BILL NUMBER: AB 1557 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 19, 1995
INTRODUCED BY Assembly Member Lee
(Principal coauthor: Assembly Member Archie-Hudson)
FEBRUARY 24, 1995
An act to amend Section 733 of, and to add
Article 4.66 (commencing with Section 1214) to Chapter 2 of Part 2 of
Division 1 of , the Insurance Code, relating to
insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 1557, as amended, Lee. Insurance: Community Investment Act.
Existing law makes no provision requiring insurers admitted to
transact the business of insurance in this state to invest in
low-income and very low income communities in this state, as a
condition of maintaining a certificate of authority, as specified.
This bill would enact the Community Investment Act to require
admitted insurers that generate a specified income to invest in
economically targeted investments in low-income and very low income
communities in this state as a condition of maintaining a
certificate of authority to operate in this state. The bill would
also authorize the Insurance Commissioner to issue bulletins adopting
rules and guidelines, and prior to January 1, 1997, require adoption
of appropriate administrative regulations .
Vote: majority. Appropriation: no. Fiscal committee:
yes no . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 733 of the Insurance Code is amended to read:
733. In making such examination the commissioner:
(a) Shall have free access to all the books and papers of the
company.
(b) Shall thoroughly inspect and examine all its affairs.
(c) Shall ascertain its condition and ability to fulfill its
obligations.
(d) Shall ascertain if it has complied with all laws applicable to
its insurance transactions.
(e) Shall examine its performance in making economically targeted
investments, pursuant to Article 4.65 (commencing with Section 1213)
of Part 2 of Chapter 2 of Division 1.
(f) May appraise or cause to be appraised by competent appraisers
appointed by him or her all property in which the insurer has or
claims an interest, or which is security, in any form, for the
payment of any debt or obligation to the insurer. All such
appraisals of real property shall be in writing.
(g) Shall, in conducting the examination, observe those guidelines
and procedures set forth in the Examiner's Handbook adopted by the
National Association of Insurance Commissioners. The commissioner
may also employ other guidelines or procedures which the commissioner
may deem appropriate.
(h) May retain attorneys, appraisers, independent actuaries,
independent certified public accountants, or other professionals and
specialists as examiners, or any of the employees of the department
assigned by the commissioner to carry out the purposes of this
article, the cost of which shall be borne by the company subject to
examination.
SEC. 2.
SECTION 1. Article 4.66 (commencing with Section 1214) is
added to Chapter 2 of Part 2 of Division 1 of the Insurance Code, to
read:
Article 4.66. Community Investment Act
1214. In enacting this article, the Legislature hereby finds and
declares all of the following:
(a) Insurance companies are a major source of investment capital
in California. Many low-income communities in the state, both rural
and urban, need greater access to investment capital for purposes
such as small business and community economic development and
affordable housing rehabilitation and construction. Financial
institutions, another major source of investment capital in
California, are required by the federal Community Reinvestment Act to
address the credit needs of low-income communities in the areas they
serve. Investments made pursuant to that federal act have helped
revitalize low-income communities.
(b) Insurers collect premiums from individuals and families
throughout California, including low-income communities. These
premiums are part of an insurer's investable assets. Because
insurance companies are separately regulated by each state, there has
been no requirement that a portion of insurers' investments be made
in low-income communities. Thus, insurers have not invested
sufficiently in low-income communities in this state. The lack of
investment in low-income communities has inhibited economic growth
and stability in California and contributed to their overall economic
decline. Insurers that write a significant amount of coverage in
California should be required to invest a part of their total
investable assets in low-income communities.
(c) Those insurance companies that generate an average annual
written premium of at least fifteen million dollars ($15,000,000) in
California have significant investable assets and have a continuing
and affirmative obligation to invest in low-income communities of
this state in such a way that those communities will be positively
impacted.
(d) Safe and sound investments authorized under this code or by
administrative regulations adopted pursuant thereto are available to
insurers in low-income communities. Those investments are overlooked
business opportunities that offer competitive rates of return and do
not compromise the financial interests of shareholders and
policyholders.
(e) Insurers should be required to make safe and sound investments
in low-income communities as a condition of maintaining a
certificate of authority to do business in this state.
.
1214.1. As used in this article, the following definitions apply
unless the context requires otherwise:
(a) "Affordable housing" means housing which meets the cost
limitations contained in Sections 50052.5 and 50053 of the Health and
Safety Code.
(b) "California direct written premiums" means:
(1) For life insurers, the amounts reported on the line pertaining
to California on Schedule T of the Annual Statement as life
insurance premiums, annuity considerations, accident and health
insurance premiums including policy, membership and other fees, and
deposit type funds.
(2) For title insurers, the amounts reported on the line
pertaining to California on Schedule T of the Annual Statement as
direct premiums written-total direct premiums.
