Legislature(1999 - 2000)

04/19/1999 03:23 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
HB 190 - VIATICAL SETTLEMENTS                                                                                                   
                                                                                                                                
Number 0139                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG announced the committee's next order of business                                                              
would be HB 190, "An Act relating to viatical settlement                                                                        
contracts."                                                                                                                     
                                                                                                                                
REPRESENTATIVE HARRIS made a motion to adopt the proposed Version                                                               
G committee substitute (CS) for HB 190, labeled 1-LS0576\G,                                                                     
Bannister, 4/14/99.  There being no objection, it was so ordered.                                                               
                                                                                                                                
CHAIRMAN ROKEBERG explained that HB 190 was introduced as a                                                                     
committee bill when controversy arose regarding the nature of the                                                               
regulation of viatical settlements as part of the Securities Act of                                                             
1999.  Therefore, those provisions were removed from that Act and                                                               
HB 190 was introduced.  Chairman Rokeberg announced that he                                                                     
intended to take public testimony today and familiarize the                                                                     
committee with this area of the law, but not report the bill from                                                               
committee.  There is controversy regarding the proper regulatory                                                                
home for viatical settlements; should it be located in the Division                                                             
of Insurance or the Division of Banking, Securities,  &                                                                         
Corporations in Alaska.  He noted that he has had numerous                                                                      
discussions with the Department of Commerce and there seems to be                                                               
the belief that the Division of Banking, Securities,  &                                                                         
Corporations should take primacy in this area.  However, many in                                                                
the insurance industry disagree with that placement.  Chairman                                                                  
Rokeberg requested that Mr. Elder come forward to explain the CS.                                                               
                                                                                                                                
Number 0238                                                                                                                     
                                                                                                                                
TERRY ELDER, Director, Division of Banking, Securities, &                                                                       
Corporations, Department of Commerce & Economic Development,                                                                    
directed the committee to the committee packets which contain a six                                                             
page packet entitled, "Viatical Settlements HB 190."  He referred                                                               
to page 2 of that packet regarding definitions.  He explained that                                                              
to "viaticate is the process in which a person sells the death                                                                  
benefit or ownership of a life insurance policy to a third party                                                                
for less than its face value."  The insured person who sells the                                                                
policy is the "viator."  Typically, there are many "viatical                                                                    
settlement providers" who are in the business of buying these death                                                             
benefits and insurance policies from viators and then selling                                                                   
interest in those to third party investors.  The contract entered                                                               
into between the provider and the viator is called a "viatical                                                                  
settlement contract."                                                                                                           
                                                                                                                                
MR. ELDER explained that HB 190 adds viatical settlement contracts                                                              
to the definition of a security in the Alaska Security Act, Title                                                               
45.55.  He said his current position is that most all viatical                                                                  
settlement contracts are investment contracts which are already                                                                 
part of the definition of a security.  There are those who do not                                                               
have knowledge of this position or disagree with this position.                                                                 
Therefore, it would beneficial to clarify in the Alaska Security                                                                
Act that viatical settlement contracts are part of the definition                                                               
of a security.  At the same time, the bill would provide an                                                                     
exemption from registration making it fairly easy for the viatical                                                              
settlement providers to comply with the law.  The exemption would                                                               
only require the filing of a notice and certain disclosures to                                                                  
investors.                                                                                                                      
                                                                                                                                
