BILL NUMBER: AB 409 ENROLLED
BILL TEXT
PASSED THE SENATE JUNE 24, 2009
PASSED THE ASSEMBLY MAY 4, 2009
AMENDED IN ASSEMBLY APRIL 1, 2009
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, 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 rate of premium charged a member
insurer is a uniform percentage of the net direct written premium of
the insurer in the preceding calendar year. Existing law provides
that the initial premium charge 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 2nd year
following the year in which the initial premium charge is made.
This bill would, instead, provide that the initial premium charge
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 2nd year following the year on which the
initial premium charge was based.
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. 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.