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Calif. regulator skirted protocol on Iran holdings rule

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SACRAMENTO, Calif.–California Insurance Commissioner Steve Poizner did not follow proper procedures in calling for insurers to divest themselves of investments in 50 companies that conduct business in Iran, a California agency said Monday.

The nonbinding ruling by the Office of Administrative Law agreed with a group of insurance organizations that Mr. Poizner's rule was a regulation that was subject to the state's Administrative Procedure Act. Because the rule was a formal regulation, the department should have gone through a formal rulemaking process.

In February, Mr. Poizner released a list of the companies he said do business in the Iranian oil, natural gas, nuclear and defense sectors. In a letter to insurers at the time, department General Counsel Adam M. Cole said, “The commissioner has determined that companies on the list are subject to financial risk as a result of doing business” with these sectors. The letter noted that, effective March 31, the department would not count investments in such companies or their affiliates toward reserve requirements for insurers licensed in the state.

The letter also asked the insurers to agree not to make future investments in any companies on the list.

Five trade groups responded by filing a petition in March with the OAL seeking to invalidate Mr. Poizner's rule until it had gone through a formal rulemaking process.

Sam Sorich, president of the Sacramento, Calif.-based Assn. of California Insurance Cos.—one of the groups that filed the petition—said, “We had contended all along that if the department chose to take action in this area, then at the very least it should follow the Administrative Procedure Act, just like other state agencies do.”

“We haven't had any communications with the department since the ruling came down, so we're just waiting to see what the department does next,” he said.

An insurance department spokesman said, “We feel pretty confident that most policyholders aren't enthusiastic about continued investment in Iran's oppressive regime, and while the ruling…is disappointing, we certainly believe morally we took the appropriate steps in this matter.”

“We're still going to move forward with what we're trying to do. We'll just do it a different way,” the spokesman said.

According to the department, as of February, of the 1,300 insurers licensed to do business in California, about 340 held a total of about $6 billion in investments in companies that are on the list.

In addition to the Assn. of California Insurance Cos., other organizations that petitioned the OAL were: the American Council of Life Insurers, the American Insurance Assn., the Assn. of California Life & Health Insurance Cos. and the Personal Insurance Federation of California.

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