of the grounds by reason of which the commissioner could or would have denied application for approval of the corporate name of the noncomplying corporation. In such an action the court may order such corporate defendant to adopt a new name or an operating name, when permissible, acceptable to both the Secretary of State and the commissioner, by filing a certificate of amendment or by filing an amended statement and designation with the Secretary of State.

article: 9. Registration of Insurers’ Names


citation: INS § 882

text:
When two or more insurers propose to issue an underwriter’s policy, each insurer shall first file an application with the commissioner for approval and registration of the name or title under which the policy is to be issued. The commissioner may reject any name submitted when it is an interference with, or too similar to, one already appropriated or when it is likely to mislead the public in any respect. In that case the application may be amended to submit another or other names.

The commissioner shall charge and collect in advance a fee of seventy-two dollars ($72) from each insurer filing an application for approval and registration of that name or title, or for filing any amendment thereto.

history: (History: Amended by Stats. 2017, Ch. 534, Sec. 13. (AB 1699) Effective January 1, 2018.)

article: 9. Registration of Insurers’ Names


text:
(a) A home protection company proposing to issue a contract bearing the name of itself as well as another name which is the name of a person, persons, or organization of persons licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code, or a franchised name therefor, shall first file an application with the commissioner for approval of the other name. The commissioner may reject any name so submitted when it is an interference with, or too similar to, one already appropriated or when it is likely to mislead the public in any respect. However, the name shall not be rejected, except pursuant to subdivision (b), if the name was used by the same entity for a similar offering in this state prior to May 3, 1978. In case of any rejection of a name pursuant to this subdivision, the application may be amended to submit another or other names.

(b) No such name shall be approved unless all power to transact home protection business (except as authorized in Section 771.1) and other powers specified by the commissioner by regulation, are specifically retained by the home protection company and the home protection contracts prominently disclose that fact.

The commissioner, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, may adopt reasonable regulations to implement this section.

history: (History: Amended by Stats. 1985, Ch. 106, Sec. 93.)

article: 9. Registration of Insurers’ Names


citation: INS § 883

text:
An underwriter’s policy may be issued under a name thus registered and shall clearly show:

(a) The names of the insurers guaranteeing it.

(b) The severalty of the contract.

(c) The proportion of the premium to be paid to each insurer.

(d) The proportion of liability which each assumes.

article: 9. Registration of Insurers’ Names


citation: INS § 884

text:
Unless renewed, the approval and registration of all underwriters’ names shall expire at 12:01 a.m. July 1 of each even-numbered year. Renewal may be secured by filing with the commissioner an application therefor, together with a fee of twenty-five dollars ($25). An application shall be filed during the month of May preceding that July 1. The commissioner shall furnish the application forms for the renewal. The commissioner shall, upon receipt of a proper renewal application and payment of the filing fee therefor, renew the approval and registration of the underwriter’s name unless he or she finds any of the following:

(a) The insurer has abandoned use of the underwriter’s name.

(b) The insurer is actually using or publicizing the name in any manner after it has discontinued the issuance of underwriter’s policies bearing that name.

(c) The insurer has used that underwriter’s name in a manner that has resulted in misrepresentation or fraud.

(d) The insurer has used that underwriter’s name in a manner that would violate any provision of law relating to the conduct of its business.

(e) The insurer has secured that underwriter’s name through misrepresentation or concealment of material information.

(f) Reasons exist that would warrant refusal of approval or registration if the same were being initially requested.

