Bill Text: CA SB291 | 2009-2010 | Regular Session | Chaptered
Bill Title: Insurance reserves.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Passed) 2009-10-11 - Chaptered by Secretary of State. Chapter 574, Statutes of 2009. [SB291 Detail]
Download: California-2009-SB291-Chaptered.html
BILL NUMBER: SB 291 CHAPTERED
BILL TEXT
CHAPTER 574
FILED WITH SECRETARY OF STATE OCTOBER 11, 2009
APPROVED BY GOVERNOR OCTOBER 11, 2009
PASSED THE SENATE SEPTEMBER 11, 2009
PASSED THE ASSEMBLY SEPTEMBER 11, 2009
AMENDED IN ASSEMBLY SEPTEMBER 11, 2009
AMENDED IN ASSEMBLY AUGUST 24, 2009
AMENDED IN ASSEMBLY JULY 13, 2009
AMENDED IN ASSEMBLY JUNE 26, 2009
INTRODUCED BY Senator Calderon
(Principal coauthor: Assembly Member Solorio)
FEBRUARY 25, 2009
An act to amend Section 12640.05 of the Insurance Code, relating
to insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 291, Calderon. Insurance reserves.
Existing law requires a mortgage guaranty insurer to maintain a
policyholders surplus at all times in an amount not less than that
determined pursuant to specified provisions, and defines "face amount
of an insured mortgage" for these purposes. Existing law requires a
mortgage guaranty insurer to cease new business if the insurer does
not have the amount of policyholders surplus required, as specified.
This bill would revise the definition of "face amount of an
insured mortgage" to exclude the outstanding principal balance of any
loan that is in default and for which the insurer has established a
loss reserve, as specified. The bill would provide that if a mortgage
guaranty insurer will not have the amount of policyholders surplus
required, it shall cease transacting new business, as specified,
until its policyholders surplus is in compliance. The bill requires
that the insurer notify the commissioner at least 60 days prior to
the time the policyholders surplus is estimated to fall below the
amount required and may at that time request a waiver of the
requirements. If the commissioner fails to issue an order in response
to the waiver request within 60 days, the insurer may continue
transacting new business in California until the commissioner issues
an order. The insurer would bear the commissioner's cost of retaining
consultants reasonably necessary to evaluate the waiver request, and
reimburse the commissioner for the cost of a hearing held, as
specified.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 12640.05 of the Insurance Code is amended to
read:
12640.05. (a) A mortgage guaranty insurer shall maintain a
policyholders surplus in an amount not less than the amount required
by this section. The policyholders surplus shall be the calculated
net of reinsurance ceded, but shall include reinsurance assumed.
"Face amount of an insured mortgage" means the outstanding principal
balance computed without any reduction because of an insurer's option
limiting its coverage, but shall exclude the outstanding principal
balance of any loan that is in default and for which the insurer has
established a loss reserve, provided that the loss reserve
established for that loan is equal to or greater than the
policyholders surplus the insurer would otherwise be required to
establish with respect to that loan, pursuant to this section.
Nothing in this subdivision limits the commissioner's authority under
Section 12640.04.
(b) If a policy of mortgage guaranty insurance insures individual
loans with a percentage claim settlement option on such loans, the
insurer shall maintain a policyholders surplus based on each one
hundred dollars ($100) of the face amount of the mortgage, the
percentage coverage or claim settlement option, and the loan-to-value
category.
The required amount of policyholders surplus shall be calculated
in the following manner:
(1) If the total indebtedness is greater than 75 percent of the
value of the collateral property at the date of the insurance:
Policyholders Policyholders
Surplus per Surplus per
$100 $100
of the Face of the Face
Percent Amount of the Percent Amount of the
Coverage Mortgage Coverage Mortgage
5% $ .20 55% $1.50
10 .40 60 1.55
15 .60 65 1.60
20 .80 70 1.65
25 1.00 75 1.75
30 1.10 80 1.80
35 1.20 85 1.85
40 1.30 90 1.90
45 1.35 95 1.95
50 1.40 100 2.00
If the percent coverage is between any five-point increment, then
the factor for policyholders surplus per one hundred dollars ($100)
of the face amount of the mortgage shall be prorated.
(2) If the total indebtedness is at least 50 percent and not more
than 75 percent of the value of the collateral property at the date
of insurance, the required amount of policyholders surplus shall be
50 percent of the amount required by paragraph (1) of subdivision
(b).
