SB0465sam001 99TH GENERAL ASSEMBLY

Sen. William R. Haine

Filed: 5/17/2016

09900SB0465sam001 LRB099 03204 EGJ 48704 a

AMENDMENT TO SENATE BILL 465

AMENDMENT NO. ______. Amend Senate Bill 465 by replacing everything after the enacting clause with the following:

"Section 5. The Illinois Insurance Code is amended by changing Sections 121-2.08, 123C-1, 123C-2, 123C-3, 123C-4, 123C-5, 123C-6, 123C-7, 123C-8, 123C-9, 123C-10, 123C-11, 123C-12, 123C-13, 123C-14, 123C-15, 123C-16, 123C-17, 123C-18, 123C-19, 123C-20, 123C-21, and 123C-22 and by adding Sections 123C-23, 123C-24, 123C-25, 123C-26, 123C-27, 123C-28, 123C-29, 123C-30, 123C-31, 123C-32, 123C-33, 123C-34, and 123C-35 as follows:

(215 ILCS 5/121-2.08) (from Ch. 73, par. 733-2.08)

Sec. 121-2.08. Transactions in this State involving contracts of insurance independently procured directly from an unauthorized insurer by industrial insureds.

(a) As used in this Section:

"Exempt commercial purchaser" means exempt commercial purchaser as the term is defined in subsection (1) of Section 445 of this Code.

"Home state" means home state as the term is defined in subsection (1) of Section 445 of this Code.

"Industrial insured" means an insured:

(i) that procures the insurance of any risk or risks of the kinds specified in Classes 2 and 3 of Section 4 of this Code by use of the services of a full-time employee who is a qualified risk manager or the services of a regularly and continuously retained consultant who is a qualified risk manager;

(ii) that procures the insurance directly from an unauthorized insurer without the services of an intermediary insurance producer; and

(iii) that is an exempt commercial purchaser whose home state is Illinois.

"Insurance producer" means insurance producer as the term is defined in Section 500-10 of this Code.

"Qualified risk manager" means qualified risk manager as the term is defined in subsection (1) of Section 445 of this Code.

"Unauthorized insurer" means unauthorized insurer as the term is defined in subsection (1) of Section 445 of this Code.

(b) For contracts of insurance effective January 1, 2015 or later, within 90 days after the effective date of each contract of insurance issued under this Section, the insured shall file a report with the Director by submitting the report to the Surplus Line Association of Illinois in writing or in a computer readable format and provide information as designated by the Surplus Line Association of Illinois. The information in the report shall be substantially similar to that required for surplus line submissions as described in subsection (5) of Section 445 of this Code. Where applicable, the report shall satisfy, with respect to the subject insurance, the reporting requirement of Section 12 of the Fire Investigation Act.

(c) For contracts of insurance effective January 1, 2015 or later, within 30 days after filing the report, the insured shall pay to the Director for the use and benefit of the State a sum equal to the gross premium of the contract of insurance multiplied by the surplus line tax rate, as described in paragraph (3) of subsection (a) of Section 445 of this Code, and shall pay the fire marshal tax that would otherwise be due annually in March for insurance subject to tax under Section 12 of the Fire Investigation Act. For contracts of insurance effective January 1, 2015 or later, within 30 days after filing the report, the insured shall pay to the Surplus Line Association of Illinois a countersigning fee that shall be assessed at the same rate charged to members pursuant to subsection (4) of Section 445.1 of this Code.

(d) For contracts of insurance effective January 1, 2015 or later, the insured shall withhold the amount of the taxes and countersignature fee from the amount of premium charged by and otherwise payable to the insurer for the insurance. If the insured fails to withhold the tax and countersignature fee from the premium, then the insured shall be liable for the amounts thereof and shall pay the amounts as prescribed in subsection (c) of this Section.

(e) Contracts of insurance with an industrial insured that qualifies as a Safety-Net Hospital shall not be subject to subsections (b) through (d) of this Section.

(Source: P.A. 98-978, eff. 1-1-15.)

(215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-1. Definitions. As used in this Article, unless the context requires otherwise:

"Affiliated company" means any company in the same corporate system as a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management.

"Alien captive insurance company" means any insurance company formed to write insurance business for its parents and affiliates and licensed under the laws of an alien jurisdiction that imposes statutory or regulatory standards in a form acceptable to the Director on companies transacting in the business of insurance in such jurisdiction.

"Association" means any legal association of individuals, corporations, limited liability companies, partnerships, associations, or other entities, the member organizations of which or which does itself, whether or not in conjunction with some or all of the member organizations:

(1) own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer;

(2) have complete voting control over an association captive insurance company incorporated as a mutual insurer;

(3) constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer; or

(4) have complete voting control over an association captive insurance company formed as a limited liability company.

"Association captive insurance company" means any company that insures risks of the member organizations of the association, and that also may insure the risks of affiliated companies of the member organizations and the risks of the association itself.

"Branch business" means any insurance business transacted by a branch captive insurance company in this State.

"Branch captive insurance company" means any alien captive insurance company licensed by the Director to transact the business of insurance in this State through a business unit with a principal place of business in this State.

"Branch operations" means any business operations of a branch captive insurance company in this State.

"Captive insurance company" means any pure captive insurance company, association captive insurance company, sponsored captive insurance company, industrial insured captive insurance company, or risk retention group, formed or licensed under the provisions of this Article. For purposes of this Article, a branch captive insurance company shall be a pure captive insurance company with respect to operations in this State, unless otherwise permitted by the Director.

"Controlled unaffiliated business" means any person:

(1) that is not in the corporate system of a parent and its affiliated companies in the case of a pure captive insurance company or that is not in the corporate system of an industrial insured and its affiliated companies in the case of an industrial insured captive insurance company;

(2) that has an existing contractual relationship with a parent or one of its affiliated companies in the case of a pure captive insurance company or with an industrial insured or one of its affiliated companies in the case of an industrial insured captive insurance company; and

(3) whose risks are managed by a pure captive insurance company or an industrial insured captive insurance company, as applicable, in accordance with Section 123C-18.

"Director" means the Director of Insurance.

"Excess workers' compensation insurance" means, in the case of an employer that has insured or self-insured its workers' compensation risks in accordance with applicable State or federal law, insurance in excess of a specified per-incident or aggregate limit established by the Director.

"Industrial insured" means an insured:

(1) who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer;

(2) whose aggregate annual premiums for insurance on all risks total at least $25,000; and

(3) who has at least 25 full-time employees.

"Industrial insured captive insurance company" means any company that insures risks of the industrial insureds that comprise the industrial insured group and that may insure the risks of the affiliated companies of the industrial insureds and the risks of the controlled unaffiliated business of an industrial insured or its affiliated companies.

"Industrial insured group" means any group of industrial insureds that collectively:

(1) own, control, or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer;

(2) have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer;

(3) constitute all of the subscribers of an industrial insured captive insurance company formed as a reciprocal insurer; or

(4) have complete voting control over an industrial insured captive insurance company formed as a limited liability company.

"Member organization" means any individual, corporation, limited liability company, partnership, association, or other entity that belongs to an association.

"Mutual corporation" means a corporation organized without stockholders and includes a nonprofit corporation with members.

"Parent" means a corporation, limited liability company, partnership, other entity, or individual, that directly or indirectly owns, controls, or holds with power to vote more than 50% of the outstanding voting:

(1) securities of a pure captive insurance company organized as a stock corporation;

(2) membership interests of a pure captive insurance company organized as a nonprofit corporation; or

(3) membership interests of a pure captive insurance company organized as a limited liability company.

"Pure captive insurance company" means any company that insures risks of its parent and affiliated companies or controlled unaffiliated business.

"Risk retention group" means a captive insurance company organized under the laws of this State pursuant to the Liability Risk Retention Act of 1986, 15 U.S.C. 3901 et seq., as amended, as a stock or mutual corporation, a reciprocal, or other limited liability entity.

"Safety-Net Hospital" means an Illinois hospital that qualifies as a Safety-Net Hospital as the term is defined in Section 5-5e.1 of the Public Aid Code. As used in this Article:

A. "Affiliate" or "Affiliated company" shall have the meaning set forth in subsection (a) of Section 131.1 (and, for purposes of such definition, the definitions of "control" and "person", as set forth in subsections (b) and (e) of Section 131.1, respectively, shall be applicable).

B. "Association" means any entity meeting the requirements set forth in either of the following paragraphs (1), (2) or (3):

(1) any organized association of individuals, legal representatives, corporations (whether for profit or not for profit), partnerships, trusts, associations, units of government or other organizations, or any combination of the foregoing, that has been in continuous existence for at least one year, the member organizations of which collectively:

(a) own, control, or hold with power to vote (directly or indirectly) all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(b) have complete voting control (directly or indirectly) over an association captive insurance company organized as a mutual insurer;

(2) any organized association of individuals, legal representatives, corporations (whether for profit or not for profit), partnerships, trusts, associations, units of government or other organizations, or any combination of the foregoing:

(a) whose member organizations are engaged in businesses or activities similar or related with respect to the liability of which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and

(b) whose member organizations:

(i) directly or indirectly own or control, and hold with power to vote, at least 80% of all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(ii) directly or indirectly have at least 80% of the voting control over an association captive insurance company organized as a mutual insurer; or

(3) any risk retention group, as defined in subsection (11) of Section 123B-2, domiciled in this State and organized under this Article; however, beginning 6 months after the effective date of this amendatory Act of 1995, a risk retention group shall no longer qualify as an association under this Article.

Provided, however, that with respect to each of the associations described in paragraphs (1), (2) and (3) above, no member organization may (i) own, control, or hold with power to vote in excess of 25% of the voting securities of an association captive insurance company incorporated as a stock insurer, or (ii) have more than 25% of the voting control of an association captive insurance company organized as a mutual insurer.

C. "Association captive insurance company" means any company that insures risks of (i) the member organizations of an association, and (ii) their affiliated companies.

D. "Captive insurance company" means any pure captive insurance company, association captive insurance company or industrial insured captive insurance company organized under the provisions of this Article.

E. "Director" means the Director of the Department of Insurance.

F. "Industrial insured" means an insured which (together with its affiliates) at the time of its initial procurement of insurance from an industrial insured captive insurance company:

(1) has available to it advice with respect to the purchase of insurance through the use of the services of a full-time employee acting as an insurance manager or buyer or the services of a regularly and continuously retained qualified insurance consultant; and

(2) pays aggregate annual premiums in excess of $100,000 for insurance on all risks except for life, accident and health; and

(3) either (i) has at least 25 full-time employees, or (ii) has gross assets in excess of $3,000,000, or (iii) has annual gross revenues in excess of $5,000,000.

G. "Industrial insured captive insurance company" means any company that insures risks of industrial insureds that are members of the industrial insured group, and their affiliated companies.

H. "Industrial insured group" means any group of industrial insureds that collectively:

(1) directly or indirectly (including ownership or control through a company which is wholly owned by such group of industrial insureds) own or control, and hold with power to vote, all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer; or

(2) directly or indirectly (including control through a company which is wholly owned by such group of industrial insureds) have complete voting control over an industrial insured captive insurance company organized as a mutual insurer; provided, however, that no member organization may (i) own, control, or hold with power to vote in excess of 25% of the voting securities of an industrial insured captive insurance company incorporated as a stock insurer, or (ii) have more than 25% of the voting control of an industrial insured captive insurance company organized as a mutual insurer.

