HB 6392 — AN ACT CONCERNING THE INSURANCE DEPARTMENT'S RECOMMENDATIONS REGARDING CREDIT FOR REINSURANCE.

LCOsHB6392 {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-06310/ ofFile 19 R01-HB.docx } Substitute Bill No.

6392339 (2)10 ThesHB6392 commissionerFile shallNo. timely create and publish a list of reciprocal jurisdictions.

339 (2) The commissioner shall timely create and publish a list of reciprocal jurisdictions.

The commissioner may add an assuming insurer to such list if a National Association of Insurance Commissioners accredited jurisdiction has added such assuming insurer to a list of such assuming insurers or if, upon initial eligibility, the assuming insurer submits the information to the commissioner as required under subparagraph (D) of subdivision (1) of this subsection and complies LCOsHB6392 {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-06311/ ofFile 19 R01-HB.docx } Substitute Bill No.

6392339 withany11 additionalrequirementsthatsHB6392 thecommissionerFile mayNo. impose by regulation, except to the extent that they conflict with an applicable covered agreement.

339 withany additionalrequirementsthat thecommissioner may impose by regulation, except to the extent that they conflict with an applicable covered agreement.

(7) Credit may be taken under this subsection only for reinsurance LCOsHB6392 {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-06312/ ofFile 19 R01-HB.docx } Substitute Bill No.

6392339 agreements12 enteredsHB6392 into,File amendedNo. or renewed on or after October 1, 2021, and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements pursuant to subdivision (1) of this subsection, and the effective date of the new reinsurance agreement, amendment or renewal.

339 agreements entered into, amended or renewed on or after October 1, 2021, and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements pursuant to subdivision (1) of this subsection, and the effective date of the new reinsurance agreement, amendment or renewal.

[(g)] (h) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection (b), (c), (d),(e), [or](f)or (g)of thissectionthissectionbut but only withrespect to theinsurance of risks located in jurisdictions where such reinsurance is required by applicable law or regulation of that jurisdiction.

[(h)] (i) If the assuming insurer is not licensed, accredited or certified to transact insurance or reinsurance in this state, the credit permitted by subsection (d) or (e) of this section shall not be allowed unless the assuming insurer agrees (1) that in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall (A) submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, (B) comply with all requirements necessary to give such court jurisdiction, and (C) abide LCOby {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-063913the final decision of 19such R01-HB.docxcourt }or Substituteany Billappellate court in the event of sHB6392 / File No.

6392339 by13 thesHB6392 finalFile decisionNo. of such court or any appellate court in the event of an appeal, and (2) to designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company.

339 an appeal, and (2) to designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company.

(3) The trustee shall distribute any trust assets or part thereof that are returned by the insurance regulatory official with principal regulatory oversight of the trust, based on such regulatory official's determination that such assets or part thereof are not necessary to satisfy the claims of LCOdomestic {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-063914and foreign ceding insurers of 19the R01-HB.docxgrantor }of Substitutethe Billtrust, No.in accordance with the trust instrument;

6392 domestic and foreignsHB6392 ceding/ insurersFile ofNo. the grantor of the trust, in accordance with the trust instrument;

and339 (4)14 ThesHB6392 grantorFile ofNo. the trust waives any right otherwise available to the grantor under law that is inconsistent with subdivisions (1) to (3), inclusive, of this subsection.

339 (4) The grantor of the trust waives any right otherwise available to the grantor under law that is inconsistent with subdivisions (1) to (3), inclusive, of this subsection.

(3) (A) While a reinsurer's accreditation or certification is suspended, no credit shall be allowed under this section for a reinsurance contract issued or renewed by the reinsurer on or after the effective date of such suspension, except to the extent that such reinsurer's obligations under LCOsuch {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-063915contract ofare 19secured R01-HB.docxin }accordance Substitutewith Billthe No.provisions of section 38a-86.

6392(B) suchIf contracta arereinsurer's securedaccreditation inor accordancecertification withis therevoked, provisionsno ofcredit sectionsHB6392 38a-86./ File No.

(B)339 If15 asHB6392 reinsurer'sFile accreditationNo. or certification is revoked, no credit shallbeallowedunder thissectiononandafter theeffective date ofsuch revocation, except to the extent that such reinsurer's obligations under such contract are secured in accordance with the provisions of subsection (e) of section 38a-85a or section 38a-86.

