04/18/2015 09:00 AM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB15 | |
| SB107 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 107 | TELECONFERENCED | |
| + | SB 15 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 18, 2015
9:11 a.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Shelley Hughes, Vice Chair
Representative Gabrielle LeDoux
Representative Cathy Tilton
Representative Andy Josephson
Representative Sam Kito
Representative Jim Colver
MEMBERS ABSENT
Representative Mike Chenault (alternate)
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 15
"An Act relating to the tax on policy year premiums for life
insurance policies."
- MOVED SSSB 15 OUT OF COMMITTEE
SENATE BILL NO. 107
"An Act relating to insurance; relating to risk based capital
for domestic insurers and fraternal benefit societies, including
provisions related to insurers subject to risk based capital and
action level event requirements; relating to review by the
director of insurance of an insurer's risk based capital plan;
relating to confidentiality and sharing of certain information
submitted to the director of insurance; relating to evaluating
an insurance holding company and the acquisition of control of
or merger with a domestic insurer; relating to risk based
capital, risk management, and own risk and solvency assessments
of insurers; clarifying provisions related to risk based capital
plans; relating to exemptions by the director of insurance for
certain domestic and casualty insurers from risk based capital
requirements; relating to insurance holding companies, including
filing requirements, divestiture, content of statements,
notifications, and hearings; relating to registration
requirements of insurers; relating to transactions within an
insurance holding company system or transactions involving a
domestic insurer; relating to management and examination of
domestic insurers that are part of an insurance holding company
system; adding provisions relating to participation by the
director of insurance in a supervisory college; relating to
civil and criminal penalties for violations by insurers and
individuals; relating to provisions for risk management and own
risk and solvency assessments by insurers; relating to operating
requirements for controlling insurance producers; relating to
producer-controlled insurers; adding and amending definitions
related to insurers; and providing for an effective date."
- MOVED SB 107 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 15
SHORT TITLE: LIFE INSURANCE POLICY PREMIUM TAX
SPONSOR(s): SENATOR(s) COGHILL
01/21/15 (S) PREFILE RELEASED 1/16/15
01/21/15 (S) READ THE FIRST TIME - REFERRALS
01/21/15 (S) L&C, FIN
02/04/15 (S) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS
02/04/15 (S) L&C, FIN
02/26/15 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
02/26/15 (S) Heard & Held
02/26/15 (S) MINUTE(L&C)
03/03/15 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/03/15 (S) Moved SSSB 15 Out of Committee
03/03/15 (S) MINUTE(L&C)
03/04/15 (S) L&C RPT 3DP
03/04/15 (S) DP: GIESSEL, MEYER, STEVENS
03/23/15 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/23/15 (S) Heard & Held
03/23/15 (S) MINUTE(FIN)
04/08/15 (S) FIN AT 1:30 PM SENATE FINANCE 532
04/08/15 (S) Moved SSSB 15 Out of Committee
04/08/15 (S) MINUTE(FIN)
04/09/15 (S) FIN RPT 3DP 2NR
04/09/15 (S) DP: BISHOP, DUNLEAVY, HOFFMAN
04/09/15 (S) NR: MACKINNON, OLSON
04/15/15 (S) TRANSMITTED TO (H)
04/15/15 (S) VERSION: SSSB 15
04/15/15 (H) READ THE FIRST TIME - REFERRALS
04/15/15 (H) L&C
04/18/15 (H) L&C AT 9:00 AM BARNES 124
BILL: SB 107
SHORT TITLE: INSURANCE; RISK MG'T; HOLDING COMPANIES
SPONSOR(s): LABOR & COMMERCE
04/11/15 (S) READ THE FIRST TIME - REFERRALS
04/11/15 (S) L&C
04/11/15 (S) L&C AT 11:00 AM BELTZ 105 (TSBldg)
04/11/15 (S) Heard & Held
04/11/15 (S) MINUTE(L&C)
04/14/15 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/14/15 (S) Scheduled but Not Heard
04/16/15 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/16/15 (S) Moved SB 107 Out of Committee
04/16/15 (S) MINUTE(L&C)
04/17/15 (S) L&C RPT 3DP 1NR
04/17/15 (S) DP: COSTELLO, GIESSEL, MEYER
04/17/15 (S) NR: STEVENS
04/18/15 (H) L&C AT 9:00 AM BARNES 124
WITNESS REGISTER
SENATOR JOHN COGHILL
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as the prime sponsor of SB 15.
