BILL ANALYSIS �
SB 711
Page 1
Date of Hearing: July 13, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 711 (Committee on Insurance) - As Amended: June 14, 2011
Policy Committee: InsuranceVote:11
- 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill 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 from January
1, 2013, to January 1, 2023, and makes clarifications regarding
SB 1408 (Committee on Insurance; Chapter 334, Statutes of 2010)
as it pertains to the California Life and Health Insurance
Guarantee Association (CLHIGA).
FISCAL EFFECT
Costs associated with this legislation should be minor and
absorbable within existing Department of Insurance resources.
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 of 2010.
2)The California Insurance Guarantee Association (CIGA) is an
organization created by the Legislature in 1969 to pay claims
of insolvent insurance carriers that are licensed to do
business in the state. CIGA consists of three separate funds
that guarantee different lines of insurance: workers'
compensation; personal lines (auto, homeowners, personal
liability); and other (commercial property, liability,
products liability, supplemental and pollution).
3)Background . Current law, first enacted by AB 227
SB 711
Page 2
(Vargas)/Chapter 635, 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 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 portion issued as fixed interest rate
securities. Only the interest has been paid on the $350
million in variable rate bonds, which have maturities
scheduled at various dates in 2017 through 2023.
Starting in 2006, a series of bills extended the 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. Unlike
those previous bills, this legislation extends the deadline
for over 10 years. CIGA believes that the 10 year extension
will provide them with the flexibility they need to refinance
the variable interest rate obligations if necessary, should
changing economic conditions cause those interests rates to
increase.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081