04/12/2021 03:15 PM House LABOR & COMMERCE

                   SB 87-REINSURANCE; CREDITS                                                                               
                                                                                                                                
3:36:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SPOHNHOLZ announced  that  the next  order of  business                                                               
would  be SENATE  BILL NO.  87, "An  Act relating  to credit  for                                                               
reinsurance; and providing for an effective date."                                                                              
                                                                                                                                
3:36:22 PM                                                                                                                    
                                                                                                                                
LORI WING-HEIER,  Director, Division of Insurance,  Department of                                                               
Commerce, Community,  and Economic Development, introduced  SB 87                                                               
on behalf  of the  Senate Rules  Standing Committee,  sponsor, by                                                               
request of  the governor.   She  explained that  one of  the most                                                               
important  duties carried  out by  the Division  of Insurance  is                                                               
monitoring  the   solvency  of  insurance  companies   to  ensure                                                               
adequate  funds  to pay  claims.    She  said that  in  practice,                                                               
insurance companies only keep a portion  of the risk; if a person                                                               
has  a house  worth $500,000,  the insurance  company may  insure                                                               
only  half of  the worth,  purchasing reinsurance  for the  other                                                               
half.   Likewise,  she said,  the company  may transfer  only the                                                               
earthquake  portion of  the policy  because  the company  doesn't                                                               
want  to  carry that  risk.    She  recalled the  2008  financial                                                               
crisis, noting  that the  Division of  Insurance was  diligent in                                                               
monitoring insurance companies for  solvency, but did not monitor                                                               
for reinsurance.   She stated that the United  States, along with                                                               
the  United Kingdom  and the  European Union,  developed what  is                                                               
called  the  "covered  agreement,"   a  very  detailed  agreement                                                               
providing  that   insurance  regulators  in  each   country  will                                                               
maintain the  same financial  standards for  insurance companies.                                                               
The  covered agreement  with  the European  Union  was signed  by                                                               
President  Barack  Obama,  and the  covered  agreement  with  the                                                               
United  Kingdom was  signed by  President Donald  Trump.   As new                                                               
international  insurers   are  launched,  however,  a   need  for                                                               
modification arises, which is the reason for SB 87.                                                                             
                                                                                                                                
MS. WING-HEIER  directed the committee's attention  to Section 1,                                                               
subsection  (a),  paragraph  (6), of  the  proposed  legislation,                                                               
detailed  on  pages   10  through  13,  which   would  amend  the                                                               
conditions for  qualified reinsurers and the  associated baseline                                                               
for allowing reinsurers  to assume the liabilities  of a domestic                                                               
insurer.    Current  domestic  insurers,  she  said,  are  Alaska                                                               
National Insurance  Company and  Umialik Insurance Company.   She                                                               
explained that  "creditor reinsurance" is called  as such because                                                               
when  an  insurance company  buys  reinsurance  from a  qualified                                                               
reinsurer, the  company can get  a credit for what  was purchased                                                               
in  reinsurance.   Ms. Wing-Heier  then  summarized the  relevant                                                               
sectional analysis,  which read as follows  [original punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     AS  21.12.020(a)(6)  is  amended by  adding  conditions                                                                    
     that  a   qualified  reinsurer  must  meet   to  assume                                                                    
     liabilities  of   a  domestic  insurer.   The  assuming                                                                    
     insurer shall:                                                                                                             
     (A)  Have  its  head  office   or  be  domiciled  in  a                                                                    
     reciprocal jurisdiction;                                                                                                   
     (B) Have  and maintain minimum capital  and surplus, or                                                                    
     its equivalent, in an amount set out in regulation;                                                                        
     (C)  Have and  maintain a  minimum solvency  or capital                                                                    
     ratio in an amount set out in regulation;                                                                                  
     (D)  Agree to  and provide  adequate assurances  to the                                                                    
     director (i)prompt written notice  if the insurer falls                                                                    
     below  the minimum  requirements or  if any  regulatory                                                                    
     action is taken against  it for serious non-compliance;                                                                    
     (ii)  consent in  writing to  the  jurisdiction of  the                                                                    
     courts  of this  state and  to the  appointment of  the                                                                    
     director  as the  agent for  service of  process; (iii)                                                                    
     consent in writing to pay  all final judgments obtained                                                                    
     by   the  ceding   insurer;   (iv)   agree  that   each                                                                    
     reinsurance  agreement  must  provide  security  in  an                                                                    
     amount equal  to 100 percent of  the assuming insurer's                                                                    
     liabilities;   and  (v)   confirm   that   it  is   not                                                                    
     participating  in  any  solvent scheme  of  arrangement                                                                    
     that involves this state's ceding insurers;                                                                                
     (E) Provide  certain documentation  to the  director as                                                                    
     specified in regulation;                                                                                                   
     (F) Maintain a practice of prompt payment of claims;                                                                       
     (G) Confirm  to the  director on  an annual  basis that                                                                    
     the assuming insurer complies  with requirement (B) and                                                                    
     (C);                                                                                                                       
     (H) Agree  that nothing in this  paragraph precludes an                                                                    
     assuming  insurer  from  providing  the  director  with                                                                    
     information on a voluntary basis.                                                                                          
                                                                                                                                
MS. WING-HEIER  stated that the  proposed legislation  would also                                                               
provide a definition of a  "reciprocal jurisdiction" and that the                                                               
reciprocal  jurisdiction  would  include  the  countries  in  the                                                               
United Kingdom and the countries of the European Union.                                                                         
                                                                                                                                
3:40:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FIELDS  commented that  reinsurance  seems  to be  more                                                               
broadly available  to, and  disproportionally benefit,  people in                                                               
regions   of   low-frequency,    high-consequence   events   like                                                               
earthquakes.                                                                                                                    
                                                                                                                                
MS.  WING-HEIER  replied  that   such  events  are  exactly  what                                                               
reinsurance is for, noting that  such events don't commonly occur                                                               
but are "catastrophic" when they do.                                                                                            
                                                                                                                                
3:41:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SPOHNHOLZ announced that SB 87 was held over.