SB 87-REINSURANCE; CREDITS  2:36:06 PM CHAIR COSTELLO announced the consideration of SENATE BILL NO. 87, "An Act relating to credit for reinsurance; and providing for an effective date." 2:36:35 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community, and Economic Development, Juneau, Alaska, explained that the State of Alaska is a member of the National Association of Insurance Commissioners (NAIC), which puts out its own standards of accreditation for insurance companies. As a member, the Division of Insurance has agreed that when it examines insurance companies such as Alaska National or Umialik that are domiciled in Alaska, it will use the identical standards that other member states use. When Alaska National goes to do business in another state, that director of insurance knows that company has been reviewed identically to the way that they look at the insurance companies domiciled in their state. The savings is that insurance companies that do multistate business are examined by just one state and the results are shared with other member states. For that accreditation, each division of insurance is examined, and its accreditation renewed if the audit shows that the division's examinations meet the NAIC standards. 2:38:15 PM MS. WING-HEIER described reinsurance. She explained that companies that sell primary insurance are likely to buy reinsurance behind the primary policy. For example, if State Farm sells homeowners insurance and an earthquake policy, it is likely to reinsure the earthquake peril. What SB 87 does is to look worldwide at where reinsurance is coming from. MS. WING-HEIER related that the federal government established the Federal Insurance Office after the Dodd-Frank Act passed. That office created the covered agreement, first with the European Union and second with the United Kingdom. Those agreements establish that the NAIC accreditation standards apply in the European Union and the United Kingdom. Thus, when a US company buys reinsurance from a company domiciled in Europe or the United Kingdom, it is clear that the credit standard of those foreign companies is the same as if they were domiciled in the US. Conversely, when US companies sell reinsurance to a European risk, European countries can trust that those US companies are financially solvent and have been examined. She said the foregoing summary of credit for reinsurance shows how the division looks at the financials of an insurance company to see what it has ceded to a reinsurance company and what it has underwritten and is on their books. This analysis is important to ensure the right ratio and that the insurance company has sufficient capital to pay the claims of the consumers in Alaska. MS. WING-HEIER reviewed the sections of SB 87. Section 1: The new paragraph (6) on page 10 lays out what a qualified reinsurer must do to assume the liabilities of an insurer domiciled in Alaska. The reinsurer must: (A) have its head office or be domiciled in a reciprocal jurisdiction; (B) have and maintain capital and surplus, or its equivalent, in an amount set out in regulation; (C) have and maintain solvency or capital ratio in an amount set out in regulation; (D) agree to provide adequate assurances (detailed in the bill) to the Division of Insurance; (E) provide documentation the director of insurance might require; (F) maintain a practice of prompt payment of claims to the primary insurer; and (G) confirm to the director on an annual basis that they are in compliance with Alaska Statutes Section 2: clarifies compliance set out in paragraph (6) in Section 1. Section 3: defines a reciprocal jurisdiction for a US company and a non-US company, and that they must meet certain standards to be a reciprocal jurisdiction. Section 4: adds a new subsection (i) that requires the director to consider the list of reciprocal jurisdictions published by the NAIC. Currently those are Bermuda, the United Kingdom, France, and Germany. Section 5: allows the director of insurance to develop regulations if needed. 2:42:31 PM SENATOR STEVENS commented on the importance of understanding the bill because labor and commerce is the only committee of referral in the Senate. MS. WING-HEIER confirmed that labor and commerce was the only referral in the Senate. CHAIR COSTELLO related her comfort based on this being model legislation from the National Association of Insurance Commissioners (NAIC). She asked Ms. Wing-Heier to list the other state legislatures that have passed similar legislation and the effect if a state decides to amend the model law. MS. WING-HEIER described the process for the NAIC to vet and adopt model legislation as similar to the process a state legislative body follows. She said the NAIC passed the reinsurance model law unanimously in 2017 and to prevent preemption by the federal insurance office, state legislatures must pass their own reinsurance legislation, based on the model, by September 2022. She recalled that Vermont, Pennsylvania, Virginia, Mississippi, and California have adopted the model and Idaho, Kansas, Iowa, New York, Rhode Island, West Virginia, and Florida were considering it in 2020 when the pandemic shut things down. 2:46:46 PM CHAIR COSTELLO asked Ms. Wing-Heier to make appointments with each member of the committee to answer any lingering questions and send her office the written responses to the questions. She said her staff would visit each office after that to ensure each member is comfortable with the bill. After that, she would schedule a second hearing and take public testimony. CHAIR COSTELLO asked Ms. Wing-Heier to share how long she has been the director of insurance and her work history prior to that. MS. WING-HEIER related that she has been the director of insurance since she was hired under then Governor Parnell in 2014. Before that, she was with the Marsh & McLennan Agency for 16 years and the corporate risk manager at Arctic Slope for 10 years. CHAIR COSTELLO asked if the legislature has passed other bills from the NAIC. MS. WING-HEIER answered that most of the bills she brings to the legislature are NAIC vetted. 2:48:43 PM CHAIR COSTELLO held SB 87 in committee for further consideration.