I. "Member organization" means any individual, legal representative, corporation (whether for profit or not for profit), partnership, association, unit of government, trust or other organization that belongs to an association or an industrial insured group.

J. "Parent" means a corporation, partnership, individual or other legal entity that directly or indirectly owns, controls, or holds with power to vote more than 50% of the outstanding voting securities of a company.

K. "Personal risk liability" means liability to other persons for (i) damage because of injury to any person, (ii) damage to property, or (iii) other loss or damage, in each case resulting from any personal, familial, or household responsibilities or activities, but does not include legal liability for damages (including costs of defense, legal costs and fees, and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of:

(i) any business (whether for profit or not for profit), trade, product, services (including professional services), premises, or operations; or

(ii) any activity of any state or local government, or any agency or political subdivision thereof.

L. "Pure captive insurance company" means any company that insures only risks of its parent or affiliated companies or both.

M. "Unit of government" includes any state, regional or local government, or any agency or political subdivision thereof, or any district, authority, public educational institution or school district, public corporation or other unit of government in this State or any similar unit of government in any other state.

(Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)

(215 ILCS 5/123C-2) (from Ch. 73, par. 735C-2)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-2. Licensing; authority. Authority of captives; restrictions.

(a) Any captive insurance company, when permitted by its articles of association, charter, or other organizational document, may apply to the Director for a license to do any and all insurance and may grant annuity contracts; provided, however, that:

(1) no pure captive insurance company may insure any risks other than those of its parent and affiliated companies or controlled unaffiliated business unless those risks are reinsured;

(2) no association captive insurance company may insure any risks other than those of its association, those of the member organizations of its association, and those of a member organization's affiliated companies;

(3) no industrial insured captive insurance company may insure any risks other than those of the industrial insureds that comprise the industrial insured group, those of their affiliated companies, and those of the controlled unaffiliated business of an industrial insured or its affiliated companies;

(4) no risk retention group may insure any risks other than those of its members and owners;

(5) no captive insurance company may provide personal motor vehicle or homeowner's insurance coverage or any component thereof;

(6) no captive insurance company may accept or cede reinsurance except as provided in Section 123C-11 of this Article;

(7) any captive insurance company may provide excess workers' compensation insurance to its parent and affiliated companies, unless prohibited by the federal law or laws of the state having jurisdiction over the transaction. Any captive insurance company, unless prohibited by federal law, may reinsure workers' compensation of a qualified self-insured plan of its parent and affiliated companies; and

(8) any captive insurance company which insures risks shall comply with all applicable State and federal laws.

(b) No captive insurance company shall do any insurance business in this State unless:

(1) it first obtains from the Director a license authorizing it to do insurance business in this State;

(2) its board of directors or committee of managers or, in the case of a reciprocal insurer, its subscribers' advisory committee holds at least one meeting each year in this State;

(3) it maintains its principal place of business in this State; and

(4) it appoints a registered agent to accept service of process and to otherwise act on its behalf in this State; provided that whenever such registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the Secretary of State shall be an agent of such captive insurance company upon whom any process, notice, or demand may be served.

(c) Before receiving a license, a captive insurance company shall:

(1) file with the Director a certified copy of its organizational documents, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the Director; and

(2) submit to the Director for approval a description of the coverages, deductibles, coverage limits, and rates, together with such additional information as the Director may reasonably require. In the event of any subsequent material change in any item in such description, the captive insurance company shall submit to the Director for approval an appropriate revision and shall not offer any additional kinds of insurance directly related to the item under review until a revision of such description is approved by the Director. The captive insurance company shall inform the Director of any material change in rates within 30 days after the adoption of such change.

(d) Each applicant captive insurance company shall also file with the Director evidence of the following:

(1) the amount and liquidity of its assets relative to the risks to be assumed;

(2) the adequacy of the expertise, experience, and character of the person or persons who will manage it;

(3) the overall soundness of its plan of operation;

(4) the adequacy of the loss prevention programs of its insureds; and

(5) other factors deemed relevant by the Director in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

(e) Information submitted pursuant to this Section shall be and remain confidential and may not be made public by the Director or an employee or agent of the Director without the written consent of the company, except that:

(1) the information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted the information is a party, upon a showing by the party seeking to discover such information that:

(A) the information sought is relevant to and necessary for the furtherance of the action or case;

(B) the information sought is unavailable from other nonconfidential sources; and

(C) a subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the Director; provided, however, that it shall not apply to any risk retention group.

(f) The Director may, in the Director's discretion, disclose information to a public officer having jurisdiction over the regulation of insurance in another state, provided that:

(1) the public official shall agree in writing to maintain the confidentiality of the information; and

(2) the laws of the state in which the public official serves require the information to be and to remain confidential.

(g) Each captive insurance company shall pay to the Director a nonrefundable fee of $500.00 for examining, investigating, and processing its application for license and for issuing same. The Director is authorized to retain legal, financial, and examination services from outside the Department, the reasonable cost of which may be charged against the applicant. In addition, each captive insurance company shall pay a license renewal fee for each year thereafter of $500.

(h) If the Director is satisfied that the documents and statements that a captive insurance company has filed comply with the provisions of this Article, the Director may grant a license authorizing it to do insurance business in this State until April 1 thereafter, which license may be renewed.

(i) In the case of an application to establish a captive insurance company in order to redomesticate an alien captive insurance company in this State, the Director may grant a license authorizing the captive insurance company to do insurance business in this State following satisfactory review of the existing business plan filled by the alien captive insurance company in its jurisdiction. A. Any captive insurance company, when permitted by its articles of association or charter, may apply to the Director for a certificate of authority to transact any and all insurance in classes 2 and 3 of Section 4 of this Code, except that:

(1) no pure captive insurance company may insure any risks other than those of its parent and affiliated companies;

(2) no association captive insurance company may insure any risks other than those of the member organizations of its association, and their affiliated companies;

(3) no industrial insured captive insurance company may insure any risks other than those of the members of the industrial insured group, and their affiliated companies; and

(4) no captive insurance company may provide:

(i) personal motor vehicle coverage or homeowner's insurance coverage or any component thereof, or

(ii) personal coverage for personal risk liability, or

(iii) coverage for an employer's liability to its employees other than legal liability under the federal Employers' Liability Act (45 U.S.C. 51 et seq.), provided, however, this exclusion does not preclude reinsurance of such employer's liability, or

(iv) accident and health insurance as provided in clause (a) of Class 2 of Section 4, provided, however, this exclusion does not preclude stop-loss insurance or reinsurance of a single employer self-funded employee disability benefit plan or an employee welfare plan as described in 29 U.S.C. 1001 et seq.

B. No captive insurance company shall do any insurance business in this State unless:

(1) it first obtains from the Director a certificate of authority authorizing it to do such insurance business in this State; and

(2) it appoints a resident registered agent to accept service of process and to otherwise act on its behalf in this State.

C. No captive insurance company shall adopt a name that is the same as, deceptively similar to, or likely to be confused with or mistaken for, any other existing business name registered in this State.

D. Each captive insurance company, or the organizations providing the principal administrative or management services to such captive insurance company, shall maintain a place of business in this State.

(Source: P.A. 91-357, eff. 7-29-99.)

(215 ILCS 5/123C-3) (from Ch. 73, par. 735C-3)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-3. Names of companies Minimum Capital. No captive insurance company shall adopt a name that is the same, deceptively similar, or likely to be confused with or mistaken for any other existing business name registered in the State of Illinois.

A. No pure captive insurance company, association captive insurance company incorporated as a stock insurer, or industrial insured captive insurance company incorporated as a stock insurer shall be issued a certificate of authority unless it shall possess and thereafter maintain unimpaired paid-in capital of not less than the minimum capital requirement applicable to the class or classes and clause or clauses of Section 4 describing the kind or kinds of insurance which such captive insurance company is authorized to write, as set forth in subsection (1) of Section 13.

B. Such capital may be in the form of (1) all cash or cash equivalents; or (2) cash or cash equivalents representing at least 20% of the requisite capital, together with an irrevocable letter of credit for the remainder of the requisite capital, which letter of credit must (a) be approved by the Director, (b) be issued or unconditionally confirmed by (i) a bank chartered by this State, (ii) a member bank of the Federal Reserve System or (iii) a United States office of a foreign banking corporation that is: (A) licensed under the laws of the United States or any state thereof, (B) regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies, and (C) designated by the Securities Valuation Office of the National Association of Insurance Commissioners as meeting its credit standards for issuing or confirming letters of credit or, in the event that the Director elects to establish credit standards by rule, in compliance with rules promulgated by the Director establishing reasonable standards of safety and soundness substantially equivalent to those of the Securities Valuation Office of the National Association of Insurance Commissioners, and (c) satisfy the requirements of Section 123C-19; or (3) cash or cash equivalents representing at least 33% of the requisite capital, together with irrevocable contractual obligations of the member organizations of the captive insurance company for the payment of the remainder of the requisite capital in no more than 3 equal installments in each of the 3 calendar years following the date of the grant of the certificate of authority to the captive insurance company, which irrevocable contractual obligations shall by contract be subject to acceleration (in a manner acceptable to the Director) by the Company at the direction of the Director and shall be secured by a letter of credit or other form of guarantee or security acceptable to the Director.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-4) (from Ch. 73, par. 735C-4)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-4. Minimum capital and surplus; letter of credit. Minimum Surplus.

(a) No captive insurance company shall be issued a license unless it shall possess and thereafter maintain unimpaired paid-in capital and surplus of:

(1) for a pure captive insurance company, not less than $250,000;

(2) for an association captive insurance company, not less than $500,000;

(3) for an industrial insured captive insurance company, not less than $500,000;

(4) for a risk retention group, not less than $1,000,000; and

(5) for a sponsored captive insurance company, not less than $250,000.

(b) The Director may prescribe additional capital and surplus based upon the type, volume, and nature of insurance business transacted.

(c) Capital and surplus may be in the form of cash, marketable securities, a trust approved by the Director and of which the Director is the sole beneficiary, or an irrevocable letter of credit issued by a bank approved by the Director. A. No captive insurance company shall be issued a certificate of authority unless it shall possess paid-in surplus of not less than the minimum paid-in surplus requirement applicable to the class or classes and clause or clauses of Section 4 describing the kind or kinds of insurance which such captive insurance company is authorized to write, as set forth in subsection (2) of Section 13 or subsection (1) of Section 43, as applicable.

B. Each captive insurance company shall, in addition to the minimum capital required by Section 123C-3, at all times maintain free surplus of not less than the minimum surplus requirement applicable to the class or classes and clause or clauses of Section 4 describing the kind or kinds of insurance which such captive insurance company is authorized to write, as set forth in subsection (3) of Section 13 or subsection (6) of Section 43, as applicable.