Number 0479                                                                                                                     
                                                                                                                                
MR. ELDER stated that the primary objective of the bill is to                                                                   
protect Alaskan investors from sales abuses that have occurred                                                                  
across the country.  He noted that the committee packet contained                                                               
an article regarding viatical contracts from the March 1999                                                                     
Kiplinger's Personal Finance Magazine.  This legislation attempts                                                               
to avoid such problems discussed in the article.  He acknowledged                                                               
that no one has yet come forward with problems as discussed in the                                                              
article.  He hoped that the next article in a major press group                                                                 
would not utilize Alaskans as the examples.  Mr. Elder explained                                                                
that avoiding this is accomplished primarily through disclosure,                                                                
proper risk disclosure, to the public.  This legislation would                                                                  
provide the department with a mechanism, if complaints or abuses                                                                
are found, to take quick action.  Most of the problems reported in                                                              
the press revolve around abusive sales practices.  He discussed                                                                 
some of the abuses cited in the aforementioned article.  Mr. Elder                                                              
stressed that he was not opposed to this business on any                                                                        
philosophical ground.  However, if this is to be sold it is a                                                                   
security and there should be adequate disclosure to protect                                                                     
investors.  He offered to walk through the CS by section.                                                                       
                                                                                                                                
CHAIRMAN ROKEBERG agreed that would be helpful.                                                                                 
                                                                                                                                
MR. ELDER began with Section 1 of the CS which adds a reference to                                                              
the new exemption, new subsection (g).  That reference provides the                                                             
division the ability to revoke or deny an exemption.  Section 2 is                                                              
the new exemption, subsection (g), which requires the filing of a                                                               
notice and consent to service to the division before any sales are                                                              
made.  Included in Section 2 is also some basic information                                                                     
regarding the company doing the sales.                                                                                          
                                                                                                                                
CHAIRMAN ROKEBERG asked if this referred to each time a contract                                                                
was sold to a member of the public.                                                                                             
                                                                                                                                
MR. ELDER explained that there would be a filing for each program.                                                              
In further response to Chairman Rokeberg, Mr. Elder said that                                                                   
typically, the industry standard is a one year, two year, three                                                                 
year and a ten year program.  If that continues, the provider would                                                             
file a notice for each of those programs.                                                                                       
                                                                                                                                
CHAIRMAN ROKEBERG stated that the language was not clear to that                                                                
point.  He referred to page 2, line 7 of the CS which in part                                                                   
reads, "at least 10 days before any offers or sales are made...."                                                               
He asked if that refers to the exempt registered individual.                                                                    
                                                                                                                                
MR. ELDER clarified that it referred to the issuer, the viatical                                                                
settlement provider.  He noted that the agent is not filing                                                                     
anything, except to register as an agent.                                                                                       
                                                                                                                                
Number 0938                                                                                                                     
                                                                                                                                
MR. ELDER continued with Section 2 which also provides for the                                                                  
registration of agents, paragraph (2).  Paragraph (3) is the                                                                    
disclosure requirement to the investor.  He pointed out that much                                                               
of the language in subsection (g) is from the current exemption at                                                              
(b)(5)(B).  Paragraph (3) is the language which was passed in HB 83                                                             
related to the exemptions of (b)(5)(B).  Paragraph (4) requires                                                                 
that the firm be in business for three years and have no defaults.                                                              
Subsection (h) lists those things which would disqualify an issuer                                                              
from utilizing this exemption, although it may not disqualify the                                                               
issuer from a full registration.  That language is taken from the                                                               
accredited investor exemption in HB 83.  Subsection (i) merely                                                                  
allows copies of advertising materials and such to be requested by                                                              
the department.                                                                                                                 
                                                                                                                                
