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90_SB1904eng
215 ILCS 5/357.31 from Ch. 73, par. 969.31
Amends the Illinois Insurance Code. Adds a caption to a
Section concerning the refund of unearned premium upon death
of the insured.
LRB9011424JSgc
SB1904 Engrossed LRB9011424JSgc
1 AN ACT concerning financial management of insurers,
2 amending named Acts.
3 Be it enacted by the People of the State of Illinois,
4 represented in the General Assembly:
5 Section 5. The Illinois Insurance Code is amended by
6 changing Sections 35A-5, 35A-20, 35A-35, 107.06a, 107.26,
7 111, 121-2.08, 123C-1, 126.2, 143, 191, and 445 and adding
8 Section 445a as follows:
9 (215 ILCS 5/35A-5)
10 Sec. 35A-5. Definitions. As used in this Article, the
11 terms listed in this Section have the meaning given herein.
12 "Adjusted RBC Report" means an RBC Report that has been
13 adjusted by the Director in accordance with subsection (e) of
14 Section 35A-10.
15 "Authorized control level RBC" means the number
16 determined under the risk-based capital formula in accordance
17 with the RBC Instructions.
18 "Company action level RBC" means the product of 2.0 and
19 the insurer's authorized control level RBC.
20 "Corrective Order" means an order issued by the Director
21 in accordance with Article XII 1/2 specifying corrective
22 actions that the Director determines are required.
23 "Domestic insurer" means any insurance company domiciled
24 in this State under Article II, Article III, Article III 1/2,
25 or Article IV.
26 "Foreign insurer" means any foreign or alien insurance
27 company licensed under Article VI that is not domiciled in
28 this State.
29 "Life, health, or life and health insurer" means an
30 insurance company that has authority to transact the kinds of
31 insurance described in either or both clause (a) or clause
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1 (b) of Class 1 of Section 4 or a licensed property and
2 casualty insurer writing only accident and health insurance.
3 "Mandatory control level RBC" means the product of 0.70
4 and the insurer's authorized control level RBC.
5 "NAIC" means the National Association of Insurance
6 Commissioners.
7 "Negative trend" means, with respect to a life, health,
8 or life and health insurer, a negative trend over a period of
9 time, as determined in accordance with the trend test
10 calculation included in the RBC Instructions.
11 "Property and casualty insurer" means an insurance
12 company that has authority to transact the kinds of insurance
13 in either or both Class 2 or Class 3 of Section 4 or a
14 licensed insurer writing only insurance authorized under
15 clause (c) of Class 1, but does not include monoline mortgage
16 guaranty insurers, financial guaranty insurers, and title
17 insurers.
18 "RBC" means risk-based capital.
19 "RBC Instructions" means the RBC Report including
20 risk-based capital instructions adopted by the NAIC as those
21 instructions may be amended by the NAIC from time to time in
22 accordance with the procedures adopted by the NAIC.
23 "RBC level" means an insurer's company action level RBC,
24 regulatory action level RBC, authorized control level RBC, or
25 mandatory control level RBC.
26 "RBC Plan" means a comprehensive financial plan
27 containing the elements specified in subsection (b) of
28 Section 35A-15.
29 "RBC Report" means the risk-based capital report required
30 under Section 35A-10.
31 "Receivership" means conservation, rehabilitation, or
32 liquidation under Article XIII.
33 "Regulatory action level RBC" means the product of 1.5
34 and the insurer's authorized control level RBC.
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1 "Revised RBC Plan" means an RBC Plan rejected by the
2 Director and revised by the insurer with or without the
3 Director's recommendations.
4 "Total adjusted capital" means the sum of (1) an
5 insurer's statutory capital and surplus and (2) any other
6 items that the RBC Instructions may provide.
7 (Source: P.A. 88-364; 89-97, eff. 7-7-95.)
8 (215 ILCS 5/35A-20)
9 Sec. 35A-20. Regulatory action level event.
10 (a) A regulatory action level event means any of the
11 following events:
12 (1) The filing of an RBC Report by the insurer that
13 indicates that the insurer's total adjusted capital is
14 greater than or equal to its authorized control level
15 RBC, but less than its regulatory action level RBC.
16 (2) The notification by the Director to an insurer
17 of an Adjusted RBC Report that indicates the event
18 described in paragraph (1), provided the insurer does not
19 challenge the Adjusted RBC Report under Section 35A-35.
20 (3) The notification by the Director to the insurer
21 that the Director has, after a hearing, rejected the
22 insurer's challenge under Section 35A-35 to an Adjusted
23 RBC Report that indicates the event described in
24 paragraph (1).
25 (4) The failure of the insurer to file an RBC
26 Report by the filing date, unless the insurer has
27 provided an explanation for the failure that is
28 satisfactory to the Director and has cured the failure
29 within 10 days after the filing date.
30 (5) The failure of the insurer to submit an RBC
31 Plan to the Director within the time period set forth in
32 subsection (c) of Section 35A-15.
33 (6) The notification by the Director to the insurer
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1 that the insurer's RBC Plan or revised RBC Plan is, in
2 the judgment of the Director, unsatisfactory and that the
3 notification constitutes a regulatory action level event
4 with respect to the insurer, provided the insurer does
5 not challenge the determination under Section 35A-35.
6 (7) The notification by the Director to the insurer
7 that the Director has, after a hearing, rejected the
8 insurer's challenge under Section 35A-35 to the
9 determination made by the Director under paragraph (6).
10 (8) The notification by the Director to the insurer
11 that the insurer has failed to adhere to its RBC Plan or
12 Revised RBC Plan, but only if that failure has a
13 substantial adverse effect on the ability of the insurer
14 to eliminate the company action level event in accordance
15 with its RBC Plan or Revised RBC Plan and the Director
16 has so stated in the notification, provided the insurer
17 does not challenge the determination under Section
18 35A-35.
19 (9) The notification by the Director to the insurer
20 that the Director has, after a hearing, rejected the
21 insurer's challenge under Section 35A-35 to the
22 determination made by the Director under paragraph (8).
23 (b) In the event of a regulatory action level event, the
24 Director shall do all of the following:
25 (1) Require the insurer to prepare and submit an
26 RBC Plan or, if applicable, a Revised RBC Plan to the
27 Director within 45 days after the regulatory action level
28 event occurs or within 45 days after the Director
29 notifies the insurer that the Director has, after a
30 hearing, rejected its challenge under Section 35A-35 to
31 either an Adjusted RBC Report or a Revised RBC Plan.
32 However, if the insurer previously prepared and submitted
33 an RBC Plan or a Revised RBC Plan in accordance with any
34 provision of this Article, the Director may determine
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1 that the previously prepared RBC Plan or Revised RBC Plan
2 satisfies the requirement of this subsection (b)(1).
3 (2) Perform any examination or analysis of the
4 assets, liabilities, and operations of the insurer,
5 including a review of its RBC Plan or Revised RBC Plan,
6 that the Director deems necessary.
7 (3) After the examination or analysis, issue a
8 Corrective Order specifying the corrective actions the
9 Director determines are required.
10 (c) In determining corrective actions, the Director may
11 take into account any factors the Director deems relevant
12 based upon the examination or analysis of the assets,
13 liabilities, and operations of the insurer including, but not
14 limited to, the results of any sensitivity tests undertaken
15 under the RBC Instructions. The regulatory action level event
16 shall be deemed sufficient grounds for the Director to issue
17 a Corrective Order in accordance with Article XII 1/2. The
18 Director shall have rights, powers, and duties with respect
19 to the insurer that are set forth in Article XII 1/2 and the
20 insurer shall be entitled to the protections afforded
21 insurers under Article XII 1/2. The insurer shall submit the
22 RBC Plan to the Director within 45 days after the regulatory
23 action level event occurs or within 45 days after the
24 Director notifies the insurer that the Director has, after a
25 hearing, rejected its challenge under Section 35A-35 to
26 either an Adjusted RBC Report or a Revised RBC Plan.
27 (d) The Director may retain actuaries, investment
28 experts, and other consultants necessary to review an
29 insurer's RBC Plan or Revised RBC Plan, examine or analyze
30 the assets, liabilities, and operations of the insurer, and
31 formulate the Corrective Order with respect to the insurer.
32 The fees, costs, and expenses related to the actuaries,
33 investment experts, and other consultants shall be borne by
34 the affected insurer or the party designated by the Director.
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1 (Source: P.A. 88-364; 89-97, eff. 7-7-95.)
2 (215 ILCS 5/35A-35)
3 Sec. 35A-35. Hearings.
4 (a) An insurer has the right to an administrative
5 hearing with respect to any of the following:
6 (1) The notification by the Director to the insurer
7 of an Adjusted RBC Report.
8 (2) The notification by the Director to the insurer
9 that the insurer's RBC Plan or Revised RBC Plan is
10 unsatisfactory and that the notification constitutes a
11 regulatory action level event.
12 (3) The notification by the Director to the insurer
13 that the insurer has failed to adhere to its RBC Plan or
14 Revised RBC Plan and that the failure has a substantial
15 adverse effect on the ability of the insurer to eliminate
16 the company action level event in accordance with its RBC
17 Plan or Revised RBC Plan.
18 (4) The notification by the Director to the insurer
19 of a Corrective Order.
20 (b) At the administrative hearing, the insurer may
21 challenge any determination or action by the Director. The
22 insurer shall notify the Director of its request for a
23 hearing within 5 days after notification by the Director made
24 under subsection (a). Upon receipt of the insurer's request
25 for a hearing, the Director shall set a date for the hearing.
26 The hearing shall be held no fewer than 10 days and no more
27 than 30 days after the date of the insurer's request for the
28 hearing.
29 (Source: P.A. 88-364.)
30 (215 ILCS 5/107.06a) (from Ch. 73, par. 719.06a)
31 Sec. 107.06a. Organization under Illinois Insurance
32 Code.
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1 (a) After December 31, 1997, a syndicate or limited
2 syndicate, except for a limited syndicate formed as a
3 partnership, may only be organized pursuant to Sections 7, 8,
4 10, 11, 12, 14, 14.1 (other than subsection (d) thereof), 15
5 (other than subsection (d) thereof), 18, 19, 20, 21, 22, 23,
6 25, 27.1, 28, 28.1, 28.2, 29, 30, 31, 32, 32.1, 33, and 35.1
7 and Article X of this Code, to carry on the business of a
8 syndicate, or limited syndicate under Article V-1/2 of this
9 Code; provided that such syndicate or limited syndicate is
10 admitted to the Illinois Insurance Exchange.
11 (b) After December 31, 1997, syndicates and limited
12 syndicates are subject to the following:
13 (1) Articles I, IIA, VIII, VIII 1/2, X, XI, XII,
14 XII 1/2, XIII, XIII 1/2, XXIV, XXV (Sections 408 and 412
15 only), and XXVIII (except for Sections 445, 445.1, 445.2,
16 445.3, 445.4, and 445.5) of this Code;
17 (2) Subsections (2) and (3) of Section 155.04 and
18 Sections 13, 132.1 through 140, 141a, 144, 155.01,
19 155.03, 378, 379.1, 393.1, 395, and 396 of this Code;
20 (3) the Reinsurance Intermediary Act; and
21 (4) the Producer Controlled Insurer Act.
22 (c) No other provision of this Insurance Code shall be
23 applicable to any such syndicate or limited syndicate except
24 as provided in this Article V-1/2.
25 (Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97.)
26 (215 ILCS 5/107.26) (from Ch. 73, par. 719.26)
27 Sec. 107.26. Illinois Insurance Exchange Immediate
28 Access Security Association.
29 (a) There is created a non-profit corporation which
30 shall be known as the Illinois Insurance Exchange Immediate
31 Access Security Association and which shall be incorporated
32 under the General Not for Profit Corporation Act. All
33 syndicates shall be members of the Association as a condition
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1 of their authority to transact business on the Exchange. The
2 Association shall be exempt from payment of all fees and all
3 taxes levied by this State or any of its subdivisions.
