215 ILCS 5/ Illinois Insurance Code.

(215 ILCS 5/126.16)

Sec. 126.16. Securities lending and repurchase, reverse repurchase, and dollar roll transactions. An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the following requirements:

A. The insurer's board of directors shall adopt a written plan that is consistent with the requirements of the written plan in Section 126.4A that specifies guidelines and objectives to be followed, such as:

(1) A description of how cash received will be invested or used for general corporate purposes of the insurer;

(2) Operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and

(3) The extent to which the insurer may engage in these transactions.

B. The insurer shall enter into a written agreement for all transactions authorized in this Section other than dollar roll transactions. The written agreement shall require that each transaction terminate no more than one year from its inception or upon the earlier demand of the insurer. The agreement shall be with the business entity counterparty, but for securities lending transactions, the agreement may be with an agent acting on behalf of the insurer, if the agent is a qualified business entity, and if the agreement:

(1) Requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this Section; and

(2) Prohibits securities lending transactions pursuant to the agreement with the agent or its affiliates.

C. Cash received in a transaction under this Section shall be invested in accordance with this Article and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. For so long as the transaction remains outstanding, the insurer, its agent or custodian shall maintain, as to acceptable collateral received in a transaction under this Section, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company or other securities depositories approved by the Director:

(1) Possession of the acceptable collateral;

(2) A perfected security interest in the acceptable collateral; or

(3) In the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.

D. The limitations of Sections 126.10 and 126.17 shall not apply to the business entity counterparty exposure created by transactions under this Section. For purposes of calculations made to determine compliance with this subsection, no effect will be given to the insurer's future obligation to resell securities, in the case of a repurchase transaction, or to repurchase securities, in the case of a reverse repurchase transaction. An insurer shall not enter into a transaction under this Section if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of securities then loaned or sold to, or purchased from, any one business entity counterparty under this Section would exceed 5% of its admitted assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or

(2) The aggregate amount of all securities then loaned, sold to or purchased from all business entities under this Section would exceed 40% of its admitted assets.

E. In a dollar roll transaction, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date.

F. The Director may promulgate reasonable rules for investments and transactions under this Section including, but not limited to, rules which impose financial solvency standards, valuation standards, and reporting requirements.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.17)

Sec. 126.17. Foreign investments and foreign currency exposure.

A. Subject to the limitations of Section 126.10, an insurer may acquire directly or indirectly through an investment subsidiary, foreign investments, or engage in investment practices with persons of or in foreign jurisdictions, of substantially the same types as those that an insurer is permitted to acquire under this Article, other than of the type permitted under Section 126.12, if, as a result and after giving effect to the investment:

(1) The aggregate amount of foreign investments then held by the insurer under this subsection does not exceed 20% of its admitted assets; and

(2) The aggregate amount of foreign investments then held by the insurer under this subsection in a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3% of its admitted assets as to any other foreign jurisdiction.

B. Subject to the limitations of Section 126.10, an insurer may acquire investments, or engage in investment practices denominated in foreign currencies, whether or not they are foreign investments acquired under subsection A of this Section, or additional foreign currency exposure as a result of the termination or expiration of a hedging transaction with respect to investments denominated in a foreign currency, if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of investments then held by the insurer under this subsection denominated in foreign currencies does not exceed 10% of its admitted assets; and

(2) The aggregate amount of investments then held by the insurer under this subsection denominated in the foreign currency of a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3% of its admitted assets as to any other foreign jurisdiction.

(3) However, an investment shall not be considered denominated in a foreign currency if the acquiring insurer enters into one or more contracts in transactions permitted under Section 126.18 in which the business entity counterparty agrees to exchange, or grants to the insurer the option to exchange, all payments made on the foreign currency denominated investment (or amounts equivalent to the payments that are or will be due to the insurer in accordance with the terms of such investment) for United States currency during the period the contract or contracts are in effect to insulate the insurer against loss caused by diminution of the value of payments owed to the insurer due to future changes in currency exchange rates.

C. In addition to investments permitted under subsections A and B of this Section, an insurer that is authorized to do business in a foreign jurisdiction, and that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in foreign currency of that jurisdiction, may acquire foreign investments respecting that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction, subject to the limitations of Section 126.10. However, investments made under this subsection in obligations of foreign governments, their political subdivisions and government sponsored enterprises shall not be subject to the limitations of Section 126.10 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer under this subsection shall not exceed the greater of:

(1) The amount the insurer is required by the law of the foreign jurisdiction to invest in the foreign jurisdiction; or

(2) 115% of the amount of its reserves, net of reinsurance, and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.

D. In addition to investments permitted under subsections A and B of this Section, an insurer that is not authorized to do business in a foreign jurisdiction, but which has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in foreign currency of that jurisdiction, may acquire foreign investments respecting that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction subject to the limitations of Section 126.10. However, investments made under this subsection in obligations of foreign governments, their political subdivisions and government sponsored enterprises shall not be subject to the limitations of Section 126.10 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer under this subsection shall not exceed 105% of the amount of its reserves, net of reinsurance, and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.

E. Investments acquired under this Section shall be aggregated with investments of the same types made under all other Sections of this Article, and in a similar manner, for purposes of determining compliance with the limitations, if any, contained in the other Sections. Investments in obligations of foreign governments, their political subdivisions and government sponsored enterprises of these persons, except for those exempted under subsections C and D of this Section, shall be subject to the limitations of Section 126.10.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.18)

Sec. 126.18. Derivative transactions. An insurer may, directly or indirectly through an investment subsidiary, engage in derivative transactions under this Section under the following conditions:

A. General conditions.

(1) An insurer may use derivative instruments under this Section to engage in hedging transactions and income generation transactions.

(2) An insurer may use derivative instruments for replication transactions only after the Director promulgates reasonable rules that set forth methods of disclosure, reserving for risk-based capital, and determining the asset valuation reserve for these investments. Any asset being replicated is subject to all the provisions and limitations on the making thereof specified in this Article with respect to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset.

(3) With respect to all hedging transactions, an insurer shall be able to demonstrate to the Director the intended hedging characteristics and the ongoing effectiveness of the derivative transaction or combination of the transactions through cash flow testing or other appropriate analyses.

(4) The Director may promulgate reasonable rules for investments and transactions under this Section including, but not limited to, rules which impose financial solvency standards, valuation standards, and reporting requirements.

B. Limitations on hedging transactions.

An insurer may enter into hedging transactions under this Section if, as a result of and after giving effect to the transaction:

(1) The aggregate statement value of options, caps, floors and warrants not attached to another financial instrument purchased and used in hedging transactions then engaged in by the insurer does not exceed 7.5% of its admitted assets;

(2) The aggregate statement value of options, caps and floors written in hedging transactions then engaged in by the insurer does not exceed 3% of its admitted assets; and

(3) The aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions then engaged in by the insurer does not exceed 6.5% of its admitted assets.

C. Limitations on income generation transactions.

An insurer may enter into the following types of income generation transactions subject to the quantitative limits of subsection C(5):

(1) Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms prior to the end of the noncallable period or derivative instruments based on fixed income securities;

(2) Sales of covered call options on equity securities, if the insurer holds in its portfolio, or can immediately acquire through the exercise of options, warrants or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold;

(3) Sales of covered puts on investments that the insurer is permitted to acquire under this Article, if the insurer has escrowed, or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold; or

(4) Sales of covered caps or floors, if the insurer holds in its portfolio the investments generating the cash flow to make the required payments under the caps or floors during the complete term that the cap or floor is outstanding.

(5) If as a result of and after giving effect to the transactions, the aggregate statement value of the fixed income assets that are subject to call or that generate the cash flows for payments under the caps or floors, plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, does not exceed 10% of its admitted assets.

D. Counterparty exposure. An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of Section 126.10.

E. Additional transactions. Pursuant to rules promulgated under Section 126.8, the Director may approve additional transactions involving the use of derivative instruments in excess of the limits of subsection B of this Section or for other risk management purposes.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.19)

Sec. 126.19. Policy loans. A life insurer may lend to a policyholder on the security of the cash surrender value of the policyholder's policy a sum not exceeding the legal reserve that the insurer is required to maintain on the policy.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.20)

Sec. 126.20. Additional investment authority.

A. Solely for the purpose of acquiring investments that exceed the quantitative limitations of Sections 126.10 through 126.17, an insurer may acquire under this subsection an investment, or engage in investment practices described in Section 126.16, but an insurer shall not acquire an investment, or engage in investment practices described in Section 126.16, under this subsection if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of investments then held by an insurer under this subsection would exceed 3% of its admitted assets; or

(2) The aggregate amount of investments as to one limitation in Sections 126.10 through 126.17 then held by the insurer under this subsection would exceed 1% of its admitted assets.

B. (1) In addition to the authority provided under subsection A of this Section, an insurer may acquire under this subsection an investment of any kind, or engage in investment practices described in Section 126.16, that are not specifically prohibited by this Article, without regard to the categories, conditions, standards or other limitations of Sections 126.10 through 126.17 if, as a result of and after giving effect to the transaction, the aggregate amount of investments then held under this subsection would not exceed the lesser of:

(a) 10% of its admitted assets; or

(b) 75% of its capital and surplus.

(2) However, an insurer shall not acquire any investment or engage in any investment practice under this subsection if, as a result of and after giving effect to the transaction, the aggregate amount of all investments in any one person then held by the insurer under this subsection would exceed 3% of its admitted assets.

