SB 191-JOINT AVIATION INSURANCE ARRANGEMENTS  Mr. BOB LOHR, Director Division of Insurance, expressed his appreciation to the committee for including the division of insurance in developing SB 191. Although a number of their suggestions were incorporated in the bill, his testimony would focus on ways the bill could be strengthened. · Minimum surplus and capital requirements similar to those required of a domestic reciprocal insurer have been added and is an important addition to the legislation. · Aviation insurance will only work if it is adequately funded. Authorization for an aviation joint insurance arrangement that is tied to a congressional or legislative grant or loan for reserves should be explored. · The term "admitted assets" used on page 3, line 31 in section 21.77.040 should be defined since the specific meaning under title 21 would not apply. In title 21 it is a term related to statutory accounting and would not be applicable. They suggested replacing "admitted assets" with "cash and U.S. treasuries. · They recommend that the aviation joint insurance arrangement be required to notify members that the insurance is not regulated and they provide no guarantee of protection in case of insolvency. Language in AS 12.34.080 could be used as a model. CHAIRMAN TAYLOR offered amendment 1 striking the term "admitted assets" from page 3, line 31 and inserting "cash or U.S. treasury". SENATOR COWDERY moved amendment 1. CHAIRMAN TAYLOR asked for the next recommendation. MR. LOHR said the next recommendation was conceptual in nature but he was reading from AS 24.34.080 relating to surplus lines. In (c) is says, "a producing broker shall execute and deliver to the surplus lines broker not later than the end of each month, on a form proscribed by the director. A surplus lines broker shall file with the director with a report required by (a) if this section or with the surplus lines association with the evidence of insurance required by (b) of this section. The surplus lines insurance first placed or renewed in the preceding calendar month an affidavit shall be open to public inspection. The affidavit must contain a statement by the producing broker that the insured was expressly informed in writing before the insurance contractor coverage was bound that the surplus lines insure with whom the insurance is to be placed is not licensed in this state, is not subject to the state's supervision and in the event of the insolvency of the surplus lines insurer, losses will not be covered under AS 21.80, the Alaska Insurance Guarantee Association Act." He thought the forgoing could be adopted for the purposes of the aviation joint insurance arrangement. CHAIRMAN TAYLOR said "That's to basically take them out from under any coverage provided to other carriers because they are licensed and here in the state and that's their kind of solvency pool, right?" MR. LOHR replied that SB 191 already takes them out because it precludes the division from exercising any regulatory function. It simply notifies the policyholders of the fact that the coverage does not exist. CHAIRMAN TAYLOR asked him to draw up the amendment and they would include it in the bill. MR. LOHR agreed to do so. SENATOR ELLIS asked whether he had an opinion on the adequacy of the minimum capital and surplus requirements set forth in the bill. MR. LOHR replied that the requirements are drawn from the reciprocal chapter and, at this time, aviation insurance is the riskiest form of insurance. Because of this, there is need for additional mechanisms even though those mechanisms face the same difficulties that existing insurers face. Because there are so many air crashes in Alaska, there are many insurers that are unwilling to write policies here unless it's with companies that are known and present little risk. Safety is certainly an element of the concern and those requirements are better than no capital surplus requirements but adequate capitalization is imperative. If one crash stands to wipe out the capital surplus of the entire joint insurance aviation arrangement then this is a recipe for disaster. SENATOR ELLIS asked what would constitute adequate capitalization. MR. LOHR thought the current statutory requirement would have to be doubled at a minimum. SENATOR ELLIS asked Chairman Taylor for the basis for his figures for the capital and surplus requirements. CHAIRMAN TAYLOR said they were the same as reciprocal insurance carriers. Number 690 SENATOR ELLIS asked if it was realistic to think that Congressman Don Young would capitalize such a fund in Alaska. CHAIRMAN TAYLOR replied that Congressman Young was thinking about a $500 million figure, which is much higher than the figure legislators considered. SENATOR ELLIS asked whether Mr. Lohr had thought about exempting from his oversight the activity referred to on page 2, line 5. MR. LOHR said the Alaska Municipal League Joint Insurance Arrangement and other entities currently operate successfully under statute without regulation by the division. He thought it was a legislative policy call as to whether something was within the scope of Title 21 or not. In terms of early warning of potential problems, Title 21 regulations are effective and problems would come to light sooner if they were regulating than if they were not. Number 552 SENATOR COWDERY noted that building contractors were interested in a pool several years ago and wondered how that was working. MR. LOHR didn't believe the effort was carried to fruition but the concern at that time was adequacy of capitalization. CHAIRMAN TAYLOR agreed that they weren't able to capitalize the effort. He directed SB 191 be held in committee.