SB 87-REINSURANCE; CREDITS  3:36:07 PM CO-CHAIR SPOHNHOLZ announced that the next order of business would be SENATE BILL NO. 87, "An Act relating to credit for reinsurance; and providing for an effective date." 3:36:22 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community, and Economic Development, introduced SB 87 on behalf of the Senate Rules Standing Committee, sponsor, by request of the governor. She explained that one of the most important duties carried out by the Division of Insurance is monitoring the solvency of insurance companies to ensure adequate funds to pay claims. She said that in practice, insurance companies only keep a portion of the risk; if a person has a house worth $500,000, the insurance company may insure only half of the worth, purchasing reinsurance for the other half. Likewise, she said, the company may transfer only the earthquake portion of the policy because the company doesn't want to carry that risk. She recalled the 2008 financial crisis, noting that the Division of Insurance was diligent in monitoring insurance companies for solvency, but did not monitor for reinsurance. She stated that the United States, along with the United Kingdom and the European Union, developed what is called the "covered agreement," a very detailed agreement providing that insurance regulators in each country will maintain the same financial standards for insurance companies. The covered agreement with the European Union was signed by President Barack Obama, and the covered agreement with the United Kingdom was signed by President Donald Trump. As new international insurers are launched, however, a need for modification arises, which is the reason for SB 87. MS. WING-HEIER directed the committee's attention to Section 1, subsection (a), paragraph (6), of the proposed legislation, detailed on pages 10 through 13, which would amend the conditions for qualified reinsurers and the associated baseline for allowing reinsurers to assume the liabilities of a domestic insurer. Current domestic insurers, she said, are Alaska National Insurance Company and Umialik Insurance Company. She explained that "creditor reinsurance" is called as such because when an insurance company buys reinsurance from a qualified reinsurer, the company can get a credit for what was purchased in reinsurance. Ms. Wing-Heier then summarized the relevant sectional analysis, which read as follows [original punctuation provided]: AS 21.12.020(a)(6) is amended by adding conditions that a qualified reinsurer must meet to assume liabilities of a domestic insurer. The assuming insurer shall: (A) Have its head office or be domiciled in a reciprocal jurisdiction; (B) Have and maintain minimum capital and surplus, or its equivalent, in an amount set out in regulation; (C) Have and maintain a minimum solvency or capital ratio in an amount set out in regulation; (D) Agree to and provide adequate assurances to the director (i)prompt written notice if the insurer falls below the minimum requirements or if any regulatory action is taken against it for serious non-compliance; (ii) consent in writing to the jurisdiction of the courts of this state and to the appointment of the director as the agent for service of process; (iii) consent in writing to pay all final judgments obtained by the ceding insurer; (iv) agree that each reinsurance agreement must provide security in an amount equal to 100 percent of the assuming insurer's liabilities; and (v) confirm that it is not participating in any solvent scheme of arrangement that involves this state's ceding insurers; (E) Provide certain documentation to the director as specified in regulation; (F) Maintain a practice of prompt payment of claims; (G) Confirm to the director on an annual basis that the assuming insurer complies with requirement (B) and (C); (H) Agree that nothing in this paragraph precludes an assuming insurer from providing the director with information on a voluntary basis. MS. WING-HEIER stated that the proposed legislation would also provide a definition of a "reciprocal jurisdiction" and that the reciprocal jurisdiction would include the countries in the United Kingdom and the countries of the European Union. 3:40:58 PM CO-CHAIR FIELDS commented that reinsurance seems to be more broadly available to, and disproportionally benefit, people in regions of low-frequency, high-consequence events like earthquakes. MS. WING-HEIER replied that such events are exactly what reinsurance is for, noting that such events don't commonly occur but are "catastrophic" when they do. 3:41:40 PM CO-CHAIR SPOHNHOLZ announced that SB 87 was held over.