Two separate questions describe any insurer: where it is organized, and whether it is admitted in California.
Admitted (Ins. Code §24): entitled to transact insurance in California after meeting the conditions for doing so; it holds a certificate of authority.
Nonadmitted (§25): not entitled to transact insurance in California.
Domestic (§26): organized under California law.
Foreign (§27): organized under the laws of another state, whether or not admitted. A Nevada company with a California certificate of authority is a foreign admitted insurer.
Alien: organized outside the United States.
Why admission matters to consumers: coverage that admitted insurers will not write can be placed with a nonadmitted insurer only through a surplus line broker, who must first make a diligent search among admitted insurers (§1763). The required notice (§1764.1) warns the applicant that the nonadmitted insurer is not subject to the solvency regulation that applies to California licensed insurers, and does not participate in California's insurance guarantee funds, so those funds will not pay claims if it becomes insolvent. The broker does not guarantee the claims.
Penalty (§703), as the CDI outline states it: unlawfully acting as an insurer without a certificate of authority is a misdemeanor, plus a forfeiture of $500 and $100 for each month or fraction of a month the violation continues. Count a fraction as a full month: 2 months and 10 days = $500 + 3 × $100 = $800. Under current law, §703 applies to acting for, advertising or aiding a nonadmitted insurer, and the missing certificate itself is covered by §700(b).
Inside an insurer, four major operating divisions:
- Marketing or sales: finds and serves customers.
- Underwriting: selects and classifies the risks the insurer accepts.
- Claims: investigates losses and pays valid claims.
- Actuarial: uses loss statistics to calculate rates and reserves.
In reinsurance, the primary insurer that transfers part of its loss exposure is the ceding company; the company that accepts it is the reinsurer.
Who may be an insurer: any person capable of making a contract (§150), and person includes an association, organization, partnership, business trust, limited liability company or corporation (§19). The test is capacity to contract, not the form of the business. Common forms:
Stock insurer: owned by its shareholders.
Mutual insurer: owned by its policyowners, with no shareholders. Earned surplus is what the insurer has built up from its operations; the part set aside as divisible surplus can be returned to policyowners as policy dividends.
Fraternal benefit society (§10990): no capital stock, not for profit, operating on a lodge system with a representative form of government.