September 10, 2015, Introduced by Senator O'BRIEN and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending sections 1103 and 1105 (MCL 500.1103 and 500.1105), as
amended by 2000 PA 283.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec.
1103. (1) A ceding insurer shall be is allowed credit for
reinsurance as either an asset or a reduction from liability on
account of reinsurance ceded only if the reinsurance is ceded to an
assuming insurer that is authorized to transact insurance or
reinsurance in this state or that meets the requirements of
subsection
(2), (3), or (4), or (5). For an assuming insurer that
is licensed to transact insurance or reinsurance in this state or
that
meets the requirements of subsection (2), or (3), credit shall
be
is allowed only for cessions of those kinds or classes
of
business that the assuming insurer is licensed or otherwise
permitted to write or assume in its state of domicile or, for a
United States branch of an alien insurer, in the state through
which it is entered and is licensed to transact insurance or
reinsurance.
(2)
A ceding insurer shall be is
allowed credit for
reinsurance ceded as either an asset or a reduction from liability
on account of reinsurance ceded if the reinsurance is ceded to an
assuming insurer that is accredited as a reinsurer in this state.
Credit
for reinsurance ceded is not allowed if the assuming
insurer's
accreditation has been revoked by the commissioner after
notice
and hearing. An accredited
reinsurer under this subsection
is a reinsurer that meets all of the following requirements:
(a)
Files with the commissioner director
evidence of the
reinsurer's submission to this state's jurisdiction.
(b) Submits to this state's authority to examine its books and
records.
(c) Is licensed to transact insurance or reinsurance in at
least 1 state or for a United States branch of an alien assuming
insurer is entered through and licensed to transact insurance or
reinsurance in at least 1 state.
(d)
Files annually with the commissioner director a copy of
its annual statement filed with the insurance department of its
state of domicile and a copy of its most recent audited financial
statement. and
meets 1 of the following:
(i) Maintains a surplus as regards policyholders of
$20,000,000.00
or more and whose accreditation has not been denied
by
the commissioner within 90 days of its submission.
(ii) Maintains a surplus as regards policyholders of
less than
$20,000,000.00
and whose accreditation has been approved by the
commissioner.
(e) Demonstrates to the satisfaction of the director that it
has adequate financial capacity to meet its reinsurance obligations
and is otherwise qualified to assume reinsurance from domestic
insurers. An assuming insurer meets the requirement of this
subdivision as of the time of its application if it maintains a
surplus as regards policyholders in an amount not less than
$20,000,000.00 and its accreditation has not been denied by the
director within 90 days after submission of its application.
(3)
A Subject to subsection
(6), a ceding insurer shall be is
allowed credit for reinsurance ceded as either an asset or a
reduction from liability on account of reinsurance ceded if the
reinsurance is ceded to an assuming insurer that maintains a trust
fund in a qualified United States financial institution for the
payment of the valid claims of its United States ceding insurers,
their assigns, and successors in interest, the trust agreement
complies
with subsection (7), (8), and the assuming insurer submits
to
the commissioner's director's
authority to examine its books and
records and bears the expense of the examination. The assuming
insurer
shall report annually to the commissioner director
information
substantially the same as that required to be reported
by
an authorized insurers pursuant to insurer is required to report
under
section 438 to enable the commissioner
director to determine
the
sufficiency of the trust fund. The trust fund shall must meet
all of the following requirements:
(a)
For a single assuming insurer, the all of the following
apply:
(i) The trust
shall must consist of a trusteed account
representing the assuming insurer's liabilities attributable to
reinsurance ceded by United States ceding insurers and, in
addition, the assuming insurer shall maintain a trusteed surplus of
an
amount sufficient in the opinion of the commissioner director to
maintain compliance with section 403 as respects reinsurance ceded
by United States ceding insurers but not less than $20,000,000.00.
(ii) Except as otherwise provided in this subparagraph and
subparagraph (iii), after the assuming insurer has permanently
discontinued underwriting new business secured by the trust for at
least 3 calendar years, the commissioner with principal regulatory
oversight of the trust may reduce the required trusteed surplus.
