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HB 398: "An Act relating to the Alaska Life and Health Insurance Guaranty Association."

00HOUSE BILL NO. 398 01 "An Act relating to the Alaska Life and Health Insurance Guaranty Association." 02 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 03 * Section 1. AS 21.79.010 is repealed and reenacted to read: 04 Sec. 21.79.010. Purpose. The purpose of this chapter is to protect, subject to 05 certain limitations, the persons specified in AS 21.79.020(a) against failure in the 06 performance of contractual obligations under life insurance and health insurance 07 policies and annuity contracts specified in AS 21.79.020(b) because of the impairment 08 or insolvency of the member insurer that issued the policies or contracts. To provide 09 this protection, an association of insurers is created under AS 21.79.040 to pay benefits 10 and continue coverages as limited by this chapter, and members of the association are 11 subject to assessment to provide funds to carry out the purpose of this chapter. 12 * Sec. 2. AS 21.79.020(a) is amended to read: 13 (a) This chapter applies to a policy and contract specified in (b) of this section 14 and to a person who

01 (1) except for a nonresident certificate holder under a group policy or 02 contract, is the beneficiary, assignee, or payee of a person described in (2) of this 03 subsection; and 04 (2) except in the case of an unallocated annuity contract or a 05 structured settlement annuity, is the owner of, or a certificate holder under, the 06 policy or contract, [OR, IN THE CASE OF AN UNALLOCATED ANNUITY 07 CONTRACT, IS THE CONTRACT HOLDER,] and who 08 (A) is a resident ; [,] or 09 (B) is not a resident, if the following conditions are satisfied: 10 (i) the insurer that issued the policy or contract is 11 domiciled in this state; 12 (ii) [THE INSURER NEVER HELD A LICENSE OR 13 CERTIFICATE OF AUTHORITY IN THE STATE IN WHICH THE 14 PERSON RESIDES; 15 (iii)] the state in which the person resides has an 16 association similar to the association created by this chapter; and 17 (iii) [(iv)] the person is not eligible for coverage by an 18 association in any other state due to the fact that the insurer was 19 not licensed at the time required by law in that state [OF THE 20 ASSOCIATION OF THE STATE IN WHICH THE PERSON 21 RESIDES]. 22 * Sec. 3. AS 21.79.020(c) is amended to read: 23 (c) This chapter does not apply to 24 (1) that part of a policy or contract that is not guaranteed by the 25 insurer; 26 (2) that part of the risk borne by the policy or contract holder; 27 (3) a policy or contract of reinsurance, unless an assumption certificate 28 has been issued; 29 (4) that part of a policy or contract to the extent that [ON WHICH] 30 the rate of interest on which it is based, or the interest rate, crediting rate, or 31 similar factor determined by use of an index or other external reference stated in

01 the policy or contract employed in calculating returns or changes in value, 02 (A) averaged over the period of four years before the date on 03 which the association becomes obligated with respect to the policy or contract 04 [,] exceeds a rate of interest determined by subtracting two percentage points 05 from the published monthly average for that same four-year period or for a 06 lesser period if the policy or contract was issued less than four years before the 07 association became obligated , whichever is earlier ; and 08 (B) on and after the date on which the association becomes 09 obligated with respect to the policy or contract, whichever is earlier, exceeds 10 the rate of interest determined by subtracting three percentage points from the 11 most recent published monthly average; 12 (5) a plan or program of an employer, association, or similar entity to 13 provide life, health, or an annuity benefit to an employee or member, to the extent that 14 the plan or program is self-funded or uninsured, including a benefit payable by the 15 employer, association, or similar entity under 16 (A) a multiple employer welfare arrangement as defined in 29 17 U.S.C. 1002 [26 U.S.C. 414] (Employee Retirement Income Security Act of 18 1974); 19 (B) a minimum premium group insurance plan; 20 (C) a stop-loss group insurance plan; or 21 (D) an administrative services only contract; 22 (6) that part of a policy or contract that provides a dividend or 23 experience rating credit or voting rights , or provides that a fee or allowance be paid 24 to a person, including the policy or contract holder, in connection with the service to 25 or administration of the policy or contract; [AND] 26 (7) a policy or contract issued in this state by a member insurer at a 27 time when it was not licensed or did not have a certificate of authority to issue the 28 policy or contract in this state ; 29 (8) a person who is a payee or beneficiary of a contract holder who 30 is a resident of this state if the payee or beneficiary is provided coverage by the 31 association of another state;

01 (9) a person covered under (e) of this section if any coverage is 02 provided by the association of another state to that person; 03 (10) an unallocated annuity contract issued to or in connection with 04 a plan protected under the United States Pension Benefit Guaranty Corporation, 05 regardless of whether the United States Pension Benefit Guaranty Corporation 06 has become liable to make any payments with respect to the benefit plan; 07 (11) that part of an unallocated annuity contract that is not issued 08 to or in connection with a specific employee, union, or association of natural 09 persons benefit plan or a government lottery; 10 (12) that part of a policy or contract to the extent that assessments 11 required by AS 21.79.070 with respect to the policy or contract are preempted by 12 law; 13 (13) an obligation that does not arise under the express written 14 terms of the policy or contract issued by the insurer to the contract owner or 15 policy owner, including, without limitation, 16 (A) a claim based on marketing materials; 17 (B) a claim based on a side letter, rider, or other document 18 that was issued by the insurer without meeting applicable policy form 19 filing or approval requirements; 20 (C) a misrepresentation of or regarding policy benefits; 21 (D) an extra contractual claim; or 22 (E) a claim for penalties or consequential or incidental 23 damages; 24 (14) a contractual agreement that establishes the member insurer's 25 obligations to provide a book value accounting guaranty for defined contribution 26 benefit plan participants by reference to a portfolio of assets that is owned by the 27 benefit plan or its trustee, which, in each case, is not an affiliate of the member 28 insurer; or 29 (15) that part of a policy or contract to the extent the part of the 30 policy or contract provides for interest or other changes in value to be determined 31 by the use of an index or other external reference stated in the policy or contract,

