Section 1104.10  Purpose  

 

The purpose of this Part is to set forth procedural requirements the Director deems necessary to carry out the provisions of Article XI of the  Code.

 

(Source:  Amended at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.15  Definitions

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Covered Agreement" means an agreement entered into pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (31 U.S.C. 313 and 314) that is currently in effect or in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in Illinois or for allowing the ceding insurer to recognize credit for reinsurance.

 

"Department" means the Department of Insurance.

 

"Director" means the Director of the Department of Insurance.

 

"ICC" means the International Chamber of Commerce.

 

"Jurisdiction" means any state, district, or territory of the United States or any lawful government.

 

"NAIC" means the National Association of Insurance Commissioners.

 

"SEC" means the U.S. Securities and Exchange Commission.

 

"Solvent Scheme of Arrangement" means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer’s home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and which may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer’s home jurisdiction.

 

(Source:  Amended at 46 Ill. Reg. 10885, effective June 10, 2022)

 

Section 1104.20  Credit for Reinsurance – Reinsurer Licensed in this State

 

Pursuant to Section 173.1(1)(A) of the Code, the Director shall allow credit for reinsurance ceded by a domestic insurer to assuming insurers which were licensed in this State as of the date of the ceding insurer's most recent statutory financial statement.

 

(Source:  Amended at 33 Ill. Reg. 9314, effective June 18, 2009)

 

Section 1104.30  Credit for Reinsurance – Accredited Reinsurers  

 

a)         Pursuant to Section 173.1(1)(B) of the Code, the Director shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is accredited as a reinsurer in this State as of the date of the ceding insurer's most recent statutory financial statement.  An accredited reinsurer must:

 

1)         File a properly executed Form AR-1 (Certificate of Assuming Insurer) found in Appendix A as evidence of its submission to this State's jurisdiction and to this State's authority to examine its books and records;

 

2)         File with the Director a certified copy of a letter or a certificate of authority or of compliance as evidence that it is licensed to transact insurance or reinsurance in at least one state or, in the case of a United States branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state;

 

3)         File annually with the Director a copy of its annual financial statement filed with the insurance department of its state of domicile or, in the case of an alien assuming insurer, with the state through which it is entered and in which it is licensed to transact insurance or reinsurance, and a copy of its most recent audited financial statement; and

 

4)         Maintain a surplus as regards policyholders in an amount not less than $20 million, or obtain the affirmative approval of the Director upon a finding that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers.

 

b)         If the Director determines that the assuming insurer has failed to meet or maintain any of these qualifications, the Director may, upon written notice and opportunity for hearing, suspend or revoke the accreditation.  Credit shall not be allowed a domestic ceding insurer under this Section if the assuming insurer's accreditation has been revoked by the Director, or if the reinsurance was ceded while the assuming insurer's accreditation was under suspension by the Director.

 

(Source:  Amended at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.35  Credit for Reinsurance – Reinsurer Domiciled in Another State

 

a)         As part of complying with Section 173.1(1)(B-5)(1)(b) of the Code, an assuming insurer or U.S. branch of an alien assuming insurer must file with the Director a properly executed Form AR-1 found in Appendix A, which will be evidence of its submission to this State's authority to examine its books and records.

 

b)         As used in Section 173.1(1)(B-5)(1) of the Code, substantially similar standards means credit for reinsurance standards the Director determines equal or exceed the standards of Article XI of the Code and this Part.

 

(Source:  Added at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.40  Credit for Reinsurance – Reinsurers Maintaining Trust Funds  

 

a)         Pursuant to Section 173.1(1)(C) of the Code, the Director shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that, as of the date of the ceding insurer's most recent statutory financial statement, maintains a trust fund in an amount prescribed in subsection (b) in a qualified U.S. financial institution as defined in Section 173.1(3)(B) of the Code, for the payment of the valid claims of its U.S. policyholders and ceding insurers, their assigns and successors in interest.  The assuming insurer shall report annually to the Director substantially the same information as that required to be reported on the NAIC annual statement form by licensed insurers, to enable the Director to determine the sufficiency of the trust fund.

 

b)         The following requirements apply to the following categories of assuming insurer:

 

1)         The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer's gross liabilities attributable to business written in the U.S., and in addition, a trusteed surplus of not less than $20 million, except as provided in Section 173.1(1)(C)(3)(a-5) of the Code.  The assuming insurer shall file a properly executed Form AR-1 Certificate of Assuming Insurer found in Appendix A as evidence of the submission to this State's authority to examine its books and records and shall certify that it will bear the expense of any such examination.

 

2)         Certain Group Trust Fund Requirements

 

A)        The trust fund for a group including incorporated and unincorporated individual underwriters shall consist of:

 

i)          For reinsurance ceded under reinsurance agreements with an inception, amendment, or renewal date on or after January 1, 1993, funds in trust in an amount not less than the respective underwriters' several liabilities attributable to business ceded by U.S. domiciled ceding insurers to any underwriter of the group; and

 

ii)         For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed after that date, notwithstanding the other provisions of this Part, funds in trust in an amount not less than the respective underwriters' several insurance and reinsurance liabilities attributable to business written in the U.S.

 

B)        In addition, the group shall maintain a trusteed surplus of which $100 million shall be held jointly for the benefit of the U.S. ceding insurers of any member of the group for all the years of account.  The group shall file a properly executed Form AR-1 Certificate of Assuming Insurer found in Appendix A as evidence of the submission to this State's authority to examine the books and records of any of its members and shall certify that any member examined will bear the expense of any such examination.  The group shall make available to the Director annual certifications by the group's domiciliary regulator and its independent public accountants of the solvency of each underwriter member of the group.

 

C)        The incorporated members of the group shall not be engaged in any business, other than underwriting as a member of the group, and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as are the unincorporated members.

