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91_SB1115eng
SB1115 Engrossed 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.
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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. In order to
30 create more efficiency in conducting insurance
31 securitization, to allow domestic companies easier access
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1 to alternative sources of capital, and to promote the
2 benefits of insurance securitization generally, this Article
3 is required.
4 (215 ILCS 5/179A-10 new)
5 Sec. 179A-10. Definitions.
6 "Company" means protected cell company.
7 "Domestic company" means an insurance company domiciled
8 in the State of Illinois.
9 "General account" means the assets and liabilities of a
10 protected cell company other than protected cell assets and
11 protected cell liabilities.
12 "Indemnity trigger" means a transaction term in which
13 relief of the issuer's obligation to repay investors is
14 triggered by its suffering a specified level of losses under
15 its policies of insurance or reinsurance.
16 "Insurance securitization" means the entering into of
17 debt instruments supported in full by cash or readily
18 marketable securities with investors by a domestic company
19 where repayment of principal or interest, or both, to
20 investors pursuant to the transaction terms is contingent
21 upon the occurrence or nonoccurrence of an event with respect
22 to which the domestic company is exposed to loss under
23 policies or contracts of insurance or reinsurance it has
24 issued.
25 "Market value" has the meaning given that term in Article
26 VIII of this Code (Investments of Domestic Companies).
27 "Protected cell" means an identified pool of assets and
28 liabilities of a domestic company segregated and insulated by
29 means of this Article from the remainder of the company's
30 assets and liabilities.
31 "Protected cell account" means a specifically identified
32 bank or custodial account established by a protected cell
33 company for the purpose of physically segregating the
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1 protected cell assets of one protected cell from the
2 protected cell assets of other protected cells and from the
3 assets of the protected cell company's general account.
4 "Protected cell assets" means all assets identified with
5 and attributable to a specific protected cell of a protected
6 cell company, including assets physically segregated in a
7 protected cell account.
8 "Protected cell liabilities" means all liabilities
9 identified with and attributable to a specific protected cell
10 of a protected cell company. Protected cell liabilities
11 include liabilities representing the insurance obligations of
12 the protected cell as well as obligations of the protected
13 cell arising out of any insurance securitization transactions
14 of the protected cell.
15 "Protected cell company" means a domestic company which
16 has one or more protected cells.
17 (215 ILCS 5/179A-15 new)
18 Sec. 179A-15. Establishment of protected cells. A
19 domestic company may, with the prior written approval by the
20 Director of a plan of operation submitted by the domestic
21 company with respect to each protected cell, establish one or
22 more protected cells. Upon the written approval by the
23 Director of the plan of operation, which shall include, but
24 not be limited to, the specific business and investment
25 objectives of the protected cell, the company may, in
26 accordance with the approved plan of operation, attribute to
27 the protected cell amounts both reflective of insurance
28 obligations with respect to its insurance business and assets
29 to fund those obligations. A protected cell shall have its
30 own distinct name or designation, which shall include the
31 words "protected cell". The company shall transfer all assets
32 attributable to a protected cell to one or more separately
33 established and identified protected cell accounts bearing
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1 the name or designation of that protected cell. Protected
2 cell assets shall be held in the protected cell accounts for
3 the purpose of satisfying the obligations of that protected
4 cell. All sales, exchanges, transfers, or other attributions
5 of assets and liabilities between a protected cell and the
6 general account or other protected cells shall be in
7 accordance with the plan of operation approved by the
8 Director or shall be otherwise approved by the Director.
9 Unless otherwise approved by the Director, no sale, exchange,
10 transfer, or other attribution of assets or liabilities may
11 be made by a company between any of its protected cells or
12 between the company's general account and one or more of its
13 protected cells unless, in the case of an attribution to a
14 protected cell, the attribution is made solely to establish
15 the protected cell or, in the case of an attribution from a
16 protected cell to the company's general account, the
17 attribution is made solely to support the company's insurance
18 obligations that are the subject of the business of the
19 protected cell. Any sale, exchange, transfer, or other
20 attribution of assets and liabilities between the general
21 account and a protected cell, between 2 or more protected
22 cells of the company, or from investors in the form of
23 principal on a debt instrument issued by a protected cell
24 shall be in cash or in readily marketable securities with
25 established market values unless otherwise approved in
26 advance in writing by the Director.
27 The creation of a protected cell does not create, in
28 respect of that protected cell, a legal person separate from
29 the company. Amounts attributed to a protected cell under
30 this Article, including assets transferred to a protected
31 cell account, are owned by the company and the company may
32 not be, nor hold itself out to be, a trustee with respect to
33 those protected cell assets of that protected cell account.
