House Bill No. 6888
               House Bill No. 6888

              PUBLIC ACT NO. 97-108


AN ACT CLARIFYING THE APPLICATION OF THE INSURANCE
LAWS TO CERTAIN LIFE INSURANCE COMPANY PRODUCTS.


    Be  it  enacted  by  the  Senate  and House of
Representatives in General Assembly convened:
    Section  1.  (NEW)   (a)   Any  domestic  life
insurance company may  provide  accumulation  fund
arrangements in connection  with the making of any
life  insurance  contract   or  annuity  contract,
including any contract  that  makes life insurance
or annuities available  on  an optional basis, and
such company may  insure  the  balance accumulated
under  such  accumulation   fund  arrangements  by
promising a rate of return on such arrangements in
fixed or variable amounts or in any combination of
fixed  and  variable  amounts.  As  used  in  this
section and in  section  38a-92a  of  the  general
statutes, as amended  by  section  3  of this act,
"accumulation   fund   arrangement"    means    an
arrangement under which  amounts  are  allowed  to
accumulate at the rate or rates credited by a life
insurance  company  and  under  which  accumulated
amounts  may be  applied  in  the  future  to  the
purchase of life  insurance coverage or annuitized
benefits or may be distributed through one or more
cash payments.
    (b)     Under     such    accumulation    fund
arrangements, the  company's  obligations  may  be
established  by reference to (1) amounts deposited
with the company  and  allocated  to  its  general
account  or  one  or more of its separate accounts
pursuant  to  section  38a-433  of   the   general
statutes,  or  (2)  an asset portfolio that is not
owned or possessed by the insurance company.
    Sec.  2.  Subsection (a) of section 38a-459 of
the general statutes is repealed and the following
is substituted in lieu thereof:
    (a)     Notwithstanding    any    inconsistent
provision  in  its  charter,  any  domestic   life
insurance   company   may   enter   into   written
agreements (1) to fund benefits under any employee
benefit plan as defined in the Employee Retirement
Income Security Act of 1974, as amended from  time
to  time,  or  any  similar  plan  maintained in a
foreign country, (2) to fund the activities of any
organization  exempt  from  taxation under Section
501(c) of the Internal Revenue Code  of  1986,  or
any subsequent corresponding internal revenue code
of  the  United  States,  as  from  time  to  time
amended,  or  of  any  similar organization in any
foreign country, (3) to fund any  program  of  the
government of the United States, the government of
any   state,   foreign   country   or    political
subdivision    thereof,    or    any   agency   or
instrumentality thereof, (4) to fund any agreement
providing for periodic payments in satisfaction of
a  claim,  or  (5)  to  fund  any  program  of  an
institution   which   has   assets  in  excess  of
twenty-five million dollars.  [Any  amounts  which
are  paid to or held by such company in accordance
with the terms of such agreements  may  be]  UNDER
SUCH  AGREEMENTS, THE COMPANY'S OBLIGATIONS MAY BE
ESTABLISHED BY REFERENCE TO (A) AMOUNTS  DEPOSITED
WITH  THE  COMPANY AND allocated to such company's
general account or [may be allocated]  to  one  or
more   separate   accounts   in   accordance  with
subsection (b) or (c) of this section or  pursuant
to section 38a-433, OR (B) AN ASSET PORTFOLIO THAT
IS NOT OWNED OR POSSESSED  BY  SUCH  COMPANY.  The
issuance  or  delivery  of  a funding agreement in
this state shall  constitute  doing  an  insurance
business [herein] IN THIS STATE.
