California Insurance Commissioner John Garamendi and Assembly member Mark Ridley-Thomas (D-Los Angeles) introduced AB 925, a new piece of legislation that would require insurers to make investments in low- and moderate-income communities.
The new legislation, modeled after the banking industry’s Community Reinvestment Act, will require insurers with less than $500 million in surplus to invest one percent of that allocated surplus over the next four years; and insurers with more than $500 million in surplus will be required to invest one percent of their allocated investments, Garamendi stated in a teleconference.
“AB 925 is not a hand out,” Garamendi said. “It’s not a gift. It’s not charity. It simply directs the insurance industry to invest a specific amount of their capital in these emerging communities. The formula that was developed and that is in the bill has been very rigorously analyzed by my department and a clear determination has been made that it is at a level that in no way harms a viable companies security and investments.”
Garamendi said that the bill would provide the commissioner the determination to waive the requirements for companies that might have financial difficulties.
“We’re very confident that this in no way impinges upon the safety and insolvency of any insurance company,” Garamendi said.
When asked about voluntary investments on behalf of insurers in municipal bonds and other community development programs, Garamendi called the $23 billion already invested by insurers “a bogus argument,” saying that emerging communities “have been ignored” by the insurance industry, in terms of investments and in providing insurance products.
The commissioner added that, “although there can be, under the terms of the bill, investments in government bonds that are specifically for community development.”
Although there are already investment law guidelines in place for insurers, Garamendi said that the new bill would not change the current state and NAIC guidelines, but would “provide for a small additional waiver for those companies that meet the full criteria of the law [that is the one percent] where they can expand by one half of one percent their discretionary investment, and these are the investments that would be outside of the normal guidelines, keeping in mind that the commissioner has the authority in this legislation to waive the entire obligations on 925 when a company is in financial distress.”
The bill will also require companies to report to the CDI and be evaluated by their performance.
“We’ve done the analysis for both large and small companies, and the determination was made that this is a safe level of investment,” Garamendi added. “These investments are considered to be the normal level of safety that any insurance company would make with a normal rate of return.”
Editor’s note: See the April 18 issue of Insurance Journal West for more information on AB 925.
Topics California Carriers Legislation
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