2007 California Insurance Code Chapter 8.6. California Earthquake Authority

CA Codes (ins:10089.5-10089.54)

10089.5.  As used in this chapter:
   (a) "Authority" means the California Earthquake Authority.
   (b) "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, any 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.
   (c) "Basic residential earthquake insurance" means that 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 (0,000,000), any policy issued or renewed on or
after that date shall provide, less any applicable deductible, not
less than two thousand five hundred dollars (,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 (0,000,000), any policy issued or
renewed on or after that date shall provide, less any applicable
deductible, not less than three thousand dollars (,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
(0,000,000), any policy issued or renewed on or after that date
shall provide, less any applicable deductible, not less than two
thousand five hundred dollars (,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 (0,000,000), any policy
issued or renewed on or after that date shall provide, less any
applicable deductible, not less than three thousand dollars (,000)
in coverage for additional living expenses.
   (d) "Board" means the governing board of the authority.
   (e) "Bonds" means bonds, notes, commercial paper, variable rate
and variable maturity securities, and any other evidence of
indebtedness.
   (f) "Capital market contract" means an agreement between the
authority and a purchaser pursuant to which the purchaser agrees to
purchase bonds of the authority.
   (g) "Nonparticipating insurer" means an insurer that elects not to
transfer or place any residential earthquake policies in the
authority.
   (h) "Panel" means the advisory panel of the authority.
   (i) "Participating insurer" means an insurer that has elected to
join the authority.
   (j) "Policy of residential property insurance" means those
policies described in Section 10087.
   (k) "Private capital market" means one or more purchasers of bonds
of the authority pursuant to a capital market contract.
   (l) "Qualifying residential property" includes all those
residential dwellings set forth in Section 10087.
   (m) "Residential earthquake insurance market share" means an
individual insurer's total direct premium received for (1)
residential earthquake policies and endorsements written or renewed
by the insurer in California and (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.
   (n) "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.
   (o) "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 any fund or account of the authority
established for the payment of principal or interest, or premiums on
bonds, including reserve funds.
   (p) "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.




10089.6.  (a) There is hereby created the California Earthquake
Authority, which shall be administered under the authority of the
commissioner and have the powers conferred by this chapter.  The
authority shall be authorized to transact insurance in this state as
necessary to sell policies of basic residential earthquake insurance
in the manner set forth in Sections 10089.26, 10089.27, and 10089.28.
  The authority shall have no authority to transact any other type of
insurance business.
   (b) (1) The investments of the authority shall be limited to those
securities eligible under Section 16430 of the Government Code.
   (2) The rights, obligations, and duties owed by the authority to
its insureds, beneficiaries of insureds, and applicants for insurance
shall be the same as the rights, obligations, and duties owed by
insurers to its insureds, beneficiaries of insureds and applicants
for insurance under common law, regulations, and statutes.  The
authority shall be liable to its insureds, beneficiaries of insureds,
and applicants for insurance as an insurer is liable to its
insureds, beneficiaries of insureds, and applicants for insurance
under common law, regulations, and statutes.
   (c) The operating expenses of the authority shall be capped at not
more than 3 percent of the premium income received by the authority.
  The funds shall be available to pay any advocacy fees awarded in a
proceeding under subdivision (c) of Section 10089.11.



10089.7.  (a) The authority shall be governed by a three-member
governing board consisting of the Governor, the Treasurer, and the
Insurance Commissioner, each of whom may name designees to serve as
board members in their place.  The Speaker of the Assembly and the
Chairperson of the Senate Rules Committee shall serve as nonvoting,
ex officio members of the board, and may name designees to serve in
their place.
   (b) The board shall be advised by an advisory panel whose members
shall be appointed by the  Governor, except as provided in this
subdivision.  The advisory panel shall consist of four members who
represent insurance companies that are licensed to transact fire
insurance in the state, two of whom shall be appointed by the
commissioner, two licensed insurance agents, one of whom shall be
appointed by the commissioner and three members of the public not
connected with the insurance industry, at least one of whom shall be
a consumer representative.  In addition, the Speaker of the Assembly,
and the Chairperson of the Senate Rules Committee may each appoint
one member of the public not connected with the insurance industry.
Panel members shall serve for four-year terms, which may be staggered
for administrative convenience, and panel members may be
reappointed.  The commissioner shall be a nonvoting, ex officio
member of the panel and shall be entitled to attend all panel
meetings, either in person or by representative.
   (c) The board shall have the power to conduct the affairs of the
authority and may perform all acts necessary or convenient in the
exercise of that power.  Without limitation, the board may:  (1)
employ or contract with officers and employees to administer the
authority; (2) retain outside actuarial, geological, and other
professionals; (3) enter into other obligations relating to the
operation of the authority; (4) invest the moneys in the California
Earthquake Authority Fund; (5) obtain reinsurance and financing for
the authority as authorized by this chapter; (6) contract with
participating insurers to service the policies of basic residential
earthquake insurance issued by the authority; (7) issue bonds payable
from and secured by a pledge of the authority of all or any part of
the revenues of the authority to finance the activities authorized by
this chapter and sell those bonds at public or private sale in the
form and on those terms and conditions as the Treasurer shall
approve; (8) pledge all or any part of the revenues of the authority
to secure bonds and any repayment or reimbursement obligations of the
authority to any provider of insurance or a guarantee of liquidity
or credit facility entered into to provide for the payment of debt
service on any bond of the authority; (9) employ and compensate bond
counsel, financial consultants, and other advisers determined
necessary by the Treasurer in connection with the issuance and sale
of any bonds; (10) issue or obtain from any department or agency of
the United States or of this state, or any private company, any
insurance or guarantee of liquidity or credit facility determined to
be appropriate by the Treasurer to provide for the payment of debt
service on any bond of the authority; (11) engage the commissioner to
collect revenues of the authority; (12) issue bonds to refund or
purchase or otherwise acquire bonds on terms and conditions as the
Treasurer shall approve; and (13) perform all acts that relate to the
function and purpose of the authority, whether or not specifically
designated in this chapter.
   (d) The authority shall reimburse board and panel members for
their reasonable expenses incurred in attending meetings and
conducting the business of the authority.
   (e) (1) There shall be a limited civil immunity and no criminal
liability in a private capacity, on account of any act performed or
omitted or obligation entered into an official capacity, when done or
omitted in good faith and without intent to defraud, on the part of
the board, the panel, or any member of either, or on the part of any
officer, employee, or agent of the authority.  This provision shall
not eliminate or reduce the responsibility of the authority under the
covenant of good faith and fair dealing.
   (2) In any claim against the authority based upon an earthquake
policy issued by the authority, the authority shall be liable for any
damages, including damages under Section 3294 of the Civil Code, for
a breach of the covenant of good faith and fair dealing by the
authority or its agents.
   (3) In any claim based upon an earthquake policy issued by the
authority, the participating carrier shall be liable for any damages
for a breach of a common law, regulatory or statutory duty as if it
were a contracting insurer.  The authority shall indemnify the
participating carrier from any liability resulting from the authority'
s actions or directives.  The board shall not indemnify a
participating carrier for any loss resulting from failure to comply
with directives of the authority or from violating statutory,
regulatory, or common law governing claims handling practices.
   (4) No licensed insurer, its officers, directors, employees, or
agents, shall have any antitrust civil or criminal liability under
the Cartwright Act (Part 2 (commencing with Section 16600) of
Division 7 of the Business and Professions Code) by reason of its
activities conducted in compliance with this chapter.  Further, the
California Earthquake Authority shall be deemed a joint arrangement
established by statute to ensure the availability of insurance
pursuant to subdivision (b) of Section 1861.03.
   (5) Subject to the provisions of Section 10089.21, nothing in this
chapter shall be construed to limit any exercise of the commissioner'
s power, including enforcement and disciplinary actions, or the
imposition of fines and orders to ensure compliance with this
chapter, the rules and guidelines of the authority, or any other law
or rule applicable to the business of insurance.
   (6) Except as provided in paragraph (3) and by any other provision
of this chapter, there shall be no liability on the part of, and no
cause of action shall be permitted in law or equity against, any
participating insurer for any earthquake loss to property for which
the authority has issued a policy unless the loss is covered by an
insurance policy issued by the participating insurer.  A policy
issued by the authority shall not be deemed to be a policy issued by
a participating insurer.
   (f) The Attorney General, in his or her discretion, shall provide
a representative of his or her office to attend and act as antitrust
counsel at all meetings of the panel.  The Attorney General shall be
compensated for legal service rendered in the manner specified in
Section 11044 of the Government Code.
   (g) The authority may sue or be sued and may employ or contract
with that staff and those professionals the board deems necessary for
its efficient administration.
   (h) (1) The authority may contract for the services of a chief
executive officer, a chief financial officer, and an operations
manager, and may contract for the services of reinsurance
intermediaries, financial market underwriters, modeling firms, a
computer firm, an actuary, an insurance claims consultant, counsel,
and private money managers.  These contracts shall not be subject to
otherwise applicable provisions of the Government Code and the Public
Contract Code, and for those purposes, the authority shall not be
considered a state agency or other public entity.  Other employees of
the authority shall be subject to civil service provisions.  The
total number of authority employees subject to civil service
provisions shall not exceed 25.
   (2) When the authority hires multiple private money managers to
manage the assets of the California Earthquake Authority Fund, other
than the primary custodian of the securities, the authority shall
consider small California-based firms who are qualified to manage the
money in the fund.  The purpose of this provision is to prevent the
exclusion of small qualified investment firms solely because of their
size.
   (i) Members of the board and panel, and their designees, and the
chief executive officer, the chief financial officer, and the
operations manager of the authority shall be required to file
financial disclosure statements with the Fair Political Practices
Commission.  The appointing authorities for members and designees of
the board and panel shall, when making appointments, avoid appointing
persons with conflicts of interest.  Section 87406 of the Government
Code, the Milton Marks Postgovernment Employment Restrictions Act of
1990, shall apply to the authority.  Members of the board, the chief
financial officer, the chief executive officer, the chief operations
manager, the chief counsel, and any other person designated by the
authority shall be deemed to be designated employees for the purpose
of that act.  In addition, no member of the board, nor the chief
financial officer, the chief executive officer, the chief operations
manager, and the chief counsel, shall, upon leaving the employment of
the authority, seek, accept, or enter into employment or a
consulting or other contractual arrangement for the period of one
year with any employer or entity that entered into a participating
agreement, or a reinsurance, bonding, letter of credit, or private
capital markets contract with the authority during the time the
employee was employed by the authority, which that member or employee
had negotiated or approved, or participated in negotiating.  A
violation of these provisions shall be subject to enforcement
pursuant to Chapter 11 (commencing with Section 91000) of Title 9 of
the Government Code.
   (j) The Bagley-Keene Open Meeting Act (Article 9 (commencing with
Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the
Government Code) applies to meetings of the board and the panel.