C. The surplus referred to in subsections A or B may be in the form of (1) all cash or cash equivalents; or (2) cash or cash equivalents representing at least 20% of the requisite surplus, together with an irrevocable letter of credit for the remainder of the requisite surplus, which letter of credit must (a) be approved by the Director, (b) be issued or unconditionally confirmed by (i) a bank chartered by this State, (ii) a member bank of the Federal Reserve System or (iii) a United States office of a foreign banking corporation that is: (A) licensed under the laws of the United States or any state thereof, (B) regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies, and (C) designated by the Securities Valuation Office of the National Association of Insurance Commissioners as meeting its credit standards for issuing or confirming letters of credit or, in the event that the Director elects to establish credit standards by rule, in compliance with rules promulgated by the Director establishing reasonable standards of safety and soundness substantially equivalent to those of the Securities Valuation Office of the National Association of Insurance Commissioners, and (c) satisfy the requirements of Section 123C-19; or (3) cash or cash equivalents representing at least 33% of the requisite surplus, together with irrevocable contractual obligations of the member organizations of the captive insurance company for the payment of the remainder of the requisite surplus in no more than 3 equal installments in each of the 3 calendar years following the date of grant of the certificate of authority to the captive insurance company, which irrevocable contractual obligations shall by contract be subject to acceleration (in a manner acceptable to the Director) by the Company at the direction of the Director and shall be secured by a letter of credit or other form of guarantee or security acceptable to the Director.

D. Notwithstanding any other provision of this Section and Section 123C-3, each captive insurance company shall at all times maintain at least $300,000 of capital and surplus in the form of cash or securities permitted by Article VIII.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-5) (from Ch. 73, par. 735C-5)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-5. Dividends Formation of Captive Insurance Companies in this State; Certificate of Authority. No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus without the prior approval of the Director. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the Director. A captive insurance company may make such distributions as are in conformity with its purposes and approved by the Director.

A. A pure captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders.

B. An association captive insurance company or an industrial insured captive insurance company may be incorporated:

(1) as a stock insurer with its capital divided into shares and held by the stockholders; or

(2) as a mutual insurer without capital stock, the governing body of which is elected by the member organizations of its association.

C. No stock captive insurance company shall issue any shares of stock having a par value of less than $1 per share. The capital stock of a captive insurance company incorporated as a stock insurer shall be issued at not less than par value.

D. The provisions of subsection (1) of Section 10, subsection (1) of Section 12, Sections 14, 14.1, 15 (excluding subsections (d) and (e) thereof), 18, 19, 20 and 21, subsections (3) and (4) of Section 23, and Section 25 shall apply to the organization of a stock captive insurance company.

E. The provisions of subsection (1) of Section 40, subsections (1) and (2) of Section 42, Section 44, subsection (a) and (b) of Section 45, and Sections 48, 49, 50 and 52 shall apply to the organization of a mutual captive insurance company.

F. (1) In order to receive a certificate of authority, at the same time as the documents referred to in subsections (a), (b) and (c) of Section 15 (in the case of a stock captive insurance company) or subsections (a) and (b) of Section 45 (in the case of a mutual captive insurance company) are delivered to the Director, the incorporators shall file with the Director any statements or documents required by the Director, including evidence of the following:

(a) the amount and liquidity of its assets relative to the risks to be assumed;

(b) the expertise, experience, character, financial responsibility, reputation and business qualifications of the officers, directors and persons who will manage it;

(c) the overall soundness of its plan of operation (which shall include (i) the lines of business to be written by the captive insurance company, (ii) the geographic areas in which the captive insurance company is to operate, (iii) the type of policy (occurrence or claims-made) to be offered by the captive insurance company, (iv) the net retention limits and reinsurance program, including whether the captive insurance company intends to assume reinsurance, and (v) in the case of an industrial insured captive insurance company, an investment policy specifying the type of investments to be made by such company and the diversity of such investments);

(d) whether major operations functions, such as underwriting, rating, claims administration, loss prevention programs, accounting and investment of funds, will be handled by the captive insurance company's employees or through contractual arrangements with other parties;

(e) the scope of the loss prevention programs of its parent, member organizations, or industrial insureds, as applicable; and

(f) such other factors deemed relevant by the Director in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

The Director may deny the incorporators' application for a certificate of authority if he determines, in the exercise of his discretion, either that the foregoing standards have not been satisfied or that the proposed captive insurance company is being organized for purposes inimical to the interests of policyholders.

(2) If the Director is satisfied, on the basis of the documents and statements referred to in paragraph (1) of subsection F, that the captive insurance company meets the criteria set forth in paragraph (1) of subsection F, and that the captive insurance company meets all other requirements imposed by this Article (other than those set forth in Sections 123C-3 and 123C-4), he shall, at the same time as he effects the filing referred to in Section 18 (or, in the case of a mutual insurance company, Section 48) and issues the permit referred to in Section 20 (or, in the case of a mutual insurance company, Section 50), notify the captive insurance company in writing of his determination, which notification shall state that the Director will issue a certificate of authority upon receipt of evidence satisfactory to the Director that the company has fully collected the capital and surplus required by Sections 123C-3 and 123C-4. Upon receipt of evidence satisfactory to the Director that the required capital and surplus have been fully collected by the company, the Director shall grant a certificate of authority authorizing the captive insurance company to transact the kind or kinds of business specified therein.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-6) (from Ch. 73, par. 735C-6)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-6. Formation of captive insurance companies. Change in Plan of Operation; Violations.

(a) A pure captive insurance company may be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a nonprofit corporation with one or more members, or as a manager-managed limited liability company.

(b) An association captive insurance company, an industrial insured captive insurance company, or a risk retention group may be:

(1) incorporated as a stock insurer with its capital divided into shares and held by the stockholders;

(2) incorporated as a mutual corporation;

(3) organized as a reciprocal insurer; or

(4) organized as a manager-managed limited liability company.

(c) A captive insurance company incorporated or organized in this State shall have one or more incorporators or one or more organizers.

(d) A captive insurance company formed:

(1) as a corporation, before the articles of incorporation are transmitted to the Secretary of State, the incorporators shall petition the Director to issue a certificate setting forth the Director's finding that the establishment and maintenance of the proposed corporation will promote the general good of the State. In arriving at such a finding, the Director shall consider:

(A) the character, reputation, financial standing, and purposes of the incorporators;

(B) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and

(C) such other aspects as the Director shall deem advisable. The articles of incorporation, such certificate, and the organization fee shall be transmitted to the Secretary of State, who shall thereupon record both the articles of incorporation and the certificate.

(2) as a reciprocal insurer, the organizers shall petition the Director to issue a certificate setting forth the Director's finding that the establishment and maintenance of the proposed association will promote the general good of the State. In arriving at such a finding, the Director shall consider the items set forth in subparagraphs (A) through (C) of paragraph (1) of this subsection (d).

(3) as a limited liability company, before the articles of organization are transmitted to the Secretary of State, the organizers shall petition the Director to issue a certificate setting forth the Director's finding that the establishment and maintenance of the proposed company will promote the general good of the State. In arriving at such a finding, the Director shall consider the items set forth in subparagraphs (A) through (C) of paragraph (1) of this subsection (d).

(e) The capital stock of a captive insurance company incorporated as a stock insurer may be authorized with no par value.

(f) Other than captive insurance companies formed as limited liability companies or as nonprofit corporations, captive insurance companies formed as corporations shall have the privileges and be subject to the provisions of this Article as well as the applicable provisions contained in this Article. In the event of conflict between the provisions of said general corporation law and the provisions of this Article, the latter shall control.

(g) Captive insurance companies formed under the provisions of this Article:

(1) As limited liability companies shall have the privileges and be subject to applicable provisions contained in this Article.

(2) As nonprofit corporations shall have the privileges and be subject to the applicable provisions contained in this Article.

(h) The provisions pertaining to mergers, consolidations, conversions, mutualizations, redomestications, and mutual holding companies, shall apply in determining the procedures to be followed by captive insurance companies in carrying out any of the transactions described therein, except that:

(1) The Director may, upon request of an insurer party to a merger waive the requirement contained in this Article.

(2) The Director may waive the requirements for public notice and hearing or, in accordance with rules which the Director may adopt addressing categories of transactions, modify the requirements for public notice and hearing. If a notice of public hearing is required, but no one requests a hearing 10 days before the day set for the hearing, then the Director may cancel the hearing.

(3) The Director may waive or modify any requirement with respect to market value of a converted company as necessary or desirable to reflect applicable restrictions on ownership of companies formed under this Article.

(4) An alien insurer may be a party to a merger provided that the requirements for a merger between a captive insurance company and a foreign insurer shall apply to a merger between a captive insurance company and an alien insurer. Such alien insurer shall be treated as a foreign insurer and such other jurisdictions shall be the equivalent of a state.

(5) The Director may issue a certificate of general good to permit the formation of a captive insurance company that is established for the purpose of consolidating or merging with or assuming existing insurance or reinsurance business from an existing licensed captive insurance company. The Director may, upon request of such newly formed captive insurance company, waive or modify the requirements of subparagraph (b) of paragraph (1) and paragraph (2) of subsection (c) of Section 123C-2.

(i) Captive insurance companies formed as reciprocal insurers under the provisions of this Article shall have the privileges and be subject to the applicable provisions of this Article. However, in approving assessments levied upon subscribers of a captive insurance company formed as a reciprocal insurer, the Director may exempt the company from any provision of this Article. To the extent a reciprocal insurer is made subject to other provisions of this Article, such provisions shall not be applicable to a reciprocal insurer formed under this Article unless such provisions are expressly made applicable to captive insurance companies under this Article.

(j) The articles of incorporation or bylaws of a captive insurance company formed as a corporation may authorize a quorum of its board of directors to consist of no fewer than one-third of the fixed or prescribed number of directors.

(k) The subscribers' agreement or other organizing document of a captive insurance company formed as a reciprocal insurer may authorize a quorum of its subscribers' advisory committee to consist of no fewer than one-third of the number of its members.

(l) With the Director's approval, a captive insurance company organized as a stock insurer may convert to a nonprofit corporation with one or more members by filing with the Secretary of State an irrevocable election for such conversion, provided that:

(1) the irrevocable election shall certify that, at the time of the company's original organization and at all times thereafter, the company conducted its business in a manner not inconsistent with a nonprofit purpose;

(2) at the time of the filing of its irrevocable election, the company shall file with both the Director and the Secretary of State amended and restated articles of incorporation, duly authorized by the corporation; and

(3) in the case of any merger in which a captive insurance company merges with and into a captive insurance company organized as a nonprofit corporation where the latter is the surviving corporation, shall not apply to captive insurance companies which are nonprofit corporations.

(m) In the case of a captive insurance company formed as a limited liability company, a reciprocal insurance company or mutual insurance company, any proxy executed by the members, subscribers, and policyholders of each shall be valid if executed and transmitted in compliance with this Article.

(n) With the Director's prior written approval, a captive insurance company may establish one or more separate accounts and may allocate to them amounts to provide for the insurance of risks of certain of its parents, affiliates, or members, as the case may be, subject to the following:

(1) The income, gains, and losses, realized or unrealized, from assets allocated to a separate account shall be credited to or charged against the account, without regard to other income, gains, or losses of the captive insurance company.

(2) Amounts allocated to a separate account in the exercise of the power granted by this subsection are owned by the captive insurer, and the captive insurer may not be nor hold itself out to be a trustee with respect to such amounts.

(3) Unless otherwise approved by the Director, assets allocated to a separate account shall be valued in accordance with the rules otherwise applicable to the captive insurer's assets.

(4) If and to the extent so provided under the applicable contracts, that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the captive insurer may conduct.

(5) No sale, exchange, or other transfer of assets may be made by such captive insurer between any of its separate accounts or between any other investment account and one or more of its separate accounts unless, in the case of a transfer into a separate account, that 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 that transfer, whether into or from a separate account is made by a transfer of cash or by a transfer of securities having a readily determinable market value, provided that the transfer of securities is approved by the Director. The Director may approve other transfers among those accounts if, in his or her opinion, those transfers would be equitable.

