Substitute Senate Bill No. 443

Public Act No. 00-30

An Act Concerning Statutory Accounting Procedures.

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

Section 1. Section 38a-70 of the general statutes is repealed and the following is substituted in lieu thereof:

When adopting accounting rules, the commissioner shall follow those accounting procedures and practices [prescribed by] published in the National Association of Insurance Commissioners [accounting practices and procedures manual] Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions, and the National Association of Insurance Commissioners [annual statement instructions handbook] Annual Statement Instructions Manual, subject to any deviations [he] the commissioner may prescribe.

Sec. 2. Section 38a-71 of the general statutes is repealed and the following is substituted in lieu thereof:

(a) As used in this section:

(1) "Qualified assets" means:

(A) Investments, securities, properties and loans permitted or authorized by law, and the income due thereon;

(B) The net amount of uncollected and deferred premiums for a life insurer which carries the full annual mean tabular reserve liability;

(C) Premiums in the course of collection, other than for life insurance, not more than ninety days past due, [less commissions payable on the premiums,] with the ninety-day limitation being inapplicable to premiums payable directly or indirectly by the United States government or any of its instrumentalities;

(D) Instalment premiums, other than life insurance premiums, in accordance with the regulations adopted by the commissioner in accordance with the provisions of chapter 54, or in the absence of these regulations then in accordance with practices formulated or adopted by the National Association of Insurance Commissioners;

(E) Notes and similar written obligations which are not past due, taken for premiums other than life insurance premiums, on policies permitted to be issued on that basis, to the extent of the unearned premium reserves carried on the policies;

(F) Amounts recoverable or receivable from reinsurers under a reinsurance contract;

(G) Tangible components of health care delivery systems for health care centers governed by sections 38a-175 to 38a-192, inclusive, with the cost of these assets having a finite useful life being depreciated in full over periods provided by regulations adopted by the commissioner in accordance with the provisions of chapter 54;

(H) Electronic data processing equipment and [mechanical machines constituting a data processing and accounting system] operating software, the cost of which is depreciated in full over a period not to exceed [five] three years;

(I) Tangible components of the service delivery systems of legal service corporations governed by sections 38a-230 to 38a-245, inclusive, as amended, with the cost of these assets having a finite useful life being depreciated in full over periods provided by regulations adopted by the commissioner in accordance with the provisions of chapter 54;

(J) Cash or currency; and

(K) Other assets authorized by regulations adopted by the commissioner in accordance with the provisions of chapter 54.

(2) "Minimum capital and minimum surplus" means the capital and surplus that must constantly be maintained by a stock insurance company as required by section 38a-72.

(3) "Surplus" means [the excess of qualified assets over the sum of paid-in capital and liabilities] total statutory surplus less capital stock, adjusted for the par value of any treasury stock, calculated in accordance with the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions. Except for assessable mutuals, the minimum surplus of a mutual insurer is essentially the same as the minimum required capital requirement which applies to stock-insurers.

(4) "Capital" means the capital stock component of statutory surplus, as defined in the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions.

(b) Each insurer authorized to do business in this state shall maintain qualified assets in the amount equal to the total of the insurer's (1) liabilities, and (2) minimum capital [or] and minimum surplus required under section 38a-72.

Sec. 3. Subsection (b) of section 38a-72 of the general statutes is repealed and the following is substituted in lieu thereof:

(b) Except with respect to the transaction of life and health insurance, companies desiring to transact more than one of the above forms of insurance shall meet the total minimum requirements, as to capital and surplus, of all forms to be transacted except that a company transacting all lines permitted to be combined need have no more than two million dollars capital and two million dollars [paid-in] surplus in the aggregate. Companies that transact both life and health insurance need have no more than one million dollars capital and two million dollars [paid-in] surplus in the aggregate. The commissioner may license any such company to write additional forms of insurance when the amount of capital and surplus of such company is sufficient by recognized insurance standards to protect the public interest. [He] The commissioner may also license any mutual insurance company to write any or all forms of insurance when the [net] surplus of such company is at least as great as the capital and surplus requirements for companies with capital stock.

