SB1286eng 100TH GENERAL ASSEMBLY

SB1286 Engrossed LRB100 06959 SMS 17010 b

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Insurance Code is amended by changing Sections 121-2.08, 123C-1, 123C-2, 123C-3, 123C-9, 123C-11, 123C-12, 123C-13, 123C-16, 123C-17, and 123C-19 and by adding Sections 123C-23, 123C-24, 123C-25, 123C-26, 123C-27, and 123C-28 as follows:

(215 ILCS 5/121-2.08) (from Ch. 73, par. 733-2.08)

Sec. 121-2.08. Transactions in this State involving contracts of insurance independently procured directly from an unauthorized insurer by industrial insureds.

(a) As used in this Section:

"Exempt commercial purchaser" means exempt commercial purchaser as the term is defined in subsection (1) of Section 445 of this Code.

"Home state" means home state as the term is defined in subsection (1) of Section 445 of this Code.

"Industrial insured" means an insured:

(i) that procures the insurance of any risk or risks of the kinds specified in Classes 2 and 3 of Section 4 of this Code by use of the services of a full-time employee who is a qualified risk manager or the services of a regularly and continuously retained consultant who is a qualified risk manager;

(ii) that procures the insurance directly from an unauthorized insurer without the services of an intermediary insurance producer; and

(iii) that is an exempt commercial purchaser whose home state is Illinois.

"Insurance producer" means insurance producer as the term is defined in Section 500-10 of this Code.

"Qualified risk manager" means qualified risk manager as the term is defined in subsection (1) of Section 445 of this Code.

"Unauthorized insurer" means unauthorized insurer as the term is defined in subsection (1) of Section 445 of this Code.

(b) For contracts of insurance effective January 1, 2015 or later, within 90 days after the effective date of each contract of insurance issued under this Section, the insured shall file a report with the Director by submitting the report to the Surplus Line Association of Illinois in writing or in a computer readable format and provide information as designated by the Surplus Line Association of Illinois. The information in the report shall be substantially similar to that required for surplus line submissions as described in subsection (5) of Section 445 of this Code. Where applicable, the report shall satisfy, with respect to the subject insurance, the reporting requirement of Section 12 of the Fire Investigation Act.

(c) For contracts of insurance effective January 1, 2015 through December 31, 2017 or later, within 30 days after filing the report, the insured shall pay to the Director for the use and benefit of the State a sum equal to the gross premium of the contract of insurance multiplied by the surplus line tax rate, as described in paragraph (3) of subsection (a) of Section 445 of this Code, and shall pay the fire marshal tax that would otherwise be due annually in March for insurance subject to tax under Section 12 of the Fire Investigation Act. For contracts of insurance effective January 1, 2018 or later, within 30 days after filing the report, the insured shall pay to the Director for the use and benefit of the State a sum equal to 0.5% of the gross premium of the contract of insurance, and shall pay the fire marshal tax that would otherwise be due annually in March for insurance subject to tax under Section 12 of the Fire Investigation Act. For contracts of insurance effective January 1, 2015 or later, within 30 days after filing the report, the insured shall pay to the Surplus Line Association of Illinois a countersigning fee that shall be assessed at the same rate charged to members pursuant to subsection (4) of Section 445.1 of this Code.

(d) For contracts of insurance effective January 1, 2015 or later, the insured shall withhold the amount of the taxes and countersignature fee from the amount of premium charged by and otherwise payable to the insurer for the insurance. If the insured fails to withhold the tax and countersignature fee from the premium, then the insured shall be liable for the amounts thereof and shall pay the amounts as prescribed in subsection (c) of this Section.

(e) Contracts of insurance with an industrial insured that qualifies as a Safety-Net Hospital are not subject to subsections (b) through (d) of this Section.

(Source: P.A. 98-978, eff. 1-1-15.)

(215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-1. Definitions. As used in this Article:

A. "Affiliate" or "Affiliated company" includes a parent entity that controls a captive insurance company and:

(1) is an affiliate of another entity if the entity directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the other entity.

