Public Act 098-0910
 
HB4725 EnrolledLRB098 18521 RPM 53658 b

    AN ACT concerning regulation.
 
    Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
 
    Section 10. The Illinois Insurance Code is amended by
changing Sections 131.16, 131.20a, and 139 and adding Article
VIII 1/4 as follows:
 
    (215 ILCS 5/Art. VIII 1/4 heading new)
ARTICLE VIII 1/4. RISK MANAGEMENT AND
OWN RISK AND SOLVENCY ASSESSMENT

 
    (215 ILCS 5/129 new)
    Sec. 129. Short title. This Article may be cited as the
Risk Management and Own Risk and Solvency Assessment Law.
 
    (215 ILCS 5/129.1 new)
    Sec. 129.1. Purpose and scope. The purpose of this Article
is to provide the requirements for maintaining a risk
management framework and completing an own risk and solvency
assessment (ORSA) and provide guidance and instructions for
filing an ORSA summary report with the Director.
    The requirements of this Article shall apply to all
insurers domiciled in this State unless exempt pursuant to
Section 129.7.
    The General Assembly finds and declares that an ORSA
summary report will contain confidential and sensitive
information related to an insurer or insurance group's
identification of risks material and relevant to the insurer or
insurance group filing the report. This information will
include proprietary and trade secret information that has the
potential for harm and competitive disadvantage to the insurer
or insurance group if the information is made public. It is the
intent of this General Assembly that the ORSA summary report
shall be a confidential document filed with the Director, that
the ORSA summary report shall be shared only as stated herein
and to assist the Director in the performance of his or her
duties, and that in no event shall an ORSA summary report be
subject to public disclosure.
 
    (215 ILCS 5/129.2 new)
    Sec. 129.2. Definitions. In this Article:
    "Insurance group", for the purpose of conducting an ORSA,
means those insurers and affiliates included within an
insurance holding company system as defined in Section 131.1 of
this Code.
    "Insurer" has the same meaning as set forth in Section 2 of
this Code, except that it shall not include agencies,
authorities, or instrumentalities of the United States or its
possessions or territories, the Commonwealth of Puerto Rico,
the District of Columbia, or a state or political subdivision
of a state.
    "Own risk and solvency assessment" or "ORSA" means a
confidential internal assessment, appropriate to the nature,
scale, and complexity of an insurer or insurance group,
conducted by that insurer or insurance group of the material
and relevant risks associated with the insurer or insurance
group's current business plan, and the sufficiency of capital
resources to support those risks.
    "ORSA Guidance Manual" means the current version of the Own
Risk and Solvency Assessment Guidance Manual developed and
adopted by the National Association of Insurance Commissioners
(NAIC) and as amended from time to time. A change in the ORSA
Guidance Manual shall be effective on the January 1 following
the calendar year in which the changes have been adopted by the
NAIC.
    "ORSA summary report" means a confidential high-level
summary of an insurer or insurance group's ORSA.
 
    (215 ILCS 5/129.3 new)
    Sec. 129.3. Risk management framework. An insurer shall
maintain a risk management framework to assist the insurer with
identifying, assessing, monitoring, managing, and reporting on
its material and relevant risks. The requirement of this
Section may be satisfied if the insurance group of which the
insurer is a member maintains a risk management framework
applicable to the operations of the insurer.
 
    (215 ILCS 5/129.4 new)
    Sec. 129.4. ORSA requirement. Subject to Section 129.7 of
this Code, an insurer, or the insurance group of which the
insurer is a member, shall regularly conduct an ORSA consistent
with a process comparable to the ORSA Guidance Manual. The ORSA
shall be conducted no less than annually but also at any time
when there are significant changes to the risk profile of the
insurer or the insurance group of which the insurer is a
member.
 
