Legislature(1999 - 2000)

01/19/2000 03:25 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 190-VIATICAL SETTLEMENTS                                                                                                   
Number 0130                                                                                                                     
CHAIRMAN ROKEBERG  announced the first order of  business would be                                                              
HOUSE  BILL  NO. 190,  "An  Act relating  to  viatical  settlement                                                              
CHAIRMAN  ROKEBERG explained  that he  had asked  the Division  of                                                              
Banking, Securities  and Corporations  (DBSC) and the  Division of                                                              
Insurance  to work  with the  Viatical Association  of America  to                                                              
come up with  draft legislation that meets everyone's  concerns as                                                              
best as possible.   It was  his intention to provide  the Division                                                              
of  Insurance with  the  primary overview  and  regulation of  the                                                              
entire industry,  with the exception  of the sales of  viatical or                                                              
life settlement  contracts to  the consumer.   This is  because of                                                              
the DBSC's interpretation of those  instruments as securities.  He                                                              
indicated this is somewhat of a compromise,  but he feels it meets                                                              
the  requirements and  demands  of  this area  of  commerce to  be                                                              
regulated by the State of Alaska  in order to protect the citizens                                                              
of the state.                                                                                                                   
Number 0313                                                                                                                     
REPRESENTATIVE  HALCRO  made a  motion  for  the adoption  of  the                                                              
proposed  committee substitute  for HB 190  [Version I,  1-LS0576,                                                              
Bannister/Ford,  1/18/00].   There being  no objection, Version  I                                                              
was adopted as a work draft.                                                                                                    
REPRESENTATIVE  HALCRO made  a  motion to  adopt  Amendment 1  [1-                                                              
LS0576\I.1, Ford, 1/18/00], as follows:                                                                                         
     Page 1, line 1, following "transactions":                                                                                
          Insert "and life settlement interest"                                                                               
     Page 5, line 9, following "interest":                                                                                  
          Insert "or life settlement interest"                                                                              
     Page 5, following line 28:                                                                                                 
          Insert a new paragraph to read:                                                                                       
                    "(37)  "life settlement interest" means                                                                     
     the  entire interest  or any  fractional  interest in  a                                                                   
     life  insurance policy  that is  the subject  of a  life                                                                   
     settlement  contract;  "life settlement  interest"  does                                                                   
     not include  the initial  purchase from  the owner  by a                                                                   
     life settlement provider;"                                                                                                 
REPRESENTATIVE BRICE objected.                                                                                                  
CHAIRMAN  ROKEBERG   explained  that   the  amendment   adds  life                                                              
settlement  interests,  which  are   distinguished  from  viatical                                                              
REPRESENTATIVE BRICE wondered what that meant exactly.                                                                          
CHAIRMAN ROKEBERG  clarified that  viatical settlements  deal with                                                              
individuals  who  are  involved  "with  a  catastrophic  or  life-                                                              
threatening  chronic  illness  or   condition."    In  the  second                                                              
amendment to be offered, this would  be deleted, allowing a person                                                              
to  sell  a   discounted  life  insurance  policy   without  being                                                              
critically  ill.   He clarified  that a  person has  to be ill  in                                                              
order to have  a viatical settlement,  but not in order  to have a                                                              
life settlement.                                                                                                                
Number 0494                                                                                                                     
REPRESENTATIVE BRICE asked if this  allows a person to sell his or                                                              
her life insurance policy while still healthy.                                                                                  
CHAIRMAN ROKEBERG said that is correct.                                                                                         
MICHAEL  MCNERNEY,  Attorney,  Viatical  Association  of  America;                                                              
Chair,   Committee   on   Purchaser   Relations,   testified   via                                                              
teleconference from New Orleans, Louisiana.                                                                                     
Number 0600                                                                                                                     
CHAIRMAN  ROKEBERG explained  to Mr. McNerney  that the  committee                                                              
was  adopting  some  amendments   to  Version  I.    He  indicated                                                              
personnel   from  the   Department  of   Community  and   Economic                                                              
Development  would  then  explain  Version  I  and,  finally,  Mr.                                                              
McNerney   could  provide   comments.     He  asked  if   everyone                                                              
understands what Amendment 1 does.                                                                                              
REPRESENTATIVE MURKOWSKI asked if  there is a difference between a                                                              
life settlement  interest and  the accelerated benefits  provision                                                              
under the terms of a life insurance contract.                                                                                   
CHAIRMAN ROKEBERG deferred to Mr. McNerney.                                                                                     
Number 0698                                                                                                                     
MR. MCNERNEY explained that an accelerated  death benefit, in most                                                              
cases under a  life insurance contract, is a  short-term situation                                                              
where a  person usually  has a 12-month  life expectancy  or less.                                                              
It is also  usually at a  predetermined, discounted amount  of the                                                              
face value of the policy.  A life  settlement is the purchase of a                                                              
policy  that   does  not  meet   the  definition  of   a  viatical                                                              
settlement, which  is defined  in most states  as a person  with a                                                              
catastrophic or life-threatening  illness.  He said the term "life                                                              
settlement" is meant to define transactions  that do not fall into                                                              
a  viatical  settlement  definition.     He  mentioned  that  life                                                              
settlements are a growing phase of this business.                                                                               
REPRESENTATIVE  MURKOWSKI indicated she  was referring  to Version                                                              
I, page 4,  line 3, which she  interpreted to say that  a viatical                                                              
settlement  contract   does  not   include  the  exercise   of  an                                                              
accelerated provision by the viator or insured.                                                                                 
Number 0804                                                                                                                     
MR.  MCNERNEY  said  that  is  right.   He  referred  to  page  3,                                                              
paragraph (3), subparagraph  (B), and indicated it is  the type of                                                              
thing that is excluded.                                                                                                         
CHAIRMAN ROKEBERG  voiced his preference  to hear  brief testimony                                                              
and then return to the issue.                                                                                                   
VINCE  USERA, Senior  Securities  Examiner,  Division of  Banking,                                                              
Securities  & Corporations  (DBSC),  Department  of Community  and                                                              
Economic Development (DCED), came  forward to testify on Version I                                                              
of HB 190.  He said:                                                                                                            
     The chief  distinction between  the two is who's  buying                                                                   
     it.    Who's  paying  the  money?    A  life  settlement                                                                   
     contract is  sold to any  individual or an  institution.                                                                   
     And  accelerated benefits,  the  insurance company  that                                                                   
     issued the policy is paying  the individual ... and it's                                                                   
     limited  to those  two  people having  that  contractual                                                                   
MR. MCNERNEY said that is also true.                                                                                            
CHAIRMAN ROKEBERG said  he thinks there is a clear  distinction in                                                              
the industry regarding that.                                                                                                    
MR. USERA indicated he does not want to limit that in any way.                                                                  
Number 0904                                                                                                                     
REPRESENTATIVE  MURKOWSKI asked  if the  life settlement  provider                                                              
needs to be defined.                                                                                                            
CHAIRMAN  ROKEBERG  said,  "Possibly."   He  asked  Representative                                                              
Brice if he removed his objection to Amendment 1.                                                                               
REPRESENTATIVE BRICE  replied that  he would remove  his objection                                                              
with the caveat that the issue be revisited.                                                                                    
Number 0948                                                                                                                     
CHAIRMAN  ROKEBERG  asked  if there  were  further  objections  to                                                              
Amendment 1.  There being none, Amendment 1 was adopted.                                                                        
REPRESENTATIVE HALCRO made a motion to adopt Amendment 2.                                                                       
REPRESENTATIVE BRICE objected for the purpose of discussion.                                                                    
CHAIRMAN  ROKEBERG  explained  that  Amendment  2  dovetails  with                                                              
Amendment 1  by deleting  the defining criteria  of a viator  or a                                                              
person  who is  chronically  ill who  wishes  to sell  his or  her                                                              
existing policy.   He said, "This goes in a part  of the bill that                                                              
refers   to  both   life   settlement  agreements   and   viatical                                                              
REPRESENTATIVE BRICE  said, "Then you're defining who  is going to                                                              
be  the  provider  of the  life  settlement  contract,  which  was                                                              
Representative Murkowski's concern."                                                                                            
Number 1016                                                                                                                     
