2009 California Insurance Code - Section 1215-1215.16 :: Article 4.7. Insurance Holding Company System Regulatory Act

1215.  As used in this article, the following terms shall have the
respective meanings hereinafter 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) 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.
   (c) An "insurance holding company system" consists of two or more
affiliated persons, one or more of which is an insurer.
   (d) "Insurer" shall have the same meaning as set forth in Section
826 of this code, excluding subdivisions (e) and (f) of that section.
   (e) "Person" is an individual, a corporation, 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.
   (f) A "subsidiary" of a specified person is an affiliate
controlled by that person directly, or indirectly through one or more
intermediaries.
   (g) "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.

1215.1.  (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 part 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.

1215.2.  (a) No person shall make a tender offer for, or a request
or invitation for tenders of, or enter into an agreement to exchange
securities for or acquire in the open market, any voting security, or
any security convertible into a voting security, of a domestic
insurer or of any other person controlling a domestic insurer, if the
other person is not substantially engaged either directly or through
its affiliates in any businesses other than that of insurance, if,
as a result of the consummation thereof, the person would, directly
or indirectly, acquire control of the insurer, and no person shall
enter into an agreement to merge with or otherwise to acquire control
of a domestic insurer, unless, at the time copies of the offer,
purchase, request, or invitation are first published, sent, or given
to security holders or the agreement or transaction is entered into,
as the case may be, the person has filed with the commissioner, and
has sent to the insurer, a statement containing the following
information, and any additional information as the commissioner may
by rule or regulation prescribe as necessary or appropriate in the
public interest or for the protection of policyholders or
shareholders:
   (1) The background and identity of all persons by whom or on whose
behalf the purchases or the exchange, merger, or other acquisition
of control are to be effected.
   (2) The source and amount of the funds or other consideration used
or to be used in making the purchases or in effecting the exchange,
merger, or other acquisition of control, and, if any part of the
funds or other consideration has been or is to be borrowed or
otherwise obtained for the purpose of making the purchases or
effecting the exchange, merger, or other acquisition of control, a
description of the transaction and the names of the parties thereto.
However, where a source of funds is a loan made in the lender's
ordinary course of business, if the person filing the statement so
requests, the name of the lender shall not be made available to the
public.
   (3) Any plans or proposals which those persons may have to
liquidate the insurer, to sell its assets or merge it with any
person, or to make any other major change in its business or
corporate structure or management.
   (4) The amount of each class of voting securities or securities
which may be converted into voting securities of the insurer or the
controlling person which are beneficially owned, and the amount of
each class of voting securities or securities which may be converted
into voting securities of the insurer or the controlling person
concerning which there is a right to acquire beneficial ownership, by
each person and by each affiliate of each person, together with the
name and address of each affiliate.
   (5) Information as to any contracts, arrangements, or
understandings with any person with respect to any securities of the
insurer or the controlling person, including, but not limited to,
transfer of any of the securities, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against
loss or guarantees of profits, division of losses or profits, or the
giving or withholding of proxies, naming the persons with whom the
contracts, arrangements, or understandings have been entered into,
and giving the details thereof.
   All requests or invitations for tenders or advertisements making a
tender offer or requesting or inviting tenders of the voting
securities of the insurer or the controlling person made by or on
behalf of the person, and a copy of the agreement to exchange or
otherwise acquire securities or to merge with or otherwise to acquire
control of the insurer, shall be filed with the commissioner and
sent to the insurer as a part of the statement and shall contain the
information contained in the statement as the commissioner may by
