Public Act 90-0418 of the 90th General Assembly
Public Act 90-0418
SB801 Enrolled LRB9002421JSmg
AN ACT concerning investment practices of insurance
companies.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Insurance Code is amended by
adding Sections 126.1, 126.2, 126.3, 126.4, 126.5, 126.6,
126.7, 126.8, 126.9, 126.10, 126.11, 126.12, 126.13, 126.14,
126.15, 126.16, 126.17, 126.18, 126.19, 126.20, 126.21,
126.22, 126.23, 126.24, 126.25, 126.26, 126.27, 126.28,
126.29, 126.30, 126.31, and 126.32 and headings for Parts 1,
2, and 3 of Article VIII as follows:
(215 ILCS 5/Art. VIII, Part 1, heading new)
1. GENERAL PROVISIONS
(215 ILCS 5/126.1 new)
Sec. 126.1. Purpose and scope.
A. Purpose. The purpose of this Article is to protect
the interests of insureds by promoting insurer solvency and
financial strength. This will be accomplished through the
application of investment standards that facilitate a
reasonable balance of the following objectives:
(1) To preserve principal;
(2) To assure reasonable diversification as to type of
investment, issuer and credit quality; and
(3) To allow insurers to allocate investments in a
manner consistent with principles of prudent investment
management to achieve an adequate return so that obligations
to insureds are adequately met and financial strength is
sufficient to cover reasonably foreseeable contingencies.
B. Scope. This Article shall apply only to investments
and investment practices of domestic insurers and United
States branches of alien insurers entered through this State.
This Article shall not apply to separate accounts of an
insurer except to the extent that the provisions of Article
XIV 1/2 so provide.
(215 ILCS 5/126.2 new)
Sec. 126.2. Definitions. For purposes of this Article:
A. "Acceptable collateral" means:
(1) As to securities lending transactions, and for the
purpose of calculating counterparty exposure amount, cash,
cash equivalents, letters of credit, direct obligations of,
or securities that are fully guaranteed as to principal and
interest by, the government of the United States or any
agency of the United States, or by the Federal National
Mortgage Association or the Federal Home Loan Mortgage
Corporation, and as to lending foreign securities, sovereign
debt rated 1 by the SVO;
(2) As to repurchase transactions, cash, cash
equivalents and direct obligations of, or securities that are
fully guaranteed as to principal and interest by, the
government of the United States or an agency of the United
States, or by the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation; and
(3) As to reverse repurchase transactions, cash and cash
equivalents.
B. "Acceptable private mortgage insurance" means
insurance written by a private insurer protecting a mortgage
lender against loss occasioned by a mortgage loan default and
issued by a licensed mortgage insurance company, with an SVO
1 designation or a rating issued by a nationally recognized
statistical rating organization equivalent to an SVO 1
designation, that covers losses to an 80% loan-to-value
ratio.
C. "Accident and health insurance" means protection
which provides payment of benefits for covered sickness or
accidental injury, excluding credit insurance, disability
insurance, accidental death and dismemberment insurance and
long-term care insurance.
D. "Accident and health insurer" means a licensed life
or health insurer or health service corporation whose
insurance premiums and required statutory reserves for
accident and health insurance constitute at least 95% of
total premium considerations or total statutory required
reserves, respectively.
E. "Admitted assets" means assets defined by Section 3.1
of this Code permitted to be reported as admitted assets on
the statutory financial statement of the insurer most
recently required to be filed with the Director, but
excluding assets of separate accounts, the investments of
which are not subject to the provisions of this Article
except to the extent that the provisions of Article XIV 1/2
so provide.
F. "Affiliate" means, as to any person, another person
that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under
common control with the person.
G. "Asset-backed security" means a security or other
instrument, excluding shares in a mutual fund, evidencing an
interest in, or the right to receive payments from, or
payable from distributions on, an asset, a pool of assets or
specifically divisible cash flows which are legally
transferred to a trust or another special purpose
bankruptcy-remote business entity, on the following
conditions:
(1) The trust or other business entity is established
solely for the purpose of acquiring specific types of assets
or rights to cash flows, issuing securities and other
instruments representing an interest in or right to receive
cash flows from those assets or rights, and engaging in
activities required to service the assets or rights and any
credit enhancement or support features held by the trust or
other business entity; and
(2) The assets of the trust or other business entity
consist solely of interest bearing obligations or other
contractual obligations representing the right to receive
payment from the cash flows from the assets or rights.
However, the existence of credit enhancements, such as
letters of credit or guarantees, or support features such as
swap agreements, shall not cause a security or other
instrument to be ineligible as an asset-backed security.
H. "Business entity" includes a sole proprietorship,
corporation, limited liability company, association,
partnership, joint stock company, joint venture, mutual fund,
trust, joint tenancy or other similar form of business
organization, whether organized for profit or not for profit.
I. "Cap" means an agreement obligating the seller to
make payments to the buyer, with each payment based on the
amount by which a reference price or level or the performance
or value of one or more underlying interests exceeds a
predetermined number, sometimes called the strike rate or
strike price.
J. "Capital and surplus" means the sum of the capital
and surplus of the insurer required to be shown on the
statutory financial statement of the insurer most recently
required to be filed with the Director.
K. "Cash equivalents" means short-term, highly rated and
highly liquid investments or securities readily convertible
to known amounts of cash without penalty and so near maturity
that they present insignificant risk of change in value. Cash
equivalents include government money market mutual funds and
class one money market mutual funds. For purposes of this
definition:
(1) "Short-term" means investments with a remaining term
to maturity of 90 days or less; and
(2) "Highly rated" means an investment rated "P-1" by
Moody's Investors Service, Inc., or "A-1" by Standard and
Poor's division of The McGraw Hill Companies, Inc. or its
equivalent rating by a nationally recognized statistical
rating organization recognized by the SVO.
L. "Class one bond mutual fund" means a mutual fund that
at all times qualifies for investment using the bond class
one reserve factor under the Purposes and Procedures of the
Securities Valuation Office or any successor publication.
M. "Class one money market mutual fund" means a money
market mutual fund that at all times qualifies for investment
using the bond class one reserve factor under the Purposes
and Procedures of the Securities Valuation Office or any
successor publication.
N. "Code" means the Illinois Insurance Code.
O. "Collar" means an agreement to receive payments as
the buyer of an option, cap or floor and to make payments as
the seller of a different option, cap or floor.
P. "Commercial mortgage loan" means a mortgage loan,
other than a residential mortgage loan.
Q. "Construction loan" means a loan of less than 3 years
in term, made for financing the cost of construction of a
building or other improvement to real estate, that is secured
by the real estate.
R. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting securities, by contract (other than a
commercial contract for goods or nonmanagement services), or
otherwise, unless the power is the result of an official
position with or corporate office held by the person. Control
shall be presumed to exist if a person, directly or
indirectly, owns, controls, holds with the power to vote or
holds proxies representing 10% or more of the voting
securities of another person. This presumption may be
rebutted by a showing that control does not exist in fact.
The Director may determine, after furnishing all interested
persons notice and an opportunity to be heard and making
specific findings of fact to support the determination, that
control exists in fact, notwithstanding the absence of a
presumption to that effect.
S. "Counterparty exposure amount" means:
(1) The amount of credit risk attributable to a
derivative instrument entered into with a business entity
other than through a qualified exchange, qualified foreign
exchange, or cleared through a qualified clearinghouse
("over-the-counter derivative instrument"). The amount of
credit risk equals:
(a) The market value of the over-the-counter derivative
instrument if the liquidation of the derivative instrument
would result in a final cash payment to the insurer; or
(b) Zero if the liquidation of the derivative instrument
would not result in a final cash payment to the insurer.
(2) If over-the-counter derivative instruments are
entered into under a written master agreement which provides
for netting of payments owed by the respective parties, and
the domicile of the counterparty is either within the United
States or if not within the United States, within a foreign
jurisdiction listed in the Purposes and Procedures of the
Securities Valuation Office as eligible for netting, the net
amount of credit risk shall be the greater of zero or the net
sum of:
(a) The market value of the over-the-counter derivative
instruments entered into under the agreement, the liquidation
of which would result in a final cash payment to the insurer;
and
(b) The market value of the over-the-counter derivative
instruments entered into under the agreement, the liquidation
of which would result in a final cash payment by the insurer
to the business entity.
(3) For open transactions, market value shall be
determined at the end of the most recent quarter of the
insurer's fiscal year and shall be reduced by the market
value of acceptable collateral held by the insurer or placed
in escrow by one or both parties.
T. "Covered" means that an insurer owns or can
immediately acquire, through the exercise of options,
warrants or conversion rights already owned, the underlying
interest in order to fulfill or secure its obligations under
a call option, cap or floor it has written, or has set aside,
pursuant to a custodial or escrow agreement, cash or cash
equivalents with a market value equal to the amount required
to fulfill its obligations under a put option it has written,
in an income generation transaction.
U. "Credit tenant loan" means a mortgage loan which is
made primarily in reliance on the credit standing of a major
tenant, structured with an assignment of the rental payments
to the lender with real estate pledged as collateral in the
form of a first lien.
V. (1) "Derivative instrument" means an agreement,
option, instrument or a series or combination thereof:
(a) To make or take delivery of, or assume or
relinquish, a specified amount of one or more underlying
interests, or to make a cash settlement in lieu thereof; or
(b) That has a price, performance, value or cash flow
based primarily upon the actual or expected price, level,
performance, value or cash flow of one or more underlying
interests.
(2) Derivative instruments include options, warrants
used in a hedging transaction and not attached to another
financial instrument, caps, floors, collars, swaps, forwards,
futures and any other agreements, options or instruments
substantially similar thereto or any series or combination
thereof and any agreements, options or instruments permitted
under rules adopted under Section 126.8. Derivative
instruments shall not include an investment authorized by
Sections 126.11 through 126.17, 126.19 and 126.24 through
126.30.
W. "Derivative transaction" means a transaction
involving the use of one or more derivative instruments.
X. "Direct" or "directly," when used in connection with
an obligation, means the designated obligor is primarily
liable on the instrument representing the obligation.
Y. "Dollar roll transaction" means 2 simultaneous
transactions with settlement dates no more than 96 days
apart, so that in one transaction an insurer sells to a
business entity, and in the other transaction the insurer is
obligated to purchase from the same business entity,
substantially similar securities of the following types:
(1) Asset-backed securities issued, assumed or
guaranteed by the Government National Mortgage Association,
the Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation or their respective successors; and
(2) Other asset-backed securities referred to in Section
106 of Title I of the Secondary Mortgage Market Enhancement
Act of 1984 (15 U.S.C. 77r1), as amended.
Z. "Domestic jurisdiction" means the United States,
Canada, any state, any province of Canada or any political
subdivision of any of the foregoing.
AA. "Equity interest" means any of the following that
are not rated credit instruments: common stock; preferred
stock; trust certificate; equity investment in an investment
company other than a money market mutual fund or a class one
bond mutual fund; investment in a common trust fund of a bank
regulated by a federal or state agency; an ownership interest
in minerals, oil or gas, the rights to which have been
separated from the underlying fee interest in the real estate
where the minerals, oil or gas are located; instruments which
are mandatorily, or at the option of the issuer, convertible
to equity; limited partnership interests and those general
partnership interests authorized under Section 126.5(D);
member interests in limited liability companies; warrants or
other rights to acquire equity interests that are created by
the person that owns or would issue the equity to be
acquired; or instruments that would be rated credit
instruments except for the provisions of subsection RRR(2) of
this Section.
BB. "Equivalent securities" means:
(1) In a securities lending transaction, securities that
are identical to the loaned securities in all features
including the amount of the loaned securities, except as to
certificate number if held in physical form, but if any
different security shall be exchanged for a loaned security
by recapitalization, merger, consolidation or other corporate
action, the different security shall be deemed to be the
loaned security;
(2) In a repurchase transaction, securities that are
identical to the purchased securities in all features
including the amount of the purchased securities, except as
to the certificate number if held in physical form; or
(3) In a reverse repurchase transaction, securities that
are identical to the sold securities in all features
including the amount of the sold securities, except as to the
certificate number if held in physical form.
CC. "Floor" means an agreement obligating the seller to
make payments to the buyer in which each payment is based on
the amount by which a predetermined number, sometimes called
the floor rate or price, exceeds a reference price, a level,
or the performance or value of one or more underlying
interests.
DD. "Foreign currency" means a currency other than that
of a domestic jurisdiction.
EE. (1) "Foreign investment" means an investment in a
foreign jurisdiction, or an investment in a person, real
estate or asset domiciled in a foreign jurisdiction, that is
substantially of the same type as those eligible for
investment under this Article, other than under Sections
126.17 and 126.30. An investment shall not be deemed to be
foreign if the issuing person, qualified primary credit
source or qualified guarantor is a domestic jurisdiction or a
person domiciled in a domestic jurisdiction, unless:
(a) The issuing person is a shell business entity; and
(b) The investment is not assumed, accepted, guaranteed,
or insured or otherwise backed by a domestic jurisdiction or
a person, that is not a shell business entity, domiciled in a
domestic jurisdiction.
(2) For purposes of this definition:
(a) "Shell business entity" means a business entity
having no economic substance, except as a vehicle for owning
interests in assets issued, owned or previously owned by a
person domiciled in a foreign jurisdiction;
(b) "Qualified guarantor" means a guarantor against
which an insurer has a direct claim for full and timely
payment, evidenced by a contractual right for which an
enforcement action can be brought in a domestic jurisdiction;
and
(c) "Qualified primary credit source" means the credit
source to which an insurer looks for payment as to an
investment and against which an insurer has a direct claim
for full and timely payment, evidenced by a contractual right
for which an enforcement action can be brought in a domestic
jurisdiction.
FF. "Foreign jurisdiction" means a jurisdiction other
than a domestic jurisdiction.
GG. "Forward" means an agreement (other than a future)
to make or take delivery of, or effect a cash settlement
based on the actual or expected price, level, performance or
value of, one or more underlying interests.
HH. "Future" means an agreement, traded on a qualified
exchange or qualified foreign exchange, to make or take
delivery of, or effect a cash settlement based on the actual
or expected price, level, performance or value of, one or
more underlying interests and includes an insurance future.
II. "Government money market mutual fund" means a money
market mutual fund that at all times:
(1) Invests only in obligations issued, guaranteed, or
insured by the federal government of the United States or
collateralized repurchase agreements composed of these
obligations; and
(2) Qualifies for investment without a reserve under the
Purposes and Procedures of the Securities Valuation Office or
any successor publication.
JJ. "Government sponsored enterprise" means a:
(1) Governmental agency; or
(2) Corporation, limited liability company, association,
partnership, joint stock company, joint venture, trust or
other entity or instrumentality organized under the laws of
any domestic jurisdiction to accomplish a public policy or
other governmental purpose.
KK. "Guaranteed or insured," when used in connection
with an obligation acquired under this Article, means the
guarantor or insurer has agreed to:
(1) Perform or insure the obligation of the obligor or
purchase the obligation; or
(2) Be unconditionally obligated until the obligation is
repaid to maintain in the obligor a minimum net worth, fixed
charge coverage, stockholders' equity or sufficient liquidity
to enable the obligor to pay the obligation in full.
LL. "Hedging transaction" means:
(1) A derivative transaction that is entered into and
maintained to reduce:
(a) the risk of a change in the value, yield,
price, cash flow, or quantity of assets or liabilities
that the insurer has acquired or incurred or anticipates
acquiring or incurring; or
(b) the currency exchange rate risk or the degree
of exposure as to assets or liabilities that the insurer
has acquired or incurred or anticipates acquiring or
incurring; or
(2) Such other derivative transactions as may be
specified to constitute hedging transactions in rules adopted
pursuant to Section 126.8.
MM. "High grade investment" means a rated credit
instrument; rated 1, 2, P1, P2, PSF1 or PSF2 by the SVO.
NN. "Income" means, as to a security, interest, accrual
of discount, dividends or other distributions, such as
rights, tax or assessment credits, warrants and distributions
in kind.
OO. "Income generation transaction" means (1) a
derivative transaction involving the writing of covered call
options, covered put options, covered caps or covered floors
that is intended to generate income or enhance return, or (2)
such other derivative transactions as may be specified to
constitute income generation transactions in rules adopted
pursuant to Section 126.8.
PP. "Initial margin" means the amount of cash,
securities or other consideration initially required to be
deposited to establish a futures position.
QQ. "Insurance future" means a future relating to an
index or pool that is based on insurance-related items.
RR. "Insurance futures option" means an option on an
insurance future.
SS. "Investment company" means an investment company as
defined in Section 3(a) of the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.), as amended, and a person
described in Section 3(c) of that Act.
TT. "Investment company series" means an investment
portfolio of an investment company that is organized as a
series company and to which assets of the investment company
have been specifically allocated.
UU. "Investment practices" means transactions of the
types described in Section 126.16, 126.18, 126.29 or 126.31.
VV. "Investment subsidiary" means a subsidiary of an
insurer engaged or organized to engage exclusively in the
ownership and management of assets authorized as investments
for the insurer if such subsidiary agrees to limit its
investment in any asset so that its investments will not
cause the amount of the total investment of the insurer to
exceed any of the investment limitations or avoid any other
provisions of this Article applicable to the insurer. As used
in this subsection, the total investment of the insurer shall
include:
(1) Direct investment by the insurer in an asset; and
(2) The insurer's proportionate share of an investment
in an asset by an investment subsidiary of the insurer, which
shall be calculated by multiplying the amount of the
subsidiary's investment by the percentage of the insurer's
ownership interest in the subsidiary.
WW. "Investment strategy" means the techniques and
methods used by an insurer to meet its investment objectives,
such as active bond portfolio management, passive bond
portfolio management, interest rate anticipation, growth
investing and value investing.
XX. "Letter of credit" means a clean, irrevocable and
unconditional letter of credit issued or confirmed by, and
payable and presentable at, a financial institution on the
list of financial institutions meeting the standards for
issuing letters of credit under the Purposes and Procedures
of the Securities Valuation Office or any successor
publication. To constitute acceptable collateral for the
purposes of Sections 126.16 and 126.29, a letter of credit
must have an expiration date beyond the term of the subject
transaction.
YY. "Limited liability company" means a business
organization, excluding partnerships and ordinary business
corporations, organized or operating under the laws of the
United States or any state thereof that limits the personal
liability of investors to the equity investment of the
investor in the business entity.
ZZ. "Lower grade investment" means a rated credit
instrument rated 4, 5, 6, P4, P5, P6, PSF4, PSF5, or PSF6 by
the SVO.
