HB 184-INDIVIDUAL DEFERRED ANNUITIES CHAIR ANDERSON announced that the final order of business would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 184, "An Act relating to individual deferred annuities; and providing for an effective date." Number 1860 REPRESENTATIVE JOHN COGHILL, Alaska State Legislature, explained that he sponsored HB 184 by request. His original bill simply decreased the guaranteed interest rates on deferred annuities from 3 percent to 1.5 percent. While he was drafting this bill, however, the National Association of Insurance Commissioners (NAIC) drafted model language to solve the problem with an indexing tool. He said interest rates are so low that [companies selling] annuities are [having trouble] with solvency. This NAIC model language contains an index that allows the companies to be solvent in times of low interest rates, but it also guarantees the consumer a minimum rate of interest. REPRESENTATIVE COGHILL described two proposed amendments [suggested by the Division of Insurance] to SSHB 184. He noted that Amendment H.1 [labeled 23-LS0753\H.1, Ford, 4/1/03] is consistent with the new model language. Amendment H.1 read: Page 2, line 13: Delete "an additional period" Insert "additional periods" REPRESENTATIVE COGHILL noted that Amendment H.2 [labeled 23- LS0753\H.2, Ford, 4/1/03] is a new section that changes the effective date and actually gives time for an implementation period. Amendment H.2 read: Page 2, following line 29: Insert a new bill section to read:  "* Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to read: TRANSITION PERIOD FOR ANNUITY CONTRACTS; APPLICABILITY OF ACT. During the period that begins on the effective date of this Act and ends on the day before the date that is two years after the effective date of this Act, this Act applies to an annuity contract when the contract form for that annuity is approved by the director of the division of insurance. For an annuity contract not otherwise affected by this section, this Act applies to annuity contracts beginning on the date that is two years after the effective date of this Act." Renumber the following bill section accordingly. REPRESENTATIVE COGHILL noted that he is bringing SSHB 184 to the committee today for information, not necessarily for movement. He said he is still digesting the changes in the bill. He pointed out that Amendment H.2 has an implementation period. Companies will have two years to rewrite their contracts, and the Division of Insurance [Department of Community and Economic Development] won't receive [a large volume of] newly revised contracts all at once. Number 1686 REPRESENTATIVE DAHLSTROM moved to adopt SSHB 184 as a work draft. There being no objection, it was so ordered. REPRESENTATIVE COGHILL noted that these amendments were brought to his attention yesterday. He brought attention to NAIC correspondence from NAIC in the information packet and said staff from the Division of Insurance were present to answer questions about the NAIC model. Number 1596 JOHN GEORGE, Lobbyist for the American Council of Life Insurers (ACLI), explained that ACLI is an insurance trade association that writes life insurance and annuity products. In response to a question by Representative Rokeberg, he said his clients who sell annuities have a real problem. If a client decides to terminate the agreement and get the money back, the law requires a minimum 3 percent return on the money. That was set years ago when interest rates were 14 and 20 percent, and no one foresaw an interest rate as low as 3 percent; that figure was considered rock bottom for consumer protection. However, times have changed: interest rates have dropped substantially, and insurance companies are not getting a 3 percent return on the money. He likened it to asking a bank to guarantee 5 percent on a savings account. Banks can't do that and stay in business, he told members; banks would have to terminate savings accounts. Number 1552 MR. GEORGE said the life insurance industry is deciding whether to continue offering these products. Companies aren't on the verge of insolvency, but this bill recognizes that for these companies to survive over the long term, the [interest rate] needs to be adjusted. The "simple fix" [in original HB 184, before NAIC completed its work] was to lower the interest rate [to 1.5 percent]. He said NAIC had been working for several years to come up with this model. Therefore, he encouraged the committee to use the national standard. He explained that a number of other states adopted the 1.5 percent interest rate with a sunset clause of one or two years, anticipating that the matter would have to be revisited when NAIC produced its model. He predicted that Alaska will be on the cutting edge because of the timing of this legislation and the completion of the NAIC model. Number 1430 KATIE CAMPBELL, Life and Health Actuary, Division of Insurance, Department of Community & Economic Development, responded to questions from Representative Rokeberg. She said the goal of Amendment H.2 is to allow a two-year transition; she could not clarify whether the amendment accomplished that. She also said that as she reads it, the amended language would be inserted following line 29; then Section 2, with an effective date of July 1, 2003, would be renumbered as Section 3. REPRESENTATIVE ROKEBERG asked about the interest rate set on page 2, line 8, "(A) the five-year constant maturity treasury rate reported by the federal reserve". MS. CAMPBELL replied that this index is a good choice because the federal government will be issuing treasury [bonds] and the index is representative of the current market. REPRESENTATIVE ROKEBERG described [the index] as a "market basket" of different maturities. Number 1180 MR. GEORGE added that the index is similar to the investments that insurance companies actually make. REPRESENTATIVE ROKEBERG asked Ms. Campbell if she understood the language in the NAIC-inspired amendment. CHAIR ANDERSON noted that Ms. Campbell had nodded in agreement. Number 1122 REPRESENTATIVE ROKEBERG moved to adopt Amendment H.1 [text provided previously]. There being no objection, it was so ordered. Number 1091 REPRESENTATIVE ROKEBERG moved to adopt Amendment H.2 [text provided previously]. There being no objection, it was so ordered. REPRESENTATIVE ROKEBERG reported a possible conflict of interest: his stepson is the national sales manager for Liberty Financial Corporation, which sells annuities. CHAIR ANDERSON indicated he'd still like Representative Rokeberg to vote. Number 1050 REPRESENTATIVE ROKEBERG moved to report SSHB 184, as amended, out of committee with individual recommendations and the accompanying zero fiscal notes. There being no objection, CSSSHB 184(L&C) was reported from the House Labor and Commerce Standing Committee.