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Alaska Statutes.

Title 21. Insurance

Chapter 79. Alaska Life and Health Insurance Guaranty Association Act

Section 60. Powers and Duties of the Association.

AS 21.79.060. Powers and Duties of the Association.

(a) If a member insurer becomes impaired, the association may, with the approval of the director and subject to any conditions imposed by the association that do not impair the contractual obligations of the impaired insurer,

(1) guarantee, assume, reinsure, or provide for the guarantee, assumption, or reinsurance of the policies or contracts of the impaired insurer; or

(2) provide money, pledges, notes, guarantees, or other means that are necessary to act under (1) of this subsection and to assure payment of the contractual obligations of the impaired insurer until those obligations are guaranteed, reinsured, or assumed.

(b) [Repealed, Sec. 49 ch 119 SLA 2000].

(c) The actions specified in (a) of this section may not be taken unless

(1) the law of the impaired insurer's state of domicile provides that until all payments of or on account of a contractual obligation of the impaired insurer by a guaranty association, along with all expenses and interest on all payments and expenses, have been repaid to the guaranty association or a repayment plan by the impaired insurer has been approved by a guaranty association,

(A) a delinquency proceeding may not be dismissed;

(B) neither the impaired insurer nor its assets may be returned to the control of its shareholders or private management; and

(C) solicitation or acceptance of new business or restoration of a suspended or revoked license may not be permitted; and

(2) if the impaired insurer is a

(A) domestic insurer, the insurer has been placed under an order of rehabilitation by a superior court in this state; or

(B) foreign or alien insurer,

(i) the insurer has been prohibited from soliciting or accepting new business in this state;

(ii) the insurer's certificate of authority has been suspended or revoked in this state; and

(iii) a petition for rehabilitation or liquidation has been filed in a court of competent jurisdiction in the insurer's state of domicile by the insurance commissioner of that state.

(d) If a member insurer becomes insolvent, the association shall, in its discretion and with the approval of the director,

(1) guarantee, assume, reinsure, or provide for the guarantee, assumption, or reinsurance of the covered policies of the insolvent insurer held by residents;

(2) assure payment to residents of the contractual obligations of the insolvent insurer;

(3) provide money, pledges, notes, guarantees, or other means necessary to discharge the association's duties under this subsection; or

(4) with respect only to life and health insurance policies and annuities, provide benefits and coverages required under (e) of this section.

(e) When proceeding under (d)(4) of this section, the association shall, with respect to a life or health insurance policy and an annuity,

(1) assure payment of benefits, other than terms of conversion and renewability, for a premium identical to the premium that would have been payable under a policy of the insolvent insurer for claims incurred with respect to

(A) a group policy, not later than the earlier of the next renewal date under the policy or contract or 45 days, but in no event less than 30 days, after the date on which the association becomes obligated with respect to the policy;

(B) an individual policy or annuity, not later than the earlier of the next renewal date, if any, under the policy or contract or one year, but in no event less than 30 days, from the date on which the association becomes obligated with respect to the policy or contract;

(2) make a diligent effort to provide a known insured, an annuitant, or a group policyholder or contract holder, with respect to a group policy or contract, 30 days' notice of the termination of the benefits provided;

(3) with respect to an individual policy or annuity, make available to each known insured or annuitant, or owner if other than the insured or annuitant, and with respect to an individual formerly insured under a group policy or contract who is not eligible for replacement group coverage, substitute coverage on an individual basis under the provisions of (f) of this section, if the insured had a right under law or the terminated policy or contract to convert coverage to individual coverage, to continue an individual policy or contract in force until a specified age, or for a specific time during which the insurer did not have the unilateral right to make changes in any provision of the policy or contract or had a right only to make changes in premium by class.

(f) With respect to life and health insurance policies, the association

(1) in providing the substitute coverage under (e)(3) of this section, shall either offer to reissue the terminated coverage or to issue an alternate policy;

(2) shall offer alternative or reissued policies without requiring evidence of insurability, and may not provide for any waiting period or exclusion that would not have applied under the terminated policy; and

(3) may reinsure any alternative or reissued policy.