rule or regulation prescribe. Copies of any additional material
soliciting or requesting the tender offers subsequent to the initial
solicitation or request, and copies of any amendment to the
agreement, shall contain the information as the commissioner may by
rule or regulation prescribe as necessary or appropriate in the
public interest or for the protection of policyholders or
shareholders, and shall be filed with the commissioner and sent to
the insurer not later than the time copies of the material are first
published or sent or given to security holders or the amendment is
entered into.
   (b) If the person required to file the statement referred to in
subdivision (a) is a partnership, limited partnership, syndicate, or
other group, the commissioner may require that the information called
for by paragraphs (1) to (5), inclusive, of subdivision (a) shall be
given with respect to: (1) each partner of the partnership or
limited partnership, (2) each member of the syndicate or group, and
(3) each person who controls the partner or member. If a person
referred to in paragraph (1), (2), or (3) of this subdivision is a
corporation or the person required to file the statement referred to
in subdivision (a) is a corporation, the commissioner may require
that the information called for by paragraphs (1) to (5), inclusive,
of subdivision (a) shall be given with respect to the corporation and
each officer and director of the corporation and each person who is
directly or indirectly the beneficial owner of more than 10 percent
of the outstanding voting securities of the corporation.
   (c) If any tender offer, request, or invitation for tenders, or
agreement to exchange or otherwise acquire securities or to merge or
otherwise acquire control referred to in subdivision (a), is proposed
to be made by means of a registration statement under the federal
Securities Act of 1933, or in circumstances requiring the disclosure
of similar information under the federal Securities Exchange Act of
1934, or under a state law requiring similar registration or
disclosure, the person required to file the statement referred to in
subdivision (a) may file that registration statement with the
commissioner as full satisfaction of the requirement in subdivision
(a).
   (d) The purchases, exchanges, mergers, or other acquisitions of
control referred to in subdivision (a) may not be made until the
commissioner approves the purchases, exchanges, mergers, or other
acquisitions of control. The commissioner shall approve or disapprove
the transaction within 60 days after the statement required by
subdivision (a) has been filed with the commissioner. The
commissioner may disapprove the transaction if the commissioner finds
any of the following:
   (1) After the change of control the domestic insurer referred to
in subdivision (a) could not satisfy the requirements for the
issuance of a license to write the line or lines of insurance for
which it is presently licensed.
   (2) The purchases, exchanges, mergers, or other acquisitions of
control would substantially lessen competition in insurance in this
state or create a monopoly therein.
   (3) The financial condition of an acquiring person might
jeopardize the financial stability of the insurer, or prejudice the
interests of its policyholders.
   (4) The plans or proposals which the acquiring person has to
liquidate the insurer, to sell its assets, or to merge it with any
person, or to make any other major change in its business or
corporate structure or management, are not fair and reasonable to
policyholders.
   (5) The competence, experience, and integrity of those persons who
would control the operation of the insurer indicate that it would
not be in the interest of policyholders, or the public to permit them
to do so.
   (e) The commissioner shall require the payment of two thousand
three hundred sixty dollars ($2,360) as a fee for filing an
application under this section, the amount to accompany the
application.
   (f) This section shall not apply to any offer for or request or
invitation for tenders of any voting securities, or any agreement to
exchange securities for or otherwise acquire control, if the insurer
whose shares are to be acquired remains a direct or indirect
subsidiary of the same ultimate controlling company person within the
insurer's insurance holding company system, neither the acquiring
person nor any affiliate acquires or incurs any debt, guarantee, or
other liability related to the transaction, and no shares are
purchased by or sold to a person who is not an affiliated person in
that insurance holding company system, or if, and to the extent that,
the commissioner, by rule or regulation or by order, exempts the
offer, request, invitation, or agreement from the provisions of this
section as not comprehended within the purposes thereof.