10089.8.  (a) The authority shall operate pursuant to a written plan
of operations.  The panel shall submit a plan to the board for
approval.  If it approves the plan, the board shall submit the plan
to the commissioner for his or her approval.  On receiving the
commissioner's approval, the board shall formally adopt the plan and
submit the plan to the Legislature.  Upon commencement of the
issuance of insurance policies by the authority, any subsequent
amendments to the plan of operation shall be approved by the board
and the commissioner.
   (b) If at any time the commissioner disapproves the submitted plan
or any plan amendments adopted by the board, the board may within 15
days submit changes in the plan to the commissioner.  If the
commissioner disapproves the plan or the changes in the plan, or if
the board fails to submit a plan or to make and submit the requested
changes, the commissioner may require the board to adopt that plan or
those changes directed by the commissioner.
   (c) The plan of operations shall establish in detail the policies
and procedures of the authority, including, but not limited to,
financial operations of the authority, claims procedures, methods of
premium collection, procedures consistent with constitutional,
statutory, and common law requirements for resolving grievances of
applicants or policyholders who are dissatisfied with application
handling or adverse claims decisions, whether by the authority or by
a participating insurer, assessment procedures, a plan for resolution
of assessment disputes between the authority and insureds,
grievances between the authority and participating insurers,
participating insurer fees and expenses, reasonable underwriting
standards, and producer compensation.
   (d) The plan of operations shall include provisions that establish
a mechanism for policyholders to make installment payments of the
annual premium paid for coverage by the authority.  The authority
shall make the installment payment option available to all
policyholders who elect to purchase coverage from the authority.  The
authority may charge a nominal fee to policyholders who opt to make
installment payments.  The fees, in the aggregate, shall cover the
full costs of administering the installment payment option incurred
by the authority and the participating insurer but shall not include
any interest or finance charge.  The authority shall not require a
participating insurer, in the case of a policyholder who opts to make
installment payments as provided in this subdivision, to remit any
portion of the annual premium to the authority before that amount of
the annual premium is collected by the participating insurer.  The
authority shall consult with participating insurers in establishing
or amending the provisions of the plan of operations that govern the
installment payment option.


10089.9.  (a) Upon commencement of participation in the authority,
each participating insurer shall be required to execute a contract
with the commissioner and the authority that sets forth its rights
and responsibilities as an authority participant. The form of
contract shall be part of the authority's plan of operations and
shall be uniform for every participating insurer.
   (b) The uniform authority participation contract required by
subdivision (a) may be modified by the full execution of a writing,
in a form drawn in accordance with this act, that embodies the mutual
intent and understandings of the commissioner, the authority, and
each participating insurer that has executed the authority
participation contract.
   (c) In the event a nonparticipating insurer elects to become a
participating insurer of the authority, the authority is authorized
to present to the nonparticipating insurer the most recent form of
the amended uniform authority participation contract it has executed
or proposed to execute with existing participating insurers and
require its execution as a condition of authority participation. The
acceptance by the authority of, and reliance by the authority on, the
executed amended authority participation contract that is authorized
by this subdivision shall not be deemed a lack of the uniformity of
contract required by subdivision (a).



10089.10.  To expand the capacity of the authority and achieve
maximum capacity for writing earthquake coverage, the authority shall
do both of the following acts, on prior approval of the
commissioner:
   (a) The authority shall purchase contracts of reinsurance at rates
and on terms the board considers reasonable and appropriate.
   (b) The authority, through the Treasurer, shall enter capital
market contracts on terms as the board and Treasurer may consider
reasonable and appropriate.  The Treasurer shall not withhold
approval except for good cause related to the purposes of the
authority.  Such terms may include indemnification and contribution
provisions protecting parties to the capital market contracts of the
authority against material misstatements in or material omissions
from the authority's official statements and other authority
documents referred to in the capital markets contracts.
   (c) The total annual expenditure for reinsurance contracts and
capital market contracts pursuant to this section shall not exceed a
reasonable and appropriate percentage of the annual earthquake
insurance premiums collected by the authority.



