Bill Text: CA AB2927 | 2017-2018 | Regular Session | Amended

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

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Bill Title: California Earthquake Authority.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2018-09-27 - Chaptered by Secretary of State - Chapter 828, Statutes of 2018. [AB2927 Detail]

Download: California-2017-AB2927-Amended.html

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Amended  IN  Assembly  April 12, 2018

Amended  IN  Assembly  March 22, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill

No. 2927

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Introduced by Assembly Member Nazarian

February 16, 2018

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An act to amend Sections 10089.5, 10089.13, 10089.16, 10089.23, 10089.29, and 10089.30 of, to add Sections 10089.315 and 10089.316 to, and to repeal Sections 10089.31 and 10089.33 of, Section 10089.29 of the Insurance Code, relating to insurance, and making an appropriation therefor.

LEGISLATIVE COUNSEL'S DIGEST

AB 2927, as amended, Nazarian. California Earthquake Authority.

(1)Existing

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 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, if the CEA’s available capital after paying earthquake claims and claim expenses is reduced to less than $350,000,000, the CEA has the power to assess participating insurers with Insurance Commissioner approval, subject to specified maximum limits according to a specified formula, not to exceed $3,000,000,000 total. Existing law sets additional assessment limits if other sources of financing are exhausted. the California Earthquake Authority Fund is a continuously appropriated fund.

This bill would eliminate that formula and assessment limit, and instead provide that the CEA may assess participating insurers with commissioner approval if its available capital is reduced to less than $500,000,000. The bill would authorize the board to assess participating insurers without commissioner approval if claims and claims expenses incurred exhaust the CEA’s available capital and 4 other funding sources, and would limit an assessment to the amount necessary to pay expected claims and claim expenses and to return the CEA’s available capital to $500,000,000, up to a $3,000,000,000 aggregate limit for a single earthquake event. The bill would repeal provisions that provide for an additional assessment of up to $1,780,000,000 if all insurer assessments and other financing sources are exhausted and provisions that relieve insurers of their assessment obligations if the CEA’s available capital daily balance exceeds $6,000,000,000 for the last 180 days of a calendar year. The bill would also make conforming changes.

(2)Existing

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 CEA’s available capital and all insurer capital contributions and assessments. Existing law authorizes the CEA to surcharge all CEA policies 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.

This bill would revise that provision to require the CEA CEA, with the Treasurer as its agent, to sell investment grade revenue bonds or issue or secure other debt financing in an amount up to $1,000,000,000, plus costs of issuance and sale of revenue bonds or other 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 and all capital available in the newly created CEA Policyholder Surcharge Reserve Fund are exhausted. The By creating a new source of funding, the bill would make an appropriation.

This bill would permit the CEA to implement a surcharge for reinsurance coverage 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 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 for reinsurance 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.

This bill would require the CEA to determine and collect an assessment on assessable insurance policies, as defined, and sell investment grade revenue bonds or issue or secure other debt financing if claims and claim expenses exhaust the CEA’s available capital and 5 other funding sources. The bill would limit the amount of a policy assessment to 1% of the annual insurance premium of a policy and limit the duration of an assessment to no more than 10 years.

(3)Existing law creates the California Earthquake Authority Fund, which is continuously appropriated to pay, among other things, claims arising under policies of basic residential earthquake insurance issued by the CEA, and to establish reserves.

This bill would establish 3 subaccounts within the California Earthquake Fund. The bill would require the board to direct an actuary annually to calculate the risk transfer expenses that were not incurred by the CEA because of its ability to issue a surcharge and an assessment. The bill would require the board to approve the actuary’s calculations, if acceptable, and annually transfer specified percentages of the savings amount calculated by the actuary into the 3 new subaccounts. By creating a new source of funding and creating a new purpose for an existing appropriation, this bill would make an appropriation.

(4)This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 23 of the membership of each house of the Legislature.

Digest Key

Vote: TWO_THIRDSMAJORITY   Appropriation: YES   Fiscal Committee: YES   Local Program: NO  

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Bill Text

The people of the State of California do enact as follows:

SECTION 1.

 The Legislature finds and declares the following:

(a) The California Earthquake Authority (CEA) was duly established by Legislative acts in 1995 and 1996, acting as a public instrumentality of the State of California, to provide those California residential property insurance policyholders whose residential property insurance is provided by CEA participating insurance companies with access to insurance against damage from and losses caused by earthquakes, which damage and loss are typically excluded from coverage under residential property insurance policies.

(b) CEA has successfully operated, and as of the date of this act, is entering its 22nd year of operation.

(c) CEA grew its policyholder base and insured exposure over its first 19 years of operation at a consistent pace, but in recent years, CEA has seen those growth figures accelerate dramatically. That growth places new and unprecedented pressures on CEA’s insuring capacity, and because the CEA’s role remains important and integral to the interests of the state as the principal provider of residential earthquake insurance and earthquake-loss-mitigation activities, that capacity must be kept strong.

(d) CEA’s claim-paying capacity consists of its own available capital, traditional reinsurance available under contract, other risk transfer capacity available under contract, the capital realized from its issuance of bonds and reinsurance recoverables, and the power to collect assessments from its participating insurance companies at statutorily defined levels. Those assessment levels have diminished significantly and will continue to diminish significantly over time by operation of law.

(e) In addition to those segments of claim-paying capacity, CEA has the power under law, and under contract with its policyholders pursuant to the express terms of its issued insurance policies, to impose temporary premium surcharges of up to 20 percent of policyholders’ annual premium to generate up to $1 billion in additional funds to repay debt incurred after the occurrence of large earthquakes. The debt to be repaid consists of CEA-issued bonds or CEA-secured debt facilities, which provide capacity to pay claims and claim expenses arising from earthquakes. Despite its express and specific presence in the CEA statute since CEA’s inception, this statutorily conferred power to generate funds from policyholder premium surcharges to repay post-earthquake debt has been deemed, by agencies that assess CEA’s post-earthquake creditworthiness, as insufficiently certain of execution to constitute a suitable, ratable claim-paying capacity. It is essential that CEA’s existing power to surcharge its own policyholders, pursuant to law and to contract, be assured.

