[ Back ] [ Bottom ]
91_SB1115enr
SB1115 Enrolled LRB9102645JSpcA
1 AN ACT to amend the Illinois Insurance Code by changing
2 Section 107.06a and adding Article XI 1/2.
3 Be it enacted by the People of the State of Illinois,
4 represented in the General Assembly:
5 Section 5. The Illinois Insurance Code is amended by
6 changing Section 107.06a and adding Article XI 1/2 as
7 follows:
8 (215 ILCS 5/107.06a) (from Ch. 73, par. 719.06a)
9 Sec. 107.06a. Organization under Illinois Insurance
10 Code.
11 (a) After December 31, 1997, a syndicate or limited
12 syndicate, except for a limited syndicate formed as a
13 partnership, may only be organized pursuant to Sections 7, 8,
14 10, 11, 12, 14, 14.1 (other than subsection (d) thereof), 15
15 (other than subsection (d) thereof), 18, 19, 20, 21, 22, 23,
16 25, 27.1, 28, 28.1, 28.2, 29, 30, 31, 32, 32.1, 33, and 35.1
17 and Article X of this Code, to carry on the business of a
18 syndicate, or limited syndicate under Article V-1/2 of this
19 Code; provided that such syndicate or limited syndicate is
20 admitted to the Exchange.
21 (b) After December 31, 1997, syndicates and limited
22 syndicates are subject to the following:
23 (1) Articles I, IIA, VIII, VIII 1/2, X, XI, XI 1/2,
24 XII, XII 1/2, XIII, XIII 1/2, XXIV, XXV (Sections 408
25 and 412 only), and XXVIII (except for Sections 445,
26 445.1, 445.2, 445.3, 445.4, and 445.5) of this Code;
27 (2) Subsections (2) and (3) of Section 155.04 and
28 Sections 13, 132.1 through 140, 141a, 144, 155.01,
29 155.03, 378, 379.1, 393.1, 395, and 396 of this Code;
30 (3) the Reinsurance Intermediary Act; and
31 (4) the Producer Controlled Insurer Act.
SB1115 Enrolled -2- LRB9102645JSpcA
1 (c) No other provision of this Insurance Code shall be
2 applicable to any such syndicate or limited syndicate except
3 as provided in this Article V-1/2.
4 (Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97;
5 90-794, eff. 8-14-98.)
6 (215 ILCS 5/Art. XI 1/2 heading new)
7 Article XI 1/2.
8 Protected Cell Companies
9 (215 ILCS 5/179A-1 new)
10 Sec. 179A-1. Short title. This Article may be cited as
11 the Protected Cell Company Law.
12 (215 ILCS 5/179A-5 new)
13 Sec. 179A-5. Purpose. Insurance securitization has been
14 developed as a means of accessing alternative sources of
15 capital and diversifying credit risk in order to enhance an
16 insurance company's ability to both assume risk and stabilize
17 underwriting results. Under the terms of the typical debt
18 instrument underlying an insurance securitization
19 transaction, prepaid principal is repaid to the investor on a
20 specified maturity date with interest, unless a trigger event
21 occurs. The proceeds of the debt instrument both
22 collateralize the insurance company's obligations under
23 specified contracts of insurance if a trigger event occurs,
24 as well as the insurance company's obligation to repay the
25 debt instrument if a trigger event does not occur.
26 Traditionally, insurance securitization transactions have
27 been performed through alien companies in order to utilize
28 efficiencies available to alien companies that are not
29 currently available to domestic companies. This Article is
30 adopted in order to create more efficiency in conducting
31 insurance securitization, to allow domestic companies easier
SB1115 Enrolled -3- LRB9102645JSpcA
1 access to alternative sources of capital, and to promote
2 the benefits of insurance securitization generally.
3 (215 ILCS 5/179A-10 new)
4 Sec. 179A-10. Definitions.
5 "Domestic company" means an insurance company domiciled
6 in the State of Illinois.
7 "General account" means the assets and liabilities of a
8 protected cell company other than protected cell assets and
9 protected cell liabilities.
10 "Indemnity trigger" means a transaction term in which
11 relief of the issuer's obligation to repay investors is
12 triggered by its suffering a specified level of losses under
13 its policies of insurance or reinsurance.
