Illinois General Assembly - Full Text of SB1286
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Full Text of SB1286  100th General Assembly


Sen. John G. Mulroe

Filed: 4/13/2017





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2    AMENDMENT NO. ______. Amend Senate Bill 1286, AS AMENDED,
3by replacing everything after the enacting clause with the
5    "Section 5. The Illinois Insurance Code is amended by
6changing Sections 121-2.08, 123C-1, 123C-2, 123C-3, 123C-9,
7123C-11, 123C-12, 123C-13, 123C-16, 123C-17, and 123C-19 and by
8adding Sections 123C-23, 123C-24, 123C-25, 123C-26, 123C-27,
9and 123C-28 as follows:
10    (215 ILCS 5/121-2.08)  (from Ch. 73, par. 733-2.08)
11    Sec. 121-2.08. Transactions in this State involving
12contracts of insurance independently procured directly from an
13unauthorized insurer by industrial insureds.
14    (a) As used in this Section:
15    "Exempt commercial purchaser" means exempt commercial
16purchaser as the term is defined in subsection (1) of Section



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1445 of this Code.
2    "Home state" means home state as the term is defined in
3subsection (1) of Section 445 of this Code.
4    "Industrial insured" means an insured:
5        (i) that procures the insurance of any risk or risks of
6    the kinds specified in Classes 2 and 3 of Section 4 of this
7    Code by use of the services of a full-time employee who is
8    a qualified risk manager or the services of a regularly and
9    continuously retained consultant who is a qualified risk
10    manager;
11        (ii) that procures the insurance directly from an
12    unauthorized insurer without the services of an
13    intermediary insurance producer; and
14        (iii) that is an exempt commercial purchaser whose home
15    state is Illinois.
16    "Insurance producer" means insurance producer as the term
17is defined in Section 500-10 of this Code.
18    "Qualified risk manager" means qualified risk manager as
19the term is defined in subsection (1) of Section 445 of this
21    "Unauthorized insurer" means unauthorized insurer as the
22term is defined in subsection (1) of Section 445 of this Code.
23    (b) For contracts of insurance effective January 1, 2015 or
24later, within 90 days after the effective date of each contract
25of insurance issued under this Section, the insured shall file
26a report with the Director by submitting the report to the



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1Surplus Line Association of Illinois in writing or in a
2computer readable format and provide information as designated
3by the Surplus Line Association of Illinois. The information in
4the report shall be substantially similar to that required for
5surplus line submissions as described in subsection (5) of
6Section 445 of this Code. Where applicable, the report shall
7satisfy, with respect to the subject insurance, the reporting
8requirement of Section 12 of the Fire Investigation Act.
9    (c) For contracts of insurance effective January 1, 2015
10through December 31, 2017 or later, within 30 days after filing
11the report, the insured shall pay to the Director for the use
12and benefit of the State a sum equal to the gross premium of
13the contract of insurance multiplied by the surplus line tax
14rate, as described in paragraph (3) of subsection (a) of
15Section 445 of this Code, and shall pay the fire marshal tax
16that would otherwise be due annually in March for insurance
17subject to tax under Section 12 of the Fire Investigation Act.
18For contracts of insurance effective January 1, 2018 or later,
19within 30 days after filing the report, the insured shall pay
20to the Director for the use and benefit of the State a sum
21equal to 2.5% of the gross premium of the contract of
22insurance, and shall pay the fire marshal tax that would
23otherwise be due annually in March for insurance subject to tax
24under Section 12 of the Fire Investigation Act. For contracts
25of insurance effective January 1, 2015 or later, within 30 days
26after filing the report, the insured shall pay to the Surplus



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1Line Association of Illinois a countersigning fee that shall be
2assessed at the same rate charged to members pursuant to
3subsection (4) of Section 445.1 of this Code.
4    (d) For contracts of insurance effective January 1, 2015 or
5later, the insured shall withhold the amount of the taxes and
6countersignature fee from the amount of premium charged by and
7otherwise payable to the insurer for the insurance. If the
8insured fails to withhold the tax and countersignature fee from
9the premium, then the insured shall be liable for the amounts
10thereof and shall pay the amounts as prescribed in subsection
11(c) of this Section.
12    (e) Contracts of insurance with an industrial insured that
13qualifies as a Safety-Net Hospital are not subject to
14subsections (b) through (d) of this Section.
15(Source: P.A. 98-978, eff. 1-1-15.)
16    (215 ILCS 5/123C-1)  (from Ch. 73, par. 735C-1)
17    (Section scheduled to be repealed on January 1, 2027)
18    Sec. 123C-1. Definitions. As used in this Article:
19    A. "Affiliate" or "Affiliated company" includes a parent
20entity that controls a captive insurance company and:
21        (1) is an affiliate of another entity if the entity
22    directly or indirectly, through one or more
23    intermediaries, controls, is controlled by, or is under
24    common control with the other entity.
25        (2) is an affiliate of another entity if the entity is