C. In addition to the investments acquired under subsections A and B of this Section, an insurer may acquire under this subsection an investment of any kind, or engage in investment practices described in Section 126.16, that are not specifically prohibited by this Article without regard to any limitations of Sections 126.10 through 126.17 if:

(1) The Director grants prior approval;

(2) The insurer demonstrates that its investments are being made in a prudent manner and that the additional amounts will be invested in a prudent manner; and

(3) As a result of and after giving effect to the transaction the aggregate amount of investments then held by the insurer under this subsection does not exceed the greater of:

(a) 25% of its capital and surplus; or

(b) 100% of capital and surplus less 10% of its admitted assets.

D. Under this Section, an insurer shall not acquire or engage in an investment practice prohibited under Section 126.5 or an investment that is a derivative transaction.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/Art. VIII Pt. 3 heading) 3. PROPERTY AND CASUALTY INSURERS

(215 ILCS 5/126.21)

Sec. 126.21. Applicability. This Part 3 shall apply to the investments and investment practices of property and casualty insurers authorized to transact the kinds of insurance in either or both Class 2 or Class 3 of Section 4 of this Code, subject to the provisions of Section 126.1B.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.22)

Sec. 126.22. Reserve requirements.

A. Reserve requirements.

(1) Subject to all other limitations and requirements of this Article, a property and casualty insurer shall maintain an amount at least equal to the lesser of $250,000,000 or 100% of adjusted loss reserves and loss adjustment expense reserves, 100% of adjusted unearned premium reserves and 100% of statutorily required policy and contract reserves in:

(a) Cash and cash equivalents;

(b) High and medium grade investments that qualify under Sections 126.24 or 126.25;

(c) Equity interests that qualify under Section 126.26 and that are traded on a qualified exchange;

(d) Investments of the type set forth in Section 126.30 if the investments are rated in the highest generic rating category by a nationally recognized statistical rating organization recognized by the SVO for rating foreign jurisdictions and if any foreign currency exposure is effectively hedged through the maturity date of the investments;

(e) Qualifying investments of the type set forth in subparagraphs (b), (c) or (d) of this paragraph that are acquired under Section 126.32;

(f) Interest and dividends receivable on qualifying investments of the type set forth in subparagraphs (a) through (e) of this subsection; or

(g) Reinsurance recoverable on paid losses.

(2) Reserve Requirement Amount:

(a) For purposes of determining the amount of assets to be maintained under this subsection, the calculation of adjusted loss reserves and loss adjustment expense reserves, adjusted unearned premium reserves and statutorily required policy and contract reserves shall be based on the amounts reported as of the most recent annual or quarterly statement date.

(b) Adjusted loss reserves and loss adjustment expense reserves shall be equal to the sum of the amounts derived from the following calculations:

(i) The result of each amount reported by the insurer as losses and loss adjustment expenses unpaid for each accident year for each individual line of business; multiplied by

(ii) The discount factor that is applicable to the line of business and accident year published by the Internal Revenue Service under Internal Revenue Code Section 846 (26 U.S.C. 846), as amended, for the calendar year that corresponds to the most recent annual statement of the insurer; minus

(iii) Accrued retrospective premiums discounted by an average discount factor. The discount factor shall be calculated by dividing the losses and loss adjustment expenses unpaid after discounting (the product of Items (i) and (ii) in this subparagraph) by loss and loss adjustment expense reserves before discounting Item (i) of this subparagraph.

(iv) For purposes of these calculations, the losses and loss adjustment expenses unpaid shall be determined net of anticipated salvage and subrogation, and gross of any discount for the time value of money or tabular discount.

(c) Adjusted unearned premium reserves shall be equal to the result of the following calculation:

(i) The amount reported by the insurer as unearned premium reserves; minus

(ii) The admitted asset amounts reported by the insurer as:

(I) Premiums in and agents' balances in the course of collection, accident and health premiums due and unpaid and uncollected premiums for accident and health premiums;

(II) Premiums, agents' balances and installments booked but deferred and not yet due;

(III) Bills receivable, taken for premium; and

(IV) Equities and deposits in pools and associations.

(d) Statutorily required policy and contract reserves shall also include contingency reserves required for mortgage guaranty insurers, municipal bond insurers, and other financial guaranty insurers.

B. Monitoring and reporting. A property and casualty insurer shall supplement its annual statement with a reconciliation and summary of its assets and reserve requirements as required in subsection A of this Section. A reconciliation and summary showing that an insurer's assets as required in subsection A of this Section are greater than or equal to its undiscounted reserves referred to in subsection A of this Section shall be sufficient to satisfy this requirement. Upon prior notification, the Director may require an insurer to submit such a reconciliation and summary with any quarterly statement filed during the calendar year.

C. Notification requirements and mandatory safeguards. If a property and casualty insurer's assets and reserves do not comply with subsection A of this Section, the insurer shall notify the Director immediately of the amount by which the reserve requirements exceed the annual statement value of the qualifying assets, explain why the deficiency exists and within 30 days of the date of the notice propose a plan of action to remedy the deficiency.

D. Authority of the Director.

(1) If the Director determines that an insurer is not in compliance with subsection A of this Section, the Director shall require the insurer to eliminate the condition causing the noncompliance within a specified time from the date the notice of the Director's requirement is mailed or delivered to the insurer.

(2) If an insurer fails to comply with the Director's requirement under paragraph (1) of this subsection, the insurer is deemed to be in hazardous financial condition, and the Director shall take one or more of the actions authorized by law as to insurers in hazardous financial condition.

E. An insurer subject to this Section must comply with the requirements of this Section after December 31, 1997.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.23)

Sec. 126.23. General 5% diversification, medium and lower grade investments, and Canadian investments.

A. General 5% diversification.

(1) Except as otherwise specified in this Article, an insurer shall not acquire directly or indirectly through an investment subsidiary an investment under this Article if, as a result of and after giving effect to the investment, the insurer would hold more than 5% of its admitted assets in investments of all kinds issued, assumed, accepted, guaranteed, or insured by a single person.

(2) This 5% limitation shall not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization.

(3) Asset-backed securities shall not be subject to the limitations of paragraph (1) of this subsection, however, except as permitted by subsection A(4) of this Section, an insurer shall not acquire an asset-backed security if, as a result of and after giving effect to the investment, the aggregate amount of asset-backed securities secured by or evidencing an interest in a single asset or single pool of assets held by a trust or other business entity, then held by the insurer would exceed 5% of its admitted assets.

(4) A company's investments in mortgage related securities, as defined by the Secondary Mortgage Market Enhancement Act of 1984 (United States Public Law 98-440, 12 U.S.C. 24, 1451, 1454 et seq.), that are backed by any single pool of mortgages and made pursuant to the authority of that Act, shall not exceed 5% of its admitted assets.

B. Medium and lower grade investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.24, 126.27, and 126.30 or counterparty exposure under Section 126.31D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of all medium and lower grade investments then held by the insurer would exceed 20% of its admitted assets;

(b) The aggregate amount of lower grade investments then held by the insurer would exceed 10% of its admitted assets;

(c) The aggregate amount of investments rated 5 or 6 by the SVO then held by the insurer would exceed 5% of its admitted assets;

(d) The aggregate amount of investments rated 6 by the SVO then held by the insurer would exceed 1% of its admitted assets; or

(e) The aggregate amount of lower grade investments then held by the insurer that receive as cash income less than the equivalent yield for Treasury issues with a comparative average life, would exceed 1% of its admitted assets.

(2) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.24, 126.27, and 126.30 or counterparty exposure under Section 126.31D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of medium and lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 1% of its admitted assets; or

(b) The aggregate amount of lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 0.5% of its admitted assets.

(3) If an insurer attains or exceeds the limit of any one rating category referred to in this subsection, the insurer shall not thereby be precluded from acquiring investments in other rating categories subject to the specific and multi-category limits applicable to those investments.

C. Canadian investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, any Canadian investments authorized by this Article, if as a result of and after giving effect to the investment, the aggregate amount of these investments then held by the insurer would exceed 40% of its admitted assets, or if the aggregate amount of Canadian investments not acquired under Section 126.24B then held by the insurer would exceed 25% of its admitted assets.

(2) However, as to an insurer that is authorized to do business in Canada or that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in Canada and denominated in Canadian currency, the limitations of paragraph (1) of this subsection shall be increased by the greater of:

(a) The amount the insurer is required by Canadian law to invest in Canada or to be denominated in Canadian currency; or

(b) 125% of the amount of its reserves and other obligations under contracts on risks resident or located in Canada.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.24)

Sec. 126.24. Rated credit instruments. Subject to the limitations of subsection F of this Section, an insurer may acquire rated credit instruments:

A. Subject to the limitations of Section 126.23B, but not to the limitations of Section 126.23A except for the limitation of subsection (4) of Section 126.23A, an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(1) The United States; or

(2) A government sponsored enterprise of the United States, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by the United States or are otherwise backed or supported by the full faith and credit of the United States.

B. (1) Subject to the limitations of Section 126.23B, but not to the limitations of Section 126.23A, an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(a) Canada; or

(b) A government sponsored enterprise of Canada, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by Canada or are otherwise backed or supported by the full faith and credit of Canada;

(2) However, an insurer shall not acquire an instrument under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this subsection would exceed 40% of its admitted assets.

