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92_SB0864enr SB864 Enrolled LRB9205491JScsA 1 AN ACT concerning reinsurance. 2 Be it enacted by the People of the State of Illinois, 3 represented in the General Assembly: 4 Section 5. The Illinois Insurance Code is amended by 5 adding Article XIE as follows: 6 (215 ILCS 5/Art. XIE heading new) 7 ARTICLE XIE. Special Purpose Reinsurance Vehicle Law 8 (215 ILCS 5/179E-1 new) 9 Sec. 179E-1. Short title. This Article may be cited as 10 the Special Purpose Reinsurance Vehicle Law. 11 (215 ILCS 5/179E-5 new) 12 Sec. 179E-5. Purpose. This Article is adopted to provide 13 for the creation of Special Purpose Reinsurance Vehicles 14 ("SPRV") exclusively to facilitate the securitization of one 15 or more ceding insurers' risk as a means of accessing 16 alternative sources of capital and achieving the benefits of 17 securitization. Investors in fully funded insurance 18 securitization transactions provide funds that are available 19 to the SPRV to secure the aggregate limit under an SPRV 20 contract that provides coverage against the occurrence of a 21 triggering event. The creation of SPRVs is intended to 22 achieve greater efficiencies in conducting insurance 23 securitizations, to diversify and broaden insurers' access to 24 sources of risk bearing capital, and to make insurance 25 securitization generally available on reasonable terms to as 26 many U.S. insurers as possible. 27 Under the terms of the typical securities underlying an 28 insurance securitization transaction, proceeds from the 29 issuance of securities are repaid to the investor on a SB864 Enrolled -2- LRB9205491JScsA 1 specified maturity date with interest or dividends unless a 2 triggering event occurs. The insurance securitization 3 proceeds are available to pay the SPRV's obligations to the 4 ceding insurer if the triggering event occurs, as well as 5 being available to satisfy the SPRV's obligation to repay the 6 insurance securitization investors if a triggering event does 7 not occur. Insurance securitization transactions have been 8 performed by alien companies to utilize efficiencies 9 available to those alien companies that are not currently 10 available to domestic companies. This Article is adopted to 11 allow more efficiency in conducting insurance 12 securitizations, to allow ceding insurers easier access to 13 alternative sources of risk bearing capital, and to promote 14 the benefits of insurance securitization to U.S. insurers. 15 (215 ILCS 5/179E-10 new) 16 Sec. 179E-10. Exemption from insurance laws within 17 limitations. 18 (a) An SPRV is subject to the following: 19 (1) Articles I, XII 1/2, XXIV, XXV (Sections 408 and 20 412 only), and XXVIII (except for Sections 445, 445.1, 21 445.2, 445.3, 445.4, and 445.5) of this Code; and 22 (2) Sections 132.1 through 134, 137 through 140, 23 155.01, 155.03, and 155.04 of this Code. 24 (b) No other provisions of this Code apply to an SPRV 25 organized under this Article, except as otherwise provided in 26 this Article. 27 (215 ILCS 5/179E-15 new) 28 Sec. 179E-15. Definitions. For purposes of this Article, 29 the following terms have the indicated meanings: 30 "Aggregate limit" means the maximum sum payable to the 31 ceding insurer under an SPRV contract. 32 "Ceding insurer" means one or more insurers or SB864 Enrolled -3- LRB9205491JScsA 1 reinsurers under common control that enters into an SPRV 2 contract with an SPRV. 3 "Control" (including the terms "controlling," "controlled 4 by" and "under common control with") means the possession, 5 direct or indirect, of the power to direct or cause the 6 direction of the management and policies of a person, whether 7 through the ownership of voting securities, by contract other 8 than a commercial contract for goods or non-management 9 services, or otherwise, unless the power is the result of an 10 official position with or corporate office held by the 11 person. Control shall be presumed to exist if any person, 12 directly or indirectly, owns, controls, holds with the power 13 to vote, or holds proxies representing, 10% or more of the 14 voting securities of any other person. This presumption may 15 be rebutted by a showing that control does not, in fact, 16 exist. Notwithstanding the foregoing, for purposes of this 17 Article, the fact that an SPRV exclusively provides 18 reinsurance to a ceding insurer under an SPRV contract shall 19 not by itself be sufficient grounds for a finding that the 20 SPRV or the SPRV organizer or owner is controlled by or under 21 common control with the ceding insurer. 22 "Fair Value" means: 23 (1) as to cash, the amount thereof; and 24 (2) as to an asset other than cash: 25 (A) the amount at which that asset could be 26 bought or sold in a current transaction between 27 arms-length, willing parties; 28 (B) quoted market price for the asset in 29 active markets should be used if available; and 30 (C) if quoted market prices are not available, 31 a value determined using the best information 32 available considering values of like assets and 33 other valuation methods, such as present value of 34 future cash flows, historical value of the same or SB864 Enrolled -4- LRB9205491JScsA 1 similar assets or comparison to values of other 2 asset classes the value of which have been 3 historically related to the subject asset. 4 "Fully funded" means that, with respect to an SPRV 5 contract, the fair value of the assets held in trust by or on 6 behalf of the SPRV under the SPRV contract on the date on 7 which the SPRV contract is effected, equals or exceeds the 8 aggregate limit as defined in this Article. 9 "Indemnity trigger" means a transaction term by which the 10 SPRV's obligation to pay the ceding insurer for losses 11 covered by an SPRV contract is triggered by the ceding 12 insurer incurring a specified level of losses. 13 "Insolvency" or "insolvent" means that the SPRV is unable 14 to pay its obligations when they are due, unless those 15 obligations are the subject of a bona fide dispute. 