339 shallbeallowedunder thissectiononandafter theeffective date ofsuch revocation, except to the extent that such reinsurer's obligations under such contract are secured in accordance with the provisions of subsection (e) of section 38a-85a or section 38a-86.

A domestic ceding insurer shall notify the commissioner not later than thirty days after (A) it has ceded to any single assuming insurer or group of affiliated assuming insurers more than twenty per LCOcent {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-06316of the domestic ceding insurer's gross written premiums in the prior calendar year, or (B) the domestic ceding insurer determines that the reinsurance ceded to any single assuming insurer or group of 19affiliated R01-HB.docxassuming }insurers Substituteis Billlikely No.to exceed such limit.

6392Any centsuch ofnotice theshall domesticdemonstrate cedingthat insurer's gross written premiums in the priorexposure calendaris year,safely ormanaged (B)by the domesticsHB6392 ceding/ insurerFile determinesNo. that the reinsurance ceded to any single assuming insurer or group of affiliated assuming insurers is likely to exceed such limit.

Any339 such16 noticesHB6392 shallFile demonstrateNo. that the exposure is safely managed by the domestic ceding insurer.

339 domestic ceding insurer.

(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, requirements LCOrelating {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-063917to or setting forth (A) the valuation of 19assets R01-HB.docxor }reserve Substitutecredits, Bill(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 sHB6392 / File No.

6392339 relating17 tosHB6392 orFile settingNo. 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 lifeinsurancepolicieswithprovisionsthatpermitapolicyholdertokeep 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.

339 lifeinsurancepolicieswithprovisionsthatpermitapolicyholdertokeep 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.

and] [(B)] (4) [Shall] Any regulation adopted pursuant to this subsection shall not apply to cessions to an assuming insurer [(i)] that (A) meets the conditions set forth in subsection (g) of section 38a-85, as amended by this act, (B) is certified as a reinsurer in accordance with the provisions of section 38a-85a, or [(ii) (I) that] (C) 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 LCOthe {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-063918impact of 19any R01-HB.docxpermitted }or Substituteprescribed Billpractices, No.and [(II)] (i) is licensedinatleasttwenty-sixstates,or(ii)islicensedinatleasttenstates and licensed or accredited in a total of at least thirty-five states.

6392(5) theThe impactauthority ofto anyadopt permittedregulations orpursuant prescribedto practices,this andsubsection [(II)]doesnot (i)limit isthe licensedinatleasttwenty-sixstates,or(ii)islicensedinatleasttenstatescommissioner'sgeneralauthority andto licensedadopt orregulations accreditedsHB6392 in/ aFile totalNo. of at least thirty-five states.

(5)339 The18 authoritysHB6392 toFile adoptNo. regulations pursuant to this subsection doesnot limit the commissioner'sgeneralauthority to adopt regulations pursuant to subsection (a) of this section.

339 pursuant to subsection (a) of this section.

-LCO LCOsHB6392 {\\PRDFS1\HCOUSERS\BARRYJN\WS\2021HB-06392-/ 19File ofNo. 19 R01-HB.docx }

339 19 sHB6392 File No.

339 The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose.

In general, fiscal impacts are based upon a variety of informational sources, including the analyst’s professional knowledge.

Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note State Impact:

None Municipal Impact:

None Explanation The bill is not anticipated to result in a fiscal impact.

The bill eliminates reinsurance collateral requirements for “reciprocal” reinsurers in certain jurisdictions to bring Connecticut into compliance with agreements signed at the national level with the European Union and the United Kingdom.

The Insurance Department has the necessary staff and expertise to implement the change and update regulations in accordance with the bill.

The Out Years State Impact:

None Municipal Impact:

None Sources:

Connecticut Insurance Department sHB6392 / File No.

339 20 sHB6392 File No.

339 OLR Bill Analysis sHB 6392 AN ACT CONCERNING THE INSURANCE DEPARTMENT'S RECOMMENDATIONS REGARDING CREDIT FOR REINSURANCE.

SUMMARY This bill aligns Connecticut’s insurance laws with the National Association of Insurance Commissioners’ (NAIC) 2019 amendments to its “Credit for Reinsurance Model Law.” Alignment is necessary to (1) avoid federal preemption and (2) conform to agreements between the United States and the European Union and United Kingdom (together, the “covered agreements”), which were entered into pursuant to federal law.

These agreements eliminate collateral requirements as a condition for entering into a reinsurance agreement with a Connecticut-domiciled insurer or allowing the insurer to recognize credit for reinsurance.