(2) is an affiliate of another entity if the entity is an affiliate of and is controlled by the other entity directly or indirectly through one or more intermediaries. A subsidiary or holding company of an entity is an affiliate of that entity. shall have the meaning set forth in subsection (a) of Section 131.1 (and, for purposes of such definition, the definitions of "control" and "person", as set forth in subsections (b) and (e) of Section 131.1, respectively, shall be applicable).

B. "Association" means any entity meeting the requirements set forth in either of the following paragraphs (1), (2) or (3):

(1) any organized association of individuals, legal representatives, corporations (whether for profit or not for profit), partnerships, trusts, associations, units of government or other organizations, or any combination of the foregoing, that has been in continuous existence for at least one year, the member organizations of which collectively:

(a) own, control, or hold with power to vote (directly or indirectly) all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(b) have complete voting control (directly or indirectly) over an association captive insurance company organized as a mutual insurer;

(2) any organized association of individuals, legal representatives, corporations (whether for profit or not for profit), partnerships, trusts, associations, units of government or other organizations, or any combination of the foregoing:

(a) whose member organizations are engaged in businesses or activities similar or related with respect to the liability of which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and

(b) whose member organizations:

(i) directly or indirectly own or control, and hold with power to vote, at least 80% of all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(ii) directly or indirectly have at least 80% of the voting control over an association captive insurance company organized as a mutual insurer; or

(3) any risk retention group, as defined in subsection (11) of Section 123B-2, domiciled in this State and organized under this Article; however, beginning 6 months after the effective date of this amendatory Act of 1995, a risk retention group shall no longer qualify as an association under this Article.

Provided, however, that with respect to each of the associations described in paragraphs (1), (2) and (3) above, no member organization may (i) own, control, or hold with power to vote in excess of 25% of the voting securities of an association captive insurance company incorporated as a stock insurer, or (ii) have more than 25% of the voting control of an association captive insurance company organized as a mutual insurer.

C. "Association captive insurance company" means any company that insures risks of (i) the member organizations of an association, and (ii) their affiliated companies.

D. "Captive insurance company" means any pure captive insurance company, association captive insurance company or industrial insured captive insurance company organized under the provisions of this Article.

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

F. "Industrial insured" means an insured which (together with its affiliates) at the time of its initial procurement of insurance from an industrial insured captive insurance company:

(1) has available to it advice with respect to the purchase of insurance through the use of the services of a full-time employee acting as an insurance manager or buyer or the services of a regularly and continuously retained qualified insurance consultant; and

(2) pays aggregate annual premiums in excess of $100,000 for insurance on all risks except for life, accident and health; and

(3) either (i) has at least 25 full-time employees, or (ii) has gross assets in excess of $3,000,000, or (iii) has annual gross revenues in excess of $5,000,000.

G. "Industrial insured captive insurance company" means any company that insures risks of industrial insureds that are members of the industrial insured group, and their affiliated companies.

H. "Industrial insured group" means any group of industrial insureds that collectively:

(1) directly or indirectly (including ownership or control through a company which is wholly owned by such group of industrial insureds) own or control, and hold with power to vote, all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer; or

(2) directly or indirectly (including control through a company which is wholly owned by such group of industrial insureds) have complete voting control over an industrial insured captive insurance company organized as a mutual insurer; provided, however, that no member organization may (i) own, control, or hold with power to vote in excess of 25% of the voting securities of an industrial insured captive insurance company incorporated as a stock insurer, or (ii) have more than 25% of the voting control of an industrial insured captive insurance company organized as a mutual insurer.

I. "Member organization" means any individual, legal representative, corporation (whether for profit or not for profit), partnership, association, unit of government, trust or other organization that belongs to an association or an industrial insured group.

J. "Parent" means a corporation, partnership, individual or other legal entity that directly or indirectly owns, controls, or holds with power to vote more than 50% of the outstanding voting securities of a company.

