SENATE BILL REPORT

                   SB 6760

              As Passed Senate, February 14, 2000

Title:  An act relating to the safeguarding of securities of domestic insurance companies, health care service contractors, health maintenance organizations, and health carriers.

Brief Description:  Safeguarding securities.

Sponsors:  Senator Prentice; by request of Insurance Commissioner.

Brief History:

Committee Activity:  Commerce, Trade, Housing & Financial Institutions:  2/3/2000 [DP].

Passed Senate, 2/14/2000, 45-0.

SENATE COMMITTEE ON COMMERCE, TRADE, HOUSING & FINANCIAL INSTITUTIONS

Majority Report:  Do pass.

  Signed by Senators Prentice, Chair; Shin, Vice Chair; Benton, Deccio, Gardner, Hale, Heavey, Rasmussen, T. Sheldon and Winsley.

Staff:  Catherine Mele (786-7470)

Background:  The Office of the Insurance Commissioner oversees the financial activities of insurance companies.  All companies authorized to conduct business in Washington must meet statutory requirements for capital, surplus capital, reserves, investments and other financial and operational considerations.  Allowable investments of insurance companies are regulated by statute and by rule.

When an insurance company purchases securities as investments, typically through a broker/dealer, the securities can be held by the insurance company itself, by the broker dealer, by a bank or trust company, or by a clearing corporation.

Summary of Bill:  When a domestic insurance company buys securities, the securities can be held by the insurance company itself, a bank or trust company, or a clearing corporation.  The securities cannot be held by the broker/dealer for more than 72 hours after the purchase.  The broker/dealer must provide the insurance company confirmation of the purchase within 24 hours, and the holder of the securities on behalf of the insurance company must send confirmation to the insurance company that it has received the securities.

If the Insurance Commissioner has reasonable cause to believe that the domestic insurance company=s solvency is threatened or determines that irreparable loss will occur, the Insurance Commissioner can order the insurance company to transfer the securities to a custodian approved by the commissioner.  This action by the commissioner is not subject to an automatic stay.

Appropriation:  None.

Fiscal Note:  Not requested.

Effective Date:  Ninety days after adjournment of session in which bill is passed.

Testimony For:  This is an important piece of solvency legislation.  This bill ensures that insurance companies will not become insolvent because of investments made with the wrong parties.  Some insurance companies have already become insolvent because of an elaborate scheme based on fraudulent buy and sell orders.  This created a fictitious paper trail, and the broker-dealer kept the money in a personal account.  Companies as well as insureds need to be protected from fraud and this bill provides these protections.  All segments of the financial services industry support this legislation.

Testimony Against:  None.

Testified:  John Woodall, OIC (pro).