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Substitute Senate Bill No. 809

Public Act No. 17-59

AN ACT ENABLING THE INSURANCE COMMISSIONER TO ADOPT REGULATIONS CONCERNING CREDITS FOR REINSURANCE AND MAKING MINOR CONFORMING CHANGES TO STATUTES CONCERNING REINSURANCE.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Subsection (a) of section 38a-85 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2017):

(a) Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of:

(1) Subsection (b) of this section;

(2) Subsection (c) of this section;

(3) Subsections (d) and (h) of this section;

(4) Subsections (e), (h) and (i) of this section;

(5) Subsections (f) and (i) of this section; [or]

(6) Subsection (g) of this section; [.] or

(7) Any regulation adopted pursuant to subsection (b) of section 38a-88, as amended by this act.

Sec. 2. Section 38a-86 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2017):

(a) A credit for an asset or a reduction in liability shall be allowed for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of section 38a-85, as amended by this act, in an amount not exceeding the liabilities carried by the ceding insurer. Such credit or reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder, if such security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer; or, in the case of a trust, held in a qualified United States financial institution, as defined in section 38a-87. Such security may be in the form of (1) cash, (2) securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners, including those deemed exempt from filing by the Purposes and Procedures Manual of said office, and qualifying as admitted assets, (3) clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified institution, that is effective not later than December thirty-first of the year for which filing is being made, and in the possession of or in trust for the ceding insurer on or before the filing date of its annual statement, provided letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs. As used in this subdivision, "qualified institution" means an institution that (A) is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof, (B) is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies, and (C) has been determined by the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner, or (4) any other form of security acceptable to the commissioner.

(b) The commissioner may adopt regulations in accordance with the provisions of chapter 54 to establish additional requirements for credit for an asset or a reduction in liability that are consistent with the requirements established in section 38a-88, as amended by this act.

Sec. 3. Section 38a-88 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2017):

(a) The commissioner shall adopt regulations in accordance with the provisions of chapter 54 to implement the provisions of sections 38a-85 to 38a-89, inclusive, as amended by this act.

(b) (1) The commissioner may adopt regulations in accordance with the provisions of chapter 54 to establish, in addition to the requirements of sections 38a-85, as amended by this act, and 38a-86, as amended by this act, requirements relating to or setting forth (A) the valuation of assets or reserve credits, (B) the circumstances under which credit will be reduced or eliminated, and (C) the amounts and forms of security supporting reinsurance agreements relating to (i) life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits, (ii) universal life insurance policies with provisions that permit a policyholder to keep such policy in force over a secondary guarantee period, (iii) variable annuities with guaranteed death or living benefits, (iv) long-term care insurance policies, or (v) any other life insurance, health insurance or annuity products for which the National Association of Insurance Commissioners adopts model regulatory credit for reinsurance requirements.

(2) Any regulation adopted pursuant to subdivision (1) of this subsection that relates to policies described in subparagraph (C)(i) or (C)(ii) of subdivision (1) of this subsection may apply to reinsurance agreements that include such policies issued on or after January 1, 2015, and such policies issued prior to January 1, 2015, if risk pertaining to such policies is ceded, in whole or in part, in connection with such agreement on or after January 1, 2015.

(3) Any regulations adopted pursuant to subdivision (1) of this subsection:

(A) May require the ceding insurer, in calculating the amounts or forms of security supporting reinsurance agreements, to use the Valuation Manual, as defined in section 38a-78, in effect on the date such calculation is made, to the extent applicable; and

(B) Shall not apply to cessions to an assuming insurer (i) that is certified as a reinsurer in accordance with the provisions of section 38a-85a, or (ii) (I) that maintains at least two hundred fifty million dollars in capital and surplus, determined in accordance with the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, including all amendments adopted by the National Association of Insurance Commissioners and excluding the impact of any permitted or prescribed practices, and (II) is licensed in at least twenty-six states, or is licensed in at least ten states and licensed or accredited in a total of at least thirty-five states.

Sec. 4. Section 38a-73 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2017):

(a) No stock insurance company doing business in this state shall expose itself to loss on any one risk to an amount exceeding ten per cent of its paid-up capital and surplus; but, in determining the amount of such risk, no portion thereof [which] that has been reinsured in any insurance company [authorized to do business in this state] that meets the requirements of section 38a-85, as amended by this act, or 38a-86, as amended by this act, shall be included.

(b) No mutual insurance company doing business in this state shall expose itself to loss on any one risk to an amount exceeding ten per cent of its net surplus which limit on any one risk shall, in no case, exceed the amount authorized by the charter, bylaws or board of directors of the company; but, in determining the amount of such risk, no portion thereof [which] that has been reinsured in any insurance company [authorized to do business in this state] that meets the requirements of section 38a-85, as amended by this act, or 38a-86, as amended by this act, shall be included.

Approved June 20, 2017