Enacted by Stats. 1935, Ch. 145.
The terms used in this article shall be given the meanings herein set forth, but such meanings shall not, merely by reason of enactment in this article, govern the interpretation of any other provision of this code.
Article 8 - Issue of Securities
California Insurance Code — §§ 820-860
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Sections (49)
Enacted by Stats. 1935, Ch. 145.
“Security” means every instrument commonly known by that term, except:
(a)Commercial paper when issued, given or acquired in a bona fide way in the ordinary course of legitimate business, trade or commerce.
(b)Promissory notes, whether secured or unsecured, if not offered to the public, and if not sold to an underwriter of the sale for the purpose of resale.
(c)Mortgage participation certificates issued under and in accordance with the provisions of Chapter 2, Part 6, Division 2.
(d)Policies of insurance issued by an insurer.
Added by Stats. 1937, Ch. 725.
Without in any manner affecting the scope of the term “security” as set forth in section 821, and with the exceptions therein set forth, the following instruments are particularly specified as securities within the meaning of that section: every stock, bond, note, treasury stock, debenture, evidence of indebtedness, certificate evidencing a contribution, certificate of interest or participation, certificate of interest in a profit sharing agreement, collateral trust certificate, any transferable share, investment contract, or beneficial interest in title to property, contracts or earnings.
Amended by Stats. 2025, Ch. 558, Sec. 1. (AB 487) Effective January 1, 2026.
Except as otherwise provided by this article, “sale” or “sell” means every disposition, or attempt or arrangement to dispose, of a security or interest in a security for value, whether done by direct or indirect means. A security is conclusively presumed to be sold for value if given with any purchase of any nature or if given as a bonus on account of a purchase. “Sale” or “sell” shall also mean a contract of sale, an exchange, any change in the rights, preferences, privileges, or restrictions on outstanding securities, an attempt to sell, an option of sale, a solicitation of a sale, a subscription or an offer to sell directly or by a stock agent, or a circular letter, advertisement or otherwise.
Amended by Stats. 1949, Ch. 256.
(a)A privilege pertaining to a security giving the holder the privilege to convert such security into another security of the same insurer is not a sale of such other security.
(b)A right pertaining to a security and entitling the holder of such right to subscribe to another security of the same insurer is not a sale of such other security, but the sale of such other security upon the exercise of such right shall be subject to the provisions of this article.
Amended by Stats. 2025, Ch. 558, Sec. 2. (AB 487) Effective January 1, 2026.
“Broker” means every person, other than a stock agent, who in this state engages either wholly or in part in the business of (a) dealing in any security issued by others, (b) underwriting any issue of such securities, (c) purchasing such securities with the purpose of reselling them, or (d) offering such securities for sale to the public. Authority to act as a broker shall not be implied from an appointment executed by an insurer appointing a stock agent of that insurer.
Amended by Stats. 2025, Ch. 558, Sec. 3. (AB 487) Effective January 1, 2026.
“Stock agent” means every person employed or appointed by an insurer or broker who, within this state and for a compensation, sells any security.
Amended by Stats. 1970, Ch. 301.
“Insurer” for the purposes of this article includes every organization organized for the purpose of assuming the risk of loss under contracts of insurance or reinsurance, and also includes any of the following organizations:
(a)An admitted insurer,
(b)A nonadmitted domestic insurer,
(c)A nonadmitted foreign insurer,
(d)A nonadmitted alien insurer,
(e)An underwritten title company, or an organization organized for the purpose of doing an underwritten title business, whether licensed or not, and
(f)An attorney in fact of a reciprocal or interinsurance exchange, whether it be admitted or not, or an organization organized for the purpose of acting as the attorney in fact of a reciprocal, or interinsurance exchange, whether the same be admitted or not.
“Insurer” shall not include, unless specified in subdivisions (a) through (f), inclusive, an organization, which though required to obtain a certificate or license from the commissioner, is organized or to be organized primarily for purposes other than assuming the risk of loss under contracts or agreements of insurance.
The amendments of this section by the Legislature at the 1965 Regular Session, except as they relate to underwritten title companies, attorneys in fact, and exclusive managers, shall be construed as a restatement and continuation of the law existing prior to such amendment. Every permit issued by the commissioner or the Commissioner of Corporations to an insurer as defined in this section prior to its amendment by the Legislature at 1965 Regular Session shall be valid and effective for all purposes stated therein, from the date of its issuance until the date of expiration stated therein.