C. (1) Subject to the limitations of Section 126.23B, but not to the limitations of Section 126.23A, an insurer may acquire rated credit instruments, excluding asset-backed securities:

(a) Issued by a government money market mutual fund, a class one money market mutual fund or a class one bond mutual fund;

(b) Issued, assumed, guaranteed, or insured by a government sponsored enterprise of the United States other than those eligible under subsection A of this Section;

(c) Issued, assumed, guaranteed, or insured by a state, if the instruments are general obligations of the state; or

(d) Issued by a multilateral development bank.

(2) However, an insurer shall not acquire an instrument of any one fund, any one enterprise or entity, or any one state under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer in any one fund, enterprise, entity, or state under this subsection would exceed 10% of its admitted assets.

D. Subject to the limitations of Section 126.23, an insurer may acquire preferred stocks that are not foreign investments and that meet the requirements of rated credit instruments if, as a result of and after giving effect to the investment:

(1) The aggregate amount of preferred stocks then held by the insurer under this subsection does not exceed 33 1/3% of its admitted assets; and

(2) The aggregate amount of preferred stocks then held by the insurer under this subsection which are not sinking fund stocks or rated P1 or P2 by the SVO does not exceed 15% of its admitted assets.

E. Subject to the limitations of Section 126.23 in addition to those investments eligible under subsections A, B, C and D of this Section, an insurer may acquire rated credit instruments that are not foreign investments.

F. An insurer shall not acquire special rated credit instruments under this Section if, as a result of and after giving effect to the investment, the aggregate amount of special rated credit instruments then held by the insurer would exceed 5% of its admitted assets. The Director may, by rule, identify certain special rated credit instruments that are exempt from the limitation imposed by this subsection.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.25)

Sec. 126.25. Insurer investment pools.

A. An insurer may acquire investments in investment pools that:

(1) Invest only in:

(a) Obligations that are rated 1 or 2 by the SVO or have an equivalent of an SVO 1 or 2 rating (or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with an SVO 1 or 2 or equivalent rating) by a nationally recognized statistical rating organization recognized by the SVO and have:

(i) A remaining maturity of 397 days or less or a put that entitles the holder to receive the principal amount of the obligation which put may be exercised through maturity at specified intervals not exceeding 397 days; or

(ii) A remaining maturity of 3 years or less and a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (federal funds, prime rate, treasury bills, London InterBank Offered Rate (LIBOR) or commercial paper) and is subject to no maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes;

(b) Government money market mutual funds or class one money market mutual funds; or

(c) Securities lending, repurchase, and reverse repurchase, transactions that meet all the requirements of Section 126.29, except the quantitative limitations of Section 126.29D; or

(2) Invest only in investments which an insurer may acquire under this Article, if the insurer's proportionate interest in the amount invested in these investments when combined with amounts of such investments made directly or indirectly through an investment subsidiary or other insurer investment pool permitted under this subsection A(2) does not exceed the applicable limits of this Article for such investments.

B. For an investment in an investment pool to be qualified under this Article, the investment pool shall not:

(1) Acquire securities issued, assumed, guaranteed, or insured by the insurer or an affiliate of the insurer;

(2) Borrow or incur any indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of Section 126.29 except the quantitative limitations of Section 126.29D; or

(3) Acquire an investment if, as a result of such transaction, the aggregate value of securities then loaned or sold to, purchased from or invested in any one business entity under this Section would exceed 10% of the total assets of the investment pool.

C. The limitations of Section 126.23A shall not apply to an insurer's investment in an investment pool, however an insurer shall not acquire an investment in an investment pool under this Section if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this Section:

(1) In all investment pools investing in investments permitted under subsection A(2) of this Section would exceed 25% of its admitted assets; or

(2) In all investment pools would exceed 40% of its admitted assets.

D. For an investment in an investment pool to be qualified under this Article, the manager of the investment pool shall:

(1) Be organized under the laws of the United States or a state and designated as the pool manager in a pooling agreement;

(2) Be the insurer, an affiliated insurer or a business entity affiliated with the insurer, a qualified bank, a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact, or in the case of a United States branch of an alien insurer, its United States manager or an affiliate or subsidiary of its United States manager;

(3) Be responsible for the compilation and maintenance of detailed accounting records setting forth:

(a) The cash receipts and disbursements reflecting each participant's proportionate investment in the investment pool;

(b) A complete description of all underlying assets of the investment pool (including amount, interest rate, maturity date (if any) and other appropriate designations); and

(c) Other records which, on a daily basis, allow third parties to verify each participant's investment in the investment pool; and

(4) Maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank. The custody agreement shall:

(a) State and recognize the claims and rights of each participant;

(b) Acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and

(c) Contain an agreement that the underlying assets of the investment pool shall not be commingled with the general assets of the custodian qualified bank or any other person.

E. The pooling agreement for each investment pool shall be in writing and shall provide that:

(1) An insurer and its affiliated insurers or, in the case of an investment pool investing solely in investments permitted under subsection A(1) of this Section, the insurer and its subsidiaries, affiliates or any pension or profit sharing plan of the insurer, its subsidiaries and affiliates or, in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager, shall, at all times, hold 100% of the interests in the investment pool;

(2) The underlying assets of the investment pool shall not be commingled with the general assets of the pool manager or any other person;

(3) In proportion to the aggregate amount of each pool participant's interest in the investment pool:

(a) Each participant owns an undivided interest in the underlying assets of the investment pool; and

(b) The underlying assets of the investment pool are held solely for the benefit of each participant;

(4) A participant, or in the event of the participant's insolvency, bankruptcy or receivership, its trustee, receiver or other successor-in-interest, may withdraw all or any portion of its investment from the investment pool under the terms of the pooling agreement;

(5) Withdrawals may be made on demand without penalty or other assessment on any business day, but settlement of funds shall occur within a reasonable and customary period thereafter not to exceed 10 business days. Distributions under this paragraph shall be calculated in each case net of all then applicable fees and expenses of the investment pool. The pooling agreement shall provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:

(a) In cash, the then fair market value of the participant's pro rata share of each underlying asset of the investment pool;

(b) In kind, a pro rata share of each underlying asset; or

(c) In a combination of cash and in kind distributions, a pro rata share in each underlying asset; and

(6) The pool manager shall make the records of the investment pool available for inspection by the Director.

F. Except for the formation of the investment pool, transactions between a domestic insurer and an affiliated insurer investment pool shall not be subject to the requirements of Section 131.20a of this Code.

(Source: P.A. 100-201, eff. 8-18-17.)

(215 ILCS 5/126.26)

Sec. 126.26. Equity Interests.

A. Subject to the limitations of Section 126.23, an insurer may acquire directly, or indirectly through an investment subsidiary, equity interests in business entities organized under the laws of any domestic jurisdiction.

B. An insurer shall not acquire directly, or indirectly through an investment subsidiary, an investment under this Section if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this Section would exceed the greater of 25% of its admitted assets or 100% of its surplus as regards policyholders.

C. An insurer shall not acquire under this Section any investments that the insurer may acquire under Section 126.28.

D. An insurer shall not short sell equity interests unless the insurer covers the short sale by owning the equity interest or an unrestricted right to the equity interest exercisable within 6 months of the short sale.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.27)

Sec. 126.27. Tangible personal property under lease.

A. (1) Subject to the limitations of Section 126.23, an insurer may acquire tangible personal property or equity interests therein located or used wholly or in part within a domestic jurisdiction either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments.

(2) Investments acquired under paragraph (1) of this subsection shall be eligible only if:

(a) The property is subject to a lease or other agreement with a person whose rated credit instruments in the amount of the purchase price of the personal property the insurer could then acquire under Section 126.24; and

(b) The lease or other agreement provides the insurer the right to receive rental, purchase or other fixed payments for the use or purchase of the property, and the aggregate value of the payments, together with the estimated residual value of the property at the end of its useful life and the estimated tax benefits to the insurer resulting from ownership of the property, shall be adequate to return the cost of the insurer's investment in the property, plus a return deemed adequate by the insurer.

B. The insurer shall compute the amount of each investment under this Section on the basis of the out of pocket purchase price and applicable related expenses paid by the insurer for the investment, net of each borrowing made to finance the purchase price and expenses, to the extent the borrowing is without recourse to the insurer.

C. An insurer shall not acquire directly or indirectly through an investment subsidiary an investment under this Section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the insurer under this Section would exceed:

(1) 2% of its admitted assets; or

(2) 0.5% of its admitted assets as to any single item of tangible personal property.

D. For purposes of determining compliance with the limitations of Section 126.23, investments acquired by an insurer under this Section shall be aggregated with those acquired under Section 126.24, and each lessee of the property under a lease referred to in this Section shall be deemed the issuer of an obligation in the amount of the investment of the insurer in the property determined as provided in subsection B of this Section.

E. Nothing in this Section is applicable to tangible personal property lease arrangements between an insurer and its subsidiaries and affiliates under a cost sharing arrangement or agreement permitted under Section 131.20a(1)(a)(iv) of this Code.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.28)

Sec. 126.28. Mortgage loans and real estate.