(f) As CEA’s policy sales have increased, CEA has had to increase its reliance on costly traditional reinsurance, and, based on the expense of that means of securing insuring capacity, explore increasing its rates.

(g) If CEA’s current annual growth pace continues, by 2022, CEA will require more than 26 billion dollars ($26,000,000,000) in total claim-paying capacity, of which 17 billion dollars ($17,000,000,000) would be from traditional and nontraditional risk transfer contracts at an estimated cost to CEA and its policyholders of more than 750 million dollars ($750,000,000) per year. The cost would then consistently increase from that expenditure level. Funds paid as premium on risk transfer contracts are irrecoverable and serve no purpose, other than to provide capacity for the term of the risk transfer procured.

(h) To assist CEA to provide policyholder-financed reinsurance to meet the capacity needs called for by the unprecedented increase in demand for CEA residential earthquake policies, while still maintaining the affordable insurance coverage for earthquake risk it has achieved and to pay claims for the benefit of its policyholders, the Legislature must strengthen and clarify CEA’s existing power to impose postearthquake surcharges on policyholders for reinsurance in a way that will ensure that policyholders maintain the benefit of their earthquake coverage.

(i) This act will do both of the following:

(1) Allow CEA to enhance its future claim-paying capacity to handle larger earthquakes by declaring and clarifying its governing board’s power and authority to impose surcharges on the premiums of CEA policyholders, for reinsurance under board-defined conditions and in board-defined ways.

(2) Provide an alternative reinsurance product to policyholders other than costly traditional reinsurance.

SEC. 2.

 Section 10089.29 of the Insurance Code is amended to read:

10089.29.

 (a) If benefits paid (1) Notwithstanding Section 10089.10, the authority shall sell investment grade revenue bonds, issue or secure other debt financing of the authority, or sell, issue, or secure a combination of revenue bonds and debt financing, in an amount determined by the board pursuant to Section 10089.32, but not to exceed one billion dollars ($1,000,000,000) plus costs of issuance and sale of those revenue bonds or other debt financing, and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt, if claims and claim expenses incurred by the authority following from an earthquake event exhaust the total of (1) the following:

(A) The authority’s available capital, (2) the capital.

(B) The maximum amount of all participating insurer capital contributions and assessments pursuant to Sections 10089.15 and 10089.23, (3) all 10089.23.

(C) All reinsurance and risk transfer provided through capital market contracts actually available and under contract to the authority, and (4) all authority.

(D) All capital committed and actually available by under contract to the authority from private capital markets, the Treasurer, as agent for sale of bonds for the authority, may sell investment grade revenue bonds or issue or secure other debt financing of the authority or any combination of the revenue bonds or debt financing in an amount up to one billion dollars ($1,000,000,000), in an amount determined by the board pursuant to Section 10089.32. The markets.

(2) The Treasurer shall act as agent for sale of those revenue bonds, and shall make available the net proceeds of the revenue bonds or debt financing as funding for the authority. These funds shall not be used to replenish the fund. Failure of the authority to sell revenue bonds or obtain such debt funding for any reason shall not obligate the State of California to provide or arrange replacement funding for the authority. The Treasurer may sell revenue bonds for the purpose of refunding the revenue bonds or other debt financing when authorized to do so by the board, and the surcharge for reinsurance paid by policyholders as authorized by this section may be used to repay that refunding. refunding, plus costs of issuance and sale of those revenue bonds or other debt financing being refunded, and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt being refunded.

(b) (1) In the event of a revenue bond sale or debt financing arrangement pursuant to this section, the authority shall have the power annually to surcharge surcharge, as a form of reinsurance, all authority policies to secure funds funds, which the authority shall use solely to repay the bonded indebtedness or other debt. The debt, 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 for, and interest on, those revenue bonds or other debt. Notwithstanding Section 10089.23, the net surcharge for reinsurance collected shall not exceed the sum calculated pursuant to paragraph (3) of subdivision (a) of Section 10089.23, and in no event exceed one billion dollars ($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 for for, and interest on on, those revenue bonds or other debt. In no event shall the debt. The surcharge for reinsurance on any an authority policy shall not exceed 20 percent of the annual basic residential earthquake insurance premium in any one year for the policy. A surcharge for reinsurance authorized pursuant to this section shall not be considered premium for purposes of the calculation of rates filed with the commissioner pursuant to Chapter 9 (commencing with Section 1850.4) of Part 2 of Division 1 or the calculation of producer commission.

(2) If a policy issued by the authority includes a premium the surcharge for reinsurance pursuant to this subdivision, the participating insurer shall provide the insured a notice in a stand-alone document stating that the policyholder may cancel or nonrenew the earthquake policy. The notice shall specify that cancellation or nonrenewal of the earthquake policy will not affect the underlying residential property insurance policy. The statement shall be provided with the premium billing and shall include the following statement in 14-point boldface type:

NOTICE OF SURCHARGE ON CEA EARTHQUAKE INSURANCE POLICY AND RIGHT TO CANCEL

A SURCHARGE HAS BEEN INCLUDED IN THE PREMIUM FOR YOUR CEA EARTHQUAKE INSURANCE POLICY. YOU MAY CHOOSE TO RENEW THIS POLICY AT THE NEW RATE OR YOU MAY CANCEL OR NONRENEW YOUR CEA EARTHQUAKE INSURANCE POLICY. CANCELLATION OR NONRENEWAL OF YOUR CEA POLICY WILL HAVE NO AFFECT ON YOUR HOMEOWNERS’ OR FIRE INSURANCE POLICY. HOWEVER, IF YOU WANT EARTHQUAKE INSURANCE TO BE PROVIDED BY THE CEA, YOU MUST PAY THE FULL PREMIUM FOR THE CEA POLICY, INCLUDING THE SURCHARGE.

