HOUSE BILL No. 4905 June 11, 1997, Introduced by Rep. Gubow and referred to the Committee on Insurance. A bill to amend 1956 PA 218, entitled "The insurance code of 1956," by amending sections 150, 244, 405, 436, 437, 810, 901, and 2125 (MCL 500.150, 500.244, 500.405, 500.436, 500.437, 500.810, 500.901, and 500.2125), sections 150, 244, 436, and 437 as amended by 1992 PA 182, section 405 as amended by 1994 PA 228, section 810 as amended by 1986 PA 173, and section 901 as amended by 1994 PA 226. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 150. (1) Any person who violates any provision of this 2 act for which a specific penalty is not provided under any other 3 provision of this act or of other laws applicable to the viola- 4 tion shall be afforded an opportunity for a hearing before the 5 commissioner pursuant to the administrative procedures act of 6 1969,Act No. 306 of the Public Acts of 1969, being sections03256'97 * DKH 2 124.201 to 24.328 of the Michigan Compiled Laws1969 PA 306, MCL 2 24.201 TO 24.328. If the commissioner finds that a violation has 3 occurred, the commissioner shall reduce the findings and decision 4 to writing and shall issue and cause to be served upon the person 5 charged with the violation a copy of the findings and an order 6 requiring the person to cease and desist from the violation. In 7 addition, the commissioner may order any of the following: 8 (a) Payment of a civil fine of not more than $500.00 for 9 each violation. However, if the person knew or reasonably should 10 have known that he or she was in violation of this act, the com- 11 missioner may order the payment of a civil fine of not more than 12 $2,500.00 for each violation. With respect to filings made under 13 chapters 21, 22, 23, 24, and 26, "violation" means a filing not 14 in compliance with the provisions of those chapters and does not 15 include an action with respect to an individual policy based upon 16 a noncomplying filing. An order of the commissioner under this 17 subdivision shall not require the payment of civil fines exceed- 18 ing $25,000.00. A fine collected under this subdivision shall be 19 turned over to the state treasurer and credited to the general 20 fund. 21 (b) The suspension, CONDITION, limitation, or revocation of 22 the person's license or certificate of authority. 23 (2) After notice and opportunity for hearing, the commis- 24 sioner may by order reopen and alter, modify, or set aside, in 25 whole or in part, an order issued under this section if, in the 26 commissioner's opinion, conditions of fact or law have changed to 27 require that action or the public interest requires that action. 03256'97 * 3 1 (3) If a person knowingly violates a cease and desist order 2 under this section and has been given notice and an opportunity 3 for a hearing held pursuant toAct No. 306 of the Public Acts of41969THE ADMINISTRATIVE PROCEDURES ACT OF 1969, 1969 PA 306, MCL 5 24.201 TO 24.328, the commissioner may order a civil fine of 6 $10,000.00 for each violation, or a suspension, CONDITION, limi- 7 tation, or revocation of a person's license, or both. A fine 8 collected under this subsection shall be turned over to the state 9 treasurer and credited to the general fund. 10 (4) The commissioner may apply to the Ingham county circuit 11 court for an order of the court enjoining a violation of this 12 act. 13 Sec. 244. (1) A person aggrieved by a final order, deci- 14 sion, finding, ruling, opinion, rule, action, or inaction pro- 15 vided for under this act may seek judicial review in the manner 16 provided for in chapter 6 of the administrative procedures act of 17 1969,Act No. 306 of the Public Acts of 1969, being sections1824.301 to 24.3281969 PA 306, MCL 24.301 TO 24.328. 19 (2) An insurer may petition of right for a stay of an order 20 issued pursuant to sections 436, 436a, 437, or any other proceed- 21 ing for the suspension, revocation, CONDITION, or limitation of a 22 certificate of authority. The petition shall be on an emergency 23 basis to the circuit court for the county in which the insurer 24 has its principal place of business in the state or to the cir- 25 cuit court for Ingham county. The petition shall be disposed of 26 within 14 days UNLESS BOTH THE INSURER AND THE COMMISSIONER AGREE 27 ON THE RECORD IN OPEN COURT TO EXTEND THIS PERIOD. The court 03256'97 * 4 1 shall direct the filing and time of filing of appropriate 2 pleadings. FOR AN INSURER THAT QUALIFIES UNDER SECTION 405(3), 3 THE COMMISSIONER SHALL BEAR THE BURDEN OF SHOWING THAT A STAY 4 WILL BE HAZARDOUS TO POLICYHOLDERS, CREDITORS, AND THE PUBLIC. 5 IN ALL OTHER CASES, THE INSURER SHALL BEAR THE BURDEN OF SHOWING 6 THAT A STAY WILL NOT BE HAZARDOUS TO POLICYHOLDERS, CREDITORS, 7 AND THE PUBLIC. A court shall not issue a stay unless the court 8 finds that the issuance of a stay is not hazardous to policyhold- 9 ers, creditors, or the public. The decision of the court shall 10 be limited to the issue of a stay, and the court shall not decide 11 the merits of the case, which shall be determined pursuant to 12 section 437 or to any other provision of this act under which the 13 proceeding for the suspension, revocation, CONDITION, or limita- 14 tion of the certificate of authority is being conducted. 