Under existing state law,aninsurer may count reinsurance asa credit for an asset or a reduction for a liability on certain financial statements, including annual reports to the insurance commissioner, if the reinsurer meets specified statutory requirements pertaining to minimum surplus, licensing, filing, and examinations.

Reinsurance is a transaction in which an insurance company transfers a portion of risk (the ceding insurer) to another insurance company (the assuming insurer or reinsurer) so that a large loss does not fall on any one company.

The bill specifies that, in general, credit for reinsurance is allowed only with respect to cessions for the kinds or classes of business which the assuming insurer is licensed or permitted to write or assume in its domiciliary state or, if it is an insurer in another country (i.e., alien insurer), the state in which it is licensed to transact insurance or reinsurance.

The bill also allows credit for reinsurance when the reinsurance is sHB6392 / File No.

339 21 sHB6392 File No.

339 ceded to an assuming insurer that meets newly specified criteria as described below.

The assuming insurer must comply with any related regulations the commissioner adopts.

The bill requires the commissioner to publish a list of assuming insurers that meet all conditions set forth in statute and to which cessions will be granted credit for reinsurance.

It authorizes him to revoke or suspend an assuming insurer’s eligibility in accordance with regulations if the insurer no longer meets the statutory requirements.

After a suspension or revocation, no credit for reinsurance is generally allowed, except to the extent that they have been secured in accordance with state law.

The bill also makes other minor, technical, and conforming changes.

EFFECTIVE DATE:

October 1, 2021 REQUIREMENTS FOR ASSUMING INSURERS The bill allows credit for reinsurance when the reinsurance is ceded to anassuming insurer that meetsspecifiedcriteria.

Credit may betaken for reinsurance agreements entered into, amended, or renewed on or after October 1, 2021, and only for losses incurred on or after the later of when the assuming insurer meets all requirements and the agreement’s effective date.

The bill requires an assuming insurer to have its head office or be domiciled in, as applicable, and licensed in, a reciprocal jurisdiction.

A “reciprocal jurisdiction” is (1) a non-U.S.

jurisdiction subject to a covered agreement;

(2) an NAIC-accredited U.S.

jurisdiction;

or (3) a qualified jurisdiction that meets requirements consistent with the covered agreements, as specified in regulations the commissioner adopts.

The bill requires the commissioner to publish a list of reciprocal jurisdictions, for which he must consider NAIC’s list of reciprocal jurisdictions.

It authorizes him to remove a jurisdiction from his list if it no longer meets the requirements of a reciprocal jurisdiction.

Under the bill, an assuming insurer, among other things, must sHB6392 / File No.

339 22 sHB6392 File No.

339 maintain minimum capital and surplus, or its equivalent, and a minimum solvency or capital ratio, all of which the commissioner is to set forth in regulations.

If the assuming insurer is an association, it also must maintain a central fund with a balance in amounts set forth in regulations.

The bill requires the assuming insurer’s supervisory authority to confirm annually to the commissioner that the insurer complies with these requirements.

Under the bill, an assuming insurer must also give the commissioner certain assurances in a manner the commissioner specifies in regulations, including that it will:

1.

give prompt notice if it falls below the minimum requirements or if any regulatory action is taken against it for serious noncompliance with applicable law;

2.

consent to the jurisdiction of the state’s courts and appoint the commissioner as agent for service of process, but parties to a reinsurance agreement may agree to alternative dispute resolution mechanisms, so long as they are enforceable under applicable laws;

3.

pay all final enforceable judgements obtained by a ceding insurer;

and 4.

provide security of 100% of the assuming insurer’s liabilities attributable to the ceded reinsurance.

Additionally, the assuming insurer must confirm that it is not participating in any “solvent scheme of arrangement” with the state’s ceding insurers and agree to notify the commissioner and the ceding insurer if it enters into one.

In that case, the assuming insurer must provide security of 100% of the assuming insurer’s liabilities to the ceding insurer.

The bill requires the assuming insurer to comply with any related regulations the commissioner adopts, including those about paying claims promptly and providing the commissioner with documentation sHB6392 / File No.

339 23 sHB6392 File No.

339 upon request.

It specifies that it does not preclude an assuming insurer from providing the commissioner information voluntarily.

COMMITTEE ACTION Insurance and Real Estate Committee Joint Favorable Yea 18 Nay 0 (03/22/2021) sHB6392 / File No.

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