4 (b) In the event of the entry of an Order of
5 Rehabilitation, Conservation, or Liquidation against a
6 syndicate pursuant to Section 107.08, the Association shall
7 establish a claims date, which shall be not later than one
8 year after the date of such Order, by which time all persons
9 having claims arising out of insurance obligations of the
10 syndicate must file their claim with the Association. The
11 Association shall give notice to all policyholders and other
12 persons who may have a claim against the syndicate as shown
13 by the syndicate's records. Such notice shall include the
14 date of the Order, the claims date established by the
15 Association and the procedure and form for filing a claim
16 with the Association. Within 60 days after the claims date,
17 The Association shall determine the syndicate's insurance
18 obligations liability based on all claims filed on or before
19 the claims date. The Association shall then pay all claims
20 for which an insurance obligation a liability exists from the
21 assets of the syndicate's trust or custodial account and
22 certificates of guaranty. In the event those assets are
23 insufficient to pay all claims in full, the Association shall
24 make payment pursuant to a plan approved by the court
25 entering the Order of Rehabilitation, Conservation, or
26 Liquidation. The Rehabilitator, Conservator, or Liquidator
27 shall be bound by any settlement made by the Association. Any
28 person not receiving full reimbursement for his claim from
29 the Association shall have a claim against the assets being
30 administered by the Rehabilitator, Conservator, or Liquidator
31 for the remaining amounts. In settling claims and subject to
32 limitations in this Section, the Association shall have the
33 same rights and duties of the insolvent syndicate as if the
34 syndicate had not become insolvent.
SB1904 Engrossed -9- LRB9011424JSgc
1 (c) The Association may delegate to such other person or
2 entity as it deems appropriate the performance of any duty
3 imposed on it by this Section.
4 (Source: P.A. 89-97, eff. 7-7-95; 89-206, eff. 7-21-95;
5 89-626, eff. 8-9-96.)
6 (215 ILCS 5/111) (from Ch. 73, par. 723)
7 Sec. 111. Conditions of issuance of certificate of
8 authority.
9 (1) Before a certificate of authority to transact
10 business in this State is issued to a foreign or alien
11 company, such company shall satisfy the Director that:
12 (a) the company is duly organized under the laws of
13 the state or country under whose laws it professes to be
14 organized and authorized to do the business it is
15 transacting or proposes to transact;
16 (b) its name is not the same as, or deceptively
17 similar to, the name of any domestic company, or of any
18 foreign or alien company authorized to transact business
19 in this State;
20 (c) if a company transacting business of the kind
21 or kinds enumerated in Class 1 of Section 4, it is not
22 engaging in practices in any state which if engaged in
23 this State, would constitute a violation of Section 237;
24 and it is not transacting any kinds of business other
25 than those enumerated in Class 1 of Section 4;
26 (d) if a stock company, it has a paid up capital
27 and surplus at least equal to the capital and original
28 surplus required by this Code for a domestic company
29 doing the same kind or kinds of business or, if a mutual
30 company or reciprocal, it has a surplus and provision for
31 contingent liability of policyholders, at least equal to
32 the original surplus and provision for contingent
33 liability of policyholders required for a similar
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1 domestic company doing the same kind or kinds of
2 business, or, if a fraternal benefit society, it meets
3 the requirements prescribed in this Code for the
4 organization of a domestic company or society, or if a
5 Lloyds it meets the requirements of Article V;
6 (e) its funds are invested in accordance with the
7 laws of its domicile; and
8 (f) in the case of a stock company its minimum
9 capital and surplus and required reserves, or in the case
10 of a mutual company or a reciprocal proposing to issue
11 policies without contingent liability, its minimum
12 surplus and required reserves, or in the case of any
13 other company, all its funds, are invested in securities
14 or property which afford a degree of financial security
15 equal to that required for similar domestic companies,
16 provided that this clause shall not be construed as
17 requiring the application of limitations relating either
18 to the kind or amount of securities prescribed by this
19 Code for the investments of domestic companies.
20 (2) In determining whether an alien company complies
21 with the provisions of subsection (1) of this section the
22 Director shall consider only business transacted in the
23 United States, only the assets described in Section 60j and
24 only liabilities in connection with its United States
25 business.
26 (3) Before a certificate of authority is issued to a
27 foreign or alien company, other than a Lloyds, it shall
28 deposit with the Director securities which are authorized
29 investments for similar domestic companies under Section
30 126.11A(1), 126.11A(2), 126.24A(1), or 126.24A(2) of the
31 amount, if any, required of a domestic company similarly
32 organized and doing the same kind or kinds of business; or in
33 lieu of such deposit such foreign or alien company shall
34 satisfy the Director that it has on deposit with an official
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1 of a state of the United States or a depositary designated or
2 authorized for such purpose by such official, authorized by
3 the law of such state to accept such deposit, securities of
4 at least a like amount, for the benefit and security of all
5 creditors, policyholders and policy obligations of such
6 company in the United States.
7 (4) Before issuing a certificate of authority to a
8 foreign or alien company, the Director may cause an
9 examination to be made of the condition and affairs of such
10 company.
11 (Source: P.A. 90-418, eff. 8-15-97.)
12 (215 ILCS 5/121-2.08) (from Ch. 73, par. 733-2.08)
13 Sec. 121-2.08. Transactions in this State involving
14 contracts of insurance issued to one or more industrial
15 insureds. For purposes of this Section "industrial insured"
16 is an insured:
17 (a) which procures the insurance of any risk or risks
18 other than life and annuity contracts by use of the services
19 of a full time employee acting as an insurance manager or
20 buyer or the services of a regularly and continuously
21 retained qualified insurance consultant;
22 (b) whose aggregate annual premiums for insurance on all
23 risks, except for life and accident and health insurance,
24 total at least $100,000 $50,000; and
25 (c) which either (i) has at least 25 full time
26 employees, (ii) has gross assets in excess of $3,000,000, or
27 (iii) has annual gross revenues in excess of $5,000,000.
28 (Source: P.A. 85-131.)
29 (215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)
30 Sec. 123C-1. Definitions. As used in this Article:
31 A. "Affiliate" or "Affiliated company" shall have the
32 meaning set forth in subsection (a) of Section 131.1 (and,
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1 for purposes of such definition, the definitions of "control"
2 and "person", as set forth in subsections (b) and (e) of
3 Section 131.1, respectively, shall be applicable).
4 B. "Association" means any entity meeting the
5 requirements set forth in either of the following paragraphs
6 (1), (2) or (3):
7 (1) any organized association of individuals, legal
8 representatives, corporations (whether for profit or not
9 for profit), partnerships, trusts, associations, units of
10 government or other organizations, or any combination of
11 the foregoing, that has been in continuous existence for
12 at least one year, the member organizations of which
13 collectively:
14 (a) own, control, or hold with power to vote
15 (directly or indirectly) all of the outstanding
16 voting securities of an association captive
17 insurance company incorporated as a stock insurer;
18 or
19 (b) have complete voting control (directly or
20 indirectly) over an association captive insurance
21 company organized as a mutual insurer;
22 (2) any organized association of individuals, legal
23 representatives, corporations (whether for profit or not
24 for profit), partnerships, trusts, associations, units of
25 government or other organizations, or any combination of
26 the foregoing:
27 (a) whose member organizations are engaged in
28 businesses or activities similar or related with
29 respect to the liability of which such members are
30 exposed by virtue of any related, similar, or common
31 business, trade, product, services, premises, or
32 operations; and
33 (b) whose member organizations:
34 (i) directly or indirectly own or
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1 control, and hold with power to vote, at least
2 80% of all of the outstanding voting securities
3 of an association captive insurance company
4 incorporated as a stock insurer; or
5 (ii) directly or indirectly have at least
6 80% of the voting control over an association
7 captive insurance company organized as a mutual
8 insurer; or
9 (3) any risk retention group, as defined in
10 subsection (11) of Section 123B-2, domiciled in this
11 State and organized under this Article; however,
12 beginning 6 months after the effective date of this
13 amendatory Act of 1995, a risk retention group shall no
14 longer qualify as an association under this Article.
15 Provided, however, that with respect to each of the
16 associations described in paragraphs (1), (2) and (3) above,
17 no member organization may (i) own, control, or hold with
18 power to vote in excess of 25% of the voting securities of an
19 association captive insurance company incorporated as a stock
20 insurer, or (ii) have more than 25% of the voting control of
21 an association captive insurance company organized as a
22 mutual insurer.
23 C. "Association captive insurance company" means any
24 company that insures risks of (i) the member organizations of
25 an association, and (ii) their affiliated companies.
26 D. "Captive insurance company" means any pure captive
27 insurance company, association captive insurance company or
28 industrial insured captive insurance company organized under
29 the provisions of this Article.
30 E. "Director" means the Director of the Department of
31 Insurance.
32 F. "Industrial insured" means an insured which (together
33 with its affiliates) at the time of its initial procurement
34 of insurance from an industrial insured captive insurance
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1 company:
2 (1) has available to it advice with respect to the
3 purchase of insurance through the use of the services of
4 a full-time employee acting as an insurance manager or
5 buyer or the services of a regularly and continuously
6 retained qualified insurance consultant; and
7 (2) pays aggregate annual premiums in excess of
8 $100,000 $35,000 for insurance on all risks except
9 for life, accident and health; and
10 (3) either (i) has at least 25 full-time employees,
11 or (ii) has gross assets in excess of $3,000,000, or
12 (iii) has annual gross revenues in excess of $5,000,000.
13 G. "Industrial insured captive insurance company" means
14 any company that insures risks of industrial insureds that
15 are members of the industrial insured group, and their
16 affiliated companies.
17 H. "Industrial insured group" means any group of
18 industrial insureds that collectively:
19 (1) directly or indirectly (including ownership or
20 control through a company which is wholly owned by such
21 group of industrial insureds) own or control, and hold
22 with power to vote, all of the outstanding voting
23 securities of an industrial insured captive insurance
24 company incorporated as a stock insurer; or
25 (2) directly or indirectly (including control
26 through a company which is wholly owned by such group of
27 industrial insureds) have complete voting control over an
28 industrial insured captive insurance company organized as
29 a mutual insurer; provided, however, that no member
30 organization may (i) own, control, or hold with power to
31 vote in excess of 25% of the voting securities of an
32 industrial insured captive insurance company incorporated
33 as a stock insurer, or (ii) have more than 25% of the
34 voting control of an industrial insured captive insurance
SB1904 Engrossed -15- LRB9011424JSgc
1 company organized as a mutual insurer.
2 I. "Member organization" means any individual, legal
3 representative, corporation (whether for profit or not for
4 profit), partnership, association, unit of government, trust
5 or other organization that belongs to an association or an
6 industrial insured group.
7 J. "Parent" means a corporation, partnership, individual
8 or other legal entity that directly or indirectly owns,
9 controls, or holds with power to vote more than 50% of the
10 outstanding voting securities of a company.
11 K. "Personal risk liability" means liability to other
12 persons for (i) damage because of injury to any person, (ii)
13 damage to property, or (iii) other loss or damage, in each
14 case resulting from any personal, familial, or household
15 responsibilities or activities, but does not include legal
16 liability for damages (including costs of defense, legal
17 costs and fees, and other claims expenses) because of
18 injuries to other persons, damage to their property, or other
19 damage or loss to such other persons resulting from or
20 arising out of:
21 (i) any business (whether for profit or not for
22 profit), trade, product, services (including professional
23 services), premises, or operations; or
24 (ii) any activity of any state or local government,
25 or any agency or political subdivision thereof.
26 L. "Pure captive insurance company" means any company
27 that insures only risks of its parent or affiliated companies
28 or both.
29 M. "Unit of government" includes any state, regional or
30 local government, or any agency or political subdivision
31 thereof, or any district, authority, public educational
32 institution or school district, public corporation or other
33 unit of government in this State or any similar unit of
34 government in any other state.
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1 (Source: P.A. 89-97, eff. 7-7-95.)
2 (215 ILCS 5/126.2)
3 Sec. 126.2. Definitions. For purposes of this Article:
4 A. "Acceptable collateral" means:
5 (1) As to securities lending transactions, and for
6 the purpose of calculating counterparty exposure amount,
7 cash, cash equivalents, letters of credit, direct
8 obligations of, or securities that are fully guaranteed
9 as to principal and interest by, the government of the
10 United States or any agency of the United States, or by
11 the Federal National Mortgage Association or the Federal
12 Home Loan Mortgage Corporation, and as to lending foreign
13 securities, sovereign debt rated 1 by the SVO;
14 (2) As to repurchase transactions, cash, cash
15 equivalents and direct obligations of, or securities that
16 are fully guaranteed as to principal and interest by, the
17 government of the United States or an agency of the
18 United States, or by the Federal National Mortgage
19 Association or the Federal Home Loan Mortgage
20 Corporation; and
21 (3) As to reverse repurchase transactions, cash and
22 cash equivalents.
23 B. "Acceptable private mortgage insurance" means
24 insurance written by a private insurer protecting a mortgage
25 lender against loss occasioned by a mortgage loan default and
26 issued by a licensed mortgage insurance company, with an SVO
27 1 designation or a rating issued by a nationally recognized
28 statistical rating organization equivalent to an SVO 1
29 designation, that covers losses to an 80% loan-to-value
30 ratio.
