$11M in Calif. Insurer Investments Go to Underserved Communities

Insurance Commissioner Dave Jones and Speaker John A. Pérez announced that $11 million in new insurance company investments will benefit underserved communities across California. In February, the commissioner sent a letter to insurance company CEOs encouraging them to make these types of investments and noting the availability of tax credits for such investments through the California Organized Investment Network (COIN), administered by the California Department of Insurance (CDI).

The investments – $7 million from Farmers Insurance Exchange, $2 million from Pacific Life Insurance Company, and $2 million from State Farm Mutual Automobile Insurance Company – were made to community development financial institutions of Impact Community Capital LLC of San Francisco. In exchange for an $11 million, zero interest, five-year loan to benefit underserved communities, the insurance companies will receive a 20 percent tax credit of $2.2 million.

“A couple of months ago, I called on insurance companies to help rejuvenate the COIN tax credit program, which had been sorely underutilized in recent times, and I am pleased that Farmers, State Farm and Pacific Life have emphatically answered that call,” Commissioner Jones said. “COIN is an avenue for the insurance industry to help empower underserved communities, and I sincerely hope we see other insurers follow suit.”

Pérez has authored Assembly Bill 624 to extend the sunset on the COIN program, which is set to sunset in 2012. The collaborative effort between the California Department of Insurance, the insurance industry, community affordable housing and economic development organizations, and community advocates is a voluntary program that facilitates insurance industry investments that provide solid returns to investors and economic and social benefits to California’s underserved urban and rural communities.

Pérez said, “At a time when California is just beginning to gain momentum in our economic recovery, I believe that programs like COIN help facilitate that momentum. This program underscores how creative solutions and partnerships between the public sector and the private sector can have genuine, real world benefits.”

Each year, the California Department of Insurance allocates $2 million in tax credits to support $10 million in community development investments. Because this program has been underutilized in recent years, CDI’s COIN currently has $4.67 million in tax credits available to support $23.7 million in community development investments. Insurers have an exclusive window until July 1, 2011 to place investments in the program. After that date, the program is open to other investors as well.

“Impact investors have worked together for over a decade to facilitate community development investments. Two multifamily affordable housing securitization products were brought to the public markets by investors in 2001 and 2010. Other notable investment successes range from core multifamily affordable housing assets, to cutting edge New Market Tax Credit healthcare, childcare and economic development investments. Farmers looks forward to working with Impact in the future to find innovative and creative solutions to community development investment opportunities,” stated Laszlo Heredy, Farmers’ Chief Investment Officer.

Under the COIN tax credit program, investors invest a minimum of $50,000 as equity or a zero interest loan with a Community Development Financial Institution (CDFI) for 60 months. In exchange, the investor receives a 20 percent state tax credit, with an approximately 4.3 percent annual percentage rate of return.

The CDFIs use these funds to fulfill their mission, by providing loans or other support to small businesses and non-profits that serve economically disadvantaged communities. CDFIs help bridge the growing gap between the loans and services available to the economic mainstream and those offered to low-income people and communities. They provide access to credit in economically disadvantaged communities by providing development services or technical assistance along with the loans and investments they make.

These CDFIs include community development loan funds, credit unions, banks, microenterprise funds, corporation-based lenders and venture funds. There are 81 CDFIs certified by COIN and eligible to participate in the tax-credit program. Through the CDFI Tax Credit Program these CDFIs have invested more than $100 million into some of California’s most under-served communities from 1997 through 2009. In the recent past, CDFIs across the state have made notable investments, including:

• A mortgage loan for a nonprofit residential alcohol treatment facility;

• Micro-loans of $500 to $5,000 to self-employed business owners;

• Loans for six childcare centers to serve 500 low-income children;

• Pre-development loans to Habitat for Humanity to construct affordable homes;

• A loan to a church to build a child care center for lower income residents;

• A loan for 953 water hook-ups in two small, rural communities; and

• A short-term loan to close escrow on housing for low-income foster youth.

Impact Community Capital LLC (www.impactcapital.net) is a for-profit corporation founded by leading insurers to promote socially responsible investments in underserved communities, particularly in California.

Topics California Carriers Market