"This level of participation in the moratorium signals tremendous progress in our initiative to ensure that California policyholder dollars are not put at risk through investments in companies doing business with the Iranian nuclear, defence and energy sectors," said Poizner in statement.
"We already know that 1,000 out of the 1,300 insurance companies licensed in California have no investments in any of the 50 Iran-related companies. Now, more than one third of the insurance companies have pledged not to make new investments in those risky companies helping to prop up the Iranian regime. It's up to the other two thirds of the industry to do the right thing and agree to forgo future investments in Iran-related companies."
The announcement has caused considerable concern among five trade associations that represent California’s life, health, and property/casualty insurance industry. The Association of California Life and Health Insurance Companies, the American Council of Life Insurers, the Association of California Insurance Companies, the Personal Insurance Federation of California, and the American Insurance Association believe commissioner Poizner has exceeded his legal authority in attempting to bar insurance company investments that are not prohibited by state or federal law.
“California’s insurance commissioner has broad powers to regulate insurance companies in this state. The conduct of foreign policy is not one of them,” the groups wrote in a statement. “Insurers have repeatedly made this point to the commissioner. Insurers comply with state and federal laws regulating their investments, and the commissioner acknowledged in his press statements that insurers’ investments in companies doing business in Iran are not in violation of the law. The department has been provided with meticulous documentation of the law that defines the commissioner’s authority to regulate insurer investments.”
Last month commissioner Poizner released a list of 50 companies doing business in the Iranian oil and natural gas, nuclear and defence sectors. As of March 31, no investment held by an insurer in any company on the list will be recognised on that insurer's financial statements in California.
The commissioner has also requested that all insurers licensed to do business in California agree to a moratorium on future investments in any of the companies on the list or in any affiliates owned 50% or more by those companies until either Iran is removed from the United States State Department's list of state sponsors of terrorism or a specified company and its affiliates cease to do business with Iran's oil and natural gas, nuclear, and defense sectors and is removed from the list.
Poizner has asked insurers to respond to the moratorium request by April 2, 2010. However, the trade groups feel many questions remain unanswered.
The trade associations want further clarification on the commissioner’s legal authority to regulate the investments of insurers domiciled in states other than California, the criteria that determined which companies appeared on his list of “bad investments”, and on what basis future companies will be determined “bad”.
The trade groups are confused to see companies that no longer do business in Iran on the list. They says there also appears to be no distinction between insurers that are legally domiciled in another jurisdiction and insurers that are legally domiciled in California.
“Insurers have yet to receive satisfactory responses to these fundamental questions. Instead, the commissioner chooses to regulate without due process. California has a legal process by which regulations are proposed, reviewed and discussed in public hearings before they are adopted and enforced. The department has taken none of these steps,” said the groups.
“With no legal authority, the commissioner would establish a perilous precedent by regulating investments in this fashion. Future insurance commissioners could take similar action to restrict investments in companies that engage in any number of practices that a commissioner disagrees with or finds politically offensive. The potential list is limited only by the imagination.”
Poizner first announced his Terror Financing Probe in June 2009 to review compliance with a recent California law that prohibits insurers from investing in designated state sponsors of terror.
In December 2009, the department announced that insurers reported no direct investments in Iran. However the department uncovered billions of dollars of indirect investments in companies doing business with the Iranian oil and natural gas, nuclear and defence sectors.
Insurers that have agreed to the moratorium include: Mercury Insurance, a motor insurer; Zenith Insurance, a workers’ compensation insurer; and Anthem Blue Cross, the largest insurer in the individual health insurance market in California.