BILL NUMBER: SB 430	CHAPTERED  10/05/07

	CHAPTER  303
	FILED WITH SECRETARY OF STATE  OCTOBER 5, 2007
	APPROVED BY GOVERNOR  OCTOBER 5, 2007
	PASSED THE SENATE  SEPTEMBER 11, 2007
	PASSED THE ASSEMBLY  SEPTEMBER 11, 2007
	AMENDED IN ASSEMBLY  SEPTEMBER 6, 2007
	AMENDED IN ASSEMBLY  AUGUST 20, 2007
	AMENDED IN ASSEMBLY  JUNE 27, 2007

INTRODUCED BY   Senator Machado

                        FEBRUARY 21, 2007

   An act to amend Sections 10089.5, 10089.9, 10089.13, 10089.16,
10089.23, 10089.30, and 10089.33 of, and to add Section 10089.31 to,
the Insurance Code, relating to insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 430, Machado. Insurance: California Earthquake Authority.
   Existing law authorizes the California Earthquake Authority,
administered under the authority of the commissioner to transact
basic residential earthquake insurance and defines "available
capital," for the purpose of issuing policies.
   This bill would revise the definition of "available capital," as
specified.
   Existing law permits the authority to require participating
insurers to make certain additional capital assessments under
specified conditions. These assessments are required to be reduced to
zero 12 years after the commencement of authority operations. That
12-year period ends on December 1, 2008.
   This bill would specify that these assessments shall be reduced to
zero on December 1, 2008, with respect to earthquake events that
commence on or after that date. This bill would also provide that, if
claims and claim expenses paid by the authority due to earthquake
events that commence on or after December 1, 2008, exhaust existing
capital and the maximum amount of all specified assessments, the
board shall have the power to further assess participating insurers,
subject to specified maximum limits according to a specified formula.

   This bill would make various other related changes to implement
the assessment provisions that apply to earthquake events that
commence on or after December 1, 2008. The provisions of the bill
would become operative on July 1, 2008.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 10089.5 of the Insurance Code is amended to
read:
   10089.5.  As used in this chapter:
   (a) "Authority" means the California Earthquake Authority.
   (b) "Available capital" means the sum of all moneys and invested
assets actually held in the California Earthquake Authority Fund,
less loss reserves and loss adjustment expense reserves under all of
the authority's policies of residential earthquake insurance, and
less the unearned premium reserve. "Available capital" includes all
interest or other income from the investment of money held in the
California Earthquake Authority Fund. "Available capital" does not
include unearned premium, the proceeds of contracts of reinsurance
procured by or in the name of the authority pursuant to subdivision
(a) of Section 10089.10, any funds realized on capital market
contracts authorized by subdivision (b) of Section 10089.10, or the
proceeds of bonds issued by or in the name of the authority.
   (c) "Basic residential earthquake insurance" means that policy of
residential earthquake insurance described in Section 10089 except as
follows:
   (1) (A) If one year after the authority commences operation the
authority has available capital equal to or exceeding seven hundred
million dollars ($700,000,000), any policy issued or renewed on or
after that date shall provide, less any applicable deductible, not
less than two thousand five hundred dollars ($2,500) in coverage for
additional living expenses.
   (B) If the authority met the available capital requirements of
subparagraph (A) and two years after the authority commences
operation the authority has available capital equal to or exceeding
seven hundred million dollars ($700,000,000), any policy issued or
renewed on or after that date shall provide, less any applicable
deductible, not less than three thousand dollars ($3,000) in coverage
for additional living expenses.
   (2) (A) If the authority did not meet the available capital
requirement of subparagraph (A) of paragraph (1) but, two years after
the authority commences operation the authority has available
capital equal to or exceeding seven hundred million dollars
($700,000,000), any policy issued or renewed on or after that date
shall provide, less any applicable deductible, not less than two
thousand five hundred dollars ($2,500) in coverage for additional
living expenses.
   (B) If the authority met the available capital requirements as
provided by subparagraph (A) and three years after the authority
commences operation the authority has available capital equal to or
exceeding seven hundred million dollars ($700,000,000), any policy
issued or renewed on or after that date shall provide, less any
applicable deductible, not less than three thousand dollars ($3,000)
in coverage for additional living expenses.
   (d) "Board" means the governing board of the authority.
   (e) "Bonds" means bonds, notes, commercial paper, variable rate
and variable maturity securities, and any other evidence of
indebtedness.