If the commissioner so finds he or she shall advise all insurers using that underwriter’s name in writing that the renewal application is denied and set forth with particularity the reasons for the denial. That denial shall be effective 30 days after mailing of that advice to the insurer unless within those 30 days the insurer requests a hearing. In this event the advice of denial shall constitute the commissioner’s opening pleading for the purpose of the hearing, which shall be deemed denied by the insurer. The insurer if it elects may, within 10 days, file an additional written response. The hearing shall be noticed and commenced within a reasonable time. During those 30 days, and, if a request for hearing is filed, until the termination of that proceeding, the insurer may continue the use of the underwriter’s name and the issuance of policies thereunder provided timely renewal application has been filed and the filing fee paid.

history: (History: Amended by Stats. 2017, Ch. 534, Sec. 14. (AB 1699) Effective January 1, 2018.)

article: 9. Registration of Insurers’ Names


citation: INS § 885

text: The commissioner may at any time institute proceedings for the revocation of approval and registration of an underwriter’s name upon any of the grounds set forth in Section 884 by following the procedure prescribed in that section.

history: (History: Added by Stats. 1963, Ch. 1494.)

article: 9. Registration of Insurers’ Names


citation: INS § 886

text: Termination of approval and registration of an underwriter’s name, whether through denial of a renewal application or revocation, shall have no effect on the validity or the retention in force to normal expiration of any underwriter’s policies issued on or prior to the date of such termination with an effective date not more than sixty (60) days after its issue date provided that if any such policy is continuous in form it shall not be continued in force beyond its annual renewal date first occurring after such date of termination.

article: 9. Registration of Insurers’ Names


citation: INS § 900

text:
(a) On or before the first day of March of each year every insurer doing business in this state shall make and file with the commissioner, in the number, form, and by the methods prescribed by the commissioner, statements exhibiting its condition and affairs as of the previous December 31. If the first day of March falls on a day other than a business day, the filing is due to the commissioner by the first business day preceding the first day of March.

(b) Each year, on or before the following dates, every insurer doing business in this state shall make and file with the commissioner, in the number, form, and methods prescribed by the commissioner, statements exhibiting its condition and affairs for the period beginning on January 1 of the current calendar year through the end of each quarter of the current year as described below. These quarterly filings shall cover the period of time beginning January 1 of the current year through and including the last day of the quarter for which the report is being made. The first quarter filing shall be filed with the commissioner on or before May 15th of every year. The second quarter filing shall be filed with the commissioner on or before August 15th of every year. The third quarter filing shall be filed with the commissioner on or before November 15th of every year. If any of these dates fall on a day other than a business day, then the filing is due to the commissioner by the first business day preceding that date.

history: (History: Amended by Stats. 2004, Ch. 599, Sec. 1. Effective January 1, 2005.)

article: 10. Financial Statements of Insurers

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 1. General Regulations > 10. Financial Statements of Insurers


text:
(a) All insurers doing business in this state shall have an annual audit by an independent certified public accountant. The audit, including required auditor and management reporting, the audit committee and its membership, and other aspects of the audit content and process, shall be conducted, and the audit report prepared and filed, in conformity with the standards adopted by the National Association of Insurance Commissioners.

(b) The commissioner may grant 30-day extensions of the filing date upon a showing by the insurer and its independent certified public accountant of the reasons for requesting each extension and the determination by the commissioner of substantial cause for an extension. The request for an extension shall be submitted in writing not less than 10 days prior to the due date in sufficient detail to permit the commissioner to make an informed decision on the requested extension.

(c) The commissioner may promulgate regulations to further the purposes of this section.

history: (History: Amended by Stats. 2009, Ch. 234, Sec. 5. (AB 299) Effective January 1, 2010.)

article: 10. Financial Statements of Insurers


text:
(a) An insurer or group of insurers doing business in this state shall establish an internal audit function to provide independent, objective, and reasonable assurance to the insurer’s audit committee and management regarding the insurer’s governance, risk management, and internal controls. This assurance shall be provided by performing general and specific audits, reviews, and tests, and by employing other techniques deemed necessary to protect assets, evaluate control effectiveness and efficiency, and evaluate compliance with policies and regulations.

(b) The audit committee of an insurer or group of insurers shall be responsible for overseeing the insurer’s internal audit function and granting the person or persons performing the internal audit function suitable authority and resources to fulfill the responsibilities required by this section.