Sec. 4. Subsection (d) of section 38a-72 of the general statutes is repealed and the following is substituted in lieu thereof:

(d) No insurance company shall be licensed to transact business in this state or remain so licensed unless (1) its surplus funds bear a reasonable relationship to its liabilities based upon the type, volume and nature of insurance business transacted, and (2) risk-based capital related to its total adjusted capital is adequate for the types of business transacted. As used in this section, "total adjusted capital" means the sum of [statutory] capital and surplus of an insurer, its asset valuation reserves, and any other item in the nature of capital as deemed appropriate by the commissioner. "Risk-based capital" means the [statutory] capital and surplus adjusted to recognize the level of risk inherent in its business, including (A) risk with respect to the insurer's assets, (B) the risk of adverse insurance experience with respect to the insurer's liabilities and obligations, (C) the interest rate risk with respect to the insurer's business, and (D) all other business risks and such other relevant risks as the commissioner may determine. The commissioner shall adopt such reasonable regulations, in accordance with the provisions of chapter 54, as are deemed proper to implement the purposes of this section, including but not limited to, provisions concerning: The preparation and filing of reports by insurers of risk-based capital levels and the calculation thereof; the preparation and filing of comprehensive financial plans when such capital levels are reduced below minimum threshold levels; the confidentiality of such reports and plans; and the regulatory corrective actions the commissioner may take in the event minimum risk-based capital levels are not maintained, or the insurer's financial plans filed with the commissioner are deficient, or the insurer fails to otherwise comply with the provisions of the regulations promulgated.

Sec. 5. Section 38a-80 of the general statutes is repealed and the following is substituted in lieu thereof:

Each domestic, foreign and alien insurance company which, in this state, makes insurance upon the health of individuals or which, in this state, insures persons against bodily injury or death by accident, or any person, firm or corporation against loss or damage on account of the bodily injury or death by accident of any person for which loss or damage such person, firm or corporation is responsible, shall maintain a premium reserve on all such policies in force, whether issued in this state or elsewhere, [equal to the unearned portion of the gross premiums charged for covering the risks] calculated in accordance with the accounting requirements of the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions.

Sec. 6. Section 38a-92c of the general statutes is repealed and the following is substituted in lieu thereof:

(a) Each licensed financial guaranty insurance corporation shall establish and maintain a contingency reserve [computed] calculated in accordance with [this section] the accounting requirements of the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions.

[(b) With respect to all financial guaranties written prior to and in force as of July 1, 1989:

(1) The financial guaranty insurance corporation shall establish and maintain a contingency reserve consistent with the requirements applicable for municipal bond insurance policies which were in effect prior to July 1, 1989, in an amount equal to fifty per cent of earned premiums on those policies.

(2) To the extent that the financial guaranty insurance corporation's contingency reserves maintained as of July 1, 1989, are less than those required for municipal bond insurance policies pursuant to subdivision (1) of this subsection, the corporation shall have until January 1, 1994, to bring its reserves into compliance.

(c) With respect to financial guaranties of municipal obligation bonds, special revenue bonds, investment grade industrial development bonds and utility first mortgage obligations written on or after July 1, 1989:

(1) The financial guaranty insurance corporation shall establish and maintain a contingency reserve in accordance with subdivision (3) of this subsection for all those insured issues in each calendar year for each category listed in subdivision (2) of this subsection;

(2) The total contingency reserve required shall be the greater of fifty per cent of premiums written for each such category or the following amount prescribed for each such category: (A) Municipal obligation bonds, 0.55 per cent of principal guaranteed; (B) special revenue bonds, 0.85 per cent of principal guaranteed; (C) investment grade industrial development bonds secured by collateral or with a remaining term at the date of insurance of seven years or less and utility first mortgage obligations, 1.0 per cent of principal guaranteed; and (D) all other investment grade industrial development bonds, 1.5 per cent of principal guaranteed; and

(3) Contributions to the contingency reserve required by subdivision (2) of this subsection, equal to one-eightieth of the total reserve required, shall be made each quarter for twenty years, provided contributions may be discontinued so long as the total reserve for all categories listed in subparagraphs (A) to (D), inclusive, of subdivision (2) of this subsection exceeds the percentages contained in said subparagraphs (A) to (D), inclusive, when applied against unpaid principal.