The commissioner with principal regulatory oversight of the trust
shall not reduce the required trusteed surplus unless the
commissioner with principal regulatory oversight of the trust
determines, based on an assessment of the risk, that the new
required surplus level is adequate for the protection of United
States ceding insurers, policyholders, and claimants in light of
reasonably foreseeable adverse loss development. The risk
assessment may involve an actuarial review, including an
independent analysis of reserves and cash flows, and must consider
all material risk factors, including, when applicable, the lines of
business involved, the stability of the incurred loss estimates,
and the effect of the surplus requirements on the assuming
insurer's liquidity or solvency.
(iii) The minimum required trusteed surplus shall not be
reduced to an amount less than 30% of the assuming insurer's
liabilities attributable to reinsurance ceded by United States
ceding insurers covered by the trust.
(b) For a group including incorporated and individual
unincorporated underwriters, all of the following apply:
(i) For reinsurance ceded under reinsurance agreements with an
inception
date, amendment, or renewal date on or after August 1,
1995,
December 31, 1992, the trust shall must consist
of a trusteed
account
in an amount not less than the group's respective
underwriters' several liabilities attributable to business ceded by
United States domiciled ceding insurers to any underwriter of the
group. member.
(ii) For reinsurance ceded under reinsurance agreements with
an
inception date on or before
July 31, 1995, January 1,
1993, and
not
amended or renewed after that date, notwithstanding any other
provision
of this section, the trust shall
must consist of a
trusteed
account in an amount not less than the group's respective
underwriters' several insurance and reinsurance liabilities
attributable to business written in the United States.
(iii) In addition to subparagraphs (i) and (ii), the group
shall maintain a trusteed surplus of which an amount sufficient in
the
opinion of the commissioner director
to maintain compliance
with section 403 as respects reinsurance ceded by United States
domiciled ceding insurers but not less than $100,000,000.00 shall
be held jointly for the benefit of United States domiciled ceding
insurers of any member of the group for all years of account. The
incorporated
members of the group shall not be engaged engage in
any business other than underwriting as a member of the group and
are subject to the same level of regulation and solvency control by
the group's domiciliary regulator as are the unincorporated
members. Within 90 days after its financial statements are due to
be filed with the group's domiciliary regulator, the group shall
provide
the commissioner director with an annual certification of
the solvency of each underwriter member by the group's domiciliary
regulator or if certification is unavailable, financial statements
prepared by independent public accountants for each underwriter
group member.
(c)
The trust and any amendments to the trust shall must be
established in a form approved by the commissioner of the state
where the trust is domiciled or the commissioner of another state
who
pursuant to under the trust instrument terms has accepted
principal regulatory oversight of the trust. The trust instrument
shall
must provide that contested claims shall be are valid
and
enforceable
upon on the final order of any a court
of competent
jurisdiction
in the United States. The trust shall must vest legal
title to its assets in the trustees of the trust for its United
States ceding insurers and their assigns and successors in
interest. The trust and the assuming insurer are subject to
examination
as determined by the commissioner, director, and the
assuming
insurer shall bear the expense of the
examination. shall
be
borne by the assuming insurer. The
trust shall must remain in
effect
for as long as while the assuming insurer has outstanding
obligations due under the reinsurance agreements subject to the
trust.
(d) No later than February 28 of each year, the trustees of
the
trust shall report to the commissioner director in writing the
balance of the trust and listing the trust's investments at the
preceding year end and shall certify the date of termination of the
trust,
if so a termination is planned, or certify that the trust
does
not expire prior to before
the following December 31.
(4)
A ceding insurer shall be is
allowed credit for
reinsurance ceded as either an asset or a reduction from liability
on account of reinsurance ceded if reinsurance is ceded to an
assuming
insurer not meeting that
does not meet the requirements of
this section but only for the insurance of risks located in
jurisdictions where the reinsurance is required by applicable law
or regulation of that jurisdiction.
(5) Credit is allowed when the reinsurance is ceded to an
assuming insurer that has been certified by the director as a
reinsurer in this state and secures its obligations required under
this subsection. All of the following apply to the certification of
a reinsurer:
(a) The director shall not certify an assuming insurer as a
reinsurer unless the assuming insurer meets all of the following
requirements:
(i) The assuming insurer is domiciled and licensed to transact
insurance or reinsurance in a qualified jurisdiction, as determined
by the director under subdivision (c).
(ii) The assuming insurer maintains minimum capital and
surplus, or its equivalent, in an amount determined by the director
pursuant to regulation.