MR.  MCNERNEY  asked  whether  Version   I  includes  all  of  the                                                              
amendments being addressed now.                                                                                                 
CHAIRMAN ROKEBERG  clarified that it does  not.  He said  he had a                                                              
question regarding page 5, line 1 of Version I.                                                                                 
MR. MCNERNEY indicated he did not have the amendments.                                                                          
REPRESENTATIVE  CISSNA asked  if  Amendment 2  makes the  language                                                              
include the life settlement.                                                                                                    
CHAIRMAN ROKEBERG stated  that he had a problem  with Amendment 2.                                                              
He suggested that DCED address those concerns.                                                                                  
BOB  LOHR,   Director,  Division   of  Insurance,  Department   of                                                              
Community and Economic Development,  came forward, indicating Katy                                                              
Campbell,  Actuary  L/H  from the  Division  of  insurance,  would                                                              
KATY CAMPBELL,  Actuary L/H, Division  of Insurance, Department of                                                              
Community  and Economic  Development, explained  that Amendment  2                                                              
modifies  the definition  of a  viator,  but it  does not  exclude                                                              
healthy people from selling their policies.  She said:                                                                          
     What that  does, then, is it  flows through into  all of                                                                   
     the other  definitions.  A viatical settlement  provider                                                                   
     or a viatical settlement contract  is between a provider                                                                   
     and a viator;  but in this case, since the  viator could                                                                   
     be  anyone  - someone  who  has  a terminal  illness  or                                                                   
     someone who  doesn't - it's kind of  all-encompassing of                                                                   
     ... what's termed a life settlement and what's termed a                                                                    
     viatical settlement.                                                                                                       
CHAIRMAN  ROKEBERG  explained  to   Mr.  McNerney  that  the  DCED                                                              
recommends the  change of the definition  of a viator  by deleting                                                              
"with  a  catastrophic  or  life-threatening  chronic  illness  or                                                              
condition".   He said,  "Therefore, it  bunches together  a viator                                                              
and a life settlement participant."                                                                                             
MS. CAMPBELL  stated that  the person  is called  an owner,  not a                                                              
Number 1196                                                                                                                     
CHAIRMAN ROKEBERG wondered if that is good industry practice.                                                                   
MR. MCNERNEY  indicated it  is not the  recommended practice.   He                                                              
said it  is a topic  being discussed  right now with  the National                                                              
Association of Insurance Commissioner  (NAIC).  He stated that the                                                              
NAIC  may come  up  with a  different  national  term because  the                                                              
insurance industry has raised some  questions about using the word                                                              
"owner".  He explained:                                                                                                         
     In today's  meeting in  Orlando, they  asked us to  redo                                                                   
     the  current working  draft to  make it  called a  "life                                                                   
     settler".   That's just a struggle  to find a  term that                                                                   
     everybody can agree on.                                                                                                    
CHAIRMAN  ROKEBERG  asked  when   the  proceedings  are  going  to                                                              
terminate and when a report will be issued.                                                                                     
MR.  MCNERNEY  replied that  the  NAIC  has  a working  model  for                                                              
viatical law; the newest version was adopted 18 months ago.                                                                     
CHAIRMAN  ROKEBERG asked  whether Version  I was  a reflection  of                                                              
that model.                                                                                                                     
MR. MCNERNEY  said it  is similar,  but it does  not have  all the                                                              
items in  the NAIC model.   He explained  that there is  a concern                                                              
with purchaser  problems; as  a result,  the working committee  is                                                              
under a mandate to modify that law  during this calendar year.  He                                                              
said the  VAA (Viatical  Association of  America)has submitted  to                                                              
the NAIC a proposed  revision.  The revision was  under discussion                                                              
today  between  the  representatives   of  the  various  insurance                                                              
departments  and   the  representatives  of  the   life  insurance                                                              
Number 1300                                                                                                                     
MR.  MCNERNEY indicated  there  will be  a  new draft  that he  is                                                              
writing that  needs to be  sent to the  NAIC by February  4, 2000.                                                              
In the draft, there are two distinct  definitions.  He is not sure                                                              
whether they will ultimately be combined into one definition.                                                                   
CHAIRMAN  ROKEBERG commented  that it  is his  desire to move  the                                                              
bill along as rapidly  as possible so that it can  be enacted into                                                              
law this year.   He said it may  be possible to amend  the bill en                                                              
MR.  MCNERNEY asked  whether Version  I  is meant  to replace,  in                                                              
total, Version H.                                                                                                               
CHAIRMAN ROKEBERG stated  that he does not intend  to move Version                                                              
I  out  of the  committee  today.    He is  not  comfortable  with                                                              
Amendment 2.   He referred  to Representative Murkowski's  earlier                                                              
comments regarding  adding to  the definitions,  saying he  is not                                                              
sure if that would create significant drafting problems.                                                                        
MR. USERA said:                                                                                                                 
     It's precisely  because of this that we wanted  to adopt                                                                   
     the regulations  rather than to have the  whole thing in                                                                   
     statute.  I  think our regulations would  answer most of                                                                   
     your questions.   We can go with the flow;  that way, if                                                                   
     the industry  changes its definition, we can  ... change                                                                   
     our definition,  too, to accommodate.   I'm  not certain                                                                   
     that  it  wouldn't  be  perhaps  wise  to  differentiate                                                                   
     between a  life settler and  a viator - and  very simply                                                                   
     do so  ... The definition would  have to be  in statute,                                                                   
     and then let our regulations carry the rest of it.                                                                         
Number 1494                                                                                                                     
CHAIRMAN  ROKEBERG   said  he   agrees  with   that.     He  asked                                                              
Representative Halcro to withdraw Amendment 2.                                                                                  
REPRESENTATIVE HALCRO withdrew Amendment 2.                                                                                     
CHAIRMAN  ROKEBERG  asked  DCED to  make  recommendations  to  the                                                              
committee to ameliorate this problem  by providing the definitions                                                              
for  life settlement  that  need  to  be incorporated  within  the                                                              
statute and are consistent with regulation.                                                                                     
Number 1523                                                                                                                     
MR. USERA  indicated DCED's proposed  regulations are  included in                                                              
the packet  provided to  the committee.   He said the  definitions                                                              
will be used unless they are changed.                                                                                           
CHAIRMAN ROKEBERG  asked Mr. Usera  to make sure the  committee is                                                              
on track  because he is  not intending to  adopt Amendment 2.   He                                                              
commented that Amendment 1 is being  adopted to add the concept of                                                              
life settlement into  Version I, but further definition  is needed                                                              
to be consistent with the regulations.                                                                                          
MR. USERA said "owner" is defined.                                                                                              
CHAIRMAN ROKEBERG  said "owner"  needs to  be defined and  perhaps                                                              
"provider".  He was not sure.                                                                                                   
MR. USERA said DCED would look it  over and make a recommendation.                                                              
Number 1586                                                                                                                     
CHAIRMAN  ROKEBERG  said he  thinks  it  would  be easier  if  the                                                              
definitions  are in  the bill separately,  in  case there are  any                                                              
changes  in the  definition  by  the NAIC.    Thus  they could  be                                                              
adopted more readily.                                                                                                           
MR. USERA said all right.                                                                                                       
Number 1600                                                                                                                     
CHAIRMAN  ROKEBERG  asked  Mr.  McNerney   if  he  expects  to  be                                                              
maintaining  the distinction  between the  definition of  a viator                                                              
and a life settlement owner.                                                                                                    
MR. MCNERNEY said he believes it  is better to have them separate.                                                              
He said:                                                                                                                        
     Because there may be things  that the legislature or the                                                                   
     department  want  to  do,  in   terms  of  regulating  a                                                                   
     transaction  that  are different  when  you are  dealing                                                                   
     with somebody  who's got a  very short life  expectancy,                                                                   
     which is the viatical transaction.                                                                                         
MR. MCNERNEY explained  the NAIC has not voted one  way or another                                                              
on that concept.                                                                                                                
CHAIRMAN ROKEBERG said that verifies  what he just said.  He asked                                                              
Mr. Lohr or Ms. Campbell to explain the outline of Version I.                                                                   