MR. ELDER moved on to Section 3 of the CS which is a new section to                                                             
AS 45.55.  This section would provide purchasers the right to                                                                   
rescind purchase within three days of receipt of the final                                                                      
disclosure document or paying the agreed upon amount, whichever is                                                              
later.  Subsection (b) of Section 3 simply specifies that notice                                                                
would become effective.  Section 4 changes the definition of                                                                    
"issuer" to include the person creating the fractional or pooled                                                                
interest or the person who effected the transaction with the                                                                    
investor.  He clarified that it would not include a broker, dealer,                                                             
or agent.  Section 5 includes the amendment to the definition to                                                                
"security" which adds "viatical settlement contract" on line 14,                                                                
page 5 of the CS.  Mr. Elder referred to page 6, Section 6 which                                                                
inserts three new definitions necessary in the Securities Act which                                                             
are as follows:  viatical settlement contract; viatical settlement                                                              
provider; and viator.  With regard to the definition of viatical                                                                
settlement contract, he stressed that the language is not referring                                                             
to the regulation of the viatical settlement provider's                                                                         
relationship with the viator.  There is only the regulation of the                                                              
sales of the securities by the viatical settlement provider.  He                                                                
pointed out that the definition of viatical settlement contract                                                                 
excludes four items, subparagraphs (A), (B), (C), and (D).                                                                      
Subparagraph (A) is essentially the sale of the contract by the                                                                 
viator to the viatical settlement provider.  Subparagraph (B)                                                                   
excludes the transfer or sale between the viator and a friend or                                                                
family member.  Subparagraph (C) excludes the use of the life                                                                   
insurance policy when it is being used as collateral for a loan.                                                                
Subparagraph (D) excludes the viator when that person utilizes the                                                              
accelerated benefits under the terms of the life insurance policy.                                                              
                                                                                                                                
MR. ELDER commented that to the extent possible, the division is                                                                
staying out of the insurance business.  Only the security and                                                                   
investor protection side is being addressed.  Mr. Elder noted that                                                              
he had conversations with the Division of Insurance which agrees                                                                
that these are securities and that it is in the Division of                                                                     
Securities, Banking & Corporations' purview and responsibility to                                                               
regulate this part of the business.   With regard to the possible                                                               
suggestion that the NAIC Model Act should be adopted, he pointed                                                                
out that deals with the viatical settlement provider and the                                                                    
viator.  That provides protections for the viator which is a                                                                    
separate issue that is not addressed in this legislation.  If that                                                              
is addressed at some point, he suggested that be kept separate from                                                             
the regulation of securities.                                                                                                   
                                                                                                                                
Number 1296                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG inquired as to the location of the language in                                                                
the bill which addresses the agents making the sales.                                                                           
                                                                                                                                
MR. ELDER directed the chairman to page 2, line 21 of the CS.  In                                                               
further response to Chairman Rokeberg, Mr. Elder clarified that                                                                 
agents register with the division.                                                                                              
                                                                                                                                
CHAIRMAN ROKEBERG inquired as to the procedures of AS 45.55.030(a),                                                             
(c) and 45.55.040.  Are they exempt agents also?                                                                                
                                                                                                                                
MR. ELDER explained, "We already have in our Act the definition of                                                              
agent.  If they're exempt from that definition, then they would not                                                             
register."                                                                                                                      
                                                                                                                                
CHAIRMAN ROKEBERG posed the situation in which the agent was an                                                                 
insurance person.                                                                                                               
                                                                                                                                
MR. ELDER said the person would have to register with the division.                                                             
He commented that many are already registered with the division.                                                                
The registration is a simple procedure in which each company with                                                               
agents would file a form with the division and pay the fee.  In                                                                 
further response, Mr. Elder said that there is a requirement for                                                                
agents who register under our chapter to take the Series 63 exam                                                                
which covers state law.                                                                                                         
                                                                                                                                
Number 1414                                                                                                                     
                                                                                                                                
REPRESENTATIVE CISSNA referred to Section 3 and asked if it is                                                                  
standard to provide three business days for the right of                                                                        
rescission.                                                                                                                     
                                                                                                                                
MR. ELDER commented that there is nothing standard about viatical                                                               
settlements which are so new.  He noted that Maine is on the verge                                                              
of passing a new law from which this language was taken.  He                                                                    
pointed out that the committee should have information related to                                                               
the legislative hearings in Maine.  The director of securities in                                                               
Maine decided to change the three days to 30 days due to the                                                                    
testimony of a sales agent and an investor who experienced                                                                      
problems.                                                                                                                       
                                                                                                                                
REPRESENTATIVE CISSNA seemed to agree with the change to 30 days.                                                               
                                                                                                                                