10089.11.  (a) The commissioner shall adopt regulations to implement
the provisions of this chapter within 60 days of its effective date.
  The regulations shall be adopted as emergency regulations in
accordance with Chapter 3.5 (commencing with Section 11340) of the
Government Code, and for the purposes of that chapter, including
Section 11349.6 of the Government Code, the adoption of the
regulations shall be considered by the Office of Administrative Law
to be necessary for the immediate preservation of the public peace,
health and safety, and general welfare.
   (b) Regulations shall specify procedures for ratemaking and forms
approval, define the type and quality of investments the authority is
authorized to make, define coverage types and limits, set forth
producer compensation rates, and specify the procedures to be
followed by the authority following any earthquake event where the
magnitude of earthquake losses make it likely that prorated benefits
may be paid.  The regulations shall be consistent with the
requirements of Proposition 103.
   (c) The rights provided by Section 1861.10 shall apply to
proceedings under this chapter relating to establishing rates and
regulations for earthquake insurance sold by the authority.
   (d) All materials and documents prepared or used by the authority
to determine its rates 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 public ratemaking related documents from the authority
at actual cost.


10089.12.  The commissioner shall have full power and authority to
examine the books and records of the authority at any time, and in
connection with the operations and function of the authority, the
commissioner shall have the duties and powers set forth in Article
14.5 (commencing with Section 1065.1) of Chapter 1 of Part 2 of
Division 1 and in Division 3 (commencing with Section 12900).



10089.13.  (a) One year following its commencement of operations,
and annually thereafter by each May 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 any 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 any decision can negatively impact
insurers who are currently competing in the marketplace.
   (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 any 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.
   (9) The amount of all assessments previously made and the amount
of all assessments that may be made in the future under Section
10089.31.
   (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, and 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.



10089.14.  (a) The authority shall not issue any earthquake policy
and no insurer shall transfer any earthquake risk to the authority
until all of the following conditions have been met:
   (1) The Internal Revenue Service has determined that the authority
will be or is exempt from federal income tax.
   (2) Insurers whose cumulative residential property insurance
market share is more than 70 percent of the total residential
property insurance market in California, measured as of January 1,
1995, have filed letters of intent, with binding contractual
obligation, to participate in the authority.
   (3) The authority has obtained letters of intent, with binding
contractual obligation, for capital contributions in the amounts set
forth in Section 10089.15.
   (4) The authority has obtained appropriate risk transfer ability
in the form of firm reinsurance commitments in an aggregate amount of
not less than 200 percent of the total capital contributions
committed by all participating insurers.
   (b) Except as permitted by subdivision (e) of Section 10089.15 and
subdivision (b) of Section 10089.16, insurers shall not be entitled
to transfer any earthquake risk to the authority until they have met
the capital contribution requirements set forth in Section 10089.15,
and no insurer shall be entitled to transfer any earthquake risk to
the authority pursuant to Section 10089.27 unless the insurer has
signed a contract to participate in the authority, is in compliance
with the capital contribution requirements set forth in Section
10089.15, and has complied with any related requirements set by the
board.



10089.15.  (a) Initial operating capital shall be contributed by
insurance companies admitted to write residential property insurance
in the state.  Each insurer that elects to participate in the
authority shall contribute as its share of operating capital an
amount equal to one billion dollars (,000,000,000) multiplied by
the percentage representing that insurer's residential earthquake
insurance market share as of January 1, 1994, as determined by the
board.  A minimum of seven hundred million dollars (0,000,000) in
commitments shall be required before the authority may become
operational.
   (b) Until the authority becomes operational, contributions of
initial operating capital shall be held by the commissioner in trust
for the contributing insurers in the California Earthquake Authority
Fund.
   (c) Because insurers will retain the risk of earthquake losses on
individual earthquake policies until they are renewed into the
authority, participating insurers may elect to contribute operating
capital in 12 installments payable on the first day of each
successive calendar month after the insurer elects to participate.
Each insurer shall compute its monthly installment based on the
portion of the insurer's earthquake coverage that will be renewed
into the authority during the next month.  The final installment
shall be equal to the excess of the participating insurer's required
contribution over the sum of the previous 11 installments.  Those
insurers that elect to participate in the authority after the
beginning operating date of the authority shall make initial capital
contributions calculated using their residential earthquake insurance
market share as of January 1, 1994, or the date of their election to
participate in the authority, whichever contribution amount is
greater.
   (d) An insurer or insurer group that represents 1.25 percent or
less of the residential property insurance market, as measured by
premium volume, or that has a surplus of less than one billion
dollars (,000,000,000), may elect to become a participating insurer
with the full rights and responsibilities of participating insurers
of the authority, pursuant to the provisions of this section.
   (e) The insurer or insurer groups defined in subdivision (d) may
elect to contribute their operating capital, as required by
subdivision (a) of Section 10089.15, in 60 equal monthly
installments, payable on the first day of each successive calendar
month after the insurer elects to participate.  In the event that
earthquake losses result in the authority's payment of claims while
the authority's available funds are inadequate to meet claims
liabilities, and insurers participating under this section have
operating capital contributions outstanding, the operating capital
contributions necessary to meet any unfunded claims liabilities will
become due and payable within 30 days of a request for such
accelerated payment by the board, not to exceed the maximum
contribution owed by each insurer.
   (f) No insurer may elect to contribute operating capital pursuant
to subdivision (e) unless the aggregate premium or aggregate surplus
of all affiliated insurers in its group meets the eligibility
standards established by subdivision (d).



10089.16.  (a) On application to the board, payment of any
assessments and fees calculated by the board, and fulfillment of any
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 any 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 any 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) Any action by the board pursuant to subdivision (b) shall be
subject to the following conditions and limitations:
   (1) Any 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, 10089.30, or 10089.31, 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 provision of law, there shall be no
authority by the board to promulgate emergency regulations to
implement subdivision (b). No regulations may 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, any regulation
adopted pursuant to subdivision (b) shall be submitted to the Office
of Administrative Law for approval pursuant to the Administrative
Procedure Act.
   (5) Any 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 such 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, 10089.30, and 10089.31.
   (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 each such
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, 10089.30, and
10089.31. Notwithstanding subdivision (m) of Section 10089.5,
"residential earthquake insurance market share" for purposes of any
assessments pursuant to Sections 10089.23, 10089.30, and 10089.31
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 any 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) No 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, may be placed
into the authority by an associate participating insurer.
   (3) Any 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) Any 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) Any 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, no insurer or associate
participating insurer may 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.



10089.17.  Notwithstanding subdivision (h) of Section 10089.7, the
authority shall be subject to the provisions of the Political Reform
Act of 1974 (Title 9 (commencing with Section 81000) of the
Government Code).