 

3)         Insurers Conducting Business Outside the United States

 

A)        The trust fund for a group of incorporated insurers under common administration, whose members possess aggregate policyholders surplus of $10 billion (calculated and reported in substantially the same manner as prescribed by the annual statement instructions and NAIC Accounting Practices and Procedures Manual) and that has continuously transacted an insurance business outside the U.S. for at least 3 years immediately prior to making application for accreditation:

 

i)          shall consist of funds in trust in an amount not less than the assuming insurers' gross liabilities attributable to business ceded by U.S. ceding insurers to any members of the group pursuant to reinsurance contracts issued in the name of the group; and,

 

ii)         shall maintain a joint trusteed surplus of which $100 million shall be held jointly for the benefit of U.S. ceding insurers of any member of the group.

 

B)        The group shall file a properly executed Form AR-1 Certificate of Assuming Insurer found in Appendix A as evidence of the submission to this State's authority to examine the books and records of any of its members and shall certify that any member examined will bear the expense of any such examination. 

 

C)        The group shall make available to the Director annual certifications by the members' domiciliary regulators and their independent public accountants of the solvency of each member of the group.

 

c)         The trust shall be established in a form approved by the Director and complying with Section 173.1(1) of the Code and this Part.  The trust instrument shall provide that:

 

1)         Contested claims shall be valid and enforceable out of funds in trust to the extent remaining unsatisfied 30 days after entry of the final order of any court of competent jurisdiction in the U.S.

 

2)         Legal title to the assets of the trust shall be vested in the trustee for the benefit of the grantor's U.S. policyholders and ceding insurers, their assigns and successors in interest.

 

3)         The trust shall be subject to examination as determined by the Director.

 

4)         The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, shall have outstanding obligations under reinsurance agreements subject to the trust.

 

5)         No later than February 28 of each year the trustees of the trust shall report to the Director in writing setting forth the balance in the trust and listing the trust's investments at the preceding year end, and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31.

 

6)         No amendment to the trust shall be effective unless reviewed and approved in advance by the Director.

 

(Source:  Amended at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.45  Credit for Reinsurance – Certified Reinsurers

 

a)         Pursuant to Section 173.1 of the Code, the Director shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that has been certified as a reinsurer in Illinois at all times for which statutory financial statement credit for reinsurance is claimed under this Section.  The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the Director.  The security shall be in a form consistent with the provisions of Section 173.1 of the Code.  The amount of security required for full credit to be allowed shall correspond with the following requirements:

 

1)         Affiliated reinsurance transactions shall receive the same opportunity for reduced security requirements as all other reinsurance transactions.

 

2)         The Director shall require the certified reinsurer to post, for the benefit of the ceding insurer or its estate, 100% security upon the entry of an order of rehabilitation, liquidation or conservation against the ceding insurer.

 

3)         To facilitate the prompt payment of claims, if the Director has assigned a Secure-1, Secure-2, Secure-3 or Secure-4 rating to a certified reinsurer under Section 173.1(1)(C-5)(5) of the Code, the Director may allow the certified reinsurer to defer posting security for catastrophe recoverables for a period of up to one year from the date of the first instance of a liability reserve entry by the ceding company as a result of a loss from a catastrophic occurrence that is likely to result in significant insured losses recognized by the Director.  The one-year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner in compliance with its contractual obligations as set forth in the reinsurance agreement under which the claims are ceded.  Reinsurance recoverables for only the following lines of business, as reported on the NAIC annual financial statement related specifically to the catastrophic occurrence, will be included in the deferral:

 

A)        Line 1:  Fire

 

B)        Line 2:  Allied Lines

 

C)        Line 3:  Farmowners multiple peril

 

D)        Line 4:  Homeowners multiple peril

 

E)        Line 5:  Commercial multiple peril

 

F)         Line 9:  Inland Marine

 

G)        Line 12:  Earthquake

 

H)        Line 21:  Auto physical damage

 

b)         Certification Procedure

 

1)         The Director shall issue written notice to an assuming insurer that has applied and been approved as a certified reinsurer.  Included in the notice shall be the rating assigned to the certified reinsurer in accordance with subsection (a).  The Director shall publish a list of all certified reinsurers and their ratings.

 

2)         The assuming insurer must submit a properly executed Form CR-1 as evidence of its submission to the jurisdiction of Illinois, appointment of the Director as an agent for service of process in Illinois, and agreement to provide security for 100% of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers if it resists enforcement of a final U.S. judgment.  The Director shall not certify any assuming insurer that is domiciled in a jurisdiction that the Director has determined does not adequately and promptly enforce final U.S. judgments or arbitration awards.

 

3)         The certified reinsurer must agree to meet applicable information filing requirements, as determined by the Director, both with respect to an initial application for certification and on an ongoing basis.  The assuming insurer must pay all costs and expenses associated with the review and evaluation of its application to become a certified reinsurer.  All information submitted by certified reinsurers that is not otherwise public information subject to disclosure (see 5 ILCS 140/7(s) and (t)) shall be exempted from disclosure under Section 173.1 of the Code and shall be withheld from public disclosure.  The applicable information filing requirements are as follows:

 

A)        Notification within 10 days after any regulatory actions taken against the certified reinsurer, any change in the provisions of its domiciliary license, or any change in rating by an approved rating agency, including a statement describing the changes and the reasons for the changes;

 

B)        For certified reinsurers not domiciled in the U.S., Form CR-F (for property and casualty reinsurers) or Form CR-S (for life and health reinsurers), which are required to be filed annually and are available on the Department's website at https://insurance.illinois. gov;

 

C)        Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subsection (b)(3)(D);

 

D)        Financial Statements

 

i)          Annually, audited financial statements, regulatory filings, and actuarial opinion (as filed with the certified reinsurer's supervisor, with a translation into English).  

 

ii)         Upon the initial certification, audited financial statements for the last 2 years filed with the certified reinsurer's supervisor;

 

E)        At least annually, an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;

 

F)         A certification from the certified reinsurer's domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction's highest regulatory action level; and

 

G)        Any other information that the Director may reasonably require.

 

c)         The certified reinsurer shall provide and maintain security in an amount sufficient to avoid the imposition of any financial statement penalty on the ceding insurer under Section 173.1(1)(C-5)(8)(f) of the Code for reinsurance ceded to the certified reinsurer.  Reinsurance contracts entered into or renewed under this Section 1104.45 shall include this requirement as a proper funding clause in addition to the clauses required under Section 1104.100.