    (215 ILCS 5/129.5 new)
    Sec. 129.5. ORSA summary report.
    (a) Upon the Director's request, and no more than once each
year, an insurer shall submit to the Director an ORSA summary
report or any combination of reports that together contain the
information described in the ORSA Guidance Manual, applicable
to the insurer and the insurance group of which it is a member.
Notwithstanding any request from the Director, if the insurer
is a member of an insurance group, the insurer shall submit the
report or reports required by this subsection (a) if the
Director is the lead state commissioner of the insurance group
as determined by the procedures within the Financial Analysis
Handbook adopted by the National Association of Insurance
Commissioners.
    (b) The report or reports shall include a signature of the
insurer or insurance group's chief risk officer or other
executive having responsibility for the oversight of the
insurer's enterprise risk management process attesting to the
best of his or her belief and knowledge that the insurer
applies the enterprise risk management process described in the
ORSA summary report and that a copy of the report has been
provided to the insurer's board of directors or the appropriate
committee thereof.
    (c) An insurer may comply with subsection (a) of this
Section by providing the most recent and substantially similar
report or reports provided by the insurer or another member of
an insurance group of which the insurer is a member to the
commissioner of another state or to a supervisor or regulator
of a foreign jurisdiction, if that report provides information
that is comparable to the information described in the ORSA
Guidance Manual. Any such report in a language other than
English must be accompanied by a translation of that report
into the English language.
    (d) The first filing of the ORSA summary report shall be in
2015.
 
    (215 ILCS 5/129.6 new)
    Sec. 129.6. Contents of ORSA summary report.
    (a) The ORSA summary report shall be prepared consistent
with the ORSA Guidance Manual, subject to the requirements of
subsection (b) of this Section. Documentation and supporting
information shall be maintained and made available upon
examination or upon the request of the Director.
    (b) The review of the ORSA summary report, and any
additional requests for information, shall be made using
similar procedures currently used in the analysis and
examination of multi-state or global insurers and insurance
groups.
 
    (215 ILCS 5/129.7 new)
    Sec. 129.7. Exemption.
    (a) An insurer shall be exempt from the requirements of
this Article if:
        (1) the insurer has annual direct written and
    unaffiliated assumed premium, including international
    direct and assumed premium, but excluding premiums
    reinsured with the Federal Crop Insurance Corporation and
    Federal Flood Program, less than $500,000,000; and
        (2) the insurance group of which the insurer is a
    member has annual direct written and unaffiliated assumed
    premium, including international direct and assumed
    premium, but excluding premiums reinsured with the Federal
    Crop Insurance Corporation and Federal Flood Program, less
    than $1,000,000,000.
    (b) If an insurer qualifies for exemption pursuant to item
(1) of subsection (a) of this Section, but the insurance group
of which the insurer is a member does not qualify for exemption
pursuant to item (2) of subsection (a) of this Section, then
the ORSA summary report that may be required pursuant to
Section 129.5 of this Code shall include every insurer within
the insurance group. This requirement may be satisfied by the
submission of more than one ORSA summary report for any
combination of insurers, provided any combination of reports
includes every insurer within the insurance group.
    (c) If an insurer does not qualify for exemption pursuant
to item (1) of subsection (a) of this Section, but the
insurance group of which it is a member qualifies for exemption
pursuant to item (2) of subsection (a) of this Section, then
the only ORSA summary report that may be required pursuant to
Section 129.5 shall be the report applicable to that insurer.
    (d) An insurer that does not qualify for exemption pursuant
to subsection (a) of this Section may apply to the Director for
a waiver from the requirements of this Article based upon
unique circumstances. In deciding whether to grant the
insurer's request for waiver, the Director may consider the
type and volume of business written, ownership and
organizational structure, and any other factor the Director
considers relevant to the insurer or insurance group of which
the insurer is a member. If the insurer is part of an insurance
group with insurers domiciled in more than one state, the
Director shall coordinate with the lead state commissioner and
with the other domiciliary commissioners in considering
whether to grant the insurer's request for a waiver.
    (e) Notwithstanding the exemptions stated in this Section,
the following provisions shall apply:
        (1) The Director may require that an insurer maintain a
    risk management framework, conduct an ORSA, and file an
    ORSA summary report based on unique circumstances,
    including, but not limited to, the type and volume of
    business written, ownership and organizational structure,
    federal agency requests, and international supervisor
    requests.
        (2) The Director may require that an insurer maintain a
    risk management framework, conduct an ORSA, and file an
    ORSA summary report if the insurer has risk-based capital
    for a company action level event as set forth in Section
    35A-15 of this Code, meets one or more of the standards of
    an insurer deemed to be in hazardous financial condition as
    defined in Section 186.1 of this Code, or otherwise
    exhibits qualities of a troubled insurer as determined by
    the Director.
    (f) If an insurer that qualifies for an exemption pursuant
to subsection (a) of this Section subsequently no longer
qualifies for that exemption due to changes in premium as
reflected in the insurer's most recent annual statement or in
the most recent annual statements of the insurers within the
insurance group of which the insurer is a member, the insurer
shall have one year following the year the threshold is
exceeded to comply with the requirements of this Article.
 
