Commissioner Directs California Insurers To Divest Iranian Government Holdings

California Insurance Commissioner Steve Poizner announced that he will launch an effort to probe insurance company investments for ties to Iran and immediately direct California-based insurance companies to divest any direct holdings in the Iranian government.

“State law prohibits California insurance companies from investing in countries designated as state sponsors of terrorism,” Commissioner Poizner said. “I have directed California insurers to divest of Iranian government holdings and ordered a survey of these insurance companies to ensure compliance with the law. Additionally, I am requiring all insurance companies that do business in California to disclose what, if any, indirect investments they have in Iran.”

The Department of Insurance said the Commissioner will require each insurer to report all investments they have with companies that do business with the defense, nuclear, petroleum, natural gas or banking sectors of the Iranian economy as of March 31, 2009. The DOI will also closely evaluate any indirect investments by California-based insurers in Iran to make sure that they are “safe and sound.”

The American Insurance Association (AIAA), however, criticized the decision, saying supervision of insurers’ foreign investments should be uniform and only administered at the federal level. “For matters, such as Iran, involving national security and extremely complex foreign relations, it is absolutely critical that the U.S. speak with one voice and act exclusively at the federal level,” said David Snyder, AIA vice president and associate general counsel, public policy. “We are concerned with any action, however well-intentioned, that complicates or dilutes the efforts of the United States to effectively respond to international challenges – especially on matters of national security. The issue of Iranian assets is under the national jurisdiction of the Office of Foreign Assets Control (OFAC) within the U.S. Treasury Department.”

However, the CDI said California insurance code specifically prohibits any investment respecting a foreign jurisdiction, or any investment denominated in the currency of that foreign jurisdiction, if that jurisdiction is designated as a state sponsor of terrorism. This section of the code took effect Jan. 1, 2009. The insurance code also authorizes the Insurance Commissioner to evaluate the “soundness” of investments by California insurance companies. Should the Commissioner hold a hearing and find the investments to be unsound, he can order divestment.

The goal of the survey will be to determine an insurer’s level of indirect investment in specific sectors of the Iranian economy as well as direct investments in the Iranian government, the DOI said. Each insurer licensed to do business in California will be required to list any investment in a company that conducts in excess of $20 million of business in the Iranian petroleum or natural gas sectors. Insurers will also be required to list investments of any amount in companies doing business in the banking, nuclear, or defense sectors of Iran, including activities relating to the production of chemical, biological or nuclear weapons and technologies. The companies’ reports will be due in approximately 90 days.

Preliminary CDI analysis shows that insurance companies that conduct business in California — which is the 4th largest insurance market in the world – have tens of billions of dollars of investments in companies with substantial business in Iran. Insurance companies are the largest investor group in the global economy, with an estimated $3 trillion to $4 trillion in investments.

This action will join an existing array of global and local economic and trade sanctions already in place against Iran, including measures by Congress, the European Union and the states of Missouri, Texas and Florida. California has taken similar measures in the past by directing the state’s two enormous public pension funds to divest Iranian investments.

“We need to strictly enforce every sanction that is currently in place against the government of Iran and send a clear message to Tehran’s oppressive leadership that we as a nation stand as one,” said Commissioner Poizner. “I call on my fellow state Insurance Commissioners to launch similar investigations in their jurisdictions. I will share relevant information we collect with federal and other government officials and agencies as appropriate if we detect suspected violations of federal or state laws.”

“Any actions taken by the commissioner must be consistent and in concurrence with OFAC,” said Ken Gibson, AIA vice president, state affairs. “Though the commissioner is reminding domestic insurers of a California statute that took effect in January, we encourage the commissioner to work with OFAC to ensure that his actions are consistent with federal policy.”

Before his election as Insurance Commissioner in 2006, Poizner served as a White House Fellow in the National Security Council in the aftermath of the Sept. 11, 2001, attacks and helped build a new homeland security plan for the United States. He is also is a lifetime member of the Council on Foreign Relations.

Sources: AIA, CDI