(c) To ensure that an internal auditor remains objective, the internal audit function shall be organizationally independent. Organizational independence does not preclude dual-reporting relationships. The internal audit function shall not defer ultimate judgment on audit matters to others.

(d) (1) An individual shall be appointed to head the internal audit function, and shall have direct and unrestricted access to the insurer’s board of directors or audit committee.

(2) The head of the internal audit function shall report to the insurer’s audit committee regularly, but not less than annually, regarding all of the following:

(A) The periodic audit plan.

(B) Factors that may adversely impact the internal audit function’s independence or effectiveness.

(C) Material findings from completed audits.

(D) The appropriateness of corrective actions implemented by management as a result of audit findings.

(e) If an insurer is a member of an insurance holding company system or a group of insurers, the insurer may comply with this section at the ultimate controlling parent level, an intermediate holding company level, or the individual legal entity level.

(f) This section shall not apply to an insurer if either of the following apply:

(1) The insurer has annual direct written and unaffiliated assumed premium of less than five hundred million dollars ($500,000,000), including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program.

(2) The insurer is a member of a group of insurers, and the group of insurers has annual direct written and unaffiliated assumed premium of less than one billion dollars ($1,000,000,000), including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program.

(g) For purposes of this section, “internal audit function” means a person or persons that provide independent, objective, and reasonable assurance designed to add value, improve an organization’s operations, and accomplish an organization’s objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

history: (History: Added by Stats. 2019, Ch. 201, Sec. 3. (AB 1813) Effective January 1, 2020.)

article: 10. Financial Statements of Insurers


text: The commissioner shall charge and collect four hundred twenty dollars ($420) in advance as a fee for the first filing each year of a statement under this article. Only one fee shall be charged or collected from any one insurer in any one calendar year.

history: (History: Amended by Stats. 2017, Ch. 534, Sec. 15. (AB 1699) Effective January 1, 2018.)

article: 10. Financial Statements of Insurers


text: The commissioner may decline to grant or renew or may suspend or revoke a certificate of authority of an insurer that knowingly files with the department a false financial statement.

history: (History: Added by Stats. 1957, Ch. 395.)

article: 10. Financial Statements of Insurers


text: Any officer, director, employee or agent of any insurer, who wilfully signs or files a false or untrue report or statement of the business, affairs, or condition of such insurer with intent to deceive any public officer, office, or board to which such insurer is required by law to report, or which has authority by law to examine into its affairs or transactions, is guilty of a felony.

article: 10. Financial Statements of Insurers


citation: INS § 902

text: Insurers engaged in the business of compensation insurance shall, at such intervals as may be prescribed by the commissioner, file statements supplemental to such annual statements and covering such matters dealt with in such annual statements as the commissioner designates. Neither such supplemental report nor any synopsis thereof need be published.

article: 10. Financial Statements of Insurers


citation: INS § 903

text: The commissioner shall require statements and reports to be verified as follows: (a) If made by a domestic corporation, by the oaths of any two of the executive officers thereof. (b) If made by an individual or firm, by the oath of such individual or a member of the firm. (c) If made by a foreign insurer, by the oath of the principal executive officer thereof, or manager, residing within the United States.

article: 10. Financial Statements of Insurers


text: In any case where an insurer is required by law to file with the commissioner statements or reports respecting its financial condition, income or disbursements, verified or signed by its designated officers, agents, or employees, the commissioner may accept and file the statement or report verified by affidavit of the president or vice president and the treasurer or secretary of such insurer, in lieu of the verification or signature otherwise prescribed by law.

history: (History: Added by Stats. 1937, Ch. 724.)

article: 10. Financial Statements of Insurers


citation: INS § 904

text: In addition to the annual statement required to be filed pursuant to Section 900, each admitted insurer shall file an authorization for disclosure to the commissioner of financial records pertaining to such funds pursuant to Section 7473 of the Government Code, to be effective until the next such annual filing.