14 "Insurance securitization" means the entering into of
15 debt instruments supported in full by cash or readily
16 marketable securities with investors by a domestic company
17 where repayment of principal or interest, or both, to
18 investors pursuant to the transaction terms is contingent
19 upon the occurrence or nonoccurrence of an event with respect
20 to which the domestic company is exposed to loss under
21 policies or contracts of insurance or reinsurance it has
22 issued.
23 "Market value" has the meaning given that term in Article
24 VIII of this Code (Investments of Domestic Companies).
25 "Protected cell" means an identified pool of assets and
26 liabilities of a domestic company segregated and insulated by
27 means of this Article from the remainder of the company's
28 assets and liabilities.
29 "Protected cell account" means a specifically identified
30 bank or custodial account established by a protected cell
31 company for the purpose of legally segregating the protected
32 cell assets of one protected cell from the protected cell
33 assets of other protected cells and from the assets of the
SB1115 Enrolled -4- LRB9102645JSpcA
1 protected cell company's general account.
2 "Protected cell assets" means all assets identified with
3 and attributable to a specific protected cell of a protected
4 cell company, including assets physically segregated in a
5 protected cell account.
6 "Protected cell liabilities" means all liabilities
7 identified with and attributable to a specific protected cell
8 of a protected cell company. Protected cell liabilities
9 include liabilities representing the insurance obligations of
10 the protected cell as well as obligations of the protected
11 cell arising out of any insurance securitization transactions
12 of the protected cell.
13 "Protected cell company" means a domestic company which
14 has one or more protected cells.
15 (215 ILCS 5/179A-15 new)
16 Sec. 179A-15. Establishment of protected cells.
17 (a) A domestic company may, with the prior written
18 approval by the Director of a plan of operation submitted by
19 the domestic company with respect to each protected cell,
20 establish one or more protected cells. Upon the written
21 approval by the Director of the plan of operation, which
22 shall include, but not be limited to, the specific business
23 and investment objectives of the protected cell, the company
24 may, in accordance with the approved plan of operation,
25 attribute to the protected cell amounts both reflective of
26 insurance obligations with respect to its insurance business
27 and assets to fund those obligations. A protected cell shall
28 have its own distinct name or designation, which shall
29 include the words "protected cell". The company shall
30 transfer all assets attributable to a protected cell to one
31 or more separately established and identified protected cell
32 accounts bearing the name or designation of that protected
33 cell. Protected cell assets shall be held in the protected
SB1115 Enrolled -5- LRB9102645JSpcA
1 cell accounts for the purpose of satisfying the obligations
2 of that protected cell.
3 (b) All sales, exchanges, transfers, or other
4 attributions of assets and liabilities between a protected
5 cell and the general account shall be in accordance with the
6 plan of operation approved by the Director or shall be
7 otherwise approved by the Director. Unless otherwise
8 approved by the Director, no sale, exchange, transfer, or
9 other attribution of assets or liabilities may be made by a
10 company between the company's general account and one or more
11 of its protected cells unless, in the case of an attribution
12 to a protected cell, the attribution is made solely to
13 establish the protected cell or, in the case of an
14 attribution from a protected cell to the company's general
15 account, the attribution is made solely to support the
16 company's insurance obligations that are the subject of the
17 business of the protected cell. Any sale, exchange,
18 transfer, or other attribution of assets and liabilities
19 between the general account and a protected cell or from
20 investors in the form of principal on a debt instrument
21 issued by a protected cell shall be in cash or in readily
22 marketable securities with established market values unless
23 otherwise approved in advance in writing by the Director.
24 (c) The creation of a protected cell does not create, in
25 respect of that protected cell, a legal person separate from
26 the company. Amounts attributed to a protected cell under
27 this Article, including assets transferred to a protected
28 cell account, are owned by the company and the company may
29 not be, nor hold itself out to be, a trustee with respect to
30 those protected cell assets of that protected cell account.
31 Notwithstanding the foregoing, the company may allow for a
32 security interest to attach to protected cell assets or a
33 protected cell account when in favor of a creditor of the
34 protected cell and otherwise allowed under applicable law.
SB1115 Enrolled -6- LRB9102645JSpcA
1 (d) This Article shall not be construed to prohibit the
2 company from contracting with or arranging for an investment
3 advisor, commodity trading advisor, or other third party to
4 manage the protected cell assets of a protected cell,
5 provided that all remuneration, expenses, and other
6 compensation of the third party advisor or manager are
7 payable from the protected cell assets of that protected cell
8 and not from the protected cell assets of other protected
9 cells or the assets of the company's general account.