    (215 ILCS 5/129.8 new)
    Sec. 129.8. Confidentiality.
    (a) Documents, materials, or other information, including
the ORSA summary report, in the possession or control of the
Department that are obtained by, created by, or disclosed to
the Director or any other person under this Article, is
recognized by this State as being proprietary and to contain
trade secrets. All such documents, materials, or other
information shall be confidential by law and privileged, shall
not be subject to the Freedom of Information Act, shall not be
subject to subpoena, and shall not be subject to discovery or
admissible in evidence in any private civil action. However,
the Director is authorized to use the documents, materials, or
other information in the furtherance of any regulatory or legal
action brought as a part of the Director's official duties. The
Director shall not otherwise make the documents, materials, or
other information public without the prior written consent of
the insurer.
    (b) Neither the Director nor any person who received
documents, materials, or other ORSA-related information,
through examination or otherwise, while acting under the
authority of the Director or with whom such documents,
materials, or other information are shared pursuant to this
Article shall be permitted or required to testify in any
private civil action concerning any confidential documents,
materials, or information subject to subsection (a) of this
Section.
    (c) In order to assist in the performance of regulatory
duties, the Director may:
        (1) upon request, share documents, materials, or other
    ORSA-related information, including the confidential and
    privileged documents, materials, or information subject to
    subsection (a) of this Section, including proprietary and
    trade secret documents and materials with other state,
    federal, and international financial regulatory agencies,
    including members of any supervisory college as defined in
    the Section 131.20c of this Code, with the NAIC, and with
    any third-party consultants designated by the Director,
    provided that the recipient agrees in writing to maintain
    the confidentiality and privileged status of the
    ORSA-related documents, materials, or other information
    and has verified in writing the legal authority to maintain
    confidentiality; and
        (2) receive documents, materials, or other
    ORSA-related information, including otherwise confidential
    and privileged documents, materials, or information,
    including proprietary and trade-secret information or
    documents, from regulatory officials of other foreign or
    domestic jurisdictions, including members of any
    supervisory college as defined in the Section 131.20c of
    this Code, and from the NAIC, and shall maintain as
    confidential or privileged any documents, materials, or
    information received with notice or the understanding that
    it is confidential or privileged under the laws of the
    jurisdiction that is the source of the document, material,
    or information.
    (d) The Director shall enter into a written agreement with
the NAIC or a third-party consultant governing sharing and use
of information provided pursuant to this Article, consistent
with this Section that shall:
        (1) specify procedures and protocols regarding the
    confidentiality and security of information shared with
    the NAIC or a third-party consultant pursuant to this
    Article, including procedures and protocols for sharing by
    the NAIC with other state regulators from states in which
    the insurance group has domiciled insurers; the agreement
    shall provide that the recipient agrees in writing to
    maintain the confidentiality and privileged status of the
    ORSA-related documents, materials, or other information
    and has verified in writing the legal authority to maintain
    confidentiality;
        (2) specify that ownership of information shared with
    the NAIC or a third-party consultant pursuant to this
    Article remains with the Director and the NAIC's or a
    third-party consultant's use of the information is subject
    to the direction of the Director;
        (3) prohibit the NAIC or third-party consultant from
    storing the information shared pursuant to this Article in
    a permanent database after the underlying analysis is
    completed;
        (4) require prompt notice to be given to an insurer
    whose confidential information in the possession of the
    NAIC or a third-party consultant pursuant to this Article
    is subject to a request or subpoena to the NAIC or a
    third-party consultant for disclosure or production;
        (5) require the NAIC or a third-party consultant to
    consent to intervention by an insurer in any judicial or
    administrative action in which the NAIC or a third-party
    consultant may be required to disclose confidential
    information about the insurer shared with the NAIC or a
    third-party consultant pursuant to this Article; and
        (6) in the case of an agreement involving a third-party
    consultant, provide for the insurer's written consent.
    (e) The sharing of information and documents by the
Director pursuant to this Article shall not constitute a
delegation of regulatory authority or rulemaking, and the
Director is solely responsible for the administration,
execution, and enforcement of the provisions of this Article.
    (f) No waiver of any applicable privilege or claim of
confidentiality in the documents, proprietary and trade-secret
materials, or other ORSA-related information shall occur as a
result of disclosure of such ORSA-related information or
documents to the Director under this Section or as a result of
sharing as authorized in this Article.
    (g) Documents, materials, or other information in the
possession or control of the NAIC or any third-party
consultants pursuant to this Article shall be confidential by
law and privileged, shall not be subject to the Freedom of
Information Act, shall not be subject to subpoena, and shall
not be subject to discovery or admissible in evidence in any
private civil action.
 
