On June 4, 2012, Connecticut Governor Dannel P. Malloy signed into law Public Act 103 and Public Act 139, both of which follow model laws recently put forth by the National Association of Insurance Commissioners (“NAIC”).

Public Act 139 eases the collateral requirements for unauthorized and unaccredited alien insurers1 providing reinsurance to domestic insurers.  Previously, the alien insurer would need to provide 100% collateral in order for the domestic insurer to receive credit for reinsurance.  Public Act 139 authorizes the insurance commissioner to employ a sliding scale for collateral requirements based on the reinsurer’s financial strength and other factors, such as the regulatory requirements of the alien jurisdiction where the reinsurer is located.  Similar laws have been enacted in New York, New Jersey, Florida and Indiana.  For more information regarding these state amendments, click here and here.   In addition, it allows the commissioner discretion to reduce the amount require by a multibeneficiary trust over which he has principal regulatory oversight if the reinsurer is in permanent runoff for at least three years.

Public Act 103 requires the ultimate controlling parent of a holding company system to annually file an enterprise risk report.  The annual enterprise risk report must identify, to the best of the filer’s knowledge and belief, the material risks within the insurance holding company system that could pose enterprise risk2 to the domestic insurance company.  These reports will be confidential by law and privileged, and not subject to disclosure under Conn. Gen. Stat. § 1-210, to subpoena, or to discovery or admissible in any civil action.  Public Act 103 also empowers the insurance commissioner to participate in a supervisory college and enter into written agreements with state, federal and international regulatory officials with respect to activities of the supervisory college.  The purpose of the supervisory college is “to assess the business strategy, financial, legal or regulatory position risk exposure, risk management or governance processes of a domestic insurance company registered under this section that is part of an insurance holding company system that has international operations.”

According to Connecticut Insurance Commissioner Thomas B. Leonardi, “These new laws give the Department significant supervisory tools that allow us to better understand the risks of insurance conglomerates and help prevent a repeat of the financial crisis from which we are still recovering. We also now have the ability to level the playing field for foreign reinsurers and that could result in lower costs to consumers in the long run.”

Click here to view the Connecticut Insurance Department’s official press release.

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1“Alien reinsurer” means a reinsurer domiciled outside of the U.S.

2“Enterprise Risk” means any activity, circumstance, event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or the insurer’s insurance holding company system as a whole, including, but not limited to, any activity, circumstance, event or series of events that would cause an insurer’s risk-based capital to fall below minimum threshold levels, as described in subsection (d) of section 38a-72 or, for a health care center, in subdivision (2) of subsection (a) of section 38a193, or would cause the insurer to be in a hazardous financial condition.