Section 1104.60  Reduction from Liability for Reinsurance Ceded to an Unauthorized Assuming Insurer

Pursuant to Section 173.1(2) of the Illinois Insurance Code [215 ILCS 5/173.1(2)], the Director shall allow a reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 173.1(1) of the Illinois Insurance Code [215 ILCS 5/173.1(1)] in an amount not exceeding the liabilities carried by the ceding insurer.  Such reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the exclusive benefit of the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder.  Such security must be held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified United States financial institution as defined in Section 173.1(3)(B) of the Illinois Insurance Code [215 ILCS 5/173.1(3)(B)].

a)         This security may be in the form of any of the following:

1)         Cash.

2)         Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets under Article VIII of the Illinois Insurance Code.

3)         Clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a qualified United States institution, as defined in Section 173.1(3)(A) of the Illinois Insurance Code [215 ILCS 5/173.1(3)(A)], effective no later than December 31 of the year for which filing is being made, and in the possession of the ceding company on or before the filing date of its annual financial statement.  Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance (or confirmation) shall, notwithstanding the issuing (or confirming) institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs.

4)         Any other form of security acceptable to the Director.

b)         An admitted asset or a reduction from liability for reinsurance ceded to an unauthorized assuming insurer pursuant to subsections (a)(1), (2) and (3) above shall be allowed only when the requirements of Section 1104.70, 1104.80 or 1104.90 of this Part are met.