Section 1250.10  Purpose

 

a)         The purpose of this Part is to set forth the standards the Director may use for identifying insurers found to be in such condition as to render the continuance of their business hazardous to their policyholders, creditors or the general public.

 

b)         This Part shall not be interpreted to limit the powers granted the Director to enforce any laws or parts of laws of this State, nor shall this Part be interpreted to supersede any laws or parts of laws of this State.

 

(Source:  Amended at 36 Ill. Reg. 869, effective January 3, 2012)

 

Section 1250.15  Definitions

 

Actuarial Standards of Practice means the actuarial standards used in keeping with current professional practice by the Actuarial Standards Board (1100 Seventeenth Street, NW, Seventh Floor, Washington DC 20036) that are to be utilized by actuaries in performance of their assignments. 

 

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

 

Department means the Illinois Department of Insurance.

 

Director means the Director of the Illinois Department of Insurance.

 

Insurer means any person or company subject to the Code.

 

NAIC means the National Association of Insurance Commissioners.

 

(Source:  Added at 36 Ill. Reg. 869, effective January 3, 2012)

 

Section 1250.20  Standards

 

Depending upon an examination of the factual circumstances, applicable law and financial situation of the company involved, the following standards, either singly or a combination of two or more, may be considered by the Director to determine whether the continued operation of any insurer transacting an insurance business in this State might be deemed to be hazardous to the policyholders, creditors or the general public which could warrant the Director issuing a corrective order:

 

a)         adverse findings reported in financial and market conduct examination reports, audit reports, and actuarial opinions, reports or summaries;

 

b)         information from the NAIC Insurance Regulatory Information System and NAIC's other financial analysis solvency tools and reports;

 

c)         whether the insurer has made adequate provision, according to Actuarial Standards of Practice, for the anticipated cash flows required by the contractual obligations and related expenses of the insurer, when considered in light of the assets held by the insurer with respect to reserves and related actuarial items, including, but not limited to, the investment earnings on assets and the considerations anticipated to be received and retained under the insurer's policies and contracts;

 

d)         the ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the insurer's remaining surplus after taking into account the insurer's cash flow and the classes of business written, as well as the financial condition of the assuming reinsurer;

 

e)         whether the insurer's operating loss in the last 12 month period or any shorter period of time, including, but not limited to, net capital gain or loss, change in non-admitted assets, and cash dividends paid to shareholders, is greater than 50% of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

 

f)         whether the insurer operating loss in the last 12 month period or any shorter period of time, excluding net capital gains, is greater than 20% of the insurer's remaining surplus as regards to policyholders in excess of the minimum required;

 

g)         whether a reinsurer, obligor or any entity within the insurer's insurance holding company system is insolvent, threatened with insolvency, or delinquent in the payment of its obligations, if, in the opinion of the Director, that condition may affect the solvency of the insurer;

 

h)         whether contingent liabilities, pledges or guarantees that, either individually or collectively, involve a total amount that, in the opinion of the Director, may affect the solvency of the insurer;

 

i)          whether any "controlling person" of an insurer is delinquent in the transmitting to, or payment of, net premiums to the insurer;

 

j)          the age and collectibility of its receivables;

 

k)         whether the management of an insurer, including officers, directors, or any other person who directly or indirectly controls the operation of the insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in that position;

 

l)          whether management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false and misleading information concerning an inquiry;

 

m)        whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the Director;

 

n)         whether management of an insurer either has filed a false or misleading sworn financial statement, or has released a false or misleading financial statement to lending institutions or to the general public, or has made a false or misleading entry, or has omitted an entry of material amount in the books of the insurer;

 

o)         whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;

 

p)         whether the insurer has experienced or will experience in the foreseeable future cash flow and/or liquidity problems;

 

q)         whether management has established reserves that do not comply with minimum standards established by State insurance laws, regulations, statutory accounting standards, sound actuarial principles and Actuarial Standards of Practice;

 

r)          whether management persistently engages in material under reserving that results in adverse development;

 

s)         whether transactions among affiliates, subsidiaries or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the insurer's ability to meet its outstanding obligations as they mature;

 

t)          any other finding determined by the Director to be hazardous to the insurer's policyholders, creditors or general public, including those of a nonfinancial nature.

 

(Source:  Amended at 36 Ill. Reg. 869, effective January 3, 2012)

 

Section 1250.30  Director's Authority

 

a)         For purposes of making a determination of an insurer's financial condition under this Part, the Director may:

 

1)         Disregard any credit or amount receivable resulting from transactions with a reinsurer that is insolvent, impaired or otherwise subject to a delinquency proceeding;

 

2)         Make adjustments, including disallowances, to asset values attributable to investments in or transactions with parents, subsidiaries or affiliates, in keeping with current professional practices consistent with NAIC accounting practices and procedures;

 

3)         Refuse to recognize the stated value of accounts receivable if the ability to collect the receivables is highly speculative in view of the age of the account or the financial condition of the debtor;

 

4)         Increase the insurer's liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next 12 month period;

 

5)         Increase the company's reserves for losses, loss adjustment expenses, or unearned premium or any other liability to reflect adjustments recommended by the Department's financial examiners or actuaries or by the person preparing the statement of actuarial opinion as required by Section 136 of the Code  and in keeping with the current professional practice stated in the NAIC Annual Statement Instructions for Property and Casualty Insurers;

 

6)         Make any other appropriate adjustment to the company's assets and liabilities necessary to reflect the insurer's financial condition.

 

b)         If the Director determines that the continued operation of the insurer licensed to transact business in this State may be hazardous to its policyholders, creditors or the general public, the Director may, upon a determination, issue an order requiring the insurer to take any of the actions listed in this subsection (b).  If the insurer is a foreign insurer, the Director's order may be limited to the extent provided by statute.  The order may require the insurer to:

 

1)         reduce the total amount of present and potential liability for policy benefits by reinsurance;

 

2)         reduce, suspend or limit the volume of business being accepted or renewed;

 

3)         reduce general insurance and commission expenses by specified methods;

 

4)         increase the insurer's capital and surplus;

 

5)         suspend or limit the declaration and payment of a dividend by an insurer to its stockholders or to its policyholders;

 

6)         file reports, in a format acceptable to the Director, concerning the market value of an insurer's assets;

 

7)         limit or withdraw from certain investments or discontinue certain investment practices to the extent the Director deems necessary;

 

8)         document the adequacy of premium rates in relation to the risks insured;

 

9)         file, in addition to regular annual statements, interim financial reports on the form adopted by NAIC or in a format promulgated by the Director;

 

10)         correct corporate governance practice deficiencies and adopt and utilize governance practices acceptable to the Director;

 

11)         provide a business plan to the Director in order to continue to transact business in this State;

 

12)         notwithstanding any other provision of law limiting the frequency or amount of premium rate adjustments, adjust rates for any non-life insurance product written by the insurer that the Director considers necessary to improve the financial condition of the insurer;

 

13)         disapprove the payment of any ordinary dividend or other distribution to shareholders;

 

14)         take any other action the Director deems to be remedial.

 

c)         An insurer subject to an order under subsection (b) may request a hearing to review that order.  The notice of hearing shall be served upon the insurer pursuant to Section 186.1(5) and (6) of the Code.

 

(Source:  Amended at 36 Ill. Reg. 869, effective January 3, 2012)

 

Section 1250.40  Judicial Review

 

Any order or decision of the Director shall be subject to review in accordance with the Administrative Review Law  [735 ILCS 5/Art. III] at the instance of any party to the proceedings whose interests are substantially affected.

 

(Source:  Amended at 36 Ill. Reg. 869, effective January 3, 2012)