BILL NUMBER: AB 409	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Garrick

                        FEBRUARY 23, 2009

   An act to amend Section 1063.5 of the Insurance Code, relating to
the California Insurance Guarantee Association.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 409, as introduced, Garrick. California Insurance Guarantee
Association: insurer insolvency.
   Existing law requires the California Insurance Guarantee
Association to collect premium payments from member insurers
sufficient to cover the obligations of an insurer that has become
insolvent. Under existing law, the association must use those premium
payments to pay for the claims and costs of an insolvent insurer, as
specified.
   This bill would state that the payments and costs of an insolvent
insurer which have been incurred but not reported are included within
the claim payments and costs to be paid for by the association, as
specified.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


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, 
including incurred but not reported payments and costs,  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 in which the initial premium charge is made. 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. 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.