SB-0178, As Passed Senate, December 15, 2015

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 178

A bill to amend 1956 PA 218, entitled

"The insurance code of 1956,"

(MCL 500.100 to 500.8302) by adding chapter 17.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

CHAPTER 17

RISK MANAGEMENT AND OWN RISK AND SOLVENCY ASSESSMENT

Sec. 1701. As used in this chapter:

(a) "Insurance group" means, for the purpose of conducting an

ORSA, insurers and affiliates included within an insurance holding

company system.

(b) "Insurer" means that term as defined in section 106.

Insurer also includes a fraternal benefit society as that term is

defined in section 8164 and a nonprofit dental care corporation

operating under 1963 PA 125, MCL 550.351 to 550.373. Insurer does

not include agencies, authorities, or instrumentalities of the

United States, its possessions and territories, the Commonwealth of

Puerto Rico, the District of Columbia, or a state or political

subdivision of a state.

Commissioners.

(d) "Own risk and solvency assessment" or "ORSA" means a

confidential internal assessment, appropriate to the nature, scale,

and complexity of an insurer or insurance group, conducted by the

insurer or insurance group, of the material and relevant risks

associated with the insurer or insurance group's current business

plan, and the sufficiency of capital resources to support those

risks.

(e) "ORSA guidance manual" means the own risk and solvency

assessment guidance manual as adopted and prescribed by the

director. A change in the ORSA guidance manual is effective on the

January 1 following the calendar year in which the changes have

been adopted and prescribed by the director.

(f) "ORSA summary report" means a confidential high-level

summary of an insurer or insurance group's ORSA.

Sec. 1703. An insurer shall maintain a risk management

framework to assist the insurer with identifying, assessing,

monitoring, managing, and reporting on its material and relevant

risks. This requirement may be satisfied if the insurance group of

which the insurer is a member maintains a risk management framework

applicable to the operations of the insurer.

Sec. 1705. Subject to section 1709, an insurer, or the

insurance group of which the insurer is a member, shall regularly

conduct an ORSA consistent with a process comparable to the ORSA

guidance manual. The ORSA shall be conducted no less than annually

but also at any time when there are significant changes to the risk

profile of the insurer or the insurance group of which the insurer

is a member.

Sec. 1707. (1) An insurer shall annually submit to the

director an ORSA summary report, or any combination of reports that

together contain the information as described in the ORSA guidance

manual, applicable to the insurer, the insurance group of which it

is a member, or both. Within 90 days after the effective date of

the amendatory act that added this section, the insurer shall

submit to the director the calendar date the insurer will annually

submit the ORSA summary report required under this section. The

insurer shall file the first report required under this subsection

no later than the insurer's submitted calendar date in 2018. If the

insurer is a member of an insurance group and if the director is

the lead state regulator of the insurance group as determined under

the procedures within the National Association of Insurance

Commissioners Financial Analysis Handbook, as adopted by the

director, the insurer shall submit a report required by this

subsection.

(2) A report required under subsection (1) must include a

signature of the insurer or insurance group's chief risk officer or

other executive having responsibility for the oversight of the

insurer's enterprise risk management process attesting to the best

of his or her belief and knowledge that the insurer applies the

enterprise risk management process described in the ORSA summary

report and that a copy of the report has been provided to the

insurer's board of directors or appropriate committee of the

insurer's board of directors.

(3) An insurer may comply with subsection (1) by providing the

most recent and substantially similar report provided by the

insurer or another member of an insurance group of which the

insurer is a member to a commissioner of another state or to a

supervisor or regulator of a foreign jurisdiction, if the report

provides information that is comparable to the information

described in the ORSA guidance manual. A report in a language other

than English must be accompanied by a translation of the report

into the English language.

Sec. 1709. (1) Except as otherwise provided in subsection (5),

an insurer is exempt from the requirements of this chapter, if both

of the following apply:

(a) The insurer has annual direct written and unaffiliated

assumed premium, including international direct and assumed premium

but excluding premiums reinsured with the Federal Crop Insurance

Corporation and federal flood program, less than $500,000,000.00.

(b) The insurance group of which the insurer is a member has

annual direct written and unaffiliated assumed premium, including

international direct and assumed premium but excluding premiums

reinsured with the Federal Crop Insurance Corporation and federal

flood program, less than $1,000,000,000.00.

(2) If an insurer qualifies for exemption under subsection

(1)(a) but the insurance group of which the insurer is a member

does not qualify for exemption under subsection (1)(b), the ORSA

summary report that may be required under section 1707 must include

every insurer within the insurance group. This requirement may be

satisfied by the submission of more than 1 ORSA summary report for

any combination of insurers if the combination of reports includes

every insurer within the insurance group.

(3) If an insurer does not qualify for exemption under

subsection (1)(a) but the insurance group of which it is a member

qualifies for exemption under subsection (1)(b), the only ORSA

summary report that may be required under section 1707 is the

report applicable to the insurer.

(4) Subject to subsection (5), an insurer that does not

qualify for exemption under subsection (1) may apply to the

director for a waiver from the requirements of this chapter based

on unique circumstances. In deciding whether to grant the insurer's

request for a waiver, the director may consider the type and volume

of business written, ownership and organizational structure, and

any other factor the director considers relevant to the insurer or

insurance group of which the insurer is a member. If the insurer is

part of an insurance group with insurers domiciled in more than 1

state, the director shall coordinate with the lead state

commissioner and with the other domiciliary commissioners in

considering whether to grant the insurer's request for a waiver.