(iii) The assuming insurer maintains financial strength
ratings from 2 or more rating agencies considered acceptable by the
director pursuant to rule.
(iv) The assuming insurer agrees to submit to the jurisdiction
of this state, appoint the director as its agent for service of
process in this state, and provide security for 100% of the
assuming insurer's liabilities attributable to reinsurance ceded by
United States ceding insurers if it resists enforcement of a final
United States judgment.
(v) The assuming insurer agrees to meet applicable information
filing requirements as determined by the director, both with
respect to an initial application for certification and on an
ongoing basis.
(vi) The assuming insurer satisfies any other requirements for
certification that the director considers relevant.
(b) Subject to this subdivision, the director may certify an
association including incorporated and individual unincorporated
underwriters as a certified reinsurer. The director shall not
certify an association unless the association meets all of the
following requirements:
(i) The association meets the requirements of subdivision (a).
(ii) The association satisfies its minimum capital and surplus
requirements through the capital and surplus equivalents of the
association and its members, that include a joint central fund that
may be applied to an unsatisfied obligation of the association or
any of its members, in an amount determined by the director to
provide adequate protection.
(iii) The incorporated members of the association are not
engaged in any business other than underwriting as a member of the
association. The incorporated members are subject to the same level
of regulation and solvency control by the association's domiciliary
regulator as the unincorporated members.
(iv) Within 90 days after its financial statements are due to
be filed with the association's domiciliary regulator, the
association provides to the director an annual certification by the
association's domiciliary regulator of the solvency of each
underwriter member; or if a certification is unavailable, financial
statements, prepared by independent public accountants, of each
underwriter member of the association.
(c) The director shall create and publish a list of qualified
jurisdictions under which an assuming insurer licensed and
domiciled in a qualified jurisdiction is eligible to be considered
for certification by the director as a certified reinsurer. All of
the following apply to the list of qualified jurisdictions:
(i) To determine if the domiciliary jurisdiction of a non-
United States assuming insurer is eligible to be recognized as a
qualified jurisdiction, the director shall evaluate the
appropriateness and effectiveness of the reinsurance supervisory
system of the jurisdiction, both initially and on an ongoing basis,
and consider the rights, benefits, and extent of reciprocal
recognition afforded by the non-United States jurisdiction to
reinsurers licensed and domiciled in the United States. A qualified
jurisdiction shall agree to share information and cooperate with
the director with respect to all certified reinsurers domiciled
within that jurisdiction. The director shall not recognize a
jurisdiction as a qualified jurisdiction if the director determines
that the jurisdiction does not adequately and promptly enforce
final United States judgments and arbitration awards. The director
may consider additional factors to determine if the domiciliary is
eligible to be recognized as a qualified jurisdiction.
(ii) In determining a qualified jurisdiction, the director
shall consider a list of qualified jurisdictions published by the
NAIC committee process. If the director approves a jurisdiction as
qualified that does not appear on the list of qualified
jurisdictions, the director shall provide thoroughly documented
justification to the NAIC in accordance with criteria to be
developed under rules.
(iii) The director shall recognize a United States
jurisdiction that meets the requirement for accreditation under the
NAIC financial standards and accreditation program as a qualified
jurisdiction.
(iv) If a certified reinsurer's domiciliary jurisdiction
ceases to be a qualified jurisdiction, the director may suspend the
reinsurer's certification indefinitely, instead of revocation.
(d) The director shall assign a rating to each certified
reinsurer, giving consideration to the financial strength ratings
that have been assigned by rating agencies considered acceptable to
the director pursuant to regulation. The director shall publish a
list of all certified reinsurers and their ratings.
(e) A certified reinsurer shall secure obligations assumed
from United States ceding insurers under this subsection at a level
consistent with its rating, as specified in regulations promulgated
by the director. All of the following apply to a certified
reinsurer securing its obligations:
(i) Except as otherwise provided in this subsection, a
domestic ceding insurer does not qualify for full financial
statement credit for reinsurance ceded to a certified reinsurer
unless the certified reinsurer maintains security in a form
acceptable to the director and consistent with section 1105, or in
a multibeneficiary trust in accordance with subsection (3).