15 (3) An order of a court issuing a stay may be appealed on an 16 emergency basis, and during the pendency of an appeal the stay 17 issued shall be without force or effect, unless the insurer 18 deposits cash or securities pursuant to subsection (4). The 19 appeal shall be disposed of within 14 days. The court shall 20 direct the filing and time of filing of appropriate pleadings. 21 The court may affirm, modify, or set aside the commissioner's 22 order and restrain the enforcement of the order. To the extent 23 that the commissioner's order is affirmed, the court shall issue 24 its own order commanding obedience to the terms of the 25 commissioner's order. 26 (4) A stay shall not take effect until the insurer has made 27 deposits of cash or securities of the kinds defined by section 03256'97 * 5 1 901 with the state treasurer under the supervision of the court 2 granting the stay in amounts as follows: 3 (a) For a domestic insurer, the total liabilities of the 4 insurer as computed in accordance with section 901 less the 5 amounts of special or other deposits already made by the insurer 6 with the Michigan state treasurer and with any other state pursu- 7 ant to the requirements of that state. 8 (b) For a foreign insurer, 100% of the aggregate sum of 9 Michigan direct unpaid losses and unpaid loss adjustment expenses 10 plus 100% of Michigan direct unearned premiums less the amount of 11 any other special deposits already made with the Michigan state 12 treasurer for the exclusive protection of Michigan policyholders 13 and creditors. 14 (c) For an alien insurer entering the United States through 15 this state, the same as those applied to domestic insurers with 16 credit given for amounts already held in trust and the amount 17 shall equal the total liabilities in the United States computed 18 in accordance with section 901. 19 (5) The deposit and any accrued interest on the deposit 20 shall be returned to the insurer at the conclusion of the entire 21 proceedings under section 437 or at the conclusion of such other 22 proceedings for the suspension, revocation, CONDITION, or limita- 23 tion of the certificate of authority and any appeal therefrom, 24 unless those proceedings result in a finding that all or a por- 25 tion shall remain on deposit for the protection of Michigan poli- 26 cyholders and creditors or unless an order of rehabilitation or 03256'97 * 6 1 liquidation is entered, in which case the deposit shall be turned 2 over to the liquidator. 3 Sec. 405. (1) Except as provided in subsection (2), the 4 certificate of authority of a foreign insurer with respect to 5 whom control as defined in section 115(b) changes after October 6 1, 1992 without being subject to the commissioner's approval 7 shall beautomaticallyrevoked 90 days after the change in con- 8 trolwithout further action by the commissionerunless, within 9 90 days of the change of control or a longer period if the com- 10 missioner allows, the insurer requalifies for a certificate of 11 authority under the provisions of this act in force as of the 12 change of control. The certificate of authority shall be revoked 13 under such conditions for the protection of policyholders, credi- 14 tors, and the public as the commissioner may require. 15 (2) A person seeking to acquire control of a foreign insurer 16 may request the commissioner to determine whether or not the com- 17 missioner would requalify the insurer for a certificate of 18 authority if control is acquired. The commissioner shall deter- 19 mine within 90 days after the request is made whether or not the 20 insurer would requalify for a certificate of authority if control 21 is acquired. The commissioner's determination shall be in writ- 22 ing and shall state the commissioner's reasons as to why the com- 23 missioner would either grant or deny requalification for a cer- 24 tificate of authority if control is acquired. If the commis- 25 sioner does not issue his or her determination within this 90-day 26 period and the person seeking the request acquires control of the 27 foreign insurer within 180 days after the request for a 03256'97 * 7 1 determination was made, the insurer shall be automatically 2 requalified for a certificate of authority. If the commissioner 3 issues an affirmative requalification determination and the 4 person requesting the determination acquires control of the for- 5 eign insurer within 180 days after the request for a determina- 6 tion was made, the commissioner is prohibited from proceeding 7 under subsection (1).This subsection is effective July 1,81994.9 (3) A FOREIGN INSURER THAT HAS UNDERGONE A CHANGE OF CONTROL 10 WITHIN THE MEANING OF THIS ACT REQUALIFIES FOR THE SAME TYPE OF 11 CERTIFICATE OF AUTHORITY AS WAS HELD BY THE FOREIGN INSURER 12 BEFORE THE CHANGE OF CONTROL IF ALL OF THE FOLLOWING ARE TRUE: 13 (A) THE DOMICILIARY STATE OF THE FOREIGN INSURER HAS 14 APPROVED THE CHANGE OF CONTROL. 15 (B) AFTER THE CHANGE OF CONTROL, THE FOREIGN INSURER MAIN- 16 TAINS MINIMUM SURPLUS OF $10,000,000.00 IF A LIFE INSURER OR 17 $20,000,000.00 IF A PROPERTY AND CASUALTY INSURER. 