LORI WING-HEIER, Director
Division of Insurance
Department of Commerce, Community, & Economic Development (DCCED)
Anchorage, Alaska, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of SB 15.
WESTON EILER, Staff
Senator Mia Costello
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the prime sponsor of
SB 107, the Senate Labor & Commerce Committee, Senator Mia
Costello, Chair.
LORI WING-HEIER, Director
Division of Insurance
Department of Commerce, Community, & Economic Development (DCCED)
Anchorage, Alaska, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of SB 107.
ACTION NARRATIVE
9:11:45 AM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 9:11 a.m. Representatives Kito,
Josephson, Tilton, Hughes, and Olson were present at the call to
order. Representatives LeDoux and Colver arrived as the meeting
was in progress.
SB 15-LIFE INSURANCE POLICY PREMIUM TAX
9:12:09 AM
CHAIR OLSON announced that the first order of business would be
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 15, "An Act relating to
the tax on policy year premiums for life insurance policies."
9:12:16 AM
SENATOR JOHN COGHILL, Alaska State Legislature, characterized
the bill as simple in concept, but one with complexities. He
said that SB 15 would reduce the premium taxes for single or
group life insurance polies from 0.1 percent to 0.08. In 1997,
one of his predecessors introduced the trust administration law
that created trusts in Alaska, which was unique. Previously,
the insurance director mentioned offshore investment issues, and
the concept was to attract to the United States that type of
investment. In 2010, Alaska had $208 million in investment for
single or group life insurance as a result of its favorable
trust law, noting other states enacted similar laws, including
South Dakota, which has had the effect of reducing the
investment in Alaska to $79 million. This bill was introduced
to attract additional investment in Alaska.
9:14:09 AM
SENATOR COGHILL pointed out that one concern expressed was that
this is a "race to the bottom," which he acknowledged was a
legitimate concern; however, he hoped to increase the investment
in Alaska, which will improve the workforce, attract investment
to Alaska, and would bring a premium tax benefit. Although the
state may lose volume and lose the tax value, if the volume was
increased, it will also increase the tax value to Alaska. He
hoped this would bring the policy year premium for policies
exceeding $100,000 to a rate competitive to other states, in
particular, South Dakota. He explained that this would bring
Alaska's basic premium tax rate even with South Dakota's rate.
He offered his belief that Alaska's trust administration law was
attractive, but this will entice investors in Alaska. This bill
was brought to the sponsor by the trust administrators in
Alaska.
9:16:19 AM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community, & Economic Development (DCCED), stated that
SSSB 15 would reduce the premium tax from 0.10 to 0.08 on life
insurance policies exceeding $100,000. She referred to a
spreadsheet in members' packets entitled "Prepared by the
Division of Insurance at the request of Senator John Coghill for
SB 15." The amount of tax collected starts at $104 thousand and
if it was reduced to .08 it would be $84,000, which makes a
difference of about $20,000 on about 112 polices. She said the
table goes through 2012 to highlight the number of polices and
the difference in the tax that would be collected at the 0.08
rate. She said South Dakota reported that when it reduced their
tax to 0.08 percent, in 2010 that 29 companies wrote policies
over $100 million with $97 million in premium taxes and in 2014,
South Dakota collected $120 million in premium collected from 32
companies. She recapped that South Dakota did enjoy an increase
in volume from the insurance industry.
9:18:20 AM
MS. WING-HEIER said this was submitted with an indeterminate
fiscal note since it was not possible to determine the overall
effect of the revenue collected; however, she reported that in
2011, the difference was $88,000. She suggested that the amount
was fairly small in terms of the overall revenue for the
division.
