HB 398 - LIFE AND HEALTH INSURANCE GUARANTY ASSN REPRESENTATIVE GREEN announced that the final order business would be, HOUSE BILL NO. 398, "An Act relating to the Alaska Life and Health Insurance Guaranty Association." [Before the committee is CSHB 398(L&C).] Number 2437 JOHN MANLY, Staff to Representative John Harris, Alaska State Legislature, explained that HB 398 would update the statutes relating to the insurance guaranty association in order to conform with the most recent model statute. TAPE 00-36, SIDE A MR. MANLY turned the discussion over to John George. REPRESENTATIVE ROKEBERG clarified that [HB 398] refers to life and health insurance. There is another bill, HB 310, that addresses an association related to property and casualty. He noted that there are two different guaranty associations in Alaska. Number 0229 JOHN GEORGE, Lobbyist, American Council of Life Insurance (ACLI), agreed with Representative Rokeberg that the life and health insurance guaranty association is very different from the property and casualty guaranty association as the two have very different operations. He explained that when a property/casualty insurance company becomes insolvent, there are claims that are outstanding which would need to be settled in order to collect and distribute the money. When a life insurance company becomes insolvent, there are ongoing policies for which people continue to make payments. The primary goal for a life insurance guaranty association is to find a home for policies that are in effect and transfer those to a new company which would take over that obligation. Therefore, years from now when a person makes a claim against the policy, that person would have the protection. MR. GEORGE stated that HB 398 is essentially the National Association of Insurance Commissioners (NAIC) model bill. The NAIC writes in a totally different language than the legislative bill drafters, and therefore there have been problems in converting NAIC language to bill drafter language. Those language problems have resulted in some committee substitutes. He noted that he has another amendment, labeled 1-LS1376\I.2, Ford, 3/22/00 [Ford I.2], to propose. Mr. George informed the committee that his clients met, via teleconference, with the Division of Insurance and there were about 20 differences, which were worked out [save one item]. The bill that was before the House Labor & Commerce Committee only required a two word change on page 13, lines 20 and 27, the words "to intervene" were added and thus there was a committee substitute (CS). With regard to the aforementioned amendment, Ford I.2, Mr. George believes that CSHB 398(L&C) with the Ford I.2 amendment is something that he and the division would agree upon, except for the two words inserted in the House Labor & Commerce Committee. Mr. George noted that he represents ACLI which supports the bill. Number 0615 DON THOMAS, Executive Director, Alaska Life and Health Insurance Guaranty Association, testified via teleconference from Anchorage. He stated that he is present to convey the association's support for CSHB 398 [CSHB 398(L&C)] as well as the amendment mentioned by Mr. George. The association supports the bill and the amendment for the reasons stated by Mr. Manly and Mr. George. The bill represents lessons learned over the previous ten years of the association's existence and these changes are based on the NAIC model act. He noted that HB 398 is, as noted earlier, similar in its intent as HB 310, which updates the guaranty association law regarding property and casualty policies. He pointed out that this committee moved HB 310 out of committee a few weeks ago and thus for consistency this committee should do the same with HB 398. REPRESENTATIVE CROFT inquired as to what this legislation does. He asked, "What are the major policy shifts that it accomplishes?" MR. GEORGE pointed out that financial products have changed. Furthermore, some insolvencies were found in other states due to the lack of appropriate tools. Therefore, this legislation essentially updates [the tools]. For further information, Mr. George deferred to Mr. Thomas. MR. THOMAS noted that he also serves as the association's attorney. He said that he could highlight those areas that make things simpler for the association. For example, there is a clarification of the definition of "policy ownership," which clearly excludes beneficial ownership. The law as presently written is not exactly clear on that matter. There is also a change which allows the domiciliary insurance director/commissioner receivership core to approve alternative plans and rates. Mr. Thomas noted that he has a summary of [changes] that was prepared by Mr. George's clients. REPRESENTATIVE KERTTULA referred to pages 2-4, which seem to list the ways in which people will not be covered. There seem to be a lot of new exceptions. She asked if that would be a correct assessment. Number 0971 MARY BETH STEVENS, Alaska Legislative Director and Counsel, American Council of Life Insurers (ACLI), testified via teleconference. She informed the committee that ACLI is a national trade association representing approximately 475 life insurance companies, the majority of which write business in Alaska. Although she said that she is not a detailed expert on this rule, she believes that the changes to the Alaska Act fall into one of four categories. She specified, "The first category of amendments includes proposals to change the situs of guaranty association coverage for unallocated annuities from the state of residence as the contract owner to the state of the principal place of business of the plan sponsor." She believes that much of what is included on pages 3 and 4 references coverage of unallocated annuities. She clarified that the purpose of this change is to eliminate "form" shopping by plan sponsors. Furthermore, the situs of coverage for structured settlement annuities was changed from the state contract holder to the state of residence of the payee or injured party. MS. STEVENS turned to the second category of amendments which clarifies that assessments can be authorized and called at different times. Furthermore, it eliminates coverage economically in material policy guarantees. She noted that the guaranty association's authority to act is broadened in the event of an impairment. The guaranty association's authority is also expanded to provide substitute coverage of annuities and the authority of receivership court to approve alternative policies. MS. STEVENS moved on to the third category of amendments which attempt to clarify rather than change anything. She explained that several sections of the [NAIC] model act have been the subject of constant litigation. The [fourth category of] amendments also include proposals to specifically eliminate synthetic guaranteed investment contracts (GICs) from coverage and from the $5 million cap on coverage for coverage of "Coly and Boly" (ph) policies held by one owner. There is also a one percent assessment rule on subaccounts. Furthermore, the amendments would allow guaranty associations to propose their own early access plan with no distributions received within 120 days of an insolvency. The amendments would also reduce the authority and the responsibility of guaranty associations with regard to insolvency prevention and reporting. Ms. Stevens commented that although she does not purport to know all the details of this legislation, she pointed out that all of these issues have been [discussed] over a number of years at the NAIC level with input from a variety of sources. REPRESENTATIVE ROKEBERG remarked that it is unfortunate that the current bill packet does not include all the supporting materials that were included in the House Labor & Commerce bill packet. REPRESENTATIVE GREEN suggested that the supporting information is necessary in order to understand this legislation. Therefore, Representative Green held HB 398 in order to obtain this additional material.