K. "Personal risk liability" means liability to other persons for (i) damage because of injury to any person, (ii) damage to property, or (iii) other loss or damage, in each case resulting from any personal, familial, or household responsibilities or activities, but does not include legal liability for damages (including costs of defense, legal costs and fees, and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of:

(i) any business (whether for profit or not for profit), trade, product, services (including professional services), premises, or operations; or

(ii) any activity of any state or local government, or any agency or political subdivision thereof.

L. "Pure captive insurance company" means any company that insures only risks of its parent or affiliated companies or both.

M. "Unit of government" includes any state, regional or local government, or any agency or political subdivision thereof, or any district, authority, public educational institution or school district, public corporation or other unit of government in this State or any similar unit of government in any other state.

N. "Control" means the power to direct, or cause the direction of, the management and policies of an entity, other than the power that results from an official position with or corporate office held in the entity. The power may be possessed directly or indirectly by any means, including through the ownership of voting securities or by contract, other than a commercial contract for goods or non-management services.

O. "Qualified independent actuary" means a person that is either:

(1) a member in good standing with the Casualty Actuarial Society; or

(2) a member in good standing with 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.

P. "Controlled unaffiliated business" means an entity:

(1) that is not an affiliate;

(2) that has an existing contractual relationship with an affiliate under which the affiliate bears a potential financial loss; and

(3) whose risks are managed by a captive insurance company under Section 123C-24 of this Code.

Q. "Operational risk" means any potential financial loss of an affiliate, except for a loss arising from an insurance policy issued by a captive or insurance affiliate.

R. "Captive management company" means an entity providing administrative services to a captive insurance company.

S. "Safety-Net Hospital" means an Illinois hospital that qualifies as a Safety-Net Hospital under Section 5-5e.1 of the Illinois Public Aid Code.

(Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)

(215 ILCS 5/123C-2) (from Ch. 73, par. 735C-2)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-2. Authority of captives; restrictions.

A. Except as provided by this Section, a captive insurance company may write any type of insurance, but may only insure the operational risks of the company's affiliates and risks of a controlled unaffiliated business. Any captive insurance company, when permitted by its articles of association or charter, may apply to the Director for a certificate of authority to transact any and all insurance in classes 2 and 3 of Section 4 of this Code, except that:

(1) no pure captive insurance company may insure any risks other than those of its parent and affiliated companies;

(2) no association captive insurance company may insure any risks other than those of the member organizations of its association, and their affiliated companies;

(3) no industrial insured captive insurance company may insure any risks other than those of the members of the industrial insured group, and their affiliated companies; and

(4) no captive insurance company may provide:

(i) personal motor vehicle coverage or homeowner's insurance coverage or any component thereof, or

(ii) personal coverage for personal risk liability, or

(iii) coverage for an employer's liability to its employees other than legal liability under the federal Employers' Liability Act (45 U.S.C. 51 et seq.), provided, however, this exclusion does not preclude reinsurance of such employer's liability, or

(iv) accident and health insurance as provided in clause (a) of Class 2 of Section 4, provided, however, this exclusion does not preclude stop-loss insurance or reinsurance of a single employer self-funded employee disability benefit plan or an employee welfare plan as described in 29 U.S.C. 1001 et seq.

A-5. A captive insurance company may not issue:

(1) life insurance;

(2) annuities;

(3) accident and health insurance for the company's parent and affiliates, except to insure employee benefits that are subject to the federal Employee Retirement Income Security Act of 1974;

(4) title insurance;

(5) mortgage guaranty insurance;

(6) financial guaranty insurance;

(7) residential property insurance;

(8) personal automobile insurance; or

(9) workers' compensation insurance.

A-10. A captive insurance company may not issue a type of insurance, including automobile liability insurance, that is required under the laws of this State or a political subdivision of this State as a prerequisite for obtaining a license or permit if the law requires that the liability insurance be issued by an insurer authorized to engage in the business of insurance in this State.

A-15. A captive insurance company is authorized to issue a contractual reimbursement policy to:

(1) an affiliated certified self-insurer authorized under the Workers' Compensation Act or a similar affiliated entity expressly authorized by analogous laws of another state; or

(2) an affiliate that is insured by a workers' compensation insurance policy with a negotiated deductible endorsement.

