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News > West News > Sep 2007

West News

Calif. Passes Bill to Fund Earthquake Authority with $1.3 Billion from
Insurers

September 13, 2007

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The California Legislature has passed SB 430, designating $1.3 billion from
participating insurers to fund the California Earthquake Authority (CEA).

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This additional $1.3 billlion contribution is being made with no compensation
to the particpating insurers (PIs), and brings total financial support by the
PIs for the CEA to more than $3 billion, when combined with other current
commitments.

The Association of California Insurance Companies (ACIC), the American
Insurance Association (AIA) and the Personal Insurance Federation of California
(PIFC) have supported the legislation to implement this funding, saying that is
vital to maintaining the investment-grade rating (A-) that the objective and
respected rating agency A.M. Best has said it will assign to the CEA if SB 430
becomes law. A.M. Best has also indicated that the passage of SB 430 will result
in the CEA being redesignated from a "negative outlook" to a "positive outlook,"
the associations said.

"Without SB 430, the CEA will not have adequate financial backing and will
have to disclose that it may not be financially viable by the end of 2007," said
Rex Frazier of PIFC, Ken Gibson of AIA and Sam Sorich of ACIC.

They predicted the result of the CEA being financially unviable could
ultimately result in it being downgraded to junk bond status. If SB 430 is not
enacted it will be very difficult for the CEA to renew and write new policies
starting in December 2007. Furthermore, if the CEA can't sell or renew policies,
the availability of earthquake insurance coverage available to homeowners in
California will decline and many Californians living in earthquake-prone regions
of the Golden State will be unable to get the coverage they need, they said.

"SB 430 represents many months of discussions to forge common ground to
ensure the protection of California homeowners and broad availability of
earthquake coverage that is integral to protecting a homeowners' market that has
already suffered recently from other significant problems," Gibson, Sorich and
Frazier added.

The CEA is the largest privately financed and publicly managed catastrophe
pool in the country.

Source: AIA, ACIC, PIFC

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