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OLR Bill Analysis
sHB 5382
AN ACT CONCERNING THE INSURANCE HOLDING COMPANY
ACT.
SUMMARY
Existing law allows the insurance commissioner to supervise and
review insurers doing business in Connecticut that are affiliated with an
insurance holding company system. By law, an “insurance holding
company system” is two or more affiliated people or companies, one of
which is an insurance company. In practice, this allows the insurance
commissioner to require that a holding company system take actions to
reduce “enterprise risk,” which is a risk to an insurer or its affiliates that
is likely to impact the insurer’s or holding company’s financial condition
or liquidity.
This bill generally adopts the National Association of Insurance
Commissioners (NAIC) amendments to the Model Insurance Holding
Company System Regulatory Act on group capital calculations and
liquidity stress tests for insurers affiliated with an insurance holding
company. These calculations and test results give regulators insight on
insurance holding company systems’ financial health.
In practice, these amendments are necessary to conform to
international agreements on “worldwide supervisors,” which are states
and jurisdictions that supervise insurers with affiliates in certain
international reciprocal jurisdictions (e.g., insurance groups domiciled
in Connecticut with affiliates in the European Union or the United
Kingdom). Under these agreements, Connecticut must adopt certain
standards together with other states.
The bill also incorporates NAIC amendments that ensure a domestic
insurance company in receivership that is associated with an insurance
company holding system continues to receive essential services from an 2022HB-05382-R000171-BA.DOCX
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affiliate that it has contracted with. It:
1. requires insurers that are in hazardous financial condition and
are part of an insurance holding company to secure money or a
bond that covers certain existing obligations and
2. subjects companies affiliated with, and that have certain
contractual obligations to, an insurer in receivership to the
receiver’s authority in certain circumstances.
With respect to insurers that are part of an insurance holding
company systems, the bill, in line with NAIC model language, also
requires agreements within an insurance company holding system to (1)
keep an insurer’s data accessible, identifiable, and segregated and (2)
maintain as the insurer’s exclusive property any of its premiums or
funds held by an affiliate.
In line with NAIC amendments, the bill integrates third party
consultants into certain provisions of existing law that govern how, and
with whom, NAIC can share certain confidential information.
The bill also expands the definition of “internationally active
insurance group” for the purposes of insurance holding company
regulation. Current law defines an “internationally active insurance
group” as an insurance group that, among other things, writes (1)
premiums in at least three countries and (2) at least 10% of its gross
premiums outside the United States. The bill includes in “gross
premiums” for the purpose of this calculation, administrative service
fees, associated expenses, and claim payments.
Finally, the bill makes technical and conforming changes.
EFFECTIVE DATE: July 1, 2022
GROUP CAPITAL CALCULATIONS
By law, insurers doing business in Connecticut as part of an insurance
holding company system must register with the Connecticut insurance
commissioner. 2022HB-05382-R000171-BA.DOCX
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The bill requires the ultimate controlling person of these insurers to
file an annual group capital calculation by June 1 annually, and
concurrently with their registration. The group capital calculation must
be filed with the lead state commissioner, as determined by certain
NAIC procedures (e.g., the commissioner of the state in which the
holding company is domiciled). (The group capital calculation
requirement is a financial tool that assists state insurance regulators
identify risks that may come from from a holding company system.)
The report must be completed using the NAIC Group Capital
Calculation Instructions and Reporting Template.
Exemptions
The bill exempts from these group capital calculation filing
requirements an insurance company holding system that:
1. (a) has only one insurer in its company structure, (b) only writes
business and is only licensed in its domestic state, and (c)
assumes no business from any other insurer;
2. is subject to the group capital requirements applicable to an
insurance group that owns a, presumably, Federal Reserve
Board-supervised depository institution (in which case the bill
requires the lead state commissioner to request the applicable
capital requirements from the Board; and the insurer loses the
exemption if information sharing agreements prevent the Board
from disclosing them);
3. has a non-U.S. group-wide supervisor from a reciprocal
jurisdiction that recognizes the U.S. regulatory approach; or
4. (a) provides information to the lead state commissioner, through
the group-wide supervisor, that meets certain NAIC financial
standards and accreditation requirements and that the
supervisor deems satisfactory to allow the lead state
commissioner to comply with a specified NAIC group
supervision approach and (b) whose non-U.S. group-wide
supervisor that is not in a reciprocal jurisdiction recognizes and 2022HB-05382-R000171-BA.DOCX
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accepts, as the lead state commissioner specifies in regulation, the
group capital calculation as the world-wide group capital
assessment for U.S. insurance groups that operate in that
jurisdiction.