    (215 ILCS 5/129.9 new)
    Sec. 129.9. Sanctions. Any insurer failing, without just
cause, to timely file the ORSA summary report as required in
this Article shall be required, after notice and hearing, to
pay a penalty of $200 for each day's delay, to be recovered by
the Director, and the penalty so recovered shall be paid into
the General Revenue Fund of this State. The Director may reduce
the penalty if the insurer demonstrates to the Director that
the imposition of the penalty would constitute a financial
hardship to the insurer.
 
    (215 ILCS 5/131.16)  (from Ch. 73, par. 743.16)
    Sec. 131.16. Reporting material changes or additions;
penalty for late registration statement.
    (1) Each registered company must keep current the
information required to be included in its registration
statement by reporting all material changes or additions on
amendment forms designated by the Director within 15 days after
the end of the month in which it learns of each change or
addition, or within a longer time thereafter as the Director
may establish. Any transaction which has been submitted to the
Director pursuant to Section 131.20a need not be reported to
the Director under this subsection; except each registered
company must report all dividends and other distributions to
shareholders within 5 15 business days following the
declaration, and no less than 10 business days prior to payment
thereof.
    (2) On or before May 1 each year, each company subject to
registration under this Article shall file a statement in a
format as designated by the Director. This statement shall
include information previously included in an amendment under
subsection (1) of this Section, transactions and agreements
submitted under Section 131.20a, and any other material
transactions which are required to be reported.
    (2.5) Any person within an insurance holding company system
subject to registration shall be required to provide complete
and accurate information to a company where the information is
reasonably necessary to enable the company to comply with the
provisions of this Article.
    (3) Any company failing, without just cause, to file any
registration statement, any summary of changes to a
registration statement, or any Enterprise Risk Filing or any
person within an insurance holding company system who fails to
provide complete and accurate information to a company as
required in this Code shall be required, after notice and
hearing, to pay a penalty of up to $1,000 for each day's delay,
to be recovered by the Director of Insurance of the State of
Illinois, using the notice and hearing procedure in subsection
(2) of Section 403A of this Code, and the penalty so recovered
shall be paid into the General Revenue Fund of the State of
Illinois. The maximum penalty under this section is $50,000.
The Director may reduce the penalty if the company demonstrates
to the Director that the imposition of the penalty would
constitute a financial hardship to the company.
(Source: P.A. 98-609, eff. 1-1-14.)
 