16 "Non-indemnity trigger" means a transaction term by which 17 the SPRV's obligation to pay the ceding insurer under an SPRV 18 contract arises from the occurrence or existence of some 19 event or condition other than the ceding insurer incurring a 20 specified level of losses under its insurance or reinsurance 21 contracts. 22 "Permitted investments" means those investments that meet 23 the qualifications set forth in Section 179E-85. 24 "Qualified U.S. financial institution" means, for 25 purposes of meeting the requirements of a trustee under this 26 Article, a financial institution that is eligible to act as a 27 fiduciary of a trust, and that is: 28 (1) organized or, in the case of a U.S. branch or 29 agency office of a foreign banking organization, 30 licensed, under the laws of the United States or any 31 state of the United States; and 32 (2) regulated, supervised, and examined by federal 33 or state authorities having regulatory authority over 34 banks and trust companies. SB864 Enrolled -5- LRB9205491JScsA 1 "Special purpose reinsurance vehicle" or "SPRV" means an 2 entity, domiciled in and organized under the laws of this 3 State, that has received a limited certificate of authority 4 from the Director under this Article exclusively for the 5 limited purpose of entering into and effectuating SPRV 6 insurance securitizations, SPRV contracts, and other related 7 transactions permitted by this Article. 8 "SPRV contract" means a contract between the SPRV and the 9 ceding insurer pursuant to which the SPRV agrees to pay the 10 ceding insurer an agreed amount upon the occurrence of a 11 triggering event. 12 "SPRV insurance securitization" means a package of 13 related risk transfer instruments and facilitating 14 administrative agreements by which proceeds are obtained by 15 an SPRV through the issuance of securities, which proceeds 16 are held in trust pursuant to the requirements of this 17 Article to secure the obligations of the SPRV under an SPRV 18 contract with one or more ceding insurers, wherein the SPRV's 19 obligation to return the full initial investment to the 20 holders of those securities, pursuant to the transaction 21 terms, is contingent upon those funds not being used to pay 22 the obligations of the SPRV to the ceding insurers under the 23 SPRV Contract. 24 "SPRV organizer" means one or more persons who have 25 organized or intend to organize an SPRV under authority 26 obtained pursuant to Section 179E-20. 27 "SPRV securities" means the securities issued by an SPRV. 28 "Triggering event" means an event or condition that, if 29 and when it occurs or exists, obligates the SPRV to make a 30 payment to the ceding insurer under the provisions of an SPRV 31 contract. 32 (215 ILCS 5/179E-20 new) 33 Sec. 179E-20. Limited certificate of authority. SB864 Enrolled -6- LRB9205491JScsA 1 (a) Within 30 days after receipt by the Director of a 2 complete filing by the prospective SPRV organizer for 3 authority to form or acquire an SPRV, which SPRV shall exist 4 and operate expressly for the limited purposes set forth in 5 this Article, the application shall be deemed approved and a 6 limited certificate of authority shall be issued, unless 7 before the expiration of the 30-day period the Director 8 approves or disapproves the application in writing. A limited 9 certificate of authority may not be issued unless the country 10 or state of domicile of each ceding insurer has notified the 11 Director in writing that they have not disapproved the 12 transaction. A complete filing of the application must 13 include the following: 14 (1) an affidavit verifying that each prospective 15 SPRV organizer the SPRV meets the requirements as set 16 forth in this Article; 17 (2) a representation that the prospective SPRV 18 organizer intends to form an SPRV to operate in 19 accordance with the requirements set forth in this 20 Article; 21 (3) the proposed name of the subject SPRV; 22 (4) biographical descriptions of each SPRV 23 organizer setting forth their legal names, any names 24 under which they have or are conducting their affairs, 25 and any affiliations with other persons as defined in 26 Article VIII 1/2, together with such other biographical 27 information as the Director may request; 28 (5) the source and form of the minimum capital to 29 be contributed to the SPRV; 30 (6) any persons with which the SPRV is or, upon 31 formation, will be affiliated as defined in Article VIII 32 1/2; 33 (7) the names and biographical information of the 34 proposed members of the board of directors and principal SB864 Enrolled -7- LRB9205491JScsA 1 officers of the SPRV, setting forth their legal names, 2 any names under which they have or are conducting their 3 affairs and any affiliations with other persons as 4 defined in Article VIII 1/2, together with such other 5 biographical information as the Director may request; and 6 (8) a plan of operation, consisting of a 7 description of the contemplated insurance securitization, 8 the SPRV contract, and related transactions, which plan 9 of operation must include: 10 (A) draft documentation or, at the discretion 11 of the Director, a written summary, of all material 12 agreements that will be entered into to effectuate 13 the insurance securitization and the related SPRV 14 contract, including the names of the ceding 15 insurers, the nature of the risks being assumed, and 16 the maximum amounts, purpose, nature, and 17 interrelationships of the various transactions 18 required to effectuate the insurance securitization; 19 (B) the investment strategy of the SPRV and a 20 representation that (i) the investment strategy 21 complies with the investment requirements set forth 22 in this Article and (ii) includes investment 23 practices or other provisions to preserve asset 24 values that will facilitate attainment of full 25 funding during the term of the securitization with 26 assets that can be monetized in response to a 27 triggering event without a substantial loss in 28 value; 29 (C) a description of the method by which 30 losses covered by the SPRV contract that may develop 31 after the termination of the contract period are to 32 be addressed under the provisions of the SPRV 33 contract; and 34 (D) a representation that the trust agreement SB864 Enrolled -8- LRB9205491JScsA 1 and the trusts holding assets that secure the 2 obligations of the SPRV under the SPRV contract and 3 the SPRV contract with the ceding insurers in 4 connection with the contemplated insurance 5 securitization will be structured in accordance with 6 the requirements set forth in this Article. 