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91_SB1115sam001
LRB9102645JSpcam
1 AMENDMENT TO SENATE BILL 1115
2 AMENDMENT NO. . Amend Senate Bill 1115 by replacing
3 the title with the following:
4 "AN ACT to amend the Illinois Insurance Code by changing
5 Section 107.06a and adding Article XI 1/2."; and
6 by replacing everything after the enacting clause with the
7 following:
8 "Section 5. The Illinois Insurance Code is amended by
9 changing Section 107.06a and adding Article XI 1/2 as
10 follows:
11 (215 ILCS 5/107.06a) (from Ch. 73, par. 719.06a)
12 Sec. 107.06a. Organization under Illinois Insurance
13 Code.
14 (a) After December 31, 1997, a syndicate or limited
15 syndicate, except for a limited syndicate formed as a
16 partnership, may only be organized pursuant to Sections 7, 8,
17 10, 11, 12, 14, 14.1 (other than subsection (d) thereof), 15
18 (other than subsection (d) thereof), 18, 19, 20, 21, 22, 23,
19 25, 27.1, 28, 28.1, 28.2, 29, 30, 31, 32, 32.1, 33, and 35.1
20 and Article X of this Code, to carry on the business of a
21 syndicate, or limited syndicate under Article V-1/2 of this
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1 Code; provided that such syndicate or limited syndicate is
2 admitted to the Exchange.
3 (b) After December 31, 1997, syndicates and limited
4 syndicates are subject to the following:
5 (1) Articles I, IIA, VIII, VIII 1/2, X, XI, XI 1/2,
6 XII, XII 1/2, XIII, XIII 1/2, XXIV, XXV (Sections 408
7 and 412 only), and XXVIII (except for Sections 445,
8 445.1, 445.2, 445.3, 445.4, and 445.5) of this Code;
9 (2) Subsections (2) and (3) of Section 155.04 and
10 Sections 13, 132.1 through 140, 141a, 144, 155.01,
11 155.03, 378, 379.1, 393.1, 395, and 396 of this Code;
12 (3) the Reinsurance Intermediary Act; and
13 (4) the Producer Controlled Insurer Act.
14 (c) No other provision of this Insurance Code shall be
15 applicable to any such syndicate or limited syndicate except
16 as provided in this Article V-1/2.
17 (Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97;
18 90-794, eff. 8-14-98.)
19 (215 ILCS 5/Art. XI 1/2 heading new)
20 Article XI 1/2.
21 Protected Cell Companies
22 (215 ILCS 5/179A-1 new)
23 Sec. 179A-1. Short title. This Article may be cited as
24 the Protected Cell Company Law.
25 (215 ILCS 5/179A-5 new)
26 Sec. 179A-5. Purpose. Insurance securitization has been
27 developed as a means of accessing alternative sources of
28 capital and diversifying credit risk in order to enhance an
29 insurance company's ability to both assume risk and stabilize
30 underwriting results. Under the terms of the typical debt
31 instrument underlying an insurance securitization
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1 transaction, prepaid principal is repaid to the investor on a
2 specified maturity date with interest, unless a trigger event
3 occurs. The proceeds of the debt instrument both
4 collateralize the insurance company's obligations under
5 specified contracts of insurance if a trigger event occurs,
6 as well as the insurance company's obligation to repay the
7 debt instrument if a trigger event does not occur.
8 Traditionally, insurance securitization transactions have
9 been performed through alien companies in order to utilize
10 efficiencies available to alien companies that are not
11 currently available to domestic companies. In order to
12 create more efficiency in conducting insurance
13 securitization, to allow domestic companies easier access
14 to alternative sources of capital, and to promote the
15 benefits of insurance securitization generally, this Article
16 is required.
17 (215 ILCS 5/179A-10 new)
18 Sec. 179A-10. Definitions.
19 "Company" means protected cell company.
20 "Domestic company" means an insurance company domiciled
21 in the State of Illinois.
22 "General account" means the assets and liabilities of a
23 protected cell company other than protected cell assets and
24 protected cell liabilities.
25 "Indemnity trigger" means a transaction term in which
26 relief of the issuer's obligation to repay investors is
27 triggered by its suffering a specified level of losses under
28 its policies of insurance or reinsurance.