10089.19.  (a) Participating insurers that want to withdraw from the
authority may do so on 12 months' written notice to the authority.
Insurers that withdraw shall not be entitled to any refund,
reimbursement, or reduction of any initial capital contribution
obligation or earthquake loss assessments previously paid or accrued
with respect to losses incurred prior to the withdrawal.  Insurers
that withdraw shall offer residential earthquake insurance coverage
pursuant to Chapter 8.5 (commencing with Section 10081) of Part 1 of
Division 2 to those policyholders for whom they write the underlying
residential property insurance upon the first renewal following the
insurer's notice to the authority.  The authority shall nonrenew all
policies of basic residential earthquake insurance issued to
policyholders whose provider of residential earthquake insurance has
withdrawn from the authority.  No participating insurer may withdraw
unless every insurer affiliated with that insurer (as defined in
subdivision (a) of Section 1215), or under common control with that
insurer (as defined in subdivision (b) of Section 1215),
simultaneously withdraws from the authority.
   (b) If a noticed withdrawal would result in participation by
insurers whose cumulative residential property insurance market share
is less than 65 percent of the total residential property insurance
market in California, the commissioner shall make recommendations to
the Legislature for the continuation or termination of the authority.



10089.20.  The authority shall renew any policy of basic residential
earthquake insurance, provided the authority receives payment of the
applicable renewal premium on or before the expiration date stated
in the policy.  The authority shall nonrenew, rescind, or cancel a
policy if the property is no longer covered by an underlying policy
of residential property insurance.  The policy issued by the
authority shall not provide coverage in the event that there is no
underlying policy of property insurance at the time of loss.  In that
case, any unearned premiums shall be returned to the policyholder on
a pro rata basis.


10089.21.  The authority is a public instrumentality of the State of
California and the exercise of its powers is an essential state
governmental function.  No provision of law, including, but not
limited to, subdivision (h) of Section 10089.7 and subdivision (e) of
Section 10089.22, shall be construed to affect the status of the
authority as a public instrumentality of the State of California.
Notwithstanding any other provision of law, the authority is not and
shall never be authorized to become a debtor in a case under the
United States Bankruptcy Code (Title 11 of the United States Code) or
to make an assignment for the benefit of creditors or to become the
subject of any similar case or proceeding, nor is the authority
subject to Article 14 (commencing with Section 1010) and Article 14.3
(commencing with Section 1064.1) of Chapter 1 of Part 2 of Division
1.  Notwithstanding any other provision of law, the commissioner
shall not, directly or indirectly, when exercising the power and
authority contained or referred to in or arising from Section
10089.6, paragraph (5) of subdivision (e) of Section 10089.7, Section
10089.12, subdivision (e) of Section 10089.22, subdivision (b) of
Section 10089.35, or any other statute, rule, or regulation, impede
or in any manner interfere with, but shall affirmatively take all
necessary steps to effect, and no person acting under subdivision (c)
of Section 10089.11, or any other provision of law or principle of
equity shall be permitted in any way to impede or in any manner
interfere with:  (a) the full and timely payment of principal,
interest, and premiums on revenue bonds of the authority and amounts
due those bond insurers and providers of credit support and letters
of credit; and (b) any pledge or assignment of revenues as security
for those payments or amounts due, and the full and timely
application of those pledged or assigned revenues to those payments
and amounts due, in each or either case, (a) or (b), as and when due
in accordance with and subject to the limitations contained in
Section 10089.22 and the terms of the constituent instruments
defining the rights of the holders of the bonds and the providers of
bond insurance, credit support, and letters of credit.
   Division 3.6 (commencing with Section 810) of Title 1 of the
Government Code shall not apply to acts of the authority.



10089.22.  (a) The authority shall be continued in existence for so
long as its bonds are outstanding.  Unless and until the authority is
terminated pursuant to Section 10089.43, the commissioner and the
authority shall execute assignments and contracts and take all
necessary steps to assure that all revenue of the authority is paid
to a trustee appointed by the Treasurer, which trustee may be the
treasurer.  The revenue of the authority shall be pledged and
assigned to and held in trust by the trustee and invested and
disbursed by the trustee, to pay, or to set aside funds to pay,
principal, interest, and premiums on bonds and amounts due bond
insurers and providers of credit support and letters of credit for
those bonds, but only in the manner and in accordance with the terms
of the constituent instruments defining the rights of the holders of
bonds of the authority and the providers of bond insurance, credit
support and letters of credit for those bonds.  Amounts held by the
trustee from time to time after provisions for those payments may be
disbursed free of trust to the California Earthquake Authority Fund.
Notwithstanding the foregoing provisions of this section, (1) debt
service payments on bonds of the authority secured by or payable from
securities described in Section 16430 of the Government Code shall
not be secured by a pledge or assignment of revenue of the authority
other than revenue of the authority from (A) the proceeds of sale of
such bonds, (B) the securities described in Section 16430 of the
Government Code, and (C) principal and interest payments on such
securities described in Government Code Section 16430, but debt
service payments on such bonds of the authority may also be made
payable from revenue of the authority in the California Earthquake
Authority Fund, and (2) the constituent instruments defining the
rights of the holders of bonds of the authority referred to in
paragraph (1) shall specify that payment of a portion of the interest
on such bonds is contingent upon payment of policyholder claims for
which the bonds are responsible and that the obligation of the
authority is to first apply such assigned or pledged revenue to the
payment of such policyholder claims instead of paying that contingent
interest.
   (b) There is hereby created the California Earthquake Authority
Fund, which is not a fund in the State Treasury.  Notwithstanding
Section 13340 of the Government Code, the fund is continuously
appropriated without regard to fiscal years for the purposes of this
chapter.  The fund shall be administered by the commissioner, subject
to the direction of the board, to pay all costs arising from this
chapter, including, but not limited to, premiums payable by the
authority under contracts of reinsurance, claims arising under
policies of basic residential earthquake insurance issued by the
authority, operating and other expenses of the authority, and to
establish reserves.  At the discretion of the commissioner,
segregated, dedicated accounts within the fund may be established for
those payments.
   (c) The board may cause moneys in the fund to be invested and
reinvested, from time to time, in accordance with paragraph (4) of
subdivision (c) of Section 10089.7 and subject to subdivision (b) of
Section 10089.6.  Moneys in the fund and not so invested may be
deposited from time to time in (1) financial institutions authorized
by law to receive deposits of public moneys, or (2) with the approval
of the Treasurer, the Surplus Money Investment Fund as provided in
Article 4 (commencing with Section 16470) of Division 4 of Title 2 of
the Government Code.
   (d) A national bank shall be custodian of all securities belonging
to the fund, except as otherwise provided in this chapter and except
as otherwise provided in the constituent instruments that define the
rights of the holders of bonds of the authority and the providers of
bond insurance, credit support, and letters of credit for those
bonds.
   (e) The board may, in cooperation with the Treasurer, authorize
the establishment of an account or fund in the State Treasury in the
name of the authority, but money deposited with the Treasurer in that
account or fund is not state money within the intent of Section
16305.2 of the Government Code, and Sections 16305.3 to 16305.7,
inclusive, of the Government Code shall not apply to money drawn or
collected by the authority.