18 (C) THE FOREIGN INSURER HAS HAD A MICHIGAN CERTIFICATE OF 19 AUTHORITY FOR 5 OR MORE YEARS. 20 (4) A FOREIGN INSURER THAT HAS UNDERGONE A CHANGE OF CONTROL 21 AND QUALIFIES UNDER SUBSECTION (3) IS REQUALIFIED FOR A CERTIFI- 22 CATE OF AUTHORITY, UNLESS THE COMMISSIONER DETERMINES IN THE REA- 23 SONABLE EXERCISE OF DISCRETION, BASED UPON SPECIFIC FINDINGS OF 24 FACT, THAT THE INSURER IS NOT SAFE, RELIABLE, AND ENTITLED TO 25 PUBLIC CONFIDENCE. IF THE COMMISSIONER MAKES THIS DETERMINATION, 26 THE AGGRIEVED INSURER IS ENTITLED TO A CONTESTED CASE HEARING 27 PURSUANT TO THE ADMINISTRATIVE PROCEDURES ACT OF 1969, 1969 PA 03256'97 * 8 1 306, MCL 24.201 TO 24.328. IN THE CONTESTED CASE HEARING, THE 2 COMMISSIONER IS NOT PERMITTED TO ADD TO THE BASES SPECIFIED BY 3 THE COMMISSIONER IN HIS OR HER ORIGINAL DETERMINATION THAT THE 4 INSURER HAS FAILED TO REQUALIFY FOR A CERTIFICATE OF AUTHORITY. 5 DURING THE PENDENCY OF THE CONTESTED CASE PROCEEDING, THE 6 COMMISSIONER'S ORDER IS AUTOMATICALLY STAYED IF THE FOREIGN 7 INSURER ESTABLISHES THAT IT MEETS ALL OF THE CONDITIONS DESCRIBED 8 IN SUBSECTION (3). IF A FOREIGN INSURER DOES NOT ESTABLISH THAT 9 IT MEETS ALL OF THE CONDITIONS DESCRIBED IN SUBSECTION (3), THE 10 COMMISSIONER'S ORDER SHALL REMAIN IN EFFECT, EXCEPT AS MODIFIED 11 BY THE COMMISSIONER OR AS STAYED BY A COURT PURSUANT TO SECTION 12 244(2). 13 (5) THE COMMISSIONER'S ORDER AND DETERMINATION MAY BE CON- 14 FIRMED OR MODIFIED BY THE COMMISSIONER AS THE RESULT OF A CON- 15 TESTED CASE HEARING AND IS THE FINAL DECISION OR ORDER IN THE 16 CONTESTED CASE. 17 (6) AN INSURER AGGRIEVED BY THE COMMISSIONER'S FINAL DECI- 18 SION OR ORDER IN THE CONTESTED CASE PROCEEDING MAY SEEK JUDICIAL 19 REVIEW UNDER CHAPTER 6 OF THE ADMINISTRATIVE PROCEDURES ACT OF 20 1969, 1969 PA 306, MCL 24.301 TO 24.306. 21 (7) IF A FOREIGN INSURER IS FOUND BY THE COMMISSIONER'S 22 FINAL DECISION AND ORDER NOT TO REQUALIFY FOR A CERTIFICATE OF 23 AUTHORITY, THE INSURER MAY PETITION FOR A STAY OF THAT DECISION 24 AND ORDER. THE PETITION SHALL BE HEARD ON AN EMERGENCY BASIS BY 25 THE CIRCUIT COURT FOR THE COUNTY IN WHICH THE INSURER HAS ITS 26 PRINCIPAL PLACE OF BUSINESS IN THE STATE OR BY THE INGHAM COUNTY 27 CIRCUIT COURT. THE PETITION SHALL BE DISPOSED OF WITHIN 14 DAYS, 03256'97 * 9 1 UNLESS BOTH THE INSURER AND THE COMMISSIONER AGREE ON THE RECORD 2 IN OPEN COURT TO EXTEND THIS PERIOD. THE COURT SHALL NOT ISSUE A 3 STAY UNLESS THE COURT FINDS THAT THE ISSUANCE OF A STAY IS NOT 4 HAZARDOUS TO POLICYHOLDERS, CREDITORS, OR THE PUBLIC. THE COURT 5 SHALL ISSUE A STAY ON SUCH TERMS AS IT CONSIDERS REASONABLE AND 6 APPROPRIATE, IF ANY, FOR THE PROTECTION OF POLICYHOLDERS, CREDI- 7 TORS, AND THE PUBLIC. THE COMMISSIONER BEARS THE BURDEN OF 8 ESTABLISHING THE REASONABLENESS AND NECESSITY OF ANY TERMS HE OR 9 SHE ADVANCES AS A CONDITION OF THE STAY. THE COURT SHALL NOT 10 REQUIRE, AS A CONDITION OF A STAY GRANTED UNDER THIS SUBSECTION, 11 THAT THE FOREIGN INSURER MAKE SPECIAL DEPOSITS THAT EXCEED 100% 12 OF THE AGGREGATE SUM OF MICHIGAN UNPAID LOSSES AND UNPAID LOSS 13 ADJUSTMENT EXPENSES INCURRED AFTER THE COMMISSIONER'S FINAL ORDER 14 AND DECISION PLUS 100% OF MICHIGAN DIRECT UNEARNED PREMIUMS 15 OBTAINED BY THE INSURER AFTER THE COMMISSIONER'S FINAL ORDER AND 16 DECISION. THE COURT MAY REQUIRE THE FOREIGN INSURER TO MAKE SUCH 17 SPECIAL DEPOSITS, NOT MORE FREQUENTLY THAN QUARTERLY, TO REFLECT 18 CHANGES IN THE UNPAID LOSSES, MICHIGAN UNPAID LOSS ADJUSTMENT 19 EXPENSES, AND MICHIGAN DIRECT UNEARNED PREMIUMS AFTER THE DATE OF 20 THE COMMISSIONER'S FINAL ORDER AND DECISION. THE COURT MAY ALSO 21 ORDER THE RETURN OF SPECIAL DEPOSITS TO REFLECT ANY DECREASES IN 22 THE MICHIGAN UNPAID LOSS ADJUSTMENT EXPENSES AND MICHIGAN DIRECT 23 UNEARNED PREMIUMS AFTER THE DATE OF THE COMMISSIONER'S FINAL 24 ORDER AND DECISION. 25 Sec. 436. (1) The commissioner may suspend, revoke, 26 CONDITION, or limit the certificate of authority of an insurer if 27 he or she determines that any of the following conditions exist: 03256'97 * 10 1 (a) The insurer no longer meets the requirements of this act 2 respecting capital, surplus, deposits, or assets. 3 (b) The insurer's condition is such that it is no longer 4 safe, reliable, or entitled to public confidence or is unsound, 5 or the insurer is using financial methods and practices in the 6 conduct of its business that render further transaction of insur- 7 ance by the insurer in this state hazardous to policyholders, 8 creditors, or the public. 9 (c) The insurer's certificate of authority to transact busi- 10 ness in its state of domicile, or in the case of an alien insur- 11 er, in its state of entry, has been suspended or revoked. 12 (d) The insurer has failed, after written request by the 13 commissioner, to remove or discharge an officer or director whose 14 record of business conduct does not satisfy the requirements of 15 section 436a(1)(k) or 1315(1)(f) or who has been convicted of any 16 crime involving fraud, dishonesty, or like moral turpitude. 17 (e) The insurer fails to promptly comply with sections 222 18 or 438. 