Investment Managers Small Manager RFQ #04-18 · Property of The California Earthquake Authority...

Request for Qualifications

Investment Managers

Small Manager

RFQ #04-18

Date: November 2018

Property of The California Earthquake Authority (CEA) Page | 2 RFQ #04-18: Investment Managers – Small Manager

RFQ #04-18: Investment Manager Small Manager

Table of Contents

I. Purpose of Request for Qualifications (RFQ) ................................................................................... 3

II. Summary of Key Dates ..................................................................................................................... 3

III. Background of the CEA .................................................................................................................... 3

IV. Method for Submitting Questions and Inquiries ............................................................................. 4

V. Submitting Questions and Inquiries: Contact Information .............................................................. 4

VI. Addenda: Errors and Omissions ....................................................................................................... 4

VII. Filing of Submissions ........................................................................................................................ 5

VIII. Services To Be Provided ................................................................................................................... 6

IX. Minimum Qualifications .................................................................................................................. 7

X. Professional Fees ............................................................................................................................. 8

XI. Submission Instructions ................................................................................................................... 8

XII. Submission Evaluation Criteria ...................................................................................................... 11

XIII. Award of Contract .......................................................................................................................... 12

XIV. Commencement Date .................................................................................................................... 12

ATTACHMENTS

A. Drug-Free Workplace Certification ................................................................................................13 B. Investment Manager Minimum Qualification Response Form......................................................14 C. Contract Questions for Consideration………..…………..………………………………………………….…..…………15

EXHIBITS

1. California Insurance Code Sections 10089.5-10089.54 (CEA Act) 2. CEA Financial Structure 3. CEA Investment Policies and Interpretative Memoranda 4. Investment/Data Income Flow 5. Daily Holdings Report (5a. Report Term Definitions) 6. Monthly Investment Portfolio Report Package 7. Sample Contract



I. Purpose of Request for Qualifications (RFQ)

Through this RFQ, the California Earthquake Authority (“CEA”) is seeking investment managers to invest monies on behalf of the CEA. The CEA anticipates contracting with the most qualified respondents to provide investment management services to the CEA.

II. Summary of Key Dates

The following schedule is subject to modification by the CEA, in its sole discretion. ALL RESPONDENTS must conform to this schedule or they will be removed from consideration. Inquiries regarding submissions must be submitted in the manner described in Section IV – Method of Submitting Questions and Inquiries, below.

1. Date of Issue Monday, October 29, 2018

2. Deadline for Questions and Inquiries regarding RFQ Friday, November 9, 2018

3. Final Submission Filing Date Friday, November 30, 2018 (Must be received no later than 5:00 p.m. Pacific Time)

4. Submission Evaluation by CEA 3-4 weeks after Final Submission Filing Date

5. Finalists’ On-Site Visit TBD

6. Select Investment Managers TBD

8. Notice of Intent to Award Contract TBD

The CEA will make every reasonable effort to adhere to this schedule but retains its sole discretion to amend the schedule as necessary.

III. Background of the CEA

Following the unprecedented losses from the 1994 Northridge earthquake near Los Angeles, the State of California established the California Earthquake Authority (CEA) through legislation in 1995 and 1996 as a publicly managed, but privately funded, entity—the CEA is expressly authorized by law to provide residential earthquake insurance. Insurers that sell residential property insurance in California are required to offer earthquake insurance to their home-insurance customers. Those insurers can choose to offer their own policy of earthquake insurance, contract with other providers to offer earthquake insurance, or they can apply to become a “participating insurance company” of the CEA. By law, only these participating insurance companies can offer CEA-earthquake-insurance policies. Under a uniform written contract, CEA participating insurers sell and service CEA earthquake insurance and adjust CEA claims, all according to law and to CEA-promulgated rules and procedures. As an authorized provider of residential earthquake insurance throughout California, the CEA, and the insurance forms and rates that support its product pricing, are regulated by the California Insurance Commissioner.

http://www.earthquakeauthority.com/index.aspx?id=53



The CEA is administered by a Governing Board composed of five elected public officials: California’s Governor, State Treasurer, and Insurance Commissioner serve as voting members, and the Speaker of the Assembly and the President Pro Tempore of the Senate serve as non-voting members. The Governing Board is advised by an appointed 11-member Advisory Panel. Since the CEA began operations in December 1996, a growing number of CEA participating insurance companies have sold and serviced CEA residential earthquake insurance policies to meet their legal mandate—today, more than 20 insurance companies, representing almost 80% of California’s residential property insurance market, offer CEA products. The CEA is financially independent of State of California finances and is not a part of the State budget. By law, the State of California has no liability for claims, costs, or liabilities arising from CEA operations. For additional information about the CEA, please refer to www.earthquakeauthority.com.

IV. Method for Submitting Questions and Inquiries

Questions and inquiries regarding this submission must be submitted by email only, and each respondent is solely responsible for following the time frames for questions and inquiries as stated in Section II – Summary of Key Dates.

Questions and inquiries regarding this RFQ must be received by the CEA by Friday, November 9, 2018. The CEA will answer and respond to all questions and inquiries it receives in a single Addendum to this Request for Qualifications, which will be posted in the Contracting and Employment Opportunities/Contracting Opportunities section of the CEA’s Web site, www.earthquakeauthority.com, one week after the deadline for submitting questions. The CEA will make no other response to questions and inquiries and will not individually answer or respond to questions or inquiries posed by any respondent.

V. Submitting Questions and Inquiries: Contact Information

Please submit all questions and inquiries by e-mail to:

[email protected]

VI. Addenda: Errors and Omissions

The CEA reserves the right in its sole discretion to modify any part of this RFQ by issuing one or more written addenda.

• All addenda issued by the CEA before the final filing date for submissions will be posted to www.earthquakeauthority.com on the Contracting and Employment Opportunities/Contracting Opportunities section.

• All addenda issued by the CEA after the final filing date for submissions will be posted solely to www.earthquakeauthority.com on the Contracting and Employment Opportunities/Contracting Opportunities section.

Each respondent understands, agrees to, and accepts an affirmative responsibility to inquire regarding, and seek clarification of, any part or provision of this RFQ that the respondent does not understand or

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mailto:[email protected]





believes is reasonably susceptible to more than one interpretation. If a respondent claims any ambiguity, conflict, discrepancy, omission, or other error in the RFQ, the respondent must immediately notify the CEA’s RFQ contact person and request clarification. In its sole discretion, the CEA may issue clarifications in the form of written clarification addenda to this RFQ and will post the written clarification addenda to www.earthquakeauthority.com on the Contracting and Employment Opportunities/Contracting Opportunities section. In its sole discretion, the CEA may disregard any and all claims of ambiguity, conflict, discrepancy, omission, or other error received by the CEA after the final filing date for submissions; no respondent will be entitled to additional time to meet any deadline by reason of corrections or clarifications made by the CEA after the final filing date for submissions. Each respondent is required to acknowledge any clarification addendum to this RFQ by submitting a statement of acknowledgement in the cover letter of its submission. The provisions of any clarification addendum formally issued by the CEA are automatically incorporated into this RFQ and, in addition and as appropriate, may be made a part of or otherwise reflected in the contract that is awarded as a result of this RFQ.

VII. Filing of Submissions

Submissions must be emailed, as an attachment in PDF format, to the following email address:

[email protected] Subject: Response to CEA Request for Qualifications #04-18 – Small Manager

Should a submission contain confidential proprietary information, a statement to that effect must be included in the cover letter, and each and every page containing confidential proprietary information must be so designated on the upper right-hand corner. The CEA will use reasonable efforts to protect the marked pages from public disclosure, except to the extent provided in any resulting contract and to the extent required by law. The CEA makes no representations or warranties that its efforts will be successful. Respondents are reminded that many of the CEA’s records are subject to public disclosure under the California Public Records Act.

Please note that no proposal can be considered confidential and proprietary in its entirety.

If, before the final filing date, a respondent discovers an error or omission in a submission already submitted to the CEA, the only method of correction or modification is to withdraw the submission in its entirety (via email) and resubmit the corrected or modified submission before the final filing date and time. Corrections or modifications offered in any other manner will not be considered.

All submissions become the property of the CEA upon receipt.

All costs to develop submissions and participate in the RFQ process are entirely the sole responsibility of the respondent and cannot be charged to the CEA.

The CEA accepts absolutely no responsibility for lost, misplaced, mishandled, or late delivered submissions, regardless of the reason or explanation.





Only one submission per individual, firm, partnership, or corporation, or combination of such entities formed to propose under this RFQ, will be considered. Any reasonable grounds for believing a respondent has submitted multiple submissions under more than one name is good cause for rejection by the CEA of all submissions in which the respondent is involved. Submissions must be clearly identified “RFQ #04-18 - Investment Managers (Small Manager)” Additional information may be found under Section IX – Minimum Qualifications.

VIII. Services To Be Provided

Introduction The CEA currently maintains approximately $6.4 billion in bank and custody accounts, which currently are held at State Street Bank. The CEA’s Investment Policies (Exhibit 3) are designed to provide safety, diversification, and the maximum rate of return while maintaining adequate liquidity for ordinary operations and payment of claims under contracts of earthquake insurance issued by the CEA. In order to maintain financial stability, ensure that all funds are managed in accordance with the Investment Policies adopted by the CEA’s Governing Board and maximize investment income; the CEA’s Investment Compliance Committee provides oversight for a team of Investment Managers. The CEA portfolio consists of the following:

• Liquidity Fund: This fund consists of one custody account, which provides funds used

for the CEA’s operational cash-flow. • Primary Fund: This fund consists of a number of custody accounts, which primarily

provide funds for paying CEA claims and claim expenses. • Claim-Paying Fund: This fund consists of a number of custody accounts, which receive

the proceeds of CEA’s debt issuances • Reinsurance Fund: This fund consists of one custody account, which receives

reinsurance recoverables collected after earthquake events. • Mitigation Fund: This fund consists of a number of custody accounts, which fund

mitigation-related activities.

Through this RFQ, the CEA is seeking qualified investment managers to invest for one of the funds listed above. The highest scoring respondents will be offered an opportunity to contract with the CEA for investment-management services. After an investment-manager contract is executed, the CEA will incrementally fund that investment-manager account. Any additional funds given to the manager, after initial funding, will be dependent on performance. Each contract term will be five years with a two-year extension at the CEA’s option. The CEA will reserve the right to terminate any contract upon 60 days written notice, with or without cause. Scope of Work

Under the general direction of CEA’s Chief Financial Officer (“CFO”), or the CFO’s designee, and strictly within the parameters of California Insurance Code Sections 10089.5-10089.54 (Exhibit 1), California



Government Code Section 16430 (included in CEA Investment Policies), and CEA’s Investment Policies and any existing or future interpretative memoranda (Exhibit 3), the investment managers will provide services that include, but are not limited to, those outlined in this section.

Investment Services

1. Each Investment Manager will have discretionary authority to invest its assigned portfolio, though all investments must be in strict accordance with the CEA’s Investment Policies.

2. Funds will be invested in U.S. Treasury securities in accordance with the CEA’s Investment Policies.

3. Each Investment Manager will provide advice on market conditions, including positive and negative economic trends. In addition, investment managers are expected to provide detailed research and analysis supporting investment decisions upon the request by the CEA.

4. Each Investment Manager will analyze the fixed-income financial markets and provide the CEA with updates pertinent to CEA investment operations.

5. Each Investment Manager will monitor the performance of investments in the portfolio managed by that investment manager.

6. No later than the fifth business day of the following month, the investment manager must provide a comprehensive investment report in a format acceptable to the CEA. (See Exhibit 6 for example and see Exhibit 5a for definition of columns on reports.)

7. Each Investment Manager will provide a “Daily Holdings Report” of the prior day to the CEA by 9:00 AM Pacific Time. (See Exhibit 5 for the format of the report and Exhibit 5a for definition of columns on reports.) The report must be electronically transmitted to the CEA. The specifics of the transmission will be discussed with the selected respondents once the CEA has selected those successful respondents.

8. Investment Managers must, during the term of the contract, retain sufficient electronic data on their computer systems to allow the CEA to verify historical investment transactions and balances and to measure historical portfolio performance and trade execution.

9. As needed, Investment Managers must attend CEA Governing Board meetings, legislative hearings, and CEA investment meetings, and must participate in periodic conference calls, as requested by the CEA.

IX. Minimum Qualifications

Minimum Qualifications

The proposing firm must meet, to the CEA’s satisfaction, all of the following minimum qualifications to be considered for a contract award. Failure to satisfy all minimum qualifications, in the CEA’s sole judgment, will result in immediate rejection of the submission. As of the issue date of this RFQ:

1. The firm must have been in business and actively managing fixed income funds for at least the

past five consecutive years. Furthermore, the firm must have an excellent customer service history.

2. The firm must be registered with the Securities and Exchange Commission (SEC) as a Registered Investment Advisor.

3. The firm must have under its sole management a total of not more than $10 billion of total assets under management, excluding any CEA funds.



4. At least one key professional member of the firm to be assigned to the CEA account on a long-term basis must have a minimum of five years experience analyzing, monitoring, and investing fixed-income, short-term and long-term securities for institutional clients. (Respondents should be aware that the CEA’s contract form contains a personnel provision, which restricts a contractor’s ability to replace key personnel on the CEA account without the CEA’s prior consent)

5. The primary key professional, as assigned in Minimum Qualification #4, must be able and willing to complete Form 700 Statement of Economic Interest in accordance with the California Fair Political Practices Act. (Please access the most current Form 700 and instructions directly from the California Fair Political Practices Commission’s Web site at www.fppc.ca.gov )

6. The firm must submit a summary business-contingency and disaster recovery plan.

Attachment B shows the format that must be followed by the respondent, and a form providing the information requested by Attachment B (pertaining to the above Minimum Qualifications) must be submitted as an attachment to the respondent’s submission.

X. Professional Fees

Respondents will be compensated for all services required by the contract. Information regarding compensation:

• There will be no minimum fee payable by the CEA.

• Investment Manager (Small Manager) maximum annual compensation will be six basis points of CEA investments under management. Each respondent must state in its proposal what compensation rate it proposes to charge. Any proposal with a proposed rate in excess of six basis points will be rejected.

• The CEA will pay all professional fees quarterly, in arrears.