Number 1666                                                                                                                     
MR.  LOHR  indicated the  work  draft  reflects  the view  of  the                                                              
Division  of Insurance  that certain  elements  of regulating  the                                                              
viatical  transactions from  an insurance  perspective need  to be                                                              
specified in statute.   He said those have been  incorporated into                                                              
the bill in a way that DCED's attorney  general feels does provide                                                              
an adequate  basis for  regulation of  viatical settlements,  from                                                              
the point  of view  of the  transaction between  the owner  of the                                                              
policy,  the  viator,  and the  next  step  in  the process.    He                                                              
commented that regulations  have not been done yet,  but DCED does                                                              
intend  to use  the NAIC  model.   The  initial draft  regulations                                                              
would start with the NAIC approach.                                                                                             
MS.  CAMPBELL  said  subsections  (a)  through  (f),  outlined  in                                                              
Section 2 of Version  I, were taken out of the  NAIC model and put                                                              
into a  form that  allows the  division to  write a regulation  on                                                              
that aspect.                                                                                                                    
CHAIRMAN ROKEBERG asked Mr. Usera  to discuss Sections (3) and (4)                                                              
in Version I.                                                                                                                   
MR.  USERA indicated  DCED had  asked  for a  modification of  the                                                              
definition of securities in Section  3.  It had been asked for the                                                              
definition to  include the  phrase "viatical settlement  interest"                                                              
which  would remove  any bone  of  contention with  people in  the                                                              
industry.    He  believes  these  instruments  are  covered  under                                                              
investment contract.   He said the  DBSC wants the  definitions of                                                              
viatical  settlement interest  and  viator to  be compatible  with                                                              
those of the Division of Insurance.                                                                                             
Number 1843                                                                                                                     
CHAIRMAN ROKEBERG responded:                                                                                                    
     As well as  the adoption of Amendment 1,  which adds the                                                                   
     life settlement  interest to ... Section 3  ... So, this                                                                   
     bill follows  the committee's mandate of  separating the                                                                   
     regulation  of  the  packaging   and  development  of  a                                                                   
     product  by  the  insurance  division,  and  leaves  the                                                                   
     authority  of the  enforcement of the  marketing to  the                                                                   
     public as a security to your division?                                                                                     
MR. USERA said that is correct.                                                                                                 
CHAIRMAN ROKEBERG said:                                                                                                         
     You've   accomplished  that   by  merely  adding   these                                                                   
     definitions and these two concepts  into your definition                                                                   
     of   security,  and   then   following   that  up   with                                                                   
MR. USERA said that is also correct.                                                                                            
CHAIRMAN ROKEBERG  said that  is an important  point he  wants the                                                              
committee to understand,  because he has a question  and a problem                                                              
with that.                                                                                                                      
Number 1883                                                                                                                     
REPRESENTATIVE  MURKOWSKI asked, "This  is consistent,  then, with                                                              
your department's intention to include within the definition?"                                                                  
MR. USERA  said it  is.   He explained  that the  DBSC has  a very                                                              
broad  regulation-writing power  and  therefore does  not need  to                                                              
have anything  in the  statute in  order to  write regulations  to                                                              
begin with.   The Division of  Insurance does not have  that broad                                                              
power,  but both  divisions  have  discussed the  definitions  and                                                              
tried  to make them  similar  so that  there is no  conflict.   He                                                              
indicated the department  likes as few definitions  as possible to                                                              
be set out in statute.                                                                                                          
REPRESENTATIVE MURKOWSKI asked:                                                                                                 
     Then down the  road, when all this is in  place, is this                                                                   
     going to be confusing to a user  of viatical settlements                                                                   
     as  to  who  they  talk  to...,  because  you  have  two                                                                   
     entities that are overseeing this?                                                                                         
MR. USERA said  he did not believe so.  Viaticals  are complicated                                                              
and confusing to laymen in the first place.  He explained:                                                                      
     Our  disclosure  documents, and  Insurance's  disclosure                                                                   
     documents  ... you can  see what ours  do.  We've  given                                                                   
     you copies of our disclosure  documents that we require,                                                                   
     and  Insurance will  probably do  a disclosure  document                                                                   
     also that covers their involvement in the transaction.                                                                     
MR. USERA said he does not think there should be any confusion.                                                                 
Number 1980                                                                                                                     
REPRESENTATIVE MURKOWSKI  asked, "Which one of you  has the fiscal                                                              
MR. USERA replied, "Ours is zero."                                                                                              
MR. LOHR stated  that the Division of Insurance has  a fiscal note                                                              
of $25,000.                                                                                                                     
REPRESENTATIVE MURKOWSKI said,  "And  yours, as I recall, was just                                                              
a clerical position,  getting that person up with  the system, and                                                              
then that is a phase-out over ..."                                                                                              
MR. LOHR responded, "Two years."                                                                                                
CHAIRMAN ROKEBERG wondered if it is a self-funding fiscal note.                                                                 
MR. LOHR said it is.                                                                                                            
Number 2003                                                                                                                     
CHAIRMAN ROKEBERG  commented that  he would like  to see  a bright                                                              
line of  authority in  statute between the  two divisions  so that                                                              
there is no conflict.                                                                                                           
MR. USERA said:                                                                                                                 
     If  it's  a  question of  the  transaction  between  the                                                                   
     viator  ...  and  the settlement  provider  -  in  other                                                                   
     words,  between the person  who's going  to die and  ...                                                                   
     the  person purchasing  his  insurance  policy -  that's                                                                   
     clearly   in  Insurance's   bailiwick.      If  it's   a                                                                   
     transaction  between somebody  marketing this policy  to                                                                   
     another   third-party   investor,   it's   clearly   our                                                                   
     jurisdiction  there.    And  [it]  should  not  be  very                                                                   
     difficult to tell which it is.                                                                                             
CHAIRMAN  ROKEBERG  said  he  does  not  see  why  a  bright  line                                                              
statement cannot be made in statute.                                                                                            
MR. USERA replied that he could write something up.                                                                             
CHAIRMAN ROKEBERG  said he would  appreciate that.   He commented,                                                              
"It would  also give  you authority  to do that.   You  assume you                                                              
already have authority;  I don't disagree with that."   He said it                                                              
is not self-evident  who has jurisdiction when one  reads the law.                                                              
He prefers  the statute  be readable  to the  average person.   He                                                              
would like  a distinguishing, bright-line,  black-letter law.   He                                                              
wondered if this would cause any problems.                                                                                      
Number 2115                                                                                                                     
MR. LOHR  said he does  not think it would.   He pointed  out that                                                              
the  Division  of  Insurance  does  not  believe  the  transaction                                                              
between an owner  of a policy and the initial  [purchaser] of that                                                              
policy  is within  the definition  of the  business of  insurance.                                                              
That  is  why  the division  feels  it  needs  specific  statutory                                                              
authority to adopt regulations.  He explained:                                                                                  
     We  felt that  if we  adopted  regulations without  that                                                                   
     clear-cut  statutory authority,  someone  could go  [to]                                                                   
     the definition of the business  of insurance and make an                                                                   
     argument  that  our  regulations  exceed  the  authority                                                                   
     provided....     It's  clear  that  it  needs   to  meet                                                                   
     somewhere  in the  middle.   And  whether  there is  any                                                                   
     policy reason  or need for overlap, ... that  remains to                                                                   
     be seen.   We want  to accommodate  you with respect  to                                                                   
     regulating  only that portion  of the transaction  which                                                                   
     you and  the committee  feel you  want regulated by  the                                                                   
     Division  of   Insurance.    We're  doing   this  as  an                                                                   
     accommodation,  because you're  asking and providing  us                                                                   
     access to  the resources to  do it, not because  it fits                                                                   
     within the definition of the business of insurance.                                                                        