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 three hundred fifty million dollars
(0,000,000), 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 three hundred fifty million dollars (0,000,000), as
determined by the board, subject to approval by the commissioner.
   (2) Each 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) The maximum permissible insurer assessments pursuant to this
section, the maximum permissible insurer assessments pursuant to
Section 10089.30 and Section 10089.31, the maximum permissible
earthquake policyholder assessments 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 shall
be reduced uniformly by multiplication of the maximum assessments
and other amounts provided in those sections by the percentage of the
total residential property insurance market share participation
attained by the authority. The total amount of all assessments levied
on participating insurance companies by the authority pursuant to
this section shall not exceed three billion dollars (,000,000,000),
regardless of the frequency or severity of earthquake losses at any
and all times subsequent to the creation of the authority. Once a
participating insurer has paid, pursuant to this section, amounts
equal to 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 full year for which premium data
not more than one year old are available, multiplied by three billion
dollars (,000,000,000) reduced as provided in this paragraph from
the maximum assessment, 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 pursuant to this
section.
   (4) Beginning December 31 of the first year of operations, and
each December 31 thereafter, the board shall adjust the maximum
permissible insurer assessments pursuant to this section, the maximum
permissible insurer assessments pursuant to Sections 10089.30 and
10089.31, 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. The adjustments shall
be made in the same manner as authorized by paragraph (3).
   (b) In the case of any insurer assessment, the authority shall
cause to be sent to each 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 three hundred fifty million dollars
(0,000,000).
   (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 any 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.


10089.24.  (a) Notwithstanding any other provision of this chapter,
the maximum permissible assessment pursuant to Section 10089.23 of a
participating insurer that began renewing business into the authority
less than 12 months prior to the date of the assessment shall be
based on the residential earthquake market share of business actually
placed into the authority by the insurer as of the date of the
assessment.
   (b) Notwithstanding any other provision of this chapter, the
maximum permissible assessments pursuant to Section 10089.23 that are
permitted for all participating insurers not covered by subdivision
(a) shall not be modified to reflect the addition of a new
participating insurer until 12 months after that insurer has begun
renewing business into the authority.



10089.25.  Beginning December 31, 1997, and annually thereafter on
the 30th of April, the board shall notify each participating insurer
of the maximum earthquake loss funding assessment level that it may
be required to meet.


10089.26.  (a) The authority shall issue policies of basic
residential earthquake insurance, including earthquake loss
assessment policies for individual condominium unit properties, to
any owner of a qualifying residential property, as long as the owner
has secured a policy of residential property insurance from a
participating insurer.
   (1) For purposes of this section, earthquake loss assessment
coverage shall be issued in a minimum amount of fifty thousand
dollars (,000) for individual condominium units valued at more
than one hundred thirty-five thousand dollars (5,000).  Earthquake
loss assessment coverage shall be issued in a minimum amount of
twenty-five thousand dollars (,000) for individual condominium
units of one hundred thirty-five thousand dollars (5,000) in value
or less.  The value of the land shall be excluded when determining
the value of the condominium, as it relates to the earthquake loss
assessment coverage offered by the authority.
   (2) The panel shall submit to the board, and the board shall
approve, rates for earthquake loss assessment coverage that
reasonably balance the earthquake loss assessment coverages offered
and the potential exposure to earthquake loss resulting from an
earthquake loss assessment policy as compared to the coverages
offered and the potential exposure to earthquake loss resulting from
residential property other than individual condominium policies.
   It is the intent of the Legislature, to the extent practicable,
that rates charged by the authority to condominium loss assessment
policyholders and residential property owner policyholders are
treated equitably, and that a proportionate share of premiums is paid
for potential exposure to loss, to the authority.
   (b) Nothing in this section shall prohibit a participating or
nonparticipating insurer from offering a condominium earthquake loss
assessment policy for different amounts of coverage other than those
offered by the authority.


10089.27.  (a) Every participating insurer that has in-force
residential earthquake insurance policies in the state as of the date
of commencement of authority operations shall renew each in-force
residential earthquake insurance policy or earthquake coverage
provided by endorsement into the authority at the time the policy or
endorsement comes up for renewal.  The effective date of each policy
renewal into the authority shall be the renewal date of the policy as
recorded in the records of the insurer and disclosed to the
policyholder.  The risk of loss under the insurance policy does not
transfer to the authority until 12:01 a.m. of the policy renewal
date.
   (b) (1) All policies of residential earthquake insurance written
by any participating insurer shall have been renewed into the
authority within one year of the commencement of operations of the
authority or the date an insurer elects to participate in the
authority, whichever is later, and after that date, no participating
insurer shall be permitted to write a policy of insurance that
provides coverage within the terms and limits of a policy of basic
residential earthquake insurance for any qualifying residential
property in the state.  Participating insurers may sell residential
earthquake insurance products that supplement or augment the basic
residential earthquake insurance provided by the authority.
   (2) Upon application to the authority demonstrating good cause and
approval of the commissioner, a participating insurer may take up to
60 days beyond that one-year period to complete its renewal of
earthquake policies into the authority.  No extension of time to
complete earthquake policy renewals into the authority shall serve to
extend the due date by which an insurer is to make its initial
capital contribution, as set forth in Section 10089.15.  The
commissioner shall not approve any extension if the effect of the
extension would allow an insurer to selectively transfer earthquake
policies with high risks to the authority while retaining policies
with lower risks during that interim period.
   (3) After policies of residential earthquake insurance are renewed
in the authority, insurers shall have no responsibilities or
liabilities regarding those policies for losses incurred after the
date of renewal of those policies, except for duties and
responsibilities to the authority and policyholders under the terms
of this chapter.
   (4) No insurer may participate in the authority unless every
insurer affiliated with that insurer (as defined in subdivision (a)
of Section 1215) or under common control with that insurer (as
defined in subdivision (b) of Section 1215) also participates in the
authority.
   (c) This section shall become operative on January 1, 2004.



10089.28.  (a) All policies of residential earthquake insurance
provided by the authority shall be written by the authority.
Authority policies shall be marketed and policyholders serviced by
the participating insurer that writes the underlying policy of
residential property insurance, and participating insurers shall be
reasonably compensated for the claims and policyholder services they
provide on behalf of the authority.  Authority services may be
performed on behalf of the authority in any reasonable manner by the
participating insurer that is in compliance with statutory,
regulatory, and case laws regarding claims handling practices;
provided, however, where the authority has promulgated specific
procedures to govern its operations, the participating insurer shall
conform its practices to those procedures.  The authority procedures
shall comply with statutory, regulatory, and case law governing
claims handling practices.  Nothing in this provision shall be deemed
or construed to affect any duty or liability of the authority or
participating carrier as set forth in paragraphs (2) and (3) of
subdivision (e) of Section 10089.7.
   (b) The participating insurer shall notify each of its insureds
that the authority is the provider of earthquake coverage under the
policy.  The form and method of notice shall meet standards
established by the commissioner by regulation.  The authority shall
provide to participating insurers appropriate applications and forms
and shall maintain records of all policies written, moneys received,
and claims paid.
   (c) The duty of an agent or broker to investigate the financial
condition of the authority before placement of insurance shall be the
same as the duty of an agent or broker to investigate the financial
condition of an admitted insurer before placement of a policy of
insurance.



10089.29.  (a) If benefits paid by the authority following an
earthquake event exhaust the total of (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 actually available and under contract to the authority,
and (4) all capital committed and actually available by 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 (,000,000,000), in an amount
determined by the board pursuant to Section 10089.32.  The Treasurer
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 obtain such
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 authorized by this section may be used to
repay that refunding.
   (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.  The net
surcharge 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 (,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.  In
no event shall the surcharge on any authority policy exceed 20
percent of the annual basic residential earthquake insurance premium
in any one year for the policy.
   (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

   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.

