HB 78-INSURER & GROUP INSURANCE DISCLOSURE  3:49:45 PM CO-CHAIR WOOL announced that the final order of business would be HOUSE BILL NO. 78, "An Act relating to insurance; relating to an insurer's corporate annual disclosure; relating to insurance company holding systems; and providing for an effective date." 3:50:04 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community & Economic Development, introduced HB 78 and related its history. The bill will make changes to the insurance code that conform to changes in model laws adopted by the National Association of Insurance Commissioners (NAIC) and will assist the state in maintaining its accredited status with the NAIC and improve uniformity nationwide in the regulation of insurance. She noted that HB 78 has two components regarding corporate governance and holding companies. 3:52:22 PM MS. WING-HEIER began the sectional analysis [included in the committee packet] of HB 78. She addressed section 1, which adds new sections to AS 21.09 and requests an annual disclosure of corporate governance from insurance companies to ensure that their policies and procedures comply with statute. 3:52:58 PM CO-CHAIR LEDOUX asked what corporate governance is. MS. WING-HEIER stated that, in this case, it establishes that the board knows the actions of upper management and is cognizant of what is taking place in that entity. 3:54:06 PM MS. WING-HEIER turned attention to section 1 and detailed the annual disclosure requirement. She read the following from the sectional analysis [original punctuation provided]: AS 21.09.332. Disclosure requirement • Subsection (a) requires insurers (the term "insurer" and "insurers" includes insurance groups) to submit to the director by June 1 of each calendar year a corporate governance annual disclosure, and, if the insurer is a member of an insurer group, to the lead state regulator of the insurance group. • Subsection (b) requires the disclosure to be signed by the CEO or corporate secretary indicating the insurer has implemented the corporate governance practices required under the disclosure provisions and that the disclosure has been provided to the insurer's board of directors or to the appropriate committee of the board. • Subsection (c) provides the director may require an insurer to submit a disclosure if the insurer is not already required to do so under (a) of this section. • Subsection (d) details the levels of corporate governance at which the insurer may provide the information regarding its disclosure. • Subsection (e) encourages the insurer to make its disclosure at a level based on specified criteria. If the insurer utilizes the criteria the entity must so indicate to the director and must also explain any subsequent change in the level of reporting. • Subsection (f) provides that disclosures are to be reviewed and any requests for information are to be made through the lead state in accordance with the most recent NAIC Financial Analysis Handbook. • Subsection (g) allows an insurer to reference other documents provided to the director containing information required in the disclosure without having to duplicate the information in the disclosure provided the disclosure provides for a cross-reference of the document in which the information is included. MS. WING-HEIER continued by saying that AS 21.09.334 will authorize the director to adopt regulations and orders; AS 21.09.336 will set out the contents of the corporate governance annual disclosure; and AS 21.09.338 will provide for confidentiality. CO-CHAIR LEDOUX questioned whether this was a recent concept from the NAIC. MS. WING-HEIER said it has been around for four to five years, adding that all states are required to adopt this by January 1, 2020 to keep accreditation. CO-CHAIR LEDOUX inquired as to the timing of it being brought to the committee. She asked why now instead of last year. MS. WING-HEIER explained that last legislature, the bill was introduced as a four-part accreditation bill. At that time, she said, the committee requested that sections three and four be eliminated in order to pass sections one and two because there was already a considerable amount of time spent on the first part of the bill. 3:57:06 PM REPRESENTATIVE FIELDS asked what the real-world impact would be if HB 78 did not pass. MS. WING-HEIER replied that the NAIC could put the state on a probation. REPRESENTATIVE FIELDS questioned whether it could potentially force Alaska-based insurers to domicile elsewhere. MS. WING-HEIER answered yes. She explained that one of the purposes of having all states conform to similar legislation and having accreditation is that insurance companies domiciled in Alaska can pay to have the state do an examination and then they would be accredited to transact insurance in other states. 3:58:49 PM CO-CHAIR WOOL sought clarification on accreditation. MS. WING-HEIER confirmed that Alaska is accredited. She explained that every 5 years Alaska submits to the NAIC who brings outside consultants to look at the state's statutes and regulations, as well as the Division of Insurance's staff and credentialing. She noted that the NAIC ultimately ranks the state as passing or failing, adding that in 2017 Alaska passed "with flying colors." CO-CHAIR WOOL asked how the state's accreditation affects the ability of Alaska insurance companies to conduct business elsewhere. MS. WING-HEIER conveyed that when the state is accredited, the state's work is accepted by the other 49 states and the District of Columbia. She pointed out that if Alaska loses accreditation, each state must show that Alaska's insurance companies are meeting all the financial solvency requirements that they have adopted. 4:01:04 PM CO-CHAIR LEDOUX asked if it is necessary to adopt the exact same language as the NAIC's model, or if there is any leeway. MS. WING-HEIER replied that accreditation must be the model law or substantially similar. 4:02:34 PM MS. WING-HEIER returned to the sectional analysis. She directed attention to AS 21.09.340, which establishes the penalties for an insurer that fails to comply. She continued to section 2, which amends AS 21.22.0859(a) to apply the requirements of the section to transactions that occurred the previous December 31 rather than the current year. The change is necessary as the director would not have all the information necessary to calculate the transaction given the timing of when an insurer is required to provide information to the director for review. 4:04:38 PM CO-CHAIR LEDOUX asked why the current year is less meaningful than the past year. MS. WING-HEIER stated that prior year shows the impact on 12 months of business as opposed to three or four months. 4:05:40 PM MS. WING-HEIER directed attention to section 3, which amends AS 21.22.1209(a) to allow for confidentiality. Section 4 adds new subsections to AS 21.22.120 to clarify that the director, staff, or the NAIC could not release confidential information. CO-CHAIR LEDOUX questioned whether the information could be shared if it was subpoenaed. MS. WING-HEIER said she understood that to be correct. 4:07:55 PM REPRESENTATIVE HANNAN inquired as to the current regulations regarding confidential information that was subpoenaed. MS. WING-HEIER replied that the current statutes already require holding the documents confidentially. What they don't clarify is that the holding company would be subject to the same confidentiality as the companies that are underneath it. 4:09:31 PM CO-CHAIR LEDOUX asked what would happen under current law, if a subpoena was issued for information from a holding company. MS. WING-HEIER stated that her attorneys would argue that AS 21.09.06 would extend to that case. 4:10:35 PM MS. WING-HEIER addressed section 5, which adds new sections to AS 21.22 regarding group-wide supervision of internationally active insurance groups. She noted that there are no international companies domiciled in Alaska; nonetheless, this is part of the model law Alaska must adopt. Section 6 adds two definitions for an "internationally active insurance company" and a "group-wide supervisor" to AS 21.22.200. Section 7 allows the director to adopt regulations necessary to implement this bill and section 8 provides for an effective date. 4:12:26 PM REPRESENTATIVE HANNAN sought clarification on the aforementioned status report that is submitted every June. MS. WING-HEIER acknowledged that every June the division files a status report on any bills that impact accreditation, as well as the status on examinations. 4:13:26 PM CO-CHAIR WOOL announced that HB 78 was held over.