LCO No. 641 1 of 39 General Assembly Governor's Bill No. 11 February Session, 2022 LCO No. 641 Referred to Committee on FINANCE, REVENUE AND BONDING Introduced by: Request of the Governor Pursuant to Joint Rule 9 AN ACT CONCERNING REVENUE ITEMS TO IMPLEMENT THE GOVERNOR'S BUDGET. Be it enacted by the Senate and House of Representatives in General Assembly convened: Section 1. Subsection (b) of section 12-704c of the 2022 supplement to 1 the general statutes is repealed and the following is substituted in lieu 2 thereof (Effective from passage): 3 (b) (1) The credit allowed under this section shall not exceed (A) for 4 taxable years commencing on or after January 1, 2011, but prior to 5 January 1, 2016, three hundred dollars; [and] (B) for taxable years 6 commencing on or after January 1, 2016, but prior to January 1, 2022, 7 two hundred dollars; and (C) for taxable years commencing on or after 8 January 1, 2022, three hundred dollars. In the case of any husband and 9 wife who file a return under the federal income tax for such taxable year 10 as married individuals filing a joint return, the credit allowed, in the 11 aggregate, shall not exceed such amount for each such taxable year. 12 Governor's Bill No. 11 LCO No. 641 2 of 39 (2) Notwithstanding the provisions of subsection (a) of this section, 13 for the taxable years commencing January 1, 2017, to January 1, [2022] 14 2021, inclusive, the credit under this section shall be allowed only for a 15 resident of this state (A) who has attained age sixty-five before the close 16 of the applicable taxable year, or (B) who files a return under the federal 17 income tax for the applicable taxable year validly claiming one or more 18 dependents. 19 Sec. 2. Subparagraph (B) of subdivision (20) of subsection (a) of 20 section 12-701 of the 2022 supplement to the general statutes is repealed 21 and the following is substituted in lieu thereof (Effective from passage): 22 (B) There shall be subtracted therefrom: 23 (i) To the extent properly includable in gross income for federal 24 income tax purposes, any income with respect to which taxation by any 25 state is prohibited by federal law; 26 (ii) To the extent allowable under section 12-718, exempt dividends 27 paid by a regulated investment company; 28 (iii) To the extent properly includable in gross income for federal 29 income tax purposes, the amount of any refund or credit for 30 overpayment of income taxes imposed by this state, or any other state 31 of the United States or a political subdivision thereof, or the District of 32 Columbia; 33 (iv) To the extent properly includable in gross income for federal 34 income tax purposes and not otherwise subtracted from federal 35 adjusted gross income pursuant to clause (x) of this subparagraph in 36 computing Connecticut adjusted gross income, any tier 1 railroad 37 retirement benefits; 38 (v) To the extent any additional allowance for depreciation under 39 Section 168(k) of the Internal Revenue Code for property placed in 40 service after September 27, 2017, was added to federal adjusted gross 41 income pursuant to subparagraph (A)(ix) of this subdivision in 42 Governor's Bill No. 11 LCO No. 641 3 of 39 computing Connecticut adjusted gross income, twenty-five per cent of 43 such additional allowance for depreciation in each of the four 44 succeeding taxable years; 45 (vi) To the extent properly includable in gross income for federal 46 income tax purposes, any interest income from obligations issued by or 47 on behalf of the state of Connecticut, any political subdivision thereof, 48 or public instrumentality, state or local authority, district or similar 49 public entity created under the laws of the state of Connecticut; 50 (vii) To the extent properly includable in determining the net gain or 51 loss from the sale or other disposition of capital assets for federal income 52 tax purposes, any gain from the sale or exchange of obligations issued 53 by or on behalf of the state of Connecticut, any political subdivision 54 thereof, or public instrumentality, state or local authority, district or 55 similar public entity created under the laws of the state of Connecticut, 56 in the income year such gain was recognized; 57 (viii) Any interest on indebtedness incurred or continued to purchase 58 or carry obligations or securities the interest on which is subject to tax 59 under this chapter but exempt from federal income tax, to the extent that 60 such interest on indebtedness is not deductible in determining federal 61 adjusted gross income and is attributable to a trade or business carried 62 on by such individual; 63 (ix) Ordinary and necessary expenses paid or incurred during the 64 taxable year for the production or collection of income which is subject 65 to taxation under this chapter but exempt from federal income tax, or 66 the management, conservation or maintenance of property held for the 67 production of such income, and the amortizable bond premium for the 68 taxable year on any bond the interest on which is subject to tax under 69 this chapter but exempt from federal income tax, to the extent that such 70 expenses and premiums are not deductible in determining federal 71 adjusted gross income and are attributable to a trade or business carried 72 on by such individual; 73 (x) (I) For taxable years commencing prior to January 1, 2019, for a 74 Governor's Bill No. 11 LCO No. 641 4 of 39 person who files a return under the federal income tax as an unmarried 75 individual whose federal adjusted gross income for such taxable year is 76 less than fifty thousand dollars, or as a married individual filing 77 separately whose federal adjusted gross income for such taxable year is 78 less than fifty thousand dollars, or for a husband and wife who file a 79 return under the federal income tax as married individuals filing jointly 80 whose federal adjusted gross income for such taxable year is less than 81 sixty thousand dollars or a person who files a return under the federal 82 income tax as a head of household whose federal adjusted gross income 83 for such taxable year is less than sixty thousand dollars, an amount 84 equal to the Social Security benefits includable for federal income tax 85 purposes; 86 (II) For taxable years commencing prior to January 1, 2019, for a 87 person who files a return under the federal income tax as an unmarried 88 individual whose federal adjusted gross income for such taxable year is 89 fifty thousand dollars or more, or as a married individual filing 90 separately whose federal adjusted gross income for such taxable year is 91 fifty thousand dollars or more, or for a husband and wife who file a 92 return under the federal income tax as married individuals filing jointly 93 whose federal adjusted gross income from such taxable year is sixty 94 thousand dollars or more or for a person who files a return under the 95 federal income tax as a head of household whose federal adjusted gross 96 income for such taxable year is sixty thousand dollars or more, an 97 amount equal to the difference between the amount of Social Security 98 benefits includable for federal income tax purposes and the lesser of 99 twenty-five per cent of the Social Security benefits received during the 100 taxable year, or twenty-five per cent of the excess described in Section 101 86(b)(1) of the Internal Revenue Code; 102 (III) For the taxable year commencing January 1, 2019, and each 103 taxable year thereafter, for a person who files a return under the federal 104 income tax as an unmarried individual whose federal adjusted gross 105 income for such taxable year is less than seventy-five thousand dollars, 106 or as a married individual filing separately whose federal adjusted gross 107 income for such taxable year is less than seventy-five thousand dollars, 108 Governor's Bill No. 11 LCO No. 641 5 of 39 or for a husband and wife who file a return under the federal income tax 109 as married individuals filing jointly whose federal adjusted gross 110 income for such taxable year is less than one hundred thousand dollars 111 or a person who files a return under the federal income tax as a head of 112 household whose federal adjusted gross income for such taxable year is 113 less than one hundred thousand dollars, an amount equal to the Social 114 Security benefits includable for federal income tax purposes; and 115 (IV) For the taxable year commencing January 1, 2019, and each 116 taxable year thereafter, for a person who files a return under the federal 117 income tax as an unmarried individual whose federal adjusted gross 118 income for such taxable year is seventy-five thousand dollars or more, 119 or as a married individual filing separately whose federal adjusted gross 120 income for such taxable year is seventy-five thousand dollars or more, 121 or for a husband and wife who file a return under the federal income tax 122 as married individuals filing jointly whose federal adjusted gross 123 income from such taxable year is one hundred thousand dollars or more 124 or for a person who files a return under the federal income tax as a head 125 of household whose federal adjusted gross income for such taxable year 126 is one hundred thousand dollars or more, an amount equal to the 127 difference between the amount of Social Security benefits includable for 128 federal income tax purposes and the lesser of twenty-five per cent of the 129 Social Security benefits received during the taxable year, or twenty-five 130 per cent of the excess described in Section 86(b)(1) of the Internal 131 Revenue Code; 132 (xi) To the extent properly includable in gross income for federal 