19 (f) The insurer has failed for an unreasonable period to pay 20 any final judgment rendered against it in this state on any 21 policy, bond, recognizance, or undertaking issued or guaranteed 22 by it. 23 (g) The insurer has failed, within 30 days after notice of 24 delinquency from the commissioner, to cure its failure to pay the 25 taxes, fees, assessments, or expenses required by this act. 03256'97 * 11 1 (h) The insurer has violated any other provision of this act 2 that provides for suspension or revocation of its certificate of 3 authority. 4 (2) IF THE COMMISSIONER DETERMINES THAT AN INSURER IS NOT OR 5 DOES NOT CONTINUE TO BE SAFE, RELIABLE, AND ENTITLED TO PUBLIC 6 CONFIDENCE SO THAT THE INSURER IS NOT QUALIFIED TO RECEIVE AN 7 UNCONDITIONAL CERTIFICATE OF AUTHORITY, THE COMMISSIONER SHALL 8 CONSIDER IN THE REASONABLE EXERCISE OF HIS OR HER DISCRETION 9 WHETHER THE INSURER IS OR CONTINUES TO BE SAFE, RELIABLE, AND 10 ENTITLED TO PUBLIC CONFIDENCE SO THAT A CERTIFICATE OF AUTHORITY 11 SUBJECT TO CONDITIONS MAY BE ISSUED. THESE CONDITIONS MAY 12 INCLUDE ANY OF THE FOLLOWING: 13 (A) PROVISIONS FOR MAKING SPECIAL DEPOSITS IN REASONABLE 14 AMOUNTS FOR THE BENEFIT OF MICHIGAN POLICYHOLDERS, CREDITORS, OR 15 THE PUBLIC. 16 (B) LIMITING THE TYPES OF INSURANCE COVERAGE THE INSURER MAY 17 MARKET IN MICHIGAN. 18 (C) LIMITING THE INSURER TO ISSUING COVERAGE IN MICHIGAN FOR 19 CLIENTS WITH RISKS TO BE INSURED IN MORE THAN 1 STATE WHERE THE 20 INSURANCE POLICY IS LAWFULLY ISSUED IN A STATE OTHER THAN 21 MICHIGAN BUT THAT ALSO COVERS MICHIGAN RISKS. 22 (D) REQUIRING THE INSURER TO ENTER INTO AN AGREEMENT TO 23 REINSURE SOME OR ALL OF ITS MICHIGAN BUSINESS WITH REINSURERS 24 ACCEPTABLE TO THE COMMISSIONER. 25 (E) REQUIRING THE INSURER TO SUSPEND OR LIMIT THE DECLARA- 26 TION AND PAYMENT OF DIVIDENDS TO ITS STOCKHOLDERS OR TO ITS 03256'97 * 12 1 POLICYHOLDERS UNLESS THE PRIOR APPROVAL OF THE COMMISSIONER IS 2 GIVEN. 3 (F) FILING, IN ADDITION TO REGULAR ANNUAL STATEMENTS, 4 INTERIM FINANCIAL REPORTS IN THE FORM OR IN THE FORMAT REQUIRED 5 BY THE COMMISSIONER. 6 (G) REDUCING OR LIMITING THE VOLUME OF BUSINESS BEING 7 ACCEPTED OR RENEWED. 8 (H) IMPOSING SUCH OTHER CONDITIONS AS ARE REASONABLY TAI- 9 LORED TO PERMIT THE COMMISSIONER IN THE REASONABLE EXERCISE OF 10 HIS OR HER DISCRETION TO CONCLUDE THAT THE INSURER IS SAFE, RELI- 11 ABLE, AND ENTITLED TO PUBLIC CONFIDENCE. 12 (3) IF THE COMMISSIONER DECIDES THAT AN INSURER IS ONLY 13 ENTITLED TO A MICHIGAN CERTIFICATE OF AUTHORITY SUBJECT TO CONDI- 14 TIONS, THE CONDITIONS IMPOSED SHALL BE LIMITED TO THE LEAST 15 INTRUSIVE AND MINIMUM NUMBER NECESSARY TO PERMIT THE COMMISSIONER 16 IN THE REASONABLE EXERCISE OF HIS OR HER DISCRETION TO CONCLUDE 17 THAT THE INSURER IS SAFE, RELIABLE, AND ENTITLED TO PUBLIC 18 CONFIDENCE. 19 Sec. 437. (1) A proceeding to suspend, revoke, CONDITION, 20 or limit an insurer's certificate of authority shall be initiated 21 by the commissioner by granting the insurer an opportunity to 22 show compliance with all lawful requirements as provided under 23 section 92 of the administrative procedures act of 1969,Act24No. 306 of the Public Acts of 1969, being section 24.292 of the25Michigan Compiled Laws1969 PA 306, MCL 24.292. If the commis- 26 sioner subsequently determines pursuant to section 436 to 27 suspend, revoke, CONDITION, or limit the insurer's certificate of 03256'97 * 13 1 authority, the determination and the reasons for the 2 determination shall be stated in the order of suspension, revoca- 3 tion, CONDITION, or limitation. 4 (2) The insurer aggrieved by the commissioner's determina- 5 tion and order issued under section 436shall beIS entitled to 6 a contested case hearing pursuant toAct No. 306 of the Public7Acts of 1969, being sections 24.201 to 24.328 of the Michigan8Compiled LawsTHE ADMINISTRATIVE PROCEDURES ACT OF 1969, 1969 PA 9 306, MCL 24.201 TO 24.328. During the pendency of the contested 10 case proceeding, the commissioner's order shall remain in effect, 11 except as modified by the commissioner or as stayed by a court 12 pursuant to section 244. HOWEVER, IF A FOREIGN INSURER IS OPER- 13 ATING UNDER A CERTIFICATE OF AUTHORITY SUBJECT TO CONDITIONS AND 14 HAS A CHANGE IN CONTROL, ANY ADDITIONAL CONDITIONS THAT THE COM- 15 MISSIONER IMPOSES ON THE INSURER'S CERTIFICATE OF AUTHORITY AFTER 16 THE CHANGE IN CONTROL ARE AUTOMATICALLY STAYED DURING THE PEN- 17 DENCY OF THE CONTESTED CASE HEARING IF THE FOREIGN INSURER MEETS 18 ALL OF THE CONDITIONS DESCRIBED IN SECTION 405(3). 19 (3) The commissioner's order and determination may be con- 20 firmed or modified by the commissioner as the result of a con- 21 tested case hearing and shall be the final decision or order in 22 the contested case. 23 (4) Upon suspension, revocation, CONDITION, or limitation of 24 an insurer's certificate of authority, if the commissioner con- 25 siders it necessary or desirable for the protection of the 26 public, he or she may mail notice of the action to the insurer's 27 agents and publish notice of the suspension, revocation, 03256'97 * 14 1 CONDITION, or limitation in 1 or more newspapers of general 2 circulation in the state. 