history: (History: Added by Stats. 1976, Ch. 1320.)

article: 10. Financial Statements of Insurers


citation: INS § 922

text: The guarantee by the Small Business Administrator that a surety shall not suffer loss as set forth in the Small Business Investment Act of 1958, as amended, shall for all purposes and requirements under this code be deemed a contract of reinsurance between such surety and an authorized or admitted reinsurer irrespective of whether or not such guarantee contains all the provisions required of other reinsurance contracts.

history: (History: Added by Stats. 1973, Ch. 383.)

article: 10. Financial Statements of Insurers


text:
The Legislature declares its intent that:

(a) In some instances, it is appropriate for the protection of insureds, insurers, and the public generally, that assuming insurers be required to provide security for the payment of their reinsurance obligations.

(b) Where such security is provided and upon the insolvency of the assuming insurer or initiation of receivership proceedings against it, the commissioner shall have the authority to determine whether it is in the best interest of insureds, claimants, and insurers to retain such security in the United States, to allow the filing of claims against the assuming insurer in the United States, and to have such claims valued in a United States proceeding subject to United States laws.

(c) In furtherance of the protection of insureds, insurers, and the public generally, the Legislature hereby states that these matters are fundamental to the business of insurance and hereby exercises its powers and privileges available pursuant to Sections 1011 and 1012 of Title 15 of the United States Code.

history: (History: Repealed and added by Stats. 1996, Ch. 840, Sec. 2. Effective January 1, 1997.)

article: 10. Financial Statements of Insurers


text:
(a) Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability in accordance with Sections 922.4 and 922.5 only if the reinsurance contract contains provisions that provide, in substance, as follows:

(1) The reinsurer shall indemnify the ceding insurer for the risk it has assumed according to the terms and conditions contained in the reinsurance contract.

(2) In the event of insolvency, or a change in the status of the ceding company as defined in this section, and the appointment of a conservator, liquidator, or statutory successor of the ceding company, the reinsurance shall be payable to the conservator, liquidator, or statutory successor on the basis of claims allowed against the insolvent company by any court of competent jurisdiction or by any conservator, liquidator, or statutory successor of the company having authority to allow those claims, without diminution because of that insolvency or change in status, or because the conservator, liquidator, or statutory successor has failed to pay all or a portion of any claims. Payments by the reinsurer as set forth in this subdivision shall be made directly to the ceding insurer or to its conservator, liquidator, or statutory successor, except where the contract of insurance or reinsurance specifically provides another payee of such reinsurance in the event of the insolvency or change in status of the ceding insurer.

The reinsurance contract may provide that the conservator, liquidator, or statutory successor of a ceding insurer shall give written notice of the pendency of a claim against the ceding insurer indicating the policy or bond reinsured, within a reasonable time after such claim is filed and the reinsurer may interpose, at its own expense, in the proceeding in which the claim is to be adjudicated, any defense or defenses which it may deem available to the ceding insurer or its conservator, liquidator, or statutory successor. The expense thus incurred by the reinsurer shall be payable subject to court approval out of the estate of the insolvent ceding insurer as part of the expense of conservation or liquidation to the extent of a proportionate share of the benefit which may accrue to the ceding insurer in conservation or liquidation, solely as a result of the defense undertaken by the reinsurer.

(b) Payment pursuant to a reinsurance contract shall be made within a reasonable time with reasonable provision for verification in accordance with the terms of the reinsurance agreement. However, in no event shall the payments be beyond the period required by the National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual.

(c) The original insured or policyholder shall not have any rights against the reinsurer which are not specifically set forth in the contract of reinsurance, or in a specific agreement between the reinsurer and the original insured or policyholder.

