Posted on 11 Feb 2010
California insurance commissioner Steve Poizner announced he will order the state's insurance companies to get rid of their holdings in companies with ties to Iranian energy, nuclear and defense industries. Poizner says such investments are too risky.
The order will affect about $6 billion worth of investments held by 340 insurers doing business in California, said Adam Cole, the insurance department's general counsel.
The order, which takes effect March 31, doesn't mean insurers have to forfeit or sell those investments. It means they can no longer count those investments toward their official surplus -–the minimum financial cushion they must maintain. It also will create bookkeeping headaches.
Some companies "might feel that it might be sensible to give up the investments," Cole said.
How much pressure they might feel is unclear. The $6 billion in Iran-related investments is a fraction of 1 percent of the $4 trillion investment portfolio held by the 1,300 insurers doing business in California.
Yet Poizner said the relatively small size of the Iran-related investments is an argument for selling the holdings. "They can do better than this," he said in an interview. "They do not need to be taking these risks."
Poizner said companies working in Iran are subject to "reputational risk" because of that country's instability and its nuclear program.
The linkage could become so toxic to their image that their stock prices could plummet, hurting the insurers, Poizner believes. His office has identified 50 companies working in Iran, including such major multinationals as Siemens AG, Royal Dutch Shell and several Chinese petroleum companies.
"When companies are doing business in, really, a terrorist regime like Iran, they become closely associated with the regime," Poizner said. "If things go south ... these investments could go up in smoke."
The insurance industry reacted cautiously to Poizner's policy.
"These are legal investments," said Mark Sektnan, vice president with the Association of California Insurance Companies. He wondered whether the commissioner would then choose to disqualify investments in companies that aren't sufficiently "green," for instance. "Where does it kind of stop?" Sektnan said.
Poizner has been pushing insurers for such divestiture since last year, when a state law took effect forcing insurers headquartered in California to sell their "direct" Iranian investments. Those include investments with the Iranian government or Iranian companies in the energy, nuclear and defense sectors.
Poizner discovered that no California-based insurer has any direct investments with Iran. But he concluded that he could pressure companies with "indirect" investments – such as stock in Siemens or Shell – to sell those shares by disqualifying those investments from their surplus.
Sektnan and Ken Gibson, vice president with the California office of the American Insurance Association, said it's unclear whether Poizner has the legal authority to issue such an order. In any event, two major insurers have agreed to sell their shares voluntarily, Cole said. The department wouldn't identify them.