• Quarterly fees must be computed by: o summing the fair market value including accrued interest of the aggregate investments

under management as of close of business on the last day of each month of the calendar quarter and dividing by three to determine the “average monthly aggregate investment balance,” and then

o multiplying the average monthly aggregate investment balance (market value with accrued interest) by one-fourth of the annual fee specified for such services.

XI. Submission Instructions

Submission Format

Submissions in response to this RFQ must not exceed 12 single-sided pages, with a size 12 Times New Roman font, excluding Required Attachments and the Cover Letter. Any additional attachments (excluding Required Attachments) must not exceed a total of 10 single-sided pages. All submissions must include the following elements, in the following order:

1. Cover Letter

The cover letter must be signed by a person authorized to bind the respondent contractually. The CEA will reject any submission that contains an unsigned cover letter. The letter must contain all the following:

a. The respondent’s name, address, telephone number, and email address.

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b. The name, title or position, telephone number, and email address of the person signing the cover letter and any other persons authorized to make representations for the respondent regarding the RFQ.

c. A statement that the signer’s signature constitutes unrestricted authority to bind the respondent contractually.

d. A statement that the submission is a firm and irrevocable offer valid for a period no less than 120 days following the deadline for proposal submission.

e. A statement of whether any licensed professionals will perform any aspect of the work under any eventual contract and a statement of the licensed professional’s willingness to be subject to license verification.

2. Firm Background and History

a. Location of firm headquarters. b. Other firm offices and their locations. c. Number of years the firm has been in existence in the same or substantially the same form and

under the same trade name. d. Total number of employees. e. Description of the firm’s ownership structure identifying any affiliated or subsidiary

organization(s). f. Plans for future growth in consulting or managing investments, including:

i. Total number of accounts that will be accepted ii. Total investments that will be accepted

iii. Plans for additions to professional staff and approximate timing in relation to growth of account or investments

g. Describe, in a Required Attachment to the proposal, the following, including a brief description of the matter, the result or resolution (if a closed matter), and the current status and outlook (if a pending matter), for any of the following matters brought against the firm or any of its personnel arising out of any investment or other business activities of the firm:

• Any currently-pending criminal prosecutions or civil enforcement actions brought by any government, government agency, or other government entity, and any other such criminal prosecutions or civil enforcement actions that were pending within the past five years.

• Any litigation, arbitration, or other legal proceedings over the past three years that either (1) has resulted in any adverse judgment, ruling, or arbitration award, or any settlement, or (2) is currently pending (unless, in the view of the respondent’s legal counsel, the matter presents no appreciable risk of ultimately resulting in any adverse judgment, ruling, award, or settlement).

h. A summary of the respondent’s financial performance for the past five years, with the most recent publicly available audited financial statement included as a Required Attachment to the proposal. If financial statements are not audited or publicly available, a written statement stating why they are not available must be included.

i. Identification of the respondent’s major investment clients. j. Statement of the value of total fixed income assets under management by the firm for each of

the past five years.



3. Investment Philosophy and Process

a. Describe the respondent’s investment philosophy as it applies to a client’s total portfolio, risk, and expected returns. Also, describe the respondent’s experience and abilities with fixed-income securities.

b. Describe the respondent’s process for analyzing existing portfolios and prospective investments. Describe the firm’s methodology and benchmarks used in performance measurement.

c. Provide examples of portfolio status and performance reports that are sent to institutional clients on a regular basis, indicating frequency as an attachment to the proposal.

4. Work Plan and Methodology

Describe the respondent’s local and national service capability to perform the proposed contract. Please answer as specifically as possible. Avoid generalizing, and describe, wherever possible and known, differences between the respondent and other firms. The work plan and methodology will be evaluated on clarity, comprehensiveness, and presentation of materials in a thorough and concise format. The description should address, without limitation, the following components:

a. Respondent’s understanding of the work to be performed pursuant to this RFQ. b. Identify clearly any parts of the requirements within this RFQ with which the respondent does

not concur or cannot satisfy. c. Explain in detail any potential for conflict of interest, or apparent or potential conflict of interest

that would be created by the respondent’s contracting with the CEA and proposal for resolution of potential conflicts of interest.

d. Identify any other “value-added” items or services the respondent would provide to the CEA. e. Identify all locations where the firm will be performing processes associated with CEA funds.

This includes trading, trade operations, compliance, etc. f. Confirm and describe the firm’s ability to respond promptly to the CEA’s information requests

on an as-needed basis. g. Outline the firm’s policy for insuring confidentiality of its clients’ matters. h. List the firm’s ability to determine pre- and post-trade compliance with client mandates. i. Define “client service” as it relates to the firm and describe mechanisms that are in place to

solicit and respond to feedback. j. Identify the person who will serve as the primary contact for the contract. k. List the firm’s investment professionals who will be assigned to the CEA account and their

responsibilities. Provide a brief résumé that outlines the background, training, and investment experience for the primary contact person and each member of the investment team that may be assigned to the CEA account.

5. Description of firm’s policies and programs regarding equal opportunity employment. 6. Proposed compensation (must not exceed six basis points of CEA funds under management) 7. Required Attachments

a. Drug-Free Workplace Certification (Attachment A) b. Most recent audited financial statement (if available) c. Most recent Form ADV (Uniform Application for Investment Adviser Registration) d. Summary of contingency plan



e. Investment Manager Minimum Qualification Response Form (Attachment B) f. Contractual questions for consideration (if any) (Attachment C) g. Description of litigation/legal actions (in accordance with item 2.g., above)

Additional Information

The CEA will not be bound by any oral interpretation of this RFQ by any of its representatives or employees, unless such interpretations are subsequently issued in the form of an addendum to this RFQ. A submission may be modified or withdrawn only by an email request sent to [email protected] and received by the CEA prior to the due date stated in Section VII – Filing of Submissions, of this RFQ. In addition to evaluating all contents of this RFQ, each respondent must make whatever other arrangements are necessary to become fully informed regarding all existing and expected conditions and matters which, during the contract term, could affect in any way the work, performance of work, or the cost of performing the work. Any failure to fully investigate the scope of work or the foregoing conditions will not relieve the respondent from responsibilities for properly estimating the difficulty or cost of successfully performing the work. The CEA may request additional information from any or all respondents after the initial evaluation of the submission in order to clarify any information in the submission. The contract will be awarded to the most qualified respondent, after price and other factors have been considered, provided that the submission is reasonable and is in the best interests of the CEA to accept. The CEA reserves the right to withdraw this RFQ at any time, to reject any or all submissions, to decline to enter into a contact with any respondent, and to waive any irregularity in the submissions received.

XII. Submission Evaluation Criteria

The purpose of the submission-evaluation process is to:

1. assess the responses for their compliance with minimum qualifications, content, and format requirements; and

2. identify the respondents that have the highest probability of satisfactorily performing the services described.

The evaluation process will be conducted in a comprehensive and impartial manner, as described in this section. Each submission package will be electronically date-and time-stamped when received. Any submission received after the final-filing time on the final-filing date will be received and a statement will be sent to the proposing firm stating that the submission did not meet the submission deadline, therefore the submission will be deemed not eligible. Each timely submission will be reviewed to determine if it satisfies the minimum qualifications specified in Section IX – Minimum Qualifications. Submissions that meet the minimum qualifications will undergo an evaluation process conducted by a team of reviewers composed of investment professionals and CEA staff. The highest possible score is 100 points.




Submission Evaluation Criteria and points for the submission are noted below:

CRITERION POINTS

Qualifications; Firm Background and History 20

Investment Philosophy and Process 20

Work Plan and Methodology 25

On-Site Visit 25

Fee Proposal 10

♦ TOTAL POINTS POSSIBLE 100

Clarification Respondents may be requested to clarify contents of their submission package. Other than information requested by the CEA Governing Board or staff, no respondent will be allowed after the final filing date to alter the submission or add new information. On-Site Visit An on-site visit of finalists’ offices will be conducted by the CEA. The respondent will be notified in advance of the date and time of the visit, which will include supplying material requested in advance.

XIII. Award of Contract

If, at any time during or at the conclusion of the RFQ process, the CEA determines that, in its opinion, the results or prospects of this RFQ process are unsatisfactory, the CEA reserves the right to wholly discontinue this process and decline to award a contract to any respondent. The award of the right to contract if any, will be made to the respondents scoring the highest total points. The final approval of the right to contract will be determined by the CEA’s Governing Board. All respondents will be notified of the outcome of the RFQ. News releases pertaining to this RFQ must not be made without the CEA’s prior written approval.

XIV. Commencement Date

TBD



Drug-Free Workplace Certification ATTACHMENT A

California Earthquake Authority

The respondent named above hereby certifies that, if awarded a contract, it will comply with Government Code Section 8355 in matters relating to providing a drug-free workplace. The above named respondent will:

1. Publish a statement notifying employees that unlawful manufacture, distribution, dispensation,

possession, or use of a controlled substance is prohibited and specifying actions to be taken

against employees for violations, by Government Code Section 8355(a), subdivision (1).

2. Establish a Drug-Free Awareness Program as required by Government Code Section 8355(a),

subdivision (2).

a) The dangers of drug abuse in the workplace,

b) The person’s or organization’s policy of maintaining a drug-free workplace,

c) Any available counseling, rehabilitation and employees assistance programs, and

d) Penalties that may be imposed upon employees for drug abuse violations.

3. Provide as required by Government code Section 8355(a), subdivision (3), that every employee

who works on the proposed contract:

a) Will receive a copy of the company’s drug-free statement, and

b) Will agree to abide by the terms of the company’s statement as a condition of

employment on the contract or grant.

CERTIFICATION

I, the official named below, hereby swear that I am duly authorized legally to bind the respondent to the

above described certification. I am fully aware that this certification, executed on the date and in the

county below, is made under penalty of perjury under the laws of the State of California.

Respondent’s Authorized Signature

___________________________________________________________

Title

___________________________________________________________

Date Executed In the County of

___________________________________________________________

Federal Identification Number

______________________________________________________



Investment Manager Minimum Qualification Response Form ATTACHMENT B


1. The firm must have been in business and actively managing fixed income funds for at least the past five consecutive years. Furthermore, the firm must have an excellent customer service history.

• Please state the number of years the firm has been managing fixed income funds.

2. The firm must be officially designated a Registered Investment Advisor with the Securities and Exchange Commission (SEC).

• Please provide record indicating your firm’s status as a Registered Investment Advisor with the SEC.

3. The firm must have under its sole management a total of not more than $10 billion of total assets under management, excluding any CEA funds.

• Please state the firm’s total assets under management, excluding any CEA funds.

4. At least one key professional member of the firm to be assigned to the CEA account on a long-term basis must have a minimum of five years experience analyzing, monitoring, and investing fixed-income, short-term and long-term securities for institutional clients. (Respondents should be aware that the CEA’s contract form contains a personnel provision, which restricts a contractor’s ability to replace key personnel on the CEA account without the CEA’s prior consent)

• Please provide a detailed biography of all key personnel who will be assigned to manage CEA’s portfolio in the case a contract is awarded. The biography must clearly state the number of years’ experience the individual(s) has regarding investing in fixed-income securities.

5. The primary key professional, as assigned in Minimum Qualification #4, must be able and willing to complete Form 700 Statement of Economic Interest in accordance with the California Fair Political Practices Act. (Please access the most current Form 700 and instructions directly from the California Fair Political Practices Commission’s Web site at www.fppc.ca.gov )

• Will the assigned key personnel be willing to comply with this requirement?

6. The firm must submit a summary business-contingency and disaster recovery plan.

• Please provide your firm’s business-contingency and disaster recovery plan, as well as the results of the latest testing of the plan.



Contractual Questions for Consideration ATTACHMENT C


Any contractual questions (including, but not limited to, any proposed variation in contract terms from those shown in Exhibit 7, Sample Contract) that the respondent would request CEA to consider must be noted in this attachment in the format below. Any proposed variations in contract terms or similar contract issues that might be raised by the respondent, other than those specified on this attachment, will not be considered during the contracting period. The format below can be used for as many questions as necessary.

Contract Page______ Contract Section__________________________________ Brief Description of Question



INSURANCE CODE - INS DIVISION 2. CLASSES OF INSURANCE [1880 - 12880.5] ( Division 2 enacted by Stats. 1935, Ch. 145. )

PART 1. FIRE AND MARINE INSURANCE [1880 - 10108.1] ( Part 1 enacted by Stats. 1935, Ch. 145. )

CHAPTER 8.6. California Earthquake Authority [10089.5 - 10089.54] ( Chapter 8.6 added by Stats. 1995, Ch. 944, Sec. 2. ) 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 ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than two thousand five hundred dollars ($2,500) in coverage for additional living expenses. (B) If the authority met the available capital requirements of subparagraph (A) and two years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than three thousand dollars ($3,000) in coverage for additional living expenses. (2) (A) If the authority did not meet the available capital requirement of subparagraph (A) of paragraph (1) but, two years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than two thousand five hundred dollars ($2,500) in coverage for additional living expenses. (B) If the authority met the available capital requirements as provided by subparagraph (A) and three years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than three thousand dollars ($3,000) in coverage for additional living expenses.

ksteinbroner

Typewritten Text

Exhibit 1

(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. (Amended by Stats. 2007, Ch. 303, Sec. 1. Effective January 1, 2008. Operative July 1, 2008, by second Sec. 8 of Ch. 303.)

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 6 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. (d) For purposes of this section, the term “operating expenses of the authority” excludes solely the following: (1) The costs of and transaction expenses associated with risk-transfer purchases, including the purchase of reinsurance and with capital-market contracts. (2) The expense of securing and repaying bonds. (3) The cost of repayment of bonds guaranteed, insured, or otherwise backed by any department or agency of the United States or of this state, or by any private entity. (4) Payments to third parties for all of the following services provided to the authority: (A) Investment. (B) Loss-modeling. (C) Legal services. (5) Costs associated with the authority’s efforts to acquaint the public with and market authority products, promote earthquake preparedness, and earthquake-loss mitigation under the authority’s duly adopted strategic plan. (6) Producer compensation. (7) Participating insurer fees and reimbursement amounts arising under written contracts. (8) Amounts paid by the authority to support research in seismic science and seismic engineering. (9) Loans, grants, and expenses to support and maintain the authority’s earthquake loss-mitigation goals and programs, whether conducted by the authority alone or in collaboration with or by other persons. (10) The costs of and loss-adjustment expenses associated with adjusting and paying policyholder claims for earthquake losses that are incurred by the authority under its earthquake insurance policies, including all costs and expenses associated

with claim-related litigation, provided that all of those costs and expenses shall be reported to the Legislature in the manner required by subdivision (e) of Section 10089.13. (Amended by Stats. 2014, Ch. 419, Sec. 7. (AB 2064) Effective January 1, 2015.)