Number 2175                                                                                                                     
CHAIRMAN ROKEBERG stated that he is concerned about the money.                                                                  
REPRESENTATIVE BRICE  asked whether  it speaks anywhere  about who                                                              
can sell a life settlement interest.   Is it anybody registered to                                                              
sell securities or viatical providers?                                                                                          
MR. USERA  responded that if they  are selling the  investments to                                                              
third parties,  then they fall under  the DBSC's regulations.   If                                                              
it  is  between the  owner  of  the  policy  and somebody  in  the                                                              
business of  buying those policies,  then it would fall  under the                                                              
Division of Insurance's regulations.                                                                                            
MS.  CAMPBELL clarified,    "On the  insurance  end, without  that                                                              
change to the viator definition,  we would have to put in specific                                                              
life settlement authority in here."                                                                                             
CHAIRMAN  ROKEBERG  wondered  if  she  is  going  to  provide  the                                                              
committee with that.                                                                                                            
MS.  CAMPBELL  said she  would.    She indicated  the  transaction                                                              
between  the  owner of  the  policy  and the  viatical  settlement                                                              
provider is where the Division of Insurance comes in.                                                                           
REPRESENTATIVE BRICE  commented,  "My confusion comes  when we say                                                              
'viatical,' because  I'm not talking about viaticals,  I'm talking                                                              
specifically about life settlement interests."                                                                                  
Number 2247                                                                                                                     
REPRESENTATIVE  HALCRO wondered why  it is  necessary to  put this                                                              
into statute  if the division has  gone to the extent  of creating                                                              
regulations for the sale of viaticals.                                                                                          
CHAIRMAN ROKEBERG indicated it is the separation of powers.                                                                     
REPRESENTATIVE  HALCRO  said,  "But   if  they  already  have  the                                                              
authority to create regulations,  it seems to me they already have                                                              
that power."                                                                                                                    
Number 2267                                                                                                                     
MR. USERA  said the division does  not believe it  needs authority                                                              
to adopt  regulations, but it needs  to be included in  statute to                                                              
avoid  any conflict  or confusion.   He  added, "If  we put  it in                                                              
statute, that  forever rids us of  the problem of having  to prove                                                              
we have jurisdiction ... under the investment contract theory."                                                                 
CHAIRMAN  ROKEBERG  said  the  goal  is  to  avoid  conflicts  and                                                              
unnecessary  litigation  about  jurisdictional   problems  in  the                                                              
REPRESENTATIVE MURKOWSKI  referred to  Version I and  Amendment 1.                                                              
She asked:                                                                                                                      
     How does this  expand the scope and  responsibilities of                                                                   
     both  of your departments,  because  now we're not  just                                                                   
     talking about  those viaticals where we've  got terminal                                                                   
     individuals.   We've got anybody.  ... Does  this adjust                                                                   
     your fiscal  note at  all?  How  much do you  anticipate                                                                   
     that you're going to be called upon to deal with this?                                                                     
MR.  USERA  replied that  he  does  not  anticipate having  to  do                                                              
anything to deal with these things.  He explained:                                                                              
     From  a securities  standpoint, the  life settlement  is                                                                   
     not a very generous investment  to an individual.  There                                                                   
     will be sales  of these things quite often,  but they'll                                                                   
     be to institutions....   We exempt institutional  buyers                                                                   
     from our regulations because  there's no need to protect                                                                   
     a large  insurance company or  a bank from  buying these                                                                   
     things.  An individual probably  is not going to want to                                                                   
     tie his  money up  for ten to  fifteen years, no  matter                                                                   
     how big the return is....  We  don't believe there'll be                                                                   
     very  many at  all.   But if  there are,  it's simply  a                                                                   
     matter  of filling  out our  form and  paying $250,  and                                                                   
     their license to sell them.                                                                                                
Number 2402                                                                                                                     
MR. MCNERNEY said:                                                                                                              
     Draft  [Version] I takes  out all  the language that  we                                                                   
     had  worked  with  the  securities   department  and,  I                                                                   
     thought,  had  reached  agreement  about,  dealing  with                                                                   
     exemptions.  And some of that  language was in [Version]                                                                   
     H....  Now, in Draft I, it's all gone.                                                                                     
MR. USERA indicated  it is gone from the statutes,  but it will be                                                              
included in  the regulations.   He stated  that he would  send Mr.                                                              
McNerney a copy of the regulation.                                                                                              
MR. MCNERNEY stated:                                                                                                            
     From  the industry's  point  of view,  what's  happening                                                                   
     here -  in both  the insurance  department side of  this                                                                   
     bill and  the securities department  side of  this bill,                                                                   
     as I see Version  I - is to take a little  bit different                                                                   
     approach  in terms  of passing  minimal legislation  and                                                                   
     leaving all  of the detail to the regulation  procedure.                                                                   
     And I know that, for example,  in (indisc.), is going in                                                                   
     exactly the  opposite direction because of  their belief                                                                   
     that the legislators  ought to be involved  in that kind                                                                   
     of information.   And the NAIC bill - the  existing one,                                                                   
     and  certainly the  newest one that's  being worked  on,                                                                   
     but even  the one that was  passed 18 months ago  - gave                                                                   
     the legislature  the more involvement in deciding  a lot                                                                   
     of the issues....                                                                                                          
TAPE 00-01, SIDE B                                                                                                              
Number 0005                                                                                                                     
CHAIRMAN  ROKEBERG explained  to Mr. McNerney  that the  committee                                                              
had heard this  bill five times.   He said it is not  a major part                                                              
of the  business activity  of the State  of Alaska, but  certainly                                                              
warrants the  overview of the  Administration and  the legislature                                                              
to make sure  the public is protected via statute  and regulation.                                                              
He appreciates his point of view.                                                                                               
MR.  MCNERNEY said  there  are consumer  issues  that  have to  be                                                              
balanced between the seller of the  policy and the investor in the                                                              
policy.  He stated:                                                                                                             
     One of  the things  that is kind  of a policy  issue is:                                                                   
     Are you going  to do things that maybe help  an investor                                                                   
     but,  perhaps from  a policy  point of  view, you  don't                                                                   
     want  to  do  to  a seller?    For  example,  the  whole                                                                   
     question of  whether or not, what information  about the                                                                   
     insured person, you're going  to require be given to the                                                                   
     The investor [is] going to say,  "I want to know as much                                                                   
     as  possible about  the insured  whose  life is  insured                                                                   
     under  the policy  I'm purchasing,  in order to  confirm                                                                   
     the accuracy  of what I'm being  told and being  able to                                                                   
     maintain  my property  after I  buy this  policy."   And                                                                   
     there's been  a strong argument in the  different multi-                                                                   
     state agencies  about viator protection.  Are  you going                                                                   
     to  not disclose  the  viator's  name and  address?  ...                                                                   
     There's  an example  of a policy  question that  affects                                                                   
     both  consumers  who are  buyers  or consumers  who  are                                                                   
     You  have   a  similar  issue  that  was   addressed  in                                                                   
     [Version]  H - I can't  find it  in [Version] I  - about                                                                   
     recision  rights.   Because when you  rescind, when  you                                                                   
     give  one side  or the other  the right  to rescind  the                                                                   
     transaction,  by definition you  affect the other  side.                                                                   
     So, if you  follow the procedure that other  states have                                                                   
     of  saying that  a viator  has  the right  to rescind  a                                                                   
     transaction  within so  many days  of some  event -  the                                                                   
     signing  of the contract,  the closing,  or whatever  it                                                                   
     might be -  you have to then balance the  question about                                                                   
     ...  if  the viator  rescinds  the  policy and  ...  the                                                                   
     investor  is  the  new  owner of  the  policy,  the  new                                                                   
     beneficiary, what happens to that purchaser's right?                                                                       