The bill requires the lead state commissioner to require the group
capital calculation for the U.S. operation of any non-U.S. based
insurance holding company system if, after consultation with other
supervisors or officials, the lead state commissioner determines it is
appropriate for prudent oversight, solvency monitoring, or ensuring
market competitiveness. The lead state commissioner may require these
regardless of the two exemptions for insurance holding company
systems with non-U.S. group-wide supervisors listed above (items 3 and
4 above).
The bill also gives the lead state commissioner the discretion to
exempt the ultimate controlling person from filing the annual group
calculation, or to accept a limited group capital filing report in
accordance with criteria the commissioner specifies in regulation.
If the commissioner determines an insurance holding company
system no longer meets one of the exemptions above, it must file the
group capital calculation at the next annual filing, unless the lead state
commissioner gives an extension based on reasonable grounds.
LIQUIDITY STRESS TESTS
Under the bill, the ultimate controlling person of every insurer
subject to registration (i.e., insurers affiliated with insurance holding
companies) that is also scoped into the NAIC liquidity stress test
framework for that year must file the results of the specified year’s
liquidity stress test with the lead state commissioner. (The liquidity
stress test provides state insurance regulators with information on key
macro prudential risk.)
The NAIC liquidity stress test framework includes scope criteria
applicable to a specific data year. The bill specifies that these scope
criteria are reviewed at least annually by the NAIC Financial Stability 2022HB-05382-R000171-BA.DOCX
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Task Force (“task force”), and any changes to the framework or to the
data year take effect on January 1 of the following year.
The bill requires insurers meeting at least one threshold of the scope
criteria to be scoped into the NAIC liquidity stress test framework,
unless the lead state commissioner, in consultation with the task force,
determines otherwise. Correspondingly, insurers that do not trigger at
least one scope criteria threshold are scoped out, unless the lead state
commissioner in consultation with the task force, determines otherwise.
The performance of, and filing of the results from, a specific year’s
liquidity stress test must comply with (1) the applicable NAIC liquidity
stress test framework instructions and reporting guidelines and (2) any
lead state commissioner determinations made in consultation with the
task force.
GROUP CAPITAL CALCULATION AND LIQUIDITY STRESS TEST
CONFIDENTIALITY
The bill makes confidential the information reported and provided to
the lead state commissioner by an insurance holding company system
(including one supervised by the Federal Reserve Board) for group
capital calculations and liquidity stress tests. Specifically, the
information is:
1. confidential and privileged;
2. not subject to disclosure under the state’s Freedom of
Information Act; and
3. not subject to subpoena, discovery, or admissible in any civil
action.
The bill specifies these group capital calculations and the resulting
group capital ratios, and the liquidity stress tests and its results and
supporting disclosures, are only regulatory tools for assessing group
risks and capital adequacy and are not intended to rank insurers or
insurance holding company systems generally.
INSURANCE COMPANIES IN HAZARDOUS FINANCIAL CONDITION 2022HB-05382-R000171-BA.DOCX
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The bill adds provisions related to insurance companies that have to
register as part of an insurance holding company system that the
commissioner determines are in hazardous financial condition or in a
condition that would otherwise be grounds for supervision,
conservation, or delinquency, under applicable existing law or
regulations.
Under the bill, the commissioner may require these companies to
secure and maintain, a (1) deposit, to be held by the commissioner, or
(2) bond, as the company determines. The deposit or bond must protect
the insurance company for the duration of the contracts, agreements, or
conditions that are causing the hazardous financial condition.