AAA. "Market value" means:
(1) As to cash and letters of credit, the amounts
thereof; and
(2) As to a security as of any date, the price for the
security on that date obtained from a generally recognized
source or the most recent quotation from such a source or, to
the extent no generally recognized source exists, the price
for the security as determined in good faith by the insurer,
plus accrued but unpaid income thereon to the extent not
included in the price as of that date.
BBB. "Medium grade investment" means a rated credit
instrument rated 3, P3, or PSF 3 by the SVO.
CCC. "Money market mutual fund" means a mutual fund that
meets the conditions of 17 Code of Federal Regulations Par.
270.2a-7, under the Investment Company Act of 1940 (15 U.S.C.
80a-1 et seq.), as amended or renumbered.
DDD. "Mortgage loan" means an obligation secured by a
mortgage, deed of trust, trust deed or other consensual lien
on real estate.
EEE. "Multilateral development bank" means an
international development organization of which the United
States is a member.
FFF. "Mutual fund" means an investment company or, in
the case of an investment company that is organized as a
series company, an investment company series, that, in either
case, is registered with the United States Securities and
Exchange Commission under the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.), as amended.
GGG. "NAIC" means the National Association of Insurance
Commissioners.
HHH. "Obligation" means a bond, note, debenture, trust
certificate including an equipment trust certificate,
production payment, negotiable bank certificate of deposit,
bankers' acceptance, credit tenant loan, loan secured by
financing net leases and other evidence of indebtedness for
the payment of money (or participations, certificates or
other evidences of an interest in any of the foregoing),
whether constituting a general obligation of the issuer or
payable only out of certain revenues or certain funds pledged
or otherwise dedicated for payment.
III. "Option" means an agreement giving the buyer the
right to buy or receive (a "call option"), sell or deliver (a
"put option"), enter into, extend or terminate or effect a
cash settlement based on the actual or expected price, level,
performance or value of one or more underlying interests and
includes an insurance futures option.
JJJ. "Person" means an individual, a business entity, a
multilateral development bank or a government or quasi
governmental body, such as a political subdivision or a
government sponsored enterprise.
KKK. "Potential exposure" means the amount determined in
accordance with the NAIC Annual Statement Instructions.
LLL. "Preferred stock" means preferred, preference or
guaranteed stock of a business entity authorized to issue the
stock, that has a preference in liquidation over the common
stock of the business entity.
MMM. "Qualified bank" means:
(1) A national bank, state bank or trust company that at
all times is no less than adequately capitalized as
determined by standards adopted by United States banking
regulators and that either is regulated by state banking laws
or is a member of the Federal Reserve System; or
(2) A bank or trust company incorporated or organized
under the laws of a country other than the United States that
is regulated as a bank or trust company by that country's
government or an agency thereof and that at all times is no
less than adequately capitalized as determined by the
standards adopted by international banking authorities.
NNN. "Qualified business entity" means a business entity
that is:
(1) An issuer of obligations or preferred stock that are
rated 1 or 2 by the SVO or an issuer of obligations,
preferred stock or derivative instruments that are rated the
equivalent of 1 or 2 by the SVO or by a nationally recognized
statistical rating organization recognized by the SVO; or
(2) A primary dealer in United States government
securities, recognized by the Federal Reserve Bank of New
York.
OOO. "Qualified clearinghouse" means a clearinghouse
for, and subject to the rules of, a qualified exchange or a
qualified foreign exchange, which provides clearing services,
including acting as a counterparty to each of the parties to
a transaction such that the parties no longer have credit
risk as to each other.
PPP. "Qualified exchange" means:
(1) A securities exchange registered as a national
securities exchange, or a securities market regulated under
the Securities Exchange Act of 1934 (15 U.S.C. 78 et seq.),
as amended;
(2) A board of trade or commodities exchange designated
as a contract market by the Commodity Futures Trading
Commission or any successor thereof;
(3) Private Offerings, Resales and Trading through
Automated Linkages (PORTAL);
(4) A designated offshore securities market as defined
in Securities Exchange Commission Regulation S, 17 C.F.R.
Part 230, as amended; or
(5) A qualified foreign exchange.
QQQ. "Qualified foreign exchange" means a foreign
exchange, board of trade or contract market located outside
the United States, its territories or possessions:
(1) That has received regulatory comparability relief
under Commodity Futures Trading Commission (CFTC) Rule 30.10
(as set forth in Appendix C to Part 30 of the CFTC's
Regulations, 17 C.F.R. Part 30);
(2) That is, or its members are, subject to the
jurisdiction of a foreign futures authority that has received
regulatory comparability relief under CFTC Rule 30.10 (as set
forth in Appendix C to Part 30 of the CFTC's Regulations, 17
C.F.R. Part 30) as to futures transactions in the
jurisdiction where the exchange, board of trade or contract
market is located; or
(3) Upon which foreign stock index futures contracts are
listed that are the subject of no-action relief issued by the
CFTC's Office of General Counsel, provided that an exchange,
board of trade or contract market that qualifies as a
"qualified foreign exchange" only under this subsection shall
only be a "qualified foreign exchange" as to foreign stock
index futures contracts that are the subject of no-action
relief.
RRR. (1) "Rated credit instrument" means an obligation
or other instrument which gives its holder a contractual
right to receive cash or another rated credit instrument from
another entity, if the instrument:
(a) Is rated or required to be rated by the SVO;
(b) In the case of an instrument with a maturity of 397
days or less, is issued, guaranteed, or insured by an entity
that is rated by, or another instrument of such entity is
rated by, the SVO or by a nationally recognized statistical
rating organization recognized by the SVO;
(c) In the case of an instrument with a maturity of 90
days or less, the instrument has been issued, assumed,
accepted, guaranteed, or insured by a qualified bank;
(d) Is a share of a class one bond mutual fund; or
(e) Is a share of a money market mutual fund.
(2) However, "rated credit instrument" does not mean:
(a) An instrument that is mandatorily, or at the option
of the issuer, convertible to an equity interest; or
(b) A security that has a par value and whose terms
provide that the issuer's net obligation to repay all or part
of the security's par value is determined by reference to the
performance of an equity, a commodity, a foreign currency or
an index of equities, commodities, foreign currencies or
combinations thereof.
SSS. "Real estate" means:
(1) (a) Real property;
(b) Interests in real property, such as leaseholds,
minerals and oil and gas that have not been separated from
the underlying fee interest;
(c) Improvements and fixtures located on or in real
property; and
(d) The seller's equity in a contract providing for a
deed of real estate.
(2) As to a mortgage on a leasehold estate, real estate
shall include the leasehold estate only if it has an
unexpired term (including renewal options exercisable at the
option of the lessee) extending beyond the scheduled maturity
date of the obligation that is secured by a mortgage on the
leasehold estate by a period equal to at least 20% of the
original term of the obligation or 10 years, whichever is
greater.
TTT. "Replication transaction" means a derivative
transaction that is intended to replicate the performance of
one or more assets that an insurer is authorized to acquire
under this Article. A derivative transaction that is entered
into as a hedging transaction shall not be considered a
replication transaction.
UUU. "Repurchase transaction" means a transaction in
which an insurer purchases securities from a business entity
that is obligated to repurchase the purchased securities or
equivalent securities from the insurer at a specified price,
either within a specified period of time or upon demand.
VVV. "Required liabilities" means total liabilities
required to be reported on the statutory financial statement
of the insurer most recently required to be filed with the
Director.
WWW. "Residential mortgage loan" means a loan primarily
secured by a mortgage on real estate improved with a one to
four family residence.
XXX. "Reverse repurchase transaction" means a
transaction in which an insurer sells securities to a
business entity and is obligated to repurchase the sold
securities or equivalent securities from the business entity
at a specified price, either within a specified period of
time or upon demand.
YYY. "Secured location" means the contiguous real estate
owned by one person.
ZZZ. "Securities lending transaction" means a
transaction in which securities are loaned by an insurer to a
business entity that is obligated to return the loaned
securities or equivalent securities to the insurer, either
within a specified period of time or upon demand.
AAAA. "Series company" means an investment company that
is organized as a series company, as defined in Rule 18f-2(a)
adopted under the Investment Company Act of 1940 (15 U.S.C.
80a-1 et seq.), as amended.
BBBB. "Sinking fund stock" means preferred stock that:
(1) Is subject to a mandatory sinking fund or similar
arrangement that will provide for the redemption (or open
market purchase) of the entire issue over a period not longer
than 40 years from the date of acquisition; and
(2) Provides for mandatory sinking fund installments (or
open market purchases) commencing not more than 10.5 years
from the date of issue, with the sinking fund installments
providing for the purchase or redemption, on a cumulative
basis commencing 10 years from the date of issue, of at least
2.5% per year of the original number of shares of that issue
of preferred stock.
CCCC. "Special rated credit instrument" means a rated
credit instrument that is:
(1) An instrument that is structured so that, if it is
held until retired by or on behalf of the issuer, its rate of
return, based on its purchase cost and any cash flow stream
possible under the structure of the transaction, may become
negative due to reasons other than the credit risk associated
with the issuer of the instrument; however, a rated credit
instrument shall not be a special rated credit instrument
under this subsection if it is:
(a) A share in a class one bond mutual fund;
(b) An instrument, other than an asset-backed security,
with payments of par value fixed as to amount and timing, or
callable but in any event payable only at par or greater, and
interest or dividend cash flows that are based on either a
fixed or variable rate determined by reference to a specified
rate or index;
(c) An instrument, other than an asset-backed security,
that has a par value and is purchased at a price no greater
than 110% of par;
(d) An instrument, including an asset-backed security,
whose rate of return would become negative only as a result
of a prepayment due to casualty, condemnation or economic
obsolescence of collateral or change of law;
(e) An asset-backed security that relies on collateral
that meets the requirements of subparagraph (b) of this
paragraph, the par value of which collateral:
(i) Is not permitted to be paid sooner than one half of
the remaining term to maturity from the date of acquisition;
(ii) Is permitted to be paid prior to maturity only at a
premium sufficient to provide a yield to maturity for the
investment, considering the amount prepaid and reinvestment
rates at the time of early repayment, at least equal to the
yield to maturity of the initial investment; or
(iii) Is permitted to be paid prior to maturity at a
premium at least equal to the yield of a treasury issue of
comparable remaining life; or
(f) An asset-backed security that relies on cash flows
from assets that are not prepayable at any time at par, but
is not otherwise governed by subparagraph (e) of this
paragraph, if the asset-backed security has a par value
reflecting principal payments to be received if held until
retired by or on behalf of the issuer and is purchased at a
price no greater than 105% of such par amount.
(2) An asset-backed security that:
(a) Relies on cash flows from assets that are prepayable
at par at any time;
(b) Does not make payments of par that are fixed as to
amount and timing; and
(c) Has a negative rate of return at the time of
acquisition if a prepayment threshold assumption is used with
such prepayment threshold assumption defined as either:
(i) Two (2) times the prepayment expectation reported by
a recognized, publicly available source as being the median
of expectations contributed by broker dealers or other
entities, except insurers, engaged in the business of selling
or evaluating such securities or assets. The prepayment
expectation used in this calculation shall be, at the
insurer's election, the prepayment expectation for
pass-through securities of the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the
Government National Mortgage Association, or for other assets
of the same type as the assets that underlie the asset-
backed security, in either case with a gross weighted average
coupon comparable to the gross weighted average coupon of the
assets that underlie the asset-backed security; or
(ii) Another prepayment threshold assumption specified
by the Director by rule promulgated under Section 126.8.
(3) For purposes of subparagraph 2 of this subsection,
if the asset-backed security is purchased in combination with
one or more other asset-backed securities that are supported
by identical underlying collateral, the insurer may calculate
the rate of return for these specific combined asset-backed
securities in combination. The insurer must maintain
documentation demonstrating that such securities were
acquired and are continuing to be held in combination.
DDDD. "State" means a state, territory or possession of
the United States of America, the District of Columbia or the
Commonwealth of Puerto Rico.
EEEE. "Substantially similar securities" means
securities that meet all criteria for substantially similar
specified in the NAIC Accounting Practices and Procedures
Manual, as amended, and in an amount that constitutes good
delivery form as determined from time to time by the PSA The
Bond Market Trade Association.
FFFF. "Subsidiary" means, as to any person, an affiliate
controlled by such person, directly or indirectly through one
or more intermediaries.
GGGG. "SVO" means the Securities Valuation Office of the
NAIC or any successor office established by the NAIC.
HHHH. "Swap" means an agreement to exchange or to net
payments at one or more times based on the actual or expected
price, level, performance or value of one or more underlying
interests.
IIII. "Underlying interest" means the assets,
liabilities, other interests or a combination thereof
underlying a derivative instrument, such as any one or more
securities, currencies, rates, indices, commodities or
derivative instruments.
JJJJ. "Unrestricted surplus" means the amount by which
total admitted assets exceed 125% of the insurer's required
liabilities.
KKKK. "Warrant" means an instrument that gives the
holder the right to purchase an underlying financial
instrument at a given price and time or at a series of prices
and times outlined in the warrant agreement. Warrants may be
issued alone or in connection with the sale of other
securities, for example, as part of a merger or
recapitalization agreement, or to facilitate divestiture of
the securities of another business entity.
(215 ILCS 5/126.3 new)
Sec. 126.3. General investment qualifications.
A. Insurers may acquire, hold or invest in investments
or engage in investment practices as set forth in this
Article. Insurers may also acquire, hold or invest in
investments not conforming to the requirements of this
Article that are not otherwise prohibited by this Code.
Investments not conforming to this Article shall not be
admitted assets unless they are acquired under other
authority of this Code.
B. Subject to subsection C of this Section, an insurer
shall not acquire or hold an investment as an admitted asset
unless at the time of acquisition it is:
(1) Eligible for the payment or accrual of interest or
discount (whether in cash or other forms of income or
securities), eligible to receive dividends or other
distributions or is otherwise income producing; or
(2) Acquired under Section 126.15B, 126.15C, 126.16,
126.18, 126.20, 126.28C, 126.29, 126.31, or 126.32 or under
the authority of Sections of the Code other than this
Article.
C. An insurer may acquire or hold as admitted assets
investments that do not otherwise qualify as provided in this
Article if the insurer has not acquired them for the purpose
of circumventing any limitations contained in this Article,
if the insurer acquires the investments in the following
circumstances and the insurer complies with the provisions of
Sections 126.5 and 126.7 as to the investments:
(1) As payment on account of existing indebtedness or in
connection with the refinancing, restructuring or workout of
existing indebtedness, if taken to protect the insurer's
interest in that investment;
(2) As realization on collateral for indebtedness;
(3) In connection with an otherwise qualified investment
or investment practice, as interest on or a dividend or other
distribution related to the investment or investment practice
or in connection with the refinancing of the investment, in
each case for no additional or only nominal consideration;
(4) Under a lawful and bona fide agreement of
recapitalization or voluntary or involuntary reorganization
in connection with an investment held by the insurer; or
(5) Under a bulk reinsurance, merger or consolidation
transaction approved by the Director if the assets constitute
admissible investments for the ceding, merged or consolidated
companies.
D. An investment or portion of an investment acquired by
an insurer under subsection C of this Section shall become a
nonadmitted asset 3 years (or 5 years in the case of mortgage
loans and real estate) from the date of its acquisition,
unless within that period the investment has become a
qualified investment under a Section of this Article other
than subsection C of this Section, but an investment acquired
under an agreement of bulk reinsurance, merger or
consolidation may be qualified for a longer period if so
provided in the plan for reinsurance, merger or consolidation
as approved by the Director. Upon application by the insurer
and a showing that the nonadmission of an asset held under
subsection C of this Section would injure the interests of
the insurer, the Director may extend the period for
admissibility for an additional reasonable period of time.
E. Except as provided in subsections F and H of this
Section, an investment shall qualify under this Article if,
on the date the insurer committed to acquire the investment
or on the date of its acquisition, it would have qualified
under this Article. For the purposes of determining
limitations contained in this Article, an insurer shall give
appropriate recognition to any commitments to acquire
investments.
F. (1) An investment held as an admitted asset by an
insurer on the effective date of this amendatory Act of 1997
which qualified immediately prior to the effective date
of this amendatory Act of 1997 shall remain qualified as an
admitted asset under this Article.
(2) Each specific transaction constituting an investment
practice of the type described in this Article immediately
prior to the effective date of this amendatory Act of 1997
that was lawfully entered into by an insurer and was in
effect on the effective date of this amendatory Act of 1997
shall continue to be permitted under this Article until its
expiration or termination under its terms.
G. Unless otherwise specified, an investment limitation
computed on the basis of an insurer's admitted assets or
capital and surplus shall relate to the amount required to be
shown on the statutory balance sheet of the insurer most
recently required to be filed (annual or last quarter) with
the Director. Solely for purposes of computing any limitation
under this Article based upon admitted assets, the insurer
shall deduct from the amount of its admitted assets the
amount of the liability recorded on such statutory balance
sheet for:
(1) The return of acceptable collateral received in a
reverse repurchase transaction or a securities lending
transaction;
(2) Cash received in a dollar roll transaction; and
(3) The amount reported as borrowed money in such
statutory balance sheet to the extent not included in
paragraphs (1) and (2) of this subsection.
H. An investment qualified, in whole or in part, for
acquisition or holding as an admitted asset may be qualified
or requalified at the time of acquisition or a later date, in
whole or in part, under any other Section, if the relevant
conditions contained in the other Section are satisfied at
the time of qualification or requalification.
I. An insurer shall maintain documentation demonstrating
that investments were acquired in accordance with this
Article, and specifying the Section of this Article under
which they were acquired.
J. An insurer shall not enter into an agreement to
purchase securities in advance of their issuance for resale
to the public as part of a distribution of the securities by
the issuer or otherwise guarantee the distribution, except
that an insurer may acquire privately placed securities with
registration rights.
K. Notwithstanding the provisions of this Article, the
Director, for good cause, may order an insurer to nonadmit,
limit, dispose of, withdraw from or discontinue an investment
or investment practice in accordance with Article XXIV. The
authority of the Director under this subsection is in
addition to any other authority of the Director.
(215 ILCS 5/126.4 new)
Sec. 126.4. Authorization of investments by the board of
directors.
A. Within 3 months after the effective date of this
amendatory Act of 1997, an insurer's board of directors shall
adopt a written plan for acquiring and holding investments
and for engaging in investment practices that specifies
guidelines as to the quality, maturity and diversification of
investments and other specifications including investment
strategies intended to assure that the investments and
investment practices are appropriate for the business
conducted by the insurer, its liquidity needs and its capital
and surplus. The board shall review and assess the insurer's
technical investment and administrative capabilities and
expertise before adopting a written plan concerning an
investment strategy or investment practice.