 

(Source:  Amended at 46 Ill. Reg. 10885, effective June 10, 2022)

 

Section 1104.47  Credit for Reinsurance - Reciprocal Jurisdictions

 

a)         Pursuant to Section 173.1(1)(C-10) of the Code, the Director shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in, a Reciprocal Jurisdiction, and which meets the other requirements of this Part.

 

b)         A "Reciprocal Jurisdiction" means a jurisdiction, as designated by the Director pursuant to subsection (c), that meets one of the following:

 

1)         A non-U.S. jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and the European Union, is a member state of the European Union;

 

2)         A U.S. jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or

 

3)         A qualified jurisdiction, as determined by the Director pursuant to Section 173.1(1)(C-5)(3) of the Code, which is not otherwise described in either subsection (b)(1) or (2) and which the Director determines meets all of the following additional requirements:

 

A)        Provides that an insurer which has its head office or is domiciled in such qualified jurisdiction shall receive credit for reinsurance ceded to a U.S.-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdiction;

 

B)        Does not require a U.S.-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-U.S. jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance;

 

C)        Recognizes the U.S. state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in such qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in Illinois or another jurisdiction accredited by the NAIC shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting, as applicable, by the Director or the commissioner of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction; and

 

D)        Provides written confirmation by a competent regulatory authority in such qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the Director in accordance with a memorandum of understanding or similar document between the Director and such qualified jurisdiction, including but not limited to the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC.

 

c)         Credit shall be allowed when the reinsurance is ceded from an insurer domiciled in Illinois to an assuming insurer meeting each of the conditions in this subsection (c).

 

1)         The assuming insurer must be licensed to transact reinsurance by, and have its head office or be domiciled in, a Reciprocal Jurisdiction.

 

2)         The assuming insurer must have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the Reciprocal Jurisdiction, and confirmed as set forth in subsection (c)(7) according to the methodology of its domiciliary jurisdiction, in the following amounts:

 

A)        No less than $250,000,000; or

 

B)        If the assuming insurer is an association, including incorporated and individual unincorporated underwriters:

 

i)          Minimum capital and surplus equivalents (net of liabilities) or own funds of the equivalent of at least $250,000,000; and

 

ii)         A central fund containing a balance of the equivalent of at least $250,000,000.

 

3)         The assuming insurer must have and maintain on an ongoing basis a minimum solvency or capital ratio, as applicable, as follows:

 

A)        If the assuming insurer has its head office or is domiciled in a Reciprocal Jurisdiction as defined in subsection (b)(1), the ratio specified in the applicable covered agreement;

 

B)        If the assuming insurer is domiciled in a Reciprocal Jurisdiction as defined in subsection (b)(2), a risk-based capital (RBC) ratio of 300% of the authorized control level, calculated in accordance with the formula developed by the NAIC; or

 

C)        If the assuming insurer is domiciled in a Reciprocal Jurisdiction as defined in subsection (b)(3), after consultation with the Reciprocal Jurisdiction and considering any recommendations published through the NAIC Committee Process and posted to the NAIC website, such solvency or capital ratio as the Director determines to be an effective measure of solvency.

 

4)         The assuming insurer must agree to and provide adequate assurance, in the form of a properly executed Form RJ-1 (see Appendix C), of its agreement to the following:

 

A)        The assuming insurer must agree to provide prompt written notice and explanation to the Director if it falls below the minimum requirements set forth in subsection (c)(2) or (3) of this subsection, or if any regulatory action is taken against it for serious noncompliance with applicable law.

 

B)        The assuming insurer must consent in writing to the jurisdiction of the courts of Illinois and to the appointment of the Director as agent for service of process.

 

i)          The Director may also require that such consent be provided and included in each reinsurance agreement under the Director’s jurisdiction.

 

ii)         Nothing in this provision shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws.

 

C)        The assuming insurer must consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer, that have been declared enforceable in the jurisdiction where the judgment was obtained.

 

D)        Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to 100% of the assuming insurer’s liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its estate, if applicable.

 

E)        The assuming insurer must confirm that it is not presently participating in any solvent scheme of arrangement, which involves Illinois' ceding insurers, and agrees to notify the ceding insurer and the Director and to provide 100% security to the ceding insurer consistent with the terms of the scheme, should the assuming insurer enter into such a solvent scheme of arrangement. Such security shall be in a form consistent with the provisions of Sections 173.1(1)(C-5) and 173.1(2) of the Code and Sections 1104.70, 1104.80 or 1104.90.

 

F)         The assuming insurer must agree in writing to meet the applicable information filing requirements as set forth in subsection (c)(5).

 

5)         The assuming insurer or its legal successor must provide, if requested by the Director, on behalf of itself and any legal predecessors, the following documentation to the Director:

 

A)        For the two years preceding entry into the reinsurance agreement and on an annual basis thereafter, the assuming insurer’s annual audited financial statements, in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report;

 

B)        For the two years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion, if filed with the assuming insurer’s supervisor and/or competent regulatory authority;

 

C)        Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, an updated list of all disputed and overdue reinsurance claims outstanding for 90 days or more, regarding reinsurance assumed from ceding insurers domiciled in the United States; and

 

D)        Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, information regarding the assuming insurer’s assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth in subsection (c)(6).

 

6)         The assuming insurer must maintain a practice of prompt payment of claims under reinsurance agreements. The lack of prompt payment will be evidenced if any of the following criteria is met:

 

A)        More than 15% of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the Director;

 

B)        More than 15% of the assuming insurer’s ceding insurers or reinsurers have overdue reinsurance recoverable on paid losses of 90 days or more which are not in dispute and which exceed for each ceding insurer $100,000, or as otherwise specified in a covered agreement; or

 

C)        The aggregate amount of reinsurance recoverable on paid losses that are not in dispute, but are overdue by 90 days or more, exceeds $50,000,000, or as otherwise specified in a covered agreement.

