BILL ANALYSIS
SB 1407
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Date of Hearing: June 23, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 1407 (Committee on Banking, Finance, and Insurance) - As
Amended: April 12, 2010
SENATE VOTE : 30-0
SUBJECT : State Compensation Insurance Fund: investments
SUMMARY : Would authorize the State Compensation Insurance Fund
(SCIF) to invest its "excess" funds in the same investments as
domestic insurers, subject to exceptions. Specifically, this
bill :
1)Authorizes SCIF to invest its "excess" funds in the same
classes of investments that a private domestic insurer may
invest in.
2)Adopts exceptions to the broad grant of authority to invest
consistent with the excess funds investments law by
prohibiting SCIF from making the following classes of
investments otherwise authorized by that law:
a) Corporate stock,
b) Exchange traded call options on common stock,
c) Call options on interest bearing federal home loan
securities,
d) Loans secured by first liens on unencumbered leaseholds,
e) Canadian corporations,
f) Mortgages and mortgage-backed securities,
g) Participation certificates in interest bearing corporate
debt,
h) Shares in an investment company organized pursuant to
specified federal laws,
i) Investment and cash management pools as defined in
California law,
j) Securities of an unaffiliated business entity,
aa) Federal home loan bank stock, and
bb) Real estate and leases.
EXISTING LAW :
1)Authorizes SCIF to invest in a very narrow range of investment
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options.
2)Authorizes domestic insurers to invest its "excess" funds in a
specific range of investments, and prohibits investment in any
investment not specifically authorized.
3)Defines excess funds investments as investments made with
monies that are held by the insurer in excess of any amount of
minimum mandatory paid-in capital.
4)Specifies a very limited and secure range of investment that
may be made with funds equaling minimum paid-in capital.
5)Authorizes domestic insurers to invest a small portion of
their assets in higher return, higher risk investment (so
called "leeway law" investments).
FISCAL EFFECT : Undetermined but presumably minor, absorbable
costs to the Department of Insurance, as this bill was referred
to the Senate Floor from the Senate Appropriations Committee
pursuant to Senate Rule 28.8.
COMMENTS :
1)Purpose . According to the Senate Committee on Banking,
Finance and Insurance, the intent of the existing law was to
authorize SCIF to invest in the same investments as domestic
insurers. However, existing law listed the specific
investment authorizations. Over the years, the range of
investment has expanded for domestic insurers, but it was not
clear that these expansions applied to SCIF.
2)Certain investments excluded . In consultation with the
Department of Insurance, several of the more risky investments
authorized for private insurers have been excluded from the
bill's general authorization to expand SCIF's investment
opportunities.
3)Support . SCIF writes in support that it wishes to clarify the
scope of its investment authority, and strengthen its
investment portfolio by obtaining clear authority to invest in
sound investments that generate better returns than under
current law.
REGISTERED SUPPORT / OPPOSITION :
SB 1407
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Support
State Compensation Insurance Fund
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086