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1    an affiliate of and is controlled by the other entity
2    directly or indirectly through one or more intermediaries.
3A subsidiary or holding company of an entity is an affiliate of
4that entity. shall have the meaning set forth in subsection (a)
5of Section 131.1 (and, for purposes of such definition, the
6definitions of "control" and "person", as set forth in
7subsections (b) and (e) of Section 131.1, respectively, shall
8be applicable).
9    B. "Association" means any entity meeting the requirements
10set forth in either of the following paragraphs (1), (2) or
12        (1) any organized association of individuals, legal
13    representatives, corporations (whether for profit or not
14    for profit), partnerships, trusts, associations, units of
15    government or other organizations, or any combination of
16    the foregoing, that has been in continuous existence for at
17    least one year, the member organizations of which
18    collectively:
19            (a) own, control, or hold with power to vote
20        (directly or indirectly) all of the outstanding voting
21        securities of an association captive insurance company
22        incorporated as a stock insurer; or
23            (b) have complete voting control (directly or
24        indirectly) over an association captive insurance
25        company organized as a mutual insurer;
26        (2) any organized association of individuals, legal



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1    representatives, corporations (whether for profit or not
2    for profit), partnerships, trusts, associations, units of
3    government or other organizations, or any combination of
4    the foregoing:
5            (a) whose member organizations are engaged in
6        businesses or activities similar or related with
7        respect to the liability of which such members are
8        exposed by virtue of any related, similar, or common
9        business, trade, product, services, premises, or
10        operations; and
11            (b) whose member organizations:
12                (i) directly or indirectly own or control, and
13            hold with power to vote, at least 80% of all of the
14            outstanding voting securities of an association
15            captive insurance company incorporated as a stock
16            insurer; or
17                (ii) directly or indirectly have at least 80%
18            of the voting control over an association captive
19            insurance company organized as a mutual insurer;
20            or
21        (3) any risk retention group, as defined in subsection
22    (11) of Section 123B-2, domiciled in this State and
23    organized under this Article; however, beginning 6 months
24    after the effective date of this amendatory Act of 1995, a
25    risk retention group shall no longer qualify as an
26    association under this Article.



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1    Provided, however, that with respect to each of the
2associations described in paragraphs (1), (2) and (3) above, no
3member organization may (i) own, control, or hold with power to
4vote in excess of 25% of the voting securities of an
5association captive insurance company incorporated as a stock
6insurer, or (ii) have more than 25% of the voting control of an
7association captive insurance company organized as a mutual
9    C. "Association captive insurance company" means any
10company that insures risks of (i) the member organizations of
11an association, and (ii) their affiliated companies.
12    D. "Captive insurance company" means any pure captive
13insurance company, association captive insurance company or
14industrial insured captive insurance company organized under
15the provisions of this Article.
16    E. "Director" means the Director of the Department of
18    F. "Industrial insured" means an insured which (together
19with its affiliates) at the time of its initial procurement of
20insurance from an industrial insured captive insurance
22        (1) has available to it advice with respect to the
23    purchase of insurance through the use of the services of a
24    full-time employee acting as an insurance manager or buyer
25    or the services of a regularly and continuously retained
26    qualified insurance consultant; and



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1        (2) pays aggregate annual premiums in excess of
2        $100,000 for insurance on all risks except for life,
3        accident and health; and
4        (3) either (i) has at least 25 full-time employees, or
5    (ii) has gross assets in excess of $3,000,000, or (iii) has
6    annual gross revenues in excess of $5,000,000.
7    G. "Industrial insured captive insurance company" means
8any company that insures risks of industrial insureds that are
9members of the industrial insured group, and their affiliated
11    H. "Industrial insured group" means any group of industrial
12insureds that collectively:
13        (1) directly or indirectly (including ownership or
14    control through a company which is wholly owned by such
15    group of industrial insureds) own or control, and hold with
16    power to vote, all of the outstanding voting securities of
17    an industrial insured captive insurance company
18    incorporated as a stock insurer; or
19        (2) directly or indirectly (including control through
20    a company which is wholly owned by such group of industrial
21    insureds) have complete voting control over an industrial
22    insured captive insurance company organized as a mutual
23    insurer; provided, however, that no member organization
24    may (i) own, control, or hold with power to vote in excess
25    of 25% of the voting securities of an industrial insured
26    captive insurance company incorporated as a stock insurer,



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1    or (ii) have more than 25% of the voting control of an
2    industrial insured captive insurance company organized as
3    a mutual insurer.
4    I. "Member organization" means any individual, legal
5representative, corporation (whether for profit or not for
6profit), partnership, association, unit of government, trust
7or other organization that belongs to an association or an
8industrial insured group.
9    J. "Parent" means a corporation, partnership, individual
10or other legal entity that directly or indirectly owns,
11controls, or holds with power to vote more than 50% of the
12outstanding voting securities of a company.
13    K. "Personal risk liability" means liability to other
14persons for (i) damage because of injury to any person, (ii)
15damage to property, or (iii) other loss or damage, in each case
16resulting from any personal, familial, or household
17responsibilities or activities, but does not include legal
18liability for damages (including costs of defense, legal costs
19and fees, and other claims expenses) because of injuries to
20other persons, damage to their property, or other damage or
21loss to such other persons resulting from or arising out of:
22        (i) any business (whether for profit or not for
23    profit), trade, product, services (including professional
24    services), premises, or operations; or
25        (ii) any activity of any state or local government, or
26    any agency or political subdivision thereof.



