On April 10, 2018 Michigan Governor Rick Snyder (R) signed Michigan Senate Bill 638 into law to amend the state’s insurance code to conform to the National Association of Insurance Commissioner (“NAIC”)’s model law on reinsurance regarding when ceding insurers may claim credit for reinsurance. The Michigan legislative staff has published an analysis of the bill. The Michigan Insurance Code previously authorized reinsurance credit where the reinsurance is ceded to a reinsurer authorized in Michigan or met one of three different sets of requirements. Senate Bill 638 amends those three requirements as follows:
- Where the Code allows reinsurance credit if the reinsurer is accredited as a Michigan reinsurer, the bill removes a prohibition on receiving credit where the reinsurer’s accreditation was revoked, requires the reinsurer to bear the expense of the state’s examination of its books and records to gain accreditation, removes the specific surplus requirement of $20 million required for accreditation, and institutes instead a requirement that the reinsurer satisfy the state that it has “adequate financial capacity” to meet its reinsurance obligations.
- Where the Code allows reinsurance credit if the reinsurer maintains a qualified trust fund for reinsurance claims payments, the bill adds provisions regarding single assuming insurers that permanently discontinue writing new business secured by the trust, changes the dates for various criteria of the trusts maintained by groups of underwriters, and adds requirements for groups of unincorporated underwriters under common administration.
- The bill maintains the Code’s provisions for reinsurance credit if the insured risks are located in jurisdictions where reinsurance is required under local laws and regulations.
The bill also adds two new scenarios that qualify for reinsurance credit:
- Where the reinsurer is domiciled in or entered through a state that employs standards regarding reinsurance credit “substantially similar” to Michigan’s standards, provided that the reinsurer maintains a surplus of $20 million and submits to Michigan’s books and records examination authority and bears the expense thereof.
- Where the reinsurer has been certified as a certified reinsurer in Michigan and secures its obligations as provided in the bill and the Code, provided that it meets certain certification requirements.
Additionally, the bill adds provisions governing the suspension and revocation of accreditation and certification under the Code, requiring ceding insurers to manage reinsured assets in proportion to its business and diversify their reinsurance programs, and granting the state Director of Insurance and Financial Services authority to promulgate reinsurance regulations under the Administrative Procedure Act.
The bill takes effect July 9, 2018.
This post written by Thaddeus Ewald .
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