01 but that have not been credited to the policy or contract, or as to which the policy 02 or contract owner's rights are subject to forfeiture, as of the date the member 03 insurer becomes an impaired or insolvent insurer under this chapter, whichever 04 is earlier; if a policy's or contract's interest or changes in value are credited less 05 frequently than annually, then, for purposes of determining the values that have 06 been credited and are not subject to forfeiture under this paragraph, the interest 07 or change in value determined by using the procedures defined in the policy or 08 contract shall be credited as if the contractual date of crediting interest or 09 changing values was the date of impairment or insolvency, whichever is earlier, 10 and will not be subject to forfeiture . 11 * Sec. 4. AS 21.79.020 is amended by adding new subsections to read: 12 (e) This chapter, except for (a) of this section, applies to an unallocated 13 annuity contract specified under (b) of this section, and shall provide coverage to a 14 person who is the owner of 15 (1) the unallocated annuity contract if the contract is issued to or in 16 connection with a specific benefit plan whose plan sponsor has its principal place of 17 business in this state; and 18 (2) an unallocated annuity contract issued to or in connection with a 19 government lottery if the owner is a resident. 20 (f) This chapter, except for (a) of this section, applies to a structured settlement 21 annuity specified under (b) of this section, and shall provide coverage to a person who 22 is a payee under a structured settlement annuity, or the beneficiary of a payee if the 23 payee is deceased, if the payee is 24 (1) a resident, regardless of where the contract owner resides; or 25 (2) not a resident, but only if both of the following conditions exists: 26 (A) the contract owner of the structured settlement annuity is 27 (i) a resident; or 28 (ii) not a resident, but the insurer that issued the 29 structured settlement annuity is domiciled in this state, and the state in 30 which the contract owner resides has an association similar to the 31 association created by this chapter; and

01 (B) the payee, or the payee's beneficiary, and the contract owner 02 are not eligible for coverage by the association of the state in which the payee 03 or contract owner resides. 04 * Sec. 5. AS 21.79.025 is amended to read: 05 Sec. 21.79.025. Liability limits. The benefits for which the association may 06 become liable may not exceed the lesser of 07 (1) the contractual obligations for which the insurer is liable or would 08 have been liable if it were not an impaired or insolvent insurer; 09 (2) with respect to any one life, regardless of the number of policies 10 or contracts, [AND SUBJECT TO AN AGGREGATE OF $300,000,] 11 (A) $300,000 in life insurance death benefits, but not more than 12 $100,000 in net cash surrender and net cash withdrawal values for life 13 insurance; 14 (B) [$100,000] in health insurance benefits, 15 (i) $100,000 for coverage not defined as disability 16 insurance or basic hospital, medical, and surgical insurance or 17 major medical insurance, including any net cash surrender and net 18 cash withdrawal values; 19 (ii) $300,000 for disability insurance; 20 (iii) $500,000 for basic hospital, medical, and surgical 21 insurance or major medical insurance; 22 (C) $100,000 in the present value of annuity benefits, including 23 net cash surrender and net cash withdrawal values; [OR] 24 (3) with respect to any one contract holder or plan sponsor whose 25 plan owns directly or in trust one or more unallocated annuity contracts not 26 included in (4) of this subsection , $5,000,000 in unallocated annuity contract benefits, 27 irrespective of the number of contracts held by that contract holder or plan sponsor 28 except that, in the case of one or more unallocated annuity contracts that are 29 covered under this chapter and that are owned by a trust or other entity for the 30 benefit of two or more plan sponsors, coverage shall be provided by the 31 association if the largest interest in the trust or entity owning the contract is held

01 by a plan sponsor whose principal place of business is in this state; however, the 02 association is not liable to cover more than $5,000,000 in benefits with respect to 03 an unallocated annuity contract not included in (4) of this subsection; 04 (4) with respect to an individual participating in a governmental 05 retirement benefit plan established under 26 U.S.C. 401, 26 U.S.C. 403(b), or 26 06 U.S.C. 457 and covered by an unallocated annuity contract, or to a beneficiary of 07 the individual if the individual is deceased, in the aggregate, $100,000 in present- 08 value annuity benefits, including net cash surrender and net cash withdrawal values; 09 (5) with respect to each payee of a structured settlement annuity, 10 or beneficiary of the payee if the payee is deceased,$100,000 in present-value 11 annuity benefits in the aggregate, including net cash surrender and net cash 12 withdrawal values, if any; or 13 (6) in no event 14 (A) an aggregate of $300,000 in benefits with respect to any 15 one life under (2) of this subsection, except that, with respect to benefits 16 for basic hospital, medical, and surgical insurance or major medical 17 insurance under (2)(B) of this subsection, the aggregate liability of the 18 association may not exceed $500,000 for any one individual; or 19 (B) $5,000,000 in benefits with respect to one owner or 20 multiple nongroup policies of life insurance, whether the policy owner is 21 an individual, firm, corporation, or other person, and whether the persons 22 insured are officers, managers, employees, or other persons, regardless of 23 the number of policies and contracts held by the owner . 24 * Sec. 6. AS 21.79.025 is amended by adding new subsections to read: 25 (b) The limitations imposed under this section are limitations on the benefits 26 for which the association is obligated before taking into account either its subrogation 27 and assignment rights or the extent to which those benefits could be provided out of 28 the assets of an impaired or insolvent insurer attributable to covered policies. The 29 costs of the association's obligations under this chapter may be met by the use of 30 assets attributable to covered policies or reimbursed to the association under its 31 subrogation and assignment rights.

01 (c) In providing coverage required under AS 21.79.060, the association may 02 not be required to guarantee, assume, reinsure, or perform, or cause to be guaranteed, 03 assumed, reinsured, or performed, the contractual obligations of an insolvent or 04 impaired insurer under a covered policy or contract when the obligations do not 05 materially affect the economic values or economic benefits of the covered policy or 06 contract. 07 * Sec. 7. AS 21.79.030 is amended to read: 08 Sec. 21.79.030. Construction. This chapter shall be [LIBERALLY] construed 09 to achieve the purposes set out in AS 21.79.010. 10 * Sec. 8. AS 21.79.030 is amended by adding a new subsection to read: 11 (b) This chapter is intended to provide coverage to a person who is a resident 12 of this state and, in special circumstances, to a nonresident. In order to avoid duplicate 13 coverage, if a person who would otherwise receive coverage under this chapter is 14 provided coverage under the law of any other state, the person may not be provided 15 coverage under this chapter. In determining the application of the provisions of this 16 subsection, in situations where a person could be covered by the association of more 17 than one state, whether as an owner, payee, beneficiary, or assignee, this chapter shall 18 be construed in conjunction with other state laws to result in coverage by only one 19 association. 20 * Sec. 9. AS 21.79.040(a) is amended to read: 21 (a) There is established as a nonprofit legal entity the Alaska Life and Health 22 Insurance Guaranty Association. An insurer that issues an insurance policy described 23 in AS 21.79.020(b) shall be a member of the association as a condition of the insurer's 24 authority to transact insurance in this state. The association shall perform its functions 25 under a plan of operation established and approved under AS 21.79.080 and shall 26 exercise its powers through the Board of Governors established under AS 21.79.050. 27 For purposes of administration and assessment, the association shall maintain the 28 following accounts: 29 (1) the health insurance account; and 30 (2) the life insurance and annuity account, including the following 31 subaccounts:

01 (A) life insurance account; 02 (B) annuity account that must include annuity contracts 03 owned by a governmental retirement benefit plan, or its trustee, qualified 04 under 26 U.S.C. 401, 26 U.S.C. 403(b), or 26 U.S.C. 457 (Internal Revenue 05 Code), but that otherwise excludes unallocated annuities ; 06 (C) unallocated annuity account that must exclude [SHALL 07 INCLUDE] contracts owned by a governmental retirement benefit plan, or 08 its trustee, qualified under 26 U.S.C. 401, 26 U.S.C. 403(b) , or 26 U.S.C. 457 09 (Internal Revenue Code). 10 * Sec. 10. AS 21.79.050(a) is amended to read: 11 (a) The Board of Governors of the association consists of not less than five nor 12 more than nine representatives of member insurers. The director may appoint two 13 individuals as members of the board to represent the public. Terms of office for 14 board members shall be established in the plan of operation submitted under 15 AS 21.79.080. Member insurers shall select the insurer board members, subject to the 16 approval of the director. A vacancy in a board membership held by an insurer 17 member [ON THE BOARD] shall be filled for the unexpired term by a majority vote 18 of the remaining board members, subject to the approval of the director. A vacancy 19 in a board membership held by a representative of the public shall be filled by 20 the director. A board member who represents the public may not be an officer, 21 director, or employee of an insurer and may not be engaged in the business of 22 insurance. 23 * Sec. 11. AS 21.79.050(b) is amended to read: 24 (b) Before the director approves the selection of an insurer [A] board member 25 or appoints an insurer [A] board member, the director shall consider whether all 26 member insurers are fairly represented on the board. 27 * Sec. 12. AS 21.79.060(a) is amended to read: 28 (a) If a member [DOMESTIC] insurer becomes impaired, the association may, 29 with the approval of the director and subject to any conditions imposed by the 30 association that do not impair the contractual obligations of the impaired insurer , 31 (1) guarantee, assume, reinsure, or provide for the guarantee,

01 assumption, or reinsurance of the policies or contracts of the impaired insurer; or 02 (2) provide money, pledges, notes, guarantees, or other means that are 03 necessary to act under (1) of this subsection and to assure payment of the contractual 04 obligations of the impaired insurer until those obligations are guaranteed, reinsured, 05 or assumed [; OR 06 (3) LOAN MONEY TO THE IMPAIRED INSURER]. 07 * Sec. 13. AS 21.79.060(c) is amended to read: 08 (c) The actions specified in (a) [(b)] of this section may not be taken unless 09 (1) the law of the impaired insurer's state of domicile provides that until 10 all payments of or on account of a contractual obligation of the impaired insurer by 11 a guaranty association, along with all expenses and interest on all payments and 12 expenses, have been repaid to the guaranty association or a repayment plan by the 13 impaired insurer has been approved by a guaranty association, 14 (A) a delinquency proceeding may not be dismissed; 15 (B) neither the impaired insurer nor its assets may be returned 16 to the control of its shareholders or private management; and 17 (C) solicitation or acceptance of new business or restoration of 18 a suspended or revoked license may not be permitted; and 19 (2) if the impaired insurer is a 20 (A) domestic insurer, the insurer has been placed under an order 21 of rehabilitation by a superior court in this state; or 22 (B) foreign or alien insurer, 23 (i) the insurer has been prohibited from soliciting or 24 accepting new business in this state; 25 (ii) the insurer's certificate of authority has been 26 suspended or revoked in this state; and 27 (iii) a petition for rehabilitation or liquidation has been 28 filed in a court of competent jurisdiction in the insurer's state of domicile by 29 the insurance commissioner of that state. 30 * Sec. 14. AS 21.79.060(d) is amended to read: 31 (d) If a member insurer becomes insolvent, the association shall, in its

01 discretion and with the approval of the director, 02 (1) guarantee, assume, reinsure, or provide for the guarantee, 03 assumption, or reinsurance of the covered policies of the insolvent insurer held by 04 residents; 05 (2) assure payment to residents of the contractual obligations of the 06 insolvent insurer; 07 (3) provide money, pledges, notes, guarantees, or other means necessary 08 to discharge the insurer's duties under this subsection; or 09 (4) with respect only to life and health insurance policies and 10 annuities , provide benefits and coverages required under (e) of this section. 11 * Sec. 15. AS 21.79.060(e) is amended to read: 12 (e) When proceeding under [(b)(2) OR] (d)(4) of this section, the association 13 shall, with respect to a life or health insurance policy and an annuity , 14 (1) assure payment of benefits, other than terms of conversion and 15 renewability, for a premium identical to the premium that would have been payable 16 under a policy of the insolvent insurer for claims incurred with respect to 17 (A) a group policy, not later than the earlier of the next renewal 18 date under the policy or contract or 45 days, but in no event less than 30 days, 19 after the date on which the association becomes obligated with respect to the 20 policy; 21 (B) an individual policy, not later than the earlier of the next 22 renewal date, if any, under the policy or one year, but in no event less than 30 23 days, from the date on which the association becomes obligated with respect 24 to the policy; 25 (2) make a diligent effort to provide a known insured or a group 26 policyholder, with respect to a group policy, 30 days notice of the termination of the 27 benefits provided; 28 (3) with respect to an individual policy, make available to each known 29 insured, or owner if other than the insured, and with respect to an individual formerly 30 insured under a group policy who is not eligible for replacement group coverage, 31 substitute coverage on an individual basis under the provisions of (f) of this section,