THE CEA IS IMPOSING A SURCHARGE ON THE PREMIUM OF ALL CEA EARTHQUAKE INSURANCE POLICIES. You may choose to renew, to cancel, or not to renew (“nonrenew”) your CEA earthquake insurance policy. If you choose to cancel or nonrenew your CEA earthquake insurance policy, your CEA earthquake insurance policy will be canceled and that cancellation will have no effect on your policy of residential property insurance. If you fail to cancel or to nonrenew your CEA earthquake insurance policy, and if you also fail to pay the CEA earthquake insurance policy premium and surcharge by the payment deadline, both your CEA earthquake insurance policy and your policy of residential property insurance will be canceled. IF YOU WANT EARTHQUAKE INSURANCE PROVIDED BY THE CEA, YOU MUST PAY THE PREMIUM FOR THE CEA EARTHQUAKE INSURANCE POLICY AND THE SURCHARGE.

(c) The total amount of indebtedness and policy surcharges for reinsurance authorized under this section shall not exceed the sum calculated pursuant to paragraph (3) of subdivision (a) of Section 10089.23, and in no event exceed one billion dollars ($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 for, and interest on, those revenue bonds or other debt, regardless of the frequency or severity of earthquake losses at any and all times subsequent to after the creation of the authority. Once the authority has levied policy surcharges in an amount equal to the sum calculated pursuant to paragraph (3) of subdivision (a) of Section 10089.23, and in no event no more than one billion dollars ($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 for, and interest on, those revenue bonds or other debt, the authority’s power to surcharge policies shall cease and the authority shall be prohibited from levying additional surcharges pursuant to this section.

(d) Consistent with the provisions of Section 676, the authority shall cancel the policy of basic residential earthquake insurance if the policyholder fails to pay the earthquake policy surcharge authorized by the authority, and the insurer shall cancel the policy of residential property insurance if the policyholder fails to pay the policy surcharge authorized by the authority.

SECTION 1.Section 10089.5 of the Insurance Code is amended to read:

10089.5.

As used in this chapter:

(a)“Authority” means the California Earthquake Authority.

(b)“Assessable insurance policy” means a policy issued in California or covering a risk located in California under a policy within a class of insurance defined in Chapter 1 (commencing with Section 100) of Part 1 of Division 1, or issued by an eligible nonadmitted insurer through a surplus lines broker, excluding a policy of life, disability, title, mortgage, or insolvency insurance.

(c)“Assessable insured” means a person who holds a policy issued in California or covering a risk located in California under a policy within a class of insurance defined in Chapter 1 (commencing with Section 100) of Part 1 of Division 1, or issued by an eligible nonadmitted insurer through a surplus lines broker. “Assessable insured” excludes a person who holds a policy of life, disability, title, mortgage, or insolvency insurance.

(d)“Assessable insurer” means an insurer or surplus lines broker, identified by the department at the request of the authority, as an issuer of an assessable insurance policy to an assessable insured.

(e)“Available capital” means the sum of all moneys and invested assets actually held in the California Earthquake Authority Fund, less loss reserves and loss adjustment expense reserves under all of the authority’s policies of residential earthquake insurance, and less the unearned premium reserve. “Available capital” includes all interest or other income from the investment of money held in the California Earthquake Authority Fund. “Available capital” does not include unearned premium, the proceeds of contracts of reinsurance procured by or in the name of the authority pursuant to subdivision (a) of Section 10089.10, funds realized on capital market contracts authorized by subdivision (b) of Section 10089.10, or the proceeds of bonds issued by or in the name of the authority.

(f)“Basic residential earthquake insurance” means a policy of residential earthquake insurance described in Section 10089 except as follows:

(1)(A)If one year after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), a policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than two thousand five hundred dollars ($2,500) in coverage for additional living expenses.

(B)If the authority met the available capital requirements of subparagraph (A) and two years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), a policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than three thousand dollars ($3,000) in coverage for additional living expenses.

(2)(A)If the authority did not meet the available capital requirement of subparagraph (A) of paragraph (1) but, two years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), a policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than two thousand five hundred dollars ($2,500) in coverage for additional living expenses.

(B)If the authority met the available capital requirements as provided by subparagraph (A) and three years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), a policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than three thousand dollars ($3,000) in coverage for additional living expenses.

(g)“Board” means the governing board of the authority.

(h)“Bonds” means bonds, notes, commercial paper, variable rate and variable maturity securities, and other evidence of indebtedness.

(i)“Capital market contract” means an agreement between the authority and a purchaser pursuant to which the purchaser agrees to purchase bonds of the authority.

(j)“Earthquake event” means an event as defined by, and covered under, policies issued by the authority.

(k)“Nonparticipating insurer” means an insurer that elects not to transfer or place residential earthquake policies in the authority.

(l)“Panel” means the advisory panel of the authority.

(m)“Participating insurer” means an insurer that has elected to join the authority.

(n)“Policy of residential property insurance” means the policies described in Section 10087.

(o)“Private capital market” means one or more purchasers of bonds of the authority pursuant to a capital market contract.

(p)“Qualifying residential property” includes all the residential dwellings set forth in Section 10087.

(q)“Residential earthquake insurance market share” means an individual insurer’s total direct premium received for both of the following:

(1)Residential earthquake policies and endorsements written or renewed by the insurer in California.

(2)Residential earthquake policies written or renewed by the authority for which the insurer has written or renewed an underlying policy of residential property insurance, divided by the total gross premiums received by all admitted insurers and the authority for their basic residential earthquake insurance in California.

(r)“Residential property insurance market share” means an individual insurer’s total gross premiums received for residential property insurance policies written or renewed by the insurer, divided by the total gross premiums received by all admitted insurers for residential property insurance in California.