(d) With respect to all other financial guaranties written on or after July 1, 1989:

(1) The financial guaranty insurance corporation shall establish and maintain a contingency reserve in accordance with subdivision (3) of this subsection for all those insured issues in each calendar year for each such category listed in subdivision (2) of this subsection;

(2) The total contingency reserve required shall be the greater of fifty per cent of premiums written for each such category or the following amount prescribed for each such category: (A) Investment grade obligations, secured by collateral, or with a remaining term at the date of insurance of seven years or less, 1.0 per cent of principal guaranteed; (B) other investment grade obligations, 1.5 per cent of principal guaranteed; (C) noninvestment grade obligations secured by collateral, 2.0 per cent of principal guaranteed; (D) other noninvestment grade obligations, 2.5 per cent of principal guaranteed; and

(3) Contributions to the contingency reserve required by subparagraphs (A) and (B) of subdivision (2) of this subsection, equal to one-sixtieth of the total reserve required, shall be made each quarter for fifteen years, and contributions to the contingency reserve required by subparagraphs (C) and (D) of subdivision (2) of this subsection, equal to one-fortieth of the total reserve required, shall be made each quarter for ten years provided, contributions may be discontinued so long as the total reserve for all categories listed in subparagraphs (A) to (D), inclusive, of subdivision (2) of this subsection exceeds the percentage contained in said subparagraphs (A) to (D), inclusive, when applied against unpaid principal.

(e) Contingency reserves required in subsections (b), (c) and (d) of this section may be established and maintained net of reinsurance, provided the reinsurance agreement requires that the reinsurer shall, on or after the effective date of the reinsurance, establish and maintain a reserve in an amount equal to the amount by which the financial guaranty insurance corporation reduces its contingency reserve.

(f) The contingency reserves may be released thereafter in the same manner in which they were established and withdrawals therefrom, to the extent of any excess amounts as set forth in subdivisions (1) or (2) of this subsection, may be made from the earliest contributions to such reserves remaining therein as follows:

(1) With the prior written approval of the commissioner, if the actual incurred losses for the year, in the case of the categories of guaranties subject to subsection (c) of this section, exceeds thirty-five per cent of earned premiums, or if the actual incurred losses for the year, in the case of the categories of guaranties subject to subsection (d) of this section, exceeds sixty-five per cent of earned premiums; or

(2) Upon thirty days prior written notice to the commissioner, provided the contingency reserve has been in existence for forty quarters for reserves subject to subsection (c) of this section, and thirty quarters for reserves subject to subsection (d) of this section, upon demonstration that the amount carried is in excess of required amounts or excessive in relation to the financial guaranty insurance corporation's outstanding obligations.]

[(g)] (b) A financial guaranty insurance corporation may invest the contingency reserve in tax and loss bonds or similar securities purchased pursuant to Section 832 (e) of the Internal Revenue Code or any successor provision, only to the extent of the tax savings resulting from the deduction for federal income tax purposes of a sum equal to the annual contributions to the contingency reserve. The contingency reserve shall otherwise be invested only in classes of securities or types of investments permitted by this title.

Sec. 7. Section 38a-92d of the general statutes is repealed and the following is substituted in lieu thereof:

(a) Each financial guaranty insurance corporation shall establish and maintain reserves against unpaid losses and loss expense. [The case basis method or some other method may be prescribed by the commissioner. Such method shall be used to determine loss reserves, which shall include a reserve for claims reported and unpaid net of collateral. A deduction from loss reserves shall be allowed for the time value of money by application of a discount rate equal to the average rate of return on the admitted assets of the financial guaranty insurance corporation as of the date of the computation of that reserve. The discount rate shall be adjusted at the end of each calendar year. In addition a reserve component for incurred but not reported claims shall be reasonably estimated if deemed necessary by the financial guaranty insurance corporation, or following an examination or actuarial analysis, by the commissioner.] Such reserves shall be calculated in accordance with the accounting requirements of the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions.

(b) Except as otherwise permitted by the commissioner, no deduction shall be made for anticipated salvage in computing case basis loss reserves, unless that salvage is held by or under the control of the financial guaranty insurance corporation and would qualify as an admitted asset under this title or unless that salvage constitutes or is secured by a letter of credit which is approved by the commissioner or complies with the criteria set forth in subsection (4) of section 38a-92a.

(c) If the insured principal and interest on a defaulted issue of obligations due and payable during any three years following the date of default exceed ten per cent of the financial guaranty insurance corporation's capital, surplus and contingency reserves, its reserves so established shall be supported by a report from an independent actuarial firm or other source acceptable to the commissioner.

