BILL ANALYSIS �
SB 1513
Page 1
Date of Hearing: June 20, 2012
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 1513 (Negrete McLeod) - As Amended: April 16, 2012
SENATE VOTE : 39-0
SUBJECT : State Compensation Insurance Fund: Investments
SUMMARY : Expands the investment options available to the State
Compensation Insurance Fund (State Fund) to include stocks,
mortgages, and Federal Home Loan Bank shares. Specifically,
this bill :
1)Permits State Fund to invest 20% of its excess reserves in the
following:
a) Stocks of companies incorporated in the United
States or Canada.
b) Loans and related instruments secured by real
estate.
c) Federal Home Loan Bank stock.
2)Permits State Fund to become a member of the Federal Home Loan
Bank which provides its members access to advances from the
bank.
EXISTING LAW :
1)Establishes State Fund as the insurer of last resort for
employers seeking workers' compensation insurance.
2)Defines excess funds as those funds held by an insurer that
exceed the insurer's paid-in capital.
3)Prohibits State Fund from investing excess funds in a range of
investments allowed to other insurers including stocks,
mortgages, and call options on common stock.
SB 1513
Page 2
4)Permits State Fund to invest in bonds and other forms of debt,
including debt issued by public agencies.
FISCAL EFFECT : Unknown.
COMMENTS :
1)Purpose . According to the author, State Fund is limited in
its investment authority. Currently allowed investments are
primarily long-term corporate and municipal bonds at fixed
rates which do not hedge against inflation. This bill is
needed to add investment tools that better match the duration
and maturity of State Fund's investment assets that will
further stabilize and diversify its portfolio. A stabilized
and diversified portfolio in addition to increased finance
options is critical for State Fund due to its role in
California's economy. This bill will create a safe, more
diversified portfolio and will provide State Fund necessary
tools to maximize its investments for the long term.
2)State Fund . State Fund provides California's workers'
compensation insurance to any interested employer, including
those that are unable to self-insure or find private sector
alternatives. It was created in 1914 to help ensure all
employers have a strong and stable option for their workers'
compensation needs. Like all insurers, it relies both on
income from premiums and investment earnings to meet its
financial obligations. State Fund is a quasi-governmental,
nonprofit agency that must return excess income, over legally
required reserves or surplus, to its policyholders.
3)Investment Options . The range of investment options for State
Fund has been expanded a number of times during its existence,
and current law generally restricts the investment of excess
funds (those funds that exceed the legally required reserves)
to long-term corporate and municipal bonds. In 2010, SB 1407
(Statutes of 2010, Chapter 651) authorized Sate Fund to invest
excess funds in a number of products "in the same manner
provided for private insurance carriers." However, SB 1407
excluded higher-risk investments otherwise available to
private insurance carriers. State Fund reports that its
investment portfolio has a current yield of 4.4%, and it
recently declared $50 million in dividends or renewal credits.
SB 1513
Page 3
The Association of California Insurance Companies and others
express concern that liberalizing the investment options
available to include some of those available to private
insurers poses a threat to State Fund's stability by
increasing investment risks. However, the list of investment
options included in this bill have been reviewed and approved
by the Department of Insurance which provides financial
oversight of State Fund. State Fund notes that expanding the
investment categories available to it will increase its
overall stability by providing greater diversification in its
asset mix, particularly by providing access to asset classes
that allow it to better manage risks posed by general
inflation and medical cost inflation.
REGISTERED SUPPORT / OPPOSITION :
Support
State Compensation Insurance Fund (sponsor)
Opposition
SEIU Local 1000
California Attorneys, Administrative Law Judges and Hearing
Officers
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086