Request for Qualifications # California Earthquake Authority Investment Managers. Claim-Paying Fund

Transcription

1 Request for Qualifications # California Earthquake Authority Investment Managers Claim-Paying Fund RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 1

2 Table of Contents I. Purpose of Request for Qualifications (RFQ)... 3 II. Summary of Key Dates RFQ # III. Background of the CEA... 3 IV. Method for Submitting Questions and Inquiries... 4 V. Addenda: Errors and Omissions... 4 VI. Submitting Questions and Inquiries: Contact Information... 5 VII. Filing of Submissions... 5 VIII. Services To Be Provided... 6 IX. Minimum Qualifications... 8 X. Professional Fees... 9 XI. Submission Instructions... 9 XII. Submission Evaluation Criteria XIII. Award of Contract XIV. Commencement Date ATTACHMENTS A. Drug-Free Workplace Certification B. References Worksheet C. Contractual Questions for Consideration EXHIBITS 1. California Insurance Code Sections (CEA Act) 2. CEA Financial Structure 3. CEA Investment Policies and Guidelines and Interpretative Memoranda 4. Government Code Section Investment/Data Income Flow 6. Daily Holdings Report (6a. Investment Report Column Definitions) 7. Monthly Investment Portfolio Report Package 8. Investment Manager Minimum Qualifications Response Form 9. Sample Contract RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 2

3 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 CEA. The CEA anticipates contracting with the most qualified respondents to provide investment management services to the CEA. II. Summary of Key Dates RFQ #06-14 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 Inquires, below. 1. Date of Issue Monday, May 11, Deadline for Questions and Inquiries regarding RFQ Friday, May 22, Final Submission Filing Date Monday, June 8, 2015 (Must be received no later than 4:00 p.m. Pacific Time) 4. Submission Evaluation 3-4 weeks after Filing Date 5. Finalists Presentations (Sacramento, CA) TBD 6. Reference Checks/On-Site Inspection TBD 7. Select Investment Managers in the Pool TBD 8. Notice of Intent to Award Contract TBD 9. Award of Contract TBD 10. Contract Effective Date 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, many insurers in California either stopped or severely restricted selling new homeowners insurance policies. This was largely due to state law that requires insurers to offer earthquake insurance when selling residential property insurance. A California Department of Insurance study released in May 1995 found that insurers representing 93 percent of the voluntary insurance market were either restricting or refusing to sell new homeowners insurance policies. RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 3

4 In 1995, the California Legislature approved legislation to conditionally create the CEA. In 1996, the Legislature passed three additional bills that permitted the CEA to become operational when certain conditions were met in November 1996, the Insurance Commissioner certified the conditions met, and the CEA began writing earthquake policies effective December 1, The CEA is administered by a Governing Board composed of elected public officials. California s Governor, Treasurer, and Insurance Commissioner serve as voting members, and the Speaker of the Assembly and the President Pro- Tempore of the Senate serve as nonvoting members. The Governing Board is advised by an 11-member Advisory Panel. As of May 31, 2014, the CEA has approximately $10 billion available for payment of policyholder claims. The $10 billion is broken down into the following components: $4.3 billion in CEA available capital, $3.3 billion in third-party reinsurance and the right to collect $2.1 billion in post-earthquake industry assessments, and $670 million in proceeds from debt (Exhibit 2). Operating under a uniform written contract, participating insurers sell and service CEA policies and adjust CEA-policy claims. By law, the State of California has no liability for claims, costs, or liabilities arising from CEA operations. The CEA s business is the sale of California residential earthquake insurance, and the CEA also provides and promotes earthquake-loss-mitigation services and related earthquake educational outreach. The CEA offers policies of basic residential earthquake insurance to California owners of dwellings, mobile homes, condominiums as well as to renters. Coverage is available for structure, contents, and for additional expenses incurred if a home is uninhabitable. CEA rates are required by law to be actuarially sound, are based on the best available science, and are subject to prior approval by the California Insurance Commissioner. IV. Method for Submitting Questions and Inquiries Questions and inquiries regarding this submission must be submitted by 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, May 22, 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, Employment, and Research Opportunities/Contracting Opportunities section of the CEA s Web site, one week after the deadline for 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. 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 on the Contracting, Employment, and Research Opportunities/Contracting Opportunities section. RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 4

