BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1407
                                                                  Page  1


          SENATE THIRD READING
          SB 1407 (Banking, Finance and Insurance Committee)
          As Amended  April 12, 2010
          Majority vote 

           SENATE VOTE  :30-0  
           
           INSURANCE           12-0        APPROPRIATIONS      17-0        
           
           ----------------------------------------------------------------- 
          |Ayes:|Solorio, Gaines,          |Ayes:|Fuentes, Conway,          |
          |     |Anderson, Caballero,      |     |Bradford,                 |
          |     |Charles Calderon, Carter, |     |Charles Calderon, Coto,   |
          |     |Feuer, Hagman, Hayashi,   |     |Davis,                    |
          |     |Niello, Salas, Torres     |     |De Leon, Gatto, Hall,     |
          |     |                          |     |Harkey, Miller, Nielsen,  |
          |     |                          |     |Norby, Skinner, Solorio,  |
          |     |                          |     |Torlakson, Torrico        |
           ----------------------------------------------------------------- 

           SUMMARY  :   Authorizes 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  








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               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  
            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 (CDI), 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 CDI,  
            several of the more risky investments authorized for private  








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            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.


           Analysis Prepared by  :    Mark Rakich / INS. / (916) 319-2086 


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