Insurers Disagree With Calif. Over Divesture of Iranian Investments

March 29, 2010

California Insurance Commissioner Steve Poizner announced that 460 insurers have agreed in writing to a moratorium on future investments in 50 companies identified by the California Department of Insurance (CDI) to be doing business with the Iranian energy, nuclear and defense sectors. Meanwhile, five trade associations representing California’s life, health and property/casualty insurance industry said Poizner has exceed his legal authority in barring Iranian insurance company investments.

Poizner said 1,000 out of the 1,300 insurance companies licensed in California have no investments in any of the 50 Iran-related companies, and 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. Among the insurers that have agreed to the moratorium are Mercury Insurance, Zenith Insurance and Anthem Blue Cross.

“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, defense and energy sectors,” he said. “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.”

On Feb. 10, Commissioner Poizner released a list of 50 companies doing business in the Iranian oil and natural gas, nuclear and defense sectors.

However, the press release, the list of companies doing business in Iran, the letter to insurers and its attached response form – present a number of serious concerns, according to the Association of California Insurance Companies, the Association lf California Life and Health Insurance Companies, the Personal Insurance Federation of California and the American Insurance Association.

“Any company compelled to be a signatory to the Response Form has fiduciary duties to its stakeholders to invest its resources in a manner that is prudent and yields acceptable returns. Before any company can consider the Department’s initiative in a responsible manner and fully understand the ramifications of signing the Response Form, we believe it is imperative that the potential impact of the Iran-related initiative on insurers’ investment duties and the following areas of concern be addressed and clarified,” the association said.

Among the areas of concern are:

  • Where does the commissioner finds the legal authority to regulate the investments of insurers domiciled in states other than California? It is the prerogative of the regulators in those states to regulate insurance companies domiciled in those jurisdictions.
  • On what criteria did the Commissioner determine the companies that appear on his list of “bad investments?” There are companies on the list that no longer do business in Iran. calPERS and presumably other institutional investors have significant holdings in companies on that list.
  • On what basis will the Commissioner determine in the future what companies are “bad?” How will insurers make future investment decisions?

“At the outset, let us say that we are not taking issue with your point that the present government of Iran poses a huge threat to the security of the United States and the world,” the associations said in a letter to Poizner. Yet “with no legal authority, the Commissioner would establish a perilous precedent by regulating investments in this fashion. Future insurance commissioners could take similar actions 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.

According to the Commissioner’s office, as of March 31, no investment held by an insurer in any company on the list will be recognized on that insurer’s financial statements in California. Second, the Commissioner 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 percent or more by those companies until either (a) Iran is removed from the United States State Department’s list of state sponsors of terrorism or (b) 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. Commissioner Poizner initially asked insurers to respond to the moratorium request by March 12. At the request of the insurance industry, he extended that deadline to April 2.

CDI plans to release additional information regarding the insurance industry response to the request for an investment moratorium in the coming weeks along with other data on insurance industry investments in Iran.

Earlier this year, Commissioner Poizner announced that 100 percent of the 1,327 insurance companies licensed in California responded to his request to provide data on their investments with companies doing business with Iran’s oil and natural gas, nuclear and defense sectors.

Commissioner 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. As part of a data call issued by the Commissioner, insurance companies were required to identify their direct investments in designated sectors of the Iranian economy and indirect investments in companies doing business in those sectors. In December 2009, the Department announced that insurers reported no direct investments in Iran and therefore are in full compliance with state law prohibiting those investments. But the Department uncovered billions of dollars of indirect investments in companies doing business with the Iranian oil and natural gas, nuclear and defense sectors.

Sources: CDI, ACLHIC, ACIC, PIFC, AIA, ACLI

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