A. Mortgage loans.

(1) Subject to the limitations of Section 126.23, an insurer may acquire, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by mortgages on real estate situated within a domestic jurisdiction, but a mortgage loan which is secured by other than a first lien shall not be acquired under this subsection (1) unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority, shall not, at the time of acquisition of the obligation, exceed:

(a) 90% of the fair market value of the real estate, if the mortgage loan is secured by a purchase money mortgage or like security received by the insurer upon disposition of the real estate;

(b) 80% of the fair market value of the real estate, if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less and periodic payments made no less frequently than annually. Each periodic payment shall be sufficient to assure that at all times the outstanding principal balance of the mortgage loan shall be not greater than the outstanding principal balance which would be outstanding under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period. Mortgage loans permitted under this subsection are permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan. For residential mortgage loans, the 80% limitation may be increased to 97% if acceptable private mortgage insurance has been obtained; or

(c) 75% of the fair market value of the real estate for mortgage loans that do not meet the requirements of subparagraph (a) or (b) of this paragraph.

(2) For purposes of paragraph (1) of this subsection, the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the Federal Housing Administration or guaranteed by the Administrator of Veterans Affairs, or their successors.

(3) Subject to the limitations of Section 126.23, an insurer may acquire, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by a second mortgage on real estate situated within a domestic jurisdiction, other than as authorized in subsection (1) of this Section 126.28. The obligation held by the insurer shall be the sole second lien priority obligation and shall not, at the time of acquisition of the obligation, exceed 70% of the amount by which the fair market value of the real estate exceeds the amount outstanding under the first mortgage.

(4) A mortgage loan that is held by an insurer under Section 126.3F or acquired under this Section and is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAIC Accounting Practices and Procedures Manual or successor publication shall continue to qualify as a mortgage loan under this Article.

(5) Subject to the limitations of Section 126.23, credit lease transactions that do not qualify for investment under Section 126.24 with the following characteristics shall be exempt from the provisions of paragraph (1) of this subsection:

(a) The loan amortizes over the initial fixed lease term at least in an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;

(b) The lease payments cover or exceed the total debt service over the life of the loan;

(c) A tenant or its affiliated entity, whose rated credit instruments have a SVO 1 or 2 designation or a comparable rating from a nationally recognized statistical rating organization recognized by the SVO, has a full faith and credit obligation to make the lease payments;

(d) The insurer holds or is the beneficial holder of a first lien mortgage on the real estate;

(e) The expenses of the real estate are passed through to the tenant, excluding exterior, structural, parking and heating, ventilation and air conditioning replacement expenses, unless annual escrow contributions, from cash flows derived from the lease payments, cover the expense shortfall; and

(f) There is a perfected assignment of the rents due pursuant to the lease to, or for the benefit of, the insurer.

B. Income producing real estate.

(1) An insurer may acquire, manage and dispose of real estate situated in a domestic jurisdiction either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate shall be income producing or intended for improvement or development for investment purposes under an existing program (in which case the real estate shall be deemed to be income producing).

(2) The real estate may be subject to mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsections D(2) and D(3) of this Section.

C. Real estate for the accommodation of business.

An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the insurer's (which may include its affiliates) business operations, including home office, branch office and field office operations.

(1) Real estate acquired under this subsection may include excess space for rent to others, if the excess space, valued at its fair market value, would otherwise be a permitted investment under subsection B of this Section and is so qualified by the insurer;

(2) The real estate acquired under this subsection may be subject to one or more mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection D(4) of this Section; and

(3) For purposes of this subsection, business operations shall not include that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively. An insurer may acquire real estate used for these purposes under subsection B of this Section.

D. Quantitative limitations.

(1) An insurer shall not acquire an investment under subsection A of this Section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the insurer under subsection A of this Section would exceed:

(a) 1% of its admitted assets in mortgage loans covering any one secured location;

(b) 0.25% of its admitted assets in construction loans covering any one secured location; or

(c) 1% of its admitted assets in construction loans in the aggregate.

(2) An insurer shall not acquire an investment under subsection B of this Section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the insurer in connection with the investment, the aggregate amount of investments then held by the insurer under subsection B of this Section plus the guarantees then outstanding would exceed:

(a) 1% of its admitted assets in any one parcel or group of contiguous parcels of real estate, except that this limitation shall not apply to that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively, such as hospitals, medical clinics, medical professional buildings or other health facilities used for the purpose of providing health services; or

(b) The lesser of 10% of its admitted assets or 40% of its surplus as regards policyholders in the aggregate, except for an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively, this limitation shall be increased to 15% of its admitted assets in the aggregate.

(3) An insurer shall not acquire an investment under subsection A or B of this Section if, as a result of and after giving effect to the investment and any guarantees it has made in connection with the investment, the aggregate amount of all investments then held by the insurer under subsections A and B of this Section plus the guarantees then outstanding would exceed 25% of its admitted assets.

(4) The limitations of Section 126.23 shall not apply to an insurer's acquisition of real estate under subsection C of this Section. An insurer shall not acquire real estate under subsection C of this Section if, as a result of and after giving effect to the acquisition, the aggregate amount of all real estate then held by the insurer under subsection C of this Section would exceed 10% of its admitted assets. With the permission of the Director, additional amounts of real estate may be acquired under subsection C of this Section.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.29)

Sec. 126.29. Securities lending and repurchase, reverse repurchase, and dollar roll transactions. An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the following requirements:

A. The insurer's board of directors shall adopt a written plan that is consistent with the requirements of the written plan in Section 126.4A that specifies guidelines and objectives to be followed, such as:

(1) A description of how cash received will be invested or used for general corporate purposes of the insurer;

(2) Operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and

(3) The extent to which the insurer may engage in these transactions.

B. The insurer shall enter into a written agreement for all transactions authorized in this Section other than dollar roll transactions. The written agreement shall require that each transaction terminate no more than one year from its inception or upon the earlier demand of the insurer. The agreement shall be with the business entity counterparty, but for securities lending transactions, the agreement may be with an agent acting on behalf of the insurer, if the agent is a qualified business entity, and if the agreement:

(1) Requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this Section; and

(2) Prohibits securities lending transactions pursuant to the agreement with the agent or its affiliates.

C. Cash received in a transaction under this Section shall be invested in accordance with this Article and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. For so long as the transaction remains outstanding, the insurer, its agent or custodian shall maintain, as to acceptable collateral received in a transaction under this Section, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company or other securities depositories approved by the Director:

(1) Possession of the acceptable collateral;

(2) A perfected security interest in the acceptable collateral; or

(3) In the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.

D. The limitations of Sections 126.23 and 126.30 shall not apply to the business entity counterparty exposure created by transactions under this Section. For purposes of calculations made to determine compliance with this subsection, no effect will be given to the insurer's future obligation to resell securities, in the case of a repurchase transaction, or to repurchase securities, in the case of a reverse repurchase transaction. An insurer shall not enter into a transaction under this Section if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of securities then loaned or sold to, or purchased from, any one business entity counterparty under this Section would exceed 5% of its admitted assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or

(2) The aggregate amount of all securities then loaned, sold to or purchased from all business entities under this Section would exceed 40% of its admitted assets but the limitation of this subsection shall not apply to reverse repurchase transactions for so long as the borrowing is used to meet operational liquidity requirements resulting from an officially declared catastrophe and subject to a plan approved by the Director.

E. In a dollar roll transaction, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date.

F. The Director may promulgate reasonable rules for investments and transactions under this Section including, but not limited to, rules which impose financial solvency standards, valuation standards, and reporting requirements.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.30)

Sec. 126.30. Foreign investments and foreign currency exposure.

A. Subject to the limitations of Section 126.23, an insurer may acquire directly or indirectly through an investment subsidiary, foreign investments, or engage in investment practices with persons of or in foreign jurisdictions, of substantially the same types as those that an insurer is permitted to acquire under this Article, other than of the type permitted under Section 126.25, if, as a result and after giving effect to the investment:

(1) the aggregate amount of foreign investments then held by the insurer under this subsection does not exceed 20% of its admitted assets; and

(2) the aggregate amount of foreign investments then held by the insurer under this subsection in a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 5% of its admitted assets as to any other foreign jurisdiction.

B. Subject to the limitations of Section 126.23, an insurer may acquire investments, or engage in investment practices denominated in foreign currencies, whether or not they are foreign investments acquired under subsection A of this Section, or additional foreign currency exposure as a result of the termination or expiration of a hedging transaction with respect to investments denominated in a foreign currency, if, as a result of and after giving effect to the transaction:

(1) the aggregate amount of investments then held by the insurer under this subsection denominated in foreign currencies does not exceed 15% of its admitted assets; and

(2) the aggregate amount of investments then held by the insurer under this subsection denominated in the foreign currency of a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 5% of its admitted assets as to any other foreign jurisdiction.

However, an investment shall not be considered denominated in a foreign currency if the acquiring insurer enters into one or more contracts in transactions permitted under Section 126.31 in which the business entity counterparty agrees to exchange, or grants to the insurer the option to exchange, all payments made on the foreign currency denominated investment (or amounts equivalent to the payments that are or will be due to the insurer in accordance with the terms of such investment) for United States currency during the period the contract or contracts are in effect to insulate the insurer against loss caused by diminution of the value of payments owed to the insurer due to future changes in currency exchange rates.

C. In addition to investments permitted under subsections A and B of this Section, an insurer that is authorized to do business in a foreign jurisdiction, and that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in foreign currency of that jurisdiction, may acquire foreign investments respecting that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction, subject to the limitations of Section 126.23. However, investments made under this subsection in obligations of foreign governments, their political subdivisions and government sponsored enterprises shall not be subject to the limitations of Section 126.23 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer under this subsection shall not exceed the greater of:

(1) the amount the insurer is required by law to invest in the foreign jurisdiction; or

(2) 125% of the amount of its reserves, net of reinsurance, and other obligations under the contracts.