7 (b) The Director may not approve the application or 8 issue a limited certificate of authority until he or she has 9 found that the proposed plan of operation provides a 10 reasonable expectation of a successful operation, based on 11 the proposed SPRV organizer, directors, and officers being of 12 known good character and that there is no good reason to 13 believe that they are affiliated, directly or indirectly, 14 through ownership, control, management, reinsurance 15 transactions, or other insurance or business relations with 16 any person or persons known to have been involved in the 17 improper manipulation of assets, accounts or reinsurance. 18 (c) Upon approval by the Director of the application and 19 the issuance of a limited certificate of authority, the SPRV 20 may be acquired or formed and, in accordance with the 21 approved plan of operation, the SPRV may enter into contracts 22 and conduct other activities within the parameters set forth 23 in the filed plan of operation. 24 (d) The limited certificate of authority so issued shall 25 state that the SPRV's authorization to be involved in the 26 business of reinsurance is limited to only the reinsurance 27 activities that the SPRV is allowed to conduct under this 28 Article. 29 (e) The SPRV organizer must provide a complete set of 30 the documentation of the insurance securitization to the 31 Director upon closing of the transactions including, but not 32 limited to, an opinion of legal counsel with respect to 33 compliance with this and any other applicable laws as of the 34 effective date of the transaction. Any material change of the SB864 Enrolled -9- LRB9205491JScsA 1 SPRV's plan of operation described in items (1) through (8) 2 of subsection (a) including, but not limited to, the issuance 3 of new securities to continue the securitization activities 4 of the SPRV under this Article after expiration and full 5 satisfaction of the initial securitization transactions, 6 requires prior approval of the Director, however, a change in 7 the counterparty to swap transactions for an existing 8 securitization as allowed under this Article shall not be 9 deemed a material change. Any material change that is not 10 disapproved by the Director in writing within 15 days after 11 its submission shall be deemed approved. 12 (215 ILCS 5/179E-25 new) 13 Sec. 179E-25. Limited purpose of SPRV. This Article 14 authorizes SPRVs to be created for the limited purpose of 15 entering into insurance securitization transactions with 16 investors and into related agreements to pay one or more 17 ceding insurers agreed upon amounts under an SPRV contract 18 upon the occurrence of triggering events related to the 19 insurance business of the ceding insurer. An SPRV may not 20 issue a contract for assumption of risk or indemnification of 21 loss other than an SPRV contract as defined herein. 22 (215 ILCS 5/179E-30 new) 23 Sec. 179E-30. Approved transactions and operation of 24 SPRVs. 25 (a) SPRVs authorized under this Article may at any given 26 time enter into and effectuate SPRV contracts with one or 27 more ceding insurers, provided that the SPRV contracts 28 obligate the SPRV to indemnify the ceding insurer for losses 29 and that contingent obligations of the SPRV under the SPRV 30 contracts are securitized in full through a single SPRV 31 insurance securitization and are fully funded and secured 32 with assets held in trust in accordance with the requirements SB864 Enrolled -10- LRB9205491JScsA 1 of this Article pursuant to agreements contemplated by this 2 Article and invested in a manner that meets the criteria set 3 forth in Section 179E-85 of this Article. 4 (b) An SPRV may enter into such agreements with third 5 parties and conduct such business as is necessary to fulfill 6 its obligations and administrative duties incident to the 7 insurance securitization and the SPRV contract. The 8 agreements may include entering into swap agreements or other 9 transactions that have the objective of leveling timing 10 differences in funding up-front or ongoing transaction 11 expenses or managing credit or interest rate risk of the 12 investments in trust to assure that the assets held in trust 13 will be sufficient to satisfy (i) payment or repayment of the 14 securities issued pursuant to an insurance securitization 15 transaction or (ii) the obligations of the SPRV under the 16 SPRV contract. In fulfilling its function, the SPRV shall 17 adhere to the following requirements and shall, to the extent 18 of its powers, ensure that contracts obligating other parties 19 to perform certain functions incident to its operations are 20 substantively and materially consistent with the following 21 requirements and guidelines: 22 (1) An SPRV shall have a distinct name, which shall 23 include the designation "SPRV". The name of the SPRV may 24 not be deceptively similar to, or likely to be confused 25 with or mistaken for, any other existing business name 26 registered in this State. 27 (2) Unless otherwise provided in the plan of 28 operation, the principal place of business and office of 29 any SPRV organized under this Article must be located in 30 this State. 31 (3) The assets of an SPRV must be preserved and 32 administered by or on behalf of the SPRV to satisfy the 33 liabilities and obligations of the SPRV incident to the 34 insurance securitization and other related agreements, SB864 Enrolled -11- LRB9205491JScsA 1 including the SPRV contract. 2 (4) Assets of the SPRV that are pledged to secure 3 obligations of the SPRV to a ceding insurer under an SPRV 4 contract must be held in trust and administered by a 5 qualified U.S. financial institution. The qualified U.S. 6 financial institution may not control, be controlled by, 7 or be under common control with, the SPRV or the ceding 8 insurers. 