BILL NUMBER: AB 2230 ENROLLED
BILL TEXT
PASSED THE SENATE JUNE 19, 2014
PASSED THE ASSEMBLY MAY 1, 2014
AMENDED IN ASSEMBLY APRIL 29, 2014
AMENDED IN ASSEMBLY MARCH 28, 2014
INTRODUCED BY Assembly Member Cooley
FEBRUARY 20, 2014
An act to amend Sections 1063.5 and 1063.74 of the Insurance Code,
relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 2230, Cooley. Insurance: Workers' Comp Bond Fund: assessments.
Existing law creates the California Insurance Guarantee
Association (CIGA) and requires all insurers admitted to transact
insurance in this state to become members. CIGA is required to
collect premium payments from members to discharge its obligations to
cover claims of an insolvent insurer. Existing law provides that
CIGA shall be a party in interest in all proceedings involving a
covered claim, and has all of the rights an insolvent insurer would
have if the insurer was not in liquidation. CIGA is required to
allocate its claim payments and costs based on categories of
insurance, including, but not limited to, workers' compensation
claims and homeowners' claims. The premium payments from each
category are separate and required to be used to pay the claims and
costs allocated to that category. Existing law provides that the
premium charged to a member insurer for any of the categories of
insurance is 1% of the net direct written premium, as defined,
written in the category by the member per year.
Existing law authorizes CIGA to request the issuance of bonds by
the California Infrastructure and Economic Development Bank to pay
for covered claims that arise as a result of the insolvency of
workers' compensation insurers. Proceeds from the sale of the bonds
are deposited in the Workers' Comp Bond Fund, and CIGA distributes
this money to pay covered claims. Principal and interest on the bonds
are paid from special bond assessments levied by CIGA on workers'
compensation insurers, as provided.
This bill would, commencing January 1, 2015, provide that the
premium charged to a member insurer for a category of insurance would
be 2% of the net direct written premium, unless there are
outstanding bonds, as specified, in which case the premium would not
exceed 1% of the net direct written premium for any category of
insurance for which the bond proceeds are being used to pay claims
and expenses. The bill would prohibit, once all the bonds issued
pursuant to these provisions are redeemed, further initial special
bond assessments from being levied or made. The bill would require
that any premium adjustments applicable to the special bond
assessments continue to be made and determined, and that any credits
or charges that result from the premium adjustments be credited or
charged to the workers' compensation assessments that the insurers
are otherwise required to pay CIGA.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1063.5 of the Insurance Code is amended to
read:
1063.5. Each time an insurer becomes insolvent then, to the
extent necessary to secure funds for the association for payment of
covered claims of that insolvent insurer and also for payment of
reasonable costs of adjusting the claims, the association shall
collect premium payments from its member insurers sufficient to
discharge its obligations. The association shall allocate its claim
payments and costs, incurred or estimated to be incurred, to one or
more of the following categories: (a) workers' compensation claims;
(b) homeowners' claims, and automobile claims, which shall include:
automobile material damage, automobile liability (both personal
injury and death and property damage), medical payments and uninsured
motorist claims; and (c) claims other than workers' compensation,
homeowners', and automobile, as above defined. Separate premium
payments shall be required for each category. The premium payments
for each category shall be used to pay the claims and costs allocated
to that category. The rate of premium charged shall be a uniform
percentage of net direct written premium in the preceding calendar
year applicable to that category. The rate of premium charges to each
member in the appropriate categories shall initially be based on the
written premium of each insurer as shown in the latest year's annual
financial statement on file with the commissioner. The initial
premium shall be adjusted by applying the same rate of premium charge
as initially used to each insurer's written premium as shown on the
annual statement for the second year following the year on which the
initial premium charge was based. The difference between the initial
premium charge and the adjusted premium charge shall be charged or
credited to each member insurer by the association as soon as
practical after the filing of the annual statements of the member
insurers with the commissioner for the year on which the adjusted
premium is based. Any credit due in a specific category to a member
insurer as a result of the adjusted premium calculation may be
refunded to the member insurer at the discretion of the association
if the member insurer has agreed with the commissioner to no longer
write insurance in that category but has not withdrawn from the state
and surrendered its certificate of authority. However, in the case
of an insurer that was a member insurer when the initial premium
charge was made and that paid the initial assessment but is no longer
a member insurer at the time of the adjusted premium charge by
reason of its insolvency or its withdrawal from the state and