31 C. "Accident and health insurance" means protection
32 which provides payment of benefits for covered sickness or
33 accidental injury, excluding credit insurance, disability
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1 insurance, accidental death and dismemberment insurance and
2 long-term care insurance.
3 D. "Accident and health insurer" means a licensed life
4 or health insurer or health service corporation whose
5 insurance premiums and required statutory reserves for
6 accident and health insurance constitute at least 95% of
7 total premium considerations or total statutory required
8 reserves, respectively.
9 E. "Admitted assets" means assets defined by Section 3.1
10 of this Code permitted to be reported as admitted assets on
11 the statutory financial statement of the insurer most
12 recently required to be filed with the Director, but
13 excluding assets of separate accounts, the investments of
14 which are not subject to the provisions of this Article
15 except to the extent that the provisions of Article XIV 1/2
16 so provide.
17 F. "Affiliate" means, as to any person, another person
18 that, directly or indirectly through one or more
19 intermediaries, controls, is controlled by, or is under
20 common control with the person.
21 G. "Asset-backed security" means a security or other
22 instrument, excluding shares in a mutual fund, evidencing an
23 interest in, or the right to receive payments from, or
24 payable from distributions on, an asset, a pool of assets or
25 specifically divisible cash flows which are legally
26 transferred to a trust or another special purpose
27 bankruptcy-remote business entity, on the following
28 conditions:
29 (1) The trust or other business entity is
30 established solely for the purpose of acquiring specific
31 types of assets or rights to cash flows, issuing
32 securities and other instruments representing an interest
33 in or right to receive cash flows from those assets or
34 rights, and engaging in activities required to service
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1 the assets or rights and any credit enhancement or
2 support features held by the trust or other business
3 entity; and
4 (2) The assets of the trust or other business
5 entity consist solely of interest bearing obligations or
6 other contractual obligations representing the right to
7 receive payment from the cash flows from the assets or
8 rights. However, the existence of credit enhancements,
9 such as letters of credit or guarantees, or support
10 features such as swap agreements, shall not cause a
11 security or other instrument to be ineligible as an
12 asset-backed security.
13 H. "Business entity" includes a sole proprietorship,
14 corporation, limited liability company, association,
15 partnership, joint stock company, joint venture, mutual fund,
16 trust, joint tenancy or other similar form of business
17 organization, whether organized for profit or not for profit.
18 I. "Cap" means an agreement obligating the seller to
19 make payments to the buyer, with each payment based on the
20 amount by which a reference price or level or the performance
21 or value of one or more underlying interests exceeds a
22 predetermined number, sometimes called the strike rate or
23 strike price.
24 J. "Capital and surplus" means the sum of the capital
25 and surplus of the insurer required to be shown on the
26 statutory financial statement of the insurer most recently
27 required to be filed with the Director.
28 K. "Cash equivalents" means short-term, highly rated and
29 highly liquid investments or securities readily convertible
30 to known amounts of cash without penalty and so near maturity
31 that they present insignificant risk of change in value. Cash
32 equivalents include government money market mutual funds and
33 class one money market mutual funds. For purposes of this
34 definition:
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1 (1) "Short-term" means investments with a remaining
2 term to maturity of 90 days or less; and
3 (2) "Highly rated" means an investment rated "P-1"
4 by Moody's Investors Service, Inc., or "A-1" by Standard
5 and Poor's division of The McGraw Hill Companies, Inc. or
6 its equivalent rating by a nationally recognized
7 statistical rating organization recognized by the SVO.
8 L. "Class one bond mutual fund" means a mutual fund that
9 at all times qualifies for investment using the bond class
10 one reserve factor under the Purposes and Procedures of the
11 Securities Valuation Office or any successor publication.
12 M. "Class one money market mutual fund" means a money
13 market mutual fund that at all times qualifies for investment
14 using the bond class one reserve factor under the Purposes
15 and Procedures of the Securities Valuation Office or any
16 successor publication.
17 N. "Code" means the Illinois Insurance Code.
18 O. "Collar" means an agreement to receive payments as
19 the buyer of an option, cap or floor and to make payments as
20 the seller of a different option, cap or floor.
21 P. "Commercial mortgage loan" means a mortgage loan,
22 other than a residential mortgage loan.
23 Q. "Construction loan" means a loan of less than 3 years
24 in term, made for financing the cost of construction of a
25 building or other improvement to real estate, that is secured
26 by the real estate.
27 R. "Control" means the possession, directly or
28 indirectly, of the power to direct or cause the direction of
29 the management and policies of a person, whether through the
30 ownership of voting securities, by contract (other than a
31 commercial contract for goods or nonmanagement services), or
32 otherwise, unless the power is the result of an official
33 position with or corporate office held by the person. Control
34 shall be presumed to exist if a person, directly or
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1 indirectly, owns, controls, holds with the power to vote or
2 holds proxies representing 10% or more of the voting
3 securities of another person. This presumption may be
4 rebutted by a showing that control does not exist in fact.
5 The Director may determine, after furnishing all interested
6 persons notice and an opportunity to be heard and making
7 specific findings of fact to support the determination, that
8 control exists in fact, notwithstanding the absence of a
9 presumption to that effect.
10 S. "Counterparty exposure amount" means:
11 (1) The amount of credit risk attributable to a
12 derivative instrument entered into with a business entity
13 other than through a qualified exchange, qualified
14 foreign exchange, or cleared through a qualified
15 clearinghouse ("over-the-counter derivative instrument").
16 The amount of credit risk equals:
17 (a) The market value of the over-the-counter
18 derivative instrument if the liquidation of the
19 derivative instrument would result in a final cash
20 payment to the insurer; or
21 (b) Zero if the liquidation of the derivative
22 instrument would not result in a final cash payment
23 to the insurer.
24 (2) If over-the-counter derivative instruments are
25 entered into under a written master agreement which
26 provides for netting of payments owed by the respective
27 parties, and the domicile of the counterparty is either
28 within the United States or if not within the United
29 States, within a foreign jurisdiction listed in the
30 Purposes and Procedures of the Securities Valuation
31 Office as eligible for netting, the net amount of credit
32 risk shall be the greater of zero or the net sum of:
33 (a) The market value of the over-the-counter
34 derivative instruments entered into under the
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1 agreement, the liquidation of which would result in
2 a final cash payment to the insurer; and
3 (b) The market value of the over-the-counter
4 derivative instruments entered into under the
5 agreement, the liquidation of which would result in
6 a final cash payment by the insurer to the business
7 entity.
8 (3) For open transactions, market value shall be
9 determined at the end of the most recent quarter of the
10 insurer's fiscal year and shall be reduced by the market
11 value of acceptable collateral held by the insurer or
12 placed in escrow by one or both parties.
13 T. "Covered" means that an insurer owns or can
14 immediately acquire, through the exercise of options,
15 warrants or conversion rights already owned, the underlying
16 interest in order to fulfill or secure its obligations under
17 a call option, cap or floor it has written, or has set aside,
18 pursuant to a custodial or escrow agreement, cash or cash
19 equivalents with a market value equal to the amount required
20 to fulfill its obligations under a put option it has written,
21 in an income generation transaction.
22 U. "Credit tenant loan" means a mortgage loan which is
23 made primarily in reliance on the credit standing of a major
24 tenant, structured with an assignment of the rental payments
25 to the lender with real estate pledged as collateral in the
26 form of a first lien.
27 V. (1) "Derivative instrument" means an agreement,
28 option, instrument or a series or combination thereof:
29 (a) To make or take delivery of, or assume or
30 relinquish, a specified amount of one or more
31 underlying interests, or to make a cash settlement
32 in lieu thereof; or
33 (b) That has a price, performance, value or
34 cash flow based primarily upon the actual or
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1 expected price, level, performance, value or cash
2 flow of one or more underlying interests.
3 (2) Derivative instruments include options,
4 warrants used in a hedging transaction and not attached
5 to another financial instrument, caps, floors, collars,
6 swaps, forwards, futures and any other agreements,
7 options or instruments substantially similar thereto or
8 any series or combination thereof and any agreements,
9 options or instruments permitted under rules adopted
10 under Section 126.8. Derivative instruments shall not
11 include an investment authorized by Sections 126.11
12 through 126.17, 126.19 and 126.24 through 126.30.
13 W. "Derivative transaction" means a transaction
14 involving the use of one or more derivative instruments.
15 X. "Direct" or "directly," when used in connection with
16 an obligation, means the designated obligor is primarily
17 liable on the instrument representing the obligation.
18 Y. "Dollar roll transaction" means 2 simultaneous
19 transactions with settlement dates no more than 96 days
20 apart, so that in one transaction an insurer sells to a
21 business entity, and in the other transaction the insurer is
22 obligated to purchase from the same business entity,
23 substantially similar securities of the following types:
24 (1) Asset-backed securities issued, assumed or
25 guaranteed by the Government National Mortgage
26 Association, the Federal National Mortgage Association or
27 the Federal Home Loan Mortgage Corporation or their
28 respective successors; and
29 (2) Other asset-backed securities referred to in
30 Section 106 of Title I of the Secondary Mortgage Market
31 Enhancement Act of 1984 (15 U.S.C. 77r1), as amended.
32 Z. "Domestic jurisdiction" means the United States,
33 Canada, any state, any province of Canada or any political
34 subdivision of any of the foregoing.
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1 AA. "Equity interest" means any of the following that
2 are not rated credit instruments: common stock; preferred
3 stock; trust certificate; equity investment in an investment
4 company other than a money market mutual fund or a class one
5 bond mutual fund; investment in a common trust fund of a bank
6 regulated by a federal or state agency; an ownership interest
7 in minerals, oil or gas, the rights to which have been
8 separated from the underlying fee interest in the real estate
9 where the minerals, oil or gas are located; instruments which
10 are mandatorily, or at the option of the issuer, convertible
11 to equity; limited partnership interests and those general
12 partnership interests authorized under Section 126.5(D);
13 member interests in limited liability companies; warrants or
14 other rights to acquire equity interests that are created by
15 the person that owns or would issue the equity to be
16 acquired; or instruments that would be rated credit
17 instruments except for the provisions of subsection RRR(2) of
18 this Section.
19 BB. "Equivalent securities" means:
20 (1) In a securities lending transaction, securities
21 that are identical to the loaned securities in all
22 features including the amount of the loaned securities,
23 except as to certificate number if held in physical form,
24 but if any different security shall be exchanged for a
25 loaned security by recapitalization, merger,
26 consolidation or other corporate action, the different
27 security shall be deemed to be the loaned security;
28 (2) In a repurchase transaction, securities that
29 are identical to the purchased securities in all features
30 including the amount of the purchased securities, except
31 as to the certificate number if held in physical form; or
32 (3) In a reverse repurchase transaction, securities
33 that are identical to the sold securities in all features
34 including the amount of the sold securities, except as to
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1 the certificate number if held in physical form.
2 CC. "Floor" means an agreement obligating the seller to
3 make payments to the buyer in which each payment is based on
4 the amount by which a predetermined number, sometimes called
5 the floor rate or price, exceeds a reference price, a level,
6 or the performance or value of one or more underlying
7 interests.
8 DD. "Foreign currency" means a currency other than that
9 of a domestic jurisdiction.
10 EE. (1) "Foreign investment" means an investment in a
11 foreign jurisdiction, or an investment in a person, real
12 estate or asset domiciled in a foreign jurisdiction, that
13 is substantially of the same type as those eligible for
14 investment under this Article, other than under Sections
15 126.17 and 126.30. An investment shall not be deemed to
16 be foreign if the issuing person, qualified primary
17 credit source or qualified guarantor is a domestic
18 jurisdiction or a person domiciled in a domestic
19 jurisdiction, unless:
20 (a) The issuing person is a shell business
21 entity; and
22 (b) The investment is not assumed, accepted,
23 guaranteed, or insured or otherwise backed by a
24 domestic jurisdiction or a person, that is not a
25 shell business entity, domiciled in a domestic
26 jurisdiction.
27 (2) For purposes of this definition:
28 (a) "Shell business entity" means a business
29 entity having no economic substance, except as a
30 vehicle for owning interests in assets issued, owned
31 or previously owned by a person domiciled in a
32 foreign jurisdiction;
33 (b) "Qualified guarantor" means a guarantor
34 against which an insurer has a direct claim for full
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1 and timely payment, evidenced by a contractual right
2 for which an enforcement action can be brought in a
3 domestic jurisdiction; and
4 (c) "Qualified primary credit source" means
5 the credit source to which an insurer looks for
6 payment as to an investment and against which an
7 insurer has a direct claim for full and timely
8 payment, evidenced by a contractual right for which
9 an enforcement action can be brought in a domestic
10 jurisdiction.