3 (5) The commissioner's order of limitation may restrict the 4 solicitation of new business within the state, may restrict the 5 renewal of business in force within the state, may require the 6 reinsurance of business in force within the state and, if rein- 7 surance is not effected within 30 days after the order requiring 8 reinsurance is issued, may require cancellation of business in 9 force within the state and may impose such other conditions to 10 continued authorization as are reasonably necessary to protect 11 policyholders, creditors, and the public. 12 Sec. 810. (1) Each insurer transacting business in this 13 state, at all times, shall maintain reserves in an amount esti- 14 mated in the aggregate to provide for the payment of all losses 15 and claims incurred, whether reported, or unreported,which16 THAT are unpaid and for which the insurer may be liable and to 17 provide for the expenses of adjustment or settlement of losses 18 and claims. The reserves shall be computed in accordance with 19 rules promulgated by the commissioner, after due notice and hear- 20 ing, based upon reasonable consideration of the ascertained 21 experience and the character of those kinds of business, for the 22 purpose of adequately protecting the insureds and securing the 23 solvency of the insurer. 24 (2) If the loss and loss expense experience of the insurer 25 or the anticipated loss expense experience of the insurer as 26 determined by an actuarial evaluation shows the reserves, 27 calculated in accordance with the rules, to be inadequate, the 03256'97 * 15 1 commissioner shall require the insurer to maintain additional 2 reserves. Within 30 business days after notification by the com- 3 missioner that its reserves have been determined to be in noncom- 4 pliance with the requirements of subsection (1), the insurer 5 shall file a plan to restore compliance. The commissioner, upon 6 written request by the insurer, may grant a period of time within 7 which to restore compliance. The period of time may be granted 8 only if the commissioner is satisfied the insurer is safe, reli- 9 able, and entitled to public confidence and the commissioner 10 approves the plan filed by the insurer for restoring compliance 11 within the time granted. If the plan is not approved by the com- 12 missioner, or if the plan is approved but at the end of 1 year 13 the insurer is not in compliance with the requirements of this 14 section, the commissioner may grant additional time to comply, or 15 the commissioner may suspend, revoke, CONDITION, or limit the 16 certificate of authority of the insurer pursuant to section 436. 17 (3) The commissioner shall annually examine the reserve 18 practices and investment incomes of medical malpractice, products 19 liability, and municipal liability insurers licensed to do busi- 20 ness in this state. 21 Sec. 901. (1) Each insurer authorized to transact the busi- 22 ness of insurance in this state, and each person approved for 23 placement of business by a surplus lines agent pursuant to 24 chapter 19, may loan or invest its funds in any investment, and 25 may buy, sell, hold title to, possess, occupy, pledge, convey, 26 manage, protect, insure, and deal with respect to its 27 investments, property, and money to the same extent as any other 03256'97 * 16 1 person or corporation under the laws of this state or of the 2 United States if the insurer has assets in cash or as defined in 3 this chapter in a total amount at least equal to the sum of its 4 liabilities including its reserves as required by this act, plus 5 an amount equal to the lesser of the minimum capital and surplus 6 required to be maintained by sections 408 and 410 or 7 $1,000,000.00. 8 (2) For purposes of meeting the assets required by subsec- 9 tion (1), the following apply: 10 (a) The value of all computers shall not exceed 2% of the 11 assets required by subsection (1) and the value of each computer 12 shall not exceed the original cost of the computer amortized over 13 a period not to exceed 5 years. For purposes of this section, 14 "computer" means an electronic data processing system, composed 15 of 1 or more components, that utilizes storage and processing 16 mechanization and has a direct automatic means of input and 17 output, including, but not limited to, central processing units, 18 data input/output channels, main storage or memory, and periph- 19 eral devices for systems control, data input, output, or tempo- 20 rary or permanent storage of information, and associated reusable 21 media required by these devices and operating systems software. 22 (b) Title insurers may include their net investment in their 23 title plant. 24 (c) Assets described in sections 946 and 947 that are encum- 25 bered with prior liens that affect the salability of the asset to 26 a material extent shall not be used to satisfy the requirements 27 of subsection (1). For purposes of this subdivision, liens that 03256'97 * 17 1 do not affect the salability of the asset to a material extent 2 are real estate taxes or assessments that are not delinquent, 3 liens against an asset for which an insurer is insured against 4 loss by title insurance, and any other liens that in the aggre- 5 gate are not in excess of 5% of the fair market value of the 6 asset. Assets described in sections 946 and 947 shall not be 7 used to satisfy more than 20% of the requirements of subsection 8 (1). This subdivision does not apply to assets described in sec- 9 tion 942. 