REPRESENTATIVE MURKOWSKI pointed out that the information in the                                                                
committee packet indicates there is a split with regard to whether                                                              
viatical settlements should be covered under the Division of                                                                    
Insurance or the Securities Act.  She understood Mr. Elder's and                                                                
Chairman Rokeberg's testimony to be that the Division of Insurance                                                              
feels that securities should have primacy over this issue.  She                                                                 
surmised that the division feels this way because this legislation                                                              
regulates the sales of the securities.  If the relationship between                                                             
the viator and the viatical settlement provider was being                                                                       
regulated, it may be appropriate to be under the Division of                                                                    
Insurance.  However, since the discussion here surrounds the sale                                                               
of the investment contract, this is subject to securities.                                                                      
                                                                                                                                
MR. ELDER added, "What we and what the Division of Insurance are                                                                
both saying is that the relationship of the viator and the viatical                                                             
settlement provider and everything that goes past that to the                                                                   
insurance company, that would - that the NAIC Model Act talks                                                                   
about, that would be properly discussed with the Division of                                                                    
Insurance.  ...  Let's say you passed a viatical settlement act                                                                 
that adopted that, they would agree that the sale of the securities                                                             
forward to the investor should be something that would be regulated                                                             
by our division."                                                                                                               
                                                                                                                                
Number 1692                                                                                                                     
                                                                                                                                
DANA CASHEN, Accelerated Benefits Corporation; Co-Chair,                                                                        
Legislative Committee, National Viatical Association (NVA),                                                                     
testified via teleconference from Florida.  She informed the                                                                    
committee that the Accelerated Benefits Corporation is a licensed                                                               
viatical settlement corporation in Orlando, Florida.  Ms. Cashen                                                                
said she was happy to see and in favor of Alaska taking interest in                                                             
protecting its consumers.  She noted that NVA and the Viatical                                                                  
Association of America have been working with the (National                                                                     
Association of Insurance Commissioners) NAIC Viatical Settlement                                                                
Working Group to draft the Model Act and address some of the                                                                    
concerns with the industry.  Ms. Cashen said that with her initial                                                              
reading of the bill, there are some concerns with some of the                                                                   
language.  Therefore, she expressed the need to have more time to                                                               
sit down with the involved parties in Alaska in order to discuss                                                                
some of the alternatives that she has worked on.  Ms. Cashen                                                                    
informed the committee that she is in Tallahassee, Florida today                                                                
watching "our House Bill" move from committee to the floor.  The                                                                
legislation is pretty interesting and addresses the scenario being                                                              
addressed in HB 190, the portion of the transaction which deals                                                                 
with the purchaser and the viatical settlement provider.  Florida                                                               
already has laws regulating the viator and the viatical settlement                                                              
provider.  Florida is the first state to do such.                                                                               
                                                                                                                                
MS. CASHEN noted that the NAIC Working Group has received a couple                                                              
of charges to address for 1999.  One of those charges is to review                                                              
the relationship between the purchaser and the viatical settlement                                                              
provider.  This will be discussed at a meeting next week in Kansas                                                              
City, Kansas.  The discussions will begin with regard to how more                                                               
protections can be provided to the purchaser.  Ms. Cashen commented                                                             
that her consensus from NVA is that it would like to work with                                                                  
Alaska to share information from the NAIC, Florida, and other                                                                   
states.                                                                                                                         
                                                                                                                                
CHAIRMAN ROKEBERG asked Ms. Cashen to explain what the NAIC is.                                                                 
                                                                                                                                
MS. CASHEN clarified that the NAIC is the National Association of                                                               
Insurance Commissioners.  The association includes commissioners                                                                
from around the country who meet on a quarterly basis.  The                                                                     
association is fairly complex and covers many different insurance                                                               
issues.                                                                                                                         
                                                                                                                                