(d) For purposes of this section, the phrase “change in the status of the ceding company” means a finding by the commissioner that conditions set forth in subdivision (d) or (i) of Section 1011, a Regulatory Action Level Event as defined in Section 739.4, or any other event which permits the appointment of a conservator, liquidator, or statutory successor has occurred with respect to the ceding company.

history: (History: Amended by Stats. 2012, Ch. 277, Sec. 2. (SB 1216) Effective January 1, 2013.)

article: 10. Financial Statements of Insurers


text: Notwithstanding any other provision of law, credit for reinsurance, as either an asset or a deduction, shall not be allowed in any accounting or financial statement of the ceding insurer in respect to any so-called reinsurance contract unless, in such contract, the reinsurer undertakes to indemnify the ceding insurer, not only in form but in fact, against all or a part of the loss or liability arising out of the original insurance.

history: (History: Amended by Stats. 1996, Ch. 840, Sec. 6. Effective January 1, 1997.)

article: 10. Financial Statements of Insurers


text:
Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subdivision (a), (b), (c), (d), (e), or (f). Credit shall be allowed under subdivision (a), (b), (c), or (e) only for cessions of those kinds or classes of business that the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a United States branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. The commissioner may adopt by regulation specific additional requirements relating to or setting forth the valuation of assets or reserve credits, the amount and forms of security supporting reinsurance arrangements described in subdivision (b) of Section 922.85, and the circumstances pursuant to which credit will be reduced or eliminated.

(a) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state unless the assuming insurer is the subject of a regulatory order or regulatory oversight by any state in which it is licensed based upon a commissioner’s determination that the assuming insurer is in a hazardous financial condition.

(b) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state unless the assuming insurer is the subject of a regulatory order or regulatory oversight by any state in which it is licensed based upon a commissioner’s determination that the assuming insurer is in a hazardous financial condition. An accredited reinsurer is one that does all of the following:

(A) Files with the commissioner evidence of its submission to this state’s jurisdiction.

(B) Submits to this state’s authority to examine its books and records.

(C) Designates the commissioner or a designated attorney in this state as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer.

(D) Is licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state.

(E) Files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement and other financial information requested by the commissioner.

(F) Submits a statement, signed and verified by an officer of the assuming insurer to be true and correct, that discloses whether the assuming insurer or any affiliated person who owns or has a controlling interest in the assuming insurer is currently known to be the subject of any of the following:

(i) Any order or proceeding regarding conservation, liquidation, or receivership.

(ii) Any order or proceeding regarding the revocation or suspension of a license or accreditation to transact insurance or reinsurance in any jurisdiction.

(iii) Any order or proceeding brought by an insurance regulator in any jurisdiction seeking to restrict or stop the assuming insurer from transacting insurance or reinsurance based upon a hazardous financial condition.

The assuming insurer shall provide the commissioner with copies of any orders or other documents initiating proceedings subject to disclosure under this paragraph. The statement shall affirm that no actions, proceedings, or orders subject to this subparagraph are outstanding against the assuming insurer or any affiliated person who owns or has a controlling interest in the assuming insurer, except as disclosed in the statement.

(G) Demonstrates to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement if it maintains a surplus as regards policyholders in an amount that is not less than twenty million dollars ($20,000,000) and whose accreditation has not been denied by the commissioner within 90 days of its submission. An assuming insurer who is not deemed to meet this requirement shall obtain the affirmative approval of the commissioner. The approval of the commissioner shall be based upon a finding that the assuming insurer has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers.

(2) The commissioner may deny or revoke an assuming insurer’s accreditation if the assuming insurer does not meet all of the standards required of an accredited reinsurer, or if its accreditation would be hazardous to the policyholders of this state. In determining whether to deny or revoke accreditation, the commissioner may consider the qualifications of the assuming insurer with respect to all the following subjects:

(A) Its financial stability.

(B) The lawfulness and quality of its investments.

(C) The competency, character, and integrity of its management.

(D) The competency, character, and integrity of persons who own or have a controlling interest in the assuming insurer.

