Bill Text: MI HB5241 | 2019-2020 | 100th Legislature | Engrossed
Bill Title: Insurance; insurers; exemption relating to requirements for a valuation manual; eliminate. Amends sec. 836b of 1956 PA 218 (MCL 500.836b).
Spectrum: Slight Partisan Bill (Republican 2-1)
Status: (Passed) 2020-01-28 - Assigned Pa 15'20 With Immediate Effect [HB5241 Detail]
Download: Michigan-2019-HB5241-Engrossed.html
HOUSE BILL NO. 5241
November 13, 2019, Introduced by Reps. Rendon,
Paquette and Wittenberg and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending section 836b (MCL 500.836b), as amended by 2016 PA 558.
the people of the state of michigan enact:
Sec. 836b. (1) All of the following apply to the
valuation manual:
(a)
Except as otherwise provided under subdivision (e) or (g), for policies issued
on or after the operative date of the valuation manual and, at a company's
option for policies or individual blocks of policies acquired by the company
through a business acquisition or reinsurance transaction after March 31, 2015,
regardless of when the policies were issued, the standard prescribed in the
valuation manual is the minimum standard of valuation required under section
830(2).
(a)
(b) The operative date of the valuation manual is January
1 of the first calendar year following the first July 1 as of which all of the
following have occurred:
(i) The NAIC has adopted the valuation manual by a vote of at
least 42 members, or 3/4 of the members voting, whichever is greater.
(ii) The standard
valuation law, as amended by the NAIC in 2009, or legislation including
substantially similar terms and provisions, has been enacted by states
representing greater than 75% of the direct premiums written as reported in the
following annual statements submitted for 2008: life, accident, and health
annual statements; health annual statements; or fraternal annual statements.
(iii) The standard
valuation law, as amended by the NAIC in 2009, or legislation including
substantially similar terms and provisions, has been enacted by at least 42 of
the following 55 jurisdictions: the 50 states of the United States, American
Samoa, the American Virgin Islands, the District of Columbia, Guam, and Puerto
Rico.
(b) (c) Unless a change in the valuation manual
specifies a later effective date, a change to the valuation manual is effective
on January 1 after the date the NAIC adopts the change to the valuation manual
by a vote representing both of the following:
(i) At least 3/4 of
the members of the NAIC, but not less than a majority of the total membership.
(ii) Members of the
NAIC representing jurisdictions that amount to greater than 75% of the direct
premiums written as reported in the following annual statements most recently
available before the vote in subparagraph (i): life, accident,
and health annual statements; health annual statements; or fraternal annual
statements.
(c) (d) The valuation manual must specify all of the
following:
(i) Minimum valuation
standards for and definitions of the policies or contracts subject to section
830(2). The minimum valuation standards are all of the following:
(A) The director's reserve valuation method for life
insurance contracts, other than annuity contracts, subject to section 830(2).
(B) The director's annuity reserve valuation method for
annuity contracts subject to section 830(2).
(C) Minimum reserves for all other policies or contracts
subject to section 830(2).
(ii) The policies or
contracts or types of policies or contracts that are subject to the requirements
of a principle-based valuation under subsection (2) and the minimum valuation
standards consistent with those requirements.
(iii) For policies and
contracts subject to a principle-based valuation under subsection (2), all of
the following apply:
(A) Requirements for the format of reports to the director
under subsection (3)(c) and that must include information necessary to
determine if the valuation is appropriate and in compliance with this section.
(B) Assumptions must be prescribed for risks over which the
company does not have significant control or influence.
(C) Procedures for corporate governance and oversight of the
actuarial function, and a process for appropriate waiver or modification of the
procedures.
(iv) For policies that
are not subject to a principle-based valuation under subsections (2), (3), and
(4), the minimum valuation standard is 1 of the following:
(A) The standard is consistent with the minimum standard of
valuation before the operative date of the valuation manual.