CHAIRMAN ROKEBERG noted that the committee packet includes the                                                                  
April 15, 1999 "Draft NAIC Model Act With Wraparound."  He asked if                                                             
the Model Act refers to the transaction between the sales agent and                                                             
the purchaser.                                                                                                                  
                                                                                                                                
Number 2066                                                                                                                     
                                                                                                                                
MS. CASHEN explained that the current NAIC Model Act only deals                                                                 
with the relationship between the viator and the viatical                                                                       
settlement provider.  The aforementioned information in the                                                                     
committee packet is the viatical settlement industry's attempt to                                                               
take the current model and insert language within that model which                                                              
addresses the purchaser to provider relationship.  In addition to                                                               
disclaimers and advertising regulations, the main concept in the                                                                
NAIC Model Act With Wraparound is to have agents soliciting                                                                     
purchasers to buy these policies to be licensed as are life                                                                     
insurance agents.  Ms. Cashen felt this is clearly an insurance                                                                 
product and those speaking with potential purchasers should have                                                                
such knowledge.  For example, in Florida where there are viatical                                                               
settlement laws the Department of Insurance is able to regulate the                                                             
entire transaction.                                                                                                             
                                                                                                                                
CHAIRMAN ROKEBERG noted that his staff had a copy of Florida's SB
1242, but recalled that Ms. Cashen referred to a House Bill.                                                                    
                                                                                                                                
MS. CASHEN specified that to be the Senate's companion bill.  She                                                               
informed the committee that the House Bill is HB 2235 which passed                                                              
out of Florida's House Insurance Committee today.  House Bill 2235                                                              
should be headed to the floor at least by early next week.  The                                                                 
Senate Bill has passed out of Florida's Senate Insurance Committee                                                              
and the Senate Judiciary Committee and is headed to the Senate                                                                  
floor.  Therefore, both bills should be headed to both floors next                                                              
week.  In response to Chairman Rokeberg, Ms. Cashen explained that                                                              
the two bills in Florida have some differing language.  She                                                                     
explained that in Florida, each house has to pass the identical                                                                 
version.  Ms. Cashen predicted that there would be discussion                                                                   
regarding the differences and whichever body passed its bill out                                                                
first would be the vehicle.                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI pointed out that the legislation before                                                                
the committee would amend the Alaska Securities Act to include a                                                                
viatical settlement contract.  She surmised that is not the case                                                                
with Florida's legislation.  She inquired as to what other states                                                               
have done with their Securities Act and whether viatical settlement                                                             
contracts are included within the definition of a security.                                                                     
                                                                                                                                
MS. CASHEN said that up until this legislative session there were                                                               
not any states that included viatical settlement contracts in their                                                             
Securities Act.  This year about three to five states have                                                                      
introduced legislation similar to that being introduced in Alaska.                                                              
To her knowledge, only two have passed this session.  Ms. Cashen                                                                
stated that the vast majority of states passing viatical settlement                                                             
legislation seemed to follow the lead of the NAIC model.  She                                                                   
commented that the issues being dealt with in Alaska are on the                                                                 
radar screen of the NAIC.                                                                                                       
                                                                                                                                
TAPE 99-42, SIDE A                                                                                                              
                                                                                                                                
Number 0001                                                                                                                     
                                                                                                                                
DOUG HEAD, President, Viatical Association of America (VAA),                                                                    
testified via teleconference from Florida.  Mr. Head noted that the                                                             
committee should receive the wraparound document that is being                                                                  
proposed to the NAIC.  The wraparound document was developed in                                                                 
negotiations with Florida's Department of Insurance which is                                                                    
largely reflected in Florida's Senate bill.  However, there is one                                                              
significant difference between Florida's House and Senate bills.                                                                
Florida's Senate bill addressed the emerging Life Settlement                                                                    
Industry which involves transactions of policies of healthy persons                                                             
such as high net worth executives who wish to dispose of their life                                                             
insurance.  The wraparound document sent to the committee should                                                                
contain some language referencing the Life Settlement Industry.                                                                 
Mr. Head commented that he believed that the viatical settlement                                                                
industry has been extensively reviewed from the viator's side by                                                                
NAIC.                                                                                                                           
                                                                                                                                