(6) To the extent the captive insurer deems it necessary to comply with any applicable federal or State laws, the captive insurer, with respect to any separate account, including 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 such account, including 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. Any material change in items (i) through (v) of the captive insurance company's plan of operations described in subparagraph (c) of paragraph (1) of subsection F of Section 123C-5 requires prior approval of the Director. Any material change which is not disapproved by the Director within 30 days after its submission shall be deemed approved. The provisions of Sections 401.1 and 403A shall apply to a captive insurance company's material failure to adhere to items (i) through (v) of its plan of operations described in subparagraph (c) of paragraph (1) of subsection F of Section 123C-5 (to the same extent and in the same manner as if such failure were a violation of this Code).

(Source: P.A. 85-131.)

(215 ILCS 5/123C-7) (from Ch. 73, par. 735C-7)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-7. Reports and statements. Directors - Conflicts of Interest.

(a) Captive insurance companies shall not be required to make any annual report except as provided in this Article.

(b) Prior to March 1 of each year, and prior to March 15 of each year in the case of pure captive insurance companies or industrial insured captive insurance companies, each captive insurance company shall submit to the Director a report of its financial condition, verified by oath of 2 of its executive officers. Each captive insurance company shall report using generally accepted accounting principles, unless the Director requires, approves, or accepts the use of statutory accounting principles or other comprehensive basis of accounting, in each case with any appropriate or necessary modifications or adaptations thereof required or approved or accepted by the Director for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the Director. Except as otherwise provided, each risk retention group shall file its report in the form required by the Department, and each risk retention group shall comply with the requirements set forth. The Director shall by rule propose the forms in which pure captive insurance companies, association captive insurance companies, and industrial insured captive insurance companies shall report. Subsection (e) of Section 123C-2 shall apply to each report filed pursuant to this Section, except that such subsection shall not apply to reports filed by risk retention groups.

(c) Any pure captive insurance company or an industrial insured captive insurance company may make written application for filing the required report on a fiscal year-end. If an alternative reporting date is granted:

(1) the annual report is due 75 days after the fiscal year-end; and

(2) in order to provide sufficient detail to support the premium tax return, the pure captive insurance company or industrial insured captive insurance company shall file prior to March 15 of each year for each calendar year-end, pages 1, 2, 3, and 5 of the "Captive Annual Statement; Pure or Industrial Insured," verified by oath of 2 of its executive officers. A. The provisions of Section l0 shall apply to stock captive insurance companies and all those having dealings therewith and the provisions of Section 40 shall apply to mutual captive insurance companies and all those having dealings therewith; provided that no residents or citizens of this State need be directors. No director may serve who has been convicted of fraud involving any financial institution or of a felony. The Director may waive the prohibition regarding a felony if he determines that the particular felony does not jeopardize the person's ability to act as a director.

B. Every captive insurance company shall report to the Director within 30 days after any change in its executive officers or directors, including in its report a statement of the business and professional affiliations of any new executive officer or director. For purposes of this subsection B, the term "executive officer" includes only the following: chairman of the board of directors; president; executive or senior vice-president; secretary; and treasurer.

C. No director, officer, or employee having any authority in the investment or disposition of the funds of a captive insurance company shall accept, except on behalf of the company, or be the beneficiary of, any fee, brokerage, gift, or other emolument because of any investment, loan, deposit, purchase, sale, payment, or exchange made by or for the company; but a director who is not otherwise an officer or employee of the company may receive reasonable compensation for services performed for sales or purchases made to or for the company in the ordinary course of its business and in the usual private professional or business capacity of such director.

D. Any profit or gain received by or on behalf of any person in violation of subsection C of this Section shall inure to and be recoverable by the company. A suit to recover such profit may be instituted in any court of competent jurisdiction by the company, or by any stockholder of the company in its name and on its behalf if the company fails or refuses to bring such suit within 60 days after request in writing or if the company fails diligently to prosecute the same thereafter. No such suit shall be brought more than 2 years after the date such profit or gain was discovered.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-8) (from Ch. 73, par. 735C-8)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-8. Examinations and investigations. Merger, Consolidation, Plans of Exchange and Reorganization.

(a) At least once in 3 years, and whenever the Director determines it to be prudent, the Director shall personally, or by some competent person appointed by the Director, visit each captive insurance company and thoroughly inspect and examine its affairs to ascertain its financial condition, its ability to fulfill its obligations, and whether it has complied with the provisions of this Article. The Director may extend that 3 year period to 5 years, provided the captive insurance company is subject to a comprehensive annual audit during such period of a scope satisfactory to the Director by independent auditors approved by the Director. The expenses and charges of the examination shall be paid to the State by the company or companies.

(b) All examination reports, preliminary examination reports or results, working papers, recorded information, documents and copies thereof produced by, obtained by, or disclosed to the Director or any other person in the course of an examination made under this Section are confidential and are not subject to subpoena and may not be made public by the Director or an employee or agent of the Director without the written consent of the company, except to the extent provided in this subsection. Nothing in this subsection shall prevent the Director from using the information in furtherance of the Director's regulatory authority under this Code. The Director may, in the Director's discretion, grant access to the information to public officers having jurisdiction over the regulation of insurance in any other state or country, or to law enforcement officers of this State or any other state or agency of the federal government at any time, so long as such officers receiving the information agree in writing to hold it in a manner consistent with this Section. A. The provisions of Article X shall apply to captive insurance companies; provided, however, that:

(1) if the surviving or new company is to be a domestic captive insurance company,

(a) the Director shall, in determining whether such company meets the requirements set forth in paragraph (b) of subsection (2) of Section 162, refer only to the provisions of this Article VIIC and the other provisions of Article X;

(b) the Director shall, in determining whether such company meets the requirements of Sections 123C-3 and 123C-4, take into account the capital and surplus of the company to be merged into the domestic captive insurance company or the companies to be consolidated into the domestic captive insurance company (but any approval by the Director of such merger or consolidation shall be contingent upon the receipt of such capital and surplus by the domestic captive insurance company and satisfactory evidence thereof being presented to the Director);

(c) notwithstanding the provisions of paragraph (c) of subsection (1) of Section 166, such surviving or new company shall have all of the rights, privileges, immunities and powers and shall be subject to all of the duties and liabilities granted or imposed by this Article VIIC (and not by the entire Code); and

(2) in the event that such merger or consolidation is to be effected in conjunction with the formation and licensing of a new domestic captive insurance company in this State, the Director shall follow procedures for the contemporaneous and expeditious review of the materials presented to the Director for his approval of such formation, licensing and merger or consolidation.

B. (1) Any domestic, foreign or alien stock company, mutual company, or reciprocal company, authorized or which may be authorized to do business in this State, may reorganize as a domestic captive insurance company under the laws of this State, by complying with the provisions of Article XII. Domestic companies are hereby authorized to reorganize as domestic captive insurance companies.

(2) In the event that such reorganization is to be effected in conjunction with the formation and licensing of a new captive insurance company in this State, the Director shall follow procedures for the contemporaneous and expeditious review of the materials presented to the Director for his approval of such formation, licensing and reorganization.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-9) (from Ch. 73, par. 735C-9)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-9. Grounds and procedures for suspension or revocation of license. Reports, Statements and Mandatory Reserves.

(a) The license of a captive insurance company may be suspended or revoked by the Director for any of the following reasons:

(1) insolvency or impairment of capital or surplus;

(2) failure to meet the requirements of Section 123C-4;

(3) refusal or failure to submit an annual report, as required by this Article, or any other report or statement required by law or by lawful order of the Director;

(4) failure to comply with the provisions of its own charter, bylaws, or other organizational document;

(5) failure to submit to or pay the cost of examination or any legal obligation relative thereto, as required by this Article;

(6) use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or

(7) failure otherwise to comply with the laws of this State.

(b) If the Director finds, upon examination, hearing, or other evidence, that any captive insurance company has violated any provision of subsection (a) of this Section, the Director may suspend or revoke such company's license if the Director deems it in the best interest of the public and the policyholders of the captive insurance company, notwithstanding any other provision of this Code. A. Captive insurance companies shall not be required to make any annual report except as provided in this Article.

B. (1) Prior to March 1 of each year, each captive insurance company shall submit to the Director a report of its financial condition, verified by oath of 2 of its executive officers and including (i) a balance sheet reporting assets, liabilities, capital and surplus, (ii) a statement of gain or loss from operations, (iii) a statement of changes in financial position, (iv) a statement of changes in capital and surplus, and (v) in the case of industrial insured captive insurance companies, an analysis of loss reserve development, information on risks ceded and assumed under reinsurance agreements, on forms prescribed by the Director, and a schedule of its invested assets on forms prescribed by the Director.

(2) In addition, prior to March 1 of each year, each association captive insurance company shall submit to the Director such additional data or information, which the Director may from time to time require, on a form specified by the Director.

(3) Prior to June 1 of each year, each association and industrial insured captive insurance company shall submit to the Director a report of its financial condition, certified by a recognized firm of independent public accountants acceptable to the Director and including the items referred to in items (i), (ii), (iii) and (iv) of paragraph (1) of this subsection B.

(4) Unless the Director permits otherwise, the reports of financial condition referred to in paragraphs (1) and (3) of this subsection B are to be prepared in accordance with the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners. The Director shall have authority to extend the time for filing any report or statement by any company for reasons which he considers good and sufficient.

C. In addition, any captive insurance company may be required by the Director, when he considers such 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 of 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. No company shall be required to file more than 4 supplemental summary statements during any consecutive 12 month period.

D. Every captive insurance company shall, at all times, maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses and claims incurred, whether reported or unreported, which are unpaid and for which such company may be liable, and to provide for the expenses of adjustment or settlement of such losses and claims. The aggregate reserves shall be reduced by reinsurance ceded which meets the requirements of Section 123C-13. For the purpose of such reserves, the company shall keep a complete and itemized record showing all losses and claims on which it has received notice, including all notices received by it of the occurrence of any event which may result in a loss. Such record shall be opened in chronological receipt order, with each notice of loss or claim identified by appropriate number or coding.

E. Every captive insurance company shall maintain an unearned premium reserve on all policies in force which reserve shall be charged as a liability. The portions of the gross premiums in force, after deducting reinsurance qualifying under Section 123C-13, which shall be held as a premium reserve, shall never be less in the aggregate than the company's actual liability to all its insureds for the return of gross unearned premiums. In the calculation of the company's actual liability to all its insureds, the reserve shall be computed pursuant to the method commonly referred to as the monthly pro rata method; provided, however, that the Director may require that such reserve shall be equal to the unearned portions of the gross premiums in force, after deducting reinsurance qualifying under Section 123C-13, in which case the reserve shall be computed on each respective risk from the date of the issuance of the policy.

F. The reports required by this Section shall be prepared and filed on a calendar year basis.

G. Notwithstanding the requirements of this Section, a captive insurance company may prepare and issue financial statements prepared in accordance with generally accepted accounting principles.

(Source: P.A. 85-131; 86-1155; 86-1156.)

(215 ILCS 5/123C-10) (from Ch. 73, par. 735C-10)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-10. Legal investments. Examinations and investigations; fees.

