TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.10 AUTHORITY
Section 205.10 Authority
Part 205 is promulgated by the
Director of Insurance pursuant to Sections 401 and 144 of the Illinois
Insurance Code (Ill. Rev. Stat. 1985, ch. 73, pars. 1013 and 756), which
empowers the Director...to make reasonable rules and regulations as may be
necessary for making effective...the insurance laws of the State.
 | TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.20 PURPOSE
Section 205.20 Purpose
It is the purpose of this Part
to regulate the writing and servicing of municipal bond insurance.
| TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.30 DEFINITIONS
Section 205.30 Definitions
a) Municipal Bond Insurance – insurance or reinsurance against
financial loss by reason of nonpayment of principal, interest or other payment
obligations pursuant to the terms of municipal bonds as defined in subsection
(b) hereof.
b) Municipal Bond – any security (or other instrument under which
a payment obligation is created) issued by or on behalf of, or payable or
guaranteed by a state, territory or possession of the United States of America,
a municipality, or a political subdivision of any of the foregoing, or by any
public agency or instrumentality thereof.
c) Contingency Reserve – an additional premium reserve
established for the protection of insureds covered by policies insuring
municipal bonds against the effect of excessive losses occurring during adverse
economic cycles.
d) Cumulative Net Liability – the insured unpaid principal and
insured unpaid interest due or to become due covered by in-force policies of
municipal bond insurance, reduced by the appropriate allowance for acceptable
reinsurance.
e) Average Annual Debt Service – in respect to any issue or part
thereof of municipal bonds covered by an in-force policy, the product of the
total insured, unpaid principal and insured, unpaid interest thereon times the
number of such bonds (assuming that each $1,000 of par value represents one
bond), divided by an amount equal to the aggregate life (in years) of such
bonds (assuming that each $1,000 of par value represents one bond); i.e.:
|
(Unpaid
Principal + Unpaid Interest) x (Number of Bonds)
|
|
(Number
of Bond Years)
|
f) Industrial Revenue Bonds – municipal bonds issued primarily to
finance property for use in a trade or business and without a substantial
public purpose, and backed by a revenue source other than a governmental unit
described in the definition of municipal bonds above.
g) Insurer – includes a company engaged in the reinsurance of
municipal bonds unless the text provides otherwise.
| TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.40 REQUIREMENTS
Section 205.40 Requirements
a) Any direct insurer issuing contracts insuring municipal bonds
must:
1) be authorized to write the kinds of business defined in Class
2(g) and 2(h) of Section 4 of the Illinois Insurance Code (Ill. Rev. Stat.
1985, ch. 73, par. 616), and
2) have a policyholders' surplus and contingency reserve of not
less than $50,000,000 as shown by its last annual statement on file with the
Director.
b) Any insurer issuing contracts insuring municipal bonds shall
establish a contingency reserve which shall consist of allocations of sums
representing fifty percent (50%) of the earned premiums on policies insuring
municipal bonds. Allocations to such reserve made during each calendar year
shall be maintained for a period of at least 240 months, except that
withdrawals may be made by the company in any year and to the extent that the
actual incurred losses on policies insuring municipal bonds exceed thirty-five
percent (35%) of the earned premiums thereon or, notwithstanding the foregoing,
withdrawals may be made by the company in any year and to the extent that the
contingency reserve equals or exceeds one half of one percent (½%) of the
cumulative net liability. No such release shall be made without written notice
to the Director.
| TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.50 LIMITATIONS AND RESTRICTIONS
Section 205.50 Limitations
and Restrictions
a)
1) In no event, shall the insured average annual debt service
(net of the appropriate allowance for acceptable reinsurance and collateral
allowable under Section 205.80) in respect to securities, backed by a single
revenue source, exceed an amount representing ten percent (10%) of the
insurer's policyholders' surplus plus its contingency reserve.
2) In no event, shall the insured unpaid principal (net of the
appropriate allowance for acceptable reinsurance and collateral allowable under
Section 205.80) in respect to securites backed by a single revenue source, when
added to the admitted value of the securities of such source in which the
insurer has invested, exceed amount representing seventy-five percent (75%) of
the insurer's policyholders' surplus plus its contingency reserve.