   (c) The total amount of indebtedness and policy surcharges
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 (,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 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 more than one billion dollars
(,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.



10089.30.  If claims and claim expenses paid by the authority due to
earthquake events exhaust the total of (a) the authority's available
capital, (b) the maximum amount of all insurer capital contributions
and assessments pursuant to Sections 10089.15 and 10089.23, (c) all
reinsurance actually available and under contract to the authority,
(d) the maximum amount of all authority policyholder assessments
pursuant to Section 10089.29, and (e) all capital committed and
actually available from the private capital markets, the board,
subject to the approval of the commissioner, shall have the power to
assess participating insurance companies subject to the maximum
limits in this section. Each 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.  The total amount of
all assessments levied against participating insurance companies by
the authority pursuant to this section shall not exceed two billion
dollars (,000,000,000), regardless of the frequency or severity of
earthquake losses at any and all times subsequent to the creation of
the authority. 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 two billion dollars
(,000,000,000) reduced from the maximum assessment as provided in
paragraph (3) of subdivision (a) of Section 10089.23, 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 pursuant to this section. 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 three hundred fifty million dollars (0,000,000), as
determined by the board, subject to approval by the commissioner.



10089.31.  If claims and claim expenses paid by the authority due to
earthquake events that commence on or after December 1, 2008,
exhaust the total of all (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 actually available and under contract to the
authority, (d) the maximum amount of all authority policyholder
assessments pursuant to Section 10089.29, and (e) all capital
committed and actually available from the private capital markets,
the board, beginning December 1, 2008, for earthquake events
commencing on or after December 1, 2008, shall have the power to
assess participating insurance companies subject to the maximum
limits in this section. Each 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.  The total amount of
all assessments levied against participating insurance companies by
the authority pursuant to this section shall not exceed one billion
seven hundred eighty million dollars (,780,000,000), regardless of
the frequency or severity of earthquake losses at any and all times
subsequent to the creation of the authority. 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 one billion seven hundred eighty million dollars
(,780,000,000) reduced as provided in paragraph (3) of subdivision
(a) of Section 10089.23 from the maximum assessment, which is to be
reduced periodically pursuant to subdivision (b) of Section 10089.33,
or upon the earlier occurrence of the effective date stated in
paragraph (6) of subdivision (b) of Section 10089.33, 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 pursuant to this section. 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 three hundred fifty million dollars (0,000,000), as
determined by the board.


10089.32.  The authority shall endeavor at all times to make
specific authority earthquake policyholder assessments, and the
Treasurer shall endeavor at all times to secure debt financing, only
for the actual funds reasonably estimated to be required for
immediate authority operations.



10089.33.  (a) If the average daily balance of the authority's
available capital exceeds six billion dollars (,000,000,000) for
the last 180 days of any calendar year, the board shall relieve all
participating insurers of their obligation to pay additional
earthquake loss assessments under Section 10089.30, by an aggregate
amount equal to the amount of available capital in excess of six
billion dollars (,000,000,000). Each December 31 thereafter, the
board shall further reduce the aggregate assessment authorized under
Section 10089.30 by the net increase in available capital in excess
of the previous levels of available capital at which a reduction in
the aggregate Section 10089.30 assessment was made. No reduction
pursuant to this subdivision shall exceed 15 percent of the original
aggregate Section 10089.30 assessment in any year of operation of the
authority.
   (b) Commencing April 1, 2010, and on each April 1 thereafter, but
only in years that such relief is authorized by this subdivision, the
board shall reduce the combined assessment obligation of all
participating insurers under Section 10089.31 by 5 percent of the
maximum aggregate Section 10089.31 assessment authorized as of
January 1, 2009, as provided in this subdivision. Each year of
Section 10089.31 assessment reduction is referred to in this
subdivision as an "assessment-reduction year." Assessment reductions
shall take place as follows:
   (1) Unless the authority has made payments and established
appropriate reserves for claims and claim expenses, including for
losses incurred but not reported, that in the aggregate exceeded five
hundred million dollars (0,000,000) on account of a single
earthquake event commencing in 2009, as certified by the authority's
consulting actuary and accepted by the board, and the authority's
available capital as of January 1, 2010, did not exceed the authority'
s available capital as of December 1, 2008, then effective April 1,
2010, the maximum aggregate Section 10089.31 assessment shall be
reduced by an amount equal to the sum of an amount equal to 5 percent
of the initial maximum aggregate Section 10089.31 assessment amount
and an amount equal to the retained earnings differential, and 2009
shall be an assessment-reduction year.
   (2) Unless the authority has made payments and established
appropriate reserves for claims and claim expenses, including for
losses incurred but not reported, that in the aggregate exceeded five
hundred million dollars (0,000,000) on account of a single
earthquake event commencing in 2010, as certified by the authority's
consulting actuary and accepted by the board and the authority's
available capital as of January 1, 2011, did not exceed the authority'
s available capital as of December 1, 2008, then effective April 1,
2011, the maximum aggregate Section 10089.31 assessment shall be
reduced by an amount equal to the sum of an amount equal to 5 percent
of the initial maximum aggregate Section 10089.31 assessment amount
and an amount equal to the retained earnings differential, and 2010
shall be an assessment-reduction year.
   (3) Beginning in 2012 and each year thereafter, unless the
authority made payments and established appropriate reserves for
claims and claim expenses, including for losses incurred but not
reported, that in the aggregate exceeded five hundred million dollars
(0,000,000) on account of all earthquake events commencing in the
preceding year, as certified by the authority's consulting actuary
and accepted by the board and the authority's available capital as of
January 1 of that year did not exceed the authority's available
capital as of December 1, 2008, then effective April 1 of that year,
the maximum aggregate Section 10089.31 assessment shall be reduced by
an amount equal to the sum of an amount equal to 5 percent of the
initial maximum aggregate Section 10089.31 assessment amount and an
amount equal to the retained earnings differential, and the preceding
year shall be an assessment-reduction year.
   (4) If through operation of this subdivision a year is not deemed
an assessment-reduction year, no subsequent year shall be an
assessment reduction year unless and until either the authority's
available capital as of a subsequent April 1 exceeds the authority's
available capital as of December 1, 2008; or the limitation
established in paragraph (5), below, occurs.
   (5) No more than two annual periods may be deemed not to
constitute assessment-reduction years.
   (6) Effective on the day after the last day of the 10th
assessment-reduction year authorized by the board, the remaining
maximum aggregate Section 10089.31 assessment shall be reduced to
zero.
   (7) As used in this section, "retained earnings differential"
means the positive dollar-amount difference between: (A) the
authority's positive one-year retained-earnings growth for the
preceding calendar year, minus (B) the authority's capacity growth
for the preceding calendar year, both calculated as of December 31.
As used in this paragraph, "one-year retained-earnings growth" means
the difference between the authority's cumulative retained earnings
at December 31 of the preceding calendar year and the authority's
cumulative retained earnings at December 31 of the year before the
preceding calendar year, calculated in accordance with generally
accepted accounting principles as of the preceding December 31. As
used in this paragraph, the term "capacity growth" is the one-year
amount of purchased risk transfer, such as reinsurance, or borrowed
risk transfer such as bonds, put in place in the authority's
financial structure to account for the authority's aggregate exposure
growth over the preceding year ending December 31. The board shall
be authorized and entitled, in its sole discretion, to make all final
decisions regarding the authority's level of financial strength and
security and the authority's choice and use of financing and
risk-transfer mechanisms. As used in this paragraph, the term
"aggregate exposure" means the aggregate of the limits of liability
under all coverages of all earthquake insurance policies issued by
the authority.
   (c) In no event shall the board reinstate, in whole or in part,
any assessment obligation it has reduced pursuant to this section.