Number 0130                                                                                                                     
CHAIRMAN ROKEBERG said he appreciates Mr. McNerney's comments.                                                                  
MR. MCNERNEY continued:                                                                                                         
     If the transaction  ends up - which is what  many of the                                                                   
     private  investment  models are  -  ... that  the  title                                                                   
     (indisc.)  ownership of the  policy and the  designation                                                                   
     of the new beneficiary goes  directly from the viator to                                                                   
     the  ultimate investor,  and if  you have  a problem  in                                                                   
     that transaction - let's say  the investor has a problem                                                                   
     and says..., "I  was done wrong in this deal  someway" -                                                                   
     well, in  many of the cases,  it may involve  the viator                                                                   
     who was the seller of the policy.                                                                                          
     For example,  suppose that the policy turns  out to have                                                                   
     been  clean-sheeted  and  the  insurance  comes  in  and                                                                   
     rescinds  the policy....   Well,  now,  the investor  is                                                                   
     wronged,  and  the  person  who did  the  wrong  is  the                                                                   
     viator,  and  you have  one  transaction, you  have  one                                                                   
     closing.   Which  department has  jurisdiction over  the                                                                   
     three  parties  involved in  that  deal, and  maybe  the                                                                   
     four? ... I agree that ... the  industry would like that                                                                   
     non-legal language as well.                                                                                                
Number 0229                                                                                                                     
CHAIRMAN ROKEBERG  said at the last  meeting it was  the objective                                                              
to  get a meeting of the minds among  the various parties involved                                                              
under  a very  simple  mandate.    He said  he  is weary  of  this                                                              
discussion because  this is  the fourth or  fifth meeting  on this                                                              
bill.   He does not take  lightly Mr. McNerney  comments regarding                                                              
consumer  protection.   It is the  intention of  the committee  to                                                              
review the regulations  and the entire package before  the bill is                                                              
signed into law.                                                                                                                
MR.  MCNERNEY indicated  his  impression that  there  had been  an                                                              
agreement on a bill draft already.                                                                                              
Number 0318                                                                                                                     
CHAIRMAN  ROKEBERG  said  he  is   disturbed  to  be  having  this                                                              
conversation during  the meeting.  It seems to him  there has been                                                              
a  breakdown  between   Version  H  and  Version   I  between  the                                                              
Administration and the Association.                                                                                             
MR.  LOHR  said  the  Division of  Insurance  took  the  table  of                                                              
contents from the NAIC model and  suggested it as the outline that                                                              
is in  statute.   This is  something that  was recommended  to the                                                              
Division  of Insurance  by  the Department  of  Law, as  a way  to                                                              
ensure  they had  the  legal authority  to  adopt  the NAIC  model                                                              
regulations as their regulations.   That was the sole purpose.  It                                                              
was not  to expand  the regulatory  authority  of the division  or                                                              
anything else.                                                                                                                  
MR.  MCNERNEY  commented  that  the  NAIC  model  regulations  are                                                              
written to  fit with  the NAIC model  Act.   Many of the  subjects                                                              
addressed  in  the  NAIC  model   Act  are  not  repeated  in  the                                                              
regulations.  In  Version I, essentially all of  the language from                                                              
the NAIC model has been taken out.                                                                                              
Number 0400                                                                                                                     
REPRESENTATIVE   MURKOWSKI  said  she   could  not   find  privacy                                                              
protection  in the regulations.    She asked whether  it had  been                                                              
addressed yet.                                                                                                                  
MR. USERA  stated that it  is addressed by  default.  He  said the                                                              
disclosure   requirements  for   the  investor   do  not   require                                                              
disclosure of the owner of the policy or the viator's name.                                                                     
REPRESENTATIVE MURKOWSKI  asked if it is referenced  by the policy                                                              
MR. USERA  indicated that the  policy number may  or may not.   He                                                              
said the  disclosure form  would govern  what disclosures  must be                                                              
given.   The mandate from  the last meeting  was to work  with Mr.                                                              
McNerney  on  writing  regulations.     He  wonders  if  this  was                                                              
misconceived by Mr.  McNerney.  They worked very  closely with him                                                              
and got most of  their definitions from him.  He  noted that it is                                                              
very easy to redo a disclosure form as opposed to a statute.                                                                    
Number 0490                                                                                                                     
MR.  MCNERNEY referred  to the  exemption provisions  in terms  of                                                              
registration and asked if statutory  authority is needed to create                                                              
that exemption.                                                                                                                 
MR. USERA replied no.                                                                                                           
MR. MCNERNEY  said he would be happy  to look at the  newest draft                                                              
of the regulations and the form and provide comments.                                                                           
CHAIRMAN ROKEBERG  asked Mr.  Lohr at what  level the  Division of                                                              
Insurance is on their drafting.                                                                                                 
MR. LOHR  explained that the division  could begin the  process of                                                              
drafting, but it has not been done yet.                                                                                         
CHAIRMAN ROKEBERG  pointed out there have been  important concerns                                                              
brought up by Mr. McNerney.                                                                                                     
MR. LOHR said the table of contents  used as a guide was from both                                                              
the model regulations and the model  statutes of NAIC.  It  is the                                                              
intention  to draft  the regulations  to  cover both  models.   It                                                              
would be  a comprehensive set of  regulations with respect  to the                                                              
first step in the transaction.                                                                                                  
CHAIRMAN ROKEBERG said:                                                                                                         
     I  appreciate  that,  and  I   appreciate  Mr.  McNerney                                                                   
     volunteering  to help out, because  I think  that's very                                                                   
     important.   The committee would  take it (indisc.)  not                                                                   
     to follow  some of those  recommendations -  although we                                                                   
     understand  that  Mr.  McNerney,   ...  this  particular                                                                   
     statute   and   scheme   is  not   exactly   what   he's                                                                   
     recommending.  It's a creature of your Administration.                                                                     
MR.  USERA recommended  inserting  a provision  into  the bill  to                                                              
allow the  Division of Insurance  to write the regulations  now so                                                              
that they can become simultaneously effective with the bill.                                                                    
CHAIRMAN  ROKEBERG  asked  how  that  would  be  done  without  an                                                              
authorized fiscal note.                                                                                                         
MR. USERA  indicated the Department  of Law has  "canned" language                                                              
it can use.                                                                                                                     
CHAIRMAN ROKEBERG  said he does not  understand why a  fiscal note                                                              
needs to be attached.                                                                                                           
Number 0640                                                                                                                     
MR. USERA  responded  that it would  say that  the department  has                                                              
[authority] to  draft regulations, notwithstanding  that they will                                                              
not have authority until passage of the bill.                                                                                   
CHAIRMAN ROKEBERG said it is an excellent idea.                                                                                 
MR. MCNERNEY agreed.                                                                                                            
REPRESENTATIVE   MURKOWSKI  referred   to   Mr.  Usera's   comment                                                              
regarding  dealing with the privacy  aspect by default.  She asked                                                              
why  the privacy  aspect should  not  be addressed  a little  more                                                              
MR.  USERA  indicated  that  should  be  in  the  regulations  the                                                              
Division of  Insurance drafts,  because it  is between  the viator                                                              
and the viatical provider.                                                                                                      
REPRESENTATIVE MURKOWSKI asked if  it is in the table of contents.                                                              
MR. USERA said he believes so.                                                                                                  
REPRESENTATIVE MURKOWSKI said it  is in Section 2, subsection (e),                                                              
paragraph (2).   She asked,  "It will be out  there somewhere that                                                              
we are concerned about the privacy of the individuals?"                                                                         
MS. CAMPBELL replied it would be.                                                                                               
Number 0730                                                                                                                     
MR.  MCNERNEY said  the  NAIC model  prohibits  the disclosure  of                                                              
information  without the  consent of  the viator.   This topic  is                                                              
currently  under discussion  because there  has been an  increased                                                              
sensitivity to what the investor  legitimately needs to know about                                                              
the policy being bought.                                                                                                        
