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HB-5624, As Passed Senate, March 1, 2006

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 5624

A bill to amend 1956 PA 218, entitled

"The insurance code of 1956,"

by amending section 1305 (MCL 500.1305), as amended by 1992 PA 182.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1305. (1) A domestic insurer, either by itself or in

cooperation with 1 or more persons, may organize or acquire 1 or

more subsidiaries if consistent with other provisions of this act.

These subsidiaries may conduct any kind of business and their

authority to do so shall not be limited by reason of the fact that

they are subsidiaries of a domestic insurer. This provision shall

not be construed to provide authority for conduct or activities by

these subsidiaries that would otherwise be inconsistent with other

provisions of this act.

House Bill No. 5624 as amended February 28, 2006

(2) Except as otherwise provided in subsection (3), if a

domestic insurer acquires through a business acquisition or a

reinsurance transaction a book of business that includes life

insurance or other business written by a life insurance company,

and the book of business has a readily determinable market value

represented by the present value of the future after-tax profits

that will be earned on the book of business in force at the date of

the acquisition, the value of the book of business acquired, above

any amount previously recognized as an admitted asset under this

section or that may be permitted under accounting practices and

procedures designated by the commissioner under section 438, may be

recognized with the prior approval of the commissioner as an

admitted asset in the annual statement filed pursuant to section

438. The commissioner shall make a determination regarding the

admissibility of this asset within 60 days after receiving a filing

with supporting documentation, in a form satisfactory to the

commissioner, from the domestic insurer requesting such approval.

(3) Notwithstanding subsection (2), a domestic insurer may

recognize as an admitted asset in the annual statement filed

pursuant to section 438 the value of a book of business described

in subsection (2) without the prior approval of the commissioner,

if the domestic insurer files a written notice with the

commissioner of its intent to record the value of the book of

business acquired as an admitted asset and <<provides a certification by

an officer of the domestic insurer that, as of the date of the notice,>> the domestic insurer

meets all of the following criteria:

(a) The insurer's most recent a.m. best financial rating is at

least an "A".

House Bill No. 5624 as amended February 28, 2006

(b) The insurer has at least 1 additional rating of at least

an "A" or its equivalent, as assigned by a rating organization

included on the national association of insurance commissioners'

list of nationally recognized statistical organizations <<and approved by

the commissioner>>.

insurer will possess a minimum capital and surplus of at least

<<$1,000,000,000.00>>, excluding from the insurer's capital and surplus

the pro forma effect of the total value of the book of business to

be recognized as an admitted asset by the domestic insurer.

(d) The insurer's total adjusted risk based capital exceeds 5

times the company's authorized control level risk based capital.

(e) The insurer's certificate of authority has not been

suspended, revoked, or limited under section 436 at any time during

the 5-year period immediately preceding the acquisition or

reinsurance transaction.

(f) The insurer is not subject to an analyst team system level

A or B designation by the national association of insurance

commissioners for the year immediately preceding the acquisition or

reinsurance transaction.

(g) Following the acquisition or reinsurance transaction, the

insurer will meet the asset requirement under section 901.

(4) The value of the book of business acquired as described in

subsection (2) that a domestic insurer may recognize as an admitted

asset shall not exceed <<the lesser of 50% of capital and surplus or>>

the following:

(a) Twenty percent of that adjusted capital and surplus that

is less than or equal to 500% of authorized control level risk

based capital, plus

(b) Eighty-five percent of that adjusted capital and surplus

that is greater than 500%, but less than or equal to 600%, of

authorized control level risk based capital, plus

that is greater than 600%, but less than or equal to 700%, of

authorized control level risk based capital, plus

(d) One hundred percent of that adjusted capital and surplus

that is greater than 700% of authorized control level risk based

capital.

(5) The value of the book of business acquired as described in

subsection (2) shall be amortized pursuant to accounting practices

and procedures designated by the commissioner under section 438.

The value of the book of business acquired in excess of the amount

allowable under this section shall not be an admitted asset in the

annual statement filed pursuant to section 438.

(6) A domestic insurer that recognizes as an admitted asset in

the annual statement filed pursuant to section 438 any value of

business acquired shall annually test the value of the asset for

impairment as part of the asset adequacy testing and shall

reference this testing in the opinion filed under section 830a.

(7) As used in subsection (4), "adjusted capital and surplus"

means capital and surplus as of December 31 of the immediately

preceding year, adjusted to exclude any net positive goodwill

exclusive of any component of the goodwill relating to the existing

value of the book of business acquired, electronic data processing

equipment, operating system software, and net deferred tax assets.

(8) Nothing in this section shall be construed to limit the