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1    L. "Pure captive insurance company" means any company that
2insures only risks of its parent or affiliated companies or
4    M. "Unit of government" includes any state, regional or
5local government, or any agency or political subdivision
6thereof, or any district, authority, public educational
7institution or school district, public corporation or other
8unit of government in this State or any similar unit of
9government in any other state.
10    N. "Control" means the power to direct, or cause the
11direction of, the management and policies of an entity, other
12than the power that results from an official position with or
13corporate office held in the entity. The power may be possessed
14directly or indirectly by any means, including through the
15ownership of voting securities or by contract, other than a
16commercial contract for goods or non-management services.
17    O. "Qualified independent actuary" means a person that is
19        (1) a member in good standing with the Casualty
20    Actuarial Society; or
21        (2) a member in good standing with the American Academy
22    of Actuaries who has been approved as qualified for signing
23    casualty loss reserve opinions by the Casualty Practice
24    Council of the American Academy of Actuaries.
25    P. "Controlled unaffiliated business" means an entity:
26        (1) that is not an affiliate;



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1        (2) that has an existing contractual relationship with
2    an affiliate under which the affiliate bears a potential
3    financial loss; and
4        (3) whose risks are managed by a captive insurance
5    company under Section 123C-24 of this Code.
6    Q. "Operational risk" means any potential financial loss of
7an affiliate, except for a loss arising from an insurance
8policy issued by a captive or insurance affiliate.
9    R. "Captive management company" means an entity providing
10administrative services to a captive insurance company.
11    S. "Safety-Net Hospital" means an Illinois hospital that
12qualifies as a Safety-Net Hospital under Section 5-5e.1 of the
13Illinois Public Aid Code.
14(Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)
15    (215 ILCS 5/123C-2)  (from Ch. 73, par. 735C-2)
16    (Section scheduled to be repealed on January 1, 2027)
17    Sec. 123C-2. Authority of captives; restrictions.
18    A. Except as provided by this Section, a captive insurance
19company may write any type of insurance, but may only insure
20the operational risks of the company's affiliates and risks of
21a controlled unaffiliated business. Any captive insurance
22company, when permitted by its articles of association or
23charter, may apply to the Director for a certificate of
24authority to transact any and all insurance in classes 2 and 3
25of Section 4 of this Code, except that:



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1        (1) no pure captive insurance company may insure any
2    risks other than those of its parent and affiliated
3    companies;
4        (2) no association captive insurance company may
5    insure any risks other than those of the member
6    organizations of its association, and their affiliated
7    companies;
8        (3) no industrial insured captive insurance company
9    may insure any risks other than those of the members of the
10    industrial insured group, and their affiliated companies;
11    and
12        (4) no captive insurance company may provide:
13            (i) personal motor vehicle coverage or homeowner's
14        insurance coverage or any component thereof, or
15            (ii) personal coverage for personal risk
16        liability, or
17            (iii) coverage for an employer's liability to its
18        employees other than legal liability under the federal
19        Employers' Liability Act (45 U.S.C. 51 et seq.),
20        provided, however, this exclusion does not preclude
21        reinsurance of such employer's liability, or
22            (iv) accident and health insurance as provided in
23        clause (a) of Class 2 of Section 4, provided, however,
24        this exclusion does not preclude stop-loss insurance
25        or reinsurance of a single employer self-funded
26        employee disability benefit plan or an employee



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1        welfare plan as described in 29 U.S.C. 1001 et seq.
2    A-5. A captive insurance company may not issue:
3        (1) life insurance;
4        (2) annuities;
5        (3) accident and health insurance for the company's
6    parent and affiliates, except to insure employee benefits
7    that are subject to the federal Employee Retirement Income
8    Security Act of 1974;
9        (4) title insurance;
10        (5) mortgage guaranty insurance;
11        (6) financial guaranty insurance;
12        (7) residential property insurance;
13        (8) personal automobile insurance; or
14        (9) workers' compensation insurance.
15    A-10. A captive insurance company may not issue a type of
16insurance, including automobile liability insurance, that is
17required under the laws of this State or a political
18subdivision of this State as a prerequisite for obtaining a
19license or permit if the law requires that the liability
20insurance be issued by an insurer authorized to engage in the
21business of insurance in this State.
22    A-15. A captive insurance company is authorized to issue a
23contractual reimbursement policy to:
24        (1) an affiliated certified self-insurer authorized
25    under the Workers' Compensation Act or a similar affiliated
26    entity expressly authorized by analogous laws of another