133 income tax purposes, any amount rebated to a taxpayer pursuant to 134 section 12-746; 135 (xii) To the extent properly includable in the gross income for federal 136 income tax purposes of a designated beneficiary, any distribution to 137 such beneficiary from any qualified state tuition program, as defined in 138 Section 529(b) of the Internal Revenue Code, established and 139 maintained by this state or any official, agency or instrumentality of the 140 state; 141 Governor's Bill No. 11 LCO No. 641 6 of 39 (xiii) To the extent allowable under section 12-701a, contributions to 142 accounts established pursuant to any qualified state tuition program, as 143 defined in Section 529(b) of the Internal Revenue Code, established and 144 maintained by this state or any official, agency or instrumentality of the 145 state; 146 (xiv) To the extent properly includable in gross income for federal 147 income tax purposes, the amount of any Holocaust victims' settlement 148 payment received in the taxable year by a Holocaust victim; 149 (xv) To the extent properly includable in gross income for federal 150 income tax purposes of an account holder, as defined in section 31-151 51ww, interest earned on funds deposited in the ind ividual 152 development account, as defined in section 31-51ww, of such account 153 holder; 154 (xvi) To the extent properly includable in the gross income for federal 155 income tax purposes of a designated beneficiary, as defined in section 156 3-123aa, interest, dividends or capital gains earned on contributions to 157 accounts established for the designated beneficiary pursuant to the 158 Connecticut Homecare Option Program for the Elderly established by 159 sections 3-123aa to 3-123ff, inclusive; 160 (xvii) To the extent properly includable in gross income for federal 161 income tax purposes, any income received from the United States 162 government as retirement pay for a retired member of (I) the Armed 163 Forces of the United States, as defined in Section 101 of Title 10 of the 164 United States Code, or (II) the National Guard, as defined in Section 101 165 of Title 10 of the United States Code; 166 (xviii) To the extent properly includable in gross income for federal 167 income tax purposes for the taxable year, any income from the discharge 168 of indebtedness in connection with any reacquisition, after December 169 31, 2008, and before January 1, 2011, of an applicable debt instrument or 170 instruments, as those terms are defined in Section 108 of the Internal 171 Revenue Code, as amended by Section 1231 of the American Recovery 172 and Reinvestment Act of 2009, to the extent any such income was added 173 Governor's Bill No. 11 LCO No. 641 7 of 39 to federal adjusted gross income pursuant to subparagraph (A)(xi) of 174 this subdivision in computing Connecticut adjusted gross income for a 175 preceding taxable year; 176 (xix) To the extent not deductible in determining federal adjusted 177 gross income, the amount of any contribution to a manufacturing 178 reinvestment account established pursuant to section 32-9zz in the 179 taxable year that such contribution is made; 180 (xx) To the extent properly includable in gross income for federal 181 income tax purposes, (I) for the taxable year commencing January 1, 182 2015, ten per cent of the income received from the state teachers' 183 retirement system, (II) for the taxable years commencing January 1, 184 2016, to January 1, 2020, inclusive, twenty-five per cent of the income 185 received from the state teachers' retirement system, and (III) for the 186 taxable year commencing January 1, 2021, and each taxable year 187 thereafter, fifty per cent of the income received from the state teachers' 188 retirement system or, for a taxpayer whose federal adjusted gross 189 income does not exceed the applicable threshold under clause (xxi) of 190 this subparagraph, the percentage pursuant to said clause of the income 191 received from the state teachers' retirement system, whichever 192 deduction is greater; 193 (xxi) To the extent properly includable in gross income for federal 194 income tax purposes, except for retirement benefits under clause (iv) of 195 this subparagraph and retirement pay under clause (xvii) of this 196 subparagraph, for a person who files a return under the federal income 197 tax as an unmarried individual whose federal adjusted gross income for 198 such taxable year is less than seventy-five thousand dollars, or as a 199 married individual filing separately whose federal adjusted gross 200 income for such taxable year is less than seventy-five thousand dollars, 201 or as a head of household whose federal adjusted gross income for such 202 taxable year is less than seventy-five thousand dollars, or for a husband 203 and wife who file a return under the federal income tax as married 204 individuals filing jointly whose federal adjusted gross income for such 205 taxable year is less than one hundred thousand dollars, (I) for the taxable 206 Governor's Bill No. 11 LCO No. 641 8 of 39 year commencing January 1, 2019, fourteen per cent of any pension or 207 annuity income, (II) for the taxable year commencing January 1, 2020, 208 twenty-eight per cent of any pension or annuity income, (III) for the 209 taxable year commencing January 1, 2021, forty-two per cent of any 210 pension or annuity income, and (IV) for the taxable year commencing 211 January 1, 2022, [fifty-six per cent of any pension or annuity income, (V) 212 for the taxable year commencing January 1, 2023, seventy per cent of any 213 pension or annuity income, (VI) for the taxable year commencing 214 January 1, 2024, eighty-four per cent of any pension or annuity income, 215 and (VII) for the taxable year commencing January 1, 2025,] and each 216 taxable year thereafter, one hundred per cent of any pension or annuity 217 income; 218 (xxii) The amount of lost wages and medical, travel and housing 219 expenses, not to exceed ten thousand dollars in the aggregate, incurred 220 by a taxpayer during the taxable year in connection with the donation 221 to another person of an organ for organ transplantation occurring on or 222 after January 1, 2017; 223 (xxiii) To the extent properly includable in gross income for federal 224 income tax purposes, the amount of any financial assistance received 225 from the Crumbling Foundations Assistance Fund or paid to or on 226 behalf of the owner of a residential building pursuant to sections 8-442 227 and 8-443; 228 (xxiv) To the extent properly includable in gross income for federal 229 income tax purposes, the amount calculated pursuant to subsection (b) 230 of section 12-704g for income received by a general partner of a venture 231 capital fund, as defined in 17 CFR 275.203(l)-1, as amended from time to 232 time; 233 (xxv) To the extent any portion of a deduction under Section 179 of 234 the Internal Revenue Code was added to federal adjusted gross income 235 pursuant to subparagraph (A)(xiv) of this subdivision in computing 236 Connecticut adjusted gross income, twenty-five per cent of such 237 disallowed portion of the deduction in each of the four succeeding 238 Governor's Bill No. 11 LCO No. 641 9 of 39 taxable years; [and] 239 (xxvi) To the extent properly includable in gross income for federal 240 income tax purposes, for a person who files a return under the federal 241 income tax as an unmarried individual whose federal adjusted gross 242 income for such taxable year is less than seventy-five thousand dollars, 243 or as a married individual filing separately whose federal adjusted gross 244 income for such taxable year is less than seventy-five thousand dollars, 245 or as a head of household whose federal adjusted gross income for such 246 taxable year is less than seventy-five thousand dollars, or for a husband 247 and wife who file a return under the federal income tax as married 248 individuals filing jointly whose federal adjusted gross income for such 249 taxable year is less than one hundred thousand dollars, (I) for the taxable 250 year commencing January 1, 2023, twenty-five per cent of any 251 distribution from an individual retirement account other than a Roth 252 individual retirement account, (II) for the taxable year commencing 253 January 1, 2024, fifty per cent of any distribution from an individual 254 retirement account other than a Roth individual retirement account, (III) 255 for the taxable year commencing January 1, 2025, seventy-five per cent 256 of any distribution from an individual retirement account other than a 257 Roth individual retirement account, and (IV) for the taxable year 258 commencing January 1, 2026, and each taxable year thereafter, any 259 distribution from an individual retirement account other than a Roth 260 individual retirement account; and 261 (xxvii) To the extent properly includable in gross income for federal 262 income tax purposes, for the taxable year commencing January 1, 2022, 263 the amount or amounts paid or otherwise credited to any eligible 264 resident of this state under (I) the 2020 Earned Income Tax Credit 265 enhancement program from funding allocated to the state through the 266 Coronavirus Relief Fund established under the Coronavirus Aid, Relief, 267 and Economic Security Act, P.L. 116-136, and (II) the 2021 Earned 268 Income Tax Credit enhancement program from funding allocated to the 269 state pursuant to Section 9901 of Subtitle M of Title IX of the American 270 Rescue Plan Act of 2021, P.L. 117-2. 