D. In addition to investments permitted under subsections A and B of this Section, an insurer that is not authorized to do business in a foreign jurisdiction but which has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in a foreign jurisdiction and denominated in foreign currency of that jurisdiction, may acquire foreign investments respecting that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction subject to the limitations set forth of Section 126.24. However, investments made under this subsection in obligations of foreign governments, their political subdivisions and government sponsored enterprises shall not be subject to the limitations of Section 126.23 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer under this subsection shall not exceed 105% of the amount of its reserves, net of reinsurance, and other obligations under the contracts on risks resident or located in the foreign jurisdiction.

E. Investments acquired under this Section shall be aggregated with investments of the same types made under all other Sections of this Article, and in a similar manner, for purposes of determining compliance with the limitations, if any, contained in the other Sections. Investments in obligations of foreign governments, their political subdivisions and government sponsored enterprises of these persons, except for those exempted under subsections C and D of this Section, shall be subject to the limitations of Section 126.23.

(Source: P.A. 90-418, eff. 8-15-97; 91-357, eff. 7-29-99.)

(215 ILCS 5/126.31)

Sec. 126.31. Derivative transactions. An insurer may, directly or indirectly through an investment subsidiary, engage in derivative transactions under this Section under the following conditions:

A. General conditions.

(1) An insurer may use derivative instruments under this Section to engage in hedging transactions and income generation transactions.

(2) An insurer may use derivative instruments for replication transactions only after the Director promulgates reasonable rules that set forth methods of disclosure, reserving for risk-based capital, and determining the asset valuation reserve for these investments. Any asset being replicated is subject to all the provisions and limitations on the making thereof specified in this Article with respect to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset.

(3) With respect to all hedging transactions, an insurer shall be able to demonstrate to the Director the intended hedging characteristics and the ongoing effectiveness of the derivative transaction or combination of transactions through cash flow testing or other appropriate analyses.

(4) The Director may promulgate reasonable rules for investments and transactions under this Section including, but not limited to, rules which impose financial solvency standards, valuation standards, and reporting requirements.

B. Limitations on hedging transactions. An insurer may enter into hedging transactions under this Section if, as a result of and after giving effect to the transaction:

(1) The aggregate statement value of options, caps, floors and warrants not attached to another financial instrument purchased and used in hedging transactions then engaged in by the insurer does not exceed 7.5% of its admitted assets;

(2) The aggregate statement value of options, caps and floors written in hedging transactions then engaged in by the insurer does not exceed 3% of its admitted assets; and

(3) The aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions then engaged in by the insurer does not exceed 6.5% of its admitted assets.

C. Limitations on income generation transactions. An insurer may enter into the following types of income generation transactions subject to the quantitative limits of subsection C(4):

(1) Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms prior to the end of the noncallable period or derivative instruments based on fixed income securities;

(2) Sales of covered call options on equity securities, if the insurer holds in its portfolio, or can immediately acquire through the exercise of options, warrants or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold; or

(3) Sales of covered puts on investments that the insurer is permitted to acquire under this Article, if the insurer has escrowed, or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold.

(4) If as a result of and after giving effect to the transactions, the aggregate statement value of the fixed income assets that are subject to call plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, does not exceed 10% of its admitted assets.

D. Counterparty exposure. An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of Section 126.23.

E. Additional transactions. Pursuant to rules promulgated under Section 126.8, the Director may approve additional transactions involving the use of derivative instruments in excess of the limits of subsection B of this Section or for other risk management purposes.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.32)

Sec. 126.32. Additional investment authority.

A. Under this Section, an insurer may acquire investments or engage in investment practices of any kind that are not specifically prohibited by Section 126.5 and are not derivative instruments without regard to any limitation in Sections 126.23 through 126.30, but an insurer shall not acquire an investment or engage in an investment practice under this Section if, as a result of and after giving effect to the transaction, the aggregate amount of the investments then held by the insurer under this Section would exceed the greater of:

(1) Its unrestricted surplus; or

(2) The lesser of:

(a) 10% of its admitted assets; or

(b) 50% of its surplus as regards policyholders.

B. An insurer shall not acquire any investment or engage in any investment practice under subsection A(2) of this Section if, as a result of and after giving effect to the transaction the aggregate amount of all investments in any one person then held by the insurer under that subsection would exceed 5% of its admitted assets.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/Art. VIII.25 heading) ARTICLE VIII 1/4. RISK MANAGEMENT ANDOWN RISK AND SOLVENCY ASSESSMENT (Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129)

Sec. 129. Short title. This Article may be cited as the Risk Management and Own Risk and Solvency Assessment Law.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.1)

Sec. 129.1. Purpose and scope. The purpose of this Article is to provide the requirements for maintaining a risk management framework and completing an own risk and solvency assessment (ORSA) and provide guidance and instructions for filing an ORSA summary report with the Director.

The requirements of this Article shall apply to all insurers domiciled in this State unless exempt pursuant to Section 129.7.

The General Assembly finds and declares that an ORSA summary report will contain confidential and sensitive information related to an insurer or insurance group's identification of risks material and relevant to the insurer or insurance group filing the report. This information will include proprietary and trade secret information that has the potential for harm and competitive disadvantage to the insurer or insurance group if the information is made public. It is the intent of this General Assembly that the ORSA summary report shall be a confidential document filed with the Director, that the ORSA summary report shall be shared only as stated herein and to assist the Director in the performance of his or her duties, and that in no event shall an ORSA summary report be subject to public disclosure.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.2)

Sec. 129.2. Definitions. In this Article:

"Insurance group", for the purpose of conducting an ORSA, means those insurers and affiliates included within an insurance holding company system as defined in Section 131.1 of this Code.

"Insurer" has the same meaning as set forth in Section 2 of this Code, except that it shall not include agencies, authorities, or instrumentalities of the United States or its possessions or territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

"Own risk and solvency assessment" or "ORSA" means a confidential internal assessment, appropriate to the nature, scale, and complexity of an insurer or insurance group, conducted by that insurer or insurance group of the material and relevant risks associated with the insurer or insurance group's current business plan, and the sufficiency of capital resources to support those risks.

"ORSA Guidance Manual" means the current version of the Own Risk and Solvency Assessment Guidance Manual developed and adopted by the National Association of Insurance Commissioners (NAIC) and as amended from time to time. A change in the ORSA Guidance Manual shall be effective on the January 1 following the calendar year in which the changes have been adopted by the NAIC.

"ORSA summary report" means a confidential high-level summary of an insurer or insurance group's ORSA.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.3)

Sec. 129.3. Risk management framework. An insurer shall maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks. The requirement of this Section may be satisfied if the insurance group of which the insurer is a member maintains a risk management framework applicable to the operations of the insurer.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.4)

Sec. 129.4. ORSA requirement. Subject to Section 129.7 of this Code, an insurer, or the insurance group of which the insurer is a member, shall regularly conduct an ORSA consistent with a process comparable to the ORSA Guidance Manual. The ORSA shall be conducted no less than annually but also at any time when there are significant changes to the risk profile of the insurer or the insurance group of which the insurer is a member.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.5)

Sec. 129.5. ORSA summary report.

(a) Upon the Director's request, and no more than once each year, an insurer shall submit to the Director an ORSA summary report or any combination of reports that together contain the information described in the ORSA Guidance Manual, applicable to the insurer and the insurance group of which it is a member. Notwithstanding any request from the Director, if the insurer is a member of an insurance group, the insurer shall submit the report or reports required by this subsection (a) if the Director is the lead state commissioner of the insurance group as determined by the procedures within the Financial Analysis Handbook adopted by the National Association of Insurance Commissioners.

(b) The report or reports shall include a signature of the insurer or insurance group's chief risk officer or other executive having responsibility for the oversight of the insurer's enterprise risk management process attesting to the best of his or her belief and knowledge that the insurer applies the enterprise risk management process described in the ORSA summary report and that a copy of the report has been provided to the insurer's board of directors or the appropriate committee thereof.

(c) An insurer may comply with subsection (a) of this Section by providing the most recent and substantially similar report or reports provided by the insurer or another member of an insurance group of which the insurer is a member to the commissioner of another state or to a supervisor or regulator of a foreign jurisdiction, if that report provides information that is comparable to the information described in the ORSA Guidance Manual. Any such report in a language other than English must be accompanied by a translation of that report into the English language.

(d) The first filing of the ORSA summary report shall be in 2015.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.6)

Sec. 129.6. Contents of ORSA summary report.

(a) The ORSA summary report shall be prepared consistent with the ORSA Guidance Manual, subject to the requirements of subsection (b) of this Section. Documentation and supporting information shall be maintained and made available upon examination or upon the request of the Director.

(b) The review of the ORSA summary report, and any additional requests for information, shall be made using similar procedures currently used in the analysis and examination of multi-state or global insurers and insurance groups.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.7)

Sec. 129.7. Exemption.

(a) An insurer shall be exempt from the requirements of this Article if:

(1) the insurer has annual direct written and unaffiliated assumed premium, including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $500,000,000; and

(2) the insurance group of which the insurer is a member has annual direct written and unaffiliated assumed premium, including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $1,000,000,000.