(E) Whether claims under its contracts are promptly and fairly adjusted and are promptly and fully paid in accordance with the law and the terms of the contracts.

(3) Credit shall not be allowed a domestic ceding insurer if the assuming insurer’s accreditation has been revoked by the commissioner after notice and hearing.

(c) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the commissioner pursuant to Section 922.41.

(d) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution as defined in subdivision (b) of Section 922.7 for the payment of the valid claims of its United States ceding insurers, their assigns, and successors in interest. To enable the commissioner to determine the sufficiency of the trust fund the assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the NAIC Annual Statement form by licensed insurers or any other form required by the NAIC.

(2) Credit for reinsurance shall not be granted under this subdivision unless the form of the trust and any amendments to the trust have been approved by either:

(A) The commissioner of the state where the trust is domiciled.

(B) The commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.

The trust and any trust amendments shall also be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. Notwithstanding the foregoing, nothing in this paragraph shall prevent the commissioner from disapproving the form of the trust if it is not in compliance with this state’s laws and regulations.

(3) Credit for reinsurance shall not be granted under this subdivision unless the following requirements are met:

(A) The trust instrument shall provide that contested claims shall be valid, enforceable, and payable out of funds in trust to the extent remaining unsatisfied 30 days after entry of the final order of any court of competent jurisdiction in the United States.

(B) The trust shall vest legal title to its assets in the trustees of the trust for the benefit of the grantor’s United States ceding insurers, their assigns, and successors in interest.

(C) The trust and the assuming insurer shall be subject to examination as determined by the commissioner.

(D) The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, shall have outstanding obligations due under the reinsurance agreements subject to the trust.

(E) No later than February 28 of each year, the trustees of the trust shall report to the commissioner in writing setting forth the balance of the trust and listing the trust’s investments at the preceding yearend and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire within the next 18 months.

(F) The assuming insurer shall do both of the following:

(i) Submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, comply with all requirements necessary to give the court jurisdiction, and abide by the final decision of the court or of any appellate court in the event of an appeal.

(ii) Designate the commissioner or an attorney in this state as its true and lawful agent upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer.

This subparagraph is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the agreement.

(G) The assuming insurer shall agree in the trust agreement that notwithstanding any other provision in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by paragraph (4), or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation, or similar proceedings under the laws of its state or country of domicile:

(i) The trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund.

(ii) The assets shall be distributed by, and insurance claims shall be filed with and valued by, the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies.

(iii) If the commissioner with regulatory oversight determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part thereof shall be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement.

(iv) The grantor hereby waives any right otherwise available to it under United States law that is inconsistent with this provision.

(4) The following requirements apply to the following categories of assuming insurer:

(A) The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer’s liabilities attributable to reinsurance ceded by United States domiciled ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars ($20,000,000), except as provided in subparagraph (B), (C), or (D).

(B) In the case of a group including incorporated and individual unincorporated underwriters:

(i) For reinsurance ceded under reinsurance agreements with an inception, amendment, or renewal date on or after January 1, 1993, the trust shall consist of a trusteed account in an amount not less than the respective underwriters’ several liabilities attributable to business ceded by United States domiciled ceding insurers to any underwriter of the group.

(ii) For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed after that date, notwithstanding the other provisions of this article, the trust shall consist of a trusteed account in an amount not less than the respective underwriters’ several insurance and reinsurance liabilities attributable to business written in the United States.

(iii) In addition to the trusts required in clauses (i) and (ii), the group shall maintain in trust a trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.

(iv) The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group’s domiciliary regulator as are the unincorporated members.

(v) The group shall, within 90 days after its financial statements are due to be filed with the group’s domiciliary regulator, provide to the commissioner an annual certification by the group’s domiciliary regulator of the solvency of each underwriter member; or, if a certification is unavailable, financial statements prepared by independent public accountants of each underwriter member of the group.