271 Governor's Bill No. 11 LCO No. 641 10 of 39 Sec. 3. Section 12-217qq of the general statutes is repealed and the 272 following is substituted in lieu thereof (Effective from passage and 273 applicable to calendar and income years commencing on or after January 1, 274 2022): 275 (a) As used in this section: 276 (1) "Authority" means the Connecticut Higher Education 277 Supplemental Loan Authority; 278 (2) "Commissioner" means the Commissioner of Revenue Services; 279 [(2)] (3) "Eligible education loan" means [a loan issued by the 280 authority to an individual to refinance one or more student loans] an 281 authority loan, as defined in section 10a-223, that is in repayment; 282 [(3)] (4) "Full-time" means required to work at least thirty-five hours 283 per week; 284 [(4)] (5) "Qualified employee" means an individual who (A) is a 285 resident of the state, (B) has earned his or her first bachelor's degree from 286 an institution of higher education in the immediately preceding five-287 year period, (C) is employed full-time in the state by a qualified 288 employer, (D) is not an owner, member or partner of such qualified 289 employer or a family member of an owner, member or partner of such 290 qualified employer, and (E) has received an eligible education loan; 291 [(5)] (6) "Qualified employer" means a corporation licensed to operate 292 a business in the state that is subject to tax under this chapter or chapter 293 207; and 294 [(6) "Student loan" means any loan in repayment that was issued by 295 (A) the authority, or (B) any other private or governmental lender to 296 finance attendance at an institution of higher education] 297 (7) "Qualified small business" means a qualified employer that has 298 gross receipts of not more than five million dollars for the calendar or 299 income year, as applicable, for which a credit under this section is 300 Governor's Bill No. 11 LCO No. 641 11 of 39 allowed. 301 (b) (1) For calendar or income years commencing on and after January 302 1, 2022, each qualified employer that employs a qualified employee and 303 makes a payment directly to the authority on behalf of such qualified 304 employee on an eligible education loan [on behalf of such qualified 305 employee] that was used to finance the qualified employee's attendance 306 at an institution of higher education may claim a credit against the tax 307 imposed under this chapter or chapter 207. Such credit shall be granted 308 in an amount equal to fifty per cent of the amount of payments made to 309 the outstanding principal balance of such loans by the qualified 310 employer during the calendar or income year, provided (A) the credit 311 shall not be allowed against the tax imposed under this chapter and 312 chapter 207 for the same loan payment, and (B) the amount of credit 313 allowed for any calendar or income year with respect to a specific 314 qualified employee shall not exceed two thousand six hundred twenty-315 five dollars. 316 (2) A qualified employer may claim the credit under subdivision (1) 317 of this subsection for a payment made during the part of the calendar or 318 income year the qualified employee worked and resided in the state, 319 provided a qualified employee who worked and resided in the state for 320 any part of a month shall be deemed to have worked and resided in the 321 state for the entire month for purposes of this section. 322 (c) A qualified employer that claims the credit under subsection (b) 323 of this section shall provide any documentation required by the 324 [Commissioner of Revenue Services] commissioner in a form and 325 manner prescribed by the commissioner. 326 (d) (1) A qualified small business may apply to the commissioner in 327 accordance with the provisions of subdivision (2) of this subsection to 328 exchange any credit allowed under subsection (b) of this section for a 329 credit refund equal to the value of the credit. Any amount of credit 330 refunded under this subsection shall be refunded to the qualified small 331 business in accordance with the provisions of this chapter or chapter 332 Governor's Bill No. 11 LCO No. 641 12 of 39 207, as applicable. No interest shall be allowed or paid on any amount 333 of credit refunded under this subsection. Any amount of credit refunded 334 under this subsection shall be subject to the provisions of section 12-39h. 335 (2) Each application for a credit refund under this subsection shall be 336 filed, on such forms and containing such information as prescribed by 337 the commissioner, on or before the original due date of the return 338 prescribed under section 12-205 or 12-222, as applicable, for the calendar 339 or income year for which such credit was earned or, if applicable, the 340 extended due date of such year's return. No application for a credit 341 refund under this subsection may be filed after the due date or extended 342 due date, as the case may be, of such return. 343 Sec. 4. Section 453 of public act 21-2 of the June special session is 344 repealed and the following is substituted in lieu thereof (Effective from 345 passage): 346 The Comptroller shall transfer to the General Fund from funds 347 allocated, in accordance with the provisions of special act 21-1, from the 348 federal funds designated for the state pursuant to the provisions of 349 Section 604 of Subtitle M of Title IX of the American Rescue Plan Act of 350 2021, P.L. 117-2, as amended from time to time, [: (1) Five hundred fifty-351 nine million nine hundred thousand dollars, for the fiscal year ending 352 June 30, 2022; and (2) one billion one] nine hundred ninety-four million 353 nine hundred thousand dollars for the fiscal year ending June 30, 2023. 354 Sec. 5. (Effective from passage) The Comptroller shall reserve eighty-355 three million two hundred thousand dollars of General Fund revenue 356 received from the federal government during the fiscal year ending June 357 30, 2022, pursuant to Section 9817 of the American Rescue Plan Act of 358 2021, P.L. 117-2, for federal revenue collections during the fiscal year 359 ending June 30, 2023. 360 Sec. 6. Section 38a-91aa of the general statutes is repealed and the 361 following is substituted in lieu thereof (Effective July 1, 2022): 362 As used in [sections 38a-91aa to 38a-91tt] this section, sections 38a-363 Governor's Bill No. 11 LCO No. 641 13 of 39 91bb to 38a-91uu, inclusive, as amended by this act, and sections 38a-364 91ww and 38a-91xx: 365 (1) "Affiliated company" means any company in the same corporate 366 system as a parent, an industrial insured or a member organization by 367 virtue of common ownership, control, operation or management. 368 (2) "Agency captive insurance company" means a captive insurance 369 company that: 370 (A) Is owned or directly or indirectly controlled by one or more 371 insurance agents or insurance producers licensed in accordance with 372 sections 38a-702a to 38a-702r, inclusive; 373 (B) Only insures against risks covered by insurance policies sold, 374 solicited or negotiated through the insurance agents or insurance 375 producers that own or control such captive insurance company; and 376 (C) Does not insure against risks covered by any health insurance 377 policy or plan. 378 (3) "Alien captive insurance company" means any insurance 379 company formed to write insurance business for its parent and affiliated 380 companies and licensed pursuant to the laws of an alien jurisdiction that 381 imposes statutory or regulatory standards on companies transacting the 382 business of insurance in such jurisdiction that the commissioner deems 383 to be acceptable. 384 (4) "Association" means any legal association of individuals, 385 corporations, limited liability companies, partnerships, associations or 386 other entities, [that has been in continuous existence for at least one 387 year,] where the association itself or some or all of the member 388 organizations: 389 (A) Directly or indirectly own, control or hold with power to vote all 390 of the outstanding voting securities or other voting interests of an 391 association captive insurance company incorporated as a stock insurer; 392 Governor's Bill No. 11 LCO No. 641 14 of 39 (B) Have complete voting control over an association captive 393 insurance company incorporated as a mutual corporation or formed as 394 a limited liability company; or 395 (C) Constitute all of the subscribers of an association captive 396 insurance company formed as a reciprocal insurer. 397 (5) "Association captive insurance company" means any company 398 that insures risks of the member organizations of an association, and 399 includes a company that also insures risks of such member 400 organizations' affiliated companies or of the association. 401 (6) "Branch business" means any insurance business transacted in this 402 state by a branch captive insurance company. 403 (7) "Branch captive insurance company" means any alien captive 404 insurance company or foreign captive insurance company licensed by 405 the commissioner to transact the business of insurance in this state 406 through a business unit with a principal place of business in this state. 407 (8) "Branch operations" means any business operations in this state of 408 a branch captive insurance company. 409 (9) "Captive insurance company" means any (A) pure captive 410 insurance company, agency captive insurance company, association 411 captive insurance company, industrial insured captive insurance 412 company, risk retention group, sponsored captive insurance company 413 or special purpose financial captive insurance company that is 414 domiciled in this state and formed or licensed under the provisions of 415 [sections 38a-91aa] this section and sections 38a-91bb to 38a-91tt, 416 inclusive, as amended by this act, or (B) branch captive insurance 417 company. 