   (f) "Capital market contract" means an agreement between the
authority and a purchaser pursuant to which the purchaser agrees to
purchase bonds of the authority.
   (g) "Nonparticipating insurer" means an insurer that elects not to
transfer or place any residential earthquake policies in the
authority.
   (h) "Panel" means the advisory panel of the authority.
   (i) "Participating insurer" means an insurer that has elected to
join the authority.
   (j) "Policy of residential property insurance" means those
policies described in Section 10087.
   (k) "Private capital market" means one or more purchasers of bonds
of the authority pursuant to a capital market contract.
   () "Qualifying residential property" includes all those
residential dwellings set forth in Section 10087.
   (m) "Residential earthquake insurance market share" means an
individual insurer's total direct premium received for (1)
residential earthquake policies and endorsements written or renewed
by the insurer in California and (2) residential earthquake policies
written or renewed by the authority for which the insurer has written
or renewed an underlying policy of residential property insurance,
divided by the total gross premiums received by all admitted insurers
and the authority for their basic residential earthquake insurance
in California.
   (n) "Residential property insurance market share" means an
individual insurer's total gross premiums received for residential
property insurance policies written or renewed by the insurer,
divided by the total gross premiums received by all admitted insurers
for residential property insurance in California.
   (o) "Revenue" means all income and receipts of the authority,
including, but not limited to, income and receipts derived from
premiums, bond purchase agreements, capital contributions by
insurers, assessments levied on insurers, surcharges applied to
authority earthquake policyholders, and all interest or other income
from investment of money in any fund or account of the authority
established for the payment of principal or interest, or premiums on
bonds, including reserve funds.
   (p) "Unearned premium reserve" means an amount equal to the
unearned portion of premiums due to, or received by, the authority on
all of its policies of residential earthquake insurance, without
deduction on account of reinsurance ceded. The unearned premium
reserve shall be charged as a reserve liability in determining the
authority's financial condition. Because the unearned premium reserve
is established and maintained to protect the interests of authority
policyholders in their unexpired authority policies, authority assets
in an amount equal to the unearned premium reserve shall not be
subject to encumbrance by, or distribution to, creditors of or
claimants against the authority unless and until the authority has
paid in full all policyholder claims and policyholder liabilities.
  SEC. 2.  Section 10089.9 of the Insurance Code is amended to read:
   10089.9.  (a) Upon commencement of participation in the authority,
each participating insurer shall be required to execute a contract
with the commissioner and the authority that sets forth its rights
and responsibilities as an authority participant. The form of
contract shall be part of the authority's plan of operations and
shall be uniform for every participating insurer.
   (b) The uniform authority participation contract required by
subdivision (a) may be modified by the full execution of a writing,
in a form drawn in accordance with this act, that embodies the mutual
intent and understandings of the commissioner, the authority, and
each participating insurer that has executed the authority
participation contract.
   (c) In the event a nonparticipating insurer elects to become a
participating insurer of the authority, the authority is authorized
to present to the nonparticipating insurer the most recent form of
the amended uniform authority participation contract it has executed
or proposed to execute with existing participating insurers and
require its execution as a condition of authority participation. The
acceptance by the authority of, and reliance by the authority on, the
executed amended authority participation contract that is authorized
by this subdivision shall not be deemed a lack of the uniformity of
contract required by subdivision (a).
  SEC. 3.  Section 10089.13 of the Insurance Code is amended to read:

   10089.13.  (a) One year following its commencement of operations,
and annually thereafter by each May 1, the authority shall report to
the Legislature and the commissioner on program operations in a
format prescribed by the commissioner. The report shall include, but
shall not be limited to, the financial condition of the authority, a
description of all rates and rating plans approved for use in the
authority, an evaluation of the functioning of the authority in light
of its stated purpose of making residential property insurance and
residential earthquake insurance more available. The report shall
also include an analysis of the growth by market share of residential
property insurance of participating insurers compared to
nonparticipating insurers, any adverse consequences on the various
insurance distribution systems resulting from the operation of the
authority or alterations in the growth of the residential property
insurance market share between participating insurers and
nonparticipating insurers, any adverse consequences of the various
insurance distribution systems resulting from the operation of the
authority or alterations in the growth of homeowners' insurance
market share between participating insurers and nonparticipating
insurers, and an analysis of any recommended program changes to
permit the authority to better fulfill its stated purpose. In making
this determination the board shall be mindful of the competitive
nature of the market and how any decision can negatively impact
insurers who are currently competing in the marketplace.
