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92_SB0865enr SB865 Enrolled LRB9201059JSpcA 1 AN ACT concerning insurance. 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 changing Sections 107.06a, 107.07, 107.15, 179A-5, 179A-10, 6 179A-15, 179A-20, 179A-25, 179A-30, and 179A-35 as follows: 7 (215 ILCS 5/107.06a) (from Ch. 73, par. 719.06a) 8 Sec. 107.06a. Organization under Illinois Insurance 9 Code. 10 (a) After December 31, 1997, a syndicate or limited 11 syndicate, except for a limited syndicate formed as a 12 partnership or a special purpose limited syndicate, may only 13 be organized pursuant to Sections 7, 8, 10, 11, 12, 14, 14.1 14 (other than subsection (d) thereof), 15 (other than 15 subsection (d) thereof), 18, 19, 20, 21, 22, 23, 25, 27.1, 16 28, 28.1, 28.2, 29, 30, 31, 32, 32.1, 33, and 35.1 and 17 Article X of this Code, to carry on the business of a 18 syndicate, or limited syndicate under Article V-1/2 of this 19 Code; provided that such syndicate or limited syndicate is 20 admitted to the Exchange. 21 (b) After December 31, 1997, syndicates and limited 22 syndicates are subject to the following: 23 (1) Articles I, IIA, VIII, VIII 1/2, X, XI, XI 1/2, 24 XII, XII 1/2, XIII, XIII 1/2, XXIV, XXV (Sections 408 and 25 412 only), and XXVIII (except for Sections 445, 445.1, 26 445.2, 445.3, 445.4, and 445.5) of this Code; 27 (2) Subsections (2) and (3) of Section 155.04 and 28 Sections 13, 132.1 through 140, 141a, 144, 155.01, 29 155.03, 378, 379.1, 393.1, 395, and 396 of this Code; 30 (3) the Reinsurance Intermediary Act; and 31 (4) the Producer Controlled Insurer Act. SB865 Enrolled -2- LRB9201059JSpcA 1 (c) No other provision of this Insurance Code shall be 2 applicable to any such syndicate or limited syndicate except 3 as provided in this Article V-1/2. 4 (Source: P.A. 90-499, eff. 8-19-97; 90-794, eff. 8-14-98; 5 91-278, eff. 7-23-99.) 6 (215 ILCS 5/107.07) (from Ch. 73, par. 719.07) 7 Sec. 107.07. Admission. Capitalization: 8 Syndicate - at least $2,000,000. 9 Subscriber - at least $30,000. 10 Special Purpose Limited Syndicate - at least $5,000. 11 Fees: (a) Exchange brokers. An annual fee shall be paid 12 to the Exchange by any person who presents risks to the 13 Exchange. The annual fee established by the Exchange shall 14 not exceed $5,000. 15 (b) The Exchange may establish annual fees for the 16 admission of syndicates, limited syndicates, and subscribers. 17 Standards: The Exchange may establish additional 18 standards for the admission of subscribers and Exchange 19 brokers. 20 Assessments: The Exchange may make assessments of 21 subscribers or syndicates for the expenses of operating the 22 Exchange. 23 (Source: P.A. 90-499, eff. 1-1-98.) 24 (215 ILCS 5/107.15) (from Ch. 73, par. 719.15) 25 Sec. 107.15. Definitions. Persons: A person is an 26 individual, partnership, association, corporation or limited 27 partnership. 28 Syndicate: A syndicate is a subscriber, group of 29 subscribers, limited syndicate or group of limited syndicates 30 which meets the minimum capital requirement of Section 31 107.07. 32 Limited Syndicate: A limited syndicate is a corporation SB865 Enrolled -3- LRB9201059JSpcA 1 or partnership formed by subscribers for the purpose of 2 joining with syndicates, other subscribers, or limited 3 syndicates to form syndicates or to participate with 4 syndicates in the insurance or reinsurance of risks. 5 Subscriber: A subscriber is a person who has made a 6 deposit of money pursuant to Section 107.07 permitting that 7 person to participate as a subscriber in a syndicate or 8 limited syndicate. 9 Special Purpose Limited Syndicate: A special purpose 10 limited syndicate is any entity formed for the purposes of 11 participation in the securitization of reinsurance risks in 12 accordance with rules adopted pursuant to Section 107.15b. 13 Exchange Broker: A person licensed as an insurance broker 14 in the State of Illinois or as a reinsurance intermediary who 15 is admitted to the Exchange to present applications for 16 insurance. 17 Present Applications for Insurance: Means to make an 18 application to a syndicate for an insurance policy. 19 Reinsurance: Means reinsuring insurance. 20 Minimum Subscription: The subscription capital required 21 for admission as a subscriber to the Exchange. Subscribers 22 shall at all times maintain the minimum capitalization 23 required by this Article. 24 (Source: P.A. 89-206, eff. 7-21-95.) 