    (215 ILCS 5/131.20a)  (from Ch. 73, par. 743.20a)
    Sec. 131.20a. Prior notification of transactions;
dividends and distributions.
    (1) (a) The following transactions listed in items (i)
through (vii) involving a domestic company and any person in
its insurance holding company system, including amendments or
modifications (other than termination) of affiliate agreements
previously filed pursuant to this Section, which are subject to
any materiality standards contained in this Section, may not be
entered into unless the company has notified the Director in
writing of its intention to enter into such transaction at
least 30 days prior thereto, or such shorter period as the
Director may permit, and the Director has not disapproved it
within such period. The notice for amendments or modifications
(other than termination) shall include the reasons for the
change and the financial impact on the domestic company.
Informal notice shall be reported, within 30 days after a
termination of a previously filed agreement, to the Director
for determination of the type of filing required, if any.
        (i) Sales, purchases, exchanges of assets, loans or
    extensions of credit, guarantees, investments, or any
    other transaction, except dividends, that involves the
    transfer of assets from or liabilities to a company (A)
    equal to or exceeding the lesser of 3% of the company's
    admitted assets or 25% of its surplus as regards
    policyholders as of the 31st day of December next preceding
    or (B) that is proposed when the domestic company is not
    eligible to declare and pay a dividend or other
    distribution pursuant to the provisions of Section 27.
        (ii) Loans or extensions of credit to any person that
    is not an affiliate (A) that involve the lesser of 3% of
    the company's admitted assets or 25% of the company's
    surplus, each as of the 31st day of December next
    preceding, made with the agreement or understanding that
    the proceeds of such transactions, in whole or in
    substantial part, are to be used to make loans or
    extensions of credit to, to purchase assets of, or to make
    investments in, any affiliate of the company making such
    loans or extensions of credit or (B) that are proposed when
    the domestic company is not eligible to declare and pay a
    dividend or other distribution pursuant to the provisions
    of Section 27.
        (iii) Reinsurance agreements or modifications thereto,
    including all reinsurance pooling agreements, reinsurance
    agreements in which the reinsurance premium or a change in
    the company's liabilities, or the projected reinsurance
    premium or a change in the company's liabilities in any of
    the next 3 years, equals or exceeds 5% of the company's
    surplus as regards policyholders, as of the 31st day of
    December next preceding, including those agreements that
    may require as consideration the transfer of assets from a
    company to a nonaffiliate, if an agreement or understanding
    exists between the company and nonaffiliate that any
    portion of those assets will be transferred to one or more
    affiliates of the company.
        (iv) All management agreements; service contracts,
    other than agency contracts; tax allocation agreements;
    all reinsurance allocation agreements related to
    reinsurance agreements required to be filed under this
    Section; and all cost-sharing arrangements.
        (v) Direct or indirect acquisitions or investments in a
    person that controls the company, or in an affiliate of the
    company, in an amount which, together with its present
    holdings in such investments, exceeds 2.5% of the company's
    surplus as regards policyholders. Direct or indirect
    acquisitions or investments in subsidiaries acquired
    pursuant to Section 131.2 of this Article (or authorized
    under any other Section of this Code), or in non-subsidiary
    insurance affiliates that are subject to the provisions of
    this Article, are exempt from this requirement.
        (vi) Any series of the previously described
    transactions that are substantially similar to each other,
    that take place within any 180 day period, and that in
    total are equal to or exceed the lesser of 3% of the
    domestic company's admitted assets or 25% of its
    policyholders surplus, as of the 31st day of the December
    next preceding.
        (vii) Any other material transaction that the Director
    by rule determines might render the company's surplus as
    regards policyholders unreasonable in relation to the
    company's outstanding liabilities and inadequate to its
    financial needs or may otherwise adversely affect the
    interests of the company's policyholders or shareholders.
    Nothing herein contained shall be deemed to authorize or
permit any transactions that, in the case of a company not a
member of the same holding company system, would be otherwise
contrary to law.
    (b) Any transaction or contract otherwise described in
paragraph (a) of this subsection that is between a domestic
company and any person that is not its affiliate and that
precedes or follows within 180 days or is concurrent with a
similar transaction between that nonaffiliate and an affiliate
of the domestic company and that involves amounts that are
equal to or exceed the lesser of 3% of the domestic company's
admitted assets or 25% of its surplus as regards policyholders
at the end of the prior year may not be entered into unless the
company has notified the Director in writing of its intention
to enter into the transaction at least 30 days prior thereto or
such shorter period as the Director may permit, and the
Director has not disapproved it within such period.
    (c) A company may not enter into transactions which are
part of a plan or series of like transactions with any person
within the holding company system if the purpose of those
separate transactions is to avoid the statutory threshold
amount and thus avoid the review that would occur otherwise. If
the Director determines that such separate transactions were
entered into for such purpose, he may exercise his authority
under subsection (2) of Section 131.24.
    (d) The Director, in reviewing transactions pursuant to
paragraph (a), shall consider whether the transactions comply
with the standards set forth in Section 131.20 and whether they
may adversely affect the interests of policyholders.
    (e) The Director shall be notified within 30 days of any
investment of the domestic company in any one corporation if
the total investment in that corporation by the insurance
holding company system exceeds 10% of that corporation's voting
securities.
    (f) Except for those transactions subject to approval under
other Sections of this Code, any such transaction or agreements
which are not disapproved by the Director may be effective as
of the date set forth in the notice required under this
Section.
    (g) If a domestic company enters into a transaction
described in this subsection without having given the required
notification, the Director, using the notice and hearing
procedure in subsection (2) of Section 403A of this Code, may
cause the company to pay a civil forfeiture of not more than
$250,000. Each transaction so entered shall be considered a
separate offense.
    (2) No domestic company subject to registration under
Section 131.13 may pay any extraordinary dividend or make any
other extraordinary distribution to its shareholders until:
(a) 30 days after the Director has received notice of the
declaration thereof and has not within such period disapproved
the payment, or (b) the Director approves such payment within
the 30-day period. For purposes of this subsection, an
extraordinary dividend or distribution is any dividend or
distribution of cash or other property whose fair market value,
together with that of other dividends or distributions, made
within the period of 12 consecutive months ending on the date
on which the proposed dividend is scheduled for payment or
distribution exceeds the greater of: (a) 10% of the company's
surplus as regards policyholders as of the 31st day of December
next preceding, or (b) the net income of the company for the
12-month period ending the 31st day of December next preceding,
but does not include pro rata distributions of any class of the
company's own securities.
    Notwithstanding any other provision of law, the company may
declare an extraordinary dividend or distribution which is
conditional upon the Director's approval, and such a
declaration confers no rights upon security holders until: (a)
the Director has approved the payment of the dividend or
distribution, or (b) the Director has not disapproved the
payment within the 30-day period referred to above.
(Source: P.A. 98-609, eff. 1-1-14.)
 