   (b) The annual report shall include full information describing
the following matters relating to the authority's condition and
affairs:
   (1) The property or assets held by the authority, including the
amount of cash on hand and deposited in banks to its credit, the
amount of cash in the hands of servicing insurance companies, the
amount of any stocks or bonds owned by the authority, specifying the
amount, number of shares, and the par and market value of each kind
of stock or bond, and all other assets, specifying each.
   (2) The liabilities of the authority, including the amount of
losses due and unpaid, the amount of claims for losses resisted by
the authority and the amount of losses in the process of adjustment
or in suspense, including all reported and supposed losses, the
amount of revenue bonds or other debt financing issues under Section
10089.29 or Section 10089.50, and all other liabilities.
   (3) Income of the authority during the preceding year, specifying
premiums received, interest money received, and income from all other
sources, specifying the source.
   (4) Expenditures of the authority during the preceding year,
specifying the amount of losses paid, the amount of expenses paid by
category, and the amount of all other payments and expenditures.
   (5) The costs and scope of all reinsurance and capital market
contracts entered into by the authority under Section 10089.10.
   (c) As part of the annual report, the authority shall make a
separate, summary report on the financial capacity of the authority
to pay claims made against the authority. Copies of this report shall
also be made available to the public. The report shall include, but
shall not be limited to, the following information, valued as of 30
days prior to the date of the report:
   (1) The available capital of the authority.
   (2) The liabilities of the authority.
   (3) The amount of all assessments previously made and the amount
of assessments that may be made in the future under Section 10089.23.

   (4) The amount of the reinsurance under contract and actually
available to the authority.
   (5) The amount of all revenue bonds or other debt financing
previously issued or contracted for and the amount of all revenue
bonds or other debt financing that may be issued or contracted for in
the future under Section 10089.29.
   (6) The amount of surcharges previously assessed against
policyholders and the amount of surcharges that are currently
outstanding against policyholders under Section 10089.29.
   (7) The amount of capital committed and actually available by
contract from private capital markets that is available to pay claims
against the authority.
   (8) The amount of all assessments previously made and the amount
of all assessments that may be made in the future under Section
10089.30.
   (9) The amount of all assessments previously made and the amount
of all assessments that may be made in the future under Section
10089.31.
   (d) In verification of the matters set forth in the annual report
provided for in subdivision (a), the Department of Finance shall
approve independent qualified auditors selected by the commissioner
to examine the books and accounts relating to all matters concerning
the financial and program operations of the authority. The
commissioner shall file a certified report of the examination with
the President pro Tempore of the Senate, the Speaker of the Assembly,
the Chairpersons of the Senate and Assembly Insurance Committees,
and the Chairperson of the Senate Committee on Judiciary within 10
days of its receipt. Copies of this report shall also be made
available to the public. The expense of examining the books and
accounts of the authority shall be paid out of the operating funds of
the authority.
   (e) The authority shall, within 120 days following a seismic event
that results in the payment of claims by the authority, and within
one year of a major seismic event that results in the payment of
claims by the authority, submit to the President pro Tempore of the
Senate, the Speaker of the Assembly, the Chairpersons of the Senate
and Assembly Insurance Committees, and the Chairperson of the Senate
Committee on Judiciary, and the commissioner a concise written report
of program operations related to that seismic event. The reports
shall include, but not be limited to, progress on payment of claims,
claims payments made and anticipated, and the functioning of the
authority in response to the seismic event. Copies of this report
shall also be made available to the public.
  SEC. 4.  Section 10089.16 of the Insurance Code is amended to read:

   10089.16.  (a) On application to the board, payment of any
assessments and fees calculated by the board, and fulfillment of any
additional requirements imposed by the board, nonparticipating
insurers may become participants in the authority with all rights and
privileges attendant to that participation.
   (b) In order to act upon any findings and recommendations reported
to the Legislature pursuant to Section 10089.13, or to implement a
specific finding by the commissioner or the board that modification
of requirements for entry into the authority is necessary to broaden
the availability of residential property or residential earthquake
insurance, the board is authorized to open the authority to
participation by insurers who have not elected to participate in
compliance with Section 10089.15. In implementing the authority
granted by this section, the board may:
   (1) Offer incentives for insurers to participate in the authority.

   (2) Allow any insurer or insurer group that has not elected to
become a participating insurer to become an associate participating
insurer without complying with the capital contribution requirements
of Section 10089.15 if it has maintained or exceeded its number of
policies of residential property insurance written as of January 1,
1996.