10 (d) Amounts receivable from broker/dealers registered under 11 the securities exchange act of 1934, chapter 404, 48 Stat. 881, 12 or from the issuer of a security or asset in connection with the 13 disposition of assets qualified to satisfy subsection (1) may be 14 included, provided the amount is not more than 5 business days 15 past the date of disposition. 16 (e) Assets not otherwise defined in this chapter may be used 17 as qualified assets for purposes of subsection (1) if the assets 18 are rated investment grade by a securities rating organization 19 approved by the commissioner. 20 (3) The sum of the liabilities and reserves computed for 21 purposes of this section may be reduced by 1 or more of the 22 following: 23 (a) A reinsurance balance recoverable or other credit due 24 from a reinsurer that complies with existing or other applicable 25 rules or orders promulgated or issued by the commissioner, to the 26 extent that the balance recoverable or other credit due may be 03256'97 * 18 1 used to offset a liability as authorized in an insurer's annual 2 statement concerning its affairs filed pursuant to section 438. 3 (b) Policy loans secured by policies included in the liabil- 4 ities and reserves but not in excess of the cash surrender value 5 of the policies. 6 (c) Premium notes secured by letters of credit, security 7 trust funds, or unearned premium reserves. 8 (d) The net amount of insurance premiums and annuity consid- 9 erations booked but deferred and not yet due. Reduction under 10 this subdivision shall not be allowed for credit life and credit 11 accident and health premiums deferred and uncollected, whether 12 individual or group, except as allowed pursuant to 13 subdivision (e). 14 (e) Amounts receivable from an agent, agency, policyholder, 15 or other person that does not have control of more than 10% of 16 all the insurer's agents' balances, and that is not affiliated 17 with the insurer on policies with an effective date not more than 18 1 month old to the extent that the amounts are offset by unearned 19 premium reserves on the same policies. 20 (f) Amounts receivable from a person to the extent the 21 amounts offset liabilities or amounts payable to that person. 22 Receivables and payables with respect to reinsurance may be 23 allowed so long as the reinsurance contract has a right of offset 24 provision. A reduction under this subdivision shall not be 25 allowed for agents' balances or uncollected premiums as defined 26 by subdivision (e). 03256'97 * 19 1 (4) Assets, liabilities, and reserves under subsection (1) 2 shall exclude assets, liabilities, and reserves included in 3 separate accounts established in accordance with section 925. 4 The value of income due and accrued in respect to assets required 5 by subsection (1) may be included in the total amount. The 6 assets shall not be valued at more than the actual value as 7 ascertained in a manner approved by the commissioner, except 8 those assets described in sections 912, 914, 918, 934, 938, and 9 942 that have a fixed term and rate, if amply secured and not in 10 default as to principal and interest which may be valued as 11 follows: if purchased at par, the par value; if purchased above 12 or below par, on the basis of the purchase price adjusted so as 13 to bring the value to par at maturity and so as to yield in the 14 meantime the effective rate of interest at which the purchase was 15 made. The purchase price shall not be taken at a higher figure 16 than the actual market value at the time of purchase. 17 (5) The commissioner may permit other assets not specifi- 18 cally described in this section to be used as qualified assets 19 for purposes of subsection (1), as long as the assets are finan- 20 cially equivalent to those assets described in sections 910 to 21 947, are approved by the commissioner as adequate as to quality 22 and liquidity to secure the liabilities they support, and are 23 valued in a manner approved by the commissioner. 24 (6) No more than 5% of the assets required by subsection (1) 25 shall be invested in, loaned to, receivable from, secured by, 26 leased or rented to, or deposited with 1 person or 1 group of 03256'97 * 20 1 affiliated persons or invested in 1 parcel of real estate. In 2 calculating this restriction, the following apply: 3 (a) For purposes of this section, each issue of 4 mortgage-backed securities secured by residential mortgage pools 5 and rated investment grade by a securities rating organization 6 approved by the commissioner, and each issue of asset-backed 7 security rated investment grade by a securities rating organiza- 8 tion approved by the commissioner, shall be considered a separate 9 person regardless of other obligations issued by the same or 10 affiliated issuer. 