Every permit issued by the commissioner under the authority of former subdivision (g) of this section from the date such subdivision became effective in 1965 until the effective date of the amendment to this section at the 1970 Regular Session of the Legislature shall be valid and effective for all purposes stated therein, from the date of its issuance until the expiration date specified therein.
Amended by Stats. 1978, Ch. 349.
An insurer shall not sell in this state, except upon a sale for delinquent assessment made in accordance with the provisions of Section 423 of the Corporations Code, or offer for sale, negotiate for the sale of, or take subscriptions for any security of its own issue until it shall have first applied for and secured from the commissioner a permit authorizing it so to do.
Amended by Stats. 1996, Ch. 820, Sec. 1. Effective January 1, 1997.
(a)As used in this section, the term “insurer” means an insurer which is domestic and admitted.
(b)The transactions of an insurer set out in subdivisions (c) and (d) are exempt from Section 827 if they meet all of the following requirements:
(1)They are not accompanied by an advertisement and no selling expenses have been given, paid, or incurred in connection therewith.
(2)No consideration has been given, paid, or incurred in connection with them.
(3)Within 30 days after the transaction, the insurer notifies the commissioner in writing of its occurrence. The notice shall describe the transaction, including the transaction date, the number and par value of shares issued, and the purpose of the transaction. The notice shall be executed under penalty of perjury.
(c)Par value increases resulting from a transfer of gross paid-in surplus to capital.
(d)Shares issued or distributed by an insurer as dividends to existing holders of shares of the insurer, on a pro rata basis according to the shares previously held by each holder, provided the new shares are of the same class and par value and have the same rights, preferences, privileges, and restrictions as the outstanding shares.
(e)Any transfer of surplus to paid-up capital pursuant to subsection (d) shall not be deemed consideration for purposes of this section.
(f)Notwithstanding this section, the applicable notice provisions, contained in subdivision (e) of Section 1215.4, shall apply to those transactions set forth in subdivision (d).
Added by Stats. 1977, Ch. 1020.
The term “insurer” as used in this section shall not include domestic insurers as defined in Section 26.
The following transactions of an insurer described in subdivisions (a), (c), (d), and (f) of Section 826 shall be exempt from the provisions of this article:
(a)Any negotiations or agreements prior to general solicitation for the approval of the shareholders of said insurer and subject to such approval, of a change in the rights, preferences, privileges or restrictions of or on outstanding securities or a merger, consolidation or sale of corporate assets in consideration of the issuance of securities.
(b)Any change in the rights, preferences, privileges, or restrictions of or on outstanding securities of such insurer, unless the holders of at least 25 percent of the outstanding shares or units of any class of securities which will be directly or indirectly affected substantially and adversely by such change have addresses in this state according to the records of such insurer; or
(c)Any exchange incident to a merger, a consolidation, an acquisition of outstanding stock, or a sale of corporate assets in consideration of the issuance of securities of another insurer or corporation, unless at least 25 percent of the outstanding shares of any class, the holders of which are to receive securities in the exchange of the surviving, consolidated, or purchasing corporation or insurer, are held by persons who have addresses in this state according to the records of such corporation or insurer of which they are shareholders.
(d)For the purposes of subdivision (b) and subdivision (c) of this section, (1) any securities held to the knowledge of the issuer in the names of a broker as defined in Section 824 or nominees of such broker and (2) any securities controlled by any one person who is not a resident of the State of California who controls directly or indirectly 50 percent or more of the outstanding securities of that class, shall not be considered outstanding. The determination of whether 25 percent of the outstanding securities are held by persons having addresses in this state, for the purposes of subdivision (b) and subdivision (c) of this section, shall be made as of the record date for the determination of the security holders entitled to vote on or consent to the action, if approval of such holders is required, or if not as of the date of directors’ approval of such action.