   (c) Any action by the board pursuant to subdivision (b) shall be
subject to the following conditions and limitations:
   (1) Any deliberation and action by the board shall be conducted at
a public meeting of the board.
   (2) No action may be taken within one year of the date upon which
the authority begins writing policies of basic residential earthquake
insurance.
   (3) The board shall have no authority to modify the requirements
of Section 10089.23, 10089.30, or 10089.31, or to provide, in any
other manner, for reduction of the liability of an insurer or insurer
group to comply with the assessments placed upon participating
insurers in the event of a loss.
   (4) Notwithstanding Section 10089.11, any action of the board
pursuant to subdivision (b) shall be by regulation promulgated by the
board. Notwithstanding any other provision of law, there shall be no
authority by the board to promulgate emergency regulations to
implement subdivision (b). No regulations may be proposed within one
year of the date upon which the authority begins writing policies of
basic residential earthquake insurance. Notwithstanding any exception
provided in Section 11343 of the Government Code, any regulation
adopted pursuant to subdivision (b) shall be submitted to the Office
of Administrative Law for approval pursuant to the Administrative
Procedure Act.
   (5) Any action by the board to establish an incentive pursuant to
subdivision (b) that is available to a single insurer or insurer
group shall be based upon standards adopted by the board that are not
arbitrary or discriminatory. Notwithstanding Section 10089.11, these
standards shall be established by regulation promulgated by the
board.
   (6) A finding of necessity pursuant to subdivision (b) shall state
the specific facts and conditions that establish the necessity and
justify the actions to implement subdivision (b). All materials and
documents prepared or used by the authority to determine the
necessity to implement subdivision (b), other than proprietary
materials and documents owned or licensed by third parties, shall be
considered public documents, and copies of the public documents shall
be made available to the public for inspection at no charge. Members
of the public may purchase copies of these documents from the
authority at actual cost.
   (d) (1) A nonparticipating insurer that applies to the board to
become an authority participant must submit to the authority, in
connection with its application, earthquake insurance policy data
sufficient for the authority to ascertain through computer modeling
the current likelihood and magnitude of earthquake insurance losses
that would be attributable to that insurer's book of earthquake
insurance business during its first full year of authority
participation. The authority's modeled representation of such insured
earthquake losses shall be termed the "earthquake insurance risk
profile" of that insurer.
   (2) If in the board's sole judgment the earthquake insurance risk
profile the nonparticipating insurer would bring to the authority
would be more likely to produce losses for the authority, or would be
likely to produce greater losses for the authority, than would a
book of existing authority business of similar size, the board may
require as a condition for approving the insurer's application that
the insurer pay up to five annual risk capital surcharges into the
authority in addition to any capital contribution required by Section
10089.15 and any assessment obligations required by Sections
10089.23, 10089.30, and 10089.31.
   (3) The board shall first calculate the nonparticipating insurer's
risk capital surcharge as of the first anniversary of the date the
insurer first placed or renewed into the authority earthquake
insurance policies. The board shall recalculate the risk capital
surcharge for each of up to four years after the first year of
calculation and shall impose the resulting surcharge; if the insurer'
s earthquake insurance risk profile becomes substantially similar to
the authority's average risk profile for a book of authority
earthquake insurance business of similar size, the board shall
relieve the insurer of any further obligation to pay risk capital
surcharges.
   (4) Each annual risk capital surcharge shall be in an amount that,
in the board's determination, is equal to the authority's increased
cost of providing capacity to insure that insurer's excess earthquake
insurance risk. The authority shall cause to be sent to each such
insurer a notice of that insurer's annual risk capital surcharge.
   (5) Full payment of a noticed risk capital surcharge shall be due
within 30 days and shall be overdue after 30 days. Penalties and
interest shall be assessed for late payments in the same manner as
provided for late payments of the insurer gross premium tax provided
for in Section 12258 of the Revenue and Taxation Code. The board may
waive the penalties and interest for good cause shown.
   (e) Associate participating insurers shall place all new policies
of residential earthquake insurance, when writing new policies of
residential property insurance, into the authority. Insurers placing
policies with the authority under this section shall be subject to
the assessments provided for in Sections 10089.23, 10089.30, and
10089.31. Notwithstanding subdivision (m) of Section 10089.5,
"residential earthquake insurance market share" for purposes of any
assessments pursuant to Sections 10089.23, 10089.30, and 10089.31
levied on an associate participating insurer shall mean an individual
associate participating insurer's total direct premium received for
residential earthquake policies written or renewed by the authority
for which the insurer has written or renewed an underlying policy of
residential property insurance, divided by the total gross premiums
received by all admitted insurers and the authority for their basic
residential earthquake insurance in California.