25 (215 ILCS 5/179A-5) 26 Sec. 179A-5. Purpose. This Article is adopted to 27 provide a basis for the creation of protected cells by a 28 domestic insurer as one means of accessing alternative 29 sources of capital and achieving the benefits of insurance 30 securitization. Investors in fully funded insurance 31 securitization transactions provide funds that are available 32 to pay the insurer's insurance obligations or to repay the 33 investors or both. The creation of protected cells is SB865 Enrolled -4- LRB9201059JSpcA 1 intended to be a means to achieve more efficiencies in 2 conducting insurance securitizations.Insurance3securitization has been developed as a means of accessing4alternative sources of capital and diversifying credit risk5in order to enhance an insurance company's ability to both6assume risk and stabilize underwriting results.7 Under the terms of the typical debt instrument underlying 8 an insurance securitization transaction, prepaid principal is 9 repaid to the investor on a specified maturity date with 10 interest, unless a trigger event occurs. The insurance 11 securitization proceeds secure both the protected cell 12 company's insurance obligationsproceeds of the debt13instrument both collateralize the insurance company's14obligations under specified contracts of insuranceif a 15 trigger event occurs, as well as the protected cellinsurance16 company's obligation to repay the insurance securitization 17 investorsdebt instrumentif a trigger event does not occur. 18Traditionally,Insurance securitization transactions have 19 been performed through alien companies in order to utilize 20 efficiencies available to alien companies that are not 21 currently available to domestic companies. This Article is 22 adopted in order to create more efficiency in conducting 23 insurance securitization, to allow domestic companies easier 24 access to alternative sources of capital, and to promote 25 the benefits of insurance securitization generally. 26 (Source: P.A. 91-278, eff. 7-23-99.) 27 (215 ILCS 5/179A-10) 28 Sec. 179A-10. Definitions. 29 "Domestic company" means an insurance company domiciled 30 in the State of Illinois. 31 "Fully funded" means that, with respect to any exposure 32 attributed to a protected cell, the market value of the 33 protected cell assets, on the date on which the insurance SB865 Enrolled -5- LRB9201059JSpcA 1 securitization is effected, equals or exceeds the maximum 2 possible exposure attributable to the protected cell with 3 respect to those exposures. 4 "General account" means the assets and liabilities of a 5 protected cell company other than protected cell assets and 6 protected cell liabilities. 7 "Indemnity trigger" means a transaction term byinwhich 8 relief of the issuer's obligation to repay investors is 9 triggered by its incurringsufferinga specified level of 10 losses under itspolicies ofinsurance or reinsurance 11 contracts. 12"Insurance securitization" means the entering into of13debt instruments supported in full by cash or readily14marketable securities with investors by a domestic company15where repayment of principal or interest, or both, to16investors pursuant to the transaction terms is contingent17upon the occurrence or nonoccurrence of an event with respect18to which the domestic company is exposed to loss under19policies or contracts of insurance or reinsurance it has20issued.21 "Market value" has the meaning given that term in Article 22 VIII of this Code (Investments of Domestic Companies). 23 "Non-indemnity trigger" means a transaction term by which 24 relief of the issuer's obligation to repay investors is 25 triggered solely by some event or condition other than the 26 individual protected cell company incurring a specified level 27 of losses under its insurance or reinsurance contracts. 28 "Protected cell" means an identified pool of assets and 29 liabilities of a domestic company segregated and insulated by 30 means of this Article from the remainder of the company's 31 assets and liabilities. 32 "Protected cell account" means a specifically identified 33 bank or custodial account established by a protected cell 34 company for the purpose oflegallysegregating the protected SB865 Enrolled -6- LRB9201059JSpcA 1 cell assets of one protected cell from the protected cell 2 assets of other protected cells and from the assets of the 3 protected cell company's general account. 