1215.3.  The following shall be violations of this article:
   (a) The failure to file the statement required under subdivision
(a) of Section 1215.2.
   (b) Effectuation or any attempt to effectuate an acquisition or
control of, or merger with, a domestic insurer either within the
60-day period referred to in subdivision (d) of Section 1215.2,
unless the commissioner has given his approval thereto, or after
disapproval of such acquisition of control or merger.

1215.4.  (a) Every insurer that is authorized to do business in this
state and that is a member of an insurance holding company system
shall register with the commissioner, except a foreign insurer
subject to disclosure requirements and standards adopted by statute
or regulation in the jurisdiction of its domicile if substantially
similar to those contained in this section. The exemption from
registration for those foreign insurers shall not apply to any
commercially domiciled insurer within this state, as provided in
Section 1215.13. Any insurer that is subject to registration under
this section shall register within 60 days after the effective date
of this article or 15 days after it becomes subject to registration,
whichever is later, and annually thereafter by April 30 of each year
for the previous calendar year, unless the commissioner for good
cause shown extends the time for registration. The commissioner may
require a holding company system that is not subject to registration
under this section to furnish a copy of the registration statement or
other information filed by the insurance company with the insurance
regulatory authority of domiciliary jurisdiction.
   (b) Every insurer subject to registration shall file a
registration statement on a form prescribed by the National
Association of Insurance Commissioners, which shall contain current
information about the following:
   (1) The capital structure, general financial condition, ownership,
and management of the insurer and any person controlling the
insurer.
   (2) The identity and relationship of every member of the insurance
holding company system.
   (3) The following agreements in force, relationships subsisting,
and transactions currently outstanding or that have occurred during
the last calendar year between the insurer and its affiliates:
   (A) Loans, extensions of credit, investments, or purchases, sales,
or exchanges of securities of the affiliates by the insurer or of
the insurer by its affiliates.
   (B) Purchases, sales, or exchanges of assets.
   (C) Transactions not in the ordinary course of business.
   (D) Guarantees or undertakings for the benefit of an affiliate
that result in an actual contingent exposure of the insurer's assets
to liability, other than insurance contracts entered into in the
ordinary course of the insurer's business.
   (E) All management agreements, service contracts, and cost-sharing
arrangements. However, subscription agreements or powers of attorney
executed by subscribers of a reciprocal or interinsurance exchange
are not required to be reported pursuant to this section if the form
of the agreement was in use before 1943 and was not amended in any
way to modify payments, fees, or waivers of fees or otherwise
substantially amended after 1943.
   (F) Reinsurance agreements.
   (G) Dividends and other distributions to shareholders.
   (H) Consolidated tax allocation agreements.
   (4) A pledge of the insurer's stock, including stock of a
subsidiary or controlling affiliate, for a loan made to a member of
the insurance holding company system.
   (5) Other matters as may be included in registration forms adopted
by the National Association of Insurance Commissioners, to the
extent otherwise required by the commissioner.
   (c) All registration statements shall contain a summary outlining
all items in the current registration statement that are changes from
the prior registration statement.
   (d) No information need be disclosed on the registration statement
filed pursuant to subdivision (b) of this section if the information
is not material for the purposes of this section. Unless the
commissioner provides otherwise, sales, purchases, exchanges, loans
or extensions of credit, investments, or guarantees involving
one-half of 1 percent or less of an insurer's admitted assets as of
the preceding December 31st, are not deemed material for purposes of
this section.
   (e) Each registered insurer shall keep current the information
required to be disclosed in its registration statement by reporting
all material changes or additions within 15 days after the end of the
month in which it learns of each change or addition.
   (f) Subject to subdivision (g) of Section 1215.5, each registered
insurer shall report all dividends and other distributions to
shareholders within five business days following declaration. No
dividend or other distribution to shareholders may be paid until at
least 10 business days after receipt by the commissioner, at the
office of the department prescribed by the commissioner by notice to
all insurers, of a notice of the declaration of the dividend or other
distribution.
   (g) Every person in an insurance holding company system subject to
registration is required to provide the insurer with all information
reasonably necessary to enable the insurer to comply with the
provisions of this article.
   (h) The commissioner shall terminate the registration of any
insurer that demonstrates that it no longer is a member of an
insurance holding company system.
   (i) The commissioner may require or allow two or more affiliated
insurers subject to registration hereunder to file a consolidated
registration statement or consolidated reports amending their
consolidated registration statement or their individual registration
statements.
   (j) The commissioner may allow any insurer that is authorized to
do business in this state that is part of an insurance holding
company system to register on behalf of any affiliated insurer that
is required to register under subdivision (a), and to file all
information and material required to be filed under this article.
   (k) The provisions of this section do not apply to any insurer,
information, or transaction exempted by the commissioner.
   (l) Any person may file with the commissioner a disclaimer of
affiliation with any authorized insurer. A disclaimer of affiliation
may be filed by an insurer or any member of an insurance holding
company system. The disclaimer shall fully disclose all material
relationships and bases for affiliation between the person and the
insurer, as well as the basis for disclaiming an affiliation. After a
disclaimer has been filed, the insurer is relieved of any duty to
register or report under this section that may arise out of the
insurer's relationship with the disclaimed person unless and until
the commissioner disallows the disclaimer. The commissioner shall
disallow the disclaimer only after furnishing all parties in interest
with notice and opportunity to be heard and after making specific
findings of fact to support the disallowance.
   (m) The failure to file a registration statement, summary thereof,
amendment to the statement, or report of dividend required by this
section within the time specified for the filing is a violation of
this article.

