BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1407| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ CONSENT Bill No: SB 1407 Author: Senate Banking, Finance and Insurance Committee Amended: 4/12/10 Vote: 21 SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/21/10 AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Lowenthal, Padilla, Price, Runner NO VOTE RECORDED: Cox, Liu SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SUBJECT : State Compensation Insurance Fund SOURCE : State Compensation Insurance Fund DIGEST : This bill provides that the State Compensation Insurance Fund may invest its excess funds in a manner similar to private insurance carriers, subject to specified exceptions. ANALYSIS : Existing law: 1. Provides that liability for an injured worker covered under the workers' compensation system is determined "irrespective of the fault of any party". 2. Specifies that coverage is based on defined employment CONTINUED SB 1407 Page 2 relationships so every employer in California must either carry workers' compensation insurance or obtain a certificate of self-insurance. 3. Authorizes insurance to be obtained privately, through private insurance carriers licensed and admitted to provide workers' compensation insurance in California or through the state's own insurance fund, the State Compensation Insurance Fund (SCIF), a quasi-governmental entity. 4. Provides that as an insurance provider, SCIF is administered by an independent board of directors for the purpose of providing workers compensation insurance. 5. Specifies that all moneys that are in excess of SCIF's current requirements can "be invested and reinvested, from time to time, in the same manner as provided for private insurance carriers" pursuant to specified provisions of law. 6. Authorizes private insurance carriers, other than SCIF, a broad variety of specific investment categories which are allowed for making excess fund investments. This bill: 1. Authorizes SCIF to invest its excess monies under the Excess Funds Investment law applicable to private insurance carriers subject, however, to withholding investment authorization by SCIF in the following classes of investment: A. Investments in corporate stock (Section 1191 of the Insurance Code [INS]). B. Exchange traded call options on common stock (INS Section 1191.1). C. Call options on interest-bearing federal home loan securities (INS Section 1191.5). D. Loans secured by first liens on unencumbered leaseholds (INS Section 1192.2). SB 1407 Page 3 E. Investments in Canadian corporations(INS Section 1192.4). F. Investments in mortgages or mortgage-backed securities (INS Section 1192.6). G. Investments in participation certificates in interest-bearing corporate debt (INS Section 1192.7). H. Shares in an investment company specified in the Federal Investment Company Act of 1940 (INS Section 1192.9). I. Investment in investment pools and cash management pools (INS Section 1192.95 ). J. Securities of an unaffiliated business entity (INS Section 1192.10 ). K. Federal home loan bank stock (INS Section 1194.7). L. Investments in real estate and leases (INS Section 1194.8). M. Notes or bonds secured by a mortgage or other first lien on unencumbered real property (INS Section 1194.81). N. Notes or bonds secured by a mortgage or other second lien on encumbered real property (INS Section 1194.82). O. Corporate stock (INS Section 1198). P. Corporate stock of a single corporation (INS Section 1199). Prior and Related Legislation AB 616 (Ellis), Chapter 738, Statutes of 1979, enacted the SCIF investment statute which SB 1407 modifies. The Legislative Counsel Digest of the 1979 bill stated that "Existing law provides that excess fund monies (of SCIF) SB 1407 Page 4 may be invested in securities authorized for investments by savings banks. This bill would instead permit the fund to invest such excess funds in the same manner provided for private insurance carriers." FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 5/4/10) State Compensation Insurance Fund (source) ARGUMENTS IN SUPPORT : According to SCIF, the bill's sponsor, this bill will align the language of the SCIF law with the understanding that has prevailed since 1980 that its authority to invest excess funds is generally like that of private insurance carriers and other state workers' compensation funds. JJA:mw 5/4/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****