(s)“Revenue” means all income and receipts of the authority, including, but not limited to, income and receipts derived from premiums, bond purchase agreements, capital contributions by insurers, assessments levied on insurers, surcharges applied to authority earthquake policyholders, and all interest or other income from investment of money in a fund or account of the authority established for the payment of principal or interest, or premiums on bonds, including reserve funds.

(t)“Unearned premium reserve” means an amount equal to the unearned portion of premiums due to, or received by, the authority on all of its policies of residential earthquake insurance, without deduction on account of reinsurance ceded. The unearned premium reserve shall be charged as a reserve liability in determining the authority’s financial condition. Because the unearned premium reserve is established and maintained to protect the interests of authority policyholders in their unexpired authority policies, authority assets in an amount equal to the unearned premium reserve shall not be subject to encumbrance by, or distribution to, creditors of or claimants against the authority unless and until the authority has paid in full all policyholder claims and policyholder liabilities.

SEC. 2.Section 10089.13 of the Insurance Code is amended to read:

10089.13.

(a)One year following its commencement of operations, and annually thereafter by each August 1, the authority shall report to the Legislature and the commissioner on program operations in a format prescribed by the commissioner. The report shall include, but shall not be limited to, the financial condition of the authority, a description of all rates and rating plans approved for use in the authority, an evaluation of the functioning of the authority in light of its stated purpose of making residential property insurance and residential earthquake insurance more available. The report shall also include an analysis of the growth by market share of residential property insurance of participating insurers compared to nonparticipating insurers, any adverse consequences on the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of the residential property insurance market share between participating insurers and nonparticipating insurers, any adverse consequences of the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of homeowners’ insurance market share between participating insurers and nonparticipating insurers, and an analysis of recommended program changes to permit the authority to better fulfill its stated purpose. In making this determination the board shall be mindful of the competitive nature of the market and how a decision can negatively impact insurers who are currently competing in the marketplace. The report shall be posted on the authority’s official Internet Web site.

(b)The annual report shall include full information describing the following matters relating to the authority’s condition and affairs:

(1)The property or assets held by the authority, including the amount of cash on hand and deposited in banks to its credit, the amount of cash in the hands of servicing insurance companies, the amount of the stocks or bonds owned by the authority, specifying the amount, number of shares, and the par and market value of each kind of stock or bond, and all other assets, specifying each.

(2)The liabilities of the authority, including the amount of losses due and unpaid, the amount of claims for losses resisted by the authority and the amount of losses in the process of adjustment or in suspense, including all reported and supposed losses, the amount of revenue bonds or other debt financing issues under Section 10089.29 or Section 10089.50, and all other liabilities.

(3)Income of the authority during the preceding year, specifying premiums received, interest money received, and income from all other sources, specifying the source.

(4)Expenditures of the authority during the preceding year, specifying the amount of losses paid, the amount of expenses paid by category, and the amount of all other payments and expenditures.

(5)The costs and scope of all reinsurance and capital market contracts entered into by the authority under Section 10089.10.

(c)As part of the annual report, the authority shall make a separate, summary report on the financial capacity of the authority to pay claims made against the authority. Copies of this report shall also be made available to the public. The report shall include, but shall not be limited to, the following information, valued as of 30 days prior to the date of the report:

(1)The available capital of the authority.

(2)The liabilities of the authority.

(3)The amount of all assessments previously made and the amount of assessments that may be made in the future under Section 10089.23.

(4)The amount of the reinsurance under contract and actually available to the authority.

(5)The amount of all revenue bonds or other debt financing previously issued or contracted for and the amount of all revenue bonds or other debt financing that may be issued or contracted for in the future under Section 10089.29.

(6)The amount of surcharges previously assessed against policyholders and the amount of surcharges that are currently outstanding against policyholders under Section 10089.29.

(7)The amount of capital committed and actually available by contract from private capital markets that is available to pay claims against the authority.

(8)The amount of all assessments previously made and the amount of all assessments that may be made in the future under Section 10089.30.

(d)In verification of the matters set forth in the annual report provided for in subdivision (a), the Department of Finance shall approve independent qualified auditors selected by the commissioner to examine the books and accounts relating to all matters concerning the financial and program operations of the authority. The commissioner shall file a certified report of the examination with the President pro Tempore of the Senate, the Speaker of the Assembly, the Chairpersons of the Senate and Assembly Insurance Committees, and the Chairperson of the Senate Committee on Judiciary within 10 days of its receipt. Copies of this report shall also be made available to the public. The expense of examining the books and accounts of the authority shall be paid out of the operating funds of the authority.

(e)The authority shall, within 120 days following a seismic event that results in the payment of claims by the authority, and within one year of a major seismic event that results in the payment of claims by the authority, submit to the President pro Tempore of the Senate, the Speaker of the Assembly, the Chairpersons of the Senate and Assembly Insurance Committees, the Chairperson of the Senate Committee on Judiciary, and the commissioner a concise written report of program operations related to that seismic event. The reports shall include, but not be limited to, progress on payment of claims, claims payments made and anticipated, and the functioning of the authority in response to the seismic event. Copies of this report shall also be made available to the public.

SEC. 3.Section 10089.16 of the Insurance Code is amended to read:

10089.16.

(a)On application to the board, payment of assessments and fees calculated by the board, and fulfillment of additional requirements imposed by the board, nonparticipating insurers may become participants in the authority with all rights and privileges attendant to that participation.

(b)In order to act upon the findings and recommendations reported to the Legislature pursuant to Section 10089.13, or to implement a specific finding by the commissioner or the board that modification of requirements for entry into the authority is necessary to broaden the availability of residential property or residential earthquake insurance, the board is authorized to open the authority to participation by insurers who have not elected to participate in compliance with Section 10089.15. In implementing the authority granted by this section, the board may:

(1)Offer incentives for insurers to participate in the authority.