(C) In the case of a group of incorporated insurers under common administration, the group shall meet all of the following requirements:

(i) Have continuously transacted an insurance business outside the United States for at least three years immediately prior to making application for accreditation and be in good standing with its domiciliary regulator.

(ii) Demonstrate that individual insurer members maintain standards and financial conditions reasonably comparable to admitted insurers.

(iii) Maintain aggregate policyholders’ surplus of at least ten billion dollars ($10,000,000,000).

(iv) Maintain a trust fund in an amount not less than the group’s several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of such group.

(v) In addition, maintain a joint trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States ceding insurers of any member of the group as additional security for these liabilities. The commissioner shall have the authority to require additional amounts to be held in the trust as a condition for initial or continued accreditation if the commissioner determines that these additional amounts are required for the protection of ceding insurers.

(vi) Within 90 days after its financial statements are due to be filed with the group’s domiciliary regulator, make available to the commissioner an annual certification of each underwriter member’s solvency by the member’s domiciliary regulator, and financial statements for each underwriter member of the group prepared by its independent public accountant.

(D) At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years, the commissioner may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cashflows, and shall consider all material risk factors, including, when applicable, the lines of business involved, the stability of the incurred loss estimates, and the effect of the surplus requirements on the assuming insurer’s liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount less than 50 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust, unless the commissioner expressly finds that appropriate circumstances justify a lower level of minimum required trusteed surplus, provided the minimum required trusteed surplus may not be reduced to an amount less than 30 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

(e) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has its head office or is domiciled in and is licensed in a reciprocal jurisdiction, as determined by the commissioner pursuant to Section 922.425.

(f) Credit shall be allowed when the reinsurance ceded to an assuming insurer not meeting the requirements of subdivision (a), (b), (c), (d), or (e) but only as to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction. As used in this section, “jurisdiction” means state, district, or territory of the United States and any lawful national government.

history: (History: Amended by Stats. 2020, Ch. 71, Sec. 1. (AB 2049) Effective January 1, 2021.)

article: 10. Financial Statements of Insurers


text:
(a) An asset or a deduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 922.4 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer to the extent of either of the following:

(1) The asset or deduction is not greater than the amount of funds held by the ceding insurer under a reinsurance contract with that assuming insurer as security for the payment of obligations thereunder and those funds are held in the United States under the exclusive control of the ceding insurer.

(2) The asset or deduction is not greater than the amount of funds held in a trust, satisfactory to the commissioner, on behalf of the ceding insurer under a reinsurance contract with the assuming insurer as security for the payment of obligations thereunder and is held in a qualified United States financial institution, as defined in subdivision (b) of Section 922.7, subject to withdrawal solely by the ceding insurer.

The security under this subdivision may be in the form of cash or securities authorized as general investments under Article 3 (commencing with Section 1170) of Chapter 2, or securities listed by the Securities Valuation Office of the NAIC, including those deemed exempt from filing, as defined by the Purposes and Procedures Manual of the National Association of Insurance Commissioners Securities Valuation Office, qualifying as admitted assets under this code and with liquidity meeting the requirements of Section 706.5, and not otherwise disallowed in the commissioner’s discretion.

(b) An asset or a deduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 922.4 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer to the extent that security is provided in the form of letters of credit, satisfactory to the commissioner, which shall be:

(1) Clean, irrevocable, unconditional letters of credit, issued or confirmed by qualified United States financial institutions, as defined in subdivision (a) of Section 922.7, effective no later than December 31st in respect of the year for which filing is being made, and in the possession of the ceding insurer on or before the filing date of its annual statement.

(2) Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation and shall, notwithstanding the issuing or confirming institutions’ subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification, or amendment, whichever first occurs.

(c) For purposes of this section, the phrase “deemed exempt from filing as defined by the Purposes and Procedures Manual of the National Association of Insurance Commissioners Securities Valuation Office” shall mean all United States government securities, and all other securities or bonds with a rating of SVO 1 or FE 1 listed by the National Association of Insurance Commissioners Securities Valuation Office as exempt.