4 "Protected cell assets" means all assets, contract 5 rights, and general intangibles identified with and 6 attributable to a specific protected cell of a protected cell 7 company, including assets physically segregated in a8protected cell account. 9 "Protected cell company" means a domestic company that 10 has one or more protected cells. 11 "Protected cell company insurance securitization" means 12 the issuance of debt instruments, the proceeds from which 13 support the exposures attributed to the protected cell, by a 14 protected cell company where repayment of principal or 15 interest, or both, to investors pursuant to the transaction 16 terms is contingent upon the occurrence or nonoccurrence of 17 an event with respect to which the protected cell company is 18 exposed to loss under insurance or reinsurance contracts it 19 has issued. 20 "Protected cell liabilities" means all liabilities and 21 other obligations identified with and attributable to a 22 specific protected cell of a protected cell company. 23Protected cell liabilities include liabilities representing24the insurance obligations of the protected cell as well as25obligations of the protected cell arising out of any26insurance securitization transactions of the protected cell.27"Protected cell company" means a domestic company which28has one or more protected cells.29 (Source: P.A. 91-278, eff. 7-23-99.) 30 (215 ILCS 5/179A-15) 31 Sec. 179A-15. Establishment of protected cells. 32 (a) A domestic company may, with the prior written 33 approval by the Director of a plan of operation submitted by SB865 Enrolled -7- LRB9201059JSpcA 1 the domestic company with respect to each protected cell, 2 establish one or more protected cells in connection with an 3 insurance securitization. Upon the written approval by the 4 Director of the plan of operation, which shall include, but 5 not be limited to, the specific business and investment 6 guidelinesobjectivesof the protected cell, the protected 7 cell company may, in accordance with the approved plan of 8 operation, attribute to the protected cellamounts both9reflective ofinsurance obligations with respect to its 10 insurance business and obligations relating to the insurance 11 securitization and assets to fund those obligations. A 12 protected cell shall have its own distinct name or 13 designation, which shall include the words "protected cell". 14 The protected cell company shall transfer all assets 15 attributable to a protected cell to one or more separately 16 established and identified protected cell accounts bearing 17 the name or designation of that protected cell. Protected 18 cell assets shall be held in the protected cell accounts for 19 the purpose of satisfying the obligations of that protected 20 cell. 21 (b) Allsales, exchanges, transfers, or other22 attributions of assets and liabilities between a protected 23 cell and the general account shall be in accordance with the 24 plan of operation approved by the Director.or shall be25otherwise approved by the Director. Unless otherwise26approved by the Director, no sale, exchange, transfer, orNo 27 other attribution of assets or liabilities may be made by a 28 protected cell company between the protected cell company's 29 general account andone or more ofits protected cells. 30unless, in the case of an attribution to a protected cell,31the attribution is made solely to establish the protected32cell or, in the case of an attribution from a protected cell33to the company's general account, the attribution is made34solely to support the company's insurance obligations thatSB865 Enrolled -8- LRB9201059JSpcA 1are the subject of the business of the protected cell. Any2sale, exchange, transfer, or otherAny attribution of assets 3 and liabilities between the general account and a protected 4 cell or from investors in the form of principal on a debt 5 instrument issued by a protected cell company shall be in 6 cash or in readily marketable securities with established 7 market valuesunless otherwise approved in advance in8writing by the Director. 