10 (e) A domestic company that is a protected cell company
11 shall establish such administrative and accounting procedures
12 as are necessary to properly identify the one or more
13 protected cells of the company and the protected cell assets
14 and protected cell liabilities attributable thereto. It
15 shall be the duty of the directors of a protected cell
16 company to (i) keep protected cell assets and protected cell
17 liabilities separate and separately identifiable from the
18 assets and liabilities of the company's general account and
19 (ii) keep protected cell assets and protected cell
20 liabilities attributable to one protected cell separate and
21 separately identifiable from protected cell assets and
22 protected cell liabilities attributable to other protected
23 cells. Notwithstanding the foregoing, the remedy of tracing
24 shall be applicable to protected cell assets when commingled
25 with protected cell assets of other protected cells or the
26 assets of the company's general account.
27 (f) Unless otherwise approved by the Director, the
28 company shall, when establishing a protected cell, attribute
29 to the protected cell assets with a value at least equal to
30 the reserves and other insurance liabilities attributed to
31 that protected cell.
32 (215 ILCS 5/179A-20 new)
33 Sec. 179A-20. Use and operation of protected cells.
SB1115 Enrolled -7- LRB9102645JSpcA
1 (a) The protected cell assets of any protected cell may
2 not be charged with liabilities arising out of any other
3 business the company may conduct. All contracts or other
4 documentation reflecting the obligations of a protected cell
5 to the general account shall clearly indicate that only the
6 assets of the protected cell are available for the
7 obligations of the protected cell.
8 (b) The income, gains, and losses, realized or
9 unrealized, from protected cell assets and protected cell
10 liabilities must be credited to or charged against the
11 protected cell without regard to other income, gains, or
12 losses of the company, including income, gains, or losses of
13 other protected cells. Amounts attributed to a protected
14 cell and accumulations thereon may be invested and reinvested
15 without regard to any requirements or limitations of Article
16 VIII of this Code (Investments of Domestic Companies), and
17 the investments in a protected cell or cells may not be taken
18 into account in applying the investment limitations otherwise
19 applicable to the investments of the company.
20 (c) Unless otherwise approved by the Director, assets
21 attributed to a protected cell must be valued at their
22 market value on the date of valuation, or if there is no
23 readily available market, then as provided in the contract or
24 the rules or other written documentation applicable to the
25 protected cell.
26 (d) A protected cell company shall, in respect of any of
27 its protected cells, engage in fully funded
28 indemnity-triggered insurance securitization to support in
29 full the protected cell liabilities attributable to that
30 protected cell. An insurance securitization that is not
31 indemnity-triggered and does not support in full the
32 protected cell obligations of a protected cell shall be
33 prohibited absent specific permission by the Director in
34 accordance with the authority granted under Section 179A-40
SB1115 Enrolled -8- LRB9102645JSpcA
1 and the guidance of the National Association of Insurance
2 Commissioners, as such guidance is developed. An insurance
3 securitization transaction that is not fully funded, whether
4 indemnity-triggered or not indemnity-triggered, is
5 prohibited. A protected cell may pay interest or other
6 consideration on any outstanding debt or other obligation
7 attributable to that protected cell, and nothing in this
8 subsection shall be construed or interpreted to prevent a
9 protected cell from entering into a swap agreement or other
10 transaction that has the effect of guaranteeing such interest
11 or other consideration.
12 (e) In all cases in which a protected cell engages in an
13 insurance securitization, the financial instrument effecting
14 such transaction shall contain provisions identifying the
15 protected cell to which the transaction will be attributed.
16 In addition, the financial instrument shall clearly disclose
17 that the assets of that protected cell, and only those
18 assets, are available to pay the obligations of that
19 protected cell. Notwithstanding the foregoing, and subject to
20 the provisions of this Article and any other applicable law
21 or rule, the failure to include such language in the
22 financial instrument shall not be used as the sole basis by
23 creditors, reinsurers, or other claimants to circumvent the
24 provisions of this Article.