29 "Insurance securitization" means the entering into of
30 debt instruments supported in full by cash or readily
31 marketable securities with investors by a domestic company
32 where repayment of principal or interest, or both, to
33 investors pursuant to the transaction terms is contingent
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1 upon the occurrence or nonoccurrence of an event with respect
2 to which the domestic company is exposed to loss under
3 policies or contracts of insurance or reinsurance it has
4 issued.
5 "Market value" has the meaning given that term in Article
6 VIII of this Code (Investments of Domestic Companies).
7 "Protected cell" means an identified pool of assets and
8 liabilities of a domestic company segregated and insulated by
9 means of this Article from the remainder of the company's
10 assets and liabilities.
11 "Protected cell account" means a specifically identified
12 bank or custodial account established by a protected cell
13 company for the purpose of physically segregating the
14 protected cell assets of one protected cell from the
15 protected cell assets of other protected cells and from the
16 assets of the protected cell company's general account.
17 "Protected cell assets" means all assets identified with
18 and attributable to a specific protected cell of a protected
19 cell company, including assets physically segregated in a
20 protected cell account.
21 "Protected cell liabilities" means all liabilities
22 identified with and attributable to a specific protected cell
23 of a protected cell company. Protected cell liabilities
24 include liabilities representing the insurance obligations of
25 the protected cell as well as obligations of the protected
26 cell arising out of any insurance securitization transactions
27 of the protected cell.
28 "Protected cell company" means a domestic company which
29 has one or more protected cells.
30 (215 ILCS 5/179A-15 new)
31 Sec. 179A-15. Establishment of protected cells. A
32 domestic company may, with the prior written approval by the
33 Director of a plan of operation submitted by the domestic
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1 company with respect to each protected cell, establish one or
2 more protected cells. Upon the written approval by the
3 Director of the plan of operation, which shall include, but
4 not be limited to, the specific business and investment
5 objectives of the protected cell, the company may, in
6 accordance with the approved plan of operation, attribute to
7 the protected cell amounts both reflective of insurance
8 obligations with respect to its insurance business and assets
9 to fund those obligations. A protected cell shall have its
10 own distinct name or designation, which shall include the
11 words "protected cell". The company shall transfer all assets
12 attributable to a protected cell to one or more separately
13 established and identified protected cell accounts bearing
14 the name or designation of that protected cell. Protected
15 cell assets shall be held in the protected cell accounts for
16 the purpose of satisfying the obligations of that protected
17 cell. All sales, exchanges, transfers, or other attributions
18 of assets and liabilities between a protected cell and the
19 general account or other protected cells shall be in
20 accordance with the plan of operation approved by the
21 Director or shall be otherwise approved by the Director.
22 Unless otherwise approved by the Director, no sale, exchange,
23 transfer, or other attribution of assets or liabilities may
24 be made by a company between any of its protected cells or
25 between the company's general account and one or more of its
26 protected cells unless, in the case of an attribution to a
27 protected cell, the attribution is made solely to establish
28 the protected cell or, in the case of an attribution from a
29 protected cell to the company's general account, the
30 attribution is made solely to support the company's insurance
31 obligations that are the subject of the business of the
32 protected cell. Any sale, exchange, transfer, or other
33 attribution of assets and liabilities between the general
34 account and a protected cell, between 2 or more protected
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1 cells of the company, or from investors in the form of
2 principal on a debt instrument issued by a protected cell
3 shall be in cash or in readily marketable securities with
4 established market values unless otherwise approved in
5 advance in writing by the Director.
6 The creation of a protected cell does not create, in
7 respect of that protected cell, a legal person separate from
8 the company. Amounts attributed to a protected cell under
9 this Article, including assets transferred to a protected
10 cell account, are owned by the company and the company may
11 not be, nor hold itself out to be, a trustee with respect to
12 those protected cell assets of that protected cell account.
13 Notwithstanding the foregoing, the company may allow for a
14 security interest to attach to protected cell assets or a
15 protected cell account when in favor of a creditor of the
16 protected cell and otherwise allowed under applicable law.
17 Nothing in this Article shall be construed to prohibit
18 the company from contracting with or arranging for an
19 investment advisor, commodity trading advisor, or other third
20 party to manage the protected cell assets of a protected
21 cell, provided that all remuneration, expenses, and other
22 compensation of the third party advisor or manager are
23 payable from the protected cell assets of that protected cell
24 and not from the protected cell assets of other protected
25 cells or the assets of the company's general account.