(g) An alternative life or health insurance policy must,

(1) if adopted by the association, be subject to the approval of the director; the association may adopt alternative policies of various types for future issuance without regard to a particular impairment or insolvency;

(2) contain at least the minimum statutory provisions required in this state and provide benefits that may not be unreasonable in relation to the premium charged; the association shall set the premium under a table of rates that it shall adopt; the premium must reflect the amount of insurance to be provided and the age and class of risk of each insured, but may not reflect changes in the health of the insured after the original policy was last underwritten;

(3) if issued by the association, provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the association.

(h) If the association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the association according to the amount of insurance provided and the age and class of risk, and is subject to the approval of the director and the receivership court.

(i) The association's obligations with respect to coverage under a policy of an impaired or insolvent insurer or under any reissue or alternative policy cease on the date the coverage or policy is replaced by another similar policy by the policyholder, the insured, or the association.

(j) When proceeding under (d) of this section with respect to a policy or contract carrying guaranteed minimum interest rates, the association shall assure the payment or crediting of a rate of interest consistent with AS 21.79.020 (c)(4).

(k) Nonpayment of a premium within 31 days after the date required under the terms of a guaranteed, assumed, alternative or reissued policy or contract or substitute coverage terminates the obligations of the association under the policy or coverage except with respect to the claims incurred or the net cash surrender value that may be due under the provisions of this chapter.

(l) A premium due for coverage after entry of an order of liquidation of an insolvent insurer belongs to and is payable at the direction of the association, and the association is liable for unearned premiums due to a policy or contract owner arising after the entry of the order.

(m) The protection provided by this chapter does not apply if guaranty protection is provided to residents of this state by the laws of another state or jurisdiction that is the domicile of the impaired or insolvent insurer.

(n) In carrying out its duties under (a), (c), and (d) of this section, the association may impose a permanent policy or contract lien under a guarantee, assumption, or reinsurance agreement if the policy or contract lien is approved by a court and the association finds that

(1) the amount that may be assessed under this chapter is less than the amount needed to assure full and prompt performance of the insolvent insurer's contractual obligations; or

(2) the economic or financial condition that affects member insurers is sufficiently adverse that the imposition of a policy or contract lien is in the public interest.

(o) Before taking action under (a) - (e) of this section, the association may request the superior court to impose an injunction against the payment of a cash value and policy loan, or the exercise of another right to withdraw funds held in connection with a policy or contract, in addition to a contractual provision for deferral of a cash or policy loan value. In addition, if the receivership court imposes an injunction on payment of cash values or policy loans or on any other right to withdraw funds of an impaired or insolvent insurer held in conjunction with a policy or contract, the association may defer payment of cash values, policy loans, or other rights for the period of the injunction, except for claims covered by the association to be paid as required by a hardship procedure established by the liquidator or rehabilitator and approved by the receivership court.

(p) If the association fails to take action under (a) - (e) of this section within a reasonable period of time after a member insurer becomes insolvent, the director shall assume the powers of the association under (a) - (e) of this section.

(q) If requested by the director, the association may assist and advise the director concerning rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of an impaired or insolvent insurer.

(r) The association is entitled to appear or intervene in a court or agency proceeding in this state involving an impaired or insolvent insurer that the association is or may be obligated to or involving a person or property against which the association may have rights. The standing conferred by this subsection extends to all matters germane to the powers and duties of the association, including proposals to reinsure or guarantee a covered policy of the impaired or insolvent insurer and the determination of a covered policy and a contractual obligation. The association also has the right to appear or intervene before a court or agency in another state in a proceeding involving an impaired or insolvent insurer that the association is or may be obligated to or involving a person or property against which the association may have rights.