25 (f) At the cessation of business of a protected cell,
26 the protected cell company shall voluntarily wind up the
27 protected cell in accordance with a plan approved by the
28 Director.
29 (215 ILCS 5/179A-25 new)
30 Sec. 179A-25. Reach of creditors and other claimants.
31 (a) Protected cell assets shall only be available to the
32 creditors of the company who are creditors in respect of that
33 protected cell and shall thereby be entitled, in conformity
SB1115 Enrolled -9- LRB9102645JSpcA
1 with the provisions of this Article, to have recourse to the
2 protected cell assets attributable to that protected cell,
3 and shall be absolutely protected from the creditors of the
4 company who are not creditors in respect of that protected
5 cell and who, accordingly, shall not be entitled to have
6 recourse to the protected cell assets attributable to that
7 protected cell. Creditors of a protected cell shall not be
8 entitled to have recourse against the protected cell assets
9 of other protected cells or the assets of the company's
10 general account.
11 (b) When an obligation of a protected cell company to a
12 person arises from a transaction, or is otherwise imposed, in
13 respect of a protected cell:
14 (1) that obligation of the company shall extend
15 only to the protected cell assets attributable to that
16 protected cell, and the person shall, in respect of that
17 obligation, be entitled to have recourse only to the
18 protected cell assets attributable to that protected
19 cell; and
20 (2) that obligation of the company shall not extend
21 to the protected cell assets of any other protected cell
22 or the assets of the company's general account, and that
23 person shall not, in respect of that obligation, be
24 entitled to have recourse to the protected cell assets of
25 any other protected cell or the assets of the company's
26 general account.
27 (c) When an obligation of a protected cell company
28 relates solely to the general account, the obligation of the
29 company shall extend only to, and that creditor shall, in
30 respect of that obligation, be entitled to have recourse only
31 to, the company's general account.
32 (d) A protected cell shall only be authorized to assume
33 an insurance obligation directly from the company's general
34 account, and under no circumstances shall a protected cell be
SB1115 Enrolled -10- LRB9102645JSpcA
1 authorized to issue insurance or reinsurance policies or
2 contracts directly to policyholders or reinsureds or have any
3 obligation to the policyholders of the company's general
4 account. The activities and obligations of a protected cell
5 are not subject to the provisions of Article XXXIII1/2
6 (Illinois Life and Health Guaranty Association Law) or
7 Article XXXIV (Illinois Insurance Guaranty Fund), and
8 protected cells shall not be assessed by or otherwise be
9 required to contribute to any guaranty fund or guaranty
10 association in this State. Nothing in this subsection shall
11 affect the activities or obligations of a company's general
12 account.
13 (e) In no event shall the establishment of one or more
14 protected cells alone constitute or be deemed to be a
15 fraudulent conveyance, an intent by the company to defraud
16 creditors, or the carrying out of business by the company for
17 any other fraudulent purpose.
18 (215 ILCS 5/179A-30 new)
19 Sec. 179A-30. Rehabilitation and liquidation of
20 protected cell companies.
21 (a) Notwithstanding any contrary provision in this Code,
22 the rules promulgated under this Code, or any other
23 applicable law or rule, upon any order of rehabilitation,
24 conservation, or liquidation of a domestic company that is a
25 protected cell company, the receiver shall be bound to deal
26 with the company's assets and liabilities, including
27 protected cell assets and protected cell liabilities, in
28 accordance with the requirements set forth in this Article.
29 (b) With respect to amounts recoverable under any
30 insurance securitization entered into or outstanding in any
31 protected cell of a protected cell company, the amount
32 recoverable by the receiver shall not be reduced or
33 diminished as a result of the entry of an order of
SB1115 Enrolled -11- LRB9102645JSpcA
1 rehabilitation, conservation, or liquidation with respect to
2 the protected cell company notwithstanding any provisions to
3 the contrary in the financial instrument governing such
4 insurance securitization.
5 (215 ILCS 5/179A-35 new)
6 Sec. 179A-35. No transaction of an insurance business.
7 No insurance securitization effected under the provisions of
8 this Article shall be deemed to be an insurance policy or
9 contract of insurance and no investor in a securitization
10 transaction shall, by sole means of such investment, be
11 required to be licensed as an insurance company in the State
12 of Illinois.
13 (215 ILCS 5/179A-40 new)
14 Sec. 179A-40. Rules. The Director may promulgate
15 reasonable rules as may be necessary to effectuate the
16 purposes of this Article.
17 Section 99. Effective date. This Act takes effect upon
18 becoming law.
[ Top ]