9:19:11 AM
REPRESENTATIVE KITO referred to the aforementioned table to
2011, to $443,280 for 105 polices, dropping to $112,535 and 105
polies. He asked for further clarification on the shift in
revenue since it seemed like the division taxed the same number
of policies.
MS. WING-HEIER answered that 2011 was an anomaly since the state
had two large polices over $300 million. In fact, these are the
types of policies the insurance companies hope to attract. She
referred to the total life premium written in 2011 for
$687,043,543 which dropped in 2012 to $352,786,601.
9:21:10 AM
CHAIR OLSON related his understanding the Division of Insurance
supported the bill.
MS. WING-HEIER answered yes; that the division does support the
bill.
9:21:28 AM
REPRESENTATIVE LEDOUX wondered whether the policies in question
were a finite number of potential policies since the language
referred to policies over $100,000 in premium. She asked the
reason that people would move their policies to Alaska.
MS. WING-HEIER answered that there was not a finite number, but
that life insurance is one tool in retirement planning. She
said that the division has seen an increase in this tool being
used in financial planning, especially by young people who are
starting to look at their financial future. She offered her
belief that young people are buying bigger policies. Further,
she advised that people do not need to live in Alaska to take
advantage of this tax structure. The insurance brokers or
producers in the state could sell to people in the Lower 48, but
the state will collect the tax.
9:23:41 AM
REPRESENTATIVE LEDOUX asked whether these policies are used when
someone dies or if the [policies] are cash values since people
use them for retirement planning.
MS. WING-HEIER answered these policies can be used as a
beneficiary for life estate planning purposes or they could have
a cash value that people could draw on, but it would just depend
on how it was structured with the broker.
9:24:09 AM
CHAIR OLSON commented that these policies are also used to cover
taxes after death on large estates.
MS. WING-HEIER agreed that was correct.
9:24:20 AM
REPRESENTATIVE HUGHES asked Ms. Wing-Heier to predict the
additional potential revenue the state might collect.
MS. WING-HEIER said she did not have an answer at this time,
although the committee requested it. Unfortunately her
financial staff was currently on leave so she wasn't able to
access and compile data to predict the overall effect of the
bill; however, the insurance agents and brokers believe this
change will be beneficial.
9:26:31 AM
REPRESENTATIVE HUGHES asked whether she was confident this
change will increase revenue.
MS. WING-HEIER answered that she was optimistic. She said she
has spent time with the sponsor and agents, who are confident it
will.
9:26:56 AM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on SSSB 15.
9:27:12 AM
REPRESENTATIVE HUGHES moved to report SSSB 15 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, SSSB 15 was reported from the
House Labor and Commerce Standing Committee.
9:27:35 AM
The committee took a brief at ease.
CHAIR OLSON recessed to a call of the Chair.
1:19:41 PM
CHAIR OLSON reconvened the committee at 1:19 p.m.
Representatives Tilton, Colver, Hughes, Josephson, LeDoux, and
Olson were present when the meeting reconvened. Representative
Kito arrived as the meeting was in progress.
SB 107-INSURANCE; RISK MG'T; HOLDING COMPANIES
1:19:51 PM
CHAIR OLSON announced that the next order of business would be
SENATE BILL NO. 107, "An Act relating to insurance; relating to
risk based capital for domestic insurers and fraternal benefit
societies, including provisions related to insurers subject to
risk based capital and action level event requirements; relating
to review by the director of insurance of an insurer's risk
based capital plan; relating to confidentiality and sharing of
certain information submitted to the director of insurance;
relating to evaluating an insurance holding company and the
acquisition of control of or merger with a domestic insurer;
relating to risk based capital, risk management, and own risk
and solvency assessments of insurers; clarifying provisions
related to risk based capital plans; relating to exemptions by
the director of insurance for certain domestic and casualty
insurers from risk based capital requirements; relating to
insurance holding companies, including filing requirements,
divestiture, content of statements, notifications, and hearings;
relating to registration requirements of insurers; relating to
transactions within an insurance holding company system or
transactions involving a domestic insurer; relating to
management and examination of domestic insurers that are part of
an insurance holding company system; adding provisions relating
to participation by the director of insurance in a supervisory
college; relating to civil and criminal penalties for violations
by insurers and individuals; relating to provisions for risk
management and own risk and solvency assessments by insurers;
relating to operating requirements for controlling insurance
producers; relating to producer-controlled insurers; adding and
amending definitions related to insurers; and providing for an
effective date."