34 Notwithstanding the foregoing, the company may allow for a
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1 security interest to attach to protected cell assets or a
2 protected cell account when in favor of a creditor of the
3 protected cell and otherwise allowed under applicable law.
4 Nothing in this Article shall be construed to prohibit
5 the company from contracting with or arranging for an
6 investment advisor, commodity trading advisor, or other third
7 party to manage the protected cell assets of a protected
8 cell, provided that all remuneration, expenses, and other
9 compensation of the third party advisor or manager are
10 payable from the protected cell assets of that protected cell
11 and not from the protected cell assets of other protected
12 cells or the assets of the company's general account.
13 A domestic company that is a protected cell company shall
14 establish such administrative and accounting procedures as
15 are necessary to properly identify the one or more protected
16 cells of the company and the protected cell assets and
17 protected cell liabilities attributable thereto. It shall be
18 the duty of the directors of a protected cell company to (i)
19 keep protected cell assets and protected cell liabilities
20 separate and separately identifiable from the assets and
21 liabilities of the company's general account and (ii) to keep
22 protected cell assets and protected cell liabilities
23 attributable to one protected cell separate and separately
24 identifiable from protected cell assets and protected cell
25 liabilities attributable to other protected cells.
26 Notwithstanding the foregoing, and subject to the provisions
27 of Section 179A-35, the remedy of tracing shall be applicable
28 to protected cell assets when commingled with protected cell
29 assets of other protected cells or the assets of the
30 company's general account.
31 (215 ILCS 5/179A-20 new)
32 Sec. 179A-20. Use and operation of protected cells.
33 Unless otherwise approved by the Director, the company shall,
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1 when establishing a protected cell, attribute to the
2 protected cell assets with a value at least equal to the
3 reserves and other insurance liabilities attributed to that
4 protected cell. The protected cell assets of any protected
5 cell may not be charged with liabilities arising out of any
6 other business the company may conduct. All contracts or
7 other documentation reflecting the obligations of a
8 protected cell to the general account shall clearly indicate
9 that only the assets of the protected cell are available for
10 the obligations of the protected cell.
11 Unless otherwise approved by the Director, assets
12 attributed to a protected cell must be valued at their
13 market value on the date of valuation, or if there is no
14 readily available market, then as provided in the contract or
15 the rules or other written agreement applicable to the
16 protected cell.
17 The income, gains, and losses, realized or unrealized,
18 from protected cell assets and protected cell liabilities
19 must be credited to or charged against the protected cell
20 without regard to other income, gains, or losses of the
21 company, including income, gains, or losses of other
22 protected cells. Amounts attributed to a protected cell and
23 accumulations thereon may be invested and reinvested without
24 regard to any requirements or limitations of Article VIII of
25 this Code (Investments of Domestic Companies), and the
26 investments in a protected cell or cells may not be taken
27 into account in applying the investment limitations otherwise
28 applicable to the investments of the company.
29 A protected cell company shall, in respect of any of its
30 protected cells, engage in fully funded indemnity-triggered
31 insurance securitization to support in full the protected
32 cell liabilities attributable to that protected cell. A
33 transaction that is not fully funded is prohibited. An
34 insurance securitization that is not indemnity-triggered and
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1 does not support in full the protected cell obligations of a
2 protected cell shall be prohibited absent specific permission
3 by the Director in accordance with the authority granted
4 under Section 179A-45 and the guidance of the National
5 Association of Insurance Commissioners, as such guidance is
6 developed. A protected cell may pay interest or other
7 consideration on any outstanding debt or other obligation
8 attributable to that protected cell, and nothing in this
9 paragraph shall be construed or interpreted to prevent a
10 protected cell from entering into a swap agreement or other
11 transaction that has the effect of guaranteeing such interest
12 or other consideration.
13 In all cases in which a protected cell engages in an
14 insurance securitization, the financial instrument effecting
15 such transaction shall contain provisions identifying the
16 protected cell to which the transaction will be attributed.
17 In addition, the financial instrument shall clearly disclose
18 that the assets of that protected cell are only available
19 to pay the obligations of that protected cell.