3) In no event, shall twice the outstanding cumulative net
liability under policies in force insuring industrial revenue bonds described
in subsection 205.30(f) plus the outstanding cumulative net liability under
policies in force insuring all other municipal bonds exceed:
A) 300 times the sum of the insurer's policyholders' surplus plus
its contingency reserve if the insurer transacts only municipal bond insurance,
or
B) 60 times the sum of the insurer's policyholders' surplus plus
its contingency reserve if the insurer transacts any insurance in addition to
municipal bond insurance.
b) In the event that the requirement of subsection (a)(2) is
exceeded because of municipal bond insurance written prior to the effective
date of this Part, then
1) the insurer shall not transact any new insurance of securities
backed by such a single revenue source as described in subsection (a)(2), and
2) the insurer shall not invest in any additional securities of
such single revenue source as described in subsection (a)(2), unless and until
the requirement of subsection (a)(2) has been met.
c) In the event that an insurer exceeds the limitation in
subsection (a)(3), it shall not transact any new insurance of municipal bonds
until the such excess no longer exists.
d) No insurer authorized to transact the business of insuring
municipal bonds shall pay any commission or make any gift of money, property or
other valuable thing to any employee, agent or representative of any issuer of
municipal bonds or of any underwriter of any issue of such bonds, as an
inducement to the purchase of a policy insuring such bonds, and no such
employee, agent or representative of such issuer or underwriter shall receive
any such payment or gift. However, violation of the provisions of this section
shall not have the effect of rendering void the insurance policy issued by the
insurer.
e) Any insurer that transacts any insurance other than municipal
bond insurance may not have more than twenty percent (20%) of its gross (direct
plus assumed) written premiums, net of acceptable reinsurance, in any one year
represented by municipal bond premiums.
| TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.60 FINANCIAL STATEMENTS
Section 205.60 Financial
Statements
a) A municipal bond insurer shall maintain an unearned premium
reserve computed to show gross premiums, without any deductions, received and
receivable upon all unexpired risks, net of reinsurance, on a monthly pro rata
basis, except that in the case of premiums paid more than one (1) year in
advance, the premiums shall be earned proportionally with the expiration of
exposure, or by such other method which will correlate the expiration of
exposure with the premium earned as the Director may prescribe or approve when
the company's exposure to loss does not correlate with the passage of time.
b) In addition to the contingency reserve, a municipal bond
insurer shall compute and maintain reserves for losses and loss adjustment
expenses for claims reported and unpaid determined by use of the case basis
method or, when the requirements of Section 378 of the Insurance Code will not
be met by the case basis method, such other methods as the Director may
prescribe or approve which produces the reserves required by Section 378 of the
Insurance Code. (Ill. Rev. Stat. 1985, ch. 73, par. 990).
1) Except as otherwise permitted by the Director, no deduction
shall be made for anticipated salvage in computing case basis loss reserves
unless such salvage is held by or under the control of the insurer and would
qualify as an admitted asset under Section 3.1 of the Illinois Insurance Code
(Ill. Rev. Stat. 1985, ch. 73, par. 615.1) or unless such salvage constitutes
or is secured by a clean, irrevocable letter of credit.
2) A deduction from reserves for losses shall be allowed for the
time value of money by application of a discount rate equal to the average rate
of return on the admitted assets of the insurer as of the date of the
computation of any such reserve. The discount rate shall be adjusted annually
on the last day of each year. No deduction from reserves for losses shall be
otherwise allowed for the time value of money unless the insurer can satisfy
the Director that bonds, notes and other fixed income investment, as authorized
under Sections 124 through 125.24a of the Illinois Insurance Code (Ill. Rev.
Stat. 1985, ch. 73, pars. 736 through 737.24a inclusive) sufficient to meet
obligations for insured unpaid principal and insured unpaid interest calculated
to the redemption of the defaulted issue have been deposited in trust for the
purpose of meeting such obligations.