B. No captive insurance company shall do any insurance business in this State unless:

(1) it first obtains from the Director a certificate of authority authorizing it to do such insurance business in this State; and

(2) it appoints a resident registered agent to accept service of process and to otherwise act on its behalf in this State.

C. No captive insurance company shall adopt a name that is the same as, deceptively similar to, or likely to be confused with or mistaken for, any other existing business name registered in this State.

D. Each captive insurance company, or the organizations providing the principal administrative or management services to such captive insurance company, shall maintain a place of business in this State.

(Source: P.A. 91-357, eff. 7-29-99.)

(215 ILCS 5/123C-3) (from Ch. 73, par. 735C-3)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-3. Minimum capital and surplus.

A. The Department may not issue a certificate of authority to a captive insurance company unless the company possesses and maintains unencumbered capital and surplus in an amount determined by the Director after considering:

(1) the amount of premium written by the captive insurance company;

(2) the characteristics of the assets held by the captive insurance company;

(3) the terms of reinsurance arrangements entered into by the captive insurance company;

(4) the type of business covered in policies issued by the captive insurance company;

(5) the underwriting practices and procedures of the captive insurance company; and

(6) any other criteria that has an impact on the operations of the captive insurance company determined to be significant by the Director. No pure captive insurance company, association captive insurance company incorporated as a stock insurer, or industrial insured captive insurance company incorporated as a stock insurer shall be issued a certificate of authority unless it shall possess and thereafter maintain unimpaired paid-in capital of not less than the minimum capital requirement applicable to the class or classes and clause or clauses of Section 4 describing the kind or kinds of insurance which such captive insurance company is authorized to write, as set forth in subsection (1) of Section 13.

B. The amount of capital and surplus determined by the Director under subsection A of this Section may not be less than $250,000 for a pure captive insurance company, $500,000 for an industrial insured captive insurance company, and $750,000 for an association captive insurance company. Such capital may be in the form of (1) all cash or cash equivalents; or (2) cash or cash equivalents representing at least 20% of the requisite capital, together with an irrevocable letter of credit for the remainder of the requisite capital, which letter of credit must (a) be approved by the Director, (b) be issued or unconditionally confirmed by (i) a bank chartered by this State, (ii) a member bank of the Federal Reserve System or (iii) a United States office of a foreign banking corporation that is: (A) licensed under the laws of the United States or any state thereof, (B) regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies, and (C) designated by the Securities Valuation Office of the National Association of Insurance Commissioners as meeting its credit standards for issuing or confirming letters of credit or, in the event that the Director elects to establish credit standards by rule, in compliance with rules promulgated by the Director establishing reasonable standards of safety and soundness substantially equivalent to those of the Securities Valuation Office of the National Association of Insurance Commissioners, and (c) satisfy the requirements of Section 123C-19; or (3) cash or cash equivalents representing at least 33% of the requisite capital, together with irrevocable contractual obligations of the member organizations of the captive insurance company for the payment of the remainder of the requisite capital in no more than 3 equal installments in each of the 3 calendar years following the date of the grant of the certificate of authority to the captive insurance company, which irrevocable contractual obligations shall by contract be subject to acceleration (in a manner acceptable to the Director) by the Company at the direction of the Director and shall be secured by a letter of credit or other form of guarantee or security acceptable to the Director.

C. The capital and surplus required by subsection A of this Section must be in the form of:

(1) United States currency;

(2) an irrevocable letter of credit, in a form approved by the Director and not secured by a guarantee from an affiliate, naming the Director as beneficiary for the security of the captive insurance company's policyholders and issued by a bank approved by the Director;

(3) bonds of this State; or

(4) bonds or other evidences of indebtedness of the United States, the principal and interest of which are guaranteed by the United States.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-9) (from Ch. 73, par. 735C-9)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-9. Reports, statements and mandatory reserves.