5 All addenda issued by the CEA after the final filing date for submissions will be posted solely to on the Contracting, Employment, and Research 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 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 on the Contracting, Employment, and Research 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 any contract or contracts that may be awarded as a result of this RFQ. VI. Submitting Questions and Inquiries: Contact Information Please submit all questions and inquiries by to: RFQ06-14Claimfund@calquake.com VII. Filing of Submissions Submissions must be physically received by the CEA no later than 4:00 p.m. Pacific Time on Monday, June 8, Submit one printed copy of the proposal and a disc that contains the entire proposal in a sealed package or envelope. Clearly identify the outside of the sealed proposal package or envelope with the respondent s name and return address. All submissions must be delivered to the following address: California Earthquake Authority 801 K Street, Suite 1000 Sacramento, California Response to Request for Qualifications RFQ #06-14 Claim-Paying Fund RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 5

6 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. Unless expressly and specifically requested by the CEA, submissions are not to be submitted, in whole or in part, by facsimile transmission or by . 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 (by written request) 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 attend interviews regarding submissions 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 # Investment Managers (Claim-Paying Fund) Additional information may be found under Section IX Minimum Qualifications. VIII. Services To Be Provided Introduction The CEA maintains approximately $5.3 billion in bank and custody accounts, which currently are held at State Street Bank. The CEA s Investment Policies and Guidelines (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 maximize investment income, maintain financial stability, and ensure that all funds are managed in accordance with the Investment Policies adopted by the CEA s Governing Board, the CEA s Investment Compliance Committee provides oversight for a team of Investment Managers. RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 6

7 The CEA s investment accounts comprise the following: Liquidity Fund consists of portfolios up to $750 million which are used to pay operating expenses and the first insurance claims following an earthquake. This fund consists of short-term, liquid securities. Mitigation Fund consists of short-term, liquid securities which are used to pay for earthquake-lossmitigation activities. Reinsurance Fund holds reinsurance recoveries received from the CEA s reinsurers, which are then used to pay earthquake insurance claims. Claim-Paying Fund consists of bond proceeds from the CEA s issuance of revenue bonds. Securities in this fund consist of short-term, liquid securities and can also contain U.S. Treasuries with maturities up to five years. Primary Fund consists of portfolios which are used to pay additional insurance claims following an earthquake. The securities in these funds are, currently, U.S. Treasuries with maturities up to five years. Through this RFQ, the CEA is seeking qualified investment managers to invest a portion of the Claim-Paying Fund and the Claims-Paying Fund. The highest-scoring respondents will be offered an opportunity to contract with CEA for investment management services. The investment managers selected pursuant to this RFQ will maintain portfolios with a maximum value of $400 million, but in no case can the portfolio assigned to a successful respondent exceed an amount equal to 10% of that respondent s total fixed income assets currently under management. After the investment-manager contracts are executed, the CEA will transfer securities from the existing investment manager to the successful respondents of this RFQ. The contract term for the successful respondents will be five years with a two-year extension at CEA s option. 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 CFO, or designee, and strictly within the parameters of California Insurance Code Sections (Exhibit 1), California Government Code Section (Exhibit 4), CEA s Investment Policies and Guidelines 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 of the Claim-Paying Fund account as funds become available. 2. Funds will be invested in U.S. Treasury Notes and Bonds, Bankers Acceptance, Certificates of Deposit, and Commercial Paper, all in accordance with California Government Code Section (Exhibit 4)and the CEA s Investment Policies and Guidelines (Exhibit 3). 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 request by the CEA. RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 7