9 (5) The agreement governing any trust must create 10 one or more trust accounts into which all pledged assets 11 must be deposited and held until distributed in 12 accordance with the trust agreement. The pledged assets 13 must be held by the trustee at the trustee's office in 14 the United States and may be held in certificated or 15 electronic form. 16 (6) The provisions for withdrawal by ceding 17 insurers of assets from the trust shall be clean and 18 unconditional, subject only to the following 19 requirements: 20 (A) the ceding insurer shall have the right to 21 withdraw assets from the trust account at any time, 22 without notice to the SPRV, subject only to written 23 notice to the trustee from the ceding insurer that 24 funds in the amount requested are due and payable by 25 the SPRV; 26 (B) no other statement or document need be 27 presented in order to withdraw assets, except the 28 ceding insurer may be required to acknowledge 29 receipt of withdrawn assets; 30 (C) the trust agreement must indicate that it 31 is not subject to any conditions or qualifications 32 outside of the trust agreement; 33 (D) the trust agreement may not contain 34 references to any other agreements or documents; and SB864 Enrolled -12- LRB9205491JScsA 1 (E) no reference may be made to the fact that 2 the funds may represent reinsurance premiums or that 3 the funds have been deposited for any specific 4 purpose. 5 (7) The trust agreement must be established for the 6 sole use and benefit of the ceding insurer at least to 7 the full extent of the SPRV's obligations to the ceding 8 insurer under the SPRV contract. If there is more than 9 one ceding insurer, a separate trust agreement must be 10 entered with each ceding insurer and a separate trust 11 account must be maintained for each ceding insurer. 12 (8) The trust agreement must provide for the 13 trustee to: 14 (A) receive assets and hold all assets in a 15 safe place; 16 (B) determine that all assets are in a form so 17 that the ceding insurer or the trustee, upon 18 direction by the ceding insurer may, whenever 19 necessary, negotiate any the assets, without consent 20 or signature from the SPRV or any other person or 21 entity; 22 (C) furnish to the SPRV, the Director, and the 23 ceding insurer a statement of all assets in the 24 trust account reported at fair value upon its 25 inception and at intervals no less frequent than the 26 end of each calendar quarter; 27 (D) notify the SPRV and the ceding insurer, 28 within 10 days, of any deposits to or withdrawals 29 from the trust account; 30 (E) upon written demand of the ceding insurer, 31 immediately take any and all steps necessary to 32 transfer absolutely and unequivocally all right, 33 title, and interest in the assets held in the trust 34 account to the ceding insurer and deliver physical SB864 Enrolled -13- LRB9205491JScsA 1 custody of the assets to the ceding insurer; and 2 (F) allow no substitutions or withdrawals of 3 assets from the trust account, except on written 4 instructions from the ceding insurer. 5 (9) The trust agreement must provide that at least 6 30 days, but not more than 45 days, before termination of 7 the trust account, written notification of termination 8 shall be delivered by the trustee to the ceding insurer. 9 (10) The trust agreement may be made subject to and 10 governed by the laws of any state, in addition to the 11 requirements for the trust as provided in this Article, 12 provided that the state is disclosed in the plan of 13 operation filed with and approved, or deemed approved, by 14 the Director under Section 179E-20. 15 (11) The trust agreement must prohibit invasion of 16 the trust corpus for the purpose of paying compensation 17 to, or reimbursing the expenses of, the trustee. 18 (12) The trust agreement must provide that the 19 trustee shall be liable for its own negligence, willful 20 misconduct, or lack of good faith. 21 (13) Notwithstanding the provisions of items 22 (6)(C), (6)(D), and (6)(E) of this subsection or item 23 (14)(E) of this subsection, when a trust agreement is 24 established in conjunction with an SPRV contract, then 25 the trust agreement may provide that the ceding insurer 26 must undertake to use and apply any amounts drawn upon 27 the trust account, without diminution because of the 28 insolvency of the ceding insurer or the SPRV, for the 29 following purposes: 30 (A) to pay or reimburse the ceding insurer 31 amounts due to the ceding insurer under the specific 32 SPRV contract including, but not limited to, 33 unearned premiums due to the ceding insurer, if not 34 otherwise paid by the SPRV in accordance with the SB864 Enrolled -14- LRB9205491JScsA 1 terms of the agreement; or 2 (B) when the ceding insurer has received 3 notification of termination of the trust account, 4 and when the SPRV's entire "obligations" under the 5 specific SPRV contract remain unliquidated and 6 undischarged 10 days prior to the termination date, 7 to withdraw amounts equal to those obligations and 8 deposit those amounts in a separate account, in the 9 name of the ceding insurer, in any qualified U.S. 10 financial institution, apart from its general 11 assets, in trust for those uses and purposes 12 specified in item (13)(A) of this subsection as may 13 remain executory after the withdrawal and for any 14 period after the termination date. "Obligations" 15 within the meaning of this subsection may, without 16 duplication, include: 17 (i) losses and loss expenses paid by the 18 ceding insurer, but not recovered from the 19 SPRV; 20 (ii) reserves for losses reported and 21 outstanding; 22 (iii) reserves for losses incurred but 23 not reported; 24 (iv) reserves for loss expenses; 25 (v) reserves for unearned premiums; and 26 (vi) any other amounts that, together 27 with (iv), represent the aggregate limit 28 remaining under the SPRV contract if the period 29 of coverage or the agreed upon period of loss 30 development has yet to expire. 31 The provisions to be included in the trust agreement 32 pursuant to this item (13) may, in lieu thereof, be included 33 in the underlying SPRV contract. 