CHAPTER 698
INSURERS

Table of Contents

Sec. 38a-88a. Connecticut insurance reinvestment funds, authorized. Tax credits. Regulations.
Sec. 38a-91aa. *(See end of section for amended version and effective date.) Definitions.
Sec. 38a-91bb. *(See end of section for amended version and effective date.) Captive insurance companies. Licenses. Fees.
Sec. 38a-91dd. *(See end of section for amended version and effective date.) Capital and surplus requirements.
Sec. 38a-91ee. *(See end of section for amended version and effective date.) Payment of dividends and other distributions.
Sec. 38a-91ff. *(See end of section for amended version and effective date.) Incorporation and formation.
Sec. 38a-91gg. *(See end of section for amended version and effective date.) Annual reports.
Sec. 38a-91hh. *(See end of section for amended version and effective date.) Examinations of captive insurance companies. Costs. Confidentiality of financial examination workpapers and reports.
Sec. 38a-91ii. *(See end of section for amended version and effective date.) Suspension, revocation or refusal to renew license.
Sec. 38a-91jj. *(See end of section for amended version of subsection (a) and effective date.) Applicability of state investment laws. Certain loans and investments required to be approved by commissioner. Loans of minimum capital and surplus funds prohibited.
Sec. 38a-91kk. *(See end of section for amended version of subsection (c) and effective date.) Reinsurance.
Sec. 38a-91nn. *(See end of section for amended version and effective date.) Premium receipts tax.
Sec. 38a-91oo. *(See end of section for amended version and effective date.) Applicability of insurance statutes.
Sec. 38a-91pp. *(See end of section for amended version and effective date.) Conversions and mergers. Approval by commissioner.
Sec. 38a-91qq. *(See end of section for amended version and effective date.) Regulations.
Sec. 38a-91rr. (Note: This section is effective July 1, 2012.) Establishment of protected cells and incorporated protected cells by a sponsored captive insurance company.
Sec. 38a-91ss. (Note: This section is effective July 1, 2012.) Additional requirements for a special purpose financial captive insurance company.
Sec. 38a-91tt. (Note: This section is effective July 1, 2012.) Additional requirements for a sponsored captive insurance company licensed as a special purpose financial captive insurance company.
Sec. 38a-155. (Formerly Sec. 38-42b). Conversion of hospital service corporation and medical service corporation to mutual insurance company. Procedure. Authorized agents to sell products.

PART II
FINANCIAL REQUIREMENTS

      Sec. 38a-88a. Connecticut insurance reinvestment funds, authorized. Tax credits. Regulations. (a) As used in this section:

      (1) "Facility" means an insurance business facility;

      (2) "Insurance business" means a business with a North American Industry Classification System code of 524113 to 524298, inclusive, that is engaged in the business of insuring risks or of providing services necessary to the business of insuring risks;

      (3) "New job" means a job that did not exist in the business of a subject insurance business in this state prior to the subject insurance business's application to the commissioner for an eligibility certificate under this section for a new facility and that is filled by a new employee, but does not include a job created when an employee is shifted from an existing location of the subject insurance business in this state to a new facility;

      (4) "New employee" means a person who resides in Connecticut and is hired by a subject insurance business to fill a position for a new job or a person shifted from an existing location of the subject insurance business outside this state to a new facility in this state, provided (A) in no case shall the total number of new employees allowed for purposes of this credit exceed the total increase in the taxpayer's employment in this state, which increase shall be the difference between (i) the number of employees employed by the subject insurance business in this state at the time of application for an eligibility certificate to the commissioner plus the number of new employees who would be eligible for inclusion under the credit allowed under this section without regard to this calculation, and (ii) the highest number of employees employed by the subject insurance business in this state in the year preceding the subject insurance business's application for an eligibility certificate to the commissioner, and (B) a person shall be deemed to be a "new employee" only if such person's duties in connection with the operation of the facility are on a regular, full-time, or equivalent thereof, and permanent basis;

      (5) "New facility" means a facility which (A) is acquired by, leased to, or constructed by, a subject insurance business on or after the date of the subject insurance business's application to the commissioner for an eligibility certificate under this section, unless, upon application of the subject insurance business and upon good and sufficient cause shown, the commissioner waives the requirement that such activity take place after the application, and (B) was not in service or use during the one-year period immediately prior to the date of the subject insurance business's application to said commissioner for an eligibility certificate under this section, unless upon application of the subject insurance business and upon good and sufficient cause shown, the commissioner consents to waiving the one-year period;

      (6) "Related person" means (A) a corporation, limited liability company, partnership, association or trust controlled by the taxpayer or subject insurance business, as the case may be, (B) an individual, corporation, limited liability company, partnership, association or trust that is in control of the taxpayer or subject insurance business, as the case may be, (C) a corporation, limited liability company, partnership, association or trust controlled by an individual, corporation, limited liability company, partnership, association or trust that is in control of the taxpayer or subject insurance business, as the case may be, or (D) a member of the same controlled group as the taxpayer or subject insurance business, as the case may be. For purposes of this section, "control", with respect to a corporation, means ownership, directly or indirectly, of stock possessing fifty per cent or more of the total combined voting power of all classes of the stock of such corporation entitled to vote. "Control", with respect to a trust, means ownership, directly or indirectly, of fifty per cent or more of the beneficial interest in the principal or income of such trust. The ownership of stock in a corporation, of a capital or profits interest in a partnership or association or of a beneficial interest in a trust shall be determined in accordance with the rules for constructive ownership of stock provided in Section 267(c) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, other than paragraph (3) of Section 267(c) of said internal revenue code;

      (7) "Moneys of the taxpayer" means all amounts invested in a fund, directly or indirectly, on behalf of a taxpayer, including but not limited to (A) direct investments made by the taxpayer, and (B) loans made to the fund for the benefit of the taxpayer which loans are guaranteed by the taxpayer, provided no amounts represented by any such loan shall be used for the purpose of obtaining any tax credit by any person making such loan against any tax levied by this state;

      (8) "Income year" means (A) with respect to corporations subject to taxation under chapter 208, the income year as determined under said chapter, (B) with respect to insurance companies, hospital and medical services corporations subject to taxation under chapter 207, the income year as determined under said chapter, and (C) with respect to taxpayers subject to taxation under chapter 229, the taxable year determined under chapter 229;

      (9) "Taxpayer" means any person as defined in section 12-1, whether or not subject to any taxes levied by this state; and

      (10) "Commissioner" means the Commissioner of Economic and Community Development.

      (b) (1) On or before July 1, 2000, the commissioner shall register managers of funds created for the purpose of investing in insurance businesses. Any manager registered under this subsection shall have its primary place of business in this state. Each applicant shall submit an application under oath to the commissioner to be registered and shall furnish evidence satisfactory to the commissioner of its financial responsibility, integrity, and professional competence to manage investments. Failure to maintain adequate fiduciary standards shall constitute cause for the commissioner to revoke, after hearing, any registration granted under this section. The fund manager shall make a report on or before the first day of March in each year, under oath, to the Commissioner of Revenue Services specifying the name, address and Social Security number or employer identification number of each investor, the year during which each investment was made by each investor, the amount of each investment and a description of the fund's investment objectives and relative performance.

      (2) There shall be allowed as a credit against the tax imposed under chapter 207, 208 or 229 or section 38a-743 an amount equal to the following percentage of the moneys of the taxpayer invested through a fund manager in an insurance business with respect to the following income years of the taxpayer: (A) With respect to the income year in which the investment in the subject insurance business was made and the two next succeeding income years, zero per cent; (B) with respect to the third full income year succeeding the year in which the investment in the subject insurance business was made and the three next succeeding income years, ten per cent; (C) with respect to the seventh full income year succeeding the year in which the investment in the subject insurance business was made and the two next succeeding income years, twenty per cent. The sum of all tax credit granted pursuant to the provisions of this subsection shall not exceed fifteen million dollars with respect to investments made by a fund or funds in any single insurance business, and with respect to all investments made by a fund shall not exceed the total amount originally invested in such fund. Any fund manager may apply to the Commissioner of Economic and Community Development for a credit that exceeds the limitations established by this subdivision. The commissioner shall evaluate the benefits of such application and make recommendations to the General Assembly if he determines that the proposal would be of economic benefit to the state.

      (3) The credit allowed by this subsection may be claimed only by a taxpayer who has invested in an insurance business through a fund (A) which has a total asset value of not less than thirty million dollars for the income year for which the initial credit is taken; (B) has not less than three investors who are not related persons with respect to each other or to any insurance business in which any investment is made other than through the fund at the date the investment is made; and (C) which invests only in insurance businesses that are not related persons with respect to each other.

      (4) The credit allowed by this subsection may be claimed only with respect to a subject insurance business which (A) occupies the new facility for which an eligibility certificate has been issued by the commissioner and with respect to which the certification required under subdivision (6) of this subsection has been issued as its home office, and (B) employs not less than twenty-five per cent of its total work force in new jobs.

      (5) The credit allowed by this subsection may be claimed only with respect to an income year for which a certification of continued eligibility required under subdivision (6) of this subsection has been issued. If, with respect to any year for which a tax credit is claimed, any subject insurance business ceases at any time to employ at least twenty-five per cent of its total work force in new jobs, then, except as provided in subdivision (6) of this subsection, the entitlement to the credit allowed by this subsection shall not be allowed for the taxable year in which such employment ceases, and there shall not be a pro rata application of the credit to such taxable year; provided, if the reason for such cessation is the dissolution, liquidation or reorganization of such insurance business in a bankruptcy or delinquency proceeding, as defined in section 38a-905, the credit shall be allowed.

      (6) The commissioner, upon application, shall issue an eligibility certificate for an insurance business occupying a new facility in this state and employing new employees, after it has been established, to his satisfaction, that subject insurance business has complied with the provisions of this subsection. If the commissioner determines that such requirements have been met as a result of transactions with a related person for other than bona fide business purposes, he shall deny such application. The commissioner shall require the subject insurance business to submit annually such information as may be necessary to determine whether the appropriate occupancy and employment requirements have been met at all times during an income year. If the commissioner determines that such requirements have been so met, he shall issue a certification of continued eligibility to that effect to the subject insurance business on or before the first day of the third month following the close of the subject insurance business's income year.

      (7) The commissioner shall, upon request, provide a copy of the eligibility certificate and the certification required under subdivision (6) of this subsection to the Commissioner of Revenue Services.

      (8) (A) If (i) the number of new employees on account of which a taxpayer claimed the credit allowed by this subsection decreases to less than twenty-five per cent of its total work force for more than sixty days during any of the taxable years for which a credit is claimed, (ii) those employees are not replaced by other employees who have not been shifted from an existing location of the subject insurance business in this state, and (iii) the subject insurance business has relocated operations conducted in the new facility to a location outside this state, the taxpayer shall be required to recapture a percentage, as determined under the provisions of subparagraph (B) of this subdivision, of the credit allowed under this subsection on its tax return and no subsequent credit shall be allowed. If the credit claimed by the taxpayer under this subsection is attributable to investments made in more than one insurance business, the credit recaptured and disallowed under this subdivision shall be that portion of the credit attributable to the investment in the insurance business as described in subparagraphs (A)(i) to (A)(iii), inclusive, of this subdivision.

      (B) If the taxpayer is required under the provisions of subparagraph (A) of this subdivision to recapture a portion of the credit during (i) the first year such credit was claimed, then ninety per cent of the credit allowed shall be recaptured on the tax return required to be filed for such year, (ii) the second of such years, then sixty-five per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year, (iii) the third of such years, then fifty per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year, (iv) the fourth of such years, then thirty per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year, (v) the fifth of such years, then twenty per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year, and (vi) the sixth or subsequent of such years, then ten per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year. Any credit recaptured pursuant to this subdivision shall not be in excess of the credit that would be allowed for the applicable investment. The Commissioner of Revenue Services may recapture such credits from the taxpayer who has claimed such credits. If the commissioner is unable to recapture all or part of such credits from such taxpayer, the commissioner may seek to recapture such credits from any taxpayer who has assigned such credits to another taxpayer. If the commissioner is unable to recapture all or part of such credits from any such taxpayer, the commissioner may recapture such credits from the fund.

      (C) The recapture provisions of this subdivision shall not apply and tax credits may continue to be claimed under this subsection if, for the entire period that the credit is applicable, such decrease in the percentage of total work force employed in this state does not result in an actual decrease in the number of persons employed by the subject insurance business in this state on a regular, full-time, or equivalent thereof, and permanent basis as compared to the number of new employees on account of which the taxpayer claimed the credit allowed by this subsection.

      (c) (1) As used in this subsection:

      (A) "Allocation date" means the date an insurance reinvestment fund receives an investment of eligible capital equaling the amount of credits against the tax imposed under chapter 207 and section 38a-743 allocated to taxpayers who invest in such insurance reinvestment fund;

      (B) "Eligible business" means a business that has its principal business operations in Connecticut, has fewer than two hundred fifty employees at the time of investment and not more than ten million dollars in net income in the previous year;

      (C) "Eligible capital" means an investment of cash by a taxpayer in an insurance reinvestment fund that fully funds the purchase price of an equity interest in the insurance reinvestment fund or an eligible debt instrument issued by an insurance reinvestment fund, at par value or a premium, that (i) has an original maturity date of at least five years after the date of issuance, (ii) has a repayment schedule that is not faster than a level principal amortization over five years, and (iii) has no interest, distribution or payment features tied to the insurance reinvestment fund's profitability or the success of the investments;

      (D) "Green technology business" means an eligible business with not less than twenty-five per cent of its employment positions being positions in which green technology is employed or developed and may include the occupation codes identified as green jobs by the Department of Economic and Community Development and the Labor Department for such purposes;

      (E) "Income year" means the income year as determined in chapter 207 for the taxpayer;

      (F) "Insurance reinvestment fund" means a Connecticut partnership, corporation, trust or limited liability company, whether organized on a profit or not-for-profit basis, that (i) is managed by at least two principals or persons that have at least four years of experience each in managing venture capital or private equity funds, with at least fifty million dollars of such funds from people unaffiliated with the manager, (ii) has received an equity investment of capital other than eligible capital equal to no less than five per cent of the total amount of the eligible capital to be invested in such insurance reinvestment fund, and (iii) is not, or will not be after the receipt of eligible capital, controlled by or under common control with, one or more insurance companies. An investment of eligible capital shall not result in insurance company control unless such investment exceeds forty million dollars per taxpayer and results in insurance companies having the right to vote more than fifty per cent of the equity interests of the insurance reinvestment fund cash invested in such insurance reinvestment fund, provided this provision shall not prohibit the interim control of an insurance reinvestment fund by one or more insurance companies upon a breach of any payment obligation of the insurance reinvestment fund or contractual or other agreement by the insurance reinvestment fund that is designed to ensure compliance with this section; and

      (G) "Principal business operations" means at least eighty per cent of the business organization's employees reside in the state or eighty per cent of the business payroll is paid to individuals living in this state.

      (2) A taxpayer that makes an investment of eligible capital shall, in the year of investment, earn a vested credit against the premium tax imposed pursuant to chapter 207 and section 38a-743. Such credit shall be available as follows: (A) Commencing with the tax return due for the first to third, inclusive, tax years, zero per cent; (B) commencing with the tax return due for the fourth to seventh, inclusive, tax years, not more than ten per cent; and (C) commencing with the tax return due for the eighth to tenth, inclusive, tax years, not more than twenty per cent. The maximum amount of eligible capital for which credits may be allowed under this subsection shall not result in more than forty million dollars of tax credits being used in any one year exclusive of any carried forward credits and no fund shall apply for more than the total amount of credits available under this section.

      (3) On or before July 1, 2010, the Commissioner of Economic and Community Development shall begin to accept applications for certification as an insurance reinvestment fund and for allocations of tax credits under this subsection. Applications shall include: (A) The amount of eligible capital the applicant will raise; (B) a nonrefundable application fee of seven thousand five hundred dollars; (C) evidence of satisfaction of the requirements of the definition of "insurance reinvestment fund" pursuant to subparagraph (F) of subdivision (1) of this subsection; (D) an affidavit by each taxpayer committing an investment of eligible capital; (E) a business plan detailing (i) the approximate percentage of eligible capital the applicant will invest in eligible businesses by the third, fifth, seventh and ninth anniversaries of its allocation date, (ii) the industry segments listed by the North American Industrial Classification System code and percentage of eligible capital in which the applicant will invest, (iii) the number of jobs that will be created or retained as a result of the applicant's investments once all eligible capital has been invested, (iv) the percentage of eligible capital to be invested in eligible businesses primarily engaged in conducting research and development or manufacturing, processing or assembling technology-based products; and (v) a revenue impact assessment demonstrating that the applicant's business plan has a revenue neutral or positive impact on the state; (F) a commitment to invest at least twenty-five per cent of its eligible capital in green technology businesses; and (G) a commitment to invest by the third anniversary of its allocation date, three per cent of its eligible capital in preseed investments in consultation with Connecticut Innovations, Incorporated, pursuant to the corporation's program for preseed financing established pursuant to section 32-41x. The commissioner may require the applicant to obtain a revenue impact assessment conducted by an independent third party.

      (4) Applications for tax credits pursuant to this subsection shall be accepted and approved on a first-come, first-served basis with all applications received on the same date deemed to be received simultaneously and approvals being made on a pro rata basis if such applications exceed the amount of remaining credits.

      (5) The commissioner shall issue an allocation of credits subject to confirmation on a form prescribed by the commissioner by the fund that an investment of eligible capital was received within five business days. If an insurance reinvestment fund does not receive an investment of eligible capital equaling the amount of credits against the tax imposed under chapter 207 and section 38a-743 allocated to a taxpayer, for which it filed an affidavit with its application prior to the fifth business day after receipt of certification, the insurance reinvestment fund shall notify the commissioner by overnight common carrier delivery service and that portion of eligible capital allocated to the insurance company shall be forfeited. Such insurance reinvestment fund and forfeiting taxpayer shall each be assessed a twenty-five-thousand-dollar administrative penalty. The commissioner shall reallocate the forfeited eligible capital among all other remaining taxpayers that invested eligible capital.

      (6) To continue to be certified, an insurance reinvestment fund shall (A) be in compliance with the investment parameters set forth in its business plan, provided an insurance reinvestment fund may apply to the commissioner to amend its business plan based on unavoidable or reasonably unanticipated changes to various conditions, including, but not limited to, the general economic climate of the state or particular sectors of the economy, technological advances and high employment and revenue growth opportunities, with approval for such changes not to be unreasonably withheld by the commissioner; (B) be in compliance with the revenue impact assessment provided in the application demonstrating that the fund's business plan continues to have a revenue neutral or positive impact on the state; (C) have invested sixty per cent of its eligible capital in eligible businesses by the fourth anniversary of its allocation date; and (D) have invested one hundred per cent of its eligible capital in eligible businesses by the tenth anniversary of its allocation date, with a minimum of twenty-five per cent of eligible capital invested in green technology businesses. An insurance reinvestment fund shall only invest eligible capital in eligible businesses, bank deposits, certificates of deposit or other fixed income securities and may not invest more than fifteen per cent of its eligible capital in any one eligible business without prior approval of the commissioner.

      (7) Not later than January thirty-first annually, each insurance reinvestment fund shall report to the commissioner: (A) The amount of eligible capital remaining at the end of the preceding year; (B) each investment in an eligible business during the preceding year and, with respect to each eligible business, its location and North American Industrial Classification System code; (C) the percentage of eligible capital invested in green technology businesses; and (D) distributions made by the insurance reinvestment fund in the preceding year. In the annual report due in the third, fifth, seventh and ninth years after its allocation date, each insurance reinvestment fund shall also report to the commissioner its compliance with the investment parameters set forth in its business plan and the revenue impact assessment provided in the application demonstrating that the fund's business plan continues to have a revenue neutral or positive impact on the state. Each insurance reinvestment fund shall provide to the commissioner annual audited financial statements.