    Sec.  3.  Subparagraph  (B) of subdivision (1)
of section 38a-92a  of  the  general  statutes  is
repealed  and the following is substituted in lieu
thereof:
    (B)  "Financial  guaranty insurance" shall not
include:
    (i)  Insurance  of any loss resulting from any
event described in [subdivision] SUBPARAGRAPH  (A)
of  this  [subsection]  SUBDIVISION if the loss is
payable only upon the occurrence  of  any  of  the
following,   as   specified   in  a  surety  bond,
insurance  policy   or   indemnity   contract:   A
fortuitous   physical   event;  a  failure  of  or
deficiency in the operation of  equipment;  or  an
inability   to   extract   or  recover  a  natural
resource;
    (ii)  Surety  insurance, defined as insurance:
Guaranteeing  the  fidelity  of  persons   holding
positions    of    public   or   private   trusts;
indemnifying financial institutions  against  loss
of  moneys, securities, negotiable instruments and
other tangible items of personal  property  caused
by  larceny,  misplacement,  destruction  or other
stated perils; insuring  against  loss  caused  by
forgery   of  signatures  on,  or  alterations  of
specified  documents,  instruments   and   papers;
guaranteeing  the  performance  of  contracts  for
services, including a bid, payment or  performance
bond  where the bond is guaranteeing the execution
of  any  contract  other  than   a   contract   of
indebtedness  or  other  monetary  obligation; and
guaranteeing or otherwise becoming surety for  the
performance    of   any   lawful   contract,   not
specifically provided  for  in  this  subdivision,
except  any  insurance  contract which constitutes
either mortgage guaranty  insurance  or  financial
guaranty  insurance,  as  defined in [subdivision]
SUBPARAGRAPH (A) of this subsection;
    (iii)  Credit  unemployment insurance, defined
as insurance on a  debtor  in  connection  with  a
specific  loan  or  other  credit  transaction, to
provide payments to a creditor  in  the  event  of
unemployment  of the debtor for the instalments or
other  periodic  payments  becoming  due  while  a
debtor is unemployed;
    (iv)    Credit    insurance   indemnifying   a
manufacturer, merchant or educational  institution
which   extends  credit  against  loss  or  damage
resulting from nonpayment of debts  owed  to  such
entity  for  goods  or  services  provided  in the
normal course of business;
    (v)  Guaranteed investment contracts issued by
a life insurance company which provides  that  the
life  insurer  will  make  specified  payments  in
exchange for specific premiums or contributions;
    (vi)  Mortgage  guaranty insurance, defined as
insurance against financial loss by reason of  the
nonpayment  of  principal, interest and other sums
agreed to be paid under the terms of any  note  or
bond  or other evidence of indebtedness secured by
a mortgage, deed  of  trust  or  other  instrument
constituting a first lien or charge on residential
real estate consisting of less than five units;
    (vii)    Indemnity    contracts   or   similar
guaranties,  to  the  extent  that  they  are  not
otherwise limited or proscribed by sections 38a-92
to 38a-92n, inclusive, in  which  a  life  insurer
does   any   of   the  following:  Guarantees  its
obligations or indebtedness or the obligations  or
indebtedness   of  a  subsidiary,  as  defined  in
section 38a-1, other  than  a  financial  guaranty
insurance  corporation,  provided:  To  the extent
that any  such  obligations  or  indebtedness  are
backed  by  specific assets, those assets shall be
at all times owned by  the  life  insurer  or  the
subsidiary, and in the case of the guaranty of the
obligations or indebtedness of the subsidiary that
are  not  backed  by  specific  assets of the life
insurer,  the   guaranty   terminates   once   the
subsidiary  ceases  to be a subsidiary; guarantees
obligations   or   indebtedness,   including   the
obligation to substitute assets where appropriate,
with respect to specific assets acquired by a life
insurer   in   the  course  of  normal  investment
activities and not for the purpose of resale  with
credit  enhancement  or  guarantees obligations or
indebtedness acquired by  a  subsidiary,  provided
the  assets acquired pursuant to this subparagraph
have been either acquired  by  a  special  purpose
entity,  whose sole purpose is to acquire specific
assets of the life insurer or the  subsidiary  and
issue  securities  or  participation  certificates
backed by the assets, or sold  to  an  independent
third   party,   or   guarantees   obligations  or
indebtedness of an employee or agent of  the  life
insurer;
    (viii)   Any   cramdown   bond   or   mortgage
repurchase bond, as  those  phrases  are  used  by
nationally  recognized  rating agencies in respect
to mortgage-backed securities;
    (ix)  Residual  value  insurance,  defined  as
insurance issued in connection  with  a  lease  or
contract  which  sets forth a specific termination
value at the end of  the  term  of  the  lease  or
contract  for the property covered by the lease or
contract  and  which  insures  against   loss   of
economic  value,  other  than loss due to physical
damage,  of  tangible  personal   property,   real
property and improvements thereto;
    (x)   Any   letter   of   credit   or  similar
transaction effected by a bank, trust  company  or
savings association; [or]
    (xi)  ACCUMULATION  FUND  ARRANGEMENTS  OF ANY
LIFE INSURANCE CONTRACT OR ANNUITY  CONTRACT  MADE
PURSUANT  TO SECTION 1 OF THIS ACT, OR ANY FUNDING
AGREEMENTS MADE PURSUANT TO  SECTION  38a-459,  AS
AMENDED BY SECTION 2 OF THIS ACT; OR
    [(xi)]  (xii)  Any  other  form  of  insurance
covering risks that the commissioner determines to
be substantially similar to any of the foregoing.