(2)Allow an insurer or insurer group that has not elected to become a participating insurer to become an associate participating insurer without complying with the capital contribution requirements of Section 10089.15 if it has maintained or exceeded its number of policies of residential property insurance written as of January 1, 1996.

(c)An action by the board pursuant to subdivision (b) shall be subject to the following conditions and limitations:

(1)Deliberation and action by the board shall be conducted at a public meeting of the board.

(2)No action may be taken within one year of the date upon which the authority begins writing policies of basic residential earthquake insurance.

(3)The board shall have no authority to modify the requirements of Section 10089.23 or 10089.30, or to provide, in any other manner, for reduction of the liability of an insurer or insurer group to comply with the assessments placed upon participating insurers in the event of a loss.

(4)Notwithstanding Section 10089.11, any action of the board pursuant to subdivision (b) shall be by regulation promulgated by the board. Notwithstanding any other law, there shall be no authority by the board to promulgate emergency regulations to implement subdivision (b). Regulations shall not be proposed within one year of the date upon which the authority begins writing policies of basic residential earthquake insurance. Notwithstanding any exception provided in Section 11343 of the Government Code, a regulation adopted pursuant to subdivision (b) shall be submitted to the Office of Administrative Law for approval pursuant to the Administrative Procedure Act.

(5)An action by the board to establish an incentive pursuant to subdivision (b) that is available to a single insurer or insurer group shall be based upon standards adopted by the board that are not arbitrary or discriminatory. Notwithstanding Section 10089.11, these standards shall be established by regulation promulgated by the board.

(6)A finding of necessity pursuant to subdivision (b) shall state the specific facts and conditions that establish the necessity and justify the actions to implement subdivision (b). All materials and documents prepared or used by the authority to determine the necessity to implement subdivision (b), other than proprietary materials and documents owned or licensed by third parties, shall be considered public documents, and copies of the public documents shall be made available to the public for inspection at no charge. Members of the public may purchase copies of these documents from the authority at actual cost.

(d)(1)A nonparticipating insurer that applies to the board to become an authority participant must submit to the authority, in connection with its application, earthquake insurance policy data sufficient for the authority to ascertain through computer modeling the current likelihood and magnitude of earthquake insurance losses that would be attributable to that insurer’s book of earthquake insurance business during its first full year of authority participation. The authority’s modeled representation of those insured earthquake losses shall be termed the “earthquake insurance risk profile” of that insurer.

(2)If in the board’s sole judgment the earthquake insurance risk profile the nonparticipating insurer would bring to the authority would be more likely to produce losses for the authority, or would be likely to produce greater losses for the authority, than would a book of existing authority business of similar size, the board may require as a condition for approving the insurer’s application that the insurer pay up to five annual risk capital surcharges into the authority in addition to any capital contribution required by Section 10089.15 and any assessment obligations required by Sections 10089.23 and 10089.30.

(3)The board shall first calculate the nonparticipating insurer’s risk capital surcharge as of the first anniversary of the date the insurer first placed or renewed into the authority earthquake insurance policies. The board shall recalculate the risk capital surcharge for each of up to four years after the first year of calculation and shall impose the resulting surcharge; if the insurer’s earthquake insurance risk profile becomes substantially similar to the authority’s average risk profile for a book of authority earthquake insurance business of similar size, the board shall relieve the insurer of any further obligation to pay risk capital surcharges.

(4)Each annual risk capital surcharge shall be in an amount that, in the board’s determination, is equal to the authority’s increased cost of providing capacity to insure that insurer’s excess earthquake insurance risk. The authority shall cause to be sent to the insurer a notice of that insurer’s annual risk capital surcharge.

(5)Full payment of a noticed risk capital surcharge shall be due within 30 days and shall be overdue after 30 days. Penalties and interest shall be assessed for late payments in the same manner as provided for late payments of the insurer gross premium tax provided for in Section 12258 of the Revenue and Taxation Code. The board may waive the penalties and interest for good cause shown.

(e)Associate participating insurers shall place all new policies of residential earthquake insurance, when writing new policies of residential property insurance, into the authority. Insurers placing policies with the authority under this section shall be subject to the assessments provided for in Sections 10089.23 and 10089.30. Notwithstanding subdivision (m) of Section 10089.5, “residential earthquake insurance market share” for purposes of assessments pursuant to Sections 10089.23 and 10089.30 levied on an associate participating insurer shall mean an individual associate participating insurer’s total direct premium received for residential earthquake policies written or renewed by the authority for which the insurer has written or renewed an underlying policy of residential property insurance, divided by the total gross premiums received by all admitted insurers and the authority for their basic residential earthquake insurance in California.

(f)(1)An associate participating insurer shall not cancel or refuse to renew a residential property insurance policy existing on the date it elected to become an associate participating insurer after an offer of earthquake coverage is accepted solely because the insured has accepted that offer of earthquake coverage.

(2)An associate participating insurer shall maintain in force any policy of residential property insurance existing on the date it elected to become an associate participating insurer after an offer of earthquake insurance has been accepted, unless the policy is properly canceled pursuant to Section 676 or the associate participating insurer has grounds for nonrenewal pursuant to subdivision (g).

(g)An associate participating insurer may refuse to renew a policy of residential property insurance after an offer of earthquake coverage has been accepted if one of the following exceptions applies:

(1)The policy is terminated by the named insured.

(2)The policy is refused renewal on the basis of sound underwriting principles that relate to the coverages provided by the underlying policy of residential property insurance and that are consistent with the approved rating plan and related documents filed with the department as required by existing law.

(3)The commissioner finds that the exposure to potential losses will threaten the solvency of the associate participating insurer or place the associate participating insurer in a hazardous condition. “Hazardous condition” has the same meaning as in Section 1065.1 and includes, but is not limited to, a condition in which an associate participating insurer makes claims payments for losses resulting from an earthquake that occurred within the preceding two years and that required a reduction in policyholder surplus of at least 25 percent for payment of those claims.

(4)There is cancellation under Section 676.