 

7)         The assuming insurer’s supervisory authority must confirm to the Director on an annual basis that the assuming insurer complies with the requirements set forth in subsections (c)(2) and (3).

 

8)         Nothing in this provision precludes an assuming insurer from providing the Director with information on a voluntary basis.

 

d)         The Director shall timely create and publish a list of Reciprocal Jurisdictions to the Department's website.

 

1)         A list of Reciprocal Jurisdictions is published to the NAIC's website through the NAIC Committee Process. The Director’s list shall include any Reciprocal Jurisdiction as defined under subsection (b)(1) or (2), and shall consider any other Reciprocal Jurisdiction included on the NAIC list. The Director may approve a jurisdiction that does not appear on the NAIC list of Reciprocal Jurisdictions in accordance with the process established in subsection (b) or in accordance with the "Process for Evaluating Qualified and Reciprocal Jurisdictions Approved by the NAIC" (National Association of Insurance Commissioners, 1100 Walnut Street, Suite 1500, Kansas City, MO 64106-2197) (August 17, 2021) (no later editions or amendments), available at https://www.naic.org.

 

2)         The Director may remove a jurisdiction from the list of Reciprocal Jurisdictions upon a determination that the jurisdiction no longer meets one or more of the requirements of a Reciprocal Jurisdiction, in accordance with the process established in subsection (b) or the NAIC Committee Process, except that the Director shall not remove from the list a Reciprocal Jurisdiction as defined under subsection (b)(1) or (2). Upon removal of a Reciprocal Jurisdiction from this list, credit for reinsurance ceded to an assuming insurer domiciled in that jurisdiction shall be allowed, if otherwise allowed pursuant to Section 173.1 of the Code or this Part.

 

e)         The Director shall timely create and publish a list of assuming insurers on the Department's website that have satisfied the conditions set forth in this Section and to which cessions shall be granted credit in accordance with this Section.

 

1)         If an NAIC accredited jurisdiction has determined that the conditions set forth in subsection (c) have been met, the Director has the discretion to defer to that jurisdiction’s determination, and add such assuming insurer to the list of assuming insurers to which cessions shall be granted credit in accordance with this subsection. The Director may accept financial documentation filed with another NAIC accredited jurisdiction or with the NAIC in satisfaction of the requirements of subsection (c).

 

2)         When requesting that the Director defer to another NAIC accredited jurisdiction’s determination, an assuming insurer must submit a properly executed Form RJ-1 (see Appendix C) and additional information as the Director may require. A state that has received such a request will notify other states through the NAIC Committee Process and provide relevant information with respect to the determination of eligibility.

 

f)         If the Director determines that an assuming insurer no longer meets one or more of the requirements under this Section, the Director may revoke or suspend the eligibility of the assuming insurer for recognition under this Section.

 

1)         While an assuming insurer’s eligibility is suspended, no reinsurance agreement issued, amended or renewed after the effective date of the suspension qualifies for credit except to the extent that the assuming insurer’s obligations under the contract are secured in accordance with Section 1104.60.

 

2)         If an assuming insurer’s eligibility is revoked, no credit for reinsurance may be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer’s obligations under the contract are secured in a form acceptable to the Director and consistent with the provisions of Section 1104.60.

 

g)         Before denying statement credit or imposing a requirement to post security with respect to subsection (f) or adopting any similar requirement that will have substantially the same regulatory impact as security, the Director shall:

 

1)         Communicate with the ceding insurer, the assuming insurer, and the assuming insurer’s supervisory authority that the assuming insurer no longer satisfies one of the conditions listed in subsection (c);

 

2)         Provide the assuming insurer with 30 days from the date of initial notification to submit a plan to remedy the defect, and 90 days from the date of initial notification to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and other consumer protection;

 

3)         After the expiration of 90 days or less, as set out in subsection (g)(2), if the Director determines that no or insufficient action was taken by the assuming insurer, the Director may impose any of the requirements set out in this subsection (g); and

 

4)         Provide a written explanation to the assuming insurer of any of the requirements set out in this subsection (g).

 

h)         If subject to a legal process of rehabilitation, liquidation or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding liabilities.

 

(Source:  Added at 46 Ill. Reg. 10885, effective June 10, 2022)

 

Section 1104.50  Credit for Reinsurance Required by Law  

 

The Director shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 173.1(1)(A), (B), (B-5), (C), (C-5) or (C-10) of the Code but only with respect to the insurance of risks located in jurisdictions where that reinsurance is required by applicable law or regulation of that jurisdiction.  (Section 173.1(1)(D) of the Code)

 

(Source:  Amended at 46 Ill. Reg. 10885, effective June 10, 2022)

 

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

 

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

 

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

 

1)         Cash.

 

2)         Securities qualifying as admitted assets under Article VIII of the Code and listed by the NAIC Securities Valuation Office, including those deemed exempt from filing by the "Purposes and Procedures Manual of the NAIC Investment Analysis Office" (National Association of Insurance Commissioners, One New York Plaza, Ste. 4210, New York NY 10004) (Volume 18/Issue 1, December 31, 2018) (no later editions or amendments).

 

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

 

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

 

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

 

(Source:  Amended at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.70  Trust Agreements Qualified Under Section 1104.60

 

a)         As used in this Section:

 

1)         Beneficiary means the entity for whose sole benefit the trust has been established and any successor of the beneficiary by operation of law.  If a court of law appoints a successor in interest to the named beneficiary, the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).

 

2)         Grantor means the entity that has established a trust for the sole benefit of the beneficiary.  When established in conjunction with a reinsurance agreement, the grantor is the unlicensed, unaccredited assuming insurer.

 

3)         Obligations, as used in subsection (b)(11), means:

 

A)        Reinsured losses and allocated loss adjustment expenses paid by the ceding company, but not recovered from the assuming insurer;

 

B)        Reserves for reinsured losses reported and outstanding;

 

C)        Reserves for reinsured losses incurred but not reported; and

 

D)        Reserves for allocated reinsured loss adjustment expenses and unearned premiums.

