BILL ANALYSIS
AB 1051
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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 1051 (Fletcher) - As Introduced: February 27, 2009
SUBJECT : CalVet Home Loan Program: insurance programs
SUMMARY : Creates the Pooled Self-Insurance Fund in the
Department of Veterans Affairs. Specifically, this bill :
1)Declares the intent of the Legislature that the purpose of
establishing a Pooled Self-Insurance Fund is to ensure that
each of the Department of Veterans Affairs (department)
insurance reserve funds are self-sufficient and adequately
maintained for the benefit of the contract purchasers (the
veterans who purchased homes or farms for which the insurance
programs are applicable.)
2)Declares the intent of the Legislature that the department
will pool the reserves from its various insurance reserve
funds to provide reliable, affordable home protection and to
encourage the strengthening of bond ratings, thereby
increasing the efficacy of the Veterans' Farm and Home
Purchase Act of 1974.
3)Creates the Pooled Self-Insurance Fund (Fund) in the State
Treasury to be administered by the department.
4)Authorizes the department to adopt rules and regulations to
administer the Fund.
5)Authorizes the department to purchase authorized insurance out
of appropriated moneys in the Fund.
6)Requires the department to file an annual report with the
Legislature on the activities of the Fund, with specified
contents.
7)Requires a biennial audit of each of the subfunds to ensure
that adequate rates are being charged.
8)Authorizes the Fund, upon declaration of the Secretary, to
borrow from the Veterans' Farm and Home Building Fund of 1943.
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EXISTING LAW :
1)Establishes the Veterans' Farm and Home Purchase Act of 1943,
and the Veterans' Farm and Home Purchase Act of 1974, to
assist veterans in the purchase of farm and home properties.
2)Establishes the Farm and Home Building Fund of 1943 (1943
Fund) to further the purposes of the Purchase Acts of 1943 and
1974.
3)Authorizes or requires various insurance coverages to be
purchased or provided with respect to the properties in which
the department maintains an interest.
4)Authorizes the department to operate four separate insurance
reserve funds to provide adequate and affordable insurance
programs for the properties in the program. The four funds
are:
a) the Disaster Indemnity Fund, covering earthquake and
flood risks;
b) the Fire and Hazard Insurance Fund;
c) the CalVet Legacy Self-Insurance and Disability Fund;
and
d) the CalVet Primary Mortgage Insurance Fund.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . Current law does not allow the commingling of moneys
among the four insurance reserve funds operated by the
department. The author, and the sponsor, the Department of
Veterans' Affairs, argue that the change proposed by the bill
will increase the overall solvency of the program.
Specifically, they argue:
"Having all four insurance program reserves combined into
one single fund outside the 1943 Fund will create the
potential for all participating programs to remain solvent
and to subsidize any program within the pool that might
experience a shortfall, with a caveat for short-term
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reconciliation. This would eliminate the need to use the
1943 Fund to reconcile any insurance program losses.
The CalVet Pooled Fund would stabilize the reserves held by
the Program, and would strengthen the rate of CDVA's bonds,
ultimately allowing the Program to more cost effectively
fund the Home Loan Program. This proposed legislation has
the potential to increase CDVA's bond rating, which would
ultimately save money for California's deserving veterans."
2)Background . The CalVet Program has the four insurance reserve
funds noted above. All of these insurance and self insurance
programs are either mandated or authorized by state law. With
the exception of the Disaster Indemnity Fund, premiums for the
other three insurance reserve funds are paid directly into the
CalVet Program's operating fund -- the Farm and Home Building
Fund of 1943. Shortfalls experienced by the three
non-segregated funds result in use of the 1943 Fund to
reconcile a deficit.
In fiscal year 2007-2008, the Fire and Hazard Insurance Program
experienced a $1.2 million loss, while the Indemnity Program
had a $1.3 million gain. Because the premiums for Fire and
Hazard coverage are paid directly into the 1943 Fund (the fund
intended to be the primary financing mechanism for the
Veterans Farm and Home Loan Program), all claims and operating
expenses are paid directly from the 1943 Fund. Therefore, the
shortfall in the Fire and Hazard Reserve Fund resulted in the
use of 1943 Fund moneys to reconcile the deficit. In prior
years, similar problems occurred. In a worst case scenario,
insurance losses could result in a default on 1943 Fund bonds,
thereby requiring the taxpayers to make debt service payments.
The bill would separate out the property financing funds from
the insurance reserve funds so that the insurance issues do
not pose problems on the financing side.
3)Potential amendment . The goal of the legislation is to remove
insurance reserve funds from the 1943 Fund, and then combine
the four insurance reserve funds into one Pooled
Self-Insurance Fund with segregated sub-accounts, and
authorize the insurance reserve funds to subsidize each other,
as needed. The bill creates the Pooled Self-Insurance Fund,
and specifies the moneys that it shall contain, but does not
actually authorize pooling among the funds. Rather, the bill
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merely states a legislative intent that the insurance reserves
be pooled. The author may want to consider amending the bill
so that there are substantive provisions of law authorizing
the four insurance reserve funds to subsidize each other, as
well as language to control how and when that is authorized,
and how the subsidy will be reconciled.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Veterans' Affairs (Sponsor)
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086