Sec. 8. Section 38a-92e of the general statutes is repealed and the following is substituted in lieu thereof:

Each licensed financial guaranty insurance corporation shall establish and maintain an unearned premium reserve [, net of reinsurance, with respect to all financial guaranty insurance premiums. Where financial guaranty insurance premiums are paid on an instalment basis, an unearned premium reserve shall be established and maintained, net of reinsurance, computed on a monthly pro rata basis. All other financial guaranty insurance premiums written shall be earned in proportion with the expiration of exposure or by such other methods as may be approved by the commissioner] calculated in accordance with the accounting requirements of the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions.

Sec. 9. Subparagraph (B) of subdivision (2) of subsection (a) of section 38a-92m of the general statutes is repealed and the following is substituted in lieu thereof:

(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, or accredited as a reinsurer in this state as provided in subsection (c) of section 38a-85 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 [earned] 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.

Sec. 10. Section 38a-136 of the general statutes is repealed and the following is substituted in lieu thereof:

(a) Transactions within a holding company system to which an insurance company subject to registration under section 38a-135 is a party shall be subject to the following requirements: (1) The terms shall be fair and reasonable; (2) charges or fees for services performed shall be reasonable; (3) expenses incurred and payment received shall be allocated to the insurance company in conformity with customary insurance accounting practices consistently applied; (4) the books, accounts and records of each party shall be so maintained as to clearly and accurately disclose the precise nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties; and (5) the insurance company's surplus [with respect to policyholders] shall be reasonable in relation to such company's outstanding liabilities and adequate to its financial needs.

(b) The following transactions involving a domestic insurance company and any person in its holding company system may not be entered into unless the insurance company has notified the commissioner in writing of its intention to enter into such transaction at least thirty days prior thereto, or such shorter period as the commissioner may permit, and the commissioner either has approved or not disapproved it within such period:

(1) Sales, purchases, exchanges, loans or extensions of credit, guarantee or investments provided such transactions are equal to or exceed: (A) With respect to nonlife insurance companies, the lesser of three per cent of the insurance company's admitted assets or twenty-five per cent of surplus; [as regards policyholders;] or (B) with respect to life insurance companies, three per cent of the insurance company's admitted assets; each as of the thirty-first day of December next preceding;

(2) Loans or extensions of credit to any person who is not an affiliate, where the insurance company makes such loans or extensions of credit with the agreement or understanding that the proceeds of such transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurance company making such loans or extensions of credit, provided such transactions are equal to or exceed: (A) With respect to nonlife insurance companies, the lesser of three per cent of the insurance company's admitted assets or twenty-five per cent of surplus; [as regards policyholders;] or (B) with respect to life insurance companies, three per cent of the insurance company's admitted assets; each as of the thirty-first day of December next preceding;

(3) Reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurance company's liabilities equals or exceeds five per cent of the insurance company's surplus, [as regards policyholders,] as of the thirty-first day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurance company to a nonaffiliate, if an agreement or understanding exists between the insurance company and nonaffiliate that any portion of such assets will be transferred to one or more affiliates of the insurance company;

(4) All material management agreements, service contracts and cost-sharing arrangements; and

(5) Any material transactions, specified by regulation, which the commissioner determines may adversely affect the interests of the insurance company's policyholders. Nothing contained in this section shall be deemed to authorize or permit any transactions which, in the case of an insurance company not a member of the same holding company system, would be otherwise contrary to law.

(c) A domestic insurance company may not enter into transactions which are part of a plan or series of like transactions with persons within the holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that would otherwise occur. If the commissioner determines that such separate transactions were entered into over any twelve-month period for such purpose, [he] the commissioner may exercise [his] authority under section 38a-140.

(d) The commissioner, in reviewing transactions pursuant to subsection (b) of this section, shall consider whether the transactions comply with the standards set forth in subsection (a) of this section and whether they may adversely affect the interests of policyholders.

(e) Except as may be exempted pursuant to regulations adopted by the commissioner or otherwise waived by the commissioner, the commissioner shall be notified within thirty days of any material investment of the domestic insurance company in any one corporation if the total investment in such corporation by the insurance company holding company system exceeds ten per cent of such corporation's voting securities.

