2005 Legislation
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SENATE BILL NO. 1030 – Insurers, certain, assessments

SENATE BILL NO. 1030

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Bill Status



S1030.......................................by COMMERCE AND HUMAN RESOURCES
INSURERS - Amends the Idaho Life and Health Insurance Guaranty Association
Act to revise application of the act; and to revise provisions applicable
to assessments by the board of directors.
                                                                        
01/19    Senate intro - 1st rdg - to printing
01/20    Rpt prt - to Com/HuRes
02/04    Rpt out - rec d/p - to 2nd rdg
02/07    2nd rdg - to 3rd rdg
02/10    To 14th Ord
02/16    Rpt out w/o amen - to 3rd rdg
02/21    3rd rdg - PASSED - 31-0-4
      AYES -- Andreason, Broadsword, Bunderson, Burkett, Burtenshaw,
      Cameron, Coiner, Corder, Darrington, Davis, Gannon, Geddes, Hill,
      Kelly, Keough, Langhorst, Little, Lodge, Malepeai, Marley, McGee,
      McKenzie, Noble, Pearce, Richardson, Schroeder, Stegner, Stennett,
      Sweet, Werk, Williams
      NAYS -- None
      Absent and excused -- Brandt, Compton, Goedde, Jorgenson
    Floor Sponsor - Stegner
    Title apvd - to House
02/22    House intro - 1st rdg - to Bus
03/04    Rpt out - rec d/p - to 2nd rdg
03/07    2nd rdg - to 3rd rdg
03/15    3rd rdg - PASSED - 67-0-3
      AYES -- Anderson, Andrus, Barraclough, Barrett, Bastian, Bayer,
      Bedke, Bell, Bilbao, Black, Block, Boe, Bolz, Bradford, Cannon,
      Chadderdon, Clark, Collins, Crow, Deal, Denney, Edmunson, Ellsworth,
      Field(18), Field(23), Garrett, Hart(Jacobson), Harwood, Henbest,
      Henderson, Jaquet, Jones, Kemp, Lake, LeFavour, Loertscher, Martinez,
      Mathews, McGeachin, McKague, Miller, Mitchell, Moyle, Nielsen,
      Nonini, Pasley-Stuart, Pence, Ring, Ringo, Rusche, Rydalch, Sali,
      Sayler, Schaefer, Shepherd(2), Shepherd(8), Shirley, Skippen,
      Smith(30), Smith(24), Smylie, Snodgrass, Stevenson, Trail, Wills,
      Wood, Mr. Speaker
      NAYS -- None
      Absent and excused -- Eskridge, Raybould, Roberts
    Floor Sponsor - Nonini
    Title apvd - to Senate
03/16    To enrol
03/17    Rpt enrol - Pres signed
03/18    Sp signed
03/21    To Governor
03/23    Governor signed
         Session Law Chapter 108
         Effective: 07/01/05

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   First Regular Session - 2005
                                                                        
                                                                        
                                       IN THE SENATE
                                                                        
                                    SENATE BILL NO. 1030
                                                                        
                         BY COMMERCE AND HUMAN RESOURCES COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO THE IDAHO LIFE AND  HEALTH  INSURANCE  GUARANTY  ASSOCIATION  ACT;
  3        AMENDING SECTION 41-4303, IDAHO CODE, TO REVISE APPLICATION OF THE CHAPTER
  4        AND  TO  PROVIDE  CORRECT TERMINOLOGY; AND AMENDING SECTION 41-4309, IDAHO
  5        CODE, TO REVISE PROVISIONS APPLICABLE  TO  ASSESSMENTS  BY  THE  BOARD  OF
  6        DIRECTORS AND TO PROVIDE CORRECT TERMINOLOGY.
                                                                        
  7    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
  8        SECTION  1.  That  Section 41-4303, Idaho Code, be, and the same is hereby
  9    amended to read as follows:
                                                                        
