February 13, 2008, Introduced by Rep. Virgil Smith and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending sections 1001, 1007, 1010, 1015, and 1125 (MCL
500.1001, 500.1007, 500.1010, 500.1015, and 500.1125), sections
1001, 1007, 1010, and 1015 as added by 1992 PA 182 and section 1125
as amended by 2000 PA 283.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1001. As used in this chapter:
(a) "Audited financial report" means the report required in
section 1005 and furnished pursuant to section 1007.
(b) "Indemnification" means an agreement of indemnity or a
release from liability where the intent or effect is to shift or
limit in any manner the potential liability of the person or firm
for failure to adhere to applicable auditing or professional
standards, whether or not resulting in part from knowing of other
misrepresentations made by the insurer or its representatives.
(c) (b)
"Independent public accountant" means an independent
certified public accountant or accounting firm in good standing
with the American institute of certified public accountants and in
good standing in all states in which they are licensed to practice.
For Canadian and British companies, "independent public accountant"
means a Canadian-chartered or British-chartered accountant.
Sec. 1007. (1) The annual audited financial report shall
report the insurer's financial condition as of the end of the most
recent calendar year and the results of its operations, cash flows,
and changes in capital and surplus for the year then ended in
conformity with accounting practices prescribed, or otherwise
permitted, by the commissioner and shall include all of the
following:
(a) The report of an independent public accountant.
(b) A balance sheet reporting admitted assets, liabilities,
capital, and surplus.
(c) A statement of gain or loss from operations.
(d) A statement of cash flows.
(e) A statement of changes in capital and surplus.
(f) Notes to financial statements. These notes shall be those
required by the commissioner's annual statement instructions and
any
other notes required by generally accepted accounting
principles
and shall include both of the following:
(i) A accounting
practices prescribed. The notes shall include
a reconciliation of differences, if any, between the audited
financial statements and the annual statement filed pursuant to
section 438 with a written description of the nature of these
differences.
(ii) A summary of ownership and relationships of the
insurer
and
all affiliated companies, including a disclosure of all
significant
intercompany transactions and balances.
(2) The financial statements included in the audited financial
report shall be prepared in a form and using language and groupings
substantially the same as the relevant sections of the insurer's
annual statement filed with the commissioner, may be rounded to the
nearest thousand dollars, may combine insignificant amounts, and,
except for the first year the insurer is required to file an
audited financial report, shall be comparative, presenting the
amounts as of December 31 of the current year and the amounts as of
the immediately preceding December 31.
(3) The independent public accountant shall conduct the
examination in accordance with generally accepted auditing
standards. Consideration shall be given, as the independent public
accountant considers necessary, to the procedures illustrated in
the "Financial Conditions Examiners Handbook" prepared by the
national association of insurance commissioners.
Sec. 1010. (1) The commissioner shall not recognize a person
or firm as an independent public accountant unless that person or
firm
is meets both of the
following:
(a) Is in good standing with the American institute of
certified public accountants and in good standing in all states in
which the independent public accountant is licensed to practice,
or, for a Canadian or British company, unless that person or firm
is a chartered accountant.
(b) Has not either directly or indirectly entered into an
indemnification agreement, whether an agreement of indemnity or
release from liability, with respect to the insurer's audit.
(2) Except as otherwise provided, a certified public
accountant shall be recognized as independent as long as he or she
conforms to the standards of his or her profession, as contained in
the code of professional ethics of the American institute of
certified public accountants, its rules and regulations, and this
state's board of accountancy's code of ethics and rules of
professional conduct.
(3) An independent certified public accountant may enter into
an agreement with an insurer to have disputes relating to an audit
resolved by mediation or arbitration. However, if a delinquency
proceeding is commenced against the insurer under chapter 81, the
mediation or arbitration provision shall operate at the option of
the statutory successor.
(4) (3)
An individual independent public accountant or a
partner or other person responsible for rendering a report by an
independent public accounting firm retained to conduct an annual
audit under this chapter shall not act in that capacity for the
same insurer for more than 7 consecutive years. Following such a 7-
year period of service, the individual independent public
accountant or partner or other responsible person for the
accounting firm shall not conduct an annual audit under this
chapter for the same insurer or its insurance subsidiaries or
affiliates for a period of 2 years. An insurer may apply for relief
from the commissioner from this rotation requirement on the basis
of unusual circumstances. The commissioner may consider the
following factors in determining if relief should be granted:
(a) Number of partners, expertise of the partners, or the
number of insurance clients in the independent public accounting
firm.
(b) The insurer's premium volume.
(c) Number of jurisdictions in which the insurer transacts
business.