   (f) (1) An associate participating insurer shall not cancel or
refuse to renew a residential property insurance policy existing on
the date it elected to become an associate participating insurer
after an offer of earthquake coverage is accepted solely because the
insured has accepted that offer of earthquake coverage.
   (2) An associate participating insurer shall maintain in force any
policy of residential property insurance existing on the date it
elected to become an associate participating insurer after an offer
of earthquake insurance has been accepted, unless the policy is
properly canceled pursuant to Section 676 or the associate
participating insurer has grounds for nonrenewal pursuant to
subdivision (g).
   (g) An associate participating insurer may refuse to renew a
policy of residential property insurance after an offer of earthquake
coverage has been accepted if one of the following exceptions
applies:
   (1) The policy is terminated by the named insured.
   (2) The policy is refused renewal on the basis of sound
underwriting principles that relate to the coverages provided by the
underlying policy of residential property insurance and that are
consistent with the approved rating plan and related documents filed
with the department as required by existing law.
   (3) The commissioner finds that the exposure to potential losses
will threaten the solvency of the associate participating insurer or
place the associate participating insurer in a hazardous condition.
"Hazardous condition" has the same meaning as in Section 1065.1 and
includes, but is not limited to, a condition in which an associate
participating insurer makes claims payments for losses resulting from
an earthquake that occurred within the preceding two years and that
required a reduction in policyholder surplus of at least 25 percent
for payment of those claims.
   (4) There is cancellation under Section 676.
   (5) The associate participating insurer has lost or experienced a
substantial reduction in the availability or scope of reinsurance
coverage or a substantial increase in the premium charged for
reinsurance coverage for its residential property insurance policies,
and the commissioner has approved a plan for the nonrenewals that is
fair and equitable, and that is responsive to the changes in the
associate participating insurer's reinsurance position.
   (6) The named insured is insured based upon membership in a motor
club, as defined in Section 12142, and the membership in that
organization is terminated as provided in paragraph (2) of
subdivision (c) of Section 1861.03.
   (h) For associate participating insurers, underwriting standards
applicable to residential property insurance shall not be applied in
an unfairly discriminatory fashion against any person who accepts or
elects to continue earthquake coverage.
   (i) Associate participating insurers shall be subject to the
following requirements:
   (1) Associate participating insurers shall conform to all
provisions of the authority's plan of operation applicable to
participating insurers.
   (2) No property that has previously been covered by a policy of
residential earthquake insurance written by the associate
participating insurer or associate participating insurer group,
absent at least one full policy year with an insurer not affiliated
with the associate participating insurer or its group, may be placed
into the authority by an associate participating insurer.
   (3) Any associate participating insurer or associate participating
insurer group defined in paragraph (2) of subdivision (b) that has
failed to maintain or exceed the number of policies of residential
property insurance in force on January 1, 1996, may become an
associate participating insurer by contributing additional capital
into the authority at a rate to be established by the board, which
shall be a per policy rate comparable to the average cost per policy
paid by a participating insurer that joins the authority pursuant to
Section 10089.15.
   (j) Any associate participating insurer shall be required to
establish procedures to verify compliance with this section. The
procedures shall require verification that each basic residential
earthquake policy written by the authority complies with paragraph
(2) of subdivision (i).
   (k) Any violation of this section may be enforced as a violation
of the Unfair Trade Practices Act (Article 6.5 (commencing with
Section 790) of Chapter 1 of Part 2 of Division 1). Each policy of
basic residential earthquake insurance written in the authority by an
associate participating insurer in violation of this section shall
be deemed to be a separate violation of the Unfair Trade Practices
Act.
   (l) For purposes of this section, no insurer or associate
participating insurer may participate in the authority unless all
affiliated insurers participate in the authority.
   (m) Policies of basic residential earthquake insurance written by
associate participating insurers shall be subject to assessment by
the California Insurance Guarantee Association and shall be covered
to the extent provided in Article 14.2 (commencing with Section 1063)
of Chapter 1 of Part 2 of Division 1. Except as provided in Section
10089.34, insurance policies written by participating insurers that
are not associate participating insurers shall not be subject to
assessment by the California Insurance Guarantee Association if the
assessment is imposed to pay claims covered by policies of basic
residential earthquake insurance written by an associate
participating insurer.