B. Investments acquired and held under this Article
shall be acquired and held under the supervision and
direction of the board of directors of the insurer. The board
of directors shall evidence by formal resolution, at least
annually, that it has determined whether all investments have
been made in accordance with delegations, standards,
limitations and investment objectives prescribed by the board
or a committee of the board charged with the responsibility
to direct its investments.
C. On no less than a quarterly basis, and more often if
deemed appropriate, an insurer's board of directors or
committee of the board of directors shall:
(1) Receive and review a summary report on the insurer's
investment portfolio, its investment activities and
investment practices engaged in under delegated authority, in
order to determine whether the investment activity of the
insurer is consistent with its written plan; and
(2) Review and revise, as appropriate, the written plan.
D. In discharging its duties under this Section, the
board of directors shall require that records of any
authorizations or approvals, other documentation as the board
may require and reports of any action taken under authority
delegated under the plan referred to in subsection A of this
Section shall be made available on a regular basis to the
board of directors.
E. In discharging their duties under this Section, the
directors of an insurer shall perform their duties in good
faith and with that degree of care that ordinarily prudent
individuals in like positions would use under similar
circumstances.
F. If an insurer does not have a board of directors, all
references to the board of directors in this Article shall be
deemed to be references to the governing body of the insurer
having authority equivalent to that of a board of directors.
(215 ILCS 5/126.5 new)
Sec. 126.5. Prohibited investments. An insurer shall
not, directly or indirectly:
A. Invest in an obligation or security or make a
guarantee for the benefit of or in favor of an officer or
director of the insurer, except as provided in Section 126.6;
B. Invest in an obligation or security, make a guarantee
for the benefit of or in favor of, or make other investments
in a business entity of which 10% or more of the voting
securities or equity interests are owned directly or
indirectly by or for the benefit of one or more officers or
directors of the insurer, except pursuant to a transaction
entered into in compliance with Section 131.20a of this Code
or provided in Section 126.6;
C. Engage on its own behalf or through one or more
affiliates in a transaction or series of transactions
designed to evade the prohibitions of this Article;
D. (1) Invest in a partnership as a general partner,
except that an insurer may make an investment as a general
partner:
(a) If all other partners in the partnership are
subsidiaries of the insurer or other insurance company
affiliates of the insurer;
(b) For the purpose of:
(i) Meeting cash calls committed to prior to the
effective date of this amendatory Act of 1997;
(ii) Completing those specific projects or activities of
the partnership in which the insurer was a general partner as
of the effective date of this amendatory Act of 1997 that had
been undertaken as of that date; or
(iii) Making capital improvements to property owned by
the partnership on the effective date of this amendatory Act
of 1997 if the insurer was a general partner as of that date;
or
(c) In accordance with Section 126.3C;
(2) This subsection shall not prohibit a subsidiary or
other affiliate of the insurer from becoming a general
partner; or
E. Invest in or lend its funds upon the security of
shares of its own stock, except as authorized by other
provisions of this Code. However, no such shares shall be
admitted assets of the insurer.
(215 ILCS 5/126.6 new)
Sec. 126.6. Loans to officers and directors.
A. (1) Except as provided in Section 126.6B, an insurer
shall not directly or indirectly, unless it has notified the
Director in writing of its intention to enter into the
transaction at least 30 days prior thereto, or any shorter
period as the Director may permit, and the Director has not
disapproved it within that period:
(a) Make a loan to or other investment in an officer or
director of the insurer or a person in which the officer or
director has any direct or indirect financial interest;
(b) Make a guarantee for the benefit of or in favor of
an officer or director of the insurer or a person in which
the officer or director has any direct or indirect financial
interest; or
(c) Enter into an agreement for the purchase or sale of
property from or to an officer or director of the insurer or
a person in which the officer or director has any direct or
indirect financial interest.
(2) For purposes of this Section, an officer or director
shall not be deemed to have a financial interest by reason of
an interest that is held directly or indirectly through the
ownership of equity interests representing less than 2% of
all outstanding equity interests issued by a person that is a
party to the transaction, or solely by reason of that
individual's position as a director or officer of a person
that is a party to the transaction.
(3) This subsection does not permit an investment that
is prohibited by Section 126.5.
(4) This subsection does not apply to a transaction
between an insurer and any of its subsidiaries or affiliates
that is entered into in compliance with Section 131.20a of
this Code, other than a transaction between an insurer and
its officer or director.
B. An insurer may make, without the prior written
approval of the Director:
(1) Policy loans in accordance with the terms of the
policy or contract and Section 126.19;
(2) Advances to officers or directors for expenses
reasonably expected to be incurred in the ordinary course of
the insurer's business or guarantees associated with credit
or charge cards issued or credit extended for the purpose of
financing these expenses;
(3) Loans secured by the principal residence of an
existing or new officer of the insurer made in connection
with the officer's relocation at the insurer's request, if
the loans comply with the requirements of Section 126.15 or
126.28 and the terms and conditions otherwise are the same as
those generally available from unaffiliated third parties;
(4) Secured loans to an existing or new officer of the
insurer made in connection with the officer's relocation at
the insurer's request, if the loans:
(a) Do not have a term exceeding 2 years;
(b) Are required to finance mortgage loans outstanding
at the same time on the prior and new residences of the
officer;
(c) Do not exceed an amount equal to the equity of the
officer in the prior residence; and
(d) Are required to be fully repaid upon the earlier of
the end of the 2 year period or the sale of the prior
residence; and
(5) Loans and advances to officers or directors made in
compliance with state or federal law specifically related to
the loans and advances by a regulated non-insurance
subsidiary or affiliate of the insurer in the ordinary course
of business and on terms no more favorable than available to
other customers of the entity.
(215 ILCS 5/126.7 new)
Sec. 126.7. Valuation of investments. For the purposes
of this Article, the value or amount of an investment
acquired or held, or an investment practice engaged in, under
this Article, unless otherwise specified in this Code, shall
be the value at which assets of an insurer are required to be
reported for statutory accounting purposes as determined in
accordance with procedures prescribed in published accounting
and valuation standards of the NAIC, including the Purposes
and Procedures of the Securities Valuation Office, the
Valuation of Securities manual, the Accounting Practices and
Procedures manual, the Annual Statement Instructions or any
successor valuation procedures officially adopted by the
NAIC. The Director shall promulgate rules for determining
and calculating values to be used in financial statements
submitted to the Department for investments not subject to
published National Association of Insurance Commissioners
valuation standards.
(215 ILCS 5/126.8 new)
Sec. 126.8. Rules. The Director may, in accordance with
Section 401 of this Code, promulgate rules implementing the
provisions of this Article.
(215 ILCS 5/Art. VIII, Part 2 heading new)
2. LIFE AND HEALTH INSURERS
(215 ILCS 5/126.9 new)
Sec. 126.9. Applicability. This Part shall apply to the
investments and investment practices of companies authorized
to transact business under Class 1 of Section 4 of this Code
and other companies whose investments and investment
practices are regulated as life insurers under this Code,
subject to the provisions of Section 126.1B.
(215 ILCS 5/126.10 new)
Sec. 126.10. General 3% diversification, medium and
lower grade investments, and Canadian investments.
A. General 3% diversification.
(1) Except as otherwise specified in this Article, an
insurer shall not acquire, directly or indirectly through an
investment subsidiary, an investment under this Article if,
as a result of and after giving effect to the investment, the
insurer would hold more than 3% of its admitted assets in
investments of all kinds issued, assumed, accepted,
guaranteed, or insured by a single person.
(2) This 3% limitation shall not apply to the aggregate
amounts insured by a single financial guaranty insurer with
the highest generic rating issued by a nationally recognized
statistical rating organization.
(3) Asset-backed securities shall not be subject to the
limitations of paragraph (1) of this subsection, however,
except as permitted by subsection A(4) of this Section, an
insurer shall not acquire an asset-backed security if, as a
result of and after giving effect to the investment, the
aggregate amount of asset-backed securities secured by or
evidencing an interest in a single asset or single pool of
assets held by a trust or other business entity, then held by
the insurer would exceed 3% of its admitted assets.
(4) A company's investments in mortgage related
securities, as defined by the Secondary Mortgage Market
Enhancement Act of 1984 (United States Public Law 98-440) [12
U.S.C. 24, 1451, 1454 et seq.], that are backed by any single
pool of mortgages and made pursuant to the authority of that
Act, shall not exceed 5% of its admitted assets.
B. Medium and lower grade investments.
(1) An insurer shall not acquire, directly or indirectly
through an investment subsidiary, an investment under
Sections 126.11, 126.14, and 126.17 or counterparty exposure
under Section 126.18D if, as a result of and after giving
effect to the investment:
(a) The aggregate amount of medium and lower grade
investments then held by the insurer would exceed 20% of its
admitted assets;
(b) The aggregate amount of lower grade investments then
held by the insurer would exceed 10% of its admitted assets;
(c) The aggregate amount of investments rated 5 or 6 by
the SVO then held by the insurer would exceed 3% of its
admitted assets;
(d) The aggregate amount of investments rated 6 by the
SVO then held by the insurer would exceed 1% of its admitted
assets; or
(e) The aggregate amount of lower grade investments then
held by the insurer that receive as cash income less than the
equivalent yield for Treasury issues with a comparative
average life, would exceed 1% of its admitted assets.
(2) An insurer shall not acquire, directly or indirectly
through an investment subsidiary, an investment under
Sections 126.11, 126.14, and 126.17 or counterparty exposure
under Section 126.18D if, as a result of and after giving
effect to the investment:
(a) The aggregate amount of medium and lower grade
investments issued, assumed, accepted, guaranteed, or insured
by any one person or, as to asset-backed securities secured
by or evidencing an interest in a single asset or pool of
assets, then held by the insurer would exceed 1% of its
admitted assets; or
(b) The aggregate amount of lower grade investments
issued, assumed, accepted, guaranteed, or insured by any one
person or, as to asset-backed securities secured by or
evidencing an interest in a single asset or pool of assets,
then held by the insurer would exceed 0.5% of its admitted
assets.
(3) If an insurer attains or exceeds the limit of any
one rating category referred to in this subsection, the
insurer shall not thereby be precluded from acquiring
investments in other rating categories subject to the
specific and multi-category limits applicable to those
investments.
C. Canadian investments.
(1) An insurer shall not acquire, directly or indirectly
through an investment subsidiary, a Canadian investment
authorized by this Article, if as a result of and after
giving effect to the investment, the aggregate amount of
these investments then held by the insurer would exceed 40%
of its admitted assets, or if the aggregate amount of
Canadian investments not acquired under Section 126.11B then
held by the insurer would exceed 25% of its admitted assets.
(2) However, as to an insurer that is authorized to do
business in Canada or that has outstanding insurance, annuity
or reinsurance contracts on lives or risks resident or
located in Canada and denominated in Canadian currency, the
limitations of paragraph (1) of this subsection shall be
increased by the greater of:
(a) The amount the insurer is required by Canadian law
to invest in Canada or to be denominated in Canadian
currency; or
(b) 115% of the amount of its reserves and other
obligations under contracts on lives or risks resident or
located in Canada.
(215 ILCS 5/126.11 new)
Sec. 126.11. Rated credit instruments. Subject to the
limitations of subsection F of this Section, an insurer may
acquire rated credit instruments:
A. Subject to the limitations of Section 126.10B, but
not to the limitations of Section 126.10A, except for that of
subsection (4) of Section 126.10A, an insurer may acquire
rated credit instruments issued, assumed, guaranteed, or
insured by:
(1) The United States; or
(2) A government sponsored enterprise of the United
States, if the instruments of the government sponsored
enterprise are assumed, guaranteed, or insured by the United
States or are otherwise backed or supported by the full faith
and credit of the United States.
B. (1) Subject to the limitations of Section 126.10B,
but not to the limitations of Section 126.10A, an insurer may
acquire rated credit instruments issued, assumed, guaranteed,
or insured by:
(a) Canada; or
(b) A government sponsored enterprise of Canada, if the
instruments of the government sponsored enterprise are
assumed, guaranteed, or insured by Canada or are otherwise
backed or supported by the full faith and credit of Canada;
(2) However, an insurer shall not acquire an instrument
under this subsection if, as a result of and after giving
effect to the investment, the aggregate amount of investments
then held by the insurer under this subsection would exceed
40% of its admitted assets.
C. (1) Subject to the limitations of Section 126.10B,
but not to the limitations of Section 126.10A, an insurer may
acquire rated credit instruments, excluding asset-backed
securities:
(a) Issued by a government money market mutual fund, a
class one money market mutual fund or a class one bond mutual
fund;
(b) Issued, assumed, guaranteed, or insured by a
government sponsored enterprise of the United States other
than those eligible under subsection A of this Section;
(c) Issued, assumed, guaranteed, or insured by a state,
if the instruments are general obligations of the state; or
(d) Issued by a multilateral development bank;
(2) However, an insurer shall not acquire an instrument
of any one fund, any one enterprise or entity or any one
state under this subsection if, as a result of and after
giving effect to the investment, the aggregate amount of
investments then held by the insurer in any one fund,
enterprise, entity, or state under this subsection would
exceed 10% of its admitted assets.
D. Subject to the limitations of Section 126.10, an
insurer may acquire preferred stocks that are not foreign
investments and that meet the requirements of rated credit
instruments if, as a result of and after giving effect to the
investment:
(1) The aggregate amount of preferred stocks then held
by the insurer under this subsection does not exceed 33 1/3%
of its admitted assets; and
(2) The aggregate amount of preferred stocks then held
by the insurer under this subsection which are not sinking
fund stocks or rated P1 or P2 by the SVO does not exceed 15%
of its admitted assets.
E. Subject to the limitations of Section 126.10, in
addition to those investments eligible under subsections A,
B, C and D of this Section, an insurer may acquire rated
credit instruments that are not foreign investments.
F. An insurer shall not acquire special rated credit
instruments under this Section if, as a result of and after
giving effect to the investment, the aggregate amount of
special rated credit instruments then held by the insurer
would exceed 5% of its admitted assets. The Director may, by
rule, identify certain special rated credit instruments that
will be exempt from the limitation imposed by this
subsection.
(215 ILCS 5/126.12 new)
Sec. 126.12. Insurer investment pools.
A. An insurer may acquire investments in investment
pools that:
(1) Invest only in:
(a) Obligations that are rated 1 or 2 by the SVO or have
an equivalent of an SVO 1 or 2 rating (or, in the absence of
a 1 or 2 rating or equivalent rating, the issuer has
outstanding obligations with an SVO 1 or 2 or equivalent
rating) by a nationally recognized statistical rating
organization recognized by the SVO and have:
(i) A remaining maturity of 397 days or less or a put
that entitles the holder to receive the principal amount of
the obligation which put may be exercised through maturity at
specified intervals not exceeding 397 days; or
(ii) A remaining maturity of 3 years or less and a
floating interest rate that resets no less frequently than
quarterly on the basis of a current short-term index (federal
funds, prime rate, treasury bills, London InterBank Offered
Rate (LIBOR) or commercial paper) and is subject to no
maximum limit, if the obligations do not have an interest
rate that varies inversely to market interest rate changes;
(b) Government money market mutual funds or class one
money market mutual funds; or
(c) Securities lending, repurchase, and reverse
repurchase transactions that meet all the requirements of
Section 126.16, except the quantitative limitations of
Section 126.16D; or
(2) Invest only in investments which an insurer may
acquire under this Article, if the insurer's proportionate
interest in the amount invested in these investments when
combined with amount of such investments made directly or
indirectly through an investment subsidiary or other insurer
investment pool permitted under this subsection A(2) does not
exceed the applicable limits of this Article for such
investments.
B. For an investment in an investment pool to be
qualified under this Article, the investment pool shall not:
(1) Acquire securities issued, assumed, guaranteed or
insured by the insurer or an affiliate of the insurer;
(2) Borrow or incur any indebtedness for borrowed money,
except for securities lending and reverse repurchase
transactions that meet the requirements of Section 126.16
except the quantitative limitations of Section 126.16D; or
(3) Acquire an investment if, as a result of such
transaction, the aggregate value of securities then loaned or
sold to, purchased from or invested in any one business
entity under this Section would exceed 10% of the total
assets of the investment pool.
C. The limitations of Section 126.10A shall not apply to
an insurer's investment in an investment pool, however an
insurer shall not acquire an investment in an investment pool
under this Section if, as a result of and after giving effect
to the investment, the aggregate amount of investments then
held by the insurer under this Section:
(1) In all investment pools investing in investments
permitted under subsection A(2) of this Section would exceed
25% of its admitted assets; or
(2) In all investment pools would exceed 35% of its
admitted assets.
D. For an investment in an investment pool to be
qualified under this Article, the manager of the investment
pool shall:
(1) Be organized under the laws of the United States or
a state and designated as the pool manager in a pooling
agreement;
(2) Be the insurer, an affiliated insurer or a business
entity affiliated with the insurer, a qualified bank, a
business entity registered under the Investment Advisors Act
of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the
case of a reciprocal insurer or interinsurance exchange, its
attorney-in-fact, or in the case of a United States branch of
an alien insurer, its United States manager or an affiliate
or subsidiary of its United States manager;
(3) Be responsible for the compilation and maintenance
of detailed accounting records setting forth:
(a) The cash receipts and disbursements reflecting each
participant's proportionate investment in the investment
pool;
(b) A complete description of all underlying assets of
the investment pool (including amount, interest rate,
maturity date (if any) and other appropriate designations);
and
(c) Other records which, on a daily basis, allow third
parties to verify each participant's investment in the
investment pool; and
(4) Maintain the assets of the investment pool in one or
more accounts, in the name of or on behalf of the investment
pool, under a custody agreement with a qualified bank. The
custody agreement shall:
(a) State and recognize the claims and rights of each
participant;
(b) Acknowledge that the underlying assets of the
investment pool are held solely for the benefit of each
participant in proportion to the aggregate amount of its
investments in the investment pool; and
(c) Contain an agreement that the underlying assets of
the investment pool shall not be commingled with the general
assets of the custodian qualified bank or any other person.
E. The pooling agreement for each investment pool shall
be in writing and shall provide that:
(1) An insurer and its affiliated insurers or, in the
case of an investment pool investing solely in investments
permitted under subsection A(1) of this Section, the insurer
and its subsidiaries, affiliates or any pension or profit
sharing plan of the insurer, its subsidiaries and affiliates
or, in the case of a United States branch of an alien
insurer, affiliates or subsidiaries of its United States
manager, shall, at all times, hold 100% of the interests in
the investment pool;
(2) The underlying assets of the investment pool shall
not be commingled with the general assets of the pool manager
or any other person;
(3) In proportion to the aggregate amount of each pool
participant's interest in the investment pool:
(a) Each participant owns an undivided interest in the
underlying assets of the investment pool; and
(b) The underlying assets of the investment pool are
held solely for the benefit of each participant;
(4) A participant, or in the event of the participant's
insolvency, bankruptcy or receivership, its trustee, receiver
or other successor-in-interest, may withdraw all or any
portion of its investment from the investment pool under the
terms of the pooling agreement;
(5) Withdrawals may be made on demand without penalty or
other assessment on any business day, but settlement of funds
shall occur within a reasonable and customary period
thereafter not to exceed 10 business days. Distributions
under this paragraph shall be calculated in each case net of
all then applicable fees and expenses of the investment pool.