11 FF. "Foreign jurisdiction" means a jurisdiction other
12 than a domestic jurisdiction.
13 GG. "Forward" means an agreement (other than a future)
14 to make or take delivery of, or effect a cash settlement
15 based on the actual or expected price, level, performance or
16 value of, one or more underlying interests.
17 HH. "Future" means an agreement, traded on a qualified
18 exchange or qualified foreign exchange, to make or take
19 delivery of, or effect a cash settlement based on the actual
20 or expected price, level, performance or value of, one or
21 more underlying interests and includes an insurance future.
22 II. "Government money market mutual fund" means a money
23 market mutual fund that at all times:
24 (1) Invests only in obligations issued, guaranteed,
25 or insured by the federal government of the United States
26 or collateralized repurchase agreements composed of these
27 obligations; and
28 (2) Qualifies for investment without a reserve
29 under the Purposes and Procedures of the Securities
30 Valuation Office or any successor publication.
31 JJ. "Government sponsored enterprise" means a:
32 (1) Governmental agency; or
33 (2) Corporation, limited liability company,
34 association, partnership, joint stock company, joint
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1 venture, trust or other entity or instrumentality
2 organized under the laws of any domestic jurisdiction to
3 accomplish a public policy or other governmental purpose.
4 KK. "Guaranteed or insured," when used in connection
5 with an obligation acquired under this Article, means the
6 guarantor or insurer has agreed to:
7 (1) Perform or insure the obligation of the obligor
8 or purchase the obligation; or
9 (2) Be unconditionally obligated until the
10 obligation is repaid to maintain in the obligor a minimum
11 net worth, fixed charge coverage, stockholders' equity or
12 sufficient liquidity to enable the obligor to pay the
13 obligation in full.
14 LL. "Hedging transaction" means:
15 (1) A derivative transaction that is entered into
16 and maintained to reduce:
17 (a) the risk of a change in the value, yield,
18 price, cash flow, or quantity of assets or
19 liabilities that the insurer has acquired or
20 incurred or anticipates acquiring or incurring; or
21 (b) the currency exchange rate risk or the
22 degree of exposure as to assets or liabilities that
23 the insurer has acquired or incurred or anticipates
24 acquiring or incurring; or
25 (2) Such other derivative transactions as may be
26 specified to constitute hedging transactions in rules
27 adopted pursuant to Section 126.8.
28 MM. "High grade investment" means a rated credit
29 instrument; rated 1, 2, P1, P2, PSF1 or PSF2 by the SVO.
30 NN. "Income" means, as to a security, interest, accrual
31 of discount, dividends or other distributions, such as
32 rights, tax or assessment credits, warrants and distributions
33 in kind.
34 OO. "Income generation transaction" means (1) a
SB1904 Engrossed -27- LRB9011424JSgc
1 derivative transaction involving the writing of covered call
2 options, covered put options, covered caps or covered floors
3 that is intended to generate income or enhance return, or (2)
4 such other derivative transactions as may be specified to
5 constitute income generation transactions in rules adopted
6 pursuant to Section 126.8.
7 PP. "Initial margin" means the amount of cash,
8 securities or other consideration initially required to be
9 deposited to establish a futures position.
10 QQ. "Insurance future" means a future relating to an
11 index or pool that is based on insurance-related items.
12 RR. "Insurance futures option" means an option on an
13 insurance future.
14 SS. "Investment company" means an investment company as
15 defined in Section 3(a) of the Investment Company Act of 1940
16 (15 U.S.C. 80a-1 et seq.), as amended, and a person
17 described in Section 3(c) of that Act.
18 TT. "Investment company series" means an investment
19 portfolio of an investment company that is organized as a
20 series company and to which assets of the investment company
21 have been specifically allocated.
22 UU. "Investment practices" means transactions of the
23 types described in Section 126.16, 126.18, 126.29 or 126.31.
24 VV. "Investment subsidiary" means a subsidiary of an
25 insurer engaged or organized to engage exclusively in the
26 ownership and management of assets authorized as investments
27 for the insurer if such subsidiary agrees to limit its
28 investment in any asset so that its investments will not
29 cause the amount of the total investment of the insurer to
30 exceed any of the investment limitations or avoid any other
31 provisions of this Article applicable to the insurer. As used
32 in this subsection, the total investment of the insurer shall
33 include:
34 (1) Direct investment by the insurer in an asset;
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1 and
2 (2) The insurer's proportionate share of an
3 investment in an asset by an investment subsidiary of the
4 insurer, which shall be calculated by multiplying the
5 amount of the subsidiary's investment by the percentage
6 of the insurer's ownership interest in the subsidiary.
7 WW. "Investment strategy" means the techniques and
8 methods used by an insurer to meet its investment objectives,
9 such as active bond portfolio management, passive bond
10 portfolio management, interest rate anticipation, growth
11 investing and value investing.
12 XX. "Letter of credit" means a clean, irrevocable and
13 unconditional letter of credit issued or confirmed by, and
14 payable and presentable at, a financial institution on the
15 list of financial institutions meeting the standards for
16 issuing letters of credit under the Purposes and Procedures
17 of the Securities Valuation Office or any successor
18 publication. To constitute acceptable collateral for the
19 purposes of Sections 126.16 and 126.29, a letter of credit
20 must have an expiration date beyond the term of the subject
21 transaction.
22 YY. "Limited liability company" means a business
23 organization, excluding partnerships and ordinary business
24 corporations, organized or operating under the laws of the
25 United States or any state thereof that limits the personal
26 liability of investors to the equity investment of the
27 investor in the business entity.
28 ZZ. "Lower grade investment" means a rated credit
29 instrument rated 4, 5, 6, P4, P5, P6, PSF4, PSF5, or PSF6 by
30 the SVO.
31 AAA. "Market value" means:
32 (1) As to cash and letters of credit, the amounts
33 thereof; and
34 (2) As to a security as of any date, the price for
SB1904 Engrossed -29- LRB9011424JSgc
1 the security on that date obtained from a generally
2 recognized source or the most recent quotation from such
3 a source or, to the extent no generally recognized source
4 exists, the price for the security as determined in good
5 faith by the insurer, plus accrued but unpaid income
6 thereon to the extent not included in the price as of
7 that date.
8 BBB. "Medium grade investment" means a rated credit
9 instrument rated 3, P3, or PSF 3 by the SVO.
10 CCC. "Money market mutual fund" means a mutual fund that
11 meets the conditions of 17 Code of Federal Regulations Par.
12 270.2a-7, under the Investment Company Act of 1940 (15 U.S.C.
13 80a-1 et seq.), as amended or renumbered.
14 DDD. "Mortgage loan" means an obligation secured by a
15 mortgage, deed of trust, trust deed or other consensual lien
16 on real estate.
17 EEE. "Multilateral development bank" means an
18 international development organization of which the United
19 States is a member.
20 FFF. "Mutual fund" means an investment company or, in
21 the case of an investment company that is organized as a
22 series company, an investment company series, that, in either
23 case, is registered with the United States Securities and
24 Exchange Commission under the Investment Company Act of 1940
25 (15 U.S.C. 80a-1 et seq.), as amended.
26 GGG. "NAIC" means the National Association of Insurance
27 Commissioners.
28 HHH. "Obligation" means a bond, note, debenture, trust
29 certificate including an equipment trust certificate,
30 production payment, negotiable bank certificate of deposit,
31 bankers' acceptance, credit tenant loan, loan secured by
32 financing net leases and other evidence of indebtedness for
33 the payment of money (or participations, certificates or
34 other evidences of an interest in any of the foregoing),
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1 whether constituting a general obligation of the issuer or
2 payable only out of certain revenues or certain funds pledged
3 or otherwise dedicated for payment.
4 III. "Option" means an agreement giving the buyer the
5 right to buy or receive (a "call option"), sell or deliver (a
6 "put option"), enter into, extend or terminate or effect a
7 cash settlement based on the actual or expected price, level,
8 performance or value of one or more underlying interests and
9 includes an insurance futures option.
10 JJJ. "Person" means an individual, a business entity, a
11 multilateral development bank or a government or quasi
12 governmental body, such as a political subdivision or a
13 government sponsored enterprise.
14 KKK. "Potential exposure" means the amount determined in
15 accordance with the NAIC Annual Statement Instructions.
16 LLL. "Preferred stock" means preferred, preference or
17 guaranteed stock of a business entity authorized to issue the
18 stock, that has a preference in liquidation over the common
19 stock of the business entity.
20 MMM. "Qualified bank" means:
21 (1) A national bank, state bank or trust company
22 that at all times is no less than adequately capitalized
23 as determined by standards adopted by United States
24 banking regulators and that either is regulated by state
25 banking laws or is a member of the Federal Reserve
26 System; or
27 (2) A bank or trust company incorporated or
28 organized under the laws of a country other than the
29 United States that is regulated as a bank or trust
30 company by that country's government or an agency thereof
31 and that at all times is no less than adequately
32 capitalized as determined by the standards adopted by
33 international banking authorities.
34 NNN. "Qualified business entity" means a business entity
SB1904 Engrossed -31- LRB9011424JSgc
1 that is:
2 (1) An issuer of obligations or preferred stock
3 that are rated 1 or 2 by the SVO or an issuer of
4 obligations, preferred stock or derivative instruments
5 that are rated the equivalent of 1 or 2 by the SVO or by
6 a nationally recognized statistical rating organization
7 recognized by the SVO; or
8 (2) A primary dealer in United States government
9 securities, recognized by the Federal Reserve Bank of New
10 York; or.
11 (3) With respect to securities lending arrangements
12 under Sections 126.16 and 126.29, an affiliate of an
13 entity that is a qualified business entity pursuant to
14 paragraph (1) or (2) of this subsection NNN, whose
15 arrangement with the insurer is guaranteed by the
16 affiliated entity that is a qualified business entity
17 under paragraph (1) or (2).
18 OOO. "Qualified clearinghouse" means a clearinghouse
19 for, and subject to the rules of, a qualified exchange or a
20 qualified foreign exchange, which provides clearing services,
21 including acting as a counterparty to each of the parties to
22 a transaction such that the parties no longer have credit
23 risk as to each other.
24 PPP. "Qualified exchange" means:
25 (1) A securities exchange registered as a national
26 securities exchange, or a securities market regulated
27 under the Securities Exchange Act of 1934 (15 U.S.C. 78
28 et seq.), as amended;
29 (2) A board of trade or commodities exchange
30 designated as a contract market by the Commodity Futures
31 Trading Commission or any successor thereof;
32 (3) Private Offerings, Resales and Trading through
33 Automated Linkages (PORTAL);
34 (4) A designated offshore securities market as
SB1904 Engrossed -32- LRB9011424JSgc
1 defined in Securities Exchange Commission Regulation S,
2 17 C.F.R. Part 230, as amended; or
3 (5) A qualified foreign exchange.
4 QQQ. "Qualified foreign exchange" means a foreign
5 exchange, board of trade or contract market located outside
6 the United States, its territories or possessions:
7 (1) That has received regulatory comparability
8 relief under Commodity Futures Trading Commission (CFTC)
9 Rule 30.10 (as set forth in Appendix C to Part 30 of the
10 CFTC's Regulations, 17 C.F.R. Part 30);
11 (2) That is, or its members are, subject to the
12 jurisdiction of a foreign futures authority that has
13 received regulatory comparability relief under CFTC Rule
14 30.10 (as set forth in Appendix C to Part 30 of the
15 CFTC's Regulations, 17 C.F.R. Part 30) as to futures
16 transactions in the jurisdiction where the exchange,
17 board of trade or contract market is located; or
18 (3) Upon which foreign stock index futures
19 contracts are listed that are the subject of no-action
20 relief issued by the CFTC's Office of General Counsel,
21 provided that an exchange, board of trade or contract
22 market that qualifies as a "qualified foreign exchange"
23 only under this subsection shall only be a "qualified
24 foreign exchange" as to foreign stock index futures
25 contracts that are the subject of no-action relief.