(s) A person who receives benefits under this chapter is considered to have assigned the rights under, and any cause of action against a person for losses arising under, resulting from, or otherwise relating to, the covered policy to the association to the extent of the benefits received under this chapter, whether the benefits are payment of or on account of contractual obligations, continuations of coverage, or provisions of substitute or alternative coverage. The association may require an assignment to the association of those rights by the payees, policy or contract owner, beneficiary, insured, or annuitant before a person receives the rights or benefits conferred by this chapter. The priority of the association's subrogation right to the assets of the insolvent insurer is the same as the priority of the person entitled to benefits under this chapter. In addition to the rights described in this subsection, the association has common law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired or insolvent insurer or owner, beneficiary, or payee of a policy with respect to the policy. These rights include, in the case of a structured settlement annuity, the rights of the owner, beneficiary, or payee of the annuity, to the extent of benefits received under this chapter, against a person originally or by succession responsible for the losses arising from the personal injury relating to the annuity or annuity payment, except for a person responsible solely by reason of being an assignee in respect to a qualified assignment under 26 U.S.C. 130 (Internal Revenue Code). If the provisions of this subsection are invalid with respect to a person or claim, the amount payable by the association with respect to the related coverage obligation shall be reduced by the amount realized by another person from the person or claim covered by the association. If the association has provided benefits with respect to a covered obligation and a person recovers amounts to which the association has rights as described in this subsection, the person recovering the amounts shall pay to the association the portion of the recovery attributable to the policy covered by the association.

(t) In addition to the rights and powers otherwise established in this chapter, the association may

(1) enter into contracts that are necessary or proper to carry out the provisions of this chapter;

(2) sue or be sued, and take legal action necessary or proper for recovery of an unpaid assessment under AS 21.79.070 or settlement of a claim or potential claim;

(3) borrow money to carry out the purposes of this chapter; notes or other evidence of indebtedness of the association not in default are legal investments for domestic insurers and may be carried as admitted assets;

(4) employ or retain those persons necessary to handle the financial transactions of the association and other functions under this chapter;

(5) negotiate and contract with a liquidator, rehabilitator, conservator, or ancillary receiver to carry out the powers and duties of the association;

(6) exercise, for the purposes of this chapter and to the extent approved by the director, the powers of a domestic life or health insurer; however, the association may not issue insurance policies or annuity contracts other than those issued to perform the contractual obligations of an impaired or insolvent insurer;

(7) take legal action to prevent the payment of improper claims;

(8) join an organization of one or more other state associations with similar purposes;

(9) determine, using reasonable business judgment, the means by which the association is to provide the benefits of this chapter in an economical and efficient manner;

(10) request information from a person seeking coverage from the association in order to determine the obligations of the association under this chapter; a person receiving a request under this paragraph shall promptly comply with the request;

(11) request information from a member insurer in order to aid in the exercise of a power under this section; a member insurer receiving a request under this paragraph shall promptly comply with the request; and

(12) perform all other acts necessary or proper to implement this chapter.

(u) At any time within one year after the date on which the association becomes responsible for the obligations of a member insurer, the association may elect to succeed to the rights and obligations of the member insurer that accrue on or after that date and that relate to contracts covered, in whole or in part, by the association, under one or more indemnity reinsurance agreements entered into by the member insurer as a ceding insurer and selected by the association. However, the association may not exercise an election with respect to a reinsurance agreement if the receiver, rehabilitator, or liquidator of the member insurer has previously and expressly disaffirmed the reinsurance agreement. The election shall be made by a notice to the receiver, rehabilitator, or liquidator and to the affected reinsurer. If the association makes an election, the following paragraphs apply with respect to the agreement selected by the association:

(1) the association is responsible for all unpaid premiums due under the agreement for periods both before and after the coverage date, and shall be responsible for the performance of all other obligations to be performed after the coverage date in each case that relates to contracts covered, in whole or in part, by the association; the association may, through reasonable allocation methods, charge contracts covered in part by the association for the costs for reinsurance in excess of the obligations of the association;