      (8) To make a distribution or payment, an insurance reinvestment fund must have invested one hundred per cent of its eligible capital in eligible businesses, with a minimum of twenty-five per cent of eligible capital invested in green technology businesses, with principal business operations in this state at the time of such determination, except: (A) Distributions related to the payment of any projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the equity owners of the insurance reinvestment fund resulting from the earnings or other tax liability of the insurance reinvestment fund to the extent that the increase is related to the ownership, management or operation of the insurance reinvestment fund; (B) payments of interest and principal on the debt of the insurance reinvestment fund, provided after such payment, the insurance reinvestment fund still has cash and other marketable securities in an amount that, when added to the cumulative investments it has made in eligible recipients, equals not less than sixty per cent of the eligible capital invested in such reinvestment fund; or (C) payments related to the reasonable costs and expenses of forming, syndicating, managing and operating the fund, provided the distribution or payment is not made directly or indirectly to an insurance company that has invested eligible capital in the insurance reinvestment fund, including: (i) Reasonable and necessary fees paid for professional services, including legal and accounting services, related to the formation and operation of the insurance reinvestment fund; and (ii) an annual management fee in an amount that does not exceed two and one-half per cent of the eligible capital of the insurance reinvestment fund. The state shall receive a share of any distribution, except as set forth in subparagraphs (A), (B) and (C) of this subsection and distributions made to return any equity capital invested in the insurance reinvestment fund that is not eligible capital, in the following percentages: (I) Ten per cent when less than eighty per cent but more than sixty per cent of the jobs set forth in the insurance reinvestment fund's business plan are created or retained, and (II) twenty per cent when sixty per cent or less of the jobs set forth in the insurance reinvestment fund's business plan are created or retained.

      (9) The commissioner shall review each annual report to ensure compliance with subdivisions (6), (7) and (8) of this subsection. A material variation of subdivision (6), (7) or (8) of this subsection is grounds for decertification of the insurance reinvestment fund. If the commissioner determines that an insurance reinvestment fund is not in compliance with subdivision (6), (7) or (8) of this subsection or the investment parameters of its business plan, the commissioner shall notify the officers of the insurance reinvestment fund, in writing, that the insurance reinvestment fund may be subject to decertification after the one hundred twentieth day after the date of mailing the notice, unless the deficiencies are waived by the commissioner or are corrected and the insurance reinvestment fund returns to compliance with subdivisions (6), (7) and (8) of this subsection.

      (10) Decertification of an insurance reinvestment fund shall cause the forfeiture of future credits against the tax imposed by chapter 207 and section 38a-743 to be claimed with respect to an insurance reinvestment fund when (A) such decertification occurs on or before the fourth anniversary of the fund's allocation date, and (B) such fund has invested less than sixty per cent of its eligible capital in eligible businesses by said anniversary. The commissioner shall send written notice to the last-known address of each taxpayer whose credit against the tax imposed by chapter 207 is subject to recapture or forfeiture.

      (d) The tax credit allowed by this section shall only be available for investments (1) in funds that are not open to additional investments or investors beyond the amount subscribed at the formation of the fund, or (2) under subsection (c) of this section, in insurance reinvestment funds that are not open to additional investments or investors after submission of the insurance reinvestments fund's application to the commissioner pursuant to subsection (c) of this section. On and after June 30, 2010, no eligibility certificate shall be provided under subdivision (6) of subsection (b) of this section for investments made in an insurance business. On or after July 1, 2011, no credit shall be allowed under subdivision (2) or (6) of subsection (b) of this section for an investment of less than one million dollars for which the commissioner has issued an eligibility certificate. A fund manager who has received an eligibility certificate but is not yet eligible to receive a certificate of continued eligibility shall provide documentation satisfactory to the commissioner not later than June 30, 2011, of its investment of one million dollars or more. Such documentation shall include, but is not limited to, cancelled checks, wire transfers, investment agreements or other documentation as the commissioner may request. On and after July 1, 2011, the commissioner shall revoke the certificate of eligibility for any insurance business for which its fund manager failed to provide sufficient documentation of said investment of not less than one million dollars. Any credit allowed under subsection (b) or subsection (g) of this section that has not been claimed prior to January 1, 2010, may be carried forward pursuant to subsection (i) of this section.

      (e) The maximum amount of credit allowed under subsection (c) of this section shall be two hundred million dollars in aggregate and forty million dollars per year.

      (f) (1) The Commissioner of Revenue Services may treat one or more corporations that are properly included in a combined corporation business tax return under section 12-223 as one taxpayer in determining whether the appropriate requirements under this section are met. Where corporations are treated as one taxpayer for purposes of this subsection, then the credit shall be allowed only against the amount of the combined tax for all corporations properly included in a combined return that, under the provisions of subdivision (2) of this subsection, is attributable to the corporations treated as one taxpayer. (2) The amount of the combined tax for all corporations properly included in a combined corporation business tax return that is attributable to the corporations that are treated as one taxpayer under the provisions of this subsection shall be in the same ratio to such combined tax that the net income apportioned to this state of each corporation treated as one taxpayer bears to the net income apportioned to this state, in the aggregate, of all corporations included in such combined return. Solely for the purpose of computing such ratio, any net loss apportioned to this state by a corporation treated as one taxpayer or by a corporation included in such combined return shall be disregarded.

      (g) Any taxpayer allowed a credit under subsection (b) of this section may assign such credit to another person, provided such person may claim such credit only with respect to a calendar year for which the assigning taxpayer would have been eligible to claim such credit. The fund manager shall include in the report filed with the Commissioner of Revenue Services in accordance with subdivision (1) of subsection (b) of this section information requested by the commissioner regarding such assignments including the current holders of credits as of the end of the preceding calendar year. Any taxpayer allowed a credit under subsection (c) of this section may transfer such credit to an affiliate of such taxpayer.

      (h) No taxpayer shall be eligible for a credit under this section and either section 12-217e or section 12-217m for the same investment. No two taxpayers shall be eligible for any tax credit with respect to the same investment, employee or facility.

      (i) Any tax credit not used in the income year for which it was allowed may be carried forward for the five immediately succeeding income years until the full credit has been allowed.

      (j) The commissioner, with the approval of the Commissioner of Revenue Services and the Secretary of the Office of Policy and Management, may adopt regulations in accordance with chapter 54 to carry out the purposes of this section.

      (P.A. 94-214, S. 1, 4; P.A. 95-79, S. 139, 189; 95-303, S. 2, 3; P.A. 97-292, S. 1, 4; P.A. 98-214, S. 31; P.A. 00-170, S. 30, 31, 42; P.A. 01-139, S. 3; June Sp. Sess. P.A. 01-6, S. 39, 72, 80, 85; P.A. 02-24, S. 1; P.A. 06-159, S. 21; P.A. 08-82, S. 1; P.A. 10-75, S. 14; P.A. 11-104, S. 6, 7; 11-140, S. 2.)

      History: P.A. 94-214, effective June 7, 1994, and applicable (1) to income years of corporations under chapter 208 commencing on or after January 1, 1994, (2) to income years of insurance companies, hospital and medical services corporations under chapter 207 commencing on or after January 1, 1994, or (3) taxable years of taxpayers under chapter 229 commencing on or after January 1, 1994, as the case may be; P.A. 95-79 redefined "related person" to include a limited liability company, effective May 31, 1995; P.A. 95-303 added Subsec. (a)(7) defining "moneys of the taxpayer" and (a)(8) defining "income year", amended Subsec. (c) to add reference to Sec. 38a-743 and to delete Subsec. (c)(1) and (2), and added new Subsec. (c)(1) to (3) re amount of credit, made technical changes to Subsec. (d), added proviso to Subsec. (f) re dissolution as the result of bankruptcy or delinquency proceeding, added provision to Subsec. (i) re credit claimed which is attributable to investments in more than one insurance business, deleted reference to Ch. 207 in Subsec. (l), and made technical changes to Subsec. (m), effective July 6, 1995, and applicable (1) to income years of corporations under Ch. 208 commencing on or after January 1, 1995, (2) to income years of insurance companies, hospital and medical services corporations under Ch. 207 commencing on or after January 1, 1995, or (3) to taxable years of taxpayers under Ch. 229 commencing on or after January 1, 1995, as the case may be; P.A. 97-292 added Subsec. (a)(9) and (10) defining "taxpayer" and "commissioner", amended Subsec. (b) to transfer from Insurance Commissioner to the Commissioner of Economic and Community Development responsibility for registration of fund managers and add application requirements, Subsec. (c) to add cap for sum of all tax credit granted and provision for application for credit to exceed cap, Subsec. (d) to prohibit investments by related persons, Subsec. (e) to delete requirement of incorporation in this state, Subsec. (i) to allow Commissioner of Revenue Services to recapture credits from any taxpayer who has assigned credits to another taxpayer or from the fund, Subsec. (j) to delete existing language and to provide that tax credit is only available for investments in fund not open to additional investments beyond the amount subscribed at formation of fund, Subsec. (l) to add requirement re reporting of assignments and made technical changes, effective July 8, 1997, and applicable to income years commencing on or after January 1, 1997; P.A. 98-214 amended Subsec. (f) to delete reference to "subsection (d)" of Sec. 38a-905; P.A. 00-170 amended Subsec. (b) to provide that registration of fund managers be accomplished prior to July 1, 2000, and amended Subsec. (j) to restrict the applicability of the tax credit under this section to funds created prior to July 1, 2000, effective May 26, 2000; P.A. 01-139 amended Subsec. (e) to substitute "commissioner" for "Insurance Commissioner"; June Sp. Sess. P.A. 01-6 amended Subsec. (f) to add liquidation and reorganization to provision for treatment of credits in certain bankruptcy or delinquency cases, amended Subsec. (i) to make a technical change and add new Subdiv. (3) re application of recapture provisions and amended Subsec. (j) to provide that no credit shall be allowed for investments made after December 31, 2015, effective July 1, 2001; P.A. 02-24 amended Subsec. (f) to substitute "a bankruptcy" for "bankruptcy"; P.A. 06-159 amended Subsec. (h) to require commissioner, rather than taxpayer, to provide a copy of eligibility certificate and certificaton, effective June 6, 2006; P.A. 08-82 amended Subsec. (a)(2) to redefine "insurance business" by adding provision re businesses with North American Industry Classification System codes of 524113 to 524298, inclusive, and made a technical change in Subsec. (a)(4), (5) and (7); P.A. 10-75 redefined "new employee" in Subsec. (a)(4) to require person to reside in Connecticut, redesignated existing Subsecs. (b) to (i) as Subsecs. (b)(1) to (b)(8), added new Subsec. (c) re tax credits for investments of eligible capital, redesignated existing Subsec. (j) as Subsec. (d) and amended same by designating existing provision re funds not open to investment as Subdiv. (1), adding Subdiv. (2) re funds under Subsec. (c) not open to investment and establishing deadlines re eligibility certificates, added new Subsec. (e) re maximum credit, redesignated existing Subsecs. (k) to (o) as Subsecs. (f) to (j) and made technical changes, effective July 1, 2010; P.A. 11-104 made technical changes in Subsecs. (b)(4) and (c)(3), effective July 8, 2011; P.A. 11-140 amended Subsec. (g) to allow transfer of credits to a taxpayer's affiliate, effective July 8, 2011.

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PART IIa
MANAGING GENERAL AGENTS AND CONTROLLED INSURERS.
CAPTIVE INSURANCE COMPANIES

      Sec. 38a-91aa. *(See end of section for amended version and effective date.) Definitions. As used in sections 38a-91aa to 38a-91qq, inclusive:

      (1) "Affiliated company" means any company in the same corporate system as a parent, an industrial insured or a member organization by virtue of common ownership, control, operation or management.

      (2) "Association" means any legal association of individuals, corporations, limited liability companies, partnerships, associations or other entities that has been in continuous existence for at least one year, where the association itself or some or all of the member organizations:

      (A) Own, control or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer;

      (B) Have complete voting control over an association captive insurance company incorporated as a mutual insurer; or

      (C) Constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer.

      (3) "Association captive insurance company" means any company that insures risks of the member organizations of the association and their affiliated companies.

      (4) "Captive insurance company" means any pure captive insurance company, association captive insurance company, industrial insured captive insurance company or risk retention group that is domiciled in this state and formed or licensed under the provisions of sections 38a-91aa to 38a-91qq, inclusive.

      (5) "Commissioner" means the Insurance Commissioner.

      (6) "Controlled unaffiliated business" means any company:

      (A) That is not in the corporate system of a parent and affiliated companies;

      (B) That has an existing contractual relationship with a parent or affiliated company; and

      (C) Whose risks are insured by a pure captive insurance company in accordance with section 38a-91qq.

      (7) "Excess workers' compensation insurance" means, in the case of an employer that has insured or self-insured its workers' compensation risks in accordance with applicable state or federal law, insurance in excess of a specified per-incident or aggregate limit established by the commissioner.

      (8) "Industrial insured" means an insured:

      (A) Who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer;

      (B) Whose aggregate annual premiums for insurance on all risks total at least twenty-five thousand dollars; and

      (C) Who has at least twenty-five full-time employees.

      (9) "Industrial insured captive insurance company" means any company that insures risks of the industrial insureds that comprise the industrial insured group and their affiliated companies.

      (10) "Industrial insured group" means any group of industrial insureds that collectively:

      (A) Own, control or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer;

      (B) Have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer; or

      (C) Constitute all of the subscribers of an industrial insured captive insurance company formed as a reciprocal insurer.

      (11) "Member organization" means any individual, corporation, limited liability company, partnership, association or other entity that belongs to an association.

      (12) "Mutual corporation" means a corporation organized without stockholders and includes a nonprofit corporation with members.

      (13) "Parent" means a corporation, limited liability company, partnership, other entity or individual that directly or indirectly owns, controls or holds with power to vote more than fifty per cent of the outstanding voting:

      (A) Securities of a pure captive insurance company organized as a stock corporation; or

      (B) Membership interests of a pure captive insurance company organized as a nonprofit corporation.

      (14) "Pure captive insurance company" means any company that insures risks of its parent and affiliated companies or controlled unaffiliated business.

      (15) "Risk retention group" means a captive insurance company organized under the laws of this state pursuant to the federal Liability Risk Retention Act of 1986, 15 USC 3901 et seq., as amended from time to time, as a stock or mutual corporation, a reciprocal or other limited liability entity.

      (P.A. 08-127, S. 1.)

      *Note: On and after July 1, 2012, this section, as amended by section 56 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91aa. Definitions. As used in sections 38a-91aa to 38a-91tt, inclusive:

      (1) "Affiliated company" means any company in the same corporate system as a parent, an industrial insured or a member organization by virtue of common ownership, control, operation or management.

      (2) "Alien captive insurance company" means any insurance company formed to write insurance business for its parent and affiliated companies and licensed pursuant to the laws of an alien jurisdiction that imposes statutory or regulatory standards on companies transacting the business of insurance in such jurisdiction that the commissioner deems to be acceptable.

      (3) "Association" means any legal association of individuals, corporations, limited liability companies, partnerships, associations or other entities that has been in continuous existence for at least one year, where the association itself or some or all of the member organizations:

      (A) Directly or indirectly own, control or hold with power to vote all of the outstanding voting securities or other voting interests of an association captive insurance company incorporated as a stock insurer;

      (B) Have complete voting control over an association captive insurance company incorporated as a mutual corporation or formed as a limited liability company; or

      (C) Constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer.

      (4) "Association captive insurance company" means any company that insures risks of the member organizations of an association, and includes a company that also insures risks of such member organizations' affiliated companies or of the association.

      (5) "Branch business" means any insurance business transacted in this state by a branch captive insurance company.

      (6) "Branch captive insurance company" means any alien captive insurance company licensed by the commissioner to transact the business of insurance in this state through a business unit with a principal place of business in this state.

      (7) "Branch operations" means any business operations in this state of a branch captive insurance company.

      (8) "Captive insurance company" means any (A) pure captive insurance company, association captive insurance company, industrial insured captive insurance company, risk retention group, sponsored captive insurance company or special purpose financial captive insurance company that is domiciled in this state and formed or licensed under the provisions of sections 38a-91aa to 38a-91tt, inclusive, or (B) branch captive insurance company.

      (9) "Ceding insurer" means an insurance company, approved by the commissioner and licensed or otherwise authorized to transact the business of insurance or reinsurance in its state or country of domicile, that cedes risk to a special purpose financial captive insurance company pursuant to a reinsurance contract.

      (10) "Commissioner" means the Insurance Commissioner.

      (11) "Controlled unaffiliated business" means any person:

      (A) Who, (i) in the case of a pure captive insurance company, is not in the corporate system of a parent and the parent's affiliated companies, or (ii) in the case of an industrial insured captive insurance company, is not in the corporate system of an industrial insured and the industrial insured's affiliated companies;

      (B) Who, (i) in the case of a pure captive insurance company, has an existing contractual relationship with a parent or one of the parent's affiliated companies, or (ii) in the case of an industrial insured captive insurance company, has an existing contractual relationship with an industrial insured or one of the industrial insured's affiliated companies; and

      (C) Whose risks are managed by a pure captive insurance company or an industrial insured captive insurance company, as applicable, in accordance with section 38a-91qq.

      (12) "Excess workers' compensation insurance" means, in the case of an employer that has insured or self-insured its workers' compensation risks in accordance with applicable state or federal law, insurance in excess of a specified per-incident or aggregate limit established by the commissioner.

      (13) "Incorporated protected cell" means a protected cell that is established as a corporation or a limited liability company, separate from the sponsored captive insurance company with which it has entered into a participant contract.

      (14) "Industrial insured" means an insured:

      (A) Who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer;

      (B) Whose aggregate annual premiums for insurance on all risks total at least twenty-five thousand dollars; and

      (C) Who has at least twenty-five full-time employees.

      (15) "Industrial insured captive insurance company" means any company that insures risks of the industrial insureds that comprise an industrial insured group, and includes a company that also insures risks of such industrial insureds' affiliated companies.

      (16) "Industrial insured group" means any group of industrial insureds that collectively:

      (A) Directly or indirectly own, control or hold with power to vote all of the outstanding voting securities or other voting interests of an industrial insured captive insurance company incorporated as a stock insurer;

      (B) Have complete voting control over an industrial insured captive insurance company incorporated as a mutual corporation or formed as a limited liability company; or

      (C) Constitute all of the subscribers of an industrial insured captive insurance company formed as a reciprocal insurer.

      (17) "Insurance securitization" or "securitization" means a transaction or a group of related transactions, which may include capital market offerings, that are effected through related risk transfer instruments and facilitating administrative agreements, in which all or part of the result of such transaction is used to fund a special purpose financial captive insurance company's obligations under a reinsurance contract with a ceding insurer and by which:

      (A) A special purpose financial captive insurance company directly or indirectly obtains proceeds through the issuance of securities by such company or any other person; or

      (B) A person provides, for the benefit of a special purpose financial captive insurance company, one or more letters of credit or other assets that the commissioner has authorized such company to treat as admitted assets for purposes of its annual report. "Insurance securitization" or "securitization" does not include the issuance of a letter of credit for the benefit of the commissioner to satisfy all or part of a special purpose financial captive insurance company's capital and surplus requirements under section 38a-91dd.

      (18) "Member organization" means any individual, corporation, limited liability company, partnership, association or other entity that belongs to an association.

      (19) "Mutual corporation" means a corporation organized without stockholders and includes a nonprofit corporation with members.

      (20) "Parent" means any individual, corporation, limited liability company, partnership or other entity that directly or indirectly owns, controls or holds with power to vote more than fifty per cent of the outstanding voting:

      (A) Securities of a pure captive insurance company organized as a stock insurer; or

      (B) Membership interests of a pure captive insurance company organized as a nonprofit corporation or as a limited liability company.

      (21) "Participant" means any association, corporation, limited liability company, partnership, trust or other entity, and any affiliated company thereof, that is insured by a sponsored captive insurance company pursuant to a participant contract.

      (22) "Participant contract" means a contract entered into by a sponsored captive insurance company and a participant by which the sponsored captive insurance company insures the risks of the participant and limits the losses of each such participant to its pro rata share of the assets of one or more protected cells identified in such participant contract.

      (23) "Protected cell" means a separate account established by a sponsored captive insurance company, in which assets are maintained for one or more participants in accordance with the terms of one or more participant contracts to fund the liability of the sponsored captive insurance company assumed on behalf of such participants as set forth in such participant contracts.