20 Notwithstanding the foregoing, and subject to the provisions
21 of this Article and any other applicable law or rule, the
22 failure to include such language in the financial instrument
23 shall not be used as the sole basis by creditors, reinsurers,
24 or other claimants to circumvent the provisions of this
25 Article.
26 At the cessation of business of a protected cell, the
27 protected cell company shall voluntarily wind up the
28 protected cell in accordance with a plan approved by the
29 Director.
30 (215 ILCS 5/179A-25 new)
31 Sec. 179A-25. Reach of creditors and other claimants.
32 Protected cell assets shall only be available to the
33 creditors of the company who are creditors in respect of that
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1 protected cell and shall thereby be entitled, in conformity
2 with the provisions of this Article, to have recourse to the
3 protected cell assets attributable to that protected cell,
4 and shall be absolutely protected from the creditors of the
5 company who are not creditors in respect of that protected
6 cell and who, accordingly, shall not be entitled to have
7 recourse to the protected cell assets attributable to that
8 protected cell. Creditors of a protected cell shall not be
9 entitled to have recourse against the protected cell assets
10 of other protected cells or the assets of the company's
11 general account.
12 When an obligation of a protected cell company to a
13 person arises from a transaction, or is otherwise imposed, in
14 respect of a protected cell, (i) that obligation of the
15 company shall extend only to, and the person shall, in
16 respect of that obligation, be entitled to have recourse only
17 to the protected cell assets attributable to that protected
18 cell and (ii) that obligation of the company shall not extend
19 to, and that person shall not, in respect of that obligation,
20 be entitled to have recourse to the protected cell assets of
21 any other protected cell or the assets of the company's
22 general account.
23 When an obligation of a protected cell company relates
24 solely to the general account, the obligation of the company
25 shall extend only to, and that creditor shall, in respect of
26 that obligation, be entitled to have recourse only to, the
27 company's general account.
28 A protected cell shall only be authorized to assume an
29 insurance obligation directly from another protected cell of
30 the company or the company's general account, and under no
31 circumstances shall a protected cell be authorized to issue
32 insurance or reinsurance policies or contracts directly to
33 policyholders or reinsureds or have any obligation to the
34 policyholders of the company's general account. The
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1 activities and obligations of a protected cell are not
2 subject to the provisions of Article XXXIII1/2 (Illinois Life
3 and Health Guaranty Association Law) or Article XXXIV
4 (Illinois Insurance Guaranty Fund), and protected cells shall
5 not be assessed by or otherwise be required to contribute to
6 any guaranty fund or guaranty association in this State.
7 Nothing in this provision shall affect the activities or
8 obligations of a company's general account.
9 In no event shall the establishment of one or more
10 protected cells alone constitute or be deemed to be a
11 fraudulent conveyance, an intent by the company to defraud
12 creditors, or the carrying out of business by the company for
13 any other fraudulent purpose.
14 (215 ILCS 5/179A-30 new)
15 Sec. 179A-30. Rehabilitation and liquidation of
16 protected cell companies. Notwithstanding any contrary
17 provision in this Code, the rules promulgated under this
18 Code, or any other applicable law or rule, upon any order of
19 rehabilitation, conservation, or liquidation of a domestic
20 company that is a protected cell company, the receiver shall
21 be bound to deal with the company's assets and liabilities,
22 including protected cell assets and protected cell
23 liabilities, in accordance with the requirements set forth in
24 this Article.
25 With respect to amounts recoverable under any insurance
26 securitization entered into or outstanding in any protected
27 cell of a protected cell company, the amount recoverable by
28 the receiver shall not be reduced or diminished as a result
29 of the entry of an order of rehabilitation, conservation, or
30 liquidation with respect to the protected cell company or any
31 of its protected cells notwithstanding any provisions to the
32 contrary in the financial instrument governing such insurance
33 securitization.
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1 (215 ILCS 5/179A-35 new)
2 Sec. 179A-35. Penalties. Any person violating the
3 provisions of this Article shall be subject to any and all
4 enforcement procedures either currently employed or
5 subsequently promulgated by the Department including, but not
6 limited to, the imposition of fines, sanctions or civil
7 penalties, or an order to cease and desist from the
8 establishment of additional protected cells.
9 (215 ILCS 5/179A-40 new)
10 Sec. 179A-40. No transaction of an insurance business.
11 No insurance securitization effected under the provisions of
12 this Article shall be deemed to be an insurance policy or
13 contract of insurance and no investor in a securitization
14 transaction shall, by sole means of such investment, be
15 required to be licensed as an insurance company in the State
16 of Illinois.
17 (215 ILCS 5/179A-45 new)
18 Sec. 179A-45. Rules. The Director may promulgate
19 reasonable rules as may be necessary to effectuate the
20 purposes of this Article.
21 Section 99. Effective date. This Act takes effect upon
22 becoming law.
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