California has passed legislation that allows the state insurance commissioner to take over an insurer that the US Treasury Secretary has determined is insolvent or in danger of becoming insolvent, conforming California’s law to federal law under the requirements of the Dodd-Frank Wall Street Reform Act of 2012 (Dodd-Frank).
The new law is a response to the process for any future liquidation of systemically important insurers, as they are determined by the Financial Stability Oversight Committee (FSOC). That process is well underway, with a few unnamed institutions already identified and under review by the FSOC, including American International Group (AIG), the company announced today.
The legislation, AB 2303, authored by the Assembly Committee on Insurance, becomes effective on January 1, 2013.
Current state law allows the insurance commissioner to take over insolvent insurers domiciled in California but only after exams are done and after a review by the California Conservation and Liquidation Office.
The provision added in AB 2303 adds a new trigger as to when the commissioner may take over an insurer.
This measure, which received unanimous, bipartisan support throughout the legislative process, is sponsored by Insurance Commissioner Dave Jones and the California Department of Insurance.
Dodd-Frank granted the Treasury secretary the authority to make insolvency-related determinations on specified insurers, but retained the act of conserving and liquidating with the states.
AB 2303, which is one of the first in the nation to address this procedural gap, ensures a timely process for initiating the conservation and liquidation process of insurers.