State Of Ohio DEPARTMENT OF INSURANCE 2100 Stella Court, Columbus, Ohio 43215 (614) 644-2658        www.ohioinsurance.gov	Bob Taft, Governor J. Lee Covington II, Director

Testimony of
Holly Saelens, Assistant Director
The Ohio Department of Insurance
Before
The Ohio Senate Insurance, Commerce and Labor Committee
April 9, 2002
On
Sub. H.B. 421

Mr. Chairman and members of the Committee:

My name is Holly Saelens. I am the Assistant Director for Policy and Legislation for the Ohio Department of Insurance.

The purpose of my testimony is to explain the substitute version of the legislation that is before you and express the Ohio Department of Insurance's support for the bill being considered by the Committee today. Sub. H.B. 421 as drafted clarifies that an individual can assign a life insurance policy to pay for burial expenses. Prior to this legislation, it was unclear if a life insurance policy could be assigned to a funeral provider without complying with certain requirements governing trusts. This part of the substitute bill remains unchanged from the As Passed by the Ohio House version of HB 421.

The Department is here today to speak to two amendments that have been proposed to be included in the substitute bill.

The first amendment is necessary in order for Ohio to comply with the requirements of the federal Gramm-Leach-Bliley Act as it relates to what are called "Form A" filings involving a depository institution and a domestic insurer. Under Ohio law, a Form A filing must be made whenever a domestic insurer is bought or merged. Under the Form A statute, the Department of Insurance reviews the transaction to determine that it will not create a monopoly, jeopardize the financial stability of the insurer, or negatively impact the interests of policyholders. If the Department disapproves the transaction for any of these reasons, the party attempting to acquire the insurer may request a hearing in order to appeal the decision.

Under Gramm-Leach-Bliley, state insurance regulators are required to complete both the initial review of the "Form A" filing and any subsequent appeal within 60 days. But because of the appeals procedures established in the Ohio Administrative Procedure Act, the appeals process can extend beyond 60 days. And if a Form A appeal were to extend beyond 60 days, the Ohio Department of Insurance would lose its authority to review the transaction. To avoid giving up control over this important aspect of state regulation of insurance, the amendment streamlines the appeal procedures in current law, so that the entire Form A transaction can be reviewed, decided, and, if necessary, appealed within 60 days.

The second amendment was brought to us by the life industry; it lowers the minimum nonforfeiture rate on certain variable annuity contracts from 3 percent to 1.5 percent for a two-year period. This change is necessary because of the steady decline in interest rates over the past few years. Ohio law requires these insurers to provide a minimum three percent return on these annuity contracts. The current 3 percent minimum rate was established in the 1970s, when interest rates were approaching 10 percent. Today, short-term interest rates are well below 3 percent, creating a situation where insurers may begin to withdraw certain products from the market unless the minimum nonforfeiture rates are lowered.

This amendment is intended to be a short-term solution, so it will sunset after two years. On July 1, 2004, the minimum nonforfeiture rate will return to 3 percent. As a long-term solution, the National Association of Insurance Commissioners has begun working on model legislation that will replace the fixed minimum rates in current law to develop an index tied to Treasury Bill rates or some other generally accepted interest rate.

This concludes my testimony. Thanks for giving me the opportunity to testify. I would be glad to answer any questions.