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1    state; or
2        (2) an affiliate that is insured by a workers'
3    compensation insurance policy with a negotiated deductible
4    endorsement.
5    B. No captive insurance company shall do any insurance
6business in this State unless:
7        (1) it first obtains from the Director a certificate of
8    authority authorizing it to do such insurance business in
9    this State; and
10        (2) it appoints a resident registered agent to accept
11    service of process and to otherwise act on its behalf in
12    this State.
13    C. No captive insurance company shall adopt a name that is
14the same as, deceptively similar to, or likely to be confused
15with or mistaken for, any other existing business name
16registered in this State.
17    D. Each captive insurance company, or the organizations
18providing the principal administrative or management services
19to such captive insurance company, shall maintain a place of
20business in this State.
21(Source: P.A. 91-357, eff. 7-29-99.)
22    (215 ILCS 5/123C-3)  (from Ch. 73, par. 735C-3)
23    (Section scheduled to be repealed on January 1, 2027)
24    Sec. 123C-3. Minimum capital and surplus.
25    A. The Department may not issue a certificate of authority



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1to a captive insurance company unless the company possesses and
2maintains unencumbered capital and surplus in an amount
3determined by the Director after considering:
4        (1) the amount of premium written by the captive
5    insurance company;
6        (2) the characteristics of the assets held by the
7    captive insurance company;
8        (3) the terms of reinsurance arrangements entered into
9    by the captive insurance company;
10        (4) the type of business covered in policies issued by
11    the captive insurance company;
12        (5) the underwriting practices and procedures of the
13    captive insurance company; and
14        (6) any other criteria that has an impact on the
15    operations of the captive insurance company determined to
16    be significant by the Director. No pure captive insurance
17    company, association captive insurance company
18    incorporated as a stock insurer, or industrial insured
19    captive insurance company incorporated as a stock insurer
20    shall be issued a certificate of authority unless it shall
21    possess and thereafter maintain unimpaired paid-in capital
22    of not less than the minimum capital requirement applicable
23    to the class or classes and clause or clauses of Section 4
24    describing the kind or kinds of insurance which such
25    captive insurance company is authorized to write, as set
26    forth in subsection (1) of Section 13.



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1    B. The amount of capital and surplus determined by the
2Director under subsection A of this Section may not be less
3than $250,000 for a pure captive insurance company, $500,000
4for an industrial insured captive insurance company, and
5$750,000 for an association captive insurance company. Such
6capital may be in the form of (1) all cash or cash equivalents;
7or (2) cash or cash equivalents representing at least 20% of
8the requisite capital, together with an irrevocable letter of
9credit for the remainder of the requisite capital, which letter
10of credit must (a) be approved by the Director, (b) be issued
11or unconditionally confirmed by (i) a bank chartered by this
12State, (ii) a member bank of the Federal Reserve System or
13(iii) a United States office of a foreign banking corporation
14that is: (A) licensed under the laws of the United States or
15any state thereof, (B) regulated, supervised and examined by
16United States federal or state authorities having regulatory
17authority over banks and trust companies, and (C) designated by
18the Securities Valuation Office of the National Association of
19Insurance Commissioners as meeting its credit standards for
20issuing or confirming letters of credit or, in the event that
21the Director elects to establish credit standards by rule, in
22compliance with rules promulgated by the Director establishing
23reasonable standards of safety and soundness substantially
24equivalent to those of the Securities Valuation Office of the
25National Association of Insurance Commissioners, and (c)
26satisfy the requirements of Section 123C-19; or (3) cash or



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1cash equivalents representing at least 33% of the requisite
2capital, together with irrevocable contractual obligations of
3the member organizations of the captive insurance company for
4the payment of the remainder of the requisite capital in no
5more than 3 equal installments in each of the 3 calendar years
6following the date of the grant of the certificate of authority
7to the captive insurance company, which irrevocable
8contractual obligations shall by contract be subject to
9acceleration (in a manner acceptable to the Director) by the
10Company at the direction of the Director and shall be secured
11by a letter of credit or other form of guarantee or security
12acceptable to the Director.
13    C. The capital and surplus required by subsection A of this
14Section must be in the form of:
15        (1) United States currency;
16        (2) an irrevocable letter of credit, in a form approved
17    by the Director and not secured by a guarantee from an
18    affiliate, naming the Director as beneficiary for the
19    security of the captive insurance company's policyholders
20    and issued by a bank approved by the Director;
21        (3) bonds of this State; or
22        (4) bonds or other evidences of indebtedness of the
23    United States, the principal and interest of which are
24    guaranteed by the United States.
25(Source: P.A. 86-632.)