 10        41-4303.  APPLICATION OF ACT CHAPTER. (1) This act chapter shall apply  to
 11    direct  life insurance policies, contractual obligations of managed care plans
 12    to members of such plans only, disability  insurance  policies,  annuity  con-
 13    tracts,  and contracts supplemental to life and disability insurance policies,
 14    annuity contracts, and contracts supplemental to life and disability insurance
 15    policies and annuity contracts issued by persons licensed to  transact  insur-
 16    ance in this state at any time. Covered policies shall include annuities owned
 17    by  a  trust  for  a  money purchase pension plan, profit sharing plan, 401(k)
 18    thrift plan or any other defined contribution plan, and annuities owned  by  a
 19    custodian of an individual retirement account.
 20        (2)  This act chapter shall not apply to:
 21        (a)  That portion or part of a variable life insurance or variable annuity
 22        contract not guaranteed by an insurer;
 23        (b)  That  portion  or part of any policy or contract under which the risk
 24        is borne by the policyholder;
 25        (c)  Any policy or contract or part thereof assumed  by  the  impaired  or
 26        insolvent  insurer under a contract of reinsurance, other than reinsurance
 27        for which assumption certificates have been issued;
 28        (d)  Any such policy or contract issued by a  reciprocal  insurer,  mutual
 29        benefit  association, fraternal benefit society, hospital and medical ser-
 30        vice corporation, limited managed care plan, or  self-funded  health  care
 31        plan; or
 32        (e)  Any  unallocated  annuity  contract,  including an annuity owned by a
 33        defined benefit pension plan or trust;
 34        (f)  A portion of a policy or contract to the  extent  that  the  rate  of
 35        interest  on  which  it  is based, or the interest rate, crediting rate or
 36        similar factor determined by use of an index or other  external  reference
 37        stated  in  the  policy  or  contract  employed  in calculating returns or
 38        exchanges in value:
 39             (i)   Averaged over the period of four (4) years prior to the date on
 40             which the member insurer becomes an  impaired  or  insolvent  insurer
 41             under  this chapter, whichever is earlier, exceeds the rate of inter-
 42             est determined by subtracting two (2) percentage points from  Moody's
 43             Corporate  Bond  Yield  Average  averaged for that same four (4) year
                                                                        
                                           2
                                                                        
  1             period or for such lesser period if the policy or contract was issued
  2             less than four  (4)  years  before  the  member  insurer  becomes  an
  3             impaired  or  insolvent insurer under this chapter, whichever is ear-
  4             lier; and
  5             (ii)  On and after the date on which the member  insurer  becomes  an
  6             impaired  or  insolvent insurer under this chapter, whichever is ear-
  7             lier, exceeds the rate of interest determined  by  subtracting  three
  8             (3)  percentage  points  from Moody's Corporate Bond Yield Average as
  9             most recently available.
 10             (iii) For purposes of this section,  "Moody's  Corporate  Bond  Yield
 11             Average" means the monthly average corporates as published by Moody's
 12             Investors Service, Inc., or any successor thereto; or
 13        (g)  An  obligation that does not arise under the express written terms of
 14        the policy or contract issued by the insurer  to  the  contract  owner  or
 15        policyowner, including without limitation:
 16             (i)   Claims based on marketing materials;
 17             (ii)  Claims  based  on  side letters, riders or other documents that
 18             were issued by the insurer without  meeting  applicable  policy  form
 19             filing or approval requirements;
 20             (iii) Misrepresentations of or regarding policy benefits;
 21             (iv)  Extra-contractual claims; or
 22             (v)   A claim for penalties or consequential or incidental damages.
                                                                        