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 Committee on Rules 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 Committee on Rules 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) A licensed insurer, its officers, directors, employees, or agents, shall not 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 Section 10089.21, this chapter shall not 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, liability on the part of, and a cause of action, shall not 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, a chief mitigation 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. (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, the chief mitigation 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 board shall establish the duties of, and give direction to, the chief mitigation officer, to support and enhance the authority’s appropriate efforts to create and maintain all of the following: (1) Program activities that mitigate against seismic risks, for the benefit of homeowners, other property owners, including landlords with smaller holdings, and the general public of the state. (2) Collaboration with academic institutions, nonprofit entities, and commercial business entities in joint efforts to conduct mitigation-related research and educational activities, and conduct program activities to mitigate against seismic risk.

(3) Programs to provide financial assistance in the form of loans, grants, credits, rebates, or other financial incentives to further efforts to mitigate against seismic risk, including, but not limited to, structural and contents retrofitting of residential structures. (4) Collaborations and joint programs with subdivisions and programs of local, state, and federal governments and with other national programs that may further California’s disaster preparedness, protection, and mitigation goals. (5) Other programs, support efforts, and activities deemed appropriate by the board to further the authority’s appropriate mitigation and mitigation-related goals. (k) The authority may accept grants and gifts of property, real or personal, tangible and intangible, and services for the Earthquake Loss Mitigation Fund, created pursuant to Section 10089.37, or the related residential retrofit program from federal, state, and local government sources and private sources. (l) 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. (Amended by Stats. 2013, Ch. 28, Sec. 32. (SB 71) Effective June 27, 2013.)

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. (Amended by Stats. 1997, Ch. 231, Sec. 1. Effective January 1, 1998.)

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). (Amended by Stats. 2007, Ch. 303, Sec. 2. Effective January 1, 2008. Operative July 1, 2008, by second Sec. 8 of Ch. 303.)

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. (Amended by Stats. 1996, Ch. 967, Sec. 7. Effective September 27, 1996.)

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. (Amended by Stats. 1996, Ch. 967, Sec. 8. Effective September 27, 1996.)

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). (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

10089.13.

(a) One year following its commencement of operations, and annually thereafter by each August 1, the authority shall report to the Legislature and the commissioner on program operations in a format prescribed by the commissioner. The report shall include, but shall not be limited to, the financial condition of the authority, a description of all rates and rating plans approved for use in the authority, an evaluation of the functioning of the authority in light of its stated purpose of making residential property insurance and residential earthquake insurance more available. The report shall also include an analysis of the growth by market share of residential property insurance of participating insurers compared to nonparticipating insurers, any adverse consequences on the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of the residential property insurance market share between participating insurers and nonparticipating insurers, any adverse consequences of the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of homeowners’ insurance market share between participating insurers and nonparticipating insurers, and an analysis of 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. The report shall be posted on the authority’s official Internet Web site. (b) The annual report shall include full information describing the following matters relating to the authority’s condition and affairs: (1) The property or assets held by the authority, including the amount of cash on hand and deposited in banks to its credit, the amount of cash in the hands of servicing insurance companies, the amount of 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, 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. (Amended by Stats. 2009, Ch. 480, Sec. 1. (AB 866) Effective January 1, 2010.)

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. (Amended by Stats. 1996, Ch. 968, Sec. 3. Effective September 27, 1996.)

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 ($1,000,000,000) 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 ($700,000,000) 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 ($1,000,000,000), 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). (Amended (as added by Stats. 1995, Ch. 944) by Stats. 1996, Ch. 968, Sec. 4. Effective September 27, 1996.)

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. (Amended by Stats. 2007, Ch. 303, Sec. 4. Effective January 1, 2008. Operative July 1, 2008, by second Sec. 8 of Ch. 303.)

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). (Added by Stats. 1996, Ch. 967, Sec. 11. Effective September 27, 1996.)

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) 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, defined in subdivision (c) 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. (Amended by Stats. 2017, Ch. 417, Sec. 25. (AB 1696) Effective January 1, 2018.)

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. (Amended by Stats. 1996, Ch. 967, Sec. 12. Effective September 27, 1996.)

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. (Added by Stats. 1996, Ch. 967, Sec. 13. Effective September 27, 1996.)

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. (Added by Stats. 1996, Ch. 967, Sec. 14. Effective September 27, 1996.)

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 ($350,000,000), 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 ($350,000,000), 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 ($3,000,000,000), 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 ($3,000,000,000) 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 ($350,000,000). (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. (Amended by Stats. 2007, Ch. 303, Sec. 5. Effective January 1, 2008. Operative July 1, 2008, by second Sec. 8 of Ch. 303.)

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. (Added by Stats. 1998, Ch. 264, Sec. 4. Effective August 6, 1998.)

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. (Amended by Stats. 1998, Ch. 264, Sec. 5. Effective August 6, 1998.)

10089.26. (a) The authority shall issue policies of basic residential earthquake insurance, including an option for 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 ($50,000) for individual condominium units valued at more than one hundred thirty-five thousand dollars ($135,000). Earthquake loss assessment coverage shall be issued in a minimum amount of twenty-five thousand dollars ($25,000) for individual condominium units of one hundred thirty-five thousand dollars ($135,000) 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. (Amended by Stats. 2014, Ch. 419, Sec. 8. (AB 2064) Effective January 1, 2015.)

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 (c) of Section 1215, also participates in the authority. (Amended by Stats. 2017, Ch. 417, Sec. 26. (AB 1696) Effective January 1, 2018.)

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 law 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) Concurrent with the issuance or renewal by the authority of a residential earthquake insurance policy, the following disclosure shall be provided to the insured in 14-point boldface type: “California Earthquake Authority Policy Disclosure You have purchased a California Earthquake Authority (CEA) earthquake insurance policy, which can help you cover the cost of repairing damage to your property and possessions caused by an earthquake. The CEA is not part of your homeowners’ insurance company. Please keep in mind these important things about your CEA insurance policy: 1. CEA policy coverages are different from the coverages provided in your homeowners’ insurance policy. For example, this policy does not cover earthquake damage to swimming pools, and it may provide more limited coverage for chimneys, outbuildings, and masonry fences. These are examples of possible differences between your CEA policy and your homeowners’ policy, and you should consult your CEA policy to understand the types of losses that are limited or excluded and those that are covered.

2. If CEA’s liability for earthquake losses exceeds the CEA’s available resources the CEA may reduce its payment to you or pay you in installments. This policy is not covered by the California Insurance Guarantee Association, and therefore, the California Insurance Guarantee Association will not pay your claims if the CEA becomes insolvent and is unable to make payments as promised. 3. In certain cases, your CEA policy premium may be subject to future surcharges if the CEA’s obligations to pay earthquake losses rise to a predefined level. In that case, in addition to your annual premium you may be charged up to an additional 20% of that premium.” (c) The authority shall provide to participating insurers appropriate applications and forms and shall maintain records of all policies written, moneys received, and claims paid. (d) 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. (e) This section shall become operative on January 1, 2016. (Repealed (in Sec. 9) and added by Stats. 2014, Ch. 419, Sec. 10. (AB 2064) Effective January 1, 2015. Section operative January 1, 2016, by its own provisions.)

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 ($1,000,000,000), 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 ($1,000,000,000), plus costs of issuance and sale of those revenue bonds or other debt and amounts paid or payable to bond issuers and providers of

credit support and letters of credit for and interest on those revenue bonds or other debt. 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 ($1,000,000,000) plus costs of issuance and sale of those revenue bonds or other debt and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt, regardless of the frequency or severity of earthquake losses at any and all times subsequent to 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 ($1,000,000,000) plus costs of issuance and sale of those revenue bonds or other debt and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt, the authority’s power to surcharge policies shall cease and the authority shall be prohibited from levying additional surcharges pursuant to this section. (d) Consistent with the provisions of Section 676, the authority shall cancel the policy of basic residential earthquake insurance if the policyholder fails to pay the earthquake policy surcharge authorized by the authority, and the insurer shall cancel the policy of residential property insurance if the policyholder fails to pay the policy surcharge authorized by the authority. (Amended by Stats. 1996, Ch. 969, Sec. 2. Effective January 1, 1997.)

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 ($2,000,000,000), 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 ($2,000,000,000) 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 ($350,000,000), as determined by the board, subject to approval by the commissioner. (Amended by Stats. 2007, Ch. 303, Sec. 6. Effective January 1, 2008. Operative July 1, 2008, by second Sec. 8 of Ch. 303.)

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 ($1,780,000,000), 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 ($1,780,000,000) 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 ($350,000,000), as determined by the board. (Added by Stats. 2007, Ch. 303, Sec. 7. Effective January 1, 2008. Operative July 1, 2008, by second Sec. 8 of Ch. 303.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

10089.33. (a) If the average daily balance of the authority’s available capital exceeds six billion dollars ($6,000,000,000) 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 ($6,000,000,000). 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 ($500,000,000) 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 ($500,000,000) 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 ($500,000,000) 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. (Amended by Stats. 2007, Ch. 303, first Sec. 8. Effective January 1, 2008. Operative July 1, 2008, by second Sec. 8 of Ch. 303.)

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. (Amended by Stats. 1996, Ch. 967, Sec. 18. Effective September 27, 1996.)

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. (Amended by Stats. 1996, Ch. 968, Sec. 10. Effective September 27, 1996.)

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. (Amended by Stats. 1996, Ch. 968, Sec. 11. Effective September 27, 1996.)

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 ($5,000,000), 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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Amended by Stats. 1999, Ch. 715, Sec. 2. Effective January 1, 2000.)

10089.395. (a) The Legislature finds and declares that there exists the California Residential Mitigation Program, also known as the CRMP, a joint powers authority created in 2012 by agreement between the California Earthquake Authority and the Office of Emergency Services. (b) Any funds appropriated by the Legislature for the purpose of funding the CRMP’s implementation of the grant program described in this section shall be to the department, which shall provide the funds to the California Earthquake Authority’s Earthquake Loss Mitigation Fund, pursuant to subdivision (k) of Section 10089.7 and according to the terms of an agreement negotiated by the department and the authority. The authority, the prime funder of the CRMP, shall then transfer the funds from its Earthquake Loss Mitigation Fund to the CRMP for further implementation and expansion of the CRMP’s Earthquake Brace and Bolt program, upon actions by the respective governing boards of the authority and the CRMP, authorizing and accepting that transfer. The CRMP shall, pursuant to the requirements of this section, implement the grant program and make grants that

assist a qualifying owner of a single-family residential structure by defraying the owner’s costs of seismic retrofitting of the structure. (c) The CRMP may make a grant to an applicant who satisfies all of the following: (1) The applicant is an owner of record of, and lives in, the structure to be retrofitted. (2) The structure is a single-family, detached, residential building composed of one to four dwelling units. (3) The structure meets structural requirements established pursuant to subdivision (e). (4) The structure is located in a high-risk earthquake area, based on criteria established pursuant to subdivision (e). (5) The retrofit work qualifies as work for which the applicant may receive a grant, based on criteria established pursuant to subdivision (e). (d) Subject to the policies, procedures, and criteria adopted pursuant to subdivision (e), a grant shall not exceed the lesser of 75 percent of the cost of the qualifying retrofit work, or three thousand dollars ($3,000). (e) The governing board of the CRMP shall adopt policies and procedures to implement this section, including, but not limited to, establishing structural eligibility requirements for structures that will receive a grant for seismic retrofit work, defining criteria for determining whether a structure is located in a high-earthquake-risk area, and defining criteria for seismic retrofit work that qualifies as work eligible for receipt of a grant, which may be awarded in amounts of greater or lesser than the amounts established by subdivision (d). In adopting those policies and procedures, the governing board shall provide notice and opportunity for public review and comment, publish the policies and procedures on the CRMP’s Internet Web site, and otherwise make the policies and procedures available to the public. (Added by Stats. 2015, Ch. 25, Sec. 41. (SB 84) Effective June 24, 2015.)

10089.397. (a) The Legislature finds and declares that there exists the California Residential Mitigation Program, also known as the CRMP, a joint powers authority created in 2012 by agreement between the California Earthquake Authority and the Office of Emergency Services. (b) Any funds appropriated by the Legislature for the purpose of funding the CRMP’s implementation of the grant program described in this section shall be to the department, which shall provide the funds to the California Earthquake Authority’s Earthquake Loss Mitigation Fund, pursuant to subdivision (k) of Section 10089.7 and according to the terms of an agreement negotiated by the department and the authority. The authority, the prime funder of the CRMP, shall then transfer the funds from its Earthquake Loss Mitigation Fund to the CRMP for further implementation and expansion of the CRMP’s Earthquake Brace and Bolt program, upon actions by the respective governing boards of the authority and the CRMP, authorizing and accepting that transfer. The CRMP may, pursuant to the requirements of this section, implement the grant program and on or after July 1, 2015, make grants that assist a qualifying owner of a multiunit residential structure by defraying the owner’s cost of seismic retrofitting of the structure.

(c) The CRMP may make a grant to an applicant who satisfies all of the following: (1) The applicant is an owner of record of the structure to be retrofitted and has secured the written consent of all other owners of the structure to make a grant application. (2) The structure is a residential building of not fewer than two, but not more than 10, dwelling units. (3) The dwelling units in the structure are occupied by tenants who are members of “lower income households,” as defined in subdivision (a) of Section 50079.5 of the Health and Safety Code. (4) The structure meets structural requirements established pursuant to subdivision (d). (5) The structure is located in a high-risk earthquake area, based on criteria established pursuant to subdivision (d). (6) The retrofit work qualifies as work for which the applicant may receive a grant, based on criteria established pursuant to subdivision (d). (d) The governing board of the CRMP shall adopt policies and procedures necessary to implement this section, including, but not limited to, establishing the means by which the applicant may satisfy the tenant-related economic eligibility criteria for the program, establishing structural eligibility requirements for a structure that will receive seismic retrofit work, defining criteria for determining whether a structure is located in a high-risk earthquake area, defining criteria for seismic retrofit work that qualifies as work eligible for receipt of a grant, and defining criteria for the determination of the amount of a grant awarded pursuant to the program created by this section. In adopting those policies and procedures, the governing board shall provide notice and opportunity for public review and comment, publish the policies and procedures on the CRMP’s Internet Web site, and otherwise make the policies and procedures available to the public. (Added by Stats. 2015, Ch. 25, Sec. 42. (SB 84) Effective June 24, 2015.)