The pooling agreement shall provide that the pool manager
shall distribute to a participant, at the discretion of the
pool manager:
(a) In cash, the then fair market value of the
participant's pro rata share of each underlying asset of the
investment pool;
(b) In kind, a pro rata share of each underlying asset;
or
(c) In a combination of cash and in kind distributions,
a pro rata share in each underlying asset; and
(6) The pool manager shall make the records of the
investment pool available for inspection by the Director.
F. Except for the formation of the investment pool,
transactions and between a domestic insurer and an affiliated
insurer investment pool shall not be subject to the
requirements of Section 131.20a of this Code.
(215 ILCS 5/126.13 new)
Sec. 126.13. Equity interests.
A. Subject to the limitations of Section 126.10, an
insurer may acquire directly or indirectly through an
investment subsidiary, equity interests in business entities
organized under the laws of any domestic jurisdiction.
B. An insurer shall not acquire directly or indirectly
through an investment subsidiary an investment under this
Section if, as a result of and after giving effect to the
investment, the aggregate amount of investments then held by
the insurer under this Section would exceed 20% of its
admitted assets or, except for mutual funds, the amount of
equity interests then held by the insurer that are not listed
on a qualified exchange would exceed 5% of its admitted
assets. An accident and health insurer shall not be subject
to this Section but shall be subject to the same aggregate
limitation on equity interests as a property and casualty
insurer under Section 126.26 and also to the provisions of
Section 126.22 of this Article.
C. An insurer shall not acquire under this Section any
investments that the insurer may acquire under Section
126.15.
D. An insurer shall not short sell equity interests
unless the insurer covers the short sale by owning the equity
interest or an unrestricted right to the equity interest
exercisable within 6 months of the short sale.
(215 ILCS 5/126.14 new)
Sec. 126.14. Tangible personal property under lease.
A. (1) Subject to the limitations of Section 126.10, an
insurer may acquire tangible personal property or equity
interests therein located or used wholly or in part within a
domestic jurisdiction either directly or indirectly through
limited partnership interests and general partnership
interests not otherwise prohibited by Section 126.5D, joint
ventures, stock of an investment subsidiary or membership
interests in a limited liability company, trust certificates,
or other similar instruments.
(2) Investments acquired under paragraph (1) of this
subsection shall be eligible only if:
(a) The property is subject to a lease or other
agreement with a person whose rated credit instruments in the
amount of the purchase price of the personal property the
insurer could then acquire under Section 126.11; and
(b) The lease or other agreement provides the insurer
the right to receive rental, purchase or other fixed payments
for the use or purchase of the property, and the aggregate
value of the payments, together with the estimated residual
value of the property at the end of its useful life and the
estimated tax benefits to the insurer resulting from
ownership of the property, shall be adequate to return the
cost of the insurer's investment in the property, plus a
return deemed adequate by the insurer.
B. The insurer shall compute the amount of each
investment under this Section on the basis of the out of
pocket purchase price and applicable related expenses paid by
the insurer for the investment, net of each borrowing made to
finance the purchase price and expenses, to the extent the
borrowing is without recourse to the insurer.
C. An insurer shall not acquire directly or indirectly
through an investment subsidiary an investment under this
Section if, as a result of and after giving effect to the
investment, the aggregate amount of all investments then held
by the insurer under this Section would exceed:
(1) 2% of its admitted assets; or
(2) 0.5% of its admitted assets as to any single item of
tangible personal property.
D. For purposes of determining compliance with the
limitations of Section 126.10, investments acquired by an
insurer under this Section shall be aggregated with those
acquired under Section 126.11, and each lessee of the
property under a lease referred to in this Section shall be
deemed the issuer of an obligation in the amount of the
investment of the insurer in the property determined as
provided in subsection B of this Section.
E. Nothing in this Section is applicable to tangible
personal property lease arrangements between an insurer and
its subsidiaries and affiliates under a cost sharing
arrangement or agreement permitted under Section
131.20a(1)(a)(iv).
(215 ILCS 5/126.15 new)
Sec. 126.15. Mortgage loans and real estate.
A. Mortgage loans.
(l) Subject to the limitations of Section 126.10, an
insurer may acquire, either directly or indirectly through
limited partnership interests and general partnership
interests not otherwise prohibited by Section 126.5D, joint
ventures, stock of an investment subsidiary or membership
interests in a limited liability company, trust certificates,
or other similar instruments, obligations secured by
mortgages on real estate situated within a domestic
jurisdiction, but a mortgage loan which is secured by other
than a first lien shall not be acquired under this subsection
(1) unless the insurer is the holder of the first lien. The
obligations held by the insurer and any obligations with an
equal lien priority, shall not, at the time of acquisition of
the obligation, exceed:
(a) 90% of the fair market value of the real estate, if
the mortgage loan is secured by a purchase money mortgage or
like security received by the insurer upon disposition of the
real estate;
(b) 80% of the fair market value of the real estate, if
the mortgage loan requires immediate scheduled payment in
periodic installments of principal and interest, has an
amortization period of 30 years or less and periodic payments
made no less frequently than annually. Each periodic payment
shall be sufficient to assure that at all times the
outstanding principal balance of the mortgage loan shall be
not greater than the outstanding principal balance that would
be outstanding under a mortgage loan with the same original
principal balance, with the same interest rate and requiring
equal payments of principal and interest with the same
frequency over the same amortization period. Mortgage loans
permitted under this subsection are permitted notwithstanding
the fact that they provide for a payment of the principal
balance prior to the end of the period of amortization of the
loan. For residential mortgage loans, the 80% limitation may
be increased to 97% if acceptable private mortgage insurance
has been obtained; or
(c) 75% of the fair market value of the real estate for
mortgage loans that do not meet the requirements of
subparagraph (a) or (b) of this paragraph.
(2) For purposes of paragraph (1) of this subsection,
the amount of an obligation required to be included in the
calculation of the loan-to-value ratio may be reduced to the
extent the obligation is insured by the Federal Housing
Administration or guaranteed by the Administrator of Veterans
Affairs, or their successors.
(3) Subject to the limitations of Section 126.10, an
insurer may acquire, either directly or indirectly through
limited partnership interests and general partnership
interests not otherwise prohibited by Section 126.5D, joint
ventures, stock of an investment subsidiary or membership
interests in a limited liability company, trust certificates,
or other similar instruments, obligations secured by a second
mortgage on real estate situated within a domestic
jurisdiction, other than as authorized in subsection (1) of
this Section 126.15. The obligation held by the insurer
shall be the sole second lien priority obligation and shall
not, at the time of acquisition of the obligation, exceed 70%
of the amount by which the fair market value of the real
estate exceeds the amount outstanding under the first
mortgage.
(4) A mortgage loan that is held by an insurer under
Section 126.3F or acquired under this Section and is
restructured in a manner that meets the requirements of a
restructured mortgage loan in accordance with the NAIC
Accounting Practices and Procedures Manual or successor
publication shall continue to qualify as a mortgage loan
under this Article.
(5) Subject to the limitations of Section 126.10, credit
lease transactions that do not qualify for investment under
Section 126.11 with the following characteristics shall be
exempt from the provisions of paragraph (1) of this
subsection:
(a) The loan amortizes over the initial fixed lease term
at least in an amount sufficient so that the loan balance at
the end of the lease term does not exceed the original
appraised value of the real estate;
(b) The lease payments cover or exceed the total debt
service over the life of the loan;
(c) A tenant or its affiliated entity, whose rated
credit instruments have a SVO 1 or 2 designation or a
comparable rating from a nationally recognized statistical
rating organization recognized by the SVO, has a full faith
and credit obligation to make the lease payments;
(d) The insurer holds or is the beneficial holder of a
first lien mortgage on the real estate;
(e) The expenses of the real estate are passed through
to the tenant, excluding exterior, structural, parking and
heating, ventilation and air conditioning replacement
expenses, unless annual escrow contributions, from cash flows
derived from the lease payments, cover the expense shortfall;
and
(f) There is a perfected assignment of the rents due
pursuant to the lease to, or for the benefit of, the insurer.
B. Income producing real estate.
(1) An insurer may acquire, manage and dispose of real
estate situated in a domestic jurisdiction either directly or
indirectly through limited partnership interests and general
partnership interests not otherwise prohibited by Section
126.5D, joint ventures, stock of an investment subsidiary or
membership interests in a limited liability company, trust
certificates, or other similar instruments. The real estate
shall be income producing or intended for improvement or
development for investment purposes under an existing program
(in which case the real estate shall be deemed to be income
producing).
(2) The real estate may be subject to mortgages, liens
or other encumbrances, the amount of which shall, to the
extent that the obligations secured by the mortgages, liens
or encumbrances are without recourse to the insurer, be
deducted from the amount of the investment of the insurer in
the real estate for purposes of determining compliance with
subsections D(2) and D(3) of this Section.
C. Real estate for the accommodation of business.
An insurer may acquire, manage, and dispose of real
estate for the convenient accommodation of the insurer's
(which may include its affiliates) business operations,
including home office, branch office and field office
operations.
(1) Real estate acquired under this subsection may
include excess space for rent to others, if the excess space,
valued at its fair market value, would otherwise be a
permitted investment under subsection B of this Section and
is so qualified by the insurer;
(2) The real estate acquired under this subsection may
be subject to one or more mortgages, liens or other
encumbrances, the amount of which shall, to the extent that
the obligations secured by the mortgages, liens or
encumbrances are without recourse to the insurer, be deducted
from the amount of the investment of the insurer in the real
estate for purposes of determining compliance with subsection
D(4) of this Section; and
(3) For purposes of this subsection, business operations
shall not include that portion of real estate used for the
direct provision of health care services by an accident and
health insurer for its insureds. An insurer may acquire real
estate used for these purposes under subsection B of this
Section.
D. Quantitative limitations.
(1) An insurer shall not acquire an investment under
subsection A of this Section if, as a result of and after
giving effect to the investment, the aggregate amount of all
investments then held by the insurer under subsection A of
this Section would exceed:
(a) 1% of its admitted assets in mortgage loans covering
any one secured location;
(b) 0.25% of its admitted assets in construction loans
covering any one secured location; or
(c) 2% of its admitted assets in construction loans in
the aggregate.
(2) An insurer shall not acquire an investment under
subsection B of this Section if, as a result of and after
giving effect to the investment and any outstanding
guarantees made by the insurer in connection with the
investment, the aggregate amount of investments then held by
the insurer under subsection B of this Section plus the
guarantees then outstanding would exceed:
(a) 1% of its admitted assets in one parcel or group of
contiguous parcels of real estate, except that this
limitation shall not apply to that portion of real estate
used for the direct provision of health care services by an
accident and health insurer for its insureds, such as
hospitals, medical clinics, medical professional buildings or
other health facilities used for the purpose of providing
health services; or
(b) 15% of its admitted assets in the aggregate, but not
more than 5% of its admitted assets in real estate to be
improved or developed.
(3) An insurer shall not acquire an investment under
subsections A or B of this Section if, as a result of and
after giving effect to the investment and any guarantees made
by the insurer in connection with the investment, the
aggregate amount of all investments then held by the insurer
under subsections A and B of this Section plus the guarantees
then outstanding would exceed 45% of its admitted assets.
However, an insurer may exceed this limitation by no more
than 30% of its admitted assets if:
(a) This increased amount is invested only in
residential mortgage loans;
(b) The insurer has no more than 10% of its admitted
assets invested in mortgage loans other than residential
mortgage loans;
(c) The loan-to-value ratio of each residential mortgage
loan does not exceed 60% at the time the mortgage loan is
qualified under this increased authority, and the fair market
value is supported by an appraisal no more than 2 years old,
prepared by an independent appraiser;
(d) A single mortgage loan qualified under this
increased authority shall not exceed 0.5% of its admitted
assets;
(e) The insurer files with the Director, and receives
approval from the Director for, a plan that is designed to
result in a portfolio of residential mortgage loans that is
sufficiently geographically diversified; and
(f) The insurer agrees to file annually with the
Director records that demonstrate that its portfolio of
residential mortgage loans is geographically diversified in
accordance with the plan.
(4) The limitations of Section 126.10 shall not apply to
an insurer's acquisition of real estate under subsection C of
this Section. An insurer shall not acquire real estate under
subsection C of this Section if, as a result of and after
giving effect to the acquisition, the aggregate amount of
real estate then held by the insurer under subsection C of
this Section would exceed 10% of its admitted assets. With
the permission of the Director, additional amounts of real
estate may be acquired under subsection C of this Section.
(215 ILCS 5/126.16 new)
Sec. 126.16. Securities lending and repurchase, reverse
repurchase, and dollar roll transactions. An insurer may
enter into securities lending, repurchase, reverse
repurchase, and dollar roll transactions with business
entities, subject to the following requirements:
A. The insurer's board of directors shall adopt a
written plan that is consistent with the requirements of the
written plan in Section 126.4A that specifies guidelines and
objectives to be followed, such as:
(1) A description of how cash received will be invested
or used for general corporate purposes of the insurer;
(2) Operational procedures to manage interest rate risk,
counterparty default risk, the conditions under which
proceeds from reverse repurchase transactions may be used in
the ordinary course of business and the use of acceptable
collateral in a manner that reflects the liquidity needs of
the transaction; and
(3) The extent to which the insurer may engage in these
transactions.
B. The insurer shall enter into a written agreement for
all transactions authorized in this Section other than dollar
roll transactions. The written agreement shall require that
each transaction terminate no more than one year from its
inception or upon the earlier demand of the insurer. The
agreement shall be with the business entity counterparty, but
for securities lending transactions, the agreement may be
with an agent acting on behalf of the insurer, if the agent
is a qualified business entity, and if the agreement:
(1) Requires the agent to enter into separate agreements
with each counterparty that are consistent with the
requirements of this Section; and
(2) Prohibits securities lending transactions pursuant
to the agreement with the agent or its affiliates.
C. Cash received in a transaction under this Section
shall be invested in accordance with this Article and in a
manner that recognizes the liquidity needs of the transaction
or used by the insurer for its general corporate purposes.
For so long as the transaction remains outstanding, the
insurer, its agent or custodian shall maintain, as to
acceptable collateral received in a transaction under this
Section, either physically or through the book entry systems
of the Federal Reserve, Depository Trust Company,
Participants Trust Company or other securities depositories
approved by the Director:
(1) Possession of the acceptable collateral;
(2) A perfected security interest in the acceptable
collateral; or
(3) In the case of a jurisdiction outside of the United
States, title to, or rights of a secured creditor to, the
acceptable collateral.
D. The limitations of Sections 126.10 and 126.17 shall
not apply to the business entity counterparty exposure
created by transactions under this Section. For purposes of
calculations made to determine compliance with this
subsection, no effect will be given to the insurer's future
obligation to resell securities, in the case of a repurchase
transaction, or to repurchase securities, in the case of a
reverse repurchase transaction. An insurer shall not enter
into a transaction under this Section if, as a result of and
after giving effect to the transaction:
(1) The aggregate amount of securities then loaned or
sold to, or purchased from, any one business entity
counterparty under this Section would exceed 5% of its
admitted assets. In calculating the amount sold to or
purchased from a business entity counterparty under
repurchase or reverse repurchase transactions, effect may be
given to netting provisions under a master written agreement;
or
(2) The aggregate amount of all securities then loaned,
sold to or purchased from all business entities under this
Section would exceed 40% of its admitted assets.
E. In a dollar roll transaction, the insurer shall
receive cash in an amount at least equal to the market value
of the securities transferred by the insurer in the
transaction as of the transaction date.
F. The Director may promulgate reasonable rules for
investments and transactions under this Section including,
but not limited to, rules which impose financial solvency
standards, valuation standards, and reporting requirements.
(215 ILCS 5/126.17 new)
Sec. 126.17. Foreign investments and foreign currency
exposure.
A. Subject to the limitations of Section 126.10, an
insurer may acquire directly or indirectly through an
investment subsidiary, foreign investments, or engage in
investment practices with persons of or in foreign
jurisdictions, of substantially the same types as those that
an insurer is permitted to acquire under this Article, other
than of the type permitted under Section 126.12, if, as a
result and after giving effect to the investment:
(1) The aggregate amount of foreign investments then
held by the insurer under this subsection does not exceed 20%
of its admitted assets; and
(2) The aggregate amount of foreign investments then
held by the insurer under this subsection in a single foreign
jurisdiction does not exceed 10% of its admitted assets as to
a foreign jurisdiction that has a sovereign debt rating of
SVO 1 or 3% of its admitted assets as to any other foreign
jurisdiction.
B. Subject to the limitations of Section 126.10, an
insurer may acquire investments, or engage in investment
practices denominated in foreign currencies, whether or not
they are foreign investments acquired under subsection A of
this Section, or additional foreign currency exposure as a
result of the termination or expiration of a hedging
transaction with respect to investments denominated in a
foreign currency, if, as a result of and after giving effect
to the transaction:
(1) The aggregate amount of investments then held by the
insurer under this subsection denominated in foreign
currencies does not exceed 10% of its admitted assets; and
(2) The aggregate amount of investments then held by the
insurer under this subsection denominated in the foreign
currency of a single foreign jurisdiction does not exceed 10%
of its admitted assets as to a foreign jurisdiction that has
a sovereign debt rating of SVO 1 or 3% of its admitted assets
as to any other foreign jurisdiction.
(3) However, an investment shall not be considered
denominated in a foreign currency if the acquiring insurer
enters into one or more contracts in transactions permitted
under Section 126.18 in which the business entity
counterparty agrees to exchange, or grants to the insurer the
option to exchange, all payments made on the foreign currency
denominated investment (or amounts equivalent to the payments
that are or will be due to the insurer in accordance with the
terms of such investment) for United States currency during
the period the contract or contracts are in effect to
insulate the insurer against loss caused by diminution of the
value of payments owed to the insurer due to future changes
in currency exchange rates.
