Legislature(1999 - 2000)
03/30/2000 02:40 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HB 190-VIATICAL SETTLEMENTS
REPRESENTATIVE ROKEBERG, sponsor of HB 190, said he worked closely
with the Division of Banking, Securities, and Corporations and the
viatical settlement industry. Viatical forms of contracts are
agreements by investors to purchase a discount on a life insurance
policy. This particular style of insurance and investment came
about because of the AIDS crisis several years ago. Some people
with the disease had life insurance policies but were unable to
access the value of them to help pay for their medical treatment.
HB 190 allows anyone with an existing life insurance policy to sell
to an investor who takes a risk on the remaining length of time of
the life of the person against the discount paid for the policy.
Number 149
REPRESENTATIVE ROKEBERG explained that this type of transaction is
sometimes subject to fraud because there is no way to specifically
regulate this type of activity in Alaska. There is concern about a
turf war within our bureaucracy as this bill allows dual regulation
by the Divisions of Insurance and Securities. Dual regulation is
not uncommon in a number of business areas. There are $1.5 million
worth of viatical contracts in Alaska.
CHAIRMAN MACKIE asked if there is any known opposition to the bill.
REPRESENTATIVE ROKEBERG answered no. There were some concerns
about the jurisdiction, which were dealt with in the House
Judiciary Committee.
CHAIRMAN MACKIE asked what the House vote was.
REPRESENTATIVE ROKEBERG said it was unanimous.
Number 346
MR. TERRY ELDER, Director, Division of Banking, Securities, and
Corporations, testified that a majority of states have already
adopted statutes that are similar to the insurance provision of
this bill. Their insurance department regulates the relationship
between people who are selling their insurance products and the
middle people who are buying and selling them to investors.
About 44 states take the position that viaticals, when they are
sold to investors, are investment contracts and, therefore, covered
under the Securities Act. Most states take the position that they
have jurisdiction on the security side when that middle person
turns around and sells it to investors. This bill codifies that.
MR. ELDER said there are two benefits. On the insurance side it
provides protection for the insurance company against fraud, which
has taken place in other states. In this case, his Division
asserts jurisdiction because they are investment contracts.
However, when they do that, they would have to go to court if it
was challenged and argue each case as an investment contract. Last
year a lawsuit was filed blocking the Division's jurisdiction.
Putting "viatical" in the definition of a security, which four
other states have already done and several other states are in the
process of doing, would benefit the State of Alaska because there
would be no question of jurisdiction.
CHAIRMAN MACKIE asked if the cost of those suits was substantial.
MR. ELDER replied absolutely.
SENATOR LEMAN said it doesn't make sense to prosecute people who
may have been proceeding in good faith on the basis of what has
been occurring in some other state. He supported clarifying the
state's position, but he didn't know about past actions. He wasn't
sure the state's position had been as clearly stated to the public
as it was to the committee.
MR. ELDER agreed that it wasn't clearly stated. Viaticals aren't
mentioned anywhere in Alaska statutes or regulations; so they would
have to ask, as some companies did. This legislation is needed to
clarify our statutes and to make it clear to the public that
viaticals are a security.
SENATOR LEMAN asked if we were prosecuting anyone who was operating
in good faith or whether that has been resolved.
MR. ELDER replied that everything has been resolved. Only one
order was issued against a company, not an agent.
SENATOR KELLY asked if the middle people who buy the contracts
package them in a portfolio and sell them to an investor like
mortgage companies do.
MR. ELDER explained that typically it's almost a one-on-one thing.
Sometimes they will fractionalize it: they buy a $100,000 policy
from someone and turn around and sell that policy to 10 people for
$10,000 each. It's rare that they would be put in some kind of
portfolio, although it probably could be done.
SENATOR KELLY asked if the investment return depends on how long
the person lived.
MR. ELDER answered yes. That's one of the difficulties. The total
return may be clear, but you may earn it next year or 40 years from
now. It's hard to tell. One of the problems with no regulation is
that an advertisement will say a 40 percent return is available and
imply that's a lot larger than the five or six percent you can get
from a CD, not mentioning the liquidity problem.
MR. BOB LOHR, Director, Division of Insurance, said that the
Division's position is that it is not seeking involvement in this
area, but it is willing to become involved at the request of the
legislature to assist and make sure there is complete coverage.
The division believes someone ought to be regulating viatical
settlements. The division came forward because last year, under a
previous director, there was opposition to any involvement by the
Division but it is not interested in any active "turf grab."
SENATOR LEMAN moved to pass HB 190 from committee with individual
recommendations. There were no objections and it was so ordered.
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