Number 0166                                                                                                                     
                                                                                                                                
MR. HEAD stated that the greatest concern with the legislation                                                                  
before the committee is the adequacy of the definitions.  The                                                                   
discussion from committee members regarding how exactly this would                                                              
function is also of concern for Mr. Head.  He pointed out that VAA                                                              
has a number of members that are large institutional purchasers.                                                                
Mr. Head commented that the previous description of the typical                                                                 
viatical transaction is not necessarily identical from the many                                                                 
models of different methods for raising funds experienced by                                                                    
companies in VAA.  Therefore, he expressed the need to have the                                                                 
opportunity to review the specifics of this law with all VAA                                                                    
members.  He was concerned that the transaction does not always                                                                 
involve a one, two, three, or ten year package of policies.                                                                     
Sometimes the transaction involves single policies, multiple                                                                    
policies, and the registration process which may make it                                                                        
prohibitive to do business in Alaska.  He noted that Maine is a                                                                 
state in which essentially, no one does business due to the passage                                                             
of Maine's Viatical Act about a year ago.  Mr. Head said that he                                                                
would like to work with the committee to ensure that there are                                                                  
appropriate protections under the insurance umbrella for all                                                                    
aspects of that industry.                                                                                                       
                                                                                                                                
CHAIRMAN ROKEBERG asked if there are two different viatical                                                                     
associations.                                                                                                                   
                                                                                                                                
MR. HEAD replied yes, but noted that at this point there is really                                                              
no separation in policy.                                                                                                        
                                                                                                                                
CHAIRMAN ROKEBERG asked if it would be correct to view Mr. Head as                                                              
representing the viatical settlement providers.                                                                                 
                                                                                                                                
Number 0431                                                                                                                     
                                                                                                                                
MR. HEAD informed the committee that he is employed by a viatical                                                               
settlement broker, the Medical Escrow Society, the largest in the                                                               
nation.  He clarified that he works directly with viators.  Under                                                               
the NAIC model, a viator is a person who owns a policy on the life                                                              
of a person that may not necessarily be terminally ill.  In further                                                             
response to Chairman Rokeberg, Mr. Head clarified that the owner of                                                             
the policy may or may not be the person with the disease under the                                                              
viator definition in the NAIC model.  The terminally ill person is                                                              
identified as the insured.  Mr. Head noted that the NAIC Model Act                                                              
contains many definitions which he urged the committee to review                                                                
because the NAIC definitions may be improvements on those in HB
190.  Mr. Head explained that to him a provider is a company, no                                                                
matter how they are funded, that is engaged in purchasing viatical                                                              
settlements.                                                                                                                    
                                                                                                                                
CHAIRMAN ROKEBERG noted that there has been testimony that very few                                                             
states have regulations.  Ms. Cashen testified that three to five                                                               
states may have some type of security regulations.                                                                              
                                                                                                                                
MR. HEAD said that there are a number of states and securities                                                                  
commissioners that have made rulings or are in negotiations.                                                                    
Depending upon the fund-raising model utilized by the provider,                                                                 
there are a range of possibilities.  The funding models, the                                                                    
relationship with particular purchasers, the definitions of                                                                     
securities, commissioners and the legislatures vary from state to                                                               
state.  He believed that North Dakota, South Dakota, and Iowa are                                                               
the only states that have engaged in legislation moving in this                                                                 
direction.  North Dakota has effectively outlawed viatical                                                                      
settlements no matter who is the provider.  South Dakota has no                                                                 
industry, that he was aware of.  Iowa has a small industry.  Larger                                                             
states such as Texas, New York, California, and Florida have had                                                                
successful experiences regulating the relationship between the                                                                  
provider and the (indisc.).  "Florida is the first with a living,                                                               
dynamic viatical settlement industry to begin to figure out how to                                                              
structure the purchaser side regulation under the insurance                                                                     
umbrella."                                                                                                                      
                                                                                                                                