01 if the insured had a right under law or the terminated policy to convert coverage to 02 individual coverage, to continue an individual policy in force until a specified age, or 03 for a specific time during which the insurer did not have the unilateral right to make 04 changes in any provision of the policy or had a right only to make changes in premium 05 by class. 06 * Sec. 16. AS 21.79.060(h) is amended to read: 07 (h) If the association elects to reissue terminated coverage at a premium rate 08 different from that charged under the terminated policy, the premium shall be set by 09 the association according to the amount of insurance provided and [,] the age and class 10 of risk, and is subject to the approval of the domiciliary insurance commissioner and 11 the receivership [DIRECTOR OR BY A] court [OF COMPETENT JURISDICTION]. 12 * Sec. 17. AS 21.79.060(j) is amended to read: 13 (j) When proceeding under [(b)(2) OR] (d) of this section with respect to a 14 policy or contract carrying guaranteed minimum interest rates, the association shall 15 assure the payment or crediting of a rate of interest consistent with AS 21.79.020(c)(4). 16 * Sec. 18. AS 21.79.060(n) is amended to read: 17 (n) In carrying out its duties under (a) [(b)], (c), and (d) of this section, the 18 association may impose a permanent policy or contract lien under a guarantee, 19 assumption, or reinsurance agreement [,] if the policy or contract lien is approved by 20 a court [,] and the association [COURT] finds that 21 (1) the amount that may be assessed under this chapter is less than the 22 amount needed to assure full and prompt performance of the insolvent insurer's 23 contractual obligations; or 24 (2) the economic or financial condition that affects member insurers is 25 sufficiently adverse that the imposition of a policy or contract lien is in the public 26 interest. 27 * Sec. 19. AS 21.79.060(o) is amended to read: 28 (o) Before taking action under (a) - (e) [(b) - (e)] of this section, the 29 association may request the superior court to impose an injunction against the payment 30 of a cash value and policy loan, or the exercise of another right to withdraw funds held 31 in connection with a policy or contract, in addition to a contractual provision for

01 deferral of a cash or policy loan value. In addition, if the receivership court 02 imposes an injunction on payment of cash values or policy loans or on any other 03 right to withdraw funds of an impaired or insolvent insurer held in conjunction 04 with a policy or contract, the association may defer payment of cash values, policy 05 loans, or other rights for the period of the injunction, except for claims covered 06 by the association to be paid as required by a hardship procedure established by 07 the liquidator or rehabilitator and approved by the receivership court. 08 * Sec. 20. AS 21.79.060(p) is amended to read: 09 (p) If the association fails to take action under (a) - (e) [(b) - (e)] of this 10 section within a reasonable period of time after a member insurer becomes insolvent, 11 the director shall assume the powers of the association under (a) - (e) [(b) - (e)] of this 12 section. 13 * Sec. 21. AS 21.79.060(r) is amended to read: 14 (r) The association is entitled to appear in a court or agency proceeding in this 15 [THE] state involving an impaired or insolvent insurer that the association is or may 16 be obligated to or involving a person or property against which the association 17 may have rights . The standing conferred by this subsection extends to all matters 18 germane to the powers and duties of the association, including proposals to reinsure 19 or guarantee a covered policy of the impaired or insolvent insurer and the 20 determination of a covered policy and a contractual obligation. The association also 21 has the right to appear or intervene before a court or agency in another state in 22 a proceeding involving an impaired or insolvent insurer that the association is or 23 may be obligated to or involving a person or property against which the 24 association may have rights. 25 * Sec. 22. AS 21.79.060(s) is amended to read: 26 (s) A person who receives benefits under this chapter is considered to have 27 assigned the rights under , and any cause of action against a person for losses 28 arising under, resulting from, or otherwise relating to, the covered policy to the 29 association to the extent of the benefits received under this chapter , whether the 30 benefits are payment of or on account of contractual obligations, continuations of 31 coverage, or provisions of substitute or alternative coverage . The association may

01 require an assignment to the association of those rights by the payees, policy or 02 contract owner, beneficiary, insured, or annuitant before a person receives the rights 03 or benefits conferred by this chapter. [THE ASSOCIATION IS SUBROGATED TO 04 THESE RIGHTS AGAINST THE ASSETS OF AN INSOLVENT INSURER.] The 05 priority of the association's subrogation right to the assets of the insolvent insurer is 06 the same as the priority of the person entitled to benefits under this chapter. In 07 addition to the rights described in this subsection, the association has common law 08 rights of subrogation and any other equitable or legal remedy that would have 09 been available to the impaired or insolvent insurer or owner, beneficiary, or payee 10 of a policy with respect to the policy. These rights include, in the case of a 11 structured settlement annuity, the rights of the owner, beneficiary, or payee of the 12 annuity, to the extent of benefits received under this chapter, against a person 13 originally or by succession responsible for the losses arising from the personal 14 injury relating to the annuity or annuity payment, except for a person responsible 15 solely by reason of being an assignee in respect to a qualified assignment under 16 26 U.S.C. 130 (Internal Revenue Code). If the provisions of this subsection are 17 invalid with respect to a person or claim, the amount payable by the association 18 with respect to the related coverage obligation shall be reduced by the amount 19 realized by another person from the person or claim covered by the association. 20 If the association has provided benefits with respect to a covered obligation and 21 a person recovers amounts to which the association has rights as described in this 22 subsection, the person recovering the amounts shall pay to the association the 23 portion of the recovery attributable to the policy covered by the association. 24 * Sec. 23. AS 21.79.060(t) is amended to read: 25 (t) In addition to the rights and powers otherwise established in this 26 chapter, the [THE] association may 27 (1) enter into contracts that are necessary or proper to carry out the 28 provisions of this chapter; 29 (2) sue or be sued, and take legal action necessary or proper for 30 recovery of an unpaid assessment under AS 21.79.070 or settlement of a claim or 31 potential claim ;