26 A domestic company that is a protected cell company shall
27 establish such administrative and accounting procedures as
28 are necessary to properly identify the one or more protected
29 cells of the company and the protected cell assets and
30 protected cell liabilities attributable thereto. It shall be
31 the duty of the directors of a protected cell company to (i)
32 keep protected cell assets and protected cell liabilities
33 separate and separately identifiable from the assets and
34 liabilities of the company's general account and (ii) to keep
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1 protected cell assets and protected cell liabilities
2 attributable to one protected cell separate and separately
3 identifiable from protected cell assets and protected cell
4 liabilities attributable to other protected cells.
5 Notwithstanding the foregoing, and subject to the provisions
6 of Section 179A-35, the remedy of tracing shall be applicable
7 to protected cell assets when commingled with protected cell
8 assets of other protected cells or the assets of the
9 company's general account.
10 (215 ILCS 5/179A-20 new)
11 Sec. 179A-20. Use and operation of protected cells.
12 Unless otherwise approved by the Director, the company shall,
13 when establishing a protected cell, attribute to the
14 protected cell assets with a value at least equal to the
15 reserves and other insurance liabilities attributed to that
16 protected cell. The protected cell assets of any protected
17 cell may not be charged with liabilities arising out of any
18 other business the company may conduct. All contracts or
19 other documentation reflecting the obligations of a
20 protected cell to the general account shall clearly indicate
21 that only the assets of the protected cell are available for
22 the obligations of the protected cell.
23 Unless otherwise approved by the Director, assets
24 attributed to a protected cell must be valued at their
25 market value on the date of valuation, or if there is no
26 readily available market, then as provided in the contract or
27 the rules or other written agreement applicable to the
28 protected cell.
29 The income, gains, and losses, realized or unrealized,
30 from protected cell assets and protected cell liabilities
31 must be credited to or charged against the protected cell
32 without regard to other income, gains, or losses of the
33 company, including income, gains, or losses of other
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1 protected cells. Amounts attributed to a protected cell and
2 accumulations thereon may be invested and reinvested without
3 regard to any requirements or limitations of Article VIII of
4 this Code (Investments of Domestic Companies), and the
5 investments in a protected cell or cells may not be taken
6 into account in applying the investment limitations otherwise
7 applicable to the investments of the company.
8 A protected cell company shall, in respect of any of its
9 protected cells, engage in fully funded indemnity-triggered
10 insurance securitization to support in full the protected
11 cell liabilities attributable to that protected cell. A
12 transaction that is not fully funded is prohibited. An
13 insurance securitization that is not indemnity-triggered and
14 does not support in full the protected cell obligations of a
15 protected cell shall be prohibited absent specific permission
16 by the Director in accordance with the authority granted
17 under Section 179A-45 and the guidance of the National
18 Association of Insurance Commissioners, as such guidance is
19 developed. A protected cell may pay interest or other
20 consideration on any outstanding debt or other obligation
21 attributable to that protected cell, and nothing in this
22 paragraph shall be construed or interpreted to prevent a
23 protected cell from entering into a swap agreement or other
24 transaction that has the effect of guaranteeing such interest
25 or other consideration.
26 In all cases in which a protected cell engages in an
27 insurance securitization, the financial instrument effecting
28 such transaction shall contain provisions identifying the
29 protected cell to which the transaction will be attributed.
30 In addition, the financial instrument shall clearly disclose
31 that the assets of that protected cell are only available
32 to pay the obligations of that protected cell.
33 Notwithstanding the foregoing, and subject to the provisions
34 of this Article and any other applicable law or rule, the
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1 failure to include such language in the financial instrument
2 shall not be used as the sole basis by creditors, reinsurers,
3 or other claimants to circumvent the provisions of this
4 Article.
5 At the cessation of business of a protected cell, the
6 protected cell company shall voluntarily wind up the
7 protected cell in accordance with a plan approved by the
8 Director.
9 (215 ILCS 5/179A-25 new)
10 Sec. 179A-25. Reach of creditors and other claimants.
11 Protected cell assets shall only be available to the
12 creditors of the company who are creditors in respect of that
13 protected cell and shall thereby be entitled, in conformity
14 with the provisions of this Article, to have recourse to the
15 protected cell assets attributable to that protected cell,
16 and shall be absolutely protected from the creditors of the
17 company who are not creditors in respect of that protected
18 cell and who, accordingly, shall not be entitled to have
19 recourse to the protected cell assets attributable to that
20 protected cell. Creditors of a protected cell shall not be
21 entitled to have recourse against the protected cell assets
22 of other protected cells or the assets of the company's
23 general account.