C. In addition to investments permitted under
subsections A and B of this Section, an insurer that is
authorized to do business in a foreign jurisdiction, and that
has outstanding insurance, annuity or reinsurance contracts
on lives or risks resident or located in that foreign
jurisdiction and denominated in foreign currency of that
jurisdiction, may acquire foreign investments respecting that
foreign jurisdiction, and may acquire investments denominated
in the currency of that jurisdiction, subject to the
limitations of Section 126.10. However, investments made
under this subsection in obligations of foreign governments,
their political subdivisions and government sponsored
enterprises shall not be subject to the limitations of
Section 126.10 if those investments carry an SVO rating of 1
or 2. The aggregate amount of investments acquired by the
insurer under this subsection shall not exceed the greater
of:
(1) The amount the insurer is required by the law of the
foreign jurisdiction to invest in the foreign jurisdiction;
or
(2) 115% of the amount of its reserves, net of
reinsurance, and other obligations under the contracts on
lives or risks resident or located in the foreign
jurisdiction.
D. In addition to investments permitted under
subsections A and B of this Section, an insurer that is not
authorized to do business in a foreign jurisdiction, but
which has outstanding insurance, annuity or reinsurance
contracts on lives or risks resident or located in that
foreign jurisdiction and denominated in foreign currency of
that jurisdiction, may acquire foreign investments respecting
that foreign jurisdiction, and may acquire investments
denominated in the currency of that jurisdiction subject to
the limitations of Section 126.10. However, investments made
under this subsection in obligations of foreign governments,
their political subdivisions and government sponsored
enterprises shall not be subject to the limitations of
Section 126.10 if those investments carry an SVO rating of 1
or 2. The aggregate amount of investments acquired by the
insurer under this subsection shall not exceed 105% of the
amount of its reserves, net of reinsurance, and other
obligations under the contracts on lives or risks resident or
located in the foreign jurisdiction.
E. Investments acquired under this Section shall be
aggregated with investments of the same types made under all
other Sections of this Article, and in a similar manner, for
purposes of determining compliance with the limitations, if
any, contained in the other Sections. Investments in
obligations of foreign governments, their political
subdivisions and government sponsored enterprises of these
persons, except for those exempted under subsections C and D
of this Section, shall be subject to the limitations of
Section 126.10.
(215 ILCS 5/126.18 new)
Sec. 126.18. Derivative transactions. An insurer may,
directly or indirectly through an investment subsidiary,
engage in derivative transactions under this Section under
the following conditions:
A. General conditions.
(1) An insurer may use derivative instruments under this
Section to engage in hedging transactions and income
generation transactions.
(2) An insurer may use derivative instruments for
replication transactions only after the Director promulgates
reasonable rules that set forth methods of disclosure,
reserving for risk-based capital, and determining the asset
valuation reserve for these investments. Any asset being
replicated is subject to all the provisions and limitations
on the making thereof specified in this Article with respect
to investments by the insurer as if the transaction
constituted a direct investment by the insurer in the
replicated asset.
(3) With respect to all hedging transactions, an insurer
shall be able to demonstrate to the Director the intended
hedging characteristics and the ongoing effectiveness of the
derivative transaction or combination of the transactions
through cash flow testing or other appropriate analyses.
(4) The Director may promulgate reasonable rules for
investments and transactions under this Section including,
but not limited to, rules which impose financial solvency
standards, valuation standards, and reporting requirements.
B. Limitations on hedging transactions.
An insurer may enter into hedging transactions under this
Section if, as a result of and after giving effect to the
transaction:
(1) The aggregate statement value of options, caps,
floors and warrants not attached to another financial
instrument purchased and used in hedging transactions then
engaged in by the insurer does not exceed 7.5% of its
admitted assets;
(2) The aggregate statement value of options, caps and
floors written in hedging transactions then engaged in by the
insurer does not exceed 3% of its admitted assets; and
(3) The aggregate potential exposure of collars, swaps,
forwards and futures used in hedging transactions then
engaged in by the insurer does not exceed 6.5% of its
admitted assets.
C. Limitations on income generation transactions.
An insurer may enter into the following types of income
generation transactions subject to the quantitative limits of
subsection C(5):
(1) Sales of covered call options on noncallable fixed
income securities, callable fixed income securities if the
option expires by its terms prior to the end of the
noncallable period or derivative instruments based on fixed
income securities;
(2) Sales of covered call options on equity securities,
if the insurer holds in its portfolio, or can immediately
acquire through the exercise of options, warrants or
conversion rights already owned, the equity securities
subject to call during the complete term of the call option
sold;
(3) Sales of covered puts on investments that the
insurer is permitted to acquire under this Article, if the
insurer has escrowed, or entered into a custodian agreement
segregating, cash or cash equivalents with a market value
equal to the amount of its purchase obligations under the put
during the complete term of the put option sold; or
(4) Sales of covered caps or floors, if the insurer
holds in its portfolio the investments generating the cash
flow to make the required payments under the caps or floors
during the complete term that the cap or floor is
outstanding.
(5) If as a result of and after giving effect to the
transactions, the aggregate statement value of the fixed
income assets that are subject to call or that generate the
cash flows for payments under the caps or floors, plus the
face value of fixed income securities underlying a derivative
instrument subject to call, plus the amount of the purchase
obligations under the puts, does not exceed 10% of its
admitted assets.
D. Counterparty exposure. An insurer shall include all
counterparty exposure amounts in determining compliance with
the limitations of Section 126.10.
E. Additional transactions. Pursuant to rules
promulgated under Section 126.8, the Director may approve
additional transactions involving the use of derivative
instruments in excess of the limits of subsection B of this
Section or for other risk management purposes.
(215 ILCS 5/126.19 new)
Sec. 126.19. Policy loans. A life insurer may lend to a
policyholder on the security of the cash surrender value of
the policyholder's policy a sum not exceeding the legal
reserve that the insurer is required to maintain on the
policy.
(215 ILCS 5/126.20 new)
Sec. 126.20. Additional investment authority.
A. Solely for the purpose of acquiring investments that
exceed the quantitative limitations of Sections 126.10
through 126.17, an insurer may acquire under this subsection
an investment, or engage in investment practices described in
Section 126.16, but an insurer shall not acquire an
investment, or engage in investment practices described in
Section 126.16, under this subsection if, as a result of and
after giving effect to the transaction:
(1) The aggregate amount of investments then held by an
insurer under this subsection would exceed 3% of its admitted
assets; or
(2) The aggregate amount of investments as to one
limitation in Sections 126.10 through 126.17 then held by the
insurer under this subsection would exceed 1% of its admitted
assets.
B. (1) In addition to the authority provided under
subsection A of this Section, an insurer may acquire under
this subsection an investment of any kind, or engage in
investment practices described in Section 126.16, that are
not specifically prohibited by this Article, without regard
to the categories, conditions, standards or other limitations
of Sections 126.10 through 126.17 if, as a result of and
after giving effect to the transaction, the aggregate amount
of investments then held under this subsection would not
exceed the lesser of:
(a) 10% of its admitted assets; or
(b) 75% of its capital and surplus.
(2) However, an insurer shall not acquire any investment
or engage in any investment practice under this subsection
if, as a result of and after giving effect to the
transaction, the aggregate amount of all investments in any
one person then held by the insurer under this subsection
would exceed 3% of its admitted assets.
C. In addition to the investments acquired under
subsections A and B of this Section, an insurer may acquire
under this subsection an investment of any kind, or engage in
investment practices described in Section 126.16, that are
not specifically prohibited by this Article without regard to
any limitations of Sections 126.10 through 126.17 if:
(1) The Director grants prior approval;
(2) The insurer demonstrates that its investments are
being made in a prudent manner and that the additional
amounts will be invested in a prudent manner; and
(3) As a result of and after giving effect to the
transaction the aggregate amount of investments then held by
the insurer under this subsection does not exceed the greater
of:
(a) 25% of its capital and surplus; or
(b) 100% of capital and surplus less 10% of its admitted
assets.
D. Under this Section, an insurer shall not acquire or
engage in an investment practice prohibited under Section
126.5 or an investment that is a derivative transaction.
(215 ILCS 5 Art. VII, Part 3 heading new)
3. PROPERTY AND CASUALTY INSURERS
(215 ILCS 5/126.21 new)
Sec. 126.21. Applicability. This Part 3 shall apply to
the investments and investment practices of property and
casualty insurers authorized to transact the kinds of
insurance in either or both Class 2 or Class 3 of Section 4
of this Code, subject to the provisions of Section 126.1B.
(215 ILCS 5/126.22 new)
Sec. 126.22. Reserve requirements.
A. Reserve requirements.
(1) Subject to all other limitations and requirements
of this Article, a property and casualty insurer shall
maintain an amount at least equal to the lesser of
$250,000,000 or 100% of adjusted loss reserves and loss
adjustment expense reserves, 100% of adjusted unearned
premium reserves and 100% of statutorily required policy and
contract reserves in:
(a) Cash and cash equivalents;
(b) High and medium grade investments that qualify under
Sections 126.24 or 126.25;
(c) Equity interests that qualify under Section 126.26
and that are traded on a qualified exchange;
(d) Investments of the type set forth in Section 126.30
if the investments are rated in the highest generic rating
category by a nationally recognized statistical rating
organization recognized by the SVO for rating foreign
jurisdictions and if any foreign currency exposure is
effectively hedged through the maturity date of the
investments;
(e) Qualifying investments of the type set forth in
subparagraphs (b), (c) or (d) of this paragraph that are
acquired under Section 126.32;
(f) Interest and dividends receivable on qualifying
investments of the type set forth in subparagraphs (a)
through (e) of this subsection; or
(g) Reinsurance recoverable on paid losses.
(2) Reserve Requirement Amount:
(a) For purposes of determining the amount of assets to
be maintained under this subsection, the calculation of
adjusted loss reserves and loss adjustment expense reserves,
adjusted unearned premium reserves and statutorily required
policy and contract reserves shall be based on the amounts
reported as of the most recent annual or quarterly statement
date.
(b) Adjusted loss reserves and loss adjustment expense
reserves shall be equal to the sum of the amounts derived
from the following calculations:
(i) The result of each amount reported by the insurer as
losses and loss adjustment expenses unpaid for each accident
year for each individual line of business; multiplied by
(ii) The discount factor that is applicable to the line
of business and accident year published by the Internal
Revenue Service under Internal Revenue Code Section 846 (26
U.S.C. 846), as amended, for the calendar year that
corresponds to the most recent annual statement of the
insurer; minus
(iii) Accrued retrospective premiums discounted by an
average discount factor. The discount factor shall be
calculated by dividing the losses and loss adjustment
expenses unpaid after discounting (the product of Items (i)
and (ii) in this subparagraph) by loss and loss adjustment
expense reserves before discounting Item (i) of this
subparagraph.
(iv) For purposes of these calculations, the losses and
loss adjustment expenses unpaid shall be determined net of
anticipated salvage and subrogation, and gross of any
discount for the time value of money or tabular discount.
(c) Adjusted unearned premium reserves shall be equal to
the result of the following calculation:
(i) The amount reported by the insurer as unearned
premium reserves; minus
(ii) The admitted asset amounts reported by the insurer
as:
(I) Premiums in and agents' balances in the course of
collection, accident and health premiums due and unpaid and
uncollected premiums for accident and health premiums;
(II) Premiums, agents' balances and installments booked
but deferred and not yet due;
(III) Bills receivable, taken for premium; and
(IV) Equities and deposits in pools and associations.
(d) Statutorily required policy and contract reserves
shall also include contingency reserves required for mortgage
guaranty insurers, municipal bond insurers, and other
financial guaranty insurers.
B. Monitoring and reporting. A property and casualty
insurer shall supplement its annual statement with a
reconciliation and summary of its assets and reserve
requirements as required in subsection A of this Section. A
reconciliation and summary showing that an insurer's assets
as required in subsection A of this Section are greater than
or equal to its undiscounted reserves referred to in
subsection A of this Section shall be sufficient to satisfy
this requirement. Upon prior notification, the Director may
require an insurer to submit such a reconciliation and
summary with any quarterly statement filed during the
calendar year.
C. Notification requirements and mandatory safeguards.
If a property and casualty insurer's assets and reserves do
not comply with subsection A of this Section, the insurer
shall notify the Director immediately of the amount by which
the reserve requirements exceed the annual statement value of
the qualifying assets, explain why the deficiency exists and
within 30 days of the date of the notice propose a plan of
action to remedy the deficiency.
D. Authority of the Director.
(1) If the Director determines that an insurer is not in
compliance with subsection A of this Section, the Director
shall require the insurer to eliminate the condition causing
the noncompliance within a specified time from the date the
notice of the Director's requirement is mailed or delivered
to the insurer.
(2) If an insurer fails to comply with the Director's
requirement under paragraph (1) of this subsection, the
insurer is deemed to be in hazardous financial condition, and
the Director shall take one or more of the actions authorized
by law as to insurers in hazardous financial condition.
E. An insurer subject to this Section must comply with
the requirements of this Section after December 31, 1997.
(215 ILCS 5/126.23 new)
Sec. 126.23. General 5% diversification, medium and
lower grade investments, and Canadian investments.
A. General 5% diversification.
(1) Except as otherwise specified in this Article, an
insurer shall not acquire directly or indirectly through an
investment subsidiary an investment under this Article if, as
a result of and after giving effect to the investment, the
insurer would hold more than 5% of its admitted assets in
investments of all kinds issued, assumed, accepted,
guaranteed, or insured by a single person.
(2) This 5% limitation shall not apply to the aggregate
amounts insured by a single financial guaranty insurer with
the highest generic rating issued by a nationally recognized
statistical rating organization.
(3) Asset-backed securities shall not be subject to the
limitations of paragraph (1) of this subsection, however,
except as permitted by subsection A(4) of this Section, an
insurer shall not acquire an asset-backed security if, as a
result of and after giving effect to the investment, the
aggregate amount of asset-backed securities secured by or
evidencing an interest in a single asset or single pool of
assets held by a trust or other business entity, then held by
the insurer would exceed 5% of its admitted assets.
(4) A company's investments in mortgage related
securities, as defined by the Secondary Mortgage Market
Enhancement Act of 1984 (United States Public Law 98-440, 12
U.S.C. 24, 1451, 1454 et seq.), that are backed by any single
pool of mortgages and made pursuant to the authority of that
Act, shall not exceed 5% of its admitted assets.
B. Medium and lower grade investments.
(1) An insurer shall not acquire, directly or indirectly
through an investment subsidiary, an investment under
Sections 126.24, 126.27, and 126.30 or counterparty exposure
under Section 126.31D if, as a result of and after giving
effect to the investment:
(a) The aggregate amount of all medium and lower grade
investments then held by the insurer would exceed 20% of its
admitted assets;
(b) The aggregate amount of lower grade investments then
held by the insurer would exceed 10% of its admitted assets;
(c) The aggregate amount of investments rated 5 or 6 by
the SVO then held by the insurer would exceed 5% of its
admitted assets;
(d) The aggregate amount of investments rated 6 by the
SVO then held by the insurer would exceed 1% of its admitted
assets; or
(e) The aggregate amount of lower grade investments then
held by the insurer that receive as cash income less than the
equivalent yield for Treasury issues with a comparative
average life, would exceed 1% of its admitted assets.
(2) An insurer shall not acquire, directly or indirectly
through an investment subsidiary, an investment under
Sections 126.24, 126.27, and 126.30 or counterparty exposure
under Section 126.31D if, as a result of and after giving
effect to the investment:
(a) The aggregate amount of medium and lower grade
investments issued, assumed, accepted, guaranteed, or insured
by any one person or, as to asset-backed securities secured
by or evidencing an interest in a single asset or pool of
assets, then held by the insurer would exceed 1% of its
admitted assets; or
(b) The aggregate amount of lower grade investments
issued, assumed, accepted, guaranteed, or insured by any one
person or, as to asset-backed securities secured by or
evidencing an interest in a single asset or pool of assets,
then held by the insurer would exceed 0.5% of its admitted
assets.
(3) If an insurer attains or exceeds the limit of any
one rating category referred to in this subsection, the
insurer shall not thereby be precluded from acquiring
investments in other rating categories subject to the
specific and multi-category limits applicable to those
investments.
C. Canadian investments.
(1) An insurer shall not acquire, directly or indirectly
through an investment subsidiary, any Canadian investments
authorized by this Article, if as a result of and after
giving effect to the investment, the aggregate amount of
these investments then held by the insurer would exceed 40%
of its admitted assets, or if the aggregate amount of
Canadian investments not acquired under Section 126.24B then
held by the insurer would exceed 25% of its admitted assets.
(2) However, as to an insurer that is authorized to do
business in Canada or that has outstanding insurance, annuity
or reinsurance contracts on lives or risks resident or
located in Canada and denominated in Canadian currency, the
limitations of paragraph (1) of this subsection shall be
increased by the greater of:
(a) The amount the insurer is required by Canadian law
to invest in Canada or to be denominated in Canadian
currency; or
(b) 125% of the amount of its reserves and other
obligations under contracts on risks resident or located in
Canada.
(215 ILCS 5/126.24 new)
Sec. 126.24. Rated credit instruments. Subject to the
limitations of subsection F of this Section, an insurer may
acquire rated credit instruments:
A. Subject to the limitations of Section 126.23B, but
not to the limitations of Section 126.23A except for the
limitation of subsection (4) of Section 126.23A, an insurer
may acquire rated credit instruments issued, assumed,
guaranteed, or insured by:
(1) The United States; or
(2) A government sponsored enterprise of the United
States, if the instruments of the government sponsored
enterprise are assumed, guaranteed, or insured by the United
States or are otherwise backed or supported by the full faith
and credit of the United States.
B. (1) Subject to the limitations of Section 126.23B,
but not to the limitations of Section 126.23A, an insurer may
acquire rated credit instruments issued, assumed, guaranteed,
or insured by:
(a) Canada; or
(b) A government sponsored enterprise of Canada, if the
instruments of the government sponsored enterprise are
assumed, guaranteed, or insured by Canada or are otherwise
backed or supported by the full faith and credit of Canada;
(2) However, an insurer shall not acquire an instrument
under this subsection if, as a result of and after giving
effect to the investment, the aggregate amount of investments
then held by the insurer under this subsection would exceed
40% of its admitted assets.
C. (1) Subject to the limitations of Section 126.23B,
but not to the limitations of Section 126.23A, an insurer may
acquire rated credit instruments, excluding asset-backed
securities:
(a) Issued by a government money market mutual fund, a
class one money market mutual fund or a class one bond mutual
fund;
(b) Issued, assumed, guaranteed, or insured by a
government sponsored enterprise of the United States other
than those eligible under subsection A of this Section;
(c) Issued, assumed, guaranteed, or insured by a state,
if the instruments are general obligations of the state; or
(d) Issued by a multilateral development bank.
(2) However, an insurer shall not acquire an instrument
of any one fund, any one enterprise or entity, or any one
state under this subsection if, as a result of and after
giving effect to the investment, the aggregate amount of
investments then held by the insurer in any one fund,
enterprise, entity, or state under this subsection would
exceed 10% of its admitted assets.