26 RRR. (1) "Rated credit instrument" means an obligation
27 or other instrument which gives its holder a contractual
28 right to receive cash or another rated credit instrument
29 from another entity, if the instrument:
30 (a) Is rated or required to be rated by the
31 SVO;
32 (b) In the case of an instrument with a
33 maturity of 397 days or less, is issued, guaranteed,
34 or insured by an entity that is rated by, or another
SB1904 Engrossed -33- LRB9011424JSgc
1 instrument of such entity is rated by, the SVO or by
2 a nationally recognized statistical rating
3 organization recognized by the SVO;
4 (c) In the case of an instrument with a
5 maturity of 90 days or less, the instrument has been
6 issued, assumed, accepted, guaranteed, or insured by
7 a qualified bank;
8 (d) Is a share of a class one bond mutual
9 fund; or
10 (e) Is a share of a money market mutual fund.
11 (2) However, "rated credit instrument" does not
12 mean:
13 (a) An instrument that is mandatorily, or at
14 the option of the issuer, convertible to an equity
15 interest; or
16 (b) A security that has a par value and whose
17 terms provide that the issuer's net obligation to
18 repay all or part of the security's par value is
19 determined by reference to the performance of an
20 equity, a commodity, a foreign currency or an index
21 of equities, commodities, foreign currencies or
22 combinations thereof.
23 SSS. "Real estate" means:
24 (1) (a) Real property;
25 (b) Interests in real property, such as
26 leaseholds, minerals and oil and gas that have not
27 been separated from the underlying fee interest;
28 (c) Improvements and fixtures located on or in
29 real property; and
30 (d) The seller's equity in a contract
31 providing for a deed of real estate.
32 (2) As to a mortgage on a leasehold estate, real
33 estate shall include the leasehold estate only if it has
34 an unexpired term (including renewal options exercisable
SB1904 Engrossed -34- LRB9011424JSgc
1 at the option of the lessee) extending beyond the
2 scheduled maturity date of the obligation that is secured
3 by a mortgage on the leasehold estate by a period equal
4 to at least 20% of the original term of the obligation or
5 10 years, whichever is greater.
6 TTT. "Replication transaction" means a derivative
7 transaction that is intended to replicate the performance of
8 one or more assets that an insurer is authorized to acquire
9 under this Article. A derivative transaction that is entered
10 into as a hedging transaction shall not be considered a
11 replication transaction.
12 UUU. "Repurchase transaction" means a transaction in
13 which an insurer purchases securities from a business entity
14 that is obligated to repurchase the purchased securities or
15 equivalent securities from the insurer at a specified price,
16 either within a specified period of time or upon demand.
17 VVV. "Required liabilities" means total liabilities
18 required to be reported on the statutory financial statement
19 of the insurer most recently required to be filed with the
20 Director.
21 WWW. "Residential mortgage loan" means a loan primarily
22 secured by a mortgage on real estate improved with a one to
23 four family residence.
24 XXX. "Reverse repurchase transaction" means a
25 transaction in which an insurer sells securities to a
26 business entity and is obligated to repurchase the sold
27 securities or equivalent securities from the business entity
28 at a specified price, either within a specified period of
29 time or upon demand.
30 YYY. "Secured location" means the contiguous real estate
31 owned by one person.
32 ZZZ. "Securities lending transaction" means a
33 transaction in which securities are loaned by an insurer to a
34 business entity that is obligated to return the loaned
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1 securities or equivalent securities to the insurer, either
2 within a specified period of time or upon demand.
3 AAAA. "Series company" means an investment company that
4 is organized as a series company, as defined in Rule 18f-2(a)
5 adopted under the Investment Company Act of 1940 (15 U.S.C.
6 80a-1 et seq.), as amended.
7 BBBB. "Sinking fund stock" means preferred stock that:
8 (1) Is subject to a mandatory sinking fund or
9 similar arrangement that will provide for the redemption
10 (or open market purchase) of the entire issue over a
11 period not longer than 40 years from the date of
12 acquisition; and
13 (2) Provides for mandatory sinking fund
14 installments (or open market purchases) commencing not
15 more than 10.5 years from the date of issue, with the
16 sinking fund installments providing for the purchase or
17 redemption, on a cumulative basis commencing 10 years
18 from the date of issue, of at least 2.5% per year of the
19 original number of shares of that issue of preferred
20 stock.
21 CCCC. "Special rated credit instrument" means a rated
22 credit instrument that is:
23 (1) An instrument that is structured so that, if it
24 is held until retired by or on behalf of the issuer, its
25 rate of return, based on its purchase cost and any cash
26 flow stream possible under the structure of the
27 transaction, may become negative due to reasons other
28 than the credit risk associated with the issuer of the
29 instrument; however, a rated credit instrument shall not
30 be a special rated credit instrument under this
31 subsection if it is:
32 (a) A share in a class one bond mutual fund;
33 (b) An instrument, other than an asset-backed
34 security, with payments of par value fixed as to
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1 amount and timing, or callable but in any event
2 payable only at par or greater, and interest or
3 dividend cash flows that are based on either a fixed
4 or variable rate determined by reference to a
5 specified rate or index;
6 (c) An instrument, other than an asset-backed
7 security, that has a par value and is purchased at a
8 price no greater than 110% of par;
9 (d) An instrument, including an asset-backed
10 security, whose rate of return would become negative
11 only as a result of a prepayment due to casualty,
12 condemnation or economic obsolescence of collateral
13 or change of law;
14 (e) An asset-backed security that relies on
15 collateral that meets the requirements of
16 subparagraph (b) of this paragraph, the par value of
17 which collateral:
18 (i) Is not permitted to be paid sooner
19 than one half of the remaining term to maturity
20 from the date of acquisition;
21 (ii) Is permitted to be paid prior to
22 maturity only at a premium sufficient to
23 provide a yield to maturity for the investment,
24 considering the amount prepaid and reinvestment
25 rates at the time of early repayment, at least
26 equal to the yield to maturity of the initial
27 investment; or
28 (iii) Is permitted to be paid prior to
29 maturity at a premium at least equal to the
30 yield of a treasury issue of comparable
31 remaining life; or
32 (f) An asset-backed security that relies on
33 cash flows from assets that are not prepayable at
34 any time at par, but is not otherwise governed by
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1 subparagraph (e) of this paragraph, if the
2 asset-backed security has a par value reflecting
3 principal payments to be received if held until
4 retired by or on behalf of the issuer and is
5 purchased at a price no greater than 105% of such
6 par amount.
7 (2) An asset-backed security that:
8 (a) Relies on cash flows from assets that are
9 prepayable at par at any time;
10 (b) Does not make payments of par that are
11 fixed as to amount and timing; and
12 (c) Has a negative rate of return at the time
13 of acquisition if a prepayment threshold assumption
14 is used with such prepayment threshold assumption
15 defined as either:
16 (i) Two (2) times the prepayment
17 expectation reported by a recognized, publicly
18 available source as being the median of
19 expectations contributed by broker dealers or
20 other entities, except insurers, engaged in the
21 business of selling or evaluating such
22 securities or assets. The prepayment
23 expectation used in this calculation shall be,
24 at the insurer's election, the prepayment
25 expectation for pass-through securities of the
26 Federal National Mortgage Association, the
27 Federal Home Loan Mortgage Corporation, the
28 Government National Mortgage Association, or
29 for other assets of the same type as the assets
30 that underlie the asset- backed security, in
31 either case with a gross weighted average
32 coupon comparable to the gross weighted average
33 coupon of the assets that underlie the
34 asset-backed security; or
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1 (ii) Another prepayment threshold
2 assumption specified by the Director by rule
3 promulgated under Section 126.8.
4 (3) For purposes of subparagraph 2 of this
5 subsection, if the asset-backed security is purchased in
6 combination with one or more other asset-backed
7 securities that are supported by identical underlying
8 collateral, the insurer may calculate the rate of return
9 for these specific combined asset-backed securities in
10 combination. The insurer must maintain documentation
11 demonstrating that such securities were acquired and are
12 continuing to be held in combination.
13 DDDD. "State" means a state, territory or possession of
14 the United States of America, the District of Columbia or the
15 Commonwealth of Puerto Rico.
16 EEEE. "Substantially similar securities" means
17 securities that meet all criteria for substantially similar
18 securities specified in the NAIC Accounting Practices and
19 Procedures Manual, as amended, and in an amount that
20 constitutes good delivery form as determined from time to
21 time by the PSA The Bond Market Trade Association.
22 FFFF. "Subsidiary" means, as to any person, an affiliate
23 controlled by such person, directly or indirectly through one
24 or more intermediaries.
25 GGGG. "SVO" means the Securities Valuation Office of the
26 NAIC or any successor office established by the NAIC.
27 HHHH. "Swap" means an agreement to exchange or to net
28 payments at one or more times based on the actual or expected
29 price, level, performance or value of one or more underlying
30 interests.
31 IIII. "Underlying interest" means the assets,
32 liabilities, other interests or a combination thereof
33 underlying a derivative instrument, such as any one or more
34 securities, currencies, rates, indices, commodities or
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1 derivative instruments.
2 JJJJ. "Unrestricted surplus" means the amount by which
3 total admitted assets exceed 125% of the insurer's required
4 liabilities.
5 KKKK. "Warrant" means an instrument that gives the
6 holder the right to purchase an underlying financial
7 instrument at a given price and time or at a series of prices
8 and times outlined in the warrant agreement. Warrants may be
9 issued alone or in connection with the sale of other
10 securities, for example, as part of a merger or
11 recapitalization agreement, or to facilitate divestiture of
12 the securities of another business entity.
13 (Source: P.A. 90-418, eff. 8-15-97.)
14 (215 ILCS 5/143) (from Ch. 73, par. 755)
15 Sec. 143. Policy forms.
16 (1) Life, accident and health. No company transacting
17 the kind or kinds of business enumerated in Classes 1 (a), 1
18 (b) and 2 (a) of Section 4 shall issue or deliver in this
19 State a policy or certificate of insurance or evidence of
20 coverage, attach an endorsement or rider thereto, incorporate
21 by reference bylaws or other matter therein or use an
22 application blank in this State until the form and content of
23 such policy, certificate, evidence of coverage, endorsement,
24 rider, bylaw or other matter incorporated by reference or
25 application blank has been filed with and approved by the
26 Director and the appropriate filing fee under Section 408 has
27 been paid, except that any such endorsement or rider that
28 unilaterally reduces benefits and is to be attached to a
29 policy subsequent to the date the policy is issued must be
30 filed with, reviewed, and formally approved by the Director
31 prior to the date it is attached to a policy issued or
32 delivered in this State. It shall be the duty of the
33 Director to withhold approval of any such policy,
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1 certificate, endorsement, rider, bylaw or other matter
2 incorporated by reference or application blank filed with him
3 if it contains provisions which encourage misrepresentation
4 or are unjust, unfair, inequitable, ambiguous, misleading,
5 inconsistent, deceptive, contrary to law or to the public
6 policy of this State, or contains exceptions and conditions
7 that unreasonably or deceptively affect the risk purported to
8 be assumed in the general coverage of the policy. In all
9 cases the Director shall approve or disapprove any such form
10 within 60 days after submission unless the Director extends
11 by not more than an additional 30 days the period within
12 which he shall approve or disapprove any such form by giving
13 written notice to the insurer of such extension before
14 expiration of the initial 60 days period. The Director shall
15 withdraw his approval of a policy, certificate, evidence of
16 coverage, endorsement, rider, bylaw, or other matter
17 incorporated by reference or application blank if he
18 subsequently determines that such policy, certificate,
19 evidence of coverage, endorsement, rider, bylaw, other
20 matter, or application blank is misrepresentative, unjust,
21 unfair, inequitable, ambiguous, misleading, inconsistent,
22 deceptive, contrary to law or public policy of this State, or
23 contains exceptions or conditions which unreasonably or
24 deceptively affect the risk purported to be assumed in the
25 general coverage of the policy or evidence of coverage.
26 If a previously approved policy, certificate, evidence of
27 coverage, endorsement, rider, bylaw or other matter
28 incorporated by reference or application blank is withdrawn
29 for use, the Director shall serve upon the company an order
30 of withdrawal of use, either personally or by mail, and if by
31 mail, such service shall be completed if such notice be
32 deposited in the post office, postage prepaid, addressed to
33 the company's last known address specified in the records of
34 the Department of Insurance. The order of withdrawal of use
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1 shall take effect 30 days from the date of mailing but shall
2 be stayed if within the 30-day period a written request for
3 hearing is filed with the Director. Such hearing shall be
4 held at such time and place as designated in the order given
5 by the Director. The hearing may be held either in the City
6 of Springfield, the City of Chicago or in the county where
7 the principal business address of the company is located. The
8 action of the Director in disapproving or withdrawing such
9 form shall be subject to judicial review under the
10 Administrative Review Law.
11 This subsection shall not apply to riders or endorsements
12 issued or made at the request of the individual policyholder
13 relating to the manner of distribution of benefits or to the
14 reservation of rights and benefits under his life insurance
15 policy.
