BILL ANALYSIS
AB 2781
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Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 2781 (Committee on Insurance) - As Introduced: March 3,
2010
SUBJECT : California Insurance Guarantee Association
SUMMARY : Extends the sunset date on the authority of the
California Insurance Guarantee Association (CIGA) to issue up to
$1.5 billion in bonds. Specifically, this bill :
1)Extends from January 1, 2011 to January 1, 2013 the sunset
date on CIGA's authority to issue up to $1.5 billion in bonds.
2)Deletes an obsolete reference to a "receivership" order as a
potentially triggering event in determining whether an insurer
is insolvent.
EXISTING LAW:
1)Directs property-casualty insurers to establish CIGA, and
requires each insurer to be a member.
2)Provides that CIGA shall pay the covered claims filed with an
insolvent member insurer.
3)Authorizes CIGA to assess member insurers up to 2% (1% for
operating funds, and 1% for debt service) of written premium
in order to finance its claims paying capacity.
4)Entitles CIGA to receive payments from the estates of the
insolvent insurers if there are assets remaining and they are
distributed by the receiver.
5)Authorizes CIGA to issue up to $1.5 billion in bonds on or
before January 1, 2011 in order to finance the payment of
covered claims of insolvent insurers.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . The Insurance Committee introduced this
AB 2781
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noncontroversial measure to clean-up an obsolete reference,
and to extend the window of time CIGA has to potentially issue
bonds.
2)Background . In the late 1990s and early 2000s there was an
unprecedented number of insolvencies of workers' compensation
insurers. The resulting burden on CIGA threatened to
overwhelm its claims-paying capacity, and the Legislature
authorized CIGA to issue up to $1.5 billion in bonds so that
it could continue to meet its statutory obligations. To date,
CIGA has issued $750 million of its $1.5 billion bond
capacity. The Legislature has twice extended the sunset date
on this authority to issue bonds, each time in a committee
bill without controversy. The argument for extending the
sunset date is that CIGA may or may not need to exercise its
authority to issue debt, but if its ability to do so were to
face a sunset, then CIGA would be forced out of prudence to
issue the bonds before that date.
REGISTERED SUPPORT / OPPOSITION :
Support
California Insurance Guarantee Association
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086