D. Subject to the limitations of Section 126.23, an
insurer may acquire preferred stocks that are not foreign
investments and that meet the requirements of rated credit
instruments if, as a result of and after giving effect to the
investment:
(1) The aggregate amount of preferred stocks then held
by the insurer under this subsection does not exceed 33 1/3%
of its admitted assets; and
(2) The aggregate amount of preferred stocks then held
by the insurer under this subsection which are not sinking
fund stocks or rated P1 or P2 by the SVO does not exceed 15%
of its admitted assets.
E. Subject to the limitations of Section 126.23 in
addition to those investments eligible under subsections A,
B, C and D of this Section, an insurer may acquire rated
credit instruments that are not foreign investments.
F. An insurer shall not acquire special rated credit
instruments under this Section if, as a result of and after
giving effect to the investment, the aggregate amount of
special rated credit instruments then held by the insurer
would exceed 5% of its admitted assets. The Director may, by
rule, identify certain special rated credit instruments that
are exempt from the limitation imposed by this subsection.
(215 ILCS 5/126.25 new)
Sec. 126.25. Insurer investment pools.
A. An insurer may acquire investments in investment
pools that:
(1) Invest only in:
(a) Obligations that are rated 1 or 2 by the SVO or have
an equivalent of an SVO 1 or 2 rating (or, in the absence of
a 1 or 2 rating or equivalent rating, the issuer has
outstanding obligations with an SVO 1 or 2 or equivalent
rating) by a nationally recognized statistical rating
organization recognized by the SVO and have:
(i) A remaining maturity of 397 days or less or a put
that entitles the holder to receive the principal amount of
the obligation which put may be exercised through maturity at
specified intervals not exceeding 397 days; or
(ii) A remaining maturity of 3 years or less and a
floating interest rate that resets no less frequently than
quarterly on the basis of a current short-term index (federal
funds, prime rate, treasury bills, London InterBank Offered
Rate (LIBOR) or commercial paper) and is subject to no
maximum limit, if the obligations do not have an interest
rate that varies inversely to market interest rate changes;
(b) Government money market mutual funds or class one
money market mutual funds; or
(c) Securities lending, repurchase, and reverse
repurchase, transactions that meet all the requirements of
Section 126.29, except the quantitative limitations of
Section 126.29D; or
(2) Invest only in investments which an insurer may
acquire under this Article, if the insurer's proportionate
interest in the amount invested in these investments when
combined with amounts of such investments made directly or
indirectly through an investment subsidiary or other insurer
investment pool permitted under this subsection A(2) does not
exceed the applicable limits of this Article for such
investments.
B. For an investment in an investment pool to be
qualified under this Article, the investment pool shall not:
(1) Acquire securities issued, assumed, guaranteed, or
insured by the insurer or an affiliate of the insurer;
(2) Borrow or incur any indebtedness for borrowed money,
except for securities lending and reverse repurchase
transactions that meet the requirements of Section 126.29
except the quantitative limitations of Section 126.29D; or
(3) Acquire an investment if, as a result of such
transaction, the aggregate value of securities then loaned or
sold to, purchased from or invested in any one business
entity under this Section would exceed 10% of the total
assets of the investment pool.
C. The limitations of Section 126.23A shall not apply to
an insurer's investment in an investment pool, however an
insurer shall not acquire an investment in an investment pool
under this Section if, as a result of and after giving effect
to the investment, the aggregate amount of investments then
held by the insurer under this Section:
(1) In all investment pools investing in investments
permitted under subsection A(2) of this Section would exceed
25% of its admitted assets; or
(2) In all investment pools would exceed 40% of its
admitted assets.
D. For an investment in an investment pool to be
qualified under this Article, the manager of the investment
pool shall:
(1) Be organized under the laws of the United States or
a state and designated as the pool manager in a pooling
agreement;
(2) Be the insurer, an affiliated insurer or a business
entity affiliated with the insurer, a qualified bank, a
business entity registered under the Investment Advisors Act
of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the
case of a reciprocal insurer or interinsurance exchange, its
attorney-in-fact, or in the case of a United States branch of
an alien insurer, its United States manager or an affiliate
or subsidiary of its United States manager;
(3) Be responsible for the compilation and maintenance
of detailed accounting records setting forth:
(a) The cash receipts and disbursements reflecting each
participant's proportionate investment in the investment
pool;
(b) A complete description of all underlying assets of
the investment pool (including amount, interest rate,
maturity date (if any) and other appropriate designations);
and
(c) Other records which, on a daily basis, allow third
parties to verify each participant's investment in the
investment pool; and
(4) Maintain the assets of the investment pool in one or
more accounts, in the name of or on behalf of the investment
pool, under a custody agreement with a qualified bank. The
custody agreement shall:
(a) State and recognize the claims and rights of each
participant;
(b) Acknowledge that the underlying assets of the
investment pool are held solely for the benefit of each
participant in proportion to the aggregate amount of its
investments in the investment pool; and
(c) Contain an agreement that the underlying assets of
the investment pool shall not be commingled with the general
assets of the custodian qualified bank or any other person.
E. The pooling agreement for each investment pool shall
be in writing and shall provide that:
(1) An insurer and its affiliated insurers or, in the
case of an investment pool investing solely in investments
permitted under subsection A(1) of this Section, the insurer
and its subsidiaries, affiliates or any pension or profit
sharing plan of the insurer, its subsidiaries and affiliates
or, in the case of a United States branch of an alien
insurer, affiliates or subsidiaries of its United States
manager, shall, at all times, hold 100% of the interests in
the investment pool;
(2) The underlying assets of the investment pool shall
not be commingled with the general assets of the pool manager
or any other person;
(3) In proportion to the aggregate amount of each pool
participant's interest in the investment pool:
(a) Each participant owns an undivided interest in the
underlying assets of the investment pool; and
(b) The underlying assets of the investment pool are
held solely for the benefit of each participant;
(4) A participant, or in the event of the participant's
insolvency, bankruptcy or receivership, its trustee, receiver
or other successor-in-interest, may withdraw all or any
portion of its investment from the investment pool under the
terms of the pooling agreement;
(5) Withdrawals may be made on demand without penalty or
other assessment on any business day, but settlement of funds
shall occur within a reasonable and customary period
thereafter not to exceed 10 business days. Distributions
under this paragraph shall be calculated in each case net of
all then applicable fees and expenses of the investment pool.
The pooling agreement shall provide that the pool manager
shall distribute to a participant, at the discretion of the
pool manager:
(a) In cash, the then fair market value of the
participant's pro rata share of each underlying asset of the
investment pool;
(b) In kind, a pro rata share of each underlying asset;
or
(c) In a combination of cash and in kind distributions,
a pro rata share in each underlying asset; and
(6) The pool manager shall make the records of the
investment pool available for inspection by the Director.
F. Except for the formation of the investment pool,
transactions between a domestic insurer and an affiliated
insurer investment pool shall not be subject to the
requirements of Section 131.20a of this Code.
(215 ILCS 5/126.26 new)
Sec. 126.26. Equity Interests.
A. Subject to the limitations of Section 126.23, an
insurer may acquire directly, or indirectly through an
investment subsidiary, equity interests in business entities
organized under the laws of any domestic jurisdiction.
B. An insurer shall not acquire directly, or indirectly
through an investment subsidiary, an investment under this
Section if, as a result of and after giving effect to the
investment, the aggregate amount of investments then held by
the insurer under this Section would exceed the greater of
25% of its admitted assets or 100% of its surplus as regards
policyholders.
C. An insurer shall not acquire under this Section any
investments that the insurer may acquire under Section
126.28.
D. An insurer shall not short sell equity interests
unless the insurer covers the short sale by owning the equity
interest or an unrestricted right to the equity interest
exercisable within 6 months of the short sale.
(215 ILCS 5/126.27 new)
Sec. 126.27. Tangible personal property under lease.
A. (1) Subject to the limitations of Section 126.23, an
insurer may acquire tangible personal property or equity
interests therein located or used wholly or in part within a
domestic jurisdiction either directly or indirectly through
limited partnership interests and general partnership
interests not otherwise prohibited by Section 126.5D, joint
ventures, stock of an investment subsidiary or membership
interests in a limited liability company, trust certificates,
or other similar instruments.
(2) Investments acquired under paragraph (1) of this
subsection shall be eligible only if:
(a) The property is subject to a lease or other
agreement with a person whose rated credit instruments in the
amount of the purchase price of the personal property the
insurer could then acquire under Section 126.24; and
(b) The lease or other agreement provides the insurer
the right to receive rental, purchase or other fixed payments
for the use or purchase of the property, and the aggregate
value of the payments, together with the estimated residual
value of the property at the end of its useful life and the
estimated tax benefits to the insurer resulting from
ownership of the property, shall be adequate to return the
cost of the insurer's investment in the property, plus a
return deemed adequate by the insurer.
B. The insurer shall compute the amount of each
investment under this Section on the basis of the out of
pocket purchase price and applicable related expenses paid by
the insurer for the investment, net of each borrowing made to
finance the purchase price and expenses, to the extent the
borrowing is without recourse to the insurer.
C. An insurer shall not acquire directly or indirectly
through an investment subsidiary an investment under this
Section if, as a result of and after giving effect to the
investment, the aggregate amount of all investments then held
by the insurer under this Section would exceed:
(1) 2% of its admitted assets; or
(2) 0.5% of its admitted assets as to any single item of
tangible personal property.
D. For purposes of determining compliance with the
limitations of Section 126.23, investments acquired by an
insurer under this Section shall be aggregated with those
acquired under Section 126.24, and each lessee of the
property under a lease referred to in this Section shall be
deemed the issuer of an obligation in the amount of the
investment of the insurer in the property determined as
provided in subsection B of this Section.
E. Nothing in this Section is applicable to tangible
personal property lease arrangements between an insurer and
its subsidiaries and affiliates under a cost sharing
arrangement or agreement permitted under Section
131.20a(1)(a)(iv) of this Code.
(215 ILCS 5/126.28 new)
Sec. 126.28. Mortgage loans and real estate.
A. Mortgage loans.
(l) Subject to the limitations of Section 126.23, an
insurer may acquire, either directly or indirectly through
limited partnership interests and general partnership
interests not otherwise prohibited by Section 126.5D, joint
ventures, stock of an investment subsidiary or membership
interests in a limited liability company, trust certificates,
or other similar instruments, obligations secured by
mortgages on real estate situated within a domestic
jurisdiction, but a mortgage loan which is secured by other
than a first lien shall not be acquired under this subsection
(1) unless the insurer is the holder of the first lien. The
obligations held by the insurer and any obligations with an
equal lien priority, shall not, at the time of acquisition of
the obligation, exceed:
(a) 90% of the fair market value of the real estate, if
the mortgage loan is secured by a purchase money mortgage or
like security received by the insurer upon disposition of the
real estate;
(b) 80% of the fair market value of the real estate, if
the mortgage loan requires immediate scheduled payment in
periodic installments of principal and interest, has an
amortization period of 30 years or less and periodic payments
made no less frequently than annually. Each periodic payment
shall be sufficient to assure that at all times the
outstanding principal balance of the mortgage loan shall be
not greater than the outstanding principal balance which
would be outstanding under a mortgage loan with the same
original principal balance, with the same interest rate and
requiring equal payments of principal and interest with the
same frequency over the same amortization period. Mortgage
loans permitted under this subsection are permitted
notwithstanding the fact that they provide for a payment of
the principal balance prior to the end of the period of
amortization of the loan. For residential mortgage loans, the
80% limitation may be increased to 97% if acceptable private
mortgage insurance has been obtained; or
(c) 75% of the fair market value of the real estate for
mortgage loans that do not meet the requirements of
subparagraph (a) or (b) of this paragraph.
(2) For purposes of paragraph (1) of this subsection,
the amount of an obligation required to be included in the
calculation of the loan-to-value ratio may be reduced to the
extent the obligation is insured by the Federal Housing
Administration or guaranteed by the Administrator of Veterans
Affairs, or their successors.
(3) Subject to the limitations of Section 126.23, an
insurer may acquire, either directly or indirectly through
limited partnership interests and general partnership
interests not otherwise prohibited by Section 126.5D, joint
ventures, stock of an investment subsidiary or membership
interests in a limited liability company, trust certificates,
or other similar instruments, obligations secured by a second
mortgage on real estate situated within a domestic
jurisdiction, other than as authorized in subsection (1) of
this Section 126.28. The obligation held by the insurer shall
be the sole second lien priority obligation and shall not, at
the time of acquisition of the obligation, exceed 70% of the
amount by which the fair market value of the real estate
exceeds the amount outstanding under the first mortgage.
(4) A mortgage loan that is held by an insurer under
Section 126.3F or acquired under this Section and is
restructured in a manner that meets the requirements of a
restructured mortgage loan in accordance with the NAIC
Accounting Practices and Procedures Manual or successor
publication shall continue to qualify as a mortgage loan
under this Article.
(5) Subject to the limitations of Section 126.23, credit
lease transactions that do not qualify for investment under
Section 126.24 with the following characteristics shall be
exempt from the provisions of paragraph (1) of this
subsection:
(a) The loan amortizes over the initial fixed lease term
at least in an amount sufficient so that the loan balance at
the end of the lease term does not exceed the original
appraised value of the real estate;
(b) The lease payments cover or exceed the total debt
service over the life of the loan;
(c) A tenant or its affiliated entity, whose rated
credit instruments have a SVO 1 or 2 designation or a
comparable rating from a nationally recognized statistical
rating organization recognized by the SVO, has a full faith
and credit obligation to make the lease payments;
(d) The insurer holds or is the beneficial holder of a
first lien mortgage on the real estate;
(e) The expenses of the real estate are passed through
to the tenant, excluding exterior, structural, parking and
heating, ventilation and air conditioning replacement
expenses, unless annual escrow contributions, from cash flows
derived from the lease payments, cover the expense shortfall;
and
(f) There is a perfected assignment of the rents due
pursuant to the lease to, or for the benefit of, the insurer.
B. Income producing real estate.
(1) An insurer may acquire, manage and dispose of real
estate situated in a domestic jurisdiction either directly or
indirectly through limited partnership interests and general
partnership interests not otherwise prohibited by Section
126.5D, joint ventures, stock of an investment subsidiary or
membership interests in a limited liability company, trust
certificates, or other similar instruments. The real estate
shall be income producing or intended for improvement or
development for investment purposes under an existing program
(in which case the real estate shall be deemed to be income
producing).
(2) The real estate may be subject to mortgages, liens
or other encumbrances, the amount of which shall, to the
extent that the obligations secured by the mortgages, liens
or encumbrances are without recourse to the insurer, be
deducted from the amount of the investment of the insurer in
the real estate for purposes of determining compliance with
subsections D(2) and D(3) of this Section.
C. Real estate for the accommodation of business.
An insurer may acquire, manage, and dispose of real
estate for the convenient accommodation of the insurer's
(which may include its affiliates) business operations,
including home office, branch office and field office
operations.
(1) Real estate acquired under this subsection may
include excess space for rent to others, if the excess space,
valued at its fair market value, would otherwise be a
permitted investment under subsection B of this Section and
is so qualified by the insurer;
(2) The real estate acquired under this subsection may
be subject to one or more mortgages, liens or other
encumbrances, the amount of which shall, to the extent that
the obligations secured by the mortgages, liens or
encumbrances are without recourse to the insurer, be deducted
from the amount of the investment of the insurer in the real
estate for purposes of determining compliance with subsection
D(4) of this Section; and
(3) For purposes of this subsection, business operations
shall not include that portion of real estate used for the
direct provision of health care services by an insurer whose
insurance premiums and required statutory reserves for
accident and health insurance constitute at least 95% of
total premium considerations or total statutory required
reserves, respectively. An insurer may acquire real estate
used for these purposes under subsection B of this Section.
D. Quantitative limitations.
(1) An insurer shall not acquire an investment under
subsection A of this Section if, as a result of and after
giving effect to the investment, the aggregate amount of all
investments then held by the insurer under subsection A of
this Section would exceed:
(a) 1% of its admitted assets in mortgage loans covering
any one secured location;
(b) 0.25% of its admitted assets in construction loans
covering any one secured location; or
(c) 1% of its admitted assets in construction loans in
the aggregate.
(2) An insurer shall not acquire an investment under
subsection B of this Section if, as a result of and after
giving effect to the investment and any outstanding
guarantees made by the insurer in connection with the
investment, the aggregate amount of investments then held by
the insurer under subsection B of this Section plus the
guarantees then outstanding would exceed:
(a) 1% of its admitted assets in any one parcel or group
of contiguous parcels of real estate, except that this
limitation shall not apply to that portion of real estate
used for the direct provision of health care services by an
insurer whose insurance premiums and required statutory
reserves for accident and health insurance constitute at
least 95% of total premium considerations or total statutory
required reserves, respectively, such as hospitals, medical
clinics, medical professional buildings or other health
facilities used for the purpose of providing health services;
or
(b) The lesser of 10% of its admitted assets or 40% of
its surplus as regards policyholders in the aggregate, except
for an insurer whose insurance premiums and required
statutory reserves for accident and health insurance
constitute at least 95% of total premium considerations or
total statutory required reserves, respectively, this
limitation shall be increased to 15% of its admitted assets
in the aggregate.
(3) An insurer shall not acquire an investment under
subsection A or B of this Section if, as a result of and
after giving effect to the investment and any guarantees it
has made in connection with the investment, the aggregate
amount of all investments then held by the insurer under
subsections A and B of this Section plus the guarantees then
outstanding would exceed 25% of its admitted assets.
(4) The limitations of Section 126.23 shall not apply to
an insurer's acquisition of real estate under subsection C of
this Section. An insurer shall not acquire real estate under
subsection C of this Section if, as a result of and after
giving effect to the acquisition, the aggregate amount of all
real estate then held by the insurer under subsection C of
this Section would exceed 10% of its admitted assets. With
the permission of the Director, additional amounts of real
estate may be acquired under subsection C of this Section.
(215 ILCS 5/126.29 new)
Sec. 126.29. Securities lending and repurchase, reverse
repurchase, and dollar roll transactions. An insurer may
enter into securities lending, repurchase, reverse
repurchase, and dollar roll transactions with business
entities, subject to the following requirements:
A. The insurer's board of directors shall adopt a
written plan that is consistent with the requirements of the
written plan in Section 126.4A that specifies guidelines and
objectives to be followed, such as:
(1) A description of how cash received will be invested
or used for general corporate purposes of the insurer;
(2) Operational procedures to manage interest rate risk,
counterparty default risk, the conditions under which
proceeds from reverse repurchase transactions may be used in
the ordinary course of business and the use of acceptable
collateral in a manner that reflects the liquidity needs of
the transaction; and
(3) The extent to which the insurer may engage in these
transactions.
