03/15/1994 01:50 PM Senate L&C

 CHAIRMAN KELLY brought  SB 342  (RISK BASED CAPITAL FOR INSURERS)             
 before the committee as the final order of business.                          
                                                                               
 DAVID WALSH, Director, Division of Insurance, Department of                   
 Commerce & Economic Development, introduced Barbara Thurston, Chief           
 Actuary, and Katy Campbell, Assistant Actuary, with a specialty in            
 life and health actuarial science.                                            
                                                                               
 Mr. Walsh explained the legislation represents the culmination of             
 many years of work by insurance regulators and industry                       
 representatives from throughout the country.                                  
                                                                               
 The current statute does not take into account the difference in              
 sizes of companies, the difference in asset risk, the difference in           
 underwriting risk and type of business, etc.  Regulators learned              
 during the 1980's in both the banking and insurance sectors  that             
 that was simply not a good tool for regulation, nor did it                    
 accurately reflect the strength that a company had.  Banking                  
 regulation went to risk based capital a few years ago, and with               
 insurance, part of it took a little longer to put together.                   
                                                                               
 SB 342 sets up a series of criteria based upon a company's size,              
 how they invest their money, the type of risk that they underwrite,           
 which is then put into a mathematical formula.  From that formula,            
 a number is achieved, and based upon the number, the regulator                
 either does or doesn't take action.                                           
                                                                               
 At 200 percent of the minimum capital necessary, there are                    
 permissive things that a regulator may do.  At 150 percent there              
 are some things that a regulator has to do, like sit down with a              
 company and work out a plan for rehabilitation.  At 100 percent of            
 risk based capital that means they are into the very dollars that             
 provide the company with life and there are some mandatory                    
 regulatory actions there.                                                     
                                                                               
 Mr. Walsh said the Alaskan domestic companies benefit from this               
 change.  The average nationwide for healthy companies is about 280            
 to 290 percent of risk based capital.  Alaskan companies range from           
 400 percent of risk based capital to 24,000 percent of risk based             
 capital.  He said this points out that our companies are                      
 conservative companies that are well managed.  Risk based capital             
 will allow them to provide a little more flexibility in their                 
 investment policy based upon that strength.  The statutes, as they            
 currently exist, don't allow that flexibility.                                
                                                                               
 Mr. Walsh said the state's domestic companies are all in favor of             
 the proposed legislation, however, one change has been suggested              
 Alaska National.   The risk based capital formula is a national               
 formula that will be changed and adapted as the industry changes              
 and the market changes.  The amendment proposed would require a               
 public hearing process in Alaska to make certain that that change             
 is good for Alaskan consumers and Alaskan domestic companies.  He             
 also spoke to other minor amendments being proposed by the Division           
 of Insurance.                                                                 
                                                                               
 Number 260                                                                    
                                                                               
 SENATOR SHARP moved that the amendments proposed by the Division of           
 Insurance be adopted and incorporated into a Labor & Commerce                 
 committee substitute.   Hearing no objection, the Chairman stated             
 CSSB 342(L&C) was adopted.                                                    
                                                                               
 Number 265                                                                    
                                                                               
 SENATOR RIEGER asked what the phrase "monetary consideration                  
 received under an annuity" refers to.  KATY CAMPBELL answered it              
 relates to any kind of single premium payments to purchase a                  
 deferred annuity.                                                             
                                                                               
 SENATOR SHARP moved that CCSB 342(L&C) be passed out of committee             
 with individual recommendations.  Hearing no objection, it was so             
 ordered.