16 (2) Casualty, fire, and marine. The Director shall
17 require the filing of all policy forms issued or delivered by
18 any company transacting the kind or kinds of business
19 enumerated in Classes 2 (except Class 2 (a)) and 3 of Section
20 4. In addition, he may require the filing of any generally
21 used riders, endorsements, certificates, application blanks,
22 and other matter incorporated by reference in any such policy
23 or contract of insurance along with the appropriate filing
24 fee under Section 408. Companies that are members of an
25 organization, bureau, or association may have the same filed
26 for them by the organization, bureau, or association. If the
27 Director shall find from an examination of any such policy
28 form, rider, endorsement, certificate, application blank, or
29 other matter incorporated by reference in any such policy so
30 filed that it (i) violates any provision of this Code, (ii)
31 contains inconsistent, ambiguous, or misleading clauses, or
32 (iii) contains exceptions and conditions that will
33 unreasonably or deceptively affect the risks that are
34 purported to be assumed by the policy, he shall order the
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1 company or companies issuing these forms to discontinue their
2 use. Nothing in this subsection shall require a company
3 transacting the kind or kinds of business enumerated in
4 Classes 2 (except Class 2 (a)) and 3 of Section 4 to obtain
5 approval of these forms before they are issued nor in any way
6 affect the legality of any policy that has been issued and
7 found to be in conflict with this subsection, but such
8 policies shall be subject to the provisions of Section 442.
9 (3) This Section shall not apply (i) to surety contracts
10 or fidelity bonds, (ii) to policies issued to an industrial
11 insured as defined in Section 121-2.08 except for workers'
12 compensation policies, nor (iii) to riders or endorsements
13 prepared to meet special, unusual, peculiar, or extraordinary
14 conditions applying to an individual risk.
15 (Source: P.A. 87-1090; 88-313.)
16 (215 ILCS 5/191) (from Ch. 73, par. 803)
17 Sec. 191. Title to property of company. The Director and
18 his successor and successors in office shall be vested by
19 operation of law with the title to all property, contracts,
20 and rights of action of the company as of the date of the
21 order directing rehabilitation or liquidation. The Director
22 is entitled to immediate possession and control of all
23 property, contracts, and rights of action of the company, and
24 is further authorized and directed to remove any and all
25 records and property of the company to the Director's
26 possession and control or to such other place as may be
27 convenient for the purposes of efficient and orderly
28 administration of the rehabilitation or liquidation. All
29 persons, companies, and entities shall immediately release
30 their possession and control of any and all property,
31 contracts, and rights of action of the company to the
32 Director including, but not limited to, bank accounts and
33 bank records, premium and related records, and claim,
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1 underwriting, accounting, and litigation files. As of the
2 date of the order directing rehabilitation or liquidation, no
3 possessory liens held by any attorney, including common law
4 retaining liens, may be asserted or enforced against the
5 Director or the company as a basis for withholding files or
6 otherwise. Further, no attorney shall be granted secured
7 status, security, or payment for his or her claim against the
8 company in exchange for the release of files or the
9 extinguishment of any such lien. The entry of an order of
10 rehabilitation or liquidation creates an estate that
11 comprises all of the liabilities and assets of the company.
12 The filing or recording of such order in the office of the
13 recorder or the Registrar of Titles in any county of this
14 State shall impart the same notice that a deed, bill of sale
15 or other evidence of title duly filed for record by such
16 company would have imparted.
17 (Source: P.A. 89-206, eff. 7-21-95.)
18 (215 ILCS 5/445) (from Ch. 73, par. 1057)
19 Sec. 445. Surplus line.
20 (1) Surplus line defined; surplus line insurer
21 unauthorized company requirements. Surplus line insurance is
22 insurance on an Illinois risk of the kinds specified in
23 Classes 2 and 3 of Section 4 of this Code procured from an
24 unauthorized company or a domestic surplus line insurer as
25 defined in Section 445a after the insurance producer
26 representing the insured or the surplus line producer is
27 unable, after diligent effort, to procure said insurance from
28 companies which are authorized to transact business in this
29 State other than domestic surplus line insurers as defined in
30 Section 445a.
31 Insurance producers may procure surplus line insurance
32 only if licensed as a surplus line producer under this
33 Section and may procure that insurance only from an
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1 unauthorized company or from a domestic surplus line insurer
2 as defined in Section 445a:
3 (a) that based upon information available to the
4 surplus line producer has a policyholders surplus of not
5 less than $15,000,000 determined in accordance with
6 accounting rules that are applicable to authorized
7 companies; and
8 (b) that has standards of solvency and management
9 that are adequate for the protection of policyholders;
10 and
11 (c) where an unauthorized company does not meet the
12 standards set forth in (a) and (b) above, a surplus line
13 producer may, if necessary, procure insurance from that
14 company only if prior written warning of such fact or
15 condition is given to the insured by the insurance
16 producer or surplus line producer.
17 (2) Surplus line producer; license. Any licensed
18 producer who is a resident of this State may be licensed as a
19 surplus line producer upon:
20 (a) passing a written examination. The examination
21 shall reasonably test the knowledge of the applicant
22 concerning the surplus line law and the responsibilities
23 assumed by a surplus line producer thereunder. The
24 examination provided for by this Section shall be
25 conducted under rules and regulations prescribed by the
26 Director. The Director may administer the examination or
27 may make arrangements, including contracting with an
28 outside testing service, for administering such
29 examinations. Any charges assessed by the Director or
30 the testing service for administering such examinations
31 shall be paid directly by the individual applicants.
32 Each applicant required to take an examination shall, at
33 the time of request for examination, enclose with the
34 application a non-refundable $10 application fee payable
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1 to the Director plus an examination administration fee.
2 If the Director administers the examination, the
3 application fee and examination administration fee shall
4 be combined and made payable to the Director. If the
5 Director designates an outside testing service to
6 administer the examination, the applicant shall make a
7 separate examination administration fee remittance
8 payable to the designated testing service for the total
9 fees the testing service charges for each of the various
10 services being requested by the applicant. An applicant
11 who fails to appear for the examination as scheduled, or
12 appears but fails to pass, shall not be entitled to any
13 refund, and shall be required to submit a new request for
14 examination together with all the requisite fees before
15 being rescheduled for another examination at a later
16 date;
17 (b) payment of an annual license fee of $200; and
18 (c) procurement of the surety bond required in
19 subsection (4) of this Section.
20 Each surplus line producer so licensed shall keep a
21 separate account of the business transacted thereunder which
22 shall be open at all times to the inspection of the Director
23 or his representative.
24 The examination requirement in (a) above shall not apply
25 to insurance producers who were licensed under the Illinois
26 surplus line law or individuals designated to act for a
27 partnership, association or corporation licensed under the
28 Illinois surplus line law on February 27, 1985.
29 (3) Taxes and reports.
30 (a) Surplus line tax and penalty for late payment.
31 Each surplus line producer shall file with the
32 Director on or before February 1 and August 1 of each
33 year a report in the form prescribed by the Director on
34 all surplus line insurance procured from unauthorized
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1 insurers during the preceding 6 month period ending
2 December 31 or June 30 respectively, and on the filing of
3 such report shall pay to the Director for the use and
4 benefit of the State a sum equal to 3% of the gross
5 premiums less returned premiums upon all surplus line
6 insurance procured or cancelled during the preceding 6
7 months.
8 Any surplus line producer who fails to pay the full
9 amount due under this subsection is liable, in addition
10 to the amount due, for such penalty and interest charges
11 as are provided for under Section 412 of this Code. The
12 Director, through the Attorney General, may institute an
13 action in the name of the People of the State of
14 Illinois, in any court of competent jurisdiction, for the
15 recovery of the amount of such taxes and penalties due,
16 and prosecute the same to final judgment, and take such
17 steps as are necessary to collect the same.
18 (b) Fire Marshal Tax.
19 Each surplus line producer shall file with the
20 Director on or before March 31 of each year a report in
21 the form prescribed by the Director on all fire insurance
22 procured from unauthorized insurers subject to tax under
23 Section 12 of the Fire Investigation Act and shall pay to
24 the Director the fire marshal tax required thereunder.
25 (c) Taxes and fees charged to insured. The taxes
26 imposed under this subsection and the countersigning fees
27 charged by the Surplus Line Association of Illinois may
28 be charged to and collected from surplus line insureds.
29 (4) Bond. Each surplus line producer, as a condition to
30 receiving a surplus line producer's license, shall execute
31 and deliver to the Director a surety bond to the People of
32 the State in the penal sum of $20,000, with a surety which is
33 authorized to transact business in this State, conditioned
34 that the surplus line producer will pay to the Director the
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1 tax, interest and penalties levied under subsection (3) of
2 this Section.
3 (5) Submission of documents to Surplus Line Association
4 of Illinois. Each surplus line producer shall submit every
5 insurance contract issued under his or her license to the
6 Surplus Line Association of Illinois for recording and
7 countersignature. The insurance contracts submitted shall
8 set forth:
9 (a) the name of the insured;
10 (b) the description and location of the insured
11 property or risk;
12 (c) the amount insured;
13 (d) the gross premiums charged or returned;
14 (e) the name of the unauthorized insurer or
15 domestic surplus line insurer as defined in Section 445a
16 from whom coverage has been procured company;
17 (f) the kind or kinds of insurance procured; and
18 (g) amount of premium subject to tax required by
19 Section 12 of the Fire Investigation Act.
20 Proposals, endorsements and other documents which
21 are incidental to the insurance but which does not affect
22 the premium charged are exempted from countersignature.
23 The submission of insuring contracts to the Surplus
24 Line Association of Illinois constitutes a certification
25 by the surplus line producer or by the insurance producer
26 who presented the risk to the surplus line producer for
27 placement as a surplus line risk that after diligent
28 effort the required insurance could not be procured from
29 companies which are authorized to transact business in
30 this State other than domestic surplus line insurers as
31 defined in Section 445a and that such procurement was
32 otherwise in accordance with the surplus line law.
33 (6) Countersignature required. It shall be unlawful for
34 an insurance producer to deliver any unauthorized company
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1 insurance contract or domestic surplus line insurer contract
2 unless such insurance contract is countersigned by the
3 Surplus Line Association of Illinois.
4 (7) Inspection of records. Each surplus line producer
5 shall maintain separate records of the business transacted
6 under his or her license, which records shall be open at all
7 times for inspection by the Director and by the Surplus Line
8 Association of Illinois.
9 (8) Violations and penalties. The Director may suspend
10 or revoke or refuse to renew a surplus line producer license
11 for any violation of this Code. In addition to or in lieu of
12 suspension or revocation, the Director may subject a surplus
13 line producer to a civil penalty of up to $1,000 for each
14 cause for suspension or revocation. Such penalty is
15 enforceable under subsection (5) of Section 403A of this
16 Code.
17 (9) Director may declare insurer company ineligible. If
18 the Director determines that the further assumption of risks
19 might be hazardous to the policyholders of an unauthorized
20 insurer company, the Director may order the Surplus Line
21 Association of Illinois not to countersign insurance
22 contracts evidencing insurance in such insurer company and
23 order surplus line producers to cease procuring insurance
24 from such insurer company.
25 (10) Service of process upon Director. All insurance
26 contracts delivered under this Section from unauthorized
27 insurers shall contain a provision designating the Director
28 and his successors in office the true and lawful attorney of
29 the insurer company upon whom may be served all lawful
30 process in any action, suit or proceeding arising out of such
31 insurance and further designate the surplus line producer or
32 other resident of this State an agent of the unauthorized
33 insurer company to which a copy of such process shall be
34 forwarded by the Director for delivery to the insurer
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1 company. Service of process made upon the Director to be
2 valid hereunder must state the name of the insured, the name
3 of the unauthorized insurer company and identify the contract
4 of insurance. The Director at his option is authorized to
5 forward a copy of the process to the Surplus Line Association
6 of Illinois for delivery to the surplus line producer or
7 other designated resident of this State or the Director may
8 deliver the process to the unauthorized insurer company by
9 other means which he considers to be reasonably prompt and
10 certain.
11 (11) The Illinois Surplus Line law does not apply to
12 insurance of property and operations of railroads or aircraft
13 engaged in interstate or foreign commerce, insurance of
14 vessels, crafts or hulls, cargoes, marine builder's risks,
15 marine protection and indemnity, or other risks including
16 strikes and war risks insured under ocean or wet marine forms
17 of policies.
