BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
SB 1407 (Comm. On Banking, Finance & Insurance) Hearing Date:
April 21, 2010
As Amended: April 12, 2010
Fiscal: Yes
Urgency: No
SUMMARY Would provide that the State Compensation Insurance
Fund may invest its excess funds in a manner similar to private
insurance carriers, subject to specified exceptions.
DIGEST
Existing law
1. Provides that liability for an injured worker covered under the
workers' compensation system is determined "irrespective of the
fault of any party";
2. Specifies that coverage is based on defined employment
relationships so every employer in California must either carry
workers' compensation insurance or obtain a certificate of
self-insurance;
3. Authorizes insurance to be obtained privately, through private
insurance carriers licensed and admitted to provide workers'
compensation insurance in California or through the state's own
insurance fund, the State Compensation Insurance Fund (SCIF), a
quasi-governmental entity;
4. Provides that as an insurance provider, SCIF is administered by
an independent board of directors for the purpose of providing
workers compensation insurance;
5. Specifies that all moneys that are in excess of SCIF's current
requirements can "be invested and reinvested, from time to time,
in the same manner as provided for private insurance carriers"
pursuant to specified provisions of law; and
SB
1407 (Comm. On B,F&I), Page 2
6. Authorizes private insurance carriers, other than SCIF, a broad
variety of specific investment categories which are allowed for
making excess fund investments.
This bill
1. Would authorize SCIF to invest its excess monies under the
Excess Funds Investment law applicable to private insurance
carriers subject, however, to withholding investment
authorization by SCIF in the following classes of
investment:
a. Investments in Corporate Stock (CIC Section 1191);
b. Exchange traded call options on common stock (CIC
Section 1191.1);
c. Call options on interest-bearing federal home loan
securities (CIC Section 1191.5);
d. Loans secured by first liens on unencumbered
leaseholds (CIC Section 1192.2);
e. Investments in Canadian Corporations(CIC Section
1192.4);
f. Investments in mortgages or mortgage-backed
securities (CIC Section 1192.6);
g. Investments in participation certificates in
interest-bearing corporate debt (CIC Section 1192.7);
h. Shares in an investment company specified in the
Federal Investment Company Act of 1940 CIC Section
1192.9);
i. Investment in investment pools and cash management
pools (CIC Section 1192.95 );
j. Securities of an unaffiliated business entity (CIC
Section 1192.10 );
aa. Federal Home Loan Bank stock (CIC Section 1194.7);
bb. Investments in real estate and leases(CIC Section
SB
1407 (Comm. On B,F&I), Page 3
1194.8);
cc. Notes or bonds secured by a mortgage or other first
lien on unencumbered real property (CIC Section 1194.81);
dd. Notes or bonds secured by a mortgage or other second
lien on encumbered real property (CIC Section 1194.82);
ee. Corporate Stock (CIC Section 1198);
ff. Corporate Stock of a single corporation (CIC Section
1199);
COMMENTS
1. Purpose of the bill This bill will clarify that in its
operations as an insurer, SCIF is able to invest its excess
funds in a manner similar to private insurance carriers, as
stated in the 1979 adoption of its investment statute,
subject to specified exceptions.
2. Background In 1979, when the current SCIF investment law
was adopted, Chapter 738 of the Statutes of 1979 stated that
"Existing law provides that excess fund monies (of SCIF) may
be invested in securities authorized for investments by
savings banks. This bill would instead permit the fund to
invest such excess funds in the same manner provided for
private insurance carriers."
3. Notwithstanding the above statement ("This bill would
instead permit the fund to invest such excess funds in the
same manner provided for private insurance carriers"), the
bill as enacted in 1979 included an enumeration of specific
provisions of the private insurance carrier investment law
applicable to SCIF, but did not include the citation to the
excess funds investment law.
4. SB 1407 will expressly include the statement in the SCIF
investment law that it is authorized to invest pursuant to
the provisions of the Excess Investments law so that its
investment program is supported by specific statutory
authority rather than the general statement that it is able
to "invest such excess funds in the same manner provided for
private insurance carriers".
5. In consultation with the Department of Insurance, SB 1407
SB
1407 (Comm. On B,F&I), Page 4
has been amended to provide that SCIF's authority to invest
in various classes of risky investments is expressly
withheld.
6. Support. According to the State Compensation Insurance
Fund, the bill's sponsor, this bill will align the language
of the SCIF law with the understanding that has prevailed
since 1980 that its authority to invest excess funds is
generally like that of private insurance carriers and other
state workers compensation funds.
7. By clarifying its investment authority, SCIF is seeking to
establish clear authority to diversify and strengthen its
portfolio.
8. Opposition None
9. Questions None
10. Suggested Amendments . None
11. Prior and Related Legislation Chapter 738 of the Statutes
of 1979 (AB 616 - Ellis) enacted the SCIF investment statute
which SB 1407 modifies; the legislative Counsel Digest of
the 1979 bill, stated that "Existing law provides that
excess fund monies (of SCIF) may be invested in securities
authorized for investments by savings banks. This bill would
instead permit the fund to invest such excess funds in the
same manner provided for private insurance carriers."
POSITIONS
Support
State Compensation Insurance Fund
Oppose
None
SB
1407 (Comm. On B,F&I), Page 5
Consultant: Kenneth Cooley (916) 651-4102