34 (14) An SPRV contract must contain provisions that: SB864 Enrolled -15- LRB9205491JScsA 1 (A) require the SPRV to enter into a trust 2 agreement specifying what recoverables or reserves, 3 or both, the agreement is to cover and to establish 4 a trust account for the benefit of the ceding 5 insurer; 6 (B) stipulate that assets deposited in the 7 trust account must be valued according to their 8 current fair value, and may consist only of 9 permitted investments; 10 (C) require the SPRV, before depositing assets 11 with the trustee, to execute assignments, 12 endorsements in blank, or transfer legal title to 13 the trustee of all shares, obligations, or any other 14 assets requiring assignments, in order that the 15 ceding insurer, or the trustee upon the direction of 16 the ceding insurer, may whenever necessary negotiate 17 the assets without consent or signature from the 18 SPRV or any other entity; 19 (D) require that all settlements of account 20 between the ceding insurer and the SPRV be made in 21 cash or its equivalent; and 22 (E) stipulate that the SPRV and the ceding 23 insurer agree that the assets in the trust account, 24 established under the provisions of the SPRV 25 contract, may be withdrawn by the ceding insurer at 26 any time, notwithstanding any other provisions in 27 the SPRV contract, and shall be utilized and applied 28 by the ceding insurer or any successor by operation 29 of law of the ceding insurer, including (subject to 30 the provisions of Section 179E-80), but without 31 further limitation, any liquidator, rehabilitator, 32 receiver, or conservator of the ceding insurer, 33 without diminution because of insolvency on the part 34 of the ceding insurer or the SPRV, only for the SB864 Enrolled -16- LRB9205491JScsA 1 following purposes: 2 (i) to transfer all of those assets into 3 the trust account for the benefit of the 4 ceding insurer under the terms of the SPRV 5 contract and in compliance with this Article; 6 and 7 (ii) to pay any other amounts the ceding 8 insurer claims are due under the SPRV contract. 9 (15) The SPRV contract entered into by the SPRV may 10 contain provisions that give the SPRV the right to seek 11 approval from the ceding insurer to withdraw from the 12 trust all or part of the assets contained in it and 13 transfer the assets to the SPRV, provided that: 14 (A) at the time of the withdrawal, the SPRV 15 replaces the withdrawn assets with other qualified 16 assets having a fair value equal to the fair value 17 of the assets withdrawn and that meet the 18 requirements of Section 179E-85; and 19 (B) after the withdrawals and transfer, the 20 fair value of the assets in trust securing the 21 obligations of the SPRV under the SPRV contract is 22 no less than an amount needed to satisfy the fully 23 funded requirement of the SPRV contract. The ceding 24 insurer shall be the sole judge as to the 25 application of these provisions, but shall not 26 unreasonably nor arbitrarily withhold its approval. 27 (16) The investors in the SPRV must agree, and be 28 contractually obligated to so do, that any obligation to 29 repay principal, interest, or dividends on the securities 30 issued by the SPRV shall be reduced upon the occurrence 31 of a triggering event, to the extent that the assets of 32 the SPRV held in trust for the benefit of the ceding 33 insurer are remitted to the ceding insurer in fulfillment 34 of the obligations of the SPRV under the SPRV contract. SB864 Enrolled -17- LRB9205491JScsA 1 (17) Assets held by an SPRV in trust must be valued 2 at their fair value. 3 (18) The proceeds from the sale of securities by 4 the SPRV to investors must be deposited with the trustee 5 as contemplated by this Article, and must be held or 6 invested by the trustee in accordance with the 7 requirements of Section 179E-85. 8 (19) An SPRV organized under this Article, may 9 engage only in fully funded indemnity triggered SPRV 10 contracts to support in full the ceding insurers' 11 exposures assumed by the SPRV, except that an SPRV may 12 engage in an SPRV contract that is non-indemnity 13 triggered after the Director, in accordance with the 14 authority granted under Section 179E-100 of this Article, 15 adopts rules addressing the treatment of the portion of 16 the risk that is not indemnity based, including 17 accounting, disclosure, risk-based capital treatment, and 18 the manner in which risks associated with the 19 non-indemnity based SPRV contract may be evaluated and 20 managed. An SPRV may not at any time enter into an SPRV 21 contract that is not fully funded, whether indemnity 22 triggered or non-indemnity triggered. Assets of the SPRV 23 may be used to pay interest or other consideration on any 24 outstanding debt or other obligation of the SPRV, and 25 nothing in this item shall be construed or interpreted to 26 prevent an SPRV from entering into a swap agreement or 27 other transaction that has the effect of guaranteeing 28 interest or other consideration. 29 (20) The contracts or other documentation relating 30 to an SPRV insurance securitization must contain 31 provisions identifying the SPRV that will enter into the 32 special purpose reinsurance securitization. The contracts 33 or other documentation must clearly disclose that the 34 assets of the SPRV, and only those assets, are available SB864 Enrolled -18- LRB9205491JScsA 1 to pay the obligations of that SPRV. Notwithstanding the 2 foregoing, and subject to the provisions of this Article 3 and any other applicable law or rule, the failure to 4 include this language in the contracts or other 5 documentation may not be used as the sole basis by 6 creditors, reinsurers, or other claimants to circumvent 7 the provisions of this Article. 8 (21) Under no circumstances may an SPRV be 9 authorized to: 10 (A) issue or otherwise administer primary 11 insurance policies; 12 (B) have any obligation to the policyholders 13 or reinsureds of the ceding insurer; 14 (C) enter into an SPRV contract with a person 15 that is not licensed or otherwise authorized to 16 conduct the business of insurance or reinsurance in 17 at least its state or country of domicile; or 18 (D) assume or retain exposure to insurance or 19 reinsurance losses for its own account that is not 20 initially fully funded by proceeds from an SPRV 21 securitization that meets the requirements of this 22 Article. 