18 (12) Surplus line insurance procured under this Section,
19 including insurance procured from a domestic surplus line
20 insurer, is not subject to the provisions of the Illinois
21 Insurance Code other than Sections 123, 123.1, 401, 401.1,
22 402, 403, 403A, 408, 412, 445, 445.1, 445.2, 445.3, 445.4,
23 and all of the provisions of Article XXXI to the extent that
24 the provisions of Article XXXI are not inconsistent with the
25 terms of this Act.
26 (Source: P.A. 88-627, eff. 9-9-94.)
27 (215 ILCS 5/445a new)
28 Sec. 445a. Domestic surplus line insurer.
29 (a) A domestic insurer possessing policyholder surplus
30 of at least $15,000,000 may pursuant to a resolution by its
31 board of directors, and with the written approval of the
32 Director, be designated as a "domestic surplus line insurer".
33 (b) A domestic surplus line insurer may only insure in
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1 this State an Illinois risk procured from a surplus line
2 producer pursuant to Section 445 of this Code.
3 (c) A domestic surplus line insurer must agree not to
4 issue a policy designed to satisfy the financial
5 responsibility requirements of the Illinois Vehicle Code, the
6 Workers' Compensation Act, or the Workers' Occupational
7 Diseases Act. A domestic surplus line insurer is not subject
8 to the provisions of Articles XXXIII, XXXIII 1/2, XXXIV,
9 XXXVIIIA, Section 468, or Section 478.1 of this Code.
10 Section 15. The Dental Service Plan Act is amended by
11 changing Section 35 as follows:
12 (215 ILCS 110/35) (from Ch. 32, par. 690.35)
13 Sec. 35. Investments; reserves; deficiencies.
14 (a) The funds of any dental service plan corporation may
15 be invested only in accordance with the requirements provided
16 by law for the investment of funds of life insurance
17 companies.
18 (b) As an allocation of net worth, each dental service
19 plan corporation shall maintain a special contingent reserve.
20 The special contingent reserve for a corporation that is
21 beginning operations shall be equal to 5% of its net earned
22 subscription revenue for dental care services through
23 December 31st of the year in which it is certified, but in no
24 event less than that $100,000. In subsequent years, unless
25 waived by the Director, the corporation shall accumulate
26 additions to the contingent reserve in an amount which is
27 equal to 2% of its net earned subscription revenue for each
28 calendar year. For purposes of this Section, "net earned
29 subscription revenue" means premium minus reinsurance
30 expenses. Maintenance of the contingent reserve requires
31 that net worth equals or exceeds the contingent reserve at
32 any balance sheet date. The special contingent reserve shall
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1 be provided in cash and securities in combination and form
2 acceptable to the Director.
3 (c) Additional accumulations under Section 35(b) will no
4 longer be required when at such time that the total special
5 contingent reserve required by Section 35(b) is equal to or
6 greater than 5% of the corporation's average annual net
7 earned subscription revenue for the corporation's preceding 2
8 two calendar years. Additional accumulations under
9 subsection (b) of this Section shall no longer be required
10 when the total special contingent reserve required by
11 subsection (b) of this Section is equal to $1,500,000.
12 (d) A deficiency in meeting amounts required in
13 subsection (b) Section 6(b) or (c) of this Section will
14 require, upon notice from the Director, (1) filing of a plan
15 for correction of the deficiency, acceptable to the Director,
16 within 20 days from receipt of notice, and (2) correction of
17 the deficiency within a reasonable time, not to exceed 60
18 days from receipt of notice unless an extension of time is
19 granted by the Director. Such a deficiency will be deemed an
20 impairment, and failure to correct the deficiency in the
21 prescribed time shall be grounds for rehabilitation,
22 liquidation, conservation, or dissolution pursuant to Section
23 38.
24 (Source: P.A. 84-209; revised 2-25-98.)
25 Section 17. The Employee Leasing Company Act is amended
26 by changing Sections 10, 15, 20, 25, 30, 40, and 50 and
27 adding Section 56 as follows:
28 (215 ILCS 113/10)
29 Sec. 10. Applicability. This Act applies to all lessors
30 and insurers conducting business in this State and to
31 policies issued, renewed, or delivered after the effective
32 date of amendatory this Act of 1998.
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1 (Source: P.A. 90-499, eff. 1-1-98.)
2 (215 ILCS 113/15)
3 Sec. 15. Definitions. In this Act:
4 "Department" means the Illinois Department of Insurance.
5 "Employee leasing arrangement" means a contractual an
6 arrangement, including long-term temporary arrangements
7 whereby a lessor obligates itself to perform specified
8 employer responsibilities as to leased employees including
9 the securing of workers' compensation insurance. under
10 contract or otherwise, whereby one business or other entity
11 leases all or a majority number of its workers from another
12 business. Employee leasing arrangements include, but are not
13 limited to, full service employee leasing arrangements,
14 long-term temporary arrangements, and any other arrangement
15 that involves the allocation of employment responsibilities
16 among 2 or more entities. For purposes of this Act,
17 "employee leasing arrangement" does not include arrangements
18 to provide temporary help service. "Temporary help service"
19 means a service whereby an organization hires its own
20 employees and assigns them to clients for a finite time
21 period to support or supplement the client's work force in
22 special work situations such as employee absences, temporary
23 skill shortages, and seasonal workloads.
24 "Leased employee" or "worker" means a person performing
25 services for a lessee under an employee leasing arrangement.
26 "Lessee" or "client company" means an entity that obtains
27 any all or part of its work force from another entity through
28 an employee leasing arrangement or that employs the services
29 of an entity through an employee leasing arrangement.
30 "Lessor" or "employee leasing company" means an entity
31 that leases any of its workers grants a written lease to a
32 lessee through an employee leasing arrangement.
33 "Long-term temporary arrangement" means an arrangement
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1 where one company leases all or a majority number of workers
2 employees from one company are leased to another for a period
3 in excess of 6 months or consecutive periods equal to or
4 greater than one year.
5 "Premium subject to dispute" means the insured has
6 provided a written notice of dispute of the premium to the
7 insurer or service carrier, has initiated any applicable
8 proceeding for resolving these disputes as prescribed by law
9 or rating organization rule, or has initiated litigation
10 regarding the premium dispute. The insured must have
11 detailed the specific areas of dispute and provided an
12 estimate of the premium the insured believes to be correct.
13 The insured must have paid any undisputed portion of the
14 bill.
15 "Residual market mechanism" means the residual market
16 mechanism as defined in Section 468 of the Illinois Insurance
17 Code.
18 "Temporary help arrangement" means a service whereby an
19 organization hires its own employees and assigns them to
20 clients for a finite time period to support or supplement the
21 client's work force in special work situations such as, but
22 not limited to, employee absences, temporary skill shortages,
23 seasonal workloads, and special assignments and projects.
24 (Source: P.A. 90-499, eff. 1-1-98.)
25 (215 ILCS 113/20)
26 Sec. 20. Registration.
27 (a) A lessor shall register with the Department prior to
28 becoming a qualified self-insured for workers' compensation
29 or becoming eligible to be issued a workers' compensation and
30 employers' liability insurance policy. An employee leasing
31 company may not engage in business in this State without
32 first registering with the Department. A corporation,
33 partnership, sole proprietorship, or other business entity
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1 that provides staff, personnel, or employees to be employed
2 in this State to other businesses pursuant to a lease
3 arrangement or agreement shall, before becoming eligible to
4 be issued any policy of workers' compensation insurance,
5 register with the Department. The registration shall:
6 (1) identify the name of the lessor;
7 (2) identify the address of the principal place of
8 business of the lessor and the address of each office it
9 maintains within this State;
10 (3) include the lessor's taxpayer or employer
11 identification number;
12 (4) include a list by jurisdiction of each and
13 every name that the lessor has operated under in the
14 preceding 5 years including any alternative names and
15 names of predecessors and, if known, successor business
16 entities;
17 (5) include a list of the officers and directors of
18 the lessor and employee leasing company or its
19 predecessors, successors, or alter egos in the preceding
20 5 years; and
21 (6) include a $500 fee for the registration and
22 each annual renewal thereafter.
23 Amounts received as registration fees shall be deposited
24 into the Insurance Producer Administration Fund. list of each
25 and every cancellation or nonrenewal of workers' compensation
26 insurance that has been issued to the lessor or any
27 predecessor in the preceding 5 years. The list shall include
28 the policy or certificate number, name of insurer or other
29 provider of coverage, date of cancellation, and reason for
30 cancellation. If coverage has not been cancelled or
31 nonrenewed, the registration shall include a sworn affidavit
32 signed by the chief executive officer of the lessor attesting
33 to that fact.
34 Each employee leasing company registrant shall pay to the
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1 Department upon initial registration, and upon each renewal
2 annually thereafter, a registration fee of $500.
3 Each employee leasing company shall maintain accounting
4 and employment records relating to all employee leasing
5 activities for a minimum of 3 calendar years.
6 (b) (Blank) Any lessor of employees whose workers'
7 compensation insurance has been terminated within the past 5
8 years in any jurisdiction due to a determination that an
9 employee leasing arrangement was being utilized to avoid
10 premium otherwise payable by lessees shall be ineligible to
11 register with the Department or to remain registered, if
12 previously registered.
13 (c) Lessors registering Persons filing registration
14 statements pursuant to this Section shall notify the
15 Department within 30 days as to any changes in any
16 information provided pursuant to this Section.
17 (d) The Department shall maintain a list of those
18 lessors of employees who are satisfactorily registered with
19 the Department.
20 (e) The Department may prescribe any forms that are
21 necessary to promote the efficient administration of this
22 Section.
23 (f) Any lessor of employees that was doing business in
24 this State prior to enactment of this Act shall register with
25 the Department within 60 days of the effective date of this
26 Act.
27 (Source: P.A. 90-499, eff. 1-1-98.)
28 (215 ILCS 113/25)
29 Sec. 25. Record keeping and reporting requirement.
30 (a) A lessor shall maintain accounting and employment
31 records relating to all employee leasing arrangements for a
32 minimum of 4 calendar years. A lessor shall maintain the
33 address of each office it maintains in this State, at its
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1 principal place of business.
2 (b) A lessor shall maintain sufficient information in a
3 manner consistent with a licensed rating organization's data
4 submission requirements to permit the rating organization
5 licensed under Section 459 of the Illinois Insurance Code to
6 calculate an experience modification factor for the lessee.
7 (c) Upon written request of a lessee with an annual
8 payroll attributed to it in excess of $200,000, the lessor
9 shall provide the lessee's experience modification factor to
10 the lessee within 30 days of the request.
11 (d) Upon request of a lessee with an annual payroll
12 attributed to it of less than $200,000, the lessor shall
13 provide the loss information required to be maintained by
14 this Section to the lessee within 30 days of the request.
15 (e) Nothing in this Section shall preclude a licensed
16 rating organization from calculating the experience
17 modification factor for each lessee nor an insurer from
18 maintaining and furnishing on behalf of the lessor, such
19 information as required by this Section. A lessor shall
20 maintain and furnish once every 12 months or in the event of
21 a termination of the employee leasing arrangement sufficient
22 information to the insurer, who shall submit such information
23 to permit the calculation of an experience modification
24 factor by a rating organization licensed under Section 459 of
25 the Illinois Insurance Code for each lessee. This
26 information shall be submitted in a manner consistent with a
27 licensed rating organization's data submission requirements
28 and shall include but not be limited to the following:
29 (1) the lessee's corporate name, or operating name
30 if not a corporation, and address;
31 (2) the lessee's taxpayer or employer
32 identification number;
33 (3) the lessee's risk identification number;
34 (4) a listing of all leased employees associated
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1 with each lessee, the applicable classification code, and
2 payroll; and
3 (5) claims information grouped by lessee and any
4 other information necessary to permit the calculation of
5 an experience modification factor for each lessee.
6 (f) (b) In the event that a lessee's experience
7 modification factor exceeds the lessor's experience
8 modification factor by 50% at the inception of the employee
9 leasing arrangement, the lessee's experience modification
10 factor shall be utilized to calculate the premium or costs
11 charged to the lessee for workers' compensation coverage for
12 a period of 2 years. Thereafter, the premium charged by the
13 insurer insurance company for inclusion of a lessee under a
14 lessor's policy may be calculated on the basis of the
15 lessor's experience modification factor.
16 (Source: P.A. 90-499, eff. 1-1-98.)