9 (c) The creation of a protected cell does not create, in 10 respect of that protected cell, a legal person separate from 11 the protected cell company. Amounts attributed to a protected 12 cell under this Article, including assets transferred to a 13 protected cell account, are owned by the protected cell 14 company and the protected cell company may not be, nor hold 15 itself out to be, a trustee with respect to those protected 16 cell assets of that protected cell account. Notwithstanding 17 the foregoing, the company may allow for a security interest 18 to attach to protected cell assets or a protected cell 19 account when in favor of a creditor of the protected cell and 20 otherwise allowed under applicable law. 21 (d) This Article shall not be construed to prohibit the 22 protected cell company from contracting with or arranging for 23 an investment advisor, commodity trading advisor, or other 24 third party to manage the protected cell assets of a 25 protected cell, provided that all remuneration, expenses, and 26 other compensation of the third party advisor or manager are 27 payable from the protected cell assets of that protected cell 28 and not from the protected cell assets of other protected 29 cells or the assets of the protected cell company's general 30 account. 31 (e) Adomestic company that is aprotected cell company 32 shall establishsuchadministrative and accounting procedures 33as arenecessary to properly identify the one or more 34 protected cells of the protected cell company and the SB865 Enrolled -9- LRB9201059JSpcA 1 protected cell assets and protected cell liabilities 2 attributable to the protected cellsthereto. It shall be the 3 duty of the directors of a protected cell company to: 4 (1)(i)keep protected cell assets and protected 5 cell liabilities separate and separately identifiable 6 from the assets and liabilities of the protected cell 7 company's general account; and 8 (2)(ii)keep protected cell assets and protected 9 cell liabilities attributable to one protected cell 10 separate and separately identifiable from protected cell 11 assets and protected cell liabilities attributable to 12 other protected cells. 13 If this Section is violatedNotwithstanding the14foregoing, the remedy of tracing shall be applicable to 15 protected cell assets when commingled with protected cell 16 assets of other protected cells or the assets of the 17 protected cell company's general account. The remedy of 18 tracing shall not be construed as an exclusive remedy. 19 (f) The protected cellUnless otherwise approved by the20Director, thecompany shall, when establishing a protected 21 cell, attribute to the protected cell assets with a value at 22 least equal to the reserves and other insurance liabilities 23 attributed to that protected cell. 24 (Source: P.A. 91-278, eff. 7-23-99.) 25 (215 ILCS 5/179A-20) 26 Sec. 179A-20. Use and operation of protected cells. 27 (a) The protected cell assets of any protected cell may 28 not be charged with liabilities arising out of any other 29 business the protected cell company may conduct. All 30 contracts or other documentation reflecting protected cell 31 liabilitiesthe obligations of a protected cell to the32general accountshall clearly indicate that onlythe assets33ofthe protected cell assets are available for the SB865 Enrolled -10- LRB9201059JSpcA 1 satisfaction of thoseobligations of theprotected cell 2 liabilities. 3 (b) The income, gains, and losses, realized or 4 unrealized, from protected cell assets and protected cell 5 liabilities must be credited to or charged against the 6 protected cell without regard to other income, gains, or 7 losses of the protected cell company, including income, 8 gains, or losses of other protected cells. Amounts 9 attributed to a protected cell and accumulations thereon may 10 be invested and reinvested without regard to any requirements 11 or limitations of Article VIII of this Code (Investments of 12 Domestic Companies), and the investments in a protected cell 13 or cells may not be taken into account in applying the 14 investment limitations otherwise applicable to the 15 investments of the protected cell company. 16 (c)Unless otherwise approved by the Director,Assets 17 attributed to a protected cell must be valued at their 18 market value on the date of valuation, or if there is no 19 readily available market, then as provided in the contract or 20 the rules or other written documentation applicable to the 21 protected cell. 22 (d) A protected cell company shall, in respect of any of 23 its protected cells, engage in fully funded 24 indemnity-triggered insurance securitization to support in 25 full the protected cell exposuresliabilitiesattributable to 26 that protected cell. A protected cell companyAninsurance 27 securitization that is not indemnity-triggered may qualify as 28 an insurance securitization