BILL ANALYSIS                                                                                                                                                                                                    






                        SENATE COMMITTEE ON BANKING, FINANCE,
                                    AND INSURANCE
                           Senator Ronald Calderon, Chair

          
          SB 1408 (Comm. On Banking, Finance & Insurance) Hearing Date:   
          April 21, 2010  

          As Introduced: February 19, 2010
          Fiscal:             No
          Urgency:       No
          

           SUMMARY    Would include within the stated purpose of  
          California's CLHIGA law, which applies to a member insurer's  
          failure to perform its contractual obligations because of an  
          impairment or insolvency of the insurer that issued the  
          policies, that it includes coverage of "annuities or other"  
          contracts.  
          
           DIGEST
            
          Existing law
            
           1.  Provides a mechanism, within the California Life and Health  
              Insurance Guarantee Association (CLHIGA) Act, for the payment of  
              claims against insolvent life and health insurance companies if  
              the claims arise under qualifying insurance policies.
           2.  Authorizes coverage for qualified persons under direct,  
              nongroup life, health, annuity and supplemental policies, and  
              contracts and includes special provisions pertaining to annuity  
              contracts, and certificates under group annuity contracts, as  
              defined, and includes subsequent excluding from the CLHIGA Act  
              coverage specified types of unallocated annuity contracts as  
              defined.
           3.  Specifies that Section 1067.01, which states the purpose of the  
              CLHIGA Act, shall be liberally construed to effect the purpose  
              of the Act and shall constitute an aid and guide to  
              interpretation. 
           

          This bill

            1.  Would revise the provision of law describing the purpose of  
              the CLHIGA Act to expressly state it applies to matters  
              "arising" under the kinds of polices covered by the Act and  




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          1408 (Comm. On B,F&I), Page 2



              to include reference to the impairment or insolvency of the  
              member insurer that issued the "annuities", in addition to  
              current references to its application to the impairment or  
              insolvency of an insurer which issued the policies and  
              contracts. 

           COMMENTS

          1.  Purpose of the bill   This bill  clarifies the purpose  
              statement of the California Life and Health Insurance  
              Guarantee Association Act, which by law is intended as an  
              aid and guide to interpretation of the CLHIGA Act,  that it  
              applies to "annuities and other" contracts which are  
              specified in the Act and its subsequent amendments.   


           2.  Background  In the current fiscal times, California's system  
              of insurance company regulatory oversight works in tandem  
              with the California Life and Health Insurance Guarantee  
              Association (CLHIGA) to provide important protections for  
              California's buyers of life and health insurance policies  
              and contracts, including annuities, other than specified  
              unallocated annuities.

          3.  SB 1408 provides interested parties more express assurance  
              that the purpose of California's CLHIGA law, which applies  
              to a member insurer's failure to perform its contractual  
              obligations because of an impairment or insolvency of the  
              insurer that issued the policies, includes coverage of  
              "annuities". 

          4.   In the current economic environment, the relative  
              importance of annuities for those who own them has increased  
              in importance. A simple way to view annuities is that they  
              function like life insurance in reverse. Life insurance  
              safeguards an individual and their loved ones in the event  
              of an early death while an annuity protects its owner  
              running out of money over a long life. 

          5.  As with life insurance, annuities rely on the concept of  
              pooled risk so that an individual's uncertainty as to the  
              length of their life is shifted from them to their insurance  
              company and all the other annuitants who purchase annuities  
              from that company. 

          6.  Annuities are the only financial instruments available  




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          1408 (Comm. On B,F&I), Page 3



              today, other than Social Security and pensions, that offer a  
              guaranteed lifetime stream of income during retirement.  
              Along with giving retirees the peace of mind that comes from  
              knowing that they will not outlive their assets, annuities  
              provide another important benefit-a way to increase current  
              income.

          7.  This ability of annuities to provide a guaranteed stream of  
              income makes their strength, and reliability, highly  
              important in this period when many other investments have  
              suffered serious declines in value and other setbacks.

          8.  AB 1408 does not expand the scope of California's Life and  
              Health Insurance Guarantee Association Act but will, at a  
              time when annuities have increased in importance as a  
              retirement tool, make the stated purpose and protections  
              provided by CLHIGA for annuities more explicit to insureds  
              and the public alike.

           9.  Support   None

           10. Opposition    None
          
          11. Questions   None

           12. Suggested Amendments  . None

           13. Prior and Related Legislation   None 

           
          POSITIONS
          
          Support
           
          None
           
          Oppose
               
          None

          Consultant:   Kenneth Cooley (916) 651-4102