10089.34.  (a) (1) The policies issued by the authority shall not be
subject to assessment for, nor shall any authority policyholder be
eligible for benefits from, the California Insurance Guaranty
Association.
   (2) Policies of residential earthquake insurance written by
participating insurers that supplement, augment, or are in excess of
the authority's policy of basic earthquake insurance shall be subject
to assessment by the California Insurance Guaranty 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.
   (b) (1) Policies of basic residential earthquake insurance written
by nonparticipating insurers shall be subject to assessment by the
California Insurance Guaranty 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.
   (2) Participating insurers of the authority shall have no
obligation to pay assessments to the California Insurance Guaranty
Association for covered claims obligation arising from policies of
basic residential earthquake insurance written by nonparticipating
insurers.


10089.35.  (a) If at any time the board determines that all the
authority's available capital may be exhausted and no source of
additional funds such as assessments, reinsurance, or private capital
market moneys will be available to the authority to pay policyholder
claims, the board shall draw up and present to the commissioner a
plan to pay policyholder claims on a pro rata basis or in installment
payments.  The board shall maintain sufficient capital to ensure the
continued operation of the authority for the purpose of implementing
the proration or installment plan.  At this point, the commissioner
shall adopt a schedule for reinstitution of an insurer's statutory
obligation to offer earthquake coverage by a means other than
placement in the authority.  In no event shall the schedule adopted
pursuant to this subdivision be for a period longer than six months.

   (b) Upon presentation of that plan to prorate or pay in
installments, the commissioner shall order the authority to cease
renewing or accepting new earthquake insurance policies and may apply
to the superior court for orders or injunctions as the commissioner
deems necessary to prevent any event or occurrence adverse to the
authority, including, but not limited to, any or all of the
following:
   (1) Interference with the commissioner's consideration and
implementation of a plan for pro rata or installment payment of
policyholder claims under this section.
   (2) Interference with or attachment of the assets of the
authority.
   (3) Institution or prosecution of any actions or proceedings
against the authority.
   (4) The obtaining of preferences, judgments, attachments, or other
liens or levies against the authority or its assets.
   (5) The withholding by a participating insurer or any other person
of any premium, surcharge, assessment, or other amount lawfully due
and owing to the authority.
   (c) Entry of orders or injunctions obtained by the commissioner
upon the application permitted by subdivision (a) shall not vest the
superior court with general jurisdiction over the business or assets
of the authority or any plan for the pro rata or installment payment
of policyholder claims under this section, and the superior court's
jurisdiction shall be limited to the entry and enforcement of those
orders and injunctions.
   (d) The State of California shall have no liability for payment of
claims in excess of funds available pursuant to this chapter.  The
State of California, and any of the funds of the State of California,
shall have no obligations whatsoever for payment of claims or costs
arising from this act, except as specifically provided in this act.



10089.36.  In the event a natural disaster program is enacted by
Congress, the panel shall convene and prepare a plan to dissolve the
authority or conform this act with the federal program.  Following
its deliberations, the panel shall recommend a plan of action to the
board and the Legislature.



10089.37.  The board shall set aside in each calendar year an amount
equal to 5 percent of investment income accruing on the authority's
invested funds, or five million dollars (,000,000), whichever is
less, if deemed actuarially sound by a consulting actuary employed or
hired by the authority, to be maintained as a subaccount in the
California Earthquake Authority Fund.  The authority shall use those
funds to fund the establishment and operation of an Earthquake Loss
Mitigation Fund.  In the event a set-aside of mitigation-related
funds may impair the actuarial soundness of the authority, the board
may delay the implementation of this section.  Any delay shall be
reported to the Legislature and the commissioner and reported
publicly.



10089.38.  Upon the development and implementation of an economical
system satisfactory to the board and the commissioner to prevent
misapplication of mitigation funds, the Earthquake Loss Mitigation
Fund may be applied to supply grants and loans or loan guarantees to
dwelling owners who wish to retrofit their homes to protect against
earthquake damage.



10089.39.  (a) The operational rules of the Earthquake Loss
Mitigation Fund shall be part of the authority's plan of operations.

   (b) On or before July 1, 2000, the authority shall establish in
the operational rules of the Earthquake Loss Mitigation Fund, a plan
for the expedited expansion of the residential retrofit program
statewide.  The program shall include personnel and administrative
requirements and all other programmatic specifications necessary to
the implementation of the plan.



10089.40.  (a) Rates established by the authority shall be
actuarially sound so as to not be excessive, inadequate, or unfairly
discriminatory.  Rates shall be established based on the best
available scientific information for assessing the risk of earthquake
frequency, severity, and loss.  Rates shall be equivalent for
equivalent risks.  Factors the board shall consider in adopting rates
include, but are not limited to, the following:
   (1) Location of the insured property and its proximity to
earthquake faults and to other geological factors that affect the
risk of earthquake or damage from earthquake.
   (2) The soil type on which the insured dwelling is built.
   (3) Construction type and features of the insured dwelling.
   (4) Age of the insured dwelling.
   (5) The presence of earthquake hazard reduction factors, including
those set forth in subdivision (a) of Section 10089.2.
   (b) (1) If scientific information from geologists, seismologists,
or similar experts that assesses the frequency or severity of risk of
earthquake is considered in setting rates or in arriving at the
modeling assumptions upon which those rates are based, the
information may be used to establish differentials among risks only
if the information, assumptions, and methodology used are consistent
with the available geophysical data and the state of the art of
scientific knowledge within the scientific community.
   (2) Scientific information from geologists, seismologists, or
similar experts shall not be conclusive to support the establishment
of different rates between the most populous rating territories in
the northern and southern regions of the state unless that
information, as analyzed by experts such as the United States
Geological Survey, the California Division of Mines and Geology, and
experts in the scientific or academic community, clearly shows a
higher risk of earthquake frequency, severity, or loss between those
most populous rating territories to support those differences.
   (3) It is not the intent of the Legislature in adopting this
subdivision to mandate a uniform statewide flat rate for California
Earthquake Authority policies.
   (c) The classification system established by the board shall not
be adjusted or tempered in any way to provide rates lower than are
justified for classifications that present a high risk of loss or
higher than are justified for classifications that present a low risk
of loss.
   (d) Policyholders who have retrofitted their homes to withstand
earthquake shake damage according to standards and to the extent set
by the board shall enjoy a premium discount or credit of 5 percent on
the authority-issued policy of residential earthquake coverage.  For
residential dwellings, the 5-percent discount shall be applicable if
the dwelling, at a minimum, meets the following requirements:  the
dwelling was built prior to 1979, is tied to the foundation, has
cripple walls braced with plywood or its equivalent, and the water
heater is secured to the building frame.  For mobilehomes, the
5-percent discount shall be applicable if the mobilehome, at a
minimum, is reinforced by an earthquake resistant bracing system
certified by the Department of Housing and Community Development.
The board may approve a premium discount or credit above 5 percent,
as long as the discount or credit is determined actuarially sound by
the authority.
   (e) All rates shall be approved by the commissioner prior to their
use.