1215.5.  (a) Transactions by registered insurers with their
affiliates are subject to the following standards:
   (1) The terms shall be fair and reasonable.
   (2) Charges or fees for services performed shall be reasonable.
   (3) Expenses incurred and payment received shall be allocated to
the insurer in conformity with customary insurance accounting
practices consistently applied.
   (4) The books, accounts, and records of each party to all
transactions shall be so maintained as to clearly and accurately
disclose the precise nature and details of the transactions,
including accounting information that is necessary to support the
reasonableness of the charges or fees to the parties.
   (5) The insurer's policyholder's surplus following any dividends
or distributions to shareholder affiliates shall be reasonable in
relation to the insurer's outstanding liabilities and adequate to its
financial needs.
   (b) The following transactions involving a domestic insurer or
commercially domiciled insurer, as defined in Section 1215.13, and
any person in its holding company system, may be entered into only if
the insurer has notified the commissioner in writing of its
intention to enter into the transaction at least 30 days prior
thereto, or a shorter period as the commissioner may permit, and the
commissioner has not disapproved it within that period. The
commissioner shall require the payment of one thousand eight hundred
eighty-nine dollars ($1,889) as a fee for filings under this
subdivision. The payment shall accompany the filing.
   (1) Sales, purchases, exchanges, loans, extensions of credit, or
investments, if the transactions are equal to or exceed:
   (A) For a nonlife insurer, the lesser of 3 percent of the insurer'
s admitted assets or 25 percent of the policyholder's surplus as of
the preceding December 31st.
   (B) For a life insurer, 3 percent of the insurer's admitted assets
as of the preceding December 31st.
   (2) Loans or extensions of credit to a person who is not an
affiliate, if made with the agreement or understanding that the
proceeds of the transactions, in whole or in substantial part, are to
be used to make loans or extensions of credit to, to purchase assets
of, or to make investments in, any affiliate of the insurer, if the
transactions are equal to or exceed:
   (A) For a nonlife insurer, the lesser of 3 percent of the insurer'
s admitted assets or 25 percent of the policyholder's surplus as of
the preceding December 31st.
   (B) For a life insurer, 3 percent of the insurer's admitted assets
as of the preceding December 31st.
   (3) Reinsurance agreements or modifications thereto in which the
reinsurance premium or a change in the insurer's liabilities equals
or exceeds 5 percent of the insurer's policyholder's surplus, as of
the preceding December 31st, including those agreements that may
require as consideration the transfer of assets from an insurer to a
nonaffiliate, if an agreement or understanding exists between the
insurer and nonaffiliate that any portion of the assets will be
transferred to one or more affiliates of the insurer.
   (4) All management agreements, service contracts, tax sharing
agreements, and cost-sharing arrangements. However, subscription
agreements or powers of attorney executed by subscribers of a
reciprocal or interinsurance exchange are not required to be reported
pursuant to this section if the form of the agreement was in use
before 1943 and was not amended in any way to modify payments, fees,
or waivers of fees or otherwise substantially amended after 1943.
Payment or waiver of fees or other amounts due under subscription
agreements or powers of attorney forms that were in use before 1943
and that have not been amended in any way to modify payments, fees,
or waiver of fees, or otherwise substantially amended after 1943
shall not be subject to regulation pursuant to paragraph (2) of
subdivision (a).
   (5) Guarantees when initiated or made by a domestic or
commercially domiciled insurer, provided that a guarantee that is
quantifiable as to amount is not subject to the notice requirements
of this paragraph unless it exceeds the lesser of one-half of 1
percent of the insurer's admitted assets or 10 percent of surplus as
regards policyholders as of the 31st day of December next preceding.
Further, all guarantees that are not quantifiable as to amount are
subject to the notice requirements of this paragraph.
   (6) Derivative transactions or series of derivative transactions.
The written filing to the commissioner shall include the type or
types of derivative transactions, the affiliate or affiliates
engaging with the insurer in the derivative transactions, the
objective and the rationale for the derivative transaction or series
of derivative transactions, the maximum maturity and economic effect
of the derivative transactions, and any other information required by
the commissioner. Derivative transactions entered into pursuant to
this subdivision shall comply with the provisions of Section 1211.
   (7) Direct or indirect acquisitions or investments in a person