(5) (4)
The commissioner shall not
recognize as a qualified
independent public accountant, or accept an annual audited
financial report, prepared in whole or in part by an individual who
has done any of the following:
(a) Been convicted of fraud, bribery, a violation of chapter
96
of title 18 of the United States Code, 18 U.S.C. USC 1961
to
1968, or any dishonest conduct or practices under federal or state
law.
(b) Been found to have violated the insurance laws of this
state with respect to any previous reports submitted under this
chapter.
(c) Has failed to detect or disclose material information in 1
or more previous reports filed under this chapter.
(6) (5)
The commissioner may hold a public
hearing pursuant to
the
administrative procedures act of 1969,
Act No. 306 of the
Public
Acts of 1969, being sections 24.201 to 24.328 of the
Michigan Compiled Laws 1969 PA 306, MCL 24.201 to 24.328, to
determine whether a certified public accountant is qualified. After
considering the evidence presented, the commissioner may rule that
the accountant is not qualified for purposes of expressing his or
her opinion on the financial statements in the annual audited
financial report made pursuant to this chapter and may require the
insurer to replace the accountant with another whose relationship
with the insurer is qualified within the meaning of this chapter.
Sec. 1015. (1) An insurer required to furnish the annual
audited financial report shall require the independent public
accountant to report in writing within 5 business days to the board
of directors or its audit committee any determination by that
independent public accountant that the insurer has materially
misstated its financial condition as reported to the commissioner
as of the balance sheet date currently under examination or that
the insurer does not meet the requirements of section 408 or 410 as
of that date. The insurer shall furnish a copy of this report to
the commissioner within 5 business days of receipt of the report
and shall provide the independent public accountant making the
report with evidence of the report being furnished to the
commissioner. If the independent public accountant fails to receive
the evidence within the required 5-business day period, the
independent public accountant shall furnish a copy of its report to
the commissioner within the next 5 business days.
(2) An independent public accountant is not liable to any
person for a statement or report made in connection with this
section if the statement or report is made in good faith in
compliance with subsection (1).
(3) If after the date of the audited financial report filed
pursuant to this chapter the accountant becomes aware of facts that
might have affected his or her report, the accountant shall take
action as prescribed by the professional standards of the American
institute of certified public accountants.
Sec. 1125. (1) Neither a reinsurance agreement nor any
amendment to that agreement shall be used to reduce any liability
or to establish any asset in any financial statement filed with the
commissioner unless the agreement, amendment, or a binding letter
of intent has been duly executed by the appropriate party no later
than the filing date of the financial statement.
(2) For
a A letter of intent, a reinsurance agreement, or an
amendment to a reinsurance agreement shall be executed within a
reasonable period of time in order for credit to be granted for the
reinsurance ceded. As used in this subsection, "reasonable period
of time" means that period of time as provided by the national
association of insurance commissioners accounting practices and
procedures manual and as approved by the commissioner.
(3) Except for facultative certificates duly executed by a
property and casualty reinsurer or its duly appointed agent, a
reinsurance
agreement shall contain in substance a provision that
both of the following:
(a) That the agreement constitutes the entire agreement
between the parties with respect to the business being reinsured
thereunder and that there are no understandings between the parties
other than as expressed in the agreement.
(b) That any change or modification to the agreement is null
and void unless made by amendment to the agreement and signed by
both parties.
(4) A ceding insurer shall not be allowed credit for
reinsurance ceded as either an asset or a reduction from liability
on account of reinsurance ceded, unless the reinsurance contract
provides, in substance, that if the ceding insurer becomes
insolvent, the reinsurance shall be payable pursuant to the terms
of the reinsurance contract by the assuming insurer on the basis of
reported claims allowed by the liquidation court, except as
provided in subsection (6), without diminution because of the
insolvency of the ceding insurer. The payments shall be made
directly to the ceding insurer or its domiciliary liquidator unless
the reinsurance contract requires or an endorsement signed by the
reinsurer to the policies reinsured requires the reinsurer to make
payment to the payees under the policies reinsured if the ceding
insurer becomes insolvent.
(5) The reinsurance agreement may provide that the domiciliary
liquidator of an insolvent ceding insurer shall give written notice
to the assuming insurer of the pendency of a claim against the
ceding insurer on the contract reinsured within a reasonable time
after the claim is filed in the liquidation proceeding.
(6) If a life and health insurance guaranty association or its
designated successor life or health insurer has assumed policy
obligations as direct obligations of the insolvent ceding insurer
and has succeeded to the rights of the insolvent insurer under the
contract of reinsurance, then the reinsurer's liability shall
continue under the contract of reinsurance and shall be payable
pursuant to the direction of the guaranty association or its
designated successor. As a condition to succeeding to the insolvent
insurer's rights under the contract, the guaranty association or
successor life or health insurer shall be responsible for premiums
payable under the reinsurance contract for periods after the date
of liquidation.