CHAIRMAN KELLY brought SB 342 (RISK BASED CAPITAL FOR INSURERS) before the committee as the final order of business. DAVID WALSH, Director, Division of Insurance, Department of Commerce & Economic Development, introduced Barbara Thurston, Chief Actuary, and Katy Campbell, Assistant Actuary, with a specialty in life and health actuarial science. Mr. Walsh explained the legislation represents the culmination of many years of work by insurance regulators and industry representatives from throughout the country. The current statute does not take into account the difference in sizes of companies, the difference in asset risk, the difference in underwriting risk and type of business, etc. Regulators learned during the 1980's in both the banking and insurance sectors that that was simply not a good tool for regulation, nor did it accurately reflect the strength that a company had. Banking regulation went to risk based capital a few years ago, and with insurance, part of it took a little longer to put together. SB 342 sets up a series of criteria based upon a company's size, how they invest their money, the type of risk that they underwrite, which is then put into a mathematical formula. From that formula, a number is achieved, and based upon the number, the regulator either does or doesn't take action. At 200 percent of the minimum capital necessary, there are permissive things that a regulator may do. At 150 percent there are some things that a regulator has to do, like sit down with a company and work out a plan for rehabilitation. At 100 percent of risk based capital that means they are into the very dollars that provide the company with life and there are some mandatory regulatory actions there. Mr. Walsh said the Alaskan domestic companies benefit from this change. The average nationwide for healthy companies is about 280 to 290 percent of risk based capital. Alaskan companies range from 400 percent of risk based capital to 24,000 percent of risk based capital. He said this points out that our companies are conservative companies that are well managed. Risk based capital will allow them to provide a little more flexibility in their investment policy based upon that strength. The statutes, as they currently exist, don't allow that flexibility. Mr. Walsh said the state's domestic companies are all in favor of the proposed legislation, however, one change has been suggested Alaska National. The risk based capital formula is a national formula that will be changed and adapted as the industry changes and the market changes. The amendment proposed would require a public hearing process in Alaska to make certain that that change is good for Alaskan consumers and Alaskan domestic companies. He also spoke to other minor amendments being proposed by the Division of Insurance. Number 260 SENATOR SHARP moved that the amendments proposed by the Division of Insurance be adopted and incorporated into a Labor & Commerce committee substitute. Hearing no objection, the Chairman stated CSSB 342(L&C) was adopted. Number 265 SENATOR RIEGER asked what the phrase "monetary consideration received under an annuity" refers to. KATY CAMPBELL answered it relates to any kind of single premium payments to purchase a deferred annuity. SENATOR SHARP moved that CCSB 342(L&C) be passed out of committee with individual recommendations. Hearing no objection, it was so ordered.