11 (b) This restriction does not apply to mortgage-related 12 securities issued by the federal home loan mortgage corporation 13 or the federal national mortgage association. 14 (c) This restriction does not apply to the extent that the 15 principal and interest are fully guaranteed by the United States 16 or any state. 17 (d) This restriction does not apply to assets invested in, 18 loaned to, receivable from, secured by, leased or rented to, or 19 deposited with an affiliate of the insurer that is authorized to 20 transact insurance in any state or Canada. 21 (e) For an alien insurer that is an insurer authorized to 22 transact the business of life insurance, for purposes of this 23 subsection the 5% restriction applies to the total assets of the 24 insurer, excluding assets included in separate accounts, as 25 reported in the total business annual statement filed by the 26 insurer with its domiciliary authority. 03256'97 * 21 1 (f) This restriction does not apply to the value of a 2 noninsurance affiliate that is owned solely by the insurer as 3 described in subsection (7)(c). 4 (g) This restriction does not apply to the value of a nonin- 5 surance affiliate that is not owned solely by the insurer if the 6 value of the noninsurance affiliate is determined in accordance 7 with procedures approved by the commissioner and if the invest- 8 ment in the noninsurance affiliate is approved by the commis- 9 sioner as adequate in quality and liquidity to secure the liabil- 10 ities of the insurer. 11 (7) The assets referred to in subsection (1) shall not 12 include assets invested in, loaned to, receivable from, secured 13 by, leased or rented to, or deposited with a person that is, 14 directly or indirectly, owned or controlled by the insurer or 15 that, directly or indirectly, owns, controls, or is affiliated 16 with the insurer as control is defined in section 115, except as 17 follows: 18 (a) Amounts receivable from, secured by, leased or rented 19 to, or deposited with an insurer affiliated with the insurer may 20 be included if the amount receivable is not more than 90 days 21 past due and its affiliated insurer complies with this section. 22 (b) Amounts invested in an affiliated publicly traded 23 investment company that is registered and regulated under the 24 investment company act of 1940, title I of chapter 686, 54 25 Stat. 789, 15 U.S.C. 80a-1 to80a-6480a-3 AND 80a-4 TO 80a-64, 26 may be included. 03256'97 * 22 1 (c) The value of a noninsurance affiliate that is owned 2 solely by the insurer may be included. The value of the 3 noninsurance affiliate shall be the value of all assets qualify- 4 ing under this section in excess of the assets required by this 5 section, but shall not exceed the value determined by the securi- 6 ties valuation office of the national association of insurance 7 commissioners. In support of the noninsurance affiliate's value, 8 the insurer shall submit to the commissioner an audited financial 9 statement for the noninsurance affiliate supplemented with a list 10 of qualifying assets and associated values. 11 (d) Amounts invested in a noninsurance affiliate that is not 12 owned solely by the insurer may be included if the investment in 13 the noninsurance affiliate is approved by the commissioner as 14 adequate in quality and liquidity to secure the liabilities of 15 the insurer. The value of the noninsurance affiliate shall be 16 the value determined in accordance with procedures adopted by the 17 commissioner. 18 (e) The assets required by subsection (1) may include the 19 value of amounts invested in or loaned to an affiliate authorized 20 to transact insurance in any state or in Canada in an amount 21 equal to the assets that would qualify for compliance with this 22 section that are held by the affiliate and are in excess of the 23 amount of assets that would be required for the affiliate by this 24 section, prorated to reflect the extent of the insurer's invest- 25 ment in or loans to the affiliate. 26 (f) Amounts loaned to a noninsurance affiliate that is owned 27 solely by the insurer may be included if the loans are rated 03256'97 * 23 1 investment grade by a securities rating organization approved by 2 the commissioner. The insurer shall submit documentation satis- 3 factory to the commissioner in support of the investment grade 4 rating. 5 (8) An insurer may comply with this section if the insurer 6 elects to provide alternative security to Michigan policyholders 7 and claimants satisfactory to the commissioner or elects to 8 deposit funds or securities of the kind described in section 912, 9 or other securities acceptable to the commissioner, registered in 10 the name of the state treasurer of Michigan, designated as exclu- 11 sively held and deposited for the sole benefit of Michigan poli- 12 cyholders, claimants, and creditors pursuant to section 8141a, in 13 an amount, at market value, considered adequate by the commis- 14 sioner to secure Michigan policyholders, but not less than the 15 greater of the aggregate sum of 100% of Michigan direct unpaid 16 losses and unpaid loss adjustment expense plus 100% of Michigan 17 direct unearned premiums and policy and contract reserves or the 18 direct premiums written in Michigan during the most recent 12 19 months available in filed statements. Direct unpaid losses and 20 unpaid loss adjustment expenses shall include a provision for 21 incurred but not reported losses and associated loss adjustment 22 expense. The deposit shall be a special deposit and shall be 23 subject to special deposit claims for the benefit of Michigan 24 policyholders and claimants pursuant to section 8141a. The 25 deposit of funds required by this subsection shall be increased 26 by adjustment each quarter. A decrease to the deposited fund may 27 be made annually only upon a satisfactory showing by the insurer 03256'97 * 24 1 to the commissioner that a decrease in the deposit is justified. 