(5)The associate participating insurer has lost or experienced a substantial reduction in the availability or scope of reinsurance coverage or a substantial increase in the premium charged for reinsurance coverage for its residential property insurance policies, and the commissioner has approved a plan for the nonrenewals that is fair and equitable, and that is responsive to the changes in the associate participating insurer’s reinsurance position.

(6)The named insured is insured based upon membership in a motor club, as defined in Section 12142, and the membership in that organization is terminated as provided in paragraph (2) of subdivision (c) of Section 1861.03.

(h)For associate participating insurers, underwriting standards applicable to residential property insurance shall not be applied in an unfairly discriminatory fashion against a person who accepts or elects to continue earthquake coverage.

(i)Associate participating insurers shall be subject to the following requirements:

(1)Associate participating insurers shall conform to all provisions of the authority’s plan of operation applicable to participating insurers.

(2)A property that has previously been covered by a policy of residential earthquake insurance written by the associate participating insurer or associate participating insurer group, absent at least one full policy year with an insurer not affiliated with the associate participating insurer or its group, shall not be placed into the authority by an associate participating insurer.

(3)An associate participating insurer or associate participating insurer group defined in paragraph (2) of subdivision (b) that has failed to maintain or exceed the number of policies of residential property insurance in force on January 1, 1996, may become an associate participating insurer by contributing additional capital into the authority at a rate to be established by the board, which shall be a per policy rate comparable to the average cost per policy paid by a participating insurer that joins the authority pursuant to Section 10089.15.

(j)An associate participating insurer shall be required to establish procedures to verify compliance with this section. The procedures shall require verification that each basic residential earthquake policy written by the authority complies with paragraph (2) of subdivision (i).

(k)A violation of this section may be enforced as a violation of the Unfair Trade Practices Act (Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1). Each policy of basic residential earthquake insurance written in the authority by an associate participating insurer in violation of this section shall be deemed to be a separate violation of the Unfair Trade Practices Act.

(l)For purposes of this section, an insurer or associate participating insurer shall not participate in the authority unless all affiliated insurers participate in the authority.

(m)Policies of basic residential earthquake insurance written by associate participating insurers shall be subject to assessment by the California Insurance Guarantee Association and shall be covered to the extent provided in Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1. Except as provided in Section 10089.34, insurance policies written by participating insurers that are not associate participating insurers shall not be subject to assessment by the California Insurance Guarantee Association if the assessment is imposed to pay claims covered by policies of basic residential earthquake insurance written by an associate participating insurer.

SEC. 4.Section 10089.23 of the Insurance Code is amended to read:

10089.23.

(a)(1)If at any time following the payment of earthquake claims and claim expenses the authority’s available capital is reduced to less than five hundred million dollars ($500,000,000), or if at any time the authority’s available capital is insufficient to pay benefits and continue operations, the authority shall have the power to assess participating insurance companies subject to the maximum limits as set forth in this section and Section 10089.30. The assessment shall be limited to the amount necessary to pay the outstanding or expected claims and claim expenses of the authority and to return the authority’s available capital to five hundred million dollars ($500,000,000), as determined by the board, subject to approval by the commissioner.

(2)A participating insurer’s assessment shall be determined by multiplying the percentage share of the authority’s total gross written premium that is attributable to that participating insurer’s sales of authority insurance policies, as of April 30 of the immediately preceding year or the most recent year for which premium data not more than one year old are available, by the amount of the total assessment sought by the authority.

(3)Beginning December 31 of the first year of operations, and each December 31 thereafter, the board shall adjust the maximum permissible insurer assessment for a single earthquake event pursuant to this section, the maximum permissible insurer assessments pursuant to Section 10089.30, the maximum permissible authority policyholder assessment pursuant to Section 10089.29, and the maximum permissible bond issuances or other debt financing issued or secured by the Treasurer pursuant to Section 10089.29 to reflect the market share of new insurers entering into the authority, as authorized by Sections 10089.15 and 10089.16, and participating insurers withdrawing from the authority, as authorized by Section 10089.19.

(b)In the case of an insurer assessment, the authority shall cause to be sent to a participating insurer a notice of that insurer’s assessment, and full payment shall be due within 30 days and shall be overdue after 30 days. Penalties and interest shall be assessed for late payments in the same manner as provided for late payments of the insurer gross premium tax pursuant to Section 12258 of the Revenue and Taxation Code. The board may waive the penalties and interest for good cause shown. The board shall make every effort to assess insurers only for funds reasonably anticipated to be necessary for claims payments and claim expenses and to return the authority’s available capital to five hundred million dollars ($500,000,000).

(c)Notwithstanding the other provisions of this section, the aggregate assessment the authority is authorized by this section to impose shall be reduced to zero on December 1, 2008, with respect to earthquake events that commence on or after December 1, 2008.

(d)The authority shall not assess a participating insurer under this section based on insurance business that is attributable to the insurer selling the insurer’s insurance products that supplement or augment the basic residential earthquake insurance provided by the authority.

SEC. 5.Section 10089.29 of the Insurance Code is amended to read:

10089.29.

(a)(1)The authority shall sell investment grade revenue bonds, issue or secure other debt financing of the authority, or sell, issue, or secure a combination of revenue bonds and debt financing, in an amount determined by the board pursuant to Section 10089.32, but not to exceed one billion dollars ($1,000,000,000), plus costs of issuance and sale of those revenue bonds or other debt financing, and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt, if claims and claim expenses incurred by the authority following a single earthquake event exhaust the total of the following:

(A)The authority’s available capital.

(B)The maximum amount of all participating insurer capital contributions and assessments pursuant to Sections 10089.15 and 10089.23.

(C)All reinsurance and risk transfer provided through capital market contracts actually available and under contract to the authority.

(D)All capital committed and actually available by contract to the authority from private capital markets.

(E)All capital available in the CEA Policyholder Surcharge Reserve Fund.