  SEC. 5.  Section 10089.23 of the Insurance Code is amended to read:

   10089.23.  (a) (1) If at any time following the payment of
earthquake claims and claim expenses the authority's available
capital is reduced to less than three hundred fifty million dollars
($350,000,000), or if at any time the authority's available capital
is insufficient to pay
   benefits and continue operations, the authority shall have the
power to assess participating insurance companies subject to the
maximum limits as set forth in this section and Section 10089.30. The
assessment shall be limited to the amount necessary to pay the
outstanding or expected claims and claim expenses of the authority
and to return the authority's available capital to three hundred
fifty million dollars ($350,000,000), as determined by the board,
subject to approval by the commissioner.
   (2) Each participating insurer's assessment shall be determined by
multiplying the percentage share of the authority's total gross
written premium that is attributable to that participating insurer's
sales of authority insurance policies, as of April 30 of the
immediately preceding year or the most recent year for which premium
data not more than one year old are available, by the amount of the
total assessment sought by the authority.
   (3) The maximum permissible insurer assessments pursuant to this
section, the maximum permissible insurer assessments pursuant to
Section 10089.30 and Section 10089.31, the maximum permissible
earthquake policyholder assessments pursuant to Section 10089.29, and
the maximum permissible bond issuances or other debt financing
issued or secured by the Treasurer pursuant to Section 10089.29 shall
be reduced uniformly by multiplication of the maximum assessments
and other amounts provided in those sections by the percentage of the
total residential property insurance market share participation
attained by the authority. The total amount of all assessments levied
on participating insurance companies by the authority pursuant to
this section shall not exceed three billion dollars ($3,000,000,000),
regardless of the frequency or severity of earthquake losses at any
and all times subsequent to the creation of the authority. Once a
participating insurer has paid, pursuant to this section, amounts
equal to the percentage share of the authority's total gross written
premium attributable to that participating insurer's sales of
authority insurance policies, as of April 30 of the immediately
preceding year or the most recent full year for which premium data
not more than one year old are available, multiplied by three billion
dollars ($3,000,000,000) reduced as provided in this paragraph from
the maximum assessment, the authority's power to assess that insurer
under this section shall cease and the authority shall be prohibited
from levying additional assessments on that insurer pursuant to this
section.
   (4) Beginning December 31 of the first year of operations, and
each December 31 thereafter, the board shall adjust the maximum
permissible insurer assessments pursuant to this section, the maximum
permissible insurer assessments pursuant to Sections 10089.30 and
10089.31, the maximum permissible authority policyholder assessment
pursuant to Section 10089.29, and the maximum permissible bond
issuances or other debt financing issued or secured by the Treasurer
pursuant to Section 10089.29 to reflect the market share of new
insurers entering into the authority as authorized by Sections
10089.15 and 10089.16 and participating insurers withdrawing from the
authority as authorized by Section 10089.19. The adjustments shall
be made in the same manner as authorized by paragraph (3).
   (b) In the case of any insurer assessment, the authority shall
cause to be sent to each participating insurer a notice of that
insurer's assessment, and full payment shall be due within 30 days
and shall be overdue after 30 days. Penalties and interest shall be
assessed for late payments in the same manner as provided for late
payments of the insurer gross premium tax pursuant to Section 12258
of the Revenue and Taxation Code. The board may waive the penalties
and interest for good cause shown. The board shall make every effort
to assess insurers only for funds reasonably anticipated to be
necessary for claims payments and claim expenses and to return the
authority's available capital to three hundred fifty million dollars
($350,000,000).
   (c) Notwithstanding the other provisions of this section, the
aggregate assessment the authority is authorized by this section to
impose shall be reduced to zero on December 1, 2008, with respect to
earthquake events that commence on or after December 1, 2008.
   (d) The authority shall not assess a participating insurer under
this section based on any insurance business that is attributable to
the insurer selling the insurer's insurance products that supplement
or augment the basic residential earthquake insurance provided by the
authority.
