(a) For financial guaranty insurance that takes effect on or after October 1, 1993, an insurer licensed under sections 38a-92 to 38a-92n, inclusive, to transact financial guaranty insurance shall receive credit for reinsurance as an asset or as a reduction from liability only if:

(1) The reinsurance is subject to an agreement which provides for its stated term and with respect to any such reinsured financial guaranty insurance in force, the reinsurance agreement may only be terminated or amended if one or more of the following applies: (A) At the option of the reinsurer or the ceding insurer if the liability of the reinsurer with respect to policies in force as of the date of termination shall continue until the expiration or cancellation of each such policy; (B) at the option or with the consent of the ceding insurer, if the reinsurance agreement provides for a cutoff of the reinsurer's liability with respect to the reinsurance in force as of the date of termination; or (C) at the discretion of the commissioner acting as rehabilitator, liquidator or receiver of the ceding insurer or reinsurer; and

(2) The reinsurance is ceded to one or more of the following:

(A) An insurer licensed under sections 38a-92 to 38a-92n, inclusive, to transact financial guaranty insurance, provided if the insurer is an affiliate of the ceding insurance, (i) the value of the ceding insurer's ownership interest may not exceed the greater of (I) thirty-five per cent of the ceding insurer's capital and surplus or (II) fifty per cent of the excess of the ceding insurer's admitted assets over its liabilities and capital and (ii) the insurer providing the reinsurance is rated at the time of cession and thereafter in one of the two top generic rating classifications by a securities rating agency acceptable to the commissioner;

(B) An insurer licensed in this state to transact surety insurance or reinsurance but not financial guaranty insurance pursuant to sections 38a-92 to 38a-92n, inclusive, accredited as a reinsurer in this state as provided in subdivision (1) of subsection (c) of section 38a-85 or certified as a reinsurer in this state as provided in section 38a-85a, if the insurer or reinsurer meets all of the following criteria: (i) Has and maintains combined capital and surplus of at least fifty million dollars; (ii) establishes and maintains the reserves required in section 38a-92c, except that if the reinsurance agreement is nonproportional, the contribution to the contingency reserve shall be equal to fifty per cent of the quarterly written insurance premium; (iii) complies with the provisions of subsection (b) of section 38a-92i, except that its maximum aggregate assumed total net liability shall be one-half that permitted for a financial guaranty insurance corporation. For the purpose of determining compliance, the reinsurer, unless at the time of cession and thereafter it is rated in one of the two top generic rating classifications by a securities rating agency acceptable to the commissioner, shall be limited to using ten per cent of its capital and surplus in making this calculation; (iv) complies with the provisions of section 38a-92j; and (v) assumes, together with all other reinsurers subject to this subparagraph, less than fifty per cent of the ceding insurer's total liability after deducting any reinsurance ceded to any insurers pursuant to subparagraph (A) of this subdivision;

(C) An insurer not licensed in this state but that is licensed in, or in the case of a United States branch of an alien insurer, is entered through, a state that employs standards regarding credit for reinsurance applicable to financial guaranty insurance corporations that are substantially similar to those in this state and the assuming insurer or United States branch of the alien insurer: (i) Otherwise complies with the provisions of subparagraphs (B)(i) and (B)(ii) of this subdivision; (ii) submits to the authority of this state to examine its books and records; and (iii) meets the requirements of subsection (h) of section 38a-85;

(D) An insurer not licensed in this state and transacting only financial guaranty insurance as is or would be permitted by sections 38a-92 to 38a-92n, inclusive, and such other lines of insurance as is or would be permitted under section 38a-41, and that otherwise complies with the provisions of subparagraphs (B)(i) and (B)(ii) of this subdivision, in an amount not exceeding the liabilities carried by the ceding financial guaranty insurance corporation for amounts withheld under a reinsurance agreement for such reinsurer, including funds held in trust for the ceding insurer, or amounts deposited by such reinsurer as security for the payment of obligations under the agreement if such funds or deposits are held subject to withdrawal by and under the 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; or

(E) An insurer not licensed in this state and not transacting only financial guaranty insurance as is or would be permitted by sections 38a-92 to 38a-92n, inclusive, and such other lines of insurance as is or would be permitted under section 38a-41, and that otherwise complies with the provisions of subparagraphs (B)(i), (B)(iii) and (B)(v) of this subdivision, in an amount not exceeding the liabilities carried by the ceding financial guaranty insurance corporation for amounts withheld under a reinsurance agreement for such reinsurer, including funds held in trust for the ceding insurer, or amounts deposited by such reinsurer as security for the payment of obligations under the agreement if such funds or deposits are held subject to withdrawal by and under the 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.

(b) In determining whether the financial guaranty insurance corporation meets the limitations imposed by section 38a-92j, in addition to credit for other types of qualifying reinsurance, the financial guaranty insurance corporation's aggregate risk may be reduced to the extent of the limit for aggregate reinsurance but in no event in an amount greater than the amount of the aggregate risk that will become due during the unexpired term of such reinsurance agreement in excess of the financial guaranty insurance corporation's retention pursuant to such reinsurance agreement.

(P.A. 93-136, S. 14; P.A. 00-30, S. 9, 14; P.A. 08-147, S. 2; P.A. 12-139, S. 5.)

History: P.A. 00-30 amended Subsec. (a)(2)(B) to substitute “written” for “earned” re insurance premium, effective January 1, 2001; P.A. 08-147 made a technical change in Subsec. (a)(2)(B); P.A. 12-139 amended Subsec. (a)(2) to add provision re insurer certified as reinsurer in this state in Subpara. (B) and make technical changes.