(b) If an insurer qualifies for exemption pursuant to item (1) of subsection (a) of this Section, but the insurance group of which the insurer is a member does not qualify for exemption pursuant to item (2) of subsection (a) of this Section, then the ORSA summary report that may be required pursuant to Section 129.5 of this Code shall include every insurer within the insurance group. This requirement may be satisfied by the submission of more than one ORSA summary report for any combination of insurers, provided any combination of reports includes every insurer within the insurance group.

(c) If an insurer does not qualify for exemption pursuant to item (1) of subsection (a) of this Section, but the insurance group of which it is a member qualifies for exemption pursuant to item (2) of subsection (a) of this Section, then the only ORSA summary report that may be required pursuant to Section 129.5 shall be the report applicable to that insurer.

(d) An insurer that does not qualify for exemption pursuant to subsection (a) of this Section may apply to the Director for a waiver from the requirements of this Article based upon unique circumstances. In deciding whether to grant the insurer's request for waiver, the Director may consider the type and volume of business written, ownership and organizational structure, and any other factor the Director considers relevant to the insurer or insurance group of which the insurer is a member. If the insurer is part of an insurance group with insurers domiciled in more than one state, the Director shall coordinate with the lead state commissioner and with the other domiciliary commissioners in considering whether to grant the insurer's request for a waiver.

(e) Notwithstanding the exemptions stated in this Section, the following provisions shall apply:

(1) The Director may require that an insurer maintain a risk management framework, conduct an ORSA, and file an ORSA summary report based on unique circumstances, including, but not limited to, the type and volume of business written, ownership and organizational structure, federal agency requests, and international supervisor requests.

(2) The Director may require that an insurer maintain a risk management framework, conduct an ORSA, and file an ORSA summary report if the insurer has risk-based capital for a company action level event as set forth in Section 35A-15 of this Code, meets one or more of the standards of an insurer deemed to be in hazardous financial condition as defined in Section 186.1 of this Code, or otherwise exhibits qualities of a troubled insurer as determined by the Director.

(f) If an insurer that qualifies for an exemption pursuant to subsection (a) of this Section subsequently no longer qualifies for that exemption due to changes in premium as reflected in the insurer's most recent annual statement or in the most recent annual statements of the insurers within the insurance group of which the insurer is a member, the insurer shall have one year following the year the threshold is exceeded to comply with the requirements of this Article.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.8)

Sec. 129.8. Confidentiality.

(a) Documents, materials, or other information, including the ORSA summary report, in the possession or control of the Department that are obtained by, created by, or disclosed to the Director or any other person under this Article, is recognized by this State as being proprietary and to contain trade secrets. All such documents, materials, or other information shall be confidential by law and privileged, shall not be subject to the Freedom of Information Act, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Director is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the Director's official duties. The Director shall not otherwise make the documents, materials, or other information public without the prior written consent of the insurer.

(b) Neither the Director nor any person who received documents, materials, or other ORSA-related information, through examination or otherwise, while acting under the authority of the Director or with whom such documents, materials, or other information are shared pursuant to this Article shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection (a) of this Section.

(c) In order to assist in the performance of regulatory duties, the Director may:

(1) upon request, share documents, materials, or other ORSA-related information, including the confidential and privileged documents, materials, or information subject to subsection (a) of this Section, including proprietary and trade secret documents and materials with other state, federal, and international financial regulatory agencies, including members of any supervisory college as defined in the Section 131.20c of this Code, with the NAIC, and with any third-party consultants designated by the Director, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality; and

(2) receive documents, materials, or other ORSA-related information, including otherwise confidential and privileged documents, materials, or information, including proprietary and trade-secret information or documents, from regulatory officials of other foreign or domestic jurisdictions, including members of any supervisory college as defined in the Section 131.20c of this Code, and from the NAIC, and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.

(d) The Director shall enter into a written agreement with the NAIC or a third-party consultant governing sharing and use of information provided pursuant to this Article, consistent with this Section that shall:

(1) specify procedures and protocols regarding the confidentiality and security of information shared with the NAIC or a third-party consultant pursuant to this Article, including procedures and protocols for sharing by the NAIC with other state regulators from states in which the insurance group has domiciled insurers; the agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality;

(2) specify that ownership of information shared with the NAIC or a third-party consultant pursuant to this Article remains with the Director and the NAIC's or a third-party consultant's use of the information is subject to the direction of the Director;

(3) prohibit the NAIC or third-party consultant from storing the information shared pursuant to this Article in a permanent database after the underlying analysis is completed;

(4) require prompt notice to be given to an insurer whose confidential information in the possession of the NAIC or a third-party consultant pursuant to this Article is subject to a request or subpoena to the NAIC or a third-party consultant for disclosure or production;

(5) require the NAIC or a third-party consultant to consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant pursuant to this Article; and

(6) in the case of an agreement involving a third-party consultant, provide for the insurer's written consent.

(e) The sharing of information and documents by the Director pursuant to this Article shall not constitute a delegation of regulatory authority or rulemaking, and the Director is solely responsible for the administration, execution, and enforcement of the provisions of this Article.

(f) No waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade-secret materials, or other ORSA-related information shall occur as a result of disclosure of such ORSA-related information or documents to the Director under this Section or as a result of sharing as authorized in this Article.

(g) Documents, materials, or other information in the possession or control of the NAIC or any third-party consultants pursuant to this Article shall be confidential by law and privileged, shall not be subject to the Freedom of Information Act, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/129.9)

Sec. 129.9. Sanctions. Any insurer failing, without just cause, to timely file the ORSA summary report as required in this Article shall be required, after notice and hearing, to pay a penalty of $200 for each day's delay, to be recovered by the Director, and the penalty so recovered shall be paid into the General Revenue Fund of this State. The Director may reduce the penalty if the insurer demonstrates to the Director that the imposition of the penalty would constitute a financial hardship to the insurer.

(Source: P.A. 98-910, eff. 7-1-15.)

(215 ILCS 5/Art. VIII.33 heading) ARTICLE VIII 1/3. CORPORATE GOVERNANCE ANNUAL DISCLOSURE LAW (Source: P.A. 101-600, eff. 12-6-19.)

(215 ILCS 5/130.1)

Sec. 130.1. Short title. This Article may be cited as the Corporate Governance Annual Disclosure Law.

(Source: P.A. 101-600, eff. 12-6-19.)

(215 ILCS 5/130.2)

Sec. 130.2. Purpose and scope. The purpose of this Article is to:

(1) provide the Director a summary of an insurer's or insurance group's corporate governance structure, policies, and practices to permit the Director to gain and maintain an understanding of the insurer's corporate governance framework;

(2) outline the requirements for completing a corporate governance annual disclosure with the Director;

(3) provide for the confidential treatment of the corporate governance annual disclosure and related information that will contain confidential and sensitive information related to an insurer's or insurance group's internal operations and proprietary and trade-secret information that, if made public, could potentially cause the insurer or insurance group competitive harm or disadvantage.

Nothing in this Article shall be construed to prescribe or impose corporate governance standards and internal procedures beyond that which is required under applicable State corporate law. Notwithstanding the foregoing, nothing in this Article shall be construed to limit the Director's authority or the rights or obligations of third parties under Sections 131.21, 132 through 132.7, and 401 through 403. The requirements of this Article apply to all insurers domiciled in this State.

(Source: P.A. 101-600, eff. 12-6-19.)

(215 ILCS 5/130.3)

Sec. 130.3. Definitions. As used in this Article:

"Director" means the Director of Insurance.

"Corporate governance annual disclosure" means a confidential report filed by the insurer or insurance group made in accordance with the requirements of this Article.

"Insurance group" means those insurers and affiliates included within an insurance holding company system as defined in Section 131.1.

"Insurer" has the same meaning given to "company" in Section 2, except that it does not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

"ORSA summary report" means the own risk and solvency assessment report filed in accordance with Article VIII 1/4.

(Source: P.A. 101-600, eff. 12-6-19.)

(215 ILCS 5/130.4)

Sec. 130.4. Disclosure requirement.

(a) An insurer, or the insurance group of which the insurer is a member, shall, no later than June 1 of each calendar year, submit to the Director a corporate governance annual disclosure that contains the information described in subsection (b) of Section 130.5. Notwithstanding any request from the Director made pursuant to subsection (c), if the insurer is a member of an insurance group, the insurer shall submit the report required by this Section to the Director of the lead state for the insurance group, in accordance with the laws of the lead state, as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the National Association of Insurance Commissioners.

(b) The corporate governance annual disclosure must include a signature of the insurer's or insurance group's chief executive officer or corporate secretary attesting to the best of that individual's belief and knowledge that the insurer has implemented the corporate governance practices and that a copy of the disclosure has been provided to the insurer's board of directors or the appropriate committee thereof.

(c) An insurer not required to submit a corporate governance annual disclosure under this Section shall do so upon the Director's request.

(d) For purposes of completing the corporate governance annual disclosure, the insurer or insurance group may provide information regarding corporate governance at the ultimate controlling parent level, an intermediate holding company level, or the individual legal entity level, depending upon how the insurer or insurance group has structured its system of corporate governance. The insurer or insurance group is encouraged to make the corporate governance annual disclosure at the level at which the insurer's or insurance group's risk appetite is determined, the level at which the earnings, capital, liquidity, operations, and reputation of the insurer are overseen collectively and at which the supervision of those factors is coordinated and exercised, or the level at which legal liability for failure of general corporate governance duties would be placed. If the insurer or insurance group determines the level of reporting based on these criteria, it shall indicate which of the 3 criteria was used to determine the level of reporting and explain any subsequent changes in the level of reporting.