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1    (215 ILCS 5/123C-9)  (from Ch. 73, par. 735C-9)
2    (Section scheduled to be repealed on January 1, 2027)
3    Sec. 123C-9. Reports, statements and mandatory reserves.
4    A. Captive insurance companies shall not be required to
5make any annual report except as provided in this Article.
6    B. (1) On or before Prior to March 1 of each year, each
7captive insurance company shall submit to the Director a report
8of its financial condition, verified by oath of 2 of its
9executive officers and including (i) a balance sheet reporting
10assets, liabilities, capital and surplus, (ii) a statement of
11gain or loss from operations, (iii) a statement of changes in
12financial position, (iv) a statement of changes in capital and
13surplus, and (v) in the case of industrial insured captive
14insurance companies, an analysis of loss reserve development,
15information on risks ceded and assumed under reinsurance
16agreements, on forms prescribed by the Director, and a schedule
17of its invested assets on forms prescribed by the Director, and
18(vi) a statement of actuarial opinion by a qualified
19independent actuary concerning the reasonableness of the
20captive insurance company's loss and loss adjustment expense
21reserves in such form and of such content as specified in the
22National Association of Insurance Commissioners Annual
23Statement Instructions: Property and Casualty.
24    (2) In addition, prior to March 1 of each year, each
25association captive insurance company shall submit to the
26Director such additional data or information, which the



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1Director may from time to time require, on a form specified by
2the Director.
3    (3) On or before June 1 of each year, each captive
4insurance company shall submit to the Director a report of its
5financial condition at last year's end with an independent
6certified public accountant's opinion of the company's
7financial condition. Prior to June 1 of each year, each
8association and industrial insured captive insurance company
9shall submit to the Director a report of its financial
10condition, certified by a recognized firm of independent public
11accountants acceptable to the Director and including the items
12referred to in items (i), (ii), (iii) and (iv) of paragraph (1)
13of this subsection B.
14    (4) Unless the Director permits otherwise, the reports of
15financial condition referred to in paragraphs (1) and (3) of
16this subsection B are to be prepared in accordance with the
17Accounting Practices and Procedures Manual adopted by the
18National Association of Insurance Commissioners. The Director
19shall have authority to extend the time for filing any report
20or statement by any company for reasons which he considers good
21and sufficient.
22    C. In addition, any captive insurance company may be
23required by the Director, when he considers such action to be
24necessary and appropriate for the protection of policyholders,
25creditors, shareholders or claimants, to file, within 60 days
26after mailing to the company of a notice that such is required,



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1a supplemental summary statement as of the last day of any
2calendar month occurring during the 100 days next preceding the
3mailing of such notice designated by him on forms prescribed
4and furnished by the Director. No company shall be required to
5file more than 4 supplemental summary statements during any
6consecutive 12 month period.
7    D. Every captive insurance company shall, at all times,
8maintain reserves in an amount estimated in the aggregate to
9provide for the payment of all losses and claims incurred,
10whether reported or unreported, which are unpaid and for which
11such company may be liable, and to provide for the expenses of
12adjustment or settlement of such losses and claims. The
13aggregate reserves shall be reduced by reinsurance ceded which
14meets the requirements of Section 123C-13. For the purpose of
15such reserves, the company shall keep a complete and itemized
16record showing all losses and claims on which it has received
17notice, including all notices received by it of the occurrence
18of any event which may result in a loss. Such record shall be
19opened in chronological receipt order, with each notice of loss
20or claim identified by appropriate number or coding.
21    E. Every captive insurance company shall maintain an
22unearned premium reserve on all policies in force which reserve
23shall be charged as a liability. The portions of the gross
24premiums in force, after deducting reinsurance qualifying
25under Section 123C-13, which shall be held as a premium
26reserve, shall never be less in the aggregate than the



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1company's actual liability to all its insureds for the return
2of gross unearned premiums. In the calculation of the company's
3actual liability to all its insureds, the reserve shall be
4computed pursuant to the method commonly referred to as the
5monthly pro rata method; provided, however, that the Director
6may require that such reserve shall be equal to the unearned
7portions of the gross premiums in force, after deducting
8reinsurance qualifying under Section 123C-13, in which case the
9reserve shall be computed on each respective risk from the date
10of the issuance of the policy.
11    E-5. A captive insurance company may make a written
12application to the Director for filing its annual report
13required under this Section on a fiscal year's end. If an
14alternative filing date is granted, the company shall file:
15        (1) the annual report, including a statement of
16    actuarial opinion by a qualified independent actuary
17    concerning the reasonableness of the captive insurance
18    company's loss and loss adjustment expense reserves in such
19    form and of such content as specified in the National
20    Association of Insurance Commissioners Annual Statement
21    Instructions: Property and Casualty, no later than the 60th
22    day after the date of the company's fiscal year's end;
23        (2) the report of its financial condition at last
24    year's end with an independent certified public
25    accountant's opinion of the company's financial condition;
26    and