(e)Any change (other than a stock split or reverse stock split) in the rights, preferences, privileges, or restrictions of or on outstanding shares, except the following if they materially and adversely affect any class of shareholders:
(1)to add, change, or delete assessment provisions; (2) to change the rights to dividends thereon; (3) to change the redemption provisions; (4) to make them redeemable; (5) to change the amount payable on liquidation; (6) to change, add, or delete conversion rights; (7) to change, add, or delete voting rights; (8) to change preemptive rights; (9) to change, add, or delete sinking fund provisions; (10) to rearrange the relative priorities of outstanding shares; (11) to impose, change, or delete restrictions upon the transfer of shares in the articles of incorporation or bylaws; (12) to change the right of shareholders with respect to the calling of special meetings of shareholders; or (13) to change, add, or delete any rights, preferences, privileges, or restrictions of, or on, the outstanding shares or memberships of a mutual water company or other corporation organized primarily to provide services or facilities to its shareholders or members.
(f)Any stock split or reverse stock split, except the following:
(1)any stock split or reverse stock split if the corporation has more than one class of shares outstanding and the split would have a material effect on the proportionate interests of the respective classes as to voting, dividends or distributions; (2) any stock split of a stock which is traded in the market and its market price as of the date of directors’ approval of the stock split adjusted to give effect to the split was less than two dollars ($2) per share; or (3) any reverse stock split if the corporation has the option of paying cash for any fractional shares created by such reverse split and as a result of such action the proportionate interests of the shareholders would be substantially altered. Any shares issued upon a stock split or reverse stock split exempted by this subdivision shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued.
(g)Any change in the rights of outstanding debt securities, except the following if they substantially and adversely affect any class of securities:
(1)to change the rights to interest thereon; (2) to change their redemption provisions; (3) to make them redeemable; (4) to extend the maturity thereof or to change the amount payable thereon at maturity; (5) to change their voting rights; (6) to change their conversion rights; (7) to change sinking fund provisions; or (8) to make them subordinate to other indebtedness.
Added by Stats. 1980, Ch. 262, Sec. 2.
Any offer or sale of voting common stock by an insurer incorporated in this state shall be exempt from the provisions of this article if, immediately after the proposed sale and issuance, there will be only one class of stock of such insurer outstanding which is owned beneficially by no more than one domestic insurer, providing all of the following requirements have been met:
(1)All such stock shall be evidenced by certificates which have been stamped or printed prominently on their face a legend in a form to be prescribed by rule of the commissioner restricting the transfer of such stock in such manner as the rule provides.
(2)The offer and sale of such stock is not accompanied by the publication of any advertisement, and no selling expenses have been given, paid, or incurred in connection therewith.
(3)The consideration to be received by the issuer for the stock to be issued shall consist of only cash or cancellation of indebtedness for money borrowed or both upon the initial organization of the issuer, provided all such stock is issued for the same price per share.
(4)No promotional consideration has been given, paid, or incurred in connection with such issuance. Promotional consideration means any consideration paid directly or indirectly to a person who, acting alone or in conjunction with one or more other persons, takes the initiative in founding and organizing the business or enterprise of the issuer, for services rendered in connection with such founding or organizing.
Added by Stats. 1965, Ch. 1569.
Where required by this article the commissioner is authorized to issue subscription and preorganization permits of and pertaining to insurers or proposed insurers. Applications for such permits shall set forth such of the matters described in Sections 834, 835, 836 and 837 as the commissioner deems appropriate or requires.
Amended by Stats. 2011, Ch. 411, Sec. 7. (AB 1416) Effective January 1, 2012.
An offer or sale of voting common stock or preferred stock of and by a foreign or alien insurer to property broker-agents or casualty broker-agents, as defined in Section 33.5, shall be exempt from the requirements of this article if all of the following requirements are met:
(a)The sale shall not be made to more than 35 property broker-agents and casualty broker-agents in the State of California.
(b)Each property broker-agent and each casualty broker-agent to whom an offer is made is an “accredited investor” as defined in Regulation D under the Federal Securities Act of 1933, as amended.
(c)Each property broker-agent and each casualty broker-agent to whom an offer is made meets all of the following requirements:
(1)The broker-agent shall have been appointed by the admitted insurer for a period of at least one year and that admitted insurer shall meet all of the following requirements:
(A)Be authorized to transact property and casualty insurance. For purposes of this section, property and casualty insurance means insurance falling within classes 2, 3, 7, 8, 10, 11, 12, 14, 15, 16, 18, and 20 under Section 100 except home protection contracts, as defined in Section 12740.