01 (3) borrow money to carry out the purposes of this chapter; notes or 02 other evidence of indebtedness of the association not in default are legal 03 investments for domestic insurers and may be carried as admitted assets; 04 (4) employ or retain those persons necessary to handle the financial 05 transactions of the association and other functions under this chapter; 06 (5) negotiate and contract with a liquidator, rehabilitator, conservator, 07 or ancillary receiver to carry out the powers and duties of the association; 08 (6) exercise, for the purposes of this chapter and to the extent approved 09 by the director, the powers of a domestic life or health insurer; however, the 10 association may not issue insurance policies or annuity contracts other than those 11 issued to perform the contractual obligations of an impaired or insolvent insurer; 12 (7) take legal action to prevent the payment of improper claims; 13 (8) join an organization of one or more other state associations with 14 similar purposes; [AND] 15 (9) determine, using reasonable business judgment, the means by 16 which the association is to provide the benefits of this chapter in an economical 17 and efficient manner; 18 (10) request information from a person seeking coverage from the 19 association in order to determine the obligations of the association under this 20 chapter; a person receiving a request under this paragraph shall promptly comply 21 with the request; 22 (11) request information from a member insurer in order to aid in 23 the exercise of a power under this section; a member insurer receiving a request 24 under this paragraph shall promptly comply with the request; and 25 (12) perform all other acts necessary or proper to implement this 26 chapter. 27 * Sec. 24. AS 21.79.060 is amended by adding new subsections to read: 28 (u) At any time within one year after the date with the association becomes 29 responsible for the obligations of a member insurer, the association may elect to 30 succeed to the rights and obligations of the member insurer that accrue on or after that 31 date and that relate to contracts covered, in whole or in part, by the association, under

01 one or more indemnity reinsurance agreements entered into by the member insurer as 02 a ceding insurer and selected by the association. However, the association may not 03 exercise an election with respect to a reinsurance agreement if the receiver, 04 rehabilitator, or liquidator of the member insurer has previously and expressly 05 disaffirmed the reinsurance agreement. The election shall be made by a notice to the 06 receiver, rehabilitator, or liquidator and to the affected reinsurer. If the association 07 makes an election, the following paragraphs apply with respect to the agreement 08 selected by the association: 09 (1) the association is responsible for all unpaid premiums due under the 10 agreement for periods both before and after the coverage date, and shall be responsible 11 for the performance of all other obligations to be performed after the coverage date in 12 each case that relates to contracts covered, in whole or in part, by the association; the 13 association may, through reasonable allocation methods, charge contracts covered in 14 part by the association for the costs for reinsurance in excess of the obligations of the 15 association; 16 (2) the association is entitled to any amounts payable by the reinsurer 17 under the agreement with respect to losses or events that occur in periods after the 18 coverage date and that related to the contracts covered by the association, in whole or 19 in part, except that, upon receipt of any amounts, the association shall pay to the 20 beneficiary under the policy or contract on account of which the amounts were paid 21 a portion of the amount equal to the amount received by the association less 22 (A) the benefits paid by the association on account of the policy 23 or contract; and 24 (B) the retention of the impaired or insolvent member insurer 25 applicable to the loss or event; 26 (3) within 30 days after the association's election, the association and 27 each indemnity reinsurer shall calculate the net balance due to or from the association 28 under each reinsurance agreement as of the date of the association's election; the 29 calculation shall give full credit to all items paid by either the member insurer, its 30 receiver, rehabilitator, or liquidator, or the indemnity reinsurer during the period 31 between the coverage date and the date of the association's election; either the

01 association or the indemnity reinsurer shall pay the net balance due the other within 02 five days of the completion of the calculation described in this paragraph; if the 03 receiver, rehabilitator, or liquidator has received any amounts due to the association 04 under (2) of this subsection, the receiver, rehabilitator, or liquidator shall remit the 05 same to the association as promptly as practicable; and 06 (4) if the association, within 60 days of the election, pays the premiums 07 due for periods both before and after the coverage date that relate to the contracts 08 covered by the association, in whole or in part, the reinsurer may not terminate the 09 reinsurance agreement to the extent the agreement relates to contracts covered by the 10 association, in whole or in part, and may not set off any unpaid premium due for the 11 periods before the coverage date against amounts due to the association. 12 (v) In the event the association transfers its obligations to another insurer, and 13 if the association and the other insurer agree, the other insurer shall succeed to the 14 rights and obligations of the association under (u) of this section, effective as of the 15 date agreed upon by the association and the other insurer. The other insurer shall 16 succeed regardless of whether the association has made the election referred to in (u) 17 of this section if (1) the indemnity reinsurance agreement automatically terminates 18 former reinsurance unless the indemnity reinsurer and the other insurer agree to the 19 contrary, and (2) the obligations described in (u)(2) of this section no longer apply on 20 and after the date the indemnity reinsurance agreement is transferred to the third-party 21 insurer. This subsection does not apply if the association has previously expressly 22 determined in writing that it will not exercise the election referred to in (u) of this 23 section. 24 (w) The provisions of this section apply notwithstanding any other provisions 25 of law or any provisions of an affected reinsurance agreement that provide for or 26 require a payment of reinsurance proceeds, on account of losses or events that occur 27 in periods after the coverage date, to the receiver, liquidator, or rehabilitator of the 28 insolvent member insurer. The receiver, liquidator, or rehabilitator remains entitled to 29 any amounts payable by the reinsurer under the reinsurance agreement with respect to 30 losses or events that occur in periods before the coverage date, subject to applicable 31 setoff provisions.

01 (x) Except as otherwise expressly provided in this section, nothing in this 02 section alters or modifies the terms and conditions of indemnity reinsurance 03 agreements of an insolvent member insurer. Nothing in this section 04 (1) abrogates or limits the right of a reinsurer to claim that the reinsurer 05 is entitled to rescind a reinsurance agreement; or 06 (2) gives a policy owner or beneficiary an independent cause of action 07 against an indemnity reinsurer that is not otherwise established in the indemnity 08 reinsurance agreement. 09 (y) When the association has arranged or offered to provide the benefits of this 10 chapter to a covered person under a plan or arrangement that fulfills the association's 11 obligations under this chapter, the covered person is not entitled to benefits from the 12 association in addition to or other than those provided under the plan or arrangement. 13 * Sec. 25. AS 21.79.070(b) is amended to read: 14 (b) There shall be two assessments as follows: 15 (1) class A assessments shall be authorized and called [MADE] for 16 the purpose of meeting administrative and legal costs and other expenses and 17 examinations conducted under the authority of AS 21.79.060; class A assessments may 18 be authorized and called [MADE] whether or not related to a particular impaired or 19 insolvent insurer; 20 (2) class B assessments are post assessment charges and shall be 21 authorized and called [MADE] only as necessary to carry out the powers and duties 22 of the association with regard to an impaired or an insolvent insurer. 23 * Sec. 26. AS 21.79.070(c) is amended to read: 24 (c) The amount of a class A assessment shall be determined by the board and 25 may be made on a pro rata or non pro [NONPRO] rata basis. If a pro rata assessment 26 is made, the board may provide that it be credited against future class B assessments. 27 A non pro [NONPRO] rata assessment may not exceed $150 [$250] per member 28 insurer in a calendar year. The amount of a class B assessment shall be allocated for 29 assessment purposes among the accounts under an allocation formula that may be 30 based on the premiums or reserves of the impaired or insolvent insurer or by another 31 standard determined by the board in its sole discretion as being fair and reasonable