CHAIRMAN  ROKEBERG asked,  "You're  saying  there's difficulty  in                                                              
review of that particular provision (indisc.)?"                                                                                 
MR. MCNERNEY  responded that  there is  difficulty because  all of                                                              
the viatical  laws -  as they were  originally drafted,  including                                                              
the  most recent  NAIC model  - were  drafted with  a view  toward                                                              
protecting the viator.  He said:                                                                                                
     What   everybody   has   come  to   understand   -   and                                                                   
     particularly  the regulators -  is that they  don't have                                                                   
     very   many  problems   on  the  viator   side  of   the                                                                   
     transaction.   The problems and complaints  they get are                                                                   
     on  the  purchaser  side  or   investor's  side  of  the                                                                   
     transaction.   And so now  the committees are  trying to                                                                   
     go back to  the viatical laws and look at  how they have                                                                   
     to  be balanced  so that  the purchaser  or investor  is                                                                   
     equally protected  in investing his money in  buying one                                                                   
     of these policies.  And the  privacy issue is one of the                                                                   
     ... most interesting topics  of conversation, because an                                                                   
     investor  can legitimately  argue, ..."If  I'm buying  a                                                                   
     life insurance policy - the  whole policy or an interest                                                                   
     in a policy - how do I know  what I'm getting if I don't                                                                   
     know the  name of  the insured,  and the policy  number,                                                                   
     and the  name of the company,  so I can call up  ... and                                                                   
     say,  'Is  there  really a  policy  on  Mike  McNerney's                                                                   
MR. USERA said he believes the issues  of privacy, with respect to                                                              
the  viator, can  be handled  under  the regulations  done by  the                                                              
Division of Insurance.                                                                                                          
Number 0870                                                                                                                     
CHAIRMAN  ROKEBERG said  he sees  where the  legislature would  be                                                              
most  interested  in  this issue  because  of  its  constitutional                                                              
position and the desire to protect the consumer.                                                                                
MR. USERA said he  does not think the investor is  entitled to any                                                              
more than  is included  in the  disclosure forms.   He thinks  the                                                              
investor would  be well  informed if those  forms were  filled out                                                              
CHAIRMAN ROKEBERG asked, "What information  about the viator would                                                              
be in those forms?"                                                                                                             
MR. USERA  indicated the  forms include the  number of  the policy                                                              
and the name of the insurance company.                                                                                          
REPRESENTATIVE  BRICE  wondered   if  the  investor  could  cross-                                                              
reference  the   investor's  name   with  the  policy   number  by                                                              
contacting the insurance company.                                                                                               
MR. USERA  said he does  not believe  the insurance company  would                                                              
give that  information out.   The regulations  of the  Division of                                                              
Insurance mandate that that information not be given out.                                                                       
MR. LOHR said  he would have to  check on that because  he was not                                                              
MS.  CAMPBELL said  she  does not  believe  the insurance  company                                                              
would give  out private  information to  anyone who  calls.   If a                                                              
person called the  insurance company and asked  about a particular                                                              
policy number, it might not be a "yes" or "no" response.                                                                        
MR. USERA asked, "But your regulations  could address whether they                                                              
can give that?"                                                                                                                 
MS. CAMPBELL replied yes.                                                                                                       
CHAIRMAN  ROKEBERG  asked  Mr.  McNerney   what  he  is  going  to                                                              
recommend to the NAIC.                                                                                                          
Number 0970                                                                                                                     
MR. MCNERNEY recommended that it  be required to give the person's                                                              
name, in  order to  protect the  consumer.   He thinks the  viator                                                              
should be told that, and then the  viator would have to consent to                                                              
the condition of the sale.                                                                                                      
MR.  USERA respectfully  disagreed.   He said  he thinks  it is  a                                                              
prescription for murder.                                                                                                        
MR. MCNERNEY  stated that  he understands the  question.   He said                                                              
there  have been  companies  that  have not  been  members of  his                                                              
association which  have been engaged  in large-scale fraud.   They                                                              
have  hidden behind  the  privacy as  a reason  why  they are  not                                                              
telling the investor the details  about the policy.  He said it is                                                              
not  a  comfortable  answer.   He  feels  the  NAIC may  keep  its                                                              
existing  provision  which states  that  the  viator has  to  give                                                              
CHAIRMAN  ROKEBERG asked  whether there  are no  mechanisms, by  a                                                              
third-party verification, through the provider.                                                                                 
MR. MCNERNEY  indicated the  provider does that,  but there  is no                                                              
central service bank  of data.  He does not object  to Mr. Usera's                                                              
statement regarding the disclosure form.  He stated:                                                                            
     I'm just trying  to tell you ..., wherever  you get into                                                                   
     that policy  decision, ... somebody's  got to  make that                                                                   
     call.  From  the industry's point of view,  we just want                                                                   
     it to be clear  as to what we're supposed to  do, and we                                                                   
     want  it to  be clear  that both  departments agree,  so                                                                   
     that  we don't  get  a  requirement from  the  insurance                                                                   
     department that conflicts with  the requirement from the                                                                   
     securities department.                                                                                                     
Number 1070                                                                                                                     
CHAIRMAN ROKEBERG  asked whether there  is any way to  ensure that                                                              
both sets of regulations are consistent.                                                                                        
MR. USERA said he would give a promise.                                                                                         
MR.  LOHR said  it is  the leaning  of the  DBSC toward  increased                                                              
privacy and the  maintenance of privacy.  He indicated  it is also                                                              
the  leaning of  the Division  of  Insurance with  respect to  the                                                              
regulations.  He  said he will cooperate on all  the other points.                                                              
He agrees with  Mr. McNerney that having two agencies  involved in                                                              
doing  regulation  complicates the  equation  and  calls for  good                                                              
Number 1110                                                                                                                     
CHAIRMAN ROKEBERG said  it is his preference to not  have two sets                                                              
of regulations.                                                                                                                 
MR. USERA indicated there is a constitutional limitation.  He                                                                   
stated that the constitution provides for privacy.  Disclosing                                                                  
something such as an illness is not in the public interest.                                                                     
CHAIRMAN ROKEBERG said he thinks Mr. Usera is correct.                                                                          
REPRESENTATIVE MURKOWSKI wondered about the investor.  She said                                                                 
there are two different entities involved.  She asked how the                                                                   
provider can be protected.  She asked:                                                                                          
     Is it just sufficient that there  is a policy number out                                                                   
     there  with Hartford  Insurance or  something?  Is  that                                                                   
     sufficient information  to assure the investor,  through                                                                   
     the  Division of Insurance,  that this  is a  legitimate                                                                   
MR. USERA responded:                                                                                                            
     There were a  million five worth of these  policies sold                                                                   
     here  in Alaska  without one  bit  of information  given                                                                   
     out.   So, there were  enough investors willing  to part                                                                   
     with their money, based on the  outlandish returns being                                                                   
     advertised.   I think now,  with the disclosure  that we                                                                   
     require,   we're  going   to  give   them  a  lot   more                                                                   
     information ....   If they  don't like it,  because they                                                                   
     don't have  the name of the  viator, I think  they don't                                                                   
     buy the investment.  That's the choice that they make.                                                                     
Number 1218                                                                                                                     
CHAIRMAN ROKEBERG responded:                                                                                                    
     Well,  point-in-fact, looking  at  the regulations  here                                                                   
     that you  drafted from Banking  ....  You have  the name                                                                   
     of the company  as well as the policy....   Now, is that                                                                   
     going to be allowable for the Division of Insurance?                                                                       
MS. CAMPBELL replied yes.                                                                                                       
CHAIRMAN ROKEBERG asked:                                                                                                        
     So  there would  be  at least  one  step  here for  that                                                                   
     perspective....   The investor  could verify that  there                                                                   