(B) The standard develops reserves that quantify the benefits
and guarantees, and the funding, associated with the contracts and their risks
at a level of conservatism that reflects conditions that include unfavorable
events that have a reasonable probability of occurring.
(v) Other
requirements, including, but not limited to, those relating to reserve methods,
models for measuring risk, generation of economic scenarios, assumptions,
margins, use of company experience, risk measurement, disclosure,
certifications, reports, actuarial opinions and memorandums, transition rules,
and internal controls.
(vi) The data and form
of the data required under subsection (5), to whom the data must be submitted,
and may specify other requirements including data analyses and reporting of
analyses.
(d) (e) If there is not a specific valuation
requirement or if the director determines that a specific valuation requirement
in the valuation manual does not comply with this section, the company shall,
with respect to the requirement, comply with minimum valuation standards
prescribed by the director by rule.
(e) (f) The director may engage a qualified actuary, at
the expense of the company, to perform an actuarial examination of the company
and opine on the appropriateness of any reserve assumption or method used by
the company, or to review and opine on a company's compliance with any
requirement of this section. The director may rely on the opinion, regarding
this section, of a qualified actuary engaged by the commissioner of another state,
district, or territory of the United States. As used in this subdivision,
"engage" includes employment and contracting.
(f) (g) The director may require a company to change
any assumption or method that the director considers necessary to comply with
the requirements of the valuation manual or this section, and the company shall
adjust the reserves as required by the director.
(2) A company shall establish reserves using a
principle-based valuation that meets all of the following conditions for policies
or contracts as specified in the valuation manual:
(a) Quantify the benefits and guarantees, and the funding,
associated with the contracts and their risks at a level of conservatism that
reflects conditions that include unfavorable events that have a reasonable
probability of occurring during the lifetime of the contracts. For polices or
contracts with significant tail risk, reflects conditions appropriately adverse
to quantify the tail risk.
(b) Incorporate assumptions, risk analysis methods, financial
models, and management techniques that are consistent with, but not necessarily
identical to, those used within the company's overall risk assessment process,
while recognizing potential differences in financial reporting structures and
any prescribed assumptions or methods.
(c) Incorporate assumptions that are derived in 1 of the
following manners:
(i) The assumption is
prescribed in the valuation manual.
(ii) For assumptions
that are not prescribed in the valuation manual, the assumptions must do the following,
as applicable:
(A) Use the company's available experience, to the extent it
is relevant and statistically credible.
(B) To the extent that company data are not available,
relevant, or statistically credible, use other relevant and statistically credible
experience.
(d) Provide margins for uncertainty, including adverse
deviation and estimation error, such that the greater the uncertainty, the
larger the margin and resulting reserve.
(3) A company that uses principle-based valuation for 1 or
more policies or contracts subject to this section as specified in the
valuation manual shall do all of the following:
(a) Establish procedures for corporate governance and
oversight of the actuarial valuation function consistent with those described
in the valuation manual.
(b) Provide to the director and the board of directors an
annual certification of the effectiveness of the internal controls with respect
to the principle-based valuation. The internal controls must be designed to
assure that all material risks inherent in the liabilities and associated
assets subject to the valuation are included in the valuation, and that
valuations are made in accordance with the valuation manual. The certification
must be based on the controls in place at the end of the preceding calendar
year.
(c) Develop, and file with the director on request, a
principle-based valuation report that complies with standards prescribed in the
valuation manual.
(4) A principle-based valuation may include a prescribed
formulaic reserve component.
(5) A company shall submit mortality, morbidity, policyholder
behavior, or expense experience and other data as prescribed in the valuation
manual.
(6) Except as otherwise provided in this section,
confidential information is confidential and privileged, is not subject to
disclosure under the freedom of information act, 1976 PA 442, MCL 15.231 to
15.246, is not subject to subpoena, and is not subject to discovery or
admissible in evidence in a private civil action. However, the director may use
the confidential information in the furtherance of any regulatory or legal
action brought as a part of the director's official duties.