A. Captive insurance companies shall not be required to make any annual report except as provided in this Article.

B. (1) On or before Prior to March 1 of each year, each captive insurance company shall submit to the Director a report of its financial condition, verified by oath of 2 of its executive officers and including (i) a balance sheet reporting assets, liabilities, capital and surplus, (ii) a statement of gain or loss from operations, (iii) a statement of changes in financial position, (iv) a statement of changes in capital and surplus, and (v) in the case of industrial insured captive insurance companies, an analysis of loss reserve development, information on risks ceded and assumed under reinsurance agreements, on forms prescribed by the Director, and a schedule of its invested assets on forms prescribed by the Director, and (vi) a statement of actuarial opinion by a qualified independent actuary concerning the reasonableness of the captive insurance company's loss and loss adjustment expense reserves in such form and of such content as specified in the National Association of Insurance Commissioners Annual Statement Instructions: Property and Casualty.

(2) In addition, prior to March 1 of each year, each association captive insurance company shall submit to the Director such additional data or information, which the Director may from time to time require, on a form specified by the Director.

(3) On or before June 1 of each year, each captive insurance company shall submit to the Director a report of its financial condition at last year's end with an independent certified public accountant's opinion of the company's financial condition. Prior to June 1 of each year, each association and industrial insured captive insurance company shall submit to the Director a report of its financial condition, certified by a recognized firm of independent public accountants acceptable to the Director and including the items referred to in items (i), (ii), (iii) and (iv) of paragraph (1) of this subsection B.

(4) Unless the Director permits otherwise, the reports of financial condition referred to in paragraphs (1) and (3) of this subsection B are to be prepared in accordance with the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners. The Director shall have authority to extend the time for filing any report or statement by any company for reasons which he considers good and sufficient.

C. In addition, any captive insurance company may be required by the Director, when he considers such action to be necessary and appropriate for the protection of policyholders, creditors, shareholders or claimants, to file, within 60 days after mailing to the company of a notice that such is required, a supplemental summary statement as of the last day of any calendar month occurring during the 100 days next preceding the mailing of such notice designated by him on forms prescribed and furnished by the Director. No company shall be required to file more than 4 supplemental summary statements during any consecutive 12 month period.

D. Every captive insurance company shall, at all times, maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses and claims incurred, whether reported or unreported, which are unpaid and for which such company may be liable, and to provide for the expenses of adjustment or settlement of such losses and claims. The aggregate reserves shall be reduced by reinsurance ceded which meets the requirements of Section 123C-13. For the purpose of such reserves, the company shall keep a complete and itemized record showing all losses and claims on which it has received notice, including all notices received by it of the occurrence of any event which may result in a loss. Such record shall be opened in chronological receipt order, with each notice of loss or claim identified by appropriate number or coding.

E. Every captive insurance company shall maintain an unearned premium reserve on all policies in force which reserve shall be charged as a liability. The portions of the gross premiums in force, after deducting reinsurance qualifying under Section 123C-13, which shall be held as a premium reserve, shall never be less in the aggregate than the company's actual liability to all its insureds for the return of gross unearned premiums. In the calculation of the company's actual liability to all its insureds, the reserve shall be computed pursuant to the method commonly referred to as the monthly pro rata method; provided, however, that the Director may require that such reserve shall be equal to the unearned portions of the gross premiums in force, after deducting reinsurance qualifying under Section 123C-13, in which case the reserve shall be computed on each respective risk from the date of the issuance of the policy.

E-5. A captive insurance company may make a written application to the Director for filing its annual report required under this Section on a fiscal year's end. If an alternative filing date is granted, the company shall file:

(1) the annual report, including a statement of actuarial opinion by a qualified independent actuary concerning the reasonableness of the captive insurance company's loss and loss adjustment expense reserves in such form and of such content as specified in the National Association of Insurance Commissioners Annual Statement Instructions: Property and Casualty, no later than the 60th day after the date of the company's fiscal year's end;

(2) the report of its financial condition at last year's end with an independent certified public accountant's opinion of the company's financial condition; and

(3) its balance sheet, income statement, and statement of cash flows, verified by 2 of its executive officers, before March 1 of each year to provide sufficient detail to support a premium tax return.