1:20:14 PM
WESTON EILER, Staff, Senator Mia Costello, Alaska State
Legislature, on behalf of the Senate Labor & Commerce Committee,
Senator Mia Costello, Chair, explained that SB 107 would update
Alaska's insurance statutes to comply with national standards
and maintain the accreditation of the Division of Insurance,
Department of Commerce, Community & Economic Development
(DCCED). The provisions in the bill would bring Alaska's
insurance laws in line with federal law and national industry
best practices. The provisions in the bill have been thoroughly
vetted by the department, stakeholders, industry, and this
committee [passed out the companion bill, HB 164 on 3/25/15].
He deferred to the Division of Insurance to answer technical
questions and the importance to the division.
1:21:23 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community, & Economic Development (DCCED), provided a
brief section-by-section analysis of SB 107. She stated that
Section 1 pertained to risk-based capital and would adopt the
model law 315 and amendments to model law 312 [adopted by the
National Association of Insurance Commissioners (NAIC). She
stated that risk-based capital considers the solvency of the
insurance company, taking into account what they are doing for
underwriting, investments, and measuring against the ratio. She
directed attention to the first six pages of the bill related to
AS 21.14, which references risk-based capital plan and the
regulatory control events to measure whether the company is
solvent or not, and if not, the Division of Insurance will step
in for liquidation. She directed attention to Section 2,
beginning on page 8, to Section 20, which relates to the
insurance holding companies. This would make amendments to
model law 440 [passed by the National Association of Insurance
Commissioners (NAIC), in particular, as the state considers
holding companies as an "umbrella" would allow the division to
identify other companies within the umbrella. She explained
that currently the division can see the insurance company that
is domiciled in Alaska, but with these changes, the division
will be able to identify the other entities within the holding
companies to determine whether the companies are subsidizing one
another or what the interactions are, including their financials
and identify any problems that may impact the insurer doing
business in Alaska.
1:24:01 PM
MS. WING-HEIER remarked that the insurance holding company was
the biggest part of this bill, through Section 46. She directed
attention to Section 46, related to ORSA [Own Risk and Solvency
Assessment]. She said this provision would be new to the state,
which places the onus on insurers to file a risk management
report or an ORSA to identify relevant risks, not previously
identified for the division outside of a normal financial
examination.
CHAIR OLSON added that this bill would incorporate the National
Association of Insurance Commissioners (NAIC) model law to
ensure that all states are in line.
1:25:09 PM
MS. WING-HEIER acknowledged that everything in this bill was
based on the NAIC model law, with a small portion of the bill
consisting of technical drafting changes made to comport to the
legislature's drafting style. She said the last section of the
bill, Section 47 would amend provisions related to insurance
producer agents, administration, and brokers. She directed
attention to page 29, which would remove the requirement to send
certified mail, and adds insurance producers instead of
licensees, since the division would not have licensees. In
response to Representative Hughes, she directed attention to
page 23, Section 46, AS 21.23.030, which was a new provision
related to Own Risk and Solvency Assessment (ORSA) Summary
Report based on the National Association of Insurance
Commissioners (NAIC) model law.
MS. WING-HEIER reiterated that Section 47 would provide an
update to producer agents since the state did away with
licensees who are now insurance producers, to be in compliance
with NAIC model. She directed attention to page 32, Sections 49
and 50, which would update the definition of "controlled
insurer" to be in compliance with NAIC model law. Finally,
Section 51 made technical changes, she said.