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. (Amended by Stats. 2001, Ch. 745, Sec. 154. Effective October 12, 2001.)

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. (Amended by Stats. 1996, Ch. 968, Sec. 13. Effective September 27, 1996.)

10089.42. (a) At least once each year a participating insurer shall provide each of its residential property insureds with marketing documents produced at the authority’s expense. (b) This section shall become operative on January 1, 2016. (Added by Stats. 2014, Ch. 419, Sec. 11. (AB 2064) Effective January 1, 2015.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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 ($1,000,000,000) 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. (Amended by Stats. 1996, Ch. 967, Sec. 19. Effective September 27, 1996.)

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. (Added by Stats. 1995, Ch. 944, Sec. 2. Effective January 1, 1996.)

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. (Added by Stats. 1996, Ch. 967, Sec. 20. Effective September 27, 1996.)

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. (Added by Stats. 1996, Ch. 967, Sec. 21. Effective September 27, 1996.)

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. (Added by Stats. 1996, Ch. 969, Sec. 4. Effective January 1, 1997.)

$5,492M

$8,122M

$681M

$1,656M

Total Capacity $15,951M

CEA Available Capital

Risk-Transfer

Revenue Bonds

Post Earthquake Industry Assessment ("2nd IAL")

A.M. Best Rating 'A-' since 2002Outlook Stable

$76K

Note: Not drawn to scale

California Earthquake AuthorityClaim-Paying Capacity

as of June 30, 2018

Exhibit 2

September 2018 Page 1 of 17

INVESTMENT POLICIES

Exhibit 3



Investment Policies

Adopted: 09/12/18 (Format Change Only)

Revised: 12/16/15

Revised: 08/01/02

Revised: 06/20/02

Revised: 10/28/99

Revised: 05/28/98

Revised: 10/09/97

Revised: 11/01/96

Adopted: 10/07/96

DEFINITIONS

“Applicable Laws and Regulations” or “Legal Restrictions” means California Insurance Code

section 10089.6, subdivision (b)(1), California Government Code section 16430, and California

Code of Regulations, Title 10, section 2697.4, as well as any amendments or successor

provisions to those sections.

“Business Day” or “Business Days” means a day or days other than Saturdays, Sundays, or state

holidays.

“CEA Portfolio” or “Portfolio” means the entirety of all the individual Funds of the California

Earthquake Authority Fund collectively, i.e., the Primary Fund, the Liquidity Fund, the Claim-

Paying Fund, the Reinsurance Fund, and the Mitigation Fund.

“Daily” refers to Business Days.

“Financial Advisor” means a firm contracted by the CEA to provide analysis for the CEA

concerning debt issuance and that may, if contracted to do so, provide services related to

oversight of the CEA’s Investment Managers.

“Fund” means a fund within the California Earthquake Authority Fund such as , but not by way

of limitation, the CEA’s Primary Fund, Liquidity Fund, Claim-Paying Fund, Claims-Paying

Fund, Reinsurance Fund, and Earthquake Loss Mitigation Fund.

“Investment Manager” means a firm contracted by the CEA to invest monies on its behalf, in

accordance with all Applicable Laws and Regulations and the CEA’s Investment Policies.

“Investment” refers to a Security purchased for, and owned by, the CEA.

“Modified Duration” is the average length of time to receive the present value of bond cash

flows.

A “Security” is a financial instrument before it is purchased for, or owned by, the CEA.


PHILOSOPHY

The California Earthquake Authority (CEA) is an insurance provider whose primary business is

to pay policyholder claims in a timely manner while maintaining quality customer service and a

sound financial posture. In furtherance of those goals, the CEA should have Investment Policies

that provide for the following prioritized goals:

1) Safety and preservation of principal;

2) Liquidity, so that operating expenses and claims can be paid in a timely manner; and

3) Competitive returns (yield).

As a public instrumentality, created by act of the California state government, the CEA discloses

much of its operations and investment activity. The integrity of the CEA’s investment activities

should be above that of private sector organizations conducting comparable business operations.

Therefore, the CEA has the social and ethical obligation to require that Investments made on its

behalf and held in its accounts be in corporations and entities that meet a high standard of

conduct in their operations. Still, the investment of CEA assets should appropriately reflect

sound judgment that each Investment will produce an attractive rate of return, within the bounds

of all Applicable Laws and Regulations and these Investment Policies.

PRINCIPLES

After the primary goals of safety and preservation of principal and attention to appropriate

liquidity requirements are met, rate of return must be considered. Safe and prudent investment

management will be the primary and underlying criterion for the selection of Securities and

retention and disposition of Investments.

Non-economic factors will supplement profit factors in making investment decisions. Non-

economic factors are defined as those considerations not directly related to providing for the

safety of principal, maintaining adequate liquidity, and maximizing income, but which seek to

ensure that in making or holding its Investments, the CEA does not, either through action or

inaction, promote, condone, or facilitate social or environmental injury.

Social or environmental injury may be said to exist when the activities of a corporation serve to

undermine basic human rights and dignities, or when the CEA perceives that the practices of a

corporation result in undesirable side effects for others and that those side effects are substantial

in nature. Side effects that may be deemed undesirable and substantial include, but are not

limited to, the following:

A. Subject to current federal, state, and local law, any practice that is known to endanger,

directly or indirectly, human health or the environment:

B. Practices that result in the suppression of human rights, including:

1) The sale of weapons and technology to governments known to engage in the

systematic suppression of human rights; and

2) The sale of goods to, or the purchase of goods from, countries known to employ

forced labor.


C. Practices that endanger human health, including:

1) The sale and distribution of known contaminated products;

2) The sale and distribution of dangerous drugs; and

3) The sale of goods to, or the purchase of goods from, companies known to disregard

worker safety.

In addition, it is the CEA’s policy not to invest in expatriate companies. Expatriate companies

are defined as U.S. corporations that relocate their “principal office,” for tax purposes only, to

offshore tax havens.

Investments shall not be selected or rejected based solely on non-economic factors. In

general, non-economic factors, to the extent known after reasonable investigation, should

be considered after all relevant financial criteria and Legal Restrictions have been satisfied.

The CEA Portfolio and each of the Funds within the Portfolio will be managed to ensure the

safety of the Portfolio and the Funds by investing in high-quality fixed-income Securities with

limited durations. When permitted by these Investment Policies, investments shall be made in

different investment types in order to minimize the impact any one industry or investment class

can have on a Fund, or portion of a Fund, managed by a CEA Investment Manager. Investments

shall also be spread over multiple credits and issuers within an investment class (when these

Investment Policies permit multiple credits and issuers within a Fund), thereby minimizing the

credit exposure of the CEA Portfolio or any Fund within the Portfolio to any single firm or

institution.

Banker’s acceptances, certificates of deposit, and bank notes must be purchased directly from the

issuer, as long as these Investments meet the investment criteria outlined in the appropriate

sections of these Investment Policies and as long as they comply with all Applicable Laws and

Regulations.

PRUDENT INVESTOR STANDARD

In addition to complying with these Investment Policies and all Applicable Laws and

Regulations, all CEA Investments and evaluation of such Investments shall be made with regard

to the “prudent investor” standard of care, that is, with the care, skill, prudence, and diligence

under the circumstances then prevailing, that persons of prudence, discretion, and intelligence

exercise in the professional management of their business affairs, not for speculation, but for

investment, considering the probable safety of their capital, including liquidity of the Investment,

as well as the probable income to be derived.


ETHICS, AVOIDANCE OF CONFLICT OF INTERESTS, AND COMPLIANCE WITH

INVESTMENT ADVISERS ACT OF 1940

No officer or employee of the CEA, or of any firm contracted with the CEA involved in the

investment of CEA funds, shall engage in any personal or business activity that may conflict

with proper execution of the CEA’s investment program or that may impair his or her ability to

make impartial investment decisions for the CEA. Any personal investments in entities that do

business with the CEA, either by contract or where the CEA has Investments with that entity,

shall be disclosed as required in regulations of the Fair Political Practice Commission (using its

Form 700, which shall be filed according to law) and the CEA’s Conflict of Interest Code.

The CEA’s Financial Advisor and Investment Managers shall ensure that they are registered

with, and comply with the rules, advice, rulings, and regulations of, the Securities and Exchange

Commission as an investment adviser under the Investment Advisers Act of 1940 that is licensed

to choose investments for clients. The CEA’s Financial Advisor and Investment Managers shall

procure and fully and currently maintain the permits and licenses, if any, necessary to advise the

CEA on investments and to make investments on the CEA’s behalf.

PERMISSIBLE INVESTMENTS

In accordance with California Insurance Code section 10089.6, subdivision (b), paragraph (1),

Investments made by the CEA or on behalf of the CEA shall be made in compliance with

California Government Code section 16430, as section 16430 is in effect at the time the

Investment is made. California Government Code section 16430 may be amended from time to

time, and the CEA’s Financial Advisor and Investment Managers shall be responsible for being

aware and informed of any amendments to section 16430 and to all Applicable Laws and

Regulations.

As of January 1,2017, California Government Code section 16430 provides in its entirety:

“Eligible securities for the investment of surplus moneys shall be any of the

following:

“(a) Bonds or interest-bearing notes or obligations of the United States, or

those for which the faith and credit of the United States are pledged for the payment

of principal and interest.

“(b) Bonds or interest-bearing notes on obligations that are guaranteed as to

principal and interest by a federal agency of the United States.

“(c) Bonds, notes, and warrants of this state, or those for which the faith and

credit of this state are pledged for the payment of principal and interest.

“(d) Bonds or warrants, including, but not limited to, revenue warrants, of any

county, city, metropolitan water district, California water district, California water

storage district, irrigation district in the state, municipal utility district, or school

district of this state.

“(e) Any of the following:

“(1) Bonds, consolidated bonds, collateral trust debentures, consolidated

debentures, or other obligations issued by federal land banks or federal

intermediate credit banks established under the Federal Farm Loan Act, as

amended (12 U.S.C. Sec. 2001 et seq.).


“(2) Debentures and consolidated debentures issued by the Central Bank for

Cooperatives and banks for cooperatives established under the Farm Credit Act of

1933, as amended (12 U.S.C. Sec. 2001 et seq.).

“(3) Bonds or debentures of the Federal Home Loan Bank Board established

under the Federal Home Loan Bank Act (12 U.S.C. Sec. 1421 et seq.).

“(4) Stocks, bonds, debentures, and other obligations of the Federal National

Mortgage Association established under the National Housing Act, as amended (12

U.S.C. Sec. 1701 et seq.).

“(5) Bonds of any federal home loan bank established under that act.

“(6) Obligations of the Federal Home Loan Mortgage Corporation.

“(7) Bonds, notes, and other obligations issued by the Tennessee Valley

Authority under the Tennessee Valley Authority Act, as amended (16 U.S.C. Sec.

831 et seq.).

“(8) Other obligations guaranteed by the Commodity Credit Corporation for

the export of California agricultural products under the Commodity Credit

Corporation Charter Act, as amended (15 U.S.C. Sec. 714 et seq.).

“(f)(1) Commercial paper of “prime” quality as defined by a nationally

recognized organization that rates these securities, if the commercial paper is

issued by a federally or state-chartered bank or a state-licensed branch of a foreign

bank, corporation, trust, or limited liability company that is approved by the Pooled

Money Investment Board as meeting the conditions specified in either

subparagraph (A) or subparagraph (B):

“(A) Both of the following conditions:

“(i) Organized and operating within the United States.

“(ii) Having total assets in excess of five hundred million dollars

($500,000,000).

“(B) Both of the following conditions:

“(i) Organized within the United States as a federally or state-chartered bank

or a state-licensed branch of a foreign bank, special purpose corporation, trust, or

limited liability company.

“(ii) Having programwide credit enhancements including, but not limited to,

overcollateralization, letters of credit, or surety bond.

“(2) A purchase of eligible commercial paper may not do any of the following:

“(A) Exceed 270 days maturity.

“(B) Represent more than 10 percent of the outstanding paper of an issuing

federally or state-chartered bank or a state-licensed branch of a foreign bank,

corporation, trust, or limited liability company.

“(C) Exceed 30 percent of the resources of an investment program.

“(3) At the request of the Pooled Money Investment Board, an investment made

pursuant to this subdivision shall be secured by the issuer by depositing with the

Treasurer securities authorized by Section 53651 of a market value at least 10

percent in excess of the amount of the state's investment.

“(g) Bills of exchange or time drafts drawn on and accepted by a commercial

bank, otherwise known as bankers acceptances, that are eligible for purchase by

the Federal Reserve System.

“(h) Negotiable certificates of deposits issued by a federally or state-chartered

bank or savings and loan association, a state-licensed branch of a foreign bank, or

a federally or state-chartered credit union. For the purposes of this section,


negotiable certificates of deposits are not subject to Chapter 4 (commencing with

Section 16500) and Chapter 4.5 (commencing with Section 16600).

“(i) The portion of bank loans and obligations guaranteed by the United States

Small Business Administration or the United States Farmers Home Administration.

“(j) Bank loans and obligations guaranteed by the Export-Import Bank of the

United States.

“(k) Student loan notes insured under the Guaranteed Student Loan Program

established pursuant to the Higher Education Act of 1965, as amended (20 U.S.C.

Sec. 1001 et seq.) and eligible for resale to the Student Loan Marketing Association

established pursuant to Section 133 of the Education Amendments of 1972, as

amended (20 U.S.C. Sec. 1087-2).

“(l) Obligations issued, assumed, or guaranteed by the International Bank for

Reconstruction and Development, the Inter-American Development Bank, the

Asian Development Bank, the African Development Bank, the International

Finance Corporation, or the Government Development Bank of Puerto Rico.

“(m) Bonds, debentures, and notes issued by corporations organized and

operating within the United States. Securities eligible for investment under this

subdivision shall be within the top three ratings of a nationally recognized rating

service.

“(n) Negotiable Order of Withdrawal Accounts (NOW Accounts), invested in

accordance with Chapter 4 (commencing with Section 16500).”