    Sec.  4.  Subsection (b) of section 38a-860 of
the general statutes is repealed and the following
is substituted in lieu thereof:
    (b)   (1)   Sections   38a-858   to   38a-875,
inclusive, shall provide coverage to  the  persons
specified  in  subsection (a) for direct, nongroup
life, health, annuity and supplemental policies or
contracts,  for  certificates  under  direct group
policies  and  contracts,  and   for   unallocated
annuity   contracts  issued  by  member  insurers,
except  as  limited  by  said  sections.   Annuity
contracts  and  certificates  under  group annuity
contracts  include  but   are   not   limited   to
guaranteed     investment    contracts,    deposit
administration  contracts,   unallocated   funding
agreements,   structured   settlement  agreements,
lottery contracts and any  immediate  or  deferred
annuity  contracts.  (2)  Said  sections shall not
provide coverage for: (A) Any portion of a  policy
or  contract  not  guaranteed  by  the insurer, or
under which the risk is borne  by  the  policy  or
contract  holder;  (B)  any  policy or contract of
reinsurance, unless assumption  certificates  have
been  issued;  (C)  any  portion  of  a  policy or
contract to the extent that the rate  of  interest
on  which it is based (i) averaged over the period
of four years prior  to  the  date  on  which  the
association becomes obligated with respect to such
policy or contract, exceeds  a  rate  of  interest
determined  by  subtracting  two percentage points
from Moody's corporate bond yield average averaged
for  that same four-year period or for such lesser
period if the policy or contract was  issued  less
than  four  years  before  the  association became
obligated; and (ii) on and after the date on which
the  association becomes obligated with respect to
such policy  or  contract,  exceeds  the  rate  of
interest    determined    by   subtracting   three
percentage  points  from  Moody's  corporate  bond
yield  average as most recently available; (D) any
plan or program of  an  employer,  association  or
similar  entity to provide life, health or annuity
benefits to its employees or members to the extent
that  such  plan  or  program  is  self-funded  or
uninsured, including but not limited  to  benefits
payable  by  an  employer,  association or similar
entity  under  (i)  a  multiple  employer  welfare
arrangement  as  defined  in  Section  514  of the
Employee Retirement Income Security Act  of  1974,
as amended; (ii) a minimum premium group insurance
plan; (iii) a stop-loss group insurance  plan;  or
(iv) an administrative services only contract; (E)
any portion of a policy or contract to the  extent
that  it  provides  dividends or experience rating
credits, or provides that any fees  or  allowances
be  paid  to  any  person, including the policy or
contract holder, in connection with the service to
or  administration of such policy or contract; (F)
any policy or contract issued in this state  by  a
member  insurer at a time when it was not licensed
or did not have  a  certificate  of  authority  to
issue  such  policy or contract in this state; (G)
any unallocated  annuity  contract  issued  to  an
employee  benefit plan protected under the federal
Pension  Benefit  Guaranty  Corporation;  (H)  any
portion  of any unallocated annuity contract which
is not issued to or in connection with a  specific
employee,  union or association of natural persons
benefit plan or a government  lottery;  [and]  (I)
any  subscriber  contract  issued by a health care
center;  AND  (J)  A  CONTRACTUAL  AGREEMENT  THAT
ESTABLISHES  THE INSURER'S OBLIGATION BY REFERENCE
TO A PORTFOLIO OF ASSETS  THAT  IS  NOT  OWNED  OR
POSSESSED BY THE INSURANCE COMPANY.

Approved June 6, 1997