24 When an obligation of a protected cell company to a
25 person arises from a transaction, or is otherwise imposed, in
26 respect of a protected cell, (i) that obligation of the
27 company shall extend only to, and the person shall, in
28 respect of that obligation, be entitled to have recourse only
29 to the protected cell assets attributable to that protected
30 cell and (ii) that obligation of the company shall not extend
31 to, and that person shall not, in respect of that obligation,
32 be entitled to have recourse to the protected cell assets of
33 any other protected cell or the assets of the company's
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1 general account.
2 When an obligation of a protected cell company relates
3 solely to the general account, the obligation of the company
4 shall extend only to, and that creditor shall, in respect of
5 that obligation, be entitled to have recourse only to, the
6 company's general account.
7 A protected cell shall only be authorized to assume an
8 insurance obligation directly from another protected cell of
9 the company or the company's general account, and under no
10 circumstances shall a protected cell be authorized to issue
11 insurance or reinsurance policies or contracts directly to
12 policyholders or reinsureds or have any obligation to the
13 policyholders of the company's general account. The
14 activities and obligations of a protected cell are not
15 subject to the provisions of Article XXXIII1/2 (Illinois Life
16 and Health Guaranty Association Law) or Article XXXIV
17 (Illinois Insurance Guaranty Fund), and protected cells shall
18 not be assessed by or otherwise be required to contribute to
19 any guaranty fund or guaranty association in this State.
20 Nothing in this provision shall affect the activities or
21 obligations of a company's general account.
22 In no event shall the establishment of one or more
23 protected cells alone constitute or be deemed to be a
24 fraudulent conveyance, an intent by the company to defraud
25 creditors, or the carrying out of business by the company for
26 any other fraudulent purpose.
27 (215 ILCS 5/179A-30 new)
28 Sec. 179A-30. Rehabilitation and liquidation of
29 protected cell companies. Notwithstanding any contrary
30 provision in this Code, the rules promulgated under this
31 Code, or any other applicable law or rule, upon any order of
32 rehabilitation, conservation, or liquidation of a domestic
33 company that is a protected cell company, the receiver shall
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1 be bound to deal with the company's assets and liabilities,
2 including protected cell assets and protected cell
3 liabilities, in accordance with the requirements set forth in
4 this Article.
5 With respect to amounts recoverable under any insurance
6 securitization entered into or outstanding in any protected
7 cell of a protected cell company, the amount recoverable by
8 the receiver shall not be reduced or diminished as a result
9 of the entry of an order of rehabilitation, conservation, or
10 liquidation with respect to the protected cell company or any
11 of its protected cells notwithstanding any provisions to the
12 contrary in the financial instrument governing such insurance
13 securitization.
14 (215 ILCS 5/179A-35 new)
15 Sec. 179A-35. Penalties. Any person violating the
16 provisions of this Article shall be subject to any and all
17 enforcement procedures either currently employed or
18 subsequently promulgated by the Department including, but not
19 limited to, the imposition of fines, sanctions or civil
20 penalties, or an order to cease and desist from the
21 establishment of additional protected cells.
22 (215 ILCS 5/179A-40 new)
23 Sec. 179A-40. No transaction of an insurance business.
24 No insurance securitization effected under the provisions of
25 this Article shall be deemed to be an insurance policy or
26 contract of insurance and no investor in a securitization
27 transaction shall, by sole means of such investment, be
28 required to be licensed as an insurance company in the State
29 of Illinois.
30 (215 ILCS 5/179A-45 new)
31 Sec. 179A-45. Rules. The Director may promulgate
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1 reasonable rules as may be necessary to effectuate the
2 purposes of this Article.
3 Section 99. Effective date. This Act takes effect upon
4 becoming law.".