AB 2927: California Earthquake Authority.

Existing law establishes the California Earthquake Authority (CEA), administered under the authority of the Insurance Commissioner and governed by a 3-member board. Under existing law, the CEA is authorized to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance. Existing law establishes a capital structure for the CEA, with several sources of financing. Existing law generally makes all moneys and invested assets held in the California Earthquake Authority Fund, subject to specified restrictions, available capital, which is the first source of financing used to pay earthquake claims and claim expenses. Under existing law, the California Earthquake Authority Fund is a continuously appropriated fund.

Existing law authorizes the Treasurer, as agent for the CEA, to sell investment grade revenue bonds or issue or secure other debt financing of the CEA in an amount up to $1,000,000,000 if the benefits paid following an earthquake event exhaust 4 specified sources of capital, including the CEAs available capital and all insurer capital contributions and assessments. Existing law authorizes the CEA to surcharge all CEA policies, in a net amount not to exceed $1,000,000,000, plus costs of issuance and sale of those revenue bonds or other debt and amounts paid or payable to bond issuers and providers of credit support and letters of credit, to secure funds to repay the bonded indebtedness or other debt, and requires a CEA policy to include a specified notice of the surcharge to its policyholders. Existing law requires the aggregate amount of the surcharge to be reduced according to a specified market share calculation.

This bill would revise that bond provision to require the CEA, with the Treasurer as its agent, to issue and sell investment grade revenue bonds or secure other debt financing, or both, in amounts up to $1,000,000,000, plus costs of issuance and sale of those revenue bonds, costs of securing that debt financing, and amounts paid or payable to bond issuers and providers of credit support and letters of credit, if the 4 existing specified sources of capital plus risk transfer provided through capital market contracts are exhausted. By creating a new mandatory source of funding, the bill would make an appropriation.

This bill would clarify that the CEA may use its existing surcharge authority to additionally repay costs of issuance and sale of revenue bonds or other debt, and amounts paid or payable to bond issuers and providers of credit support and letters of credit. The bill would eliminate the surcharge reduction requirements. The bill would amend the required notice of surcharge provided to policyholders to state that if a policyholder fails to cancel or nonrenew the CEA policy and fails to pay the CEA policy premium and surcharge by the payment deadline, both the CEA policy and the related policy of residential property insurance will be canceled. The bill would also make findings and declarations.