01 under the circumstances. 02 * Sec. 27. AS 21.79.070(d) is amended to read: 03 (d) Class B assessments shall be based on the premiums received on business 04 in this state by each assessed member insurer on [OR FOR] policies or contracts 05 covered by each account in proportion to the premiums received on business in this 06 state by all assessed member insurers during the three calendar years preceding the 07 year in which the insolvency or impairment occurred. 08 * Sec. 28. AS 21.79.070(e) is amended to read: 09 (e) The association may abate or defer, in whole or in part, the assessment of 10 a member insurer if , in the opinion of the board, a payment of the assessment would 11 endanger the ability of the member insurer to fulfill its contractual obligations. The 12 amount by which an assessment against a member insurer is abated or deferred may 13 be assessed against the other member insurers in a manner consistent with the basis 14 for assessments set forth in (c) of this section. Once the conditions that caused a 15 deferral are removed or rectified, the member insurer shall pay all assessments 16 that were deferred under a repayment plan approved by the association. 17 * Sec. 29. AS 21.79.070(f) is amended to read: 18 (f) Except as provided in this subsection, the [THE] total of all assessments 19 on a member insurer for each subaccount of the life and annuity account and for the 20 health account [EACH SUBACCOUNT] may not in any one calendar year exceed 21 two percent of the insurer's average annual premiums received in this state on a 22 policy or contract covered by the account or subaccount during the three calendar 23 years preceding the year in which the insurer became an impaired or insolvent 24 insurer . The total of all assessments on a member insurer for the health account may 25 not in any one calendar year exceed two percent of the insurer's average premiums 26 received in this state on a policy or contract covered by the account during the three 27 calendar years preceding the year in which the insurer became an impaired or insolvent 28 insurer. If two or more assessments are authorized in one calendar year with 29 respect to insurers that become impaired or insolvent in different calendar years, 30 the average annual premiums for purposes of the aggregate assessment percentage 31 limitation imposed under this subsection shall be limited to the highest of the

01 average annual premiums during the preceding three calendar years for the 02 applicable subaccount or account as calculated under this section. If the maximum 03 assessment, together with the other assets of the association in an account, does not 04 provide in any one year in either account an amount sufficient to carry out the 05 responsibilities of the association, the necessary additional funds shall be assessed as 06 soon as permitted by this chapter. 07 * Sec. 30. AS 21.79.070(h) is amended to read: 08 (h) If the maximum [A ONE PERCENT] assessment for a subaccount of the 09 life and annuity account in any one year does not provide an amount sufficient to carry 10 out the responsibilities of the association, the board shall, as provided under (d) of this 11 section, access [ASSESS] all subaccounts of the life and annuity account for the 12 necessary additional amount, subject to the assessment limit provided in (f) of this 13 section. 14 * Sec. 31. AS 21.79.070 is amended by adding new subsections to read: 15 (i) Assessments for funds to meet the requirements of the association with 16 respect to an impaired or insolvent insurer may not be authorized or called until 17 necessary to implement the purposes of this chapter. Classification of assessments 18 under (b) of this section and computation of assessments under this section shall be 19 made with a reasonable degree of accuracy, recognizing that exact determinations may 20 not always be possible. The association shall notify each member insurer of its 21 anticipated pro rata share of an authorized assessment not yet called within 180 days 22 after the assessment is authorized. 23 (j) The board may, by an equitable method as established in the plan of 24 operation, refund to member insurers, in proportion to the contribution of each insurer 25 to that account, the amount by which the assets of the account exceed the amount the 26 board finds is necessary to carry out during the coming year the obligations of the 27 association with regard to that account, including assets accruing from assignment, 28 subrogation, net realized gains, and income from investments. A reasonable amount 29 may be retained in any account to provide funds for the continuing expenses of the 30 association and for future losses claims. 31 (k) A member insurer may, in determining its premium rates and policy owner

01 dividends as to any kind of insurance within the scope of this chapter, consider the 02 amount reasonably necessary to meet its assessment obligations under this chapter. 03 (l) The association shall issue to each insurer paying an assessment under this 04 section, other than a Class A assessment, a certificate of contribution, in a form 05 prescribed by the director, for the amount of the assessment. All outstanding 06 certificates shall be of equal dignity and priority without reference to amounts or dates 07 of issue. A certificate of contribution may be shown by the insurer in its financial 08 statement as an asset in a form and for an amount, if any, and period of time that the 09 director may approve. 10 (m) A member insurer that wishes to protest all or part of an assessment shall 11 pay when due the full amount of the assessment as set out in the notice provided by 12 the association. The payment shall be available to meet association obligations during 13 the pendency of the protest or any subsequent appeal. If a payment is made under 14 protest, payment must be accompanied by a statement in writing that the payment is 15 made under protest and setting out a brief statement of the grounds for the protest. 16 Within 60 days following the payment of an assessment under protest by a member 17 insurer, the association shall notify the member insurer in writing of its determination 18 with respect to the protest unless the association notifies the member insurer that 19 additional time is required to resolve the issues raised by the protest. Within 30 days 20 after a final decision has been made, the association shall notify the protesting member 21 insurer in writing of that final decision. Within 60 days of receipt of notice of the 22 final decision, the protesting member insurer may appeal that final action to the 23 director. In the alternative to rendering a final decision with respect to a protest based 24 on a question regarding the assessment base, the association may refer protests to the 25 director for a final decision with or without recommendation from the association. If 26 a protest or appeal on an assessment is upheld, the amount paid in error or excess shall 27 be returned to the member company. Interest on a refund due a protesting member 28 shall be paid at the rate actually earned by the association. 29 * Sec. 32. AS 21.79.080(a) is amended to read: 30 (a) The association shall submit to the director a plan of operation and any 31 amendments to assure the fair, reasonable, and equitable administration of the