10089.41.  (a) The offer of an authority policy by a participating
insurer shall constitute a mode of insurer compliance with Chapter
8.5 (commencing with Section 10081) of Part 1 of Division 2, and as
set forth in Section 10084.
   (b) If the authority ceases operation for any reason, including,
but not limited to, repeal of this chapter or insolvency of the
authority, participating carriers shall no longer be able to satisfy
the requirement to offer residential earthquake insurance coverage by
placement within the authority.  The commissioner shall adopt a
schedule in accordance with subdivision (a) of Section 10089.35 to
establish when participating carriers shall be required to offer
coverage by another mode authorized pursuant to Chapter 8.5
(commencing with Section 10081) of Part 1 of Division 2 to those
policyholders for whom they write the underlying policies of
residential property insurance.
   (c) If the authority ceases operation pursuant to a statute
enacted by the Legislature, that statute shall determine the duty of
participating insurers to provide earthquake insurance pursuant to
Chapter 8.5 (commencing with Section 10081).  Chapter 8.5 (commencing
with Section 10081) shall remain in effect unless specifically
repealed by that statute.


10089.43.  Upon termination of the authority by the Legislature, its
remaining funds shall be transferred to the General Fund unless
otherwise directed by the Legislature.



10089.44.  Notwithstanding any other provision of law, premiums
collected by the authority shall be exempt from collection of the
state's insurance premium tax, and the amount of tax foregone by the
state shall be considered for all purposes a contribution by the
state and its citizens to the capital and operating revenues of the
authority.
   No funds contributed to, or collected or held by, the authority
shall be available to meet the general obligations of the state
unless the authority has been terminated and wound up, and all funds
due or owing to any person pursuant to this act have been paid, held
in reserve, or returned.


10089.46.  Bonds issued under this chapter shall not be a debt or
liability of the state or of any political subdivision of the state,
or a pledge of the full faith and credit of the state or of any
political subdivision, but shall be payable solely from the funds
provided in this chapter.



10089.47.  Bonds issued by the authority are legal investments for
all trust funds, the funds of all insurance companies, banks, trust
companies, executors, administrators, trustees, and other
fiduciaries.  The bonds are securities that may legally be deposited
with, and received by, any state or municipal officer or agency or
political subdivision of the state for any purpose for which the
deposit of bonds or obligations of the state is now, or may hereafter
be, authorized by law, including deposits to secure public funds.



10089.48.  Interest earned on any bonds issued by the authority
shall at all times be free from state personal income tax and
corporate income tax.


10089.49.  The state hereby pledges to and agrees with the holders
of bonds that the state will not limit, alter, or restrict the rights
hereby vested in the authority to fulfill each pledge of revenues
and any other terms of any agreement made with or for the benefit of
the holders of bonds or in any way impair the rights or remedies of
the holders of bonds.



10089.50.  The Treasurer may from time to time enter into one or
more credit facilities permitting the authority to draw an amount up
to one billion dollars (,000,000,000) with payment, interest rate,
indemnity, compensation, security, default, remedy, and other terms
and conditions as determined by the authority.  All drawings under
these credit facilities shall be available as funding for the
authority as provided in Section 10089.29.



10089.51.  The authority shall have the power to pledge to the
providers of credit facilities and to the owners of bonds the
surcharges imposed or to be imposed pursuant to subdivision (b) of
Section 10089.29 to secure payment of all obligations of the
authority under those credit facilities and bonds, respectively.  A
pledge of those surcharges shall constitute a lien and security
interest that shall immediately attach to the surcharges whether or
not imposed or collected at the time the pledge is made, and shall be
effective, valid, and binding and enforceable against the authority,
the Treasurer, the beneficiaries of the basic residential earthquake
insurance issued from time to time, and all others asserting rights
in the surcharges to the extent set forth, and in accordance with,
the terms of the pledge contained in the credit facilities or bonds,
as the case may be, whether or not those parties have notice of the
pledge and without the need for any physical delivery, recordation,
filing, or further act.


10089.52.  Nothing in Section 10089.50 or 10089.51 is intended to
limit the applicability to the authority of any provision of Section
5450 or subdivision (c) of Section 5922 of the Government Code.



10089.53.  (a) Any insurer that withdraws from the authority under
Section 10089.19 while bonds or other debt is outstanding shall
impose annually a premium surcharge on each policy of residential
earthquake insurance written by it equal in percentage amount,
calculated as a percentage of the basic residential earthquake
insurance premium, to the percentage amount of the surcharge being
imposed in that year by the authority pursuant to subdivision (b) of
Section 10089.29.  That insurer shall remit promptly all those
surcharges collected by it to the trustee appointed pursuant to
Section 10089.22.  The surcharges shall be used solely to repay the
bonded indebtedness or other debt issued pursuant to subdivision (a)
of Section 10089.29.  If the sum of the surcharges remitted to the
trustee pursuant to this section plus the amount of the surcharges
imposed by the authority pursuant to subdivision (b) of Section
10089.29 would exceed the amount authorized by that provision, then
surcharges of the authority shall be reduced by an amount equal to
that excess.
   (b) Should the Legislature and Governor approve legislation that
causes the authority to cease operation while bonds or other debt are
outstanding, participating insurers shall impose annually a premium
surcharge on each policy of residential earthquake insurance written
by them equal in percentage amount, calculated as a percentage of the
basic residential earthquake insurance premium, to the percentage
amount of the surcharge being imposed in that year by the authority
pursuant to subdivision (b) of Section 10089.29.  Those insurers
shall remit promptly all these surcharges collected by them to the
trustee appointed pursuant to Section 10089.22.  The surcharges shall
be used solely to repay the bonded indebtedness or other debt issued
pursuant to subdivision (a) of Section 10089.29.  If the sum of the
surcharges remitted to the trustee pursuant to this section plus the
amount of the surcharges imposed by the authority pursuant to
subdivision (b) of Section 10089.29 would exceed the amount
authorized by that provision, then surcharges of the authority shall
be reduced by an amount equal to that excess.



10089.54.  (a) Unless authorized by a statute enacted subsequent to
the effective date of this section, the authority shall cease writing
new earthquake insurance policies 180 days after implementation by
both the Federal National Mortgage Association ("Fannie Mae") and the
Federal Home Loan Mortgage Association ("Freddie Mac") of policies
to require earthquake insurance for any single-family residential
structure, other than a condominium unit or townhome, as a condition
of purchasing a mortgage or trust deed secured by that structure.
Notwithstanding this restriction, the authority shall continue to
renew its existing earthquake insurance policies and shall accept
applications for earthquake insurance from residential property
insurance policyholders of participating insurers in accordance with
subdivision (b) of Section 10086.
   (b) In the event that both the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage
Association ("Freddie Mac") have proposed to implement policies to
require earthquake insurance for any single-family residential
structure, other than a condominium unit or townhome, as a condition
of purchasing a mortgage or trust deed secured by that structure, it
is the intent of the Legislature that the Legislature should convene
to consider whether the authority should continue to write new
earthquake insurance policies, with or without modification, or to
cease writing new earthquake insurance policies.