SB 15-LIFE INSURANCE POLICY PREMIUM TAX  9:12:09 AM CHAIR OLSON announced that the first order of business would be SPONSOR SUBSTITUTE FOR SENATE BILL NO. 15, "An Act relating to the tax on policy year premiums for life insurance policies." 9:12:16 AM SENATOR JOHN COGHILL, Alaska State Legislature, characterized the bill as simple in concept, but one with complexities. He said that SB 15 would reduce the premium taxes for single or group life insurance polies from 0.1 percent to 0.08. In 1997, one of his predecessors introduced the trust administration law that created trusts in Alaska, which was unique. Previously, the insurance director mentioned offshore investment issues, and the concept was to attract to the United States that type of investment. In 2010, Alaska had $208 million in investment for single or group life insurance as a result of its favorable trust law, noting other states enacted similar laws, including South Dakota, which has had the effect of reducing the investment in Alaska to $79 million. This bill was introduced to attract additional investment in Alaska. 9:14:09 AM SENATOR COGHILL pointed out that one concern expressed was that this is a "race to the bottom," which he acknowledged was a legitimate concern; however, he hoped to increase the investment in Alaska, which will improve the workforce, attract investment to Alaska, and would bring a premium tax benefit. Although the state may lose volume and lose the tax value, if the volume was increased, it will also increase the tax value to Alaska. He hoped this would bring the policy year premium for policies exceeding $100,000 to a rate competitive to other states, in particular, South Dakota. He explained that this would bring Alaska's basic premium tax rate even with South Dakota's rate. He offered his belief that Alaska's trust administration law was attractive, but this will entice investors in Alaska. This bill was brought to the sponsor by the trust administrators in Alaska. 9:16:19 AM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community, & Economic Development (DCCED), stated that SSSB 15 would reduce the premium tax from 0.10 to 0.08 on life insurance policies exceeding $100,000. She referred to a spreadsheet in members' packets entitled "Prepared by the Division of Insurance at the request of Senator John Coghill for SB 15." The amount of tax collected starts at $104 thousand and if it was reduced to .08 it would be $84,000, which makes a difference of about $20,000 on about 112 polices. She said the table goes through 2012 to highlight the number of polices and the difference in the tax that would be collected at the 0.08 rate. She said South Dakota reported that when it reduced their tax to 0.08 percent, in 2010 that 29 companies wrote policies over $100 million with $97 million in premium taxes and in 2014, South Dakota collected $120 million in premium collected from 32 companies. She recapped that South Dakota did enjoy an increase in volume from the insurance industry. 9:18:20 AM MS. WING-HEIER said this was submitted with an indeterminate fiscal note since it was not possible to determine the overall effect of the revenue collected; however, she reported that in 2011, the difference was $88,000. She suggested that the amount was fairly small in terms of the overall revenue for the division. 9:19:11 AM REPRESENTATIVE KITO referred to the aforementioned table to 2011, to $443,280 for 105 polices, dropping to $112,535 and 105 polies. He asked for further clarification on the shift in revenue since it seemed like the division taxed the same number of policies. MS. WING-HEIER answered that 2011 was an anomaly since the state had two large polices over $300 million. In fact, these are the types of policies the insurance companies hope to attract. She referred to the total life premium written in 2011 for $687,043,543 which dropped in 2012 to $352,786,601. 9:21:10 AM CHAIR OLSON related his understanding the Division of Insurance supported the bill. MS. WING-HEIER answered yes; that the division does support the bill. 9:21:28 AM REPRESENTATIVE LEDOUX wondered whether the policies in question were a finite number of potential policies since the language referred to policies over $100,000 in premium. She asked the reason that people would move their policies to Alaska. MS. WING-HEIER answered that there was not a finite number, but that life insurance is one tool in retirement planning. She said that the division has seen an increase in this tool being used in financial planning, especially by young people who are starting to look at their financial future. She offered her belief that young people are buying bigger policies. Further, she advised that people do not need to live in Alaska to take advantage of this tax structure. The insurance brokers or producers in the state could sell to people in the Lower 48, but the state will collect the tax. 9:23:41 AM REPRESENTATIVE LEDOUX asked whether these policies are used when someone dies or if the [policies] are cash values since people use them for retirement planning. MS. WING-HEIER answered these policies can be used as a beneficiary for life estate planning purposes or they could have a cash value that people could draw on, but it would just depend on how it was structured with the broker. 9:24:09 AM CHAIR OLSON commented that these policies are also used to cover taxes after death on large estates. MS. WING-HEIER agreed that was correct. 9:24:20 AM REPRESENTATIVE HUGHES asked Ms. Wing-Heier to predict the additional potential revenue the state might collect. MS. WING-HEIER said she did not have an answer at this time, although the committee requested it. Unfortunately her financial staff was currently on leave so she wasn't able to access and compile data to predict the overall effect of the bill; however, the insurance agents and brokers believe this change will be beneficial. 9:26:31 AM REPRESENTATIVE HUGHES asked whether she was confident this change will increase revenue. MS. WING-HEIER answered that she was optimistic. She said she has spent time with the sponsor and agents, who are confident it will. 9:26:56 AM CHAIR OLSON, after first determining no one wished to testify, closed public testimony on SSSB 15. 9:27:12 AM REPRESENTATIVE HUGHES moved to report SSSB 15 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, SSSB 15 was reported from the House Labor and Commerce Standing Committee.