under the terms of this Article 29 only after the Director adopts rules addressing the methods 30 of:(i) funding of the portion of the risk that is not 31 indemnity based, (ii) accounting, and disclosure, (iii) 32 risk-based capital treatment, and (iv) assessing risk 33 associated with such securitizationsand does not support in34full the protected cell obligations of a protected cell shallSB865 Enrolled -11- LRB9201059JSpcA 1be prohibited absent specific permission by the Director in2accordance with the authority granted under Section 179A-403and the guidance of the National Association of Insurance4Commissioners, as such guidance is developed. A protected 5 cell companyAninsurance securitizationtransactionthat is 6 not fully funded, whether indemnity triggered or 7 non-indemnity triggeredindemnity-triggered or not8indemnity-triggered, is prohibited. Protected cell assets 9 may be used toA protected cell maypay interest or other 10 consideration on any outstanding debt or other obligation 11 attributable to that protected cell, and nothing in this 12 subsection shall be construed or interpreted to prevent a 13 protected cell company from entering into a swap agreement or 14 other transaction for the account of the protected cell that 15 has the effect of guaranteeing such interest or other 16 consideration. 17 (e) In allcases in which aprotected cell company 18engages in aninsurance securitizationssecuritization, the 19 contracts or other documentationfinancial instrument20 effecting such transaction shall contain provisions 21 identifying the protected cell to which the transaction will 22 be attributed. In addition, the contracts or other 23 documentationfinancial instrumentshall clearly disclose 24 that the assets of that protected cell, and only those 25 assets, are available to pay the obligations of that 26 protected cell. Notwithstanding the foregoing, and subject to 27 the provisions of this Article and any other applicable law 28 or rule, the failure to include such language in the 29 contracts or other documentationfinancial instrumentshall 30 not be used as the sole basis by creditors, reinsurers, or 31 other claimants to circumvent the provisions of this Article. 32 (f) A protected cell company may attribute to a 33 protected cell account only the insurance obligations 34 relating to the protected cell company's general account. A SB865 Enrolled -12- LRB9201059JSpcA 1 protected cell may not issue insurance or reinsurance 2 contracts directly to policyholders or reinsureds or have any 3 obligation to the policyholders or reinsureds of the 4 protected cell company's general account. 5 (g)(f)At the cessation of business of a protected cell, 6 the protected cell company shall voluntarily close outwind7upthe protected cell account in accordance with a plan 8 approved by the Director. 9 (Source: P.A. 91-278, eff. 7-23-99.) 10 (215 ILCS 5/179A-25) 11 Sec. 179A-25. Reach of creditors and other claimants. 12 (a) Protected cell assets areshall only beavailable 13 only to the creditors of the protected cell company who are 14 creditors in respect of that protected cell andshall thereby15beentitled, in conformity with the provisions of this 16 Article, to have recourse to the protected cell assets 17 attributable to that protected cell.,Protected cell assets 18andshall be absolutely protected from the creditors of the 19 protected cell company who are not creditors in respect of 20 that protected cell and who, accordingly, areshallnotbe21 entitled to have recourse to the protected cell assets 22 attributable to that protected cell. Creditors with respect 23 toofa protected cell shall not be entitled to have 24 recourse against the protected cell assets of other protected 25 cells or the assets of the protected cell company's general 26 account. 27 Protected cell assets are available only to creditors of 28 a protected cell company after all protected cell liabilities 29 have been extinguished or otherwise provided for in 30 accordance with the plan of operation relating to that 31 protected cell. 32 (b) When an obligation of a protected cell company to a 33 person arises from a transaction, or is otherwise imposed, in SB865 Enrolled -13- LRB9201059JSpcA 1 respect of a protected cell: 2 (1) that obligation of the protected cell company 3 shall extend only to the protected cell assets 4 attributable to that protected cell, and the person 5 shall, in respect of that obligation, be entitled to have 6 recourse only to the protected cell assets attributable 7 to that protected cell; and 8 (2) that obligation of the protected cell company 9 shall not extend to the protected cell assets of any 10 other protected cell or the assets of the company's 11 general account, and that person shall not, in respect of 12 that obligation, be entitled to have recourse to the 13 protected cell assets of any other protected cell or the 14 assets of the company's general account. 