(f) No insurance company subject to registration under section 38a-135 shall pay any extraordinary dividend or make any other extraordinary distribution to its stockholders until the commissioner has approved such payment or until thirty days after the commissioner has received notice from such company of the declaration thereof within which period [he] the commissioner has not disapproved such payment, whichever is sooner. For the purposes of this subsection, an extraordinary dividend or distribution is any dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve months, exceeds the greater of (1) ten per cent of such insurance company's surplus [with respect to policyholders] as of the thirty-first day of December last preceding, or (2) the net gain from operations of such insurance company, if such company is a life insurance company, or the net income, if such company is not a life insurance company, for the twelve-month period ending the thirty-first day of December last preceding, but shall not include pro rata distributions of any class of the insurance company's own securities. Notwithstanding any other provision of law, an insurance company may declare an extraordinary dividend or distribution which is conditional upon the commissioner's approval thereof, but such a declaration shall confer no rights upon stockholders until (1) the commissioner has approved the payment of such dividend or distribution or (2) thirty days have elapsed without [his] the commissioner's disapproval thereof as provided in this subsection, whichever is sooner.

(g) For purposes of sections 38a-129 to 38a-140, inclusive, in determining whether an insurance company's surplus [as regards to policyholders] is reasonable in relation to the insurance company's outstanding liabilities and adequate to its financial needs, the following factors, in addition to others, shall be considered: (1) The size of the insurance company as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria; (2) the extent to which the insurance company's business is diversified among the several lines of insurance; (3) the number and size of risks insured in each line of business; (4) the nature of the geographical dispersion of the insurance company's insured risks; (5) the nature and extent of the insurance company's reinsurance program; (6) the quality, diversification and liquidity of the insurance company's investment portfolio; (7) the recent past and projected future trend in the size of the insurance company's surplus; [as regards policyholders;] (8) the surplus [as regards policyholders] maintained by other comparable insurance companies; (9) the adequacy of the insurance company's reserves; (10) the quality of the company's earnings and the extent to which the reported earnings include extraordinary items; and (11) the quality and liquidity of investments in affiliates. The commissioner may discount any such investment or treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus [as regards policyholders] whenever in [his] the commissioner's judgment such investment warrants.

(h) (1) Any domestic insurance company which is affiliated with an insurance holding company system shall report for informational purposes to the Insurance Commissioner all dividends and other distributions to securityholders within five business days following the declaration and at least ten days, commencing from the date of receipt by the Insurance Department, prior to payment thereof.

(2) No dividend or other distribution may be paid when the surplus of the insurance company is less than the surplus required by section 38a-72 for the kind or kinds of business authorized to be transacted by such company, nor when the payment of a dividend or other distribution would reduce its surplus to less than such amount.

(3) Except as otherwise provided by law, no dividend or other distribution exceeding an amount equal to an insurance company's earned surplus may be paid without the Insurance Commissioner's prior approval. For purposes of this subsection, "earned surplus" means "unassigned funds-surplus", as defined in the annual report of the insurance company which was most recently submitted pursuant to section 38a-53, reduced by twenty-five per cent of unrealized appreciation in value or revaluation of assets or unrealized profits on investments, as defined in such report.

(i) (1) Any domestic insurance company of which control has been acquired pursuant to section 38a-130 shall be required to submit to a financial examination and a market conduct examination within thirty days after such acquisition in accordance with procedures set forth by the examiner's handbook of the National Association of Insurance Commissioners and such regulations as the commissioner may adopt.

(2) No domestic insurance company of which control has been acquired pursuant to section 38a-130 shall, without the prior approval of the commissioner: (A) Pay or propose to pay any dividend during the period of two years from the date of acquisition of control of such insurance company; (B) acquire or enter into an agreement or understanding to acquire control, during the period of three years after the date of acquisition of control of such insurance company, of any other person or persons whose assets exceed twenty-five million dollars; (C) provide or propose to provide directly or indirectly, during the period of three years after the date of acquisition of control of such insurance company, any loans, advances, guarantees, pledges or other financial assistance; or (D) engage in any material transaction with any person during the period of three years after the date of acquisition of such insurance company. For purposes of this subsection, a "material transaction" shall include, but not be limited to, any transfer or encumbrance of assets not in the ordinary course of business which, together with all other transfers or encumbrances made within the preceding twelve months, exceeds in value the greater of (i) ten per cent of such insurance company's surplus [with respect to policyholders] as of the December thirty-first last preceding, or (ii) the net gain from operations of such insurance company, if such company is a life insurance company, or the net investment income of such company, if such company is not a life insurance company, for the twelve-month period ending the December thirty-first last preceding.