2 The commissioner may require the special deposits set forth in 3 this subsection as a condition for any insurer to transact insur- 4 ance in this state if the commissioner finds that a special 5 deposit is necessary for the protection of Michigan policyholders 6 and claimants. 7 (9) Compliance with subsection (1) is the obligation of each 8 insurer, fund, or fraternal benefit society authorized to trans- 9 act the business of insurance in this state. Failure to comply 10 shall limit the insurer, fund, or fraternal benefit society under 11 the remainder of this act. If, at any time following compliance 12 with the requirements of this section, an insurer, fund, or fra- 13 ternal benefit society fails to maintain compliance, the commis- 14 sioner shall notify the insurer, fund, or fraternal benefit soci- 15 ety that it has failed to maintain compliance with this section. 16 Within 30 business days after notification by the commissioner of 17 noncompliance with the provisions of this section, an insurer 18 shall file a plan to restore compliance with this section. 19 Failure of the insurer to file a plan shall create a presumption 20 that the insurer is not safe, reliable, and entitled to public 21 confidence. The commissioner, upon written request by the insur- 22 er, may grant a period of time within which to restore 23 compliance. The period of time may be granted only if the com- 24 missioner is satisfied the insurer is safe, reliable, and enti- 25 tled to public confidence; is satisfied the insurer would suffer 26 a material financial loss from an immediate forced conversion of 27 its assets; and approves the plan filed by the insurer for 03256'97 * 25 1 restoring compliance within the time granted. If the plan is not 2 approved by the commissioner, or if the plan is approved, and, at 3 the end of 1 year the insurer still does not comply with the 4 requirements of this section, the commissioner may grant addi- 5 tional time to comply, or the commissioner may suspend, revoke, 6 CONDITION, or limit the certificate of authority of the insurer 7 pursuant to section 436. 8 (10) The requirements of this section constitute a discrete 9 determination of financial solidity and liquidity and are not 10 intended to apply to other provisions of this act with respect to 11 financial condition or to the accounting practices and procedures 12 governing the preparation of financial statements pursuant to 13 section 438. 14 Sec. 2125. (1) After providing an opportunity for a hear- 15 ing underAct No. 306 of the Public Acts of 1969, as amended16 THE ADMINISTRATIVE PROCEDURES ACT OF 1969, 1969 PA 306, MCL 17 24.201 TO 24.328, the commissioner shall suspend an insurer's 18 obligations under section 2117, 2118, or both, if any of the fol- 19 lowing occurs: 20 (a) A condition exists for which the commissioner may sus- 21 pend, revoke, CONDITION, or limit the authority of the insurer 22 pursuant to section 436, and the commissioner determines that 23 suspension of all or a part of the insurer's obligations would be 24 in the best interests of the public, the insurer, and the policy- 25 holders of the insurer. 26 (b) The insurer requests suspension and the commissioner 27 finds that requiring the insurer to comply with section 2117, 03256'97 * 26 1 2118, or both would cause the insurer undue financial or 2 administrative hardship. 3 (2) If an insurer requests suspension and avers that there 4 is an immediate need to cease its compliance with section 2117, 5 2118, or both, because of undue financial or administrative hard- 6 ship under subsection (1)(b), the insurer's obligation to comply 7 with section 2117, 2118, or both shall be suspended 10 business 8 days after the insurer has filed the request and supporting docu- 9 mentation with the commissioner, unless within that time, the 10 commissioner holds a hearing and finds that undue hardship under 11 subsection (1)(b) will not be caused by continued compliance. 12 (3) The suspension provided in subsection (1) shall continue 13 until the commissioner, upon the commissioner's own motion or 14 upon request, after providing opportunity for a hearing under 15Act No. 306 of the Public Acts of 1969, as amendedTHE ADMIN- 16 ISTRATIVE PROCEDURES ACT OF 1969, 1969 PA 306, MCL 24.201 TO 17 24.328, orders its revocation. 03256'97 * Final page. 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