(7) The director or any person who received confidential
information while acting under the authority of the director shall not testify
in a private civil action concerning confidential information.
(8) The director may do all of the following:
(a) Except as otherwise provided in this subdivision, share
confidential information with other state, federal, and international regulatory
agencies and with the NAIC and its affiliates and subsidiaries. The director
may also share confidential information described in subsection (18)(c)(i) (14)(c)(i) and (iv) only with the actuarial board for counseling and discipline
or its successor on request for the purpose of professional disciplinary
proceedings and with state, federal, and international law enforcement
officials. The director shall not share confidential information unless the
recipient agrees in writing to maintain the confidentiality and privileged
status of the confidential information and has verified in writing the legal
authority to maintain confidentiality.
(b) Subject to this subdivision, receive documents,
materials, data, or information from regulatory or law enforcement officials of
other foreign or domestic jurisdictions, the actuarial board for counseling and
discipline or its successor, and the NAIC and its affiliates and subsidiaries.
The director shall maintain as confidential or privileged any documents, materials,
or information received with notice or the understanding that it is
confidential or privileged under the laws of the jurisdiction that is the
source of the document, material, or information.
(9) The director may enter into written agreements governing sharing
and use of information provided under this section.
(10) The disclosure or sharing of confidential information to
the director under this section is not a waiver of an applicable privilege or
claim of confidentiality.
(11) A privilege established under the law of any state or
jurisdiction that is substantially similar to the privilege established under
this section applies in any proceeding in, and in any court of, this state.
(12) As used in subsections (6) to (10), "regulatory
agency", "law enforcement agency", and "NAIC" include,
but are not limited to, their employees, agents, consultants, and contractors.
(13) Notwithstanding anything in this section to the
contrary, any confidential information described in subsection (18)(c)(i) (14)(c)(i) and (iv) is subject to all of the following:
(a) The confidential information is subject to subpoena for
the purpose of defending an action seeking damages from the appointed actuary
submitting the related memorandum in support of an opinion submitted under section
830a or principle-based valuation report developed under subsection (3)(c) by
reason of an action required by section 830a or subsection (3)(c) or by rules
promulgated under this section.
(b) The director may release the confidential information with
the written consent of the company.
(c) If any portion of a memorandum in support of an opinion
submitted under section 830a or a principle-based valuation report developed
under subsection (3)(c) is cited by the company in its marketing, is cited before
a governmental agency other than a state insurance department, or is released
by the company to the news media, the memorandum or report is not confidential.
(14) Except as provided in subsection (15), a domestic
company is exempt from the requirements under subsections (1) to (5) if the
domestic company meets both of the following requirements:
(a) The domestic company has less than $500,000,000.00 of
ordinary life premiums and, if the domestic company is a member of a group of
life insurers, the group has combined ordinary life premiums of less than
$1,000,000,000.00.
(b) The domestic company reported total adjusted capital of
at least 450% of the authorized control level risk-based capital in the most
recent risk-based capital report and the appointed actuary has provided an
unqualified opinion on the reserves.
(15) A domestic company that meets the requirements under
subsection (14)(a) and (b) may elect to be bound by the requirements of
subsections (1) to (5) for a calendar year. The election must be in writing and
filed with the director by February 1 of the year following the calendar year
in which the company makes the election.
(16) For purposes of subsection (14), ordinary life premiums
are measured as direct plus reinsurance assumed from an unaffiliated company
from the prior calendar year annual statement.
(17) Except for a domestic company that makes an election
under subsection (15), for a domestic company that is exempt from the
requirements of subsections (1) to (5) under subsection (14), sections 830a,
832, 834, 835, 835a, 836, and 836a are applicable, and a reference to this
section in sections 830a, 834, and 836a is not applicable.
(14) (18) As used in this section:
(a) "Accident and health insurance" means contracts
that incorporate morbidity risk and provide protection against economic loss
resulting from accident, sickness, or medical conditions and as may be
specified in the valuation manual.