    (215 ILCS 5/139)  (from Ch. 73, par. 751)
    Sec. 139. Penalties for late or false annual statement.
    (1) Any company failing, without just cause, to file its
financial statements as required in this Code shall be
required, after notice and hearing, to pay a penalty of up to
$1,000 for each day's delay, to be recovered by the Director of
Insurance of the State of Illinois using the notice and hearing
procedure in subsection (2) of Section 403A of this Code, and
the penalty so recovered shall be paid into the General Revenue
fund of the State of Illinois. The Director may reduce the
penalty if the company demonstrates to the Director that the
imposition of the penalty would constitute a financial hardship
to the company.
    Any statement which is not materially complete when filed
shall not be considered to have been properly filed until those
deficiencies which make the filing incomplete have been
corrected and filed.
    (2) Any director, officer, agent or employee of any
company, who subscribes to, makes or concurs in making or
publishing any annual or other statement required by law,
knowing the same to contain any material statement which is
false shall, after notice and hearing, be guilty of a business
offense and shall be fined not more than $50,000.
    The penalty shall be paid into the General Revenue fund of
the State of Illinois.
(Source: P.A. 88-364.)
 
    Section 97. Severability. The provisions of this Act are
severable under Section 1.31 of the Statute on Statutes.
 
    Section 99. Effective date. This Act takes effect July 1,
2015.
INDEX
Statutes amended in order of appearance
    5 ILCS 140/7.5
    215 ILCS 5/Art. VIII 1/4
    heading new
    215 ILCS 5/129 new
    215 ILCS 5/129.1 new
    215 ILCS 5/129.2 new
    215 ILCS 5/129.3 new
    215 ILCS 5/129.4 new
    215 ILCS 5/129.5 new
    215 ILCS 5/129.6 new
    215 ILCS 5/129.7 new
    215 ILCS 5/129.8 new
    215 ILCS 5/129.9 new
    215 ILCS 5/131.16from Ch. 73, par. 743.16
    215 ILCS 5/131.20afrom Ch. 73, par. 743.20a
    215 ILCS 5/139from Ch. 73, par. 751