23 (22) At the cessation of business of an SPRV the 24 limited certificate of authority granted by the Director 25 shall expire and the SPRV shall no longer be authorized 26 to conduct activities under this Article unless and until 27 a new certificate of authority is issued pursuant to a 28 new filing in accordance with Section 179E-20. 29 (23) It is unlawful for an SPRV to loan or 30 otherwise invest, or place any of its assets in custody, 31 trust, or under management with, or to borrow money or 32 receive a loan from (other than by issuance of the 33 securities pursuant to an SPRV insurance securitization), 34 or advance from, anyone convicted of a felony, anyone who SB864 Enrolled -19- LRB9205491JScsA 1 is untrustworthy or of known bad character, or anyone 2 convicted of a criminal offense involving the conversion 3 or misappropriation of fiduciary funds or insurance 4 accounts, theft, deceit, fraud, misrepresentation, or 5 corruption. 6 (215 ILCS 5/179E-35 new) 7 Sec. 179E-35. Powers. 8 (a) An SPRV authorized under this Article shall have the 9 necessary powers to enter into contracts and to conduct such 10 other commercial activities as are necessary to fulfill the 11 purposes of this Article. Those activities may include, but 12 are not limited to, entering into SPRV contracts, issuing 13 securities of the SPRV and complying with the terms thereof, 14 entering into trust, swap, and other agreements as may be 15 necessary to effectuate an insurance securitization in 16 compliance with the limitations and pursuant to the 17 authorities granted to the SPRV under this Article or the 18 plan of operation approved or deemed approved by the 19 Director. 20 (b) An SPRV organized or doing business under this 21 Article shall, by the name adopted by the SPRV, in law, be 22 capable of suing or being sued, and may make or enforce 23 contracts in relation to the business of the SPRV; may have 24 and use a common seal, and in the name of the SPRV or by a 25 trustee chosen by the board of directors, shall, in law, be 26 capable of taking, purchasing, holding and disposing of real 27 and personal property for carrying into effect the purposes 28 of its organization; and may by its board of directors, 29 trustees, officers, or managers, make by-laws and amendments 30 thereto not inconsistent with the laws or the constitution of 31 this State or of the United States, which by-laws shall 32 define the manner of electing directors, trustees, or 33 managers and officers of the SPRV, together with their SB864 Enrolled -20- LRB9205491JScsA 1 qualifications and duties and fixing their term of office. 2 (215 ILCS 5/179E-40 new) 3 Sec. 179E-40. Affiliation. Notwithstanding the 4 provisions of Article VIII 1/2, the SPRV, the SPRV organizer, 5 and subsequent debt or equity investors in SPRV securities 6 shall not be deemed affiliates of the ceding insurer by 7 virtue of the SPRV contract between the ceding insurer and 8 the SPRV, the securities of the SPRV, or related agreements 9 necessary to implement the SPRV insurance securitization. An 10 SPRV may not be controlled by, may not control, and may not 11 be under common control with any ceding insurer that is a 12 party to an SPRV contract. 13 (215 ILCS 5/179E-45 new) 14 Sec. 179E-45. Capitalization. An SPRV must have minimum 15 initial capital of not less than $5,000. All of the initial 16 capital must be received by the SPRV in cash. The minimum 17 initial capital required and all other funds of the SPRV in 18 excess of its minimum initial capital, including funds held 19 in trust to secure the obligations of the SPRV pursuant to 20 its obligations under the SPRV contracts, shall be invested 21 as provided in Section 179E-85. 22 (215 ILCS 5/179E-50 new) 23 Sec. 179E-50. Dividends. An SPRV may not declare or pay 24 dividends in any form to its owners unless the dividends do 25 not decrease the capital of the SPRV below $5,000, and after 26 giving effect to the dividends, the assets of the SPRV, 27 including assets held in trust pursuant to the terms of the 28 insurance securitization, are sufficient to meet its 29 obligations. Dividends may be declared by the board of 30 directors of the SPRV if the declaration of dividends would 31 not violate the provisions of this Article or jeopardize the SB864 Enrolled -21- LRB9205491JScsA 1 fulfillment of the obligations of the SPRV or the trustee 2 pursuant to the SPRV insurance securitization, the SPRV 3 contract or any related transaction. 4 (215 ILCS 5/179E-55 new) 5 Sec. 179E-55. Records and financial reports. 6 (a) The records of the SPRV must be maintained in this 7 State and must be available for examination by the 8 Department. The Director shall have the right to examine the 9 records of an SPRV at any time. No later than 5 months after 10 the fiscal year end of the SPRV, the SPRV must file with the 11 Director an audit by a certified public accounting firm of 12 the financial statements of the SPRV and the trust accounts. 13 (b) No later than March 1 of each year, an SPRV 14 organized under this Article must file with the Director a 15 statement of operations, including, but not limited to, a 16 statement of income, a balance sheet, and a detailed listing 17 of invested assets, including identification of assets held 18 in trust to secure the SPRV's obligations under the SPRV 19 contract, for the year ending the previous December 31. The 20 statements shall be prepared in accordance with Section 136 21 of this Code on such forms and shall reveal such information 22 as shall be required by the Director. 23 (c) An SPRV must keep its books and records in a manner 24 so that its financial condition, affairs, and operations can 25 be ascertained, its financial statements filed with the 26 Director can be readily verified, and its compliance with the 27 provisions of this Article can be determined. An SPRV may 28 cause any or all of the books or records to be photographed, 29 reproduced on film, or stored and reproduced electronically. 