(a) Except as may be otherwise authorized by the Director, association captive insurance companies and risk retention groups shall comply with the investment requirements of this Article, as applicable. This Article shall apply to association captive insurance companies and risk retention groups except to the extent it is inconsistent with approved accounting standards in use by the company. Notwithstanding any other provision of this Code, the Director may approve the use of alternative reliable methods of valuation and rating.

(b) No pure captive insurance company or industrial insured captive insurance company shall be subject to any restrictions on allowable investments; provided, however, that the Director may prohibit or limit any investment that threatens the solvency or liquidity of any such company.

(c) No pure captive insurance company may make a loan to or an investment in its parent company or affiliates without prior written approval of the Director, and any loan or investment must be evidenced by documentation approved by the Director. Loans of minimum capital and surplus funds required by Section 123C-4 are prohibited. A. The provisions of Sections 132 through 132.7 shall apply to captive insurance companies. The expenses and charges of any examination conducted pursuant to those Sections shall be paid by the company examined.

B. When necessary to supplement its evaluation or examination procedures, the Department may retain independent actuaries deemed competent by the Director, qualified loss reserve consultants, independent risk managers, independent certified public accountants, or qualified examiners of insurance companies deemed competent by the Director, or any combination of the foregoing. The Director may also accept as a part of the Department's examination of any company or person (a) a report by an independent actuary deemed competent by the Director or (b) a report of an audit made by an independent certified public accountant. Neither those persons so designated nor any members of their immediate families shall be officers of, connected with, or financially interested in any company other than as policyholders, nor shall they be financially interested in any other corporation or person affected by the examination, investigation or hearing. The reasonable expenses and charges of persons so retained or designated shall be paid directly by the company.

(Source: P.A. 89-97, eff. 7-7-95.)

(215 ILCS 5/123C-11) (from Ch. 73, par. 735C-11)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-11. Reinsurance. Grounds and Procedures for Suspension or Revocation of Certificate of Authority.

(a) Any captive insurance company may provide reinsurance on risks ceded by any other insurer and may provide reinsurance of annuity contracts that are granted by any other insurer.

(b) Any captive insurance company may take credit for the reinsurance of risks or portions of risks ceded to reinsurers complying with the provisions of this Article. Prior approval of the Director shall be required for ceding or taking credit for the reinsurance of risks or portions of risks ceded to reinsurers, except for business written by an alien captive insurance company outside the United States.

(c) In addition to reinsurers, a captive insurance company may take credit for the reinsurance of risks or portions of risks ceded to a pool, exchange, or association acting as a reinsurer which has been authorized by the Director. The Director may require any other documents, financial information, or other evidence that such a pool, exchange, or association will be able to provide adequate security for its financial obligations. The Director may deny authorization or impose any limitations on the activities of a reinsurance pool, exchange, or association that, in the Director's judgment, are necessary and proper to provide adequate security for the ceding captive insurance company and for the protection and consequent benefit of the public at large.

(d) For all purposes of this Article, insurance by a captive insurance company of any workers' compensation qualified self-insured plan of its parent and affiliates shall be deemed to be reinsurance. A. The certificate of authority of a captive insurance company to do an insurance business in this State may be suspended or revoked by the Director for any of the following reasons:

(1) Insolvency or impairment of capital or surplus;

(2) Failure to meet the requirements of Sections 123C-3 or 123C-4;

(3) Refusal or failure to submit an annual report, as required by Section 123C-9, or any other report or statement required by law or by lawful order of the Director;

(4) Failure to comply with the provisions of its own charter or bylaws (or, in the case of an industrial insured captive, with the provisions of the investment policy set forth in its plan of operation as approved from time to time by the Director);

(5) Failure to submit to examination or any legal obligation relative thereto, as required by Section 123C-10;

(6) Refusal or failure to pay expenses and charges as required by Sections 408, 123C-10 and 123C-17;

(7) Use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or

(8) Failure otherwise to comply with the laws of this State.

B. If the Director finds, upon examination, hearing, or other evidence, that any captive insurance company has committed any of the acts specified in subsection A, he may suspend or revoke such certificate of authority if he deems it in the best interest of the public and the policyholders of such captive insurance company, notwithstanding any other provision of this Article.

C. The provisions of Articles XIII and XIII 1/2 shall apply to and govern the conservation, rehabilitation, liquidation and dissolution of captive insurance companies.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-12) (from Ch. 73, par. 735C-12)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-12. Rating organizations; memberships. Legal Investments. No captive insurance company shall be required to join a rating organization.

A. The provisions of Article VIII and of Sections 131.2 and 131.3 shall apply to association captive insurance companies.

B. No pure captive insurance company or industrial insured captive insurance company shall be subject to any restrictions on allowable investments whatever, including those limitations contained in Articles VIII and VIII 1/2; provided, however, that the Director may prohibit or limit any investment or type of investment that threatens the solvency or liquidity of any such company; and provided further that an industrial insured captive insurance company must adhere to the investment policy set forth in its plan of operation as approved from time to time by the Director.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-13) (from Ch. 73, par. 735C-13)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-13. Exemption from compulsory associations Reinsurance. No captive insurance company shall be permitted to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this State, nor shall any such captive insurance company, or any insured or affiliate thereof, receive any benefit from any such plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of a captive insurance company.

A. Any captive insurance company may provide reinsurance on risks ceded by any other insurer; provided, however, that the risks so assumed are the same as the captive insurance company could legally insure on a direct basis. The provisions of Section 174.1 shall not apply to any captive insurance company providing reinsurance.

B. Subject to the provisions of Article XI, any captive insurance company may cede, and may take credit for in the establishment of reserves, all or any part of its risks. Furthermore, in addition to Section 173.1, any pure or industrial insured captive insurance company may take credit, as either an asset or a deduction from liability, for reinsurance so ceded to the extent:

(1) The reinsurer satisfies all of the following (a) through (g):

(a) the principal business of the reinsurer (other than investments in subsidiaries and other investment activities) is to accept reinsurance from captive insurance companies organized under Article VIIC, of which the company accepting the reinsurance directly or indirectly owns, controls, or holds with power to vote more than 80% of the outstanding voting securities if organized as a stock company or more than 80% of the voting control if organized as a mutual company and to provide insurance related services;

(b) is licensed to transact insurance or reinsurance in its jurisdiction of domicile;

(c) submits to this State's authority to examine its books and records and agrees to pay the cost thereof;

(d) files annually with the Director a copy of its most recent audited financial statements;

(e) maintains a surplus as regards policyholders in an amount that is not less than $20,000,000;

(f) files with the Department the following:

(i) evidence of its submission to the jurisdiction of any court of competent jurisdiction in any state of the United States and its agreement to comply with all requirements necessary to give the court jurisdiction and to abide by the final decision of the court or of any appellate court in the event of an appeal; and

(ii) an instrument designating the Director or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding company;

(g) has not been the subject of an order of the Director entered after notice and hearing prohibiting the reinsurer from utilizing this paragraph (1); or

(2) the taking of credit by the captive insurance company has otherwise received the prior approval of the Director.

(Source: P.A. 87-108.)

(215 ILCS 5/123C-14) (from Ch. 73, par. 735C-14)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-14. Tax on premiums collected. Rating Organizations; Memberships; Rate or Policy Filing.

(a) Each captive insurance company shall pay to the Director, in the month of February of each year, a tax at the rate of 38/100 of 1% on the first $20,000,000 and 285/1000 of 1% on the next $20,000,000 and 19/100 of 1% on the next $20,000,000 and 72/1000 of 1% on each dollar thereafter on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December 31 next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders; provided, however, that no tax shall be due or payable as to considerations received for annuity contracts.

(b) Each captive insurance company shall pay to the Director, in the month of February of each year a tax at the rate of 214/1000 of 1% on the first $20,000,000 of assumed reinsurance premium, and 143/1000 of 1% on the next $20,000,000 and 48/1000 of 1% on the next $20,000,000 and 24/1000 of 1% of each dollar thereafter. However, no reinsurance tax applies to premiums for risks or portions of risks which are subject to taxation on a direct basis pursuant to subsection (a) of this Section. No reinsurance premium tax shall be payable in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control if such transaction is part of a plan to discontinue the operations of such other insurer, and if the intent of the parties to such transaction is to renew or maintain such business with the captive insurance company.

(c) The annual minimum aggregate tax to be paid by a captive insurance company calculated under subsections (a) and (b) of this Section shall be $7,500. The annual maximum aggregate tax to be paid by a captive insurance company calculated under subsections (a) and (b) of this Section shall be $200,000. The annual minimum aggregate tax to be paid by a sponsored captive insurance company shall be $7,500 and shall apply to the sponsored captive insurance company as a whole and not to each protected cell; such cells shall not be subject to the minimum tax. The annual maximum tax to be paid by a protected cell shall be as calculated under this subsection (c). The annual maximum tax to be remitted by a sponsored captive insurance company shall be the aggregate of the tax liabilities of each protected cell.

(d) A captive insurance company failing to make returns or failing to pay within the time required all taxes assessed by this Section, shall be subject to the provisions of this Article.

(e) Subject to the provisions of subsection (c) of this Section, 2 or more captive insurance companies under common ownership and control shall be taxed as though they were a single captive insurance company.

(f) As used in this Section:

"Common ownership and control" means ownership and control of 2 or more captive insurance companies by the same person or group of persons.

"Ownership and control means:

(1) in the case of a stock corporation, the direct or indirect ownership of 80% or more of the outstanding voting stock of the corporation.

(2) in the case of a mutual or nonprofit corporation, the direct or indirect ownership of 80% or more of the surplus and the voting power of such corporation.

(3) in the case of a limited liability company, the direct or indirect ownership of 80% or more of the membership interests in the limited liability company.

(4) in the case of a sponsored captive insurance company, for purposes of this Section, a protected cell shall be treated as a separate captive insurance company owned and controlled by the protected cell's participant, but only if:

(A) the participant is the only participant with respect to such protected cell; and

(B) the participant is the sponsor or is affiliated with the sponsor of the sponsored captive insurance company through common ownership and control.

(g) The tax provided for in this Section shall constitute all taxes collectible under the laws of this State from any captive insurance company, and no other occupation tax or other taxes shall be levied or collected from any captive insurance company by the State or any county, city, or municipality within this State, except meals and rooms taxes, sales and use taxes, and ad valorem taxes on real and personal property used in the production of income.

(h) Annually, 11% of the premium tax revenues collected pursuant to this Section shall be transferred to the Department for the regulation of captive insurance companies under this Article.

(i) The tax provided for in this Section shall be calculated on an annual basis, notwithstanding policies or contracts of insurance or contracts of reinsurance issued on a multiyear basis. In the case of multiyear policies or contracts, the premium shall be prorated for purposes of determining the tax under this Section.

(j) A captive insurance company first licensed under this Article on or after January 1, 2016 shall receive a nonrefundable credit of $7,500 applied against the aggregate taxes owed for the first taxable year for which the company has liability under this Section.

