Legislature(1993 - 1994)

04/06/1994 01:40 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 and invited DAVE WALSH, Director of the Division of Insurance, for            
 the Department of Commerce and Economic Development, to explain the           
 (Due to a malfunction in the taping of the first tape of the                  
 committee meeting, the minutes for SB 342 have been compiled from             
 the log notes, and selected parts from the Bill Analysis as                   
 presented by MR. WALSH.)                                                      
  RISK BASED CAPITAL  - "Risk based capital is an amount of capital            
 and surplus calculated by an insurer using a formula derived by the           
 National Association of Insurance Commissioners (NAIC), that will             
 be used for determining whether regulatory action is needed and if            
 regulatory action is needed, of what type.  All insurers will use             
 the same formula to calculate their risk based capital levels but             
 the actual levels resulting from the formula will vary by insurer             
 based upon the risks associated with that insurer's operations.               
 For life and health insurers, the formula for risk based capital              
 incorporates risks associated with the insurer's assets, adverse              
 mortality and morbidity, changes in interest rates, and other                 
 business risks.  For property and casualty insurers \, the formula            
 incorporates asset or default risk, credit risk, underwriting risk,           
 and other business risks.                                                     
 The formula uses asset, reserve, reinsurance, and premium amounts             
 in the insurer's annual financial statement to calculate a level of           
 risk based capital levels are "authorized control level risk based            
 capital."  Three other risk based capital levels are determined by            
 applying percentages to the "authorized control level risk based              
 capital": 200% for a "company action level risk based capital",               
 150% for a "regulatory action level risk based capital" and a                 
 factor of 70% for a "mandatory control level risk based capital."             
 Depending on where an insurer's actual capital and surplus falls              
 within these different risk based capital levels, the director will           
 take the actions outlined in the proposed legislation.                        
 Unlike current Alaska law that requires insurers to maintain a                
 single minimum amount of capital and surplus that is identical for            
 each class of insurer, requiring each insurer to calculate and                
 report its risk based capital to the director will:                           
  1. Require insurers to take actions that would provide greater               
  safety from insolvency, thereby providing greater protection                 
  to consumers.                                                                
  2. Provide guidance and assistance to regulators in                          
  identifying weak insurers.                                                   
  3. Provide the legal authority for the director to intervene                 
  before insolvency occurs or before an insurer's capital and                  
  surplus falls below a level appropriate for that insurer.                    
 Risk based capital will more accurately reflect an insurer's                  
 solvency.  Alaskan insurers fair well under this proposed risk                
 based capital legislation and currently have capital and surplus              
 levels higher than the amount indicated in the risk based capital             
 The proposed risk based capital legislation is based on the NAIC              
 risk based capital model law that has been adopted as a minimum               
 standard for state accreditation under the NAIC Accreditation                 
 Program.  The NAIC Accreditation Program establishes minimum                  
 standards of regulation through adoption of statues and procedures.           
 State accreditation is granted by the NAIC after on-site review               
 verifying that these minimum standards are met.  The alaska                   
 Division of Insurance received its accreditation in December 1992             
 and is committed to maintaining the standards of the NAIC                     
 Accreditation Program.                                                        
 SENATOR JACKO moved to pass CS FOR SENATE BILL NO. 342(L&C) (RISK             
 BASED CAPITAL FOR INSURERS) from committee with individual                    
 recommendations.  Without objections, so ordered.                             

Document Name Date/Time Subjects