30 (d) All original books, records, documents, accounts, 31 and vouchers, or reproductions of those items, must be 32 preserved and kept available in this State for the purpose of 33 examination and until authority to destroy or otherwise SB864 Enrolled -22- LRB9205491JScsA 1 dispose of the records is secured from the Director. The 2 original records may, however, be kept and maintained outside 3 this State if, according to a plan adopted by the SPRV's 4 board of directors and approved by the Director, it maintains 5 other suitable records. 6 (215 ILCS 5/179E-60 new) 7 Sec. 179E-60. Officers and directors. 8 (a) The directors of an SPRV shall elect such officers 9 they deem necessary to carry out the purposes of the SPRV 10 pursuant to this Article. The provisions of Section 10 of 11 this Code relating to the indemnification of officers and 12 directors apply to and govern SPRVs organized under this 13 Article. 14 (b) An SPRV authorized to do business in this State must 15 notify the Director of the appointment or election of any new 16 officers or directors within 30 days after the appointment or 17 election. 18 (c) If, after notice and hearing afforded to the officer 19 or director, and after a finding that the officer or director 20 is incompetent or untrustworthy or of known bad character, 21 the Director shall order the removal of the person. If the 22 SPRV does not comply with a removal order within 30 days, the 23 Director may suspend that SPRV's limited certificate of 24 authority until such time as the order is complied with. 25 (d) An SPRV may not make loans to any SPRV organizer, 26 owner, director, officer, manager, or affiliate. 27 (215 ILCS 5/179E-65 new) 28 Sec. 179E-65. Fees and taxes. The Director may charge 29 fees to reimburse the Director for expenses and costs 30 incurred by the Department incident to the examination of 31 financial statements and review of the plan of operation and 32 to reimburse other such activities of the Director related to SB864 Enrolled -23- LRB9205491JScsA 1 the formation and ongoing operation of an SPRV. An SPRV is 2 not be subject to State premium or other State taxes 3 incidental to the operation of its business as long as the 4 business remains within the limitations of this Article. 5 (215 ILCS 5/179E-70 new) 6 Sec. 179E-70. Dissolution. An SPRV operating under this 7 Article may be dissolved by a vote of its board of directors 8 at any time after the Director has approved that action. A 9 voluntary dissolution may not be effected or allowed until 10 and unless all of the obligations of the SPRV pursuant to the 11 insurance securitization have been fully and finally 12 satisfied pursuant to their terms. In the case of voluntary 13 dissolution, the disposition of the affairs of the SPRV 14 (including the settlement of all outstanding obligations) 15 shall be made by the officers or directors of the SPRV, and 16 when the liquidation has been completed and a final 17 statement, in acceptable form, filed with and approved, or 18 deemed approved, by the Director, the provisions for 19 voluntary dissolution under the laws of this State shall be 20 followed to dissolve the SPRV. 21 (215 ILCS 5/179E-75 new) 22 Sec. 179E-75. Conservation, rehabilitation, or 23 liquidation. 24 (a) The provisions of Articles XIII and XIII 1/2 apply 25 to an SPRV, except to the extent modified in this Section. 26 (b) Notwithstanding the provisions of Section 188 of 27 this Code, the Director may apply by petition to the Circuit 28 Court of Cook County, the Circuit Court of Sangamon County, 29 or the circuit court of the county in which an SPRV has or 30 last had its principal office for an order authorizing the 31 Director to conserve, rehabilitate or liquidate an SPRV 32 domiciled in this State solely on one or more of the SB864 Enrolled -24- LRB9205491JScsA 1 following grounds: 2 (1) there has been embezzlement, wrongful 3 sequestration, dissipation, or diversion of the assets of 4 the SPRV intended to be used to pay amounts owed to the 5 ceding insurer or the holders of SPRV securities; or 6 (2) the SPRV is insolvent and the holders of a 7 majority in outstanding principal amount of each class of 8 SPRV securities request or consent to conservation, 9 rehabilitation, or liquidation under this Article. 10 The court shall not grant relief under item (1) of this 11 subsection unless, after notice and a hearing, the Director, 12 who has the burden of proof, establishes by clear and 13 convincing evidence that the relief should be granted. 14 (c) Notwithstanding any contrary provision in this Code, 15 the rules promulgated under this Code, or any other 16 applicable law or rule, upon any order of conservation, 17 rehabilitation, or liquidation of the SPRV, the receiver 18 shall be bound to deal with the SPRV's assets and 19 liabilities, in accordance with the requirements set forth in 20 this Article. 21 (d) With respect to amounts recoverable under an SPRV 22 contract, the amount recoverable by the receiver may not be 23 reduced or diminished as a result of the entry of an order of 24 conservation, rehabilitation, or liquidation with respect to 25 the ceding insurer notwithstanding any provisions to the 26 contrary in the contracts or other documentation governing 27 the SPRV insurance securitization. 28 (e) Notwithstanding the provisions of Article XIII and 29 XIII 1/2 of this Code, any application, petition, or 30 temporary restraining order or injunction issued under those 31 Articles, with respect to a ceding insurer shall not prohibit 32 the transaction of any business by an SPRV, including any 33 payment by an SPRV made pursuant to an SPRV security, or any 34 action or proceeding against an SPRV or its assets. SB864 Enrolled -25- LRB9205491JScsA 1 (f) Notwithstanding the provisions of Articles XIII and 2 XIII 1/2 of this Code, the commencement of a summary 3 proceeding or other interim proceeding commenced before a 4 formal delinquency proceeding with respect to an SPRV, and 5 any order issued by the court thereunder, shall not prohibit: 6 (1) the payment by an SPRV made pursuant to an SPRV 7 security or SPRV contract; or 8 (2) the SPRV from taking any action required to 9 make the payment. 