      (24) "Pure captive insurance company" means any company that insures risks of its parent and affiliated companies or controlled unaffiliated business.

      (25) "Reinsurance contract" means a contract entered into by a special purpose financial captive insurance company and a ceding insurer by which the special purpose financial captive insurance company agrees to provide reinsurance to the ceding insurer for risks associated with the ceding insurer's insurance or reinsurance business.

      (26) "Risk retention group" means a captive insurance company organized under the laws of this state pursuant to the federal Liability Risk Retention Act of 1986, 15 USC 3901 et seq., as amended from time to time, as a stock insurer or mutual corporation, a reciprocal or other limited liability entity.

      (27) "Security" has the same meaning as provided in section 36b-3 and includes any form of debt obligation, equity, surplus certificate, surplus note, funding agreement, derivative or other financial instrument that the commissioner designates as a security for purposes of sections 38a-91aa to 38a-91tt, inclusive.

      (28) "Special purpose financial captive insurance company" means a company that is licensed by the commissioner in accordance with section 38a-91bb.

      (29) "Special purpose financial captive insurance company security" means a security issued by (A) a special purpose financial captive insurance company, or (B) a third party, the proceeds of which are obtained directly or indirectly by a special purpose financial captive insurance company.

      (30) "Sponsor" means any association, corporation, limited liability company, partnership, trust or other entity that is approved by the commissioner to organize and operate a sponsored captive insurance company and to provide all or part of the required unimpaired paid-in capital and surplus.

      (31) "Sponsored captive insurance company" means a captive insurance company:

      (A) In which the minimum required unimpaired paid-in capital and surplus are provided by one or more sponsors;

      (B) That insures risks of its participants only through separate participant contracts; and

      (C) That funds its liability to each participant through one or more protected cells and segregates the assets of each protected cell from the assets of other protected cells and from the assets of the sponsored captive insurance company's general account.

      (32) "Surplus note" means an unsecured subordinated debt obligation possessing characteristics consistent with the National Association of Insurance Commissioners Statement of Statutory Accounting Principles No. 41, as amended from time to time, and as modified or supplemented by the commissioner."

      (P.A. 08-127, S. 1; Oct. Sp. Sess. P.A. 11-1, S. 56.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 redefined "association", "association captive insurance company", "captive insurance company", "controlled unaffiliated business", "industrial insured captive insurance company", "industrial insured group" and "parent", defined "alien captive insurance company", "branch business", "branch captive insurance company", "branch operations", "ceding insurer", "incorporated protected cell", "insurance securitization", "participant", "participant contract", "protected cell", "reinsurance contract", "security", "special purpose financial captive insurance company", "special purpose financial captive insurance company security", "sponsor", "sponsored captive insurance company" and "surplus note", and made technical changes, effective July 1, 2012.

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      Sec. 38a-91bb. *(See end of section for amended version and effective date.) Captive insurance companies. Licenses. Fees. (a) Any captive insurance company, when permitted by its articles of association, charter or other organizational document, may apply to the Insurance Commissioner for a license to do the business of life insurance, annuities, health insurance, as defined in section 38a-469, and commercial risk insurance, as defined in section 38a-663, provided:

      (1) No pure captive insurance company may insure any risks other than those of its parent and affiliated companies or controlled unaffiliated business;

      (2) No association captive insurance company may insure any risks other than those of the member organizations of its association, and their affiliated companies;

      (3) No industrial insured captive insurance company may insure any risks other than those of the industrial insureds that comprise the industrial insured group, and their affiliated companies;

      (4) No risk retention group may insure any risks other than those of its members and owners;

      (5) No captive insurance company may provide private passenger motor vehicle or homeowner's insurance coverage or any component thereof;

      (6) No captive insurance company may accept or cede reinsurance except as provided in section 38a-91kk;

      (7) Any captive insurance company that provides life insurance, annuities or health insurance shall comply with all applicable state and federal laws.

      (b) No captive insurance company shall do any insurance business in this state unless:

      (1) It first obtains from the Insurance Commissioner a license authorizing it to do insurance business in this state;

      (2) Its board of directors or committee of managers or, in the case of a reciprocal insurer, its subscribers' advisory committee holds at least one meeting each year in this state;

      (3) It maintains its principal place of business in this state; and

      (4) It appoints a registered agent to accept service of process and to otherwise act on its behalf in this state. Whenever such registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the Insurance Commissioner shall be an agent of such captive insurance company upon whom any process, notice or demand may be served.

      (c) (1) To be considered for a license, a captive insurance company shall:

      (A) File with the commissioner a certified copy of its organizational documents, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the commissioner; and

      (B) Submit to the commissioner for approval a description of the coverages, deductibles, coverage limits and rates and such additional information as the commissioner may require. In the event of any subsequent material change in any item in such description, the captive insurance company shall submit to the commissioner for approval an appropriate revision and shall not offer any additional kinds of insurance until a revision of such description is approved by the commissioner. The captive insurance company shall inform the commissioner of any material change in rates not later than thirty days after the adoption of such change.

      (2) Each applicant captive insurance company shall also file with the commissioner evidence of the following:

      (A) The amount and liquidity of the company's assets relative to the risks to be assumed;

      (B) The adequacy of the expertise, experience and character of the persons who will manage the company;

      (C) The overall soundness of the company's plan of operation;

      (D) The adequacy of the loss prevention programs of the company's insureds; and

      (E) Such other factors deemed relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

      (3) Information submitted pursuant to this subsection shall be and shall remain confidential and shall not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company, except that:

      (A) Such information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted such information is a party upon a showing by the party seeking to discover such information that:

      (i) The information sought is relevant to and necessary for the furtherance of such action or case;

      (ii) The information sought is unavailable from other nonconfidential sources; and

      (iii) A subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the commissioner, provided such submission requirement shall not apply to a risk retention group; and

      (B) The commissioner may, in the commissioner's discretion, disclose such information to a public official having jurisdiction over the regulation of insurance in another state, provided:

      (i) Such public official agrees, in writing, to maintain the confidentiality of such information; and

      (ii) The laws of the state in which such public official serves require such information to be and to remain confidential.

      (d) (1) Each captive insurance company shall pay to the commissioner a nonrefundable fee of eight hundred dollars for examining, investigating and processing its application for license, and the commissioner may retain legal, financial and examination services from outside the department, the reasonable cost of which may be charged against the applicant. The provisions of subdivisions (2) to (5), inclusive, of subsection (k) of section 38a-14 shall apply to examinations, investigations and processing conducted under this section.

      (2) Each captive insurance company shall pay a license fee for the first year of licensure and a renewal fee for each year thereafter as set forth in section 38a-11.

      (e) If the commissioner finds that the documents and statements that a captive insurance company has filed comply with the provisions of sections 38a-91aa to 38a-91qq, inclusive, the commissioner may grant a license authorizing the company to do insurance business in this state until April first thereafter. The captive insurance company may apply to renew such license on such forms as the commissioner prescribes.

      (P.A. 08-127, S. 2.)

      *Note: On and after July 1, 2012, this section, as amended by section 57 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91bb. Captive insurance companies. Licenses. Fees. (a) Any captive insurance company, when permitted by its articles of association, charter or other organizational document, may apply to the Insurance Commissioner for a license to do the business of insurance against any kind of loss, damage or liability properly a subject of insurance, if such insurance is not prohibited by law or is not disapproved by the commissioner as being contrary to public policy, including life insurance, annuities, health insurance, as defined in section 38a-469, and commercial risk insurance, as defined in section 38a-663, provided:

      (1) No pure captive insurance company may insure any risks other than those of its parent and affiliated companies or controlled unaffiliated business;

      (2) No association captive insurance company may insure any risks other than those of its association, the member organizations of its association, and the member organizations' affiliated companies;

      (3) No industrial insured captive insurance company may insure any risks other than those of (A) the industrial insureds that comprise the industrial insured group, (B) the industrial insureds' affiliated companies, or (C) the industrial insureds' controlled unaffiliated businesses;

      (4) No risk retention group may insure any risks other than those of its members and owners;

      (5) No captive insurance company may provide private passenger motor vehicle or homeowner's insurance coverage or any component thereof;

      (6) No captive insurance company may accept or cede reinsurance except as provided in section 38a-91kk;

      (7) Any captive insurance company may provide excess workers' compensation insurance to its parent and affiliated companies, unless prohibited by the laws of the state having jurisdiction over the transaction or by federal law. Any captive insurance company may reinsure a workers' compensation qualified self-insured plan of its parent and affiliated companies, unless prohibited by federal law;

      (8) Any captive insurance company that provides life insurance, annuities or health insurance shall comply with all applicable state and federal laws.

      (b) No captive insurance company shall do any insurance business in this state unless:

      (1) It first obtains from the Insurance Commissioner a license authorizing it to do insurance business in this state;

      (2) Its board of directors or committee of managers or, in the case of a reciprocal insurer, its subscribers' advisory committee holds at least one meeting each year in this state;

      (3) It maintains its principal place of business in this state; and

      (4) It appoints a registered agent to accept service of process and to otherwise act on its behalf in this state. Whenever such registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the Insurance Commissioner shall be an agent of such captive insurance company upon whom any process, notice or demand may be served.

      (c) (1) To be considered for a license, a captive insurance company shall:

      (A) File with the commissioner a certified copy of its organizational documents, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the commissioner; and

      (B) Submit to the commissioner for approval a description of the coverages, deductibles, coverage limits and rates and such additional information as the commissioner may require. In the event of any subsequent material change in any item in such description, the captive insurance company shall submit to the commissioner for approval an appropriate revision and shall not offer any additional kinds of insurance until a revision of such description is approved by the commissioner. The captive insurance company shall inform the commissioner of any material change in rates not later than thirty days after the adoption of such change.

      (2) Each applicant captive insurance company shall also file with the commissioner evidence of the following:

      (A) The amount and liquidity of the company's assets relative to the risks to be assumed;

      (B) The adequacy of the expertise, experience and character of the persons who will manage the company;

      (C) The overall soundness of the company's plan of operation;

      (D) The adequacy of the loss prevention programs of the company's insureds; and

      (E) Such other factors deemed relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

      (3) Each applicant sponsored captive insurance company shall also file with the commissioner:

      (A) Materials demonstrating how the applicant will account for the loss and expense experience of each protected cell at a level of detail deemed sufficient by the commissioner, and how it will report such experience to the commissioner;

      (B) A statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, shall be made available for examination or inspection or by the commissioner or the commissioner's designee;

      (C) All contracts or sample contracts between the sponsored captive insurance company and any participants; and

      (D) Evidence that expenses shall be allocated to each protected cell in a fair and equitable manner.

      (4) Each applicant special purpose financial captive insurance company shall also:

      (A) Include with its plan of operation:

      (i) A complete description of all significant transactions, including reinsurance, reinsurance security arrangements, securitizations, related transactions or arrangements, and to the extent not included in the transactions listed in this clause, a complete description of all parties other than the special purpose financial captive insurance company and the ceding insurer that will be involved in the issuance of special purpose financial captive insurance company securities and a description of any pledge, hypothecation or grant of a security interest in any of the special purpose financial captive insurance company's assets and in any stock or limited liability company interest in the special purpose financial captive insurance company;

      (ii) The source and form of the special purpose financial captive insurance company's capital and surplus;

      (iii) The proposed investment policy of the special purpose financial captive insurance company;

      (iv) A description of the underwriting, reporting and claims payment methods by which losses covered by the reinsurance contract will be reported, accounted for and settled;

      (v) Pro forma balance sheets and income statements illustrating one or more adverse case scenarios, as determined under criteria required by the commissioner, for the performance of the special purpose financial captive insurance company under all reinsurance contracts; and

      (vi) The proposed rate and method for discounting reserves, if the special purpose financial captive insurance company is requesting authority to discount its reserves;

      (B) Submit an affidavit of its president, a vice president, its treasurer or its chief financial officer that includes the following statements, that to the best of such person's knowledge and belief after reasonable inquiry:

      (i) The proposed organization and operation of the special purpose financial captive insurance company comply with all applicable provisions of this chapter;

      (ii) The special purpose financial captive insurance company's investment policy reflects and takes into account the liquidity of assets and the reasonable preservation, administration and management of such assets with respect to the risks associated with the reinsurance contract and the insurance securitization transaction. With respect to a special purpose financial captive insurance company, "management" means the board of directors, managing board or other individual or individuals vested with overall responsibility for the management of the affairs of such company, including, but not limited to, officers or other agents elected or appointed to act on behalf of such company; and

      (iii) The reinsurance contract and any arrangement for securing the special purpose financial captive insurance company's obligations under such reinsurance contract, including, but not limited to, any agreements or other documentation to implement such arrangement, comply with the provisions of this chapter;

      (C) Include with its application:

      (i) Copies of all agreements and documentation described in subparagraph (A) of this subdivision unless otherwise approved by the commissioner, and any other statements or documents required by the commissioner to evaluate the special purpose financial captive insurance company's application for licensure; and

      (ii) An opinion of qualified legal counsel, in a form acceptable to the commissioner, that the offer and sale of any special purpose financial captive insurance company securities complies with all applicable registration requirements or applicable exemptions from or exceptions to such requirements of the federal securities laws and that the offer and sale of securities by the special purpose financial captive insurance company itself comply with all registration requirements or applicable exemptions from or exceptions to such requirements of the securities laws of this state. Such opinion shall not be required as part of the application if the special purpose financial captive insurance company includes a specific statement in its plan of operation that such opinions will be provided to the commissioner in advance of the offer or sale of any special purpose financial captive insurance company securities.

      (5) A sponsored captive insurance company may apply to be licensed as a special purpose financial captive insurance company. Such company shall be subject to the provisions of sections 38a-91aa to 38a-91tt, inclusive, applicable to a sponsored captive insurance company and to a special purpose financial captive insurance company. In the event of conflict between such provisions applicable to a sponsored captive insurance company and to a special purpose financial captive insurance company, the provisions applicable to a special purpose financial captive insurance company shall control.

      (6) Information submitted pursuant to this subsection shall be and shall remain confidential and shall not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company, except that:

      (A) Such information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted such information is a party upon a showing by the party seeking to discover such information that:

      (i) The information sought is relevant to and necessary for the furtherance of such action or case;

      (ii) The information sought is unavailable from other nonconfidential sources; and

      (iii) A subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the commissioner, provided such submission requirement shall not apply to a risk retention group; and

      (B) The commissioner may, in the commissioner's discretion, disclose such information to a public official having jurisdiction over the regulation of insurance in another state, provided:

      (i) Such public official agrees, in writing, to maintain the confidentiality of such information; and

      (ii) The laws of the state in which such public official serves require such information to be and to remain confidential.

      (d) (1) Each captive insurance company shall pay to the commissioner a nonrefundable fee of eight hundred dollars for examining, investigating and processing its application for a license. The commissioner may retain legal, financial and examination services from outside the department for the licensing and financial oversight of a captive insurance company, the reasonable cost of which may be charged against such company. The provisions of subdivisions (2) to (5), inclusive, of subsection (k) of section 38a-14 shall apply to this subdivision.

      (2) Each captive insurance company shall pay a license fee for the first year of licensure and a renewal fee for each year thereafter as set forth in section 38a-11.

      (e) (1) If the commissioner finds that the documents and statements that a captive insurance company, other than a special purpose financial captive insurance company, has filed comply with the provisions of sections 38a-91aa to 38a-91tt, inclusive, the commissioner may grant a license authorizing the company to do insurance business in this state until April first thereafter. The captive insurance company may apply to renew such license on such forms as the commissioner prescribes.

      (2) (A) The commissioner may grant a license authorizing a special purpose financial captive insurance company to do reinsurance business in this state until April first thereafter upon the commissioner's finding that (i) the proposed plan of operation provides for a reasonable and expected successful operation, (ii) the terms of the reinsurance contract and related transactions comply with sections 38a-91aa to 38a-91tt, inclusive, (iii) the proposed plan of operation is not hazardous to any ceding insurer, and (iv) the insurance regulator of the state of domicile of each ceding insurer has notified the commissioner in writing or has otherwise provided assurance satisfactory to the commissioner that such regulator has approved or has not disapproved the transaction, provided the commissioner shall not be precluded from issuing a license to a special purpose financial captive insurance company if such regulator has not responded with respect to all or any part of the transaction.

      (B) In conjunction with granting such license, the commissioner may issue an order to the special purpose financial captive insurance company of any additional provisions, terms or conditions regarding the organization, licensing or operation of such company that are not inconsistent with the provisions of this chapter and are deemed appropriate by the commissioner.

      (3) The commissioner shall not grant a license to a branch captive insurance company unless the alien captive insurance company grants the commissioner authority to examine the alien captive insurance company in the jurisdiction in which the alien captive insurance company is formed."

      (P.A. 08-127, S. 2; Oct. Sp. Sess. P.A. 11-1, S. 57.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 amended introductory language in Subsec. (a) and Subsec. (a)(2), and added Subsec. (a)(7), re types of insurance that captive insurance companies, association captive insurance companies and industrial insured captive insurance companies may provide, amended Subsec. (c) by adding new Subdiv. (3) re additional filing requirements for sponsored captive insurance companies, Subdiv. (4) re additional filing requirements for special purpose financial captive insurance companies and Subdiv. (5) re requirements applicable to a sponsored captive insurance company applying to be licensed as a special purpose financial captive insurance company and by redesignating existing Subdiv. (3) as Subdiv. (6), made technical and conforming changes in Subsec. (d), amended Subsec. (e) by designating existing provisions as Subdiv. (1), and making a conforming change therein, adding Subdiv. (2) re licensure requirements for a special purpose financial captive insurance company, and adding Subdiv. (3) re licensure requirements for a branch captive insurance company, effective July 1, 2012.

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      Sec. 38a-91dd. *(See end of section for amended version and effective date.) Capital and surplus requirements. (a) The Insurance Commissioner shall not issue a license to a captive insurance company or allow the company to retain such license unless the company has and maintains unimpaired paid-in capital and surplus of:

      (1) In the case of a pure captive insurance company, not less than two hundred fifty thousand dollars;

      (2) In the case of an association captive insurance company, not less than seven hundred fifty thousand dollars;

      (3) In the case of an industrial insured captive insurance company, not less than five hundred thousand dollars; and

      (4) In the case of a risk retention group, not less than one million dollars.

      (b) The commissioner may adopt regulations, in accordance with chapter 54, to establish additional capital and surplus requirements based upon the type, volume and nature of insurance business transacted.

      (c) Capital and surplus may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by this state or a member bank of the Federal Reserve System and approved by the commissioner.

      (P.A. 08-127, S. 4.)

      *Note: On and after July 1, 2012, this section, as amended by section 58 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91dd. Capital and surplus requirements. (a)(1) The Insurance Commissioner shall not issue a license to a captive insurance company or allow the company to retain such license unless the company has and maintains unimpaired paid-in capital and surplus of:

      (A) In the case of a pure captive insurance company, not less than two hundred fifty thousand dollars;

      (B) In the case of an association captive insurance company, not less than five hundred thousand dollars;

      (C) In the case of an industrial insured captive insurance company, not less than five hundred thousand dollars;

      (D) In the case of a risk retention group, not less than one million dollars;

      (E) In the case of a sponsored captive insurance company, not less than five hundred thousand dollars;

      (F) In the case of a special purpose financial captive insurance company, not less than two hundred fifty thousand dollars; and

      (G) In the case of a sponsored captive insurance company licensed as a special purpose financial captive insurance company, not less than five hundred thousand dollars.

      (2) (A) The Insurance Commissioner shall not issue a license to a branch captive insurance company or allow the company to retain such license unless the company has and maintains, as security for the payment of liabilities attributable to the branch operations:

      (i) Not less than two hundred fifty thousand dollars; and

      (ii) Reserves on such insurance policies or such reinsurance contracts as may be issued or assumed by the branch captive insurance company through its branch operations, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses and unearned premiums with regard to business written through the branch operations. The commissioner may permit a branch captive insurance company to credit against any such reserves any security for loss reserves that the branch captive insurance company posts with a ceding insurer or is posted by a reinsurer with the branch captive insurance company, so long as such security remains posted.