(e) The review of the corporate governance annual disclosure and any additional requests for information shall be made through the lead state as determined by the procedures within the most recent Financial Analysis Handbook adopted by the National Association of Insurance Commissioners.

(f) Insurers providing information substantially similar to the information required by this Article in other documents provided to the Director, including proxy statements filed in conjunction with the requirements of Section 131.13 or other State or federal filings provided to the Department, are not required to duplicate that information in the corporate governance annual disclosure but are only required to cross-reference the document in which the information is included.

(Source: P.A. 101-600, eff. 12-6-19; 102-135, eff. 7-23-21.)

(215 ILCS 5/130.5)

Sec. 130.5. Contents of corporate governance annual disclosure.

(a) The insurer or insurance group has discretion over the responses to the corporate governance annual disclosure inquiries if the corporate governance annual disclosure contains the material information necessary to permit the Director to gain an understanding of the insurer's or insurance group's corporate governance structure, policies, and practices. The Director may request additional information that he or she deems material and necessary to provide the Director with a clear understanding of the corporate governance policies, the reporting or information system, or controls implementing those policies.

(b) Notwithstanding subsection (a), the corporate governance annual disclosure shall be prepared in a manner consistent with rules adopted by the Director. Documentation and supporting information shall be maintained and made available upon examination or upon the request of the Director.

(c) The Director may retain, at the insurer's expense, third-party consultants, including attorneys, actuaries, accountants, and other experts not otherwise a part of the Director's staff, as may be reasonably necessary to assist the Director in reviewing the corporate governance annual disclosure and related information or the insurer's compliance with this Article. Any persons retained shall be under the direction and control of the Director and shall act only in an advisory capacity.

(Source: P.A. 101-600, eff. 12-6-19.)

(215 ILCS 5/130.6)

Sec. 130.6. Confidentiality.

(a) Documents, materials, or other information, including the corporate governance annual disclosure, in the possession or control of the Department that are obtained by, created by, or disclosed to the Director or any other person under this Article are recognized by this State as being proprietary and to contain trade secrets. All such documents, materials, or other information shall be confidential by law and privileged, shall not be subject to the Freedom of Information Act, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Director is authorized to use the documents, materials, or other information in furtherance of any regulatory or legal action brought as a part of the Director's official duties. The Director shall not otherwise make the documents, materials, or other information public without the prior written consent of the insurer.

(b) Neither the Director nor any person who received documents, materials, or other corporate governance annual disclosure-related information through examination or otherwise, while acting under the authority of the Director or with whom such documents, materials, or other information are shared pursuant to this Article, shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection (a).

(c) In order to assist in the performance of the Director's regulatory duties, the Director may:

(1) upon request, share documents, materials, or other corporate governance annual disclosure-related information, including the confidential and privileged documents, materials, and information subject to subsection (a), including proprietary and trade-secret documents and materials with other state, federal, and international financial regulatory agencies, including members of any supervisory college as defined in subsection (c) of Section 131.20, with the National Association of Insurance Commissioners, and with third-party consultants, if the recipient agrees in writing to maintain the confidentiality and privileged status of the corporate governance annual disclosure-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality; and

(2) receive documents, materials, or other corporate governance annual disclosure-related information, including otherwise confidential and privileged documents, materials, and information, including proprietary and trade-secret information and documents from regulatory officials of other state, federal, and international financial regulatory agencies, including members of any supervisory college as defined in subsection (c) of Section 131.20, and from the National Association of Insurance Commissioners, and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.

(d) A written agreement with the National Association of Insurance Commissioners or a third-party consultant governing sharing and use of information provided pursuant to this Article shall:

(1) include specific procedures and protocols for maintaining the confidentiality and security of corporate governance annual disclosure-related information shared with the National Association of Insurance Commissioners or a third-party consultant pursuant to this Article, including procedures and protocols for sharing by the National Association of Insurance Commissioners only with other state regulators from states in which the insurance group has domiciled insurers; the agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the corporate governance annual disclosure-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality;

(2) specify that ownership of the corporate governance annual disclosure-related information shared with the National Association of Insurance Commissioners or a third-party consultant remains with the Director and that the National Association of Insurance Commissioners' or third-party consultant's use of the information is subject to the direction of the Director;

(3) prohibit the National Association of Insurance Commissioners or a third-party consultant from storing the information shared pursuant to this Article in a permanent database after the underlying analysis is completed;

(4) require the National Association of Insurance Commissioners or a third-party consultant to provide prompt notice to the Director and to the insurer or insurance group regarding any subpoena, request for disclosure, or request for production of the insurer's or insurance group's corporate governance annual disclosure-related information;

(5) require the National Association of Insurance Commissioners or a third-party consultant to consent to intervention by an insurer in any judicial or administrative action in which the National Association of Insurance Commissioners or a third-party consultant may be required to disclose confidential information about the insurer shared with the National Association of Insurance Commissioners or a third-party consultant pursuant to this Article; and

(6) require the National Association of Insurance Commissioners or a third-party consultant to obtain written consent of the insurer before making any of the insurer's corporate governance annual disclosure-related information public.

(e) The sharing of information and documents by the Director pursuant to this Article shall not constitute a delegation of regulatory authority or rulemaking, and the Director is solely responsible for the administration, execution, and enforcement of this Article.

(f) No waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade-secret materials, or other corporate governance annual disclosure-related information shall occur as a result of disclosure of such information or documents to the Director under this Section or as a result of sharing as authorized in this Article.

(g) Documents, materials, or other information in the possession or control of the National Association of Insurance Commissioners or any third-party consultants pursuant to this Article shall be confidential by law and privileged, shall not be subject to the Freedom of Information Act, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action.

(Source: P.A. 101-600, eff. 12-6-19.)

(215 ILCS 5/130.7)

Sec. 130.7. Sanctions. Any insurer failing, without just cause, to timely file the corporate governance annual disclosure as required in this Article shall be required, after notice and a hearing, to pay a penalty of $200 for each day's delay, to be recovered by the Director. Any penalty recovered shall be paid into the General Revenue Fund. The Director may reduce the penalty if the insurer demonstrates to the Director that the imposition of the penalty would constitute a financial hardship to the insurer.

(Source: P.A. 101-600, eff. 12-6-19.)

(215 ILCS 5/Art. VIII.5 heading) ARTICLE VIII 1/2. INSURANCE HOLDING COMPANY SYSTEMS

(215 ILCS 5/131.1)

Sec. 131.1. Definitions. As used in this Article, the following terms have the respective meanings set forth in this Section unless the context requires otherwise:

(a) An "affiliate" of, or person "affiliated" with, a specific person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(a-5) "Acquiring party" means such person by whom or on whose behalf the merger or other acquisition of control referred to in Section 131.4 is to be affected and any person that controls such person or persons.

(a-10) "Associated person" means, with respect to an acquiring party, (1) any beneficial owner of shares of the company to be acquired, owned, directly or indirectly, of record or beneficially by the acquiring party, (2) any affiliate of the acquiring party or beneficial owner, and (3) any other person acting in concert, directly or indirectly, pursuant to any agreement, arrangement, or understanding, whether written or oral, with the acquiring party or beneficial owner, or any of their respective affiliates, in connection with the merger, consolidation, or other acquisition of control referred to in Section 131.4 of this Code.

(a-15) "Company" has the same meaning as "company" as defined in Section 2 of this Code, except that it does not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

(b) "Control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, the holding of shareholders' or policyholders' proxies by contract other than a commercial contract for goods or non-management services, or otherwise, unless the power is solely the result of an official position with or corporate office held by the person. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds shareholders' proxies representing 10% or more of the voting securities of any other person, or holds or controls sufficient policyholders' proxies to elect the majority of the board of directors of the domestic company. This presumption may be rebutted by a showing made in the manner as the Director may provide by rule. The Director may determine, after furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

(b-5) "Enterprise risk" means any activity, circumstance, event, or series of events involving one or more affiliates of a company that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the company or its insurance holding company system as a whole, including, but not limited to, anything that would cause the company's risk-based capital to fall into company action level as set forth in Article IIA of this Code or would cause the company to be in hazardous financial condition as set forth in Article XII 1/2 of this Code.

(b-10) "Exchange Act" means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

(b-12) "Group capital calculation instructions" means the group capital calculation instructions as adopted by the NAIC and as amended by the NAIC from time to time in accordance with the procedures adopted by the NAIC.

(b-15) "Group-wide supervisor" means the regulatory official authorized to engage in conducting and coordinating group-wide supervision activities who is determined or acknowledged by the Director under Section 131.20d of this Code to have sufficient contacts with an internationally active insurance group.

(c) "Insurance holding company system" means two or more affiliated persons, one or more of which is an insurance company as defined in paragraph (e) of Section 2 of this Code.

(c-5) "Internationally active insurance group" means an insurance holding company system that:

(1) includes an insurer registered under Section 4 of this Code; and

(2) meets the following criteria:

(A) premiums written in at least 3 countries;

(B) the percentage of gross premiums written outside the United States is at least 10% of the insurance holding company system's total gross written premiums; and

(C) based on a 3-year rolling average, the total assets of the insurance holding company system are at least $50,000,000,000 or the total gross written premiums of the insurance holding company system are at least $10,000,000,000.