 23        SECTION  2.  That  Section 41-4309, Idaho Code, be, and the same is hereby
 24    amended to read as follows:
                                                                        
 25        41-4309.  ASSESSMENTS. (1) For the purpose of providing the  funds  neces-
 26    sary  to  carry  out  the  powers  and duties of the association, the board of
 27    directors shall assess the member insurers, separately for  each  account,  at
 28    such time and for such amounts as the board finds necessary. Assessments shall
 29    be due not less than thirty (30) days after prior written notice to the member
 30    insurers  and  shall  accrue  interest  at eight percent (8%) per annum on and
 31    after the due date.
 32        (2)  There shall be three two (32) classes of assessments, as follows:
 33        (a)  Class A assessments shall be made authorized and called for the  pur-
 34        pose of meeting administrative costs and other general expenses. and exam-
 35        inations  conducted  under  the  authority  of  subsection  (5) of section
 36        41-4312 and of section 41-4315, Idaho Code  Class  A  assessments  may  be
 37        authorized  and  called  whether  or  not they are related to a particular
 38        impaired or insolvent insurer.
 39        (b)  Class B assessments shall be made authorized and called to the extent
 40        necessary to carry out the powers and duties of the association under sec-
 41        tion 41-4308, Idaho Code, with regard to an impaired or insolvent domestic
 42        insurer.
 43        (c)  Class C assessments shall be made to the extent  necessary  to  carry
 44        out  the powers and duties of the association under section 41-4308, Idaho
 45        Code, with regard to an insolvent foreign or alien insurer.
 46        (3)  (a)  The amount of any class A assessment shall be determined by  the
 47        board  and may be made authorized and called on a non pro rata basis. Such
 48        assessment shall may be credited against future insolvency class B assess-
 49        ments. The amount of any class B or C assessment shall  be  allocated  for
 50        assessment purposes among the accounts in the proportion that the premiums
 51        received  by  the impaired or insolvent insurer on the policies covered by
 52        each account for the last calendar year preceding the assessment in  which
 53        the  impaired or insolvent insurer received premiums bears to the premiums
                                                                        
                                           3
                                                                        
  1        received by such insurer for such calendar year on  all  covered  policies
  2        pursuant  to  an  allocation formula which may be based on the premiums or
  3        reserves of the impaired or insolvent insurer or any other standard deemed
  4        by the board in its sole discretion as being fair and reasonable under the
  5        circumstances.
  6        (b)  Class C B assessments against member insurers for each account  shall
  7        be  in the proportion that the premiums received on business in this state
  8        by each assessed member insurer on policies covered by  each  account  for
  9        the  calendar  year  preceding  the  assessments  bears  to  such premiums
 10        received on business in this state for the  calendar  year  preceding  the
 11        assessment by all assessed member insurers.
 12        (c)  Class  B  assessments  for  each account shall be made separately for
 13        each state in which the impaired or insolvent domestic insurer was  autho-
 14        rized  to  transact insurance at any time, in the proportion that the pre-
 15        miums received on business in such state  by  the  impaired  or  insolvent
 16        insurer  on  policies  covered  by such account for the last calendar year
 17        preceding the assessment  in  which  the  impaired  or  insolvent  insurer
 18        received  premiums  bears to such premiums received in all such states for
 19        such calendar year by the impaired or insolvent insurer.  The  assessments
 20        against  member  insurers  shall  be  in  the proportion that the premiums
 21        received on business in each such state by each assessed member insurer on
 22        policies covered by each account  for  the  calendar  year  preceding  the
 23        assessment  bears  to such premiums received on business in each state for
 24        the calendar year preceding assessment by all assessed member insurers.
 25        (d)  Assessments for funds to meet the  requirements  of  the  association
 26        with  respect  to an impaired or insolvent insurer shall not be made until
 27        necessary to implement the purposes of this act chapter. Classification of
 28        assessments under subsection  (2)  of  this  section  and  computation  of
 29        assessments  under  this subsection shall be made with a reasonable degree
 30        of accuracy, recognizing that exact determinations may not always be  pos-
 31        sible.
 32        (ed)  Notwithstanding  any other provision of this section, a managed care
 33        organization shall not be subject to a class B or class C  assessment  for
 34        any  domestic,  foreign or alien insurer that is declared insolvent by any
 35        court prior to July 1, 2000.
 36        (4)  The association may abate or defer, in whole or in part, the  assess-
 37    ment  of  a  member  insurer  if,  in the opinion of the board, payment of the
 38    assessment would endanger the ability of the member  insurer  to  fulfill  its
 39    contractual  obligations.  In the event an assessment against a member insurer
 40    is abated, or deferred in whole or in part, the amount by which  such  assess-
 41    ment  is  abated or deferred may be assessed against the other member insurers
 42    in a manner consistent with the basis for assessments set forth in  this  sec-
 43    tion.  Once  the conditions that caused a deferral have been removed or recti-
 44    fied, the member insurer shall pay all assessments that were deferred pursuant
 45    to a repayment plan approved by the association.
 46        (5)  The total of all class B assessments upon authorized by the  associa-
 47    tion  with  respect  to a member insurer for each account shall not in any one
 48    (1) calendar year exceed two percent (2%) of such insurer's premiums  received
 49    in  this  state during the calendar year preceding the assessment on the poli-
 50    cies covered by the account. If the  maximum  assessment,  together  with  the
 51    other  assets of the association in either an account, does not provide in any
 52    one year in either an account an amount sufficient to carry out the  responsi-
 53    bilities  of the association, the necessary additional funds shall be assessed
 54    as soon thereafter as permitted by this act chapter.
 55        (6)  The board may, by an equitable method as established in the  plan  of
                                                                        
