Reporting from Sacramento — Nearly 300 insurance companies licensed to do business in California have refused to comply with a state regulator's request that they stop making new investments in corporations engaged in energy or defense-related work in Iran.
The insurers, including more than a dozen major firms such as State Farm, Geico and Prudential, are questioning the authority of state Insurance Commissioner Steve Poizner to impose sanctions.
By contrast, Poizner said, 1,010 other insurance companies said they would comply. The U.S. government has identified Iran's government as a sponsor of terrorism.
Poizner estimates that as of the end of 2008 insurers that do business in California held about $6 billion worth of stock in foreign-owned corporations that operate in the Islamic Republic of Iran in the areas of defense and energy, including nuclear power and petroleum.
Companies have been put on notice that those securities would be disqualified from being used as part of an insurer's legally required reserves for paying claims, the Department of Insurance said.
The $6 billion represents less than 1% of the estimated $4 trillion worth of investments held by insurers licensed in California, the department said.
On Thursday, Poizner released a list of 296 companies that have refused to agree to stop buying stock in 50 companies that operate in Iran. Many of them are oil companies or manufacturers of heavy equipment for generating electricity.
The Department of Insurance's new policy "sends a strong message to the regime in Iran," said Poizner, who is running for governor in the June 8 Republican primary election. "More than 1,000 companies have done the right thing and agreed that not another dime of their investment will go toward propping up that oppressive regime."
Critics have condemned the Iranian government's anti-Israel stance and nuclear ambitions. Some have praised Poizner for taking concrete action. "All we have seen from the United Nations and the Obama administration and Congress is mostly talk," said Rabbi Abraham Cooper, associate dean of the Simon Wiesenthal Center in Los Angeles. "In California, we have real action and tangible results."
Insurers said their disagreement with Poizner's policy has nothing to do with Iran. "State Farm cares deeply about America's security," company spokesman Bob Devereux said. "And while we respect the California Department of Insurance's interest, we believe foreign policy and rules on foreign investments can be most effectively addressed by the federal government, which regularly deals with matters of foreign policy."
State Farm remains "in full compliance with all laws and regulations" regarding its investments, he said.
Three insurance industry trade groups are challenging the validity of Poizner's Iran investment policy. They've filed a petition with the California Office of Administrative Law, arguing that the commissioner's rule constitutes a so-called underground regulation that was not properly aired in hearings that would have allowed the public to comment.
"There are a variety of reasons why people did not agree to the moratorium," said Sam Sorich, president of the Assn. of California Insurance Cos., one of the challenging organizations.
"There is concern about the department's authority to limit investments in businesses that are not prohibited by state or federal law," he said. "Secondly, there is concern about the precedent. The next commissioner for whatever reason could identify a business that does not agree with the commissioner's point of view."
The Department of Insurance is not the only government authority to weigh in on the issue of doing business with Iran. The Legislature recently passed a law requiring that two big state pension funds, the California Public Employees' Retirement System and the State Teachers' Retirement System, begin selling off stock they own in companies operating in Iran.
Both pension funds have been accused by lawmakers of dragging their feet in unloading the shares.