     actually is  a policy ... if,  in fact, they  would give                                                                   
     the information.   Now, would  they verify it?   And you                                                                   
     say you don't think so.  Is that correct?                                                                                  
Number 1247                                                                                                                     
MS. CAMPBELL said  she thinks the policy may be  verified, but the                                                              
name, address  and phone number of  the viator would not  be given                                                              
CHAIRMAN ROKEBERG wondered if a regulation  that speaks to that is                                                              
MS. CAMPBELL responded yes.                                                                                                     
CHAIRMAN  ROKEBERG  asked  if  it  is correct  that  it  would  be                                                              
mandated for the  policy and number to be given,  but for the name                                                              
and other particulars to be excluded.                                                                                           
MS. CAMPBELL said that is correct.                                                                                              
MR. MCNERNEY stated that it is without  the consent of the viator.                                                              
CHAIRMAN ROKEBERG  said the issue  is consent or  non-consent, not                                                              
the name  of the  viator.   He asked,  "Is the  name a  sufficient                                                              
hurdle, Mr. McNerney?"                                                                                                          
MR.  USERA interjected  that  by  giving the  name  in a  viatical                                                              
contract,  then it  would be  known that  the person  has a  life-                                                              
threatening illness.                                                                                                            
CHAIRMAN  ROKEBERG clarified  that he  wants to  know whether  not                                                              
giving the name is adequate.                                                                                                    
MR.  MCNERNEY  said he  cannot  remember  whether the  NAIC  model                                                              
specifically  addresses  the  name   or  addresses  all  types  of                                                              
information about the viator.                                                                                                   
CHAIRMAN  ROKEBERG said  he is  just talking  about mandating  the                                                              
insurance underwriter to verify that a policy exists.                                                                           
Number 1354                                                                                                                     
REPRESENTATIVE  BRICE  stated  that  it  should be  clear  on  the                                                              
insurance company end that it is a simple yes or no question.                                                                   
MR. MCNERNEY suggested  DCED look at Section 6 of  the NAIC model,                                                              
which refers to the privacy issue.                                                                                              
CHAIRMAN ROKEBERG indicated the committee will refer to it.                                                                     
MR. MCNERNEY asked what the proposed procedure is for the bill.                                                                 
CHAIRMAN ROKEBERG commented  that he would like to  take it up the                                                              
following Wednesday.                                                                                                            
MR. MCNERNEY said  he would look at Version I and  then speak with                                                              
both divisions.                                                                                                                 
REPRESENTATIVE   HALCRO   referred  to   the   comments  made   by                                                              
Representative  Brice.  He  wondered how he  would know  whether a                                                              
policy had  not already been  sold to someone  else.  He  asked if                                                              
there is a safeguard.                                                                                                           
Number 1504                                                                                                                     
MR. USERA stated that there is no guarantee.  He added:                                                                         
     The  amount of data  we're going  to collect,  including                                                                   
     financial  statements,  ...  that  may  have  upset  Mr.                                                                   
     McNerney.  He  didn't like the idea that  we're going to                                                                   
     require them to give us financial statements.                                                                              
CHAIRMAN ROKEBERG asked, "What? The agent?"                                                                                     
MR. USERA  said yes.  He  indicated financial statements  would be                                                              
required from the viatical settlement purchaser.                                                                                
CHAIRMAN ROKEBERG wondered why that would be done.                                                                              
MR.  USERA commented  it is  to ensure  it is  a reliable,  viable                                                              
entity.  He said this falls under his division.                                                                                 
CHAIRMAN ROKEBERG said  he is doubtful.  He thinks  it falls under                                                              
the Division of Insurance.                                                                                                      
Number 1546                                                                                                                     
MS. CAMPBELL  clarified that the  viatical settlement  provider is                                                              
selling an interest  in a contract.  She indicated  it is past the                                                              
insurance piece of it.                                                                                                          
MR. USERA said that is correct.   It is in the investment phase of                                                              
the process.  He said the company  that wants to sell these things                                                              
to investors  is going to have to  be in business for  three years                                                              
or tell his division why it should be exempt from that.                                                                         
CHAIRMAN  ROKEBERG asked  if both  divisions  would be  regulating                                                              
viatical settlement providers.                                                                                                  
MR.  USERA  replied  yes,  but  it  will  be  from  two  different                                                              
CHAIRMAN  ROKEBERG   said,  "But  the  provider   doesn't  do  the                                                              
MR. USERA  said that  is correct, but  when marketing  is involved                                                              
his division then comes in.                                                                                                     
CHAIRMAN ROKEBERG replied:                                                                                                      
     I know..., but he's not the  provider.  The provider ...                                                                   
     in  the  chain  of  the  transaction   ...  wouldn't  be                                                                   
     marketing  to the  consumer.   They're selling  it to  a                                                                   
MR. USERA  noted there  may be  another person  involved, but  the                                                              
"viatical settlement  provider" is  the institution that  buys the                                                              
policy from the viator and then sells it to an investor.                                                                        
CHAIRMAN ROKEBERG said:                                                                                                         
     They're the  packager, but normally  its the  agents and                                                                   
     brokers  that   sell  it  to  the  consumers,   not  the                                                                   
     provider, although if they do  - it's provider acts as a                                                                   
     retailer -then he would be under your purview.  Right?                                                                     
Number 1634                                                                                                                     
MR. USERA replied:                                                                                                              
     As long  as the transaction  between the viator  and the                                                                   
     ultimate   packager  of  these   things,  that's   under                                                                   
     Insurance.  If  it's from the provider, and  any brokers                                                                   
     he uses  in there to get  these to investors,  they come                                                                   
     under us.                                                                                                                  
CHAIRMAN  ROKEBERG   said  he  had   thought  there   was  another                                                              
middleman.    He said  in  Alaska  most  of  the sales  have  been                                                              
brokered by Alaskan people acting as agents for the providers.                                                                  
MR. USERA agreed, but said it all falls under investments.                                                                      
CHAIRMAN ROKEBERG said, "The agents, but not the provider."                                                                     
REPRESENTATIVE  BRICE stated that  the provider  is selling  it to                                                              
CHAIRMAN ROKEBERG commented  that it is being sold  to an agent or                                                              
a broker.                                                                                                                       
MR. USERA said:                                                                                                                 
     What happened up here was these insurance agents ...                                                                       
     were selling these people interest, which they then had                                                                    
      to go back and find.  Many of the contracts were not                                                                      
     concluded with the viator yet.                                                                                             
CHAIRMAN ROKEBERG wondered if they were sold on the (indisc.).                                                                  
MR. USERA responded:                                                                                                            
     Exactly.   That was  one of  our complaints.   Sometimes                                                                   
     there  were  six, seven,  eight  months in  between  the                                                                   
     taking of the person's money,  the investor's money, and                                                                   
     ... matching him up with a viatical to buy.                                                                                
CHAIRMAN ROKEBERG asked if they were being guaranteed.                                                                          
MR. USERA stated,  "They were guaranteeing them  48 percent return                                                              
on their money.  And the idiots are  buying these things like that                                                              
.... We needed to protect somebody."                                                                                            
Number 1748                                                                                                                     
CHAIRMAN ROKEBERG said he has a concern with cross-jurisdiction.                                                                
MR. USERA  explained that the Division  of Insurance and  the DBSC                                                              
have pledged  to work  closely together.   He  said a  bright-line                                                              
test would be given to the committee in the next few days.                                                                      
CHAIRMAN ROKEBERG stated, "Right  now, we're painting that line of                                                              
demarcation  right down  the hallway  of a  provider somewhere  in                                                              
Florida.  And I guess I'm a little concerned about that."                                                                       
MR. USERA said, "He's going to wear two hats."                                                                                  
CHAIRMAN ROKEBERG  indicated that  depends.   He wondered  about a                                                              
broker in Alaska who was an agent under his provision.                                                                          
MR. USERA clarified that the insurance  brokers in Alaska were not                                                              
