As used in sections 38a-41, 38a-72 and 38a-92 to 38a-92n, inclusive:

(1) (A) “Financial guaranty insurance” means a surety bond, an insurance policy or, when issued by an insurer, an indemnity contract and any guaranty similar to the foregoing types, under which loss is payable upon proof of occurrence of financial loss to an insured claimant, obligee or indemnitee as a result of any of the following events: Failure of any obligor on any debt instrument or other monetary obligation, including common or preferred stock guaranteed under a surety bond, insurance policy or indemnity contract, to pay when due principal, interest, premium, dividend, purchase price of or on the instrument or obligation or other monetary payment when due when the failure is the result of a financial default or insolvency, regardless of whether the obligation is incurred directly or as guarantor by or on behalf of another obligor that has also defaulted, or any other failure to make payment, provided the payment obligation or risk which is insured is investment grade; changes in the levels of interest rates, whether short or long-term or the differential in interest rates between various markets or products; changes in the rate of exchange of currency; changes in the value of financial or commodity indices or price levels in general; or other events as determined by the commissioner.

(B) “Financial guaranty insurance” shall not include:

(i) Insurance of any loss resulting from any event described in subparagraph (A) of this subdivision if the loss is payable only upon the occurrence of any of the following, as specified in a surety bond, insurance policy or indemnity contract: A fortuitous physical event; a failure of or deficiency in the operation of equipment; or an inability to extract or recover a natural resource;

(ii) Surety insurance, defined as insurance: Guaranteeing the fidelity of persons holding positions of public or private trusts; indemnifying financial institutions against loss of moneys, securities, negotiable instruments and other tangible items of personal property caused by larceny, misplacement, destruction or other stated perils; insuring against loss caused by forgery of signatures on, or alterations of specified documents, instruments and papers; becoming surety on or guaranteeing the performance of a bond which shall not exceed a period greater than five years, that guarantees the payment of a premium, deductible, or self-insured retention to an insurer issuing a workers’ compensation or liability policy; guaranteeing the performance of contracts for services, including a bid, payment or performance bond where the bond is guaranteeing the execution of any contract other than a contract of indebtedness or other monetary obligation; and guaranteeing or otherwise becoming surety for the performance of any lawful contract, not specifically provided for in this subdivision, except any insurance contract which constitutes either mortgage guaranty insurance or financial guaranty insurance, as defined in subparagraph (A) of this subdivision;

(iii) Credit unemployment insurance, defined as insurance on a debtor in connection with a specific loan or other credit transaction, to provide payments to a creditor in the event of unemployment of the debtor for the installments or other periodic payments becoming due while a debtor is unemployed;

(iv) Credit insurance indemnifying a manufacturer, merchant or educational institution which extends credit against loss or damage resulting from nonpayment of debts owed to such entity for goods or services provided in the normal course of business;

(v) Guaranteed investment contracts issued by a life insurance company which provides that the life insurer will make specified payments in exchange for specific premiums or contributions;

(vi) Mortgage guaranty insurance, defined as insurance against financial loss by reason of the nonpayment of principal, interest and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust or other instrument constituting a first lien or charge on residential real estate consisting of less than five units;

(vii) Indemnity contracts or similar guaranties, to the extent that they are not otherwise limited or proscribed by sections 38a-92 to 38a-92n, inclusive, in which a life insurer does any of the following: Guarantees its obligations or indebtedness or the obligations or indebtedness of a subsidiary, as defined in § 38a-1, other than a financial guaranty insurance corporation, provided: To the extent that any such obligations or indebtedness are backed by specific assets, those assets shall be at all times owned by the life insurer or the subsidiary, and in the case of the guaranty of the obligations or indebtedness of the subsidiary that are not backed by specific assets of the life insurer, the guaranty terminates once the subsidiary ceases to be a subsidiary; guarantees obligations or indebtedness, including the obligation to substitute assets where appropriate, with respect to specific assets acquired by a life insurer in the course of normal investment activities and not for the purpose of resale with credit enhancement or guarantees obligations or indebtedness acquired by a subsidiary, provided the assets acquired pursuant to this subparagraph have been either acquired by a special purpose entity, whose sole purpose is to acquire specific assets of the life insurer or the subsidiary and issue securities or participation certificates backed by the assets, or sold to an independent third party, or guarantees obligations or indebtedness of an employee or agent of the life insurer;

(viii) Any cramdown bond or mortgage repurchase bond, as those phrases are used by nationally recognized rating agencies in respect to mortgage-backed securities;

(ix) Residual value insurance, defined as insurance issued in connection with a lease or contract which sets forth a specific termination value at the end of the term of the lease or contract for the property covered by the lease or contract and which insures against loss of economic value, other than loss due to physical damage, of tangible personal property, real property and improvements thereto;

(x) Any letter of credit or similar transaction effected by a bank, trust company or savings association;

(xi) Accumulation fund arrangements of any life insurance contract or annuity contract made pursuant to § 38a-460, or any funding agreements made pursuant to § 38a-459; or

(xii) Any other form of insurance covering risks that the commissioner determines to be substantially similar to any of the foregoing.