CHAIRMAN ROKEBERG inquired as to how many states have a regulatory                                                              
scheme that is enforced by their Insurance Commission or their                                                                  
Division of Insurance.                                                                                                          
                                                                                                                                
MR. HEAD said that he believed that every state which has a                                                                     
viatical settlement law, with the mentioned exceptions, places                                                                  
viatical settlements under the Division of Insurance.  The last                                                                 
time he looked, he counted 27 such states.                                                                                      
                                                                                                                                
Number 0796                                                                                                                     
                                                                                                                                
CHAIRMAN ROKEBERG informed Mr. Head that Alaska is problematic in                                                               
that it does not have any law or regulations specifically drafted                                                               
for the viatical settlement industry.  Therefore, Mr. Elder and the                                                             
Division of Securities, Banking & Corporations generated some cease                                                             
and desist orders when advertisements guaranteed returns on                                                                     
investments of these contracts.                                                                                                 
                                                                                                                                
MR. HEAD commented that may have been an appropriate step.  He said                                                             
that the VAA model suggests and agrees with NAIC that there should                                                              
be extensive disclosure to purchasers.  However, Mr. Head believed                                                              
that regulating this under the securities umbrella seems to divide                                                              
the process.  Mr. Head indicated that it would be best to track the                                                             
entire transaction due to the belief that the product from its                                                                  
beginning is an insurance product, a life insurance policy.                                                                     
Therefore, full regulation of the entire transaction should fall                                                                
under life insurance regulators.                                                                                                
                                                                                                                                
CHAIRMAN ROKEBERG noted that the Alaska Division of Insurance does                                                              
not agree with Mr. Head.  He inquired as to the types of problems                                                               
that occurred prior to any regulatory reform because there seems to                                                             
be a plethora of abuse and misunderstanding surrounding the                                                                     
viatical industry.                                                                                                              
                                                                                                                                
MR. HEAD stressed that the biggest problem, as with any new                                                                     
product, is that there are fraudulent actors.  The most disastrous                                                              
of those fraudulent scenarios occurred in the West and Northwest                                                                
and may have entered Alaska.  With regard to Kiplinger's article,                                                               
Mr. Head believed it was not entirely accurate and that there was                                                               
some poor and sensational reporting.  Mr. Head acknowledged that                                                                
there is fogginess surrounding this industry, but he hoped that                                                                 
this option will continue to be provided for those who have life                                                                
insurance and wish to sell it.  This is a property issue which                                                                  
everyone should keep under review.  He stated, "We need to be                                                                   
concerned about whether there is a market for their policies and                                                                
whether we properly regulate it.  And we think we're moving, with                                                               
the NAIC, in the right direction and that Alaska should - and we                                                                
are more than anxious to work with you to develop appropriate                                                                   
regulation and we do believe very strongly that it belongs in the                                                               
insurance department."                                                                                                          
                                                                                                                                
CHAIRMAN ROKEBERG identified one of the current dilemmas as whether                                                             
the Alaska Division of Banking, Securities, & Corporations should                                                               
regulate until a statutory scheme is in place for this.  Chairman                                                               
Rokeberg did not believe it to be in the public's interest to cease                                                             
marketing of these, if they can be done in a manner which does not                                                              
harm the public.  He did not believe it appropriate to shut down                                                                
the viatical settlement industry, while Alaska "gets its act                                                                    
together legislatively."                                                                                                        
                                                                                                                                
MR. HEAD agreed with that view.  He cited one of the difficulties                                                               
as the collateral issues associated with direct securities                                                                      
regulation which confuse the potential for people to make                                                                       
appropriate investments in this product.  There are also problems                                                               
created for the viator who wishes to sell his/her life insurance                                                                
policy.  For example, a terminally ill individual with two $20,000                                                              
policies who wanted to sell those policies to a brother-in-law                                                                  
would be required to file due to the single sale exemption.                                                                     
                                                                                                                                