                                           4
                                                                        
  1    operation,  refund  to  member  insurers, in proportion to the contribution of
  2    each insurer to that account, the amount by which the assets  of  the  account
  3    exceed  the amount the board finds is necessary to carry out during the coming
  4    year the obligations of the association with regard to that account, including
  5    assets accruing from net realized gains and income from investments. A reason-
  6    able amount may be retained in any account to provide funds for the continuing
  7    expenses of the association and for future losses. if refunds are impractical.
  8        (7)  It shall be proper for any member insurer, in determining its premium
  9    rates and policyowner dividends as to any kind of insurance within  the  scope
 10    of  this  act chapter, to consider the amount reasonably necessary to meet its
 11    assessment obligations under this act chapter.
 12        (8)  The association shall issue to  each  insurer  paying  an  assessment
 13    under this act chapter, other than a class A assessment, a certificate of con-
 14    tribution, in a form prescribed by the director, for the amount of the assess-
 15    ment  so paid. All outstanding certificates shall be of equal dignity and pri-
 16    ority without reference to amounts or dates of issue. A certificate of contri-
 17    bution may be shown by the insurer in its financial statement as an  asset  in
 18    such  form and for such amount, if any, and period of time as the director may
 19    approve.

Statement of Purpose / Fiscal Impact



                       STATEMENT OF PURPOSE
                             RS 14513

The purpose of this legislation is to limit the rate of interest for which the
Guaranty Association is obligated to pay and thereby make Idaho's law consistent
with most of the other states. The legislation will also clarify that the
Guaranty Association is not obligated to pay claims outside the express written
terms of the contract issued by the insolvent insurer, which is also consistent
with laws passed in most of the other states. In addition, the legislation would
combine Class B and Class C assessments and clarify the Guaranty Association's
options with regard to assessments and refunds.


                          FISCAL IMPACT

Retention of funds to pay ongoing expenses instead of making refunds and then
making further assessments later may have a very minor effect on the General Fund
in the short run in an amount that is difficult to estimate.  However, over the
long run, there should be no negative impact on the General Fund of the State of
Idaho as a result of this legislation. To the extent payments to claimants are
reduced by the limitation on the interest rate, offsets to the premium tax will
be reduced, thereby increasing the State General Fund.  There will be no effect
on other state funds or expenditures on upon local government funds.


Contact
Name:  Woody Richards, 
       Idaho Life and Health Guaranty Association 
Phone: 208 345-8371


STATEMENT OF PURPOSE/FISCAL NOTE                                 S 1030