 

b)         Required Conditions

 

1)         The trust agreement shall be entered into between the beneficiary, the grantor and a trustee that shall be a qualified U.S. financial institution as defined in Section 173.1(3)(B) of the Code.

 

2)         The trust agreement shall create a trust account into which assets shall be deposited.

 

3)         All assets in the trust account shall be held by the trustee at the trustee's office in the U.S., except that a bank may apply for the Director's permission to use a foreign branch office of the bank as trustee for trust agreements established pursuant to this Section.  If the Director approves the use of the foreign branch office as trustee, then its use must be approved by the beneficiary in writing and the trust agreement must provide that the written notice described in subsection (b)(4)(A) must also be presentable, as a matter of legal right, at the trustee's principal office in the U.S..

 

4)         The trust agreement shall provide that:

 

A)        The beneficiary shall have the right to withdraw assets from the trust account at any time, without notice to the grantor, subject only to written notice from the beneficiary to the trustee;

 

B)        No other statement or document is required to be presented in order to withdraw assets, except that the beneficiary may be required to acknowledge receipt of withdrawn assets;

 

C)        It is not subject to any conditions or qualifications outside of the trust agreement; and

 

D)        It shall not contain references to any other agreements or documents except as provided for under subsections (b)(11) and (12).

 

5)         The trust agreement shall be established for the sole benefit of the beneficiary.

 

6)         The trust agreement shall require the trustee to:

 

A)        Receive assets and hold all assets in a safe place;

 

B)        Determine that all assets are in such form that the beneficiary, or the trustee upon direction by the beneficiary, may, whenever necessary, negotiate any such assets, without consent or signature from the grantor or any other person or entity;

 

C)        Furnish to the grantor and the beneficiary a statement of all assets in the trust account upon its inception and at intervals no less frequent than the end of each calendar quarter;

 

D)        Notify the grantor and the beneficiary, within 10 days, of any deposits to or withdrawals from the trust account;

 

E)        Upon written demand of the beneficiary, immediately take any and all steps necessary to transfer absolutely and unequivocally all right, title and interest in the assets held in the trust account to the beneficiary and deliver physical custody of the assets to the beneficiary; and

 

F)         Allow no substitutions or withdrawals of assets from the trust account, except on written instructions from the beneficiary, except that the trustee may, without the consent of but with notice to the beneficiary, upon call or maturity of any trust asset, withdraw the asset upon condition that the proceeds are paid into the trust account.

 

7)         The trust agreement shall provide that, at least 30 days, but not more than 45 days, prior to termination of the trust account, written notification of termination shall be delivered by the trustee to the beneficiary.

 

8)         The trust agreement shall be made subject to and governed by the laws of the state in which the trust is established.

 

9)         The trust agreement shall prohibit invasion of the trust corpus for the purpose of paying compensation to, or reimbursing the expenses of, the trustee.

 

10)         The trust agreement shall provide that the trustee shall be liable for its own negligence, willful misconduct or lack of good faith.

 

11)         Notwithstanding other provisions of this Part, when a trust agreement is established in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, when it is customary practice to provide a trust agreement for a specific purpose, the trust agreement may, notwithstanding any other conditions in this Part, provide that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, for the following purposes:

 

A)        To pay or reimburse the ceding insurer for the assuming insurer's share under the specific reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer;

 

B)        To make payment to the assuming insurer of any amounts held in the trust account that exceed 102% of the actual amount required to fund the assuming insurer's obligations under the specific reinsurance agreement; or

 

C)        When the ceding insurer has received notification of termination of the trust account and when the assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated and undischarged 10 days prior to the termination date, to:

 

i)          withdraw amounts equal to the obligations; and

 

ii)         deposit those amounts:

 

●              in a separate account;

 

●              in the name of the ceding insurer;

 

●              in any qualified U.S. financial institution as defined in Section 173.1(3)(B) of the Code;

 

●              apart from its general assets; and

 

●              in trust for the uses and purposes specified in subsections (b)(11)(A) and (B) as may remain executory after the withdrawal and for any period after the termination date.

 

12)         Notwithstanding other provisions of this Part, when a trust agreement is established to meet the requirements of Section 1104.60 in conjunction with a reinsurance agreement covering life, annuities, or accident and health risks, when it is customary to provide a trust agreement for a specific purpose, the trust agreement may provide that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for the following purposes:

 

A)        To pay or reimburse the ceding insurer for:

 

i)          The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance agreement on account of cancellations of the policies; and

 

ii)         The assuming insurer's share under the specific reinsurance agreement of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under the terms and provisions of the policies reinsured under the reinsurance agreement;

 

B)        To pay the assuming insurer amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer; or

 

C)        When the ceding insurer has received notification of termination of the trust and when the assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated and undischarged 10 days prior to the termination date to:

 

i)          withdraw amounts equal to the assuming insurer's share of liabilities, to the extent that the liabilities have not yet been funded by the assuming insurer; and

 

ii)         deposit those amounts:

 

●              in a separate account;

 

●              in the name of the ceding insurer;

 

●              in any qualified U.S. financial institution;

 

●              apart from its general assets; and

 

●              in trust for the uses and purposes specified in subsections (b)(12)(A) and (B) as may remain executory after withdrawal and for any period after the termination date.

 

13)        Either the reinsurance agreement or the trust agreement must stipulate that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in U.S. dollars, certificates of deposit issued by a U.S. bank and payable in U.S. dollars, and investments permitted by the Code, or any combination of the above, provided investments in or issued by an entity controlling, controlled by, or under common control with, either the grantor or the beneficiary of the trust shall not exceed 5% of total investments.  The agreement may further specify the types of investments to be deposited.  If the reinsurance agreement covers life, annuities, or accident and health risks, the provisions of this subsection (b)(13) must be included in the reinsurance agreement.

 

c)         Permitted Conditions

 

1)         The trust agreement may provide that the trustee may resign upon delivery of a written notice of resignation, effective not less than 90 days after receipt by the beneficiary and grantor of the notice, and that the trustee may be removed by the grantor, by delivery to the trustee and the beneficiary, of a written notice of removal, effective not less than 90 days after receipt by the trustee and the beneficiary of the notice.  However, no resignation or removal shall be effective until a successor trustee has been duly appointed and approved by the beneficiary and the grantor and all assets in the trust have been duly transferred to the new trustee.