(5) Notwithstanding the exemption provided in subsection (1),

the director may require 1 or more of the following:

(a) The director may require that an insurer maintain a risk

management framework, conduct an ORSA, and file an ORSA summary

report based on unique circumstances including, but not limited to,

the type and volume of business written, ownership and

organizational structure, federal agency requests, and

international supervisor requests.

(b) The director may require that an insurer maintain a risk

management framework, conduct an ORSA, and file an ORSA summary

report if the director determines 1 or more of the following:

(i) The insurer has risk-based capital for a company action

level event.

(ii) The insurer meets 1 or more of the conditions described

in section 436.

(iii) The operation of the insurer is hazardous to

policyholders, creditors, or the public under section 436a.

(iv) The insurer exhibits qualities of a troubled insurer.

(6) If an insurer that qualifies for an exemption under

subsection (1) subsequently no longer qualifies for that exemption

because of an increase in premium as reflected in the insurer's

most recent annual statement or in the most recent annual

statements of the insurers within the insurance group of which the

insurer is a member, the insurer has 1 year following the year the

premium exceeded the limitation provided in subsection (1) to

comply with this chapter.

Sec. 1711. (1) Subject to subsection (2), an insurer shall

prepare an ORSA summary report under section 1707 consistent with

the ORSA guidance manual prescribed by the director. The insurer

shall maintain and make available to the director documentation and

supporting information relating to the ORSA summary report.

(2) The director shall review an ORSA summary report and any

additional requests for information using similar procedures used

in the analysis and examination of multistate or global insurers

and insurance groups.

Sec. 1713. (1) Documents, materials, or other information,

including the ORSA summary report, in the possession or control of

the director that are obtained by, created by, or disclosed to the

director or any other person under this chapter are considered

proprietary and to contain trade secrets. The documents, materials,

or other information are confidential and privileged, are not

subject to disclosure under the freedom of information act, 1976 PA

442, MCL 15.231 to 15.246, are not subject to subpoena, and are not

subject to discovery or admissible in evidence in a private civil

action. However, the director may use the documents, materials, or

other information in the furtherance of any regulatory or legal

action brought as a part of the director's official duties. The

director shall not otherwise make the documents, materials, or

other information public without the prior written consent of the

insurer to which it pertains.

(2) The director or any person who received documents,

materials, or other ORSA-related information, through examination

or otherwise, while acting under the authority of the director or

with whom the documents, materials, or other information are shared

under this act shall not testify in a private civil action

concerning confidential documents, materials, or information

described in subsection (1).

(3) The director may do all of the following:

(a) Except as otherwise provided in this subdivision, on

request, share documents, materials, or other ORSA-related

information, including the confidential and privileged documents,

materials, or information described in subsection (1), including

proprietary and trade secret documents and materials with other

state, federal, and international financial regulatory agencies,

including members of a supervisory college, with the NAIC and with

any third-party consultants designated by the director. The

director shall not share documents, materials, or other ORSA-

related information described in this subdivision unless the

recipient agrees in writing to maintain the confidentiality and

privileged status of the ORSA-related documents, materials, or

other information and has verified in writing the legal authority

to maintain confidentiality.

(b) Subject to this subdivision, receive documents, materials,

or other ORSA-related information, including otherwise confidential

and privileged documents, materials, or information, including

proprietary and trade-secret information or documents, from

regulatory officials of other foreign or domestic jurisdictions,

including members of a supervisory college, and from the NAIC. 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.

(4) The director shall enter into a written agreement with the

NAIC or a third-party consultant governing sharing and use of

information provided under this chapter. The written agreement must

do all of the following:

(a) Specify procedures and protocols regarding the

confidentiality and security of information shared with the NAIC or

a third-party consultant under this chapter, including procedures

and protocols for sharing by the NAIC with other state regulators

from states in which the insurance group has domiciled insurers.

(b) Contain a statement that the recipient agrees in writing

to maintain the confidentiality and privileged status of the ORSA-

related documents, materials, or other information and has verified

in writing the legal authority to maintain confidentiality.

the NAIC or a third-party consultant under this chapter and that

the NAIC's or third-party consultant's use of the information is

subject to the direction of the director.

(d) Prohibit the NAIC or third-party consultant from storing

the information shared under this chapter in a permanent database

after the underlying analysis is completed.

(e) Require prompt notice to be given to an insurer whose

confidential information in the possession of the NAIC or third-

party consultant under this chapter is subject to a request or

subpoena to the NAIC or third-party consultant for disclosure or

production.

(f) Require the NAIC or third-party consultant to consent to

intervention by an insurer in any judicial or administrative action

in which the NAIC or third-party consultant may be required to

disclose confidential information about the insurer shared with the

NAIC or third-party consultant under this chapter.

(g) For an agreement involving a third-party consultant,

provide for the insurer's written consent.

(5) The sharing of information and documents by the director

under this chapter is not a delegation of regulatory authority or

rule-making, and the director is solely responsible for the

administration, execution, and enforcement of this chapter.

(6) The disclosure or sharing of documents, proprietary and

trade-secret materials, or other ORSA-related information to the

director or other person under this chapter is not a waiver of an

applicable privilege or claim of confidentiality.

(7) Documents, materials, or other information in the

possession or control of the NAIC or third-party consultants under

this chapter 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.

(8) Documents, materials, or other information in the

possession of an insurer created by the insurer to comply with this

chapter is confidential and privileged, is not subject to subpoena

or to discovery, and is not admissible in evidence in a private

civil action.

Sec. 1715. An insurer that does not, without just cause,

timely file an ORSA summary report as required in this chapter

shall pay a civil fine of $1,000.00 for each day's delay, to be

recovered by the director and paid into the general fund. The

maximum civil fine under this section is $75,000.00. The director