buying the policies from the provider.                                                                                          
CHAIRMAN ROKEBERG said there were complaints filed.                                                                             
MR. USERA  said, "We never  went after  the insurance people.   We                                                              
went after the provider."                                                                                                       
CHAIRMAN  ROKEBERG  replied,  "You   put  them  out  of  business,                                                              
MR. USERA said that was not the intent.                                                                                         
CHAIRMAN ROKEBERG  said, "You forced a voluntary  cease-and-desist                                                              
order on  these people ....   That's  called throwing them  out of                                                              
Number 1852                                                                                                                     
MR. USERA responded that it was thought so, with good reason.                                                                   
CHAIRMAN  ROKEBERG   stated,  "They  were  selling   a  provider's                                                              
product.  They  were not going out and putting  together their own                                                              
REPRESENTATIVE CISSNA said it is not quite the same as murder.                                                                  
MR. USERA  said many  of the  investors the  brokers sold  to were                                                              
called.    They   were  asked  if  the  policies   may  have  been                                                              
contestable.  He said it was asked  what a contestable policy was.                                                              
He thinks it is basic information a investor should have.                                                                       
CHAIRMAN ROKEBERG  said Mr. Usera  is not answering  his question.                                                              
He said the line is trying to be determined.  He added:                                                                         
     When they have  the provider who packages  the deal with                                                                   
     the viator ... and then turns  around and either retails                                                                   
     - sells it to a customer or  goes through an agent - ...                                                                   
     in  your regulations  you have  this  $250 license  ....                                                                   
     What's the term for that person?                                                                                           
MR. USERA said the term is "viatical settlement provider".                                                                      
CHAIRMAN ROKEBERG asked about the agent who sells it.                                                                           
MR. USERA  responded, "He's  going to have  agents, but  those are                                                              
his  responsibility  to give,  to  line those  agents  up for  his                                                              
purposes and for ours."                                                                                                         
CHAIRMAN ROKEBERG wondered, "They're not going to be licensed?"                                                                 
MR. USERA  said there is  a form the  settlement provider  will be                                                              
required to  give.  The  form will list  the names of  the agents.                                                              
They will have to give the dates  of their registrations and their                                                              
affiliations.  If  someone is going to be an agent,  he or she has                                                              
to take a test and the provider will have to pay the fee.                                                                       
CHAIRMAN ROKEBERG commented,  "I just had a different  mind set of                                                              
the chain  of events  coming into  the room  today, because  you'd                                                              
both basically be regulating a provider."                                                                                       
Number 2025                                                                                                                     
MR.  LOHR  said   that  is  correct.    He  believes   under  most                                                              
transactions there  will be overlapping authority  between the two                                                              
divisions with  respect to the  viatical settlement provider.   He                                                              
endorses the  bright-line test  and hopes it  can be done,  but he                                                              
feels an overlap  is necessary with respect to the  center of that                                                              
MR. USERA said  he disagrees.  He  does not think it  will be that                                                              
difficult.   He said,   "If he's  dealing with  the viator  in any                                                              
shape or form, he  comes under you.  As soon as  he's dealing with                                                              
an investor or any part of the investment  process, he comes under                                                              
MR.  LOHR said  that  is right.    It might  be  the same  person;                                                              
therefore,  both  divisions  regulate elements  of  that  person's                                                              
MR. USERA said he  does not think it will be difficult  to write a                                                              
bright-line test.                                                                                                               
CHAIRMAN ROKEBERG  said he  believes the Senate  will ask  why two                                                              
sets of regulations  are being written  and why there is  a fiscal                                                              
MR. USERA said, "Call me."                                                                                                      
CHAIRMAN ROKEBERG said he wants to know what to tell the Senate.                                                                
Number 2102                                                                                                                     
MR.  USERA  stated that  the  fiscal  note  from the  Division  of                                                              
Insurance is a  clean slate.  He commented, "They're  taking money                                                              
in,  they're  putting  money  out.   We're  taking  money  in  and                                                              
nothing's going out."   He said he sees it as  a win-win situation                                                              
for the state.                                                                                                                  
CHAIRMAN ROKEBERG said he knows,  but thinks it is a can of worms.                                                              
MR. USERA said he does not think so.                                                                                            
CHAIRMAN ROKEBERG  said he  does not  like it, but  it is  what he                                                              
asked the two divisions to do.                                                                                                  
REPRESENTATIVE  MURKOWSKI  referred   to  Representative  Halcro's                                                              
concern.   She  wondered if  there is  any way,  when writing  the                                                              
regulations, to maintain  a registry of the policy  numbers on the                                                              
viatical disclosures.   It seems to  her there should be  a way to                                                              
address  the concern  of  someone "shopping  the  same policy  and                                                              
selling it 16 different times".                                                                                                 
Number 2237                                                                                                                     
MS.  CAMPBELL   replied  that  the   insurance  contract   has  an                                                              
assignment provision.   She explained  that once a policy  is sold                                                              
there is  an assignment that occurs  whereby the ownership  of the                                                              
policy changes.   The person who  originally bought the  policy is                                                              
no longer  the owner.  At the  very least,  the insurance  company                                                              
could inform someone that the policy has already been assigned.                                                                 
MR. USERA said there is a difficulty  built in.  He stated, "A lot                                                              
of these  companies sale  a slice  of the deal,  ... so  you might                                                              
have 10 or 15 investors right off the bat."                                                                                     
REPRESENTATIVE  MURKOWSKI  said  it  does  not  really  solve  the                                                              
REPRESENTATIVE HALCRO wondered what  happens if the policy that is                                                              
sold  is not  in the  jurisdiction  of the  divisions,  such as  a                                                              
policy on someone who lives in New York or California.                                                                          
MR.  USERA explained  that  before  a policy  can  be  sold to  an                                                              
investor in  this state,  they must be  registered.  They  need to                                                              
disclose  information such  as financial  statements.   It is  his                                                              
experience  that people  running scams do  not bother  registering                                                              
because they are too easily found  out.  He indicated there may be                                                              
people  who get  away  with  this, but  the  divisions  try to  be                                                              
REPRESENTATIVE HALCRO  said he thinks the state's  position should                                                              
be, to some extent, "buyer beware."                                                                                             
MR. USERA replied that should always be the case.                                                                               
TAPE 00-02, SIDE A                                                                                                              
Number 0004                                                                                                                     
CHAIRMAN  ROKEBERG  referred  to  page  2,  subsection  (d).    He                                                              
wondered what the scope of the examination would be.                                                                            
MR. LOHR  said he believes the  provision is aimed at  a financial                                                              
examination similar  to what the division does  to ensure solvency                                                              
for domestic companies.                                                                                                         
MS.   CAMPBELL   said  it   is   the  provision   that   discusses                                                              
reimbursement the division's expenses  when a company is examined.                                                              
CHAIRMAN ROKEBERG said he just wanted to clear that up.                                                                         
MR. LOHR affirmed that is the typical practice.                                                                                 
Number 0117                                                                                                                     
CHAIRMAN  ROKEBERG  asked  Mr.  Usera  what  exactly  he  will  be                                                              
providing to the committee.                                                                                                     
MR. USERA responded  that he will be providing  a bright-line test                                                              
and  some suggested  language  for  getting regulations  in  place                                                              
prior to the  effective date of the  bill.  He said he  would also                                                              
be doing  the life settlement definitions  and taking care  of any                                                              
drafts on the amendment.                                                                                                        
MR. LOHR  indicated the Division  of Insurance was trying  to stay                                                              
out of that area, despite the national  trend to the contrary.  He                                                              
said the  divisions came at the  chairman's request, to  offer any                                                              
CHAIRMAN ROKEBERG agreed,  saying it was at the  insistence of the                                                              
DBSC that this dilemma exists.                                                                                                  
MR. USERA  stated that  the only  alternative is  to ban  the sale                                                              
entirely in Alaska.                                                                                                             
CHAIRMAN ROKEBERG clarified  that the dilemma had arisen  due to a                                                              
conflict  between local  administrative  policy  and the  national                                                              
trend in terms of regulations.  [HB 190 was held over.]                                                                         

Document Name Date/Time Subjects