  SEC. 6.  Section 10089.30 of the Insurance Code is amended to read:

   10089.30.  If claims and claim expenses paid by the authority due
to earthquake events exhaust the total of (a) the authority's
available capital, (b) the maximum amount of all insurer capital
contributions and assessments pursuant to Sections 10089.15 and
10089.23, (c) all reinsurance actually available and under contract
to the authority, (d) the maximum amount of all authority
policyholder assessments pursuant to Section 10089.29, and (e) all
capital committed and actually available from the private capital
markets, the board, subject to the approval of the commissioner,
shall have the power to assess participating insurance companies
subject to the maximum limits in this section. Each participating
insurer's assessment shall be determined by multiplying the
percentage share of the authority's total gross written premium
attributable to that participating insurer's sales of authority
insurance policies, as of April 30 of the immediately preceding year
or the most recent year for which premium data not more than one year
old are available, by the amount of the total assessment sought by
the authority. The total amount of all assessments levied against
participating insurance companies by the authority pursuant to this
section shall not exceed two billion dollars ($2,000,000,000),
regardless of the frequency or severity of earthquake losses at any
and all times subsequent to the creation of the authority. Once a
participating insurer has paid, pursuant to this section, amounts
equal to its percentage share of the authority's total gross written
premium, multiplied by two billion dollars ($2,000,000,000) reduced
from the maximum assessment as provided in paragraph (3) of
subdivision (a) of Section 10089.23, the authority's power to assess
that insurer under this section shall cease and the authority shall
be prohibited from levying additional assessments on that insurer
pursuant to this section. The assessment shall be limited to the
amount necessary to pay the expected claims and claim expenses of the
authority and return the authority's available capital to three
hundred fifty million dollars ($350,000,000), as determined by the
board, subject to approval by the commissioner.
  SEC. 7.  Section 10089.31 is added to the Insurance Code, to read:
   10089.31.  If claims and claim expenses paid by the authority due
to earthquake events that commence on or after December 1, 2008,
exhaust the total of all (a) the authority's available capital, (b)
the maximum amount of all insurer capital contributions and
assessments pursuant to Sections 10089.15, 10089.23, and 10089.30,
(c) all reinsurance actually available and under contract to the
authority, (d) the maximum amount of all authority policyholder
assessments pursuant to Section 10089.29, and (e) all capital
committed and actually available from the private capital markets,
the board, beginning December 1, 2008, for earthquake events
commencing on or after December 1, 2008, shall have the power to
assess participating insurance companies subject to the maximum
limits in this section. Each participating insurer's assessment shall
be determined by multiplying the percentage share of the authority's
total gross written premium attributable to that participating
insurer's sales of authority insurance policies as of April 30 of the
immediately preceding year, or the most recent year for which
premium data not more than one year old are available, by the amount
of the total assessment sought by the authority. The total amount of
all assessments levied against participating insurance companies by
the authority pursuant to this section shall not exceed one billion
seven hundred eighty million dollars ($1,780,000,000), regardless of
the frequency or severity of earthquake losses at any and all times
subsequent to the creation of the authority. Once a participating
insurer has paid pursuant to this section amounts equal to its
percentage share of the authority's total gross written premium,
multiplied by one billion seven hundred eighty million dollars
($1,780,000,000) reduced as provided in paragraph (3) of subdivision
(a) of Section 10089.23 from the maximum assessment, which is to be
reduced periodically pursuant to subdivision (b) of Section 10089.33,
or upon the earlier occurrence of the effective date stated in
paragraph (6) of subdivision (b) of Section 10089.33, the authority's
power to assess that insurer under this section shall cease and the
authority shall be prohibited from levying additional assessments on
that insurer pursuant to this section. The assessment shall be
limited to the amount necessary to pay the expected claims and claim
expenses of the authority and return the authority's available
capital to three hundred fifty million dollars ($350,000,000), as
determined by the board.
  SEC. 8.  Section 10089.33 of the Insurance Code is amended to read:

   10089.33.  (a) If the average daily balance of the authority's
available capital exceeds six billion dollars ($6,000,000,000) for
the last 180 days of any calendar year, the board shall relieve all
participating insurers of their obligation to pay additional
earthquake loss assessments under Section 10089.30, by an aggregate
amount equal to the amount of available capital in excess of six
billion dollars ($6,000,000,000). Each December 31 thereafter, the
board shall further reduce the aggregate assessment authorized under
Section 10089.30 by the net increase in available capital in excess
of the previous levels of available capital at which a reduction in
the aggregate Section 10089.30 assessment was made. No reduction
pursuant to this subdivision shall exceed 15 percent of the original
aggregate Section 10089.30 assessment in any year of operation of the
authority.