(k) This Section does not apply to safety-net hospitals. No captive insurance company shall be required to join a rating organization. No captive insurance company shall be required to file its premium rates or policy forms with, or to seek approval of such rates or forms from, the Director or any other authority of this State.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-15) (from Ch. 73, par. 735C-15)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-15. Rules and regulations Exemption from Compulsory Associations. The Director may adopt and from time to time amend such rules relating to captive insurance companies as are necessary to enable the Director to carry out the provisions of this Article. No captive insurance company shall be permitted or required to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this State, nor shall any captive insurance company, nor its insureds nor any claimants against the insureds, nor its parent nor any affiliated company, nor any member organization of its association, receive any benefit from any such plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of such captive insurance company. Each association captive insurance company and each industrial insured captive insurance company shall inform each insured, in both the application for insurance and in the policy issued to such insured, that (i) the captive insurance company is not subject to all of the insurance laws and regulations of this State, and (ii) state insurance insolvency guaranty funds are not available to such insured for claims arising out of the operations of such captive insurance company.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-16) (from Ch. 73, par. 735C-16)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-16. Laws applicable Tax. No provisions of this Code, other than those contained in this Article or contained in specific references contained in this Article, shall apply to captive insurance companies. Risk retention groups shall have the privileges and be subject to the applicable provisions of this Article.

A. Every captive insurance company organized under the provisions of this Article and doing business in this State shall, for the privilege of doing business in this State, pay to the Director for the State treasury the State tax imposed under Section 409 to the same extent and in the same manner as a domestic insurance company.

B. Domestic captive insurance companies shall be insurance companies subject to the rules now provided for such companies under the Illinois Income Tax Act.

C. A domestic captive insurance company that has engaged one or more administrative or management service organizations in order to comply with subsection D of Section 123C-2 shall be deemed to meet the requirements of Section 409(4)(a) through (d) provided that the company and such organizations when viewed collectively as a group:

(a) maintain a place of business in this State; and

(b) maintain in this State personnel knowledgeable of and responsible for the company's operations, books, records, administration and annual statement; and

(c) conduct in this State substantially all of the company's underwriting, policy issuing and servicing operations relating to the company's policyholders and certificate holders; and

(d) comply with the provisions of Section 133(2) with respect to such domestic captive insurance company's books, records, documents, accounts, vouchers and securities.

(Source: P.A. 86-632; 86-634.)

(215 ILCS 5/123C-17) (from Ch. 73, par. 735C-17)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-17. Captive Insurance Regulatory and Supervision Dedicated Fund Fees.

(a) There is hereby created a fund to be known as the Captive Insurance Regulatory and Supervision Dedicated Fund for the purpose of providing the financial means for the Director to administer this Section and for reasonable expenses incurred in promoting the captive insurance industry in Illinois. The transfer of 10% of the premium tax under subsection (h) of Section 123C-14, and all fees and assessments received by the Department pursuant to the administration of these chapters shall be credited to this Fund. Of this amount, not more than 3% of the premium tax under Section 123C-14 may be expended by the Department for promotional expenses. All fees received by the Department from reinsurers who assume risk solely from captive insurance companies shall be deposited into the Captive Insurance Regulatory and Supervision Dedicated Fund. All fines and administrative penalties, however, shall be deposited directly into the General Fund.

(b) All payments from the Captive Insurance Regulatory and Supervision Fund for the maintenance of staff and associated expenses, including contractual services as necessary, shall be disbursed from the State Treasury only upon warrants issued by the Director after receipt of proper documentation regarding services rendered and expenses incurred.

(c) At the end of each fiscal year, the balance in the Captive Insurance Regulatory and Supervision Dedicated Fund shall be transferred to the General Fund.

(d) The Director may anticipate receipts to the Captive Insurance Regulatory and Supervision Fund and issue warrants based thereon.

A. The Director shall charge, collect, and give proper acquittances for the payment of the following fees and charges with respect to a captive insurance company:

1. For filing all documents submitted for the incorporation or organization or certification of a captive insurance company, $7,000.

2. For filing requests for approval of changes in the elements of a plan of operations, $200.

B. Except as otherwise provided in subsection A of this Section and in Section 123C-10, the provisions of Section 408 shall apply to captive insurance companies.

C. Any funds collected from captive insurance companies pursuant to this Section shall be treated in the manner provided in subsection (11) of Section 408.

(Source: P.A. 93-32, eff. 7-1-03.)

(215 ILCS 5/123C-18) (from Ch. 73, par. 735C-18)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-18. Rules for controlled unaffiliated business. Additional powers, rights, and obligations. The Director may adopt rules establishing standards to ensure that a parent or its affiliated company, or an industrial insured or its affiliated company, is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by a pure captive insurance company or an industrial insured captive insurance company, respectively; provided, however, that, until such time as rules under this Section are adopted, the Director may approve the coverage of such risks by a pure captive insurance company or an industrial insured captive insurance company. In addition to the powers and duties set forth in the other provisions of this Article VIIC and to the extent not inconsistent with the provisions of this Article VIIC:

A. The provisions of Article XXVI, subsection E of Section 123B-3, subsection A of Section 123B-4, subsection A of Section 123B-8, and Sections 2.1, 131.4 through 131.12, 131.20, 131.20a(2), except as otherwise provided by Section 123C-12B, 131.22, 133, 141.1, 141.2, 144.1, 144.2, 147, 148, 149, 154.5, 154.6, 154.7, 154.8, 155, 186.1, 186.2, 401, 401.1, 402, 403, 403A, 407, 407.1, 407.2, 4l2, 415 and subsections (1) and (3) of Section 441 shall apply to captive insurance companies and all those having dealings therewith.

B. The provisions of subsection (2) of Section 9, Section 11, subsection (2) of Section 12, and Sections 27.1, 28, 28.2, 28.2a, 29, 30, 31, 32, 33, 34 and 35 shall apply to stock captive insurance companies and all those having dealings therewith.

C. The provisions of subsection (2) of Section 39, Section 41, subsections (1) and (2) of Section 42, and Sections 54, 55, 56, 57, 58, 59 and 60 shall apply to mutual captive insurance companies and all those having dealings therewith.

D. The Director and each captive insurance company and all those having dealings therewith shall have the authorities, powers, rights, duties and obligations set forth in Section 144 (excluding paragraph (f) of subsection (4) of Section 144); provided, however, that:

(i) subsection (1) of Section 144 shall not apply to pure captive insurance companies; and

(ii) the Director may exempt any association captive insurance company and any industrial insured captive insurance company from the requirements of subsection (1) of Section 144, on terms and conditions established by the Director, upon a showing by any such captive insurance company and a determination by the Director that the limitations of subsection (1) of Section 144 are not necessary to protect the interests of policyholders in light of such captive insurance company's financial condition and the nature of the risks insured by such company.

E. Nothing in this Article or Code shall be deemed to prohibit the by-laws of a captive insurance company from providing for the allocation of underwriting or investment income or loss to the respective accounts of its members, or to prohibit a captive insurance company, if its by-laws so provide and the requirements of this Article are otherwise met, from distributing to a withdrawing member, whether by way of ordinary or liquidating distributions and whether the withdrawal of such member is voluntary or otherwise, on terms and conditions set forth in the by-laws, that member's share of the company's surplus, as well as that portion of the underwriting and investment income allocated to such withdrawing member for the period that such withdrawing member was a member of the mutual company; provided that (i) no such distribution may be made except out of earned, as distinguished from contributed, surplus, (ii) no such distribution shall be made if the surplus of the captive insurance company is less than the original surplus required for the kind or kinds of business authorized to be transacted by such company, or if the payment of such distribution would reduce its surplus to less than the minimum, and (iii) no such distribution shall be made without the approval of the Director if such distribution, together with other such distributions made within the period of 12 consecutive months ending on the date on which the proposed distribution is scheduled for payment or distribution, exceeds the greater of: (i) 10% of the company's surplus as regards policyholders as of the 31st day of December next preceding, or (ii) the net income of the company for the 12 month period ending the 31st day of December next preceding. For the purposes of this subsection, net income includes net realized capital gains in an amount not to exceed 20% of net unrealized capital gains. The right of a member of a captive insurance company to receive distributions under this Section shall be included within the provisions of paragraph (i) of subsection (1) of Section 205 in the event of liquidation or dissolution of such captive insurance company.

(Source: P.A. 88-297; 89-206, eff. 7-21-95.)

(215 ILCS 5/123C-19) (from Ch. 73, par. 735C-19)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-19. Conversion to or merger with reciprocal insurer. Letters of credit.

(a) An association captive insurance company, risk retention group, industrial insured captive insurance company formed as a stock or mutual corporation, or other insurer approved by the Director may be converted to or merged with and into a reciprocal insurer in accordance with a plan therefore and the provisions of this Section.

(b) Any plan for such conversion or merger shall provide a fair and equitable plan for purchasing, retiring, or otherwise extinguishing the interests of the stockholders and policyholders of a stock insurer, and the members and policyholders of a mutual insurer, including a fair and equitable provision for the rights and remedies of dissenting stockholders, members, or policyholders.

(c) In the case of a conversion authorized under subsection (a) of this Section:

(1) such conversion shall be accomplished under such reasonable plan and procedure as may be approved by the Director; provided, however, that the Director shall not approve any such plan of conversion unless such plan:

(A) provides for a hearing, of which notice is given or to be given to the captive insurance company, its directors, officers, and policyholders, and, in the case of a stock insurer, its stockholders, and in the case of a mutual insurer, its members, all of which persons shall be entitled to attend and appear at such hearing; provided, however, that if notice of a hearing is given and no director, officer, policyholder, member, or stockholder requests a hearing, the Director may cancel such hearing;

(B) provides a fair and equitable plan for the conversion of stockholder, member, or policyholder interests into subscriber interests in the resulting reciprocal insurer, substantially proportionate to the corresponding interests in the stock or mutual insurer; provided, however, that this requirement shall not preclude the resulting reciprocal insurer from applying underwriting criteria that could affect ongoing ownership interests; and

(C) is approved:

(i) in the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present; and

(ii) in the case of a mutual insurer, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting thereof at which a quorum is present;

(2) the Director shall approve such plan of conversion if the Director finds that the conversion will promote the general good of the State in conformity with those standards set forth in paragraph (2) of subsection (D) of Section 123C-6;

(3) if the Director approves the plan, the Director shall amend the converting insurer's certificate of authority to reflect conversion to a reciprocal insurer and issue such amended certificate of authority to the company's attorney-in-fact;

(4) upon the issuance of an amended certificate of authority of a reciprocal insurer by the Director, the conversion shall be effective; and

(5) upon the effectiveness of such conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the Secretary of State of such conversion.

(d) A merger shall be accomplished substantially in accordance with procedure set forth in this Article, except that, solely for purposes of such merger:

(1) the subscribers' advisory committee of a reciprocal insurer shall be equivalent to the board of directors of a stock or mutual insurance company;

(2) the subscribers of a reciprocal insurer shall be the equivalent of the policyholders of a mutual insurance company;

(3) if a subscribers' advisory committee does not have a president or secretary, the officers of such committee having substantially equivalent duties shall be deemed the president or secretary of such committee;

(4) the Director may, upon request of an insurer party to a merger, waive the requirements;

(5) the Director shall approve the articles of merger if the Director finds that the merger will promote the general good of the State in conformity with those standards set forth in paragraph (1) of subsection (d) of Section 123C-6. If the Director approves the articles of merger, the Director shall endorse the Director's approval thereon and the surviving insurer shall present the same to the Secretary of State at the Secretary of State's office;

(6) notwithstanding Section 123C-4, the Director may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this Section; provided, however, that there shall be no more than one authorized insurance company surviving such merger; and

(7) an alien insurer may be a party to a merger; provided, that the requirements for a merger between a domestic and a foreign insurer shall apply to a merger between a domestic and an alien insurer under this subsection. Such alien insurer shall be treated as a foreign insurer and such other jurisdictions shall be the equivalent of a state.