COMPLIANCE

These Investment Policies, and all Applicable Laws and Regulations, shall be observed by the

CEA’s Independent Financial Advisor and acted on by all Investment Managers in the course of

their administering CEA Funds. All Investment Policies are subject to continual monitoring and

review by the CEA’s Chief Financial Officer (the “CFO”).

A trade executed for the CEA’s Portfolio shall be deemed to be in compliance with these

Investment Policies if, as of the trade date, the trade met both (A) the requirements of these

Investment Policies and (B) all Applicable Laws and Regulations. Notwithstanding, however, the

deemed trade-day compliance of any individual trade, if at the close of any day any Fund

concentration limit stated in these Investment Policies is exceeded, the Investment Manager

must, within one business day, consult with the CEA CFO (or his or her designee) in order that

the CEA, in its sole discretion, may provide a directive to correct the exceedance of the

concentration limit; if the CEA CFO provides no such directive, the Investment Manager must

bring the exceeded concentration limit back into compliance with the Investment Policies as

soon as reasonably possible.

The CEA will perform Daily quality-assurance checks of the Portfolio and of each Fund (or

portion of a Fund in the case where an Investment Manager is managing a defined portion of a

Fund) to ensure compliance with these Investment Policies and with all Applicable Laws and

Regulations. If the CEA becomes aware of any noncompliance with any Investment Policy, the

CEA will contact the Investment Manager immediately to discuss the situation so that the CEA

may determine the appropriate actions to be taken by the Investment Manager and CEA to bring

the Fund into compliance; if an Investment Manager or the Financial Advisor becomes aware of

any noncompliance with any Investment Policy, it shall contact the CEA immediately to discuss


the situation so that the CEA may determine the appropriate actions to be taken by the

Investment Manager and CEA to bring the Fund into compliance.

The performance by CEA of a Daily quality-assurance check does not relieve any CEA

Investment Manager of its respective independent duties to ensure that all Investments made and

held for the CEA comply with these Investment Policies and all Applicable Laws and

Regulations. CEA’s failure to discover, or failure to report the discovery to the CEA’s Financial

Advisor or Investment Managers (or any of them), any noncompliance, does not constitute (A)

CEA’s acceptance or ratification of that noncompliance or (B) any waiver by CEA of its right to

require compliance by Investment Managers with these Investment Policies and all Applicable

Laws and Regulations.

THE CEA PORTFOLIO

For the purposes of these Investment Policies, the “CEA Portfolio” consists of the following

Funds:

• Liquidity Fund

o This fund consists of one custody account, which provides funds used for CEA’s

operational cash-flow.

• Primary Fund

o This fund consists of a number of custody accounts, which primarily provide

funds for paying CEA claims and claim expenses.

• Claim-Paying Fund

o This fund consists of a number of custody accounts, which receive the proceeds of

CEA’s debt issuances.

• Reinsurance Fund

o This fund consists of one custody account, which receives reinsurance

recoverables collected after earthquake events.

• Mitigation Fund

o This fund consists of a number of custody accounts, which fund mitigation-related

activities.

MINIMUM RATING REQUIREMENTS

Short-term debt is defined as any debt coming due within one year or less when acquired by the

CEA. The rating of short-term debt is acceptable under these Policies if, when issued and at date

of CEA acquisition, it has a long-term debt rating of at least “A” by Standard & Poor’s

Corporations, “A2” by Moody’s Investors Service, Inc. or “A” by Fitch, or a short-term rating of

A-1 by Standard & Poor’s Corporations, P-1 by Moody’s Investors Service, Inc., or F-1+ by

Fitch Ratings

Long-term debt is defined as any debt coming due in more than one year as of the date acquired

by the CEA. The rating of long-term debt is acceptable under these Policies if, when issued and

at the date of CEA acquisition, it bears a long-term debt rating of at least “A” by Standard &

Poor’s Corporations, “A2” by Moody’s Investors Service, Inc., or “A” by Fitch Ratings.


The minimum rating requirement for each Security is further defined within the Permissible

Investments section, above, and in the Fund Permitted Investments section, below.

If any Investment held in any CEA Fund is downgraded below the credit quality required by the

Applicable Laws and Regulations, or below the credit quality required by these Investment

Policies, the CEA, in consultation with its Financial Advisor, will determine whether to retain

the Investment or to divest CEA of the Investment. Evaluation of divestiture of Investments will

be made on a case-by-case basis.

MATURITY & DURATION

The Investments made in the CEA Portfolio, consisting of all CEA Funds, shall have a combined

maximum Modified Duration of no greater than 3.0 years. To minimize the risk of portfolio

market value decline due to a change in market conditions, each Investment Manager managing

Investments with maturity dates greater than 365 days shall spread the maturities of those

Investments to avoid having 10% or more of the market value of the Investment Manager’s Fund

of Investments maturing on a single date.

The “maximum maturity” requirement listed in the charts in the Fund Permitted Investments

section below is defined as the number of days from trade date to maturity date, including the

trade date but excluding the maturity date. An Investment with a maximum maturity of 181 days

means the Investment must mature in 180 days or less.

DIVERSIFICATION

Diversification is one of the fundamental principles of investing. Properly exercised, it allows for

risks to be minimized and returns maximized within a given investment framework. The CEA

and its Financial Advisor and Investment Managers shall seek prudent amounts of diversification

at all levels of its investment-management process. This includes diversification both among and

within allowable asset classes, as well as diversification of Investment Managers. The

Investment Policies provide guidance on diversification, including allowable limits for various

asset classes, industry sectors, issuers, and investment types. Consistent with the Investment

Policies, the CEA and its Financial Advisor and Investment Managers shall adhere to prudent

practices of diversification to safeguard the assets under their management.

CUSTODY

All CEA Investments shall be secured or held by a custody bank. CEA will obtain a custody

bank through a competitive procurement process.

UNINVESTED CASH

Each Investment Manager shall seek to minimize the amount of cash remaining at the end of a

Business Day that is not invested in a manner consistent with these Investment Policies.


INVESTMENT GOALS

Consistent with the CEA’s published Investment Philosophy, and in order of priority, the CEA’s

investment goals are:

1) Portfolio Safety/Diversification

Where allowed by the Investment Policies, the Portfolio shall contain a sufficient

number and diversity of marketable Investments so that a reasonable portion of the

Portfolio can be readily converted to cash at a price closely approximating

amortized cost.

2) Liquidity

The Portfolio shall be managed to ensure that the CEA’s usual cash needs can be

met; if unforeseen cash needs arise, CEA will work with individual Managers to

plan to meet liquidity requirements.

3) Rate of Return

Investments shall be made in such a way as to realize the maximum return

consistent with the principles of prudence expressed in CEA’s Investment

Philosophy and these Guidelines.

Investments in the Portfolio may be sold to:

• Provide liquidity,

• Address deterioration in the credit quality of an issuer, or

• Purchase an Investment that better meets the current needs of the Portfolio, after

notification to and consultation with the CEA.

REPORTING

Each Investment Manager shall report to the CEA, via email to [email protected], by

9:00 a.m. Pacific Time each Business Day, the previous day’s holdings in each Fund, or portion

of a Fund, under its management.

For each Investment it makes, the Investment Manager shall transmit to the CEA, via email to

[email protected] sent by 9:00 a.m. Pacific Time on the trade date, a copy of the trade

ticket generated for that Investment transaction. CEA will use this trade ticket in the Daily

quality assurance process and to update CEA’s investment accounting system and other trade-

related information as requested by the CEA, its Chief Financial Officer, or another individual

designated by the CEA.

Each Investment Manager shall compile a monthly report of each Fund, or portion of Fund,

managed by the Investment Manager and deliver the report electronically to the CEA on or by

the fifth Business Day of the following month. The report shall contain information as requested

by the CEA, its Chief Financial Officer, or another individual designated by the CEA.




FUND PERMITTED INVESTMENTS

The following tables list permissible Investment types for each Fund in the CEA Portfolio that

comply with both Applicable Laws and Regulations and the CEA’s Investment Policies. [Note

that in some instances, Investments permitted by the CEA may be more restrictive than

Investments otherwise permitted under Applicable Laws and Regulations.] For example, the

maturity requirements below act to limit commercial paper in the Liquidity Fund to a maximum

maturity of 180 days, while the Applicable Laws and Regulations would limit commercial paper

to a maximum maturity of 270 days (see Cal. Gov. Code, § 16430, subd. (f)(2)(A)); such

variances are intentional, and Investment Managers are to follow the requirements below. In the

event, however, that any requirement below may appear to be inconsistent with any of the

Applicable Laws and Regulations, the Applicable Laws and Regulations shall be followed, and

the Investment Manager shall immediately notify the CEA of any such inconsistency. If there is

any question regarding any table or any permissible Investment described in the table, the

Investment Manager shall contact the CEA for clarification.

CEA staff may issue interpretive memorandum for the intended purpose to further enhance

understanding of the Investment Policy or provide guidance for matters not covered by the

Investment Policy.


Liquidity Fund

Investment U.S. Treasury Federal Agency Banker’s

Acceptance (BA)

Certificate of Deposit

(CDs)

Commercial Paper (CP)

Corporate Bond / Note

Maximum Maturity 181 days 181 days 181 days 181 days 180 days 181 days

Maximum Par Value, Total

None

50% 25% 25% 25% 25%

Maximum Par Value Per Name

None

25% 5% 5% 5% 5%

Maximum Par Value Per Maturity

None None None None None None

Credit

Full faith and credit of the Federal Government

Implied government guarantee - credit analysis of certain issuing agencies

Long-term debt ratings of at least “A” by Standard & Poor’s or “A2” by Moody’s or “A” by Fitch OR short-term debt ratings of “A-1” by Standard & Poor’s or “P-1” by Moody’s or “F-1+” by Fitch




Other Requirements Exclude:

• Treasury Inflation Protect Security (TIPS)

• Separate Trading of Registered Interest and Principal of Securities (STRIPS)

Exclude:

• Federal Home Loan Bank note

• Must be purchased directly from the issuer and are eligible for purchase by the Federal Reserve System

• Must be purchased directly from the issuer

• Organized in U.S.

• Total assets must be >$500M

• On Pooled Money Investment Board’s approved list of active issuers

• <10% of the outstanding paper of the issuer

• If over 15% of the fund is invested in CP, the dollar-weighted average maturity of the entire fund amount cannot exceed 31 days



Primary Fund


Acceptance (BA)


(CDs)

Commercial Paper (CP)


Maximum Maturity

5 years Not Permitted Not Permitted Not Permitted Not Permitted Not Permitted

Maximum Par Value, total Portfolio

None

Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable


None



None


Credit








Claim-Paying Fund


Acceptance (BA)


(CDs)

Commercial paper (CP)


Maximum Maturity 5 years 181 days 181 days 181 days 180 days 180 days


None

50% 25%

25%

25%

25%


None

25% 5% 5% 5% 5%


None

None None None None None

Credit










Exclude:










Reinsurance Fund



Acceptance (BA)


(CDs)





None

50% 25% 25%

25%

25%


None

25% 5% 5% 5% 5%


None


Credit










Exclude:











Mitigation Fund


Acceptance (BA)


(CDs)





None

50% 25% 25%

25%

25%


None

25% 5% 5% 5% 5%


None


Credit










Exclude:










September 2018

Page 17 of 17

In addition to the requirements in the charts above, the following are further requirements that the CEA’s Investment

Managers must follow:

Commercial Paper

Consistent with California Insurance Code section 10089.6, subdivision (b), and California Government Code

section 16430, subdivision (f), eligible commercial paper for the CEA’s Liquidity, Claim-Paying, Claims-Paying,

and Mitigation Funds is limited to commercial paper of issuers expressly approved by the State of California’s

Pooled Money Investment Board (“PMIB”) and designated by PMIB an “Active Issuer.” The CEA will use

reasonable efforts to continue to provide updated PMIB-approval lists, as updates are made available by the PMIB

and the California State Treasurer’s Office (“STO”) on its website, currently at http://www.treasurer.ca.gov/pmia-

laif/investments/cp.pdf, to all CEA Investment Managers responsible for managing commercial-paper assets in any

CEA Fund. The CEA’s Investment Managers, however, have separate, independent responsibility for ensuring that,

in any Fund or Funds they manage or oversee, any Investments purchased on the CEA’s behalf comply with this

requirement, with all other requirements of any of the Applicable Laws and Regulations, and with these Investment

Policies.

Negative Yields

The Investment Managers are encouraged to hold cash until an allowable Security with a positive yield becomes

available. The Investment Managers must notify CEA when yields are negative.