F. The reports required by this Section shall be prepared and filed on a calendar year basis.

G. Notwithstanding the requirements of this Section, a captive insurance company may prepare and issue financial statements prepared in accordance with generally accepted accounting principles.

(Source: P.A. 85-131; 86-1155; 86-1156.)

(215 ILCS 5/123C-11) (from Ch. 73, par. 735C-11)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-11. Grounds and procedures for suspension or revocation of certificate of authority.

A. The certificate of authority of a captive insurance company to do an insurance business in this State may be suspended or revoked by the Director for any of the following reasons:

(1) insolvency or impairment of required capital or surplus to policy holders;

(2) failure to meet the requirements of Sections 123C-3 or 123C-4;

(3) refusal or failure to submit an annual report, as required by Section 123C-9, or any other report or statement required by law or by lawful order of the Director;

(4) failure to comply with the provisions of its own charter or bylaws (or, in the case of an industrial insured captive, with the provisions of the investment policy set forth in its plan of operation as approved from time to time by the Director);

(5) failure to submit to examination or any legal obligation relative thereto, as required by Section 123C-10;

(6) refusal or failure to pay expenses, and charges, and taxes as required by Sections 408, 409, 123C-10, and 123C-17;

(7) use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or

(8) failure otherwise to comply with the laws of this State.

B. If the Director finds, upon examination, hearing, or other evidence, that any captive insurance company has committed any of the acts specified in subsection A, he may suspend or revoke such certificate of authority if he deems it in the best interest of the public and the policyholders of such captive insurance company, notwithstanding any other provision of this Article.

C. The provisions of Articles XIII and XIII 1/2 shall apply to and govern the conservation, rehabilitation, liquidation and dissolution of captive insurance companies.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-12) (from Ch. 73, par. 735C-12)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-12. Legal investments.

A. The provisions of Article VIII and of Sections 131.2 and 131.3 shall apply to association captive insurance companies.

B. No pure captive insurance company or industrial insured captive insurance company shall be subject to any restrictions on allowable investments whatever, including those limitations contained in Articles VIII and VIII 1/2; provided, however, that the Director may prohibit or limit any investment or type of investment that threatens the solvency or liquidity of any such company; and provided further that an industrial insured captive insurance company must adhere to the investment policy set forth in its plan of operation as approved from time to time by the Director.

C. A captive insurance company may make loans to its affiliates with the prior approval of the Director. Each loan must be evidenced by a note approved by the Director. A captive insurance company may not make a loan of the minimum capital and surplus funds required by this Article.

D. The Director may prohibit or limit an investment that threatens the solvency or liquidity of a captive insurance company.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-13) (from Ch. 73, par. 735C-13)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-13. Reinsurance.

A. Any captive insurance company may provide reinsurance on risks ceded by any other insurer; provided, however, that the risks so assumed are the same as the captive insurance company could legally insure on a direct basis.

The provisions of Section 174.1 shall not apply to any captive insurance company providing reinsurance.

B. Subject to the provisions of Article XI, any captive insurance company may cede, and may take credit for in the establishment of reserves, all or any part of its risks. Furthermore, in addition to Section 173.1, any pure or industrial insured captive insurance company may take credit, as either an asset or a deduction from liability, for reinsurance so ceded to the extent:

(1) The reinsurer satisfies all of the following (a) through (g):

(a) the principal business of the reinsurer (other than investments in subsidiaries and other investment activities) is to accept reinsurance from captive insurance companies organized under Article VIIC, of which the company accepting the reinsurance directly or indirectly owns, controls, or holds with power to vote more than 80% of the outstanding voting securities if organized as a stock company or more than 80% of the voting control if organized as a mutual company and to provide insurance related services;

(b) is licensed to transact insurance or reinsurance in its jurisdiction of domicile;

(c) submits to this State's authority to examine its books and records and agrees to pay the cost thereof;

(d) files annually with the Director a copy of its most recent audited financial statements;

(e) maintains a surplus as regards policyholders in an amount that is not less than $20,000,000;

(f) files with the Department the following:

(i) evidence of its submission to the jurisdiction of any court of competent jurisdiction in any state of the United States and its agreement to comply with all requirements necessary to give the court jurisdiction and to abide by the final decision of the court or of any appellate court in the event of an appeal; and

(ii) an instrument designating the Director or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding company;

(g) has not been the subject of an order of the Director entered after notice and hearing prohibiting the reinsurer from utilizing this paragraph (1); or

(2) the taking of credit by the captive insurance company has otherwise received the prior approval of the Director.

