Legislature(1993 - 1994)
04/06/1994 01:40 PM Senate JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATOR TAYLOR introduced SB 342 (RISK BASED CAPITAL FOR INSURERS) and invited DAVE WALSH, Director of the Division of Insurance, for the Department of Commerce and Economic Development, to explain the legislation. (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 formula. 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.