BILL ANALYSIS �
SB 711
Page 1
SENATE THIRD READING
SB 711 (Insurance Committee)
As Amended June 14, 2011
Majority vote
SENATE VOTE :40-0
INSURANCE 11-0 APPROPRIATIONS 16-0
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|Ayes:|Solorio, Hagman, Carter, |Ayes:|Fuentes, Harkey, |
| |Feuer, Grove, Hayashi, | |Blumenfield, Bradford, |
| |Miller, Olsen, Skinner, | |Charles Calderon, Campos, |
| |Torres, Wieckowski | |Davis, Donnelly, |
| | | |Dickinson, Hall, Hill, |
| | | |Lara, Nielsen, Norby, |
| | | |Solorio, Wagner |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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 SB 1408 (Banking, Finance and Insurance Committee),
Chapter 334, Statutes of 2010, 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
SB 711
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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 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 SB 1408 (Banking, Finance and
Insurance Committee), 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.
FISCAL EFFECT : According to the Assembly Appropriations Committee,
costs associated with this legislation should be minor and
absorbable within existing Department of Insurance resources.
COMMENTS :
1)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 (Banking, Finance and
Insurance Committee).
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2)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 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.
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.
3)The effect of codifying a section of the California Life and
Health Insurance Guarantee Association Act is that it specifies
that it applies prospectively only and 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.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
FN: 0002397