   (b) Commencing April 1, 2010, and on each April 1 thereafter, but
only in years that such relief is authorized by this subdivision, the
board shall reduce the combined assessment obligation of all
participating insurers under Section 10089.31 by 5 percent of the
maximum aggregate Section 10089.31 assessment authorized as of
January 1, 2009, as provided in this subdivision. Each year of
Section 10089.31 assessment reduction is referred to in this
subdivision as an "assessment-reduction year." Assessment reductions
shall take place as follows:
   (1) Unless the authority has made payments and established
appropriate reserves for claims and claim expenses, including for
losses incurred but not reported, that in the aggregate exceeded five
hundred million dollars ($500,000,000) on account of a single
earthquake event commencing in 2009, as certified by the authority's
consulting actuary and accepted by the board, and the authority's
available capital as of January 1, 2010, did not exceed the authority'
s available capital as of December 1, 2008, then effective April 1,
2010, the maximum aggregate Section 10089.31 assessment shall be
reduced by an amount equal to the sum of an amount equal to 5 percent
of the initial maximum aggregate Section 10089.31 assessment amount
and an amount equal to the retained earnings differential, and 2009
shall be an assessment-reduction year.
   (2) Unless the authority has made payments and established
appropriate reserves for claims and claim expenses, including for
losses incurred but not reported, that in the aggregate exceeded five
hundred million dollars ($500,000,000) on account of a single
earthquake event commencing in 2010, as certified by the authority's
consulting actuary and accepted by the board and the authority's
available capital as of January 1, 2011, did not exceed the authority'
s available capital as of December 1, 2008, then effective April 1,
2011, the maximum aggregate Section 10089.31 assessment shall be
reduced by an amount equal to the sum of an amount equal to 5 percent
of the initial maximum aggregate Section 10089.31 assessment amount
and an amount equal to the retained earnings differential, and 2010
shall be an assessment-reduction year.
   (3) Beginning in 2012 and each year thereafter, unless the
authority made payments and established appropriate reserves for
claims and claim expenses, including for losses incurred but not
reported, that in the aggregate exceeded five hundred million dollars
($500,000,000) on account of all earthquake events commencing in the
preceding year, as certified by the authority's consulting actuary
and accepted by the board and the authority's available capital as of
January 1 of that year did not exceed the authority's available
capital as of December 1, 2008, then effective April 1 of that year,
the maximum aggregate Section 10089.31 assessment shall be reduced by
an amount equal to the sum of an amount equal to 5 percent of the
initial maximum aggregate Section 10089.31 assessment amount and an
amount equal to the retained earnings differential, and the preceding
year shall be an assessment-reduction year.
   (4) If through operation of this subdivision a year is not deemed
an assessment-reduction year, no subsequent year shall be an
assessment reduction year unless and until either the authority's
available capital as of a subsequent April 1 exceeds the authority's
available capital as of December 1, 2008; or the limitation
established in paragraph (5), below, occurs.
   (5) No more than two annual periods may be deemed not to
constitute assessment-reduction years.
   (6) Effective on the day after the last day of the 10th
assessment-reduction year authorized by the board, the remaining
maximum aggregate Section 10089.31 assessment shall be reduced to
zero.
   (7) As used in this section, "retained earnings differential"
means the positive dollar-amount difference between: (A) the
authority's positive one-year retained-earnings growth for the
preceding calendar year, minus (B) the authority's capacity growth
for the preceding calendar year, both calculated as of December 31.
As used in this paragraph, "one-year retained-earnings growth" means
the difference between the authority's cumulative retained earnings
at December 31 of the preceding calendar year and the authority's
cumulative retained earnings at December 31 of the year before the
preceding calendar year, calculated in accordance with generally
accepted accounting principles as of the preceding December 31. As
used in this paragraph, the term "capacity growth" is the one-year
amount of purchased risk transfer, such as reinsurance, or borrowed
risk transfer such as bonds, put in place in the authority's
financial structure to account for the authority's aggregate exposure
growth over the preceding year ending December 31. The board shall
be authorized and entitled, in its sole discretion, to make all final
decisions regarding the authority's level of financial strength and
security and the authority's choice and use of financing and
risk-transfer mechanisms. As used in this paragraph, the term
"aggregate exposure" means the aggregate of the limits of liability
under all coverages of all earthquake insurance policies issued by
the authority.
   (c) In no event shall the board reinstate, in whole or in part,
any assessment obligation it has reduced pursuant to this section.
  SEC. 8.  The provisions of this act shall become operative on July
1, 2008.