(3) For insurers other than life or title insurers, the amounts
reported on the line pertaining to California on Schedule T of the
Annual Statement as direct premiums written.
(c) "Community development corporation" means a private, nonprofit
organization whose purpose is to foster economic growth and
revitalization, create small businesses, or to develop affordable
housing in a defined neighborhood or for a targeted population. A
community development organization shall provide financial assistance
for any of the following:
(1) Commercial facilities that promote revitalization, community
stability, or job creation or retention.
(2) Businesses that provide jobs for low-income and very low
income people, are owned by low-income and very low income people, or
that enhance the availability of products and services to low-income
and very low income people.
(3) Community facilities.
(4) Housing affordable to low-income and very low income people.
(d) "Community development credit union" means a credit union that
has as a basic purpose the stimulation of economic development
activities and community revitalization efforts aimed at benefiting
the community it serves, a majority of which shall be low-income or
very low income residents.
(e) "Community development loan" means a line of credit,
commitment, or letter of credit for affordable housing and economic
development not being met by the private market.
(f) "Community development financial institution" means a person
other than an individual that:
(1) Has a primary mission of promoting community development.
(2) Serves an investment area or targeted population.
(3) Provides development services in conjunction with equity
investments or loans, directly or through a subsidiary or affiliate.
(4) Maintains, through representation on its governing board or
otherwise, accountability to residents of its investment area or
targeted populations.
(5) Is not an agency or instrumentality of the United States, or
of any state or political subdivision of a state.
(g) "Economically targeted investments" means investments by
insurers in low-income or very low income communities that benefit
low-income or very low income individuals and have a positive impact
on those communities. Economically targeted investments may be made
directly by insurers, through intermediaries, or through
partnerships, consortia, or other entities organized by insurers or
other financial institutions. Those investments include, but are not
limited to, the following:
(1) Equity or debt investments:
(A) Through financial intermediaries (including, but not limited
to, community development financial institutions, community
development corporations, loan pools or consortia, microenterprise
development organizations, minority-and women-owned financial
institutions, and low-income or community development credit unions)
that primarily lend or facilitate lending in low-income and very low
income areas or to low-income and very low income individuals in
order to promote community economic development or affordable housing
development.
(B) In businesses or farms with gross annual revenues of less than
or equal to one million dollars ($1,000,000).
(C) In organizations promoting small and microenterprise
businesses.
(D) In housing affordable to low-income and very low income
households and community economic development in low-income and very
low income communities.
(E) In loan guaranty funds for low-income or very low income
housing.
(2) Community development loans.
(3) Investments in projects eligible for the federal low-income
housing tax credit.
(4) Investments in state and municipal obligations that
specifically support community economic development or affordable
housing to benefit low-income and very low income individuals or
communities.
(5) Purchases of loans for multifamily affordable housing on the
secondary market.
(6) Grants or deferred interest loans to nonprofit organizations
engaging in any of the following activities:
(A) Affordable rental housing rehabilitation and new construction.
(B) Supporting or developing facilities that promote community
economic development in low-income and very low income areas or for
low-income and very low income individuals, such as day care
facilities.
(C) Activities essential to the capacity of low-income and very
low income individuals or communities to utilize credit or sustain
economic development.
(D) Small business or microenterprise development.
(h) "Low income" means, in the case of a person, an individual
income, or in the case of a geographic area, a median family income,
that is at least 50 percent and less than 80 percent of the adjusted
area median income, with adjustments for family size and revised
annually.
(i) "Microenterprise" means a commercial enterprise with 10 or
fewer employees, one or more of whom owns the enterprise.
(j) "NAIC-3" means investments that are of medium investment grade
and rated 3, P3, or PSF3 by the Securities Valuation Office of the
National Association of Insurance Commissioners.
(k) "Small business" means a commercial enterprise with gross
annual revenues of less than or equal to one million dollars
($1,000,000).
(l) "Very low income" means, in the case of a person, an
individual income, or in the case of a geographic area, a median
family income, that is less than 50 percent of the adjusted area
median income, with adjustments for family size and revised annually.
1214.2 An admitted life insurer shall invest 1 percent, and an
admitted insurer other than a life insurer shall invest one-half of 1
percent (the "investment percentage") of California direct written
premiums in economically targeted investments, as follows:
(a) During the 1996 calendar year, an admitted insurer that wrote
at least fifteen million dollars ($15,000,000) of California direct
written premiums in the 1995 calendar year shall invest the
investment percentage of its 1995 calendar year California direct
written premiums in economically targeted investments.
(b) During the 1997 calendar year, an admitted insurer that wrote
an aggregate of at least thirty million dollars ($30,000,000) of
California direct written premiums in the 1995 and 1996 calendar
years shall invest the investment percentage of its aggregate 1995
and 1996 calendar years' California direct written premiums in
economically targeted investments. Economically targeted investments
made during the 1996 calendar year pursuant to subdivision (a) may be
counted toward that requirement.