418 (10) "Ceding insurer" means an insurance company, approved by the 419 commissioner and licensed or otherwise authorized to transact the 420 business of insurance or reinsurance in its state or country of domicile, 421 that cedes risk to a special purpose financial captive insurance company 422 Governor's Bill No. 11 LCO No. 641 15 of 39 pursuant to a reinsurance contract. 423 (11) "Commissioner" means the Insurance Commissioner. 424 (12) "Controlled unaffiliated business" means any person: 425 (A) Who, (i) in the case of a pure captive insurance company, is not 426 in the corporate system of a parent and the parent's affiliated companies, 427 [or] (ii) in the case of an industrial insured captive insurance company, 428 is not in the corporate system of an industrial insured and the industrial 429 insured's affiliated companies, or (iii) in the case of a sponsored captive 430 insurance company, is not in the corporate system of a participant and 431 the participant's affiliated companies; 432 (B) Who, (i) in the case of a pure captive insurance company, has an 433 existing contractual relationship with a parent or one of the parent's 434 affiliated companies, [or] (ii) in the case of an industrial insured captive 435 insurance company, has an existing contractual relationship with an 436 industrial insured or one of the industrial insured's affiliated companies, 437 or (iii) in the case of a sponsored captive insurance company, has an 438 existing contractual relationship with a participant or one of the 439 participant's affiliated companies; and 440 (C) Whose risks are managed by a pure captive insurance company, 441 [or] an industrial insured captive insurance company or a sponsored 442 captive insurance company, as applicable, in accordance with section 443 38a-91qq, as amended by this act. 444 (13) "Excess workers' compensation insurance" means, in the case of 445 an employer that has insured or self-insured its workers' compensation 446 risks in accordance with applicable state or federal law, insurance in 447 excess of a specified per-incident or aggregate limit established by the 448 commissioner. 449 (14) "Foreign captive insurance company" means any insurance 450 company formed to write insurance business for its parent and affiliated 451 companies and licensed pursuant to the laws of a foreign jurisdiction 452 Governor's Bill No. 11 LCO No. 641 16 of 39 that imposes statutory or regulatory standards on companies 453 transacting the business of insurance in such jurisdiction that the 454 commissioner deems to be acceptable. 455 [(14)] (15) "Incorporated protected cell" means a protected cell that is 456 established as a corporation or a limited liability company, separate 457 from the sponsored captive insurance company with which it has 458 entered into a participant contract. 459 [(15)] (16) "Industrial insured" means an insured: 460 (A) Who procures the insurance of any risk or risks by use of the 461 services of a full-time employee acting as an insurance manager or 462 buyer; 463 (B) Whose aggregate annual premiums for insurance on all risks total 464 at least twenty-five thousand dollars; and 465 (C) Who has at least twenty-five full-time employees. 466 [(16)] (17) "Industrial insured captive insurance company" means any 467 company that insures risks of the industrial insureds that comprise an 468 industrial insured group, and includes a company that also insures risks 469 of such industrial insureds' affiliated companies. 470 [(17)] (18) "Industrial insured group" means any group of industrial 471 insureds that collectively: 472 (A) Directly or indirectly own, control or hold with power to vote all 473 of the outstanding voting securities or other voting interests of an 474 industrial insured captive insurance company incorporated as a stock 475 insurer; 476 (B) Have complete voting control over an industrial insured captive 477 insurance company incorporated as a mutual corporation or formed as 478 a limited liability company; or 479 (C) Constitute all of the subscribers of an industrial insured captive 480 Governor's Bill No. 11 LCO No. 641 17 of 39 insurance company formed as a reciprocal insurer. 481 [(18)] (19) "Insurance securitization" or "securitization" means a 482 transaction or a group of related transactions, which may include capital 483 market offerings, that are effected through related risk transfer 484 instruments and facilitating administrative agreements, in which all or 485 part of the result of such transaction is used to fund a special purpose 486 financial captive insurance company's obligations under a reinsurance 487 contract with a ceding insurer and by which: 488 (A) A special purpose financial captive insurance company directly 489 or indirectly obtains proceeds through the issuance of securities by such 490 company or any other person; or 491 (B) A person provides, for the benefit of a special purpose financial 492 captive insurance company, one or more letters of credit or other assets 493 that the commissioner has authorized such company to treat as 494 admitted assets for purposes of its annual report. "Insurance 495 securitization" or "securitization" does not include the issuance of a 496 letter of credit for the benefit of the commissioner to satisfy all or part of 497 a special purpose financial captive insurance company's capital and 498 surplus requirements under section 38a-91dd, as amended by this act. 499 [(19)] (20) "Member organization" means any individual, corporation, 500 limited liability company, partnership, association or other entity that 501 belongs to an association. 502 [(20)] (21) "Mutual corporation" means a corporation organized 503 without stockholders and includes a nonprofit corporation with 504 members. 505 [(21)] (22) "Parent" means any individual, corporation, limited 506 liability company, partnership or other entity that directly or indirectly 507 owns, controls or holds with power to vote more than fifty per cent of 508 the outstanding voting: 509 (A) Securities of a pure captive insurance company organized as a 510 Governor's Bill No. 11 LCO No. 641 18 of 39 stock insurer; or 511 (B) Membership interests of a pure captive insurance company 512 organized as a nonprofit corporation or as a limited liability company. 513 [(22)] (23) "Participant" means any association, corporation, limited 514 liability company, partnership, trust or other entity, and any affiliated 515 company or controlled unaffiliated business thereof, that is insured by 516 a sponsored captive insurance company pursuant to a participant 517 contract. 518 [(23)] (24) "Participant contract" means a contract entered into by a 519 sponsored captive insurance company and a participant by which the 520 sponsored captive insurance company insures the risks of the 521 participant and limits the losses of each such participant to its pro rata 522 share of the assets of one or more protected cells identified in such 523 participant contract. 524 [(24)] (25) "Protected cell" means a separate account established by a 525 sponsored captive insurance company, in which assets are maintained 526 for one or more participants in accordance with the terms of one or more 527 participant contracts to fund the liability of the sponsored captive 528 insurance company assumed on behalf of such participants as set forth 529 in such participant contracts. 530 [(25)] (26) "Pure captive insurance company" means any company 531 that insures risks of its parent and affiliated companies or controlled 532 unaffiliated business. 533 [(26)] (27) "Reinsurance contract" means a contract entered into by a 534 special purpose financial captive insurance company and a ceding 535 insurer by which the special purpose financial captive insurance 536 company agrees to provide reinsurance to the ceding insurer for risks 537 associated with the ceding insurer's insurance or reinsurance business. 538 [(27)] (28) "Risk retention group" means a captive insurance company 539 organized under the laws of this state pursuant to the federal Liability 540 Governor's Bill No. 11 LCO No. 641 19 of 39 Risk Retention Act of 1986, 15 USC 3901 et seq., as amended from time 541 to time, as a stock insurer or mutual corporation, a reciprocal or other 542 limited liability entity. 543 [(28)] (29) "Security" has the same meaning as provided in section 544 36b-3 and includes any form of debt obligation, equity, surplus 545 certificate, surplus note, funding agreement, derivative or other 546 financial instrument that the commissioner designates as a security for 547 purposes of [sections 38a-91aa] this section and sections 38a-91bb to 38a-548 91tt, inclusive, as amended by this act. 549 [(29)] (30) "Special purpose financial captive insurance company" 550 means a company that is licensed by the commissioner in accordance 551 with section 38a-91bb, as amended by this act. 552 [(30)] (31) "Special purpose financial captive insurance company 553 security" means a security issued by (A) a special purpose financial 554 captive insurance company, or (B) a third party, the proceeds of which 555 are obtained directly or indirectly by a special purpose financial captive 556 insurance company. 557 [(31)] (32) "Sponsor" means any association, corporation, limited 558 liability company, partnership, trust or other entity that is approved by 559 the commissioner to organize and operate a sponsored captive 560 insurance company and to provide all or part of the required 561 unimpaired paid-in capital and surplus. 