surrender of its certificate of authority to transact insurance in
this state, any credit accruing to that insurer shall be refunded to
it by the association. "Net direct written premiums" shall mean the
amount of gross premiums, less return premiums, received in that
calendar year upon business done in this state, other than premiums
received for reinsurance. In cases of a dispute as to the amount of
the net direct written premium between the association and one of its
members the written decision of the commissioner shall be final. The
premium charged to any member insurer for any of the three
categories or a category established by the association shall not be
more than 2 percent of the net direct premium written in that
category in this state by that member per year, starting on January
1, 2003, until December 31, 2007, and thereafter shall be 1 percent
per year, until January 1, 2015. Commencing January 1, 2015, the
premium charged to any member insurer for any of the three categories
or a category established by the association shall not be more than
2 percent of the net direct written premium unless there are bonds
outstanding that were issued pursuant to Article 14.25 (commencing
with Section 1063.50) or Article 14.26 (commencing with Section
1063.70). If bonds issued pursuant to either article are outstanding,
the premium charged to a member insurer for the category for which
the bond proceeds are being used to pay claims and expenses shall not
be more than 1 percent of the net direct written premium for that
category. The association may exempt or defer, in whole or in part,
the premium charge of any member insurer, if the premium charge would
cause the member insurer's financial statement to reflect an amount
of capital or surplus less than the minimum amounts required for a
certificate of authority by any jurisdiction in which the member
insurer is authorized to transact insurance. However, during the
period of deferment, no dividends shall be paid to shareholders or
policyholders by the company whose premium charge was deferred.
Deferred premium charges shall be paid when the payment will not
reduce capital or surplus below required minimums. These payments
shall be credited against future premium charges to those companies
receiving larger premium charges by virtue of the deferment. After
all covered claims of the insolvent insurer and expenses of
administration have been paid, any unused premiums and any
reimbursements or claims dividends from the liquidator remaining in
any category shall be retained by the association and applied to
reduce future premium charges in the appropriate category. However,
an insurer which ceases to be a member of the association, other than
an insurer that has become insolvent or has withdrawn from the state
and has surrendered its certificate of authority following an
initial assessment that is entitled to a refund based upon an
adjusted assessment as provided above in this section, shall have no
right to a refund of any premium previously remitted to the
association. The commissioner may suspend or revoke the certificate
of authority to transact business in this state of a member insurer
which fails to pay a premium when due and after demand has been made.
Interest at a rate equal to the current federal reserve discount
rate plus 21/2 percent per annum shall be added to the premium of any
member insurer which fails to submit the premium requested by the
association within 30 days after the mailing request. However, in no
event shall the interest rate exceed the legal maximum.
SEC. 2. Section 1063.74 of the Insurance Code is amended to read:
1063.74. (a) Notwithstanding any other limits on assessments,
CIGA shall have the authority to levy upon member insurers special
bond assessments in the amount necessary to pay the principal of and
interest on the bonds, and to meet other requirements established by
agreements relating to the bonds. The assessments shall be collected
only from the member insurers providing workers' compensation
insurance, in the same manner as separate premium payments are used
to pay the claims and costs allocated to that category pursuant to
Section 1063.5. Special bond assessments made pursuant to this
section shall also be subject to the surcharge provisions in Sections
1063.14 and 1063.145.
(b) Notwithstanding any other law, after all bonds issued pursuant
to this article have been redeemed, no further initial special bond
assessments shall be levied or made. Any premium adjustments called
for and described in Section 1063.5, as applied to special bond
assessments initially charged, shall continue to be made and
determined. Any credits or charges that result from the premium
adjustments on the special bond assessments shall be credited or
charged to the assessments called for and described in Section
1063.5.
(c) In addition to the special bond assessments provided for in
this section, the board in its discretion and subject to other
obligations of the association, may utilize current funds of CIGA,
premium assessments made under Section 1063.5, and advances or
dividends received from the liquidators of insolvent insurers to pay
the principal and interest on any bonds issued at the board's request
and shall utilize, to the extent feasible, the recoveries from the
liquidators of the estates of insolvent workers' compensation
carriers to pay bonds issued at the board's request to fund workers'
compensation claims.