Minimum Trade Return

Subject to guidance from the CEA, Investment Managers should not execute a trade if the expected return is less

than the cost of executing the trade. If any Investment Manager believes that circumstances warrant making such a

trade, it must contact the office of the CEA’s Chief Financial Officer to discuss.

http://www.treasurer.ca.gov/pmia-laif/investments/cp.pdf

http://www.treasurer.ca.gov/pmia-laif/investments/cp.pdf

CEA Investment Policies and Guidelines

(Continued)

Interpretative Memoranda

Listed here for reference; attached in following pages

Date Document Subject

November 12,

2008 Memo of Instruction Advance Purchase of U.S. Treasuries

June 27, 2016 Memorandum Portfolio Strategy Guidelines

Sept 28, 2016 Memorandum Pooled Money Investment Account (PIMA) – Wells Fargo &

Company

Sept 28, 2016 Memorandum Primary Dealer – Wells Fargo Securities, LLC

March 12,

2018 Memorandum Purchase and Sell of U.S. Treasuries (Superseding Memorandum)

June 15, 2018 Memo of Instruction Trade Costs Breakdown Analysis (Superseding Memorandum)

August 16,

2018

Authorized

Representatives Authorized Representatives with Signatures

Investment/Data Income Flow Exhibit 4 California Earthquake Authority

State Street Bank

Cash and Custody

Accounts

Concentration

Account

Payroll ZBA

Account

Operating ZBA

Account

Liquidity Custody

Account

Held at SSB

Primary Reserves A

(Large)

Custody Account

Held at SSB

Primary Reserves B

(Small)

Custody Account

Held at SSB

CEA

Finance

Liquidity

Investment Manager

Primary Reserve

Investment Manager

Primary Reserve

Investment Manager

Operating

Checks

Payroll

Checks

U.S Bank Trust

Accounts

Daily access to

account balances

via the Internet

Transfer of

funds for

purchases &

sales

CEA Participating

Insurers

Policy Premiums

Monthly/Daily

Investment

Reports

Fund

Transfers

Daily access to

Account balances

via the Internet

Primary Reserves C

(Large)

Primary Reserves D

(Large)

Primary Reserves E

(Smalll)

Loss Mitigation

Reinsurance

Primary Reserve

Investment Manager

Primary Reserve

Investment Manager

Primary Reserve

Investment Manager

Loss Mitigation

Investment Manager

Reinsurance

Investment Manager

Claims Paying

Account

CEA Bond Sale

Proceeds

Reinsurers

Claim Paying

Investment Manager

CALIFORNIA EARTHQUAKE AUTHORITY Exhibit 5Daily Holdings ReportXXXX FUND - XYZ ManagerAcct #XXXX - Custody ID #XXXAs of Date: 12/31/2013

FULL PRICE CURRENT YIELD TOINVESTMENT INDUSTRY CLASS PURCHASE SETTLEMENT MATURITY DAYS TO YEARS TO CURRENT PAR/ (PAR x PRICE MARKET MATURITY PERCENT UNIT

CUSIP DESCRIPTION DESCRIPTION COUPON S&P MOODY FITCH DATE DATE DATE MATURITY MATURITY FACE VALUE + ACCR INT) VALUE AT PURCHASE OF PAR COST

GRAND TOTAL 0.00 0.00 $0.00 $0.00 $0.00 0.00% 0.00% 0.0000

CALIFORNIA EARTHQUAKE AUTHORITY Exhibit 5Daily Cash ReconciliationXXXX FUND - XYZ ManagerAcct #XXXX - Custody ID #XXXAs of Date: 12/31/2013

XXXX Fund BEGIN BALANCE OF FUND 1,484,106.13

XXXX Fund RECEIPTS MATURITY Dec 01 2009 Dec 01 2009 313589PY3 FNM DISCOUNT NT 35,000,000.00

XXXX Fund RECEIPTS MATURITY Dec 01 2009 Dec 01 2009 313385PY6 FHLB DISCOUNT NT 26,000,000.00

XXXX Fund DISBURSEMENTS BUY Dec 01 2009 Dec 01 2009 313385QR0 FHLB DISCOUNT NT (4,599,869.68)

XXXX Fund DISBURSEMENTS WITHDRAWAL Dec 01 2009 Dec 01 2009 CASHUSD US DOLLARS (53,575.93)

XXXX Fund DISBURSEMENTS WITHDRAWAL Dec 01 2009 Dec 01 2009 CASHUSD US DOLLARS (16,224,762.95)





XXXX Fund DISBURSEMENTS WITHDRAWAL Dec 01 2009 Dec 01 2009 CASHUSD US DOLLARS (40,000,000.00)

XXXX Fund RECEIPTS CONTRIBUTION Dec 01 2009 Dec 01 2009 CASHUSD US DOLLARS 3,298,217.16

XXXX Fund ENDING BALANCE OF FUND 4,342,236.74

ENDING BALANCE PER CUSTODY BANK 4,342,235.43

DIFFERENCE $1.31

Exhibit 5

Exhibit 5a

California Earthquake Authority Investment Report Column Definitions

Period Beginning Net Assets – Market value of securities plus cash balance plus accrued

interest at beginning of period.

Period Income – For the current month, the total amount of investment income

generated by a security, including interest payment(s).

Period Change in Unrealized Gains/Losses – For the current month, the change in the

difference between a security’s market value and book value during the reporting

period

Period Realized Gains/Losses – For the current month, gains and losses of assets

attributable to sale of the securities at a price level above or below the current book

value of the assets.

Period Net Additions/(Withdrawal) – Incoming revenue or transfer of cash in or out of

the portfolio during the reporting period.

Period Pending Trades – Unsettled trades executed during the reporting period.

Period Ending Net Assets – Period beginning net balance plus the result of transactions

for the period (income, change in gain/loss, additions/withdrawals, and pending trades)

Purchased Not Settled –Trades executed but not settled within the portfolio at the end

of reporting period.

Year to Date Beginning Net Assets – Market value of securities plus cash balance plus

accrued interest since January 1st of the current year.

Year to Date Income – Investment income generated since January 1st of the current

year.

Year to Date Unrealized Gains/(Losses) – Change in the difference between market

values and book values since January 1st of the current year.

Year to date Realized Gains/(Losses) - Gains and losses of securities attributable to sale

of the securities at a price level above or below the current book value of the securities

since January 1st of the current year

Year to Date Net Additions/(Withdrawal) - Incoming revenue or transfer of cash in or

out since January 1st of the current year.

Year to Date Pending Trades – Unsettled trades executed but have not settled by the

report date.

Year to Date Ending Net Assets – The result of transactions for the year-to-date (income,

change in gain/loss, additions/withdrawals, and pending trades) plus the beginning net

security balance at January 1st of the current year.

Period Return – The total return generated by the investment portfolio, i.e. interest

(coupon) income plus realized & unrealized gains/losses as a percentage of the total

portfolio during the reporting period.

Three Month Return – The total return during the past three months generated by the

investment portfolio as a percentage of the total portfolio.

Year to Date Return – The total return since January 1st of the current year as a

percentage of the total portfolio.

Yield to Maturity – The rate of return anticipated on a security if it is held until the

maturity date, considered a long-term bond yield expressed as an annual rate.

Purchase Yield to Maturity – Yield to Maturity of an invested security at the time of

purchase.

Modified Duration – Measurable change in the market value of the invested security in

response to a change in interest rates expressed in units of years.

Days to Maturity – The number of days between a security’s trade date and maturity

date.

Percent of total – The percentage of the total portfolio for an individual security.

Current Face – The current par value invested a security in the portfolio.

Book Value – The cost of securities adjusted for amortization and accretion.

Market Value – The current quoted price at which investors buy or sell a security,

excluding accrued interest adjusted for current market fluctuations.

Unrealized Gains (Losses) – The difference between an security’s market value and book

value.

Beginning Accrual – Prior month’s ending balance of the interest accrual.

Interest Earned – The total amount of interest income accrued on all securities in the

portfolio during the current reporting period.

Purchased Interest - The total amount of interest paid for securities purchased during

the reporting period.

Interest Received – The total amount of interest income due/received during the

reporting period.

Ending Accrual – The total amount of interest income accrued for securities at the end

of reporting period.

Beginning Book Value –The book value of investment portfolio at the beginning of

reporting period.

Purchases – The total amount of securities acquired during the reporting period.

Disc/Prem Accrued – Adjustments to the security’s current face value during the period,

attributable to accretion and/or amortization for the current period.

Realized Gains(Loss) –Gain and loss of securities attributable to sale of the security at a

price level above or below the current book value of the security.

Principal Received – The total amount of principal payment received for maturity and

sale of a fixed income security during the reporting period.

Ending Book Value – The book value of all securities in a portfolio at the end of the

reporting period.

Exhibit 6

INVESTMENT MANAGER ID

REPORT

PERIOD END

DATE

PERIOD

BEGINNING

NET ASSETS

PERIOD

INCOME

PERIOD CHANGE IN

UNREALIZED

GAINS/(LOSSES)

PERIOD REALIZED

GAINS/(LOSSES)

PERIOD NET

ADDITIONS/

(WITHDRAWAL)

PERIOD

PENDING

TRADES

PERIOD

ENDING NET

ASSETS

PURCHASED

NOT SETTLED

name 7/17/2013 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

CEA INVESTMENT PORTFOLIO

SUMMARY

FOR THE MONTH ENDING

INVESTMENT MANAGER ID

YEAR TO

DATE

BEGINNING

NET ASSETS

YEAR TO

DATE

INCOME

YEAR TO DATE

UNREALIZED

GAINS/(LOSSES)

YEAR TO DATE NET

ADDITIONS/

(WITHDRAWAL)

YEAR TO

DATE

PENDING

TRADES

YEAR TO

DATE ENDING

NET ASSETS

PERIOD

RETURN

THREE

MONTH

RETURN

YEAR TO

DATE

RETURN

ROLLING 12

MONTH

name 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


SUMMARY (CONTINUED)


Purchase Yield Modified Days Percent Book Market Unrealized

to Maturity Duration to Maturity of Total Current Face Value Value Gain(Loss)

Investment Manager: XYZCash Funds Total 0.00% 0.00 0 0.00% - $0.00 $0.00 $0.00

US Treasuries Total 0.00% 0.00 0 0.00% - $0.00 $0.00 $0.00

XYZ Total 0.00% 0.00 0 0.00% - $0.00 $0.00 $0.00

Grand Total 0.00% 0.00 0 0.00% - $0.00 $0.00 $0.00


ASSET STATEMENT SUMMARY


CUSIP DESCRIPTIONPurchase Yield to

Maturity

Modified

Duration

Days to

Maturity

Percent of

TotalCurrent Face Book Value

Current Market

Value

Unrealized

Gain(Loss)

Cash Funds

Cash CEA CASH 0.00% 0 0.00 0.00% 0.00 0.00 0.00 0.00

Cash Funds Total 0.00% 0 0.00 0.00% 0.00 0.00 0.00 0.00

US Treasuries

0.00% 0 0.00 0.00% 0.00 0.00 0.00 0.00

US Treasuries Total 0.00% 0 0.00 0.00% 0.00 0.00 0.00 0.00

0.00% 0 0.00 100.00% 0.00 0.00 0.00 0.00Grand Total


ASSET STATEMENT


BEGINNING INTEREST PURCHASED INTEREST ENDING

CUSIP DESCRIPTION ACCRUAL EARNED INTEREST RECEIVED ACCRUAL

Investment Manager: XYZ

Cash Funds

Cash CEA Cash $0.00 $0.00 $0.00 $0.00 $0.00

Cash Funds Total $0.00 $0.00 $0.00 $0.00 $0.00

US Treasuries

$0.00 $0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00 $0.00

US Treasuries Total $0.00 $0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00 $0.00 Grand Total


INTEREST RECEIVABLE


BEGINNING DISC / PREM REALIZED PRINCIPAL ENDING

CUSIP DESCRIPTION BOOK VALUE PURCHASES ACCRUED GAIN / (LOSS) RECEIVED BOOK VALUE

Investment Manager: XYZ

Cash Funds

Cash CEA Cash $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Cash Funds Total $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

US Treasuries

$0.00 $0.00 $0.00 $0.00 $0.00 $0.00

US Treasuries Total $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Grand Total


BOOK VALUE


Exhibit 7 – Sample Contract Page 1

EXHIBIT 7 SAMPLE CONTRACT

(WITHOUT ATTACHMENTS)

This Agreement is entered into by and between a [Contractor’s legal capacity and domicile]:

[Contractor Name] (“Contractor”) [Contractor Address]

and a public instrumentality of the State of California:

California Earthquake Authority (“CEA”) 801 K Street, Suite 1000 Sacramento, California 95814.

This Agreement is effective on the date it is fully executed below.

[BACKGROUND AND RECITATIONS]

In consideration of the mutual promises below, the parties agree as follows:

1. Services to be Performed

Contractor agrees and promises to perform the services described in Attachment A: Statement ofWork. As provided in California Insurance Code section 10089.6, subdivision (b), paragraph (l), theCEA is authorized to invest its assets through the purchase, retention, or sale of any investment orfinancial instrument among securities eligible under Section 16430 of the California GovernmentCode––all of Contractor’s work under this contract must be performed in strict compliance with thosestatutory provisions.

2. Ambiguities Not Held Against Drafter

Because this Agreement has been freely and voluntarily negotiated by the parties, Contractor and CEAagree that ambiguous contractual provisions will not be construed against the drafter.

3. Amendments

This Agreement can be amended only by mutual consent of the parties. No change in any term will bevalid unless the change is documented and signed by both Contractor and the CEA. No oral agreementor understanding will bind either party.

4. Assignment; Delegation

Contractor must not assign any of its rights or delegate any of its duties under this Agreement withoutfirst obtaining the CEA’s written consent. Any purported assignment or delegation by Contractor, inwhole or in part, in violation of this section is voidable at the sole option of the CEA.


5. Attorney’s Fees and Costs

In the event of litigation between the parties to enforce or interpret this Agreement, the non-prevailing party must pay the prevailing party’s reasonable attorney’s fees, costs of in-house counsel services, and actual and taxable costs. These expenses must be paid in addition to any other relief to which the prevailing party may be entitled.

6. Audits

Contractor is subject to examination and audit by the California Bureau of State Audits, the CEA, and CEA’s representatives during the term of this Agreement and for three years after the final payment under this Agreement. Any examination or audit would be confined to performance of the required services, including, but not limited to, the costs of administering this Agreement and Contractor’s adherence to the requirements of Section 11 (Compliance). Contractor must cooperate fully with any examination or audit. All adjustments, payments, and reimbursements determined necessary through any examination or audit must be made promptly by the appropriate party to this Agreement.

7. Business Contingency Plan

The CEA has reviewed Contractor's Summary of Business Contingency Plan, which was attached to Contractor’s response to RFQ # ___. Contractor must not materially change its Business Contingency Plan, as that Plan pertains to its responsibilities to the CEA, without advance written consent of the CEA’s Chief Financial Officer.

8. Changes in Contractor’s Control, Organization or Key Personnel

8.1 Contractor must notify CEA in writing within five calendar days:

A. if any of Contractor’s representations or warranties in this Agreement ceases to be true; B. of any change in Contractor’s staff who exercise a significant administrative, policy, or

consulting role, under this Agreement; C. of any change in Contractor’s majority ownership, control, or business structure; and D. of any other material change in Contractor’s business organization.

8.2 Contractor’s written notices under this provision must contain information adequate to permit CEA to evaluate the changes within Contractor’s organization or to its personnel using the same criteria CEA applied in its original selection of Contractor. Contractor must promptly provide any additional information the CEA might request in connection with the written notices.

9. Choice of Law

This Agreement will be construed and enforced according to California law, without regard to its conflict-of-law provisions. A party may sue only in the Superior Court of California, County of Sacramento. A “suit” includes any action to compel arbitration or enforce an arbitration award. Each party waives any claim that Sacramento is an inconvenient or improper forum or venue. Each party agrees that the court named above will have in personam jurisdiction over it.


10. Compensation

10.1 CEA will compensate the Contractor in accordance with Attachment C: Fee Schedule for its performance, and expenses incurred, in its performance of Agreement services.