(e) A conversion or merger under this Section shall have all of the effects to the extent such effects are not inconsistent with the provisions of this Article. A. Any letter of credit used to meet the requirements set forth in Sections 123C-3 and 123C-4:

(1) may not be used to provide more than 80% of the amount required in Section 123C-3 and may not be used to provide more than 80% of the amount required in Section 123C-4;

(2) may not be allowed to expire without the prior written approval of the Director and shall provide for 30 days' advance written notice to the Director of the proposed expiration of the letter of credit; and

(3) must be provided pursuant to arrangements, acceptable to the Director, wherein all funds obtained by the company under the letter of credit are free of claims of any party which may arise on account of the company's resort to the letter of credit.

B. If letters of credit are used to provide surplus in excess of the amounts required in Section 123C-4:

(1) the aggregate amount of all such letters of credit shall not exceed the policyholder surplus of the company;

(2) without the prior written approval of the Director, no such letter of credit may be allowed to expire, in any period of 12 consecutive months ending on the date of such expiration, in an amount greater than 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 3lst day of December next preceding. For purposes of this Section, net income includes net realized capital gains in an amount not to exceed 20% of net unrealized capital gains; and

(3) each such letter of credit shall provide for 30 days' advance written notice to the Director of the proposed expiration of the letter of credit.

C. The Director may require any company to draw upon its letters of credit, in amounts determined by the Director, if the Director determines that such action is necessary for the protection of the interests of policyholders.

D. Any company including amounts supported by letters of credit in its capital or surplus shall, prior to the time any person becomes a policyholder, notify such person of the amounts supported by letters of credit and included in the company's capital or surplus.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-20) (from Ch. 73, par. 735C-20)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-20. Dormant captive insurance companies. Laws Applicable.

(a) As used in this Section, unless the context requires otherwise, "dormant captive insurance company" means a pure captive insurance company which has:

(1) at no time, insured controlled unaffiliated business;

(2) ceased transacting the business of insurance, including the issuance of insurance policies; and

(3) no remaining liabilities associated with insurance business transactions, or insurance policies issued prior to the filing of its application for a certificate of dormancy under this Section.

(b) A pure captive insurance company domiciled in Illinois which meets the criteria of subsection (a) of this Section may apply to the Director for a certificate of dormancy. The certificate of dormancy shall be subject to renewal every 5 years and shall be forfeited if not renewed within such time.

(c) A dormant captive insurance company which has been issued a certificate of dormancy shall:

(1) possess and thereafter maintain unimpaired, paid-in capital and surplus of not less than $25,000;

(2) prior to March 15 of each year, submit to the Director a report of its financial condition, verified by oath of 2 of its executive officers, in a form as may be prescribed by the Director; and

(3) pay a license renewal fee as provided in subsection (g) of Section 123C-2.

(d) A dormant captive insurance company shall not be subject to or liable for the payment of any tax under Section 123C-14.

(e) A dormant captive insurance company shall apply to the Director for approval to surrender its certificate of dormancy and resume conducting the business of insurance prior to issuing any insurance policies.

(f) A certificate of dormancy shall be revoked if a dormant captive insurance company no longer meets the criteria of subsection (a) of this Section.

(g) The Director may establish guidelines and procedures as necessary to carry out the provisions of this Section. No provisions of this Code, other than those contained in this Article or contained in specific references contained in this Article, shall apply to domestic captive insurance companies.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-21) (from Ch. 73, par. 735C-21)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-21. Establishing a branch captive. Severability.

(a) A branch captive may be established in this State to write insurance, including insurance or reinsurance of the employee benefit business of its parent and affiliated companies which is subject to the provisions of the federal Employee Retirement Income Security Act of 1974, as amended.

(b) No branch captive insurance company shall do any insurance business in this State unless it maintains the principal place of business for its branch operations in this State. If any clause, sentence, paragraph, Section or part of this Article or the application thereof to any person or circumstances, shall, for any reason, be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair or invalidate the remainder of this Article, and the application thereof to other persons or circumstances, but shall be confined in its operation to the clause, sentence, paragraph, Section or part thereof directly involved in the controversy in which such judgment shall have been rendered and to the person or circumstances involved.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-22) (from Ch. 73, par. 735C-22)

(Section scheduled to be repealed on January 1, 2017)

Sec. 123C-22. Trust fund required for branch captive insurance company. Subordinated Indebtedness.

(a) In the case of a branch captive insurance company, as security for the payment of liabilities attributable to the branch operations, the Director shall require that a trust fund, funded by an irrevocable letter of credit or other acceptable asset, be established and maintained in the United States for the benefit of United States policyholders and United States ceding insurers under insurance policies issued or reinsurance contracts issued or assumed by the branch captive insurance company through its branch operations.

(b) The amount of such security shall be no less than the amount set forth by the Director and the reserves on such insurance policies or such reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses, and unearned premiums with regard to business written through the branch operations; provided, however, the Director may permit a branch captive insurance company that is required to post security for loss reserves on branch business by its reinsurer to reduce the funds in the trust account required by this Section by the same amount so long as the security remains posted with the reinsurer.

(c) If the form of security selected is a letter of credit, the letter of credit shall be established by or issued or confirmed by a bank chartered in this State or a member bank of the Federal Reserve System. A captive insurance company organized under this Article may borrow or assume a liability for the repayment of a sum of money upon a written agreement for the loan or advance, with interest at a rate not exceeding the corporate base rate as reported by the largest bank (measured by assets) with its head office located in Chicago, Illinois, as in effect on the first business day of the month, plus 3 percent per annum. Such rate shall be fixed on the execution of the loan and apply for the term of the loan. Such loan and interest thereon shall be repaid only out of surplus of the company in excess of such minimum surplus as is stipulated in and by the agreement. The agreement shall first be submitted to and approved by (A) not less than a majority of the Board of Directors of a stock company or a mutual company, and (B) the Director. Repayment of principal or payment of interest may be made only with the approval of the Director when he is satisfied that the financial condition of the company warrants such action. No loan or advance made under this Section or interest accruing thereon shall form a part of the legal liabilities of the company until authorized for payment by the Director but, until such authorization, all statements published by the company or filed with the Director shall show the amount thereof then remaining unpaid as a special surplus or capital account at the election of the company. Such account shall be considered in determining whether initial minimum capital and surplus requirements have been met. Nothing in this Section shall be construed to mean that a company may not otherwise borrow money, but the amount so borrowed with accrued interest thereon shall be carried by the company as a liability.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-23 new)

Sec. 123C-23. Certificate for branch captive insurance companies. In the case of a captive insurance company licensed as a branch captive, the alien captive insurance company shall petition the Director to issue a certificate setting forth the Director's finding that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors of the alien captive insurance company, the licensing and maintenance of the branch operations will promote the general good of the State. The alien captive insurance company may register to do business in this State after the Director's certificate is issued.

(215 ILCS 5/123C-24 new)

Sec. 123C-24. Reports and statements of branch captive insurance companies to be filed with Director. Prior to March 1 of each year, or with the approval of the Director within 60 days after its fiscal year end, a branch captive insurance company shall file with the Director a copy of all reports and statements required to be filed under the laws of the jurisdiction in which the alien captive insurance company is formed, verified by oath of 2 of its executive officers. If the Director is satisfied that the annual report filed by the alien captive insurance company in its domiciliary jurisdiction provides adequate information concerning the financial condition of the alien captive insurance company, the Director may waive the requirement for completion of the captive annual statement for business written in the alien jurisdiction.

(215 ILCS 5/123C-25 new)

Sec. 123C-25. Examination of branch captive insurance companies, limitations.

(a) The examination of a branch captive insurance company shall be of branch business and branch operations only, so long as the branch captive insurance company provides annually to the Director a certificate of compliance, or its equivalent, issued by or filed with the licensing authority of the jurisdiction in which the branch captive insurance company is formed, and demonstrates to the Director's satisfaction that it is operating in sound financial condition in accordance with all applicable laws and regulations of such jurisdiction.

(b) As a condition of licensure, the alien captive insurance company shall grant authority to the Director for examination of the affairs of the alien captive insurance company in the jurisdiction in which the alien captive insurance company is formed.

(215 ILCS 5/123C-26 new)

Sec. 123C-26. Applicability of tax to branch companies. In the case of a branch captive insurance company, the tax shall apply only to the branch business of such company.

(215 ILCS 5/123C-27 new)

Sec. 123C-27. Sponsored captive insurance companies; formation; definitions; requirements.

(a) As used in this Section, unless the context requires otherwise:

"General account" means all assets and liabilities of the sponsored captive insurance company not attributable to a protected cell.

"Incorporated protected cell" means a protected cell that is established as a corporation, mutual corporation, nonprofit corporation with one or more members, limited liability company, or reciprocal insurer separate from the sponsored captive insurance company of which it is a part.

"Participant" means an entity as defined in Section 123C-31, and any affiliates thereof, that are insured by a sponsored captive insurance company, where the losses of the participant are limited through a participant contract to such participant's pro rata share of the assets of one or more protected cells identified in such participant contract.

"Participant contract" means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of each such participant to its pro rata share of the assets of one or more protected cells identified in such participant contract.

"Protected cell" means a separate account established by a sponsored captive insurance company formed or licensed under the provisions of this Article, in which assets are maintained for one or more participants in accordance with the terms of one or more participant contracts to fund the liability of the sponsored captive insurance company assumed on behalf of such participants as set forth in such participant contracts, and shall include an "incorporated protected cell," as defined in this Section.

"Sponsor" means any entity that meets the requirements of Section 123C-30 and is approved by the Director to provide all or part of the capital and surplus required by applicable law and to organize and operate a sponsored captive insurance company.

"Sponsored captive insurance company" means any captive insurance company:

(1) in which the minimum capital and surplus required by applicable law is provided by one or more sponsors;

(2) that is formed or licensed under the provisions of this Article;

(3) that insures the risks only of its participants through separate participant contracts; and

(4) that funds its liability to each participant through one or more protected cells and segregates the assets of each protected cell from the assets of other protected cells and from the assets of the sponsored captive insurance company's general account.

(b) One or more sponsors may form a sponsored captive insurance company under this Article. In addition to the general provisions of this Code, the provisions of this Section shall apply to sponsored captive insurance companies.

(c) A sponsored captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a mutual corporation, as a nonprofit corporation with one or more members, or as a manager-managed limited liability company.

(d) In addition to the information required by subsections (c) and (d) of Section 123C-2, each applicant-sponsored captive insurance company shall file with the Director the following:

(1) materials demonstrating how the applicant will account for the loss and expense experience of each protected cell at a level of detail found to be sufficient by the Director, and how it will report such experience to the Director;

(2) a statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, shall be made available for inspection or examination by the Director or the Director's designated agent;

(3) all contracts or sample contracts between the sponsored captive insurance company and any participants; and

(4) evidence that expenses shall be allocated to each protected cell in a fair and equitable manner.

(215 ILCS 5/123C-28 new)

Sec. 123C-28. Protected cells. A sponsored captive insurance company formed or licensed under the provisions of this Article may establish and maintain one or more protected cells to insure risks of one or more participants, subject to the following conditions:

(a) The shareholders of a sponsored captive insurance company shall be limited to its participants and sponsors, provided that a sponsored captive insurance company may issue nonvoting securities to other persons on terms approved by the Director.