8 4. Each Investment Manager will analyze the fixed-income financial markets, providing CEA with updates pertinent to CEA s investments. 5. Each Investment Manager will monitor the performance of investments in the portfolio managed by the 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 7 for example and see Exhibit 6a 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 6 for the format of the report and Exhibit 6a for definition of columns on reports.) The report must be electronically transmitted to CEA. The specifics of the transmission will be discussed with the selected respondents once CEA has selected 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 a stellar customer-service history, with no record of being penalized as a result of business related lawsuits or enforcement actions. 2. The firm must be officially designated a Registered Investment Advisor with the Securities and Exchange Commission (SEC). 3. The firm must have under its sole management a total of not less than $1 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 (such as the primary key professional described here) 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 under 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 6. The firm must submit a summary business-contingency and disaster-recovery plan. RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 8

9 Exhibit 8 is the format pertaining to the above minimum qualifications that must be followed by the respondent and 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 CEA. Investment Manager (Claim-Paying Fund) maximum annual compensation will be four 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 four 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 any required Attachments and the Cover Letter. Additional attachments (excluding required attachments) must not exceed 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 and facsimile numbers and address. b. The name, title or position, and telephone number 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 commitment that the firm will be bound by the contract provisions in Exhibit 9 of this RFQ. Any contractual questions for which respondent requests consideration must be noted in the format as shown in Attachment C and included in the submission as a required attachment. Unless specified on the required Attachment C, contract questions will not be considered during the contract-negotiation period. (Contract-related questions are not part of the process for submission of general questions about this RFQ outlined in Section IV of the RFQ and will not be responded to on the CEA Web site, as discussed in Section IV.) If the contract questions are requested edits without which the proposer will not consent to be bound to the attached contract provisions, proposer must state this in Attachment C. RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 9

10 e. 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. f. 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. iii. Total investments that will be accepted Plans for additions to professional staff and approximate timing in relation to growth of account or investments g. Description of any litigation or other legal proceedings over the past three years in which the respondent organization, or any officer or principal of the respondent organization, has been named as a party, where the litigation or other legal proceeding was related to the respondent s investment or business activities, with a brief explanation and the current status. h. A summary of the respondent s financial performance for the past five years, with the most recent audited financial statement included as a required attachment to the proposal. i. Identification of the respondent s major investment clients. j. Statement of the value of total fixed income assets under management managed 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. RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 10

11 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. Indicate the firm s ability to respond promptly to CEA s information requests on an as-needed basis. f. Outline the firm s policy for insuring confidentiality of its clients matters. g. List the firm s ability to determine pre- and post-trade compliance with client mandates. h. Define client service as it relates to the firm and describe mechanisms that are in place to solicit and respond to feedback. i. Identify the person who will serve as the primary contact for the contract. j. 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 four basis points of CEA funds under management). 7. Required Attachments a. Drug-Free Workplace Certification (Attachment A). b. References (Attachment B). c. Most recent audited financial statement. d. Most recent Form ADV (Uniform Application for Investment Adviser Registration). e. Summary of contingency plan. f. Contract questions (if any), and whether proposer premises its commitment to the attached Terms & Conditions upon any requested edits (Attachment C). g. Investment Manager Minimum Qualification Response Form (Exhibit 8). 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 a written request 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 terms and conditions. The contract will be awarded to the most qualified respondent, RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 11

12 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 date-and time-marked when received. Any submission received after the final-filing time on the final-filing date will be returned unopened. 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 105 points. Finalists may be asked to make presentations to the Governing Board to assist in the evaluation of submissions. Submission Evaluation Criteria and points for the submission are noted below: CRITERION POINTS Qualifications, Firm Background and History 15 Investment Philosophy and Process 15 Work Plan and Methodology 20 Fee proposal 15 On-Site Inspection 30 References 10 TOTAL POINTS POSSIBLE 105 RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 12

