Sec.38a-88-16. Requirements Applicable to Covered Policies to Obtain Credit for Reinsurance; Opportunity for Remediation

(a) Requirements. Subject to the exemptions described in section 38a-88-17 of the Regulations of Connecticut State Agencies and the provisions of subsection (b) of this section, credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to covered policies pursuant to sections 38a-85 and 38a-86 of the Connecticut General Statutes if in addition to all other requirements imposed by the Connecticut General Statutes or the Regulations of Connecticut State Agencies, the following requirements are met on a contract-by-contract basis:

(1) The ceding insurer’s statutory policy reserves with respect to the covered policies are established in full and in accordance with the applicable requirements of sections 38a-77, 38a-78, 38a-78a and 38a-79 of the Connecticut General Statutes and related regulations and actuarial guidelines, and credit claimed for any reinsurance contract subject to sections 38a-88-13 to 38a-88-19, inclusive, of the Regulations of Connecticut State Agencies does not exceed the proportionate share of those reserves ceded under the contract;

(2) The ceding insurer determines the required level of primary security with respect to each reinsurance contract subject to sections 38a-88-13 to 38a-88-19, inclusive, of the Regulations of Connecticut State Agencies and provides such support for its calculation that the Commissioner determines to be acceptable;

(3) Funds consisting of primary security, in an amount at least equal to the required level of primary security, are held by or on behalf of the ceding insurer, as security under the reinsurance contract within the meaning of section 38a-86 of the Connecticut General Statutes, on a funds withheld, trust or modified coinsurance basis;

(4) Funds consisting of other security, in an amount at least equal to any portion of the statutory reserves as to which primary security is not held pursuant to subdivision (3) of this subsection, are held by or on behalf of the ceding insurer as security under the reinsurance contract within the meaning of section 38a-86 of the Connecticut General Statutes;

(5) Any trust used to satisfy the requirements of this section shall comply with all of the conditions and qualifications of section 38a-88-7 of the Regulations of Connecticut State Agencies, except that:

(A) Funds consisting of primary security or other security held in trust shall, for the purposes identified in section 38a-88-15(b) of the Regulations of Connecticut State Agencies, be valued according to the valuation rules set forth in section 38a-88-15(b) of the Regulations of Connecticut State Agencies, as applicable;

(B) There are no affiliate investment limitations with respect to any security held in such trust if such security is not needed to satisfy the requirements of subdivision (3) of this subsection;

(C) The reinsurance contract must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the primary security within the trust (when aggregated with primary security outside the trust that is held by or on behalf of the ceding insurer in the manner required by subdivision (3) of this subsection) below one hundred two percent (102%) of the level required by subdivision (3) of this subsection at the time of the withdrawal or substitution; and

(D) The determination of reserve credit under subsection (d)(3) of section 38a-88-7 of the Regulations of Connecticut State Agencies shall be determined according to the valuation rules set forth in section 38a-88-15(b) of the Regulations of Connecticut State Agencies, as applicable; and

(6) The reinsurance contract has been approved by the Commissioner.

(b) Requirements at Inception Date and on an On-going Basis; Remediation

(1) The requirements of subsection (a) of this section shall be satisfied as of the date that risks under Covered Policies are ceded (if such date is on or after the effective date of sections 38a-88-13 to 38a-88-19, inclusive, of the Regulations of Connecticut State Agencies) and on an ongoing basis thereafter. Under no circumstances shall a ceding insurer take or consent to any action or series of actions that would result in a deficiency under subdivision (3) or (4) of subsection (a) of this section with respect to any reinsurance contract under which Covered Policies have been ceded, and in the event that a ceding insurer becomes aware at any time that such a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible.

(2) Prior to the due date of each quarterly or annual statement, each life insurance company that has ceded reinsurance within the scope of section 38a-88-13 of the Regulations of Connecticut State Agencies shall perform an analysis, on a contract-by-contract basis, to determine, as to each reinsurance contract under which covered policies have been ceded, whether as of the end of the immediately preceding calendar quarter (the valuation date) the requirements of subdivisions (3) and (4) of subsection (a) of this section were satisfied. The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of primary security actually held pursuant to subsection (a)(3) of this section, unless either:

(A) The requirements of subdivisions (3) and (4) of subsection (a) of this section were fully satisfied as of the valuation date as to such reinsurance contract; or

(B) Any deficiency has been eliminated before the due date of the quarterly or annual statement to which the valuation date relates through the addition of primary security and/or other security, as the case may be, in such amount and in such form as would have caused the requirements of subdivisions (3) and (4) of subsection (a) of this section to be fully satisfied as of the valuation date.

(3) Nothing in subdivision (2) of this subsection shall be construed to allow a ceding company to maintain any deficiency under subdivision (3) or (4) of subsection (a) of this section for any period of time longer than is reasonably necessary to eliminate it.

(Effective November 6, 2019)