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1        (3) its balance sheet, income statement, and statement
2    of cash flows, verified by 2 of its executive officers,
3    before March 1 of each year to provide sufficient detail to
4    support a premium tax return.
5    F. The reports required by this Section shall be prepared
6and filed on a calendar year basis.
7    G. Notwithstanding the requirements of this Section, a
8captive insurance company may prepare and issue financial
9statements prepared in accordance with generally accepted
10accounting principles.
11(Source: P.A. 85-131; 86-1155; 86-1156.)
12    (215 ILCS 5/123C-11)  (from Ch. 73, par. 735C-11)
13    (Section scheduled to be repealed on January 1, 2027)
14    Sec. 123C-11. Grounds and procedures for suspension or
15revocation of certificate of authority.
16    A. The certificate of authority of a captive insurance
17company to do an insurance business in this State may be
18suspended or revoked by the Director for any of the following
20        (1) insolvency or impairment of required capital or
21    surplus to policy holders;
22        (2) failure to meet the requirements of Sections 123C-3
23    or 123C-4;
24        (3) refusal or failure to submit an annual report, as
25    required by Section 123C-9, or any other report or



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1    statement required by law or by lawful order of the
2    Director;
3        (4) failure to comply with the provisions of its own
4    charter or bylaws (or, in the case of an industrial insured
5    captive, with the provisions of the investment policy set
6    forth in its plan of operation as approved from time to
7    time by the Director);
8        (5) failure to submit to examination or any legal
9    obligation relative thereto, as required by Section
10    123C-10;
11        (6) refusal or failure to pay expenses, and charges,
12    and taxes as required by Sections 408, 409, 123C-10, and
13    123C-17;
14        (7) use of methods that, although not otherwise
15    specifically prohibited by law, nevertheless render its
16    operation detrimental or its condition unsound with
17    respect to the public or to its policyholders; or
18        (8) failure otherwise to comply with the laws of this
19    State.
20    B. If the Director finds, upon examination, hearing, or
21other evidence, that any captive insurance company has
22committed any of the acts specified in subsection A, he may
23suspend or revoke such certificate of authority if he deems it
24in the best interest of the public and the policyholders of
25such captive insurance company, notwithstanding any other
26provision of this Article.



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1    C. The provisions of Articles XIII and XIII 1/2 shall apply
2to and govern the conservation, rehabilitation, liquidation
3and dissolution of captive insurance companies.
4(Source: P.A. 85-131.)
5    (215 ILCS 5/123C-12)  (from Ch. 73, par. 735C-12)
6    (Section scheduled to be repealed on January 1, 2027)
7    Sec. 123C-12. Legal investments.
8    A. The provisions of Article VIII and of Sections 131.2 and
9131.3 shall apply to association captive insurance companies.
10    B. No pure captive insurance company or industrial insured
11captive insurance company shall be subject to any restrictions
12on allowable investments whatever, including those limitations
13contained in Articles VIII and VIII 1/2; provided, however,
14that the Director may prohibit or limit any investment or type
15of investment that threatens the solvency or liquidity of any
16such company; and provided further that an industrial insured
17captive insurance company must adhere to the investment policy
18set forth in its plan of operation as approved from time to
19time by the Director.
20    C. A captive insurance company may make loans to its
21affiliates with the prior approval of the Director. Each loan
22must be evidenced by a note approved by the Director. A captive
23insurance company may not make a loan of the minimum capital
24and surplus funds required by this Article.
25    D. The Director may prohibit or limit an investment that



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1threatens the solvency or liquidity of a captive insurance
3(Source: P.A. 85-131.)
4    (215 ILCS 5/123C-13)  (from Ch. 73, par. 735C-13)
5    (Section scheduled to be repealed on January 1, 2027)
6    Sec. 123C-13. Reinsurance.
7    A. Any captive insurance company may provide reinsurance on
8risks ceded by any other insurer; provided, however, that the
9risks so assumed are the same as the captive insurance company
10could legally insure on a direct basis.
11    The provisions of Section 174.1 shall not apply to any
12captive insurance company providing reinsurance.
13    B. Subject to the provisions of Article XI, any captive
14insurance company may cede, and may take credit for in the
15establishment of reserves, all or any part of its risks.
16Furthermore, in addition to Section 173.1, any pure or
17industrial insured captive insurance company may take credit,
18as either an asset or a deduction from liability, for
19reinsurance so ceded to the extent:
20        (1) The reinsurer satisfies all of the following (a)
21    through (g):
22            (a) the principal business of the reinsurer (other
23        than investments in subsidiaries and other investment
24        activities) is to accept reinsurance from captive
25        insurance companies organized under Article VIIC, of



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1        which the company accepting the reinsurance directly
2        or indirectly owns, controls, or holds with power to
3        vote more than 80% of the outstanding voting securities
4        if organized as a stock company or more than 80% of the
5        voting control if organized as a mutual company and to
6        provide insurance related services;
7            (b) is licensed to transact insurance or
8        reinsurance in its jurisdiction of domicile;
9            (c) submits to this State's authority to examine
10        its books and records and agrees to pay the cost
11        thereof;
12            (d) files annually with the Director a copy of its
13        most recent audited financial statements;
14            (e) maintains a surplus as regards policyholders
15        in an amount that is not less than $20,000,000;
16            (f) files with the Department the following:
17                (i) evidence of its submission to the
18            jurisdiction of any court of competent
19            jurisdiction in any state of the United States and
20            its agreement to comply with all requirements
21            necessary to give the court jurisdiction and to
22            abide by the final decision of the court or of any
23            appellate court in the event of an appeal; and
24                (ii) an instrument designating the Director or
25            a designated attorney as its true and lawful
26            attorney upon whom may be served any lawful process