(ii) If a certified reinsurer maintains a trust to fully
secure its obligations described in subsection (3), and chooses to
secure its obligations incurred as a certified reinsurer in the
form of a multibeneficiary trust, the certified reinsurer shall
maintain separate trust accounts for its obligations incurred under
reinsurance agreements issued or renewed as a certified reinsurer
with reduced security provided under this subsection or comparable
laws of other United States jurisdictions and for its obligations
described under subsection (3). The director shall not certify a
reinsurer under this subsection unless the reinsurer binds itself,
by the language of the trust and agreement with the commissioner
with principal regulatory oversight of each trust account, to fund,
on termination of a trust account, out of the remaining surplus of
the trust any deficiency of any other trust account.
(iii) The minimum trusteed surplus requirements provided in
subsection (3) are not applicable with respect to a
multibeneficiary trust maintained by a certified reinsurer for the
purpose of securing obligations incurred under this subsection,
except that the trust must maintain a minimum trusteed surplus of
$10,000,000.00.
(iv) With respect to obligations incurred by a certified
reinsurer under this subsection, if the security is insufficient,
the director shall reduce the allowable credit by an amount
proportionate to the deficiency, and may impose further reductions
in allowable credit on finding that there is a material risk that
the certified reinsurer's obligations will not be paid in full when
due.
(v) For purposes of this subsection, a certified reinsurer
whose certification has been terminated for any reason is
considered a certified reinsurer required to secure 100% of its
obligations. If the director continues to assign a higher rating
under this section, the requirement under this subparagraph does
not apply to a certified reinsurer in inactive status or to a
reinsurer whose certification has been suspended. As used in this
subparagraph, "terminated" means revoked, suspended, voluntarily
surrendered, or placed in inactive status.
(f) If an applicant for certification has been certified as a
reinsurer in an NAIC-accredited jurisdiction, the director may
defer to that jurisdiction's certification, and may defer to the
rating assigned by that jurisdiction, and the applicant is
considered a certified reinsurer in this state.
(g) A certified reinsurer that ceases to assume new business
in this state may request to maintain its certification in inactive
status to continue to qualify for a reduction in security for its
in-force business. An inactive certified reinsurer shall continue
to comply with all applicable requirements of this subsection, and
the director shall assign a rating that takes into account, if
relevant, the reasons why the reinsurer is not assuming new
business.
(6) (5)
If the assuming insurer is not
licensed, or
accredited, or certified to transact insurance or reinsurance in
this
state, the credit permitted by under
subsection (3) shall is
not
be allowed unless the assuming insurer agrees in the
reinsurance agreements to both of the following:
(a) That if the assuming insurer fails to perform its
obligations under the terms of the reinsurance agreement, the
assuming
insurer, at the request of the ceding insurer, shall will
submit to the jurisdiction of any court of competent jurisdiction
in any state of the United States, will comply with all
requirements necessary to give the court jurisdiction, and will
abide by the final decision of the court or any appellate court if
there is an appeal.
(b)
To designate the commissioner director
or a designated
attorney
as its true and lawful attorney upon on whom may be served
any
lawful process in any an action, suit, or proceeding instituted
by or on behalf of the ceding insurer.
(7) (6)
The provisions of subsection (5) are Subsection (6) is
not intended to conflict with or override the obligation of the
parties to a reinsurance agreement to arbitrate their disputes, if
such
an the obligation is created in the agreement.
(8) (7)
The credit permitted by under subsection
(3) shall is
not
be allowed unless the assuming insurer agrees in the trust
agreement to all of the following:
(a) Notwithstanding any other provisions in the trust
instrument, if the trust fund is inadequate because it contains an
amount less than the amount required by subsection (3), or if the
trust grantor has been declared or placed into receivership,
rehabilitation, liquidation, or similar proceedings under the laws
of
its state or country of domicile, the trustee shall will comply
with an order of the commissioner with regulatory oversight over
the trust or with an order of a court of competent jurisdiction
directing the trustee to transfer to the commissioner with
regulatory oversight all of the assets of the trust fund.
(b)
The assets shall will be distributed by and claims shall
will be filed with and valued by the commissioner with regulatory
oversight in accordance with the laws of the state in which the
trust is domiciled that are applicable to the liquidation of
domestic insurance companies.
(c) If the commissioner with regulatory oversight determines
that the trust fund assets or any part of the trust fund assets is
not necessary to satisfy the claims of the United States ceding
insurers of the trust grantor, the trust fund assets or any part of
the
trust fund assets shall will
be returned by the commissioner
with regulatory oversight to the trustee for distribution in
accordance with the trust agreement.