562 [(32)] (33) "Sponsored captive insurance company" means a captive 563 insurance company: 564 (A) In which the minimum required unimpaired paid-in capital and 565 surplus are provided by one or more sponsors; 566 (B) That insures risks of its participants only through separate 567 participant contracts; and 568 (C) That funds its liability to each participant through one or more 569 protected cells and segregates the assets of each protected cell from the 570 Governor's Bill No. 11 LCO No. 641 20 of 39 assets of other protected cells and from the assets of the sponsored 571 captive insurance company's general account. 572 [(33)] (34) "Surplus note" means an unsecured subordinated debt 573 obligation possessing characteristics consistent with the National 574 Association of Insurance Commissioners Statement of Statutory 575 Accounting Principles No. 41, as amended from time to time, and as 576 modified or supplemented by the commissioner. 577 Sec. 7. (Effective July 1, 2022) (a) As used in this section, "alien captive 578 insurance company", "branch captive insurance company" and "foreign 579 captive insurance company" have the same meanings as provided in 580 section 38a-91aa of the general statutes, as amended by this act. 581 (b) The Commissioner of Revenue Services shall waive any and all 582 penalties that would otherwise be due under section 38a-277 of the 583 general statutes for any taxable period beginning on or after July 1, 2019, 584 and ending prior to July 1, 2022, if, not later than June 30, 2023, the 585 insured: 586 (1) Establishes a branch captive insurance company in this state or 587 transfers the domicile of its alien captive insurance company or foreign 588 captive insurance company to this state in accordance with the 589 provisions of section 38a-58a of the general statutes; and 590 (2) Pays all taxes and interest due and outstanding under section 38a-591 277 of the general statutes for all taxable periods ending on or after July 592 1, 2019, but prior to July 1, 2022. 593 (c) Any insured that satisfies the provisions of subsection (b) of this 594 section shall not be liable for any taxes, interest and penalties that would 595 otherwise be due under section 38a-277 of the general statutes for any 596 taxable period ending prior to July 1, 2019. 597 Sec. 8. Section 38a-91bb of the general statutes is repealed and the 598 following is substituted in lieu thereof (Effective July 1, 2022): 599 (a) Any captive insurance company, when permitted by its articles of 600 Governor's Bill No. 11 LCO No. 641 21 of 39 association, charter or other organizational document, may apply to the 601 [Insurance Commissioner] commissioner for a license to do the business 602 of insurance against any kind of loss, damage or liability properly a 603 subject of insurance, if such insurance is not prohibited by law or [is not] 604 disapproved by the commissioner as being contrary to public policy, 605 including life insurance, annuities, health insurance, as defined in 606 section 38a-469, and commercial risk insurance, as defined in section 607 38a-663, provided: 608 (1) No pure captive insurance company may insure any risks other 609 than those of its parent and affiliated companies or controlled 610 unaffiliated business; 611 (2) No association captive insurance company may insure any risks 612 other than those of its association, the member organizations of its 613 association, and the member organizations' affiliated companies; 614 (3) No industrial insured captive insurance company may insure any 615 risks other than those of (A) the industrial insureds that comprise the 616 industrial insured group, (B) the industrial insureds' affiliated 617 companies, or (C) the industrial insureds' controlled unaffiliated 618 businesses; 619 (4) No risk retention group may insure any risks other than those of 620 its members and owners; 621 (5) No captive insurance company may provide personal risk 622 insurance, as defined in section 38a-663, for private passenger motor 623 vehicle or homeowners insurance coverage or any component thereof; 624 (6) No captive insurance company may accept or cede reinsurance 625 except as provided in section 38a-91kk, as amended by this act; 626 (7) Any captive insurance company may provide excess workers' 627 compensation insurance to its parent and affiliated companies, unless 628 prohibited by the laws of the state having jurisdiction over the 629 transaction or by federal law. Any captive insurance company may 630 Governor's Bill No. 11 LCO No. 641 22 of 39 reinsure a workers' compensation qualified self-insured plan of its 631 parent and affiliated companies, unless prohibited by federal law; 632 (8) Any captive insurance company that provides life insurance, 633 annuities or health insurance shall comply with all applicable state and 634 federal laws. 635 (b) No captive insurance company shall do any insurance business in 636 this state unless: 637 (1) [It] The captive insurance company first obtains from the 638 [Insurance Commissioner] commissioner a license authorizing [it] the 639 captive insurance company to do insurance business in this state; 640 (2) [Its] The captive insurance company's board of directors or 641 committee of managers or, in the case of a reciprocal insurer, its 642 subscribers' advisory committee holds at least one meeting each year in 643 this state; 644 (3) [It] The captive insurance company maintains its principal place 645 of business in this state; and 646 (4) [It] The captive insurance company appoints a registered agent to 647 accept service of process and to otherwise act on its behalf in this state. 648 Whenever such registered agent cannot with reasonable diligence be 649 found at the registered office of the captive insurance company, the 650 [Insurance Commissioner] commissioner shall be an agent of [such] the 651 captive insurance company upon whom any process, notice or demand 652 may be served. 653 (c) (1) To be considered for a license, a captive insurance company 654 shall: 655 (A) File with the commissioner a certified copy of its organizational 656 documents, a statement under oath of its president and secretary 657 showing its financial condition, and any other statements or documents 658 required by the commissioner; and 659 Governor's Bill No. 11 LCO No. 641 23 of 39 (B) Submit to the commissioner for approval a description of the 660 coverages, deductibles, coverage limits and rates and such additional 661 information as the commissioner may require. In the event of any 662 subsequent material change in any item in such description, the captive 663 insurance company shall submit to the commissioner for approval an 664 appropriate revision and shall not offer any additional kinds of 665 insurance until a revision of such description is approved by the 666 commissioner. The captive insurance company shall inform the 667 commissioner of any material change in rates not later than thirty days 668 after the adoption of such change. 669 (2) Each applicant captive insurance company shall also file with the 670 commissioner evidence of the following: 671 (A) The amount and liquidity of the company's assets relative to the 672 risks to be assumed; 673 (B) The adequacy of the expertise, experience and character of the 674 persons who will manage the company; 675 (C) The overall soundness of the company's plan of operation; 676 (D) The adequacy of the loss prevention programs of the company's 677 insureds; and 678 (E) Such other factors deemed relevant by the commissioner in 679 ascertaining whether the proposed captive insurance company will be 680 able to meet its policy obligations. 681 (3) Each applicant sponsored captive insurance company shall also 682 file with the commissioner: 683 (A) Materials demonstrating how the applicant will account for the 684 loss and expense experience of each protected cell at a level of detail 685 deemed sufficient by the commissioner, and how [it] such applicant will 686 report such experience to the commissioner; 687 (B) A statement acknowledging that all financial records of the 688 Governor's Bill No. 11 LCO No. 641 24 of 39 sponsored captive insurance company, including records pertaining to 689 any protected cells, shall be made available for examination or 690 inspection or by the commissioner or the commissioner's designee; 691 (C) All contracts or sample contracts between the sponsored captive 692 insurance company and any participants; and 693 (D) Evidence that expenses shall be allocated to each protected cell in 694 a fair and equitable manner. 