      (B) The amounts required under subparagraph (A) of this subdivision may be held, with the prior approval of the commissioner, in the form of (i) a trust formed under a trust agreement and funded by assets acceptable to the commissioner, (ii) an irrevocable letter of credit issued or confirmed by a bank approved by the commissioner, (iii) with respect to the amount required under subparagraph (A)(i) of this subdivision only, cash on deposit with the commissioner, or (iv) any combination thereof.

      (b) The commissioner may adopt regulations, in accordance with chapter 54, to establish additional capital and surplus requirements based upon the type, volume and nature of insurance business transacted.

      (c) Except as specified in subdivision (2) of subsection (a) of this section, capital and surplus may be in the form of cash or an irrevocable letter of credit issued by a bank approved by the commissioner."

      (P.A. 08-127, S. 4; Oct. Sp. Sess. P.A. 11-1, S. 58.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 redesignated existing Subsec. (a) as Subsec. (a)(1), amended Subsec. (a)(1)(B) to change association captive insurance companies' capital and surplus requirements from $750,000 to $500,000, added Subsec. (a)(1)(E) to (a)(1)(G) re capital and surplus requirements for sponsored captive insurance companies, special purpose financial captive insurance companies and sponsored captive insurance companies licensed as special purpose financial captive insurance companies, added Subsec. (a)(2) re security and reserve requirements for branch captive insurance companies, amended Subsec. (c) to delete requirement that a bank issuing an irrevocable letter of credit be chartered by the state or a member of the Federal Reserve System, and made conforming and technical changes, effective July 1, 2012.

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      Sec. 38a-91ee. *(See end of section for amended version and effective date.) Payment of dividends and other distributions. No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus without the prior approval of the Insurance Commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned on the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner.

      (P.A. 08-127, S. 5.)

      *Note: On and after July 1, 2012, this section, as amended by section 59 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91ee. Payment of dividends and other distributions. (a) No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus without the prior approval of the Insurance Commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned on the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner.

      (b) No special purpose financial captive insurance company may declare or pay a dividend or distribution if such dividend or distribution would jeopardize the ability of such company or any other person to fulfill such company's or other person's respective obligations under such company's securitization agreements, reinsurance contract or any related transaction."

      (P.A. 08-127, S. 5; Oct. Sp. Sess. P.A. 11-1, S. 59.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 designated existing provisions as Subsec. (a) and added Subsec. (b) re dividend declaration or distribution by a special purpose financial captive insurance company, effective July 1, 2012.

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      Sec. 38a-91ff. *(See end of section for amended version and effective date.) Incorporation and formation. (a) A pure captive insurance company may be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a nonprofit corporation with one or more members or as a manager-managed limited liability company.

      (b) An association captive insurance company, an industrial insured captive insurance company or a risk retention group may be:

      (1) Incorporated as a stock insurer with its capital divided into shares and held by the stockholders;

      (2) Incorporated as a mutual insurer without capital stock, the governing body of which is elected by its insureds;

      (3) Organized as a reciprocal insurer; or

      (4) Organized as a manager-managed limited liability company.

      (c) A captive insurance company incorporated or organized in this state shall have not less than three incorporators or three organizers of whom at least one shall be a resident of this state.

      (d) In the case of a captive insurance company:

      (1) Formed as a corporation, before the articles of incorporation are transmitted to the Secretary of the State, the incorporators shall petition the Insurance Commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed corporation will promote the general good of the state. In arriving at such a finding the commissioner shall consider:

      (A) The character, reputation, financial standing and purposes of the incorporators;

      (B) The character, reputation, financial responsibility, insurance experience and business qualifications of the officers and directors; and

      (C) Such other aspects as the commissioner deems advisable.

      (2) Formed as a reciprocal insurer, the organizers shall petition the commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed association will promote the general good of the state. In arriving at such a finding the commissioner shall consider the items set forth in subdivision (1) of this subsection.

      (3) Formed as a limited liability company, before the articles of organization are transmitted to the Secretary of the State, the organizers shall petition the commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed company will promote the general good of the state. In arriving at such a finding, the commissioner shall consider the items set forth in subdivision (1) of this subsection.

      (4) The articles of incorporation and certificate set forth in subdivisions (1) to (3), inclusive, of this subsection shall be transmitted to the Secretary of the State along with any fees required by the Secretary of the State, who shall record both the articles of incorporation and the certificate.

      (e) The capital stock of a captive insurance company incorporated as a stock insurer may be authorized with no par value.

      (f) In the case of a captive insurance company:

      (1) Formed as a corporation, at least one of the members of the board of directors shall be a resident of this state;

      (2) Formed as a reciprocal insurer, at least one of the members of the subscribers' advisory committee shall be a resident of this state;

      (3) Formed as a limited liability company, at least one of the managers shall be a resident of this state.

      (g) Other than captive insurance companies formed as limited liability companies or as nonprofit corporations, captive insurance companies formed as corporations under the provisions of sections 38a-91aa to 38a-91qq, inclusive, shall have the privileges and be subject to the provisions of title 33 as well as the applicable provisions in sections 38a-91aa to 38a-91gg, inclusive. In the event of conflict between the provisions of title 33 and sections 38a-91aa to 38a-91qq, inclusive, the provisions of sections 38a-91aa to 38a-91qq, inclusive, shall control.

      (h) Captive insurance companies formed under the provisions of sections 38a-91aa to 38a-91qq, inclusive:

      (1) As limited liability companies shall have the privileges and be subject to the provisions of chapter 613 and applicable provisions in sections 38a-91aa to 38a-91qq, inclusive. In the event of a conflict between the provisions of chapter 613 and sections 38a-91aa to 38a-91qq, inclusive, the provisions of sections 38a-91aa to 38a-91qq, inclusive, shall control; or

      (2) As nonprofit corporations shall have the privileges and be subject to the applicable provisions of title 33 and applicable provisions in sections 38a-91aa to 38a-91qq, inclusive. In the event of conflict between the provisions of title 33 and sections 38a-91aa to 38a-91qq, inclusive, the provisions of sections 38a-91aa to 38a-91qq, inclusive, shall control.

      (i) The provisions of this chapter pertaining to mergers, consolidations and conversions shall apply in determining the procedures to be followed by captive insurance companies in carrying out any of the transactions described in this chapter.

      (j) Captive insurance companies formed as reciprocal insurers under the provisions of sections 38a-91aa to 38a-91qq, inclusive, shall have the privileges and be subject to the provisions of this title in addition to the applicable provisions of sections 38a-91aa to 38a-91qq, inclusive. In the event of a conflict between the provisions of sections 38a-91aa to 38a-91qq, inclusive, and this title, the provisions of sections 38a-91aa to 38a-91qq, inclusive, shall control.

      (k) The articles of incorporation or bylaws of a captive insurance company formed as a corporation may authorize a quorum of its board of directors to consist of no fewer than one-third of the fixed or prescribed number of directors.

      (l) The subscribers' agreement or other organizing document of a captive insurance company formed as a reciprocal insurer may authorize a quorum of its subscribers' advisory committee to consist of no fewer than one-third of the number of its members.

      (P.A. 08-127, S. 6; P.A. 10-5, S. 5.)

      *Note: On and after July 1, 2012, this section, as amended by section 60 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91ff. Incorporation and formation. (a) A pure captive insurance company may be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a nonprofit corporation with one or more members or as a manager-managed limited liability company.

      (b) An association captive insurance company, an industrial insured captive insurance company or a risk retention group may be:

      (1) Incorporated as a stock insurer with its capital divided into shares and held by the stockholders;

      (2) Incorporated as a mutual corporation without capital stock, the governing body of which is elected by its insureds;

      (3) Organized as a reciprocal insurer; or

      (4) Organized as a manager-managed limited liability company.

      (c) (1) A sponsored captive insurance company shall be incorporated as a stock insurer with its capital divided into shares held by the stockholders, as a mutual corporation, as a nonprofit corporation with one or more members or as a manager-managed limited liability company.

      (2) One or more sponsors may apply to the commissioner to form a sponsored captive insurance company. In evaluating the qualifications of a proposed sponsor, the commissioner shall consider the type and structure of the proposed sponsor entity, its experience in financial operations, financial stability and strength, business reputation and such other facts deemed relevant by the commissioner.

      (3) (A) Associations, corporations, limited liability companies, partnerships, trusts and other business entities may be participants in a sponsored captive insurance company. No risk retention group shall be a sponsor or a participant of a sponsored captive insurance company.

      (B) A sponsor may be a participant in a sponsored captive insurance company.

      (C) A participant need not be a stockholder of the sponsored captive insurance company or any affiliate thereof.

      (D) A participant shall insure only its own risks through a sponsored captive insurance company.

      (d) (1) A special purpose financial captive insurance company may be incorporated as a stock insurer with its capital divided into shares and held by its stockholders or as a manager-managed limited liability company.

      (2) A special purpose financial captive insurance company's organizational documents shall limit the special purpose financial captive insurance company's authority to transact the business of insurance or reinsurance to those activities that the special purpose financial captive insurance company conducts to accomplish its purposes described in sections 38a-91aa to 38a-91tt, inclusive. For purposes of this subdivision and section 38a-91bb, in the case of a special purpose financial captive insurance company formed (A) as a stock insurer, "organizational document" means such company's articles of incorporation and bylaws, and (B) as a limited liability company, "organizational document" means such company's articles of organization and operating agreement.

      (3) A special purpose financial captive insurance company may reinsure the risks of a ceding insurer only. A special purpose financial captive insurance company may purchase, with the prior approval of the commissioner, reinsurance to cede the risks assumed under a reinsurance contract.

      (4) A captive insurance company that is engaged in, or will be engaged in, an insurance securitization on or after July 1, 2012, shall be deemed to be a special purpose financial captive insurance company. The commissioner may require such captive insurance company to take any action that the commissioner determines is reasonably necessary to bring such company into compliance as a special purpose financial captive insurance company. The commissioner may issue an order as described in subparagraph (B) of subdivision (2) of subsection (e) of section 38a-91bb.

      (e) A branch captive insurance company may be established in this state to write in this state only insurance or reinsurance of the employee benefit business of its parent and affiliated companies that is subject to the Employee Retirement Income Security Act of 1974, as amended from time to time. No branch captive insurance company shall do any insurance business in this state unless it maintains the principal place of business for its branch operations in this state.

      (f) A captive insurance company incorporated or organized in this state shall have not less than three incorporators or three organizers of whom at least one shall be a resident of this state.

      (g) In the case of a captive insurance company:

      (1) Formed as a corporation, before the articles of incorporation are transmitted to the Secretary of the State, the incorporators shall petition the Insurance Commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed corporation will promote the general good of the state. In arriving at such a finding the commissioner shall consider:

      (A) The character, reputation, financial standing and purposes of the incorporators;

      (B) The character, reputation, financial responsibility, insurance experience and business qualifications of the officers and directors; and

      (C) Such other aspects as the commissioner deems advisable.

      (2) Formed as a reciprocal insurer, the organizers shall petition the commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed association will promote the general good of the state. In arriving at such a finding the commissioner shall consider the items set forth in subdivision (1) of this subsection.

      (3) Formed as a limited liability company, before the articles of organization are transmitted to the Secretary of the State, the organizers shall petition the commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed company will promote the general good of the state. In arriving at such a finding, the commissioner shall consider the items set forth in subdivision (1) of this subsection.

      (4) The articles of incorporation and certificate set forth in subdivisions (1) to (3), inclusive, of this subsection shall be transmitted to the Secretary of the State along with any fees required by the Secretary of the State, who shall record both the articles of incorporation and the certificate.

      (h) In the case of a captive insurance company licensed as a branch captive insurance company, the alien captive insurance company shall petition the commissioner to issue a certificate setting forth the commissioner's finding that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors of the alien captive insurance company, the licensing and maintenance of the branch operations will promote the general good of the state. The alien captive insurance company may register to do business in this state after the commissioner's certificate is issued.

      (i) The capital stock of a captive insurance company incorporated as a stock insurer may be authorized with no par value.

      (j) In the case of a captive insurance company:

      (1) Formed as a corporation, (A) at least one of the members of the board of directors shall be a resident of this state, and (B) the articles of incorporation or bylaws of such company may authorize a quorum of its board of directors to consist of no fewer than one-third of the fixed or prescribed number of directors;

      (2) Formed as a reciprocal insurer, (A) at least one of the members of the subscribers' advisory committee shall be a resident of this state, and (B) the subscribers' agreement or other organizing document of such company may authorize a quorum of its subscribers' advisory committee to consist of no fewer than one-third of the number of its members;

      (3) Formed as a limited liability company, at least one of the managers shall be a resident of this state.

      (k) Other than captive insurance companies formed as limited liability companies or as nonprofit corporations, captive insurance companies formed as corporations under the provisions of sections 38a-91aa to 38a-91tt, inclusive, shall have the privileges and be subject to the provisions of title 33 as well as the applicable provisions in sections 38a-91aa to 38a-91tt, inclusive. In the event of conflict between the provisions of title 33 and sections 38a-91aa to 38a-91tt, inclusive, the provisions of sections 38a-91aa to 38a-91tt, inclusive, shall control.

      (l) Captive insurance companies formed under the provisions of sections 38a-91aa to 38a-91tt, inclusive:

      (1) As limited liability companies shall have the privileges and be subject to the provisions of chapter 613 and applicable provisions in sections 38a-91aa to 38a-91tt, inclusive. In the event of a conflict between the provisions of chapter 613 and sections 38a-91aa to 38a-91tt, inclusive, the provisions of sections 38a-91aa to 38a-91tt, inclusive, shall control;

      (2) As nonprofit corporations shall have the privileges and be subject to the applicable provisions of title 33 and applicable provisions in sections 38a-91aa to 38a-91tt, inclusive. In the event of conflict between the provisions of title 33 and sections 38a-91aa to 38a-91tt, inclusive, the provisions of sections 38a-91aa to 38a-91tt, inclusive, shall control; or

      (3) As reciprocal insurers shall have the privileges and be subject to the provisions of sections 38a-91aa to 38a-91tt, inclusive. In the event of conflict between the provisions of the sections specified in section 38a-91oo and the provisions of sections 38a-91aa to 38a-91tt, inclusive, the provisions of sections 38a-91aa to 38a-91tt, inclusive, shall control.

      (m) In the case of captive insurance companies formed as limited liability companies, reciprocal insurers or mutual corporations, any proxy appointed by a member, subscriber or policyholder, as applicable, shall be valid if such proxy is appointed and transmitted in accordance with the provisions of section 33-706.

      (n) The provisions of this chapter pertaining to mergers, consolidations and conversions shall apply in determining the procedures to be followed by captive insurance companies in carrying out any of the transactions described in this chapter."

      (P.A. 08-127, S. 6; P.A. 10-5, S. 5; Oct. Sp. Sess. P.A. 11-1, S. 60.)

      History: P.A. 08-127 effective January 1, 2009; P.A. 10-5 amended Subsec. (d) to delete former Subdiv. (1)(B) re transmittal of articles of incorporation, certificate and organization fee to Secretary of the State, make technical changes and add Subdiv. (4) re transmittal of articles of incorporation, certificate and fees to Secretary of the State, effective May 5, 2010; Oct. Sp. Sess. P.A. 11-1 redesignated existing Subsecs. (c) to (i) as Subsecs. (f), (g), (i), (j), (k), (l) and (n), added new Subsec. (c) re formation of a sponsored captive insurance company, added new Subsec. (d) re formation of a special purpose financial captive insurance company, added new Subsec. (e) re establishment of a branch captive insurance company, added new Subsec. (h) re issuance of a certificate to an alien captive insurance company, amended redesignated Subsec. (j) by adding Subdivs. (1)(B) and (2)(B) re quorum, amended redesignated Subsec. (l) by adding Subdiv. (3) re reciprocal insurers, added new Subsec. (m) re proxy for captive insurance companies formed as limited liability companies, reciprocal insurers or mutual corporations, deleted former Subsecs. (j), (k) and (l) re reciprocal insurers and quorum, and made conforming and technical changes, effective July 1, 2012 (Revisor's note: In Subsecs. (e) and (h), references to "branch captive" were changed editorially by the Revisors to "branch captive insurance company" for accuracy).

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      Sec. 38a-91gg. *(See end of section for amended version and effective date.) Annual reports. (a) Captive insurance companies shall not be required to make any annual report except as provided in sections 38a-91aa to 38a-91qq, inclusive.

      (b) Prior to March first of each year, each captive insurance company shall submit to the Insurance Commissioner a report of its financial condition verified by oath of two of its executive officers. Each captive insurance company shall report using generally accepted accounting principles, unless the commissioner approves the use of statutory accounting principles, with any appropriate or necessary modifications or adaptations required or approved or accepted by the commissioner for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the commissioner. Except as otherwise provided, each association captive insurance company and each risk retention group shall file its report in the form required by sections 38a-53 and 38a-53a. The commissioner may adopt regulations, in accordance with chapter 54, to establish the manner in which pure captive insurance companies and industrial insured captive insurance companies shall report. The provisions of subsection (b) of section 38a-69a shall apply to each report filed pursuant to this section.

      (c) Any pure captive insurance company or industrial insured captive insurance company may make written application to the commissioner for approval to file the required report at the end of the fiscal year. If the commissioner grants approval for such alternative reporting date:

      (1) The annual report shall be due sixty days after the end of the fiscal year; and

      (2) In order to provide sufficient detail to support the premium tax return, the pure captive insurance company or industrial insured captive insurance company shall file prior to March first of each year for each calendar year-end such information as the commissioner may prescribe verified by oath of two of its executive officers.

      (P.A. 08-127, S. 7.)

      *Note: On and after July 1, 2012, this section, as amended by section 61 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91gg. Annual reports. (a) Captive insurance companies shall not be required to make any annual report except as provided in sections 38a-91aa to 38a-91tt, inclusive.

      (b) (1) (A) Prior to March first of each year and, in the case of pure captive insurance companies and industrial insured captive insurance companies, prior to March fifteenth of each year, each captive insurance company other than a branch captive insurance company shall submit to the Insurance Commissioner a report of its financial condition verified by oath of two of its executive officers. The commissioner shall establish the form and content of the annual report to be filed by special purpose captive insurance companies.

      (B) In the case of branch captive insurance companies, prior to March first of each year, each such company shall submit to the commissioner a copy of all reports and statements required to be filed under the laws of the jurisdiction in which the alien captive insurance company is formed. Such reports and statements shall be verified by oath of two of its executive officers. If the commissioner is satisfied that the annual report filed by the alien captive insurance company in its domiciliary jurisdiction provides adequate information concerning the financial condition of the alien captive insurance company, the commissioner may waive the requirement for completion of the captive annual statement for business written in the alien jurisdiction.

      (2) (A) Each captive insurance company other than a special purpose financial captive insurance company shall report using generally accepted accounting principles, unless the commissioner requires, approves or accepts the use of statutory accounting principles or other comprehensive basis of accounting, with any appropriate or necessary modifications or adaptations required or approved or accepted by the commissioner for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the commissioner. Except as otherwise provided, each association captive insurance company and each risk retention group shall file its report in the form required by sections 38a-53 and 38a-53a. The commissioner may adopt regulations, in accordance with chapter 54, to establish the manner in which pure captive insurance companies and industrial insured captive insurance companies shall report. The provisions of subsection (b) of section 38a-69a shall apply to each report filed pursuant to this section.

      (B) Each special purpose financial captive insurance company shall report using statutory accounting principles, unless the commissioner requires, approves or accepts the use of generally accepted accounting principles or other comprehensive basis of accounting, with any appropriate or necessary modifications or adaptations required or approved or accepted by the commissioner and as supplemented by additional information required by the commissioner.

      (c) (1) Any pure captive insurance company or industrial insured captive insurance company may make written application to the commissioner for approval to file the required report at the end of its fiscal year. If the commissioner grants approval for such alternative reporting date:

      (A) The annual report shall be due not later than seventy-five days after the end of its fiscal year; and

      (B) In order to provide sufficient detail to support the premium tax return, the pure captive insurance company or industrial insured captive insurance company shall file prior to March fifteenth of each year for each calendar year-end such information as the commissioner may prescribe, verified by oath of two of its executive officers.