(2) “Asset-backed securities” means securities of an issuer provided (A) the issuer of the securities is a special purpose corporation, trust or other entity, or provided the securities constitute an insurable risk, or the issuer is a bank, trust company or other financial institution, deposits in which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of Federal Deposit Insurance Corporation or any successors thereto; and (B) the securities are related to a pool of assets so that the pool of assets has been conveyed, pledged or otherwise transferred to or is otherwise owned or acquired by the issuer, the pool of assets backs the securities issued and no asset in the pool has a value exceeding twenty per cent of the aggregate value of the pool.

(3) “Average annual debt service” means the amount of insured unpaid principal and interest on an obligation multiplied by the number of the insured obligations, assuming that each obligation represents a one-thousand-dollar par value, divided by the amount equal to the aggregate life of all of those obligations. This definition, expressed as a formula in regard to bonds, is as follows:

(4) “Collateral” means any of the following:

(A) Cash;

(B) The scheduled cash flow from obligations which are not callable, where the underlying obligations cannot be prepaid in whole or in part by the original borrowers and the principal of which are directly payable or guaranteed by the United States government or an agency or instrumentality thereof, or in the case of obligations denominated in the currency of a foreign country directly payable or guaranteed by the government or central bank of that country, scheduled to be received on or prior to the date of scheduled debt service on the insured obligation, provided in the case of an insured obligation denominated in a foreign currency, collateral satisfying the foregoing requirements shall be denominated in the same currency as the insured obligation and shall be issued by the respective foreign government or central bank thereof or any agency or instrumentality thereof;

(C) The market value of investment grade obligations, other than obligations evidencing an interest in the project or projects financed with the proceeds of the insured obligations, in an amount not to exceed the principal of and interest on the insured obligation;

(D) The face amount of a letter of credit that meets all of the following criteria: (i) Is irrevocable, (ii) provides for payment under the letter of credit in all instances in which payment under a financial guaranty policy is required, (iii) is issued, presentable and payable either: At an office of the letter of credit issuer in the United States or at an office of the letter of credit issuer located in the jurisdiction in which the trustee or paying agency for the insured obligation is located, (iv) contains a statement that identifies the beneficiary as: The financial guaranty insurance corporation, its collateral agency or any successor by operation of law, including any liquidator, rehabilitator, receiver or conservator, or the trustee of the paying agent for the insured obligation, (v) contains a statement to the effect that the obligation of the letter of credit issuer under the letter of credit is an individual obligation of that issuer and is in no way contingent upon reimbursement with respect thereto, (vi) contains an issue date and an expiration date, (vii) either: Has a term at least as long as the shorter of the terms of the insured obligation or the term of the financial guaranty insurance policy, or indicates the letter of credit shall not expire without thirty days prior written notice to the beneficiary and allows for drawing under the letter of credit in the event that, prior to expiration, the letter of credit is not renewed or extended or a substitute letter of credit or alternate collateral meeting the requirements of this subdivision is not provided, (viii) if the letter of credit is governed by the 1983 revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 400), or any successor revision approved by the commissioner, it shall contain a provision for an extension of time of not less than thirty days after resumption of business to draw against the letter of credit in the event that one or more of the occurrences described in Article nineteen of Publication 400 occurs, (ix) is issued or confirmed by a bank, trust company or savings association and is organized and existing under the laws of the United States or any state thereof or, in the case of a banking organization organized under the laws of a foreign country, has a branch or agency office licensed under the laws of the United States or any state thereof and is domiciled in a member country of the Organization of Economic Cooperation and Development having a sovereign rating in one of the top two generic lettered rating classifications by a securities rating agency acceptable to the commissioner, has, or is the principal operating subsidiary of a bank holding company that has a long-term debt rating of at least investment grade, and is not a parent, subsidiary or affiliate of the trustee or paying agent, if any, with respect to the insured obligation if that trustee or paying agent is the named beneficiary of the letter of credit. Collateral meeting the requirements of this subdivision shall be deposited with or held by the financial guaranty insurance corporation, held by a trustee or agent for the benefit of the financial guaranty insurance corporation in trust or to perfect a security interest or held in trust pursuant to a bond indenture or other trust arrangement by a trustee for the benefit of holders of the insured obligations which may be used for the payment of debt service, other insured payments, collateral agent fees and trustee fees or reimbursement of the financial guaranty insurance corporation on any obligation insured by the corporation. Any such trustee or agent shall be a bank, savings association, depository institution or other entity acceptable to the commissioner, the deposits of which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or any successors thereto, or, in the case of banking organizations organized under the laws of a foreign country, has a branch or agency office licensed under the laws of the United States or any state thereof and is domiciled in a member country of the Organization of Economic Cooperation and Development having a sovereign rating in one of the top two generic lettered rating classifications by a securities rating agency acceptable to the commissioner, has, or is the principal operating subsidiary of a bank holding company that has a long-term debt rating of at least investment grade and in each case that has a net worth of at least twenty-five million dollars. Any such trustee or agent may also be an approved or qualified servicer or originator of the kind of assets which comprise the collateral, including without limitation, a servicer qualified under a federal or state insurance or guaranty program to service loans or mortgage loans, if the servicer or originator maintains in force at all times errors and omissions insurance applicable to the trust or agency activities.