(3) If the total indebtedness is less than 50 percent of the value
of the collateral property at the date of insurance, the required
amount of policyholders surplus shall be 25 percent of the amount
required by paragraph (1) of subdivision (b).
(c) If a policy of mortgage guaranty insurance provides coverage
on a group of loans subject to an aggregate loss limit, the
policyholders surplus shall be:
(1) If the equity is not more than 50 percent and is at least 20
percent, or equity plus prior insurance or a deductible equals 25
percent of the value of the collateral property at the date of
insurance, the required amount of policyholders surplus shall be
calculated as follows:
Policyholders Policyholders
Surplus per Surplus per
$100 $100
of the Face of the Face
Percent Amount of the Percent Amount of the
Coverage Mortgage Coverage Mortgage
1% $ .30 50% $ .825
5 .50 60 .85
10 .60 70 .875
15 .65 75 .90
20 .70 80 .925
25 .75 90 .95
30 .775 100 1.00
40 .80
If the percent coverage is between any specified increment, then
the factor for policyholders surplus per one hundred dollars ($100)
of the face amount of the mortgage shall be prorated.
(2) If the equity is less than 20 percent or the equity plus prior
insurance or a deductible is less than 25 percent of the value of
the collateral property at the date of insurance, the required amount
of policyholders surplus shall be 200 percent of the amount required
by paragraph (1) of subdivision (c).
(3) If the equity is more than 50 percent or the equity plus prior
insurance or a deductible is more than 55 percent of the value of
the collateral property at the date of insurance, the required amount
of policyholders surplus shall be 50 percent of the amount of
policyholders surplus required by paragraph (1) of subdivision (c).
(d) If a policy of mortgage guaranty insurance provides for layers
of coverage, deductibles or excess reinsurance, the required amount
of policyholders surplus may be computed by subtraction of the
required policyholders surplus for the lower percentage coverage
limits from the required policyholders surplus for the upper or
greater coverage limit.
(e) If a policy of mortgage guaranty insurance provides for
coverage on loans secured by second liens, the policyholders surplus
shall be:
(1) If the policy provides coverage on individual loans, the
required amount of policyholders surplus shall be calculated
according to subdivision (b) after the percent of coverage and the
loan-to-value ratios have been determined as follows:
(A) Divide the insured portion of the second loan by the entire
loan indebtedness on the collateral property to determine the percent
coverage.
(B) Divide the entire loan indebtedness on the property by the
value of the collateral property at the date of insurance to
determine loan-to-value percent.
(C) The face amount of insured mortgage shall mean the entire loan
indebtedness on the property.
(D) Equity shall mean the complement of the loan-to-value percent.
(2) If the policy provides coverage on a group of loans subject to
an aggregate loss limit, the policyholders surplus shall be
calculated according to subdivision (c) after the percent of coverage
and the loan-to-value ratios have been determined in accordance with
paragraph (1).
(f) If a policy of mortgage guaranty insurance provides for
coverage on leases, the policyholders surplus shall be four dollars
($4) for each one hundred dollars ($100) of the insured amount of the
lease.
(g) (1) If a mortgage guaranty insurer will not have the amount of
policyholders surplus required by this section, it shall cease
transacting new business until such time that its policyholders
surplus is in compliance with this section. At least 60 days prior to
the time the policyholders surplus is estimated to fall below the
amount required by this section, the insurer shall notify the
commissioner and may request a waiver of the requirements of this
subdivision. If the commissioner fails to issue an order in response
to the waiver request within 60 days after the insurer requests a
waiver, the insurer may continue transacting new business in
California until the commissioner issues an order. The commissioner
may retain consultants, including accountants, actuaries, or other
experts, to assist the commissioner in the review of the information
reasonably necessary to evaluate the waiver request made pursuant to
this subdivision, and the insurer shall bear the commissioner's cost
of retaining those consultants. The insurer shall reimburse the
commissioner for the cost of a hearing held pursuant to this
subdivision unless the insurer has expressly waived the right to a
hearing. Nothing in this subdivision is intended to limit the
commissioner's authority under any other provision of this code.
(2) An insurer who notifies the commissioner within 10 business
days following the effective date of this section that its
policyholders surplus is estimated to fall below the amount required
by this section shall be deemed to have complied with the 60-day
notice required by subdivision (1).
