BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 291|
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UNFINISHED BUSINESS
Bill No: SB 291
Author: Calderon (D), et al
Amended: 8/24/09
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
ASSEMBLY FLOOR : 74-0, 8/27/09 (Consent) - See last page
for vote
SUBJECT : Insurance reserves
SOURCE : Mortgage Insurance Companies of America
DIGEST : This bill requires mortgage guaranty insurers to
notify the Commissioner of the Department of Insurance if
surplus amounts fall below required amounts. This bill
also increases the discretion afforded the Insurance
Commissioner to issue a waiver of surplus requirements, as
appropriate.
Assembly Amendments deleted the prior version of the bill,
which was a Senate Banking, Finance and Insurance Committee
bill dealing with insurance regulations, and instead added
the current language.
ANALYSIS :
Existing law:
CONTINUED
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1. Requires all insurers licensed to transact insurance in
California to file annual and quarterly financial
statements, an annual audit by a licensed certified
public accountant, and such other financial information
as the Insurance Commissioner (IC) deems appropriate.
2. Authorizes the IC to require any licensed insurer to
file additional financial statements, including monthly
statements, if the IC, in his/her discretion, deems it
necessary for the protection of the public.
3. Provides the IC with broad authority to examine all
aspects of the financial condition of any licensed
insurer, including having financial examiners examine
the insurer's books and records on site, at the expense
of the insurer.
4. Provides the IC with broad authority to issue orders to
any insurer, including orders to cease writing new
business in California, to obtain new capital as a
condition of continued writing, or other orders deemed
necessary by the IC to protect the public.
5. Authorizes the IC to issue a seizure order without a
hearing and to immediately seize control of the assets,
property and operations of an insurer if the insurer is
insolvent or the continued operation of the insurer
would be hazardous to its policyholders, creditors or to
the public.
6. Defines "mortgage guaranty insurance" as insurance
against financial loss as the result of the nonpayment
of principal, interest or other sums agreed to be paid
on a note or loan secured by a mortgage or deed of trust
on real estate.
This bill:
1. Specifies that the required amount of policyholder
surplus that a mortgage guaranty insurer must maintain
shall exclude the principal amount of a loan that is in
default if the insurer has set aside a separate loss
reserve for that loan, and the reserve is equal to or
greater than the amount of surplus that would have been
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required for that loan.
2. Requires the insurer to notify the IC, at least 60 days
prior to the time the policyholder's surplus is
estimated to fall below the amount required by a
statutory formula, and allows the insurer to request a
waiver from the IC to continue to transact new business.
3. States, if the IC fails to issue an order in response to
the waiver request within 60 days after the insurer
requests a waiver, the insurer may continue transacting
new business until the IC issues an order.
4. Provides that the IC may retain, at the insurer's
expense, any experts necessary to evaluate the waiver
request.
5. Requires the insurer to reimburse the IC for the cost of
a hearing held pursuant to this bill unless the insurer
has expressly waived the right to a hearing.
6. States that nothing in the bill is intended to limit the
IC's authority under any other provision of law.
Background
Most residential property loans for more than 80 percent of
the appraised value of the home can be made by lenders only
if there is mortgage guaranty insurance on the loan.
Fannie Mae and Freddie Mac, the two primary secondary
market purchasers of home loans, both require this
insurance. FHA loans, and loans that a lender keeps in its
own portfolio, are not subject to this requirement.
However, the vast majority of loans are placed into the
secondary market, and a substantial contraction of the
availability of mortgage guaranty insurance would
unquestionably lead to a contraction of the availability of
loans to many borrowers.
There are six mortgage guaranty insurers licensed to
conduct business and currently transacting in California,
and as a result if even one of these companies was forced
to cease writing by an outdated, inflexible statutory
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formula, the market could be disrupted. If several of
these insurers were forced to cease transacting business,
the consequences could be serious for the California
economy.
It is not surprising that mortgage guaranty insurers are
currently experiencing unusually high claims experience.
The record foreclosures that are currently occurring on
properties with market values below the level of debt are
causing mortgage guaranty insurers to pay unusually high
amounts in claims. However, the whole structure of this
type of insurance is built on the premise of long periods
of relatively low claim experience followed by intervals
with short periods of high claims experience. Thus, there
are special reserving requirements, risk concentration
rules, and other features designed to prepare mortgage
guaranty insurers to weather a market in today's condition.
The hang-up is an inflexible surplus ratio rule that was
adopted on the basis of one 1961 study that estimated a
range of "safe" ratios. Most importantly, this fixed ratio
rule was adopted at a time when the IC did not have the
broad range of financial regulation tools now available to
him. "Surplus" in this context refers to funds set aside
by the insurer in addition to required paid in capital, and
in addition to the highly regulated reserves for both known
and anticipated loss payments.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/28/09)
Mortgage Insurance Companies of America (source)
California Building Industry Association
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Eng, Feuer, Fletcher, Fong,
Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore,
Hagman, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,
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Jeffries, Jones, Knight, Krekorian, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande,
Niello, Nielsen, John A. Perez, V. Manuel Perez,
Portantino, Ruskin, Salas, Silva, Skinner, Smyth,
Solorio, Audra Strickland, Swanson, Torlakson, Torres,
Torrico, Tran, Villines, Yamada
NO VOTE RECORDED: Evans, Fuentes, Hall, Saldana, Bass,
Vacancy
JJA:mw 8/28/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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