Today I’ll answer questions on redeeming state IOUs and earthquake insurance.
Q: Steve K. has a question about California registered warrants or IOUs, which the state will begin redeeming Friday. "Do we need to endorse the warrant with our signature or return it unsigned? The thing looks just like a check and there is space for a signature on the back. Also, are you aware of any banks that may begin accepting them again?"
A: The warrants "do not have to be endorsed or signed," said Tom Dresslar, a spokesman for the California treasurer.
More banks are now redeeming IOUs for customers, but be sure to find out who gets the interest. The state will pay interest, through today, at an annual rate of 3.75 percent, tax-free.
Union Bank recently started redeeming the warrants for customers, but it keeps the interest. If the customer wants the interest, the bank will submit the warrant to the state and credit the principal and interest to the customer’s account – minus a $30 processing fee – when it gets paid.
Bank of America will resume accepting registered warrants from customers next Wednesday and continue through Oct. 9. The face amount will be credited to the customer’s checking or savings account and treated like any other check. Interest will be credited to the customer’s account when the bank receives it, usually in a few days but no more than 30.
Wells Fargo will resume accepting IOUs for deposit on Friday. The face amount will be available the next business day, subject to the bank’s funds availability policy. For IOUs deposited by Sept. 30, if the interest exceeds $5, it will be credited to the customer’s account within 30 days. After Sept. 30, Wells will still accept IOUs for deposit, but it will keep the interest. It will not cash IOUs.
Citibank, Bank of the West and some smaller banks and credit unions also redeem them.
Holders who mail them back to the state will get the face value, plus interest, within seven to 10 days. Send them to: State Treasurer’s Office, Attn: Registered Warrant Desk, 915 Capitol Mall, Sacramento, CA 95814.
Holders can redeem them in person at the same address and get paid immediately. See http://www.treasurer.ca.gov.
Q: Klaus M. asks, "I am about to mail my earthquake insurance check for our house and am having a few concerns. This money is supposed to go to a State of California agency. With our state being practically broke, do you have any information what actually happens to that money? Is it in an untouchable account or does it disappear in the great sinkhole of the general budget?"
A: Klaus is referring to the California Earthquake Authority, which issues quake insurance through 19 companies as an add-on to a homeowners policy.
The CEA "is an instrumentality of the state, not a state agency," says spokesman Chris Nance. It is state-managed but privately financed. Its funds are separate from the state general fund.
"The Legislature has tried a couple times over the years" to tap the CEA’s assets, but "the firewall in place protects that money," Nance says.
"We have over $9 billion in claims-paying capacity," he adds. "In today’s dollars, for our book of business that’s enough to cover" a 1906 San Francisco earthquake and a 1994 Northridge quake.
The CEA is rated A-minus by A.M. Best. The CEA has "excellent risk-adjusted capitalization, financial flexibility, extensive risk modeling capabilities, sophisticated management practices and conservative investment policy," Best says. "Partially offsetting these rating strengths is the concentration of the company’s exposure to earthquake-related property losses in California and potential conflicts that could arise over time as a publicly managed insurer."
About 12 percent of California homeowners have quake insurance; 70 percent of that is with CEA, Nance says.
Doug Heller, executive director of Consumer Watchdog, says he is not worried about the CEA’s ability to pay claims or its independence from the state’s general fund.
"What would concern me is how many of my neighbors don’t have earthquake insurance," he says. "If I can afford to rebuild my house but four out of five neighbors can’t, what will happen to the neighborhood?" Even if property values fall, Heller says it is worth buying insurance to have a place to live.