(b) "Company" means an entity that has written,
issued, or reinsured life insurance contracts, accident and health insurance
contracts, or deposit-type contracts in this state and has at least 1 policy in
force or on claim or that has written, issued, or reinsured life insurance
contracts, accident and health insurance contracts, or deposit-type contracts
in any state and is required to hold a certificate of authority to write life
insurance, accident and health insurance, or deposit-type contracts in this
state.
(c) "Confidential information" means all of the
following:
(i) A memorandum in
support of an opinion submitted under section 830a and any other documents,
materials, and other information, including, but not limited to, all working
papers, and copies of working papers, created, produced, or obtained by or
disclosed to the director or any other person in connection with the
memorandum.
(ii) All documents,
materials, and other information, including, but not limited to, all working
papers, and copies of working papers, created, produced, or obtained by or
disclosed to the director or any other person in the course of an examination
made under subsection (1)(f)
(1)(e) if
an examination report or other material prepared in connection with an
examination made under section 222 is not held as private and confidential
information under section 222, an examination report or other material prepared
in connection with an examination made under subsection (1)(f) (1)(e) is not
"confidential information" to the same extent as if the examination
report or other material had been prepared under section 222.
(iii) Any reports,
documents, materials, and other information developed by a company in support
of, or in connection with, an annual certification by the company under
subsection (3)(b) evaluating the effectiveness of the company's internal
controls with respect to a principle-based valuation and any other documents,
materials, and other information, including, but not limited to, all working
papers, and copies of working papers, created, produced, or obtained by or
disclosed to the director or any other person in connection with such reports,
documents, materials, and other information.
(iv) Any
principle-based valuation report developed under subsection (3)(c) and any
other documents, materials, and other information, including, but not limited
to, all working papers, and copies of working papers, created, produced, or
obtained by or disclosed to the director or any other person in connection with
the report.
(v) Any documents,
materials, data, and other information submitted by a company under subsection
(5), collectively, experience data, and any other documents, materials, data,
and other information, including, but not limited to, all working papers, and
copies of working papers, created or produced in connection with the experience
data, in each case that include any potentially company-identifying or
personally identifiable information, that is provided to or obtained by the
director, together with any experience data, the experience materials and any
other documents, materials, data, and other information, including, but not
limited to, all working papers, and copies of working papers, created,
produced, or obtained by or disclosed to the director or any other person in
connection with the experience materials.
(d) "Deposit-type contract" means contracts that do
not incorporate mortality or morbidity risks and as may be specified in the
valuation manual.
(e) "Life insurance" means contracts that
incorporate mortality risk, including annuity and pure endowment contracts, and
as may be specified in the valuation manual.
(f) "NAIC" means the National Association of
Insurance Commissioners.
(g) "Policyholder behavior" means any action a
policyholder, contract holder, or any other person with the right to elect
options, such as a certificate holder, may take under a policy or contract
subject to this section, including, but not limited to, lapse, withdrawal,
transfer, deposit, premium payment, loan, annuitization, or benefit elections
prescribed by the policy or contract but excluding events of mortality or
morbidity that result in benefits prescribed in their essential aspects by the
terms of the policy or contract.
(h) "Principle-based valuation" means a reserve
valuation that uses 1 or more methods or 1 or more assumptions determined by
the insurer and is required to comply with this section as specified in the
valuation manual.
(i) "Qualified actuary" means an individual who is
qualified to sign the applicable statement of actuarial opinion in accordance
with the American Academy of Actuaries qualification standards for actuaries
signing such statements and who meets the requirements specified in the
valuation manual.
(j) "Tail risk" means a risk that occurs either
where the frequency of low probability events is higher than expected under a
normal probability distribution or where there are observed events of very
significant size or magnitude.
(k) "Valuation manual" means the manual of
valuation instructions adopted by the NAIC as specified in this section.
