BILL ANALYSIS                                                                                                                                                                                                    


          |SENATE RULES COMMITTEE            |                  SB 1408|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
                              UNFINISHED BUSINESS

          Bill No:  SB 1408
          Author:   Senate Banking, Finance and Insurance Committee
          Amended:  8/2/10
          Vote:     27 - Urgency

           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 FLOOR  :  33-0, 4/29/10 (Consent) 
          AYES: Aanestad, Alquist, Ashburn, Calderon, Cedillo,  
            Cogdill, Corbett, Correa, Cox, DeSaulnier, Ducheny,  
            Dutton, Florez, Hancock, Harman, Hollingsworth, Huff,  
            Kehoe, Leno, Liu, Lowenthal, Negrete McLeod, Oropeza,  
            Padilla, Pavley, Price, Runner, Simitian, Steinberg,  
            Walters, Wolk, Wright, Wyland
          NO VOTE RECORDED: Denham, Romero, Strickland, Wiggins, Yee,  
            Vacancy, Vacancy

           ASSEMBLY FLOOR  :  75-0, 8/18/10 - See last page for vote

           SUBJECT  :    California Life and Health Insurance Guarantee
                        Association Act

           SOURCE  :     Author

           DIGEST  :    This bill increases the coverage limits payable  
          by the California Life and Health Insurance Guarantee  
          Association on several categories of life insurance  


                                                               SB 1408

          products and modernizes the language of the life insurance  
          guarantee association law to more closely conform to the  
          national standards based on the National Association of  
          Insurance Commissioners' Model Law.

           Assembly Amendments  revise and recast provisions of the  
          California Life and Health Insurance Guarantee Association  
          Act, including, but not limited to, the powers and duties  
          of the association, coverage eligibility, the conditions  
          and procedures for payment of a claim, association  
          reporting requirements, add and urgency clause, and make  
          other related changes.

           ANALYSIS  :    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 affect  
            the purpose of the Act and shall constitute an aid and  
            guide to interpretation. 

          This bill:

          1. Increases the coverage limit for death benefits from  
             $250,000 to $300,000. 

          2. Increases the coverage limit for annuities and  
             structured settlements from $100,000 to $250,000. 

          3. Increases the interest rate rollback calculation in  
             cases where an interest rate must be calculated or  


                                                               SB 1408

             recalculated, and establishes a uniform trigger date for  
             when an interest rate calculation is to be made.  The  
             effect of this change is that policyholders with  
             variable interest rates will receive a higher return  
             than authorized by the current calculation method. 

          4. Increases the amount that insurers can be assessed to  
             fund the obligations of the Association from one percent  
             to two percent of premiums. 

          5. Clarifies and extends the coverage of structured  
             settlements for California residents, even if the owner  
             of the structured settlement annuity is resident of  
             another state. 

          6. Clarifies who is entitled to coverage by the Association  
             by coordinating California law with the law of other  
             states to eliminate gaps in coverage provided by current  

          7. Clarifies that a person is only entitled to benefits  
             from one guarantee association. 

          8. Ensures that a portion of a contact or policy is not  
             excluded from coverage because other portions are  

          9. Repeals a definition of health insurance that has the  
             effect of limiting the scope of coverage of certain  
             health insurance policies. 

          10.  Eliminates an unnecessary distinction between a  
             "domestic" (both organized under California law, and  
             licensed in California) and a "foreign" (licensed in  
             California but organized under the laws of another  
             state) insurer. 

          11.  Provides that the Insurance Commissioner may act to  
             carry out the functions of the Association if the  
             Association fails to carry out its duties. 

          12.  Authorizes the Association to recover payments  
             improperly made. 


                                                               SB 1408

          13.  Repeals the $250 cap on non-pro-rata assessments used  
             to fund administrative activities of the Association,  
             and instead authorizes the Association to determine the  
             proper assessment. 

          14.  Provides that the Association may assess in future  
             years to make up for a necessary assessment that exceeds  
             the annual cap. 

          15.  Requires the Association to amend its plan of  
             operation to include a method for the removal of  
             directors for cause, and to adopt a conflict of interest  
             policy for directors. 

          16.  Specifies that the amendments to the guarantee  
             association law accomplished by the bill shall only  
             apply to insolvencies that occur after its effective  

          17.  Provides that the bill is an urgency measure, to take  
             effect immediately. 

          18.  Adopts numerous technical and clarifying amendments to  
             conform with the National Association of Insurance  
             Commissioners' Model Law without changing the  
             substantive effect of the California laws. 

          In the current fiscal times, California's system of  
          insurance company regulatory oversight works in tandem with  
          CLHIGA to provide important protections for California's  
          buyers of life and health insurance policies and contracts,  
          including annuities, other than specified unallocated  

          This bill 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". 

          In the current economic environment, the relative  


                                                               SB 1408

          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. 

          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. 

          Annuities are the only financial instruments available  
          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.

          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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  8/18/10)

          Allstate Insurance Company 
          Association of California Life and Health Insurance  
          California Life and Health Insurance Guarantee Association
          Kansas City Life Insurance Company
          Massachusetts Mutual Life Insurance Company
          National Association of Insurance and Financial Advisors of  
          Northwestern Mutual Life Insurance Company
          Prudential Financial 
          Transamerica Life Insurance Company


                                                               SB 1408

           ASSEMBLY FLOOR  :  
          AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill  
            Berryhill, Tom Berryhill, Block, Blumenfield, Bradford,  
            Brownley, Buchanan, Caballero, Carter, Chesbro, Conway,  
            Cook, Coto, Davis, De La Torre, De Leon, DeVore, Eng,  
            Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,  
            Galgiani, Garrick, Gatto, Gilmore, Hagman, Hall, Harkey,  
            Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,  
            Jones, Knight, Lieu, Bonnie Lowenthal, Ma, Mendoza,  
            Miller, Monning, Nava, Nestande, Niello, Nielsen, Norby,  
            V. Manuel Perez, Portantino, Ruskin, Salas, Saldana,  
            Silva, Skinner, Smyth, Solorio, Audra Strickland,  
            Swanson, Torlakson, Torres, Torrico, Tran, Villines,  
            Yamada, John A. Perez
          NO VOTE RECORDED: Blakeslee, Charles Calderon, Evans,  
            Logue, Vacancy

          JA:nl  8/18/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****