10.2 Though the actual compensation amount will vary, depending on the amount of assets placed with Contractor, Contractor guarantees that it will not increase the rates and charges that support its fee structure during the term of this Agreement, unless the parties agree to changes in the scope of work and those changes support an increase in fees; no fee increase will be effective until both parties agree to and execute a modification of this Agreement that changes the scope of work and increases the fees.

10.3 Correspondence from Contractor to CEA regarding payments or any related compensation matters must be sent to:

California Earthquake Authority 801 K Street, Suite 1000 Sacramento, California 95814

Attention: Chief Financial Officer

10.4 Billing and Invoicing Contractor must submit itemized invoices quarterly, in arrears, for services already performed;

the CEA will make no payments in advance of services rendered. Each invoice must include, at a minimum: A. Contractor’s name, address, and telephone number; B. an itemized description of Contractor’s services rendered for the billing period, including a

detailed expense breakdown; C. the total amount of the invoice; and D. a prominent reference to: “Asset Manager Quarterly Fees.” E. Invoices submitted by mail must be addressed to: California Earthquake Authority Accounts Payable 801 K Street, Suite 1000 Sacramento, California 95814 F. Invoices may be submitted electronically to: [email protected].

10.5 Payment will not be due until the invoiced work is performed, correctly identified on the

invoice, and accepted by the CEA. CEA will pay Contractor’s invoices as promptly as fiscal procedures permit.

11. Compliance

11.1 Compliance with Applicable Law

Contractor must comply with all applicable laws. Any references to federal or state statutes or regulations are also references to any amendments or successor provisions to those sections.



11.2 Compliance with CEA-Related Investment Requirements

Without limiting the broad application of subsection 11.1, Contractor must ensure that all investments made on behalf of the CEA under this Agreement are investments in securities that comply with California Government Code section 16430 (a copy of which is attached as Attachment G). Contractor understands that Government Code section 16430 may be amended from time to time; Contractor agrees to be aware and informed of all future amendments to the laws applicable to its duties under this Agreement, including Government Code section 16430, must conform its investments on behalf of CEA in accordance with all applicable laws, including Government Code section 16430, in effect at the time the investment is made. Contractor must ensure that all investments made under this Agreement comply with the CEA Investment Policies & Guidelines (a copy of which is attached as Attachment B). Contractor is responsible for being familiar with all provisions of, including all future revisions to, the CEA Investment Policies & Guidelines and must conform all investments made under this Agreement to the Investment Policies & Guidelines most recently adopted by the CEA Governing Board at the time each such investment is made. The CEA Investment Policies & Guidelines are intended to be fully consistent with Government Code section 16430. Any omission of any provision of Government Code section 16430 from the CEA Investment Policies & Guidelines does not relieve Contractor of the obligation to comply fully with that section. In the event of any conflict or inconsistency between Government Code section 16430 and the Investment Policies & Guidelines, the provisions of Government Code section 16430 govern; in such a case, Contractor must also bring any perceived inconsistency to the immediate attention of the CEA Contract Manager. For purposes of this subsection 11.2, the term “CEA Investment Policies & Guidelines” includes all interpretations of and adjustments to policies and guidelines that CEA staff members may provide from time to time in writing to CEA asset managers; copies of all such interpretations and adjustments issued to date are provided as part of Attachment B (continued) and denoted “CEA Investment Policies and Guidelines Interpretative Memoranda,” but the CEA reserves the right to issue, and expect adherence by Contractor to, all further or future interpretations and guidelines.

11.3 Compliance with Investment Advisers Act of 1940

Contractor agrees to comply with the following: A. Contractor must be registered with, and comply with the rules, advice, rulings, and

regulations of, the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”) that is licensed to choose investments for clients.

B. Before executing this Agreement, Contractor will provide the CEA a current copy of Part II of its Form ADV as filed by Contractor with the SEC to comply with the requirements of Rule 204-l(b) under the Advisers Act and provide such additional copies and certifications of the authenticity of that form as CEA from time to time may require.

11.4 Permits and Licenses

At its sole expense, Contractor must procure and fully and currently maintain the permits and licenses, if any, necessary to accomplish the services required of it under this Agreement.


11.5 Additional Documents

Contractor will execute any additional documents and perform any additional acts as might be reasonable and necessary to fulfill the provisions of this Agreement.

12. Confidentiality

12.1 In the course of its duties, the Contractor will gain knowledge of investment, financial, personal, personally identifiable, technical, accounting, and statistical information pertaining to the CEA, its Governing Board and Advisory Panel and their members, CEA employees, contractors, vendors, agents, and policyholders (collectively, “Restricted Information”). All Restricted Information is considered by the CEA to be sensitive trade-secret information that is subject to applicable privileges and is strictly confidential unless the CEA expressly designates particular Restricted Information as non-confidential. Contractor must not directly or indirectly disclose any Restricted Information, or use it publicly in any way that requires its disclosure, either during or following the term of this Agreement, without the CEA’s advance written, specific permission.

12.2 Contractor may disclose Restricted Information only if required by regulatory or government authorities to ensure compliance with applicable laws, rules, or regulations, but that disclosure is limited to that actually so required. In the event that a subpoena for records containing Restricted Information relating specifically to the CEA is served on Contractor, Contractor must immediately notify the CEA in writing of the subpoena or other legal process before disclosing any Restricted Information.

12.3 Contractor will not produce, reproduce, publish, or disseminate Restricted Information for its or any other person’s personal gain. For purposes of this Section 12, “person” means any person, association, organization, partnership, business trust, limited liability company, or corporation.

12.4 Contractor is permitted only to release Restricted Information to its employees who have been officially notified in writing by Contractor’s management that they are expressly binding themselves to maintain confidentiality of the Restricted Information; upon CEA’s request, Contractor must immediately provide written evidence of its having fully met this requirement. To the best of its ability, and notwithstanding any permitted release of Restricted Information pursuant to this subsection, Contractor must affirmatively protect all Restricted Information from unauthorized use or disclosure.

12.5 Contractor’s disclosure of Restricted Information in violation of Section 12, or of any subsection of Section 12, is a material breach of contract.

12.6 Contractor understands that CEA is a public instrumentality of the State of California and that CEA’s and Contractor’s records may be subject to public disclosure and production under various laws, including but not limited to the California Public Records Act (Chapter 3.5, commencing with Section 6250) of Division 7 of Title 1 of the California Government Code) and 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 California Government Code). The CEA will notify Contractor promptly after receiving a request for disclosure of any documents or materials in the CEA’s possession that Contractor has designated as proprietary and


confidential. CEA will reasonably cooperate with Contractor, within the statutory framework and limitations on CEA’s duties under the applicable law, and at Contractor’s sole cost and expense, in Contractor’s efforts to protect its trade secrets and confidential information.

13. Conflicts of Interest

13.1 Contractor’s Warranties

By its signature on this Agreement, Contractor warrants to CEA that no claimed, apparent, or actual conflict of interest exists on its part, or on the part of any principal, employee, contractor, or subcontractor serving on CEA accounts, that would influence its:

A. advice and recommendations to the CEA; B. statements made about the CEA to any person or entity; C. activities performed on behalf of the CEA; or D. decisions taken or enacted on behalf of the CEA.

13.2 Contractor’s Affirmative Duties to Disclose and Address Conflicts of Interest

The parties mutually intend and agree that the duty to disclose a claimed, apparent, or actual conflict, is Contractor’s sole, affirmative duty. Contractor’s failure to identify and disclose such a conflict of interest is a material breach of this Agreement and a default justifying Agreement termination, as the term “default” is used in Subsection 30.2 (Termination for Contractor’s Default). The CEA has sole authority and discretion to determine at any time the importance and significance of Contractor’s failure to identify and disclose any conflict of interest. Contractor must abide in good faith by any protocols developed by CEA before or during the term of this Agreement to identify, disclose, and address potential, apparent, and actual conflicts of interest. Contractor promises to provide the CEA with any requested information, documentation, and assurances, in writing if so requested, concerning any claimed, apparent, or actual conflict of interest.

13.3 Fair Political Practices Laws

Contractor must not directly or indirectly receive any personal benefit from information obtained from the CEA, or received or provided on behalf of CEA. Contractor must disclose to CEA any personal investment or economic interest that may be enhanced or made more valuable by any recommendation made to or activity undertaken on behalf of the CEA. Contractor acknowledges that the CEA is subject to the provisions of the Fair Political Practices laws of California (Government Code section 81000, et seq., and the regulations adopted under that law), and Contractor must comply with the requirements of that law and those regulations. If requested by CEA, designated Contractor personnel will file with CEA a Statement of Economic Interests in compliance with CEA’s Conflict of Interest Code (California Code of Regulations, Title 5, Part III, Chapter 1, section 22000, et seq.).

13.4 Neither Contractor, nor any of its subsidiaries, officers, or directors, may submit a bid or be awarded a contract that is an outgrowth of the services or advice Contractor provides CEA under this Agreement, in the absence of the CEA’s advance written approval.


14. Cumulative Remedies

The rights and remedies provided in this Agreement are cumulative and are not exclusive of any rights or remedies any party might otherwise have at law or in equity.

15. Drug-Free Workplace

Contractor must execute and return the certification in Attachment F with the signed Agreement. CEA may terminate the Agreement if the Contractor fails to comply with these drug-free workplace requirements.

16. Financial Statements At least annually, Contractor must furnish the CEA with audited financial statements of Contractor and of Contractor’s affiliates; the audited financial statements must be delivered to CEA within 150 days after the end of Contractor’s fiscal year. Contractor, however, must provide CEA with written notice and explanation of any significant concerns of which Contractor is aware and which may appear in its financial statements, no later than 60 days before the end of its fiscal year. In addition to the immediately preceding requirement, and upon the written request of CEA, Contractor must furnish financial statements (which may be unaudited) of Contractor and Contractor’s affiliates for delivery to CEA within 30 days after CEA’s request.

17. Force Majeure

Neither party is liable for damages that result from delayed or defective performance when the delays arise from an event that is beyond the control, and without the fault or negligence of the offending party. Force majeure events include, but are not restricted to, acts of a public enemy, acts of the State in its sovereign capacity, disabling strikes, epidemics, and quarantine restrictions. Contractor is not excused for any delays or interruption in performance caused by fires, floods, earthquakes, power failures, or freight embargoes; CEA relies on Contractor’s statements and assurances in its Business Contingency Plan, summarized by Contractor in its response to RFQ # ___, and expects continuity of service during those events.

18. Indemnification

18.1 Contractor must indemnify, defend, and save harmless the CEA, the CEA Governing Board and Advisory Panel and each of their members, and all CEA officers, agents, and employees, from and against any and all losses, costs, liabilities, damages or deficiencies, including interest, penalties, and reasonable attorney’s fees, arising from any claims of:

A. Contractor’s breach of its promises, warranties, or other obligations; B. Contractor’s acts or omissions constituting bad faith, willful misfeasance, negligence, or

reckless disregard of its duties under this Agreement; or C. Contractor’s failure to meet the requirements of Section Error! Reference source not

found. (Compliance).

18.2 Without limiting the scope or effect of the preceding paragraph, Contractor must indemnify the CEA for all losses to the CEA (including but not limited to investment losses or losses of principal or interest relating to any investment) attributable to any investment of CEA assets


that is invested by Contractor in violation of the investment requirements set forth in Subsection 11.2 of this Agreement, without any claim of offset against income realized from any other CEA investments made by Contractor.

18.3 For this Section 18, and Section 4 (Assignment; Delegation), a subcontractor’s or Contractor’s consultant’s act or omission to act, whether under permitted or unpermitted delegation, or unrelated to any delegation, is considered for all purposes the act or omission of Contractor.

19. Insurance

19.1 Contractor warrants that it maintains, or will obtain, adequate insurance, covering all its activities in connection with or arising out of its performance under this Agreement, including such workers’ compensation insurance as is required by law, and promises to maintain that insurance at levels acceptable to the CEA at all times during the term of this Agreement.

19.2 In furtherance of the requirements in Subsection 19.1, Contractor agrees to: A. Maintain general liability insurance with limits of no less than $2,000,000 per occurrence,

providing coverage for all of Contractor’s business activities (including those performed under this Agreement);

B. Maintain adequate errors and omissions insurance, with limits of no less than $3,000,000; and

C. Provide satisfactory evidence of those insurance coverages to the CEA on request.

19.3 By its signature on this Agreement, Contractor acknowledges that CEA has no obligation to provide workers’ compensation insurance or employee benefits of any nature for Contractor or Contractor’s employees or subcontractors.

20. Key Personnel

20.1 Attachment D (“Key Personnel”) names each person exercising a significant administrative, policy, or consulting role under this Agreement. Those persons are referred to in this Agreement as “Key Personnel.” In addition, only persons designated as “Persons Authorized to Execute Investment Transactions” may authorize investments or trades of CEA assets. Persons Authorized to Execute Investment Transactions may delegate the actual execution of a transaction only upon review and prior approval of that transaction by any one or more persons designated “Key Personnel.”

20.2 Without derogating from Section Error! Reference source not found. (Indemnification), Contractor will promptly reimburse the CEA for all losses incurred from any transaction executed without the appropriate authorization of designated Persons Authorized to Execute Investment Transactions required by Subsection 20.1. “Losses” include the original assets, reasonably expected returns, and other additional costs incurred by the CEA as a result of any investment or trade not made in accordance with the requirements of Subsection 20.1.

20.3 Contractor may not substitute, replace, or reassign Key Personnel without CEA’s advance written approval. With advance CEA written approval, the parties may document a change in the Key Personnel, and that writing will then become part of this Agreement. All Key Personnel are expressly subject to the provisions of Sections Error! Reference source not found. (Changes


in Contractor’s Control, Organization or Key Personnel) and Error! Reference source not found. (Notices).

20.4 In its sole discretion, CEA can terminate this Agreement pursuant to Subsection 30.2 (Termination for Contractor’s Default), on written notice from CEA to Contractor, if Contractor changes any of its Key Personnel without the CEA’s advance written approval or if any Key Personnel depart Contractor’s staff.

20.5 If any investment personnel is or are unable to perform due to illness, resignation, or other factors beyond Contractor’s control, the Contractor will make every reasonable effort to provide suitable substitute investment professionals. This action will be subject to notice to CEA, and approval by CEA and this will not preclude CEA’s right to terminate for departure of any named Key Personnel.