C. A captive insurance company shall provide notice to the Director of a reinsurance agreement to which the company becomes a party not later than the 30th day after the date of the execution of the agreement.

D. A captive insurance company shall provide notice of a termination of a previously filed reinsurance agreement to the Director not later than the 30th day after the date of termination.

E. Notwithstanding Section 123C-15 of this Code, a captive insurance company, with the Director's approval, may accept risks from and cede risks to or take credit for reserves on risks ceded to:

(1) a captive reinsurance pool composed only of other captive insurance companies holding a certificate of authority under this Article or a similar law of another jurisdiction; or

(2) an affiliated captive insurance company holding a certificate of authority under this Article or a similar law of another jurisdiction.

(Source: P.A. 87-108.)

(215 ILCS 5/123C-16) (from Ch. 73, par. 735C-16)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-16. Tax.

A. Every captive insurance company organized under the provisions of this Article and doing business in this State shall, for the privilege of doing business in this State, pay to the Director for the State treasury the State tax imposed under Section 409 to the same extent and in the same manner as a domestic insurance company using a tax form prescribed by the Director on or before March 15 of each year.

B. Domestic captive insurance companies shall be insurance companies subject to the rules now provided for such companies under the Illinois Income Tax Act.

C. A domestic captive insurance company that has engaged one or more administrative or management service organizations in order to comply with subsection D of Section 123C-2 shall be deemed to meet the requirements of Section 409(4)(a) through (d) provided that the company and such organizations when viewed collectively as a group:

(a) maintain a place of business in this State; and

(b) maintain in this State personnel knowledgeable of and responsible for the company's operations, books, records, administration and annual statement; and

(c) conduct in this State substantially all of the company's underwriting, policy issuing and servicing operations relating to the company's policyholders and certificate holders; and

(d) comply with the provisions of Section 133(2) with respect to such domestic captive insurance company's books, records, documents, accounts, vouchers and securities.

(Source: P.A. 86-632; 86-634.)

(215 ILCS 5/123C-17) (from Ch. 73, par. 735C-17)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-17. Fees.

A. The Director shall charge, collect, and give proper acquittances for the payment of the following fees and charges with respect to a captive insurance company:

1. For filing all documents submitted for the incorporation or organization or certification of a captive insurance company, $2,000 $7,000.

2. For filing requests for approval of changes in the elements of a plan of operations, $200.

B. Except as otherwise provided in subsection A of this Section and in Section 123C-10, the provisions of Section 408 shall apply to captive insurance companies.

C. Any funds collected from captive insurance companies pursuant to this Section shall be treated in the manner provided in subsection (11) of Section 408.

(Source: P.A. 93-32, eff. 7-1-03.)

(215 ILCS 5/123C-19) (from Ch. 73, par. 735C-19)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-19. Letters of credit.

A. Any letter of credit used to meet the requirements set forth in Sections 123C-3 and 123C-4:

(1) (blank); may not be used to provide more than 80% of the amount required in Section 123C-3 and may not be used to provide more than 80% of the amount required in Section 123C-4;

(2) may not be allowed to expire without the prior written approval of the Director and shall provide for 30 days' advance written notice to the Director of the proposed expiration of the letter of credit; and

(3) must be provided pursuant to arrangements, acceptable to the Director, wherein all funds obtained by the company under the letter of credit are free of claims of any party which may arise on account of the company's resort to the letter of credit.