17 (215 ILCS 113/30)
18 Sec. 30. Responsibility for policy issuance and
19 continuance.
20 (a) When a workers' compensation policy written to cover
21 leased employees is issued to the lessor employee leasing
22 company as the named insured, the lessee client company shall
23 be identified thereon by the attachment of an appropriate
24 endorsement indicating that the policy provides coverage for
25 leased employees in accordance with Illinois law. The
26 endorsement shall, at a minimum, provide for the following:
27 (1) Coverage under the endorsement policy shall be
28 limited to the named insured's employees leased to the
29 lessees.
30 (2) The experience of the employees leased to the
31 particular lessee shall be separately maintained by the
32 lessor as provided in Section 25.
33 (3) Cancellation of the policy shall not affect the
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1 rights and obligations of the named insured as an
2 employee leasing company with respect to any other
3 workers' compensation and employers' liability policy
4 issued to the named insured.
5 (b) (Blank). The insurer of the lessor may take all
6 reasonable steps to ascertain exposure under the policy and
7 collect the appropriate premium through the following
8 procedures:
9 (1) complete description of the lessor's
10 operations;
11 (2) periodic reporting of the covered lessee's
12 payroll, classifications, experience rating modification
13 factors, and jurisdictions with exposure. This reporting
14 must be supplemented by a submission of Internal Revenue
15 Service Form 941 or its equivalent to the carrier on a
16 quarterly basis;
17 (3) physical inspection of the client company
18 premises;
19 (4) audit of the lessor's operations; and
20 (5) any other reasonable measures to determine the
21 appropriate premium.
22 (c) The lessor shall notify the insurer or a licensed
23 rating organization 30 days prior to the effective date of
24 termination or immediately upon notification of cancellation
25 by the lessor of an employee leasing arrangement with the
26 lessee in order to allow sufficient time to calculate an
27 experience modification factor for the lessee.
28 (d) The insurer lessor shall provide proof of workers'
29 compensation insurance to the lessor and to each applicable
30 lessee within 30 days of the coverage being effected or
31 changed effective date. Notice of any coverage changes shall
32 be provided to the lessor and to each lessee within 30 days
33 of the effective date of the change.
34 (e) Calculation of a lessor's or lessee's premium shall
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1 be done in accordance with the insurer's Nothing in this Act
2 shall limit an insurer from utilizing schedule credits,
3 debits, or other rating manual plans filed with the
4 Department for calculation of a lessor's or lessee's premium.
5 (Source: P.A. 90-499, eff. 1-1-98.)
6 (215 ILCS 113/40)
7 Sec. 40. Insurer or service carrier audit. Insurers
8 shall audit policies issued through the residual market
9 pursuant to Section 30 of this Act within 90 days of the
10 policy effective date and may conduct quarterly audits
11 thereafter. Insurers may audit policies issued through the
12 voluntary market within 90 days of the policy effective date
13 and shall conduct audits during the normal course of business
14 thereafter. The purpose of the audit will be to determine
15 whether all classifications, experience modification factors,
16 and estimated payroll utilized with respect to the
17 development of the premium charged to the lessor are
18 appropriate.
19 (Source: P.A. 90-499, eff. 1-1-98.)
20 (215 ILCS 113/50)
21 Sec. 50. Grounds for removal of eligibility; order;
22 hearing; review.
23 (a) Any registration issued under this Act may be
24 revoked or an application for registration may be denied if
25 the Director finds that the lessor or applicant:
26 (1) has willfully violated any provision of this
27 Act or any rule promulgated by the Director;
28 (2) has intentionally made a material misstatement
29 in the application for a registration;
30 (3) has obtained or attempted to obtain a
31 registration through misrepresentation or fraud;
32 (4) has misappropriated or converted to his own, or
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1 improperly withheld, money required to be held in a
2 fiduciary capacity;
3 (5) has used fraudulent, coercive, or dishonest
4 practices, or has demonstrated incompetence,
5 untrustworthiness, or financial irresponsibility;
6 (6) has been, within the past 3 years, convicted of
7 a felony, unless the person demonstrates to the Director
8 sufficient rehabilitation to warrant the public trust;
9 (7) has failed to appear without reasonable cause
10 or excuse in response to a subpoena lawfully issued by
11 the Director;
12 (8) has had its registration or license suspended
13 or revoked or its application denied in any other state,
14 district, territory, or province; Any registration issued
15 under this Act may be revoked or an application for
16 registration may be denied, if the Director finds that
17 the lessor or applicant;
18 (1) has willfully violated any provision of the Act
19 or any rule or regulation promulgated by the Director;
20 (b) (a) When the Director of Insurance has cause to
21 believe that grounds for the refusal, denial, or revocation
22 removal of a registration registrant's eligibility under this
23 Section exists, the Director he or she shall issue an order
24 to the lessor employee leasing company stating the grounds
25 upon which the refusal, denial, or revocation removal is
26 based. The order shall be sent to the lessor employee
27 leasing company by certified or registered mail. The lessor
28 employee leasing company may in writing request a hearing in
29 writing within 30 days of the mailing receipt of the order.
30 If no written request is received by the Director made, the
31 order shall be final upon the expiration of the 30 days.
32 (c) (b) If the lessor employee leasing company requests
33 a hearing pursuant to this Section, the Director shall issue
34 a written notice of hearing sent to the lessor employee
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1 leasing company by certified or registered mail stating the
2 following:
3 (1) a specified time for the hearing, which may not
4 be less than 20 days nor more than 30 days after the
5 mailing receipt of the notice of hearing; and
6 (2) a specific place for the hearing, which may be
7 either in the city of Springfield or Chicago or in the
8 county where the lessor's employee leasing company's
9 principal place of business is located.
10 (d) (c) After the hearing, or upon the failure of the
11 lessor employee leasing company to appear at the hearing, the
12 Director of Insurance shall take such action as is deemed
13 advisable on written findings that shall be served on the
14 lessor employee leasing company. The action of the Director
15 of Insurance shall be subject to review under and in
16 accordance with the Administrative Review Law.
17 (Source: P.A. 90-499, eff. 1-1-98.)
18 (215 ILCS 113/56 new)
19 Sec. 56. Rulemaking authority. The Director shall have
20 the authority to promulgate rules to enforce this Act.
21 (215 ILCS 113/35 rep.)
22 (215 ILCS 113/55 rep.)
23 Section 18. The Employee Leasing Company Act is amended
24 by repealing Sections 35 and 55.
25 Section 20. The Farm Mutual Insurance Company Act of
26 1986 is amended by changing Sections 4 and 12 as follows:
27 (215 ILCS 120/4) (from Ch. 73, par. 1254)
28 Sec. 4. Definition of Admitted Assets. Admitted assets
29 shall include those investments permitted under Section 12 of
30 this Act and in addition thereto, only the following:
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1 (1) Cash funds held in the company's office and under
2 the company's control.
3 (2) Interest due and accrued on bonds, certificates of
4 deposit and other investments permitted by this Act that are
5 not in default.
6 (3) Dividends declared and unpaid on mutual funds,
7 common stock, and preferred stock, permitted by this Act.
8 (4) (3) Amounts recoverable from solvent insurance
9 companies licensed to do business in this State.
10 (5) (4) Tax refunds due from the United States or the
11 State of Illinois.
12 (6) (5) Premiums receivable on policies not over 90 days
13 past due. The due date of the premium shall be considered to
14 be the first day of the coverage period for which the premium
15 is payable.
16 (Source: P.A. 88-364.)
17 (215 ILCS 120/12) (from Ch. 73, par. 1262)
18 Sec. 12. Investments. Without the prior approval of the
19 Director, the funds of any company operating under or
20 regulated by the provisions of this Act, shall be invested
21 only in the following:
22 (1) Direct obligations of the United States of
23 America, or obligations of agencies or instrumentalities
24 of the United States to the extent guaranteed or insured
25 as to the payment of principal and interest by the United
26 States of America;
27 (2) Bonds which are direct, general obligations of
28 the State of Illinois;
29 (3) Bonds which are direct, general obligations of
30 political subdivisions of the State of Illinois, subject
31 to the following conditions:
32 (a) Maximum of 5% of admitted assets in any
33 one political subdivision;
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1 (b) Maximum of 30% 35% of admitted assets in
2 all political subdivisions in the aggregate;
3 (4) Bonds that are obligations of the Federal
4 National Mortgage Association subject to a maximum
5 investment of 10% of admitted assets in the aggregate;
6 (5) Bonds that are obligations of the Federal Home
7 Loan Mortgage Corporation subject to a maximum investment
8 of 10% of admitted assets in the aggregate;
9 (6) Mutual funds subject to the following
10 conditions:
11 (a) Maximum of 3% of policyholders' surplus in
12 any one balanced or growth mutual fund that invests
13 in common stock;
14 (b) Maximum of 5% of admitted assets in any
15 one bond or income mutual fund or any one
16 non-governmental money market mutual fund;
17 (c) Maximum of 10% of admitted assets in any
18 one governmental money market mutual fund;
19 (d) Maximum of 25% of admitted assets in all
20 mutual funds in the aggregate;
21 (7) Common stock and preferred stock subject to the
22 following conditions:
23 (a) Common stock and preferred stock shall be
24 traded on the New York Stock Exchange or the
25 American Stock Exchange or listed on the National
26 Association of Securities Dealers Automated
27 Quotation (NASDAQ) system;
28 (b) Maximum of 3% of policyholders' surplus in
29 excess of $400,000 in any one common stock or
30 preferred stock issuer provided that the net
31 unearned premium reserve does not exceed
32 policyholders' surplus;
33 (8) Investments authorized under subdivision (a) of
34 item (6) and subdivision (a) of item (7) of this Section
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1 shall not in the aggregate exceed 10% of policyholders'
2 surplus;
3 (9) (4) Funds on deposit in solvent banks and
4 savings and loan associations which are insured by
5 qualify for insurance with the Federal Deposit Insurance
6 Corporation; however, the uninsured portion of funds held
7 in any one such bank or association shall not exceed 5%
8 of the company's policyholders' surplus;
9 (5) Funds on deposit with savings and loan
10 associations, provided that all funds invested in such
11 associations are insured by the Federal Deposit Insurance
12 Corporation;
13 (10) (6) Real estate for home office building
14 purposes, provided that such investments are approved by
15 the Director of Insurance on the basis of a showing by
16 the company that the company has adequate assets
17 available for such investment and that the proposed
18 acquisition does not exceed the reasonable normal value
19 of such property.
20 An investment that qualified under this Section at the
21 time it was acquired by the company shall continue to qualify
22 under this Section.
23 Investments permitted under this Section shall be
24 registered in the name of the company and under its direct
25 control or shall be held in a custodial account with a bank
26 or trust company that is qualified to administer trusts in
27 Illinois under the Corporate Fiduciary Act and that has an
28 office in Illinois. However, securities may be held in
29 street form and in the custody of a licensed dealer for a
30 period not to exceed 30 days.
31 Notwithstanding the provisions of this Act, the Director
32 may, after notice and hearing, order a company to limit or
33 withdraw from certain investments or discontinue certain
34 investments or investment practices to the extent the
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1 Director finds those investments or investment practices
2 endanger the solvency of the company.
3 (Source: P.A. 88-364.)
4 Section 25. The Voluntary Health Services Plans Act is
5 amended by changing Section 20 as follows:
6 (215 ILCS 165/20) (from Ch. 32, par. 614)
7 Sec. 20. The funds of any health services plan
8 corporation shall be handled in accordance with the following
9 rules:
10 (a) All loans made to original capital of the
11 corporation may be repayable only out of earned surplus.
12 (b) The funds of the corporation may be invested in
13 accordance with the requirements provided by law for the
14 investment of funds of life insurance companies and may also
15 be invested in equipment of the corporation provided such
16 investment in equipment shall not exceed more than 30% of the
17 total admitted assets. The value of such equipment shall be
18 depreciated at a rate as rapidly as is provided under the
19 Internal Revenue Code.
20 (c) Every health services plan corporation, after its
21 first fiscal year of doing business, shall accumulate and
22 maintain a special contingent reserve over and above its
23 reserves and liabilities at the rate of 2% annually of its
24 subscription income net of reinsurance so long as the special
25 contingent reserve does not exceed 8% of its annual net
26 income for the preceding 12 month period. Additional
27 accumulations shall no longer be required at such time that
28 the total special contingent reserve is equal to $1,500,000.
29 (Source: P.A. 81-1203.)
30 Section 99. Effective date. This Act takes effect upon
31 becoming law except that Section 20 takes effect January 1,
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1 1999.