Number 1153                                                                                                                     
                                                                                                                                
MR. HEAD commented that there are many technical issues with                                                                    
HB 190.  The definitions need extensive review.  He noted that he                                                               
would like to work quickly and with the Department of Insurance to                                                              
establish a complete regulatory scheme to protect the terminally                                                                
ill viator as well as investors.  With the emergence of life                                                                    
settlements, there is yet another emerging problem.  Therefore, all                                                             
of this regulatory phenomena should be placed in a central                                                                      
location.  Mr. Head believed it would be difficult for the Division                                                             
of Banking, Securities, & Corporations to regulate the other side                                                               
of the industry, as the director commented earlier.                                                                             
                                                                                                                                
CHAIRMAN ROKEBERG said that he had heard mention that many in the                                                               
securities industry do not really have the understanding or                                                                     
patience to sell this product.  Therefore, those with a life                                                                    
insurance background are better marketing sales agents for this                                                                 
type of product.  Is that an appropriate assessment?                                                                            
                                                                                                                                
MR. HEAD agreed that Chairman Rokeberg's assessment was                                                                         
appropriate.  In further response to Chairman Rokeberg, Mr. Head                                                                
explained that there are many variables in life insurance which are                                                             
best known by life insurance agents.  He did not know of any                                                                    
security that required premium payments which is unique to life                                                                 
insurance.  Furthermore, there are issues regarding maintaining                                                                 
premiums on portions of the policies.  Today it is possible to sell                                                             
portions of a life insurance policy and that creates significant                                                                
premium issues which are best handled by a life insurance agent.                                                                
                                                                                                                                
CHAIRMAN ROKEBERG asked whether that was due to the pre-paid                                                                    
dividends and the adjustments for annual premiums with an aged                                                                  
policy.                                                                                                                         
                                                                                                                                
Number 1301                                                                                                                     
                                                                                                                                
MR. HEAD replied yes.  For example, an individual with a life                                                                   
expectancy of two years who purchased a policy at 60 years of age                                                               
has a much higher premium than an individual at the same age who                                                                
purchased the same policy at 30 years of age.  Therefore, these                                                                 
packages are part of what a good insurance person can explain to a                                                              
purchaser.  For securities sales people, the language associated                                                                
with such a situation is not typically familiar language.  In                                                                   
summary, Mr. Head stated that good disclosure to the investor is                                                                
the objective.  Good disclosure would best come from a sales person                                                             
who has knowledge of the product he/she is selling.  He agreed to                                                               
be available to talk with staff and offered to provide the                                                                      
committee with additional written testimony to illustrate some of                                                               
these problems.                                                                                                                 
                                                                                                                                
CHAIRMAN ROKEBERG announced that he would be talking with those in                                                              
the industry in Alaska as well as the various departments.  He also                                                             
announced that he did not intend to report HB 190 out of committee                                                              
today and will only do so when the legislation is ready.                                                                        
                                                                                                                                
Number 1417                                                                                                                     
                                                                                                                                
JACK GWALTNEY, General Agent, Future First Financial Group,                                                                     
Gwaltney & Gwaltney, Incorporated, testified via teleconference                                                                 
from Anchorage.  With regard to the testimony from those in                                                                     
Florida, they are accurate in what it would take to do this right.                                                              
Mr. Gwaltney agreed that there needs to be some legislation to                                                                  
accommodate all parties concerned.  He noted that the testimony has                                                             
made it apparent that there are many parties involved in one of                                                                 
these transactions.  This is a complicated issue.  Mr. Gwaltney                                                                 
offered to work with the committee on this issue.                                                                               
                                                                                                                                
CHAIRMAN ROKEBERG announced that HB 190 would be held.                                                                          
                                                                                                                                

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