BILL ANALYSIS
SB 1407
Page 1
SENATE THIRD READING
SB 1407 (Banking, Finance and Insurance Committee)
As Amended April 12, 2010
Majority vote
SENATE VOTE :30-0
INSURANCE 12-0 APPROPRIATIONS 17-0
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|Ayes:|Solorio, Gaines, |Ayes:|Fuentes, Conway, |
| |Anderson, Caballero, | |Bradford, |
| |Charles Calderon, Carter, | |Charles Calderon, Coto, |
| |Feuer, Hagman, Hayashi, | |Davis, |
| |Niello, Salas, Torres | |De Leon, Gatto, Hall, |
| | | |Harkey, Miller, Nielsen, |
| | | |Norby, Skinner, Solorio, |
| | | |Torlakson, Torrico |
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SUMMARY : Authorizes the State Compensation Insurance Fund
(SCIF) to invest its "excess" funds in the same investments as
domestic insurers, subject to exceptions. Specifically, this
bill :
1)Authorizes SCIF to invest its "excess" funds in the same
classes of investments that a private domestic insurer may
invest in.
2)Adopts exceptions to the broad grant of authority to invest
consistent with the excess funds investments law by
prohibiting SCIF from making the following classes of
investments otherwise authorized by that law:
a) Corporate stock;
b) Exchange traded call options on common stock;
c) Call options on interest bearing federal home loan
securities;
d) Loans secured by first liens on unencumbered leaseholds;
e) Canadian corporations;
f) Mortgages and mortgage-backed securities;
g) Participation certificates in interest bearing corporate
debt;
h) Shares in an investment company organized pursuant to
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specified federal laws;
i) Investment and cash management pools as defined in
California law;
j) Securities of an unaffiliated business entity;
aa) Federal home loan bank stock; and,
bb) Real estate and leases.
EXISTING LAW :
1)Authorizes SCIF to invest in a very narrow range of investment
options.
2)Authorizes domestic insurers to invest its "excess" funds in a
specific range of investments, and prohibits investment in any
investment not specifically authorized.
3)Defines excess funds investments as investments made with
monies that are held by the insurer in excess of any amount of
minimum mandatory paid-in capital.
4)Specifies a very limited and secure range of investment that
may be made with funds equaling minimum paid-in capital.
5)Authorizes domestic insurers to invest a small portion of
their assets in higher return, higher risk investment (so
called "leeway law" investments).
FISCAL EFFECT : Undetermined but presumably minor, absorbable
costs to the Department of Insurance (CDI), as this bill was
referred to the Senate Floor from the Senate Appropriations
Committee pursuant to Senate Rule 28.8.
COMMENTS :
1)Purpose . According to the Senate Committee on Banking,
Finance and Insurance, the intent of the existing law was to
authorize SCIF to invest in the same investments as domestic
insurers. However, existing law listed the specific
investment authorizations. Over the years, the range of
investment has expanded for domestic insurers, but it was not
clear that these expansions applied to SCIF.
2)Certain investments excluded . In consultation with CDI,
several of the more risky investments authorized for private
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insurers have been excluded from the bill's general
authorization to expand SCIF's investment opportunities.
3)Support . SCIF writes in support that it wishes to clarify the
scope of its investment authority, and strengthen its
investment portfolio by obtaining clear authority to invest in
sound investments that generate better returns than under
current law.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0006285