B. If letters of credit are used to provide surplus in excess of the amounts required in Section 123C-4:

(1) the aggregate amount of all such letters of credit shall not exceed the policyholder surplus of the company;

(2) without the prior written approval of the Director, no such letter of credit may be allowed to expire, in any period of 12 consecutive months ending on the date of such expiration, in an amount greater than the greater of (a) 10% of the company's surplus as regards policyholders as of the 31st day of December next preceding, or (b) the net income of the company for the 12 month period ending the 31st 3lst day of December next preceding. For purposes of this Section, net income includes net realized capital gains in an amount not to exceed 20% of net unrealized capital gains; and

(3) each such letter of credit shall provide for 30 days' advance written notice to the Director of the proposed expiration of the letter of credit.

C. (Blank). The Director may require any company to draw upon its letters of credit, in amounts determined by the Director, if the Director determines that such action is necessary for the protection of the interests of policyholders.

D. (Blank). Any company including amounts supported by letters of credit in its capital or surplus shall, prior to the time any person becomes a policyholder, notify such person of the amounts supported by letters of credit and included in the company's capital or surplus.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-23 new)

Sec. 123C-23. Approval of captive reinsurance pools. Before determining whether to approve a captive insurance company's participation in a captive reinsurance pool under Section 123C-13 of this Code, the Director may:

(1) require the captive insurance company provide to the Director evidence that the captive reinsurance pool:

(a) is composed only of other captive insurance companies holding a certificate of authority under this Article or a similar law of another jurisdiction; and

(b) will be able to meet the pool's financial obligations; and

(2) impose any other limitation or requirement on the captive insurance company that is necessary and proper to provide adequate security for the captive insurance company.

(215 ILCS 5/123C-24 new)

Sec. 123C-24. Standards for risk management of controlled unaffiliated business. The Director may adopt rules establishing standards to ensure that an affiliated company is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by the captive insurance company.

(215 ILCS 5/123C-25 new)

Sec. 123C-25. Captive managers. Before providing captive management services to a licensed captive insurance company, a captive management company shall register with the Director by providing the information required on a form adopted by the Director.

(215 ILCS 5/123C-26 new)

Sec. 123C-26. Dividends.

A. A captive insurance company shall notify the Director in writing when issuing policyholder dividends.

B. A captive insurance company, with the Director's approval, may issue dividends or distributions to the holders of an equity interest in the captive insurance company. The Director shall adopt rules to implement this subsection B.

(215 ILCS 5/123C-27 new)

Sec. 123C-27. Rulemaking authority. The Director may adopt reasonable rules as necessary to implement the purposes and provisions of this Article.

(215 ILCS 5/123C-28 new)

Sec. 123C-28. Confidentiality.

A. Any information filed by an applicant or captive insurance company under this Article is confidential and privileged for all purposes, including for purposes of the Freedom of Information Act, a response to a subpoena, or evidence in a civil action. Except as provided by subsections B and C of this Section, the information may not be disclosed without the prior written consent of the applicant or captive insurance company to which the information pertains.

B. If the recipient of the information described by subsection A of this Section has the legal authority to maintain the confidential or privileged status of the information and verifies that authority in writing, the Director or his or her designee may disclose the information to any of the following entities functioning in an official capacity:

(1) a director of insurance or an insurance department of another state;

(2) an authorized law enforcement official;

(3) a State's Attorney of this State;

(4) the Attorney General;

(5) a grand jury;

(6) the National Association of Insurance Commissioners if the captive insurance company is affiliated with an insurance company that is part of an insurance holding company system as described in Article VIII 1/2 of this Code;

(7) another state or federal regulator if the applicant or captive insurance company to which the information relates operates in the entity's jurisdiction;

(8) an international insurance regulator or analogous financial agency if the captive insurance company is affiliated with an insurance company that is part of an insurance holding company system as described in Article VIII 1/2 of this Code and the holding company system operates in the entity's jurisdiction; or

(9) members of a supervisory college described by Section 131.20c of this Code, if the captive insurance company is affiliated with an insurance company that is part of an insurance holding company system as described in Article VIII 1/2 of this Code.

C. The Director may use information described by subsection A of this Section in the furtherance of a legal or regulatory action relating to the administration of this Code.

(215 ILCS 5/123C-4 rep.)

Section 10. The Illinois Insurance Code is amended by repealing Section 123C-4.