      (2) Any branch captive insurance company may make written application to the commissioner for approval to file the required reports and statements at the end of its fiscal year. If the commissioner grants approval for such alternative reporting date, the reports and statements shall be due not later than sixty days after the end of its fiscal year.

      (3) Any special purpose financial captive insurance company may make written application to the commissioner for approval to file the required report at the end of its fiscal year. If the commissioner grants approval for such alternative reporting date, the commissioner shall establish the content of any additional filing required from such company."

      (P.A. 08-127, S. 7; Oct. Sp. Sess. P.A. 11-1, S. 61.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 made a technical change in Subsec. (a), amended Subsec. (b) to change due date for a pure captive insurance company's or industrial insured captive insurance company's annual report from March 1 to March 15 and to add requirements for annual reports by branch captive insurance companies and special purpose financial captive insurance companies, amended Subsec. (c) by designating existing provisions as Subdiv. (1) and amending same to change alternative reporting due date for a pure captive insurance company's or industrial insured captive insurance company's annual report from 60 days to not later than 75 days after the end of company's fiscal year and due date of additional information required by commissioner from March 1 to March 15, and by adding Subdivs. (2) and (3) re allowing a branch captive insurance company and a special purpose financial captive insurance company to apply for approval of an alternative reporting date, effective July 1, 2012.

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      Sec. 38a-91hh. *(See end of section for amended version and effective date.) Examinations of captive insurance companies. Costs. Confidentiality of financial examination workpapers and reports. (a) At least once every five years, and additionally whenever the Insurance Commissioner determines it to be prudent, the commissioner or the commissioner's designee shall visit each captive insurance company and thoroughly inspect and examine its affairs to ascertain its financial condition, its ability to fulfill its obligations and whether it has complied with the provisions of sections 38a-91aa to 38a-91qq, inclusive, and any applicable provisions of this title.

      (b) In scheduling and determining the nature, scope and frequency of such examinations, the commissioner shall consider such matters as the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent certified public accountants, and such other criteria as set forth in the examiners' handbook adopted by the National Association of Insurance Commissioners and in effect at the time the commissioner exercises discretion under this section.

      (c) (1) To carry out examinations under this section, the commissioner may appoint as examiners one or more competent persons, not officers of or connected with or interested in any insurance company, other than as a policyholder. The commissioner may engage the services of attorneys, appraisers, independent actuaries, independent certified public accountants, or other professionals and specialists to assist in conducting the examinations under this section as examiners, the cost of which shall be borne by the company which is the subject of the examination. Notwithstanding the provisions of this subdivision, no domestic captive insurance company subject to examination under this section shall pay, as costs associated with the examination, the salaries, fringe benefits, traveling and maintenance expenses of examining personnel of the Insurance Department engaged in such examination if such domestic company is otherwise liable to assessment levied under section 38a-47, except that such company shall pay the traveling and maintenance expenses of examining personnel of the department when such company is examined outside the state.

      (2) In conducting the examination, the commissioner, the commissioner's actuary or any examiner authorized by the commissioner may examine, under oath, the officers and agents of such a company and all persons deemed to have material information regarding the company's property or business. Each such company, its officers and agents shall produce the books and papers, in its or their possession, relating to its business or affairs, and any other person may be required to produce any book or paper, in his custody, deemed to be relevant to such examination for the inspection of the commissioner, the commissioner's actuary or examiners, when required. The officers and agents of the company shall facilitate the examination and aid the examiners in making the same so far as it is in their power to do so. The refusal of any company by its officers, directors, employees or agents to submit to examination or to comply with any reasonable written request of the examiners shall be grounds for suspension of, or revocation of or nonrenewal of any license or authority held by the company to engage in an insurance or other business subject to the commissioner's jurisdiction. Any such proceedings for suspension, revocation or nonrenewal of any license or authority shall be conducted pursuant to section 38a-91ii.

      (3) In conducting the examination, the examiner shall observe those guidelines and procedures set forth in the examiners' handbook adopted by the National Association of Insurance Commissioners. The commissioner may also adopt such other guidelines or procedures as the commissioner may deem appropriate.

      (d) (1) Nothing contained in this section shall be construed to limit the commissioner's authority to terminate or suspend any examination in order to pursue legal or regulatory action pursuant to the insurance laws of this state. Findings of fact and conclusions made pursuant to any examination shall be prima facie evidence in any legal or regulatory action.

      (2) Nothing contained in this section shall be construed to limit the commissioner's authority in such legal or regulatory action to use and, if appropriate, to make public any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination.

      (3) Not later than sixty days after completion of the examination, the examiner in charge shall file, under oath, with the Insurance Department a verified written report of examination. Upon receipt of the verified report, the Insurance Department shall transmit the report to the company examined, together with a notice which shall afford the company examined a reasonable opportunity, not to exceed thirty days, to make a written submission or rebuttal with respect to any matters contained in the examination report. Not later than thirty days after the period allowed for the receipt of written submissions or rebuttals, the commissioner shall fully consider and review the report, together with any written submissions or rebuttals and any relevant portions of the examiner's workpapers and enter an order: (A) Adopting the examination report as filed or with modification or corrections. If the examination report reveals that the company is operating in violation of any law, regulation or prior order of the commissioner, the commissioner may order the company to take any action the commissioner considers necessary and appropriate to cure such violation; or (B) rejecting the examination report with directions to the examiners to reopen the examination for purposes of obtaining additional data, documentation or information, and refiling pursuant to subparagraph (A) of this subdivision; or (C) calling for an investigatory hearing with no less than twenty days notice to the company for purposes of obtaining additional documentation, data, information and testimony.

      (e) (1) All orders entered pursuant to subdivision (3) of subsection (d) of this section shall be accompanied by findings and conclusions resulting from the commissioner's consideration and review of the examination report, relevant examiner workpapers and any written submissions or rebuttals. The findings and conclusions, which form the basis of any such order of the commissioner, shall be subject to review as provided in section 38a-19.

      (2) Any investigatory hearing conducted under subparagraph (C) of subdivision (3) of subsection (d) of this section by the commissioner or authorized representative shall be conducted as a nonadversarial confidential investigatory proceeding as necessary for the resolution of any inconsistencies, discrepancies or disputed issues apparent (A) upon the filed examination report, (B) raised by or as a result of the commissioner's review of relevant workpapers, or (C) by the written submission or rebuttal of the company. Not later than twenty days after conclusions of any such hearing, the commissioner shall enter an order pursuant to subparagraph (A) of subdivision (3) of subsection (d) of this section. The commissioner shall not appoint an examiner as an authorized representative to conduct the hearing. The hearing shall proceed expeditiously with discovery by the company limited to the examiner's workpapers which tend to substantiate any assertions set forth in any written submission or rebuttal. The commissioner or the commissioner's authorized representative may issue subpoenas for the attendance of any witnesses or the production of any documents deemed relevant to the investigation whether under the control of the department, the company or other persons. The documents produced shall be included in the record and testimony taken by the commissioner or the commissioner's authorized representative shall be under oath and preserved for the record. Nothing contained in this section shall require the department to disclose any information or records which would indicate or show the existence or content of any investigation or activity of a criminal justice agency. The hearing shall proceed with the commissioner or the commissioner's authorized representative posing questions to the persons subpoenaed. Thereafter the company and the Insurance Department may present testimony relevant to the investigation. Cross-examination shall be conducted only by the commissioner or the commissioner's authorized representative. The company and the Insurance Department shall be permitted to make closing statements and may be represented by counsel of their choice.

      (f) The commissioner may, if the commissioner deems it in the public interest, publish any such report or the result of any such examination contained in such report in one or more newspapers of the state.

      (g) Nothing contained in this section shall prevent or be construed as prohibiting the commissioner from disclosing the content of an examination report, preliminary examination report or results, or any matter relating to such report to (1) the Insurance Department of this or any other state or country, (2) law enforcement officials of this or any other state, or (3) any agency of the federal government at any time, so long as such agency or office receiving the report or matters relating to such report agrees, in writing, that such documents shall be confidential.

      (h) All working papers, recorded information, documents and copies thereof produced by, obtained by or disclosed to the commissioner or any other person in the course of an examination made under this section shall (1) be confidential, (2) not be subject to subpoena, and (3) not be made public by the commissioner or any other person, except to the extent provided in subsection (g) of this section. Access to such information may be granted by the commissioner to the National Association of Insurance Commissioners, so long as it agrees, in writing, that such information shall be confidential.

      (i) (1) The commissioner may engage the services of, from time to time, on an individual basis, qualified actuaries, certified public accountants or other similar individuals who are independently practicing their professions, even though such persons may, from time to time, be similarly employed or retained by persons subject to examination under this section.

      (2) No cause of action shall arise nor shall any liability be imposed against the commissioner, the commissioner's authorized representatives or any examiner appointed by the commissioner for any statements made or conduct performed in good faith while carrying out the provisions of this section.

      (3) No cause of action shall arise, nor shall any liability be imposed, against any person for the act of communicating or delivering information or data to the commissioner or the commissioner's authorized representative examiner pursuant to an examination made under this section, if such act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.

      (4) This section does not abrogate or modify in any way any common law or statutory privilege or immunity heretofore enjoyed by any person identified in subdivision (2) of this subsection.

      (5) A person identified in subdivision (2) of this subsection shall be entitled to an award of attorney's fees and costs if he is the prevailing party in a civil cause of action for libel, slander or any other relevant tort arising out of activities in carrying out the provisions of this section and the party bringing the action was not substantially justified in doing so. For purposes of this section, a proceeding is "substantially justified" if it had a reasonable basis in law or fact at the time that it was initiated.

      (P.A. 08-127, S. 8; P.A. 09-74, S. 11, 12.)

      *Note: On and after July 1, 2012, this section, as amended by section 62 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91hh. Examinations of captive insurance companies. Costs. Confidentiality of financial examination workpapers and reports. (a)(1) At least once every three years, and additionally whenever the Insurance Commissioner determines it to be prudent, the commissioner or the commissioner's designee shall visit each captive insurance company and thoroughly inspect and examine its affairs to ascertain its financial condition, its ability to fulfill its obligations and whether it has complied with the provisions of sections 38a-91aa to 38a-91tt, inclusive, and any applicable provisions of this title. The commissioner may extend the three-year period to five years, provided a captive insurance company is subject to a comprehensive annual audit during such period by independent auditors approved by the commissioner and of a scope satisfactory to the commissioner.

      (2) The examination of a branch captive insurance company pursuant to this section shall be of branch business and branch operations only, as long as the branch captive insurance company provides annually to the commissioner a certificate of compliance or its equivalent, issued by or filed with the licensing authority of the jurisdiction in which the branch captive insurance company is formed, and demonstrates to the commissioner's satisfaction that it is operating in sound financial condition in accordance with all applicable laws and regulations of such jurisdiction.

      (b) In scheduling and determining the nature, scope and frequency of such examinations, the commissioner shall consider such matters as the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent certified public accountants, and such other criteria as set forth in the examiners' handbook adopted by the National Association of Insurance Commissioners and in effect at the time the commissioner exercises discretion under this section.

      (c) (1) To carry out examinations under this section, the commissioner may appoint as examiners one or more competent persons, not officers of or affiliated with or interested in any insurance company, other than as a policyholder. The commissioner may engage the services of attorneys, appraisers, independent actuaries, independent certified public accountants, or other professionals and specialists to assist in conducting the examinations under this section as examiners, the cost of which shall be borne by the company which is the subject of the examination. Notwithstanding the provisions of this subdivision, no domestic captive insurance company subject to examination under this section shall pay, as costs associated with the examination, the salaries, fringe benefits, traveling and maintenance expenses of examining personnel of the Insurance Department engaged in such examination if such domestic company is otherwise liable to assessment levied under section 38a-47, except that such company shall pay the traveling and maintenance expenses of examining personnel of the department when such company is examined outside the state.

      (2) In conducting the examination, the commissioner, the commissioner's actuary or any examiner authorized by the commissioner may examine, under oath, the officers and agents of such a company and all persons deemed to have material information regarding the company's property or business. Each such company, its officers and agents shall produce the books and papers, in its or their possession, relating to its business or affairs, and any other person may be required to produce any book or paper, in his custody, deemed to be relevant to such examination for the inspection of the commissioner, the commissioner's actuary or examiners, when required. The officers and agents of the company shall facilitate the examination and aid the examiners in making the same so far as it is in their power to do so. The refusal of any company by its officers, directors, employees or agents to submit to examination or to comply with any reasonable written request of the examiners shall be grounds for suspension of, or revocation of or nonrenewal of any license or authority held by the company to engage in an insurance or other business subject to the commissioner's jurisdiction. Any such proceedings for suspension, revocation or nonrenewal of any license or authority shall be conducted pursuant to section 38a-91ii.

      (3) In conducting the examination, the examiner shall observe those guidelines and procedures set forth in the examiners' handbook adopted by the National Association of Insurance Commissioners. The commissioner may also adopt such other guidelines or procedures as the commissioner may deem appropriate.

      (d) (1) Nothing contained in this section shall be construed to limit the commissioner's authority to terminate or suspend any examination in order to pursue legal or regulatory action pursuant to the insurance laws of this state. Findings of fact and conclusions made pursuant to any examination shall be prima facie evidence in any legal or regulatory action.

      (2) Nothing contained in this section shall be construed to limit the commissioner's authority in such legal or regulatory action to use and, if appropriate, to make public any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination.

      (3) Not later than sixty days after completion of the examination, the examiner in charge shall file, under oath, with the Insurance Department a verified written report of examination. Upon receipt of the verified report, the Insurance Department shall transmit the report to the company examined, together with a notice which shall afford the company examined a reasonable opportunity, not to exceed thirty days, to make a written submission or rebuttal with respect to any matters contained in the examination report. Not later than thirty days after the period allowed for the receipt of written submissions or rebuttals, the commissioner shall fully consider and review the report, together with any written submissions or rebuttals and any relevant portions of the examiner's workpapers and enter an order: (A) Adopting the examination report as filed or with modification or corrections. If the examination report reveals that the company is operating in violation of any law, regulation or prior order of the commissioner, the commissioner may order the company to take any action the commissioner considers necessary and appropriate to cure such violation; or (B) rejecting the examination report with directions to the examiners to reopen the examination for purposes of obtaining additional data, documentation or information, and refiling pursuant to subparagraph (A) of this subdivision; or (C) calling for an investigatory hearing with no less than twenty days notice to the company for purposes of obtaining additional documentation, data, information and testimony.

      (e) (1) All orders entered pursuant to subdivision (3) of subsection (d) of this section shall be accompanied by findings and conclusions resulting from the commissioner's consideration and review of the examination report, relevant examiner workpapers and any written submissions or rebuttals. The findings and conclusions, which form the basis of any such order of the commissioner, shall be subject to review as provided in section 38a-19.

      (2) Any investigatory hearing conducted under subparagraph (C) of subdivision (3) of subsection (d) of this section by the commissioner or authorized representative shall be conducted as a nonadversarial confidential investigatory proceeding as necessary for the resolution of any inconsistencies, discrepancies or disputed issues apparent (A) upon the filed examination report, (B) raised by or as a result of the commissioner's review of relevant workpapers, or (C) by the written submission or rebuttal of the company. Not later than twenty days after conclusions of any such hearing, the commissioner shall enter an order pursuant to subparagraph (A) of subdivision (3) of subsection (d) of this section. The commissioner shall not appoint an examiner as an authorized representative to conduct the hearing. The hearing shall proceed expeditiously with discovery by the company limited to the examiner's workpapers which tend to substantiate any assertions set forth in any written submission or rebuttal. The commissioner or the commissioner's authorized representative may issue subpoenas for the attendance of any witnesses or the production of any documents deemed relevant to the investigation whether under the control of the department, the company or other persons. The documents produced shall be included in the record and testimony taken by the commissioner or the commissioner's authorized representative shall be under oath and preserved for the record. Nothing contained in this section shall require the department to disclose any information or records which would indicate or show the existence or content of any investigation or activity of a criminal justice agency. The hearing shall proceed with the commissioner or the commissioner's authorized representative posing questions to the persons subpoenaed. Thereafter the company and the Insurance Department may present testimony relevant to the investigation. Cross-examination shall be conducted only by the commissioner or the commissioner's authorized representative. The company and the Insurance Department shall be permitted to make closing statements and may be represented by counsel of their choice.

      (f) The commissioner may, if the commissioner deems it in the public interest, publish any such report or the result of any such examination contained in such report in one or more newspapers of the state.

      (g) Nothing contained in this section shall prevent or be construed as prohibiting the commissioner from disclosing the content of an examination report, preliminary examination report or results, or any matter relating to such report to (1) insurance regulatory officials of this or any other state or country, (2) law enforcement officials of this or any other state, or (3) any agency of this or any other state or of the federal government at any time, provided such agency or office receiving the report or matters relating to such report agrees, in writing, that such documents shall be confidential.

      (h) All workpapers, recorded information, documents and copies thereof produced by, obtained by or disclosed to the commissioner or any other person in the course of an examination made under this section shall (1) be confidential, (2) not be subject to subpoena, and (3) not be made public by the commissioner or any other person, except to the extent provided in subsection (g) of this section. Access to such information may be granted by the commissioner to the National Association of Insurance Commissioners, as long as it agrees, in writing, that such information shall be confidential.

      (i) (1) The commissioner may engage the services of, from time to time, on an individual basis, qualified actuaries, certified public accountants or other similar individuals who are independently practicing their professions, even though such persons may, from time to time, be similarly employed or retained by persons subject to examination under this section.

      (2) No cause of action shall arise nor shall any liability be imposed against the commissioner, the commissioner's authorized representatives or any examiner appointed by the commissioner for any statements made or conduct performed in good faith while carrying out the provisions of this section.

      (3) No cause of action shall arise, nor shall any liability be imposed, against any person for the act of communicating or delivering information or data to the commissioner or the commissioner's authorized representative examiner pursuant to an examination made under this section, if such act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.

      (4) This section does not abrogate or modify in any way any common law or statutory privilege or immunity heretofore enjoyed by any person identified in subdivision (2) of this subsection.

      (5) A person identified in subdivision (2) of this subsection shall be entitled to an award of attorney's fees and costs if he is the prevailing party in a civil cause of action for libel, slander or any other relevant tort arising out of activities in carrying out the provisions of this section and the party bringing the action was not substantially justified in doing so. For purposes of this section, a proceeding is "substantially justified" if it had a reasonable basis in law or fact at the time that it was initiated."

      (P.A. 08-127, S. 8; P.A. 09-74, S. 11, 12; Oct. Sp. Sess. P.A. 11-1, S. 62.)

      History: P.A. 08-127 effective January 1, 2009; P.A. 09-74 made technical changes in Subsecs. (c)(2), (g), (h) and (i)(1), effective May 27, 2009; Oct. Sp. Sess. P.A. 11-1 redesignated existing Subsec. (a) as Subsec. (a)(1) and amended same to change the time period for commissioner to conduct an examination from 5 to 3 years and add provision for extending such period to 5 years, added Subsec. (a)(2) re examination of a branch captive insurance company, and made technical changes in Subsecs. (c)(1), (g) and (h), effective July 1, 2012.

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      Sec. 38a-91ii. *(See end of section for amended version and effective date.) Suspension, revocation or refusal to renew license. (a) The commissioner may, at any time, for cause, suspend, revoke or refuse to renew any license of a captive insurance company, or in lieu of or in addition to suspension or revocation of such license, the commissioner, after reasonable notice to and hearing of any holder of such license, may impose a fine not to exceed ten thousand dollars. Such hearings may be held by the commissioner or any person designated by the commissioner.

      (b) Any captive insurance company aggrieved by the action of the commissioner in suspending, revoking or refusing to renew a license or in imposing a fine may appeal therefrom, in accordance with the provisions of section 4-183, except venue for such appeal shall be in the judicial district of New Britain. Appeals under this section shall be privileged in respect to the order of trial assignment.

      (P.A. 08-127, S. 9.)