 

2)         The grantor may have the full and unqualified right to vote any shares of stock in the trust account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account.  Any such interest or dividends shall be either forwarded promptly upon receipt to the grantor or deposited in a separate account established in the grantor's name.

 

3)         The trustee may be given authority to invest, and accept substitutions of, any funds in the account, provided that no investment or substitution shall be made without prior approval of the beneficiary, unless the trust agreement specifies categories of investments acceptable to the beneficiary and authorizes the trustee to invest funds and to accept substitutions that the trustee determines are at least equal in current fair market value to the assets withdrawn and that are consistent with the restrictions in subsection (d)(1)(B).

 

4)         The trust agreement may provide that the beneficiary may, at any time, designate a party to which all or part of the trust assets are to be transferred.  The transfer may be conditioned upon the trustee receiving, prior to or simultaneously with, other specified assets.

 

5)         The trust agreement may provide that, upon termination of the trust account, all assets not previously withdrawn by the beneficiary, with written approval by the beneficiary, shall be delivered over to the grantor.

 

d)         Additional Conditions Applicable to Reinsurance Agreements

 

1)         A reinsurance agreement that is entered into in conjunction with a trust agreement and the establishment of a trust account must contain provisions that:

 

A)        Require the assuming insurer to:

 

i)          enter into a trust agreement, specifying what the agreement is to cover; and

 

ii)         establish a trust account for the benefit of the ceding insurer;

 

B)        Require the assuming insurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the assuming insurer or any other entity;

 

C)        Require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent; and

 

D)        Stipulate that the assuming insurer and the ceding insurer agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement, and be utilized and applied by the ceding insurer or its successors in interest by operation of law, including without limitation any liquidator, rehabilitator, receiver or conservator of the company, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for the following purposes:

 

i)          To reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of those policies;

 

ii)         To reimburse the ceding insurer for the assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement;

 

iii)        To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer liabilities for policies ceded under the agreement.  The account shall include, but not be limited to, amounts for policy reserves, claims and losses incurred (including losses incurred but not reported), loss adjustment expenses, and unearned premium reserves; and

 

iv)        To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

 

2)         The reinsurance agreement may also contain provisions that:

 

A)        Give the assuming insurer the right to seek approval from the ceding insurer (the ceding insurer shall not unreasonably or arbitrarily withhold its approval) to withdraw from the trust account all or any part of the trust assets and transfer those assets to the assuming insurer, provided:

 

i)          The assuming insurer shall, at the time of withdrawal, replace the withdrawn assets with other qualified assets having a current fair market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the required amount; or

 

ii)         After withdrawal and transfer, the current fair market value of the trust account is no less than 102% of the required amount.

 

B)        Provide for:

 

i)          The return of any amount withdrawn in excess of the actual amounts required for subsections (d)(1)(D)(i), (ii) and (iii), or in the case of subsection (d)(1)(D)(iv), any amounts that are subsequently determined not to be due; and

 

ii)         Interest payments, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to subsection (d)(1)(D)(iii).

 

C)        Permit the award by any arbitration panel or court of competent jurisdiction of:

 

i)          Interest at a rate different from that provided in subsection (d)(2)(B)(ii);

 

ii)         Court of arbitration costs;

 

iii)        Attorney's fees; and

 

iv)        Any other reasonable expenses.

 

e)         Financial reporting.  A trust agreement may be used to reduce any liability for reinsurance ceded to an unauthorized assuming insurer in financial statements required to be filed with the Department in compliance with the provisions of this Part when established on or before the date of filing of the financial statement of the ceding insurer.  Further, the reduction for the existence of an acceptable trust account may be up to the current fair market value of acceptable assets available to be withdrawn from the trust account at that time, but the reduction shall be no greater than the specific obligations under the reinsurance agreement that the trust account was established to secure.

 

f)         The failure of any trust agreement to specifically identify the beneficiary as defined in subsection (a) shall not be construed to affect any actions or rights the Director may take or possess pursuant to the provisions of the laws of this State.

 

(Source:  Amended at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.80  Letters of Credit Qualified Under Section 1104.60

 

a)         The letter of credit must be clean, irrevocable and unconditional and issued or confirmed by a qualified U.S. financial institution as defined in Section 173.1(3)(A) of the Code.  The letter of credit shall contain an issue date and date of expiration and shall stipulate that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented.  The letter of credit shall also indicate that it is not subject to any condition or qualifications outside of the letter of credit.  In addition, the letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in subsection (i)(1).  As used in this Section, "beneficiary" means the domestic insurer for whose benefit the letter of credit has been established and any successor of the beneficiary by operation of law.  If a court of law appoints a successor in interest to the named beneficiary, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).

 

b)         The heading of the letter of credit may include a boxed section that contains the name of the applicant and other appropriate notations to provide a reference for the letter of credit.  The boxed section shall be clearly marked to indicate that the information is for internal identification purposes only.

 

c)         The letter of credit shall contain a statement to the effect that the obligation of the qualified U.S. financial institution under the letter of credit is in no way contingent upon reimbursement of the letter of credit.

 

d)         The term of the letter of credit shall be for at least one year and shall contain an "evergreen clause" that prevents the expiration of the letter of credit without due notice from the issuer.  The "evergreen clause" shall provide for a period of no less than 30 days' notice prior to the expiration date or nonrenewal.

 

e)         The letter of credit shall state whether it is subject to and governed by the laws of this State or the "ICC Uniform Customs and Practice for Documentary Credits" (ICC Publication No. 600, July 2007) (UCP 600) or the "International Standby Practices of the International Chamber of Commerce" (ICC Publication No. 590, January 1999) (ISP98) (ICC Publishing, Inc., 1212 Avenue of the Americas, New York NY 10036 (no later amendments or editions)), and all drafts drawn under the letter of credit shall be presentable at an office in the U.S. of a qualified U.S. financial institution.