10 (g) Notwithstanding any other provision of Articles XIII 11 and XIII 1/2 of this Code or other State law: 12 (1) a receiver of a ceding insurer may not avoid a 13 non-fraudulent transfer by a ceding insurer to an SPRV of 14 money or other property made pursuant to an SPRV 15 contract; and 16 (2) a receiver of an SPRV may not void a 17 non-fraudulent transfer by the SPRV of money or other 18 property made to a ceding insurer pursuant to an SPRV 19 contract or made to or for the benefit of any holder of 20 an SPRV security on account of the SPRV security. 21 (h) With the exception of the fulfillment of the 22 obligations under an SPRV contract, and notwithstanding any 23 other provisions of this Article or other law of this State 24 to the contrary, the assets of an SPRV, including assets held 25 in trust, may not be consolidated with or included in the 26 estate of a ceding insurer in any delinquency proceeding 27 against the ceding insurer under this Article for any 28 purpose, including, without limitation, distribution to 29 creditors of the ceding insurer. 30 (i) Notwithstanding any other provision of this Article: 31 (1) A domiciliary receiver of an SPRV domiciled in 32 another state shall be vested by operation of law with 33 the title to all of the assets, property, contracts, and 34 rights of action, and all of the books, accounts, and SB864 Enrolled -26- LRB9205491JScsA 1 other records of the SPRV located in this State. The 2 domiciliary receiver shall have the immediate right to 3 recover all of the vested property, assets, and causes of 4 action of the SPRV located in this State. 5 (2) An ancillary proceeding may not be commenced or 6 prosecuted in this State against an SPRV domiciled in 7 another state. 8 (215 ILCS 5/179E-80 new) 9 Sec. 179E-80. SPRV not subject to guaranty funds, 10 residual market, or similar arrangements. 11 (a) An SPRV or the activities, assets, and obligations 12 relating to the SPRV are not subject to the provisions of 13 Articles XXXIII 1/2 and XXXIV of this Code, and an SPRV may 14 not be assessed by or otherwise be required to contribute to 15 any guaranty fund or guaranty association in this State with 16 respect to the activities, assets, or obligations of an SPRV 17 or the ceding insurer. 18 (b) An SPRV may not be required to participate in 19 residual market, FAIR plan, or other similar plans to provide 20 insurance coverage, take out policies, assume risks, make 21 capital contributions, pay or be otherwise obligated for 22 assessments, surcharges, or fees, or otherwise support or 23 participate in such plans or arrangements. 24 (215 ILCS 5/179E-85 new) 25 Sec. 179E-85. Asset and investment limitations. 26 (a) Assets of the SPRV held in trust to secure 27 obligations under the SPRV contract must at all times be held 28 in: 29 (1) cash and cash equivalents; 30 (2) securities listed by the Securities Valuation 31 Office of the NAIC and qualifying as admitted assets 32 under statutory accounting convention in its state of SB864 Enrolled -27- LRB9205491JScsA 1 domicile; and 2 (3) any other form of security acceptable to the 3 Director. 4 (b) An SPRV may enter into swap agreements or other 5 transactions that have the objective of leveling timing 6 differences in funding of up-front or ongoing transaction 7 expenses or managing credit or interest rate risk of the 8 investments in the trust to ensure that the investments are 9 sufficient to assure payment or repayment of: 10 (1) the securities (and related interest or 11 principal payments) issued pursuant to an SPRV insurance 12 securitization transaction; or 13 (2) the SPRV's obligations under the SPRV contract. 14 (215 ILCS 5/179E-90 new) 15 Sec. 179E-90. Credit for reinsurance for the SPRV 16 contract. An SPRV contract meeting the requirements under 17 this Article shall be granted credit for reinsurance 18 treatment or shall otherwise qualify as an asset or a 19 reduction from liability for reinsurance ceded by a domestic 20 insurer to an assuming insurer under Section 173.1 of this 21 Code for the benefit of the ceding insurer, provided and only 22 to the extent that (i) the fair value of the assets held in 23 trust for the benefit of the ceding insurer equal or exceed 24 the obligations due and payable to the ceding insurer by the 25 SPRV under the SPRV contract, (ii) the assets are held in 26 trust in accordance with the requirements set forth in this 27 Article, (iii) the assets are administered in the manner and 28 pursuant to arrangements as set forth in this Article, and 29 (iv) the assets are held or invested in one or more of the 30 forms allowed in Section 179E-85. 31 (215 ILCS 5/179E-95 new) 32 Sec. 179E-95. Insurance securitization deemed not to be SB864 Enrolled -28- LRB9205491JScsA 1 transaction of insurance business. The securities issued by 2 the SPRV under an SPRV insurance securitization shall not be 3 deemed to be insurance or reinsurance contracts. An investor 4 in securities issued pursuant to an SPRV insurance 5 securitization or any holder of those securities shall not, 6 by sole means of the investment or holding, be deemed to be 7 transacting an insurance business in this State. The 8 underwriters or selling agents (and their partners, 9 directors, officers, members, managers, employees, agents, 10 representatives, and advisors) involved in an SPRV insurance 11 securitization shall not be deemed to be conducting an 12 insurance or reinsurance agency, brokerage, intermediary, 13 advisory, or consulting business by virtue of their 14 activities in connection therewith. 15 (215 ILCS 5/179E-100 new) 16 Sec. 179E-100. Authority to adopt rules. The Director 17 may promulgate rules necessary to effectuate the purposes of 18 this Article. Any rules so promulgated will not affect any 19 existing SPRV insurance securitization in effect at the time 20 of the promulgation. 21 Section 99. Effective date. This Act takes effect upon 22 becoming law.
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