15 (c) When an obligation of a protected cell company 16 relates solely to the general account, the obligation of the 17 protected cell company shall extend only to, and that 18 creditor shall, in respect of that obligation, be entitled to 19 have recourse only to, the assets of the protected cell 20 company's general account. 21 (d)A protected cell shall only be authorized to assume22an insurance obligation directly from the company's general23account, and under no circumstances shall a protected cell be24authorized to issue insurance or reinsurance policies or25contracts directly to policyholders or reinsureds or have any26obligation to the policyholders of the company's general27account.The activities, assets, and obligations relating to 28ofa protected cell are not subject to the provisions of 29 Article XXXIII1/2 (Illinois Life and Health Guaranty 30 Association Law) or Article XXXIV (Illinois Insurance 31 Guaranty Fund), and neither a protected cell nor a protected 32 cell companyprotected cellsshallnotbe assessed by or 33 otherwise be required to contribute to any guaranty fund or 34 guaranty association in this State with respect to the SB865 Enrolled -14- LRB9201059JSpcA 1 activities, assets, or obligations of a protected cell. 2 Nothing in this subsection shall affect the activities or 3 obligations of a company's general account. 4 (e) In no event shall the establishment of one or more 5 protected cells alone constitute or be deemed to be a 6 fraudulent conveyance, an intent by the protected cell 7 company to defraud creditors, or the carrying out of business 8 by the protected cell company for any other fraudulent 9 purpose. 10 (Source: P.A. 91-278, eff. 7-23-99.) 11 (215 ILCS 5/179A-30) 12 Sec. 179A-30. Rehabilitation and liquidation of 13 protected cell companies. 14 (a) 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 rehabilitation, 17 conservation, or liquidation ofa domestic company that isa 18 protected cell company, the receiver shall be bound to deal 19 with the protected cell company's assets and liabilities, 20 including protected cell assets and protected cell 21 liabilities, in accordance with the requirements set forth in 22 this Article. 23 (b) With respect to amounts recoverable under a 24 protected cell companyanyinsurance securitizationentered25into or outstanding in any protected cell of a protected cell26company, the amount recoverable by the receiver shall not be 27 reduced or diminished as a result of the entry of an order of 28 rehabilitation, conservation, or liquidation with respect to 29 the protected cell company notwithstanding any provisions to 30 the contrary in the contracts or other documentation 31financial instrumentgoverning the protected cell company 32suchinsurance securitization. 33 (Source: P.A. 91-278, eff. 7-23-99.) SB865 Enrolled -15- LRB9201059JSpcA 1 (215 ILCS 5/179A-35) 2 Sec. 179A-35. No transaction of an insurance business. 3 A protected cell insurance securitization shall notNo4insurance securitization effected under the provisions of5this Article shallbe deemed to be an insurance or 6 reinsurance contract. Anpolicy or contract of insurance and7noinvestor in a protected cell company insurance 8 securitizationtransactionshall not, by sole means of such 9 investment, be deemed to be transacting an insurance business 10 in this State. The underwriters or selling agents (and their 11 partners, directors, officers, members, managers, employees, 12 agents, representatives, and advisors) involved in a 13 protected cell company insurance securitization shall not be 14 deemed to be conducting an insurance or reinsurance agency, 15 brokerage, intermediary, advisory, or consulting business by 16 virtue of their activities in connection therewithrequired17to be licensed as an insurance company in the State of18Illinois. 19 (Source: P.A. 91-278, eff. 7-23-99.) 20 Section 99. Effective date. This Act takes effect upon 21 becoming law.