(b) Each protected cell shall be accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition and results of operations of such protected cell, net income or loss, dividends or other distributions to participants, and such other factors as may be provided in the participant contract or required by the Director.

(c) The assets of a protected cell shall not be chargeable with liabilities arising out of any other insurance business the sponsored captive insurance company may conduct.

(d) No sale, exchange, or other transfer of assets may be made by such sponsored captive insurance company between or among any of its protected cells without the consent of such protected cells.

(e) No sale, exchange, transfer of assets, dividend, or distribution may be made from a protected cell to a sponsor or participant without the Director's approval and in no event shall such approval be given if the sale, exchange, transfer, dividend, or distribution would result in insolvency or impairment with respect to a protected cell.

(f) All attributions of assets and liabilities to the protected cells and the general account shall be in accordance with the plan of operation approved by the Director. No other attribution of assets or liabilities may be made by a sponsored captive insurance company between its general account and any protected cell or between any protected cells. The sponsored captive insurance company shall attribute all insurance obligations, assets, and liabilities relating to a reinsurance contract entered into with respect to a protected cell to such protected cell. The performance under such reinsurance contract and any tax benefits, losses, refunds, or credits allocated pursuant to a tax allocation agreement to which the sponsored captive insurance company is a party, including any payments made by or due to be made to the sponsored captive insurance company pursuant to the terms of such agreement, shall reflect the insurance obligations, assets, and liabilities relating to the reinsurance contract that are attributed to such protected cell.

(g) Each sponsored captive insurance company shall annually file with the Director such financial reports as the Director shall require, which shall include accounting statements detailing the financial experience of each protected cell.

(h) Each sponsored captive insurance company shall notify the Director in writing within 10 business days of any protected cell that is insolvent or otherwise unable to meet its claim or expense obligations.

(i) No participant contract shall take effect without the Director's prior written approval, and the addition of each new protected cell and withdrawal of any participant or termination of any existing protected cell shall constitute a change in the business plan requiring the Director's prior written approval.

(j) If required by the Director, in his or her discretion, the business written by a sponsored captive, with respect to each cell, shall be:

(1) Fronted by an insurance company licensed under the laws of any state.

(2) Reinsured by a reinsurer authorized or approved by the State of Illinois.

(3) Secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the Director. The Director may require the sponsored captive to increase the funding of any security arrangement established under this Section. If the form of security is a letter of credit, the letter of credit must be issued or confirmed by a bank approved by the Director. A trust maintained pursuant to this subdivision shall be established in a form and upon such terms approved by the Director.

(215 ILCS 5/123C-29 new)

Sec. 123C-29. Incorporated protected cells.

(a) A protected cell of a sponsored captive insurance company may be formed as an incorporated protected cell, as defined in subsection (a) of Section 123C-27.

(b) Subject to the prior written approval of the sponsored captive insurance company and of the Director, an incorporated protected cell shall be entitled to enter into contracts and undertake obligations in its own name and for its own account. In the case of a contract or obligation to which the sponsored captive insurance company is not a party, either in its own name and for its own account or on behalf of a protected cell, the counterparty to the contract or obligation shall have no right or recourse against the sponsored captive insurance company and its assets other than against assets properly attributable to the incorporated protected cell that is a party to the contract or obligation.

(c) The articles of incorporation or articles of organization of an incorporated protected cell shall refer to the sponsored captive insurance company for which it is a protected cell and shall state that the protected cell is incorporated or organized for the limited purposes authorized by the sponsored captive insurance company's license. A copy of the prior written approval of the Director to add the incorporated protected cell shall be attached to and filed with the articles of incorporation or the articles of organization.

(d) An incorporated protected cell shall have its own distinct name or designation, which shall include the words "Incorporated Cell" or the abbreviation "IC".

(e) It is the intent of the General Assembly under this Section to provide sponsored captive insurance companies, with the option to establish one or more protected cells as a separate corporation, mutual corporation, nonprofit corporation, limited liability company, or reciprocal insurer. This Section shall not be construed to limit any rights or protections applicable to protected cells not established as corporations, mutual corporations, nonprofit corporations, limited liability companies, or reciprocal insurers.

(215 ILCS 5/123C-30 new)

Sec. 123C-30. Qualification of sponsors. A sponsor of a sponsored captive insurance company may be any person approved by the Director in the exercise of his or her discretion, based on a determination that the approval of such person as a sponsor is consistent with the purposes of this Article. In evaluating the qualifications of a proposed sponsor, the Director shall consider the type and structure of the proposed sponsor entity, its experience in financial operations, financial stability and strength, business reputation, and such other facts deemed relevant by the Director. A risk retention group shall not be a sponsor of a sponsored captive insurance company.

(215 ILCS 5/123C-31 new)

Sec. 123C-31. Participants in sponsored captive insurance companies.

(a) Associations, corporations, limited liability companies, partnerships, trusts, risk retention groups, and other business entities may be participants in any sponsored captive insurance company formed or licensed under this Article.

(b) A sponsor may be a participant in a sponsored captive insurance company.

(c) A participant need not be a shareholder of the sponsored captive insurance company or any affiliate thereof.

(d) A participant shall not insure any risks other than its own and the risks of affiliated entities or of controlled unaffiliated entities.

(215 ILCS 5/123C-32 new)

Sec. 123C-32. Investments by sponsored captive insurance companies. Notwithstanding the provisions of Section 123C-28, the assets of 2 or more protected cells may be combined for purposes of investment, and such combination shall not be construed as defeating the segregation of such assets for accounting or other purposes. Sponsored captive insurance companies shall comply with the investment requirements, as applicable; provided, however, that compliance with such investment requirements shall be waived for sponsored captive insurance companies to the extent that credit for reinsurance ceded to reinsurers is allowed pursuant to Section 123C-11 or to the extent otherwise deemed reasonable and appropriate by the Director. It shall apply to sponsored captive insurance companies except to the extent it is inconsistent with approved accounting standards in use by the company. Notwithstanding any other provision of this Act, the Director may approve the use of alternative reliable methods of valuation and rating.

(215 ILCS 5/123C-33 new)

Sec. 123C-33. Delinquency of sponsored captive insurance companies.

(a) Except as otherwise provided in this Section, it shall apply in full to a sponsored captive insurance company.

(b) Upon any order of supervision, rehabilitation, or liquidation of a sponsored captive insurance company, the receiver shall manage the assets and liabilities of the sponsored captive insurance company pursuant to the provisions of this Section.

(1) In connection with the conservation, rehabilitation, or liquidation of a sponsored captive insurance company, the assets and liabilities of a protected cell shall at all times be kept separate from, and shall not be commingled with, those of other protected cells and the sponsored captive insurance company.

(2) The assets of a protected cell may not be used to pay any expenses or claims other than those attributable to such protected cell.

(3) Unless the sponsor consents and the Director has granted prior written approval, the assets of the sponsored captive insurance company's general account shall not be used to pay any expenses or claims attributable solely to a protected cell or protected cells of the sponsored captive insurance company. In the event that the assets of the sponsored captive insurance company's general account are used to pay expenses or claims attributable solely to a protected cell or protected cells of the sponsored captive insurance company, the sponsor is not required to contribute additional capital and surplus to the sponsored captive insurance company's general account, notwithstanding the provisions of Section 123C-4.

(4) A sponsored captive insurance company's capital and surplus shall at all times be available to pay any expenses of or claims against the sponsored captive insurance company.

(c) In the event of an insolvency of a sponsored captive insurance company where the Director determines that one or more protected cells remain solvent, the Director may separate such cells from the sponsored captive insurance company and, on application of the sponsor, may allow for the conversion of such protected cells into one or more new or existing sponsored captive insurance companies, or one or more other captive insurance companies, pursuant to a plan or plans of operation approved by the Director.

(215 ILCS 5/123C-34 new)

Sec. 123C-34. Claimant recourse.

(a) A creditor of a sponsored captive insurance company shall have recourse against the assets attributable to a protected cell if, and only if it is a creditor of the protected cell. A creditor of a protected cell shall not be entitled to recourse against the assets attributable to any other protected cell or to the assets in the sponsored captive insurance company's general account.

(b) When a sponsored captive insurance company has an obligation to a creditor arising from a transaction, or otherwise imposed, with respect to a particular protected cell, the obligation:

(1) shall extend only to the assets attributable to that protected cell, and the creditor shall be entitled to recourse only against the assets attributable to that protected cell; and

(2) shall not extend to the assets of any other protected cell or to the assets in the sponsored captive insurance company's general account, and the creditor shall not be entitled to recourse against the assets attributable to any other protected cell or to the assets of the sponsored captive insurance company's general account.

(c) When an obligation of a sponsored captive insurance company relates solely to its general account, a creditor shall have recourse only against the assets in the general account.

(d) The establishment of one or more protected cells alone, and without more, shall not constitute or be deemed to be a fraudulent conveyance, an intent by the sponsored captive insurance company to defraud creditors, or the carrying out of business by the sponsored captive insurance company for any other fraudulent purpose.

(215 ILCS 5/123C-35 new)

Sec. 123C-35. Confidentiality.

(a) All documents, materials, or other information, including confidential and privileged documents, examination reports, preliminary examination reports or results, working papers, recorded information, and copies thereof produced by, obtained by, or disclosed to the Director or any other person in the course of an examination made under this Section are confidential and shall not be:

(1) subject to subpoena;

(2) subject to public inspection and copying under the Freedom of Information Act; or

(3) discoverable or admissible in evidence in any private civil action.

(b) In furtherance of his or her regulatory duties, the Director may:

(1) share documents, materials, or other information, including those that are confidential and privileged, with other state, federal, or international regulatory agencies and law enforcement authorities, the National Association of Insurance Directors, the North American Securities Administrators Association, self-regulatory organizations organized under 15 U.S.C. 78f, 78o-3, and 78q-1, and other self-regulatory organizations and their affiliates or subsidiaries, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the document, material, or other information;

(2) receive documents, materials, or information, including those that are confidential and privileged, from other state, federal, and international regulatory agencies and law enforcement authorities, the National Association of Insurance Directors, the North American Securities Administrators Association, self-regulatory organizations organized under 15 U.S.C. 78f, 78o-3, and 78q-1, and other self-regulatory organizations and their affiliates or subsidiaries and shall maintain as confidential or privileged any document, material, 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;

(3) enter into written agreements with other state, federal, and international regulatory agencies and law enforcement authorities, the National Association of Insurance Directors, the North American Securities Administrators Association, self-regulatory organizations organized under 15 U.S.C. 78f, 78o-3 and 78q-1, and other self-regulatory organizations and their affiliates or subsidiaries governing sharing and use of information consistent with this Section, including agreements providing for cooperation between the Director and other agencies in relation to the activities of a supervisory college; and

(4) participate in a supervisory college for any special purpose financial insurer that is part of an affiliated group with international operations in order to assess the insurer's compliance with Illinois laws and regulations, as well as to assess the business strategy, financial condition, risk exposure, risk management, governance processes, and legal and regulatory position.

(c) Prior to sharing information under subsection (b) of this Section, the Director shall determine that sharing the information will substantially further the performance of the regulatory or law enforcement duties of the recipient and may not be made public by the Director or an employee or agent of the Director without the written consent of the company, except to the extent provided in subsection (b) of this Section.

Section 99. Effective date. This Act takes effect January 1, 2017.".