(d) The trust grantor waives any right otherwise available
under United States laws inconsistent with subdivisions (a) to (c).
(9) If an accredited or certified reinsurer ceases to meet the
requirements for accreditation or certification, the director may
suspend or revoke the reinsurer's accreditation or certification.
The director shall give the reinsurer notice and opportunity for
hearing. The suspension or revocation shall not take effect until
after the director's order on hearing, unless 1 of the following
occurs:
(a) The reinsurer waives its right to hearing.
(b) The director's order is based on regulatory action by the
reinsurer's domiciliary jurisdiction or the voluntary surrender or
termination of the reinsurer's eligibility to transact insurance or
reinsurance business in its domiciliary jurisdiction or in the
primary certifying state of the reinsurer under subsection (5)(f).
(c) The director finds that an emergency requires immediate
action and a court of competent jurisdiction has not stayed the
director's action.
(10) While a reinsurer's accreditation or certification is
suspended, no reinsurance contract issued or renewed after the
effective date of the suspension qualifies for credit except to the
extent that the reinsurer's obligations under the contract are
secured under section 1105. If a reinsurer's accreditation or
certification is revoked, no credit for reinsurance may be granted
after the effective date of the revocation except to the extent
that the reinsurer's obligations under the contract are secured
under subsection (5)(e) or section 1105.
(11) A ceding insurer shall take steps to manage its
reinsurance recoverables proportionate to its own book of business.
A domestic ceding insurer shall notify the director within 30 days
after reinsurance recoverables from any single assuming insurer, or
group of affiliated assuming insurers, exceeds 50% of the domestic
ceding insurer's last reported surplus to policyholders, or after
it has determined that reinsurance recoverables from any single
assuming insurer, or group of affiliated assuming insurers, is
likely to exceed this limit. The notification must demonstrate that
the exposure is safely managed by the domestic ceding insurer.
(12) A ceding insurer shall take steps to diversify its
reinsurance program. A domestic ceding insurer shall notify the
director within 30 days after ceding to any single assuming
insurer, or group of affiliated assuming insurers, more than 20% of
the ceding insurer's gross written premium in the prior calendar
year, or after it has determined that the reinsurance ceded to any
single assuming insurer, or group of affiliated assuming insurers,
is likely to exceed this limit. The notification must demonstrate
that the exposure is safely managed by the domestic ceding insurer.
(13) As used in this section, "NAIC" means the National
Association of Insurance Commissioners.
Sec. 1105. An asset or a reduction from liability for the
reinsurance ceded by a ceding insurer to an assuming insurer that
does
not meeting meet the
requirements of section 1103 shall be is
allowed
in an amount not exceeding to
exceed the liabilities
carried
by the ceding insurer, and the reduction shall must be
in
the amount of funds held by or on behalf of the ceding insurer,
including funds held in trust for the ceding insurer, under a
reinsurance contract with the assuming insurer as security for the
payment
of obligations thereunder, under
the reinsurance contract,
if the security is held in the United States subject to withdrawal
solely by, and under the exclusive control of, the ceding insurer
and, for a trust, held in a qualified United States financial
institution. This security may be in the form of any of the
following:
(a) Cash.
(b)
Securities that may be valued by the commissioner in
accordance
with director under sections 841 and 842 and are
approved for investment by insurers under chapter 9, including
those considered exempt from filing as defined by the purposes and
procedures manual of the Securities Valuation Office of the
National Association of Insurance Commissioners.
(c) Clean, irrevocable, unconditional letters of credit,
issued or confirmed by a qualified United States financial
institution no later than December 31 of the year for which filing
is being made, and in the possession of the ceding insurer on or
before the filing date of its annual statement. Letters of credit
meeting
that meet applicable standards of issuer acceptability as
of
on the dates of their issuance or confirmation
shall, date the
letters of credit are issued or confirmed are, notwithstanding the
issuing or confirming institution's subsequent failure to meet
applicable
standards of issuer acceptability, continue to be
acceptable as security until their expiration, extension, renewal,
modification, or amendment, whichever occurs first.
(d) Any other form of security acceptable to the
commissioner.director.
Enacting section 1. This amendatory act takes effect 90 days
after the date it is enacted into law.