13 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 Inspections On-site inspections of finalists offices will be conducted by the CEA. The respondent will be notified in advance of the date and time of the inspection. 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 contracts, if any, will be made to the respondents scoring the highest total points. The final approval of the contract award will be determined by the CEA s Governing Board. All respondents will be notified of the outcome of the RFQ. News releases pertaining to the award of a contract resulting from this RFQ must not be made without the CEA s prior written approval. XIV. Commencement Date TBD RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 13

14 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 RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 14

15 References ATTACHMENT B California Earthquake Authority The respondent must provide at least three references the CEA may contact that have been clients of the respondent within the past three years, including the name, address, and telephone number of the client, the name and title of the contact person, and a general description of the services provided to each client. Name of Firm Address Contact Person Phone Number ( ) Brief Description of Project Date and Dollar Value of Project Name of Firm Address Contact Person Phone Number ( ) Brief Description of Project RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 15

16 Date and Dollar Value of Project Name of Firm Address Contact Person Phone Number ( ) Brief Description of Project Date and Dollar Value of Project RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 16

17 Contract Questions for Consideration ATTACHMENT C California Earthquake Authority Any contractual questions for consideration must be noted in this attachment in the format below. The format below can be used for as many questions as necessary. Please note: 1. No other contract questions will be considered during the contracting period. 2. If requesting edits, please indicate if CEA s declining to incorporate these edits will prohibit committing to the Term and Conditions in the Sample Contract (Exhibit 9). 3. CEA will not grant a Termination for Contractor s convenience. Contract Page Contract Section Brief Description of Question Contract Page Contract Section Brief Description of Question Contract Page Contract Section Brief Description of Question RFQ #06-14 Investment Managers (Claim-Paying Fund) Page 17

18 Exhibit 1 INSURANCE CODE - INS DIVISION 2. CLASSES OF INSURANCE [ ] ( Division 2 enacted by Stats. 1935, Ch ) PART 1. FIRE AND MARINE INSURANCE [ ] ( Part 1 enacted by Stats. 1935, Ch ) CHAPTER 8.6. California Earthquake Authority [ ] ( Chapter 8.6 added by Stats. 1995, Ch. 944, Sec. 2. ) 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 , any funds realized on capital market contracts authorized by subdivision (b) of Section , 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 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, CEA Statute as of 1/1/2015. California Insurance Code et seq. Page 1

19 Exhibit 1 less any applicable deductible, not less than three thousand dollars ($3,000) in coverage for additional living expenses. (d) Board means the governing board of the authority. (e) Bonds means bonds, notes, commercial paper, variable rate and variable maturity securities, and any other evidence of indebtedness. (f) Capital market contract means an agreement between the authority and a purchaser pursuant to which the purchaser agrees to purchase bonds of the authority. (g) Nonparticipating insurer means an insurer that elects not to transfer or place any residential earthquake policies in the authority. (h) Panel means the advisory panel of the authority. (i) Participating insurer means an insurer that has elected to join the authority. (j) Policy of residential property insurance means those policies described in Section (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 (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, Operative July 1, 2008, by second Sec. 8 of Ch. 303.) CEA Statute as of 1/1/2015. California Insurance Code et seq. Page 2

20 Exhibit (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 , , and 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 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 (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. CEA Statute as of 1/1/2015. California Insurance Code et seq. Page 3

21 Exhibit 1 (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 (Amended by Stats. 2014, Ch. 419, Sec. 7. Effective January 1, 2015.) (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 CEA Statute as of 1/1/2015. California Insurance Code et seq. Page 4

22 Exhibit 1 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 (5) Subject to Section , 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. CEA Statute as of 1/1/2015. California Insurance Code et seq. Page 5

23 Exhibit 1 (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 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 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 CEA Statute as of 1/1/2015. California Insurance Code et seq. Page 6