B. The insurer shall enter into a written agreement for
all transactions authorized in this Section other than dollar
roll transactions. The written agreement shall require that
each transaction terminate no more than one year from its
inception or upon the earlier demand of the insurer. The
agreement shall be with the business entity counterparty, but
for securities lending transactions, the agreement may be
with an agent acting on behalf of the insurer, if the agent
is a qualified business entity, and if the agreement:
(1) Requires the agent to enter into separate agreements
with each counterparty that are consistent with the
requirements of this Section; and
(2) Prohibits securities lending transactions pursuant
to the agreement with the agent or its affiliates.
C. Cash received in a transaction under this Section
shall be invested in accordance with this Article and in a
manner that recognizes the liquidity needs of the transaction
or used by the insurer for its general corporate purposes.
For so long as the transaction remains outstanding, the
insurer, its agent or custodian shall maintain, as to
acceptable collateral received in a transaction under this
Section, either physically or through the book entry systems
of the Federal Reserve, Depository Trust Company,
Participants Trust Company or other securities depositories
approved by the Director:
(1) Possession of the acceptable collateral;
(2) A perfected security interest in the acceptable
collateral; or
(3) In the case of a jurisdiction outside of the United
States, title to, or rights of a secured creditor to, the
acceptable collateral.
D. The limitations of Sections 126.23 and 126.30 shall
not apply to the business entity counterparty exposure
created by transactions under this Section. For purposes of
calculations made to determine compliance with this
subsection, no effect will be given to the insurer's future
obligation to resell securities, in the case of a repurchase
transaction, or to repurchase securities, in the case of a
reverse repurchase transaction. An insurer shall not enter
into a transaction under this Section if, as a result of and
after giving effect to the transaction:
(1) The aggregate amount of securities then loaned or
sold to, or purchased from, any one business entity
counterparty under this Section would exceed 5% of its
admitted assets. In calculating the amount sold to or
purchased from a business entity counterparty under
repurchase or reverse repurchase transactions, effect may be
given to netting provisions under a master written agreement;
or
(2) The aggregate amount of all securities then loaned,
sold to or purchased from all business entities under this
Section would exceed 40% of its admitted assets but the
limitation of this subsection shall not apply to reverse
repurchase transactions for so long as the borrowing is used
to meet operational liquidity requirements resulting from an
officially declared catastrophe and subject to a plan
approved by the Director.
E. In a dollar roll transaction, the insurer shall
receive cash in an amount at least equal to the market value
of the securities transferred by the insurer in the
transaction as of the transaction date.
F. The Director may promulgate reasonable rules for
investments and transactions under this Section including,
but not limited to, rules which impose financial solvency
standards, valuation standards, and reporting requirements.
(215 ILCS 5/126.30 new)
Sec. 126.30. Foreign investments and foreign currency
exposure.
A. Subject to the limitations of Section 126.23, an
insurer may acquire directly or indirectly through an
investment subsidiary, foreign investments, or engage in
investment practices with persons of or in foreign
jurisdictions, of substantially the same types as those that
an insurer is permitted to acquire under this Article, other
than of the type permitted under Section 126.25, if, as a
result and after giving effect to the investment:
(1) The aggregate amount of foreign investments then
held by the insurer under this subsection does not exceed 20%
of its admitted assets; and
(2) The aggregate amount of foreign investments then
held by the insurer under this subsection in a single foreign
jurisdiction does not exceed 10% of its admitted assets as to
a foreign jurisdiction that has a sovereign debt rating of
SVO 1 or 5% of its admitted assets as to any other foreign
jurisdiction.
B. Subject to the limitations of Section 126.23, an
insurer may acquire investments, or engage in investment
practices denominated in foreign currencies, whether or not
they are foreign investments acquired under subsection A of
this Section, or additional foreign currency exposure as a
result of the termination or expiration of a hedging
transaction with respect to investments denominated in a
foreign currency, if, as a result of and after giving effect
to the transaction:
(1) The aggregate amount of investments then held by the
insurer under this subsection denominated in foreign
currencies does not exceed 15% of its admitted assets; and
(2) The aggregate amount of investments then held by the
insurer under this subsection denominated in the foreign
currency of a single foreign jurisdiction does not exceed 10%
of its admitted assets as to a foreign jurisdiction that has
a sovereign debt rating of SVO 1 or 5% of its admitted assets
as to any other foreign jurisdiction.
(3) However, an investment shall not be considered
denominated in a foreign currency if the acquiring insurer
enters into one or more contracts in transactions permitted
under Section 126.31 in which the business entity
counterparty agrees to exchange, or grants to the insurer the
option to exchange, all payments made on the foreign currency
denominated investment (or amounts equivalent to the payments
that are or will be due to the insurer in accordance with the
terms of such investment) for United States currency during
the period the contract or contracts are in effect to
insulate the insurer against loss caused by diminution of the
value of payments owed to the insurer due to future changes
in currency exchange rates.
C. In addition to investments permitted under
subsections A and B of this Section, an insurer that is
authorized to do business in a foreign jurisdiction, and that
has outstanding insurance, annuity or reinsurance contracts
on lives or risks resident or located in that foreign
jurisdiction and denominated in foreign currency of that
jurisdiction, may acquire foreign investments respecting that
foreign jurisdiction, and may acquire investments denominated
in the currency of that jurisdiction, subject to the
limitations of Section 126.23. However, investments made
under this subsection in obligations of foreign governments,
their political subdivisions and government sponsored
enterprises shall not be subject to the limitations of
Section 126.23 if those investments carry an SVO rating of 1
or 2. The aggregate amount of investments acquired by the
insurer under this subsection shall not exceed the greater
of:
(1) The amount the insurer is required by law to invest
in the foreign jurisdiction; or
(2) 125% of the amount of its reserves, net of
reinsurance, and other obligations under the contracts.
D. In addition to investments permitted under
subsections A and B of this Section, an insurer that is not
authorized to do business in a foreign jurisdiction but which
has outstanding insurance, annuity or reinsurance contracts
on lives or risks resident or located in a foreign
jurisdiction and denominated in foreign currency of that
jurisdiction, may acquire foreign investments respecting that
foreign jurisdiction, and may acquire investments denominated
in the currency of that jurisdiction subject to the
limitations set forth of Section 126.24. However, investments
made under this subsection in obligations of foreign
governments, their political subdivisions and government
sponsored enterprises shall not be subject to the limitations
of Section 126.23 if those investments carry an SVO rating of
1 or 2. The aggregate amount of investments acquired by the
insurer under this subsection shall not exceed 105% of the
amount of its reserves, net of reinsurance, and other
obligations under the contracts on risks resident or located
in the foreign jurisdiction.
E. Investments acquired under this Section shall be
aggregated with investments of the same types made under all
other Sections of this Article, and in a similar manner, for
purposes of determining compliance with the limitations, if
any, contained in the other Sections. Investments in
obligations of foreign governments, their political
subdivisions and government sponsored enterprises of these
persons, except for those exempted under subsections C and D
of this Section, shall be subject to the limitations of
Section 126.23.
(215 ILCS 5/126.31 new)
Sec. 126.31. Derivative transactions. An insurer may,
directly or indirectly through an investment subsidiary,
engage in derivative transactions under this Section under
the following conditions:
A. General conditions.
(1) An insurer may use derivative instruments under this
Section to engage in hedging transactions and income
generation transactions.
(2) An insurer may use derivative instruments for
replication transactions only after the Director promulgates
reasonable rules that set forth methods of disclosure,
reserving for risk-based capital, and determining the asset
valuation reserve for these investments. Any asset being
replicated is subject to all the provisions and limitations
on the making thereof specified in this Article with respect
to investments by the insurer as if the transaction
constituted a direct investment by the insurer in the
replicated asset.
(3) With respect to all hedging transactions, an insurer
shall be able to demonstrate to the Director the intended
hedging characteristics and the ongoing effectiveness of the
derivative transaction or combination of transactions through
cash flow testing or other appropriate analyses.
(4) The Director may promulgate reasonable rules for
investments and transactions under this Section including,
but not limited to, rules which impose financial solvency
standards, valuation standards, and reporting requirements.
B. Limitations on hedging transactions.
An insurer may enter into hedging transactions under this
Section if, as a result of and after giving effect to the
transaction:
(1) The aggregate statement value of options, caps,
floors and warrants not attached to another financial
instrument purchased and used in hedging transactions then
engaged in by the insurer does not exceed 7.5% of its
admitted assets;
(2) The aggregate statement value of options, caps and
floors written in hedging transactions then engaged in by the
insurer does not exceed 3% of its admitted assets; and
(3) The aggregate potential exposure of collars, swaps,
forwards and futures used in hedging transactions then
engaged in by the insurer does not exceed 6.5% of its
admitted assets.
C. Limitations on income generation transactions.
An insurer may enter into the following types of income
generation transactions subject to the quantitative limits of
subsection C(4):
(1) Sales of covered call options on noncallable fixed
income securities, callable fixed income securities if the
option expires by its terms prior to the end of the
noncallable period or derivative instruments based on fixed
income securities;
(2) Sales of covered call options on equity securities,
if the insurer holds in its portfolio, or can immediately
acquire through the exercise of options, warrants or
conversion rights already owned, the equity securities
subject to call during the complete term of the call option
sold; or
(3) Sales of covered puts on investments that the
insurer is permitted to acquire under this Article, if the
insurer has escrowed, or entered into a custodian agreement
segregating, cash or cash equivalents with a market value
equal to the amount of its purchase obligations under the put
during the complete term of the put option sold.
(4) If as a result of and after giving effect to the
transactions, the aggregate statement value of the fixed
income assets that are subject to call plus the face value of
fixed income securities underlying a derivative instrument
subject to call, plus the amount of the purchase obligations
under the puts, does not exceed 10% of its admitted assets.
D. Counterparty exposure. An insurer shall include all
counterparty exposure amounts in determining compliance with
the limitations of Section 126.23.
E. Additional transactions. Pursuant to rules
promulgated under Section 126.8, the Director may approve
additional transactions involving the use of derivative
instruments in excess of the limits of subsection B of this
Section or for other risk management purposes.
(215 ILCS 5/126.32 new)
Sec. 126.32. Additional investment authority.
A. Under this Section, an insurer may acquire
investments or engage in investment practices of any kind
that are not specifically prohibited by Section 126.5 and are
not derivative instruments without regard to any limitation
in Sections 126.23 through 126.30, but an insurer shall not
acquire an investment or engage in an investment practice
under this Section if, as a result of and after giving effect
to the transaction, the aggregate amount of the investments
then held by the insurer under this Section would exceed the
greater of:
(1) Its unrestricted surplus; or
(2) The lesser of:
(a) 10% of its admitted assets; or
(b) 50% of its surplus as regards policyholders.
B. An insurer shall not acquire any investment or engage
in any investment practice under subsection A(2) of this
Section if, as a result of and after giving effect to the
transaction the aggregate amount of all investments in any
one person then held by the insurer under that subsection
would exceed 5% of its admitted assets.
(215 ILCS 5/124 rep. through 125.24a rep.)
Section 10. The Illinois Insurance Code is amended by
repealing Sections 124 through 125.24a.
Section 15. The Illinois Insurance Code is amended by
changing Sections 3.1, 26, 53, 74, 111, 131.3, 136, and
245.21 as follows:
(215 ILCS 5/3.1) (from Ch. 73, par. 615.1)
Sec. 3.1. Definitions of admitted assets. "Admitted
Assets" includes the investments authorized or permitted by
this Code, the credit for reinsurance allowed by this Code,
and in addition thereto, only the following:
(a) Petty cash and other cash funds in the company's
principal or any official branch office and under the control
of the company.
(b) Immediately withdrawable funds on deposit in demand
accounts, in a bank or trust company as defined in Section
126.2MMM(1) 124.7c or like funds actually in the principal or
any official branch office at statement date, and, in transit
to such bank or trust company with authentic deposit credit
given prior to the close of business on the fifth bank
working day following the statement date.
(c) The amount fairly estimated as recoverable on cash
deposited in a closed bank or trust company, if qualifying
under the provisions of this Section prior to the suspension
of such bank or trust company.
(d) Bills and accounts receivable collateralized by
securities of the kind in which the company is authorized to
invest.
(e) Bills receivable not past due covering uncollected
premiums taken by a company in the transaction of business
described in Class 3 of Section 4, in an amount not to exceed
the unearned premium reserve liability calculated on each
respective policy.
(f) For in force insurance coverages written by fire,
casualty, and reciprocal companies, excluding group accident
and health business, premium deposits, gross premiums, and
agents' balances (net of related commissions) not more than
90 days past due; installments booked but deferred and not
yet due (net of related commissions), provided that all
amounts having become due from the insured are not more than
90 days past due; and audit and retrospective premium to the
extent permitted to be admitted pursuant to the Annual
Statement Instructions and the Accounting Practices and
Procedures Manual for Property and Casualty Insurers
published by the National Association of Insurance
Commissioners, unless the Director prescribes otherwise.
However, audit and retrospective premiums that represent
anticipated additional premiums on policies for which the
policy period has not yet expired may not be admitted.
(g) Net amount of uncollected premiums on group life and
group accident and health policies, not more than 90 days
past due.
(h) Due and uncollected accident and health premiums on
in force individual policies, on insurance written by Class
1, Section 4 companies, less commissions due thereon to
agents; not exceeding in the aggregate the premium reserve
liability computed on such business.
(i) Premium notes, policy loans and liens, and the net
amount of uncollected and deferred premiums on individual
life insurance policies, not in excess of the liability for
the legal reserves specified in Section 223 or 281 of this
Code on such individual life insurance policies.
(j) Premium and assessment notes, certificate loans and
liens, and the gross amount less loading, of premiums or
assessments actually collected by subordinate lodges not yet
turned over to the Supreme Lodge on individual life insurance
certificates not in excess of the liability for the legal
reserves specified in Section 297.1 or 305.1 on such
individual life insurance certificates.
(k) Mortuary assessments due and unpaid on last call
made within 60 days, on insurance in force and for which
notices have been issued, not in excess of the liability for
the unpaid claims which are to be paid by the proceeds.
(l) Amounts fairly estimated as recoverable from
advances made on contracts under surety bonds.
(m) Amounts receivable from insurance companies
authorized to do business in this State and from associations
or bureaus owned or controlled by 5 or more separate and
nonaffiliated, by ownership or management, insurance
companies of which a majority thereof are authorized to
transact business in this State. The amount of those
receivables allowed as admitted assets may not exceed the
lesser of 5% of the company's total admitted assets or 10% of
the company's surplus as regards policyholders. Amounts
receivable from insurance companies or associations or
bureaus not meeting the preceding standards of this Section
if collateralized in the manner prescribed by Section 173.1.
(n) Tax refunds due from the United States or any state,
the Government of Canada or any province, or the Commonwealth
of Puerto Rico or amounts due to a subsidiary from a parent
under a tax allocation agreement that conforms with rules
adopted by the Director.
(o) The interest accrued on mortgage loans conforming to
this Code, not exceeding an aggregate amount on an individual
loan of one year's total due and accrued interest.
(p) The rents accrued and owing to the company on real
and personal property, directly or beneficially owned, not
exceeding on each individual property the amount of one
year's total due and accrued rent.
(q) Interest or rents accrued on conditional sales
agreements, security interests, chattel mortgages and real or
personal property under lease to other corporations, all
conforming to this Code, and not exceeding on any individual
investment, the amount of one year's total due and accrued
interest or rent.
(r) The fixed and required interest due and accrued on
bonds and other like evidences of indebtedness, conforming to
this Code, and not in default.
(s) Dividends receivable on shares of stock conforming
to this Code; provided that the market price taken for
valuation purposes does not include the value of the
dividend.
(t) The interest or dividends due and payable, but not
credited, on deposits in banks and trust companies or on
accounts with savings and loan associations.
(u) Interest accrued on secured loans conforming to this
Code, not exceeding the amount of one year's interest on any
loan.
(v) Interest accrued on tax anticipation warrants.
(w) The value of electronic computer or data processing
machines or systems purchased for use in connection with the
business of the company, if such machines or systems whenever
purchased have an aggregate original cost to the company of
at least $75,000. The amortized value of such machines or
systems at the end of any calendar year shall not be greater
than the original purchase price less 10% for each completed
year, or pro rata portion for any fraction thereof, after
such purchase, with the total admissible value at any
statement date to be limited to an amount not exceeding 2% of
the company's admitted assets at such statement date.
(x) Amounts, other than premium, receivable from
affiliates, not outstanding for more than 3 months, and
arising under, management contracts or service agreements
which meet the requirements of Section 141.1 of the Illinois
Insurance Code to the extent that the affiliate has liquid
assets sufficient to pay the balance. The amount of those
receivables included in admitted assets may not exceed the
lesser of 5% of the company's admitted assets or 10% of the
company's surplus as regards policyholders. For purposes of
this subsection, "affiliate" has the meaning given that term
in Article VIII 1/2 of the Illinois Insurance Code.
(y) Property and liability guaranty fund or guaranty
association assessments paid in any state, but only to the
extent it is probable the company will be able to offset
those assessments against present or future premium taxes or
income taxes payable in the state in which the assessments
were paid. The amount of those assessments allowed as
admitted assets may not exceed the lesser of 5% of the
company's total admitted assets or 10% of the company's
surplus as regards policyholders. The Director may disallow
any such assessment as an admitted asset to the extent he
determines a company is unlikely to realize a present or
future premium tax or income tax offset as a result of the
assessment.
(Source: P.A. 88-364; 88-535; 88-627, eff. 9-9-94; 89-97,
eff. 7-7-95; 89-669, eff. 1-1-97.)
(215 ILCS 5/26) (from Ch. 73, par. 638)
Sec. 26. Deposit. Every company subject to the provisions
of this Article shall make and maintain with the Director for
the protection of all creditors, policyholders and policy
obligations of the company, a deposit of securities which are
authorized investments under Section 126.11A(1), 126.11A(2),
126.24A(1), or 126.24A(2) Sections 125.1a and 125.2a having a
fair market value equal to the minimum capital and surplus
required to be maintained under Section 13.
(Source: P.A. 88-364.)
(215 ILCS 5/53) (from Ch. 73, par. 665)
Sec. 53. Deposit. Each company subject to the provisions
of this Article shall make and maintain with the Director for
the protection of all creditors, policyholders and policy
obligations of the company, a deposit of securities which are
authorized investments under Section 126.11A(1), 126.11A(2),
126.24A(1), or 126.24A(2) Sections 125.1a and 125.2a having a
fair market value equal to the minimum surplus required to be
maintained under Section 43.