(2) the association is entitled to any amounts payable by the reinsurer under the agreement with respect to losses or events that occur in periods after the coverage date and that related to the contracts covered by the association, in whole or in part, except that, upon receipt of any amounts, the association shall pay to the beneficiary under the policy or contract on account of which the amounts were paid a portion of the amount equal to the amount received by the association less

(A) the benefits paid by the association on account of the policy or contract; and

(B) the retention of the impaired or insolvent member insurer applicable to the loss or event;

(3) within 30 days after the association's election, the association and each indemnity reinsurer shall calculate the net balance due to or from the association under each reinsurance agreement as of the date of the association's election; the calculation shall give full credit to all items paid by either the member insurer, its receiver, rehabilitator, or liquidator, or the indemnity reinsurer during the period between the coverage date and the date of the association's election; either the association or the indemnity reinsurer shall pay the net balance due the other within five days of the completion of the calculation described in this paragraph; if the receiver, rehabilitator, or liquidator has received any amounts due to the association under (2) of this subsection, the receiver, rehabilitator, or liquidator shall remit the same to the association as promptly as practicable; and

(4) if the association, within 60 days of the election, pays the premiums due for periods both before and after the coverage date that relate to the contracts covered by the association, in whole or in part, the reinsurer may not terminate the reinsurance agreement to the extent the agreement relates to contracts covered by the association, in whole or in part, and may not set off any unpaid premium due for the periods before the coverage date against amounts due to the association.

(v) In the event the association transfers its obligations to another insurer, and if the association and the other insurer agree, the other insurer shall succeed to the rights and obligations of the association under (u) of this section, effective as of the date agreed upon by the association and the other insurer. The other insurer shall succeed regardless of whether the association has made the election referred to in (u) of this section if (1) the indemnity reinsurance agreement automatically terminates former reinsurance unless the indemnity reinsurer and the other insurer agree to the contrary, and (2) the obligations described in (u)(2) of this section no longer apply on and after the date the indemnity reinsurance agreement is transferred to the third-party insurer. This subsection does not apply if the association has previously expressly determined in writing that it will not exercise the election referred to in (u) of this section.

(w) The provisions of this section apply notwithstanding any other provisions of law or any provisions of an affected reinsurance agreement that provide for or require a payment of reinsurance proceeds, on account of losses or events that occur in periods after the coverage date, to the receiver, liquidator, or rehabilitator of the insolvent member insurer. The receiver, liquidator, or rehabilitator remains entitled to any amounts payable by the reinsurer under the reinsurance agreement with respect to losses or events that occur in periods before the coverage date, subject to applicable setoff provisions.

(x) Except as otherwise expressly provided in this section, nothing in this section alters or modifies the terms and conditions of indemnity reinsurance agreements of an insolvent member insurer. Nothing in this section

(1) abrogates or limits the right of a reinsurer to claim that the reinsurer is entitled to rescind a reinsurance agreement; or

(2) gives a policy owner or beneficiary an independent cause of action against an indemnity reinsurer that is not otherwise established in the indemnity reinsurance agreement.

(y) When the association has arranged or offered to provide the benefits of this chapter to a covered person under a plan or arrangement that fulfills the association's obligations under this chapter, the covered person is not entitled to benefits from the association in addition to or other than those provided under the plan or arrangement.

(z) In carrying out its duties in connection with guaranteeing, assuming, or reinsuring a policy or contract, the association may, subject to approval of the receivership court, issue substitute coverage for a policy or contract that provides an interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value by issuing an alternative policy or contract under the following provisions:

(1) in place of the index or other external reference provided for in the original policy or contract, the alternative policy or contract provides for

(A) a fixed interest rate;

(B) payment of dividends with minimum guarantees; or

(C) a different method for calculating interest or changes in value;

(2) there is no requirement for evidence of insurability, waiting period, or other exclusion that would not have applied under the replaced policy or contract; and

(3) the alternative policy or contract is substantially similar to the replaced policy or contract in all other material terms.