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1            in any action, suit, or proceeding instituted by or
2            on behalf of the ceding company;
3            (g) has not been the subject of an order of the
4        Director entered after notice and hearing prohibiting
5        the reinsurer from utilizing this paragraph (1); or
6        (2) the taking of credit by the captive insurance
7    company has otherwise received the prior approval of the
8    Director.
9    C. A captive insurance company shall provide notice to the
10Director of a reinsurance agreement to which the company
11becomes a party not later than the 30th day after the date of
12the execution of the agreement.
13    D. A captive insurance company shall provide notice of a
14termination of a previously filed reinsurance agreement to the
15Director not later than the 30th day after the date of
17    E. Notwithstanding Section 123C-15 of this Code, a captive
18insurance company, with the Director's approval, may accept
19risks from and cede risks to or take credit for reserves on
20risks ceded to:
21        (1) a captive reinsurance pool composed only of other
22    captive insurance companies holding a certificate of
23    authority under this Article or a similar law of another
24    jurisdiction; or
25        (2) an affiliated captive insurance company holding a
26    certificate of authority under this Article or a similar



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1    law of another jurisdiction.
2(Source: P.A. 87-108.)
3    (215 ILCS 5/123C-16)  (from Ch. 73, par. 735C-16)
4    (Section scheduled to be repealed on January 1, 2027)
5    Sec. 123C-16. Tax.
6    A. Every captive insurance company organized under the
7provisions of this Article and doing business in this State
8shall, for the privilege of doing business in this State, pay
9to the Director for the State treasury the State tax imposed
10under Section 409 to the same extent and in the same manner as
11a domestic insurance company using a tax form prescribed by the
12Director on or before March 15 of each year.
13    B. Domestic captive insurance companies shall be insurance
14companies subject to the rules now provided for such companies
15under the Illinois Income Tax Act.
16    C. A domestic captive insurance company that has engaged
17one or more administrative or management service organizations
18in order to comply with subsection D of Section 123C-2 shall be
19deemed to meet the requirements of Section 409(4)(a) through
20(d) provided that the company and such organizations when
21viewed collectively as a group:
22        (a) maintain a place of business in this State; and
23        (b) maintain in this State personnel knowledgeable of
24    and responsible for the company's operations, books,
25    records, administration and annual statement; and



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1        (c) conduct in this State substantially all of the
2    company's underwriting, policy issuing and servicing
3    operations relating to the company's policyholders and
4    certificate holders; and
5        (d) comply with the provisions of Section 133(2) with
6    respect to such domestic captive insurance company's
7    books, records, documents, accounts, vouchers and
8    securities.
9    D. Annually, 15% of the premium tax revenues collected
10pursuant to this Section shall be transferred to the Department
11for the regulation of captive insurance companies under this
13(Source: P.A. 86-632; 86-634.)
14    (215 ILCS 5/123C-17)  (from Ch. 73, par. 735C-17)
15    (Section scheduled to be repealed on January 1, 2027)
16    Sec. 123C-17. Fees.
17    A. The Director shall charge, collect, and give proper
18acquittances for the payment of the following fees and charges
19with respect to a captive insurance company:
20        1. For filing all documents submitted for the
21    incorporation or organization or certification of a
22    captive insurance company, $2,000 $7,000.
23        2. For filing requests for approval of changes in the
24    elements of a plan of operations, $200.
25    B. Except as otherwise provided in subsection A of this



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1Section and in Section 123C-10, the provisions of Section 408
2shall apply to captive insurance companies.
3    C. Any funds collected from captive insurance companies
4pursuant to this Section shall be treated in the manner
5provided in subsection (11) of Section 408.
6(Source: P.A. 93-32, eff. 7-1-03.)
7    (215 ILCS 5/123C-19)  (from Ch. 73, par. 735C-19)
8    (Section scheduled to be repealed on January 1, 2027)
9    Sec. 123C-19. Letters of credit.
10    A. Any letter of credit used to meet the requirements set
11forth in Sections 123C-3 and 123C-4:
12        (1) (blank); may not be used to provide more than 80%
13    of the amount required in Section 123C-3 and may not be
14    used to provide more than 80% of the amount required in
15    Section 123C-4;
16        (2) may not be allowed to expire without the prior
17    written approval of the Director and shall provide for 30
18    days' advance written notice to the Director of the
19    proposed expiration of the letter of credit; and
20        (3) must be provided pursuant to arrangements,
21    acceptable to the Director, wherein all funds obtained by
22    the company under the letter of credit are free of claims
23    of any party which may arise on account of the company's
24    resort to the letter of credit.
25    B. If letters of credit are used to provide surplus in