that controls the insurer or in an affiliate of the insurer in an
amount that, together with its present holdings in those investments,
exceeds 2.5 percent of the insurer's policyholder's surplus. Direct
or indirect acquisitions or investments in subsidiaries acquired
under Section 1215.1, or in nonsubsidiary insurance affiliates that
are subject to the provisions of this article, or in subsidiaries
acquired pursuant to Section 1199, are exempt from this requirement.
   (8) Any material transactions, specified by regulation, that the
commissioner determines may adversely affect the interests of the
insurer's policyholders.
   (c) A domestic insurer may not enter into transactions that are
part of a plan or series of transactions with persons within the
holding company system if the purpose of those transactions is to
avoid the statutory threshold amount and thus avoid review. If the
commissioner determines that separate transactions were entered into
over any 12-month period to avoid review, the commissioner may
exercise his or her authority under Section 1215.10.
   (d) The commissioner, in reviewing transactions under subdivision
(b), shall consider whether the transactions comply with the
standards set forth in subdivision (a) and whether they may adversely
affect the interests of policyholders.
   (e) The commissioner shall be notified within 30 days of any
investment by the insurer in any one corporation if the total
investment in the corporation by the insurance holding company system
exceeds 10 percent of the corporation's voting securities.
   (f) For purposes of this article, in determining whether an
insurer's policyholder's surplus is reasonable in relation to the
insurer's outstanding liabilities and adequate to its financial
needs, the following factors, among others, shall be considered:
   (1) The size of the insurer, as measured by its assets, capital
and surplus, reserves, premium writings, insurance in force, and
other appropriate criteria.
   (2) The extent to which the insurer's business is diversified
among the several lines of insurance.
   (3) The number and size of risks insured in each line of business.
   (4) The extent of the geographical dispersion of the insurer's
insured risks.
   (5) The nature and extent of the insurer's reinsurance program.
   (6) The quality, diversification, and liquidity of the insurer's
investment portfolio.
   (7) The recent past and projected future trend in the size of the
insurer's investment portfolio.
   (8) The recent past and projected future trend in the size of the
insurer's surplus, and the policyholder's surplus maintained by other
comparable insurers.
   (9) The adequacy of the insurer's reserves.
   (10) The quality and liquidity of investments in subsidiaries made
under Section 1215.1. The commissioner may treat any such investment
as a disallowed asset for purposes of determining the adequacy of
the policyholder's surplus whenever, in his or her judgment, the
investment so warrants.
   (11) The quality of the company's earnings and the extent to which
the reported earnings include extraordinary accounting items.
   (g) No insurer subject to registration under Section 1215.4 shall
pay any extraordinary dividend or make any other extraordinary
distribution to its stockholders until 30 days after the commissioner
has received notice of the declaration thereof and has approved the
payment or has not, within the 30-day period, disapproved the
payment.
   For purposes of this section, an extraordinary dividend or
distribution is any dividend or distribution which, together with
other dividends or distributions made within the preceding 12 months,
exceeds the greater of (1) 10 percent of the insurer's policyholder'
s surplus as of the preceding December 31st, or (2) the net gain from
operations of the insurer, if the insurer is a life insurer, or the
net income, if the insurer is not a life insurer, for the 12-month
period ending the preceding December 31st.
   Notwithstanding any other provision of law, an insurer may declare
an extraordinary dividend or distribution that is conditional upon
the commissioner's approval. The declaration confers no rights upon
stockholders until the commissioner has approved the payment of the
dividend or distribution or until the commissioner has not
disapproved the payment within the 30-day period referred to in this
subdivision.
   (h) Notwithstanding the control of a domestic insurer by any
person, the officers and directors of the insurer shall not thereby
be relieved of any obligation or liability to which they would
otherwise be subject to by law, and the insurer shall be managed to
ensure its separate operating identity consistent with the provisions
of this article. However, nothing in this article shall preclude a
domestic insurer from having or sharing a common management or
cooperative or joint use of personnel, property, or services with one
or more other persons under arrangements meeting the standards of
subdivision (a).
   (i) The provisions of this section do not apply to any insurer,
information, or transaction exempted by the commissioner.

