Dodd-Frank Does Not Preempt All California's § 1011(c) Reinsurance Approval Requirements Applicable to Foreign Insurers
By Michael Rosenfield and Chris Burusco
Prior to the Dodd-Frank Act, California Insurance Code § 1011(c) required all California-admitted insurers to obtain prior approval from the California Department of Insurance for any reinsurance transaction that exceeded a 50% or 75% threshold.
In other words, even if each insurer that was a party to the reinsurance agreement was only licensed in California and was domiciled elsewhere, § 1011(c) approval was nonetheless required.
On its face, the Dodd-Frank Act appears to preempt those California approval requirements as they pertain to reinsurance transactions involving only foreign insurers.
The CDI appeared to acknowledge this preemptive effect in CDI Bulletin No. 2011-2 when the CDI stated that it:
will not exercise its discretion to conserve a non-domestic insurer for failure to obtain prior consent to such reinsurance transactions."
In the CDI’s view, however, assumption reinsurance transactions do not fall within the category of Dodd-Frank preempted reinsurance transactions.
The CDI has confirmed to us that it does not view assumption reinsurance to be a true “reinsurance” transaction, but rather a “purchase” or “sale.” Moreover, assumption reinsurance transactions are expressly included within the definition of “sale” and “purchase” in California’s Reinsurance Oversight Regulations.
Accordingly, California-admitted insurers domiciled outside California appear, at least in the CDI’s view, to remain subject to the prior approval requirements of § 1011(c) with respect to any sale or purchase transaction (including a sale or purchase involving assumption reinsurance) that exceeds the regulatory specified thresholds.
For further information, please contact Michael Rosenfield at mrosenfield@bargerwolen.com | (213) 614-7321 or Chris Burusco at cburusco@bargerwolen.com | (213) 614-7332.
