ELIMINATE VALUATION MANUAL EXEMPTION

House Bill 5241 as reported from committee

Sponsor:  Rep. Daire Rendon

Committee:  Insurance

Complete to 12-4-19

SUMMARY:

House Bill 5241 would amend Chapter 8 (Assets and Liabilities) of the Insurance Code to remove a provision that currently exempts certain insurers from the requirement to establish reserves using a principle-based valuation that meets certain conditions for policies or contracts as specified in the manual of valuation instructions (Valuation Manual) adopted by the National Association of Insurance Commissioners (NAIC).

In 2009, the NAIC adopted revisions to its standard valuation model law, authorizing the use of the Valuation Manual, which contains the minimum reserve standards for various life and health insurance and annuity contracts.[1] The Valuation Manual was to become operative when 42 states representing at least 75% of direct written premiums adopted the 2009 revisions. Michigan adopted the revisions in 2014.[2] The Valuation Manual became operative on January 1, 2017.[3] The adoption of the 2009 revisions is an NAIC accreditation requirement effective January 1, 2020.[4]

Under current law, a Michigan-based company is exempt from the principle-based valuation and Valuation Manual requirements if it meets both of the following:

·         The company has less than $500.0 million of ordinary life premiums and, if the company is a member of a group of life insurers, the group has combined ordinary life premiums of less than $1.0 billion.

·         The 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.

However, a company exempt as above may elect in writing to be bound for a calendar year by the requirements.

The bill would eliminate this exemption and election.

MCL 500.836b

FISCAL IMPACT:

House Bill 5241 would not have an appreciable fiscal impact on any unit of state or local government.

POSITIONS:

Representatives of the Department of Insurance and Financial Services testified in support of the bill. (12-3-19)

The following entities indicated support for the bill:

·         Life Insurance Association of Michigan (12-3-19)

·         John Hancock (12-4-19)

·         American Council of Life Insurers (12-4-19)

·         Insurance Alliance of Michigan (12-4-19)

                                                                                        Legislative Analyst:   Rick Yuille

                                                                                                Fiscal Analyst:   Marcus Coffin

■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.

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