Bill Text: CA SB291 | 2009-2010 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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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-Amended.html

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BILL NUMBER: SB 291	AMENDED
	BILL TEXT

	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, as amended, Calderon.  Insurance reserves.
   Existing law requires a mortgage guaranty insurer to maintain a
policyholders surplus at all times in an amount not less than the
amount required, as specified, 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,  then as soon as practicable after the insurer is
reasonably certain that its policyholder surplus will fall below the
amount required, the insurer shall so notify the commissioner. The
commissioner may issue an order instructing the insurer to cease
transacting new business in California, as specified, provided
however, that prior to the issuance of an order instructing the
insurer to cease transacting new business, the insurer shall be
entitled to a hearing. The costs of the hearing would be borne by the
insurer, as specified   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 reque   st
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  .

   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


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) If a mortgage guaranty insurer will not have the amount of
policyholders surplus required by this section, it shall, as soon as
practicable after the insurer is reasonably certain that its
policyholder surplus will fall below the amount required by this
section, so notify the commissioner. Based on the information
provided by the insurer, or as otherwise determined by the
commissioner, the commissioner may issue an order instructing the
insurer to cease transacting new business in California. Prior to the
issuance of an order instructing the insurer to cease transacting
new business, the insurer shall be entitled to a hearing. The
commissioner may retain consultants, including accountants,
actuaries, or other experts, to assist the commissioner in the review
of the information submitted by the insurer pursuant to this
section. The insurer shall bear the commissioner's cost of retaining
those consultants, and shall reimburse the commissioner for the cost
of any hearing requested by the insurer. Nothing in this section is
intended to limit the commissioner's authority under any other
provision of this code.  
   (g) 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.