Poizner's Iranian Investments Rule Found to Be Improper

California Insurance Commissioner Steve Poizner acted improperly when he took action against insurance companies whose investments were connected to elements of the Iranian economy, according to the state Office of Administrative Law.

Poizner's move to limit the investments that insurance companies can make was an underground regulation, not adopted according to the formal process, the office determined in a nonbinding finding in response to formal objections by some insurers.

"The commissioner failed to adopt such rules under state law as provided in the Administrative Procedure Act," Steve Suchil, American Insurance Association assistant vice president of the Western region, said in a statement. "Insurers fully comply with all state and federal laws as pertaining to investments and disclosure. AIA and other trade associations petitioned the Office of Administrative Law to find that the commissioner's actions were improper underground regulations."

In 2009, Poizner announced that insurance companies doing business in California with any investments in companies that do business with the oil and gas, nuclear and defense sectors of the Iranian economy would no longer be able to apply the value of those investments to surplus and reserve requirements. Such indirect investments present both an inherent risk of financial instability to insurers and consumers, Poizner said (BestWire, Feb. 10, 2010).

In January, the department reported all 1,327 insurance companies licensed in California had complied with a call to report any investments in companies doing business with Iran's defense, nuclear, energy and banking industries (BestWire, Jan. 8, 2010). A 2009 state law amended the California insurance code to prohibit investments "respecting a foreign jurisdiction" or "in the currency of that foreign jurisdiction" that is designated as a state sponsor of terrorism. The insurance code also authorizes the commissioner to evaluate the soundness of investments by California insurance companies.

The department is reviewing the OAL decision and is reviewing its next steps, Press Secretary Ioannis Kazanis said. "We still remained committed to this issue. We still think we're on the right side of this issue from a moral perspective," he said.

Insurers licensed to do business in California held $2 billion on investments in 50 companies that do business with Iran's nuclear, energy and defense sectors at the end of 2009, a figure that is down to $1.6 billion, according to data for the first quarter of 2010, according to the insurance department. Iranian-related investments are less than 0.20% of investments held by companies that do business in California, according to a department spokesman (BestWire, March 29, 2010). More than 1,000 of approximately 1,300 insurance companies licensed in California have reported they have no investments in the 50 companies (BestWire, July 6, 2010).

Poizner is concluding his last year as insurance commissioner. He was an unsuccessful candidate for the Republican nomination for governor.