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1excess of the amounts required in Section 123C-4:
2        (1) the aggregate amount of all such letters of credit
3    shall not exceed the policyholder surplus of the company;
4        (2) without the prior written approval of the Director,
5    no such letter of credit may be allowed to expire, in any
6    period of 12 consecutive months ending on the date of such
7    expiration, in an amount greater than the greater of (a)
8    10% of the company's surplus as regards policyholders as of
9    the 31st day of December next preceding, or (b) the net
10    income of the company for the 12 month period ending the
11    31st 3lst day of December next preceding. For purposes of
12    this Section, net income includes net realized capital
13    gains in an amount not to exceed 20% of net unrealized
14    capital gains; and
15        (3) each such letter of credit shall provide for 30
16    days' advance written notice to the Director of the
17    proposed expiration of the letter of credit.
18    C. (Blank). The Director may require any company to draw
19upon its letters of credit, in amounts determined by the
20Director, if the Director determines that such action is
21necessary for the protection of the interests of policyholders.
22    D. (Blank). Any company including amounts supported by
23letters of credit in its capital or surplus shall, prior to the
24time any person becomes a policyholder, notify such person of
25the amounts supported by letters of credit and included in the
26company's capital or surplus.



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1(Source: P.A. 85-131.)
2    (215 ILCS 5/123C-23 new)
3    Sec. 123C-23. Approval of captive reinsurance pools.
4Before determining whether to approve a captive insurance
5company's participation in a captive reinsurance pool under
6Section 123C-13 of this Code, the Director may:
7        (1) require the captive insurance company provide to
8    the Director evidence that the captive reinsurance pool:
9            (a) is composed only of other captive insurance
10        companies holding a certificate of authority under
11        this Article or a similar law of another jurisdiction;
12        and
13            (b) will be able to meet the pool's financial
14        obligations; and
15        (2) impose any other limitation or requirement on the
16    captive insurance company that is necessary and proper to
17    provide adequate security for the captive insurance
18    company.
19    (215 ILCS 5/123C-24 new)
20    Sec. 123C-24. Standards for risk management of controlled
21unaffiliated business. The Director may adopt rules
22establishing standards to ensure that an affiliated company is
23able to exercise control of the risk management function of any
24controlled unaffiliated business to be insured by the captive



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1insurance company.
2    (215 ILCS 5/123C-25 new)
3    Sec. 123C-25. Captive managers. Before providing captive
4management services to a licensed captive insurance company, a
5captive management company shall register with the Director by
6providing the information required on a form adopted by the
8    (215 ILCS 5/123C-26 new)
9    Sec. 123C-26. Dividends.
10    A. A captive insurance company shall notify the Director in
11writing when issuing policyholder dividends.
12    B. A captive insurance company, with the Director's
13approval, may issue dividends or distributions to the holders
14of an equity interest in the captive insurance company. The
15Director shall adopt rules to implement this subsection B.
16    (215 ILCS 5/123C-27 new)
17    Sec. 123C-27. Rulemaking authority. The Director may adopt
18reasonable rules as necessary to implement the purposes and
19provisions of this Article.
20    (215 ILCS 5/123C-28 new)
21    Sec. 123C-28. Confidentiality.
22    A. Any information filed by an applicant or captive



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1insurance company under this Article is confidential and
2privileged for all purposes, including for purposes of the
3Freedom of Information Act, a response to a subpoena, or
4evidence in a civil action. Except as provided by subsections B
5and C of this Section, the information may not be disclosed
6without the prior written consent of the applicant or captive
7insurance company to which the information pertains.
8    B. If the recipient of the information described by
9subsection A of this Section has the legal authority to
10maintain the confidential or privileged status of the
11information and verifies that authority in writing, the
12Director or his or her designee may disclose the information to
13any of the following entities functioning in an official
15        (1) a director of insurance or an insurance department
16    of another state;
17        (2) an authorized law enforcement official;
18        (3) a State's Attorney of this State;
19        (4) the Attorney General;
20        (5) a grand jury;
21        (6) the National Association of Insurance
22    Commissioners if the captive insurance company is
23    affiliated with an insurance company that is part of an
24    insurance holding company system as described in Article
25    VIII 1/2 of this Code;
26        (7) another state or federal regulator if the applicant



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1    or captive insurance company to which the information
2    relates operates in the entity's jurisdiction;
3        (8) an international insurance regulator or analogous
4    financial agency if the captive insurance company is
5    affiliated with an insurance company that is part of an
6    insurance holding company system as described in Article
7    VIII 1/2 of this Code and the holding company system
8    operates in the entity's jurisdiction; or
9        (9) members of a supervisory college described by
10    Section 131.20c of this Code, if the captive insurance
11    company is affiliated with an insurance company that is
12    part of an insurance holding company system as described in
13    Article VIII 1/2 of this Code.
14    C. The Director may use information described by subsection
15A of this Section in the furtherance of a legal or regulatory
16action relating to the administration of this Code.
17    (215 ILCS 5/123C-4 rep.)
18    Section 10. The Illinois Insurance Code is amended by
19repealing Section 123C-4.".