695 (4) Each applicant special purpose financial captive insurance 696 company shall also: 697 (A) Include with its plan of operation: 698 (i) A complete description of all significant transactions, including 699 reinsurance, reinsurance security arrangements, securitizations, related 700 transactions or arrangements, and to the extent not included in the 701 transactions listed in this clause, a complete description of all parties 702 other than the special purpose financial captive insurance company and 703 the ceding insurer that will be involved in the issuance of special 704 purpose financial captive insurance company securities and a 705 description of any pledge, hypothecation or grant of a security interest 706 in any of the special purpose financial captive insurance company's 707 assets and in any stock or limited liability company interest in the 708 special purpose financial captive insurance company; 709 (ii) The source and form of the special purpose financial captive 710 insurance company's capital and surplus; 711 (iii) The proposed investment policy of the special purpose financial 712 captive insurance company; 713 (iv) A description of the underwriting, reporting and claims payment 714 methods by which losses covered by the reinsurance contract will be 715 reported, accounted for and settled; 716 (v) Pro forma balance sheets and income statements illustrating one 717 Governor's Bill No. 11 LCO No. 641 25 of 39 or more adverse case scenarios, as determined under criteria required 718 by the commissioner, for the performance of the special purpose 719 financial captive insurance company under all reinsurance contracts; 720 and 721 (vi) The proposed rate and method for discounting reserves, if the 722 special purpose financial captive insurance company is requesting 723 authority to discount its reserves; 724 (B) Submit an affidavit of its president, a vice president, its treasurer 725 or its chief financial officer that includes the following statements, that 726 to the best of such person's knowledge and belief after reasonable 727 inquiry: 728 (i) The proposed organization and operation of the special purpose 729 financial captive insurance company comply with all applicable 730 provisions of this chapter; 731 (ii) The special purpose financial captive insurance company's 732 investment policy reflects and takes into account the liquidity of assets 733 and the reasonable preservation, administration and management of 734 such assets with respect to the risks associated with the reinsurance 735 contract and the insurance securitization transaction. With respect to a 736 special purpose financial captive insurance company, "management" 737 means the board of directors, managing board or other individual or 738 individuals vested with overall responsibility for the management of the 739 affairs of such company, including, but not limited to, officers or other 740 agents elected or appointed to act on behalf of such company; and 741 (iii) The reinsurance contract and any arrangement for securing the 742 special purpose financial captive insurance company's obligations 743 under such reinsurance contract, including, but not limited to, any 744 agreements or other documentation to implement such arrangement, 745 comply with the provisions of this chapter; and 746 (C) Include with its application: 747 Governor's Bill No. 11 LCO No. 641 26 of 39 (i) Copies of all agreements and documentation described in 748 subparagraph (A) of this subdivision unless otherwise approved by the 749 commissioner, and any other statements or documents required by the 750 commissioner to evaluate the special purpose financial captive 751 insurance company's application for licensure; and 752 (ii) An opinion of qualified legal counsel, in a form acceptable to the 753 commissioner, that the offer and sale of any special purpose financial 754 captive insurance company securities complies with all applicable 755 registration requirements or applicable exemptions from or exceptions 756 to such requirements of the federal securities laws and that the offer and 757 sale of securities by the special purpose financial captive insurance 758 company itself comply with all registration requirements or applicable 759 exemptions from or exceptions to such requirements of the securities 760 laws of this state. Such opinion shall not be required as part of the 761 application if the special purpose financial captive insurance company 762 includes a specific statement in its plan of operation that such opinions 763 will be provided to the commissioner in advance of the offer or sale of 764 any special purpose financial captive insurance company securities. 765 (5) A sponsored captive insurance company may apply to be licensed 766 as a special purpose financial captive insurance company. Such 767 company shall be subject to the provisions of sections 38a-91aa to 38a-768 91tt, inclusive, as amended by this act, applicable to a sponsored captive 769 insurance company and to a special purpose financial captive insurance 770 company. In the event of conflict between such provisions applicable to 771 a sponsored captive insurance company and to a special purpose 772 financial captive insurance company, the provisions applicable to a 773 special purpose financial captive insurance company shall control. 774 (6) Information submitted pursuant to this subsection shall be and 775 shall remain confidential and shall not be made public by the 776 commissioner or an employee or agent of the commissioner without the 777 written consent of the company, except that: 778 (A) Such information may be discoverable by a party in a civil action 779 Governor's Bill No. 11 LCO No. 641 27 of 39 or contested case to which the captive insurance company that 780 submitted such information is a party upon a showing by the party 781 seeking to discover such information that: 782 (i) The information sought is relevant to and necessary for the 783 furtherance of such action or case; 784 (ii) The information sought is unavailable from other nonconfidential 785 sources; and 786 (iii) A subpoena issued by a judicial or administrative officer of 787 competent jurisdiction has been submitted to the commissioner, 788 provided such submission requirement shall not apply to a risk 789 retention group; and 790 (B) The commissioner may, in the commissioner's discretion, disclose 791 such information to a public official having jurisdiction over the 792 regulation of insurance in another state, provided: 793 (i) Such public official agrees, in writing, to maintain the 794 confidentiality of such information; and 795 (ii) The laws of the state in which such public official serves require 796 such information to be and [to] remain confidential. 797 (d) (1) Each captive insurance company shall pay to the commissioner 798 a nonrefundable fee of eight hundred dollars for examining, 799 investigating and processing its application for a license. The 800 commissioner may retain legal, financial and examination services from 801 outside the department for the licensing and financial oversight of a 802 captive insurance company, the reasonable cost of which may be 803 charged against such company. The provisions of subdivisions (2) to (5), 804 inclusive, of subsection (k) of section 38a-14 shall apply to this 805 subdivision. 806 (2) Each captive insurance company shall pay a license fee for the first 807 year of licensure and a renewal fee for each year thereafter as set forth 808 in section 38a-11. 809 Governor's Bill No. 11 LCO No. 641 28 of 39 (e) (1) If the commissioner finds that the documents and statements 810 that a captive insurance company, other than a special purpose financial 811 captive insurance company, has filed comply with the provisions of 812 sections 38a-91aa to 38a-91tt, inclusive, as amended by this act, the 813 commissioner may grant a license authorizing the company to do 814 insurance business in this state until April first thereafter. The captive 815 insurance company may apply to renew such license on such forms as 816 the commissioner prescribes. 817 (2) (A) The commissioner may grant a license authorizing a special 818 purpose financial captive insurance company to do reinsurance 819 business in this state until April first thereafter upon the commissioner's 820 finding that (i) the proposed plan of operation provides for a reasonable 821 and expected successful operation, (ii) the terms of the reinsurance 822 contract and related transactions comply with sections 38a-91aa to 38a-823 91tt, inclusive, as amended by this act, (iii) the proposed plan of 824 operation is not hazardous to any ceding insurer, and (iv) the insurance 825 regulator of the state of domicile of each ceding insurer has notified the 826 commissioner in writing or has otherwise provided assurance 827 satisfactory to the commissioner that such regulator has approved or 828 has not disapproved the transaction, provided the commissioner shall 829 not be precluded from issuing a license to a special purpose financial 830 captive insurance company if such regulator has not responded with 831 respect to all or any part of the transaction. 832 (B) In conjunction with granting such license, the commissioner may 833 issue an order to the special purpose financial captive insurance 834 company of any additional provisions, terms or conditions regarding 835 the organization, licensing or operation of such company that are not 836 inconsistent with the provisions of this chapter and are deemed 837 appropriate by the commissioner. 838 (3) The commissioner shall not grant a license to a branch captive 839 insurance company unless the alien captive insurance company or 840 foreign captive insurance company grants the commissioner authority 841 to examine the alien captive insurance company or foreign captive 842 Governor's Bill No. 11 LCO No. 641 29 of 39 insurance company in the jurisdiction in which the alien captive 843 insurance company or foreign captive insurance company is formed, 844 operates or maintains books and records. 