(c) During the 1998 calendar year, and during each subsequent
calendar year, an admitted insurer that has written an aggregate of
least forty-five million dollars ($45,000,000) of direct written
premiums in California in the three preceeding calendar years shall
have economically targeted investments in an amount equal to the
investment percentage multiplied by its aggregate California direct
written premiums for the preceding three calendar years.
(d) An insurer shall not be required to make economically targeted
investments that are rated below NAIC-3. For the purpose of this
article, investments shall be valued at actual cost.
1214.3. The amount that every insurer shall invest pursuant to
Section 1214.2 shall be reduced by one dollar ($1) for every dollar
that the insurer invests in economically targeted investments that
are:
(a) Loans to or equity investments in community development
corporations engaged in promoting small or microenterprise business
opportunities for low-income or very low income people through loans
or equity investments.
(b) Loans to or equity investments in small businesses or farms
with gross annual revenues of less than one million dollars
($1,000,000).
(c) Those investments authorized by Section 1194.8 and which are
either low-income or very low income economic development or deed
restricted very low income housing.
1214.4. Every insurer shall include as part of its annual
statement, a community investment report that states the type,
number, dollar amount of economically targeted investments, and
location by address and census tract of where economically targeted
investments are invested, and a calculation of the value of the
investments. This information shall be provided both in the
aggregate and separately for low-income and very low income
communities. The commissioner may require additional information as
is necessary to evaluate the investment performance of insurers and
compliance with this article. communities.
1214.5. The board of directors of every admitted insurer shall
adopt a community investment plan annually and cause a copy
to be filed with the department . Every community
investment plan shall contain at least the following:
(a) A description of the specific community development needs to
be addressed by the insurer's economically targeted investments.
(b) The geographic areas where the insurer intends to make
economically targeted investments.
(c) A list of the specific types of economically targeted
investments the insurer intends to make.
(d) An assessment of the insurer's previous efforts in making
economically targeted investments.
(e) An identification of any obstacles to making economically
targeted investments.
(f) Strategies for overcoming any identified obstacles to making
economically targeted investments that the insurer intends to take.
(g) Goals for the next year.
1214.6. (a) Whenever the commissioner has reason to believe that
an admitted insurer has failed to adequately make economically
targeted investments in accordance with this article, he or she shall
issue an order to show cause containing a statement of the charges,
a statement of the insurer's potential liability under Section
1213.6, and a notice of hearing to be held at a time and place fixed
therein which shall not be less than 30 days after service thereof,
for the purpose of determining whether the commissioner should issue
an order that the insurer pay the penalty imposed by Section 1214.8
and to cease and desist from further noncompliance with this article.
The hearing shall be conducted in accordance with the Administrative
Procedures Act (Chapter 5 (commencing with Section 11500) of Part 1
of Division 3 of Title 2 of the Government Code) or by an
administrative law judge appointed by the commissioner.
(b) If the charges are found to be justified, the commissioner
shall issue an order specifying the penalty that the insurer shall
pay pursuant to Section 1214.8, specifying remedial actions as are
appropriate to require compliance, and specifying that the insurer
shall cease and desist from engaging in investment practices that are
found to be discriminatory or not in compliance with this article.
1214.7. Any interested person may file a petition with the
commissioner seeking the issuance of an order to show cause directed
at an admitted insurer, for the reasons set forth in Section 1214.6.
1214.8. An insurer that is found to have violated this article is
liable to the state for a civil penalty, to be fixed by the
commissioner as follows:
(a) For the fist violation, an amount not to exceed fifty thousand
dollars ($50,000) for each year in each three-year period during
which the insurer was not in compliance.
(b) For any subsequent violation, an amount not to exceed one
hundred thousand dollars ($100,000) for each year in each three-year
period during which the insurer was not in compliance.
1214.9. An insurer that fails to comply with a final order of the
commissioner under this article shall be liable to the state in an
amount not to exceed one hundred fifty thousand dollars ($150,000).
That penalty shall be in addition to any penalty arising under
Section 1214.8. The commissioner shall collect the amount so payable
and may bring an action in the name of the people of the State of
California to enforce collection. These penalties may be in addition
to any other penalties provided by law.
1214.10. In addition to other penalties provided in this article,
the commissioner may suspend or revoke the certificate of authority
of any insurer which fails to comply with an order issued pursuant to
Section 1214.6, and the commissioner may suspend or revoke, in whole
or in part, the certificate of authority of any insurer that
receives more than one order to comply with this article.
1214.11. Prior to January 1, 1997, the commissioner may issue
bulletins adopting rules and guidelines for the purpose of
implementing this article. Not later than January 1, 1997, the
commissioner shall adopt regulations for the purpose of implementing
this article. The bulletins and regulations may specify or define
additional economically targeted investments.