21. Notice of Proceedings

Contractor must promptly notify the CEA in writing of any investigation, examination, or other proceeding commenced by any regulatory agency and involving Contractor, any of its subcontractors, or any of its Key Personnel that is not conducted in the ordinary course of Contractor’s business.

22. Notices

22.1 Any notice required or permitted by this Agreement is deemed given:

A. On the date of personal delivery;

B. Three days after the mailing date, if deposited with the U.S. Postal Service; or

C. On the date stated on the delivery receipt, if delivered by U.S. Postal Service Express Mail or any overnight delivery service.

22.2 Notice provided only by fax is not valid for any purpose. 22.3 Notices must be directed to all the following representatives:

A. For CEA:

[CEA Address]

B. For Contractor:

[Contractor Address]

23. Publicity

Contractor must not release, publish, or post any information, publicity, or announcement concerning the CEA, this Agreement, or Contractor’s services under this Agreement, without the advance, express written approval of the CEA. Notwithstanding the foregoing, Contractor may publicly disclose the fact that the CEA is a client or customer of the Contractor.

24. Record-Keeping; Record Retention


24.1 Contractor will use reasonable efforts to ensure that its books and records, and those of any subcontractors, are accurately maintained; all such books and records must be made available for inspection and copying by CEA or its representatives on reasonable prior notice and during normal business hours. Contractor and any subcontractors must maintain its CEA-related records separate and distinct from the records for other clients.

24.2 All information, data, reports, and records associated with the CEA, regardless of the identity of the party who prepared them, are the property of CEA and must be delivered if requested, at any time and on termination or expiration of this Agreement. Contractor is permitted to keep copies of all such information, data, reports, and records Contractor requires, for three years after final payment on the Agreement.

25. Relationship of the Parties

25.1 Independent Contractor

This Agreement creates a relationship of independent contractor. The CEA is interested only in the results to be achieved under this Agreement; the conduct of the work will lie solely with the Contractor. Contractor’s work, however, must meet the general approval of the CEA and will be subject to the CEA’s general right of inspection and supervision to secure its satisfactory completion.

25.2 Contractor’s principals, employees, subcontractors and consultants are not, and will not be, considered employees of the CEA and are not entitled to any benefits provided by the CEA, or by the State of California, to the respective employees of either.

25.3 During the term of the Agreement:

A. The CEA may engage employees or other independent contractors to perform the same work that Contractor performs under this Agreement; and

B. Contractor may perform services for other parties, provided that performance does not, in the CEA’s sole judgment, conflict with or impair Contractor’s ability to perform services for the CEA.

25.4 CEA Contract Manager

The CEA Chief Financial Officer (or a designee) will manage and direct Contractor’s activities.

26. Reports

In addition to project deliverables, Contractor must provide other material that the CEA reasonably requests. Contractor will provide oral or written progress reports to:

A. determine if Contractor is performing satisfactorily and timely; and B. facilitate discussion and resolution of issues.

27. Rights in Work

27.1 Neither Contractor, any subcontractor or other consulting staff employed by Contractor, has or will have any rights in any reports, data, documents, systems, or concepts (collectively,


“Products”) produced by Contractor for the CEA. Only the CEA has ownership of the Products that result from services provided under this Agreement. The CEA reserves the right to give or otherwise release the Products.

27.2 All Products are, and will be considered for all purposes, works-for-hire, including for purposes of interpretation under U.S. Copyright Law, 17 U.S.C. section 101, et seq. To the extent that the Products are not construed as works-for-hire, Contractor will assign, and hereby does assign to the CEA, perpetually and without further consideration, all right, title, and interest to the Products. All right, title, and interest in the Products, and any copyright, patent, trade secret, or other proprietary right in the Products, are and shall be the sole property of the CEA.

28. Subcontractors

28.1 Contractor must perform the work contemplated under this Agreement with resources available within its own organization. Contractor must not subcontract any part of its work under this Agreement without the advance written permission of the CEA. The parties must agree in advance on any subcontractor.

28.2 In appropriate cases, CEA may in its sole discretion require that Contractor require of any approved subcontractor, in the form of a suitable, CEA-approved writing, that the subcontractor be bound by all provisions of this Agreement, including, but not limited to, Section Error! Reference source not found. (Compliance) and Section Error! Reference source not found. (Confidentiality).

29. Taxes

CEA is exempt from Federal excise taxes and will make no payment for or in connection with personal property taxes levied on Contractor or taxes levied in connection with Contractor’s compensation.

30. Termination

This Agreement can be terminated as follows:

30.1 Termination at the Option of the CEA

This Agreement may be terminated in whole or in part, for any reason including the convenience of the CEA, and at any time with 30 days written notice by the CEA. Despite any termination, and at its sole option, the CEA can maintain this Agreement in effect for those transactions pending on the effective date of termination until those transactions are completed. Additionally, Contractor must take all steps specified by the CEA to dispose of or otherwise administer any investments entered into under this Agreement. Upon its receipt of a termination notice from CEA, Contractor must promptly discontinue all services affected unless the notice specifies otherwise. If the CEA terminates all or any part of this Agreement, the CEA will pay Contractor for satisfactory services rendered before the termination, but not more than the maximum amount payable under applicable compensation provisions of this Agreement.

30.2 Termination for Contractor’s Default


In addition to any other termination right, the CEA is entitled, with two days written notice to Contractor and without any prejudice to its other remedies, to terminate this Agreement because of Contractor’s failure to perform or discharge any Agreement obligations, including but not limited to any failure to follow and fulfill any part of provision of Section Error! Reference source not found. (Compliance) – any such failure is termed Contractor’s Default. Upon its receipt of any notice from the CEA terminating this Agreement for Contractor’s Default, Contractor must immediately discontinue all services affected, unless the notice directs otherwise. Following a two-day notice of termination, the CEA will pay Contractor only the reasonable value of its services rendered. In the CEA’s sole discretion and on any terms it chooses, the CEA may, but is not required to, offer Contractor an opportunity to address any defaults or cure any breach.

30.3 Termination for Insolvency

Contractor must notify the CEA in writing immediately if Contractor or any principal of Contractor:

A. files or is placed under federal bankruptcy laws; B. files or becomes the subject of a state receivership action; C. is adjudged bankrupt; D. has a receiver appointed who qualifies; E. makes an assignment for the benefit of creditors, or F. is the subject of criminal investigation, indictment, or conviction.

If any of the foregoing events occurs, or if the CEA receives notice of any of the foregoing events, or if the CEA reasonably determines there is a substantial probability that Contractor will be unable (financially or otherwise) to continue its performance, the CEA is entitled to terminate this Agreement and all further rights and obligations upon two days written notice.

30.4 Convenience

If the CEA gives Contractor a notice of termination for failure to fulfill Agreement obligations and it is later determined that Contractor had not so failed, the termination will be considered to have been for the convenience of the CEA.

30.5 Completion

If the CEA terminates this Agreement for Contractor’s Default, the CEA reserves the right to take over and complete Contractor’s work by any means. Contractor will pay the CEA for any additional costs incurred due to Contractor’s Default.

31. Termination, Effect of

After notice of termination:

31.1 Each party will remain liable for any rights, obligations, or liabilities that arose or may arise from its activities under this Agreement before it effectively terminated.

31.2 At Contractor’s sole cost, and within 30 days after the effective termination date, Contractor will deliver to the CEA, all CEA’s records and deliverables, whether prepared by Contractor or


received by Contractor from a third party. The records and products include, but are not limited to: A. due diligence reports; B. reports and data prepared in performance of Contractor’s duties; and C. financial statements, investment performance data, and related data systems for investment

monitoring services.

Contractor and CEA will work together in good faith to determine an effective method and form to transfer the records and Products, and Contractor will deliver the records and property in usable form. Contractor will cooperate fully to ensure an orderly termination process and orderly transfer of services.

31.3 Upon expiration or termination of this Agreement, Contractor will provide all reasonable assistance to transition CEA’s records, accounts, funds, required services to CEA’s subsequent service provider, without additional costs to CEA.

32. Time Devoted to Work

Consistent with the needs of the CEA, Contractor will work the hours necessary to fulfill satisfactorily the terms of this Agreement.

33. Time Is of the Essence

Time is of the essence for delivery of services under this Agreement.

34. Waivers

A party’s delay in exercising any right or privilege is not a waiver of any Agreement provision. A party’s waiver or single or partial exercise of any right or privilege will not preclude any other or further exercise of any other right or privilege under this Agreement.

35. Warranties

The Contractor warrants its compliance with the following requirements:

35.1 Contractor warrants that it has and will strictly comply with the provisions of Section Error! Reference source not found. (Compliance);

35.2 Employees

A. Americans with Disabilities Act. Contractor warrants that it complies with the Americans with Disabilities Act of 1990 (42 U.S.C. 12101, et seq. – the “ADA”) and all regulations and guidelines issued under the ADA.

B. Fair Employment and Housing Act. Contractor and subcontractors will comply with the provisions of the Fair Employment and Housing Act (Government Code section 12900 et seq.) and the related regulations (California Code of Regulations, Title 2, section 7285.0 et seq.). The regulations of the Fair Employment and Housing Commission that implement Government Code section 12990, subdivisions (a) through (f) (Chapter 5 of Division 4 of


Title 2 of the California Code of Regulations) are by this reference made a part of this Agreement.

C. Nondiscrimination. During the performance of this Agreement, Contractor and its subcontractors, and their agents and employees, must not unlawfully discriminate against, harass, or retaliate against any employee or applicant for employment because of race, religion or religious creed, color, age, sex, sexual orientation, gender identity, genetic information, national origin, marital status, medical condition, disability, military service, pregnancy, childbirth, breastfeeding and related medical conditions, or any other classification protected by federal, state, or local laws or regulations. Contractors and subcontractors, and their agents and employees, are expected to take all appropriate steps to prevent such discrimination, harassment, and retaliation, remedy any such conduct that may occur, and implement appropriate measures to prevent such conduct from occurring in the future.

35.3 Labor

A. Collective Bargaining. Contractor and its subcontractors must give written notice of their obligations under this clause to all labor organizations with which they have a collective bargaining or other agreement, if any.

B. National Labor Relations Board Certification. Contractor affirms, under penalty of perjury, that no more than one final, finding of contempt of a Federal Court has been issued against Contractor within the immediately preceding two-year period because of Contractor’s failure to comply with a Federal court’s order to comply with a National Labor Relations Board order.

35.4 Insider Trading

Contractor warrants that it has implemented and enforces a policy to insure that its employees and the individuals subject to its control do not engage in illegal insider trading proscribed by federal and state securities laws and regulations.

35.5 Standard of Care

The personnel or subcontractors responsible for discharging Contractor’s duties under this Agreement are experienced in the performance of the duties contemplated and will meet the appropriate standard of care.

35.6 Signature Authorization

A. The execution and performance of this Agreement will not:

1. violate any provision of any charter document of the Contractor;

2. violate any statute or any judgment, decree, order, regulation, or rule of any court or governmental authority applicable to Contractor; or

3. violate, conflict with, constitute a default under, permit the termination of, or require the consent of any person under, any agreement to which Contractor may be bound, the occurrence of which would have a material adverse effect on the properties,


business, prospects, earnings, assets, liabilities or financial or other condition of Contractor.

B. Contractor’s signatory warrants that he or she is an agent of the Contractor and is duly authorized to enter into the Agreement on behalf of the Contractor.

C. Contractor represents and warrants that:

1. it has the power and authority to enter this Agreement and carry out its obligations;

2. it has duly authorized the execution of this Agreement, and no additional act of Contractor is necessary to authorize this Agreement;

3. it has completed or obtained all registrations, filings, approvals, authorizations, consents, and examinations any government or governmental authority may require for its acts contemplated by this Agreement.

35.7 Contractor represents and warrants that its performance under this Agreement does not violate the intellectual property rights, including rights established by patent or trademark and rights that are considered to be trade secrets, owned by or otherwise legally accruing to any person, association, organization, partnership, business trust, limited liability company, or corporation. Contractor makes the same representations and warranty regarding any permitted subcontractor.

35.8 Contractor warrants that it will promptly notify the CEA of any changes in Contractor’s compliance with the warranties stated here, and agrees to restore the warranties, as the CEA in its discretion may require, if a lapse occurs. If the Contractor does not provide notice to the contrary, the CEA has the absolute right to rely on the ongoing effectiveness of each warranty stated here.

36. Entire Agreement

36.1 This Agreement (A) states all representations of and the entire understanding between the parties with respect to the subject of this Agreement and (B) replaces any prior correspondence, memoranda, or agreements.

36.2 Binding Effect

This Agreement, and any instrument or further agreement executed pursuant to this Agreement, will bind the parties, their successors, assignees, and legal representatives.

36.3 Counterparts

This Agreement may be executed in counterparts. Each counterpart is an original; all counterparts together are one instrument.

36.4 Incorporated Documents

This Agreement consists of all terms of this Agreement and all documents and materials labeled Attachments. The following are attached and incorporated into this Agreement:

Attachment A: Statement of Work Attachment B: CEA Investment Policies and Guidelines, including later clarifications


Attachment C: Fee Schedule Attachment D: Personnel

Attachment E: Business Continuity Plan Provided in Contractor’s Response to RFQ #_____ (subsequent versions to be provided to CEA) Attachment F: Drug-Free Workplace Certification Attachment G: Excerpts of California Insurance Code and Government Code

36.5 Order of Precedence

For any inconsistencies or ambiguities in the terms of this Agreement and incorporated documents, the following order of precedence will be used: A. Applicable laws. B. The terms and conditions of this Agreement, including attachments. C. Any other provisions or terms incorporated into the Agreement.

36.6 Severability

Should any court hold any provision of this Agreement to be void or unenforceable, the remaining provisions will remain in effect if they are still capable of performance.

36.7 Survival

Certain contractual obligations will survive completion of the work or termination of services. These include, but are not limited to: prevailing party’s attorney’s fees and costs, audit compliance, confidentiality requirements, fiduciary obligations, indemnification, publicity limitation, record retention, rights to work, and warranties.

36.8 Titles / Section Headings

Titles and section headings are not part of this Agreement.

37. Term of Agreement

37.1 This Agreement has a five-year term, and is effective on ____________through ____________________. At its sole option, the CEA may extend the term of this Agreement for up to two consecutive 12-month periods, at the same fee structure. In the case of an extended term, the CEA reserves all rights under this Agreement, including, without limitation, rights of termination.

Executed in Sacramento, California. [SIGNATURE LINES]

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