(2)The Treasurer may act as agent for sale of those revenue bonds, and shall make available the net proceeds of the revenue bonds as funding for the authority. Failure of the authority to obtain debt financing shall not obligate the State of California to provide or arrange replacement funding for the authority. The Treasurer may sell revenue bonds for the purpose of refunding the revenue bonds or other debt financing when authorized to do so by the board, and the surcharge authorized by this section may be used to repay that refunding, plus costs of issuance and sale of those revenue bonds or other debt financing being refunded, and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt being refunded.

(b)(1)In the event of a revenue bond sale or debt financing arrangement pursuant to this section, the authority shall have the power annually to surcharge all authority policies to secure funds solely to repay the bonded indebtedness or other debt, 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 for, and interest on, those revenue bonds or other debt. The net surcharge collected shall not exceed one billion dollars ($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 for, and interest on, those revenue bonds or other debt. The surcharge on an authority policy shall not exceed 20 percent of the annual basic residential earthquake insurance premium in any one year for the policy. A surcharge authorized pursuant to this section shall not be considered premium for any purpose, including the calculation of rates filed with the commissioner pursuant to Chapter 9 (commencing with Section 1850.4) of Part 2 of Division 1 or the calculation of producer commission.

(2)If a policy issued by the authority includes a premium surcharge pursuant to this subdivision, the participating insurer shall provide the insured a notice in a stand-alone document stating that the policyholder may cancel or nonrenew the earthquake policy. The notice shall specify that cancellation or nonrenewal of the earthquake policy will not affect the underlying residential property insurance policy. The statement shall be provided with the premium billing and shall include the following statement in 14-point boldface type:

NOTICE OF SURCHARGE ON CEA EARTHQUAKE INSURANCE POLICY AND RIGHT TO CANCEL

THE CEA IS IMPOSING A SURCHARGE ON ALL CEA EARTHQUAKE INSURANCE POLICIES. You may choose to renew, to cancel, or not to renew (“nonrenew”) your CEA earthquake policy. If you choose to cancel or nonrenew your CEA earthquake insurance policy, your CEA earthquake insurance policy will be canceled and that cancellation will have no effect on your policy of residential property insurance. If you fail to cancel or nonrenew your CEA earthquake insurance policy, and also fail to pay the CEA earthquake insurance policy premium and surcharge by the payment deadline, both your CEA earthquake insurance policy and your policy of residential property insurance will be canceled. IF YOU WANT EARTHQUAKE INSURANCE PROVIDED BY THE CEA, YOU MUST PAY THE PREMIUM FOR THE CEA EARTHQUAKE INSURANCE POLICY AND THE SURCHARGE.

(c)The total amount of indebtedness and policy surcharges authorized under this section shall not exceed one billion dollars ($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 for, and interest on, those revenue bonds or other debt, regardless of the frequency or severity of earthquake losses after the creation of the authority. Once the authority has levied policy surcharges in an amount no more than one billion dollars ($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 for, and interest on, those revenue bonds or other debt, the authority’s power to surcharge policies shall cease and the authority shall be prohibited from levying additional surcharges pursuant to this section.

(d)Consistent with the provisions of Section 676, the authority shall cancel the policy of basic residential earthquake insurance if the policyholder fails to pay the earthquake policy surcharge authorized by the authority, and the insurer shall cancel the policy of residential property insurance if the policyholder fails to pay the policy surcharge authorized by the authority.

(e)In consultation with a consulting actuary employed or hired by the authority, the board shall adopt a methodology to determine the amount and cost of reinsurance or other risk transfer the authority was able to forgo in reliance on the authority’s ability to surcharge pursuant to this section. The actuarial methodology shall be reported to the board and the public. The board shall direct an actuary to apply that methodology annually to calculate the amount of risk-transfer premium not expended, if any, as a result of having the ability to surcharge pursuant to this section. The actuary’s calculation shall be reported to the board, and if acceptable, approved by the board and reported to the public.

SEC. 6.Section 10089.30 of the Insurance Code is amended to read:

10089.30.

(a)The board shall have the power to assess participating insurers an aggregate of up to three billion dollars ($3,000,000,000) for a single earthquake event if claims and claim expenses incurred by the authority due to earthquake events exhaust the total of the following:

(1)The authority’s available capital.

(2)The maximum amount of all insurer capital contributions and assessments pursuant to Sections 10089.15 and 10089.23.

(3)All reinsurance and risk transfer available through capital market contracts that are actually available and under contract to the authority.

(4)The maximum amount of all authority policyholder assessments pursuant to Section 10089.29.

(5)All capital committed and actually available from the private capital markets.

(b)A participating insurer’s assessment shall be determined by multiplying the percentage share of the authority’s total gross written premium attributable to that participating insurer’s sales of authority insurance policies, as of April 30 of the immediately preceding year or the most recent year for which premium data not more than one year old are available, by the amount of the total assessment sought by the authority.

(c)Once a participating insurer has paid, pursuant to this section, amounts equal to its percentage share of the authority’s total gross written premium, multiplied by three billion dollars ($3,000,000,000), the authority’s power to assess that insurer under this section shall cease and the authority shall be prohibited from levying additional assessments on that insurer for that single earthquake event pursuant to this section.

(d)The assessment shall be limited to the amount necessary to pay the expected claims and claim expenses of the authority and return the authority’s available capital to five hundred million dollars ($500,000,000), as determined by the board.

SEC. 7.Section 10089.31 of the Insurance Code is repealed.

SEC. 8.Section 10089.315 is added to the Insurance Code, to read:

10089.315.

(a)(1)The authority shall determine and collect a statewide assessment on assessable insurance policies, as authorized in this section, and sell investment grade revenue bonds, issue or secure other debt financing of the authority, or issue or secure a combination of revenue bonds or debt financing in an amount determined by the board if claims and claim expenses incurred by the authority due to earthquake events exhaust the total of the following:

(A)The authority’s available capital.