(B)Have at least four hundred million dollars ($400,000,000) of statutory capital and surplus.
(C)Hold a certificate of authority in good standing with
this state and have no regulatory action relating to financial hazard or fraud against the company in the last three years from states, including this state, where the insurer is authorized as an admitted insurer to do business.
(D)Is currently reinsuring or has definite plans to reinsure business produced by that broker-agent with the same foreign or alien insurer offering securities to the broker-agent.
(2)The broker-agent generates five million dollars ($5,000,000) in premiums per year and plans on transferring or writing at least one million dollars ($1,000,000) per year with the admitted insurer.
(3)The broker-agent shall pay at least fifty thousand dollars ($50,000) for the securities purchased in the transaction but not in excess of five hundred thousand dollars ($500,000).
(4)The broker-agent shall have a net worth of at least five million dollars ($5,000,000).
(d)The offer and sale of stock is accompanied by the prospectus, private placement memorandum, together with any other information required pursuant to Regulation D of the Federal Securities Act of 1933.
(e)The consideration received by the issuer for the stock to be issued consists solely of cash.
(f)No promotional consideration or selling expenses have been given, paid, or incurred in connection with the issuance of stock, and the offer and sale of stock is not accompanied by the publication of any advertisement.
(g)All stock issued shall be evidenced by a certificate that shall have a notice
printed prominently on its face restricting the transfer of the stock solely to the issuer or investors who have been shareholders of the issuer for at least three years and who are approved by at least 51 percent of the members of the board of directors of the issuer.
(h)The issuer of both the common and preferred stock shall be all of the following:
(1)A foreign or alien insurer that does not transact insurance directly in California, but is solely a reinsurer.
(2)A reinsurer that only reinsures commercial lines property and casualty insurance, as specified in subparagraph (A) of paragraph (1) of subdivision (c).
Amended by Stats. 2022, Ch. 452, Sec. 194. (SB 1498) Effective January 1, 2023.
Except in the case of a broker holding a broker’s certificate issued by the commissioner under this code or by the Commissioner of Financial Protection and Innovation under the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code) and then in effect, a person, desiring or proposing to sell a security to be issued by any insurer, shall not issue, circulate, or publish any advertisement, pamphlet, prospectus, or circular concerning that security until the insurer secures from the commissioner a permit authorizing it to sell the security.
Enacted by Stats. 1935, Ch. 145.
A person shall not issue, circulate, or publish any advertisement or writing concerning any security sold by him, unless either his name is subscribed thereto, and a true copy thereof is filed in the office of the commissioner at least one day prior to the issue, publication, or circulation, or the commissioner first authorizes or consents to the issuance, circulation or publication.
Enacted by Stats. 1935, Ch. 145.
A person shall not issue, circulate, or publish any such advertisement or writing after receipt of notice in writing from the commissioner that, in his opinion, the same contains any statement that is false or misleading or otherwise likely to deceive a reader thereof.
Enacted by Stats. 1935, Ch. 145.
Every security issued by any insurer without a permit of the commissioner authorizing the same in effect at the time of the issue, shall be void. Every security issued by any insurer under a permit of the commissioner shall be void unless its provisions conform to the provisions, if any, required by the permit.
Added by Stats. 1978, Ch. 1203.
Every security of a home protection company issued or authorized to be issued prior to December 31, 1978, shall be valid even though it has been issued without a permit of the commissioner authorizing the same if, at the time of the issue or authorization, the security was qualified or exempt from qualification under the Corporate Securities Law of 1968 (Title 4, Division 1 of the Corporations Code).
Any sale, transfer, hypothecation, or other distribution of a security whose issuance is validated by this section, whether such transaction takes place before or after the effective date of this section is not prohibited by the provisions of this article.
Enacted by Stats. 1935, Ch. 145.
Every insurer that commits any of the following acts is guilty of a public offense and punishable by fine not exceeding ten thousand dollars:
(a)Selling or causing to be issued a security contrary to the provisions of this article or not in conformity with the permit of the commissioner.
(b)Applying any of the proceeds of sale of a security to any purpose other than as specified in the permit, or to a purpose specified in the permit, but in excess of the amount limited for that purpose.
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