(5) “Commercial real estate” means income-producing real property other than residential property consisting of less than five units.

(6) “Contingency reserve” means an additional liability reserve established to protect policyholders against the effects of adverse economic cycles or other unforeseen circumstances.

(7) “Excess spread” means, in connection with any insured issue of asset-backed securities, the excess of (A) the cash flow on the underlying assets available to make debt service payments on the insured securities over (B) the debt service requirements on the insured securities, provided such excess is held in the same manner as collateral is required to be held.

(8) “Financial guaranty insurance corporation” means an insurer transacting financial guaranty insurance, except as otherwise provided in sections 38a-92 to 38a-92n, inclusive, and does not include an insurer whose only financial guaranty insurance activity in this state is to reinsure financial guaranty insurance policies in accordance with subparagraph (B) of subdivision (2) of subsection (a) of § 38a-92m.

(9) “Governmental unit” means a state, territory or possession of the United States of America, the District of Columbia, the country of Canada, a province of Canada, the United Kingdom, a public authority of the United Kingdom, any other sovereign which the commissioner shall designate or approve for purposes of sections 38a-92 to 38a-92n, inclusive, a municipality or a political subdivision of any of the foregoing or any public agency or instrumentality thereof.

(10) “Guaranties of consumer debt organizations” means insurance policies indemnifying regulated financial institutions against loss or damage resulting from nonpayment of debts owed to them for extensions of credit to individuals for nonbusiness purposes provided in the normal course of their business. Policies providing that coverage shall contain a provision that all liability terminates upon sale or transfer of the underlying obligation to any transferee that is not an insured of the financial guaranty insurance corporation under a similar policy.

(11) “Industrial development bond” means any security or other instrument under which a payment obligation is created, issued by or on behalf of a governmental unit to finance a project serving a private industrial, commercial or manufacturing purpose and not guaranteed by a governmental unit.

(12) “Insurable risk” means that the obligation on an uninsured basis has been determined to be not less than investment grade. With respect to asset-backed securities, as defined in subsection (2) of this section, the determination shall be based solely on the pool of assets pledged in support of the insured obligation or securing the financial guaranty insurance corporation, without consideration of the creditworthiness of the issuer.

(13) “Investment grade” means either that: (A) The obligation is rated in one of the top four generic lettered rating classifications by a securities rating agency acceptable to the commissioner; (B) the obligation, without regard to financial guaranty insurance, has been identified in writing by that rating agency as an insurable risk deemed to be of investment grade quality; or (C) the obligation has been determined to be investment grade as indicated by a category one or two rating, by the Securities Valuation Office of the National Association of Insurance Commissioners or any successor thereto.

(14) “Municipal bonds” means municipal obligation bonds and special revenue bonds.

(15) “Municipal obligation bond” means any security or other instrument, including a state lease but not a lease of any other governmental unit, under which a payment obligation is created, issued by or on behalf of a governmental unit to finance a project or undertaking serving a substantial public purpose and which is one or more of the following: (A) Payable from tax revenues, but not tax allocations, within the jurisdiction of the governmental unit; (B) payable or guaranteed by the United States of America or any agency, department or instrumentality thereof, or by a state housing agency; (C) payable from rates or charges, but not tolls, levied or collected in respect to a nonnuclear utility project or public transportation facility but shall not include an airport facility or public higher education facility; or (D) with respect to lease obligations, payable from past, present or future appropriations.

(16) “Reinsurance” means cessions qualifying for credit under § 38a-92m.

(17) “Security” or “secured” means any of the following: (A) A deposit at least equal to the full amount of the outstanding principal of the insured obligation; (B) collateral, as defined in subsection (4) of this section, at least equal to the full amount of the outstanding principal of the insured obligation or which has a market value or scheduled cash flow which is equal to or greater than the scheduled debt service on the insured obligation; or (C) other property, provided the financial guaranty insurance corporation or the trustee has possession of evidence of the right, title or authority to claim or foreclose thereon or otherwise dispose of the property for value, the scheduled cash flow from which, or market value thereof, is at least equal to the scheduled debt service on the insured obligation.

(18) “Special revenue bond” means any security or other instrument under which a payment obligation is created, issued by or on behalf of a governmental unit to finance a project or undertaking serving a substantial public purpose and not payable in full from the sources enumerated in subsection (15) of this section, or securities which are substantially similar to the foregoing and issued by a nonprofit corporation.

(19) “Total net liability” of a financial guaranty insurance corporation means the aggregate amount of insured unpaid principal, interest and other monetary payments, if any, of guaranteed obligations insured or assumed, less reinsurance and less collateral.

(20) “Utility first mortgage obligation” means an obligation of an insurer secured by a first priority mortgage on property owned or leased by an investor-owned or cooperative-owned utility company.