Section 3601.10  Authority and Scope

This Part is promulgated by the Director of Insurance pursuant to Section 20 of the Religious and Charitable Risk Pooling Trust Act [215 ILCS 150/20], hereinafter the Act, which empowers the Director to make reasonable rules and regulations as may be necessary for the administration of the Act.  The purpose of this Part is to establish standards for the establishment, operation and administration of trusts authorized by the Act.

Section 3601.20  Applications for Approval

a)         Any person filing a trust instrument for approval of the Director of Insurance pursuant to the Act shall file duplicate originals containing the following:

1)         the trust instrument together with all necessary exhibits.

2)         a proposed benefit schedule, including the rating contribution formula and the obligations of each beneficiary.

3)         detailed biographies of all initial trustees including educational experience, professional designations and criminal convictions; similar biographies shall be filed with the Director within 14 days of appointment for any trustees appointed after the filing of the trust instrument.

4)         identification of independent CPA for auditing purposes and a copy of the letter of engagement.

5)         a letter of transmittal which identifies an individual to whom all official notices, correspondence and complaints may be sent.

6)         copies of the certificates of authorities of each of the proposed beneficiaries.

7)         all solicitation and/or advertising materials.

b)         The trust instrument shall be in writing and shall be executed and in addition to the requirements contained in the Act shall contain provisions addressing the following:

1)         a requirement that the trust itself may not be effective until written approval is granted by the Director of Insurance.

2)         a requirement that the administrators, principal office and all funds of the trust be located within Illinois, including a requirement that the funds of the trust shall be deposited only in a national or state bank with appropriate trust powers located in Illinois.

3)         a requirement that all beneficiaries be residents of the State of Illinois or if domiciled in a state other than Illinois, be affiliated with an Illinois domiciled beneficiary by common ownership, religious affiliation, association membership or similar association if not created for the purpose of risk pooling or  sharing.

4)         a requirement that each beneficiary supply appropriate documentation evidencing exempt status in accordance with Section 501c(3) of the Internal Revenue Code of 1954 (26 U.S.C. 1-9042) as amended to be included in the permanent records of the trust.

5)         a requirement that the trust be audited yearly by an independent certified public accountant.

6)         a requirement that all insurance policies or programs purchased by the trust be purchased only from insurance companies authorized to do business within the State of Illinois or from qualified surplus lines brokers.

7)         a requirement that should liquidation of the trust be necessary, liquidation will be carried out in accordance with the provisions of the trust.

Section 3601.30  Examinations

All trusts established and approved pursuant to the Act shall be subject to financial and/or performance examinations conducted by the Director of Insurance as often as he shall deem necessary.  The examinations shall be conducted in accordance with the provisions of Sections 132, 401, 402 and 403 of the Illinois Insurance Code [215 ILCS 5/132, 401, 402 and 403].  All books, records, correspondence and papers of each trust shall be available for examination at any time and shall be located within the State of Illinois.

Section 3601.40  Benefit Schedules

a)         Each trust established and approved pursuant to the Act shall establish benefit schedules for each type of protection against the risk of financial loss available to each beneficiary.  Each benefit schedule shall clearly indicate that evaluations of each request for payment shall be conducted in accordance with a standardized written procedure.  Each beneficiary shall receive the appropriate benefit schedule together with any amendments or modifications made to those schedules.

b)         All benefits payable in accordance with the benefit schedules shall be subject to all claims practice standards contained in the Illinois Insurance Code and any Rule promulgated thereunder.  The trust administrator shall maintain a file for each payment request made by each beneficiary and the file shall contain all relevant documents necessary to clearly reconstruct all events surrounding the request for payment.

Section 3601.50  Solicitation and Advertising

Each trust approved pursuant to the Act shall solicit beneficiaries in accordance with the following standards:

a)         No solicitation or advertising material may contain any indication that the trust program or benefit schedule is endorsed by the Illinois Department of Insurance.

b)         The words, "insurance", "indemnity", "insurance trust", or any other similar words may not be used in any solicitation or advertising material to indicate that the trust is an insurance company or that benefits are being provided by an insurance company unless that is the case.

c)         Each solicitator shall be a salaried employee of the trust or trust administrator and shall be subject to examination by the Director of Insurance.