3) If the insured principal and interest on a defaulted issue of
bonds due and payable over the period of the next three years exceeds ten
percent (10%) of the insurer's policyholders' surplus plus its contingency
reserve, and such default is a default in payment of sums due, the insurer's
reserve shall be supported by a report from a qualified independent source if
the reserve is set up for less than the entire unpaid insured principal and
unpaid insured interest to redemption.
c) Treatment of Contingency Reserve on Financial Statements
1) The contingency reserve required by subsection 205.40(b) shall
be reported as a separate liability in all statutory financial statements. Any
increase or decrease in the contingency reserve for the period shall be
reported as a direct adjustment to surplus and shown separately in the Capital
and Surplus Account of the Underwriting and Investment Exhibit.
2) For purposes of determining whether a dividend or distribution
is extraordinary pursuant to Section 131.20 of the Illinois Insurance Code
(Ill. Rev. Stat. 1985, ch. 73, par. 743.20(3)), the change in the contingency
reserve shall be included as net income (loss) for the period.
| TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.70 REINSURANCE
Section 205.70 Reinsurance
a) An insurer qualified to write municipal bond insurance may, by
contract, reinsure any such insurance it transacts, provided that credit in
accounting and financial statements for reinsurance ceded shall be allowed only
if the reinsurer is either:
1) An insurer, authorized in Illinois to write the kinds of
business defined in Class 2(g) and 2(h) of Section 4 of the Illinois Insurance
Code (Ill. Rev. Stat. 1985, ch. 73, par. 616), which has policyholders' surplus
of not less than twenty-five million dollars ($25,000,000), or
2) An insurer that meets the surplus requirements of subsection
205.70(a)(1) hereof, but is not licensed in Illinois; however, such credit
shall be allowed only to the extent and under the conditions specified in
Section 173.1(2) of the Illinois Insurance Code (Ill Rev. Stat. 1985, ch. 73,
par. 785.1(2)). The security requirements of such sections shall also cover
any contingency reserve established by such reinsurer.
b) The contingency reserve required by subsection 205.40(b) shall
not be reduced by reason of any risk ceded unless the risk is ceded to a
reinsurer described in subsection (a)(1) or (2) hereof and provided such
reinsurer establishes the reserves required in subsections 205.40(b) and 205.60
with respect to the ceded portion of the risk.
c)
1) A municipal bond insurer may not reinsure such insurance with
affiliated companies unless the limitations of Section 205.50 are measured
against the consolidated policyholders' surplus of such affiliated insurers.
2) Subsection 205.70(a) hereof does not diminish the
applicability of Section 173.1 of the Illinois Insurance Code (Ill Rev. Stat.
1985, ch. 73, par. 785.1).
| TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.80 COLLATERAL SECURITY
Section 205.80 Collateral
Security
An insurer transacting municipal
bond insurance as defined in Section 205.30 insurer may, for the purposes of
Section 205.50, treat the amount of a clean, irrevocable letter of credit or
other assets which would qualify under Section 173.1(2) of the Illinois
Insurance Code (Ill. Rev. Stat. 1985, ch.73, par. 171.1(2)) deposited with it
or held in trust to secure payment of the insured principal and interest, as a
reduction in the amount of exposure insured.
| TITLE 50: INSURANCE
CHAPTER I: DEPARTMENT OF INSURANCE
SUBCHAPTER b: DOMESTIC STOCK COMPANIES
PART 205
MUNICIPAL BOND INSURANCE
SECTION 205.90 APPLICABILITY OF OTHER LAWS
Section 205.90 Applicability
of Other Laws
a) All the applicable provisions of the Illinois Insurance Code
and the Illinois Insurance Regulations of the Department of Insurance and of
other statutes and regulations of this State, except as the same may be in
conflict herewith, shall apply to the operation and conduct of business
described herein as municipal bond insurance.
b) This Part does not prohibit any surety or municipal bond
insurer from directly obtaining or receiving any form of collateral as security
for its protection.
|
|
|
|
|
|
|
|
|