01 association. The plan of operation and any amendments take effect on the written 02 approval of the plan by the director or 30 days after receipt by the director if not 03 disapproved by the director . 04 * Sec. 33. AS 21.79.080(b) is amended to read: 05 (b) If [NOTWITHSTANDING (a) OF THIS SECTION, IF THE 06 ASSOCIATION FAILS TO SUBMIT A PLAN OF OPERATION ACCEPTABLE TO 07 THE DIRECTOR BY JULY 1, 1991, OR IF AT A LATER TIME] the association 08 fails to submit suitable amendments to the plan, the director shall, after notice and 09 hearing, adopt regulations to implement this chapter. These regulations remain in 10 effect until amended or repealed by the director [OR SUPERSEDED BY A PLAN 11 SUBMITTED BY THE ASSOCIATION THAT IS APPROVED BY THE 12 DIRECTOR]. 13 * Sec. 34. AS 21.79.080(c) is amended to read: 14 (c) A member insurer shall comply with the plan of operation. The plan of 15 operation must 16 (1) establish procedures for handling assets of the association; 17 (2) establish the amount and method of reimbursing members of the 18 board under AS 21.79.050(c); 19 (3) establish regular places and times for meetings of the board in the 20 state; the board may conduct meetings telephonically; 21 (4) establish procedures for keeping records of all financial transactions 22 of the association, its agents, and the board; 23 (5) establish terms of office for members of the board, and establish 24 procedures for the selection of the members of the board and for the director's approval 25 of the members selected; 26 (6) establish additional procedures for assessments under AS 21.79.070; 27 and 28 (7) contain additional provisions necessary or proper for the association 29 to exercise its powers and duties. 30 * Sec. 35. AS 21.79.100(f) is amended to read: 31 (f) The board may [SHALL]

01 (1) make reports and recommendations to the director relating to the 02 solvency, liquidation, rehabilitation, or conservation of a member insurer or the 03 solvency of insurers who apply to transact insurance business in the state; the director 04 and the board shall keep the reports and recommendations confidential; 05 (2) notify the director of any information that indicates that a member 06 insurer may be impaired or insolvent. 07 * Sec. 36. AS 21.79.110(b) is amended to read: 08 (b) The association shall keep records of [NEGOTIATIONS AND] meetings 09 relating to its activities. Records of [NEGOTIATIONS OR] meetings may only be 10 made public under AS 21.79.040(b) 11 (1) after the termination of a liquidation, rehabilitation, or conservation 12 proceeding that involves the impaired or insolvent insurer; 13 (2) after the insurer is no longer impaired or insolvent; or 14 (3) upon the order of a court of competent jurisdiction. 15 * Sec. 37. AS 21.79.110(c) is amended to read: 16 (c) The association is considered to be a creditor of the impaired or insolvent 17 insurer to the extent of assets attributable to covered policies that are reduced by an 18 amount to which the association is entitled under AS 21.79.060(s). Assets of the 19 impaired or insolvent insurer that are attributable to covered policies shall be used to 20 continue all covered policies and pay all contractual obligations of the impaired or 21 insolvent insurer as required by this chapter. Assets attributable to covered policies 22 include those assets that should have been established as reserves for the covered 23 policies. These assets are determined by multiplying the total assets of the impaired 24 or insolvent insurer by a fraction, the numerator of which is the amount that should 25 have been established as reserves for the covered policies of the impaired or insolvent 26 insurer, and the denominator of which is the amount that should have been established 27 as reserves for all policies of insurance issued in all states by that insurer. As a 28 creditor of the impaired or insolvent insurer, the association and other similar 29 entities in other states are entitled to receive a disbursement of assets out of the 30 marshaled assets as a credit against contractual obligations under this chapter 31 from time to time as the assets become available. If the liquidator has not, within

01 120 days of the date of a final determination of insolvency of an insurer by the 02 court, made an application to the court for the approval of a proposal to disburse 03 assets, the association may make application to the court for the approval of the 04 association's proposal to disburse assets. 05 * Sec. 38. AS 21.79.110 is amended by adding new subsections to read: 06 (f) A deposit in this state, held by law or required by the director for the 07 benefit of creditors, including policy owners, not turned over to the domiciliary 08 liquidator upon the entry of a final order of liquidation or order approving a 09 rehabilitation plan of an insurer domiciled in this state or in a reciprocal state shall 10 be promptly paid to the association. The association 11 (1) is entitled to retain a portion of any amount paid to it equal to the 12 percentage determined by dividing the aggregate amount of policy owners' claims 13 related to that insolvency for which the association has provided statutory benefits by 14 the aggregate amount of all policy owners' claims in this state related to that 15 insolvency; and 16 (2) shall remit to the domiciliary receiver the amount paid to the 17 association and retained under (1) of this subsection; any amount paid to the 18 association less the amount retained by it under (1) of this subsection shall be treated 19 as a distribution of state assets under AS 21.78.294 or a similar provision of the state 20 of domicile of the impaired or insolvent insurer. 21 (g) The association may not be required to give an appeal bond in an appeal 22 of a civil action arising under this chapter. 23 * Sec. 39. AS 21.79.120 is amended to read: 24 Sec. 21.79.120. Examination of the association, annual report. The 25 association may be examined by the director. The board shall submit to the director, 26 not later than July [MAY] 1 of each year, a certified financial report for the preceding 27 calendar year in a form approved by the director and a report of its activities during 28 the preceding calendar year. Nothing in AS 21.79.110(b) limits the duty of the 29 association to report under this section. Upon request, the association shall provide 30 a copy of the report to a member insurer. 31 * Sec. 40. AS 21.79.140 is amended to read:

01 Sec. 21.79.140. Civil immunity. The association and its agents and 02 employees, members of the Board of Governors, and the director and the director's 03 representatives are not civilly liable for action taken by them to perform duties under 04 this chapter. In this section, "duties" includes participation in an organization of 05 one or more state associations of life or health insurers. 06 * Sec. 41. AS 21.79.150 is repealed and reenacted to read: 07 Sec. 21.79.150. Stay of proceedings; default judgment. Proceedings 08 involving an impaired or insolvent insurer shall be stayed at least 60 days after the 09 date of a final order of liquidation, rehabilitation, or conservation in order to allow the 10 association to exercise a power or duty authorized under this chapter. If a default 11 judgment is entered against an impaired or insolvent insurer, the association may apply 12 to have the judgment set aside or may defend against the action on its merits. 13 * Sec. 42. AS 21.79 is amended by adding a new section to read: 14 Sec. 21.79.160. Prohibited advertisement of insurance sales; required 15 notice. (a) A person, including an insurer, agent, or affiliate of an insurer, may not 16 make, publish, disseminate, circulate, or place before the public, or cause, directly or 17 indirectly, to be made, published, disseminated, circulated, or placed before the public, 18 in any newspaper, magazine, or other publication, or in the form of a notice, circular, 19 pamphlet, letter, or poster, or over any radio station or television station, or in any 20 other way, an advertisement, announcement, or statement, written or oral, that uses the 21 existence of the association for the purpose of sales, solicitation, or inducement to 22 purchase any form of insurance covered by the association. However, this section does 23 not apply to the association or any other entity that does not sell or solicit insurance. 24 (b) The association shall prepare a summary document describing the general 25 purposes and current limitations of this chapter and complying with (c) of this section. 26 This document shall be submitted to the director for approval. Beginning 60 days after 27 the date on which the director approves the document, an insurer may not deliver a 28 policy or contract to a policy or contract owner unless the summary document is 29 delivered to the policy or contract owner at the time of delivery of the policy or 30 contract. The document shall also be available upon request by a policy owner. The 31 distribution, delivery, contents, or interpretation of this document does not guarantee

01 that either the policy or the contract, or the owner of the policy or contract, is covered 02 in the event of the impairment or insolvency of a member insurer. The description 03 document shall be revised by the association as amendments to this chapter may 04 require. Failure to receive this document does not give the policy owner, contract 05 owner, certificate holder, or insured any greater rights than those stated in this chapter. 06 (c) The document prepared under (b) of this section must contain a clear and 07 conspicuous disclaimer on its face. The director shall establish the form and content 08 of the disclaimer. The disclaimer must 09 (1) state the name and address of the association and the division of 10 insurance; 11 (2) prominently warn the policy or contract owner that the association 12 may not cover the policy or, if coverage is available, that the policy will be subject to 13 substantial limitations and exclusions and conditioned on continued residence in this 14 state; 15 (3) state the types of policies for which guaranty funds will provide 16 coverage; 17 (4) state that the insurer and its agents are prohibited by law from using 18 the existence of the association for the purpose of sales, solicitation, or inducement to 19 purchase any form of insurance; 20 (5) state that the policy or contract owner should not rely on coverage 21 under the association when selecting and insurer; 22 (6) explain rights available and procedures for filing a complaint to 23 allege a violation of a provision of this chapter; and 24 (7) provide other information as required by the director, including 25 sources for information about the financial condition of insurers if the information is 26 not proprietary and is subject by law to disclosure. 27 (d) A member insurer shall retain evidence of compliance with (b) of this 28 section for so long as the policy or contract for which the notice is given remains in 29 effect. 30 * Sec. 43. AS 21.79.900(6) is amended to read: 31 (6) "member insurer" means an insurer licensed to transact insurance

01 in the state that issues a policy described in AS 21.79.020(a) and (b), or a subscriber 02 contract providing benefits described in AS 21.87.120(a)(2) - (4) or 21.87.130(a)(2) 03 and (3), and includes an insurer whose license or certificate of authority in this state 04 may have been suspended, revoked, not renewed, or voluntarily withdrawn; "member 05 insurer" does not include 06 (A) a health maintenance organization licensed under AS 21.86; 07 (B) a fraternal benefit society licensed under AS 21.84; 08 (C) a mandatory state pooling plan; 09 (D) a mutual assessment company or an entity that operates on 10 an assessment basis; 11 (E) an insurance exchange licensed under AS 21.75; [OR] 12 (F) a [NONPROFIT] hospital or medical service organization 13 licensed under AS 21.87; 14 (G) an organization that has a license or certificate limited 15 to the issuance of charitable gift annuities; or 16 (H) an entity similar to one described under (A) - (G) of this 17 paragraph; 18 * Sec. 44. AS 21.79.900 is amended by adding new paragraphs to read: 19 (12) "authorized assessment" means an assessment approved by a 20 resolution by the board that will be called immediately or in the future from member 21 insurers for a specified amount; 22 (13) "called" means that a notice has been issued by the association to 23 member insurers requiring that an authorized assessment be paid within the time set 24 out in the notice; 25 (14) "impaired insurer" means a member insurer that is not an insolvent 26 insurer and that is placed under an order of rehabilitation or conservation by a court 27 of competent jurisdiction; 28 (15) "insolvent insurer" means a member insurer that is placed under 29 an order of liquidation by a court of competent jurisdiction with a finding of 30 insolvency; 31 (16) "owner," in relation to a policy or contract,

01 (A) means the person who is identified as the legal owner under 02 the terms of the policy or contract who is otherwise vested with legal title to 03 the policy or contract through a valid assignment completed under the terms of 04 the policy or contract and who is properly recorded as the owner on the records 05 of the insurer; 06 (B) does not include a person with a mere beneficial interest in 07 a policy or contract; 08 (17) "plan sponsor" means, in the case of a benefit plan established or 09 maintained by 10 (A) a single employer, the employer; 11 (B) an employee organization, the employee organization; or 12 (C) two or more employers or jointly by one or more employers 13 and one or more employee organizations, the association, committee, joint 14 board of trustees, or other group of representatives of the parties who establish 15 or maintain the benefit plan; 16 (18) "receivership court" means the court in the insolvent or impaired 17 insurer's state having jurisdiction over the conservation, rehabilitation, or liquidation 18 of the insurer; 19 (19) "structured settlement annuity" means an annuity purchased in 20 order to fund periodic payments for a plaintiff or other claimant in payment for or with 21 respect to personal injury suffered by the plaintiff or other claimant; 22 (20) "state" means a state of the United States, the District of 23 Columbia, Puerto Rico, or a United States possession, territory, or protectorate. 24 * Sec. 45. AS 21.36.035, AS 21.79.060(b), 21.79.100(g), and 21.79.100(i) are repealed. 25 * Sec. 46. The uncodified law of the State of Alaska is amended by adding a new section 26 to read: 27 TRANSITIONAL PROVISIONS. The terms of the members of the board of governors 28 of the Alaska Life and Health Insurance Guaranty Association who are serving on the 29 effective date of this Act are not affected by this Act. Their terms expire as provided before 30 the enactment of this Act.