BILL ANALYSIS �
SB 711
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Date of Hearing: June 22, 2011
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 711 (Committee on Insurance) - As Amended: June 14, 2011
SENATE VOTE : 40-0 (Prior to last amendment)
SUBJECT : Insurance: guarantee associations
SUMMARY : Extends the time for bonds to be issued on behalf of
the California Insurance Guarantee Association (CIGA) to pay
claims of insolvent workers compensation insurers, and codifies
an insurance law regarding the California Life and Health
Insurance Guarantee Association (CLHIGA). Specifically, this
bill :
1)Extends from January 1, 2013, until January 1, 2023, the time
for bonds to be issued to pay for workers' compensation claims
of insolvent workers' compensation insurers. The bonds may be
issued when the California Insurance Guarantee Association
requests the bond issuance by the California Infrastructure
and Economic Development Bank.
2)Codifies the provision of law that specifies that amendments
made to the California Life and Health Insurance Guarantee
Association Act made by Chapter 334 of the Statutes of 2010
(SB 1408 - Committee on Banking, Finance, and Insurance) shall
not apply to any member insurer that, prior to the effective
date of those amendments, has been placed under an order of
liquidation with a finding of insolvency.
3)Deletes a reference to a nonexistent subdivision of a section
of the Insurance Code governing the conduct of insurance
companies subject to the California Life and Health Insurance
Guarantee Association Act.
EXISTING LAW :
1)Authorizes the CIGA to pay eligible claims of insolvent
insurers through the collection of premiums from its members.
Its members are property, casualty, and workers' compensation
insurers.
2)Authorizes CIGA to request the issuance of bonds by the
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California Infrastructure and Economic Development Bank to
more effectively provide for the payment of covered claims
that arise from insolvencies of insurers providing workers'
compensation insurance.
3)Specifies that any bonds issued to provide funds for covered
workers' compensation claims shall be issued prior to January
1, 2013, in an aggregate principal amount outstanding not to
exceed $1.5 billion. Any bonds issued shall not mature more
than 20 years from the date of issuance.
4)Authorizes eligible claimants to obtain payment for claims
against insolvent life and health insurance companies pursuant
to the California Life and Health Insurance Guarantee
Association Act. Member insurance companies of this
association are subject to an assessment to provide funds for
these payments.
5)Places in an uncodified section of law the stipulation that
amendments made to the California Life and Health Insurance
Guarantee Association Act made by Chapter 334 of the Statutes
of 2010 (SB 1408) shall not apply to any member insurer that,
prior to the effective date of that chapter, has been placed
under an order of liquidation with a finding of insolvency.
6)References a nonexistent subdivision in one section of the
Insurance Code governing the conduct of insurance companies
subject to the California Life and Health Insurance Guarantee
Association Act.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . The purposes of this bill are to give CIGA the
flexibility to refinance existing variable rate bonds to avoid
higher interest costs if the bond market changes, and to make
technical corrections to two provisions of SB 1408 (Committee
on Banking, Finance and Insurance) of the 2009-10 Session,
enacted as Chapter 334, Statutes of 2010.
2)Background . Current law, first enacted in 2003 by AB 227
(Vargas), Chapter 635, Statutes of 2003, provided CIGA with
the authority to issue up to $1.5 billion in bonds to pay
workers' compensation claims. This authority was needed since
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an influx of claims from 27 insolvent insurers overwhelmed the
association's funding base. In August 2004, $750 million in
bonds were issued. Principal and interest payments have been
made on the $400 million issued in fixed interest rate
securities. Only the interest has been paid on the variable
rate bonds with the maturities of those securities scheduled
at various dates in 2017 through 2023.
Starting in 2006, a series of legislative bills have extended
the time deadline to issue bonds to pay for workers'
compensation claims of insolvent workers' compensation
insurance companies. These extensions have been for two years
each time to assure that CIGA can meet its obligations to pay
these claims. The outstanding bonds with variable interest
rates total $350 million.
Last year, SB 1408 of 2010 (Chapter 334, Statutes of 2010)
updated California's Life and Health Insurance Guarantee
Association Act to reflect revisions to the National
Association of Insurance Commissioners (NAIC) model act.
3)Arguments in support . The Department of Insurance and CIGA
state that it may be cost-effective for CIGA to have the
flexibility to refinance the bond debt in the future.
Legislation is required to provide that authority to CIGA.
This bill provides that authority.
The effect of codifying the one provision of law is that it
specifies that it applies prospectively only and that it will
facilitate legal researchers' ability to search and reach this
conclusion. The bill also deletes an erroneous
cross-reference to a provision no longer in the law.
REGISTERED SUPPORT / OPPOSITION :
Support
California Life and Health Insurance Association (Sponsor)
Association of California Life and Health Insurance Companies
California Insurance Guarantee Association
Pacific Life Insurance Company
Opposition
None received
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Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086