In determining whether the bond or deposit is required, the
commissioner must consider whether the company’s affiliates are able
to fulfill its contracts or agreements if the company were liquidated. The
commissioner sets the bond or deposit amount, which cannot exceed the
value of the contracts or agreements in any one year. He may also
specify which contracts or agreements the bond or deposit must cover.
DATA, RECORD, AND PREMIUM OWNERSHIP AND CONTROL
The bill specifies that all of an insurance company’s records and data
held by an affiliate remain property of the insurance company and are
subject to the company’s control. The records must be identifiable and
segregated (or readily capable of segregation) from all other persons’
records and all of the affiliate’s data. Under the bill, an insurer should
not pay to segregate commingled records and data.
At the insurer’s request, the affiliate must allow the receiver to have:
1. a complete set of any records about the insurer’s business,
2. access to the operating systems where the data is maintained, and
3. software that runs the systems (either by assuming the licensing
agreements or otherwise).
The bill also restricts the affiliate’s use of this data if it is not operating 2022HB-05382-R000171-BA.DOCX
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the insurer’s business.
Under the bill, the affiliate must provide a waiver of any landlord lien
or other encumbrance to give the insurer access to all records and data
in the event the affiliate defaults on a lease or other agreement.
Additionally, premiums or other funds that belong to the insurer that
are collected or held by an affiliate are the insurer’s exclusive property,
and subject to its control. The bill specifies that any rights to offsets of
amounts due to or from an insurer or affiliate are governed by existing
insurer receivership laws if the insurer goes into receivership.
REHABILITATOR OR LIQUIDATOR’S AUTHORITY OVER AN
AFFILIATE
By law, an insurer that intends to contract with an affiliate for certain
purposes must notify the commissioner first. Under the bill, an affiliate
that is party to a management agreement, service contract, tax allocation
agreement, or cost-sharing arrangement for which the insurer must give
prior notice to the commissioner is also subject to the:
1. jurisdiction of any rehabilitation or liquidation order against the
insurer and
2. authority of any rehabilitator or liquidator appointed under
existing law to interpret, enforce, and oversee the affiliate’s
contractual obligations.
The commissioner can require an agreement or contract to specify
that the affiliate consents to this authority. These provisions apply to
contracts or agreements under which the affiliate performs services for
the insurer that:
1. are an integral part of the insurer’s operations, including
management, administration, accounting, data processing,
marketing, underwriting, claims handling, investment, or similar
functions, or
2. are essential to the insurer’s ability to fulfil its obligations under
insurance policies. 2022HB-05382-R000171-BA.DOCX
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SHARING INFORMATION WITH THIRD PARTY CONSULTANTS
Existing law allows the Connecticut insurance commissioner to
acquire from and share with certain parties confidential information
related to regulatory reports and insurer oversight, under certain
conditions. Among others, current law allows him to acquire and share
this information with NAIC and its affiliates or subsidiaries. The bill
instead allows this sharing with NAIC and any third-party consultants
the commissioner designates.
Existing law requires the Connecticut insurance commissioner, prior
to acquiring or sharing information, to enter into agreements that
specify procedures for maintaining the information’s confidentiality.
The bill also requires these written agreements to:
1. require the recipient to agree in writing to maintain the
confidentiality and privileged status of the documents, materials,
or other information and has verified in writing their legal
authority to do so (existing law already requires this to be
affirmed in writing before the commissioner shares information);
2. prohibit NAIC or third-party consultants the commissioner
designates from storing information on a permanent database
after the underlying analysis is completed, excluding certain
documents related to the liquidity stress tests; and
3. for certain documents related to the liquidity stress tests and only
in the case of an agreement with a third-party consultant, provide
for notice of the consultant’s identity to the applicable insurer.
COMMITTEE ACTION
Insurance and Real Estate Committee
Joint Favorable Substitute
Yea 16 Nay 0 (03/17/2022)