(Source: P.A. 88-364.)
(215 ILCS 5/74) (from Ch. 73, par. 686)
Sec. 74. Deposit.
(1) Each domestic reciprocal subject to the provisions
of this Article shall make and maintain with the Director
for the protection of all creditors, policyholders and policy
obligations of such reciprocal, a deposit of securities which
are authorized investments under Section 126.11A(1),
126.11A(2), 126.24A(1), or 126.24A(2) Sections 125.1a and
125.2a having a fair market value equal to the surplus
required to be maintained under Section 66.
(Source: P.A. 88-364.)
(215 ILCS 5/111) (from Ch. 73, par. 723)
Sec. 111. Conditions of issuance of certificate of
authority.
(1) Before a certificate of authority to transact
business in this State is issued to a foreign or alien
company, such company shall satisfy the Director that:
(a) the company is duly organized under the laws of
the state or country under whose laws it professes to be
organized and authorized to do the business it is
transacting or proposes to transact;
(b) its name is not the same as, or deceptively
similar to, the name of any domestic company, or of any
foreign or alien company authorized to transact business
in this State;
(c) if a company transacting business of the kind
or kinds enumerated in Class 1 of Section 4, it is not
engaging in practices in any state which if engaged in
this State, would constitute a violation of Section 237;
and it is not transacting any kinds of business other
than those enumerated in Class 1 of Section 4;
(d) if a stock company, it has a paid up capital
and surplus at least equal to the capital and original
surplus required by this Code for a domestic company
doing the same kind or kinds of business or, if a mutual
company or reciprocal, it has a surplus and provision for
contingent liability of policyholders, at least equal to
the original surplus and provision for contingent
liability of policyholders required for a similar
domestic company doing the same kind or kinds of
business, or, if a fraternal benefit society, it meets
the requirements prescribed in this Code for the
organization of a domestic company or society, or if a
Lloyds it meets the requirements of Article V;
(e) its funds are invested in accordance with the
laws of its domicile; and
(f) in the case of a stock company its minimum
capital and surplus and required reserves, or in the case
of a mutual company or a reciprocal proposing to issue
policies without contingent liability, its minimum
surplus and required reserves, or in the case of any
other company, all its funds, are invested in securities
or property which afford a degree of financial security
equal to that required for similar domestic companies,
provided that this clause shall not be construed as
requiring the application of limitations relating either
to the kind or amount of securities prescribed by this
Code for the investments of domestic companies.
(2) In determining whether an alien company complies
with the provisions of subsection (1) of this section the
Director shall consider only business transacted in the
United States, only the assets described in Section 60j and
only liabilities in connection with its United States
business.
(3) Before a certificate of authority is issued to a
foreign or alien company, other than a Lloyds, it shall
deposit with the Director securities which are authorized
investments for similar domestic companies under Section
126.11A(1), 126.11A(2), 126.24A(1), or 126.24A(2) Sections
125.1a and 125.2a of the amount, if any, required of a
domestic company similarly organized and doing the same kind
or kinds of business; or in lieu of such deposit such foreign
or alien company shall satisfy the Director that it has on
deposit with an official of a state of the United States or a
depositary designated or authorized for such purpose by such
official, authorized by the law of such state to accept such
deposit, securities of at least a like amount, for the
benefit and security of all creditors, policyholders and
policy obligations of such company in the United States.
(4) Before issuing a certificate of authority to a
foreign or alien company, the Director may cause an
examination to be made of the condition and affairs of such
company.
(Source: P.A. 88-364.)
(215 ILCS 5/131.3) (from Ch. 73, par. 743.3)
Sec. 131.3. (1) Investments in common stock, preferred
stock, debt obligations or other securities of subsidiaries
made under Section 131.2 of this Article are subject to
Sections 126.3, 126.4, 126.5, 126.6, 126.7, 124.1, 124.2,
124.3, 124.6, 125a and 133 of this Code but are not subject
to any other of the otherwise applicable restrictions or
prohibitions contained in this Code applicable to such
investments of a domestic company subject to this Code.
(2) If a company ceases to control a subsidiary, it must
dispose of any investment therein made under this section
within 3 years from the time of the cessation of control or
within such further time as the Director may prescribe,
unless at any time after the investment is made, the
investment meets the requirements for investment under any
other section of this Code, and the company has notified the
Director thereof.
(Source: P.A. 84-805.)
(215 ILCS 5/136) (from Ch. 73, par. 748)
Sec. 136. Annual statement.
(1) Every company authorized to do business in this
State or accredited by this State shall file with the
Director by March 1st in each year 2 copies of its financial
statement for the year ending December 31st immediately
preceding on forms prescribed by the Director, which shall
conform substantially to the form of statement adopted by the
National Association of Insurance Commissioners. Unless the
Director provides otherwise, the annual statement is to be
prepared in accordance with the annual statement instructions
and the Accounting Practices and Procedures Manual adopted by
the National Association of Insurance Commissioners. The
Director shall have power to make such modifications and
additions in this form as he may deem desirable or necessary
to ascertain the condition and affairs of the company. The
Director shall have authority to extend the time for filing
any statement by any company for reasons which he considers
good and sufficient. In every statement the admitted assets
shall be shown at the actual values as of the last day of the
preceding year, in accordance with Section 126.7 124.6. The
statement shall be verified by oaths of the president and
secretary of the company or, in their absence, by 2 other
principal officers. In addition, any company may be required
by the Director, when he considers that action to be
necessary and appropriate for the protection of
policyholders, creditors, shareholders, or claimants, to
file, within 60 days after mailing to the company a notice
that such is required, a supplemental summary statement as of
the last day of any calendar month occurring during the 100
days next preceding the mailing of such notice designated by
him on forms prescribed and furnished by the Director. The
Director may require supplemental summary statements to be
certified by an independent actuary deemed competent by the
Director or by an independent certified public accountant.
(2) The statement of an alien company shall embrace only
its condition and transactions in the United States and shall
be verified by the oaths of its resident manager or principal
representative in the United States, except that in the case
of any life company organized under the laws of Canada or any
province thereof, the statement may be verified by the oaths
of any of its principal officers designated for that purpose
by its board of directors.
(3) For the information of the public generally the
Director shall cause an abstract of the information contained
in the annual statement to be made available to the public as
soon as practicable after filing with the Department, by
printing those abstracts in pamphlet tabular form for free
general distribution by the Department, or by such other
publication in the city of Springfield or in the city of
Chicago as may be reasonably necessary more fully to inform
the public of the financial condition of companies
transacting business in this State.
(4) Each domestic, foreign, and alien insurer authorized
to do business in this State or accredited by this State
shall participate in the National Association of Insurance
Commissioners' Insurance Regulatory Information System,
including the payment of all fees and charges of the system.
Each company shall, on or before March 1 of each year, file
with the National Association of Insurance Commissioners a
copy of its annual financial statement along with any
additional filings prescribed by the Director for the
preceding year. The statement filed with the National
Association of Insurance Commissioners shall be in the same
format and scope as that required by this Code and shall
include a signed jurat page and actuarial certification. Any
amendments and addendums to the annual statement shall also
be filed with the National Association of Insurance
Commissioners. Each company shall also file with the National
Association of Insurance Commissioners annual and quarterly
financial statement information in computer readable format
as required by the Insurance Regulatory Information System.
Failure of a company to file financial statement information
in computer readable format shall subject the company to the
provisions of Section 139.
(5) All financial analysis ratios and examination
synopsis concerning insurance companies that are submitted to
the Director by the National Association of Insurance
Commissioners' Insurance Regulatory Information System are
confidential and may not be disclosed by the Director.
(Source: P.A. 87-1090; 88-364.)
(215 ILCS 5/245.21) (from Ch. 73, par. 857.21)
Sec. 245.21. A domestic life company, including for the
purposes of this Article all domestic fraternal beneficiary
associations, societies or companies which operate on a legal
reserve basis, may establish one or more separate accounts,
and may allocate thereto amounts (including without
limitation proceeds applied under optional modes of
settlement or under dividend options) to provide for life
insurance or annuities (and benefits incidental thereto),
payable in fixed or variable amounts or both, subject to the
following:
(1) The income, gains and losses, realized or
unrealized, from assets allocated to a separate account must
be credited to or charged against the account, without regard
to other income, gains or losses of the company.
(2) Except as may be provided with respect to reserves
for guaranteed benefits and funds referred to in paragraph
(3) of this Section (i) amounts allocated to any separate
account and accumulations thereon may be invested and
reinvested without regard to any requirements or limitations
of Part 2 or Part 3 of Article VIII Sections 125a through
125.24a of this Code and (ii) the investments in any separate
account or accounts may not be taken into account in applying
the investment limitations otherwise applicable to the
investments of the company.
(3) Except with the approval of the Director and under
the conditions as to investments and other matters as he may
prescribe, that must recognize the guaranteed nature of the
benefits provided, reserves for (i) benefits guaranteed as to
dollar amount and duration and (ii) funds guaranteed as to
principal amount or stated rate of interest may not be
maintained in a separate account.
(4) Unless otherwise approved by the Director, assets
allocated to a separate account must be valued at their
market value on the date of valuation, or if there is no
readily available market, then as provided in the contract or
the rules or other written agreement applicable to the
separate account. Unless otherwise approved by the Director,
the portion, if any, of the assets of the separate account
equal to the company's reserve liability with regard to the
guaranteed benefits and funds referred to in paragraph (3) of
this Section must be valued in accordance with the rules
otherwise applicable to the company's assets.
(5) Amounts allocated to a separate account under this
Article are owned by the company, and the company may not be,
nor hold itself out to be, a trustee with respect to those
amounts. The assets of any separate account equal to the
reserves and other contract liabilities with respect to the
account may not be charged with liabilities arising out of
any other business the company may conduct.
(6) No sale, exchange or other transfer of assets may be
made by a company between any of its separate accounts or
between any other investment account and one or more of its
separate accounts unless, in case of a transfer into a
separate account, the transfer is made solely to establish
the account or to support the operation of the contracts with
respect to the separate account to which the transfer is
made, and unless the transfer, whether into or from a
separate account, is made (i) by a transfer of cash, or (ii)
by a transfer of securities having a readily determinable
market value, if the transfer of securities is approved by
the Director. The Director may approve other transfers among
those accounts if, in his opinion, the transfers would not be
inequitable.
(7) To the extent a company considers it necessary to
comply with any applicable federal or state laws, the
company, with respect to any separate account, including
without limitation any separate account which is a management
investment company or a unit investment trust, may provide
for persons having an interest therein appropriate voting and
other rights and special procedures for the conduct of the
business of the account, including without limitation special
rights and procedures relating to investment policy,
investment advisory services, selection of independent public
accountants, and the selection of a committee, the members of
which need not be otherwise affiliated with the company, to
manage the business of the account.
(Source: P.A. 86-1154; 86-1156.)
Section 20. The Housing Development and Construction Act
is amended by changing Section 5 as follows:
(310 ILCS 20/5) (from Ch. 67 1/2, par. 57)
Sec. 5. Any grants paid hereunder to a housing authority
shall be deposited in a separate fund and, subject to the
approval of the Department of Commerce and Community Affairs,
may be used for any or all of the following purposes as the
needs of the community may require: the acquisition of land
by purchase, gift or condemnation and the improvement
thereof, the purchase and installation of temporary housing
facilities, the construction of housing units for rent or
sale to veterans, the families of deceased servicemen, and
for persons and families who by reason of overcrowded housing
conditions or displacement by eviction, fires or other
calamities, or slum clearance or other private or public
project involving relocation, are in urgent need of safe and
sanitary housing, the making of grants in connection with the
sale or lease of real property as provided in the following
paragraph of this section, and for any and all purposes
authorized by the "Housing Authorities Act," approved March
19, 1934, as amended, including administrative expenses of
the housing authorities in relation to the aforesaid
objectives, to the extent and for the purposes authorized and
approved by the Department of Commerce and Community Affairs.
Each housing authority is vested with power to exercise the
right of eminent domain for the purposes authorized by this
Act. Condemnation proceedings instituted by any such
authority shall be in all respects in the manner provided for
the exercise of the right of eminent domain under Article VII
of the Code of Civil Procedure, as amended.
In addition to the foregoing, and for the purpose of
facilitating the development and construction of housing,
housing authorities may, with the approval of the Department
of Commerce and Community Affairs, enter into contracts and
agreements for the sale or lease of real property acquired by
the Authority through the use of the grant hereunder, and may
sell or lease such property to (1) housing corporations
operating under "An Act in relation to housing," approved
July 12, 1933, as amended; (2) neighborhood redevelopment
corporations operating under the "Neighborhood Redevelopment
Corporation Law," approved July 9, 1941; (3) insurance
companies operating under Article VIII Section 125 of the
"Illinois Insurance Code," approved June 29, 1937, as
amended; (4) non-profit corporations organized for the
purpose of constructing, managing and operating housing
projects and the improvement of housing conditions, including
the sale or rental of housing units to persons in need
thereof; or (5) to any other individual, association or
corporation, including bona fide housing cooperatives,
desiring to engage in a development or redevelopment project.
The term "corporation" as used in this section, means a
corporation organized under the laws of this or any other
state of the United States, or of any country, which may
legally make investments in this State of the character
herein prescribed, including foreign and alien insurance
companies as defined in Section 2 of the "Illinois Insurance
Code." No sale or lease shall be made hereunder to any of the
aforesaid corporations, associations or individuals unless a
plan approved by the Authority has been presented by the
purchaser or lessee for the development or redevelopment of
such property, together with a bond, with satisfactory
sureties, of not less than 10% of the cost of such
development or redevelopment, conditioned upon the completion
of such development or redevelopment; provided that the
requirement of the bond may be waived by the Department of
Commerce and Community Affairs if it is satisfied of the
financial ability of the purchaser or lessee to complete such
development or redevelopment in accordance with the presented
plan. To further assure that the real property so sold or
leased shall be used in accordance with the plan, the
Department of Commerce and Community Affairs may require the
purchaser or lessee to execute in writing such undertakings
as the Department deems necessary to obligate such purchaser
or lessee (1) to use the property for the purposes presented
in the plan; (2) to commence and complete the building of the
improvements designated in the plan within the periods of
time that the Department of Commerce and Community Affairs
fixes as reasonable, and (3) to comply with such other
conditions as are necessary to carry out the purposes of this
Act. Any such property may be sold pursuant to this section
for any legal consideration in an amount to be approved by
the Department of Commerce and Community Affairs. Subject to
the approval of the Department of Commerce and Community
Affairs, a housing authority may pay to any non-profit
corporation of the character described in this section from
grants made available from state funds, such sum of money
which, when added to the value of the land so sold or leased
to such non-profit corporation and the value of other assets
of such non-profit corporation available for use in the
project, will enable such non-profit corporation to obtain
Federal Housing Administration insured construction
mortgages. Any such authority may also sell, transfer,
convey or assign to any such non-profit corporation any
personal property, including building materials and supplies,
as it deems necessary to facilitate the completion of the
development or redevelopment by such non-profit corporation.
If the area of operation of a housing authority includes
a city, village or incorporated town having a population in
excess of 500,000, as determined by the last preceding
Federal Census, no real property or interest in real property
shall be acquired in such municipality by the housing
authority until such time as the housing authority has
advised the governing body of such municipality of the
description of the real property, or interest therein,
proposed to be acquired, and the governing body of the
municipality has approved the acquisition thereof by the
housing authority.
(Source: P.A. 82-783.)
Section 25. The Blighted Areas Redevelopment Act of 1947
is amended by changing Section 19 as follows:
(315 ILCS 5/19) (from Ch. 67 1/2, par. 81)
Sec. 19. The Commission may at such times as it deems
expedient transfer and sell the fee simple title, or such
lesser estate as the Commission may have heretofore acquired
or may hereafter acquire, to all or any part of the real
property within the area of a redevelopment project not
disposed of in accordance with Sections 17, 18 and 18.1
hereof to (1) Neighborhood Redevelopment Corporations
operating under the "Neighborhood Redevelopment Corporation
Law", approved July 9, 1941, as amended, (2) Insurance
Companies operating under Article VIII Section 125.21a of the
"Illinois Insurance Code", approved June 29, 1937, as
amended, (3) any individual, association, or corporation,
organized under the laws of this State or of any other State
or country, which may legally make such investments in this
State, including foreign and alien insurance companies, as
defined in Section 2 of the Illinois Insurance Code, or (4)
bodies politic and corporate, public corporations, or any
private interests empowered by law to acquire, develop and
use such real property for such uses, public or private, as
are in accordance with an approved plan; provided, however,
that any sale of real property to a Housing Authority shall
be made only in accordance with the provisions of Sections 18
and 18.1 hereof. To assure that the real property so sold is
used in accordance with the approved plan referred to in
Section 19.1 hereof, the Commission shall inquire into and
satisfy itself concerning the financial ability of the
purchaser to complete the redevelopment in accordance with
the approved plan and shall require the purchaser to execute
in writing such undertakings as the Commission may deem
necessary to obligate the purchaser: (1) to use the land for
the purposes designated in the approved plan, (2) to commence
and complete the building of the improvements within the
periods of time which the Commission fixes as reasonable, and
(3) to comply with such other conditions as are necessary to
carry out the purposes of this Act. Any such area may be sold
either as an entirety or in such parcels as the Commission
shall deem expedient. It shall not be necessary that title be
acquired to all real property within the area of a
redevelopment project before the sale of a part thereof may
be made as provided herein. Any real property sold pursuant
to the foregoing provisions of this Section shall be sold at
its use value (which may be less than its acquisition cost),
which represents the value at which the Commission determines
such land should be made available in order that it may be
developed or redeveloped for the purposes specified in the
approved plan.
Any real property lying within the area of a
redevelopment project which has not been sold by the
Commission within 5 years after the Commission has acquired
title to all the real property within the area of that
redevelopment project, shall be forthwith sold by the
Commission at public sale for cash to the highest bidder
obligating himself in the manner set forth in the preceding
paragraph of this Section to redevelop the property in
accordance with the approved plan. Notice of such sale and of
the place where the approved plan may be inspected shall be
published once in a newspaper having a general circulation in
the municipality in which the real property is situated at
least 20 days prior to the date of such public sale, and
shall contain a description of the real property to be sold.
The Commission may reject the bids received if, in the
opinion of the Commission, the highest bid does not equal or
exceed the use value (as herein above defined) of the land to
be sold. At the expiration of six (6) months from the date of
rejecting bids, the Commission shall again advertise for sale
any real property then remaining unsold. Each publication
shall be subject to the same requirements and conditions as
the original publication.
(Source: P.A. 83-333.)
Section 99. Effective date. This Act takes effect upon
becoming law.