Substitute House Bill No. 5465
          Substitute House Bill No. 5465

               PUBLIC ACT NO. 98-25


AN ACT CONCERNING SURETY INSURANCE.


    Be  it  enacted  by  the  Senate  and House of
Representatives in General Assembly convened:
    Subdivision  (1)  of  section  38a-92a  of the
general statutes,  as  amended  by  section  3  of
public  act  97-108, is repealed and the following
is substituted in lieu thereof:
    (1)  (A)  "Financial guaranty insurance" means
a surety bond, an insurance policy or, when issued
by  an  insurer,  an  indemnity  contract  and any
guaranty similar to  the  foregoing  types,  under
which  loss is payable upon proof of occurrence of
financial loss to an insured claimant, obligee  or
indemnitee  as  a  result  of any of the following
events:  Failure  of  any  obligor  on  any   debt
instrument or other monetary obligation, including
common  or  preferred  stock  guaranteed  under  a
surety   bond,   insurance   policy  or  indemnity
contract, to pay  when  due  principal,  interest,
premium,  dividend,  purchase  price  of or on the
instrument or obligation or other monetary payment
when  due  when  the  failure  is  the result of a
financial default  or  insolvency,  regardless  of
whether  the obligation is incurred directly or as
guarantor by or on behalf of another obligor  that
has  also  defaulted, or any other failure to make
payment, provided the payment obligation  or  risk
which  is  insured is investment grade; changes in
the levels of interest  rates,  whether  short  or
long-term  or  the  differential in interest rates
between various markets or  products;  changes  in
the  rate  of exchange of currency; changes in the
value of financial or commodity indices  or  price
levels  in  general; or other events as determined
by the commissioner.
    (B)  "Financial  guaranty insurance" shall not
include:
    (i)  Insurance  of any loss resulting from any
event  described  in  subparagraph  (A)  of   this
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;
BECOMING SURETY ON OR GUARANTEEING THE PERFORMANCE
OF A BOND WHICH SHALL NOT EXCEED A PERIOD  GREATER
THAN  FIVE YEARS, THAT GUARANTEES THE PAYMENT OF A
PREMIUM, DEDUCTIBLE, OR SELF-INSURED RETENTION  TO
AN  INSURER  ISSUING  A  WORKERS'  COMPENSATION OR
LIABILITY POLICY; 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 subparagraph (A)
of this [subsection] SUBDIVISION.
    (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;
    (xi)  Accumulation  fund  arrangements  of any
life insurance contract or annuity  contract  made
pursuant  to  section  1  of [this act] PUBLIC ACT
97-108, or any funding agreements made pursuant to
section 38a-459, AS AMENDED; or
    (xii)  Any  other  form  of insurance covering
risks  that  the  commissioner  determines  to  be
substantially similar to any of the foregoing.

Approved April 29, 1998