Legislature(1999 - 2000)

03/30/2000 02:40 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                    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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