      *Note: On and after July 1, 2012, this section, as amended by section 63 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91ii. Suspension, revocation or refusal to renew license. Amendment or modification of a special purpose financial captive insurance company's license. (a)(1) The commissioner may, at any time, for cause, suspend, revoke or refuse to renew any license of a captive insurance company, or in lieu of or in addition to suspension or revocation of such license, the commissioner, after reasonable notice to and hearing of any holder of such license, may impose a fine not to exceed ten thousand dollars. Such hearings may be held by the commissioner or any person designated by the commissioner. For purposes of this subsection, cause for such administrative action shall include, but not be limited to, the following reasons: (A) Insolvency or impairment of capital or surplus; (B) failure to meet the requirements of section 38a-91dd; (C) refusal or failure to submit an annual report, as required by section 38a-91gg, or any other report or statement required by law or by lawful order of the commissioner; (D) failure to comply with the provisions of its own charter, bylaws or other organizational document; (E) failure to submit to or pay the cost of examination or any legal obligation relative thereto; (F) use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or (G) failure otherwise to comply with the laws of this state.

      (2) Any captive insurance company aggrieved by the action of the commissioner in suspending, revoking or refusing to renew a license or in imposing a fine may appeal therefrom, in accordance with the provisions of section 4-183, except venue for such appeal shall be in the judicial district of New Britain. Appeals under this section shall be privileged in respect to the order of trial assignment.

      (b) (1) (A) The commissioner shall notify a special purpose financial captive insurance company not less than thirty days before suspending, revoking or refusing to renew its license. Such notice shall state the basis for such suspension, revocation or refusal to renew and the date of the hearing; and

      (B) No prior notice or hearing shall be required if the grounds for suspension, revocation or refusal to renew of a special purpose financial captive insurance company's license relate primarily to the financial condition or soundness of such company or to a deficiency in its assets.

      (2) The commissioner may amend or modify the license of a special purpose financial captive insurance company only if:

      (A) The special purpose financial captive insurance company consents to such amendment or modification; or

      (B) The commissioner makes a showing of clear and convincing evidence demonstrating that such amendment or modification is necessary to avoid irreparable harm to the special purpose financial captive insurance company or to the ceding insurer."

      (P.A. 08-127, S. 9; Oct. Sp. Sess. P.A. 11-1, S. 63.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 redesignated existing Subsec. (a) as Subsec. (a)(1) and amended same to add Subparas. (A) to (G) re causes for administrative action, redesignated existing Subsec. (b) as Subsec. (a)(2), and added new Subsec. (b) re time period for notification to, and amendment or modification of the license of, a special purpose financial captive insurance company, effective July 1, 2012.

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      Sec. 38a-91jj. *(See end of section for amended version of subsection (a) and effective date.) Applicability of state investment laws. Certain loans and investments required to be approved by commissioner. Loans of minimum capital and surplus funds prohibited. *(a) Association captive insurance companies and risk retention groups shall comply with the investment requirements in this chapter, as applicable. Notwithstanding any other provision of sections 38a-91aa to 38a-91qq, inclusive, the commissioner may approve the use of alternative reliable methods of valuation and rating.

      (b) No pure captive insurance company or industrial insured captive insurance company shall be subject to any restrictions on allowable investments, except that the Insurance Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of any such company.

      (c) No pure captive insurance company may make a loan to or an investment in its parent company or affiliates without prior written approval of the commissioner, and any such loan or investment shall be evidenced by documentation approved by the commissioner. Loans of minimum capital and surplus funds required in section 38a-91dd are prohibited.

      (P.A. 08-127, S. 10.)

      *Note: On and after July 1, 2012, subsection (a) of this section, as amended by section 64 of public act 11-1 of the October special session, is to read as follows:

      "(a) Association captive insurance companies and risk retention groups shall comply with the investment requirements in this chapter, as applicable. Notwithstanding any other provision of sections 38a-91aa to 38a-91tt, inclusive, the commissioner may approve the use of alternative reliable methods of valuation and rating."

      (P.A. 08-127, S. 10; Oct. Sp. Sess. P.A. 11-1, S. 64.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 made a technical change in Subsec. (a), effective July 1, 2012.

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      Sec. 38a-91kk. *(See end of section for amended version of subsection (c) and effective date.) Reinsurance. (a) Any captive insurance company may assume reinsurance from any other insurer only on risks that such company is authorized to write directly.

      (b) A captive insurance company may only take credit for the reinsurance of risks or portions of risks ceded to reinsurers that complies with the provisions of section 38a-85 or 38a-86.

      *(c) For purposes of sections 38a-91aa to 38a-91qq, inclusive, insurance by a captive insurance company of any workers' compensation qualified self-insured plan of its parent and affiliates shall be deemed to be reinsurance.

      (P.A. 08-127, S. 11.)

      *Note: On and after July 1, 2012, subsection (c) of this section, as amended by section 65 of public act 11-1 of the October special session, is to read as follows:

      "(c) For purposes of sections 38a-91aa to 38a-91tt, inclusive, insurance by a captive insurance company of any workers' compensation qualified self-insured plan of its parent and affiliates shall be deemed to be reinsurance."

      (P.A. 08-127, S. 11; Oct. Sp. Sess. P.A. 11-1, S. 65.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 made a technical change in Subsec. (c), effective July 1, 2012.

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      Sec. 38a-91nn. *(See end of section for amended version and effective date.) Premium receipts tax. (a) Each captive insurance company shall pay to the Commissioner of Revenue Services, in the month of February of each year, a tax at the rate of thirty-eight hundredths of one per cent on the first twenty million dollars and two hundred eighty-five thousandths of one per cent on the next twenty million dollars and nineteen hundredths of one per cent on the next twenty million dollars and seventy-two thousandths of one per cent on each dollar thereafter, on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December thirty-first next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders, except that no tax shall be due or payable as to considerations received for annuity contracts.

      (b) The annual minimum aggregate tax to be paid by a captive insurance company calculated under subsection (a) of this section shall be seven thousand five hundred dollars, and the annual maximum aggregate tax shall be two hundred thousand dollars.

      (c) A captive insurance company failing to file returns as required in this section or failing to pay within the time required all taxes assessed by this section shall be subject to penalty under section 12-229.

      (d) Two or more captive insurance companies under common ownership and control shall be taxed as though they were a single captive insurance company.

      (e) For the purposes of this section common ownership and control means:

      (1) In the case of stock corporations, the direct or indirect ownership of eighty per cent or more of the outstanding voting stock of two or more corporations by the same shareholder or shareholders; and

      (2) In the case of mutual or nonprofit corporations, the direct or indirect ownership of eighty per cent or more of the surplus and the voting power of two or more corporations by the same member or members.

      (f) The tax provided for in this section shall constitute all taxes collectible under the laws of this state from any captive insurance company, and no other occupation tax or other taxes shall be levied or collected from any captive insurance company by the state or any county, city or municipality within this state, except taxes on real and personal property used in the production of income.

      (g) The tax provided for in this section shall be calculated on an annual basis, notwithstanding policies or contracts of insurance or contracts of reinsurance issued on a multiyear basis. In the case of multiyear policies or contracts, the premium shall be prorated for purposes of determining the tax under this section.

      (P.A. 08-127, S. 14; P.A. 09-74, S. 13.)

      *Note: On and after July 1, 2012, this section, as amended by section 66 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91nn. Direct premium receipts tax and assumed reinsurance premium receipts tax. Applicability of tax statutes. Captive insurance regulatory and supervision account. (a) Each captive insurance company shall pay to the Commissioner of Revenue Services, on or before March first of each year, a tax at the rate of (1) thirty-eight hundredths of one per cent on the first twenty million dollars, (2) two hundred eighty-five thousandths of one per cent on the next twenty million dollars, (3) nineteen hundredths of one per cent on the next twenty million dollars, and (4) seventy-two thousandths of one per cent on each dollar thereafter, on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December thirty-first next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders, except that no tax shall be due or payable as to considerations received for annuity contracts.

      (b) Each captive insurance company shall pay to the Commissioner of Revenue Services, in the month of March of each year, a tax at the rate of (1) two hundred fourteen thousandths of one per cent on the first twenty million dollars, (2) one hundred forty-three thousandths of one per cent on the next twenty million dollars, (3) forty-eight thousandths of one per cent on the next twenty million dollars, and (4) twenty-four thousandths of one per cent on each dollar thereafter, on assumed reinsurance premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December thirty-first next preceding, provided no tax under this subsection shall apply to premiums for risks or portions of risks that are subject to taxation on a direct basis pursuant to subsection (a) of this section. No tax under this subsection shall be payable in connection with the receipt of assets in exchange for the assumption by a captive insurance company of loss reserves and other liabilities of another insurer under common ownership and control, if such transaction is part of a plan to discontinue the operations of such other insurer and if the intent of the parties to such transaction is to renew or maintain such business with the captive insurance company.

      (c) (1) The annual minimum aggregate tax to be paid by a captive insurance company, other than a sponsored captive insurance company, calculated under subsection (a) of this section shall be seven thousand five hundred dollars, and the annual maximum aggregate tax calculated under subsections (a) and (b) of this section shall be two hundred thousand dollars. In the case of a branch captive insurance company, the annual aggregate tax to be paid by such company shall apply only to the branch business of such company.

      (2) In the case of a sponsored captive insurance company, the annual minimum aggregate tax to be paid by a sponsored captive insurance company shall be seven thousand five hundred dollars and shall apply to such company as a whole and not to each protected cell. The annual maximum tax to be paid by a sponsored captive insurance company shall be the aggregate tax liability, calculated under subsection (a) of this section, of each protected cell.

      (d) The provisions of sections 12-204, 12-204d, 12-204g and 12-205 to 12-208, inclusive, shall apply to the provisions of sections 38a-91aa to 38a-91tt, inclusive, in the same manner and with the same force and effect as if the language of said sections 12-204, 12-204d, 12-204g and 12-205 to 12-208, inclusive, had been incorporated in full into this section and had expressly referred to the tax due under this section, except to the extent that any such language is inconsistent with a provision of said sections 38a-91aa to 38a-91tt, inclusive.

      (e) (1) Except as specified in subsection (c) of this section and subdivision (2) of this subsection, two or more captive insurance companies under common ownership and control shall be taxed as though they were a single captive insurance company.

      (2) Special purpose financial captive insurance companies shall not be consolidated with other captive insurance companies that are not special purpose financial captive insurance companies for purposes of calculating the tax due under this section.

      (f) For the purposes of this section, (1) "common ownership and control" means ownership and control of two or more captive insurance companies by the same person or group of persons, and (2) "ownership and control" means:

      (A) In the case of stock insurers, the direct or indirect ownership of eighty per cent or more of the outstanding voting stock of the insurer;

      (B) In the case of mutual or nonprofit corporations, the direct or indirect ownership of eighty per cent or more of the surplus and the voting power of the corporation;

      (C) In the case of limited liability companies, the direct or indirect ownership of eighty per cent or more of the membership interests in the company; and

      (D) In the case of sponsored captive insurance companies, a protected cell shall be treated as a separate captive insurance company owned and controlled by the protected cell's participants.

      (g) (1) The tax provided for in this section shall constitute all taxes collectible under the laws of this state from any captive insurance company, and no other occupation tax or other taxes shall be levied or collected from any captive insurance company by the state or any county, city or municipality within this state, except sales and use taxes and ad valorem taxes on real and personal property used in the production of income.

      (2) The tax provided for in this section shall be calculated on an annual basis, notwithstanding policies or contracts of insurance or contracts of reinsurance issued on a multiyear basis. In the case of multiyear policies or contracts, the premium shall be prorated for purposes of determining the tax under this section.

      (3) A captive insurance company may claim a nonrefundable tax credit of seven thousand five hundred dollars against the aggregate tax imposed under this section for the first calendar year on or after January 1, 2012, in which the company has liability under this section. The Commissioner of Revenue Services shall prescribe the form and manner in which such tax credit may be claimed.

      (h) (1) There is established an account to be known as the "captive insurance regulatory and supervision account" which shall be a separate, nonlapsing account within the Insurance Fund established under section 38a-52a. The account shall contain any moneys required by law to be deposited in the account. Moneys in the account shall be expended by the commissioner for the purposes of funding staff positions and other reasonable expenses related to the regulation of captive insurance companies.

      (2) (A) All fees and assessments relating to captive insurance companies received by the Insurance Department shall be deposited in the account.

      (B) The Comptroller shall transfer annually to the account eleven per cent of the tax collected pursuant to this section.

      (3) The Comptroller may transfer from the account, with the approval of the Secretary of the Office of Policy and Management, an amount equivalent to not more than two per cent of the tax collected pursuant to this section, to the Department of Economic and Community Development for reasonable expenses incurred to promote the captive insurance industry in this state. The Department of Economic and Community Development may also utilize the transferred moneys to collaborate with other entities to promote the captive insurance industry in this state.

      (4) No payment for the maintenance of staff or associated expenses, including contractual services as necessary, shall be disbursed until the commissioner receives proper documentation regarding services rendered and expenses incurred. The commissioner shall establish the form and manner of such documentation.

      (5) Any balance remaining in the account at the end of any fiscal year shall be carried forward in the account for the fiscal year next succeeding."

      (P.A. 08-127, S. 14; P.A. 09-74, S. 13; Oct. Sp. Sess. P.A. 11-1, S. 66.)

      History: P.A. 08-127 effective January 1, 2009; P.A. 09-74 made technical changes in Subsecs. (a) and (b), effective May 27, 2009; Oct. Sp. Sess. P.A. 11-1 amended Subsec. (a) to change date of payment of direct premium receipts tax from the month of February to on or before March first, added new Subsec. (b) re assumed reinsurance premium receipts tax, redesignated existing Subsec. (b) as Subsec. (c)(1), added provision therein re applicability of annual aggregate tax to a branch captive insurance company, added Subsec. (c)(2) re applicability of annual aggregate tax to a sponsored captive insurance company, deleted former Subsec. (c) re penalty for failure to file return or pay tax, added new Subsec. (d) re applicability of tax statutes, redesignated existing Subsec. (d) as Subsec. (e)(1), added Subsec. (e)(2) re consolidation of special purpose financial captive insurance companies, redesignated existing Subsec. (e) as Subsec. (f) and amended same to redefine "common ownership and control" and define "ownership and control", redesignated existing Subsecs. (f) and (g) as Subsec. (g)(1) and (2), amended Subsec. (g)(1) to replace "taxes on real and personal property" with "sales and use taxes and ad valorem taxes on real and personal property", added Subsec. (g)(3) re tax credit, added Subsec. (h) re establishment of captive insurance regulatory and supervision account, and made conforming and technical changes, effective July 1, 2012, and applicable to calendar years commencing on or after January 1, 2012.

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      Sec. 38a-91oo. *(See end of section for amended version and effective date.) Applicability of insurance statutes. Unless otherwise provided in sections 38a-91aa to 38a-91qq, inclusive, no provision of this title shall apply to captive insurance companies, unless expressly included therein, except for the following: Sections 38a-16, 38a-17, 38a-54 to 38a-57, inclusive, 38a-59, 38a-69a, 38a-250 to 38a-266, inclusive, 38a-903 to 38a-961, inclusive, and 38a-962 to 38a-962j, inclusive.

      (P.A. 08-127, S. 15.)

      *Note: On and after July 1, 2012, this section, as amended by section 67 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91oo. Applicability of insurance statutes. Unless otherwise provided in sections 38a-91aa to 38a-91tt, inclusive, no provision of this title shall apply to captive insurance companies, unless expressly included therein, except for the following: Sections 38a-8, 38a-16, 38a-17, 38a-54 to 38a-57, inclusive, 38a-59, 38a-69a, 38a-73, 38a-129 to 38a-140, inclusive, and 38a-250 to 38a-266, inclusive, and chapter 704c."

      (P.A. 08-127, S. 15; Oct. Sp. Sess. P.A. 11-1, S. 67.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 added Secs. 38a-8, 38a-73 and 38a-129 to 38a-140 as applicable to captive insurance companies and changed "38a-903 to 38a-961, inclusive, and 38a-962 to 38a-962j, inclusive" to "chapter 704c", effective July 1, 2012.

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      Sec. 38a-91pp. *(See end of section for amended version and effective date.) Conversions and mergers. Approval by commissioner. (a) An association captive insurance company, risk retention group or industrial insured captive insurance company formed as a stock or mutual corporation may be converted to or merged with and into a reciprocal insurer in accordance with a plan for such conversion or merger and the provisions of this section.

      (b) Any plan for such conversion or merger shall provide a fair and equitable plan for purchasing, retiring or otherwise extinguishing the interests of the stockholders and policyholders of a stock insurer, and the members and policyholders of a mutual insurer, including a fair and equitable provision for the rights and remedies of dissenting stockholders, members or policyholders.

      (c) In the case of a conversion authorized under subsection (a) of this section:

      (1) Such conversion shall be accomplished under such reasonable plan and procedure as may be approved by the commissioner, except that the Insurance Commissioner shall not approve any such plan of conversion unless such plan:

      (A) Satisfies the provisions of subsection (b) of this section;

      (B) Provides for a hearing, of which notice is given or to be given to the captive insurance company, its directors, officers and policyholders, and in the case of a stock insurer, its stockholders, and in the case of a mutual insurer, its members, all of which persons shall be entitled to attend and appear at such hearing, except that if notice of a hearing is given and no director, officer, policyholder, member or stockholder requests a hearing, the commissioner may cancel such hearing;

      (C) Provides a fair and equitable plan for the conversion of stockholder, member or policyholder interests into subscriber interests in the resulting reciprocal insurer, substantially proportionate to the corresponding interests in the stock or mutual insurer, except that such plan shall not preclude the resulting reciprocal insurer from applying underwriting criteria that could affect ongoing ownership interests; and

      (D) Is approved:

      (i) In the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present; and

      (ii) In the case of a mutual insurer, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting thereof at which a quorum is present;

      (2) The commissioner shall approve such plan of conversion if the commissioner finds that the conversion will promote the general good of the state in conformity with those standards set forth in subdivision (2) of subsection (d) of section 38a-91ff;

      (3) If the commissioner approves the plan, the commissioner shall amend the converting insurer's certificate of authority to reflect conversion to a reciprocal insurer and issue such amended certificate of authority to the company's attorney-in-fact;

      (4) The conversion shall be effective upon the issuance of an amended certificate of authority of a reciprocal insurer by the commissioner; and

      (5) Upon the effective date of such conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the Secretary of the State of such conversion.

      (d) A merger authorized under subsection (a) of this section shall be accomplished substantially in accordance with the procedures set forth in this chapter, except that, solely for purposes of such merger:

      (1) The plan of merger shall satisfy the provisions of subsection (b) of this section;

      (2) The subscribers' advisory committee of a reciprocal insurer shall be equivalent to the board of directors of a stock or mutual insurance company;

      (3) The subscribers of a reciprocal insurer shall be the equivalent of the policyholders of a mutual insurance company;

      (4) If a subscribers' advisory committee does not have a president or secretary, the officers of such committee having substantially equivalent duties shall be deemed the president or secretary of such committee;

      (5) The commissioner shall approve the articles of merger if the commissioner finds that the merger will promote the general good of the state in conformity with those standards set forth in subdivision (2) of subsection (d) of section 38a-91ff. If the commissioner approves the articles of merger, the commissioner shall endorse the commissioner's approval thereon and the surviving insurer shall present the articles of merger to the Secretary of the State at the Secretary of the State's office;

      (6) Notwithstanding section 38a-91dd, the commissioner may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section, except that there shall be no more than one authorized insurance company surviving such merger; and

      (7) An alien insurer may be a party to a merger authorized under subsection (a) of this section, except that the requirements for a merger between a domestic and a foreign insurer under this chapter shall apply to a merger between a domestic and an alien insurer under this subsection. Such alien insurer shall be treated as a foreign insurer under this chapter and such other jurisdictions shall be the equivalent of a state for purposes of this chapter.

      (e) A conversion or merger under this section shall have the effects of conversion or merger set forth in this chapter to the extent such effects are not inconsistent with the provisions of sections 38a-91aa to 38a-91qq, inclusive.