(d) (Blank).

(d-1) "NAIC" means the National Association of Insurance Commissioners.

(d-2) "NAIC Liquidity Stress Test Framework" is a separate NAIC publication which includes a history of the NAIC's development of regulatory liquidity stress testing, the scope criteria applicable for a specific data year, and the liquidity stress test instructions, and reporting templates for a specific data year, such scope criteria, instructions, and reporting template being as adopted by the NAIC and as amended by the NAIC from time to time in accordance with the procedures adopted by the NAIC.

(d-5) "Non-operating holding company" is a general business corporation functioning solely for the purpose of forming, owning, acquiring, and managing subsidiary business entities and having no other business operations not related thereto.

(d-10) "Own", "owned," or "owning" means shares (1) with respect to which a person has title or to which a person's nominee, custodian, or other agent has title and which such nominee, custodian, or other agent is holding on behalf of the person or (2) with respect to which a person (A) has purchased or has entered into an unconditional contract, binding on both parties, to purchase the shares, but has not yet received the shares, (B) owns a security convertible into or exchangeable for the shares and has tendered the security for conversion or exchange, (C) has an option to purchase or acquire, or rights or warrants to subscribe to, the shares and has exercised such option, rights, or warrants, or (D) holds a securities futures contract to purchase the shares and has received notice that the position will be physically settled and is irrevocably bound to receive the underlying shares. To the extent that any affiliates of the stockholder or beneficial owner are acting in concert with the stockholder or beneficial owner, the determination of shares owned may include the effect of aggregating the shares owned by the affiliate or affiliates. Whether shares constitute shares owned shall be decided by the Director in his or her reasonable determination.

(e) "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a trust, an unincorporated organization, any similar entity or any combination of the foregoing acting in concert, but does not include any securities broker performing no more than the usual and customary broker's function or joint venture partnership exclusively engaged in owning, managing, leasing or developing real or tangible personal property other than capital stock.

(e-5) "Policyholders' proxies" are proxies that give the holder the right to vote for the election of the directors and other corporate actions not in the day to day operations of the company.

(f) (Blank).

(f-3) "Scope criteria", as detailed in the NAIC Liquidity Stress Test Framework, are the designated exposure bases along with minimum magnitudes thereof for the specified data year, used to establish a preliminary list of insurers considered scoped into the NAIC Liquidity Stress Test Framework for that data year.

(f-5) "Securityholder" of a specified person is one who owns any security of such person, including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing.

(g) "Subsidiary" of a specified person is an affiliate controlled by such person directly, or indirectly through one or more intermediaries.

(h) "Voting Security" is a security which gives to the holder thereof the right to vote for the election of directors and includes any security convertible into or evidencing a right to acquire a voting security.

(Source: P.A. 102-394, eff. 8-16-21; 102-578, eff. 7-1-22 (See Section 5 of P.A. 102-672 for effective date of P.A. 102-578); 102-813, eff. 5-13-22.)

(215 ILCS 5/131.2) (from Ch. 73, par. 743.2)

Sec. 131.2. Subsidiaries. A domestic company, either by itself or in cooperation with one or more persons, may organize or acquire one or more subsidiaries. The subsidiaries may conduct any kind of business or businesses and their authority to do so shall not be limited by reason of the fact that they are subsidiaries of a domestic company. In addition to investments in common stock, preferred stock, debt obligations and other securities of subsidiaries permitted under all other sections of this Code, a domestic company, other than a company subject to Articles XVIII or XIX, may also:

(a) invest, in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries, amounts which do not exceed the lesser of 10% of the company's assets or 50% of the company's surplus as regards policyholders, but after such investments the company's surplus as regards policyholders must be reasonable in relation to the company's outstanding liabilities and adequate to its financial needs. In calculating the amount of such investments, there must be included (i) total net monies or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary, including all organizational expenses and contributions to capital and surplus of the subsidiary whether or not represented by the purchase of capital stock or issuance of other securities, and (ii) all amounts expended in acquiring additional common stock, preferred stock, debt obligations, and other securities, and all contributions to the capital or surplus of a subsidiary subsequent to its acquisition or formation;

(b) invest any amount in common stock, preferred stock, debt obligations and other securities of one or more direct subsidiaries acting only as a non-operating holding company or engaged or organized exclusively for the ownership and management of assets authorized as investments for the company, provided that each subsidiary agrees to limit its investments in any asset so that such investments will not cause the amount of the total investment of the company to exceed the amount the company could have invested in such asset. For the purpose of this clause, "the total investment of the company" will include (i) any direct investment by the company in an asset and (ii) the company's proportionate share of any investment in such asset by any subsidiary of the company, which must be calculated by multiplying the amount of the subsidiary's investment by the percentage of the company's ownership of such subsidiary;

(c) invest in common stock of one or more insurance corporation subsidiaries any amount by which the investing company's capital and surplus exceeds the minimum capital and surplus required of a new company under Section 13 to qualify for a certificate of authority to write the kind or kinds of insurance which the company is authorized to write, if the company is a stock company, and if the company is other than a stock company, the company may invest the amount by which the company's surplus exceeds the minimum surplus required of a new company under Section 43 or 66 to qualify for a certificate of authority to write the kind or kinds of insurance which the company is authorized to write;

(d) with the approval of the Director, invest any greater amount in common stock, preferred stock, debt obligations, or other securities of one or more subsidiaries, but after such investment the company's surplus as regards policyholders must be reasonable in relation to the company's outstanding liabilities and adequate to its financial needs.

(Source: P.A. 98-609, eff. 1-1-14.)

(215 ILCS 5/131.3) (from Ch. 73, par. 743.3)

Sec. 131.3. (1) Investments in common stock, preferred stock, debt obligations or other securities of subsidiaries made under Section 131.2 of this Article are subject to Sections 126.3, 126.4, 126.5, 126.6, 126.7, and 133 of this Code but are not subject to any other of the otherwise applicable restrictions or prohibitions contained in this Code applicable to such investments of a domestic company subject to this Code.

(2) If a company ceases to control a subsidiary, it must dispose of any investment therein made under this section within 3 years from the time of the cessation of control or within such further time as the Director may prescribe, unless at any time after the investment is made, the investment meets the requirements for investment under any other section of this Code, and the company has notified the Director thereof.

(3) Whether any investment made pursuant to this Section meets the applicable requirements of this Section is to be determined before the investment is made by calculating the applicable investment limitations as though the investment had already been made, taking into account the then outstanding principal balance on all previous investments in debt obligations, and the value of all previous investments in equity securities as of the day they were made, net of any return of capital invested, not including dividends.

(Source: P.A. 98-609, eff. 1-1-14.)

(215 ILCS 5/131.4) (from Ch. 73, par. 743.4)

Sec. 131.4. Acquisition of control of or merger with domestic company.

(a) No person other than the issuer may make a tender for or a request or invitation for tenders of, or enter into an agreement to exchange securities for, or seek to acquire or acquire shareholders' proxies to vote or seek to acquire or acquire in the open market, or otherwise, any voting security of a domestic company or acquire policyholders' proxies of a domestic company or any entity that controls a domestic company, for consideration if, after the consummation thereof, that person would, directly or indirectly, (or by conversion or by exercise of any right to acquire) be in control of the company, and no person may enter into an agreement to merge or consolidate with or otherwise to acquire control of a domestic company, unless the offer, request, invitation, or agreement is conditioned on receiving the approval of the Director based on Section 131.8 of this Article and no such acquisition of control or a merger with a domestic company may be consummated unless the person has filed with the Director and has sent to the company a statement containing the information required by Section 131.5 and the Director has approved the transaction or granted an exemption. Prior to the acquisition, the Director may conclude that a statement need not be filed by the acquiring party if the acquiring party demonstrates to the satisfaction of the Director that:

(1) such transaction will not result in the change of control of the domestic company; or

(2) (blank);

(3) the acquisition of, or attempt to acquire control of, such other person is subject to requirements in the jurisdiction of its domicile which are substantially similar to those contained in this Section and Sections 131.5 through 131.12; or

(4) the control of the policyholders' proxies is being acquired solely by virtue of the holders official office and not as the result of any agreement or for any consideration.

The purpose of this Section is to afford to the Director the opportunity to review acquisitions in order to determine whether or not the acquisition would be adverse to the interests of the existing and future policyholders of the company.

(b) For purposes of this Section, any controlling person of a domestic company seeking to divest its controlling interest in the domestic company in any manner shall file with the Director, with a copy to the company, confidential notice of its proposed divestiture at least 30 days prior to the cessation of control. The Director shall determine those instances in which the party or parties seeking to divest or to acquire a controlling interest in a company shall be required to file for and obtain approval of the transaction. The information shall remain confidential until the conclusion of the transaction unless the Director, in his or her discretion, determines that confidential treatment shall interfere with enforcement of this Section. If the statement referred to in subsection (a) of this Section is otherwise filed in connection with the proposed divestiture or related acquisition, this subsection (b) shall not apply.

(c) For purposes of this Section, a domestic company shall include any person controlling a domestic company unless the person, as determined by the Director, is either directly or through its affiliates primarily engaged in business other than the business of insurance. For the purposes of this Section, "person" shall not include any securities broker holding, in the usual and customary broker's function, less than 20% of the voting securities of an insurance company or of any person that controls an insurance company.

(Source: P.A. 98-609, eff. 1-1-14; 99-642, eff. 7-28-16.)