845 Sec. 9. Section 38a-91dd of the general statutes is repealed and the 846 following is substituted in lieu thereof (Effective July 1, 2022): 847 (a) (1) [The Insurance Commissioner] Except as provided in 848 subdivision (3) of this subsection, the commissioner shall not issue a 849 license to a captive insurance company or allow the company to retain 850 such license unless the company has and maintains unimpaired paid-in 851 capital and surplus of: 852 (A) In the case of a pure captive insurance company, not less than 853 [two hundred fifty thousand dollars;] the greater of: 854 (i) Fifty thousand dollars; or 855 (ii) An amount that the commissioner determines is necessary for the 856 pure captive insurance company to meet such pure captive insurance 857 company's policy obligations; 858 (B) In the case of an association captive insurance company, not less 859 than [five hundred thousand dollars;] the greater of: 860 (i) Two hundred fifty thousand dollars; or 861 (ii) An amount that the commissioner determines is necessary for the 862 association captive insurance company to meet such association captive 863 insurance company's policy obligations; 864 (C) In the case of an industrial insured captive insurance company, 865 not less than [five hundred thousand dollars;] the greater of: 866 (i) Two hundred fifty thousand dollars; or 867 (ii) An amount that the commissioner determines is necessary for the 868 industrial insured captive insurance company to meet such industrial 869 insured captive insurance company's policy obligations; 870 Governor's Bill No. 11 LCO No. 641 30 of 39 (D) In the case of a risk retention group, not less than one million 871 dollars; 872 (E) In the case of a sponsored captive insurance company, not less 873 than [two hundred twenty-five thousand dollars;] the greater of: 874 (i) Seventy-five thousand dollars; or 875 (ii) An amount that the commissioner determines is necessary for the 876 sponsored captive insurance company to meet such sponsored captive 877 insurance company's policy obligations; 878 (F) In the case of a special purpose financial captive insurance 879 company, not less than [two hundred fifty thousand dollars;] the greater 880 of: 881 (i) Two hundred fifty thousand dollars; or 882 (ii) An amount that the commissioner determines is necessary for the 883 special purpose financial captive insurance company to meet such 884 special purpose financial captive insurance company's policy 885 obligations; 886 (G) In the case of a sponsored captive insurance company licensed as 887 a special purpose financial captive insurance company, not less than 888 [five hundred thousand dollars;] the greater of: 889 (i) Two hundred fifty thousand dollars; or 890 (ii) An amount that the commissioner determines is necessary for 891 such captive insurance company to meet such captive insurance 892 company's policy obligations; and 893 (H) In the case of an agency captive insurance company, not less than 894 [five hundred thousand dollars] the greater of: 895 (i) Two hundred fifty thousand dollars; or 896 (ii) An amount that the commissioner determines is necessary for the 897 Governor's Bill No. 11 LCO No. 641 31 of 39 agency captive insurance company to meet such agency captive 898 insurance company's policy obligations. 899 (2) (A) The [Insurance Commissioner] commissioner shall not issue a 900 license to a branch captive insurance company or allow the branch 901 captive insurance company to retain such license unless the branch 902 captive insurance company has and maintains, as security for the 903 payment of liabilities attributable to the branch operations: 904 (i) Not less than [two hundred fifty thousand dollars;] the greater of: 905 (I) Fifty thousand dollars; or 906 (II) An amount that the commissioner determines is necessary to 907 secure the payment of liabilities attributable to the branch captive 908 insurance company's operations; and 909 (ii) Reserves on such insurance policies or such reinsurance contracts 910 as may be issued or assumed by the branch captive insurance company 911 through its branch operations, including reserves for losses, allocated 912 loss adjustment expenses, incurred but not reported losses and 913 unearned premiums with regard to business written through the branch 914 operations. The commissioner may permit a branch captive insurance 915 company to credit against any such reserves any [security for loss 916 reserves that the branch captive insurance company posts with a ceding 917 insurer or is posted by a reinsurer with the branch captive insurance 918 company, so long as such security remains posted] assets belonging to: 919 (I) The branch captive insurance company that are held in trust for, 920 or otherwise segregated or controlled by, a ceding insurer, that secure 921 the branch captive insurance company's reinsurance obligations to the 922 ceding insurer; or 923 (II) A reinsurer that are held in trust for, or otherwise under the 924 control of, the branch captive insurance company, that secure the 925 reinsurer's reinsurance obligations to the branch captive insurance 926 company. 927 Governor's Bill No. 11 LCO No. 641 32 of 39 (B) The amounts required under subparagraph (A) of this 928 subdivision may be held, with the prior approval of the commissioner, 929 in the form of: 930 (i) [a] A trust formed under a trust agreement and funded by assets 931 acceptable to the commissioner; [,] 932 (ii) [an] An irrevocable letter of credit issued or confirmed by a bank 933 approved by the commissioner; [,] 934 (iii) [with] With respect to the amount required under subparagraph 935 (A)(i) of this subdivision only, cash on deposit with the commissioner; 936 [,] or 937 (iv) [any] Any combination [thereof] of the forms described in 938 subparagraphs (B)(i) to (B)(iii), inclusive, of this subdivision. 939 (3) The commissioner may exempt a branch captive insurance 940 company from the provisions of subdivisions (1) and (2) of this 941 subsection if the branch captive insurance company is a foreign captive 942 insurance company and the commissioner, in the commissioner's 943 discretion, determines that the branch captive insurance company is 944 financially stable. 945 [(b) The commissioner may adopt regulations, in accordance with 946 chapter 54, to establish additional capital and surplus requirements 947 based upon the type, volume and nature of insurance business 948 transacted.] 949 [(c)] (b) Notwithstanding any other provision of this section, the 950 commissioner shall have the discretion to allow a captive insurance 951 company, other than a captive insurance company organized as a risk 952 retention group, to maintain less than the required unimpaired paid-in 953 capital and surplus set forth in subsection (a) of this section. The 954 commissioner shall consider the type, volume and nature of the 955 insurance or reinsurance business transacted by such a captive 956 insurance company in establishing the amount of unimpaired paid-in 957 Governor's Bill No. 11 LCO No. 641 33 of 39 capital and surplus the company is required to maintain. 958 [(d)] (c) Except as specified in subdivision (2) of subsection (a) of this 959 section, capital and surplus may be in the form of cash or an irrevocable 960 letter of credit issued by a bank approved by the commissioner. 961 (d) The commissioner may adopt regulations, in accordance with 962 chapter 54, to establish additional capital and surplus requirements 963 based upon the type, volume and nature of insurance business 964 transacted. 965 Sec. 10. Subsection (h) of section 38a-91ff of the general statutes is 966 repealed and the following is substituted in lieu thereof (Effective July 1, 967 2022): 968 (h) In the case of a captive insurance company licensed as a branch 969 captive insurance company, the alien captive insurance company or 970 foreign captive insurance company shall petition the commissioner to 971 issue a certificate setting forth the commissioner's finding that, after 972 considering the character, reputation, financial responsibility, insurance 973 experience, and business qualifications of the officers and directors of 974 the alien captive insurance company or foreign captive insurance 975 company, the licensing and maintenance of the branch operations will 976 promote the general good of the state. The alien captive insurance 977 company or foreign captive insurance company may register to do 978 business in this state after the commissioner's certificate is issued. 979 Sec. 11. Subdivision (1) of subsection (b) of section 38a-91gg of the 980 general statutes is repealed and the following is substituted in lieu 981 thereof (Effective July 1, 2022): 982 (b) (1) (A) [Prior] Except as provided in subparagraph (B) of this 983 subdivision, prior to March first of each year and, in the case of pure 984 captive insurance companies and industrial insured captive insurance 985 companies, prior to March fifteenth of each year, each captive insurance 986 company [other than a branch captive insurance company shall submit 987 to the Insurance Commissioner] shall file with the commissioner a 988 Governor's Bill No. 11 LCO No. 641 34 of 39 report of [its] the captive insurance company's financial condition 989 verified by oath of two [of its] executive officers of the captive insurance 990 company. The commissioner shall establish the form and content of the 991 annual report to be filed by special purpose captive insurance 992 companies. 