BILL ANALYSIS
AB 869
Page 1
ASSEMBLY THIRD READING
AB 869 (Keeley)
As Amended June 2, 1999
Majority vote
INSURANCE 7-5 APPROPRIATIONS 12-3
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|Ayes:|Shelley, Floyd, Gallegos, |Ayes:|Migden, Cedillo, Davis, |
| |Havice, Keeley, Jackson, | |Jackson, Kuehl, Romero, |
| |Wayne | |Steinberg, Honda, Wesson, |
| | | |Wiggins, Reyes, Aroner |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Oller, Cox, Leonard, |Nays:|Brewer, Ashburn, Campbell |
| |McClintock, Strickland | | |
| | | | |
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SUMMARY : Makes legislative findings and declarations regarding
insurer investments in low-income communities. Specifically,
this bill :
1)Makes a finding that insurers and businesses are a vital part
of the California economy.
2)Makes a finding that the lack of sufficient investment in
California's low-income communities results in a diminished
quality of life in many rural and urban areas.
3)Declares legislative intent to encourage California insurers
and other businesses through incentives to make safe community
development investments, in particular those investments that
create jobs and expand business opportunities, to benefit
low-income communities.
EXISTING LAW :
1)Regulates insurer loans and investments.
2)Requires lending institutions under the federal Community
Reinvestment Act (CRA) to make community development
investments.
FISCAL EFFECT : Unknown
AB 869
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COMMENTS : The author introduced this bill at the request of
Consumers Union (CU), Housing California, and the California
Community Economic Development Corporation, sponsors of this
bill. As amended June 2, 1999, this bill is designed to
encourage insurers as the second largest source of private
capital for long-term investment to invest in California's
low-income communities. Communities throughout the state, both
urban and rural, are in need of greater investment for small
businesses and farms. Through CRA, banks have made significant
investments in the state's low-income communities. The author
believes insurers, likewise, should be encouraged to make
economically targeted investments that benefit economically
depressed areas in the state.
1995 bills introduced by Senator Polanco and Assemblymember Lee
would have required insurers to make economically targeted
investments. Negotiations between these authors and the
insurers on insurer community investment resulted in an
agreement to establish the California Organized Investment
Network (COIN) in the Department of Insurance and a commitment
on the part of insurers to pursue economically targeted
investments. The authors dropped their bills to permit the
insurers to demonstrate what could be accomplished without
mandates to increase insurer economically targeted investments.
Last year, Senator Polanco introduced SB 2165, which required
insurers to invest a specific percentage of premium in targeted
investments, because he believed the voluntary efforts had not
been effective. SB 2165 was held in Senate Appropriations
Committee.
The insurance industry has historically invested in the
secondary market, generally in big block investments of market
recognized credit quality. These investments are "rated" and
pre-determined to be credit worthy, so do not require an
in-depth analysis by the industry investment managers.
Economically targeted investment opportunities, however, are
generated in the primary market, the first level at which
dollars flow into investment transactions. Small loan
originators in the primary market, even through they have a
sound investment to offer, would normally have little direct
connection with investment managers operating in the secondary
market. Efforts through COIN and IMPACT Community Capital, an
insurance industry investment intermediary, have worked to
bridge the gap between the primary and secondary markets.
AB 869
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Sponsors point out that community investments have been shown to
offer competitive rates of return. Housing California notes
that the Bank of America reports a lower foreclosure rate in
their CRA single family portfolio than they do in their
traditional program. It further points out that CRA mortgages
over the past 20 years have gone from being a product that banks
thought was too risky to now being a
Triple-A rated Security. CU cites a March 1995 General
Accounting Office study of pension fund economically targeted
investments that found rates of return were generally similar to
that of benchmark investments.
Analysis Prepared by : Beverly Hunter / INS. / (916) 319-2086
FN: 0001724