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A. If the rules exceed standards in those states, please explain why and specify the costs and benefits
arising out of the deviation.
The rules do not exceed standards in the similarly situated states that have adopted the Model Regulation. To
the extent that the proposed rules deviate from the other states’ adopted standards, the proposed rules adopt
the Model Regulation without substantive departure, because the Model Regulation has become an NAIC
Accreditation requirement.
3. Identify any laws, rules, and other legal requirements that may duplicate, overlap, or conflict with the
proposed rules.
The proposed rules are not duplicative of or in conflict with other laws, rules, or legal requirements. To the degree that
the proposed rules are considered to “overlap” with other laws, rules, or legal requirements, the rules apply to the
financial evaluation reinsurance treaties that cede liabilities pertaining to “covered policies,” as defined in the rules,
issued by a life insurance company domiciled in Michigan. Reinsurance transactions are governed under Chapter 11
of the Insurance Code of 1956 (Code), MCL 500.1101 to 500.1127, see also MCL 500.632; these rules establish
standards for the applicable reinsurance treaties in accordance with the authority provided in MCL 500.1106. Rules
500.1121 to 500.1134, Credit for Reinsurance, and establish standards governing reinsurance transactions in order to
implement Chapter 11 of the Code. The Credit for Reinsurance rules would generally apply to reinsurance treaties
subject to the proposed rules.
A. Explain how the rules have been coordinated, to the extent practicable, with other federal, state, and
local laws applicable to the same activity or subject matter. This section should include a discussion of
the efforts undertaken by the agency to avoid or minimize duplication.
There is no federal or local law applicable to the same activity or subject matter that the proposed rules apply
to. Chapter 11 of the Code is the state law governing reinsurance transactions, a subset of which are regulated
under the proposed rules. The rules “coordinate” with Chapter 11 by establishing standards for reinsurance
treaties, subject to the rules in accordance with the authority provided in MCL 500.1106. The proposed rules
“coordinate” with the Credit for Reinsurance rules, R 500.1121 to R 500.1134, by stating that the reinsurance
treaties subject to the proposed rules are also subject to the Credit for Reinsurance rules, and in the event of a
direct conflict, the relevant provision of the proposed rules applies. No effort was otherwise made to avoid or
minimize duplication because the proposed rules are not duplicative of other federal, state, or local laws.
PURPOSE AND OBJECTIVES OF THE RULE(S)
4. Identify the behavior and frequency of behavior that the proposed rules are designed to alter.
The Model Regulation was developed from a concern that insurers, primarily life insurers, were using captives and
special purpose vehicles (SPV) to avoid perceived redundancies in existing actuarial reserve requirements under
certain NAIC model standards. This was reportedly accomplished by insurers forming and ceding risk to
captives/SPVs through a reinsurance transaction in order to enhance the securitization of the ceding insurer’s risk. To
discourage the practice as a mechanism to avoid statutory accounting requirements, it was proposed to review the
existing reserve requirements applicable to the types of insurance that gave rise to the practice, to ensure that the
accounting requirements were consistent with the risks involved. The regulatory response was the NAIC’s adoption of
the Model Regulation, in addition to an amendment of AG 48, which is included within the AP&P Manual. Insurers,
including those subject to the proposed rules, are required to submit to the Department, annual and quarterly financial
statements in compliance with the AP&P Manual, as prescribed by the Director of the Department. The proposed
rules would apply to those filings with respect to transactions that are governed by the proposed rules.
A. Estimate the change in the frequency of the targeted behavior expected from the proposed rules.
The proposed rules would establish standards for security requirements for certain life insurers with reserve
financing arrangements, which are generally monitored through insurers’ financial statements filed with the
Department on a quarterly and annual basis. The proposed rules would require ceding insurers of covered
policies to meet certain security requirements on an ongoing basis as a condition of having a credit for the
reinsurance and to use best efforts to eliminate any deficiencies at any time it becomes aware of the deficiency,
as determined under the proposed rules.
B. Describe the difference between current behavior/practice and desired behavior/practice.
Currently, insurers subject to the proposed rules prepare financial statements submitted to the Department in
accordance with the AP&P Manual and AG 48, as prescribed by the Director of the Department. The desired
practice is for those insurers to apply the standards in the proposed rules to those filings and remediate
deficiencies in security, as determined and required under the proposed rules.
MCL 24.245(3)