 

f)         If the letter of credit is made subject to the UCP 600 or ISP98, the letter of credit shall specifically address and make provision for an extension of time to draw against the letter of credit in the event that one or more of the occurrences specified in Article 36 of UCP 600 occur.

 

g)         The letter of credit shall be issued or confirmed by a qualified U.S. financial institution authorized to issue letters of credit, pursuant to Section 173.1(3)(A) of the Code.

 

h)         If the letter of credit is issued by a nonqualified financial institution and is confirmed by a qualified U.S. financial institution as described in subsection (a), then the following additional requirements shall be met:

 

1)         The issuing financial institution shall formally designate the confirming qualified U.S. financial institution as its agent for the receipt and payment of the drafts; and

 

2)         The "evergreen clause" shall provide for not less than 60 days' notice of nonrenewal prior to the expiration date.

 

i)          Reinsurance Agreement Provisions

 

1)         The reinsurance agreement in conjunction with which the letter of credit is obtained must contain provisions that:

 

A)        Require the assuming insurer to provide letters of credit to the ceding insurer and specify what they are to cover.

 

B)        Stipulate that the assuming insurer and ceding insurer agree that the letter of credit provided by the assuming insurer pursuant to the provisions of the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and be utilized by the ceding insurer or its successors in interest only for one or more of the following reasons:

 

i)          To reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement on account of cancellations of those policies;

 

ii)         To reimburse the ceding insurer for the assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer under the terms and provisions of the policies reinsured under the reinsurance agreement;

 

iii)        To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer's liabilities for policies ceded under the agreement.  The amount shall include, but not be limited to, amounts for policy reserves, claims and losses incurred (including losses incurred but not reported) and unearned premium reserves;

 

iv)        To pay any other amounts the ceding insurer claims are due under the reinsurance agreement; and

 

v)         To pay existing liabilities between the insurer and the reinsurer upon commutation of one or more reinsurance contracts.

 

C)        All of the foregoing provisions of this subsection (i)(1) should be applied without diminution because of insolvency on the part of the ceding insurer or assuming insurer.

 

2)         Nothing contained in subsection (i)(1) shall preclude the ceding insurer and assuming insurer from providing for:

 

A)        An interest payment, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to subsection (i)(1)(B)(iii); and/or

 

B)        The return of any amounts drawn down on the letters of credit in excess of the actual amounts required under subsection (i)(1) or, in the case of subsection (i)(1)(B)(iv), any amounts that are subsequently determined not to be due.

 

3)         When a letter of credit is obtained in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, when it is customary practice to provide a letter of credit for a specific purpose, then the reinsurance agreement may, in lieu of subsection (i)(1)(B), require that the parties enter into a trust agreement that may be incorporated into the reinsurance agreement or be a separate document.

 

j)          A letter of credit may not be used to reduce any liability for reinsurance ceded to an unauthorized assuming insurer in financial statements required to be filed with the Department unless an acceptable letter of credit with the filing ceding insurer as beneficiary has been issued on or before the date of filing of the financial statement.  Further, the reduction for the letter of credit may be up to the amount available under the letter of credit but no greater than the specific obligation under the reinsurance agreement that the letter of credit was intended to secure.

 

(Source:  Amended at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.90  Other Security

 

A ceding insurer may take credit for unencumbered funds withheld by the ceding insurer in the United States subject to withdrawal solely by the ceding insurer and under its exclusive control.

 

Section 1104.100  Reinsurance Contract

 

Credit will not be granted to a ceding insurer for reinsurance effected with assuming insurers meeting the requirements of Section 1104.20, 1104.30, 1104.35, 1104.40, 1104.45, 1104.47 or 1104.60 or otherwise in compliance with Section 173.1(1) of the Code after January 1, 1996, unless the reinsurance agreement:

 

a)         Includes a proper insolvency clause pursuant to Section 173.2 of the Code;

 

b)         Includes a provision pursuant to Section 173.1(1)(E) of the Code under which the assuming insurer, if an unauthorized assuming insurer, has submitted to the jurisdiction of an alternative dispute resolution panel or court of competent jurisdiction within the U.S., has agreed to comply with all requirements necessary to give the court or panel jurisdiction, has designated an agent upon whom service of process may be effected, and has agreed to abide by the final decision of the court or panel; and

 

c)         Includes a proper reinsurance intermediary clause, if applicable, that stipulates that the credit risk for the intermediary is carried by the assuming insurer.

 

(Source:  Amended at 46 Ill. Reg. 10885, effective June 10, 2022)

 

Section 1104.110  Contracts Affected  

 

All new and renewal reinsurance transactions entered into after January 1, 1996 shall conform to the requirements of this Part if credit is to be given to the ceding insurer for such reinsurance.

 

Section 1104.120  Severability

 

If any provisions of this Part, or their application to any person or circumstance is held invalid, such determination shall not affect other provisions or applications of this Part which can be given effect without the invalid provision or application, and to that end the provisions of this Part are separable.

Section 1104.APPENDIX A   Form AR–1 Certificate of Assuming Insurer

 

FORM AR-1

CERTIFICATE OF ASSUMING INSURER

 

I,			,
(name of officer)				(title of officer)
of					,	the assuming insurer under a
(name of assuming insurer)
reinsurance agreement(s) with one or more insurers domiciled in Illinois, hereby certify
that							("Assuming Insurer"):
(name of assuming insurer)

 

1.         Submits to the jurisdiction of any court of competent jurisdiction in Illinois for the adjudication of any issues arising out of the reinsurance agreement(s), agrees to comply with all requirements necessary to give such court jurisdiction, and will abide by final decision of such court or any appellate court in the event of an appeal.  Nothing in this paragraph constitutes or should be understood to constitute a waiver of Assuming Insurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.  This paragraph is not intended to conflict with or override the obligation of the parties to the reinsurance agreement(s) to arbitrate their disputes if such an obligation is created in the agreement(s).