Section 3601.60  Investments

Each trust approved pursuant to the Act shall invest its funds only in securities permitted by the law of this State for the investment of assets by insurance companies.  All such investments shall be subject to valuation in accordance with Section 124.6 of the Illinois Insurance Code.

Section 3601.70  Financial Statements

a)         Each trust approved pursuant to the Act shall file audited financial statements in accordance with the requirements of Section 14 of the Act containing or accompanied by the following information:

1)         A balance sheet listing all assets and liabilities presented on an accrual basis which provides for an estimate of the ultimate net cost of all losses and related loss adjustment expenses incurred as of the statement date.  Liabilities for such incurred losses and loss adjustment expenses shall be presented on an undiscounted basis; provided however, that a trust may present such reserves on a discounted basis in accordance with Section 3601.75 of this Part.

2)         A statement of income, expenses and fund balance.

3)         A complete and detailed listing of each investment or asset held, such listing similar to the appropriate investment schedules contained in the Convention Annual Statement of the National Association of Insurance Commissioners for insurance companies.

4)         A statement of cash flows.

b)         With the exception of loss reserve discounting permitted by Section 3601.75 of this Part, the financial statements shall be prepared in accordance with accounting principles permitted or prescribed for use by property casualty insurance companies.

c)         In addition, each trust shall file audited financial statements audited by an independent certified public accountant designated in the application required by Section 3601.20 of this Part.  The auditing standards to be employed are those recommended by the American Institute of Certified Public Accountants.  In addition to any other information the Director may require to be disclosed, the audited financial report shall include the following:

1)         Report of independent certified public accountant.

2)         Balance sheet reporting assets, liabilities and surplus fund.

3)         Statement of gain or loss from operations.

4)         Statement of cash flows.

5)         Notes to the financial statement essential for an adequate understanding of the trust and its financial statements.

(Source:  Amended at 18 Ill. Reg. 2282, effective February 1, 1994)

Section 3601.75  Loss Reserve Discounting

a)         A trust may discount its reserves for incurred and unpaid losses and loss adjustment expenses, for the purpose of:

1)         Reporting under Section 14 of the Act and Section 3601.70 of this Part, and

2)         Demonstrating its net worth and adherence to reasonable standards of financial solvency, subject to all of the following conditions:

A)        The trust shall have been approved for operation under the Act for not less than two (2) full calendar years.

B)        The trust instrument shall provide that each beneficiary may be assessed for any funding deficiency relating to any period in which the beneficiary participated in the trust and that each beneficiary shall be fully liable to the trust for any such assessment; a beneficiary's obligation for any such assessment shall be enforceable regardless of whether the beneficiary is currently a beneficiary of the trust, unless the trust has expressly released the beneficiary with respect to such obligations.

C)        With respect to each reporting year, the assumed rate of return used to discount the trust's reserves for losses and loss adjustment expenses shall not exceed the greater of:

i)          The trust's average annual portfolio rate of return over the five (5) year period (or such shorter period, in the event that the trust has not been in existence for five (5) years) ending with the last day of the then-current reporting year, less ½ of 1%; or

ii)         The assumed rate of return used to discount the trust's loss reserves for federal income tax purposes, for the tax year corresponding to the then-current reporting year.

D)        In conjunction with the financial statements required by Section 3601.70 of this Part, the trust shall file with the Director a statement of actuarial opinion by a qualified independent actuary, setting forth his or her opinion regarding the adequacy of the trust's reserves for losses and loss adjustment expenses, in such form and of such content as specified in the National Association of Insurance Commissioners Annual Statement Instructions:  Property and Casualty.  For purposes of this Section, the term "qualified independent actuary" shall mean an individual is either:

i)          A member in good standing of the Casualty Actuarial Society; or

ii)         A member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries.