(3) The commissioner shall, upon a written request from the controlled domestic insurance company and, upon public hearing after notice to all interested parties, determine whether any limitations contained in subdivision (2) of this subsection shall be continued, or whether and on what conditions they may be waived. Such determination shall be predicated on the results of the examinations provided in subdivision (1) of this subsection and such further examinations, if any, the commissioner may require concerning the adequacy of the insurance company's reserves, the effect any proposed transaction will have on the insurance company's surplus, its cash flow needs and its ability to satisfy any reasonably anticipated obligations in the foreseeable future, and any other effect the proposed transaction would have on the financial stability or solvency of the insurance company and the quality and liquidity of its assets. All fees and expenses relating to such examinations shall be paid by the insurance company.

(4) Nothing in this subsection shall be interpreted to prohibit any transactions between a domestic insurance company and any of its subsidiaries in the ordinary course of business.

Sec. 11. Subsection (b) of section 38a-193 of the general statutes, as amended by section 4 of public act 99-9, is repealed and the following is substituted in lieu thereof:

(b) Every health care center shall, when determining liabilities, include an amount estimated in the aggregate to provide for any unearned premium and for the payment of all claims for health care expenditures which have been incurred, whether reported or unreported, which are unpaid and for which such organization is or may be liable, and to provide for the expense of adjustment or settlement of such claims. Such liabilities shall be [computed] calculated in accordance with those accounting procedures and practices prescribed by the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions and the National Association of Insurance Commissioners Annual Statement Instructions, subject to any deviations prescribed by the commissioner.

Sec. 12. Subsection (a) of section 38a-444 of the general statutes is repealed and the following is substituted in lieu thereof:

(a) For purposes of this section: (1) "Policy" means all contracts of life insurance which provide for policy loans, certificates insuring persons against loss of life issued by a fraternal benefit society and annuity contracts which provide for such loans; [(2) the term "policy loan" means any loan made under a policy or any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they became due] (2) "policy loan" means a loan to a policyholder, under the provisions of an insurance contract, that is secured by the cash surrender value or collateral assignment of the related policy or contract. "Policy loan" includes: (A) Cash loans, including loans resulting from early payment benefits or accelerated payment benefits, on contracts when the terms of the contract specify that such payments are policy loans secured by the policy, and (B) automatic premium loans, which are loans made in accordance with policy provisions whereby delinquent premium payments are automatically paid from the cash value at the end of the established grace period for premium payments; (3) [the term] "policyholder" includes the owner of the policy or the person designated to pay premiums as shown in the records of the life insurer; (4) "published monthly average" means: (A) Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investors Service, Inc. or any successor thereto; or (B) in the event that Moody's Corporate Bond Yield Average-Monthly Average Corporates is no longer published, a substantially similar average, established by the Insurance Commissioner in regulations [he] the commissioner may adopt in accordance with the provisions of chapter 54; (5) the rate of interest permitted under this section on policy loans includes the rate of interest charged on reinstatement of policy loans for the period during and after any lapse of a policy.

Sec. 13. Section 38a-610 of the general statutes is repealed and the following is substituted in lieu thereof:

(a) A society may create, maintain and operate charitable, benevolent or educational institutions for the benefit of its members and their families and dependents and for the benefit of children insured by the society. For such purpose it may own, hold or lease personal property or real property located within or without this state, with necessary buildings thereon.

(b) Such property shall be reported in every annual statement [but shall not be allowed as an admitted asset] of the society in accordance with the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, version effective January 1, 2001, and subsequent revisions. Maintenance, treatment and proper attendance in any such institution may be furnished free or a reasonable charge may be made therefor, but no such institution shall be operated for profit. The society shall maintain a separate accounting of any income and disbursements under this section and report them in its annual statement.

(c) No society shall own or operate funeral homes or undertaking establishments.

Sec. 14. This act shall take effect January 1, 2001.

Approved May 1, 2000