(B)The maximum amount of all insurer capital contributions and assessments pursuant to Sections 10089.15, 10089.23, and 10089.30.

(C)All reinsurance and risk transfer available through capital market contracts that are actually available and under contract to the authority.

(D)The maximum amount of all authority policyholder assessments pursuant to Section 10089.29.

(E)All capital committed and actually available from the private capital markets.

(F)All capital available in the CEA Policyholder Surcharge Reserve Fund and the P&C Policyholder Assessment Reserve Fund.

(2)The Treasurer may act as agent for the sale of revenue bonds and shall make available the net proceeds of the revenue bonds or debt financing as funding for the authority. Failure of the authority to obtain that funding shall not obligate the State of California to provide or arrange replacement funding for the authority. The Treasurer may sell revenue bonds for the purpose of refunding the revenue bonds or other debt financing, and the proceeds of assessments authorized by this section may be used to repay that funding.

(b)The board shall establish the assessment to be collected by assessable insurers from assessable insureds upon issuance or renewal of assessable insurance policies. The assessment shall be established as follows:

(1)The board shall determine assessments based on the earthquake risk for the location of the assessable insured, consistent with the authority’s underwriting standards in effect at the time of the assessment.

(2)The assessment on an assessable insured’s policy in a year shall not exceed one percent of the annual insurance premium for that policy, and shall not have a duration of more than 10 years.

(3)The board may redetermine the assessment annually to account for changes in the circumstances giving rise to the assessment.

(4)The authority’s aggregate claim paying capacity shall not have more than 25 percent of that capacity based on the aggregate assessment authorized by this section.

(c)The authority shall notify assessable insurers of the date on which assessable insurers shall begin to collect, and assessable insureds shall begin to pay, a board-authorized assessment.

(d)The amount of an assessment shall be separately stated on either a billing or policy declaration sent to an assessable insured. The authority shall determine the rate of the assessment pursuant to subdivision (b) and determine the collection period, which shall be mandatory for all assessable insureds. Assessable insurers who collect assessments in excess of the assessment charge shall remit the excess to the authority within 30 days after the authority has determined the amount of the excess recoupment and has given notice to the assessable insurer of that amount. The excess shall be applied to reduce future assessment charges.

(e)Proceeds of the assessment shall be transmitted to the authority within 30 days after the end of the quarter in which the proceeds were collected. The assessments shall be used solely to repay the bonded indebtedness or other debt described in subdivision (a), 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 for, and interest on, those revenue bonds or other debt, plus other premiums or expenses related to the assessment authorized by this section.

(f)Assessments collected under this section are not part of an insurer’s rates, are not premium, and are not subject to premium tax, fees, or commissions. Failure to pay the assessment shall be treated as failure to pay premium.

(g)In consultation with a consulting actuary employed or hired by the authority, the board shall adopt a methodology to determine the amount and cost of reinsurance or other risk transfer the authority was able to forgo in reliance on the authority’s ability to issue assessments pursuant to this section. The actuarial methodology shall be reported to the board and the public. The board shall direct an actuary to apply that methodology annually to calculate the amount of risk transfer premium not expended, if any, as a result of having the ability to issue assessments pursuant to this section. The actuary’s calculation shall be reported to the board, and if acceptable, approved by the board and reported to the public.

SEC. 9.Section 10089.316 is added to the Insurance Code, to read:

10089.316.

(a)The board shall direct an actuary to apply annually the actuarial methodology prescribed pursuant to subdivision (e) of Section 10089.29 and subdivision (g) of Section 10089.315 to calculate the risk transfer expense not incurred by the authority, if any, as a result of having the ability to issue a surcharge pursuant to Section 10089.29 and an assessment pursuant to Section 10089.315. The actuary’s calculations shall be reported to the board, and, if acceptable, approved by the board and reported to the public.

(b)The board shall establish the CEA Policyholder Surcharge Reserve Fund, the P&C Policyholder Assessment Reserve Fund, and the California Resiliency Fund, each of which shall be maintained as a subaccount in the California Earthquake Authority Fund. Each subaccount shall be segregated and invested in accordance with the authority’s board-approved investment policy in effect at the time of creation. Notwithstanding any other provision of this chapter, funds allocated to the CEA Policyholder Surcharge Reserve Fund, the P&C Policyholder Assessment Reserve Fund, and the California Resiliency Fund shall not be considered available capital of the authority, as defined in subdivision (e) of Section 10089.5.

(c)The CEA Policyholder Surcharge Reserve Fund shall be exhausted before the imposition of a surcharge pursuant to Section 10089.29.

(d)The P&C Policyholder Assessment Reserve Fund shall be exhausted before the imposition of an assessment pursuant to Section 10089.315.

(e)The authority shall develop the operational rules of the California Resiliency Fund as part of the authority’s plan of operations. Upon the development and implementation of a system, satisfactory to the board, to establish prudent controls over the use and distribution of funds in the California Resiliency Fund, the funds may be expended directly or indirectly by the authority or applied to supply grants and loans or loan guarantees for purposes associated with protecting residential properties, and aiding the post-event recovery of their residents, from damage and harm arising from the occurrence of natural catastrophes, including, but not limited to, damage and harm caused by earthquakes, wildfires, and floods.

(f)The board shall transfer annually the amount calculated and approved pursuant to subdivision (a) as follows:

(1)Fifty percent of the amount calculated and approved pursuant to subdivision (a), up to one hundred million dollars ($100,000,000), to the California Resiliency Fund.

(2)Twenty-five percent of the amount calculated and approved pursuant to subdivision (a) apportioned between the CEA Policyholder Surcharge Reserve Fund and the P&C Policyholder Assessment Reserve Fund according to their respective maximum available assessments.

(3)Twenty-five percent of the amount calculated and approved pursuant to subdivision (a) to fund measures adopted by the board to stabilize premium rates of authority earthquake insurance policyholders.

SEC. 10.Section 10089.33 of the Insurance Code is repealed.