E)        With respect to each reporting year, the trust shall present the following information in the footnotes to the financial statements or as supplemental information to the information required by Section 3601.70 of this Part:

i)          The ultimate, undiscounted losses and loss adjustment expenses reserves in comparison to the reported, discounted value of such reserves, with the aggregate effect of the discount reflected as a separate amount, reviewed by a qualified independent actuary.  In addition, the report of the trust's certified public accountants, as contemplated in subsection 3601.70(c) of this Part, shall include a review of the calculation of the discounted losses and loss adjustment expense reserves.

ii)         An historical and projected losses and loss adjustment expense payout schedule, demonstrating the portion of incurred losses and loss adjustment expenses paid and projected to be paid in the periods following the period in which the underlying loss was incurred, reviewed by a qualified independent actuary.

iii)        A schedule of portfolio investments, including scheduled maturities, and a report of the trust's aggregate portfolio rate of return for the year. If the trust's investments are managed by any third-party manager or trustee, such portfolio rate of return shall be verified by such manager or trustee.

b)         A trust which does not comply with all of the conditions set forth in subsection (a), above, may discount its reserves for losses and loss adjustment expenses, but only upon receiving the express written approval of the Director with respect to each calendar year that the trust proposes to discount such reserves.  Any trust desiring the Director's approval under this subsection shall submit a written request therefor, prior to September 1 of the year to which the request relates, setting forth:

1)         The terms upon which such discounting will be based,

2)         an estimate of the anticipated effect of such discounting, and

3)         the trusts' commitment to provide the specific information set forth in subsection (a)(2)(E), above.  The Director shall not approve any request to discount reserves under this subsection if the presentation of the trust's reserves for losses and loss adjustment expenses on a discounted basis would not accurately reflect the trust's financial condition and would be misleading to its beneficiaries or the general public.  The Director shall approve or disapprove any such request within thirty (30) days of receipt thereof.

(Source:  Added at 18 Ill. Reg. 2282, effective February 1, 1994)

Section 3601.80  Liquidation

Each trust is required to adhere to reasonable standards of financial solvency.  Should the Director, within his discretion and based upon examination or investigation, determine that any trust is no longer adhering to reasonable standards of financial solvency, he may undertake appropriate proceedings in order to liquidate the trust entity.

Section 3601.90  Amendments to the Trust Instrument

a)         All amendments or modifications to the originally approved trust instrument shall be made in writing and filed in duplicate with the Director of Insurance and approved by the Director of Insurance to their taking effect.

b)         All trustees selected as successors to the original trustees set forth in the application required by Section 3601.20 of this Part shall submit complete biographical data to the Director of Insurance within 14 days of their appointment.  This requirement may be satisfied by the filing of such data by the trust or trust administrator and shall be kept as a part of the permanent records of the trust.

Section 3601.100  Pooling Among Several Trusts

a)         No trust established and approved pursuant to the provisions of this Act shall enter into any written agreements with any other trust fund for the pooling and sharing of risks unless such other trust funds have been established and approved pursuant to the provisions of this Act.

b)         No trust established and approved pursuant to the provisions of this Act shall pool or share risks with any other trust established by the laws of any state of the United States other than Illinois.  It is the specific intention of this provision to limit the pooling and sharing of risks among religious and charitable risk pooling trusts to trust funds approved pursuant to the Act and located in Illinois.

Section 3601.110  Administrators

a)         Each trust approved pursuant to the Act may engage an administrator for the purpose of administrating and operating the trust fund.  Such administrator shall be a resident of the State of Illinois with its principal office located within the State of Illinois.  Such administrator may be a natural person, partnership or corporate entity.

b)         All persons administering a trust approved pursuant to the provisions of the Act shall be subject to the examination of the Director of Insurance in accordance with Section 132 of the Illinois Insurance Code and shall maintain all trust records within the State of Illinois.

c)         All administrators of trusts approved pursuant to the provisions of the Act must adhere to all standards of fiduciary conduct required by the laws of the State of Illinois and must adhere to all standards of claims practices and procedures set forth in the Illinois Insurance Code and all Rules promulgated thereunder.

Section 3601.120  Severability

If any provision of this Rule or the application thereof to any person or circumstance is held invalid, the invalidity shall not effect other provisions or applications of this Act which can be given affect without the invalid provision or application, and to this end the provisions of the Part are severable.

Section 3601.130  Effective Date

This Rule shall be effective on the 26^th day of March, 1978.