How COIN is making insurance impact investing a reality in California
In 2019, direct investments by insurance companies through the COIN program increased by 17-fold, Sukh Randhawa, Chief Investment Officer, California Department of Insurance, explains how the programme works and how it has revolutionised social investing in California
Insurance Investor editorposted on Friday, November 15, 2019
Insurance Investor: What is the COIN program, and when and why was it established?
Sukh Randhawa: The COIN program was established in 1996 as a handshake agreement between insurance companies, the California Department of Insurance, lobbyists, and other community advocates.
This was in part, due to the Community Reinvestment Act, which states that banks are regulated and required to make investments back into the communities in which they serve.
The Department of Insurance and some community advocates raised the question of whether this should also be a regulation for insurance companies.
They took this question up to the state legislature, where there was an agreement that there would be a voluntary investment program which focuses on insurance companies engaging in social impact investments.
"The amount of tax credits available under the program has increased allowing for further investments in certified institutions that have a mission for community development."
In 1998, there was a community development financial institutional tax credit that was also codified in California Insurance Code under the COIN program.
Over the years, the amount of tax credits available under the program increased, allowing for further investments in certified institutions that have a mission for community development.
Once certified, they were able to raise capital from insurance companies, banks, or private individuals, who would then be issued a 20 per cent tax credit for a five year term.
In 2016, COIN Tax Credit Program allotted $10 million of tax credits that leveraged to raise $50 million in capital invested into these community development financial institutions, which would then be reinvested back into social or environmental impact investments across multiple sectors such as affordable housing, health clinics, charter schools and green investments in the State of California.
"Today, insurance companies are able to make green investments and report those through the data call as COIN qualified investments."
In 2007, Assembly Bill 925 (Ridley-Thomas) codified and created a data call. This survey was sent out through the Department to insurance companies to collect all of the social impact investments that those insurance companies held on their books at year end 2005 and 2006.
This brought transparency to how much these insurance companies had invested in social impact investments in the State of California during these periods.
In 2010, prior to former California Insurance Commissioner Dave Jones taking office, he authored a bill out of the State Senate that added green investments to the COIN guidelines.
Today, insurance companies are able to make green investments and report those through the data call as COIN qualified investments.
"In 2015, insurance companies reported $21.85 billion in total social and environmental impact investments."
The 2007 data call was for investments held at year end 2005 and 2006. However, as legislation expires or sunsets, new legislation is then needed for additional data calls, with the most recent occurring in 2016.
In that data call, we collected information from insurance companies on their investment holdings at year end 2013, 2014, and 2015.
Investment holdings in the first data call in 2004 reflected voluntary reporting by insurance companies, and showed that insurance companies held roughly $1 million of COIN qualified investments.
In 2015, insurance companies reported $21.85 billion in total social and environmental impact investments.
"There is a relationship between insurance companies and the amount of their social and environmental investments, even though the COIN program is not actually investing the money itself."
These are just the investments that insurance companies hold on their books and report to COIN. They are not direct investments that are made into the COIN program.
However, there is a relationship between insurance companies and the amount of their social and environmental investments, even though the COIN program is not actually investing the money itself.
This shows the impact of the program. Additionally, the investments that insurers are making through the COIN program helps them look for other investment opportunities in the market that generate a similar impact.
In 2016, legislation to extend the sunset date of the COIN Tax Credit Program was not signed by governor. It was a great program which a lot of insurance companies took advantage of, but it did not fit into the state’s budget.
"Since the Tax Credit program was dramatically over-subscribed, we used the scoring to award only those investments which created the highest degree of social and environmental impact."
In 2016, prior to its sunset, we received commitments of $183 million, $133 million over the $50 million dollar cap.
Since the Tax Credit program was dramatically over-subscribed, we used the scoring and weighing defined in regulations to award only those investments which created the highest degree of social and environmental impact.
In 2019, under the new Insurance Commissioner Ricardo Lara, Assembly Bill 1099 (Calderon) was signed by Governor Newsom to not only extend the sunset of the COIN program and Advisory Board, but also added a new data call reporting requirement for insurance companies in 2021.
The last but most important part of this program, since its inception, is the COIN Investment Bulletin Program.
"When approving these deals, I look at whether it is attractive for investment insurance companies, generates a high degree of social and/or Environmental impact, and has a geographical focus in California."
Over the years, COIN has worked with impact investment managers across all asset classes that have structured a vehicle/strategy that fits insurance company’s investment policies and creates social and/or environmental benefit in the State of California.
When approving these deals, I look at whether it is attractive for investment insurance companies, generates a high degree of social and/or Environmental impact, and has a geographical focus in California.
This program has evolved over the years. In May 2018, the department announced that the COIN program had launched the Impact Investment Marketplace, a portal to help facilitate high impact investments in underserved communities and environmental projects in California.
The marketplace links those seeking capital for community development investments with insurers looking to make COIN qualified investments at competitive financial returns.
Prior to the launch of the COIN Impact Investment Marketplace, managers had to complete and submit paper applications.
"The marketplace links those seeking capital for community development investments with insurers looking to make COIN qualified investments at competitive financial returns."
They would submit a cover letter and PDF application, and would try to answer the questions the best they could, all of which we would review.
Once approved, we could only post limited information online due to securities laws restricting the solicitation of private investment to the general public.
As a lot of these investments were being privately traded, with security laws, you can’t post detailed information on a public website.
This was one of our biggest hurdles which limited our ability to provide detailed investment disclosures to our insurance companies and their respective asset managers.
"In 2019, direct investments by insurance companies through the COIN program have increased by 17 times,"
It also allows me to work with my insurance companies to create accounts and to ensure on the back end that they are accredited investors.
Therefore, I can now solicit detailed investment information such as private placement memorandums to those investors through the password protected platform.
The Impact Investment Marketplace now has over 130 investor accounts.
In 2019, direct investments by insurance companies through the COIN program have increased by 17 times, we attribute most of this to in person marketing and the launch of the Impact Investment Marketplace.
Insurance Investor: Are there stipulations for the types investments that can be included in the program, and do they have to be structured in a specific manner?
Sukh: They do not need to be packaged in a particular way. We are not looking as much at the structure, but rather the returns comparative to its benchmark and the degree of impact.
When I’m talking about social impact, we are looking at whether there are benefits being created for the environment or benefits to low income individuals or communities.
"Insurance companies devote substantial time to review the organisation and the investment opportunity."
Including but not limited to, affordable housing, small business financing, community facilities, educations facilities, mixed-use development, renewable energy projects, access to healthy food, and waste water projects.
When reviewing opportunities we like to take scalability into account, as insurance companies devote substantial time to review the organisation and the investment opportunity.
They prefer to build a long lasting relationship with a manager, and make an initial investment which falls within the $20 million range.
Insurance Investor: What has been the impact that it has had on California communities that have seen investments?
Sukh: On the tax credit side, we have directly raised over $335 million into certified CDFIs that have created thousands of jobs and a very high degree of social and environmental impact to underserved communities in California.
"These investments have created countless jobs and benefits to under-served areas in California."
These community institutions used this little to no cost of capital to construct mixed use facilities where some
floors are low income multi-unit rental housing and other floors that are developed as homeless shelters, or learning centres for job and education training.
Through the data call reporting from insurance companies, capital invested by insurance companies from 2004 to 2016 increased from less than one million to over $21 billion.
These investments have created countless jobs and benefits to under-served areas in California.