993 (B) [In the case of branch captive insurance companies, prior to March 994 first of each year, each such] Each branch captive insurance company 995 shall [submit to] file with the commissioner a copy of all reports and 996 statements required to be filed under the laws of the jurisdiction in 997 which the alien captive insurance company or foreign captive insurance 998 company is formed. Such reports and statements shall be verified by 999 oath of two [of its] executive officers of the branch captive insurance 1000 company and filed with the commissioner on the same day that such 1001 reports and statements must be filed in the domiciliary jurisdiction of 1002 the alien captive insurance company or foreign captive insurance 1003 company. If the commissioner is satisfied that the annual report filed by 1004 the alien captive insurance company or foreign captive insurance 1005 company in [its] the domiciliary jurisdiction of the alien captive 1006 insurance company or foreign captive insurance company provides 1007 adequate information concerning the financial condition of the alien 1008 captive insurance company or foreign captive insurance company, the 1009 commissioner may waive the requirement for completion of the [captive 1010 annual statement for business written in the alien jurisdiction] annual 1011 report required under subparagraph (A) of this subdivision. If the 1012 commissioner is not satisfied with such reports and statements, or if the 1013 branch captive insurance company is not required to file such reports 1014 and statements in the domiciliary jurisdiction of the alien captive 1015 insurance company or foreign captive insurance company, the branch 1016 captive insurance company shall file a report, at a time and in a form 1017 and manner prescribed by the commissioner, that provides the 1018 commissioner with adequate information concerning the financial 1019 condition of the alien captive insurance company or foreign captive 1020 insurance company. 1021 Sec. 12. Subsection (a) of section 38a-91hh of the general statutes is 1022 Governor's Bill No. 11 LCO No. 641 35 of 39 repealed and the following is substituted in lieu thereof (Effective July 1, 1023 2022): 1024 (a) (1) [At least once every three years, and additionally whenever the 1025 Insurance Commissioner] Except as provided in subdivision (3) of this 1026 subsection, the commissioner or the commissioner's designee shall, 1027 whenever the commissioner determines it to be prudent [, the 1028 commissioner or the commissioner's designee shall visit each captive 1029 insurance company and thoroughly] but not less frequently than once 1030 every five years, inspect and examine [its] each captive insurance 1031 company's affairs to ascertain [its] the captive insurance company's 1032 financial condition, [its] the captive insurance company's ability to fulfill 1033 its obligations and whether [it] the captive insurance company has 1034 complied with the provisions of sections 38a-91aa to 38a-91tt, inclusive, 1035 as amended by this act, and any other applicable provisions of this title. 1036 [The commissioner may extend the three-year period to five years, 1037 provided a captive insurance company is subject to a comprehensive 1038 annual audit during such period by independent auditors approved by 1039 the commissioner and of a scope satisfactory to the commissioner.] 1040 (2) The examination of a branch captive insurance company pursuant 1041 to this section shall be of branch business and branch operations only, 1042 as long as the branch captive insurance company provides annually to 1043 the commissioner a certificate of compliance or its equivalent, issued by 1044 or filed with the licensing authority of the jurisdiction in which the 1045 branch captive insurance company is formed, and demonstrates to the 1046 commissioner's satisfaction that [it] such branch captive insurance 1047 company is operating in sound financial condition in accordance with 1048 all applicable laws and regulations of such jurisdiction. 1049 (3) The commissioner may waive the requirement that the 1050 commissioner or the commissioner's designee inspect and examine a 1051 captive insurance company's affairs pursuant to this subsection if the 1052 captive insurance company is a pure captive insurance company or a 1053 branch captive insurance company of the pure captive insurance 1054 company. 1055 Governor's Bill No. 11 LCO No. 641 36 of 39 Sec. 13. Subdivision (1) of subsection (a) of section 38a-91ii of the 1056 general statutes is repealed and the following is substituted in lieu 1057 thereof (Effective July 1, 2022): 1058 (a) (1) The commissioner may, at any time, for cause, suspend, revoke 1059 or refuse to renew any license of a captive insurance company, or in lieu 1060 of or in addition to suspension or revocation of such license, the 1061 commissioner, after reasonable notice to and hearing of any holder of 1062 such license, may impose a fine not to exceed ten thousand dollars. Such 1063 hearings may be held by the commissioner or any person designated by 1064 the commissioner. For purposes of this subsection, cause for such 1065 administrative action shall include, but not be limited to, the following 1066 reasons: (A) Insolvency or impairment of capital or surplus; (B) failure 1067 to meet the requirements of section 38a-91dd, as amended by this act; 1068 (C) refusal or failure to [submit] file an annual report, as required by 1069 section 38a-91gg, as amended by this act, or any other report or 1070 statement required by law or by lawful order of the commissioner; (D) 1071 failure to comply with the provisions of its own charter, bylaws or other 1072 organizational document; (E) failure to submit to or pay the cost of 1073 examination or any legal obligation relative thereto; (F) use of methods 1074 that, although not otherwise specifically prohibited by law, nevertheless 1075 render its operation detrimental or its condition unsound with respect 1076 to the public or to its policyholders; or (G) failure otherwise to comply 1077 with the laws of this state. 1078 Sec. 14. Subsection (a) of section 38a-91kk of the general statutes is 1079 repealed and the following is substituted in lieu thereof (Effective July 1, 1080 2022): 1081 (a) Any captive insurance company may assume reinsurance from 1082 any other insurer. [only on risks that such company is authorized to 1083 write directly.] 1084 Sec. 15. Section 38a-91qq of the general statutes is repealed and the 1085 following is substituted in lieu thereof (Effective July 1, 2022): 1086 The [Insurance Commissioner] commissioner may adopt regulations, 1087 Governor's Bill No. 11 LCO No. 641 37 of 39 in accordance with chapter 54, as are necessary to carry out the 1088 provisions of sections 38a-91aa to [38a-91tt] 38a-91uu, inclusive, as 1089 amended by this act, and sections 38a-91ww and 38a-91xx and to 1090 establish standards to ensure that a parent or affiliated company is able 1091 to exercise control of the risk management function of any controlled 1092 unaffiliated business to be insured by a pure captive insurance 1093 company, an industrial insured captive insurance company or a 1094 sponsored captive insurance company, except that until such 1095 regulations are approved, the commissioner may approve the coverage 1096 of such risks by a pure captive insurance company, an industrial insured 1097 captive insurance company or a sponsored captive insurance company. 1098 Sec. 16. Subparagraph (A) of subdivision (2) of subsection (g) of 1099 section 38a-91ss of the general statutes is repealed and the following is 1100 substituted in lieu thereof (Effective July 1, 2022): 1101 (A) Proceeds from a special purpose financial captive insurance 1102 company securitization or letters of credit or other assets described in 1103 subdivision [(18)] (19) of section 38a-91aa, as amended by this act; 1104 Sec. 17. Subsections (b) and (c) of section 38a-91uu of the general 1105 statutes are repealed and the following is substituted in lieu thereof 1106 (Effective July 1, 2022): 1107 (b) A dormant captive insurance company that is domiciled in this 1108 state may apply to the Insurance Commissioner for a certificate of 1109 dormancy. The certificate of dormancy shall be subject to renewal once 1110 every [two] five years, and shall be forfeited if the dormant captive 1111 insurance company commences transacting insurance business or fails 1112 to timely renew such certificate. 1113 (c) A dormant captive insurance company that has been issued a 1114 certificate of dormancy shall: 1115 (1) Possess and maintain unimpaired, paid-in capital and surplus of 1116 not less than [twenty-five] fifteen thousand dollars, provided such 1117 dormant captive insurance company shall not be required to add capital 1118 Governor's Bill No. 11 LCO No. 641 38 of 39 upon entering dormancy if such dormant captive insurance company 1119 was never capitalized; 1120 (2) Not later than March [15, 2018] fifteenth, annually, submit to the 1121 commissioner a report on the financial condition of such company, 1122 verified by oath of two executive officers of such company, in such form 1123 as the commissioner prescribes; and 1124 (3) Pay the license renewal fee specified in section 38a-11 for a captive 1125 insurance company. 1126 Sec. 18. Section 431 of public act 21-2 of the June special session is 1127 repealed. (Effective from passage) 1128 This act shall take effect as follows and shall amend the following sections: Section 1 from passage 12-704c(b) Sec. 2 from passage 12-701(a)(20)(B) Sec. 3 from passage and applicable to calendar and income years commencing on or after January 1, 2022 12-217qq Sec. 4 from passage PA 21-2 of the June Sp. Sess., Sec. 453 Sec. 5 from passage New section Sec. 6 July 1, 2022 38a-91aa Sec. 7 July 1, 2022 New section Sec. 8 July 1, 2022 38a-91bb Sec. 9 July 1, 2022 38a-91dd Sec. 10 July 1, 2022 38a-91ff(h) Sec. 11 July 1, 2022 38a-91gg(b)(1) Sec. 12 July 1, 2022 38a-91hh(a) Sec. 13 July 1, 2022 38a-91ii(a)(1) Sec. 14 July 1, 2022 38a-91kk(a) Sec. 15 July 1, 2022 38a-91qq Sec. 16 July 1, 2022 38a-91ss(g)(2)(A) Sec. 17 July 1, 2022 38a-91uu(b) and (c) Sec. 18 from passage Repealer section Governor's Bill No. 11 LCO No. 641 39 of 39 Statement of Purpose: To implement the Governor's budget recommendations. [Proposed deletions are enclosed in brackets. Proposed additions are indicated by underline, except that when the entire text of a bill or resolution or a section of a bill or resolution is new, it is not underlined.]