 

2.         Designates the Director of the Department of Insurance as its lawful attorney upon whom may be served any lawful process in any action, suit or proceeding arising out of the reinsurance agreement(s) instituted by or on behalf of the ceding insurer.

 

3.         Submits to the authority of the Director of the Department of Insurance to examine its books and records and agrees to bear the expense of any such examination.

 

4.         Submits with this form a current list of insurers domiciled in Illinois reinsured by Assuming Insurer and undertakes to submit additions to or deletions from the list to the Director at least once per calendar quarter.

 

Date:
(name of assuming insurer)
		BY:
(name of officer)
(title of officer)

 

(Source:  Amended at 33 Ill. Reg. 9314, effective June 18, 2009)

 

 

Section 1104.APPENDIX B   Form CR-1 Certificate of Certified Reinsurer

 

 

FORM CR-1

 

CERTIFICATE OF CERTIFIED REINSURER

 

I,				,
		(name of officer)			(title of officer)
of						, the assuming insurer
		(name of assuming insurer)
under a reinsurance agreement with one or more insurers domiciled in										,
							(name of state)
in order to be considered for approval in this State, hereby certify that
						("Assuming Insurer"):
		(name of assuming insurer)
1.		Submits to the jurisdiction of any court of competent jurisdiction in
					for the adjudication of any issues arising out
			(ceding insurer's state of domicile)

of the reinsurance agreement, agrees to comply with all requirements necessary to give such court jurisdiction, and will abide by the final decision of such court or any appellate court in the event of an appeal.  Nothing in this paragraph constitutes or should be understood to constitute a waiver of Assuming Insurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the U.S. or of any state in the U.S.  This paragraph is not intended to conflict with or override the obligation of the parties to the reinsurance agreement to arbitrate their disputes if such an obligation is created in the agreement.

 

2.	Designates the Insurance Commissioner of
						(ceding insurer's state of domicile)
	as its lawful attorney upon whom may be served any lawful process in any action, suit or
	proceeding arising out of the reinsurance agreement instituted by or on behalf of the ceding insurer.
3.	Agrees to provide security in an amount equal to 100% of liabilities attributable to U.S.
	ceding insurers if it resists enforcement of a final U.S. judgment or properly enforceable
	arbitration award.
4.	Agrees to provide notification to the Illinois Department of Insurance within 10 days after any regulatory actions taken against it, any change in the provisions of its domiciliary license, or any change in its rating by an approved rating agency, including a statement describing the changes and the reasons for the changes.
5.	Agrees to annually file with the Illinois Department of Insurance information comparable
	to relevant provisions of the NAIC financial statement for use by insurance markets in
	accordance with Section 173.1(1)(C-5)(5)(c) and (d) of the Illinois Insurance Code [215
	ILCS 5].
6.	Agrees to annually file with the Illinois Department of Insurance the report of the independent auditor on the financial statements of the insurance enterprise.
7.	Agrees to annually file with the Illinois Department of Insurance audited financial statements, regulatory filings, and actuarial opinion in accordance with 50 Ill. Adm. Code 1104.45(b)(7)(D).
8.	Agrees to annually file with the Illinois Department of Insurance an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers.
9.	Is in good standing as an insurer or reinsurer with the supervisor of its domiciliary
	jurisdiction.
Dated:
				(name of assuming insurer)
	By:
					(name of officer)
					(title of officer)

(Source:  Added at 43 Ill. Reg. 14133, effective November 19, 2019)

 

Section 1104.APPENDIX C   Form RJ-1 Certificate of Reinsurer Domiciled in Reciprocal Jurisdiction

 

FORM RJ-1

 

CERTIFICATE OF REINSURER DOMICILED IN RECIPROCAL JURISDICTION

 

I,			,
		(name of officer)		(title of officer)
of					, the Assuming Insurer
		(name of Assuming Insurer)
under a reinsurance agreement with one or more insurers domiciled in									,
							(name of state)
in order to be considered for approval in Illinois, hereby certify that
						("Assuming Insurer"):
		(name of Assuming Insurer)

 

1.         Submits to the jurisdiction of any court of competent jurisdiction in Illinois for the adjudication of any issues arising out of the reinsurance agreement, agrees to comply with all requirements necessary to give such court jurisdiction, and will abide by the final decision of such court or any appellate court in the event of an appeal. The Assuming Insurer agrees that it will include such consent in each reinsurance agreement, if requested by the Director. Nothing in this paragraph constitutes or should be understood to constitute a waiver of assuming insurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. This paragraph is not intended to conflict with or override the obligation of the parties to the reinsurance agreement to arbitrate their disputes if such an obligation is created in the agreement, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws.

 

2.         Designates the Director of the Department of Insurance as its lawful attorney upon whom may be served any lawful process in any action, suit or proceeding in Illinois arising out of the reinsurance agreement instituted by or on behalf of the ceding insurer.

 

3.         Agrees to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer, that have been declared enforceable in the jurisdiction where the judgment was obtained.

 

4.         Agrees to provide prompt written notice and explanation if it falls below the minimum capital and surplus or capital or surplus ratio, or if any regulatory action is taken against it for serious noncompliance with applicable law.

 

5.         Confirms that it is not presently participating in any solvent scheme of arrangement, which involves insurers domiciled in Illinois. If the assuming insurer enters into such an arrangement, the assuming insurer agrees to notify the ceding insurer and the Director of the Department of Insurance, and to provide 100% security to the ceding insurer consistent with the terms of the scheme.

 

6.         Agrees that in each reinsurance agreement it will provide security in an amount equal to 100% of the assuming insurer’s liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final U.S. judgment, that is enforceable under the law of the territory in which it was obtained, or a properly enforceable arbitration award whether obtained by the ceding insurer or by its resolution estate, if applicable.

 

7.         Agrees to provide the documentation in accordance with 50 Ill. Adm. Code 1104.47(c)(5), if requested by the Director of the Department of Insurance.

 

Dated:
				(name of Assuming Insurer)
	By:
					(name of officer)
					(title of officer)

 

(Source:  Added at 46 Ill. Reg. 10885, effective June 10, 2022)