Legislature(2003 - 2004)
05/07/2003 01:32 PM Senate JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 184-INDIVIDUAL DEFERRED ANNUITIES
CHAIR SEEKINS announced HB 184 to be up for consideration.
REPRESENTATIVE COGHILL, sponsor of HB 184, said it deals with AS
21.45.305 - insurance and individual deferred annuities. Market
changes have put pressure on the need for an interest rate
change on the minimum deferred annuity rate, which was set in
statute in the 1970s at the current 3%. Then there was no
expectation that the market would be where it is today. The
Division of Insurance wanted to lower the floor to 1.5% with the
idea that the National Insurance Commissioners were going to
come up with a long-term fix. They did that and the long-term
fix is a model law and in section 2 sets a cap at 3 percent, a
floor at 1 percent and a floating average based on a constant
maturity rate...
TAPE 03-40, SIDE A
REPRESENTATIVE COGHILL said that section 2 allows the
flexibility for insurance companies to do a re-determination and
a transition period. This bill has the support of those who buy
annuities, those who sell them and our regulatory agency that
oversees them.
SENATOR THERRIAULT asked if they were getting into a turf battle
between the banking and insurance industries.
MS. KATIE CAMPBELL, Life and Health Actuary, Division of
Insurance, replied that she didn't know of any such battle. This
was brought to their attention at the national level when
interest rates started taking a dive and there were 3 percent
guarantees in the contracts. Companies were concerned about
solvency at that point and having to guarantee something they
couldn't earn on their monies. Annuities guarantee a return;
something comparable on the banking side would be a CD type of
instrument. These are longer term guaranteed contracts.
SENATOR FRENCH asked if this would change any existing annuity
contracts.
MS. CAMPBELL replied that the effective date provision was
designed so that it was very clear that it doesn't affect any
contract that is currently in place. It would only affect
contracts that were issued after the effective date.
SENATOR FRENCH asked why they have to change the law and why
couldn't the annuity folks recognize lower interest rates the
way the rest of us have and write lower interest rates into
their contracts from here on out.
MS. CAMPBELL replied that the minimum rate in the law is 3
percent and this bill provides flexibility for the rate to drop.
SENATOR FRENCH asked if the same problem would arise if interest
rates went to 0 percent.
MS. CAMPBELL replied that the model language in this bill still
guarantees a return at 1 percent.
CHAIR SEEKINS asked if the Division of Insurance thought these
changes were compatible with the best interest of the people of
the State of Alaska.
MS. CAMPBELL replied the division supports the bill.
SENATOR OGAN moved to pass SCS CSSSHB 184(L&C) from committee
with individual recommendations and accompanying fiscal notes
and asked for unanimous consent. There was no objection and it
was so ordered.
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