1:27:11 PM
REPRESENTATIVE JOSEPHSON recalled that parts of the bill that
members had concerns with in the House companion bill [HB 164]
were relative to discovery and confidentiality. He asked
whether those provisions were stripped from SB 107.
MS. WING-HEIER answered yes; that the word "privileged" was
removed from SB 107. She referred to a memo from the Department
of Law in members' packets [from Daniel Wilkerson dated April
15, 2015] explaining what privileges are still left in AS 21.06
that would extend to insurers as to confidential provisions.
1:28:08 PM
REPRESENTATIVE JOSEPHSON asked whether anything in the bill
would alter current law. He appreciated knowing that the memo
was in members' packets. He asked whether that was the best
source to answer his question.
MS. WING-HEIER offered her belief that it will. She related her
understanding that the concern did not relate to the
confidentiality, but with the word, "privilege." The word
"privilege" has been removed from the bill.
1:28:40 PM
CHAIR OLSON directed attention to the memo from Daniel Dickinson
to Lori Wing-Heir, Director of the Division of Insurance, dated
April 15, 2015.
[The committee did not take an at-ease but took a moment to
review the document.]
1:30:26 PM
MR. EILER, in response to Chair Olson, stated that comments
mentioned by Representative Josephson and other members of the
legislature were addressed in SB 107.
1:30:45 PM
REPRESENTATIVE LEDOUX asked for a page reference for AS
21.06.060.
MS. WING-HEIER answered that AS 21.06.060 relates to
confidentiality. She was not certain if that provision was in
the bill, but the foregoing statute describes the protections
granted to information and records designated as confidential or
not available for public inspection by the director, [which also
extends to electronic data], or basically the documents the
division holds confidential related to documents collected for
examination of certificates for the transaction of insurance in
Alaska.
CHAIR OLSON suggested that copies of AS 21.06.060 were being
distributed to members.
1:31:31 PM
REPRESENTATIVE LEDOUX asked for a moment to review a document.
1:32:01 PM
REPRESENTATIVE LEDOUX directed attention to AS 21.06.060(g),
which read, as follows:
(g) The director may withhold information or records
from public inspection for as long as the director
finds the withholding is
(1) necessary to protect a person against
unwarranted injury; or
(2) in the public interest.
REPRESENTATIVE LEDOUX asked for examples of the types of
information that wouldn't be considered confidential under any
of the aforementioned provisions, but would be considered
confidential under this "catch all" language.
1:32:45 PM
MS. WING-HEIER replied that in the new "ORSA" [Own Risk and
Solvency Assessment], Chapter 23, insurers will be asked to
provide information on any mergers and acquisitions. However,
in the normal course of business [insurers] will not want their
competitors to have access to any merger or acquisition
information the companies are considering. The insurers would
ask the division to keep that information confidential until the
mergers or acquisitions were made public, she said. Thus, this
would be information withheld from the public, but would be
declared in the reporting to the division.
1:33:36 PM
CHAIR OLSON asked whether that was a result of the American
International Group [AIG].
MS. WING-HEIER answered yes.
1:33:50 PM
REPRESENTATIVE JOSEPHSON referred to paragraph (2) of the
aforementioned April 15, 2015, memo from the Department of Law
to the Division of Insurance, which suggests there would be a
presumption of confidentiality that could be overcome; however,
he acknowledged that this is complicated. He asked for a
prediction of when this might reach the House floor for a vote.
CHAIR OLSON suggested that it would likely be today or tomorrow.
He offered to set up an appointment for Ms. Wing-Heier to meet
with members.
MS. WING-HEIER advised the aforementioned provision [paragraph
(2)] in AS 21.06.060 is existing law and SB 107 does not make
any changes to those provisions. She stated this language
merely clarifies what remains in statute since the provision
related to "privilege" was not added to SB 107.
1:36:12 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on SB 107.
1:36:26 PM
REPRESENTATIVE HUGHES moved to report SB 107 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, SB 107 was reported from the
House Labor and Commerce Standing Committee.
1:36:46 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
1:36 p.m.