California Insurance
Commissioner Steve Poizner’s fight to prevent insurers in the state
from owning shares in companies with Iranian business connections
has received a major setback from a ruling by the US state’s Office
of Administrative Law (OAL) that his efforts constitute an invalid
“underground regulation.”
The OAL reviews regulation
changes proposed by state agencies for legal and procedural
compliance before they can be enforced. An underground regulation
is one that the OAL rules has been instituted without following
procedure laid down by the Administrative Procedure Act.
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“The Commissioner did not
follow that required process but rather simply imposed new rules
unilaterally without any public input or comment,” noted the OAL in
a statement.
The OAL’s ruling was in
response to an appeal made in October 2010 against Poizner’s
“regulation” by the Association of California Life and Health
Insurance Companies and the American Council of Life
Insurers.
Poizner is not giving in
without a fight and has declared has filed a lawsuit challenging
the OAL ruling. Representing him is the state’s attorney general,
Jerry Brown.
In June 2009 Poizner launched
an initiative to identify Iran-related investments held by the
1,327 insurers licensed in the state. Poizner’s department then
compiled a list of 50 tainted companies which insurers holding them
were instructed to sell. Poizner warned that shares on the list
would be disallowed from inclusion in an insurer’s statement credit
for investments, an action that would reduce the capital and
surplus reported on insurers’ financial statements.
According to Poizner,
insurers opposing his ruling are in a minority with 1,010 insurers
having agreed to a moratorium on making any new investments in
companies on his list. He also noted that in 2009 insurers invested
nearly $1bn in companies on the list while in the second quarter of
2010 a mere $32m in new investments were made in companies on the
list.
Indicating significant sales of Iran-related shares, the
total value of existing insurer investments in companies on the
list stood at $1.6bn at the end of the first quarter of 2010 and
$337m at the end of the second quarter. This was down from the $2bn
identified by Poizner’s department at the end of 2009.