1215.6.  (a) Subject to the limitation contained in this section,
and in addition to the powers which the commissioner has under
Article 4 (commencing with Section 730) of Chapter 1 of this part
relating to the examination of insurers, the commissioner shall also
have the power to order any insurer registered under Section 1215.4
to produce such records, books, or other information or papers in the
possession of the insurer or its affiliates as shall be necessary to
ascertain the financial condition or legality of conduct of such
insurer.
   (b) The commissioner shall exercise his power under subdivision
(a) only if the examination of the insurer under Article 4
(commencing with Section 730) of Chapter 1 of this part is inadequate
or the interests of the policyholders of such insurer are being
adversely affected.
   (c) The commissioner may retain at the registered insurer's
expense such attorneys, actuaries, accountants, and other experts not
otherwise a part of the commissioner's staff as shall be reasonably
necessary to assist in the conduct of the examination under
subdivision (a) of this section. Any persons so retained shall be
under the direction and control of the commissioner and shall act in
a purely advisory capacity.
   (d) Each registered insurer producing for examination records,
books, and papers pursuant to subdivision (a) of this section shall
be liable for, and shall pay the expense of, such examination in
accordance with Section 736 of this code.

1215.7.  All information, documents and copies thereof obtained by
or disclosed to the commissioner or any other person in the course of
an examination or investigation made pursuant to Section 1215.4, and
all information reported pursuant to Section 1215.4, shall be given
confidential treatment and shall not be subject to subpoena and shall
not be made public by the commissioner or any other person except to
insurance departments of other states without the prior written
consent of the insurance company to which it pertains, unless the
commissioner, after giving the insurer and its affiliates who would
be affected thereby notice and opportunity to be heard, determines
that the interests of policyholders, shareholders, or the public will
be served by the publication thereof, in which event he may publish
all or any part thereof in such manner as he may deem appropriate.

1215.8.  The commissioner may, upon notice and opportunity for all
interested persons to be heard, issue such rules, regulations, and
orders as shall be necessary to carry out the provisions of this
article.

1215.9.  (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.

1215.10.  (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 in the state prison, or both.
   (e) 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
in the state prison, or both imprisonment and fine. Any fines imposed
shall be paid by the officer, director, or employee in his or her
individual capacity.

1215.11.  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 such domestic insurer and to conduct the business
thereof.

1215.12.  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 such
insurer's license or authority to do business in this state for such
period as he finds is required for the protection of policyholders or
the public.

1215.13.  (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.

1215.131/2.  (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 such 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.

1215.14.  All laws and parts of laws of this state inconsistent with
this article are hereby superseded with respect to matters covered
by this article.

1215.15.  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
separable.

1215.16.  (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.