      (P.A. 08-127, S. 16.)

      *Note: On and after July 1, 2012, this section, as amended by section 68 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91pp. Conversions and mergers. Approval by commissioner. (a) An association captive insurance company, risk retention group or industrial insured captive insurance company formed as a stock insurer or mutual corporation may be converted to or merged with and into a reciprocal insurer in accordance with a plan for such conversion or merger and the provisions of this section.

      (b) Any plan for such conversion or merger shall provide a fair and equitable plan for purchasing, retiring or otherwise extinguishing the interests of the stockholders and policyholders of a stock insurer, and the members and policyholders of a mutual corporation, including a fair and equitable provision for the rights and remedies of dissenting stockholders, members or policyholders.

      (c) In the case of a conversion authorized under subsection (a) of this section:

      (1) Such conversion shall be accomplished under such reasonable plan and procedure as may be approved by the commissioner, except that the Insurance Commissioner shall not approve any such plan of conversion unless such plan:

      (A) Satisfies the provisions of subsection (b) of this section;

      (B) Provides for a hearing, of which notice is given or to be given to the captive insurance company, its directors, officers and policyholders, and in the case of a stock insurer, its stockholders, and in the case of a mutual corporation, its members, all of which persons shall be entitled to attend and appear at such hearing, except that if notice of a hearing is given and no director, officer, policyholder, member or stockholder requests a hearing, the commissioner may cancel such hearing;

      (C) Provides a fair and equitable plan for the conversion of stockholder, member or policyholder interests into subscriber interests in the resulting reciprocal insurer, substantially proportionate to the corresponding interests in the stock insurer or mutual corporation, except that such plan shall not preclude the resulting reciprocal insurer from applying underwriting criteria that could affect ongoing ownership interests; and

      (D) Is approved:

      (i) In the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present; and

      (ii) In the case of a mutual corporation, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting thereof at which a quorum is present;

      (2) The commissioner shall approve such plan of conversion if the commissioner finds that the conversion will promote the general good of the state in conformity with those standards set forth in subdivision (2) of subsection (g) of section 38a-91ff;

      (3) If the commissioner approves the plan, the commissioner shall amend the converting insurer's certificate of authority to reflect conversion to a reciprocal insurer and issue such amended certificate of authority to the company's attorney-in-fact;

      (4) The conversion shall be effective upon the issuance of an amended certificate of authority of a reciprocal insurer by the commissioner; and

      (5) Upon the effective date of such conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the Secretary of the State of such conversion.

      (d) A merger authorized under subsection (a) of this section shall be accomplished substantially in accordance with the procedures set forth in this chapter, except that, solely for purposes of such merger:

      (1) The plan of merger shall satisfy the provisions of subsection (b) of this section;

      (2) The subscribers' advisory committee of a reciprocal insurer shall be equivalent to the board of directors of a stock insurer or mutual corporation;

      (3) The subscribers of a reciprocal insurer shall be the equivalent of the policyholders of a mutual corporation;

      (4) If a subscribers' advisory committee does not have a president or secretary, the officers of such committee having substantially equivalent duties shall be deemed the president or secretary of such committee;

      (5) The commissioner shall approve the articles of merger if the commissioner finds that the merger will promote the general good of the state in conformity with those standards set forth in subdivision (2) of subsection (g) of section 38a-91ff. If the commissioner approves the articles of merger, the commissioner shall endorse the commissioner's approval thereon and the surviving insurer shall present the articles of merger to the Secretary of the State at the Secretary of the State's office;

      (6) Notwithstanding section 38a-91dd, the commissioner may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section, except that there shall be no more than one authorized insurance company surviving such merger; and

      (7) An alien insurer may be a party to a merger authorized under subsection (a) of this section, except that the requirements for a merger between a domestic and a foreign insurer under this chapter shall apply to a merger between a domestic and an alien insurer under this subsection. Such alien insurer shall be treated as a foreign insurer under this chapter and such other jurisdictions shall be the equivalent of a state for purposes of this chapter.

      (e) The commissioner may permit the formation of a captive insurance company that is established for the sole purpose of merging or consolidating with, or assuming existing insurance or reinsurance business from, an existing captive insurance company or, subject to such conditions as the commissioner may impose that are not inconsistent with this chapter, any existing captive insurance company organized in any other jurisdiction. Upon request of such newly formed captive insurance company, the commissioner may waive or modify the requirements of subparagraph (B) of subdivision (1) of subsection (c) of section 38a-91bb, and subdivision (2) of subsection (c) of section 38a-91bb.

      (f) A conversion or merger under this section shall have the effects of conversion or merger set forth in this chapter to the extent such effects are not inconsistent with the provisions of sections 38a-91aa to 38a-91tt, inclusive."

      (P.A. 08-127, S. 16; Oct. Sp. Sess. P.A. 11-1, S. 68.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 made technical changes in Subsecs. (a) to (d), added new Subsec. (e) re formation of a captive insurance company established for sole purpose of merging with or assuming existing insurance business from an existing captive insurance company, and redesignated existing Subsec. (e) as Subsec. (f) and made a technical change therein, effective July 1, 2012.

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      Sec. 38a-91qq. *(See end of section for amended version and effective date.) Regulations. The Insurance Commissioner may adopt regulations, in accordance with chapter 54, to establish standards to ensure that a parent or affiliated company is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by the pure captive insurance company, except that until such regulations are approved, the commissioner may approve the coverage of such risks by a pure captive insurance company.

      (P.A. 08-127, S. 17.)

      *Note: On and after July 1, 2012, this section, as amended by section 69 of public act 11-1 of the October special session, is to read as follows:

      "Sec. 38a-91qq. Regulations. The Insurance Commissioner may adopt regulations, in accordance with chapter 54, as are necessary to carry out the provisions of sections 38a-91aa to 38a-91tt, inclusive, and to establish standards to ensure that a parent or affiliated company is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by a pure captive insurance company, except that until such regulations are approved, the commissioner may approve the coverage of such risks by a pure captive insurance company."

      (P.A. 08-127, S. 17; Oct. Sp. Sess. P.A. 11-1, S. 69.)

      History: P.A. 08-127 effective January 1, 2009; Oct. Sp. Sess. P.A. 11-1 added authority for commissioner to adopt regulations to carry out the provisions of Secs. 38a-91aa to 38a-91tt and made a technical change, effective July 1, 2012.

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      Sec. 38a-91rr. (Note: This section is effective July 1, 2012.) Establishment of protected cells and incorporated protected cells by a sponsored captive insurance company. (a) Each sponsored captive insurance company may establish and maintain one or more protected cells, subject to the following conditions:

      (1) The stockholders of a sponsored captive insurance company shall be limited to its participants and sponsors, except that a sponsored captive insurance company may issue nonvoting securities to other persons on terms approved by the commissioner;

      (2) Each sponsored captive insurance company shall account separately on the books and records of such company for each protected cell to reflect the financial condition and results of operations of such protected cell, net income or loss, dividends or other distributions to participants and such other factors as may be provided in the participant contract or required by the commissioner;

      (3) No liabilities arising out of any other insurance business the sponsored captive insurance company may conduct shall be chargeable against the assets of a protected cell;

      (4) No sponsored captive insurance company shall make any sale, exchange or other transfer of assets, dividend or distribution between or among any of its protected cells without the consent of such protected cells;

      (5) No protected cell shall make any sale, exchange or other transfer of assets, dividend or distribution to a sponsor or participant without the commissioner's approval. The commissioner shall not approve such sale, exchange or other transfer if it would result in insolvency or impairment with respect to a protected cell;

      (6) (A) Except as otherwise specified, each sponsored captive insurance company shall attribute assets and liabilities to the protected cells and the general account in accordance with the plan of operation approved by the commissioner, and shall not attribute any other assets or liabilities between its general account and any protected cell or between any protected cells. For purposes of this subdivision, "general account" means all assets and liabilities of a sponsored captive insurance company that are not attributable to a protected cell.

      (B) Each sponsored captive insurance company shall attribute all insurance obligations, assets and liabilities relating to a reinsurance contract entered into with respect to a protected cell to such protected cell. The performance under such reinsurance contract and any tax benefits, losses, refunds or credits allocated pursuant to a tax allocation agreement to which the sponsored captive insurance company is a party, including any payments made by or due to be made to the sponsored captive insurance company pursuant to the terms of such agreement, shall reflect such obligations, assets and liabilities relating to such reinsurance contract;

      (7) In connection with the conservation, rehabilitation or liquidation of a sponsored captive insurance company, such company shall, to the extent the commissioner determines they are separable, keep the assets and liabilities of a protected cell separate at all times from, and shall not commingle with, those of other protected cells and of the sponsored captive insurance company;

      (8) Each sponsored captive insurance company shall file annually with the commissioner such financial reports as the commissioner shall require, including, but not limited to, accounting statements detailing the financial experience of each protected cell;

      (9) Each sponsored captive insurance company shall notify the commissioner in writing not later than ten business days after any protected cell becomes insolvent or otherwise unable to meet its claim or expense obligations;

      (10) No participant contract shall take effect without the commissioner's prior written approval. The addition of each new protected cell or the withdrawal of any participant or termination of any existing protected cell shall constitute a change in the sponsored captive insurance company's plan of operation and shall require the commissioner's prior written approval;

      (11) If required by the commissioner, the business written by a sponsored captive insurance company with respect to each protected cell shall be (A) fronted by an insurance company licensed under the laws of any state, (B) reinsured by a reinsurer authorized or approved by this state, or (C) secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the commissioner. The commissioner may require the sponsored captive insurance company to increase the funding of any security arrangement established under this subdivision. If the form of security is a letter of credit, the letter of credit shall be issued or confirmed by a bank approved by the commissioner. A trust maintained pursuant to this subdivision shall be established in a form and upon such terms approved by the commissioner.

      (b) Each sponsored captive insurance company may combine the assets of two or more protected cells for purposes of investment and such combination shall not be construed as defeating the segregation of such assets for accounting or other purposes. Each sponsored captive insurance company shall comply with all applicable investment requirements under this chapter, except that the commissioner shall waive compliance with such requirements for sponsored captive insurance companies to the extent that credit for reinsurance ceded to reinsurers is allowed pursuant to section 38a-91kk. The commissioner may approve the use of alternative reliable methods of valuation and rating for purposes of this subsection.

      (c) Each sponsored captive insurance company, including a sponsored captive insurance company licensed as a special purpose financial captive insurance company, may establish and maintain one or more protected cells as a separate corporation formed under chapter 601 or a limited liability company formed under chapter 613. This section shall not be construed to limit any rights or protections applicable to protected cells not established as corporations or limited liability companies.

      (d) (1) Each sponsored captive insurance company may establish and maintain a protected cell as an incorporated protected cell.

      (2) The articles of incorporation or articles of organization of an incorporated protected cell shall refer to the sponsored captive insurance company for which it is a protected cell and shall state that the protected cell is incorporated or organized for the limited purposes authorized by the sponsored captive insurance company's license. Such company shall attach to and file with the articles of incorporation or articles of organization a copy of the commissioner's prior written approval, as required by subdivision (10) of subsection (a) of this section, to add the incorporated protected cell.

      (e) Notwithstanding the provisions of chapter 704c:

      (1) If the commissioner determines in the event of an insolvency of a sponsored captive insurance company that one or more protected cells remain solvent, the commissioner may separate such cells from such company and may, on application of a sponsor, allow for the conversion of such cells into one or more new or existing sponsored captive insurance companies with a sponsor or sponsors, or one or more other captive insurance companies, pursuant to such plan or plans of operation as the commissioner deems acceptable;

      (2) Upon the issuance by a court of any order of supervision, rehabilitation or liquidation of a sponsored captive insurance company, the receiver shall manage the assets and liabilities of such company in accordance with the provisions of this section;

      (3) The assets of a protected cell shall not be used to pay any expenses or claims other than those attributable to such protected cell; and

      (4) A sponsored captive insurance company's capital and surplus shall be available at all times to pay any expenses of or claims against such company.

      (Oct. Sp. Sess. P.A. 11-1, S. 70.)

      History: Oct. Sp. Sess. P.A. 11-1 effective July 1, 2012 (Revisor's note: In Subsec. (a)(11), a reference to "sponsored captive" was changed editorially by the Revisors to "sponsored captive insurance company" for accuracy).

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      Sec. 38a-91ss. (Note: This section is effective July 1, 2012.) Additional requirements for a special purpose financial captive insurance company. (a) Not later than thirty days after the closing on the transactions for an insurance securitization, a special purpose financial captive insurance company shall submit to the commissioner a copy of a complete set of executed documentation of such securitization. Any documentation submitted pursuant to this subsection shall be kept confidential in accordance with the provisions of subdivision (6) of subsection (c) of section 38a-91bb.

      (b) Any change in the special purpose financial captive insurance company's plan of operation shall require prior approval from the commissioner.

      (c) Any transaction or series of transactions shall require prior approval from the commissioner if such transaction or series of transactions (1) are undertaken to dissolve a special purpose financial captive insurance company, or (2) result in the termination of all or any part of a special purpose financial captive insurance company's business, except that no prior approval from the commissioner shall be required for any such transaction or series of transactions if such transaction or series of transactions are done in accordance with a document or agreement described in the special purpose financial captive insurance company's plan of operation and if the commissioner is notified in advance of such transaction or series of transactions.

      (d) A special purpose financial captive insurance company shall notify the commissioner in advance of any change in the legal ownership of any special purpose financial captive insurance company security.

      (e) A special purpose financial captive insurance company may:

      (1) With the prior approval of the commissioner, account for the proceeds of a surplus note issued by such company as surplus; and

      (2) Submit for the prior approval of the commissioner periodic written requests for authorization to make payments of interest on and repayments of principal of surplus notes and other debt obligations issued by such company. The commissioner shall not approve such payment if the commissioner determines that such payment would jeopardize the ability of the special purpose financial captive insurance company or any other person to fulfill their respective obligations pursuant to the special purpose financial captive insurance company securitization agreements, the reinsurance contract or any related transaction. In lieu of approval of such periodic written requests, the commissioner may approve a formula or plan, which shall be included in the special purpose financial captive insurance company's plan of operation, for payment of interest, principal or both with respect to such surplus notes and debt obligations.

      (f) No special purpose financial captive insurance company security shall be subject to regulation as an insurance or reinsurance contract. No investor in such a security or a holder of such a security shall be considered to be transacting the business of insurance in this state solely by reason of having an interest in the security. No underwriter's placement or selling agents and their partners, commissioners, officers, members, managers, employees, agents, representatives and advisors involved in an insurance securitization by a special purpose financial captive insurance company shall be considered to be insurance producers or brokers or to be conducting business as an insurance or reinsurance company or as an insurance agency, brokerage, intermediary, advisory or consulting business solely by virtue of their underwriting activities in connection with such securitization.

      (g) (1) A special purpose financial captive insurance company shall reinsure only the risks of a ceding insurer, pursuant to a reinsurance contract. A special purpose financial captive insurance company shall not issue a contract of insurance or a contract for assumption of risk or indemnification of loss other than such reinsurance contract.

      (2) Unless approved otherwise in advance by the commissioner, a special purpose financial captive insurance company shall not assume or retain exposure to insurance or reinsurance losses for its own account that are not funded by:

      (A) Proceeds from a special purpose financial captive insurance company securitization or letters of credit or other assets described in subdivision (17) of section 38a-91aa;

      (B) Premium and other amounts payable by the ceding insurer to the special purpose financial captive insurance company pursuant to the reinsurance contract; and

      (C) Any return on investment of the items under subparagraphs (A) and (B) of this subdivision.

      (3) The reinsurance contract shall contain all provisions reasonably required or approved by the commissioner, which requirements shall take into account the laws applicable to the ceding insurer regarding the ceding insurer taking credit for the reinsurance provided under such reinsurance contract.

      (4) A special purpose financial captive insurance company may, with the prior approval of the commissioner, cede risks assumed through a reinsurance contract to one or more reinsurers through the purchase of reinsurance.

      (5) A special purpose financial captive insurance company may enter into contracts and conduct other commercial activities related or incidental to and necessary to fulfill the purposes of the reinsurance contract, the insurance securitization, this section and section 38a-91tt, provided such contracts and activities are included in the special purpose financial captive insurance company's plan of operation or are approved in advance by the commissioner. Such contracts and activities may include, but are not limited to: (A) Entering into reinsurance contracts; (B) issuing special purpose financial captive insurance company securities; (C) complying with the terms of such contracts or securities; (D) entering into trust, guaranteed investment contract, swap or other derivative, tax, administration, reimbursement, or fiscal agent transactions; (E) complying with trust indenture, reinsurance or retrocession; and (F) other agreements necessary or incidental to effect an insurance securitization.

      (6) Unless approved otherwise in advance by the commissioner, a reinsurance contract shall not contain any provision for payment by the special purpose financial captive insurance company in discharge of its obligations under the reinsurance contract to any person other than the ceding insurer or any receiver of the ceding insurer.

      (7) A special purpose financial captive insurance company shall notify the commissioner immediately of any action by a ceding insurer or any other person to foreclose on or otherwise take possession of collateral provided by the special purpose financial captive insurance company to secure any obligation of the special purpose financial captive insurance company.

      (h) The assets of a special purpose financial captive insurance company shall be preserved and administered by or on behalf of the special purpose financial captive insurance company to satisfy the liabilities and obligations of the special purpose financial captive insurance company incident to the reinsurance contract, the insurance securitization and other related agreements.

      (i) In the special purpose financial captive insurance company securitization, the security offering memorandum or other document issued to prospective investors regarding the offer and sale of a surplus note or other security shall include a disclosure that all or part of the proceeds of such insurance securitization will be used to fund the special purpose financial captive insurance company's obligations to the ceding insurer.

      (j) A special purpose financial captive insurance company shall not be subject to any restriction on investments other than the following:

      (1) A special purpose financial captive insurance company shall not make a loan to any person other than as permitted under its plan of operation or as otherwise approved in advance by the commissioner; and

      (2) The commissioner may prohibit or limit any investment that threatens the solvency or liquidity of the special purpose financial captive insurance company unless the investment is otherwise approved in its plan of operation or in an order issued to the special purpose financial captive insurance company pursuant to subparagraph (B) of subdivision (2) of subsection (e) of section 38a-91bb.

      (k) (1) Unless approved otherwise in advance by the commissioner, a special purpose financial captive insurance company shall (A) maintain its books, records, documents, accounts, vouchers and agreements in this state, and (B) preserve and keep available in this state such books, records, documents, accounts, vouchers and agreements for examination and inspection until such time as the commissioner approves the destruction or other disposition of such books, records, documents, accounts, vouchers and agreements. If the commissioner approves the keeping of the items listed in this subdivision outside this state, the special purpose financial captive insurance company shall maintain in this state a complete and true copy of each such original. Such copies may be photographs, reproductions on file or electronically stored and reproduced.

      (2) A special purpose financial captive insurance company shall make its books, records, documents, accounts, vouchers and agreements available for inspection by the commissioner at any time. A special purpose financial captive insurance company shall keep its books and records in such manner that its financial condition, affairs and operations can be readily ascertained and so that the commissioner may readily verify its financial statements and determine its compliance with sections 38a-91aa to 38a-91tt, inclusive.

      (l) Upon the issuance by a court of any order of conservation, rehabilitation or liquidation of a special purpose financial captive insurance company or one or more of the special purpose financial captive insurance company's protected cells, the receiver shall manage the assets and liabilities of the special purpose financial captive insurance company pursuant to the provisions of this section and section 38a-91tt.

      (m) Notwithstanding any provision in the contracts or other documentation governing the special purpose financial captive insurance company securitization, amounts recoverable by the receiver of a special purpose financial captive insurance company under a reinsurance contract shall not be reduced or diminished as a result of the entry of an order of conservation, rehabilitation or liquidation with respect to a ceding insurer.