(d) The commissioner may adopt, by regulation pursuant to subdivision (b) of Section 922.85, specific additional requirements relating to or setting forth the valuation of assets or reserve credits, the amount and forms of security supporting reinsurance arrangements described in paragraph (2) of subdivision (b) of Section 922.85, and the circumstances pursuant to which credit will be reduced or eliminated.

history: (History: Amended by Stats. 2017, Ch. 202, Sec. 3. (AB 938) Effective September 1, 2017.)

article: 10. Financial Statements of Insurers


text: Credit for reinsurance shall not be denied a foreign ceding insurer to the extent that credit is recognized by the ceding insurer’s domestic state regulator, provided that the domestic state is accredited by the National Association of Insurance Commissioners (NAIC), or the domestic state regulator has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation.

history: (History: Repealed and added by Stats. 2012, Ch. 277, Sec. 10. (SB 1216) Effective January 1, 2013.)

article: 10. Financial Statements of Insurers


text:
(a) For purposes of subdivision (b) of Section 922.5, a “qualified United States financial institution” means an institution that complies with all of the following:

(1) Is organized or in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof.

(2) Is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies.

(3) Has been determined by the commissioner, or, in the discretion of the commissioner, the Securities Valuation Office of the NAIC, to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner.

(b) A “qualified United States financial institution” means, for purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that is both:

(1) Organized, or in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers.

(2) Regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.

history: (History: Repealed and added by Stats. 1996, Ch. 840, Sec. 14. Effective January 1, 1997.)

article: 10. Financial Statements of Insurers


text:
(a) The commissioner, after notice, comment period, and a hearing if requested by more than 10 affected insurers, may issue a bulletin setting forth reasonable requirements for the allowance of reinsurance as an asset or deduction from liability consistent with Sections 922.4 to 922.6, inclusive, including the following:

(1) Filing requirements for an accredited assuming insurer.

(2) Accreditation requirements for an assuming insurer with less than a twenty million dollar ($20,000,000) surplus as regards policyholders.

(3) The definition of “liabilities” as used in Sections 922.4 and 922.5.

(4) Investment guidelines for trust funds established and maintained pursuant to subdivision (d) of Section 922.4.

(5) Definitions and required or permitted conditions for trust funds established and maintained pursuant to Section 922.5.

(6) Requirements of letters of credit established and maintained pursuant to Section 922.5.

(b) On or before January 1, 1998, the commissioner shall notify the Legislature that the bulletin has been promulgated so that the Legislature is able to ensure the commissioner’s compliance with the requirements of this subdivision.

(c) The bulletin authorized by this section shall have the same force and effect, and may be enforced by the commissioner to the same extent and degree, as regulations issued by the commissioner until the time that the commissioner issues additional or amended regulations pursuant to subdivision (d).

(d) The commissioner shall adopt regulations implementing the provisions of this law, that shall supersede the bulletin authorized by this section, no later than December 31, 2001.

history: (History: Amended by Stats. 2012, Ch. 277, Sec. 11. (SB 1216) Effective January 1, 2013.)

article: 10. Financial Statements of Insurers


text: Sections 922.4 and 922.5 shall apply to all cessions on and after January 1, 1997, under reinsurance contracts that have had an inception, anniversary, or renewal date not less than six months after that date.

history: (History: Added by Stats. 1996, Ch. 840, Sec. 17. Effective January 1, 1997.)

article: 10. Financial Statements of Insurers


text:
(a) A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the commissioner within 30 days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds 50 percent of the domestic ceding insurer’s last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

(b) A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the commissioner within 30 days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than 20 percent of the ceding insurer’s gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

history: (History: Added by Stats. 2012, Ch. 277, Sec. 3. (SB 1216) Effective January 1, 2013.)

article: 10. Financial Statements of Insurers