      (n) Notwithstanding the provisions of chapter 704c:

      (1) An application, a petition, a temporary restraining order or an injunction issued pursuant to chapter 704c with respect to a ceding insurer shall not prohibit (A) a special purpose financial captive insurance company from transacting business with the ceding insurer, including making any payment with respect to a special purpose financial captive insurance company security, or (B) any action or proceeding against a special purpose financial captive insurance company or its assets;

      (2) The commencement of a summary proceeding or the issuance of any order by the court with respect to a special purpose financial captive insurance company shall not prohibit such company from making payments or taking any action required to make such payments, provided such payments (A) are made pursuant to a special purpose financial captive insurance company security or reinsurance contract, and (B) are consistent with the special purpose financial captive insurance company's plan of operation and any order issued to the special purpose financial captive insurance company pursuant to subparagraph (B) of subdivision (2) of subsection (e) of section 38a-91bb;

      (3) A receiver of a ceding insurer shall not void a nonfraudulent transfer by a ceding insurer to a special purpose financial captive insurance company of money or other property made pursuant to a reinsurance contract; and

      (4) A receiver of a special purpose financial captive insurance company shall not void a nonfraudulent transfer by the special purpose financial captive insurance company of money or other property:

      (A) Made to a ceding insurer pursuant to a reinsurance contract or made to or for the benefit of any holder of a special purpose financial captive insurance company security with respect to the special purpose financial captive insurance company security; and

      (B) Made consistent with the special purpose financial captive insurance company's plan of operation and any order issued to the special purpose financial captive insurance company pursuant to subparagraph (B) of subdivision (2) of subsection (e) of section 38a-91bb.

      (o) Except for the fulfillment of the obligations under a reinsurance contract, the assets of a special purpose financial captive insurance company, including assets held in trust, on a funds-withheld basis or in any other arrangement to secure the special purpose financial captive insurance company's obligations under a reinsurance contract, shall not be consolidated with or included in the estate of a ceding insurer in any delinquency proceeding against the ceding insurer for any purpose.

      (Oct. Sp. Sess. P.A. 11-1, S. 71.)

      History: Oct. Sp. Sess. P.A. 11-1 effective July 1, 2012.

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      Sec. 38a-91tt. (Note: This section is effective July 1, 2012.) Additional requirements for a sponsored captive insurance company licensed as a special purpose financial captive insurance company. (a) The provisions of this section shall apply to a sponsored captive insurance company licensed as a special purpose financial captive insurance company. For purposes of this section, (1) "general account" means all assets and liabilities of a sponsored captive insurance company licensed as a special purpose financial captive insurance company not attributable to a protected cell, and (2) "special purpose financial captive insurance company" means a sponsored captive insurance company licensed as a special purpose financial captive insurance company.

      (b) Unless approved otherwise in advance by the commissioner, a participant in a special purpose financial captive insurance company shall be a ceding insurer. Any change in a participant shall require the commissioner's prior approval.

      (c) (1) A special purpose financial captive insurance company, on behalf of a protected cell, shall be entitled to assert the same claims and defenses in actions in law or equity as if the protected cell were a corporation established under chapter 601, including, but not limited to, claims and defenses in actions at law or equity alleging alter ego, corporate veil piercing, offset, substantive consolidation, equitable subordination or recoupment.

      (2) In connection with the conservation, rehabilitation or liquidation of a special purpose financial captive insurance company or one or more of its protected cells, such company shall keep the assets and liabilities of a protected cell separate at all times from, and shall not commingle with, those of other protected cells and of the special purpose financial captive insurance company. The assets of one protected cell shall not be used to satisfy the obligations or liabilities of another protected cell or of the special purpose financial captive insurance company based on legal or equitable claims or defenses, including, but not limited to, alter ego, piercing the corporate veil, offset, substantive consolidation, equitable subordination or recoupment, unless such claims or defenses would apply to such protected cell if it were a special purpose financial captive insurance company without separate cells.

      (d) (1) Notwithstanding subdivision (1) of subsection (a) of section 38a-91rr, a special purpose financial captive insurance company may issue securities of any person approved in advance by the commissioner.

      (2) (A) Any security issued by a special purpose financial captive insurance company with respect to a protected cell and any other contract or obligation of the special purpose financial captive insurance company with respect to a protected cell shall include the designation of such protected cell and shall include the following statement, or such other statement as may be required by the commissioner:

      (i) In the case of a security: "The holder of this security shall have no right or recourse against the special purpose financial captive insurance company and its assets other than against assets properly attributable to the designated protected cell and the special purpose financial captive insurance company's general account, to the extent permitted by Connecticut law."; or

      (ii) In the case of a contract or obligation: "The counter party to this contract or obligation shall have no right or recourse against the special purpose financial captive insurance company and its assets other than against assets properly attributable to the designated protected cell and the special purpose financial captive insurance company's general account, to the extent permitted by Connecticut law.".

      (B) The failure to include such disclosure, in whole or part, in such security, contract or obligation with respect to a protected cell shall not serve as the sole basis for a creditor, ceding insurer or any other person to have recourse against the general account of the special purpose financial captive insurance company in excess of the limitations provided under subsection (i) of this section, or against the assets of any other protected cell.

      (e) In addition to the provisions of subsections (c) and (d) of section 38a-91rr, a special purpose financial captive insurance company shall be subject to the following with respect to its protected cells:

      (1) A special purpose financial captive insurance company shall establish a protected cell only for the purpose of insuring or reinsuring risks of one or more reinsurance contracts with a ceding insurer or two or more affiliated ceding insurers, with the intent of facilitating an insurance securitization. A separate protected cell shall be established with respect to each separate securitization transaction; and

      (2) No special purpose financial captive insurance company shall make a sale, an exchange or another transfer of assets between or among any of its protected cells without the prior approval of the commissioner.

      (f) (1) Each special purpose financial captive insurance company shall attribute assets and liabilities to the protected cells and the general account in accordance with the plan of operation approved by the commissioner, and shall not attribute any other assets or liabilities between its general account and any protected cell or between any protected cells.

      (2) Each special purpose financial captive insurance company shall attribute all insurance obligations, assets and liabilities relating to a reinsurance contract entered into with respect to a protected cell and the related insurance securitization transaction, including any securities issued by such company as part of the insurance securitization, to such protected cell. The rights, benefits, obligations and liabilities of any securities attributable to such protected cell and the performance under such reinsurance contract and the related securitization transaction, and any tax benefits, losses, refunds or credits allocated pursuant to a tax allocation agreement to which the special purpose financial captive insurance company is a party, including any payments made by or due to be made to the special purpose financial captive insurance company pursuant to the terms of such agreement, shall reflect such obligations, assets and liabilities relating to such reinsurance contract and the insurance securitization transaction that are attributed to such protected cell.

      (g) (1) Except as otherwise specified in this section, the terms and conditions set forth in chapter 704c pertaining to administrative supervision of insurers and the conservation, rehabilitation, receiverships and liquidation of insurers shall apply to a special purpose financial captive insurance company or any of such company's protected cells independently and shall not cause or otherwise effect a conservation, rehabilitation, receivership or liquidation of the special purpose financial captive insurance company or another protected cell that is not otherwise insolvent.

      (2) For purposes of applying the provisions of chapter 704c to a special purpose financial captive insurance company, "insolvency" or "insolvent" means the special purpose financial captive insurance company (A) is unable to pay its obligations when they are due, unless those obligations are the subject of a bona fide dispute, or (B) has failed to meet all criteria and conditions for solvency of the special purpose financial captive insurance company established by the commissioner. In the case of a sponsored captive insurance company licensed as a special purpose financial captive insurance company, the definition of "insolvency" and "insolvent" shall be applied separately to each protected cell and to the special purpose financial captive insurance company's general account.

      (h) (1) The commissioner may file in the Superior Court of this state, without causing or otherwise effecting the conservation or rehabilitation of an otherwise solvent protected cell of a special purpose financial captive insurance company and subject to the provisions of subparagraph (E) of subdivision (1) of subsection (k) of this section, a petition to authorize the commissioner to conserve, rehabilitate or liquidate a special purpose financial captive insurance company on one or more of the following grounds:

      (A) Embezzlement, wrongful sequestration, dissipation or diversion of the special purpose financial captive insurance company's assets intended to be used to pay amounts owed to the ceding insurer or the holders of special purpose financial captive insurance company securities;

      (B) The special purpose financial captive insurance company is insolvent; or

      (C) The holders of a majority in outstanding principal amount of each class of special purpose financial captive insurance company securities attributable to each particular protected cell request or consent to conservation, rehabilitation or liquidation.

      (2) The commissioner may file in the Superior Court of this state, without causing or otherwise effecting a conservation, rehabilitation, receivership or liquidation of the special purpose financial captive insurance company generally or another of its protected cells, a petition to authorize the commissioner to conserve, rehabilitate or liquidate one or more of a special purpose financial captive insurance company's protected cells, independently, on one or more of the following grounds:

      (A) Embezzlement, wrongful sequestration, dissipation or diversion of the special purpose financial captive insurance company's assets attributable to the affected protected cell or cells intended to be used to pay amounts owed to the ceding insurer or the holders of special purpose financial captive insurance company securities of the affected protected cell or cells;

      (B) The affected protected cell is insolvent; or

      (C) The holders of a majority in outstanding principal amount of each class of special purpose financial captive insurance company securities attributable to that particular protected cell request or consent to conservation, rehabilitation or liquidation.

      (3) Except where consent is given as described in subparagraph (C) of subdivision (1) of this subsection and subparagraph (C) of subdivision (2) of this subsection, the court may not grant relief as provided under subdivision (1) or (2) of this subsection unless, after notice and a hearing, the commissioner, who shall have the burden of proof, establishes by clear and convincing evidence that relief must be granted. The court's order may be made in respect of one or more protected cells by name, rather than the special purpose financial captive insurance company generally.

      (i) (1) Upon the issuance by a court of any order of conservation, rehabilitation, or liquidation of a special purpose financial captive insurance company or one or more of the special purpose financial captive insurance company's protected cells, the receiver shall manage the assets and liabilities of the special purpose financial captive insurance company or the applicable protected cell in accordance with the provisions of this section and section 38a-91ss.

      (2) The assets attributable to one protected cell shall not be applied to the liabilities attributable to another protected cell unless an asset or liability is attributable to more than one protected cell, in which case the receiver shall deal with the asset or liability in accordance with the terms of any relevant governing instrument or contract. Recourse to the special purpose financial captive insurance company's general account in connection with the conservation, rehabilitation or liquidation of a protected cell shall be limited to the greater of the amount of assets in the general account as of the date such proceeding is commenced or the required minimum capital for the general account as of the date such proceeding is commenced. The assets attributable to one protected cell shall not be set off against the liabilities attributable to another protected cell, and assets attributable to the special purpose financial captive insurance company's general account shall not be set off against the liabilities attributable to any protected cell except to the extent provided in this subdivision.

      (3) Relief shall not be granted nor shall any order be issued based on equitable theories of recovery, including substantive consolidation, equitable subordination or recoupment, to attach or seize the assets of any solvent protected cell for the benefit of another protected cell or special purpose financial captive insurance company or to pierce the corporate veil of any protected cell, in connection with the conservation, rehabilitation or liquidation of a special purpose financial captive insurance company or one or more protected cells, unless such equitable theories, attachment, seizure or corporate veil piercing would apply to such cell if it were a special purpose financial captive insurance company without separate cells.

      (j) Notwithstanding any provision in the contracts or other documentation governing the special purpose financial captive insurance company insurance securitization, amounts recoverable by the receiver of a special purpose financial captive insurance company shall not be reduced or diminished as a result of the entry of an order of conservation, rehabilitation or liquidation with respect to the ceding insurer.

      (k) (1) Notwithstanding the provisions of chapter 704c:

      (A) An application, a petition, a temporary restraining order or an injunction issued pursuant to the provisions of chapter 704c with respect to a ceding insurer shall not prohibit (i) a special purpose financial captive insurance company from transacting business with the ceding insurer, including making any payment pursuant to a special purpose financial captive insurance company security with respect to a protected cell, or (ii) any action or proceeding against a special purpose financial captive insurance company or its assets;

      (B) The commencement of a summary proceeding or other interim proceeding commenced before a formal delinquency proceeding or the issuance of any order by the court with respect to a special purpose financial captive insurance company shall not prohibit such company from making payments or taking any action required to make such payments pursuant to a special purpose financial captive insurance company security with respect to a protected cell or a special purpose financial captive insurance company contract;

      (C) A receiver of a ceding insurer shall not void a nonfraudulent transfer by a ceding insurer to a special purpose financial captive insurance company of money or other property made pursuant to a reinsurance contract;

      (D) A receiver of a special purpose financial captive insurance company shall not void (i) a nonfraudulent transfer by the special purpose financial captive insurance company of money or other property made to a ceding insurer pursuant to a reinsurance contract or made to or for the benefit of any holder of a special purpose financial captive insurance company security with respect to a protected cell, or (ii) a special purpose financial captive insurance company security;

      (E) (i) In the event of an insolvency of a special purpose financial captive insurance company where one or more protected cells remain solvent, the commissioner shall separate such cells from such company and shall, on application of a sponsor, allow for the conversion of such cells into one or more special purpose financial captive insurance companies. The commissioner shall issue such orders as the commissioner deems necessary to protect the solvency of the remaining solvent protected cells.

      (ii) In the event of an insolvency of a protected cell, the special purpose financial captive insurance company's assets shall be accounted for and managed in accordance with subsection (i) of this section and other applicable laws of this state.

      (2) The provisions of subdivision (1) of this subsection shall not prohibit the commissioner from taking any action permitted under chapter 704c with respect only to the conservation or rehabilitation of a special purpose financial captive insurance company with protected cell or cells, provided the commissioner has sufficient grounds to seek to declare such company insolvent. In such case, with respect to the solvent protected cell or cells, the commissioner shall not prohibit such company from making payments or taking any action required to make such payments pursuant to a special purpose financial captive insurance company security, reinsurance contract or insurance securitization transaction that are attributable to such cell or cells.

      (l) Except for the fulfillment of the obligations under a special purpose financial captive insurance company contract, the assets of a special purpose financial captive insurance company, including assets held in trust, shall not be consolidated with or included in the estate of a ceding insurer in any delinquency proceeding against the ceding insurer for any purpose.

      (Oct. Sp. Sess. P.A. 11-1, S. 72.)

      History: Oct. Sp. Sess. P.A. 11-1 effective July 1, 2012.

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PART VI
MONOPOLIES. SALE OR EXCHANGE OF STOCK.
MERGERS. CONVERSIONS

      Sec. 38a-155. (Formerly Sec. 38-42b). Conversion of hospital service corporation and medical service corporation to mutual insurance company. Procedure. Authorized agents to sell products. (a) Any consolidated hospital service corporation and medical service corporation organized and formed pursuant to sections 38a-199 to 38a-209, inclusive, or sections 38a-214 to 38a-225, inclusive, in existence on July 1, 1982, and possessing contingency reserves in an amount of fifty million dollars or more may, at its option and without reincorporation, convert to a domestic mutual insurance company under the laws of this state (1) by amending and restating its certificate of incorporation to grant it such powers consistent with the provisions of this section, provided the amended and restated certificate of incorporation shall not state that said domestic mutual insurance company is a nonprofit corporation or that it is created under the Nonstock Corporation Act, and (2) by obtaining a license pursuant to section 38a-41 to operate as a domestic mutual insurance company.

      (b) The board of directors of any such corporation electing to convert to a domestic mutual insurance company shall adopt a resolution prior to October 1, 1984, declaring the election of the corporation to make such conversion and to become subject to all of the laws of the state governing such companies, except as limited by the terms of this section. After the adoption of such resolution, the board of directors of such corporation shall adopt such amendments to its certificate of incorporation as are consistent with the provisions of this section and as are necessary for it to convert to a domestic mutual insurance company and file such amended and restated certificate of incorporation with the Secretary of the State. Such amendment shall designate the members of the company. Any subsequent amendment to the certificate of incorporation shall be consistent with the terms of this section.

      (c) No such amended and restated certificate of incorporation shall be effective unless and until it is filed with the Secretary of the State. Prior to the filing of such certificate, the corporation shall apply to the Insurance Commissioner for a license pursuant to section 38a-41, provided such license, if issued, shall only become effective upon the filing of the certificate. Upon the filing of such amended and restated certificate of incorporation, the corporation shall be a domestic mutual insurance company and shall not be a consolidated hospital and medical service corporation. Upon such filing the company shall no longer be subject to the provisions of section 12-212a, sections 38a-199 to 38a-209, inclusive, or sections 38a-214 to 38a-225, inclusive.

      (d) From the date of filing of such amended and restated certificate of incorporation, such company shall be authorized to do a life, accident and health insurance business, including any business or type of business which any other corporation now or hereafter chartered by or incorporated in Connecticut and empowered to do a life, accident and health insurance business may now or hereafter lawfully do; and the company is specifically empowered to accept and to cede reinsurance of any and all insurance risks or hazards.

      (e) No consolidated hospital service corporation and medical service corporation that converts to a domestic mutual insurance company under this section shall thereafter avail itself of the provisions of either sections 38a-199 to 38a-209, inclusive, or sections 38a-214 to 38a-225, inclusive. Such company shall not organize or participate in the organization of, revert or convert to the status of, own or organize a subsidiary that is, have common management or directors with, or in any other way be affiliated with, a corporation or other legal entity organized, formed or acting pursuant to said sections. Until the filing with the Secretary of the State of the amended and restated certificate of incorporation as provided herein, the permission currently granted to any such corporation by the Insurance Commissioner shall continue in full force and effect, and such corporation shall continue to provide comprehensive health care and related services to its present or future subscribers and covered persons by health care contracts and may make provision for the payment for such health care services. Upon converting to a domestic mutual insurance company, the company shall be subject to all of the laws of the state governing domestic mutual insurance companies and, except as otherwise provided in this section, shall have all of the powers of any other domestic mutual insurance company now or hereafter chartered or incorporated by this state and empowered to do an insurance business including, but not limited to, the power to establish, maintain, own and operate health care centers as a line of business.

      (f) Upon the filing of the amended and restated certificate of incorporation with the Secretary of the State, as provided by this section, the company shall be liable for taxes under chapters 207 and 208 and for any other tax for which any other domestic mutual insurance company is liable to the state or any political subdivision thereof.

      (g) All insurance products sold through the insurance companies authorized by this section and the insurance company authorized by section 4 of public act 84-323* shall be available to be sold by any licensed independent agent, as provided in sections 38a-702j, 38a-703 to 38a-718, inclusive, 38a-731 to 38a-735, inclusive, 38a-741 to 38a-745, inclusive, 38a-769 to 38a-777, inclusive, 38a-786, 38a-790, 38a-792 and 38a-794 and so authorized by such insurance company.

      (P.A. 84-323, S. 1, 3, 5, 6; P.A. 91-29, S. 2, 8; P.A. 93-229, S. 6, 21; P.A. 95-207, S. 8, 9; P.A. 01-113, S. 24, 42; P.A. 11-19, S. 2, 3.)

      *Note: Section 4 of public act 84-323 is special in nature and therefore has not been codified but remains in full force and effect according to its terms.


      History: Sec. 38-42b transferred to Sec. 38a-155 in 1991; P.A. 91-29 made technical changes in Subsec. (h) deleting references to sections repealed by the same act; (Revisor's note: In 1993 references to Secs. 38a-94 to 38a-101, inclusive, and 38a-966 to 38a-970, inclusive, repealed by P.A. 92-60, were deleted editorially by the Revisors); P.A. 93-229 deleted former Subdiv. (1) containing obsolete provision re discount under Subsec. (h) of Sec. 19a-166, renumbering as necessary, effective June 4, 1993; P.A. 95-207 made technical corrections to Subsecs. (c) and (g), in Subsec. (d) made an allowance for an insurance company to transact life, accident and health insurance business and to accept and cede reinsurance in lieu of writing accident and health insurance only, deleted former Subsec. (f) which provided a prohibition against any corporation which converts to a domestic mutual insurance company, relettered the previous Subsecs. (g) and (h) as (f) and (g) and deleted Subsec. (i), effective June 28, 1995; P.A. 01-113 amended Subsec. (g) to delete references to Secs. 38a-702 and 38a-795, and to substitute "section 38a-702j" for "section 38a-783", effective September 1, 2002; P.A. 11-19 made technical changes in Subsecs. (a) and (e).

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